Prospectus
February
28, 2023
|
Ticker
FCSPX |
Federated Hermes Corporate Bond Strategy Portfolio
A Portfolio of Federated Hermes Managed Pool Series
A mutual
fund seeking to provide total return, by investing primarily in a diversified
portfolio of investment-grade, corporate fixed-income securities. The Fund is
used to implement certain fixed-income investment strategies for eligible
investors in wrap fee, separately managed and other discretionary investment
accounts that are advised or sub-advised by Federated Investment Counseling
(FIC), a subsidiary of Federated Hermes, Inc. (“Federated Hermes,” formerly
Federated Investors, Inc.) or its affiliates, or certain other discretionary
managers, as well as affiliated investment companies. Shares of the Fund held
for an eligible investor may be purchased only at the direction of FIC or other
discretionary managers to such wrap fee, separately managed or other
discretionary investment accounts.
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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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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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 Reimbursements1 |
( |
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Total
Annual Fund Operating Expenses After Fee Waivers and/or Expense
Reimbursements |
1
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1
Year |
$ |
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3
Years |
$ |
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5
Years |
$ |
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10
Years |
$ |
1
2
Within
the periods shown in the bar chart, the Fund’s highest quarterly return was
11.68% (quarter ended June 30, 2020). Its lowest quarterly return was (7.70)%
(quarter ended June 30, 2022).
3
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Fund: |
1
Year |
5
Years |
10
Years |
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Return
Before Taxes |
( |
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Return
After Taxes on Distributions |
( |
( |
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Return
After Taxes on Distributions and Sale of Fund Shares |
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Bloomberg
US Credit Index1
(Reflects
no deduction for fees, expenses or taxes) |
( |
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Baa
component of the Bloomberg US Credit Index2
(Reflects
no deduction for fees, expenses or taxes) |
( |
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1
2
FUND
MANAGEMENT
The
Fund’s Investment Adviser is Federated Investment Management
Company.
Jerome
D. Conner, CFA, Senior Portfolio Manager,
has been the Fund’s portfolio manager since February of 2010.
Brian
S. Ruffner, Senior Portfolio Manager,
has been the Fund’s portfolio manager since February of 2018.
Purchase
and Sale of Fund Shares
There
is no required minimum initial or subsequent investment amount to invest in Fund
Shares.
Shares
of the Fund held for an Eligible Investor (as defined below) may be purchased
only at the direction of Federated Investment Counseling
(FIC), a subsidiary of Federated Hermes, Inc. (“Federated Hermes”) or another
Discretionary Manager of the Eligible Account (see “How to Invest in the Fund”).
To the extent the Fund is permitted as an investment option for an Affiliated
Fund (as defined below), Shares also may be purchased and redeemed at the
discretion of an Affiliated Fund’s adviser. Shares of the Fund may be purchased
any day the NYSE is open. An account may be established and Shares purchased by
submitting an Account Application and purchase request in good order to the
Fund’s Transfer Agent, SS&C GIDS, Inc. Shares of the Fund may be redeemed
any day the NYSE is open. Redemption requests should be made in accordance with
procedures established by the Transfer Agent.
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 DISCRETIONARY MANAGERS AND OTHER FINANCIAL INTERMEDIARIES
Shares
of the Fund held for an Eligible Investor may be purchased only at the direction
of FIC or another Discretionary Manager of
the Eligible Account. Discretionary Managers receive no fee from the Fund for
their services. If you purchase the Fund through a Discretionary Manager, the
Fund and/or its related companies do not pay the Discretionary Manager for the
sale of Fund Shares and related services. Ask your salesperson or visit your
Discretionary Manager’s website for more information.
4
What are
the Fund’s Investment Strategies?
The
Fund’s investment objective is to provide total return. While there is no
assurance that the Fund will achieve its investment
objective, it endeavors to do so by following the principal strategies and
policies described in this Prospectus. The Fund’s Statement of Additional
Information (SAI) provides information about the Fund’s non-principal
strategies.
The
Fund pursues its investment objective by investing primarily in a diversified
portfolio of investment-grade, corporate
fixed-income securities. Investment-grade securities are rated at the time of
purchase in one of the four highest categories (BBB or higher) by a nationally
recognized statistical rating organization (NRSRO), or if unrated, are of
comparable quality as determined by the Adviser. The Fund may also invest in
Treasury securities, government securities, and derivative instruments (such as
futures, options and swaps or hybrid instruments) to implement its investment
strategies. The Fund may invest up to 15% of its net assets in illiquid
securities. A description of the various types of securities in which the Fund
invests, and their risks, immediately follows this strategy section.
The
Adviser actively manages the Fund’s portfolio seeking total returns over longer
time periods in excess of the Fund’s benchmark, the Baa
component of the Bloomberg US Credit Index (BUSCI). The BUSCI is an unmanaged
index comprised of corporate bonds or securities represented by the following
sectors: industrial, utility and finance, including both U.S. and non-U.S.
corporations and non-corporate bonds or securities represented by the following
sectors: sovereign, supranational, foreign agencies and foreign local
governments. There can be no assurance that the Adviser will be successful in
achieving investment returns in excess of the BUSCI.
When
buying and selling portfolio securities, the Adviser utilizes a four part
decision-making process:
First,
the Adviser invests the Fund’s portfolio seeking the higher relative returns of
corporate fixed-income securities when
available, while attempting to limit the associated credit risks. Corporate debt
securities generally offer higher yields than U.S. government securities to
compensate for credit risk. The Adviser attempts to manage the Fund’s credit
risk by selecting corporate fixed-income securities that make default in the
payment of principal and interest less likely. The Adviser uses corporate
earnings analysis to determine which business sectors and credit ratings are
most advantageous for investment by the Fund.
Second,
the Adviser selects individual securities that it believes may outperform the
Fund’s benchmark index. For example,
the Adviser employs a fundamental analysis to determine the best corporate debt
securities within specific credit quality constraints. In selecting securities,
the Adviser assesses whether the Fund will be adequately compensated for
assuming the risks (such as credit risk) of a particular security by comparing
the security to other securities. The Adviser continually analyzes 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 security’s
credit risk in order to complete the analysis.
In
selecting individual corporate fixed-income securities, the Adviser analyzes a
company’s business, competitive position
and financial condition to assess whether the security’s credit risk is
commensurate with its potential return. Some of the corporate fixed-income
securities in which the Fund invests are considered to be “foreign securities,”
as that term is defined in this Prospectus. For example, a corporate debt
security will be treated as a “foreign security” if the issuer 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. The foreign securities in which the Fund invests will be
predominately denominated in the U.S. dollar. To the extent non-U.S., corporate
fixed-income securities are purchased in their local currency, hedging
strategies will be used to seek to mitigate currency risk.
Third,
the Adviser may seek to change the Fund’s interest rate volatility by
lengthening or shortening the Fund’s portfolio
duration from time to time based on its interest rate outlook. “Duration”
measures the sensitivity of a security’s price to changes in interest rates. The
greater the portfolio’s average duration, the greater the change in the
portfolio’s value in response to a change in market interest rates. While the
Fund may invest in securities of any maturity, the Fund’s average duration is
expected to vary and may range between one and ten years depending on the
Adviser’s view of interest rates. For example, if interest rates rise by one
percentage point (in a parallel shift) the net asset value (NAV) of a fund with
an average duration of ten years theoretically would decline about 10.0%. The
above example assumes that all relevant factors that could affect the value of a
fund other than interest rates, remain unchanged.
If
the Adviser expects interest rates to decline, it will generally lengthen the
Fund’s duration. 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
Federal Reserve Board’s monetary policy; and
◾ changes in
the supply of or demand for U.S. government securities.
5
Fourth,
the Adviser strategically positions the portfolio based on its expectations for
changes in the yield curve. The Adviser
tries to combine individual portfolio securities with different durations to
take advantage of relative changes in interest rates. Relative changes in
interest rates may occur whenever longer-term interest rates move more, less or
in a different direction than shorter-term interest rates.
The
Fund may use derivative contracts and/or hybrid instruments to implement
elements of its investment strategy. For example,
the Fund may use derivative contracts or hybrid instruments to increase or
decrease the portfolio’s exposure to the investment(s) underlying the derivative
or hybrid instrument in an attempt to benefit from changes in the value of the
underlying investment(s). Additionally, by way of example, the Fund may use
derivative contracts in an attempt to:
◾ increase
or decrease the effective duration of the Fund portfolio;
◾ obtain
premiums from the sale of derivative contracts;
◾ realize
gains from trading a derivative contract; or
◾ hedge
against potential losses.
There
can be no assurance that the Fund’s use of derivative contracts or hybrid
instruments will work as intended. Derivative
investments made by the Fund are included within the Fund’s 80% policy (as
described below) and are calculated at market value.
The
Fund 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 policies that would
enable the fund to normally invest 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 cash and shorter-term debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
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 types of 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.
6
Government
Securities (A Type of Fixed-Income Security)
Government
securities are issued or guaranteed by a federal agency or instrumentality
acting under federal authority. Some
government securities, including those issued by Government National Mortgage
Association (“Ginnie Mae”), are supported by the full faith and credit of the
United States and are guaranteed only as to the timely payment of interest and
principal.
Other
government securities receive support through federal subsidies, loans or other
benefits, but are not backed by the full
faith and credit of the United States. For example, the U.S. Treasury is
authorized to purchase specified amounts of securities issued by (or otherwise
make funds available to) the Federal Home Loan Bank System, Federal Home Loan
Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association
(“Fannie Mae”) in support of such obligations.
Some
government agency securities have no explicit financial support and are
supported only by the credit of the applicable
agency, instrumentality or corporation. The U.S. government has provided
financial support to Freddie Mac and Fannie Mae, but there is no assurance that
it will support these or other agencies in the future.
The
Fund treats mortgage-backed securities guaranteed by a federal agency or
instrumentality as government securities. Although
such a guarantee protects against credit risk, it does not eliminate it entirely
or reduce other risks.
Zero-Coupon
Securities (A Type of Fixed-Income Security)
Zero-coupon
securities do not pay interest or principal until final maturity unlike debt
securities that provide periodic payments
of interest (referred to as a coupon payment). Investors buy zero-coupon
securities at a price below the amount payable at maturity. The difference
between the purchase price and the amount paid at maturity represents interest
on the zero-coupon security. Investors must wait until maturity to receive
interest and principal, which increases the interest rate and credit risks of a
zero-coupon security. A zero-coupon, step-up security converts to a coupon
security before final maturity.
There
are many forms of zero-coupon securities. Some are issued at a discount and are
referred to as zero-coupon or capital
appreciation bonds. Others are created from interest-bearing bonds by separating
the right to receive the bond’s coupon payments from the right to receive the
bond’s principal due at maturity, a process known as coupon stripping. Treasury
STRIPs, IOs and POs are the most common forms of stripped zero-coupon
securities. In addition, some securities give the issuer the option to deliver
additional securities in place of cash interest payments, thereby increasing the
amount payable at maturity. These are referred to as pay-in-kind, PIK
securities, or toggle securities.
Foreign
Securities
Foreign
securities are securities of issuers based outside the United States. To the
extent a Fund invests in securities included
in its applicable broad-based securities market index, the Fund may consider an
issuer to be based outside the United States if the applicable index classifies
the issuer as based outside the United States. Accordingly, the Fund may
consider an issuer to be based outside the United States if the issuer satisfies
at least one, but not necessarily all, of the following:
◾ it is
organized under the laws of, or has its principal office located in, another
country;
◾ the
principal trading market for its securities is in another country;
◾ it
(directly or through its consolidated subsidiaries) derived in its most current
fiscal year at least 50% of its total assets, capitalization, gross revenue or
profit from goods produced, services performed or sales made in another country;
or
◾ it is
classified by an applicable index as based outside the United
States.
Foreign
securities are primarily denominated in foreign currencies. However, the Fund
generally invests in foreign securities
denominated in U.S. dollars. Along with the risks normally associated with
domestic securities of the same type, foreign securities are subject to currency
risks and risks of foreign investing. Trading in certain foreign markets is also
subject to liquidity risks.
Foreign
Government Securities (A Type of Foreign Fixed-Income Security)
Foreign
government securities generally consist of fixed-income securities supported by
national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
debt obligations of supranational entities, such as international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the “World Bank”), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign
government securities also include fixed-income securities of quasi-governmental
agencies that are either issued by
entities owned by a national, state or equivalent government or are obligations
of a political unit that are not backed by the national government’s full faith
and credit. Further, foreign government securities include mortgage-related
securities issued or guaranteed by national, state or provincial governmental
instrumentalities, including quasi-governmental agencies.
7
ILLIQUID
INVESTMENTS
Illiquid
investments are investments that the Fund reasonably expects cannot be sold or
disposed of in current market conditions
in seven calendar days or less without the sale or disposition significantly
changing the market value of the investment. These may include private
placements, repurchase agreements that the Fund cannot dispose of within seven
days and securities eligible for resale under Rule 144A of the Securities Act of
1933.
Derivative
Contracts
Derivative
contracts are financial instruments that derive their value from
underlying securities, commodities, currencies, indices, or other assets or
instruments, including other derivative contracts (each a “Reference Instrument”
and collectively, “Reference Instruments”). The most common types of derivative
contracts are swaps, futures and options, and major asset classes include
interest rates, equities, commodities and foreign exchange. Each party to a
derivative contract may sometimes be referred to as a “counterparty.” Some
derivative contracts require payments relating to an actual, future trade
involving the Reference Instrument. These types of derivatives are frequently
referred to as “physically settled” derivatives. Other derivative contracts
require payments relating to the income or returns from, or changes in the
market value of, a Reference Instrument. These types of derivatives are known as
“cash-settled” derivatives since they require cash payments in lieu of delivery
of the Reference Instrument.
Many
derivative contracts are traded on exchanges. In these
circumstances, the relevant exchange sets all the terms of the contract except
for the price. Parties to an exchange-traded derivative contract make payments
through the exchange. Most exchanges require traders to maintain margin accounts
through their brokers to cover their potential obligations to the exchange.
Parties to the contract make (or collect) daily payments to the margin accounts
to reflect losses (or gains) in the value of their contracts. This protects
traders against a potential default by their counterparty. Trading contracts on
an exchange also allows traders to hedge or mitigate certain risks or carry out
more complex trading strategies by entering into offsetting
contracts.
The
Fund may also trade derivative contracts over-the-counter (OTC),
meaning
off-exchange, in transactions negotiated directly between the Fund and an
eligible counterparty, which may be a financial institution. OTC contracts do
not necessarily have standard terms, so they may be less liquid and more
difficult to close out than exchange-traded derivative contracts. In addition,
OTC contracts with more specialized terms may be more difficult to value than
exchange-traded contracts, especially in times of financial stress.
The
market for swaps and other OTC derivatives was largely unregulated prior to the
enactment of federal legislation known as the Dodd-Frank
Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
Regulations enacted by the Commodity Futures Trading Commission (the “CFTC”)
under the Dodd-Frank Act require the Fund to clear certain types of swap
contracts (including certain interest rate and credit default swaps) through a
central clearinghouse known as a derivatives clearing
organization
(DCO).
To
clear a swap through a DCO, the Fund will
submit the contract to, and post margin with, a futures commission merchant
(FCM) that is a clearinghouse member. The Fund may enter into the swap with a
counterparty other than the FCM and arrange for the contract to be transferred
to the FCM for clearing or enter into the contract with the FCM itself. If the
Fund must centrally clear a transaction, the CFTC’s regulations also generally
require that the swap be executed on a registered exchange (either a designated
contract market (DCM)
or swap
execution facility (SEF)). Central clearing is presently required only for
certain swaps; the CFTC is expected to impose a mandatory central clearing
requirement for additional derivative instruments over time.
DCOs, DCMs,
SEFs and FCMs
are all subject to regulatory oversight by the CFTC. In addition, certain
derivative market participants that act as market makers and engage in a
significant amount of “dealing” activity are also required to register as swap
dealers with the CFTC. Among other things, swap dealers are subject to minimum
capital requirements and business conduct standards
and must also
post and collect initial and variation margin on uncleared swaps with certain of
their counterparties. Because of this, if the Fund enters into uncleared swaps
with any
swap dealers,
it may be subject to initial and variation margin requirements that could impact
the Fund’s ability to enter into swaps in the OTC market,
including
making transacting in uncleared swaps significantly
more
expensive.
At this point in time,
most of the Dodd-Frank Act has been fully implemented,
though a
small number of remaining rulemakings are unfinished or are subject to phase-in
periods. Any future regulatory or legislative activity would not necessarily
have a direct, immediate effect upon the Fund, though it is within the realm of
possibility that, upon implementation of these measures or any future measures,
they could potentially limit or completely restrict the ability of the Fund to
use these instruments as a part of its investment strategy, increase the costs
of using these instruments or make them less effective.
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.
8
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.
Total
Return Swaps
A
total return swap is an agreement between two parties whereby one party agrees
to make payments of the total return from a
Reference Instrument (or a basket of such instruments) during the specified
period, in return for payments equal to a fixed or floating rate of interest or
the total return from another Reference Instrument. Alternately, a total return
swap can be structured so that one party will make payments to the other party
if the value of a Reference Instrument increases, but receive payments from the
other party if the value of that instrument decreases.
Credit
Default Swaps
A
credit default swap (CDS) is an agreement between two parties whereby one party
(the “Protection Buyer”) agrees to make
payments over the term of the CDS to the other party (the “Protection Seller”),
provided that no designated event of default, restructuring or other credit
related event (each a “Credit Event”) occurs with respect to Reference
Instrument that is usually a particular bond, loan or the unsecured credit of an
issuer, in general (the “Reference Obligation”). Many CDS are physically
settled, which means that if a Credit Event occurs, the Protection Seller must
pay the Protection Buyer the full notional value, or “par value,” of the
Reference Obligation in exchange for delivery by the Protection Buyer of the
Reference Obligation or another similar obligation issued by the issuer of the
Reference Obligation (the “Deliverable Obligation”). The Counterparties agree to
the characteristics of the Deliverable Obligation at the time that they enter
into the CDS. Alternately, a CDS can be “cash settled,” which means that, upon
the occurrence of a Credit Event, the Protection Buyer will receive a payment
from the Protection Seller equal to the difference between the par amount of the
Reference Obligation and its market value at the time of the Credit Event. The
Fund may be either the Protection Buyer or the Protection Seller in a CDS. If
the Fund is a Protection Buyer and no Credit Event occurs, the Fund will lose
its entire investment in the CDS (i.e., an amount equal to the payments made to
the Protection Seller over the term of the CDS). However, if a Credit Event
occurs, the Fund (as Protection Buyer) will deliver the Deliverable Obligation
and receive a payment equal to the full notional value of the Reference
Obligation, even though the Reference Obligation may have little or no value. If
the Fund is the Protection Seller and no Credit Event occurs, the Fund will
receive a fixed rate of income
9
throughout
the term of the CDS. However, if a Credit Event occurs, the Fund (as Protection
Seller) will pay the Protection Buyer the full notional value of the Reference
Obligation and receive the Deliverable Obligation from the Protection Buyer. A
CDS may involve greater risks than if the Fund invested directly in the
Reference Obligation. For example, a CDS may increase credit risk since the Fund
has exposure to both the issuer of the Reference Obligation and the Counterparty
to the CDS.
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. These other investment companies
are managed independently of the Fund and incur additional fees and/or expenses
which would, therefore, be borne indirectly by the Fund in connection with any
such investment. These investments also can create conflicts of interests for
the Adviser to the Fund and the investment adviser to the acquired fund. For
example, a conflict 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. The Fund
may invest in money market securities directly.
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 counterparty credit
risks.
Repurchase
Agreements
Repurchase
agreements are transactions in which the Fund buys a security from a dealer or
bank and agrees to sell the security
back at a mutually agreed-upon time and price. The repurchase price exceeds the
sale price, reflecting the Fund’s return on the transaction. This return is
unrelated to the interest rate on the underlying security. The Fund will enter
into repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser.
The
Fund’s custodian or sub-custodian will take possession of the securities subject
to repurchase agreements. The Adviser or
sub-custodian will monitor the value of the underlying security each day to
ensure that the value of the security always equals or exceeds the repurchase
price.
Repurchase
agreements are subject to credit risks.
10
Reverse
Repurchase Agreements
Reverse
repurchase agreements (which are considered a type of special transaction for
asset segregation or asset coverage
purposes) are repurchase agreements in which the Fund is the seller (rather than
the buyer) of the securities, and agrees to repurchase them at an agreed upon
time and price. A reverse repurchase agreement may be viewed as a type of
borrowing by the Fund. Reverse repurchase agreements are subject to credit
risks. In addition, reverse repurchase agreements create leverage risks because
the Fund must repurchase the underlying security at a higher price, regardless
of the market value of the security at the time of repurchase.
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.
Delayed
Delivery Transactions
Delayed
delivery transactions, including when-issued transactions, are arrangements in
which the Fund buys securities for a set
price, with payment and delivery of the securities scheduled for a future time.
During the period between purchase and settlement, no payment is made by the
Fund to the issuer and no interest accrues to the Fund. The Fund records the
transaction when it agrees to buy the securities and reflects their value in
determining the price of its Shares. Settlement dates may be a month or more
after entering into these transactions so that the market values of the
securities bought may vary from the purchase prices. Therefore, delayed delivery
transactions create interest rate risks for the Fund. Delayed delivery
transactions also involve credit risks in the event of a counterparty default.
These transactions create leverage risks.
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.
Credit
Linked Note (A Type of Hybrid Instrument)
A
credit linked note (CLN) is a type of hybrid instrument in which a special
purpose entity issues a structured note (the “Note
Issuer”) with respect to which the Reference Instrument is a single bond, a
portfolio of bonds or the unsecured credit of an issuer, in general (each a
“Reference Credit”). The purchaser of the CLN (the “Note Purchaser”) invests a
par amount and receives a payment during the term of the CLN that equals a fixed
or floating rate of interest equivalent to a high rated funded asset (such as a
bank certificate of deposit) plus an additional premium that relates to taking
on the credit risk of the Reference Credit. Upon maturity of the CLN, the Note
Purchaser will receive a payment equal to: (i) the original par amount paid to
the Note Issuer, if there is no occurrence of a designated event of default,
restructuring or other credit event (each a “Credit Event”) with respect to the
issuer of the Reference Credit; or (ii) the market value of the Reference
Credit, if a Credit Event has occurred. Depending upon the terms of the CLN, it
is also possible that the Note
11
Purchaser
may be required to take physical delivery of the Reference Credit in the event
of Credit Event. Most credit linked notes use a corporate bond (or a portfolio
of corporate bonds) as the Reference Credit. However, almost any type of
fixed-income security (including foreign government securities), index or
derivative contract (such as a credit default swap) can be used as the Reference
Credit.
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.
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 future changes in monetary policy made by central
banks and/or their governments are likely to affect the level of interest rates.
Duration measures the price sensitivity of a fixed-income security given a
change in interest rates. For example, if a fixed-income security has an
effective duration of three years, a 1% increase in general interest rates would
be expected to cause the security’s value to decline about 3% while a 1%
decrease in general interest rates would be expected to cause the security’s
value to increase about 3%.
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.
12
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.
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.
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.
Sector
Risk
Companies
with similar characteristics may be grouped together in broad categories called
sectors. Sector risk is the possibility
that a certain sector may underperform other sectors or the market as a whole.
As the Adviser allocates more of the Fund’s portfolio holdings to a particular
sector, the Fund’s performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
13
Liquidity
Risk
Trading
opportunities are more limited for fixed-income securities that have not
received any credit ratings, have received ratings below
investment grade or are not widely held or are issued by companies located in
emerging markets. Also, if dealer capacity has not kept, or does not keep, pace
with market growth, or if regulatory changes or other certain developments
warrant, dealer inventories of securities (such as corporate bonds) may reach
low levels and impact a dealer’s ability to “make markets” (or buy or sell a
security at a quoted bid and ask price). These factors may make it more
difficult to sell or buy a security at a favorable price or time.
Consequently,
the Fund may have to accept a lower price to sell a security or not sell a
security, sell other securities to raise cash
or give up an investment opportunity, any of which could have a negative effect
on the Fund’s performance. A significant reduction in dealer inventories or
“market makers,” or other factors resulting in infrequent trading of securities,
can lead to decreased liquidity and may also lead to an increase in their price
volatility. These affects may be exacerbated during times of economic or
political stress.
Liquidity
risk also refers to the possibility that the Fund may not be able to sell a
security or close out a derivative contract
when it wants to. If this happens, the Fund will be required to continue to hold
the security or keep the position open, and the Fund could incur
losses.
OTC
derivative contracts generally carry greater liquidity risk than exchange-traded
contracts. This risk may be increased
in times of financial stress, if the trading market for OTC derivative contracts
becomes restricted.
Increased
Fund redemption activity, which may occur in a rising interest rate environment
or for other reasons, also may increase
liquidity risk due to the need of the Fund to sell portfolio securities and may
negatively impact Fund performance.
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 and national governments may not provide information (including
financial statements) as frequently
or to as great an extent as companies in the United States. Foreign companies
and national governments 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 and national governments 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.
Legal
remedies available to investors in certain foreign countries may be more limited
than those available with respect to
investments in the United States or in other foreign countries.
Risk
of Investing in Derivative Contracts and Hybrid Instruments
The
Fund’s exposure to derivative contracts and hybrid instruments (either directly
or through its investment in another investment
company) involves risks different from, or possibly greater than, the risks
associated with investing directly in securities and other traditional
investments. First, changes in the value of the derivative contracts and hybrid
instruments in which the Fund invests may not be correlated with changes in the
value of the underlying Reference Instruments or, if they are correlated, may
move in the opposite direction than originally anticipated. Second, while some
strategies involving derivatives may reduce the risk of loss, they may also
reduce potential gains or, in some cases, result in losses by offsetting
favorable price movements in portfolio holdings. Third, there is a risk that
derivative contracts and hybrid instruments may be erroneously priced or
improperly valued and, as a result, the Fund may need to make increased cash
payments to the counterparty. Fourth, exposure to derivative contracts and
hybrid instruments may have tax consequences to the Fund and its shareholders.
For example, derivative contracts and hybrid instruments may cause the Fund to
realize increased ordinary income or short-term capital gains (which are treated
as ordinary income for Federal income tax purposes) and, as a result, may
increase taxable distributions to shareholders. In addition, under certain
circumstances certain derivative contracts and hybrid instruments may cause the
Fund to: (a) incur an excise tax on a portion of the income related to those
contracts and instruments; and/or (b) reclassify, as a return of capital, some
or all of the distributions previously made to shareholders during the fiscal
year as dividend income. Fifth, a common provision in OTC derivative contracts
permits the counterparty to terminate any such contract between it and the Fund,
if the value of the Fund’s total net assets declines below a specified level
over a given time period. Factors that may contribute to such a decline (which
usually must be substantial) include significant shareholder redemptions and/or
a marked decrease in the market value of the Fund’s investments. Any such
termination of the Fund’s OTC derivative contracts may adversely affect the Fund
(for example, by increasing losses and/or costs, and/or preventing the Fund from
fully implementing its
14
investment
strategies). Sixth, the Fund may use a derivative contract to benefit from a
decline in the value of a Reference Instrument. If the value of the Reference
Instrument declines during the term of the contract, the Fund makes a profit on
the difference (less any payments the Fund is required to pay under the terms of
the contract). Any such strategy involves risk. There is no assurance that the
Reference Instrument will decline in value during the term of the contract and
make a profit for the Fund. The Reference Instrument may instead appreciate in
value creating a loss for the Fund. Seventh, a default or failure by a CCP or an
FCM (also sometimes called a “futures broker”), or the failure of a contract to
be transferred from an Executing Dealer to the FCM for clearing, may expose the
Fund to losses, increase its costs, or prevent the Fund from entering or exiting
derivative positions, accessing margin, or fully implementing its investment
strategies. The central clearing of a derivative and trading of a contract over
a SEF could reduce the liquidity in, or increase costs of entering into or
holding, any contracts. Finally, derivative contracts and hybrid instruments may
also involve other risks described in this Prospectus, such as interest rate,
credit, liquidity and leverage risks.
Leverage
Risk
Leverage
risk is created when an investment, which includes, for example, an investment
in a derivative contract, exposes
the Fund to a level of risk that exceeds the amount invested. Changes in the
value of such an investment magnify the Fund’s risk of loss and potential for
gain. Investments can have these same results if their returns are based on a
multiple of a specified index, security or other benchmark.
technology
Risk
The
Adviser uses various technologies in managing the Fund, consistent with its
investment objective(s) and strategy
described in this Prospectus. For example, proprietary and third-party data and
systems are utilized to support decision-making for the Fund. Data imprecision,
software or other technology malfunctions, programming inaccuracies and similar
circumstances may impair the performance of these systems, which may negatively
affect Fund performance.
How to
Invest in the Fund
The
Fund is used to implement fixed-income investment strategies for investors in
wrap fee, separately managed and other
discretionary investment accounts that are advised or sub-advised by Federated
Investment Counseling (FIC), a subsidiary of Federated Hermes, or its
affiliates, or certain other third-party discretionary managers that have a
business relationship with FIC as described below, as well as affiliated
investment companies. The Fund is advised by Federated Investment Management
Company (the “Adviser”), another subsidiary of Federated Hermes, and an
affiliate of FIC.
For
purposes of this Prospectus: (1) the fixed-income investment strategies
implemented through investments in the Fund are
referred to as the “Fixed-Income Strategies”; (2) the investors in the wrap fee,
separately managed and other discretionary investment accounts that may be
permitted to invest in the Fund are referred to as “Eligible Investors”; (3) the
wrap fee, separately managed and other discretionary investment accounts in
which Eligible Investors may invest are referred to as “Eligible Accounts”; and
(4) FIC, its affiliates and any other third-party discretionary managers that
may invest Eligible Investors’ assets in the Fund are referred to as
“Discretionary Managers.” To the extent permitted under applicable law, the Fund
may also be used as an investment option for other investment companies managed
by the Adviser or an affiliate. These other investment companies are referred to
in this Prospectus as “Affiliated Funds.”
At any
time, shareholders of the Fund may include Eligible Investors and, to the extent
permitted under applicable law, Affiliated Funds. Eligible
Investors in the Fund do not include unaffiliated investment companies under the
Investment Company Act of 1940 (“1940 Act”), as amended, or private funds exempt
from registration under the 1940 Act pursuant to Sections 3(c)(1) or 3(c)(7) of
the 1940 Act, unless appropriate exemptive relief is obtained under the 1940 Act
and the Fund determines to accept the purchase order for such an investment. In
addition, unless the Fund determines to accept a purchase order for an
investment, an Eligible Investor in the Fund does not include:
(i) a
non-resident alien within the meaning of I.R.C. § 7701(b)(1)(B) who is a natural
person; (ii) a covered expatriate (i.e., a U.S. citizen temporarily residing
abroad) within the meaning of I.R.C. § 877A(g)(1)(A); (iii) a foreign
institutional investor; or (iv) a fund or investor in the European
Union.
At
any time that an investor in the Fund ceases to be an Eligible Investor and FIC
(or its affiliate) is acting in a discretionary
capacity, the Fund will redeem the Fund’s Shares held by such investor. At any
time that an investor in the Fund (through a relationship with a third-party
discretionary manager that has a business relationship with FIC (or its
affiliate)) ceases to be an Eligible Investor, the third-party discretionary
manager will redeem the Fund’s Shares held by such investor. In all
circumstances, Federated Securities Corp. reserves the right to authorize the
liquidation of shares for ineligible investors.
15
The
Fixed-Income Strategies may include investments in individual securities, as
well as shares of the Fund (“Shares”), depending
upon the type of Eligible Account, the applicable investment objectives,
restrictions and investment mandate of an Eligible Investor, instructions
provided by an Eligible Investor or Discretionary Manager or other relevant
factors. The Fund is designed to purchase securities required for the
Fixed-Income Strategies that cannot be efficiently held individually in Eligible
Accounts, but can be effectively held in a pooled vehicle, such as a mutual
fund.
When
the Fund is used to implement Fixed-Income Strategies for wrap fee and
separately managed accounts, the wrap fee
program sponsors or separately managed account managers typically will have
contracts with Eligible Investors to provide investment management, custody
and/or other services to Eligible Investors in connection with investments in
Eligible Accounts. Eligible Investors typically will pay negotiated asset-based
fees, which may vary, for the services. In wrap fee programs, the fees generally
will be aggregated or “bundled.” FIC, or an affiliate, will be engaged as an
adviser or sub-adviser to manage, on a discretionary basis, assets of the
Eligible Investors invested in the Eligible Accounts in accordance with one or
more Fixed-Income Strategies developed by FIC or an affiliate. FIC, or an
affiliate, typically will receive negotiated asset-based investment advisory
fees for managing the Eligible Investors’ assets and performing other
administrative services. These fees received by FIC or an affiliate, may vary
between wrap fee program sponsors and/or separately managed account managers,
and typically will be paid out of the aggregated fees charged to Eligible
Investors by the wrap fee program sponsors and/or separately managed account
managers. The fees received by FIC, or an affiliate, will be paid for separate
account advisory services which are separate from the Adviser’s management of
the Fund. Where FIC, or an affiliate, will be the Discretionary Manager for
Eligible Accounts of Eligible Investors, FIC, or an affiliate, will implement
the applicable Fixed-Income Strategies through, among other possible
investments, purchasing and redeeming Shares of the Fund on behalf of the
Eligible Investors. In such cases, the Fund will be used to implement certain
investment strategies offered by FIC, including an investment strategy for
Eligible Accounts. The investment adviser to the Fund does not charge a fee for
its advisory services to the Fund and has contractually agreed to reimburse all
operating expenses, excluding extraordinary expenses, incurred by the Fund.
However, as discussed above in “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 and/or managing its
uninvested cash. For example, the Fund may decide to have any excess cash swept
on a daily basis into an affiliated money market fund. These other investment
companies are managed independently of the Fund and incur additional fees and/or
expenses which would, therefore, be borne indirectly by the Fund in connection
with any such investment.
If
the Fund is used to implement Fixed-Income Strategies for other separately
managed or discretionary investment accounts,
FIC, or an affiliate, will not manage, on a discretionary basis, the accounts of
the Eligible Investors invested in these types of Eligible Accounts. The
Discretionary Managers of the Eligible Investors’ accounts will be third-party
discretionary managers. These Discretionary Managers typically will have
contracts with Eligible Investors to provide investment management, custody
and/or other services to Eligible Investors in connection with investments in
these Eligible Accounts. Eligible Investors typically will pay negotiated
asset-based fees, which may vary, for the services. These Discretionary Managers
will be engaged as advisers or sub-advisers to manage, on a discretionary basis,
assets of the Eligible Investors invested in these Eligible Accounts in
accordance with one or more Fixed-Income Strategies developed by these
Discretionary Managers. These Discretionary Managers will have separate
contracts with FIC, or an affiliate, to provide these Discretionary Managers
with one or more model portfolios for Fixed-Income Strategies developed by FIC
or an affiliate, as well as recommendations for updates to the model portfolios.
These Discretionary Managers will use the model portfolios, and recommended
updates, at their discretion to develop the Discretionary Managers’ Fixed-Income
Strategies. FIC, or an affiliate, will not have discretionary authority over
Eligible Investors’ accounts. As compensation for providing the model portfolios
and recommended updates, FIC, or an affiliate, typically will receive negotiated
asset-based fees, which will be determined based on the amount of assets under
management these Discretionary Managers manage in accordance with their
Fixed-Income Strategies that they develop using the model portfolios, and
recommended updates, provided by FIC or an affiliate. These fees received by FIC
or an affiliate, may vary between Discretionary Managers, and will be paid to
FIC, or an affiliate, by these Discretionary Managers. The fees received by FIC,
or an affiliate, will be paid for services separate from the Adviser’s
management of the Fund. These Discretionary Managers will have the option to
implement their Fixed-Income Strategies through, among other possible
investments, purchasing and redeeming Shares of the Fund on behalf of the
Eligible Investors.
Shareholders
of the Fund, as Eligible Investors, are strongly encouraged to read carefully
the wrap fee brochure or other disclosure
documents provided to them in connection with their investments in wrap fee,
separately managed or other discretionary investment accounts (i.e., the
Eligible Accounts). To the extent that an Eligible Investor has imposed
investment restrictions on its Eligible Accounts, the Fund may hold investments
that are inconsistent with the Eligible Investor’s investment restrictions.
These brochures and disclosure documents will contain information about the fees
charged to Eligible Investors in connection with their investments in the
Eligible Accounts. These brochures and other
16
disclosure
documents will contain information about the fees paid or received by the wrap
fee program sponsors, or Discretionary Managers or other third-parties, to or
from FIC, or its affiliates, in connection with the Eligible Investors’
investments in the Eligible Accounts. These brochures and disclosure documents
also will contain other important information regarding the Discretionary
Managers and Eligible Accounts, such as minimum Eligible Account sizes.
Shareholders of the Fund, as Eligible Investors, pay no additional fees or
expenses to purchase Shares of the Fund.
Shares
of the Fund held by an Eligible Investor may be purchased or redeemed only at
the direction of FIC or another Discretionary
Manager of the Eligible Account. To the extent the Fund is permitted as an
investment option for an Affiliated Fund, Shares also may be purchased and
redeemed at the discretion of an Affiliated Fund’s adviser. Shares can be
purchased or redeemed on any day the New York Stock Exchange (NYSE) is
open.
What Do
Shares Cost?
CALCULATION
OF NET ASSET VALUE
When
the Fund receives a transaction request in proper form (as described in this
Prospectus under the sections entitled “How to
Purchase Shares” and “How to Redeem Shares”), it is processed at the next
calculated net asset value of a Share (NAV). A Share’s NAV is determined as of
the end of regular trading on the New York Stock Exchange (NYSE) (normally 4:00
p.m. Eastern time) each day the NYSE is open. The Fund calculates the NAV by
valuing its assets, subtracting its liabilities, and dividing the balance by the
number of Shares outstanding. The Fund’s current NAV and/or public offering
price may be found at FederatedInvestors.com, via
online news sources and in certain newspapers.
Eligible
Investors 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.
How Does
the Fund Price Securities?
In
calculating its NAV, the Fund generally values investments as
follows:
◾ Fixed-income securities
are fair valued using price evaluations provided by a pricing service approved
by the Adviser.
◾ Derivative contracts
listed on exchanges are valued at their reported settlement or closing price,
except that options are valued at the mean of closing bid and ask
quotations.
◾ 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.
17
Using
fair value to price investments may result in a value that is different from an
investment’s most recent closing price and from the prices
used by other registered funds to calculate their NAVs. The application of the
fair value procedures to an investment represents a good faith determination of
such investment’s fair value. There can be no assurance that the Fund could
obtain the fair value assigned to an investment if it sold the investment at
approximately the time at which the Fund determines its NAV per share, and the
actual value could be materially different.
The
Adviser also
has adopted procedures requiring an investment to be priced at its fair value
whenever the Valuation Committee determines that a significant event affecting
the value of the investment has occurred between the time as of which the price
of the investment would otherwise be determined and the time as of which the NAV
is computed. An event is considered significant if there is both an affirmative
expectation that the investment’s value will change in response to the event and
a reasonable basis for quantifying the resulting change in value.
Examples
of significant events that may occur after the close of the principal market on
which a security is traded, or after the
time of a price evaluation provided by a pricing service or a dealer,
include:
◾ With
respect to securities traded principally in foreign markets, significant trends
in U.S. equity markets or in the trading of foreign securities index futures
contracts;
◾ Political
or other developments affecting the economy or markets in which an issuer
conducts its operations or its securities are traded; and
◾ Announcements
concerning matters such as acquisitions, recapitalizations or litigation
developments or a natural disaster affecting the issuer’s operations or
regulatory changes or market developments affecting the issuer’s
industry.
The
Adviser has
adopted procedures whereby the Valuation Committee uses a pricing service to
provide factors to update the fair value of equity securities traded principally
in foreign markets from the time of the close of their respective foreign stock
exchanges to the pricing time of the Fund. For other significant events, the
Fund may seek to obtain more current quotations or price evaluations from
alternative pricing sources. If a reliable alternative pricing source is not
available, the Valuation Committee will determine the fair value of the
investment. The Board periodically reviews fair valuations made in response to
significant events.
The
fair valuation of securities following a significant event can serve to reduce
arbitrage opportunities for short-term traders to
profit at the expense of long-term investors in the Fund. For example, such
arbitrage opportunities may exist when the market on which portfolio securities
are traded closes before the Fund calculates its NAV, which is typically the
case with Asian and European markets. However, there is no assurance that these
significant event procedures will prevent dilution of the NAV by short-term
traders. See “Account and Share Information–Frequent
Trading Policies” for other procedures
the Fund employs to deter such short-term trading.
How to
Purchase Shares
Shares
of the Fund held for an Eligible Investor may be purchased only at the direction
of FIC or another Discretionary Manager of the Eligible
Account. To the extent the Fund is permitted as an investment option for an
Affiliated Fund, Shares also may be purchased at the discretion of the
Affiliated Fund’s adviser. Shares of the Fund may be purchased any day the NYSE
is open. An account may be established and Shares purchased by submitting an
Account Application and purchase request in good order to the Fund’s Transfer
Agent, SS&C
GIDS,
Inc.
Payment
by federal funds must be received by the Fund’s custodian by 3:00 p.m. (Eastern
time) the next business day following
the receipt of the purchase order. The Fund reserves the right to reject any
request to purchase Shares.
How to
Redeem Shares
Shares
of the Fund held by an Eligible Investor may be redeemed only at the direction
of FIC or another Discretionary Manager of
the Eligible Investor’s Eligible Account. Shares held by an Affiliated Fund may
be redeemed at the discretion of an Affiliated Fund’s adviser.
Shares
held by or on behalf of a shareholder who ceases to be an Eligible Investor (as
defined above) must be redeemed and each
shareholder on whose behalf FIC or another Discretionary Manager has purchased
Shares agrees to any such redemption. If FIC (or its affiliate) is acting in a
discretionary capacity, the Fund will redeem the Fund’s Shares held by such
investor. If the Fund Shares were purchased through a relationship with a
third-party Discretionary Manager that has a business relationship with FIC (or
its affiliate), the third-party Discretionary Manager will redeem the Fund’s
Shares held by such investor. In all circumstances, Federated Securities Corp.
reserves the right to authorize the liquidation of shares for ineligible
investors. The Fund will attempt to provide the applicable Discretionary Manager
and/or wrap program sponsor with advance notice of any such redemption on behalf
of the shareholder.
Shares
of the Fund may be redeemed any day the NYSE is open by submitting a redemption
request in good order to the Fund’s Transfer
Agent, SS&C GIDS, Inc. Redemption requests received before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time) will receive a
redemption amount based on that day’s NAV.
18
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”).
PAYMENT
METHODS FOR REDEMPTIONS
Redemption
proceeds will be paid by one of the following methods established by the
Discretionary Manager or affiliated
Adviser:
◾ an
electronic transfer to the shareholder’s wrap fee, separately managed or
discretionary investment account (i.e., Eligible Account) custodied at a
financial institution that is an ACH member;
◾ wire
payment to the shareholder’s wrap fee, separately managed or discretionary
investment account (i.e., Eligible Account) custodied at a domestic commercial
bank that is a Federal Reserve System member; or
◾ check
mailed to the qualified custodian of the shareholder’s wrap fee, separately
managed or discretionary investment accounts (i.e., Eligible
Account).
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 up to seven days:
◾ to allow a
purchase to clear;
◾ 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
a redemption of Shares recently purchased by check (including a cashier’s check
or certified check), money order, bank draft
or ACH is requested, redemption proceeds may not be made available 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, any purchase
order will be canceled and the party submitting such payment will be responsible
for any losses incurred by the Fund as a result of the canceled
order.
In
addition, redemptions may be suspended, or the payment of proceeds may be
delayed, 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
19
◾ 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.
Share
Certificates
The
Fund does not issue share certificates.
Account
and Share Information
CONFIRMATIONS
AND ACCOUNT STATEMENTS
Shareholders
will receive confirmation of purchases and redemptions and periodic statements
reporting all account activity,
including dividends and capital gains paid.
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.
DIVIDENDS
AND CAPITAL GAINS
The
Fund declares any dividends daily and pays them monthly to shareholders. If you
purchase Shares by wire, you begin
earning dividends on the day your wire is received. If you purchase Shares by
check, you begin earning dividends on the business day after the Fund receives
your check. In either case, you earn dividends through the day your redemption
request is received. Dividends on investments in the Fund are generally paid in
cash and dividend reinvestment is generally not available.
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.
Shares
purchased just before the record date for a capital gain distribution will pay
the full price for the shares and then receive a
portion of the price back in the form of a taxable distribution. Investors
should consider the tax implications of purchasing Shares shortly before the
record date for a capital gain.
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 at FederatedInvestors.com/product-landing/managedaccount-pools.do. Select a product name,
then click “Distributions and Taxes.”
TAX
INFORMATION
The
Fund and/or
your
financial intermediary
provides
year-end tax information and an annual statement of each shareholder’s account
activity to assist shareholders in completing their federal, state and local tax
returns. Fund distributions of dividends and capital gains are taxable to
shareholders 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 shareholders as
ordinary income. Distributions of net long-term capital gains are taxable to
shareholders as long-term capital gains regardless of how long a shareholder has
owned the Shares.
Fund
distributions are expected to be both dividends and capital gains. 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 its 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 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. Given that: (a)
the Fund is used exclusively to implement certain Fixed Income Strategies for
Eligible Investors in Eligible Accounts and, to the extent permitted by
applicable law, as an investment option for Affiliated Funds as described in
this Prospectus; (b) FIC has the ability to limit
20
Eligible
Investors’ investments in the Fund and Fund Share purchases, and redemptions for
Eligible Accounts will be at the direction of FIC or another Discretionary
Manager; (c) with respect to Eligible Accounts, Fund Share purchases and
redemptions will be made on a frequent basis generally only for account
initialization, rebalancing and liquidation purposes, or in order to invest new
monies or accommodate reductions in Eligible Account size; and (d) individual
Eligible Investors will not be in a position to effect purchase or redemption
orders directly, the Fund does not anticipate that, in the normal case, frequent
or short-term trading into and out of the Fund will have significant
unanticipated or adverse consequences for the Fund and its shareholders. For
these reasons, the Fund’s Board has not adopted policies or procedures to
discourage frequent or short-term trading of the Fund’s Shares.
Other
funds in the Federated Hermes family of funds may impose monitoring policies.
Under normal market conditions, such
monitoring policies are designed to protect the funds being monitored and their
shareholders, and the operation of such policies and shareholder investments
under such monitoring are not expected to have materially adverse impact on the
Federated Hermes funds or their shareholders. If you plan to purchase shares of
another Federated Hermes fund, please read the prospectus of that other
Federated Hermes fund for more information.
PORTFOLIO
HOLDINGS INFORMATION
Information
concerning the Fund’s portfolio holdings is available at FederatedInvestors.com/product-landing/managedaccount-pools.do. Select a product name
then click on “Characteristics.” 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.
You may
also access portfolio information as of the end of the Fund’s fiscal quarters at
FederatedInvestors.com/product-landing/managedaccount-pools.do. Select a product then
click on “Documents.” The Fund’s Annual Shareholder Report and Semi-Annual
Shareholder Report 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 at FederatedInvestors.com/product-landing/managedaccount-pools.do.
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/product-landing/managedaccount-pools.do. If and when such
information is posted, its availability will be noted on, and the information
will be accessible from, the home page of the website.
Who
Manages the Fund?
The
Board governs the Fund. The Board selects and oversees the Adviser, Federated
Investment Management Company.
The Adviser manages the Fund’s assets, including buying and selling portfolio
securities. Federated Advisory Services Company (FASC), an affiliate of the
Adviser, provides certain support services to the Adviser. The fee for these
services is paid by the Adviser and not by the Fund. The address of the Adviser
and FASC is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The
Adviser and
other advisory subsidiaries of Federated Hermes combined, advise approximately
102 registered investment companies spanning equity, fixed-income and money
market mutual funds and also manage a variety of other pooled investment
vehicles, private investment companies and customized separately managed
accounts (including non-U.S./offshore funds). Federated Hermes’ assets under
management totaled approximately $668.9 billion as of December 31, 2022.
Federated Hermes was established in 1955 as Federated Investors, Inc. and is one
of the largest investment managers in the United States with nearly 2,000
employees. Federated Hermes provides investment products to more than 11,000
investment professionals and institutions.
The
Adviser advises approximately 73 registered investment
companies and also manages sub-advised funds. The Adviser’s assets under
management totaled approximately $399.6 billion as of December 31,
2022.
21
PORTFOLIO
MANAGEMENT INFORMATION
Jerome
D. Conner
Jerome
D. Conner, CFA, Senior Portfolio Manager,
has been the Fund’s portfolio manager since February of 2010.
Mr.
Conner 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 2002; has worked
in investment management since 1995; has managed investment portfolios since
2010. Education: B.S., U.S. Naval Academy; M.S., Boston University.
Brian
S. Ruffner
Brian
S. Ruffner,
Senior
Portfolio Manager, has been the Fund’s portfolio manager since February of
2018.
Mr.
Ruffner is responsible for providing research and advice on sector allocation
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.
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
Adviser will not charge an advisory fee for its services to the
Fund.
The
Adviser’s affiliate, FIC, may benefit from the Fund being used to implement
Fixed Income Strategies for Eligible Investors’
Eligible Accounts.
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 December 31 and June 30,
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.
22
Financial
Highlights
(For a Share
Outstanding Throughout Each Period)
|
|
Year
Ended December 31, | ||||
|
|
2022 |
2021 |
2020 |
2019 |
2018 |
|
Net
Asset Value, Beginning of Period |
$11.86 |
$12.38 |
$11.48 |
$10.26 |
$11.10 |
|
Income
From Investment Operations: |
|
|
|
|
|
|
Net
investment income (loss) |
0.38 |
0.38 |
0.43 |
0.45 |
0.46 |
|
Net
realized and unrealized gain (loss) |
(2.20) |
(0.44) |
0.91 |
1.22 |
(0.77) |
|
TOTAL
FROM INVESTMENT OPERATIONS |
(1.82) |
(0.06) |
1.34 |
1.67 |
(0.31) |
|
Less
Distributions: |
|
|
|
|
|
|
Distributions
from net investment income |
(0.38) |
(0.38) |
(0.43) |
(0.45) |
(0.46) |
|
Distributions
from net realized gain |
(0.03) |
(0.08) |
(0.01) |
— |
(0.07) |
|
TOTAL
DISTRIBUTIONS |
(0.41) |
(0.46) |
(0.44) |
(0.45) |
(0.53) |
|
Net
Asset Value, End of Period |
$9.63 |
$11.86 |
$12.38 |
$11.48 |
$10.26 |
|
Total
Return1 |
(15.44)% |
(0.41)% |
11.88% |
16.56% |
(2.82)% |
|
Ratios
to Average Net Assets: |
|
|
|
|
|
|
Net
expenses2,3 |
0.00% |
0.00% |
0.00% |
0.00% |
0.00% |
|
Net
investment income |
3.69% |
3.19% |
3.64% |
4.11% |
4.30% |
|
Expense
waiver/reimbursement4 |
0.24% |
0.23% |
0.27% |
0.30% |
0.32% |
|
Supplemental
Data: |
|
|
|
|
|
|
Net
assets, end of period (000 omitted) |
$134,660 |
$182,389 |
$143,775 |
$105,126 |
$85,243 |
|
Portfolio
turnover5 |
7% |
11% |
13% |
18% |
16% |
|
1 |
Based
on net asset value. |
|
2 |
Federated
Investment Management Company (the “Adviser”) has contractually agreed to
reimburse all operating expenses, excluding extraordinary expenses,
incurred
by the Fund. |
|
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
December 31, 2022, which can be obtained free of charge.
23
Appendix
A: Hypothetical Investment and Expense Information
The
following chart provides 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
chart shows 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. The chart also assumes that the Fund’s annual expense
ratio stays the same throughout the 10-year period (except for the impact of
changes in contractual expense limitations) and that all dividends and
distributions are reinvested. The annual expense ratio used in the chart is the
same as stated in the “Fees and Expenses” table of this Prospectus (and thus do
not reflect any other 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 STRATEGY PORTFOLIO | |||||
|
ANNUAL
EXPENSE RATIO: 0.00% | |||||
|
MAXIMUM
FRONT-END SALES CHARGE: NONE | |||||
|
Year |
Hypothetical
Beginning
Investment |
Hypothetical
Performance
Earnings |
Investment
After
Returns |
Hypothetical
Expenses |
Hypothetical
Ending
Investment |
|
1 |
$10,000.00 |
$500.00 |
$10,500.00 |
$0.00 |
$10,500.00 |
|
2 |
$10,500.00 |
$525.00 |
$11,025.00 |
$0.00 |
$11,025.00 |
|
3 |
$11,025.00 |
$551.25 |
$11,576.25 |
$0.00 |
$11,576.25 |
|
4 |
$11,576.25 |
$578.81 |
$12,155.06 |
$0.00 |
$12,155.06 |
|
5 |
$12,155.06 |
$607.75 |
$12,762.81 |
$0.00 |
$12,762.81 |
|
6 |
$12,762.81 |
$638.14 |
$13,400.95 |
$0.00 |
$13,400.95 |
|
7 |
$13,400.95 |
$670.05 |
$14,071.00 |
$0.00 |
$14,071.00 |
|
8 |
$14,071.00 |
$703.55 |
$14,774.55 |
$0.00 |
$14,774.55 |
|
9 |
$14,774.55 |
$738.73 |
$15,513.28 |
$0.00 |
$15,513.28 |
|
10 |
$15,513.28 |
$775.66 |
$16,288.94 |
$0.00 |
$16,288.94 |
|
Cumulative |
|
$6,288.94 |
|
$0.00 |
|
24
An SAI dated February 28,
2023, is incorporated by reference into this Prospectus. Additional information
about the Fund and its investments is contained in the Fund’s SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report’s Management’s Discussion of Fund Performance discusses market conditions
and investment strategies that significantly affected the Fund’s performance
during its last fiscal year. The SAI contains a description of the Fund’s
policies and procedures with respect to the disclosure of its portfolio
securities. To obtain the SAI, Annual Report, Semi-Annual Report and other
information without charge, and to make inquiries, call your financial
intermediary, Discretionary Manager or the Fund at 1-800-341-7400.
The Fund’s shareholder
reports will be made available on FederatedInvestors.com/FundInformation, and you will be notified
and provided with a link each time a report is posted to the website. You may
request to receive paper reports from the Fund or from your financial
intermediary, free of charge, at any time. You may also request to receive
documents through e-delivery.
These documents, as well
as additional information about the Fund (including portfolio holdings,
performance and distributions) are also available at FederatedInvestors.com/product-landing/managedaccount-pools.do.
You can
obtain information about the Fund (including the SAI) by accessing Fund
information from the EDGAR Database on the SEC’s website at sec.gov. You can
purchase copies of this information by contacting the SEC by email at
[email protected].
Federated Hermes
Corporate Bond Strategy Portfolio
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us
at
FederatedInvestors.com
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities
Corp., Distributor
Investment
Company Act File No. 811-4017
CUSIP
31421P100
34039
(2/23)
© 2023 Federated Hermes,
Inc.
