Prospectus
January
31, 2023
Disclosure
contained herein relates to all classes of the Fund, as listed below, unless
otherwise noted.
|
Share
Class | Ticker |
A | FDBAX |
B | FDBBX |
C | FDBCX |
F | ISHIX |
Institutional | FDBIX |
R6 | FDBLX |
Federated Hermes Corporate Bond Fund
A Portfolio of Federated Hermes Investment Series Funds, Inc.
A mutual
fund seeking to provide as high a level of current income as is consistent with
the preservation of capital by investing in a professionally managed,
diversified portfolio of fixed-income securities.
As with
all mutual funds, the Securities and Exchange Commission (SEC) has not approved
or disapproved these securities or passed upon the adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Not
FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
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|
A |
B |
C |
F |
IS |
R6 |
Maximum
Sales Charge |
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Maximum
Sales Charge (Load) Imposed on Purchases (as a percentage of offering
price) |
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Maximum
Deferred Sales Charge (Load) (as a percentage of original purchase price
or redemption
proceeds,
as applicable) |
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Maximum
Sales Charge (Load) Imposed on Reinvested Dividends (and other
Distributions)
(as
a percentage of offering price) |
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Redemption
Fee (as a percentage of amount redeemed, if
applicable) |
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|
Exchange
Fee |
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A |
B |
C |
F |
IS |
R6 |
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Management
Fee |
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Distribution
(12b-1) Fee |
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Other
Expenses |
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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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|
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1
2
1
|
Share
Class |
1
Year |
3
Years |
5
Years |
10
Years |
|
A: |
|
|
|
|
|
Expenses
assuming redemption |
$547 |
$754 |
$978 |
$1,620 |
|
Expenses
assuming no redemption |
$547 |
$754 |
$978 |
$1,620 |
|
B: |
|
|
|
|
|
Expenses
assuming redemption |
$730 |
$957 |
$1,159 |
$1,881 |
|
Expenses
assuming no redemption |
$180 |
$557 |
$959 |
$1,881 |
|
C: |
|
|
|
|
|
Expenses
assuming redemption |
$277 |
$548 |
$944 |
$1,856 |
|
Expenses
assuming no redemption |
$177 |
$548 |
$944 |
$1,856 |
|
F: |
|
|
|
|
|
Expenses
assuming redemption |
$298 |
$406 |
$631 |
$1,278 |
|
Expenses
assuming no redemption |
$198 |
$406 |
$631 |
$1,278 |
|
IS: |
|
|
|
|
|
Expenses
assuming redemption |
$77 |
$240 |
$417 |
$930 |
|
Expenses
assuming no redemption |
$77 |
$240 |
$417 |
$930 |
|
R6: |
|
|
|
|
|
Expenses
assuming redemption |
$66 |
$208 |
$362 |
$810 |
|
Expenses
assuming no redemption |
$66 |
$208 |
$362 |
$810 |
2
3
4
|
Share
Class |
1
Year |
5
Years |
10
Years |
|
A: |
|
|
|
|
Return
Before Taxes |
- |
- |
|
|
Return
After Taxes on Distributions |
- |
- |
|
|
Return
After Taxes on Distributions and Sale of Fund Shares |
- |
- |
|
|
B: |
|
|
|
|
Return
Before Taxes |
|
- |
|
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C: |
|
|
|
|
Return
Before Taxes |
- |
- |
|
|
F: |
|
|
|
|
Return
Before Taxes |
- |
|
|
|
IS: |
|
|
|
|
Return
Before Taxes |
- |
|
|
|
R6: |
|
|
|
|
Return
Before Taxes |
- |
|
|
|
Bloomberg
US Credit Index1
(reflects
no deduction for fees, expenses or taxes) |
- |
|
|
|
Blended
Index2
(reflects
no deduction for fees, expenses or taxes) |
- |
|
|
|
Lipper
Corporate Debt Funds BBB-Rated Average3 |
- |
|
|
1
2
3
FUND
MANAGEMENT
The
Fund’s Investment Adviser is Federated Investment Management
Company.
Brian
S. Ruffner,
Senior
Portfolio Manager, has been the Fund’s portfolio manager since March of
2013.
Bryan
J. Dingle, CFA, Senior Portfolio Manager,
has been the Fund’s portfolio manager since January of 2018.
purchase
and sale of fund shares
Class
B Shares are closed to new investments by new investors and existing
shareholders (excluding reinvestment of dividends
and capital gains). Reinvestment of dividends and capital gains will continue
uninterrupted. Class B Shares of the Fund may be exchanged for Class B Shares of
any other Federated Hermes fund.
Please
disregard any further references to purchases of Class B Shares with the
exception of Class B Share exchanges.
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.
5
A,
B, C & F Classes
The
minimum investment amount for the Fund’s A, B, C and F classes is generally
$1,500 for initial investments and $100 for subsequent
investments. The minimum initial and subsequent investment amounts for
Individual Retirement Accounts are generally $250 and $100, respectively. There
is no minimum initial or subsequent investment amount for employer-sponsored
retirement plans. Certain types of accounts are eligible for lower minimum
investments. The minimum investment amount for Systematic Investment Programs is
$50.
IS
Class
The
minimum initial investment amount for the Fund’s IS class is generally
$1,000,000 and there is no minimum subsequent
investment amount. Certain types of accounts are eligible for lower minimum
investments. The minimum investment amount for Systematic Investment Programs is
$50.
R6
Class
There
are no minimum initial or subsequent investment amounts required. The minimum
investment amount for Systematic
Investment Programs is $50.
Tax
Information
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
A,
B, C, F & IS Classes
If
you purchase the Fund through a broker-dealer or other financial intermediary
(such as a bank), the Fund and/or its related
companies may pay the intermediary for the sale of Fund Shares and related
services. These payments may create a conflict of interest by influencing the
broker-dealer or other intermediary and your salesperson to recommend the Fund
over another investment. Ask your salesperson or visit your financial
intermediary’s website for more information.
R6
Class
Class
R6 Shares do not make any payments to financial intermediaries, either from Fund
assets or from the investment adviser
and its affiliates.
What are
the Fund’s Investment Strategies?
The
Fund’s investment objective is to provide as high a level of current income as
is consistent with the preservation of capital.
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.
Under
normal market conditions, the Fund invests primarily in a diversified portfolio
of investment-grade corporate debt
securities. The Fund may also invest in other fixed-income securities and
derivative contracts and/or hybrid instruments to implement its investment
strategy. The Fund may invest up to 35% of its portfolio in noninvestment-grade
debt securities. Investment-grade debt securities are rated in one of the four
highest categories (BBB- or higher) by a nationally recognized statistical
rating organization (NRSRO), or if unrated, of comparable quality as determined
by the Adviser. A description of the various types of securities in which the
Fund principally invests, and their risks, immediately follows this strategy
section.
The
Adviser seeks to enhance the Fund’s performance by allocating relatively more of
its portfolio to the security type that the Adviser expects
to offer the best balance between current income and risk and thus offers the
greatest potential for return. The allocation process is based on the Adviser’s
continuing analysis of a variety of economic and market indicators in order to
arrive at the projected yield “spread” of each security type. The spread is the
difference between the yield of a security versus the yield of a U.S. Treasury
security with a comparable average life. The security’s projected spread is
weighed against the spread the security can currently be purchased for, as well
as the security’s credit risk (in the case of corporate securities) in order to
complete the analysis.
Corporate
debt securities generally offer higher yields than U.S. government securities to
compensate for credit risk. The
Adviser invests the Fund’s portfolio, seeking the higher relative returns of
corporate debt securities, when available, while attempting to limit the
associated credit risks. The Adviser attempts to manage the Fund’s credit risk
by selecting corporate debt securities that are less likely to default in the
payment of principal and interest. The Adviser looks at a variety of factors,
including macroeconomic analysis and corporate earnings analysis, among others,
to determine which business sectors and credit ratings are most advantageous for
investment by the Fund. In selecting individual corporate fixed-income
securities, the Adviser analyzes a company’s business, competitive position and
general financial condition to assess whether the security’s credit risk is
commensurate with its potential return.
6
The
Adviser may invest a portion of the Fund’s assets in foreign securities in the
form of corporate debt securities of companies
based outside the United States, to diversify the Fund’s holdings and to gain
exposure to the foreign market. Securities of foreign companies may be more
affected by foreign economic and political conditions, taxation policies and
accounting and auditing standards than those of U.S. companies. In pursuing its
principal investment strategies, the Fund invests in U.S. dollar denominated
securities.
The
Adviser may lengthen or shorten duration from time to time based on its interest
rate outlook, but the Fund has no set
duration parameters. If the Adviser expects interest rates to decline, it will
generally lengthen the Fund’s duration, and if the Adviser expects interest
rates to increase, it will generally shorten the Fund’s duration. The Adviser
formulates its interest rate outlook and otherwise attempts to anticipate
changes in economic and market conditions by analyzing a variety of factors,
such as:
◾ current
and expected U.S. growth;
◾ current
and expected interest rates and inflation;
◾ the U.S.
Federal Reserve Board’s monetary policy; and
◾ changes in
the supply of or demand for U.S. government securities.
There
is no assurance that the Adviser’s efforts to forecast market interest rates,
and assess relative risks and the impact of market
interest rates on particular securities, will be successful.
The
Fund may use derivative contracts and/or hybrid instruments (such as, for example,
futures contracts, options contracts and swap contracts) 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.
When
selecting investments for the Fund, the Fund can invest in securities directly
or in other investment companies, including,
for example, funds advised by the Adviser or its affiliates (an “Underlying
Fund”). These Underlying Funds may include funds which are not available for
general investment by the public. The investment companies in which the Fund
invests are managed independently of the Fund and may incur additional expenses.
At times, the Fund’s investment in Underlying Funds may be a substantial portion
of the Fund’s portfolio.
The
Fund will invest its assets so that at least 80% of its net assets (plus any
borrowings for investment purposes) are invested
in corporate fixed-income 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 any borrowings for investment purposes) in corporate fixed-income
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.
7
What are
the Fund’s Principal Investments?
The
following provides general information on the Fund’s principal investments. The
Fund’s Statement of Additional Information
(SAI) provides information about the Fund’s non-principal investments and may
provide additional information about the Fund’s principal
investments.
Fixed-Income
Securities
Fixed-income
securities pay interest, dividends or distributions at a specified rate. The
rate may be a fixed percentage of the
principal or may be adjusted periodically. In addition, the issuer of a
fixed-income security must repay the principal amount of the security, normally
within a specified time. Fixed-income securities provide more regular income
than equity securities. However, the returns on fixed-income securities are
limited and normally do not increase with the issuer’s earnings. This limits the
potential appreciation of fixed-income securities as compared to equity
securities.
A
security’s yield measures the annual income earned on a security as a percentage
of its price. A security’s yield will increase
or decrease depending upon whether it costs less (a “discount”) or more (a
“premium”) than the principal amount. If the issuer may redeem the security
before its scheduled maturity, the price and yield on a discount or premium
security may change based upon the probability of an early redemption.
Securities with higher risks generally have higher yields.
The
following describes the fixed-income securities in which the Fund principally
invests:
Corporate
Debt Securities (A Type of Fixed-Income Security)
Corporate
debt securities are fixed-income securities issued by businesses. Notes, bonds,
debentures and commercial paper are
the most prevalent types of corporate debt securities. The Fund may also
purchase interests in bank loans to companies. The credit risks of corporate
debt securities vary widely among issuers.
In
addition, the credit risk of an issuer’s debt security may vary based on its
priority for repayment. For example, higher ranking
(“senior”) debt securities have a higher priority than lower ranking
(“subordinated”) securities. This means that the issuer might not make payments
on subordinated securities while continuing to make payments on senior
securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of subordinated
securities. Some subordinated securities, such as trust-preferred and
capital-securities notes, also permit the issuer to defer payments under certain
circumstances. For example, insurance companies issue securities known as
surplus notes that permit the insurance company to defer any payment that would
reduce its capital below regulatory requirements.
Treasury
Securities (A Type of Fixed-Income Security)
Treasury
securities are direct obligations of the federal government of the United
States. Treasury securities are generally
regarded as having minimal credit risks.
Asset-Backed
Securities (A Type of Fixed-Income Security)
Asset-backed
securities are payable from pools of obligations other than mortgages. Most
asset-backed securities involve
consumer or commercial debts with maturities of less than 10 years. However,
almost any type of fixed-income assets (including other fixed-income securities)
may be used to create an asset-backed security. Asset-backed securities may take
the form of commercial paper, notes or pass-through certificates. Asset-backed
securities have prepayment risks. Like CMOs, asset-backed securities may be
structured like Floaters, Inverse Floaters, IOs and POs.
Foreign
Securities
Foreign
securities are securities of issuers based outside the United States. To the
extent a Fund invests in securities included
in its applicable broad-based securities market index, the Fund may consider an
issuer to be based outside the United States if the applicable index classifies
the issuer as based outside the United States. Accordingly, the Fund may
consider an issuer to be based outside the United States if the issuer satisfies
at least one, but not necessarily all, of the following:
◾ it is
organized under the laws of, or has its principal office located in, another
country;
◾ the
principal trading market for its securities is in another country;
◾ it
(directly or through its consolidated subsidiaries) derived in its most current
fiscal year at least 50% of its total assets, capitalization, gross revenue or
profit from goods produced, services performed or sales made in another country;
or
◾ it is
classified by an applicable index as based outside the United
States.
Substantially
all of the Fund’s foreign securities are denominated in U.S. dollars. Along with
the risks normally associated
with domestic securities of the same type, foreign securities are subject to
risks of foreign investing. Trading in certain foreign markets is also subject
to liquidity risks.
8
Loan
Instruments (a fixed-income security)
The
Fund may invest in loans and loan-related instruments, which are generally
interests in amounts owed by a corporate,
governmental or other borrower to lenders or groups of lenders known as lending
syndicates (loans and loan participations). Such instruments include, but are
not limited to, interests in trade finance loan transactions, pre-export/import
finance transactions, factoring, syndicated loan transactions and forfaiting
transactions.
Investments
in certain loans have additional risks that result from the use of agents and
other interposed financial institutions.
Such loans are structured and administered by a financial institution (e.g., a
commercial bank) that acts as the agent of the lending syndicate. The agent
bank, which may or may not also be a lender, typically administers and enforces
the loan on behalf of the lenders in the lending syndicate. In addition, an
institution, typically but not always the agent bank, holds the collateral, if
any, on behalf of the lenders. A financial institution’s employment as an agent
bank might be terminated for a number of reasons, for example, in the event that
it fails to observe a requisite standard of care or becomes insolvent. A
successor agent bank would generally be appointed to replace the terminated
agent bank, and assets held by the agent bank under the loan agreement likely
would remain available to holders of such indebtedness. However, if assets held
by the agent bank for the benefit of the Fund were determined to be subject to
the claims of the agent bank’s general creditors, the Fund might incur certain
costs and delays in realizing payment on a loan or loan participation and could
suffer a loss of principal and/or interest. In situations involving other
interposed financial institutions (e.g., an insurance company or government
agency) similar risks may arise.
Loan
instruments may be secured or unsecured. If secured, then the lenders have been
granted rights to specific property,
which is commonly referred to as collateral. The purpose of securing loans is to
allow the lenders to exercise rights over the collateral if a loan is not repaid
as required by the terms of the loan agreement. Collateral may include security
interests in receivables, goods, commodities, or real property.
Interests
in loan instruments may also be tranched or tiered with respect to collateral
rights. Unsecured loans expose the lenders to
increased credit risk.
The
loan instruments in which the Fund may invest may involve borrowers, agent
banks, co-lenders and collateral located
both in the United States and outside of the United States (in both developed
and emerging markets).
The
Fund treats loan instruments as a type of fixed-income security. Investments in
loan instruments may expose the Fund to
interest rate risk, risks of investing in foreign securities, credit risk,
liquidity risk, risks of noninvestment-grade securities, risks of emerging
markets and leverage risk. (For purposes of the descriptions in this prospectus
of these various risks, references to “issuer,” include borrowers under loan
instruments.) Many loan instruments incorporate risk mitigation, credit
enhancement (e.g., standby letters of credit) and insurance products into their
structures, in order to manage these risks. There is no guarantee that these
risk management techniques will work as intended and may expose the Fund to
credit enhancement risk.
LOAN
ASSIGNMENTS (a type of loan instrument)
The
Fund may purchase a loan assignment from the agent bank or other member of the
lending syndicate. Investments in loans
through an assignment may involve additional risks to the Funds. For example, if
a loan is foreclosed, a Fund could become part owner of any collateral, and
would bear the costs and liabilities associated with owning and disposing of the
collateral. In addition, it is conceivable that under emerging legal theories of
lender liability, a Fund could be held liable as co-lender. It is unclear
whether loans and other forms of direct indebtedness offer securities law
protections against fraud and misrepresentation. In the absence of definitive
regulatory guidance, the Funds rely on the Adviser’s research in an attempt to
avoid situations where fraud or misrepresentation could adversely affect the
Funds.
LOAN
PARTICIPATIONS (a type of loan instrument)
The
Fund may purchase a funded participation interest in a loan, by which the Fund
has the right to receive payments of principal,
interest and fees from an intermediary (typically a bank, financial institution
or lending syndicate) that has a direct contractual relationship with a
borrower. In loan participations, the Fund does not have a direct contractual
relationship with the borrower.
The
Fund may also purchase a type of a participation interest, known as risk
participation interest. In this case, the Fund will
receive a fee in exchange for the promise to make a payment to a lender if a
borrower fails to make a payment of principal, interest or fees, as required by
the loan agreement.
When
purchasing loan participations, the Fund will be exposed to credit risk of the
borrower and, in some cases, the intermediary
offering the participation. A participation agreement also may limit the rights
of the Fund to vote on changes that may be made to the underlying loan
agreement, such as waiving a breach of a covenant. The participation interests
in which a Fund intends to invest may not be rated by any nationally recognized
rating service or, if rated, may be below investment grade and expose the Fund
to the risks of noninvestment-grade securities.
9
Floating
Rate Loans
Floating
rate loans are debt instruments issued by companies or other entities with
floating interest rates that reset periodically.
Most floating rate loans are secured by specific collateral of the borrower and
are senior to most other instruments of the borrower (e.g., common stock or debt
instruments) in the event of bankruptcy. Floating rate loans are often issued in
connection with recapitalizations, acquisitions, leveraged buyouts and
refinancing. Floating rate loans are typically structured and administered by a
financial institution that acts as the agent of the lenders participating in the
floating rate loan. Floating rate loans may be acquired directly through the
agent, as an assignment from another lender who holds a direct interest in the
floating rate loan, or as a participation interest in another lender’s portion
of the floating rate loan.
Lower-Rated,
Debt Instruments
Lower-rated
debt instruments are debt instruments rated below investment grade (i.e., BB or
lower) by a nationally recognized
statistical rating organization (NRSRO). There is no minimal acceptable rating
for a debt instrument to be purchased or held by the Fund and the Fund may
purchase or hold unrated securities and debt instruments whose issuers are in
default.
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.
10
At this
point in time, most of the Dodd-Frank Act has been fully implemented, though a
small number of remaining rulemakings are unfinished
or are subject to phase-in periods. Any future regulatory or legislative
activity would not necessarily have a direct, immediate effect upon the Fund,
though it is within the realm of possibility that, upon implementation of these
measures or any future measures, they could potentially limit or completely
restrict the ability of the Fund to use these instruments as a part of its
investment strategy, increase the costs of using these instruments or make them
less effective.
Depending
on how the Fund uses derivative contracts and the relationships between the
market value of a derivative contract and the Reference
Instrument, derivative contracts may increase or decrease the Fund’s exposure to
the risks of the Reference Instrument and may also expose the Fund to liquidity
and leverage risks. OTC contracts also expose the Fund to credit risks in the
event that a counterparty defaults on the contract, although this risk may be
mitigated by submitting the contract for clearing through a DCO, or certain
other factors, such as collecting margin from the counterparty.
As discussed
above,
a
counterparty’s exposure under a derivative contract may in some cases be
required to be secured with initial and/or variation margin (a form of
“collateral”).
The
Fund may invest in a derivative contract if it is permitted to own, invest in,
or otherwise have economic exposure to the
Reference Instrument. The Fund is not required to own a Reference Instrument in
order to buy or sell a derivative contract relating to that Reference
Instrument. The Fund may trade in the following specific types and/or
combinations of derivative contracts:
Futures
Contracts (A Type of Derivative)
Futures
contracts provide for the future sale by one party and purchase by another party
of a specified amount of a Reference Instrument at a
specified price, date and time. Entering into a contract to buy a Reference
Instrument is commonly referred to as buying a contract or holding a long
position in the asset. Entering into a contract to sell a Reference Instrument
is commonly referred to as selling a contract or holding a short position in the
Reference Instrument. Futures contracts are considered to be commodity
contracts. The Adviser has claimed an exclusion from the definition of the term
“commodity pool operator” under the Commodity Exchange Act with respect to the
Fund, and therefore is not subject to registration or regulation as a commodity
pool operator under the Act with respect to the Fund. Futures contracts traded
OTC are frequently referred to as forward contracts. The Fund can buy or sell
financial futures (such as interest rate futures, index futures and security
futures), as well as currency futures and currency forward
contracts.
Option
Contracts (A Type of Derivative)
Option
contracts (also called “options”) are rights to buy or sell a Reference
Instrument for a specified price (the “exercise
price”) during, or at the end of, a specified period. The seller (or “writer”)
of the option receives a payment, or premium, from the buyer, which the writer
keeps regardless of whether the buyer uses (or exercises) the option. A call
option gives the holder (buyer) the right to buy the Reference Instrument from
the seller (writer) of the option. A put option gives the holder the right to
sell the Reference Instrument to the writer of the option. Options may be bought
or sold on a wide variety of Reference Instruments. Options that are written on
futures contracts will be subject to margin requirements similar to those
applied to futures contracts.
Swap
Contracts (A Type of Derivative)
A
swap contract (also known as a “swap”) is a type of derivative contract in which
two parties agree to pay each other (swap) the
returns derived from Reference Instruments. Swaps do not always involve the
delivery of the Reference Instruments by either party, and the parties might not
own the Reference Instruments underlying the swap. The payments are usually made
on a net basis so that, on any given day, the Fund would receive (or pay) only
the amount by which its payment under the contract is less than (or exceeds) the
amount of the other party’s payment. Swap agreements are sophisticated
instruments that can take many different forms and are known by a variety of
names. Common types of swaps in which the Fund may invest include interest rate
swaps, caps and floors, total return swaps, credit default swaps and volatility
swaps.
Investing
in Securities of Other Investment Companies
The
Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market
funds, as an efficient means of implementing its investment strategies, managing
its uninvested cash and/or other investment reasons consistent with the Fund’s
investment objective and investment strategies. The Fund may also invest in
mortgage-backed, high-yield and emerging market debt bank loan securities, and
trade finance loan instruments primarily by investing in another investment
company (which is not available for general investment by the public) that owns
those securities and that is advised by an affiliate of the Adviser. The Fund’s
investment in the trade finance instruments through these other investment
vehicles may expose the Fund to risks of loss after redemption. The Fund may
also invest in such securities directly. These other investment companies are
managed independently of the Fund and incur additional fees
11
and/or
expenses which would, therefore, be borne indirectly by the Fund in connection
with any such investment. These investments also can create conflicts of
interests for the Adviser to the Fund and the investment adviser to the acquired
fund. For example, a conflict of interest can arise due to the possibility that
the Adviser to the Fund could make a decision to redeem the Fund’s investment in
the acquired fund. In the case of an investment in an affiliated fund, a
conflict of interest can arise if, because of the Fund’s investment in the
acquired fund, the acquired fund is able to garner more assets, thereby growing
the acquired fund and increasing the management fees received by the investment
adviser to the acquired fund, which would either be the Adviser or an affiliate
of the Adviser. However, the Adviser believes that the benefits and efficiencies
of making investments in other investment companies should outweigh the
potential additional fees and/or expenses and resulting conflicts of interest.
In light of the Fund’s investments in other investment companies, other
registered investment companies may be limited in their ability to invest in the
Fund.
OTHER
INVESTMENTS, TRANSACTIONS, TECHNIQUES
Securities
Lending
The
Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or
liquid securities from the borrower as collateral. The borrower must furnish
additional collateral if the market value of the loaned securities increases.
Also, the borrower must pay the Fund the equivalent of any dividends or interest
received on the loaned securities.
The
Fund will reinvest cash collateral in securities that qualify as an acceptable
investment for the Fund. However, the Fund must
pay interest to the borrower for the use of cash collateral. An acceptable
investment into which the Fund may reinvest cash collateral includes, among
other acceptable investments, securities of affiliated money market funds
(including affiliated institutional prime money market funds with a “floating”
net asset value that can impose redemption fees and liquidity gates, impose
certain operational impediments to investing cash collateral, and, if net asset
value decreases, result in the Fund having to cover the decrease in the value of
the cash collateral).
Loans
are subject to termination at the option of the Fund or the borrower. The Fund
will not have the right to vote on securities
while they are on loan. However, the Fund will attempt to terminate a loan in an
effort to reacquire the securities in time to vote on matters that are deemed to
be material by the Adviser. There can be no assurance that the Fund will have
sufficient notice of such matters to be able to terminate the loan in time to
vote thereon. The Fund may pay administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on the cash
collateral to a securities lending agent or broker. Securities lending
activities are subject to interest rate risks and credit risks.
Hybrid
Instruments
Hybrid
instruments combine elements of two different kinds of securities or financial
instruments (such as a derivative contract).
Frequently, the value of a hybrid instrument is determined by reference to
changes in the value of a Reference Instrument (that is a designated security,
commodity, currency, index or other asset or instrument including a derivative
contract). The Fund may use hybrid instruments only in connection with
permissible investment activities. Hybrid instruments can take on many forms
including, but not limited to, the following forms. First, a common form of a
hybrid instrument combines elements of a derivative contract with those of
another security (typically a fixed-income security). In this case all or a
portion of the interest or principal payable on a hybrid security is determined
by reference to changes in the price of a Reference Instrument. Second, hybrid
instruments may include convertible securities with conversion terms related to
a Reference Instrument.
Depending
on the type and terms of the hybrid instrument, its risks may reflect a
combination of the risks of investing in the
Reference Instrument with the risks of investing in other securities, currencies
and derivative contracts. Thus, an investment in a hybrid instrument may entail
significant risks in addition to those associated with traditional investments
or the Reference Instrument. Hybrid instruments are also potentially more
volatile than traditional securities or the Reference Instrument. Moreover,
depending on the structure of the particular hybrid, it may expose the Fund to
leverage risks or carry liquidity risks.
Derivatives
Regulation and Asset Coverage
The
regulation of the U.S. and non-U.S. derivatives markets has undergone
substantial change in recent years and such change may continue.
In addition, effective August 19, 2022, Rule 18f-4 (the “Derivatives Rule”)
under the Investment Company Act of 1940, as amended (the “1940 Act”), replaced
the asset segregation framework previously used by funds to comply with
limitations on leverage imposed by the 1940 Act. The Derivatives Rule generally
mandates that a fund either limit derivatives exposure to 10% or less of its net
assets, or in the alternative implement: (i) limits on leverage calculated based
value-at-risk (VAR); (ii) a written derivatives risk management program (DRMP)
administered by a derivatives risk manager appointed by the Fund’s Board,
including a majority of the independent Board members, that is periodically
reviewed by the Board; and (iii) new reporting and recordkeeping
requirements.
12
As the Fund’s derivative
exposure, if any, is 10% or less of its net assets,
excluding
certain currency and interest rate hedging transactions, the Fund is classified
as a limited derivatives user under the Derivatives Rule and will not be subject
to the full requirements of the Derivatives Rule as noted above, including VAR
testing and stress testing and certain Board reporting requirements. However,
the Fund is still required to implement written compliance policies and
procedures reasonably designed to manage its derivatives risks and monitor its
derivatives
exposure
daily.
Investment
Ratings for Investment-Grade Securities
The
Adviser will determine whether a security is investment grade based upon the
credit ratings given by one or more NRSROs.
For example, Standard & Poor’s, an NRSRO, assigns ratings to
investment-grade securities (AAA, AA, A and BBB including modifiers,
sub-categories and gradations) based on their assessment of the likelihood of
the issuer’s inability to pay interest or principal (default) when due on each
security. Lower credit ratings correspond to higher credit risk. If a security
has not received a rating, the Fund must rely entirely upon the Adviser’s credit
assessment that the security is comparable to investment grade. The presence of
a ratings modifier, sub-category, or gradation (for example, a (+) or (-)) is
intended to show relative standing within the major rating categories and does
not affect the security credit rating for purposes of the Fund’s investment
parameters.
If
a security is downgraded below the minimum quality grade discussed above, the
Adviser will reevaluate the security, but will
not be required to sell it.
Investment
Ratings for Noninvestment-Grade Securities
Noninvestment-grade
securities are rated below BBB- by an NRSRO. These bonds have greater economic,
credit and liquidity
risks than investment-grade securities.
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.
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 futures changes in monetary policy made by
central banks and/or their governments are likely to affect the level of
interest rates. Duration measures the price sensitivity of a fixed-income
security given a change in interest rates. For example, if a fixed-income
security has an effective duration of three years, a 1% increase in general
interest rates would be expected to cause the security’s value to decline about
3% while a 1% decrease in general interest rates would be expected to cause the
security’s value to increase about 3%. The impact of interest rate changes on
the value of floating rate investments is typically reduced by periodic interest
rate resets. Variable and floating rate loans and securities generally are less
sensitive to interest rate changes, but may decline in value if their interest
rates do not rise as much or as quickly as interest rates in general.
Conversely, variable and floating rate loans and securities generally will not
increase in value as much as fixed rate debt instruments if interest rates
decline.
ISSUER
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.
13
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 credit rating downgrade can be uncertain. Credit rating downgrades may lead
to increased interest rates and volatility in financial markets, which in turn
could negatively affect the value of the Fund’s portfolio holdings, its share
price and its investment performance. Credit ratings are not a guarantee of
quality. Credit ratings may lag behind the current financial conditions of the
issuer and/or guarantor and do not provide assurance against default or other
loss of money. Credit ratings do not protect against a decline in the value of a
security. If a security has not received a rating, the Fund must rely entirely
upon the Adviser’s credit assessment.
Fixed-income
securities generally compensate for greater credit risk by paying interest at a
higher rate. The difference between
the yield of a security and the yield of a U.S. Treasury security or other
appropriate benchmark with a comparable maturity (the “spread”) measures the
additional interest paid for risk. Spreads may increase generally in response to
adverse economic or market conditions. A security’s spread may also increase if
the security’s rating is lowered, or the security is perceived to have an
increased credit risk. An increase in the spread will cause the price of the
security to decline if interest rates remain unchanged.
Counterparty
Credit Risk
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 money or to lose the benefit of the transaction or
prevent the Fund from selling or buying other securities to implement its
investment strategy.
Call
Risk
Call
risk is the possibility that an issuer may redeem a fixed-income security before
maturity (a “call”) at a price below its
current market price. An increase in the likelihood of a call may reduce the
security’s price.
If
a fixed-income security is called, the Fund may have to reinvest the proceeds in
other fixed-income securities with lower
interest rates, higher credit risks or other less favorable
characteristics.
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.
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
Associated with Noninvestment-Grade Securities
Securities
rated below investment grade, also known as junk bonds, generally entail greater
economic, credit and liquidity
risks than investment-grade securities. For example, their prices are more
volatile, economic downturns and financial setbacks may affect their prices more
negatively, and their trading market may be more limited. These securities are
considered speculative with respect to the issuer’s ability to pay interest and
repay principal.
14
RISK
RELATED TO THE ECONOMY
The
value of the Fund’s portfolio may decline in tandem with a drop in the overall
value of the markets in which the Fund
invests and/or other markets based on negative developments in the U.S. and
global economies. Economic, political and financial conditions, or industry or
economic trends and developments, may, from time to time, and for varying
periods of time, cause volatility, illiquidity or other potentially adverse
effects in the financial markets, including the fixed-income market. The
commencement, continuation or ending of government policies and economic
stimulus programs, changes in monetary policy, increases or decreases in
interest rates, or other factors or events that affect the financial markets,
including the fixed-income markets, may contribute to the development of or
increase in volatility, illiquidity, shareholder redemptions and other adverse
effects which could negatively impact the Fund’s performance. For example, the
value of certain portfolio securities may rise or fall in response to changes in
interest rates, which could result from a change in government policies, and has
the potential to cause investors to move out of certain portfolio securities,
including fixed-income securities, on a large scale. This may increase
redemptions from funds that hold large amounts of certain securities and may
result in decreased liquidity and increased volatility in the financial markets.
Market factors, such as the demand for particular portfolio securities, may
cause the price of certain portfolio securities to fall while the prices of
other securities rise or remain unchanged. Among other investments, lower-grade
bonds may be particularly sensitive to changes in the economy.
Epidemic
and Pandemic Risk
An outbreak of respiratory
disease caused by a novel coronavirus was first detected in China in late 2019
and subsequently spread globally. This coronavirus has resulted in,
and may
continue to result in, closed borders, enhanced health screenings, disruptions
to healthcare service preparation and delivery, quarantines, cancellations, and
disruptions to supply chains, workflow operations and consumer activity, as well
as general concern and uncertainty. The impact of this coronavirus has resulted
in substantial economic volatility. Health crises caused by outbreaks, such as
the coronavirus outbreak, may exacerbate other pre-existing political, social
and economic risks. The impact of this outbreak, and other epidemics and
pandemics that may arise in the future, could continue to negatively affect the
worldwide economy, as well as the economies of individual countries, individual
companies, including certain Fund service providers and issuers of the Fund’s
investments, and the markets in general in significant and unforeseen ways. In
addition, governments, their regulatory agencies, or self-regulatory
organizations may take actions in response to the pandemic, including
significant fiscal and monetary policy changes, that may affect the instruments
in which the Fund invests or the issuers of such instruments. Any such impact
could adversely affect the Fund’s performance.
Risk
of Foreign Investing
Foreign
securities pose additional risks because foreign economic or political
conditions may be less favorable than those of
the United States. Securities in foreign markets may also be subject to taxation
policies that reduce returns for U.S. investors.
Foreign
companies may not provide information (including financial statements) as
frequently or to as great an extent as
companies in the United States. Foreign companies may also receive less coverage
than U.S. companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial reporting
standards or regulatory requirements comparable to those applicable to U.S.
companies. These factors may prevent the Fund and its Adviser from obtaining
information concerning foreign companies that is as frequent, extensive and
reliable as the information available concerning companies in the United
States.
Foreign
countries may have restrictions on foreign ownership of securities or may impose
exchange controls, capital flow
restrictions or repatriation restrictions which could adversely affect the
liquidity of the Fund’s investments.
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
15
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 stock market,
interest rate, credit, liquidity and leverage risks.
RISK
OF loss after REDEMPTION
The
Fund may also invest in trade finance loan instruments primarily by investing in
other investment companies (which are
not available for general investment by the public) that own those instruments,
is advised by an affiliate of the Adviser and is structured as an extended
payment fund (EPF). In the EPF, the Fund, as shareholder, will bear the risk of
investment loss during the period between when shares of such EPF are presented
to the transfer agent of the EPF for redemption and when the net asset value of
the EPF is determined for payment of the redeemed EPF shares (the “Redemption
Pricing Date”). The time between when EPF shares are presented for redemption
and the Redemption Pricing Date will be no more than twenty-four (24) calendar
days. EPF shares tendered for redemption will participate proportionately in the
EPF’s gains and losses during between when EPF shares are presented for
redemption and the Redemption Pricing Date. During this time the value of the
EPF shares will likely fluctuate and EPF shares presented for redemption could
be worth less on the Redemption Pricing Date than on the day the EPF shares were
presented to the transfer agent of the EPF for redemption. The EPF has adopted a
fundamental policy that may only be changed by shareholder vote, that the
Redemption Pricing Date will fall no more than twenty-four (24) days after the
date the Fund, as shareholder, presents EPF shares for redemption in good order.
If such date is a weekend or holiday, the Redemption Pricing Date will be on the
preceding business day.
ASSET-BACKED
SECURITIES (ABS) Risk
The
value of asset-backed securities (ABS) may be affected by certain factors such
as interest rate risk, the availability of
information concerning the pool of underlying assets and its structure, the
creditworthiness of the servicing agent for the pool or the originator of the
underlying assets and the ability of the servicing agent to service the
underlying collateral. Under certain market conditions, ABS may be less liquid
and may be difficult to value. Movements in interest rates (both increases and
decreases) may quickly and significantly reduce the value of certain types of
ABS. Unscheduled prepayments of ABS may result in a loss of income if the
proceeds are invested in lower-yielding securities. Conversely, in a rising
interest rate environment, a declining prepayment rate will extend the average
life of many ABS, which increases the risk of depreciation due to future
increases in market interest rates. ABS can also be subject to the risk of
default on the underlying assets.
Risk
of Investing in Loans
In
addition to the risks generally associated with debt instruments, such as
credit, market, interest rate, liquidity and derivatives
risks, bank loans are also subject to the risk that the value of the collateral
securing a loan may decline, be insufficient to meet the obligations of the
borrower or be difficult to liquidate. The Fund’s access to the collateral may
be limited by bankruptcy, other insolvency laws or by the type of loan the Fund
has purchased. For example, if the Fund purchases a participation instead of an
assignment, it would not have direct access to collateral of the borrower. As a
16
result, a
floating rate loan may not be fully collateralized and can decline significantly
in value. Additionally, collateral on loan instruments may consist of assets
that may not be readily liquidated, and there is no assurance that the
liquidation of such assets will satisfy a borrower’s obligations under the
instrument. Loans generally are subject to legal or contractual restrictions on
resale.
Loans
and other forms of indebtedness may be structured such that they are not
securities under securities laws. As such, it
is unclear whether loans and other forms of direct indebtedness offer securities
law protections, such as those against fraud and misrepresentation. In the
absence of definitive regulatory guidance, while there can be no assurance that
fraud or misrepresentation will not occur with respect to the loans and other
investments in which the Fund invests, the Fund relies on the Adviser’s research
in an attempt to seek to avoid situations where fraud or misrepresentation could
adversely affect the Fund.
LOAN
LIQUIDITY RISK
Loans
generally are subject to legal or contractual restrictions on resale. The
liquidity of loans, including the volume and
frequency of secondary market trading in such loans, varies significantly over
time and among individual loans. For example, if the credit quality of a loan
unexpectedly declines significantly, secondary market trading in that loan can
also decline for a period of time. During periods of infrequent trading, valuing
a loan can be more difficult and buying and selling a loan at an acceptable
price can be more difficult and delayed. Difficulty in selling a loan can result
in a loss.
Loan
instruments may not be readily marketable and may be subject to restrictions on
resale. In some cases, negotiations
involved in disposing of loans may require weeks to complete. Thus, transactions
in loan instruments may take longer than seven days to settle. This could pose a
liquidity risk to the Fund and, if the Fund’s exposure to such investments is
substantial, could impair the Fund’s ability to meet shareholder redemptions in
a timely manner.
A
majority of the Fund’s assets are likely to be invested in assets that are
considerably less liquid than debt instruments traded on
national exchanges. Market quotations for such assets may be volatile and/or
subject to large spreads between bid and ask prices.
UNDERLYING
FUND RISK
The
risk that the Fund’s performance is closely related to, the risks associated
with the securities and other investments held by the Underlying
Funds and that the ability of a Fund to achieve its investment objective will
depend upon the ability of the Underlying Funds to achieve their investment
objectives. The Fund bears Underlying Fund fees and expenses
indirectly.
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) plus any applicable front-end sales
charge (“public offering price”). A Share’s NAV is determined as of the end of
regular trading on the New York Stock Exchange (NYSE) (normally 4:00 p.m.
Eastern time), each day the NYSE is open. The Fund calculates the NAV of each
class by valuing the assets allocated to the Share’s class, subtracting the
liabilities allocated to each class and dividing the balance by the number of
Shares of the class outstanding. The NAV for each class of Shares may differ due
to the level of expenses allocated to each class as well as a result of the
variance between the amount of accrued investment income and capital gains or
losses allocated to each class and the amount actually distributed to
shareholders of each class. The Fund’s current NAV and/or public offering price
may be found at FederatedInvestors.com, via online news sources
and in certain newspapers.
You
can purchase, redeem or exchange Shares any day the NYSE is open.
When
the Fund holds securities that trade principally in foreign markets on days the
NYSE is closed, the value of the Fund’s
assets may change on days you cannot purchase or redeem Shares. This may also
occur when the U.S. markets for fixed-income securities are open on a day the
NYSE is closed.
In
calculating its NAV, the Fund generally values investments as
follows:
◾ Fixed-income securities
are fair valued using price evaluations provided by a pricing service approved
by the Adviser.
17
◾ Derivative contracts
listed on exchanges are valued at their reported settlement or closing price,
except that options are valued at the mean of closing bid and ask
quotations.
◾ Over-the-counter (OTC)
derivative contracts are fair valued using price evaluations provided by a
pricing service approved by the Adviser.
If any
price, quotation, price evaluation or other pricing source is not readily
available when the NAV is calculated, if the Fund cannot obtain
price evaluations from a pricing service or from more than one dealer for an
investment within a reasonable period of time as set forth in the Adviser’s
valuation policies and procedures, or if information furnished by a pricing
service, in the opinion of the Valuation Committee, is deemed not representative
of the fair value of such security, the Fund uses the fair value of the
investment determined in accordance with the procedures generally described
below. There can be no assurance that the Fund could obtain the fair value
assigned to an investment if it sold the investment at approximately the time at
which the Fund determines its NAV per share.
Shares
of other mutual funds are valued based upon their reported NAVs. The
prospectuses for these mutual funds explain
the circumstances under which they will use fair value pricing and the effects
of using fair value pricing.
Fair
Valuation and Significant Events Procedures
Pursuant
to Rule 2a-5 under the Investment Company Act of 1940, as amended, the Board has
designated the Adviser as the Fund’s valuation
designee to perform the fair valuation determination for securities and other
assets held by the Fund. The Adviser, acting through its “Valuation Committee,”
is responsible for determining the fair value of investments for which market
quotations are not readily available. The Valuation Committee is comprised of
officers of the Adviser and certain of the Adviser’s affiliated companies and
determines fair value and oversees the calculation of the NAV. The Valuation
Committee is subject to Board oversight and certain reporting and other
requirements intended to provide the Board the information it needs to oversee
the Adviser’s fair value determinations.
The
Valuation
Committee is also authorized to use pricing services to provide 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.
The
Adviser also
has adopted procedures requiring an investment to be priced at its fair value
whenever the Valuation Committee determines that a significant event affecting
the value of the investment has occurred between the time as of which the price
of the investment would otherwise be determined and the time as of which the NAV
is computed. An event is considered significant if there is both an affirmative
expectation that the investment’s value will change in response to the event and
a reasonable basis for quantifying the resulting change in value.
Examples
of significant events that may occur after the close of the principal market on
which a security is traded, or after the
time of a price evaluation provided by a pricing service or a dealer,
include:
◾ With
respect to securities traded principally in foreign markets, significant trends
in U.S. equity markets or in the trading of foreign securities index futures
contracts;
◾ Political
or other developments affecting the economy or markets in which an issuer
conducts its operations or its securities are traded; and
◾ Announcements
concerning matters such as acquisitions, recapitalizations or litigation
developments or a natural disaster affecting the issuer’s operations or
regulatory changes or market developments affecting the issuer’s
industry.
The
Adviser has
adopted procedures whereby the Valuation Committee uses a pricing service to
provide factors to update the fair value of equity securities traded principally
in foreign markets from the time of the close of their respective foreign stock
exchanges to the pricing time of the Fund. For other significant events, the
Fund may seek to obtain more current quotations or price evaluations from
alternative pricing sources. If a reliable alternative pricing source is not
available, the Valuation Committee will determine the fair value of the
investment. The Board periodically reviews fair valuations made in response to
significant events.
18
The
fair valuation of securities following a significant event can serve to reduce
arbitrage opportunities for short-term traders to
profit at the expense of long-term investors in the Fund. For example, such
arbitrage opportunities may exist when the market on which portfolio securities
are traded closes before the Fund calculates its NAV, which is typically the
case with Asian and European markets. However, there is no assurance that these
significant event procedures will prevent dilution of the NAV by short-term
traders. See “Account and Share Information–Frequent
Trading Policies” for other procedures
the Fund employs to deter such short-term trading.
SALES
CHARGE INFORMATION
The
following table summarizes the minimum investment amount and the maximum sales
charge, if any, that you will pay on an
investment in the Fund. Keep in mind that financial intermediaries may charge
you fees for their services in connection with your Share
transactions.
|
|
Minimum
Initial/Subsequent
Investment
Amounts1
|
Maximum
Sales Charges | |
|
Shares
Offered |
Front-End
Sales
Charge2
|
Contingent
Deferred
Sales
Charge3
| |
|
A |
$1,500/$100 |
4.50% |
0.00% |
|
B |
$1,500/$100 |
None |
5.50% |
|
C |
$1,500/$100 |
None |
1.00% |
|
F |
$1,500/$100 |
1.00% |
1.00% |
1
The
minimum initial and subsequent investment amounts for Individual Retirement
Accounts (IRAs) are generally $250 and $100, respectively. There is no minimum
initial or subsequent investment amount required for employer-sponsored
retirement plans; however, such accounts remain subject to the Fund’s policy on
“Accounts with Low Balances” as discussed later in this Prospectus. Please see
“By Systematic Investment Program” for applicable minimum investment. Financial
intermediaries may impose higher or lower minimum investment requirements on
their customers than those imposed by the Fund.
To
maximize your return and minimize the sales charges and marketing fees,
purchases of the B class are generally limited to $100,000 and purchases of the
C class are generally limited to $1,000,000. Purchases equal to or in excess of
these limits may be made in the A class. If your Shares are held on the books of
the Fund in the name of a financial intermediary, you may be subject to rules of
your financial intermediary that differ from those of the Fund. See “Purchase
Restrictions on B Class and C Class” below. After the B class has been held for
eight years from the date of purchase, they will automatically convert to the A
class. This conversion is a non-taxable event.
After
Class C Shares have been held for eight years from the date of purchase, they
will automatically convert to Class A Shares on the next monthly conversion
processing date, provided that certain conditions are satisfied. See “How is the
Fund Sold?” This conversion is a non-taxable event.
2
Front-End
Sales Charge is expressed as a percentage of public offering price. See “Sales
Charge When You Purchase.”
3
See
“Sales Charge When You Redeem.”
As
shown in the table above, each class of Shares has a different sales charge
structure. In addition, the ongoing annual operating
expenses (“expense ratios”), as well as the compensation payable to financial
intermediaries, also vary among the classes. Before you decide which class to
purchase, you should review the different charges and expenses of each class
carefully, in light of your personal circumstances, and consult with your
financial intermediary.
Among
the important factors to consider are the amount you plan to invest and the
length of time you expect to hold your
investment (for example, whether the investment is in connection with a
long-term retirement program). You should also consider, for example, that it
may be possible to reduce or eliminate, the front-end sales charges imposed on
purchases of the A class and F class. Among other ways, the A class and F class
have a series of “breakpoints,” which means that the front-end sales charges
decrease (and can be eliminated entirely) as the amount invested increases. (The
breakpoint schedule is set out below, along with detailed information on ways to
reduce, or eliminate, front-end sales charges.) On the other hand, the B class
does not have front-end sales charges, but the deferred sales charges imposed on
redemptions of the B class do not vary at all in relation to the amounts
invested. Rather, these charges decrease with the passage of time (ultimately
going to zero after Shares have been held for six full years). Finally, the C
class does not have front-end sales charges, but do impose a contingent deferred
sales charge only if redeemed within one year after purchase; however, the
asset-based 12b-1 fees charged to the C class are greater than those charged to
the A class and F class and comparable to those charged to the B
class.
You
should also consider that the expense ratio for the A class will be lower than
that for the B class or C class. Thus, the fact
that no front-end charges are ever imposed on purchases of the B class and C
class does not always make them preferable to the A class.
19
SALES
CHARGE WHEN YOU PURCHASE
The
following tables list the sales charges which will be applied to your Share
purchase, subject to the breakpoint discounts
indicated in the tables and described below.
|
A: | ||
|
Purchase
Amount |
Sales Charge
as a
Percentage
of Public
Offering
Price |
Sales Charge
as a
Percentage
of Net Amount
Invested |
|
Less
than $100,000 |
4.50% |
4.71% |
|
$100,000
but less than $250,000 |
3.75% |
3.90% |
|
$250,000
but less than $500,000 |
2.50% |
2.56% |
|
$500,000
but less than $1 million |
2.00% |
2.04% |
|
$1
million or greater1
|
0.00% |
0.00% |
1
A
contingent deferred sales charge (CDSC) of 0.75% of the redemption amount
applies to Shares originally purchased in an amount of $1 million or more and
redeemed up to 24 months after purchase under certain investment programs where
a financial intermediary received an advance payment on the transaction. CDSC
exceptions may apply. See “Sales Charge When You Redeem.”
|
F: | ||||
|
Purchase
Amount |
|
Sales
Charge
as a
Percentage
of
Public
Offering
Price |
|
Sales
Charge
as a
Percentage
of
NAV |
|
Less
than $1 million |
|
1.00% |
|
1.01% |
|
$1
million or greater |
|
0.00% |
|
0.00% |
REDUCING
THE SALES CHARGE WITH BREAKPOINT DISCOUNTS
Your
investment may qualify for a reduction or elimination of the sales charge, also
known as a breakpoint discount. The
breakpoint discounts offered by the Fund are indicated in the tables
above.
You
or your financial intermediary must notify the Fund’s Transfer Agent of
eligibility for any applicable breakpoint discount
at the time of purchase.
In
order to receive the applicable breakpoint discount, it may be necessary at the
time of purchase for you to inform your
financial intermediary or the Transfer Agent of the existence of other accounts
in which there are holdings eligible to be aggregated to meet a sales charge
breakpoint (“Qualifying Accounts”). Qualifying Accounts mean those share
accounts in the Federated Hermes funds held directly or through a financial
intermediary or through a single-participant retirement account by you, your
spouse, your parents (if you are under age 21) and/or your children under age
21, which can be linked using tax identification numbers (TINs), social security
numbers (SSNs) or broker identification numbers (BINs). Accounts held through
401(k) plans and similar multi-participant retirement plans, or through “Section
529” college savings plans or those accounts which cannot be linked using TINs,
SSNs or BINs, are not Qualifying Accounts.
In
order to verify your eligibility for a breakpoint discount, you will be required
to provide to your financial intermediary
or the Transfer Agent certain information on your New Account Form and may be
required to provide account statements regarding Qualifying Accounts. If you
purchase through a financial intermediary, you may be asked to provide
additional information and records as required by the financial intermediary.
Failure to provide proper notification or verification of eligibility for a
breakpoint discount may result in your not receiving a breakpoint discount to
which you are otherwise entitled. Breakpoint discounts apply only to your
current purchase and do not apply retroactively to previous purchases. The sales
charges applicable to the Shares offered in this Prospectus, and the breakpoint
discounts offered with respect to such Shares, are described in full in this
Prospectus. Because the Prospectus is available on FederatedInvestors.com free of
charge, Federated Hermes does not disclose this information separately on the
website.
Contingent
upon notification to the Transfer Agent, the sales charge at purchase of the A
class and F class only, may
be reduced or eliminated by:
Larger
Purchases
◾ Purchasing
A class or F class Shares in greater quantities to reduce the applicable sales
charge;
20
Concurrent
and Accumulated Purchases
◾ Excluding
any Federated Hermes fund A class without a sales charge (“no-load A class”),
combining concurrent purchases of and/or current investments in the A class, B
class, C class, F class and R class of any Federated Hermes fund made or held by
Qualifying Accounts; the purchase amount used in determining the sales charge on
your additional Share purchase will be calculated by multiplying the respective
maximum public offering price times the number of the A class, B class, C class,
F class and R class shares of any Federated Hermes fund currently held in
Qualifying Accounts and adding the dollar amount of your current purchase;
or
Letter
of Intent
◾ Signing a
letter of intent to purchase a qualifying amount of A class or F class Shares
within 13 months. (Call your financial intermediary or the Fund for more
information.) The Fund’s custodian will hold Shares in escrow equal to the
maximum applicable sales charge. If you complete the Letter of Intent, the
Custodian will release the Shares in escrow to your account. If you do not
fulfill the Letter of Intent, the Custodian will redeem the appropriate amount
from the Shares held in escrow to pay the sales charges that were not applied to
your purchases.
PURCHASE
restrictions ON b class and c class
In
order to maximize shareholder returns and minimize sales charges and marketing
fees, an investor’s purchases of the B class are generally
limited to $100,000 and an investor’s purchases of the C class are generally
limited to $1,000,000 (except for employer-sponsored retirement plans held in
omnibus accounts with respect to Class C Shares). In applying the limit, the
dollar amount of the current purchase is added to the product obtained by
multiplying the respective maximum public offering price times the number of the
A class, B class, C class, F class and R class of any Federated Hermes fund
currently held in linked Qualifying Accounts, as defined in the section entitled
“Reducing the Sales Charge with Breakpoint Discounts.” If the sum of these two
amounts would equal or exceed the limit, then the current purchase order will
not be processed. Instead, the Distributor will attempt to contact the investor
or the investor’s financial intermediary to offer the opportunity to convert the
order to the A class. If your Shares are held on the books of the Fund in the
name of a financial intermediary, you may be subject to rules of your financial
intermediary that differ from those of the Fund.
ELIMINATING
The SALES CHARGE
Your
investment may qualify for a sales charge waiver. Sales charge waivers offered
by the Fund are listed below. In order to
receive a sales charge waiver, you must inform your financial intermediary or
the Transfer Agent at the time of each purchase that your investment is eligible
for a waiver. It is possible that your financial intermediary may not, in
accordance with its policies, procedures and system limitations, be able to
ensure your receipt of one or more of these waiver categories. In this
situation, you would need to invest directly through the Fund’s Transfer Agent.
If you do not let your financial intermediary or the Transfer Agent know that
your investment is eligible for a sales charge waiver at the time of purchase,
you may not receive the waiver to which you may otherwise be
entitled.
Contingent
upon notification to the Transfer Agent, the sales charge will be eliminated
when you purchase
or acquire Shares:
◾ within 120
days of redeeming Shares of an equal or greater amount (see “120 Day
Reinstatement Program” below);
◾ through an
eligible program offered by a Financial Intermediary that provides for the
purchase of Shares without imposition of a sales charge (for example, a wrap
account, self-directed brokerage account, retirement or other fee-based program
offered by the Financial Intermediary);
◾ with
reinvested dividends or capital gains;
◾ issued in
connection with the merger, consolidation or acquisition of the assets of
another fund. Further, the sales charge will be eliminated on purchases of
Shares made by a shareholder that originally became a shareholder of a Federated
Hermes Fund pursuant to the terms of an agreement and plan of reorganization
which permits shareholders to acquire Shares at NAV, provided that such
purchased Shares are held directly with the Fund’s transfer agent. If the Shares
are held through a financial intermediary, the sales charge waiver will not
apply (A class only);
◾ as a
Federated Life Member (Federated Hermes shareholders who originally were issued
shares through the “Liberty Account,” which was an account for the Liberty
Family of Funds on February 28, 1987, or who invested through an affinity group
prior to August 1, 1987, into the Liberty Account) (A class only);
◾ as a
Director, employee or former employee of the Fund, the Adviser, the Distributor
and their affiliates, an employee of any financial intermediary that sells
Shares according to a sales agreement with the Distributor, an immediate family
member of these individuals or a trust, pension or profit-sharing plan for these
individuals; or
◾ pursuant
to the exchange privilege.
The
sales charge will not be eliminated if you purchase Shares of the Fund through
an exchange of shares of any no-load A
class unless your no-load A class shares were acquired through an exchange of
shares on which the sales charge had previously been paid.
21
120
Day reinstatement program
Within
120 days of redeeming Class A Shares, Class B Shares, Class C Shares and Class F
Shares of the Fund, upon proper notification to the
Fund’s Transfer Agent, you may reinvest all or a portion of the redemption
proceeds in Class A Shares,
Class B
Shares,
Class C
Shares and Class F Shares of the Fund at net asset value, without the imposition
of a sales charge or CDSC. Please note:
◾ The
ownership of the account receiving the purchase is not required to be identical
to that of the account in which the redemption was placed; however, the
registration of the account receiving the purchase must include at least one
registered shareholder of the account from which the redemption
occurred.
◾ You will
not be reimbursed for any fees originally incurred on the redemption (e.g., CDSC
or redemption fees) by subsequently participating in the 120 Day Reinstatement
Program.
◾ The 120
Day Reinstatement Program does not supersede or override any restrictions placed
on an account due to frequent trading and/or client contractual
issues.
Additional
operational restrictions may apply, please contact a Client Service
Representative at 1-800-341-7400 for more
information.
sales
charge when you redeem
Your
redemption proceeds may be reduced by a sales charge, commonly referred to as a
contingent deferred sales charge
(CDSC). Shares otherwise subject to a CDSC will not be charged a CDSC at the
time of an exchange; however, the CDSC will continue to be measured from the
date of your original purchase. The CDSC schedule applicable to your original
purchase will continue to apply to the shares you receive in an
exchange.
To
keep the sales charge as low as possible, the Fund redeems your Shares in this
order:
◾ Shares
that are not subject to a CDSC; and
◾ Shares
held the longest. (To determine the number of years your Shares have been held,
include the time you held shares of other Federated Hermes funds that have been
exchanged for Shares of this Fund.)
The
CDSC is then calculated using the Share price at the time of purchase or
redemption, whichever is lower.
|
A: |
|
|
|
If
you make a purchase of the A class in the amount of $1 million or more and
your financial intermediary received an advance commission on the sale,
you will
pay
a 0.75% CDSC on any such Shares redeemed within 24 months of the
purchase. | ||
|
B: |
|
|
|
Shares
Held Up To: |
|
CDSC |
|
1
Year |
|
5.50% |
|
2
Years |
|
4.75% |
|
3
Years |
|
4.00% |
|
4
Years |
|
3.00% |
|
5
Years |
|
2.00% |
|
6
Years |
|
1.00% |
|
7
Years or More |
|
0.00% |
|
C: |
|
|
|
You
will pay a 1.00% CDSC if you redeem Shares within 12 months of the
purchase date. | ||
|
F: |
|
|
|
Purchase
Amount |
Shares
Held |
CDSC |
|
Up
to $2 million |
4
years or less |
1.00% |
|
$2
million but less than $5 million |
2
years or less |
0.50% |
|
$5
million or more |
1
year or less |
0.25% |
Your
redemption may qualify for a waiver of the CDSC. The CDSC waivers offered by the
Fund are listed below. In order to
receive a waiver of the CDSC, you must inform your financial intermediary or the
Transfer Agent at the time of each redemption that your investment is eligible
for a waiver. It is possible that your financial intermediary may not, in
accordance with its policies, procedures and system limitations, be able to
ensure your receipt of one or more of these waiver categories. In this
situation, you would need to invest directly through the Fund’s Transfer Agent
in order to take advantage of the waiver. If you do not let your financial
intermediary or the Transfer Agent know that your redemption is eligible for a
CDSC waiver at the time of redemption, you may not receive the waiver to which
you may otherwise be entitled.
Contingent
upon notification to the Transfer Agent, you will not be charged a CDSC when
redeeming Shares:
22
◾ following
the death of the last surviving shareholder on the account or the post-purchase
disability of all registered shareholders, as defined in Section 72(m)(7) of the
Internal Revenue Code of 1986 (the beneficiary on an account with a Transfer on
Death registration is deemed the last surviving shareholder on the
account);
◾ due to the
termination of a trust following the death of the trustor/grantor or
beneficiary, provided that the trust document specifically states that the trust
is terminated upon the death;
◾ representing
minimum required distributions from an IRA or other retirement plan as required
under the Internal Revenue Code;
◾ purchased
by Directors, employees of the Fund, the Adviser, the Distributor and their
affiliates, by employees of a financial intermediary that sells Shares according
to a sales agreement with the Distributor, by the immediate family members of
the above persons and by trusts, pension or profit-sharing plans for the above
persons;
◾ purchased
through an eligible program offered by a Financial Intermediary that provides
for the purchase of Shares without imposition of a sales charge (for example, a
wrap account, self-directed brokerage account, retirement or other fee-based
program offered by the Financial Intermediary);
◾ purchased
with reinvested dividends or capital gains;
◾ redeemed
by the Fund when it closes an account for not meeting the minimum balance
requirements or;
◾ purchased
pursuant to the exchange privilege, if the Shares were held for the applicable
CDSC holding period (the holding period on the Shares purchased in the exchange
will include the holding period of the Shares sold in the
exchange);
A
Class Only
◾ purchased
in the amount of $1 million or more and redeemed within 24 months of purchase if
the Shares were originally purchased through an eligible program offered by a
Financial Intermediary that provides for the purchase of Shares without
imposition of a sales charge (for example, a wrap account, self-directed
brokerage account, retirement or other fee-based program offered by the
Financial Intermediary); or
B
Class Only
◾ which are
qualifying redemptions of the B class under a Systematic Withdrawal Program;
or
F
Class Only
◾ representing
a total or partial distribution from a qualified plan, which does not include
account transfers, rollovers or redemptions for the purpose of reinvestment. For
these purposes, qualified plan does not include an IRA, individual 401(k) or
custodial account following retirement.
ADDITIONAL
INFORMATION ON THE AVAILABILITY OF CERTAIN WAIVERS AND DISCOUNTS
The
availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from the Fund or through a
financial intermediary. Certain
financial intermediaries may have different policies and procedures regarding
the availability of front-end sales load waivers or CDSC waivers which are
discussed in Appendix B to this Prospectus. The information contained in
Appendix B is provided by these financial intermediaries. Please contact your
financial intermediary to ensure that you have the information regarding the
sales charge waivers and discounts available to you and that you understand the
steps you must take to qualify for available waivers and discounts. In all instances, it is
the shareholder’s responsibility to notify the Fund or the shareholder’s
Financial Intermediary at the time of purchase of any relationship or other
facts qualifying the investor for sales charge waivers or discounts.
For
waivers and discounts not available through a particular financial intermediary,
shareholders will have to purchase Fund shares directly from the Fund or through
another financial intermediary to receive these waivers or
discounts.
COMMISSIONS
ON CERTAIN SHARES
The
Fund does not charge any front-end load, deferred sales charge or other
asset-based fee for sales or distribution of Institutional
or R6 Shares. However, if you purchase Institutional or R6 Shares through a
broker acting solely as an agent on behalf of its customers, you may be required
to pay a commission to the broker in an amount determined and separately
disclosed to you by the broker.
Because
the Fund is not a party to any such commission arrangement between you and your
broker, any purchases and
redemptions of Institutional or R6 Shares will be made at the applicable net
asset value (before imposition of the sales commission). Any such commissions
charged by a broker are not reflected in the fees and expenses listed in the
“Risk/Return Summary: Fees and Expenses” section of the Fund’s Prospectus and
described above nor are they reflected in the “Performance: Bar Chart and
Table,” because they are not charged by the Fund.
Shares
of the Fund are available in other share classes that have different fees and
expenses.
23
How is the
Fund Sold?
The
Fund offers the following Share classes: Class A Shares (A), Class B Shares (B),
Class C Shares (C), Class F Shares
(F), Institutional Shares (IS) and Class R6 Shares (R6), each representing
interests in a single portfolio of securities. All Share classes have different
sales charges and 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.).
Class
B Share Closure
Class
B Shares are closed to new investments by new investors and existing
shareholders (excluding reinvestment of dividends
and capital gains). Reinvestment of dividends and capital gains will continue
uninterrupted. Class B Shares of the Fund may be exchanged for Class B Shares of
any other Federated Hermes fund.
A
shareholder owning the Fund’s Class B Shares may continue to hold those shares
until such shares automatically convert to
Class A Shares under the Fund’s existing conversion schedule as described in the
Fund’s prospectus, or until the shareholder redeems such Class B Shares, subject
to any applicable contingent deferred sales charge (CDSC).
All
other Class B Share features, including but not limited to distribution (12b-1)
and service fees, CDSC, accumulation privileges
and conversion features, will remain unchanged for Class B Shares.
A,
B, C & F Classes
The
Fund’s Distributor markets the A, B, C and F classes to institutions or to
individuals, directly or through financial
intermediaries.
IS
Class
The
Fund’s Distributor markets the IS class to Eligible Investors, as described
below. In connection with a request to purchase
the IS class, you should provide documentation sufficient to verify your status
as an Eligible Investor. As a general matter, the IS class is not available for
direct investment by natural persons.
The
following categories of Eligible Investors are not subject to any minimum
initial investment amount for the purchase
of the IS class (however, such accounts remain subject to the Fund’s policy on
“Accounts with Low Balances” as discussed later in this Prospectus):
◾ An
investor participating in a no-load platform, network or other fee-based program
offered by a financial intermediary, for example, a wrap-account or retirement
platform where Federated Hermes has entered into an agreement with the
intermediary;
◾ A
trustee/director, employee or former employee of the Fund, the Adviser, the
Distributor and their affiliates; an immediate family member of these
individuals or a trust, pension or profit-sharing plan for these
individuals;
◾ An
employer-sponsored retirement plan;
◾ A trust
institution investing on behalf of its trust customers;
◾ Additional
sales to an investor (including a natural person) who owned the IS class of the
Fund as of December 31, 2008;
◾ A
Federated Hermes Fund;
◾ An
investor (including a natural person) who acquired the IS class of a Federated
Hermes fund pursuant to the terms of an agreement and plan of reorganization
which permits the investor to acquire such shares; and
◾ In connection with an
acquisition of an investment management or advisory business, or related
investment services, products or assets, by Federated Hermes or its investment
advisory subsidiaries, an investor (including a natural person) who: (1) becomes
a client of an investment advisory subsidiary of Federated Hermes; or (2) is a
shareholder or interest holder of a pooled investment vehicle or product that
becomes advised or sub-advised by a Federated Hermes investment advisory
subsidiary as a result of such an acquisition other than as a result of a fund
reorganization transaction pursuant to an agreement and plan of
reorganization.
The
following categories of Eligible Investors are subject to applicable minimum
initial investment amounts for the purchase
of the IS class (see “How to Purchase Shares” below):
◾ An
investor, other than a natural person, purchasing the IS class directly from the
Fund; and
◾ In
connection with an initial purchase of the IS class through an exchange, an
investor (including a natural person) who owned the IS class of another
Federated Hermes fund as of December 31, 2008.
24
R6
Class
The
Fund’s Distributor markets the R6 class to Eligible Investors, as described
below. The Class R6 Shares are sold
at net asset value and are not subject to any minimum initial or subsequent
investment amounts. In connection with a request to purchase the R6 class, you
should provide documentation sufficient to verify your status as an Eligible
Investor.
Class R6 Shares do not
carry sales commissions or pay Rule 12b-1 fees, or make similar payments to
financial intermediaries. As a general matter, the R6 class is not available for
direct investment by natural persons. Individual shareholders who purchase Class
R6 Shares through retirement platforms or other intermediaries will not be
eligible to hold Class R6 Shares outside of their respective plan or
intermediary platform.
Following
are categories of Eligible Investors:
◾ An
investor participating in a no-load platform, network or other fee-based program
offered by a financial intermediary, for example, a wrap-account or retirement
platform where Federated Hermes has entered into an agreement with the
intermediary;
◾ A
trustee/director, employee or former employee of the Fund, the Adviser, the
Distributor and their affiliates; an immediate family member of these
individuals or a trust, pension or profit-sharing plan for these
individuals;
◾ An
employer-sponsored retirement plan;
◾ A trust
institution investing on behalf of its trust customers;
◾ An
investor, other than a natural person, purchasing Shares directly from the
Fund;
◾ A
Federated Hermes Fund;
◾ An
investor (including a natural person) who acquired the R6 class of a Federated
Hermes fund pursuant to the terms of an agreement and plan of reorganization
which permits the investor to acquire such shares; and
◾ In connection with an
acquisition of an investment management or advisory business, or related
investment services, products or assets, by Federated Hermes or its investment
advisory subsidiaries, an investor (including a natural person) who: (1) becomes
a client of an investment advisory subsidiary of Federated Hermes; or (2) is a
shareholder or interest holder of a pooled investment vehicle or product that
becomes advised or sub-advised by a Federated Hermes investment advisory
subsidiary as a result of such an acquisition other than as a result of a fund
reorganization transaction pursuant to an agreement and plan of
reorganization.
Intra-Fund
Share Conversion Program
A
shareholder in the Fund’s Shares may convert their Shares at net asset value to
any other share class of the Fund if the shareholder
meets the investment minimum and eligibility requirements for the share class
into which the conversion is sought, as applicable. This share conversion
program is not applicable to the Fund’s Class B Shares. The share conversion
program is not applicable to the Fund’s Class A Shares, Class C Shares and Class
F Shares subject to a contingent deferred sales charge, if applicable. For Class
C Shares purchased through a financial intermediary after June 30, 2017, such
shares may only be converted to another share class of the same Fund if: (i) the
shares are no longer subject to a CDSC or the financial intermediary agrees to
reimburse the Fund’s Distributor the CDSC otherwise payable upon the sale of
such shares; (ii) the shareholder meets the investment minimum and eligibility
requirements for the share class into which the conversion is sought, as
applicable; and (iii) (a) the conversion is made to facilitate the shareholder’s
participation in a self-directed brokerage (non-advice) account or a fee-based
advisory program offered by the intermediary; or (b) the conversion is part of a
multiple-client transaction through a particular financial intermediary as
pre-approved by the Fund’s Administrator. 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.
Class
B Share Automatic Conversion Feature
After
Class B Shares have been held for eight years from the date of purchase, they
will automatically convert into Class A
Shares on the next monthly conversion processing date, provided that the Fund or
financial intermediary has records confirming that the Class B Shares have been
held for at least eight years and that the Class A Shares are available for
purchase. For Class B Shares acquired in an exchange from another fund, the date
of purchase will be based on the initial purchase of the Class B Shares of the
prior fund. Certain financial intermediaries, record keepers and platforms do
not track shareholder level share lot aging for certain types of accounts. These
Class B Shares would not satisfy the conditions for the conversion. Contact your
financial intermediary or call 1-800-341-7400 for more information.
25
Class
C Share Automatic Conversion Feature
After
Class C Shares have been held for eight years from the date of purchase, they
will automatically convert into Class A
Shares on the next monthly conversion processing date, provided that the Fund or
financial intermediary has records confirming that the Class C Shares have been
held for at least eight years and that the Class A Shares are available for
purchase. For Class C Shares acquired in an exchange from another Federated
Hermes fund, the date of purchase will be based on the initial purchase of the
Class C Shares of the prior Federated Hermes fund. Certain financial
intermediaries, record keepers and platforms do not track shareholder level
share lot aging for certain types of accounts. These Class C Shares would not
satisfy the conditions for the conversion. Contact your financial intermediary
or call 1-800-341-7400 for more information.
Payments
to Financial Intermediaries
The
Fund and its affiliated service providers may pay fees as described below to
financial intermediaries (such as broker-dealers,
banks, investment advisers or third-party administrators) whose customers are
shareholders of the Fund.
The
Fund’s Class R6 Shares do not make any payments to financial intermediaries,
either from Fund assets or from the investment
adviser and its affiliates.
FRONT-END
SALES CHARGE REALLOWANCES
The
Distributor receives a front-end sales charge on certain Share sales. The
Distributor pays a portion of this charge to financial
intermediaries that are eligible to receive it (the “Dealer Reallowance”) and
retains any remaining portion of the front-end sales charge.
When
a financial intermediary’s customer purchases Shares, the financial intermediary
may receive a Dealer Reallowance
as follows:
|
A: |
|
|
Purchase
Amount |
Dealer
Reallowance
as a
Percentage of
Public
Offering Price |
|
Less
than $100,000 |
4.00% |
|
$100,000
but less than $250,000 |
3.25% |
|
$250,000
but less than $500,000 |
2.25% |
|
$500,000
but less than $1 million |
1.80% |
|
$1
million or greater |
0.00% |
|
F: |
|
|
Less
than $1 million |
1.00% |
|
$1
million or greater |
0.00% |
ADVANCE
COMMISSIONS
When
a financial intermediary’s customer purchases Shares, the financial intermediary
may receive an advance commission
as follows:
|
A
(for purchases over $1 million): |
|
|
Purchase
Amount |
Advance
Commission
as a
Percentage of
Public
Offering Price |
|
First
$1 million - $5 million |
0.75% |
|
Next
$5 million - $20 million |
0.50% |
|
Over
$20 million |
0.25% |
Advance
commissions are calculated on a year-by-year basis based on amounts invested
during that year. Accordingly, with
respect to additional purchase amounts, the advance commission breakpoint resets
annually to the first breakpoint on the anniversary of the first
purchase.
The
A class purchases under this program may be made by Letter of Intent or by
combining concurrent purchases. The above
advance commission will be paid only on those purchases that were not previously
subject to a front-end sales charge or dealer advance commission. Certain
retirement accounts may not be eligible for this program.
26
|
B: |
|
|
|
Advance
Commission
as a
Percentage of
Public
Offering Price |
|
All
Purchase Amounts |
Up to
5.00% |
|
C: |
|
|
|
Advance
Commission
as a
Percentage of
Public
Offering Price |
|
All
Purchase Amounts |
1.00% |
|
F: |
|
|
Purchase
Amount |
Advance
Commission
as a
Percentage of
Public
Offering Price |
|
Less
than $2 million |
1.00% |
|
$2
million but less than $5 million |
0.50% |
|
$5
million or greater |
0.25% |
RULE
12b-1
FEES
A,
B & C Classes
The
Board has adopted a Rule 12b-1 Plan, which allows payment of marketing fees of
up to 0.05% of average net assets for A
class and 0.75% of average net assets for B class and C class to the Distributor
for the sale, distribution, administration and customer servicing of the Fund’s
A class, B class and C 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 A class has no present intention of paying, accruing or
incurring any Rule 12b-1 Fees until such time as approved by the Fund’s Board of
Trustees. In addition, in connection with the sale of the B class and C class,
Federated Hermes and its subsidiaries make advance commission payments to
financial intermediaries and in return may receive Rule 12b-1 fees and
contingent deferred sales loads from the B class and C class. Federated Hermes
and its subsidiaries may benefit or sustain losses from such arrangements.
Because these Shares pay marketing fees on an ongoing basis, your investment
cost may be higher over time than other shares with different sales charges and
marketing fees.
service
fees
A,
B, C & F Classes
The
A, B, C and F classes may pay Service Fees of up to 0.25% of average net assets
to financial intermediaries or to Federated
Shareholder Services Company (FSSC), a subsidiary of Federated Hermes, for
providing services to shareholders and maintaining shareholder accounts.
Intermediaries that receive Service Fees may include a company affiliated with
management of Federated Hermes. If a financial intermediary receives Service
Fees on an account, it is not eligible to also receive Account Administration
Fees on that same account.
ACCOUNT
ADMINISTRATION FEES
A,
B, C & F Classes
The
A, B, C and F classes may pay Account Administration Fees of up to 0.25% of
average net assets to banks that are not
registered as broker-dealers or investment advisers for providing administrative
services to the Fund and its shareholders. If a financial intermediary receives
Account Administration Fees on an account, it is not eligible to also receive
Service Fees or Recordkeeping Fees on that same account.
RECORDKEEPING
FEES
A,
B, C, F & IS Classes
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.
27
networking
fees
A,
B, C, F & IS Classes
The
Fund may reimburse Networking Fees on a per-account-per-year basis to financial
intermediaries for providing administrative
services to the Fund and its shareholders on certain non-omnibus accounts. If a
financial intermediary receives Networking Fees on an account, it is not
eligible to also receive Recordkeeping Fees on that same account.
ADDITIONAL
PAYMENTS TO FINANCIAL INTERMEDIARIES
A,
B, C, F & IS Classes
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 IS or R6 Shares through a broker acting solely
as an agent on behalf of its customers, you may be required to pay a commission
to the broker in an amount determined and separately disclosed to you by the
broker. You can ask your financial intermediary for information about any
payments it receives from the Distributor or the Fund and any services provided,
as well as about fees and/or commissions it charges.
How to
Purchase Shares
As
described in more detail in the section entitled “How is the Fund Sold?” under
the subheading “Class B Share Closure,”
the Fund’s Class B Shares are closed to new investments by new investors and
existing shareholders (excluding reinvestment of dividends and capital gains).
Reinvestment of dividends and capital gains will continue uninterrupted. Please
disregard any further references to purchases of Class B Shares with the
exception of Class B Share exchanges. Class B Shares of the Fund may be
exchanged for Class B Shares of any other Federated Hermes fund.
You
may purchase Shares of the Fund any day the NYSE is open. Shares will be
purchased at the NAV next calculated after your
investment is received by the Fund, or its agent, in proper form. The Fund
reserves the right to reject any request to purchase or exchange Shares. New
investors must submit a completed New Account Form. All accounts, including
those for which there is no minimum initial investment amount required, are
subject to the Fund’s policy on “Accounts with Low Balances” as discussed later
in this Prospectus.
Where
the Fund offers more than one Share class and you do not specify the class
choice on your New Account Form or form of
payment (e.g., Federal
Reserve wire or check), you automatically will receive the A class.
For
important account information, see the section “Security and Privacy
Protection.”
A,
B, C & F Classes
You
may purchase Shares through a financial intermediary, directly from the Fund or
through an exchange from another Federated
Hermes fund.
IS
Class
Eligible
investors may purchase Shares through a financial intermediary, directly from
the Fund or through an exchange from
another Federated Hermes fund in the manner described above under “How is the
Fund Sold?”
Where
applicable, the required minimum initial investment for IS class is generally
$1,000,000. There is no minimum subsequent
investment amount.
28
R6
Class
Eligible
Investors may purchase Shares through a financial intermediary, directly from
the Fund or through an exchange from
another Federated Hermes fund in the manner described above under “How is the
Fund Sold?”
There
is no minimum initial or subsequent investment amount required.
THROUGH
A FINANCIAL INTERMEDIARY
◾ Establish
an account with the financial intermediary; and
◾ Submit
your purchase order to the financial intermediary before the end of regular
trading on the NYSE (normally 4:00 p.m. Eastern time).
The
Fund has authorized certain intermediaries to accept Share purchase orders on
its behalf. When authorized intermediaries receive an
order in proper form, the order is considered as being placed with the Fund, and
Shares will be bought at the NAV next calculated after such an order is received
by the authorized intermediary. If your financial intermediary is not an
authorized intermediary, the Fund or its agent must receive the purchase order
in proper form from your financial intermediary by the end of regular trading on
the NYSE (normally 4:00 p.m. Eastern time) in order for your transaction to be
priced at that day’s NAV. In addition, your financial intermediary must forward
your payment by the prescribed trade settlement date (typically within one to
three business days) to the Fund’s transfer agent, 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
29
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 FederatedInvestors.com under
“Resources” and then “Literature and Forms,” then “Forms.” You will receive a
confirmation when this service is available.
THROUGH
AN EXCHANGE
You
may purchase Fund Shares through an exchange from another Federated Hermes fund.
To do this you must:
◾ meet any
applicable shareholder eligibility requirements;
◾ ensure
that the account registrations are identical;
◾ meet any
applicable minimum initial investment requirements; and
◾ receive a
prospectus for the fund into which you wish to exchange.
An
exchange is treated as a redemption and a subsequent purchase, and is a taxable
transaction. The Fund reserves the right to
reject any request to purchase or exchange Shares. The Fund may modify or
terminate the exchange privilege at any time.
A,
B, C & F Classes
You
may purchase Shares through an exchange from the same share class of another
Federated Hermes fund.
IS
& R6 Classes
You
may purchase Shares through an exchange from any Federated Hermes fund or share
class that does not have a stated
sales charge or contingent deferred sales charge, except Shares of Federated
Hermes Institutional Money Market Management, Federated Hermes Institutional
Tax-Free Cash Trust, Federated Hermes Institutional Prime Obligations Fund,
Federated Hermes Institutional Prime Value Obligations Fund, no-load Class A
Shares and Class R Shares of any Fund.
By
Online Account Services
You may
access your accounts online to purchase Shares through FederatedInvestors.com’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 FederatedInvestors.com and select “Sign In” and
“Access and Manage Investments,” or call 1-800-341-7400, Option #4 to speak with
a Client Service Representative.
BY
SYSTEMATIC INVESTMENT PROGRAM (SIP)
Once
you have opened an account, you may automatically purchase additional Shares on
a regular basis by completing the SIP
section of the New Account Form or by contacting the Fund or your financial
intermediary. The minimum investment amount for SIPs is $50.
BY
AUTOMATED CLEARING HOUSE (ACH)
Once
you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH
member. This purchase option can be established by completing the appropriate
sections of the New Account Form.
RETIREMENT
INVESTMENTS
A,
B, C & F Classes
You
may purchase Shares as retirement investments (such as qualified plans and IRAs
or transfer or rollover of assets).
Call your financial intermediary or the Fund for information on retirement
investments. We suggest that you discuss retirement investments with your tax
adviser. You may be subject to an account fee charged by your financial
intermediary.
30
R6
Class
You
may purchase Shares as retirement investments (such as qualified plans or
transfer of assets). Call your financial intermediary
or the Fund for information on retirement investments. We suggest that you
discuss retirement investments with your tax adviser. You may be subject to an
account fee charged by your financial intermediary.
How to
Redeem and Exchange Shares
Class
B Shares of the Fund may be exchanged for Class B Shares of any other Federated
Hermes fund.
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.
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;
31
◾ 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 FederatedInvestors.com’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 FederatedInvestors.com 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.
◾ 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.
32
In
addition, the right of redemption may be suspended, or the payment of proceeds
may be delayed (including beyond seven
days), during any period:
◾ when the
NYSE is closed, other than customary weekend and holiday closings;
◾ when
trading on the NYSE is restricted, as determined by the SEC;
◾ in which
an emergency exists, as determined by the SEC, so that disposal of the Fund’s
investments or determination of its NAV is not reasonably practicable;
or
◾ as the SEC
may by order permit for the protection of Fund shareholders.
You
will not accrue interest or dividends on uncashed redemption checks from the
Fund when checks are undeliverable and
returned to the Fund.
redemptions
from retirement accounts
A,
B, C, F & R6 Classes
In
the absence of your specific instructions, 10% of the value of your redemption
from a retirement account in the Fund may be
withheld for taxes. This withholding only applies to certain types of retirement
accounts.
EXCHANGE
PRIVILEGE
You
may exchange Shares of the Fund. To do this, you must:
◾ meet any
applicable shareholder eligibility requirements;
◾ ensure
that the account registrations are identical;
◾ meet any
applicable minimum initial investment requirements; and
◾ receive a
prospectus for the fund into which you wish to exchange.
An
exchange is treated as a redemption and a subsequent purchase, and is a taxable
transaction. The Fund reserves the right to
reject any request to purchase or exchange Shares. The Fund may modify or
terminate the exchange privilege at any time.
In
addition, the Fund may terminate your exchange privilege if your exchange
activity is found to be excessive under the Fund’s
frequent trading policies. See “Account and Share Information–Frequent
Trading Policies.”
Financial
intermediaries may have different policies and procedures regarding the
availability of intra-fund exchanges (“automatic
exchanges”). These exchanges which are directed by the financial intermediary
and not the Fund are discussed in Appendix B to this Prospectus.
A,
B, C & F Classes
You
may exchange Shares into shares of the same class of another Federated Hermes
fund.
IS
& R6 Classes
You
may exchange Shares of the Fund for shares of any Federated Hermes fund or share
class that does not have a stated
sales charge or contingent deferred sales charge, except Shares of Federated
Hermes Institutional Money Market Management, Federated Hermes Institutional
Tax-Free Cash Trust, Federated Hermes Institutional Prime Obligations Fund,
Federated Hermes Institutional Prime Value Obligations Fund, no-load Class A
Shares and Class R Shares of any Fund.
Systematic
Withdrawal/Exchange Program
You
may automatically redeem or exchange Shares. The minimum amount for all new or
revised systematic redemptions
or exchanges of Shares is $50 per transaction per fund. Complete the appropriate
section of the New Account Form or an Account Service Options Form or contact
your financial intermediary or the Fund. Your account value must meet the
minimum initial investment amount at the time the program is established. This
program may reduce, and eventually deplete, your account. Payments should not be
considered yield or income.
Generally,
it is not advisable to continue to purchase Shares subject to a sales charge
while redeeming Shares using this
program.
Systematic
Withdrawal Program (SWP) on B Class
You
will not be charged a CDSC on SWP redemptions if:
◾ you redeem
12% or less of your account value in a single year;
◾ you
reinvest all dividends and capital gains distributions;
◾ your
account has at least a $10,000 balance when you establish the SWP (You cannot
aggregate multiple B class accounts to meet this minimum balance.);
and
◾ for all B
class accounts established on or after August 2, 2010, the minimum SWP
redemption amount is $50 per transaction, per fund, including transactions that
qualify for a CDSC waiver as outlined in this Prospectus.
33
You
will be subject to a CDSC on redemption amounts that exceed the 12% annual
limit. In measuring the redemption percentage,
your account is valued when you establish the SWP and then annually at calendar
year-end. You can redeem monthly, quarterly or semi-annually.
ADDITIONAL
CONDITIONS
Telephone
Transactions
The
Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Share
Certificates
The
Fund does not issue share certificates.
Security
and Privacy Protection
ONLINE
ACCOUNT and TELEPHONE ACCESS SECURITY
Federated
Hermes will not be responsible for losses that result from unauthorized
transactions, unless Federated Hermes does not
follow procedures designed to verify your identity. When initiating a
transaction by telephone or online, shareholders should be aware that any person
with access to your account and other personal information including PINs
(Personal Identification Numbers) may be able to submit instructions by
telephone or online. Shareholders are responsible for protecting their identity
by using strong usernames and complex passwords which utilize combinations of
mixed case letters, numbers and symbols, and change passwords and PINs
frequently.
Using
FederatedInvestors.com’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 FederatedInvestors.com.
34
Account
and Share Information
CONFIRMATIONS
AND ACCOUNT STATEMENTS
You
will receive confirmation of purchases, redemptions and exchanges (except for
systematic transactions). In addition,
you will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS
AND CAPITAL GAINS
The
Fund declares and pays any dividends monthly to shareholders. Dividends are paid
to all shareholders invested in the Fund
on the record date. The record date is the date on which a shareholder must
officially own Shares in order to earn a dividend.
In
addition, the Fund pays any capital gains at least annually and may make such
special distributions of dividends and capital
gains as may be necessary to meet applicable regulatory requirements. Your
dividends and capital gains distributions will be automatically reinvested in
additional Shares without a sales charge, unless you elect cash payments.
Dividends may also be reinvested without sales charges in shares of any class of
any other Federated Hermes fund of which you are already a
shareholder.
If
you purchase Shares just before the record date for a dividend or 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 dividend or 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 FederatedInvestors.com/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
A,
B, C, F & IS Classes
Federated
Hermes reserves the right to close accounts if redemptions or exchanges cause
the account balance to fall
below:
◾ $1,500 for
the A, B, C and F classes (or in the case of IRAs, $250); and
◾ $25,000
for the IS class.
Before
an account is closed, you will be notified and allowed at least 30 days to
purchase additional Shares to meet the
minimum.
35
TAX
INFORMATION
The
Fund and/or
your
financial intermediary
provides
year-end tax information and an annual statement of your account activity to
assist you in completing your federal, state and local tax returns. Fund
distributions of dividends and capital gains are taxable to you whether paid in
cash or reinvested in the Fund. Dividends are taxable at different rates
depending on the source of dividend income. Distributions of net short-term
capital gains are taxable to you as ordinary income. Distributions of net
long-term capital gains are taxable to you as long-term capital gains regardless
of how long you have owned your Shares. Fund distributions are expected to be
primarily dividends. Redemptions and exchanges are taxable sales. Please consult
your tax adviser regarding your federal, state and local tax
liability.
FREQUENT
TRADING POLICIES
Frequent
or short-term trading into and out of the Fund can have adverse consequences for
the Fund and shareholders who use
the Fund as a long-term investment vehicle. Such trading in significant amounts
can disrupt the Fund’s investment strategies (e.g., by requiring it to sell
investments at inopportune times or maintain excessive short-term or cash
positions to support redemptions), increase brokerage and administrative costs
and affect the timing and amount of taxable gains distributed by the Fund.
Investors engaged in such trading may also seek to profit by anticipating
changes in the Fund’s NAV in advance of the time as of which NAV is
calculated.
The
Fund’s Board has approved policies and procedures intended to discourage
excessive frequent or short-term trading of the
Fund’s Shares. The Fund’s fair valuation procedures are intended in part to
discourage short-term trading strategies by reducing the potential for these
strategies to succeed. See “What Do Shares Cost?” The Fund also monitors trading
in Fund Shares in an effort to identify disruptive trading activity. The Fund
monitors trades into and out of the Fund within a period of 30 days or less. The
Fund may also monitor trades into and out of the Fund for potentially disruptive
trading activity over periods longer than 30 days. The size of Share
transactions subject to monitoring varies. Where it is determined that a
shareholder has exceeded the detection amounts twice within a period of 12
months, the Fund will temporarily prohibit the shareholder from making further
purchases or exchanges of Fund Shares. If the shareholder continues to exceed
the detection amounts for specified periods, the Fund will impose lengthier
trading restrictions on the shareholder, up to and including permanently
prohibiting the shareholder from making any further purchases or exchanges of
Fund Shares. Whether or not the specific monitoring limits are exceeded, the
Fund’s management or the Adviser may determine from the amount, frequency or
pattern of purchases and redemptions or exchanges that a shareholder is engaged
in excessive trading that is or could be detrimental to the Fund and other
shareholders and may prohibit the shareholder from making further purchases or
exchanges of Fund Shares. No matter how the Fund defines its limits on frequent
trading of Fund Shares, other purchases and sales of Fund Shares may have
adverse effects on the management of the Fund’s portfolio and its
performance.
The
Fund’s frequent trading restrictions do not apply to purchases and sales of Fund
Shares by other Federated Hermes funds.
These funds impose the same frequent trading restrictions as the Fund at their
shareholder level. In addition, allocation changes of the investing Federated
Hermes fund are monitored, and the managers of the recipient fund must determine
that there is no disruption to their management activity. The intent of this
exception is to allow investing fund managers to accommodate cash flows and
other activity that result from non-abusive trading in the investing fund,
without being stopped from such trading because the aggregate of such trades
exceeds the monitoring limits. Nonetheless, as with any trading in Fund Shares,
purchases and redemptions of Fund Shares by other Federated Hermes funds could
adversely affect the management of the Fund’s portfolio and its
performance.
The
Fund will not restrict transactions made on a non-discretionary basis by certain
asset allocation programs, wrap programs,
fund of funds, collective funds or other similar accounts that have been
pre-approved by Federated Hermes (“Approved Accounts”). The Fund will continue
to monitor transactions by the Approved Accounts and will seek to limit or
restrict even non-discretionary transactions by Approved Accounts that are
determined to be disruptive or harmful to the Fund.
The
Fund’s objective is that its restrictions on short-term trading should apply to
all shareholders that are subject to the restrictions,
regardless of the number or type of accounts in which Shares are held. However,
the Fund anticipates that limitations on its ability to identify trading
activity to specific shareholders, including where Shares are held through
intermediaries in multiple or omnibus accounts, will mean that these
restrictions may not be able to be applied uniformly in all cases.
Other
funds in the Federated Hermes family of funds may impose different monitoring
policies or in some cases, may not
monitor for frequent or short-term trading. Under normal market conditions such
monitoring policies are designed to protect the funds being monitored and their
shareholders and the operation of such policies and shareholder investments
under such monitoring are not expected to have materially adverse impact on the
Federated Hermes funds or their shareholders. If you plan to exchange your fund
shares for shares of another Federated Hermes fund, please read the prospectus
of that other Federated Hermes fund for more information.
36
The
Fund may invest in affiliated investment companies whose boards have determined
not to adopt frequent trading policies. The Fund
therefore may be exposed to any adverse consequences of any frequent or
short-term trading in such funds, to the extent of the Fund’s investment
therein.
PORTFOLIO
HOLDINGS INFORMATION
Information
concerning the Fund’s portfolio holdings is available via the link to the Fund
and share class name at FederatedInvestors.com/FundInformation. A
complete listing of the Fund’s portfolio holdings as of the end of each calendar
quarter is posted on the website 30 days (or the next business day) after the
end of the quarter and remains posted for six months thereafter. Summary
portfolio composition information as of the close of each month is posted on the
website 15 days (or the next business day) after month-end and remains posted
until replaced by the information for the succeeding month. The summary
portfolio composition information may include identification of the Fund’s top
10 holdings, and percentage breakdowns of the portfolio by sector and credit
quality.
You
may also access portfolio information as of the end of the Fund’s fiscal
quarters via the link to the Fund and share class name
at FederatedInvestors.com. 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 FederatedInvestors.com.
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 FederatedInvestors.com. If and
when such information is posted, its availability will be noted on, and the
information will be accessible from, the home page of the website.
Who
Manages the Fund?
The
Board governs the Fund. The Board selects and oversees the Adviser, Federated
Investment Management Company.
The Adviser manages the Fund’s assets, including buying and selling portfolio
securities. Federated Advisory Services Company (FASC), an affiliate of the
Adviser, provides certain support services to the Adviser. The fee for these
services is paid by the Adviser and not by the Fund. The address of the Adviser
and FASC is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The
Adviser and other advisory subsidiaries of Federated Hermes combined, advise approximately 102
registered investment companies spanning equity, fixed-income and money market
mutual funds and also manage a variety of other pooled investment vehicles,
private investment companies and customized separately managed accounts
(including non-U.S./offshore funds). Federated Hermes’ assets under management
totaled approximately $624.4 billion as of September 30, 2022.
Federated Hermes was established in 1955 as Federated Investors, Inc. and is one
of the largest investment managers in the United States with nearly 2,000
employees. Federated Hermes provides investment products to more than 11,000
investment professionals and institutions.
The
Adviser advises approximately 73 registered investment
companies and also manages sub-advised funds. The Adviser’s assets under
management totaled approximately $399.6 billion as of December 31,
2022.
PORTFOLIO
MANAGEMENT INFORMATION
Brian
S. Ruffner
Brian
S. Ruffner,
Senior
Portfolio Manager, has been the Fund’s portfolio manager since March of
2013.
Mr.
Ruffner 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 1994; has worked
in investment management since 2001; has managed investment portfolios since
2009. Education: B.S., Indiana University of Pennsylvania; M.B.A., Duquesne
University.
Bryan
J. Dingle
Bryan
J. Dingle, CFA, Senior Portfolio Manager,
has been the Fund’s portfolio manager since January of 2018.
Mr.
Dingle is responsible for providing research and advice on sector allocation and
security selection. He has been with the
Adviser or an affiliate since 2006; has worked in investment management since
1995; has managed investment portfolios since 2009. Education: B.S., University
of Delaware; M.B.A., University of Maryland.
37
As
noted in the section defining Principal Securities, the Fund has the ability to
invest in affiliated investment companies,
which are not available for general public investment, to gain additional
exposure to mortgage-backed and high-yield, fixed-income securities. The
following individuals are portfolio managers of the affiliated investment
companies:
HIGH-YIELD
AFFILIATED FUND
Mark
E. Durbiano
Mark E.
Durbiano, CFA, Senior Portfolio Manager has been the High-Yield Affiliated
Fund’s portfolio manager since its inception December of 1997.
Mr.
Durbiano is Head of the Domestic High
Yield Group and Head of the Bond Sector Pod/Committee. He is responsible for day
to day management of the High-Yield Affiliated Fund focusing on asset allocation
and security selection. He has been with the Adviser or an affiliate since 1982;
has worked in investment management since 1982; has managed investment
portfolios since 1986. Education: B.A., Dickinson College; M.B.A., University of
Pittsburgh.
Bank
Loan Affiliated Fund
Steven
J. Wagner
Steven
J. Wagner, Senior Portfolio Manager, has been the Bank Loan Affiliated
Fund’s portfolio manager since March of 2015.
Mr.
Wagner
is
responsible for day to day management of the Bank Loan Affiliated Fund focusing
on asset allocation and security selection. He has been with the Adviser or an
affiliate since 1997; has worked in investment management since 1997; has
managed investment portfolios since 2011. Education: B.S., Boston College;
M.B.A., University of Pittsburgh.
Project
trade Finance Affiliated Fund
Christopher P.
McGinley
Christopher
P. McGinley,
Senior
Portfolio Manager, has been the Project Trade Finance Affiliated Fund’s
portfolio manager since December of 2009.
Mr.
McGinley is Head of the Trade Finance Team and is responsible for day to day
management of the Project Trade Finance
Affiliated Fund focusing on asset allocation, interest rate strategy and
security selection. He has been with the Adviser or an affiliate since 2004; has
worked in investment management since 2005; has managed investment portfolios
since 2009. Education: B.S., University of Pittsburgh; M.P.I.A., University of
Pittsburgh.
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 0.50% 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 November 30 and May 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.
38
Financial
Highlights–Class
A Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended November 30, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$9.71 |
$9.98 |
$9.50 |
$8.70 |
$9.29 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.29 |
0.30 |
0.32 |
0.34 |
0.34 |
|
Net
realized and unrealized gain (loss) |
(1.61) |
(0.26) |
0.48 |
0.81 |
(0.57) |
|
Total
From Investment Operations |
(1.32) |
0.04 |
0.80 |
1.15 |
(0.23) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.30) |
(0.31) |
(0.32) |
(0.35) |
(0.35) |
|
Distributions
from net realized gain |
— |
— |
— |
— |
(0.01) |
|
Total
Distributions |
(0.30) |
(0.31) |
(0.32) |
(0.35) |
(0.36) |
|
Net
Asset Value, End of Period |
$8.09 |
$9.71 |
$9.98 |
$9.50 |
$8.70 |
|
Total
Return2 |
(13.76)% |
0.41% |
8.65% |
13.43% |
(2.53)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
0.85% |
0.85% |
0.85% |
0.85% |
0.85% |
|
Net
investment income |
3.30% |
3.02% |
3.32% |
3.73% |
3.82% |
|
Expense
waiver/reimbursement4 |
0.14% |
0.12% |
0.13% |
0.14% |
0.14% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$283,573 |
$403,132 |
$438,296 |
$401,690 |
$364,175 |
|
Portfolio
turnover5 |
23% |
13% |
17% |
18% |
10% |
|
1 |
Per
share numbers have been calculated using the average shares
method. |
|
2 |
Based
on net asset value, which does not reflect the sales charge, redemption
fee or contingent deferred sales charge, if
applicable. |
|
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
November 30, 2022, which can be obtained free of charge.
39
Financial
Highlights–Class
B Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended November 30, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$9.78 |
$10.05 |
$9.56 |
$8.75 |
$9.35 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.21 |
0.21 |
0.24 |
0.27 |
0.27 |
|
Net
realized and unrealized gain (loss) |
(1.61) |
(0.25) |
0.49 |
0.81 |
(0.59) |
|
Total
From Investment Operations |
(1.40) |
(0.04) |
0.73 |
1.08 |
(0.32) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.22) |
(0.23) |
(0.24) |
(0.27) |
(0.27) |
|
Distributions
from net realized gain |
— |
— |
— |
— |
(0.01) |
|
Total
Distributions |
(0.22) |
(0.23) |
(0.24) |
(0.27) |
(0.28) |
|
Net
Asset Value, End of Period |
$8.16 |
$9.78 |
$10.05 |
$9.56 |
$8.75 |
|
Total
Return2 |
(14.39)% |
(0.47)% |
7.77% |
12.51% |
(3.45)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
1.70% |
1.71% |
1.70% |
1.70% |
1.70% |
|
Net
investment income |
2.44% |
2.17% |
2.51% |
2.91% |
2.97% |
|
Expense
waiver/reimbursement4 |
0.06% |
0.05% |
0.06% |
0.07% |
0.06% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$1,701 |
$3,365 |
$6,690 |
$12,717 |
$17,075 |
|
Portfolio
turnover5 |
23% |
13% |
17% |
18% |
10% |
|
1 |
Per
share numbers have been calculated using the average shares
method. |
|
2 |
Based
on net asset value, which does not reflect the sales charge, redemption
fee or contingent deferred sales charge, if
applicable. |
|
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
November 30, 2022, which can be obtained free of charge.
40
Financial
Highlights–Class
C Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended November 30, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$9.78 |
$10.05 |
$9.56 |
$8.76 |
$9.36 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.22 |
0.22 |
0.24 |
0.27 |
0.27 |
|
Net
realized and unrealized gain (loss) |
(1.62) |
(0.26) |
0.49 |
0.80 |
(0.59) |
|
Total
From Investment Operations |
(1.40) |
(0.04) |
0.73 |
1.07 |
(0.32) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.22) |
(0.23) |
(0.24) |
(0.27) |
(0.27) |
|
Distributions
from net realized gain |
— |
— |
— |
— |
(0.01) |
|
Total
Distributions |
(0.22) |
(0.23) |
(0.24) |
(0.27) |
(0.28) |
|
Net
Asset Value, End of Period |
$8.16 |
$9.78 |
$10.05 |
$9.56 |
$8.76 |
|
Total
Return2 |
(14.37)% |
(0.42)% |
7.81% |
12.41% |
(3.42)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
1.67% |
1.67% |
1.67% |
1.66% |
1.67% |
|
Net
investment income |
2.48% |
2.21% |
2.51% |
2.94% |
3.00% |
|
Expense
waiver/reimbursement4 |
0.06% |
0.05% |
0.06% |
0.07% |
0.06% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$19,167 |
$31,524 |
$47,820 |
$47,337 |
$48,592 |
|
Portfolio
turnover5 |
23% |
13% |
17% |
18% |
10% |
|
1 |
Per
share numbers have been calculated using the average shares
method. |
|
2 |
Based
on net asset value, which does not reflect the sales charge, redemption
fee or contingent deferred sales charge, if
applicable. |
|
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
November 30, 2022, which can be obtained free of charge.
41
Financial
Highlights–Class
F Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended November 30, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$9.80 |
$10.07 |
$9.58 |
$8.77 |
$9.37 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.29 |
0.30 |
0.32 |
0.35 |
0.35 |
|
Net
realized and unrealized gain (loss) |
(1.62) |
(0.26) |
0.49 |
0.81 |
(0.59) |
|
Total
From Investment Operations |
(1.33) |
0.04 |
0.81 |
1.16 |
(0.24) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.30) |
(0.31) |
(0.32) |
(0.35) |
(0.35) |
|
Distributions
from net realized gain |
— |
— |
— |
— |
(0.01) |
|
Total
Distributions |
(0.30) |
(0.31) |
(0.32) |
(0.35) |
(0.36) |
|
Net
Asset Value, End of Period |
$8.17 |
$9.80 |
$10.07 |
$9.58 |
$8.77 |
|
Total
Return2 |
(13.74)% |
0.41% |
8.68% |
13.44% |
(2.62)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
0.85% |
0.85% |
0.85% |
0.85% |
0.85% |
|
Net
investment income |
3.29% |
3.02% |
3.33% |
3.74% |
3.82% |
|
Expense
waiver/reimbursement4 |
0.11% |
0.09% |
0.11% |
0.11% |
0.11% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$76,873 |
$127,519 |
$138,694 |
$134,534 |
$128,112 |
|
Portfolio
turnover5 |
23% |
13% |
17% |
18% |
10% |
|
1 |
Per
share numbers have been calculated using the average shares
method. |
|
2 |
Based
on net asset value, which does not reflect the sales charge, redemption
fee or contingent deferred sales charge, if
applicable. |
|
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
November 30, 2022, which can be obtained free of charge.
42
Financial
Highlights–Institutional
Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended November 30, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$9.71 |
$9.98 |
$9.50 |
$8.70 |
$9.30 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.31 |
0.32 |
0.34 |
0.37 |
0.37 |
|
Net
realized and unrealized gain (loss) |
(1.61) |
(0.26) |
0.49 |
0.80 |
(0.59) |
|
Total
From Investment Operations |
(1.30) |
0.06 |
0.83 |
1.17 |
(0.22) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.32) |
(0.33) |
(0.35) |
(0.37) |
(0.37) |
|
Distributions
from net realized gain |
— |
— |
— |
— |
(0.01) |
|
Total
Distributions |
(0.32) |
(0.33) |
(0.35) |
(0.37) |
(0.38) |
|
Net
Asset Value, End of Period |
$8.09 |
$9.71 |
$9.98 |
$9.50 |
$8.70 |
|
Total
Return2 |
(13.55)% |
0.66% |
8.92% |
13.72% |
(2.39)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
0.60% |
0.60% |
0.60% |
0.60% |
0.60% |
|
Net
investment income |
3.55% |
3.27% |
3.56% |
3.98% |
4.07% |
|
Expense
waiver/reimbursement4 |
0.13% |
0.12% |
0.13% |
0.14% |
0.14% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$569,876 |
$795,317 |
$890,497 |
$733,626 |
$515,139 |
|
Portfolio
turnover5 |
23% |
13% |
17% |
18% |
10% |
|
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
November 30, 2022, which can be obtained free of charge.
43
Financial
Highlights–Class
R6 Shares
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended November 30, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$9.72 |
$9.99 |
$9.51 |
$8.71 |
$9.31 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss)1 |
0.31 |
0.32 |
0.35 |
0.37 |
0.37 |
|
Net
realized and unrealized gain (loss) |
(1.60) |
(0.26) |
0.48 |
0.80 |
(0.59) |
|
Total
From Investment Operations |
(1.29) |
0.06 |
0.83 |
1.17 |
(0.22) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.32) |
(0.33) |
(0.35) |
(0.37) |
(0.37) |
|
Distributions
from net realized gain |
— |
— |
— |
— |
(0.01) |
|
Total
Distributions |
(0.32) |
(0.33) |
(0.35) |
(0.37) |
(0.38) |
|
Net
Asset Value, End of Period |
$8.11 |
$9.72 |
$9.99 |
$9.51 |
$8.71 |
|
Total
Return2 |
(13.41)% |
0.68% |
8.93% |
13.72% |
(2.38)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses3 |
0.58% |
0.58% |
0.58% |
0.58% |
0.58% |
|
Net
investment income |
3.56% |
3.29% |
3.60% |
3.99% |
4.13% |
|
Expense
waiver/reimbursement4 |
0.06% |
0.05% |
0.06% |
0.07% |
0.07% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$52,350 |
$81,121 |
$68,232 |
$96,838 |
$67,370 |
|
Portfolio
turnover5 |
23% |
13% |
17% |
18% |
10% |
|
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
November 30, 2022, which can be obtained free of charge.
44
Appendix
A: Hypothetical Investment and Expense Information
The
following charts provide additional hypothetical information about the effect of
the Fund’s expenses, including investment advisory fees
and other Fund costs, on the Fund’s assumed returns over a 10-year period. The
charts show the estimated expenses that would be incurred in respect of a
hypothetical investment of $10,000, assuming a 5% return each year, and no
redemption of Shares. Each chart also assumes that the Fund’s annual expense
ratio stays the same throughout the 10-year period (except for the B and C
classes, which convert to the A class after you have held them for eight years)
and that all dividends and distributions are reinvested. The annual expense
ratios used in each chart are the same as stated in the “Fees and Expenses”
table of this Prospectus (and thus do 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 CORPORATE BOND FUND - A CLASS | |||||
|
ANNUAL
EXPENSE RATIO: 1.00% | |||||
|
MAXIMUM
FRONT-END SALES CHARGE: 4.50% | |||||
|
Year |
Hypothetical
Beginning
Investment |
Hypothetical
Performance
Earnings |
Investment
After
Returns |
Hypothetical
Expenses |
Hypothetical
Ending
Investment |
|
1 |
$10,000.00 |
$477.50 |
$10,027.50 |
$547.41 |
$9,932.00 |
|
2 |
$9,932.00 |
$496.60 |
$10,428.60 |
$101.31 |
$10,329.28 |
|
3 |
$10,329.28 |
$516.46 |
$10,845.74 |
$105.36 |
$10,742.45 |
|
| |||||