United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-23259
(Investment Company Act File Number)
Federated Hermes Adviser Series
_______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, Pennsylvania 15086-7561
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
Peter J. Germain, Esquire
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Date of Fiscal Year End: 08/31/20
Date of Reporting Period: 08/31/20
| Item 1. | Reports to Stockholders |
Annual
Shareholder Report
August 31, 2020
|
Share Class | Ticker
|
Institutional | FHHIX
|
|
|
|
Federated Hermes SDG Engagement High Yield Credit Fund
Fund Established 2019
A Portfolio of Federated Hermes Adviser Series
(formerly, Federated Adviser Series)
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities
and Exchange Commission, paper copies of the Fund’s shareholder reports like this one
will no longer be sent by mail, unless you specifically request paper copies of the reports
from the Fund or from your financial intermediary, such as a broker-dealer or bank.
Instead, the reports will be made available on a website, and you will be notified by
mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be
affected by this change and you need not take any action. You may elect to receive
shareholder reports and other communications from the Fund or your financial
intermediary electronically by contacting your financial intermediary (such as a
broker-dealer or bank); other shareholders may call the Fund at
1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can
inform the Fund or your financial intermediary that you wish to continue receiving
paper copies of your shareholder reports by contacting your financial intermediary
(such as a broker-dealer or bank); other shareholders may call the Fund at
1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all
funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
J. Christopher
Donahue
Donahue
President
Federated Hermes SDG
Engagement High Yield
Credit Fund
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Annual Shareholder
Report for your fund covering the period from
September 26, 2019 through August 31, 2020.
As we all confront the unprecedented effects of the
coronavirus and the challenges it presents to our families,
communities, businesses and the financial markets,
I want you to know that everyone at Federated Hermes is
dedicated to helping you successfully navigate the
markets ahead. You can count on us for the insights,
investment management knowledge and client service
that you have come to expect. Please refer to our website,
FederatedInvestors.com, for timely updates on this and
other economic and market matters.
Thank you for investing with us. I hope you find this
information useful and look forward to keeping
you informed.
Sincerely,
J. Christopher Donahue, President
Management’s Discussion of Fund
Performance (unaudited)
The total return of Federated Hermes SDG Engagement High Yield Credit
Fund (the “Fund”), based on net asset value for the since-inception reporting
period from September 26, 2019 through August 31, 2020, was 6.19% for the
Institutional Shares. The total return of the ICE BofA Global High Yield
Constrained (USD Hedged) Index (IGHYC),1 the Fund’s broad-based
securities market index, was 3.82% for the same period. The total return of the
Lipper High Yield Funds Average (LHYFA),2 a peer group average for the
Fund, was 2.05% for the same period. The Fund’s and LHYFA’s total returns
for the most recently completed reporting period reflected actual cash flows,
transaction costs and other expenses, which were not reflected in the total
return of the IGHYC.
During the reporting period the most significant factors affecting the Fund’s
performance relative to the IGHYC were: (1) the allocation among industry
sectors; (2) the allocation among credit ratings;3,4 (3) the allocation between
regions;5 and (4) the selection of individual securities.
MARKET OVERVIEW
In the fourth quarter of 2019, optimism on the U.S.-China trade front drove
investor appetite for riskier credit. Following the announcement of a delay in
the implementation date of the new China tariffs, USD high-yield6 spreads
tightened relative to investment-grade. Declining policy uncertainty and
improving growth sentiment boosted investors’ appetite towards cyclical
sectors. In December 2019, investment-grade and high-yield spreads dropped
to the lowest in two decades bolstered by declining tail risks, supportive new
issue features and improving funding conditions. In the first quarter of
2020, sentiment changed, the continued expansion of a novel coronavirus
known as COVID-19 around the world and the collapse in oil prices caused
increasing concern and the ensuing downside risks for economic activity,
global supply chains and confidence among the general public caused investors
to start to take money out of high yield as an asset class. The ensuing market
fall from the highs of February 20, 2020 to the lows of March 23, 2020 saw a
decline in the IGHYC of -21%. To support liquidity in the market, the Federal
Reserve (the “Fed”) and other central banks announced a wide range of new
stimulus measures, including buying a potentially unlimited amount of
Treasury securities and agency mortgage-backed7 securities as well as
corporate bonds8 issued by eligible issuers. There was a surge in
investment-grade issuance as companies looked to quickly shore up cash
reserves with investment-grade firms issuing $528 billion – the highest Q1
total on record. The reaction of rating agencies following the market shock
meant that by May, the wave of fallen angels had increased the notional value
of the USD and EUR high-yield markets by 10% and 17%, respectively.
Beyond size, the composition of the USD high-yield market also shifted, with
Annual Shareholder Report
1
increased issuer concentration and average duration.9 Across sectors and
ratings, the share of securities that track the economic cycle of expansions and
recessions and “BB”-rated securities also rose materially, and default rates
picked up.
Since the lows of March, the market has continued to rally back to the levels
observed in January driven by cyclical recovery themes as new daily
U.S. COVID-19 infections decreased and economic data generally surprised to
the upside. Policy support continues: the European Central Bank’s (ECB)
purchases of corporate bonds has been larger relative to those of the Fed (both
on an absolute basis and relative to the size of the respective markets).
Government bond yields remained at extremely low, and in some cases
negative, levels and this has led to the support of credit markets where higher
yields are available.
Within the high-yield market, major industry sectors that substantially
outperformed the IGHYC included: Healthcare, Insurance, Technology &
Electronics, Real Estate and Automotive. Major industry sectors that
substantially underperformed the IGHYC included: Energy, Leisure,
Transportation and Services. From a ratings perspective, lower quality credit
securities (“CCC” and below) materially underperformed the IGHYC, while
securities rated “BBB-“ and “BB+” substantially outperformed. Regionally,
Western Europe outperformed the U.S. and the UK, with performance across
emerging market credit also substantially outperforming the IGHYC.
SECTOR ALLOCATION
During the reporting period, the Fund was positively affected by its sector
allocation. The Fund benefited from its underweight positioning in the
poor-performing Energy, Leisure and Transportation sectors. It also benefited
from its overweight positioning in the Capital Goods, Basic Industry and
Telecommunications sectors. The Fund was negatively affected by its
underweight positioning in Real Estate, Healthcare and Technology Sectors, as
well as its overweight positioning in the Automotive sector.
During the reporting period, the Fund’s performance was positively affected
by its use of credit default swap index contracts10 as a proxy for the market
itself. The Fund also made use of short government bond futures to hedge
performance-at-risk that can arise from changes in interest rates. As such,
detraction from Fund performance attributed to the bond futures contracts was
offset by the capital appreciation of securities due to changes in interest rates.
Annual Shareholder Report
2
RATING ALLOCATION
During the reporting period, the Fund was positively affected by its allocation
across ratings. The Fund benefited from its higher quality bias relative to the
IGHYC. Overweight positioning in “BBB” and “BB”-rated securities
contributed positively to the relative performance of the Fund. Underweight
positioning in “B” and “CCC”-rated issues helped the performance of
the Fund.
REGIONAL ALLOCATION
During the reporting period, the Fund was positively affected by its allocation
across regions. The Fund benefited from its overweight allocation to Western
Europe and the UK. It also benefited from its underweight positioning in North
America. The Fund was negatively affected by its underweight allocation to
emerging markets, especially in Asia and the Middle East.
SECURITY SELECTION
During the reporting period, the Fund was positively affected by security
selection. This was especially true in the Basic Industry, Telecommunications
and Banking sectors. On a single name basis, issuers which contributed the
most to relative performance over the period were Phoenix Group, Liberty
Global Companies, CenturyLink and Range Resources. The Fund was
negatively affected by security selection in the Utility and Real Estate sectors.
On a single name basis, issuers which detracted the most from relative
performance were Ford, PEMEX and Teva Pharmaceutical Industries.
1
Please see the footnotes to the line graphs below for definitions of, and further information
about, the IGHYC.
2
Please see the footnotes to the line graphs below for definitions of, and further information
about, the LHYFA.
3
Credit ratings pertain only to the securities in the portfolio and do not protect Fund shares
against market risk.
4
Investment-grade securities and noninvestment-grade securities may either: be (a) rated by a
nationally recognized statistical ratings organization or rating agency; or (b) unrated securities
that the Fund’s Adviser believes are of comparable quality. The rating agencies that provided
the ratings for rated securities include Standard and Poor’s, Moody’s Investor Services, Inc. and
Fitch Rating Service. When ratings vary, the highest rating is used. Credit ratings of “AA” or
better are considered to be high credit quality; credit ratings of “A” are considered high or
medium/good quality; and credit ratings of “BBB” are considered to be medium/good credit
quality, and the lowest category of investment-grade securities; credit ratings of “BB” and below
are lower-rated, noninvestment-grade securities or junk bonds; and credit ratings of “CCC” or
below are noninvestment-grade securities that have high default risk. Any credit quality
breakdown does not give effect to the impact of any credit derivative investments made by the
Fund. Credit ratings are an indication of the risk that a security will default. They do not protect
a security from credit risk. Lower-rated bonds typically offer higher yields to help compensate
investors for the increased risk associated with them. Among these risks are lower
creditworthiness, greater price volatility, more risk to principal and income than with
higher-rated securities and increased possibilities of default.
Annual Shareholder Report
3
5
International investing involves special risks including currency risk, increased volatility, political
risks and differences in auditing and other financial standards. Prices of emerging market
securities can be significantly more volatile than the prices of securities in developed countries,
and currency risk and political risks are accentuated in emerging markets.
6
High-yield, lower-rated securities generally entail greater market, credit and liquidity risks than
investment-grade securities and may include higher volatility and a higher risk of default.
7
The value of some mortgage-backed securities may be particularly sensitive to changes in
prevailing interest rates, and although the securities are generally supported by some form of
government or private insurance, there is no assurance that private guarantors or insurers will
meet their obligations.
8
Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a
decline in their prices.
9
Duration is a measure of a security’s price sensitivity to changes in interest rates. Securities with
longer durations are more sensitive to changes in interest rates than securities of
shorter duration.
10
The Fund’s use of derivative instruments involves risks different from, or possibly greater than,
the risks associated with investing directly in securities and other traditional instruments.
Annual Shareholder Report
4
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in the
Federated Hermes SDG Engagement High Yield Credit Fund (the “Fund”)
from inception on September 26, 2019 to August 31, 2020 compared to the
ICE BofA Global High Yield Constrained (USD Hedged) Index (IGHYC)2 and
the Lipper High Yield Funds Average (LHYFA).3 The Cumulative Total
Return table below shows returns for the since-inception reporting period.
Growth of a $10,000 INVESTMENT
Growth of $10,000 as of August 31, 2020
Cumulative Total Returns for the Period Ended 8/31/2020
Performance data quoted represents past performance which is no
guarantee of future results. Investment return and principal value will
fluctuate so that an investor’s shares, when redeemed, may be worth more
or less than their original cost. Mutual fund performance changes over
time and current performance may be lower or higher than what is stated.
For current to the most recent month-end performance and after-tax
returns, visit
FederatedInvestors.com or call 1-800-341-7400. Returns
shown do not reflect the deduction of taxes that a shareholder would pay
on Fund distributions or the redemption of Fund shares. Mutual funds are
not obligations of or guaranteed by any bank and are not
federally insured.
Annual Shareholder Report
5
1
The Fund’s performance assumes the reinvestment of all dividends and distributions. The IGHYC
and the LHYFA have been adjusted to reflect reinvestment of dividends on securities in the
indexes and the average.
2
The IGHYC contains all securities in the ICE BofA Global High Yield Index but caps issuer
exposure at 2%. The ICE BofA Global High Yield Index tracks the performance of USD, CAD,
GBP and EUR denominated below investment-grade corporate debt publicly issued in the major
domestic or eurobond markets. The IGHYC is not adjusted to reflect sales charges, expenses or
other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the
Fund’s performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows.
It is not possible to invest directly in an index.
3
Lipper figures represent the average of the total returns reported by all funds designated by
Lipper, Inc., as falling into the respective category and are not adjusted to reflect any sales
charges. The Lipper figures in the Growth of $10,000 line graph are based on historical return
information published by Lipper and reflect the return of the funds comprising the category in
the year of publication. Because the funds designated by Lipper as falling into the category can
change over time, the Lipper figures in the line graph may not match the Lipper figures in the
Average Annual Total Returns table, which reflect the return of the funds that currently comprise
the category.
4
The Fund commenced operations on September 26, 2019.
Annual Shareholder Report
6
Portfolio of Investments Summary Table (unaudited)
At August 31, 2020, the Fund’s sector composition1 was as follows:
|
Sector Composition
|
Percentage of
Total Net Assets
|
|
Basic Industries
|
15.6%
|
|
Banking
|
13.4%
|
|
Capital Goods
|
10.3%
|
|
Telecommunications
|
10.1%
|
|
Energy
|
8.3%
|
|
Health Care
|
6.0%
|
|
Media
|
5.9%
|
|
Utilities
|
5.5%
|
|
Automotive
|
4.5%
|
|
Consumer Goods
|
3.9%
|
|
Consumer Non-Cyclical
|
3.0%
|
|
Real Estate
|
2.2%
|
|
Financial Services
|
1.4%
|
|
Insurance
|
1.4%
|
|
Technology & Electronics
|
1.4%
|
|
Retail
|
1.0%
|
|
Services
|
0.7%
|
|
U.S. Treasury Bills
|
0.9%
|
|
Derivatives2
|
(1.4)%
|
|
Other Assets and Liabilities—Net3
|
5.9%
|
|
TOTAL
|
100.0%
|
1
Sector classifications are based upon, and individual portfolio securities are assigned to, the
classifications of the Global Industry Classification Standard (GICS) except that the Adviser
assigns a classification to securities not classified by the GICS and to securities for which the
Adviser does not have access to the classification made by the GICS.
2
Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as
applicable. Derivative contracts may consist of futures, forwards and swaps. The impact of a
derivative contract on the Fund’s performance may be larger than its unrealized appreciation
(depreciation) or value may indicate. In many cases, the notional value or amount of a derivative
contract may provide a better indication of the contract’s significance to the portfolio. More
complete information regarding the Fund’s direct investments in derivative contracts, including
unrealized appreciation (depreciation), value and notional values or amounts of such contracts,
can be found in the table at the end of the Portfolio of Investments included in this Report.
3
Assets, other than investments in securities and derivative contracts, less liabilities. See
Statement of Assets and Liabilities.
Annual Shareholder Report
7
Portfolio of Investments
August 31, 2020
|
Foreign
Currency Par
Amount or
Principal
Amount
|
|
|
Value in
U.S. Dollars
|
|
|
|
CORPORATE BONDS—94.6%
|
|
|
|
|
Automotive—4.5%
|
|
|
EUR 100,000
|
|
Faurecia, Sr. Unsecd. Note, 2.375%, 6/15/2027
|
$113,965
|
|
$500,000
|
|
Fiat Chrysler Automobiles NV, Sr. Unsecd. Note,
5.250%, 4/15/2023
|
530,937
|
|
60,000
|
|
Ford Motor Co., Sr. Unsecd. Note, 4.750%, 1/15/2043
|
55,688
|
|
157,000
|
1
|
General Motors Financial Co., Inc., Jr. Sub. Deb., Series A,
5.750%, 3/30/2169
|
153,577
|
|
300,000
|
1
|
General Motors Financial Co., Inc., Jr. Sub. Note, Series B,
6.500%, 3/30/2169
|
303,975
|
|
325,000
|
|
Goodyear Tire & Rubber Co., Sr. Unsecd. Note,
4.875%, 3/15/2027
|
325,414
|
|
|
|
TOTAL
|
1,483,556
|
|
|
|
Banking—13.4%
|
|
|
EUR 200,000
|
1
|
ABN Amro Bank NV, Jr. Sub. Deb., 4.750%, 3/22/2169
|
238,168
|
|
$200,000
|
|
Akbank TAS, Sr. Unsecd. Note, REGS, 5.125%, 3/31/2025
|
186,631
|
|
250,000
|
|
Ally Financial, Inc., Sr. Sub. Note, 5.750%, 11/20/2025
|
280,948
|
|
58,000
|
|
Ally Financial, Inc., Sr. Unsecd. Note, 5.800%, 5/1/2025
|
67,116
|
|
200,000
|
|
Banco Btg Pactual/Cayman, Sub., REGS, 7.750%, 2/15/2029
|
209,002
|
|
200,000
|
1
|
Banco Mercantil De Norte, Jr. Sub. Deb., REGS,
7.500%, 9/27/2168
|
201,688
|
|
400,000
|
|
Bank of Ireland Group PLC, Sub., Series EMTN,
4.125%, 9/19/2027
|
403,045
|
|
EUR 200,000
|
1
|
Caixa Geral de Depositos S.A. (CGD), Jr. Sub. Deb.,
10.750%, 6/30/2169
|
260,985
|
|
$175,000
|
|
CIT Group, Inc., Sub., 6.125%, 3/9/2028
|
206,904
|
|
400,000
|
|
Commerzbank AG, Jr. Sub. Note, 7.000%, 4/9/2168
|
409,590
|
|
400,000
|
1
|
Credit Suisse Group AG, Jr. Sub. Deb., REGS, 5.100%, 7/24/2169
|
398,748
|
|
EUR 100,000
|
|
Deutsche Bank AG, Sr. Unsecd. Note, Series EMTN,
5.625%, 5/19/2031
|
130,194
|
|
$480,000
|
|
Intesa Sanpaolo SpA, Sub. Deb., 5.710%, 1/15/2026
|
533,692
|
|
200,000
|
|
Itau Unibanco Holding SA, Sub. Deb., REGS, 4.500%, 11/21/2029
|
198,688
|
|
480,000
|
1,2
|
National Westminster Bank plc, Jr. Sub. Deb., Series C, 2.375%
(3-month USLIBOR +0.250%), 2/27/2169
|
425,741
|
|
200,000
|
|
UniCredit SpA, Jr. Sub. Deb., 8.000%, 6/3/2168
|
217,390
|
|
|
|
TOTAL
|
4,368,530
|
Annual Shareholder Report
8
|
Foreign
Currency Par
Amount or
Principal
Amount
|
|
|
Value in
U.S. Dollars
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Basic Industries—15.6%
|
|
|
$325,000
|
|
Alcoa Nederland Holding B.V., Sr. Unsecd. Note, 144A,
6.125%, 5/15/2028
|
$351,720
|
|
GBP 200,000
|
|
Anglo American Capital PLC, Sr. Unsecd. Note, Series EMTN,
3.375%, 3/11/2029
|
288,299
|
|
EUR 150,000
|
|
Ashland Services B.V., Sr. Unsecd. Note, REGS,
2.000%, 1/30/2028
|
174,353
|
|
$400,000
|
|
BHP Billiton Finance (USA) Ltd., Jr. Sub. Deb., REGS,
6.750%, 10/19/2075
|
478,638
|
|
200,000
|
|
Cemex SAB de CV, Sec. Fac. Bond, REGS, 5.450%, 11/19/2029
|
205,812
|
|
200,000
|
|
Cemex SAB de CV, Sec. Fac. Bond, REGS, 7.375%, 6/5/2027
|
217,125
|
|
200,000
|
|
CF Industries Holdings, Inc., Sr. Unsecd. Note, 5.150%, 3/15/2034
|
237,463
|
|
40,000
|
|
Cleveland-Cliffs, Inc., Sr. Unsecd. Note, 144A, 7.000%, 3/15/2027
|
32,400
|
|
135,000
|
|
Cleveland-Cliffs, Inc., Term Loan—1st Lien, 144A,
6.750%, 3/15/2026
|
138,038
|
|
330,000
|
|
Domtar, Corp., Sr. Unsecd. Note, 6.250%, 9/1/2042
|
374,942
|
|
200,000
|
|
GTL Trade Finance, Inc., Sr. Unsecd. Note, REGS,
7.250%, 4/16/2044
|
267,759
|
|
320,000
|
|
Huntsman International LLC, Sr. Unsecd. Note, 4.500%, 5/1/2029
|
357,566
|
|
367,000
|
|
KB HOME, Sr. Unsecd. Note, 4.800%, 11/15/2029
|
398,424
|
|
425,000
|
|
Lennar Corp., Sr. Unsecd. Note, 4.750%, 11/29/2027
|
485,031
|
|
168,000
|
|
Novelis Corporation, Sr. Unsecd. Note, 144A, 4.750%, 1/30/2030
|
170,601
|
|
200,000
|
|
Orbia Advance Corp. SAB de CV, Sr. Unsecd. Note, REGS,
5.500%, 1/15/2048
|
225,259
|
|
EUR 200,000
|
|
Sappi Papier Holding GmbH, Sr. Unsecd. Note, REGS,
3.125%, 4/15/2026
|
205,475
|
|
$450,000
|
|
Suzano Austria GmbH, Sr. Unsecd. Note, 5.000%, 1/15/2030
|
481,230
|
|
|
|
TOTAL
|
5,090,135
|
|
|
|
Capital Goods—10.3%
|
|
|
GBP 600,000
|
|
Ardagh Packaging Finance PLC/Ardagh Holdings, Sr. Unsecd.
Note, REGS, 4.750%, 7/15/2027
|
805,093
|
|
EUR 400,000
|
|
Ball Corp., Sr. Unsecd. Note, 1.500%, 3/15/2027
|
472,536
|
|
300,000
|
|
Berry Global, Inc., Sec. Fac. Bond, REGS, 1.500%, 1/15/2027
|
351,169
|
|
500,000
|
|
Crown European Holdings SA, Sr. Unsecd. Note, REGS,
2.875%, 2/1/2026
|
628,102
|
|
$300,000
|
|
Sealed Air Corp., Sr. Unsecd. Note, 144A, 4.000%, 12/1/2027
|
321,000
|
|
EUR 102,000
|
|
Sig Combibloc Purchaser, Sr. Unsecd. Note, 144A,
2.125%, 6/18/2025
|
126,208
|
|
150,000
|
|
Sig Combibloc Purchaser, Sr. Unsecd. Note, REGS,
2.125%, 6/18/2025
|
185,600
|
Annual Shareholder Report
9
|
Foreign
Currency Par
Amount or
Principal
Amount
|
|
|
Value in
U.S. Dollars
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Capital Goods—continued
|
|
|
$100,000
|
|
Silgan Holdings, Inc., Sr. Unsecd. Note, 2.250%, 6/1/2028
|
$119,036
|
|
300,000
|
|
Smurfit Kappa Treasury Unlimited Company, Sr. Unsecd. Note,
1.500%, 9/15/2027
|
360,223
|
|
|
|
TOTAL
|
3,368,967
|
|
|
|
Consumer Goods—3.9%
|
|
|
200,000
|
|
Arcelik AS, Sr. Unsecd. Note, REGS, 5.000%, 4/3/2023
|
201,315
|
|
200,000
|
|
Coca-Cola Icecek AS, Sr. Unsecd. Note, REGS,
4.215%, 9/19/2024
|
204,534
|
|
11,000
|
|
Kraft Heinz Foods Co., Sr. Unsecd. Note, 144A, 4.250%, 3/1/2031
|
12,174
|
|
302,000
|
|
Kraft Heinz Foods Co., Sr. Unsecd. Note, 4.375%, 6/1/2046
|
308,872
|
|
200,000
|
|
NBM US Holdings, Inc., Sr. Unsecd. Note, REGS,
6.625%, 8/6/2029
|
220,625
|
|
318,000
|
|
Post Holdings, Inc., Sr. Unsecd. Note, 144A, 4.625%, 4/15/2030
|
332,310
|
|
|
|
TOTAL
|
1,279,830
|
|
|
|
Consumer Non-Cyclical—3.0%
|
|
|
460,000
|
|
Hanesbrands, Inc., Sr. Unsecd. Note, 144A, 4.875%, 5/15/2026
|
501,678
|
|
EUR 100,000
|
|
Levi Strauss & Co., Sr. Unsecd. Note, 3.375%, 3/15/2027
|
121,853
|
|
$335,000
|
|
Toll Brothers, Inc., Sr. Unsecd. Note, 3.800%, 11/1/2029
|
354,272
|
|
|
|
TOTAL
|
977,803
|
|
|
|
Energy—8.3%
|
|
|
300,000
|
|
Aker BP ASA, Sr. Unsecd. Note, REGS, 3.750%, 1/15/2030
|
299,536
|
|
GBP 100,000
|
1
|
BP Capital Markets PLC, 4.250%, 6/22/2169
|
141,696
|
|
$163,000
|
|
DCP Midstream Operating LP, Sr. Unsecd. Note,
5.600%, 4/1/2044
|
155,550
|
|
275,000
|
|
EnLink Midstream Partners LP, Sr. Unsecd. Note,
5.450%, 6/1/2047
|
180,689
|
|
32,000
|
|
EnLink Midstream Partners LP, Sr. Unsecd. Note,
5.600%, 4/1/2044
|
21,257
|
|
100,000
|
|
Enterprise Products Operating LLC, Jr. Sub. Deb.,
5.375%, 2/15/2078
|
91,325
|
|
300,000
|
|
EQT Corp., Sr. Unsecd. Note, 3.900%, 10/1/2027
|
289,086
|
|
39,000
|
|
EQT Corp., Sr. Unsecd. Note, 8.750%, 2/1/2030
|
47,085
|
|
57,000
|
|
Hess Corp., Sr. Unsecd. Note, 5.600%, 2/15/2041
|
65,096
|
|
100,000
|
|
Occidental Petroleum Corp., Sr. Unsecd. Note,
3.500%, 8/15/2029
|
86,160
|
|
318,000
|
|
Occidental Petroleum Corp., Sr. Unsecd. Note,
4.100%, 2/15/2047
|
243,213
|
Annual Shareholder Report
10
|
Foreign
Currency Par
Amount or
Principal
Amount
|
|
|
Value in
U.S. Dollars
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Energy—continued
|
|
|
$100,000
|
|
Pemex Project Funding Master Trust, Sr. Unsecd. Note,
6.625%, 6/15/2038
|
$84,430
|
|
64,000
|
|
Petrobras Global Finance BV, Sr. Unsecd. Note, 5.600%, 1/3/2031
|
68,601
|
|
200,000
|
|
Petrobras Global Finance BV, Sr. Unsecd. Note,
6.900%, 3/19/2049
|
231,143
|
|
30,000
|
|
Petroleos Mexicanos, Sr. Unsecd. Note, 6.750%, 9/21/2047
|
25,100
|
|
200,000
|
|
Petroleos Mexicanos, Sr. Unsecd. Note, REGS, 6.840%, 1/23/2030
|
193,045
|
|
80,000
|
|
Petroleos Mexicanos, Sr. Unsecd. Note, REGS, 6.950%, 1/28/2060
|
66,688
|
|
430,000
|
|
Range Resources Corp., Sr. Unsecd. Note, 4.875%, 5/15/2025
|
402,276
|
|
|
|
TOTAL
|
2,691,976
|
|
|
|
Financial Services—1.4%
|
|
|
400,000
|
1
|
Barclays Bank plc, Jr. Sub. Deb., 6.278%, 12/15/2168
|
453,848
|
|
|
|
Health Care—6.0%
|
|
|
EUR 200,000
|
1
|
Eurofins Scientific SE, Jr. Sub. Note, 3.250%, 11/13/2168
|
235,755
|
|
380,000
|
|
Grifols SA, Sec. Fac. Bond, REGS, 2.250%, 11/15/2027
|
454,542
|
|
$360,000
|
|
HCA, Inc., Sr. Unsecd. Note, 3.500%, 9/1/2030
|
378,000
|
|
EUR 100,000
|
|
Iqvia, Inc., Sr. Unsecd. Note, 144A, 2.875%, 6/15/2028
|
122,099
|
|
$200,000
|
|
Iqvia, Inc., Sr. Unsecd. Note, 144A, 5.000%, 5/15/2027
|
210,914
|
|
550,000
|
|
Tenet Healthcare Corp., 144A, 4.875%, 1/1/2026
|
572,682
|
|
|
|
TOTAL
|
1,973,992
|
|
|
|
Insurance—1.4%
|
|
|
GBP 325,000
|
1
|
Phoenix Group Holdings PLC, Jr. Sub. Deb., 5.750%, 10/26/2168
|
442,092
|
|
|
|
Media—5.9%
|
|
|
EUR 100,000
|
|
Altice France Holding SA, Sr. Unsecd. Note, 4.000%, 2/15/2028
|
110,443
|
|
$400,000
|
|
CCO Holdings LLC/Cap Corp., Sr. Unsecd. Note, 144A,
4.750%, 3/1/2030
|
430,240
|
|
300,000
|
|
CSC Holdings LLC, Sr. Unsecd. Note, 144A, 3.375%, 2/15/2031
|
296,346
|
|
EUR 104,000
|
|
United Group B.V., Sr. Secd. Note, REGS, 3.625%, 2/15/2028
|
119,623
|
|
GBP 369,000
|
|
Virgin Media Secured Finance PLC, Sec. Fac. Bond, REGS,
4.250%, 1/15/2030
|
500,760
|
|
EUR 391,000
|
|
Ziggo Bond Co. BV, Sr. Unsecd. Note, REGS, 3.375%, 2/28/2030
|
457,892
|
|
|
|
TOTAL
|
1,915,304
|
|
|
|
Real Estate—2.2%
|
|
|
200,000
|
|
ADLER Real Estate AG, Sr. Unsecd. Note, 3.000%, 4/27/2026
|
236,130
|
|
$200,000
|
|
Country Garden Holdings Co., 5.125%, 1/17/2025
|
209,000
|
Annual Shareholder Report
11
|
Foreign
Currency Par
Amount or
Principal
Amount
|
|
|
Value in
U.S. Dollars
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Real Estate—continued
|
|
|
GBP 200,000
|
|
MPT Operating Partnership LP / MPT Finance Corp., Sr. Unsecd.
Note, 3.692%, 6/5/2028
|
$268,633
|
|
|
|
TOTAL
|
713,763
|
|
|
|
Retail—1.0%
|
|
|
$100,000
|
|
L Brands, Inc., Sr. Unsecd. Note, 7.600%, 7/15/2037
|
92,429
|
|
GBP 100,000
|
|
Marks & Spencer PLC, Sr. Unsecd. Note, 3.250%, 7/10/2027
|
133,071
|
|
$100,000
|
|
Marks & Spencer PLC, Sr. Unsecd. Note, REGS,
7.125%, 12/1/2037
|
103,783
|
|
|
|
TOTAL
|
329,283
|
|
|
|
Services—0.7%
|
|
|
EUR 200,000
|
|
Catalent Pharma Solutions, Inc., Sr. Unsecd. Note, REGS,
2.375%, 3/1/2028
|
231,671
|
|
|
|
Technology & Electronics—1.4%
|
|
|
$100,000
|
|
Dell, Inc., Sr. Unsecd. Note, 5.400%, 9/10/2040
|
107,429
|
|
225,000
|
|
Dell, Inc., Sr. Unsecd. Note, 6.500%, 4/15/2038
|
262,491
|
|
69,000
|
|
NXP BV / NXP Funding LLC / NXP USA Inc., Sr. Unsecd. Note,
144A, 3.400%, 5/1/2030
|
76,546
|
|
|
|
TOTAL
|
446,466
|
|
|
|
Telecommunications—10.1%
|
|
|
EUR 100,000
|
|
Altice Financing SA, Sr. Unsecd. Note, REGS, 3.000%, 1/15/2028
|
113,987
|
|
300,000
|
|
Altice France SA, Sec. Fac. Bond, REGS, 3.375%, 1/15/2028
|
353,611
|
|
100,000
|
|
Cellnex Telecom S.A., Sr. Unsecd. Note, 1.875%, 6/26/2029
|
120,951
|
|
$25,000
|
|
CenturyLink, Inc., Sec. Fac. Bond, 144A, 4.000%, 2/15/2027
|
25,438
|
|
175,000
|
|
CenturyLink, Inc., Sr. Unsecd. Note, Series P, 7.600%, 9/15/2039
|
202,062
|
|
250,000
|
|
Embarq Corp., Sr. Unsecd. Note, 7.995%, 6/1/2036
|
300,363
|
|
400,000
|
|
Millicom International Cellular S. A., Sr. Unsecd. Note, 144A,
6.250%, 3/25/2029
|
444,074
|
|
300,000
|
1
|
Network i2i Ltd., Sub. Deb., REGS, 5.650%, 4/15/2169
|
303,150
|
|
40,000
|
|
T-Mobile USA, Inc., 144A, 4.375%, 4/15/2040
|
48,146
|
|
21,000
|
|
T-Mobile USA, Inc., Sec. Fac. Bond, 144A, 2.550%, 2/15/2031
|
21,985
|
|
300,000
|
|
T-Mobile USA, Inc., Sr. Unsecd. Note, 4.750%, 2/1/2028
|
323,625
|
|
275,000
|
|
Telecom Italia Capital SA, Sr. Unsecd. Note, 6.000%, 9/30/2034
|
334,924
|
|
EUR 100,000
|
1
|
Telefonica Europe BV, Jr. Sub. Note, 2.625%, 6/7/2169
|
118,328
|
|
100,000
|
1
|
Telefonica Europe BV, Sub., 2.502%, 5/5/2169
|
113,282
|
|
$200,000
|
|
Turk Telekomunikasyon AS, Sr. Unsecd. Note, REGS,
4.875%, 6/19/2024
|
196,950
|
Annual Shareholder Report
12
At August 31, 2020, the Fund had the following outstanding futures contracts:
Annual Shareholder Report
13
At August 31, 2020, the Fund had the following open swap contracts:
Credit Default Swaps
|
Counterparty
|
Reference
Entity
|
Buy/
Sell
|
Pay/
Receive
Fixed
Rate
|
Expiration
Date
|
Implied
Credit
Spread at
8/31/20207
|
Notional
Amount
|
Market
Value
|
Upfront
Premiums
Paid
(Received)
|
Unrealized
Appreciation
|
|
OTC Swaps:
|
|||||||||
|
JP
Morgan
Chase
|
Arcelor
Mittal
|
Sell
|
5.00%
|
12/20/2023
|
1.55%
|
$ 50,000
|
$6,641
|
$5,395
|
$1,246
|
|
BNP
Paribas
|
Arcelor
Mittal
|
Sell
|
5.00%
|
12/20/2026
|
2.55%
|
$ 300,000
|
$58,425
|
$52,427
|
$5,998
|
|
JP
Morgan
Chase
|
Dell Inc.
|
Sell
|
1.00%
|
12/20/2023
|
1.26%
|
$ 125,000
|
$(1,048)
|
$(1,762)
|
$714
|
|
JP
Morgan
Chase
|
Fiat
Chrysler
Automobiles
NV
|
Sell
|
5.00%
|
12/20/2023
|
1.63%
|
$ 75,000
|
$9,623
|
$5,798
|
$3,825
|
|
JP
Morgan
Chase
|
General
Motors Co
|
Sell
|
5.00%
|
12/20/2023
|
1.17%
|
$ 50,000
|
$6,165
|
$5,416
|
$749
|
|
Citibank,
N.A.
|
Telecom
Italia
SpA/
Milano
|
Sell
|
1.00%
|
12/20/2023
|
1.21%
|
$ 100,000
|
$(799)
|
$(2,116)
|
$1,317
|
|
JP
Morgan
Chase
|
Virgin
Media
Finance PLC
|
Sell
|
5.00%
|
12/20/2023
|
1.61%
|
$ 50,000
|
$6,765
|
$6,429
|
$336
|
|
JP
Morgan
Chase
|
Ziggo
Bond Co
|
Sell
|
5.00%
|
12/20/2023
|
1.39%
|
$ 50,000
|
$7,129
|
$6,928
|
$201
|
|
TOTAL CREDIT DEFAULT SWAPS
|
$92,901
|
$78,515
|
$14,386
|
||||||
Annual Shareholder Report
14
At August 31, 2020, the Fund had the following outstanding foreign
exchange contracts:
|
Settlement Date
|
Counterparty
|
Foreign Currency
Units to
Receive/Deliver
|
In
Exchange
For
|
Unrealized
Depreciation
|
|
Contracts Sold:
|
||||
|
9/16/2020
|
Northern Trust Company
|
250,000 EUR
|
$ 294,805
|
$(3,640)
|
|
9/16/2020
|
Royal Bank of Canada
|
2,800,000 EUR
|
$ 3,164,832
|
$(177,750)
|
|
9/16/2020
|
Royal Bank of Canada
|
100,000 EUR
|
$ 118,619
|
$(758)
|
|
9/16/2020
|
Royal Bank of Canada
|
70,000 EUR
|
$ 80,111
|
$(3,454)
|
|
9/16/2020
|
Royal Bank of Canada
|
1,159,950 GBP
|
$ 1,454,629
|
$(96,117)
|
|
9/16/2020
|
Royal Bank of Canada
|
120,000 GBP
|
$ 151,121
|
$(9,308)
|
|
9/16/2020
|
State Street
|
2,800,000 EUR
|
$ 3,164,703
|
$(177,879)
|
|
9/16/2020
|
State Street
|
200,000 EUR
|
$ 235,114
|
$(3,642)
|
|
9/16/2020
|
State Street
|
690,050 GBP
|
$ 865,322
|
$(57,211)
|
|
NET UNREALIZED DEPRECIATION ON FOREIGN EXCHANGE CONTRACTS
|
$(529,759)
|
|||
Net Unrealized Depreciation on Futures Contracts and Foreign Exchange Contracts and
value for Swap Contracts is included in “Other Assets and Liabilities—Net.”
1
Perpetual Bond Security. The maturity date reflects the next call date.
2
Floating/variable note with current rate and current maturity or next reset date shown.
3
Discount rate at time of purchase.
4
Also represents cost for federal tax purposes.
5
Assets, other than investments in securities, less liabilities. See Statement of Assets
and Liabilities.
6
Non-income-producing security.
7
Implied credit spreads, represented in absolute terms, utilized in determining the market value
of credit default swap agreements serve as an indicator of the current status of the
payment/performance risk and represent the likelihood or risk of default for the credit
derivative. The implied credit spread of a particular referenced entity reflects the cost of
buying/selling protection and may include upfront payments required to be made to enter into
the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit
soundness and a greater likelihood or risk of default or other credit event occurring as defined
under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit
event has occurred for the referenced entity or obligation.
Note: The categories of investments are shown as a percentage of total net assets at
August 31, 2020.
Various inputs are used in determining the value of the Fund’s investments. These inputs
are summarized in the three broad levels listed below:
Level 1—quoted prices in active markets for identical securities.
Level 2—other significant observable inputs (including quoted prices for similar
securities, interest rates, prepayment speeds, credit risk, etc.). Also includes
securities valued at amortized cost.
Level 3—significant unobservable inputs (including the Fund’s own assumptions in
determining the fair value of investments).
The inputs or methodology used for valuing securities are not an indication of the risk
associated with investing in those securities.
Annual Shareholder Report
15
The following is a summary of the inputs used, as of August 31, 2020, in valuing the
Fund’s assets carried at fair value:
The following acronyms are used throughout this portfolio:
|
EMTN
|
—Euro Medium Term Note
|
|
EUR
|
—Euro
|
|
GBP
|
—Great British Pound
|
|
LIBOR
|
—London Interbank Offered Rates
|
|
OTC
|
—Over the Counter
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
16
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout the Period)
|
|
Period
Ended
8/31/20201
|
|
Net Asset Value, Beginning of Period
|
$10.00
|
|
Income From Investment Operations:
|
|
|
Net investment income
|
0.37
|
|
Net realized and unrealized gain
|
0.23
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.60
|
|
Less Distributions:
|
|
|
Distributions from net investment income
|
(0.26)
|
|
Net Asset Value, End of Period
|
$10.34
|
|
Total Return2
|
6.19%
|
|
Ratios to Average Net Assets:
|
|
|
Net expenses3
|
0.62%4,5
|
|
Net investment income
|
4.08%4
|
|
Expense waiver/reimbursement6
|
1.10%4
|
|
Supplemental Data:
|
|
|
Net assets, end of period (000 omitted)
|
$32,603
|
|
Portfolio turnover
|
36%
|
1
Reflects operations for the period from September 26, 2019 (date of initial investment) to
August 31, 2020.
2
Based on net asset value. Total returns for periods of less than one year are not annualized.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund
may invest.
4
Computed on an annualized basis.
5
The net expense ratio is calculated without reduction for expense offset arrangements. The net
expense ratio is 0.62% for the period ended August 31, 2020 after taking into account this
expense reduction.
6
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.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
17
Statement of Assets and Liabilities
August 31, 2020
|
Assets:
|
|
|
|
Investment in securities, at value (identified cost $29,366,564)
|
|
$31,135,169
|
|
Due from broker for swap contracts
|
|
386,350
|
|
Cash
|
|
350,804
|
|
Cash collateral on swap contracts
|
|
211,124
|
|
Cash denominated in foreign currencies (identified cost $130,301)
|
|
136,637
|
|
Receivable for investments sold
|
|
746,513
|
|
Income receivable
|
|
406,484
|
|
Receivable for shares sold
|
|
380,707
|
|
Swaps, at value (net premium paid of $82,393)
|
|
94,748
|
|
Receivable for periodic payments from swap contracts
|
|
7,153
|
|
TOTAL ASSETS
|
|
33,855,689
|
|
Liabilities:
|
|
|
|
Unrealized depreciation on foreign exchange contracts
|
$529,759
|
|
|
Payable for investments purchased
|
374,408
|
|
|
Due to broker
|
209,161
|
|
|
Payable for shares redeemed
|
5,608
|
|
|
Swaps, at value (net premium received of $3,878)
|
1,847
|
|
|
Payable for portfolio accounting fees
|
55,257
|
|
|
Payable to adviser (Note 5)
|
6,074
|
|
|
Payable for variation margin on futures contracts
|
26,000
|
|
|
Payable for administrative fee (Note 5)
|
287
|
|
|
Accrued expenses (Note 5)
|
44,209
|
|
|
TOTAL LIABILITIES
|
|
1,252,610
|
|
Net assets for 3,151,946 shares outstanding
|
|
$32,603,079
|
|
Net Assets Consists of:
|
|
|
|
Paid-in capital
|
|
$31,207,804
|
|
Total distributable earnings (loss)
|
|
1,395,275
|
|
TOTAL NET ASSETS
|
|
$32,603,079
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
|
|
|
|
Institutional Shares:
|
|
|
|
$32,603,079 ÷ 3,151,946 shares outstanding, no par value, unlimited
shares authorized
|
|
$10.34
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
18
Statement of Operations
Period Ended August 31, 20201
|
Investment Income:
|
|
|
|
|
Interest (net of foreign tax withheld of $2,080)
|
|
|
$1,187,319
|
|
Expenses:
|
|
|
|
|
Investment adviser fee (Note 5)
|
|
$151,664
|
|
|
Administrative fee (Note 5)
|
|
20,753
|
|
|
Custodian fees
|
|
10,868
|
|
|
Transfer agent fees (Note 2)
|
|
10,732
|
|
|
Auditing fees
|
|
33,220
|
|
|
Legal fees
|
|
9,240
|
|
|
Portfolio accounting fees
|
|
126,888
|
|
|
Share registration costs
|
|
56,633
|
|
|
Printing and postage
|
|
8,135
|
|
|
Miscellaneous (Note 5)
|
|
9,026
|
|
|
TOTAL EXPENSES
|
|
437,159
|
|
|
Waiver, Reimbursements and Reduction:
|
|
|
|
|
Waiver of investment adviser fee (Note 5)
|
$(151,664)
|
|
|
|
Reimbursements of other operating expenses (Notes 2 and 5)
|
(127,534)
|
|
|
|
Reduction of custodian fees (Note 6)
|
(765)
|
|
|
|
TOTAL WAIVER, REIMBURSEMENTS AND REDUCTION
|
|
(279,963)
|
|
|
Net expenses
|
|
|
157,196
|
|
Net investment income
|
|
|
$1,030,123
|
Annual Shareholder Report
19
Statement of Operations–continued
|
Realized and Unrealized Gain (Loss) on Investments,
Foreign Exchange Contracts, Futures Contracts, Swap
Contracts and Foreign Currency Transactions:
|
|
|
|
|
Net realized loss on investments and foreign
currency transactions
|
|
|
$(254,991)
|
|
Net realized gain on foreign exchange contracts
|
|
|
192,797
|
|
Net realized loss on futures contracts
|
|
|
(383,345)
|
|
Net realized gain on swap contracts
|
|
|
242,705
|
|
Net change in unrealized appreciation of investments and
translation of assets and liabilities in foreign currency
|
|
|
1,791,846
|
|
Net change in unrealized appreciation of foreign
exchange contracts
|
|
|
(529,759)
|
|
Net change in unrealized appreciation of futures contracts
|
|
|
(14,316)
|
|
Net change in unrealized appreciation of swap contracts
|
|
|
14,386
|
|
Net realized and unrealized gain (loss) on investments,
foreign exchange contracts, futures contracts, swap contracts
and foreign currency transactions
|
|
|
1,059,323
|
|
Change in net assets resulting from operations
|
|
|
$2,089,446
|
1
Reflects operations for the period from September 26, 2019 (date of initial investment) to
August 31, 2020.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
20
Statement of Changes in Net Assets
|
|
Period
Ended
8/31/20201
|
|
Increase (Decrease) in Net Assets
|
|
|
Operations:
|
|
|
Net investment income
|
$1,030,123
|
|
Net realized loss
|
(202,834)
|
|
Net change in unrealized appreciation/depreciation
|
1,262,157
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
2,089,446
|
|
Distributions to Shareholders:
|
(694,171)
|
|
Share Transactions:
|
|
|
Proceeds from sale of shares
|
31,528,150
|
|
Net asset value of shares issued to shareholders in payment of distributions declared
|
640,027
|
|
Cost of shares redeemed
|
(960,373)
|
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
31,207,804
|
|
Change in net assets
|
32,603,079
|
|
Net Assets:
|
|
|
Beginning of period
|
—
|
|
End of period
|
32,603,079
|
1
Reflects operations for the period from September 26, 2019 (date of initial investment) to
August 31, 2020.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
21
Notes to Financial Statements
August 31, 2020
1. ORGANIZATION
Federated Hermes Adviser Series (the “Trust”) is registered under the Investment
Company Act of 1940, as amended (the “Act”), as an open-end management
investment company. The Trust consists of 11 portfolios. The financial statements
included herein are only those of the Federated Hermes SDG Engagement High Yield
Credit Fund (the “Fund”), a diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are segregated and a
shareholder’s interest is limited to the portfolio in which shares are held. Each portfolio
pays its own expenses. The Fund offers one class of shares, Institutional Shares, which
commenced operations on September 26, 2019. Class A Shares, Class C Shares and
Class R6 Shares are effective with the Securities and Exchange Commission (SEC), but
are not yet offered for sale. All shares of the Fund have equal rights with respect to
voting, except on class-specific matters. The Fund’s investment objective is to seek
current income and long term capital appreciation alongside positive societal impact.
Prior to June 29, 2020, the name of the Trust was Federated Adviser Series.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements. These policies are in conformity
with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (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 Fund’s Board of Trustees (the “Trustees”).
■ Equity securities listed on an exchange or traded through a regulated market system
are valued at their last reported sale price or official closing price in their principal
exchange or market.
■ 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
asked quotations.
■ Over-the-counter (OTC) derivative contracts are fair valued using price evaluations
provided by a pricing service approved by the Trustees.
■ Shares of other mutual funds or non-exchange-traded investment companies are
valued based upon their reported NAVs.
■ For securities that are fair valued in accordance with procedures established by and
under the general supervision of the Trustees, certain factors may be considered,
such as: the last traded or purchase price of the security, information obtained by
contacting the issuer or dealers, analysis of the issuer’s financial statements or other
available documents, fundamental analytical data, the nature and duration of
restrictions on disposition, the movement of the market in which the security is
normally traded, public trading in similar securities or derivative contracts of the
issuer or comparable issuers, movement of a relevant index, or other factors including
but not limited to industry changes and relevant government actions.
Annual Shareholder Report
22
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 Fund’s valuation policies and procedures, or if information
furnished by a pricing service, in the opinion of the valuation committee (“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
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, and the actual value obtained could be
materially different.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments
for which market quotations are not readily available. The Trustees have appointed a
Valuation Committee comprised of officers of the Fund, Federated Investment
Management Company (the “Adviser”) and certain of the Adviser’s affiliated companies
to assist in determining fair value and in overseeing the calculation of the NAV. The
Trustees have also authorized the use of pricing services recommended by the Valuation
Committee to provide fair value evaluations of the current value of certain investments
for purposes of calculating the NAV. The Valuation Committee employs various methods
for reviewing third-party pricing-service evaluations including periodic reviews of
third-party pricing services’ policies, procedures and valuation methods (including key
inputs, methods, models and assumptions), transactional back-testing, comparisons of
evaluations of different pricing services and review of price challenges by the Adviser
based on recent market activity. 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 Trustees. The
Trustees periodically review and approve the fair valuations made by the Valuation
Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields
or prices of investments of comparable quality, coupon, maturity, call rights and other
potential prepayments, terms and type, reported transactions, indications as to values
from dealers and general market conditions. Some pricing services provide a single
price evaluation reflecting the bid-side of the market for an investment (a “bid”
evaluation). Other pricing services offer both bid evaluations and price evaluations
indicative of a price between the prices bid and asked for the investment (a “mid”
evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency
securities, mortgage-backed securities and municipal securities. The Fund normally uses
mid evaluations for any other types of fixed-income securities and any OTC derivative
contracts. In the event that market quotations and price evaluations are not available for
an investment, the fair value of the investment is determined in accordance with
procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at
its fair value whenever the Adviser 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
Annual Shareholder Report
23
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 principally traded 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;
■ Announcements concerning matters such as acquisitions, recapitalizations, litigation
developments, or a natural disaster affecting the issuer’s operations or regulatory
changes or market developments affecting the issuer’s industry.
The Trustees have 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 Fund will determine the fair value
of the investment in accordance with the fair valuation procedures approved by the
Trustees. The Trustees have ultimate responsibility for any fair valuations made in
response to a significant event.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and
losses from investment transactions are recorded on an identified-cost basis. Interest
income and expenses are accrued daily. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on
the ex-dividend date or when the Fund is informed of the ex-dividend date.
Distributions of net investment income, if any, are declared and paid monthly. Non-cash
dividends included in dividend income, if any, are recorded at fair value.
Amortization/accretion of premium and discount is included in investment income. The
detail of the total fund expense waiver, reimbursements and reduction of $279,963 is
disclosed in various locations in Note 2, Note 5 and Note 6.
For period ended August 31, 2020, transfer agent fees for the Fund were as follows:
|
|
Transfer Agent
Fees Incurred
|
Transfer Agent
Fees Reimbursed
|
|
Institutional Shares
|
$10,732
|
$(898)
|
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the
Fund’s Institutional Shares to unaffiliated financial intermediaries or to Federated
Shareholder Services Company (FSSC) for providing services to shareholders and
maintaining shareholder accounts. Subject to the terms described in the Expense
Limitation note, FSSC may voluntarily reimburse the Fund for other service fees.
For the period ended August 31, 2020, the Fund’s Institutional Shares did not incur
other service fees.
Annual Shareholder Report
24
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal
Revenue Code (the “Code”) and to distribute to shareholders each year substantially all
of its income. Accordingly, no provision for federal income tax is necessary. As of and
during the period ended August 31, 2020, the Fund did not have a liability for any
uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax
liabilities as income tax expense in the Statement of Operations. As of August 31, 2020,
the current tax year will be subject to examination by the Fund’s major tax jurisdictions,
which include the United States of America and the state of Delaware.
The Fund may be subject to taxes imposed by governments of countries in which it
invests. Such taxes are generally based on either income or gains earned or repatriated.
The Fund accrues and applies such taxes to net investment income, net realized gains
and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund
records when-issued securities on the trade date and maintains security positions such
that sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed-delivery basis are marked
to market daily and begin earning interest on the settlement date. Losses may occur on
these transactions due to changes in market conditions or the failure of counterparties
to perform under the contract.
Swap Contracts
Swap contracts involve two parties that agree to exchange the returns (or the
differential in rates of return) earned or realized on particular predetermined
investments, instruments, indices or other measures. The gross returns to be exchanged
or “swapped” between parties are generally calculated with respect to a “notional
amount” for a determined period of time. The Fund may enter into interest rate, total
return, credit default, currency and other swap agreements to seek to increase yield,
income and return and to manage country, currency, security, market and sector/asset
class risks. Risks may arise upon entering into swap agreements from the potential
inability of the counterparties to meet the terms of their contract from unanticipated
changes in the value of the swap agreement. In connection with these agreements,
securities or cash may be identified as collateral or margin in accordance with the terms
of the respective swap agreements to provide assets of value and recourse in the event
of default.
The Fund is subject to interest rate risk exposure in the normal course of pursuing its
investment objectives. Because the Fund holds fixed rate bonds, the value of these
bonds may decrease if interest rates rise. Interest rate swap agreements generally
involve the agreement by the Fund to pay the counterparty a fixed or floating interest
rate on a fixed notional amount and to receive a fixed or floating rate on a fixed notional
amount, but may also involve the agreement to pay or receive payments derived from
changes in interest rates. Periodic payments are generally made during the life of the
swap agreement according to the terms and conditions of the agreement and at
termination or maturity. The Fund’s maximum risk of loss from counterparty credit risk is
the discounted value of the net cash flows to be received from/paid to the counterparty
Annual Shareholder Report
25
over the contract’s remaining life, to the extent the amount is positive. This risk is
mitigated by having a master netting arrangement between the Fund and the
counterparty and by the posting of collateral by the counterparty to the Fund to cover
the Fund’s exposure to the counterparty.
The “buyer” in a credit default swap is obligated to pay the “seller” a periodic stream
of payments over the term of the contract provided that no event of default on an
underlying reference obligation has occurred. If an event of default occurs, the seller
must pay the buyer the full notional value, or the “par value,” of the reference
obligation in exchange for the reference obligation. In connection with these
agreements, securities may be identified as collateral in accordance with the terms of
the respective swap agreements to provide assets of the value and recourse in the event
of default or bankruptcy/solvency. Recovery values are assumed by market makers
considering either industry standard recovery rates or entity specific factors and
considerations until a credit event occurs. If a credit event has occurred, the recovery
value is typically determined by a facilitated auction whereby a minimum number of
allowable broker bids, together with a specific valuation method, are used to calculate
the settlement value. The maximum amount of the payment that may occur, as a result
of a credit event payable by the protection seller, is equal to the notional amount of the
underlying index or security. The Fund’s maximum exposure to loss of the notional value
of credit default swaps outstanding at August 31, 2020, is $800,000. The Fund’s
maximum risk of loss from counterparty credit risk, either as the protection buyer or as
the protection seller, is the fair value of the contract. This risk is mitigated by having a
master netting arrangement between the Fund and the counterparty and by the posting
of collateral by the counterparty to the Fund to cover the Fund’s exposure to
the counterparty.
Upfront payments received or paid by the Fund will be reflected as an asset or
liability on the Statement of Assets and Liabilities. Changes in the value of swap
contracts are included in “Swaps, at value” on the Statement of Assets and Liabilities,
and periodic payments are reported as “Net realized gain (loss) on swap contracts” in
the Statement of Operations.
Certain swap contracts are subject to Master Netting Agreements (MNA) which are
agreements between the Fund and its counterparties that provides for the net
settlement of all transactions and collateral with the Fund, through a single payment, in
the event of default or termination. Amounts presented on the Portfolio of Investments
and Statement of Assets and Liabilities are not net settlement amounts but gross. The
cash or securities deposited in a segregated account offsets the amount due to the
broker reducing the net settlement amount to zero.
Certain swap contracts may be centrally cleared (“centrally cleared swaps”), whereby
all payments made or received by the Fund pursuant to the contract are with a central
clearing party (CCP) rather than the counterparty. The CCP guarantees the performance
of the parties to the contract. Upon entering into centrally cleared swaps, the Fund is
required to deposit with the CCP, either in cash or securities, an amount of initial margin
determined by the CCP, which is subject to adjustment. For centrally cleared swaps, the
daily change in valuation is recorded as a receivable or payable for variation margin and
settled in cash with the CCP daily. In the case of centrally cleared swaps, counterparty
risk is minimal due to protections provided by the CCP.
Swaps, at value at period end, including net unrealized appreciation, are listed after
the Fund’s Portfolio of Investments.
Annual Shareholder Report
26
The average notional amount of credit default swap contracts held by the Fund
throughout the period was $958,462. This is based on amounts held as of each
month-end throughout the fiscal period.
Foreign Exchange Contracts
The Fund may enter into foreign exchange contracts to seek to manage currency risk.
Purchased contracts are used to acquire exposure to foreign currencies, whereas,
contracts to sell are used to hedge the Fund’s securities against currency fluctuations.
Risks may arise upon entering into these transactions from the potential inability of
counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign exchange contracts
are adjusted by the daily exchange rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized until the
settlement date.
Foreign exchange contracts are subject to MNA which are agreements between the
Fund and its counterparties that provides for the net settlement of all transactions and
collateral with the Fund, through a single payment, in the event of default or
termination. Amounts presented on the Portfolio of Investments and Statement of
Assets and Liabilities are not net settlement amounts but gross.
Foreign exchange contracts outstanding at period end, including net unrealized
depreciation or net settlement amount, are listed after the Fund’s Portfolio
of Investments.
The average value at settlement date payable and receivable of foreign exchange
contracts purchased and sold by the Fund throughout the period was $12,832 and
$39,311, respectively. This is based on the amounts held as of each month-end
throughout the fiscal period.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars based on the
rates of exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded. The Fund
does not isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends, interest and
foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent
of the amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities other than investments in
securities at period end, resulting from changes in the exchange rate.
Annual Shareholder Report
27
Futures Contracts
The Fund purchases and sells financial futures contracts to seek to manage duration risk.
Upon entering into a financial futures contract with a broker, the Fund is required to
deposit with a broker, either U.S. government securities or a specified amount of cash,
which is shown as due from broker in the Statement of Assets and Liabilities. Futures
contracts are valued daily and unrealized gains or losses are recorded in a “variation
margin” account. The Fund receives from or pays to the broker a specified amount of
cash based upon changes in the variation margin account. When a contract is closed,
the Fund recognizes a realized gain or loss. Futures contracts have market risks,
including the risk that the change in the value of the contract may not correlate with the
changes in the value of the underlying securities. There is minimal counterparty risk to
the Fund since futures contracts are exchange traded and the exchange’s clearing
house, as counterparty to all exchange traded futures contracts, guarantees the futures
contracts against default.
Futures contracts outstanding at period end are listed after the Fund’s Portfolio
of Investments.
The average notional values of short futures contracts held by the Fund throughout
the period was $3,682,626. This is based on amounts held as of each month-end
throughout the fiscal period.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities
are securities that either: (a) cannot be offered for public sale without first being
registered, or being able to take advantage of an exemption from registration, under
the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In
some cases, when a security cannot be offered for public sale without first being
registered, the issuer of the restricted security has agreed to register such securities for
resale, at the issuer’s expense, either upon demand by the Fund or in connection with
another registered offering of the securities. Many such restricted securities may be
resold in the secondary market in transactions exempt from registration. Restricted
securities may be determined to be liquid under criteria established by the Trustees. The
Fund will not incur any registration costs upon such resales. The Fund’s restricted
securities, like other securities, are priced in accordance with procedures established by
and under the general supervision of the Trustees.
Annual Shareholder Report
28
Additional Disclosure Related to Derivative Instruments
|
Fair Value of Derivative Instruments
|
||||
|
|
Asset
|
Liability
|
||
|
|
Statement of
Assets and
Liabilities
Location
|
Fair
Value
|
Statement of
Assets and
Liabilities
Location
|
Fair
Value
|
|
Derivatives not accounted for
as hedging instruments under
ASC Topic 815
|
|
|
|
|
|
Foreign exchange contracts
|
Unrealized
appreciation
on foreign
exchange contracts
|
$—
|
Unrealized
depreciation
on foreign
exchange contracts
|
$529,759
|
|
Credit contracts
|
Swaps,
at value
|
94,748
|
Swaps,
at value
|
1,847
|
|
Interest rate
|
Receivable for
variation margin on
futures contracts
|
—
|
Payable for variation
margin on
future contracts
|
14,316*
|
|
Total derivatives not accounted
for as hedging instruments
under ASC Topic 815
|
|
$94,748
|
|
$545,922
|
*
Includes cumulative depreciation of futures contracts as reported in the footnotes to the
Portfolio of Investments. Only the current day’s variation margin is reported within the Statement
of Assets and Liabilities
The Effect of Derivative Instruments on the Statement of Operations
for the Period Ended August 31, 2020
Annual Shareholder Report
29
As indicated above, certain derivative investments are transacted subject to MNA.
These agreements permit the Fund to offset with a counterparty certain derivative
payables and/or receivables with collateral held and create one single net payment in
the event of default or termination of the agreement by either the Fund or the
counterparty. As of August 31, 2020, the impact of netting assets and liabilities and the
collateral pledged or received based on MNA are detailed below:
|
Transaction
|
Gross Liability
Derivatives
Presented in
Statement of
Assets and
Liabilities
|
Financial
Instrument
|
Collateral
Pledged
|
Net Amount
|
|
Swap Contracts
|
$1,847
|
$(1,847)
|
$—
|
$—
|
|
Foreign Exchange Contracts
|
529,759
|
—
|
—
|
529,759
|
|
TOTAL
|
$531,606
|
$(1,847)
|
$—
|
$529,759
|
Other
The preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results could differ
materially from those estimated. The Fund applies investment company accounting and
reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
|
|
Period Ended
8/31/20201
|
|
Shares sold
|
3,184,603
|
|
Shares issued to shareholders in payment of distributions declared
|
65,846
|
|
Shares redeemed
|
(98,503)
|
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS
|
3,151,946
|
1
Reflects operations for the period September 26, 2019 (date of initial investment) to
August 31, 2020.
Annual Shareholder Report
30
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net
Assets for the period ended August 31, 2020, was as follows:
|
|
2020
|
|
Ordinary income
|
$694,171
|
As of August 31, 2020, the components of distributable earnings on a tax-basis were
as follows:
|
Undistributed Ordinary income
|
$302,019
|
|
Net unrealized appreciation
|
$1,791,846
|
|
Capital Loss Carryforwards
|
$(698,590)
|
The difference between book-basis and tax-basis net unrealized appreciation is
attributable to differing treatments for the mark to market of derivative instruments.
At August 31, 2020, the cost of investments for federal tax purposes was
$29,366,564. The net unrealized appreciation of investments for federal tax purposes
was $1,768,605. This consists of net unrealized appreciation from investments for those
securities having an excess of value over cost of $1,864,777 and net unrealized
depreciation from investments for those securities having an excess of cost over value of
$96,172. The amounts presented are inclusive of derivative contracts.
As of August 31, 2020, the Fund had a capital loss carryforward of $698,590 which
will reduce the Fund’s taxable income arising from future net realized gains on
investments, if any, to the extent permitted by the Code, thereby reducing the amount
of distributions to shareholders which would otherwise be necessary to relieve the Fund
of any liability for federal income tax. Pursuant to the Code, these net capital losses
retain their character as either short-term or long-term and do not expire.
The following schedule summarizes the Fund’s capital loss carryforwards:
|
Short-Term
|
Long-Term
|
Total
|
|
$141,267
|
$557,323
|
$698,590
|
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS
WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee
equal to 0.60% of the Fund’s average daily net assets. Subject to the terms described in
the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of
its fee and/or reimburse certain operating expenses of the Fund. For the period ended
August 31, 2020, the Adviser voluntarily waived its entire fee of $151,664 and voluntarily
reimbursed $898 of transfer agent fees and $126,636 of other operating expenses.
Some or all of the Fund’s assets are managed by Hermes Investment Management
Limited (the “Sub-Adviser”). Under the terms of a sub-advisory agreement between the
Adviser and the Sub-Adviser, the Sub-Adviser receives an annual fee equal to 0.35% of
the daily net assets of the Fund. The fee is paid by the Adviser out of its resources and is
Annual Shareholder Report
31
not an incremental Fund expense. The Sub-Adviser may from time to time and for such
periods as it deems appropriate reduce its compensation. The Sub-Adviser agrees to
share pro rata in any fee waivers, or expense assumptions and reimbursements, imposed
or made by the Adviser or its affiliates.
For the period ended August 31, 2020, the Sub-Adviser waived all of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement,
provides the Fund with administrative personnel and services. For purposes of
determining the appropriate rate breakpoint, “Investment Complex” is defined as all of
the Federated Hermes Funds subject to a fee under the Administrative Services
Agreement. The fee paid to FAS is based on the average daily net assets of the
Investment Complex as specified below:
|
Administrative Fee
|
Average Daily Net Assets
of the Investment Complex
|
|
0.100%
|
on assets up to $50 billion
|
|
0.075%
|
on assets over $50 billion
|
Subject to the terms described in the Expense Limitation note, FAS may voluntarily
choose to waive any portion of its fee. For the period ended August 31, 2020, the
annualized fee paid to FAS was 0.082% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Expense Limitation
The Adviser and certain of its affiliates (which may include FAS and FSSC) on their own
initiative have agreed to waive certain amounts of their respective fees and/or reimburse
expenses. Total annual fund operating expenses (as shown in the financial highlights,
excluding interest expense, extraordinary expenses and proxy related expenses paid by
the Fund, if any) paid by the Fund’s Institutional Shares (after the voluntary waivers and
reimbursements) will not exceed 0.62% (the “Fee Limit”), up to but not including the
later of (the “Termination Date”): (a) November 1, 2021; or (b) the date of the Fund’s
next effective Prospectus. While the Adviser and its applicable affiliates currently do not
anticipate terminating or increasing these arrangements prior to the Termination Date,
these arrangements may only be terminated or the Fee Limit increased prior to the
Termination Date with the agreement of the Trustees.
Directors’/Trustees’ and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of
certain of the above companies. To efficiently facilitate payment, Independent
Directors’/Trustees’ fees and certain expenses related to conducting meetings of the
Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the
Adviser which in due course are reimbursed by the Fund. These expenses related to
conducting meetings of the Directors/Trustees and other miscellaneous expenses may
be included in Accrued and Miscellaneous Expenses on the Statement of Assets and
Liabilities and Statement of Operations, respectively.
Annual Shareholder Report
32
6. EXPENSE REDUCTION
Through arrangements with the Fund’s custodian, net credits realized as a result of
uninvested cash balances were used to reduce custody expenses. For the period ended
August 31, 2020, the Fund’s expenses were reduced by $765 under
these arrangements.
7. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and
short-term obligations, for the period ended August 31, 2020, were as follows:
|
Purchases
|
$38,116,669
|
|
Sales
|
$9,066,912
|
8. 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 Fund, 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. The Fund’s
ability to borrow under the LOC also is subject to the limitations of the Act and various
conditions precedent that must be satisfied before the Fund can borrow. Loans under
the LOC are charged interest at a fluctuating rate per annum equal to the highest, on
any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank
Offered Rate (LIBOR), or a replacement rate as appropriate, and (iii) 0.0%, plus (b) a
margin. Any fund eligible to borrow under the LOC pays its pro rata share of an upfront
fee, and its pro rate share of a commitment fee based on the amount of the lenders’
commitment that has not been utilized, quarterly in arrears and at maturity. As of
August 31, 2020, the Fund had no outstanding loans. During the period ended
August 31, 2020, the Fund did not utilize the LOC.
9. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund, along with other funds
advised by subsidiaries of Federated Hermes, Inc., may participate in an interfund
lending program. This program provides an alternative credit facility allowing the Fund
to borrow from other participating affiliated funds. As of August 31, 2020, there were no
outstanding loans. During the period ended August 31, 2020, the program was
not utilized.
Annual Shareholder Report
33
10. other matters
An outbreak of respiratory disease caused by a novel coronavirus was first detected in
China in late 2019 and subsequently spread internationally. As of the date of the
issuance of these financial statements, this coronavirus has resulted in closing borders,
enhanced health screenings, healthcare service preparation and delivery, quarantines,
cancellations, disruptions to supply chains, workflow operations and customer activity,
as well as general concern and uncertainty. The impact of this coronavirus may be short
term or may last for an extended period of time and has resulted in a substantial
economic downturn. 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 market in general in significant
and unforeseen ways. Any such impact could adversely affect the Fund’s performance.
Annual Shareholder Report
34
Report of Independent Registered Public
Accounting Firm
To The Board of Trustees of Federated hermes ADVISER SERIES
and Shareholders of Federated Hermes SDG Engagement High
Yield Credit Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of the Federated Hermes SDG
Engagement High Yield Credit Fund (the “Fund”), a portfolio of Federated
Hermes Adviser Series (formerly, Federated Adviser Series), as of
August 31, 2020, the related statements of operations and changes in net assets
for the period from September 26, 2019 (date of initial investment) to
August 31, 2020 and the related notes (collectively, the “financial statements”)
and the financial highlights for period from September 26, 2019 (date of initial
investment) to August 31, 2020. In our opinion, the financial statements and
financial highlights present fairly, in all material respects, the financial position
of the Fund as of August 31, 2020, the results of its operations, changes in its
net assets, and financial highlights for the period from September 26, 2019
(date of initial investment) to August 31, 2020, in conformity with
U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the
Fund’s management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. We are a
public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Fund in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
Annual Shareholder Report
35
We conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement, whether due to error or fraud. Our
audit included performing procedures to assess the risks of material
misstatement of the financial statements and financial highlights, whether due
to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements and financial highlights.
Such procedures also included confirmation of securities owned as of
August 31, 2020, by correspondence with the custodian and brokers or by
other appropriate auditing procedures. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements and
financial highlights. We believe that our audit provides a reasonable basis for
our opinion.
We have served as the auditor of one or more Federated Hermes’ investment
companies since 2006.
Boston, Massachusetts
October 23, 2020
October 23, 2020
Annual Shareholder Report
36
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management
fees; and to the extent applicable, distribution (12b-1) fees and/or other service
fees and other Fund expenses. This Example is intended to help you to
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
It is based on an investment of $1,000 invested at the beginning of the period
and held for the entire period from March 1, 2020 to August 31, 2020.
ACTUAL EXPENSES
The first section of the table below provides information about actual account
values and actual expenses. You may use the information in this section,
together with the amount you invested, to estimate the expenses that you
incurred over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the first section under the heading entitled “Expenses
Paid During Period” to estimate the expenses attributable to your investment
during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund’s actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is
not the Fund’s actual return. Thus, you should not use the hypothetical account
values and expenses to estimate the actual ending account balance or your
expenses for the period. Rather, these figures are required to be provided to
enable you to compare the ongoing costs of investing in the Fund with other
funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of the other funds.
Annual Shareholder Report
37
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second section of the table is useful in
comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds.
|
|
Beginning
Account Value
3/1/2020
|
Ending
Account Value
8/31/2020
|
Expenses Paid
During Period1
|
|
Actual
|
$1,000
|
$1,040.70
|
$3.18
|
|
Hypothetical (assuming a 5% return
before expenses)
|
$1,000
|
$1,022.02
|
$3.15
|
1
Expenses are equal to the Fund’s annualized net expense ratios of 0.62%, multiplied by the
average account value over the period, multiplied by 184/366 (to reflect the one half
year period).
Annual Shareholder Report
38
Board of Trustees and Trust Officers
The Board of Trustees is responsible for managing the Trust’s business affairs
and for exercising all the Trust’s powers except those reserved for the
shareholders. The following tables give information about each Trustee and the
senior officers of the Fund. Where required, the tables separately list Trustees
who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those
who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address
of each person listed is 1001 Liberty Avenue, Pittsburgh, PA 15222. The
address of all Independent Trustees listed is 4000 Ericsson Drive,
Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of
December 31, 2019, the Trust comprised 11 portfolio(s), and the Federated
Hermes Fund Family consisted of 41 investment companies (comprising
135 portfolios). Unless otherwise noted, each Officer is elected annually.
Unless otherwise noted, each Trustee oversees all portfolios in the Federated
Hermes Fund Family and serves for an indefinite term. The Fund’s Statement
of Additional Information includes additional information about Trust Trustees
and is available, without charge and upon request, by calling 1-800-341-7400.
Interested TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
J. Christopher Donahue*
Birth Date: April 11, 1949
President and Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of the Funds in the Federated Hermes Fund Family; President,
Chief Executive Officer and Director, Federated Hermes, Inc.;
Chairman and Trustee, Federated Investment Management Company;
Trustee, Federated Investment Counseling; Chairman and Director,
Federated Global Investment Management Corp.; Chairman and
Trustee, Federated Equity Management Company of Pennsylvania;
Trustee, Federated Shareholder Services Company; Director,
Federated Services Company.
Previous Positions: President, Federated Investment Counseling;
President and Chief Executive Officer, Federated Investment
Management Company, Federated Global Investment Management
Corp. and Passport Research, Ltd; Chairman, Passport Research, Ltd.
|
Annual Shareholder Report
39
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held and Previous Position(s)
|
|
John B. Fisher*
Birth Date: May 16, 1956
Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Principal Executive Officer and President of
certain of the Funds in the Federated Hermes Fund Family; Director or
Trustee of certain of the Funds in the Federated Hermes Fund Family;
Vice President, Federated Hermes, Inc.; President, Director/Trustee
and CEO, Federated Advisory Services Company, Federated Equity
Management Company of Pennsylvania, Federated Global Investment
Management Corp., Federated Investment Counseling, Federated
Investment Management Company; President of some of the Funds in
the Federated Hermes Fund Family and Director, Federated Investors
Trust Company.
Previous Positions: President and Director of the Institutional Sales
Division of Federated Securities Corp.; President and Director of
Federated Investment Counseling; President and CEO of Passport
Research, Ltd.; Director, Edgewood Securities Corp.; Director,
Federated Services Company; Director, Federated Hermes, Inc.;
Chairman and Director, Southpointe Distribution Services, Inc. and
President, Technology, Federated Services Company.
|
*
Reasons for “interested” status: J. Christopher Donahue and John B. Fisher are interested due
to their beneficial ownership of shares of Federated Hermes, Inc. and due to positions they hold
with Federated Hermes, Inc. and its subsidiaries.
INDEPENDENT TRUSTEES Background
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
John T. Collins
Birth Date: January 24, 1947
Trustee
Indefinite Term
Began serving:
May 2017
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; formerly, Chairman and CEO, The Collins Group, Inc.
(a private equity firm) (Retired).
Other Directorships Held: Chairman of the Board of Directors,
Director, and Chairman of the Compensation Committee, KLX Energy
Services Holdings, Inc. (oilfield services); former Director of
KLX Corp. (aerospace).
Qualifications: Mr. Collins has served in several business and financial
management roles and directorship positions throughout his career.
Mr. Collins previously served as Chairman and CEO of The Collins
Group, Inc. (a private equity firm) and as a Director of KLX Corp.
Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins
previously served as Director and Audit Committee Member, Bank of
America Corp.; Director, FleetBoston Financial Corp.; and Director,
Beth Israel Deaconess Medical Center (Harvard University
Affiliate Hospital).
|
Annual Shareholder Report
40
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
G. Thomas Hough
Birth Date: February 28, 1955
Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Director or Trustee, Chair of the Audit
Committee of the Federated Hermes Fund Family; formerly, Vice
Chair, Ernst & Young LLP (public accounting firm) (Retired).
Other Directorships Held: Director, Chair of the Audit Committee,
Equifax, Inc.; Director, Member of the Audit Committee, Haverty
Furniture Companies, Inc.; formerly, Director, Member of Governance
and Compensation Committees, Publix Super Markets, Inc.
Qualifications: Mr. Hough has served in accounting, business
management and directorship positions throughout his career.
Mr. Hough most recently held the position of Americas Vice Chair of
Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough
serves on the President’s Cabinet and Business School Board of
Visitors for the University of Alabama. Mr. Hough previously served on
the Business School Board of Visitors for Wake Forest University, and
he previously served as an Executive Committee member of the
United States Golf Association.
|
|
Maureen Lally-Green
Birth Date: July 5, 1949
Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Adjunct Professor of Law, Duquesne University School of
Law; formerly, Dean of the Duquesne University School of Law and
Professor of Law and Interim Dean of the Duquesne University School
of Law; formerly, Associate General Secretary and Director, Office of
Church Relations, Diocese of Pittsburgh.
Other Directorships Held: Director, CNX Resources Corporation
(formerly known as CONSOL Energy Inc.).
Qualifications: Judge Lally-Green has served in various legal and
business roles and directorship positions throughout her career. Judge
Lally-Green previously held the position of Dean of the School of Law
of Duquesne University (as well as Interim Dean). Judge Lally-Green
previously served as a member of the Superior Court of Pennsylvania
and as a Professor of Law, Duquesne University School of Law. Judge
Lally-Green was appointed by the Supreme Court of Pennsylvania to
serve on the Supreme Court’s Board of Continuing Judicial Education
and the Supreme Court’s Appellate Court Procedural Rules
Committee. Judge Lally-Green also currently holds the positions on
not for profit or for profit boards of directors as follows: Director and
Chair, UPMC Mercy Hospital; Director and Vice Chair, Our Campaign
for the Church Alive!, Inc.; Regent, Saint Vincent Seminary; Member,
Pennsylvania State Board of Education (public); Director, Catholic
Charities, Pittsburgh; and Director CNX Resources Corporation
(formerly known as CONSOL Energy Inc.). Judge Lally-Green has held
the positions of: Director, Auberle; Director, Epilepsy Foundation of
Western and Central Pennsylvania; Director, Ireland Institute of
Pittsburgh; Director, Saint Thomas More Society; Director and Chair,
Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director,
Pennsylvania Bar Institute; Director, St. Vincent College; and Director
and Chair, North Catholic High School, Inc.
|
Annual Shareholder Report
41
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
Charles F. Mansfield, Jr.
Birth Date: April 10, 1945
Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Management Consultant and Author.
Other Directorships Held: None.
Qualifications: Mr. Mansfield has served as a Marine Corps officer and
in several banking, business management, educational roles and
directorship positions throughout his long career. He remains active as
a Management Consultant and Author.
|
|
Thomas M. O’Neill
Birth Date: June 14, 1951
Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Sole Proprietor, Navigator Management Company
(investment and strategic consulting).
Other Directorships Held: None.
Qualifications: Mr. O’Neill has served in several business, mutual fund
and financial management roles and directorship positions throughout
his career. Mr. O’Neill serves as Director, Medicines for Humanity and
Director, The Golisano Children’s Museum of Naples, Florida.
Mr. O’Neill previously served as Chief Executive Officer and President,
Managing Director and Chief Investment Officer, Fleet Investment
Advisors; President and Chief Executive Officer, Aeltus Investment
Management, Inc.; General Partner, Hellman, Jordan Management
Co., Boston, MA; Chief Investment Officer, The Putnam Companies,
Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director
and Consultant, EZE Castle Software (investment order management
software); and Director, Midway Pacific (lumber).
|
|
P. Jerome Richey
Birth Date: February 23, 1949
Trustee
Indefinite Term
Began serving:
May 2017
|
Principal Occupations: Director or Trustee of the Federated Hermes
Fund Family; Management Consultant; Retired; formerly, Senior Vice
Chancellor and Chief Legal Officer, University of Pittsburgh and
Executive Vice President and Chief Legal Officer, CNX Resources
Corporation (formerly known as CONSOL Energy Inc.).
Other Directorships Held: None.
Qualifications: Mr. Richey has served in several business and legal
management roles and directorship positions throughout his career.
Mr. Richey most recently held the positions of Senior Vice Chancellor
and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously
served as Chairman of the Board, Epilepsy Foundation of Western
Pennsylvania and Chairman of the Board, World Affairs Council of
Pittsburgh. Mr. Richey previously served as Chief Legal Officer and
Executive Vice President, CNX Resources Corporation (formerly known
as CONSOL Energy Inc.); and Board Member, Ethics Counsel and
Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
|
Annual Shareholder Report
42
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years,
Other Directorships Held, Previous Position(s) and Qualifications
|
|
John S. Walsh
Birth Date:
November 28, 1957
Trustee
Indefinite Term
Began serving: May 2017
|
Principal Occupations: Director or Trustee, and Chair of the Board of
Directors or Trustees, of the Federated Hermes Fund Family; President
and Director, Heat Wagon, Inc. (manufacturer of construction
temporary heaters); President and Director, Manufacturers Products,
Inc. (distributor of portable construction heaters); President, Portable
Heater Parts, a division of Manufacturers Products, Inc.
Other Directorships Held: None.
Qualifications: Mr. Walsh has served in several business management
roles and directorship positions throughout his career. Mr. Walsh
previously served as Vice President, Walsh & Kelly, Inc.
(paving contractors).
|
OFFICERS
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Lori A. Hensler
Birth Date: January 6, 1967
TREASURER
Officer since: May 2017
|
Principal Occupations: Principal Financial Officer and Treasurer of the
Federated Fund Family; Senior Vice President, Federated
Administrative Services; Financial and Operations Principal for
Federated Securities Corp. and Edgewood Services, Inc.; and
Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler
has received the Certified Public Accountant designation.
Previous Positions: Controller of Federated Investors, Inc.; Senior
Vice President and Assistant Treasurer, Federated Investors
Management Company; Treasurer, Federated Investors Trust
Company; Assistant Treasurer, Federated Administrative Services,
Federated Administrative Services, Inc., Federated Securities Corp.,
Edgewood Services, Inc., Federated Advisory Services Company,
Federated Equity Management Company of Pennsylvania, Federated
Global Investment Management Corp., Federated Investment
Counseling, Federated Investment Management Company, Passport
Research, Ltd., and Federated MDTA, LLC; Financial and Operations
Principal for Federated Securities Corp., Edgewood Services, Inc. and
Southpointe Distribution Services, Inc.
|
Annual Shareholder Report
43
|
Name
Birth Date
Positions Held with Trust
Date Service Began
|
Principal Occupation(s) for Past Five Years
and Previous Position(s)
|
|
Peter J. Germain
Birth Date:
September 3, 1959
CHIEF LEGAL OFFICER,
SECRETARY and EXECUTIVE
VICE PRESIDENT
Officer since: November 2017
|
Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary
and Executive Vice President of the Federated Hermes Fund Family.
He is General Counsel, Chief Legal Officer, Secretary and Executive
Vice President, Federated Hermes, Inc.; Trustee and Senior Vice
President, Federated Investors Management Company; Trustee and
President, Federated Administrative Services; Director and President,
Federated Administrative Services, Inc.; Director and Vice President,
Federated Securities Corp.; Director and Secretary, Federated Private
Asset Management, Inc.; Secretary, Federated Shareholder Services
Company; and Secretary, Retirement Plan Service Company of
America. Mr. Germain joined Federated Hermes, Inc. in 1984 and is a
member of the Pennsylvania Bar Association.
Previous Positions: Deputy General Counsel, Special Counsel,
Managing Director of Mutual Fund Services, Federated Hermes, Inc.;
Senior Vice President, Federated Services Company; and Senior
Corporate Counsel, Federated Hermes, Inc.
|
|
Stephen Van Meter
Birth Date: June 5, 1975
CHIEF COMPLIANCE
OFFICER AND SENIOR
VICE PRESIDENT
Officer since: May 2017
|
Principal Occupations: Senior Vice President and Chief Compliance
Officer of the Federated Hermes Fund Family; Vice President and
Chief Compliance Officer of Federated Hermes, Inc. and Chief
Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined
Federated Hermes, Inc. in October 2011. He holds FINRA licenses
under Series 3, 7, 24 and 66.
Previous Positions: Mr. Van Meter previously held the position of
Compliance Operating Officer, Federated Hermes, Inc. Prior to joining
Federated Hermes, Inc., Mr. Van Meter served at the United States
Securities and Exchange Commission in the positions of Senior
Counsel, Office of Chief Counsel, Division of Investment Management
and Senior Counsel, Division of Enforcement.
|
|
Stephen F. Auth
Birth Date:
September 13, 1956
101 Park Avenue
41st Floor
New York, NY 10178
CHIEF INVESTMENT OFFICER
Officer since: May 2017
|
Principal Occupations: Stephen F. Auth is Chief Investment Officer of
various Funds in the Federated Hermes Fund Family; Executive Vice
President, Federated Investment Counseling, Federated Global
Investment Management Corp. and Federated Equity Management
Company of Pennsylvania.
Previous Positions: Executive Vice President, Federated Investment
Management Company and Passport Research, Ltd. (investment
advisory subsidiary of Federated); Senior Vice President, Global
Portfolio Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport Research,
Ltd.; Senior Managing Director and Portfolio Manager,
Prudential Investments.
|
Annual Shareholder Report
44
Evaluation and Approval of Advisory
Contract–August 2019
FEDERATED HERMES SDG ENGAGEMENT High Yield Credit Fund
(THE “FUND”)
At its meetings in August 2019, the Fund’s Board of Trustees (the “Board”),
including a majority of those Trustees who are not “interested persons” of the
Fund, as defined in the Investment Company Act of 1940, as amended (the
“1940 Act”) (the “Independent Trustees”), reviewed and unanimously
approved for an initial two-year term a proposed investment advisory contract
for the Fund with Federated Investment Management Company (“FIMCO”)
and a separate proposed subadvisory contract with Hermes Investment
Management Limited (the “Sub-Adviser” and together with FIMCO, the
“Advisers”) on behalf of the Fund. The Board’s decision to approve these
contracts reflects the exercise of its business judgment on whether to authorize
the creation and offering of this new investment vehicle, as proposed by
Federated Investors, Inc. (together with its wholly owned subsidiaries,
“Federated”), and based on information requested by the Board and provided
by Federated, as well as Federated’s recommendation to go forward with
development of the Fund.
At the request of the Independent Trustees, the Fund’s Chief Compliance
Officer (the “CCO”) furnished to the Board in advance of its August
2019 meetings an independent written evaluation presenting on the topics
below. The Board considered the CCO’s independent written evaluation (the
“CCO Fee Evaluation Report”), along with other information, including
additional materials relating to the proposed Fund presented to the Board by
Federated, at its August 2019 meetings, in evaluating the reasonableness of the
Fund’s proposed management fee and in deciding to approve the proposed
investment advisory and subadvisory contracts. The Board also considered the
materials and presentations provided by Federated and the CCO’s independent
written evaluation, in connection with its annual approval of the continuation
of the advisory and subadvisory contracts for the other funds advised by
Federated (each, a “Federated Fund”) at its May 2019 meetings, and
information provided at various recent meetings at which the Board considered
and approved initial advisory and subadvisory contracts for different Federated
Funds sub-advised by the Sub-Adviser. The CCO, in preparing the CCO Fee
Evaluation Report, has the authority to retain consultants, experts or staff as
reasonably necessary to assist in the performance of his duties, reports directly
to the Board, and can be terminated only with the approval of a majority of the
Independent Trustees. At the request of the Independent Trustees, the CCO Fee
Evaluation Report followed the same general approach and covered the same
topics as that of the report that had previously been delivered by the CCO in
his capacity as “Senior Officer”, prior to the elimination of the Senior Officer
position in December 2017.
45
The Board also considered judicial decisions concerning allegedly excessive
investment advisory fees in making its decision. Using these judicial decisions
as a guide, the Board observed that the following factors may be relevant to an
adviser’s fiduciary duty with respect to its receipt of compensation from a
fund: (1) the nature and quality of the services provided by an adviser to a fund
and its shareholders (including the performance of the fund, its benchmark, and
comparable funds); (2) an adviser’s cost of providing the services (including
the profitability to an adviser of providing advisory services to a fund); (3) the
extent to which an adviser may realize “economies of scale” as a fund grows
larger and, if such economies of scale exist, whether they have been shared
with a fund and its shareholders or the family of funds; (4) any “fall-out”
financial benefits that accrue to an adviser because of its relationship with a
fund (including research services received from brokers that execute fund
trades and any fees paid to affiliates of an adviser for services rendered to a
fund); (5) comparative fee and expense structures (including a comparison of
fees paid to an adviser with those paid by similar funds both internally and
externally as well as management fees charged to institutional and other
advisory clients of the Advisers and their affiliates for what might be viewed as
like services); and (6) the extent of care, conscientiousness and independence
with which the fund’s board members perform their duties and their expertise
(including whether they are fully informed about all facts the board deems
relevant to its consideration of an adviser’s services and fees). The Board noted
that the Securities and Exchange Commission (“SEC”) disclosure requirements
regarding the basis for the Board’s approval of the Fund’s investment advisory
and subadvisory contracts generally align with the factors listed above. The
Board was aware of these factors and was guided by them in its review of the
Fund’s proposed investment advisory and subadvisory contracts to the extent it
considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these factors in light of its substantial
accumulated experience in governing, and working with Federated on matters
relating to, the Federated Funds. The Independent Trustees were assisted in
their deliberations by independent legal counsel. At the August meetings, in
addition meeting in separate sessions of the Independent Trustees without
management present, senior management of FIMCO also met with the
Independent Trustees and their counsel to discuss the materials presented and
such additional matters as the Independent Trustees deemed reasonably
necessary to evaluate the proposed advisory and subadvisory contracts.
The Board’s consideration of the proposed investment advisory and
subadvisory contracts included review of the CCO Fee Evaluation Report,
accompanying data and additional information covering the following matters,
among others: each Adviser’s investment philosophy, revenue, profitability,
personnel and processes; investment and operating strategies; the Fund’s
proposed investment objectives; the Fund’s anticipated fees and expenses
(including the proposed advisory and subadvisory fees and the overall
46
estimated expense structure of the Fund, both in absolute terms and relative to
similar and/or competing funds, with due regard for contractual or voluntary
fee waivers and expense limitations); the use and allocation of brokerage
commissions to be derived from trading the Fund’s portfolio securities (if any);
and the nature, quality and extent of the advisory and other services to be
provided to the Fund by each Adviser and its affiliates. The Board also
considered the likely preferences and expectations of anticipated Fund
shareholders; the entrepreneurial and other risks assumed by FIMCO in
sponsoring the Fund; the continuing state of competition in the mutual fund
industry and market practices; the range of comparable fees for similar funds in
the mutual fund industry; the Fund’s relationship to the Federated Funds,
which include a comprehensive array of funds with different investment
objectives, policies and strategies that are generally available for exchange
without the incurrence of additional sales charges; compliance and audit
reports concerning the Federated Funds and the Federated companies that
service them (including communications from regulatory agencies), as well as
Federated’s responses to any issues raised therein; and relevant developments
in the mutual fund industry and how the Federated Funds and/or Federated are
responding to them. The Board’s evaluation process is evolutionary. The
criteria considered and the emphasis placed on relevant criteria change in
recognition of changing circumstances in the mutual fund marketplace.
While mindful that courts have cautioned against giving too much weight to
comparative information concerning fees charged by other advisers for
managing funds with comparable investment programs, the Board has found
the use of such comparisons to be relevant to its deliberations. In this regard,
the Board was presented with, and considered, information regarding the
proposed contractual advisory and subadvisory fee rates, proposed net advisory
fee rates, anticipated total expense ratios and each element of the Fund’s
anticipated total expense ratio (i.e., gross and net advisory fees, custody fees,
portfolio accounting fees and transfer agency fees) relative to an appropriate
group of peer funds compiled by Federated using data supplied by independent
fund ranking organizations (the “Peer Group”). The Board received a
description of the composition and methodology used to select the Peer Group.
The Board focused on comparisons with other similar mutual funds more
heavily than non-mutual fund products or services because it is believed that
they are more relevant. For example, other mutual funds are the products most
like the Fund, in that they are readily available to Fund shareholders as
alternative investment vehicles. Also, they are the type of investment vehicle,
in fact, chosen and maintained by the Fund’s anticipated investors. The range
of their fees and expenses, therefore, appears to be a relevant indicator of what
consumers have found to be reasonable in the marketplace in which the Fund
will compete.
47
The Board reviewed the proposed contractual advisory and subadvisory fee
rates, proposed net advisory fee rate and other proposed expenses of the Fund
and noted the position of the Fund’s proposed fee rates relative to its Peer
Group. In this regard, the Board noted that the proposed contractual advisory
fee rate of the Fund was below the median of the Peer Group. The Board also
considered absolute and relative information regarding the proposed
contractual subadvisory fee rate (expressed as a percentage of the contractual
advisory fee rate).
For comparison, the CCO reviewed the fees charged by Federated for
providing advisory services to products other than the Federated Funds (e.g.,
institutional and separate accounts and third-party unaffiliated mutual funds for
which Federated serves as sub-adviser) (referenced to as “Other
Funds/Accounts”). The CCO provided information to the Board regarding the
Other Funds/Accounts other than third-party mutual funds, and the CCO
concluded that they are inherently different products in light of, among other
differences, different types of targeted investors, different applicable laws and
regulations, different legal structures, and different average account sizes and
portfolio management techniques made necessary by different cash flows and
different associated costs. The CCO noted that Federated did not currently
manage any Other Funds/Accounts with comparable investment strategies to
the Fund’s proposed investment strategy.
The CCO also reviewed the fees to be charged by the Sub-Adviser for
serving as the sole investment adviser to a foreign fund that employs an
investment strategy substantially similar to that proposed for the Fund, which
is expected to commence investment operations at approximately the same
time as the Fund (the “Comparable Fund”). The Board considered that, unlike
the Fund’s proposed management fee structure, the Comparable Fund will pay
an advisory fee to the Sub-Adviser under an all-in “unitary” fee structure. The
Board considered the inherent limitations of comparing the Fund’s proposed
management fee to the Comparable Fund’s advisory fee because such advisory
fee is subsumed within its unitary fee. The Board considered that the unitary
fee was higher than the anticipated total expense ratio for the share class
offered by the Fund that is similar to the Comparable Fund. In connection with
these considerations, the Board considered FIMCO’s representation to the
Board that any differences between the total expense ratios of the Fund and the
Comparable Fund will be primarily attributable to certain differences between
U.S. registered mutual funds and funds domiciled in a foreign (non-U.S.)
country, including differences in the types of restrictions and investment
limitations that are in place under the regulatory regimes for each investment
product. The Board also noted that the anticipated total expense ratio for the
share class offered by the Fund that is similar to the Comparable Fund was
below the average of the Peer Group.
48
The CCO Fee Evaluation Report indicated that the proposed management
fee, after projected waivers, was reasonable. The Board reviewed the proposed
fees and other proposed expenses of the Fund and was satisfied that the overall
proposed expense structure of the Fund appeared to be appropriate.
The Board considered the nature, extent and quality of the services to be
provided to the Fund by each Adviser and the resources of each Adviser and its
affiliates dedicated to the Fund. In this regard, the Board evaluated, among
other things, each Adviser’s organizational structure, personnel, experience,
track record, financial resources, overall reputation and willingness to invest in
personnel and infrastructure that will benefit the Fund. The Board considered
the personnel and other resources dedicated to the Sub-Adviser’s operational,
compliance and legal functions. The Board also considered that Federated
recently acquired a majority ownership stake in the Sub-Adviser’s parent
company. In addition, the Board reviewed the qualifications, backgrounds and
responsibilities of the portfolio managers who will be primarily responsible for
the day-to-day management of the Fund and each Adviser’s ability and
experience in attracting and retaining qualified personnel to service the Fund.
The Board considered the range of investment advisory services to be
provided by the Sub-Adviser under the oversight of FIMCO, including the
daily investment of the assets of the Fund. In evaluating these investment
advisory services, the Board considered, among other things, the
Sub-Adviser’s investment philosophy and process, investment research
capabilities and resources, performance record, trade execution capabilities and
experience, including with respect to impact investing in accordance with the
United Nations Sustainable Development Goals (“UN SDGs”). The Board
considered that the Sub-Adviser has experience engaging in such impact
investing for another Federated Fund.
The Board received and considered information regarding the application of
fiduciary principles to the different ways in which environmental, social and
governance (“ESG”) investing may be integrated into a fund’s investment
process. The Board considered that the Fund will engage in impact investing in
accordance with the UN SDGs, as the Fund will include positive societal
impact considerations as part of its investment objective and principal
investment strategies. The Board considered the differences between such
impact investing, on the one hand, and analyzing ESG-related risk and return
factors to seek to enhance a fund’s returns, on the other hand. The Board
considered the Adviser’s belief that such impact investing is consistent with
the Adviser’s and the Sub-Adviser’s fiduciary duties to the Fund.
The Board considered that FIMCO would retain overall responsibility for
the management and investment of the assets of the Fund and that, in this
capacity, FIMCO would play an active role in overseeing, monitoring and
reviewing the Sub-Adviser in the performance of its duties. The Board
evaluated information about the nature and extent of responsibilities retained
and risks assumed by FIMCO and not delegated to or assumed by the
49
Sub-Adviser. In this regard, the Board considered that FIMCO would monitor
and evaluate the performance of the Sub-Adviser, monitor the Sub-Adviser for
adherence to the stated investment objectives, strategies, policies and
restrictions of the Fund, and supervise the Sub-Adviser with respect to the
services that the Sub-Adviser would provide under the subadvisory contract.
The Board also considered the process used by FIMCO to recommend to the
Board that the Sub-Adviser be appointed as the sub-adviser to the Fund.
The Board noted the compliance program of each Adviser and the
compliance-related resources to be provided to the Fund by each Adviser,
including each Adviser’s commitment to respond to rulemaking initiatives of
the SEC. The Fund’s anticipated ability to deliver competitive performance
when compared to its Peer Group was also deemed to be relevant by the Board
as a useful indicator of how the Advisers are anticipated to execute the Fund’s
investment program. The Advisers’ ability to execute this program was one of
the Board’s considerations in reaching a conclusion that the nature, extent and
quality of the Advisers’ investment management services to be provided to the
Fund warrant the approval of the proposed advisory and subadvisory contracts.
The CCO reviewed the investment performance of the Sub-Adviser,
including, for purposes of considering the investment skill and experience of
the Fund’s portfolio managers, performance data showing the portfolio
managers’ capabilities in managing a composite of other accounts that has a
similar investment strategy to that proposed for the Fund, noting that the
Sub-Adviser did not currently manage an investment company registered under
the 1940 Act that uses an investment strategy substantially similar to that
proposed for the Fund. The Board also considered information comparing the
Composite to its benchmark. The Board considered the CCO’s view that
comparisons to the Composite may be helpful, though not conclusive, in
evaluating the anticipated performance of the Sub-Adviser in managing the
Fund. The CCO also provided additional information about the broad range of
the portfolio managers’ investment experience and the Sub-Adviser’s
investment philosophy and process. The Board also considered how the Fund’s
strategy to pursue investments that deliver positive societal impact aligned with
the UN SDGs may influence the Fund’s performance relative to its benchmark
or peers. Based on these considerations, the Board concluded that it was
satisfied that FIMCO and the Sub-Adviser have the capability of providing
satisfactory investment performance for the Fund.
In connection with the Board’s governance of other Federated Funds, the
Board noted that it regularly receives financial information about Federated,
including information regarding the compensation and ancillary (or “fall-out”)
benefits Federated derives from its relationships with the other Federated
Funds. This information covers not only the fees under the investment advisory
contracts, but also fees received by Federated’s subsidiaries for providing other
services to the Federated Funds under separate contracts (e.g., for serving as
the Federated Funds’ administrator and distributor). In this regard, the Board
50
considered that certain Federated subsidiaries provide distribution and
shareholder services to the Federated Funds, for which they may be
compensated through distribution and servicing fees paid pursuant to Rule
12b-1 plans or otherwise. The information also details any indirect benefit
Federated may derive from its receipt of research services from brokers who
execute Federated Fund trades. In addition, the Board considered the fact that,
in order for a Federated Fund to be competitive in the marketplace, Federated
frequently waives fees and/or reimburses expenses and has disclosed to fund
investors and/or indicated to the Board its intention to do so in the future.
Moreover, the Board receives regular reporting as to the institution, adjustment
or elimination of these voluntary waivers.
Because the Board was considering the advisory and subadvisory contracts
in the context of Federated’s proposal to create a new Federated Fund, the
factors mentioned above relating to such matters as performance and any
indirect benefits that may accrue to the Advisers and their affiliates as a result
of the Advisers’ relationships with the Fund are essentially impossible to apply
before the Fund has experienced any meaningful operating history.
Federated furnished information, requested by the CCO, that reported
projected revenues for the Fund, as detailed cost allocation reports had not yet
been projected for this Fund. The CCO noted that, while these cost allocation
reports apply consistent allocation processes, the inherent difficulties in
allocating costs continues to cause the CCO to question the precision of the
process and to conclude that such reports may be unreliable, since a single
change in an allocation estimate may dramatically alter the resulting estimate
of cost and/or profitability of a Federated Fund and may produce unintended
consequences. The CCO noted that the Fund was new to Federated and any
projected cost allocation and/or profit margin does not represent the full or
actual cost of operating a Federated Fund and makes only rough estimates of
the cost to launch a Federated Fund. The CCO also noted that, while the Fund
is expected to grow in size, the creation and maintenance of the Fund requires
a substantial initial investment. The allocation information, including the
CCO’s view that the estimations regarding the Fund may be unreliable, was
considered in the evaluation by the Board.
The Board and the CCO also reviewed information compiled by Federated
comparing its profitability information to other publicly held fund management
companies. The CCO noted that while Federated regularly undertakes to
establish new Federated Funds and maintains a number of other smaller
Federated Funds that, while expected to grow to a greater size, nevertheless
require substantial investment and waiver or assumption of fees and other
expenses in order to deliver them to the marketplace. Based on this and other
relevant information, the CCO concluded that Federated’s projected profit
margins did not appear to be excessive. The CCO also noted that Federated
appeared financially sound, with the resources necessary to fulfill its
obligations under its contracts with the Fund.
51
The CCO Fee Evaluation Report also discussed the notion of possible
realization of “economies of scale” as a fund grows larger, the difficulties of
calculating economies of scale at an individual fund level, and the extent to
which potential scale benefits are expected to be shared with shareholders. In
this regard, the Board considered that Federated has made significant and
long-term investments in areas that support all of the Federated Funds, such as
personnel and processes for the portfolio management, shareholder services,
compliance, internal audit and risk management functions, as well as systems
technology (including technology relating to cybersecurity), and that the
benefits of these investments (as well as any economies of scale, should they
exist) were likely to be shared with the Federated Fund family as a whole. The
Board noted that Federated’s investments in these areas are extensive. In
addition, the Board considered that the Advisers and their affiliates have
frequently waived fees and/or reimbursed expenses and that this has allowed
potential economies of scale to be shared with shareholders. The Board also
considered that such waivers and reimbursements can provide protection from
an increase in expenses if a Federated Fund’s assets decline. Federated, as it
does throughout the year, and specifically in connection with the Board’s
review of the advisory and subadvisory contracts, furnished information
relative to revenue sharing or adviser-paid fees. Federated and the CCO noted
that this information should be viewed to determine if there was an incentive to
either not apply breakpoints, or to apply breakpoints at higher levels, and
should not be viewed to determine the appropriateness of advisory fees. The
Board also noted the absence of any applicable regulatory or industry
guidelines on this subject, which is compounded by the lack of any common
industry practice or general pattern with respect to structuring fund advisory
fees with “breakpoints” that serve to reduce the fee as a fund attains a certain
size. The CCO did not recommend institution of breakpoints in pricing
Federated’s proposed advisory services to the Fund at this time, noting that it
would review future asset growth and the appropriateness of any potential
future breakpoints as part of its future annual review of the advisory and
subadvisory contracts.
The CCO stated that his observations and the information accompanying the
CCO Fee Evaluation Report supported a finding by the Board that the
management fee for the Fund was reasonable.
52
The Board based its decision to approve the proposed investment advisory
and subadvisory contracts on the totality of the circumstances and relevant
factors and with a view to past and future long-term considerations. Not all of
the factors and considerations identified above were necessarily relevant to the
Fund, nor did the Board consider any one of them to be determinative. With
respect to the factors that were relevant, the Board’s decision to approve the
proposed investment advisory and subadvisory contracts reflects its view that,
based upon the information requested and supplied, Federated’s proposal to
establish and manage the Fund, and its past performance and actions in
providing services to other Federated Funds (which the Board has found to be
satisfactory with respect to such other Federated Funds), provide a satisfactory
basis to support the decision to approve the proposed arrangements.
Annual Shareholder Report
53
Liquidity Risk Management Program–
Annual Evaluation of Adequacy and Effectiveness
In accordance with Rule 22e-4 under the Investment Company Act of 1940, as
amended (the “Liquidity Rule”), Federated Hermes Adviser Series (the
“Trust”) has adopted and implemented a liquidity risk management program
(the “Program”) for Federated Hermes SDG Engagement High Yield Credit
Fund (the “Fund” and, collectively with the Federated Hermes funds, the
“Federated Hermes Funds”). The Program seeks to assess and manage the
Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as
the risk that the Fund is unable to meet redemption requests without
significantly diluting remaining investors’ interests in the Fund. The Board of
Trustees of the Trust (the “Board”) has approved the designation of the Fund’s
investment adviser as the administrator for the Program for the Fund. Each
affiliated Federated Hermes advisory subsidiary (including the Fund’s
investment adviser) that serves as investment adviser to a Federated Hermes
Fund (including the Fund) has been approved as the administrator of the
Program for each Federated Hermes Fund they manage (each an
“Administrator”). The Administrator in turn has delegated daily responsibility
for the administration of the Program to multiple Liquidity Risk Management
Committees (the “Committees”). The Committees, which are comprised of
representatives of Enterprise Risk Management, Compliance, Investment
Management and Trading, must review and assess certain information related
to the liquidity of the Federated Hermes Funds, including the Fund.
The Program is comprised of various components designed to support the
assessment and/or management of liquidity risk, including: (1) the periodic
assessment (no less frequently than annually) of certain factors that influence
the Fund’s liquidity risk; (2) the periodic classification (no less frequently than
monthly) of the Fund’s investments into one of four liquidity categories that
reflect an estimate of their liquidity under current market conditions; (3) a 15%
limit on the acquisition of “illiquid investments” (as defined under the
Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly
liquid investments” (as defined under the Liquidity Rule), the determination of
a minimum percentage of the Fund’s assets that generally will be invested in
highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM,
the periodic review (no less frequently than annually) of the HLIM and the
adoption of policies and procedures for responding to a shortfall of the Fund’s
highly liquid investments below its HLIM; and (6) periodic reporting to
the Board.
At its meetings in May 2020, the Board received and reviewed a written
report (the “Report”) from the Federated Hermes Funds’ Chief Compliance
Officer and Chief Risk Officer, on behalf of the Administrator, concerning the
operation of the Program for the period from the Program’s inception on
December 1, 2018 through March 31, 2020 (the “Period”). The Report
Annual Shareholder Report
54
addressed the operation of the Program and assessed its adequacy and
effectiveness, including, where applicable, the operation of any HLIM
established for a Federated Hermes Fund and each Federated Hermes Fund’s
access to other available funding sources such as the Federated Hermes Funds’
interfund lending facility, redemptions in-kind and committed lines of credit.
There were no material changes to the Program during the Period. The Report
summarized the operation of the Program and the information and factors
considered by the Administrator in assessing whether the Program has been
adequately and effectively implemented with respect to the Federated Hermes
Funds. Such information and factors included, among other things:
■ confirmation that the Fund did not utilize alternative funding sources during
the Period;
■ the periodic classifications of the Fund’s investments into one of four
liquidity categories and the methodologies and inputs used to classify the
investments, including the Fund’s reasonably anticipated trade size;
■ the analysis received from a third-party liquidity assessment vendor that is
taken into account in the process of determining the liquidity classifications
of the Fund’s investments and the results of an evaluation of the services
performed by the vendor in support of this process;
■ the fact that the Fund invested primarily in highly liquid investments during
the Period and, therefore, was not required to establish, and has not
established, an HLIM and the procedures for monitoring the status of the
Fund as investing primarily in highly liquid investments;
■ the fact that the Fund invested no more than 15% of its assets in illiquid
investments during the Period and the procedures for monitoring this
limit; and
■ liquidity events during the Period, including the impact on liquidity caused
by extended non-U.S. market closures and the market disruptions resulting
from the novel coronavirus outbreak, and the fact that there were no specific
liquidity events during the Period that materially affected the Fund’s
liquidity risk.
Based on this review, the Fund’s investment adviser, in its role as
Administrator, collectively with the other investment advisers to the Federated
Hermes Funds, concluded that the Program is operating effectively to assess
and manage the Fund’s liquidity risk, and that the Program has been and
continues to be adequately and effectively implemented to monitor and, as
applicable, respond to the Fund’s liquidity developments.
Annual Shareholder Report
55
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine
how to vote proxies, if any, relating to securities held in the Fund’s portfolio is
available, without charge and upon request, by calling 1-800-341-7400. A
report on “Form N-PX” of how the Fund voted any such proxies during the
most recent 12-month period ended June 30 is available via the Proxy Voting
Record (Form N-PX) link associated with the Fund and share class name at
FederatedInvestors.com/FundInformation. Form N-PX filings are also
available at the SEC’s website at
sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its
monthly portfolio holdings on “Form N-PORT.” The Fund’s holdings as of the
end of the third month of every fiscal quarter, as reported on Form N-PORT,
will be publicly available on the SEC’s website at
sec.gov within 60 days of
the end of the fiscal quarter upon filing. You may also access this information
via the link to the Fund and share class name at
FederatedInvestors.com.
Annual Shareholder Report
56
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund’s Prospectus, which contains facts
concerning its objective and policies, management fees, expenses and
other information.
Federated Hermes SDG Engagement High Yield Credit Fund
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
CUSIP 31423A556
Q454749 (10/20)
© 2020 Federated Hermes, Inc.
| Item 2. | Code of Ethics |
(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics (the "Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers") that applies to the registrant's Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.
(c) There was no amendment to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.
(d) There was no waiver granted, either actual or implicit, from a provision to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.
(e) Not Applicable
(f)(3) The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.
Item 3. Audit Committee Financial Expert
The registrant's Board has determined that each of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item: John T. Collins, G. Thomas Hough and Thomas M. O'Neill.
| Item 4. | Principal Accountant Fees and Services |
(a) Audit Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2020 - $322,876
Fiscal year ended 2019 - $28,020
(b) Audit-Related Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2020 - $5,000
Fiscal year ended 2019 - $0
Audit consent for Form N-1A.
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $6,896 and $0 respectively. Fiscal year ended 2020- Audit consent fee for N-14 merger document.
(c) Tax Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2020 - $0
Fiscal year ended 2019 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.
(d) All Other Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2020 - $0
Fiscal year ended 2019 - $0
Amount requiring approval of the registrant’s audit committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $49,966 and $24,642 respectively. Fiscal year ended 2020- Service fee for analysis of potential Passive Foreign Investment Company holdings. Fiscal year ended 2019- Service fee for analysis of potential Passive Foreign Investment Company holdings.
(e)(1) Audit Committee Policies regarding Pre-approval of Services.
The Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.
Certain services have the general pre-approval of the Audit Committee. The term of the general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will annually review the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee and may grant general pre-approval for such services. The Audit Committee will revise the list of general pre-approved services from time to time, based on subsequent determinations. The Audit Committee will not delegate to management its responsibilities to pre-approve services performed by the independent auditor.
The Audit Committee has delegated pre-approval authority to its Chairman for services that do not exceed a specified dollar threshold. The Chairman or Chief Audit Executive will report any such pre-approval decisions to the Audit Committee at its next scheduled meeting. The Committee will designate another member with such pre-approval authority when the Chairman is unavailable.
AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, registered investment company (RIC) structure or other matters.
In addition to the annual Audit services engagement specifically approved by the Audit Committee, the Audit Committee may grant general pre-approval for other Audit services, which are those services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved certain Audit services; with limited exception, all other audit services must be specifically pre-approved by the Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the RIC’s financial statements or that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of Audit-related services does not impair the independence of the auditor, and has pre-approved certain audit-related services; all other audit-related services must be specifically pre-approved by the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can provide Tax services to the RIC such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee has pre-approved certain Tax services; with limited exception, all tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee.
ALL OTHER SERVICES
With respect to the provision of permissible services other than audit, review or attest services the pre-approval requirement is waived if:
| (1) | With respect to such services rendered to the Funds, the aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the audit client to its accountant during the fiscal year in which the services are provided; and, |
| (2) | With respect to such services rendered to the Fund’s investment adviser and any entity controlling, controlled by to under common control with the investment adviser such as affiliated non-U.S. and U.S. funds not under the Audit Committee’s purview and which do not fall within a category of service which has been determined by the Audit Committee not to have a direct impact on the operations or financial reporting of the RIC, the aggregate amount of all services provided constitutes no more than five percent of the total amount of revenues paid to the RIC’s auditor by the RIC, its investment adviser and any entity controlling, controlled by, or under common control with the investment adviser during the fiscal year in which the services are provided; and |
| (3) | Such services were not recognized by the issuer or RIC at the time of the engagement to be non-audit services; and |
| (4) | Such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the Board of Directors to whom authority to grant such approvals has been delegated by the Audit Committee. |
The Audit Committee may grant general pre-approval to those permissible non-audit services which qualify for pre-approval and which it believes are routine and recurring services, and would not impair the independence of the auditor.
The SEC’s rules and relevant guidance should be consulted to determine the precise definitions of these services and applicability of exceptions to certain of the prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee.
PROCEDURES
Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by the Fund’s Principal Accounting Officer and/or the Chief Audit Executive of Federated Hermes, Inc., only after those individuals have determined that the request or application is consistent with the SEC’s rules on auditor independence.
(e)(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2020 – 0%
Fiscal year ended 2019 - 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(c)
Fiscal year ended 2020 – 0%
Fiscal year ended 2019 – 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
4(d)
Fiscal year ended 2020 – 0%
Fiscal year ended 2019 – 0%
Percentage of services provided to the registrants investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were approved by the registrants audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.
| (f) | NA |
| (g) | Non-Audit Fees billed to the registrant, the registrant’s investment adviser, and certain entities controlling, controlled by or under common control with the investment adviser: |
Fiscal year ended 2020 - $200,601
Fiscal year ended 2019 - $548,013
| (h) | The registrant’s Audit Committee has considered that the provision of non-audit services that were rendered to the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
The registrant’s management and Audit Committee continue to believe that the registrant’s registered public accounting firms, Ernst & Young LLP (“EY”) and KPMG LLP (“KPMG”) (as applicable, “EY/KPMG”), have the ability to exercise objective and impartial judgment on all issues encompassed within their audit services. EY/KPMG is required to make a determination that it satisfies certain independence requirements under the federal securities laws. Like other registrants, there is a risk that activities or relationships of EY/KPMG, or its partners or employees, can prevent a determination from being made that it satisfies such independence requirements with respect to the registrant, which could render it ineligible to serve as the registrant’s independent public accountant.
In their respective required communications to the Audit Committee of the registrant’s Board, EY/KPMG informed the Audit Committee that EY/KPMG and/or covered person professionals within EY/KPMG maintain lending relationships with certain owners of greater than 10% of the shares of certain investment companies within the “investment company complex” as defined under Rule 2-01(f)(14) of Regulation S-X, which are affiliates of the registrant. EY/KPMG has advised the Audit Committee that these lending relationships implicate Rule 2-01(c)(1)(ii)(A) of Regulation S-X (referred to as the “Loan Rule”). The Loan Rule prohibits an independent public accountant, or covered person professionals at such firm, from having a financial relationship (such as a loan) with a lender that is a record or beneficial owner of more than 10% of an audit client’s equity securities. For purposes of the Loan Rule, audit clients include the registrant, as well as all registered investment companies advised by advisory subsidiaries of Federated Hermes, Inc., the Adviser (for which EY serves as independent public accountant), and their respective affiliates (collectively, the “Federated Hermes Fund Complex”).
EY/KPMG informed the Audit Committee that EY/KPMG believes that these lending relationships described above do not and will not impair EY/KPMG’s ability to exercise objective and impartial judgment in connection with financial statement audits of their respective funds of the registrant and a reasonable investor with knowledge of all relevant facts and circumstances would conclude that EY/KPMG has been and is capable of objective and impartial judgment on all issues encompassed within EY/KPMG’s audits.
On June 20, 2016, the Division of Investment Management of the Securities and Exchange Commission (“SEC”) issued a no-action letter to another mutual fund complex (see Fidelity Management & Research Company et al., No-Action Letter) related to similar Loan Rule matters as those described above (the “Letter”). In the Letter, the SEC Staff confirmed that it would not recommend enforcement action against an investment company that relied on the audit services performed by an independent public accountant where the Loan Rule was implicated in certain specified circumstances provided that: (1) the auditor has complied with PCAOB Rule 3526(b)(1) and 3526(b)(2); (2) the Loan Rule is implicated because of lending relationships; and (3) notwithstanding such lending relationships that implicate the Loan Rule, the auditor has concluded that it is objective and impartial with respect to the issues encompassed within its engagement as auditor of the funds. The circumstances described in the Letter are substantially similar to the circumstances that implicated the Loan Rule with respect to EY/KPMG and the registrant. On September 22, 2017, the SEC extended the expiration of the Letter until the effectiveness of any amendments to the Loan Rule designed to address the concerns in the Letter. On June 18, 2019, the SEC adopted amendments (effective October 3, 2019) to the Loan Rule, which, refocus the analysis that must be conducted to determine whether an auditor is independent when the auditor has a lending relationship with certain shareholders of an audit client at any time during an audit or professional engagement period.
If it were to be determined that, with respect to the Loan Rule, the relief available under the Letter was improperly relied upon, or that the independence requirements under the federal securities laws were not complied with regarding the registrant, for certain periods, and/or given the implication of the Investment Rule for certain periods, any of the registrant’s filings with the SEC which contain financial statements of the registrant for such periods may be determined not to be consistent with or comply with applicable federal securities laws, the registrant’s ability to offer shares under its current registration statement may be impacted, and certain financial reporting and/or other covenants with, and representations and warranties to, the registrant’s lender under its committed line of credit may be impacted. Such events could have a material adverse effect on the registrant and the Federated Hermes Fund Complex.
| Item 5. | Audit Committee of Listed Registrants |
Not Applicable
| Item 6. | Schedule of Investments |
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Not Applicable
| Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not Applicable
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers |
Not Applicable
| Item 10. | Submission of Matters to a Vote of Security Holders |
No Changes to Report
| Item 11. | Controls and Procedures |
(a) The registrant’s President and Treasurer have concluded that the
registrant’s disclosure controls and procedures (as defined in rule 30a-3(c) under the Act) are effective in design and operation and are sufficient to form the basis of the certifications required by Rule 30a-(2) under the Act, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in rule 30a-3(d) under the Act) during the registrant’s most recent fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies |
Not Applicable
| Item 13. | Exhibits |
(a)(1) Code of Ethics- Not Applicable to this Report.
(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.
(a)(3) Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant Federated Hermes Adviser Series
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date October 23, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue, Principal Executive Officer
Date October 23, 2020
By /S/ Lori A. Hensler
Lori A. Hensler, Principal Financial Officer
Date October 23, 2020