United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-7193
(Investment Company Act File Number)
Federated Hermes Institutional Trust
_______________________________________________________________
(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
|
A | FGCAX
|
Institutional | FGCIX
|
Service | FGCSX
|
R6 | SRBRX
|
Federated Hermes Short-Intermediate Total Return Bond Fund
(formerly, Federated Short-Intermediate Total Return Bond Fund)
Fund Established 2005
A Portfolio of Federated Hermes Institutional Trust
(formerly, Federated Institutional Trust)
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
Short-Intermediate
Total Return Bond 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 1, 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 Short-Intermediate Total Return Bond
Fund (the “Fund”), based on net asset value for the 12-month reporting period
ended August 31, 2020, was 4.41% for Class A Shares, 4.58% for Institutional
Shares, 4.42% for Service Shares and 4.59% for Class R6 Shares. The total
return for the Bloomberg Barclays 1-5 Year U.S. Government/Credit Index
(BGC1-5),1 the Fund’s broad-based securities market index, was 4.72% during
the same period. The total return of the Morningstar Short-Term Bond Funds
Average (MSTBFA),2 a peer group average for the Fund, was 3.25% during
the same period. The Fund’s and the MSTBFA’s total returns for the most
recently completed fiscal year reflect actual cash flows, transaction costs and
other expenses, which are not reflected in the total return of the BGC1-5.
During the reporting period, the Fund’s investment strategy focused on:
(a) movement among the various sectors and quality spectrums of the bond
market such as corporate bonds3 and international securities;4 (b) selection of
individual securities; and (c) the selection of securities with different maturities
(expressed by a “yield curve” showing the relative yield of similar securities
with different maturities). These were the most significant factors affecting the
Fund’s performance relative to the BGC1-5.
The following discussion will focus on the performance of the Fund’s
Class R6 Shares relative to the BGC1-5.
MARKET OVERVIEW
The reporting period saw the sharpest contraction in recorded U.S. economic
history brought on by reaction to the onset of the coronavirus. Following
steady U.S. gross domestic product growth during 2019, with Treasury yields
trending higher, the economy fell 5.00% in the first quarter and then 31.70% in
the second quarter. Such a simultaneous supply and demand shock pushed the
Federal Reserve (“Fed”) to not only dust off its 2008 recession playbook, but
also to initiate new programs to ensure availability of credit and smooth
functioning of markets. Congress also aggressively and quickly passed
stimulus packages intended to blunt the impact of the shutdowns and bridge the
gap until recovery took hold. These actions were effective in restoring business
and consumer confidence, leading to strong recovery, but they could not erase
the damage caused by the virus or produce a vaccine. This combination of Fed
action and economic contraction dropped Treasury and market yields: the Fed
cut its federal funds target rate to a range of 0-0.25% in early March, anchoring
the short-end of the yield curve, and spread sector yields followed suit. Spreads
on risk assets initially widened dramatically, but with these actions, tightened
in most sectors, reclaiming roughly three-fourths of their widening. The
U.S. 2-year Treasury yield began the period at 1.50%, peaked soon after at
1.80%, before plummeting on the Fed’s early March actions, to end the period
Annual Shareholder Report
1
at 0.13%. The 10-year Treasury followed a similar path, starting also at 1.50%,
peaking at 1.94% in November 2019, and then trading in a 0.50%-0.80% range
after March, ending the period at 0.71%.
SECTOR AND QUALITY MANAGEMENT
Over the reporting period, the Fund actively invested in those securities that
the manager believes have higher total return potential. Multiple sectors
contributed to Fund performance. Emerging markets,5 mortgage-backed
securities (MBS) and high-yield6 corporate bonds were the largest contributors,
partly offset by underperformance of the commercial mortgage-backed
(CMBS) securities and investment-grade corporate7 securities.
Though underweight U.S. Treasuries, the Fund had exposure to longer
maturity Treasuries, which outperformed as market rates fell. In addition, the
Fund’s overweight to lower-rated corporate securities, particularly those rated
“BBB”, was a strong contributor to returns during the reporting period. In
addition to increasing portfolio yield relative to the benchmark, the corporate
issues provided favorable total returns. Asset-backed and CMBS securities8
added solid performance, high quality and diversification to the Fund.
SECURITY SELECTION
Security selection was the prime contributor to Fund performance over the
reporting period, primarily in investment-grade corporates. Contributions from
Energy, Consumer-facing, Transportation and Technology sectors were partly
offset by Capital Goods and Banking issues.
INTEREST RATE, YIELD CURVE AND DERIVATIVE MANAGEMENT
The Fund’s average interest rate sensitivity, or duration,9 was less than that of
the BGC1-5 over the reporting period, which detracted from performance.
Yields fell across the yield curve, as the Fed moved aggressively to reduce the
cost of money by lowering its federal funds rate. Yield curve positioning had a
slight negative impact on performance, as the 2-year to 5-year Treasury yield
curve steepened sharply on Fed actions, and the Fund had relatively more
exposure to the belly of the yield curve. Treasury note and bond futures
contracts10 were used to execute the Fund’s strategies with respect to interest
rate sensitivity and yield curve exposure management, but made little
contribution to performance.
1
Please see the footnotes to the line graphs below for definitions of, and further information
about, the BGC1-5.
2
Please see the footnotes to the line graphs below for definitions of, and further information
about, the MSTBFA.
3
Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a
decline in their prices.
4
International investing involves special risks including currency risk, increased volatility of foreign
securities, political risks and differences in auditing and other financial standards.
Annual Shareholder Report
2
5
Prices of emerging markets securities can be significantly more volatile than the prices of
securities in developed countries, and currency risks and political risks are accentuated in
emerging markets.
6
High-yield, lower-rated securities generally entail greater market, credit and liquidity risk than
investment-grade securities and may include higher volatility and higher risk of default.
7
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 investment adviser believes are of comparable quality. The rating agencies that
provide 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 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 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.
8
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.
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 with
shorter durations.
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
3
FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT
The graphs below illustrate the hypothetical investment of $10,0001 in the
Federated Hermes Short-Intermediate Total Return Bond Fund (the “ Fund ” )
from August 31, 2010 to August 31, 2020 for Institutional Shares and Service
Shares, and from January 31, 2014 to August 31, 2020 for Class A and
Class R6 Shares, compared to the Bloomberg Barclays 1-5 Year
U.S. Government/Credit Index (BGC1-5)2 and the Morningstar Short-Term
Bond Funds Average (MSTBFA).3 The Average Annual Total Return table
below shows returns for each class averaged over the stated periods.
GROWTH OF A $10,000 INVESTMENT–CLASS A SHARES AND
CLASS R6 SHARES
Growth of $10,000 as of August 31, 2020
■ Total returns shown for Class A Shares includes the maximum sales charge of 1.00%
($10,000 minus $100 sales charge = $9,900).
Annual Shareholder Report
4
GROWTH OF A $10,000 INVESTMENT–INSTITUTIONAL SHARES AND
SERVICE SHARES
Growth of $10,000 as of August 31, 2020
Average Annual Total Returns for the Period Ended 8/31/2020
(returns reflect all applicable sales charges as specified below in footnote #1)
|
|
1 Year
|
5 Years
|
10 Years
|
Start of
Performance*
|
|
Class A Shares
|
3.33%
|
2.52%
|
—
|
2.20%
|
|
Institutional Shares
|
4.58%
|
2.98%
|
2.70%
|
—
|
|
Service Shares
|
4.42%
|
2.72%
|
2.44%
|
—
|
|
Class R6 Shares4
|
4.59%
|
2.83%
|
—
|
2.31%
|
|
BGC1-5
|
4.72%
|
2.69%
|
2.13%
|
2.35%
|
|
MSTBFA
|
3.25%
|
2.29%
|
1.90%
|
1.92%
|
*
The Fund’s Class A and R6 Shares start of performance date was January 31, 2014. The returns
for the BGC1-5 and MSTBFA are from the Fund’s Class A and R6 Shares start of
performance date.
Annual Shareholder Report
5
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.
1
Represents a hypothetical investment of $10,000 in the Fund after deducting the applicable
sales charges: for A Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100
sales charge = $9,900). The Fund’s performance assumes the reinvestment of all dividends and
distributions. The BGC1-5 and MSTBFA have been adjusted to reflect reinvestment of dividends
on securities in the index and average.
2
The BGC1-5 measures the performance of U.S. dollar-denominated U.S. Treasury bonds,
government-related bonds (i.e., U.S. and non-U.S. agencies, sovereign, quasi-sovereign,
supranational and local authority debt) and investment-grade U.S. corporate bonds that have a
remaining maturity of greater than or equal to one year and less than five years. The index is
unmanaged and it is not possible to invest directly in an index. The BGC1-5 is not adjusted to
reflect sales charges, expenses or other fees that the Securities and Exchange Commission
requires to be reflected in the Fund’s performance.
3
Morningstar figures represent the average of the total returns reported by all the funds
designated by Morningstar as falling into the respective category indicated. They do not reflect
sales charges. The Morningstar figures in the Growth of $10,000 line graph are based on
historical return information published by Morningstar and reflect the return of the funds
comprising the category in the year of publication. Because the funds designated by
Morningstar as falling into the category can change over time, the Morningstar figures in the line
graph may not match the Morningstar figures in the Average Annual Total Returns table, which
reflect the return of the funds that currently comprise the category.
4
Prior to September 1, 2016, Class R6 Shares were known as Class R Shares and included 12b-1
fees and certain other expenses. As of September 1, 2016, Class R6 does not include such 12b-1
fees and certain other expenses, and the performance shown above for Class R6 prior to
September 1, 2016, reflects the higher Class R expenses.
Annual Shareholder Report
6
Portfolio of Investments Summary Table (unaudited)
At August 31, 2020, the Fund’s portfolio composition1 was as follows:
|
Security Type
|
Percentage of
Total Net Assets
|
|
U.S. Treasury Securities
|
45.1%
|
|
Corporate Debt Securities
|
29.7%
|
|
Federated Mortgage Core Portfolio
|
7.2%
|
|
Asset-Backed Securities
|
4.7%
|
|
Project and Trade Finance Core Fund
|
4.0%
|
|
Bank Loan Core Fund
|
3.3%
|
|
Emerging Markets Core Fund
|
2.8%
|
|
Collateralized Mortgage Obligations
|
0.6%
|
|
Securities Lending Collateral2,3
|
0.0%
|
|
Mortgage-Backed Securities4
|
0.2%
|
|
Derivative Contracts3,5
|
0.0%
|
|
Cash Equivalents6
|
2.7%
|
|
Other Assets and Liabilities—Net7
|
(0.3)%
|
|
TOTAL
|
100.0%
|
1
See the Fund’s Prospectus and Statement of Additional Information for a description of the
types of securities and derivative contracts in which the Fund Invests. As of the date specified
above, the Fund owned shares of one or more affiliated investment companies. For purposes of
this table, affiliated investment companies (other than an affiliated money market mutual fund) in
which the Fund invested less than 10% of its net assets, are listed individually in the table.
2
Represents cash collateral received for portfolio securities on loan that may be invested in
affiliated money market funds, other money market instruments and/or repurchase agreements.
3
Represents less than 0.1%.
4
For purposes of this table, Mortgage-Backed Securities may include mortgage-backed securities
guaranteed by Government Sponsored Entities and adjustable rate mortgage-backed securities.
5
Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as
applicable. Derivative contracts may consist of futures, forwards, options 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.
6
Cash Equivalents include any investments in money market mutual funds and/or overnight
repurchase agreements other than those representing cash collateral for securities lending.
7
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
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—29.7%
|
|
|
|
|
Basic Industry - Metals & Mining—0.1%
|
|
|
$425,000
|
|
Reliance Steel & Aluminum Co., Sr. Unsecd. Note,
4.500%, 4/15/2023
|
$458,753
|
|
500,000
|
|
Southern Copper Corp., Sr. Unsecd. Note, 3.500%, 11/8/2022
|
527,253
|
|
|
|
TOTAL
|
986,006
|
|
|
|
Capital Goods - Aerospace & Defense—0.7%
|
|
|
1,000,000
|
|
Boeing Co., Sr. Unsecd. Note, 1.875%, 6/15/2023
|
993,782
|
|
2,000,000
|
|
Boeing Co., Sr. Unsecd. Note, 4.508%, 5/1/2023
|
2,113,395
|
|
395,000
|
|
Embraer Overseas Ltd., Sr. Unsecd. Note, 144A,
5.696%, 9/16/2023
|
398,456
|
|
905,000
|
|
Leidos Inc., Unsecd. Note, 144A, 3.625%, 5/15/2025
|
1,012,247
|
|
2,000,000
|
|
Lockheed Martin Corp., Sr. Unsecd. Note, 3.100%, 1/15/2023
|
2,125,397
|
|
500,000
|
|
Northrop Grumman Corp., Sr. Unsecd. Note, 2.550%, 10/15/2022
|
523,247
|
|
1,500,000
|
|
Northrop Grumman Corp., Sr. Unsecd. Note, 2.930%, 1/15/2025
|
1,637,611
|
|
25,000
|
|
Raytheon Technologies Corp., Sr. Unsecd. Note, 144A,
3.100%, 11/15/2021
|
25,606
|
|
40,000
|
1
|
Textron Financial Corp., Jr. Sub. Note, 144A, 2.015% (3-month
USLIBOR +1.735%), 2/15/2042
|
29,268
|
|
500,000
|
|
Textron Inc., Sr. Unsecd. Note, 3.650%, 3/1/2021
|
506,644
|
|
|
|
TOTAL
|
9,365,653
|
|
|
|
Capital Goods - Building Materials—0.0%
|
|
|
500,000
|
|
Allegion US Holdings Co., Inc., Sr. Unsecd. Note,
3.200%, 10/1/2024
|
532,997
|
|
|
|
Capital Goods - Construction Machinery—0.4%
|
|
|
1,575,000
|
|
CNH Industrial Capital America LLC, Sr. Unsecd. Note,
1.950%, 7/2/2023
|
1,599,962
|
|
2,000,000
|
|
CNH Industrial Capital America LLC, Sr. Unsecd. Note,
4.375%, 4/5/2022
|
2,101,277
|
|
560,000
|
|
Deere & Co., Sr. Unsecd. Note, 2.750%, 4/15/2025
|
613,169
|
|
835,000
|
|
John Deere Capital Corp., Sr. Unsecd. Note, Series MTN,
0.550%, 7/5/2022
|
839,464
|
|
|
|
TOTAL
|
5,153,872
|
|
|
|
Capital Goods - Diversified Manufacturing—1.0%
|
|
|
2,500,000
|
|
Honeywell International, Inc., Sr. Unsecd. Note,
0.483%, 8/19/2022
|
2,505,989
|
|
810,000
|
|
Honeywell International, Inc., Sr. Unsecd. Note, 1.350%, 6/1/2025
|
834,677
|
Annual Shareholder Report
8
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Capital Goods - Diversified Manufacturing—continued
|
|
|
$30,000
|
|
Johnson Controls International PLC, Sr. Unsecd. Note,
3.750%, 12/1/2021
|
$30,799
|
|
1,390,000
|
|
Lennox International, Inc., Sr. Unsecd. Note, 1.350%, 8/1/2025
|
1,404,633
|
|
415,000
|
|
Lennox International, Inc., Sr. Unsecd. Note, 3.000%, 11/15/2023
|
440,165
|
|
3,165,000
|
|
Otis Worldwide Corp., Sr. Unsecd. Note, 144A, 2.056%, 4/5/2025
|
3,340,679
|
|
1,410,000
|
|
Roper Technologies, Inc., Sr. Unsecd. Note, 1.000%, 9/15/2025
|
1,419,999
|
|
1,000,000
|
|
Roper Technologies, Inc., Sr. Unsecd. Note, 3.000%, 12/15/2020
|
1,005,373
|
|
2,000,000
|
|
Roper Technologies, Inc., Sr. Unsecd. Note, 3.650%, 9/15/2023
|
2,178,922
|
|
790,000
|
|
Wabtec Corp., Sr. Unsecd. Note, 3.200%, 6/15/2025
|
832,377
|
|
|
|
TOTAL
|
13,993,613
|
|
|
|
Capital Goods - Environmental—0.0%
|
|
|
50,000
|
|
Republic Services, Inc., Company Guarantee, 5.250%, 11/15/2021
|
52,885
|
|
|
|
Capital Goods - Packaging—0.0%
|
|
|
250,000
|
|
WestRock Co., Sr. Unsecd. Note, 4.000%, 3/1/2023
|
268,372
|
|
|
|
Communications - Cable & Satellite—0.3%
|
|
|
1,000,000
|
|
CCO Safari II LLC, 4.464%, 7/23/2022
|
1,065,947
|
|
1,000,000
|
|
Comcast Corp., Sr. Unsecd. Note, 3.600%, 3/1/2024
|
1,109,249
|
|
2,000,000
|
|
Comcast Corp., Sr. Unsecd. Note, 3.700%, 4/15/2024
|
2,221,693
|
|
|
|
TOTAL
|
4,396,889
|
|
|
|
Communications - Media & Entertainment—0.7%
|
|
|
3,000,000
|
|
Alphabet, Inc., Sr. Unsecd. Note, 0.450%, 8/15/2025
|
2,996,482
|
|
220,000
|
|
Fox Corp, Sr. Unsecd. Note, 3.050%, 4/7/2025
|
241,203
|
|
2,175,000
|
|
Fox Corp, Sr. Unsecd. Note, Series WI, 3.666%, 1/25/2022
|
2,272,031
|
|
1,000,000
|
|
ViacomCBS Inc., Sr. Unsecd. Note, 3.500%, 1/15/2025
|
1,104,333
|
|
1,000,000
|
|
ViacomCBS Inc., Sr. Unsecd. Note, 4.750%, 5/15/2025
|
1,155,580
|
|
1,500,000
|
|
Walt Disney Co., Sr. Unsecd. Note, 1.750%, 8/30/2024
|
1,562,605
|
|
195,000
|
|
Walt Disney Co., Sr. Unsecd. Note, 4.000%, 10/1/2023
|
214,749
|
|
100,000
|
|
Walt Disney Co., Sr. Unsecd. Note, Series MTN,
3.750%, 6/1/2021
|
102,663
|
|
|
|
TOTAL
|
9,649,646
|
|
|
|
Communications - Telecom Wireless—0.9%
|
|
|
730,000
|
|
American Tower Corp., Sr. Unsecd. Note, 1.300%, 9/15/2025
|
743,031
|
|
1,055,000
|
|
American Tower Corp., Sr. Unsecd. Note, 2.400%, 3/15/2025
|
1,125,663
|
|
1,000,000
|
|
American Tower Corp., Sr. Unsecd. Note, 3.375%, 5/15/2024
|
1,089,666
|
|
2,000,000
|
|
American Tower Corp., Sr. Unsecd. Note, 3.500%, 1/31/2023
|
2,138,296
|
|
1,000,000
|
|
Crown Castle International Corp., 3.150%, 7/15/2023
|
1,069,496
|
|
1,665,000
|
|
Crown Castle International Corp., Sr. Unsecd. Note,
1.350%, 7/15/2025
|
1,693,847
|
Annual Shareholder Report
9
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Communications - Telecom Wireless—continued
|
|
|
$1,500,000
|
|
T-Mobile USA, Inc., Sec. Fac. Bond, 144A, 1.500%, 2/15/2026
|
$1,525,395
|
|
1,000,000
|
|
T-Mobile USA, Inc., Sec. Fac. Bond, 144A, 3.500%, 4/15/2025
|
1,105,800
|
|
2,000,000
|
1
|
Vodafone Group PLC, Sr. Unsecd. Note, 1.260% (3-month
USLIBOR +0.990%), 1/16/2024
|
2,015,647
|
|
|
|
TOTAL
|
12,506,841
|
|
|
|
Communications - Telecom Wirelines—0.5%
|
|
|
2,500,000
|
|
AT&T, Inc., Sr. Unsecd. Note, 3.000%, 6/30/2022
|
2,610,433
|
|
2,000,000
|
1
|
Verizon Communications, Inc., Sr. Unsecd. Note, 1.320%
(3-month USLIBOR +1.000%), 3/16/2022
|
2,029,261
|
|
2,000,000
|
|
Verizon Communications, Inc., Sr. Unsecd. Note,
2.625%, 8/15/2026
|
2,202,904
|
|
475,000
|
|
Verizon Communications, Inc., Sr. Unsecd. Note,
4.150%, 3/15/2024
|
530,704
|
|
|
|
TOTAL
|
7,373,302
|
|
|
|
Consumer Cyclical - Automotive—1.4%
|
|
|
1,985,000
|
|
American Honda Finance Corp., Sr. Unsecd. Note, Series MTN,
1.200%, 7/8/2025
|
2,011,397
|
|
2,000,000
|
|
American Honda Finance Corp., Sr. Unsecd. Note, Series MTN,
2.900%, 2/16/2024
|
2,147,546
|
|
2,000,000
|
|
Daimler Finance NA LLC, Sr. Unsecd. Note, 144A,
2.200%, 10/30/2021
|
2,035,284
|
|
550,000
|
|
General Motors Co., Sr. Unsecd. Note, 6.125%, 10/1/2025
|
646,144
|
|
500,000
|
|
General Motors Financial Co., Inc., 4.375%, 9/25/2021
|
517,234
|
|
10,000
|
1
|
General Motors Financial Co., Inc., Sr. Unsecd. Note, 1.617%
(3-month USLIBOR +1.310%), 6/30/2022
|
9,984
|
|
1,000,000
|
|
General Motors Financial Co., Inc., Sr. Unsecd. Note,
1.700%, 8/18/2023
|
1,006,648
|
|
1,665,000
|
|
General Motors Financial Co., Inc., Sr. Unsecd. Note,
2.900%, 2/26/2025
|
1,731,820
|
|
1,000,000
|
|
General Motors Financial Co., Inc., Sr. Unsecd. Note,
3.550%, 7/8/2022
|
1,040,031
|
|
400,000
|
|
General Motors Financial Co., Inc., Sr. Unsecd. Note,
4.150%, 6/19/2023
|
426,857
|
|
1,500,000
|
|
Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN,
1.350%, 8/25/2023
|
1,539,631
|
|
2,000,000
|
|
Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN,
1.800%, 2/13/2025
|
2,094,695
|
|
1,000,000
|
|
Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN,
2.900%, 3/30/2023
|
1,063,820
|
|
2,305,000
|
|
Volkswagen Group of America Finance LLC, Sr. Unsecd. Note,
144A, 2.900%, 5/13/2022
|
2,392,748
|
Annual Shareholder Report
10
Annual Shareholder Report
11
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Consumer Non-Cyclical - Food/Beverage—continued
|
|
|
$1,000,000
|
|
Mondelez International Holdings Netherlands BV, Sr. Unsecd.
Note, 144A, 2.250%, 9/19/2024
|
$1,058,211
|
|
780,000
|
|
Mondelez International, Inc., Sr. Unsecd. Note, 0.625%, 7/1/2022
|
783,911
|
|
1,000,000
|
|
Mondelez International, Inc., Sr. Unsecd. Note,
2.125%, 4/13/2023
|
1,040,375
|
|
990,000
|
|
PepsiCo, Inc., Sr. Unsecd. Note, 2.250%, 3/19/2025
|
1,063,818
|
|
2,000,000
|
|
Smucker (J.M.) Co., Sr. Unsecd. Note, 3.500%, 3/15/2025
|
2,260,982
|
|
475,000
|
|
Tyson Foods, Inc., Sr. Unsecd. Note, 4.500%, 6/15/2022
|
504,893
|
|
|
|
TOTAL
|
20,224,526
|
|
|
|
Consumer Non-Cyclical - Health Care—0.2%
|
|
|
875,000
|
|
Becton Dickinson & Co., Sr. Unsecd. Note, 2.894%, 6/6/2022
|
908,609
|
|
940,000
|
|
DH Europe Finance II S.a.r.l., Sr. Unsecd. Note, Series 5YR,
2.200%, 11/15/2024
|
996,931
|
|
140,000
|
|
Laboratory Corp. of America Holdings, Sr. Unsecd. Note,
3.750%, 8/23/2022
|
147,848
|
|
1,000,000
|
|
Thermo Fisher Scientific, Inc., Sr. Unsecd. Note,
3.000%, 4/15/2023
|
1,062,179
|
|
185,000
|
|
Thermo Fisher Scientific, Inc., Sr. Unsecd. Note,
4.133%, 3/25/2025
|
212,408
|
|
|
|
TOTAL
|
3,327,975
|
|
|
|
Consumer Non-Cyclical - Pharmaceuticals—1.8%
|
|
|
3,720,000
|
|
Abbott Laboratories, Sr. Unsecd. Note, 3.400%, 11/30/2023
|
4,075,597
|
|
1,000,000
|
|
AbbVie, Inc., 3.375%, 11/14/2021
|
1,035,453
|
|
2,000,000
|
|
AbbVie, Inc., Sr. Unsecd. Note, 144A, 2.600%, 11/21/2024
|
2,144,689
|
|
1,000,000
|
|
AbbVie, Inc., Sr. Unsecd. Note, 2.850%, 5/14/2023
|
1,057,215
|
|
1,000,000
|
|
AbbVie, Inc., Sr. Unsecd. Note, 2.900%, 11/6/2022
|
1,052,567
|
|
1,000,000
|
|
AbbVie, Inc., Sr. Unsecd. Note, 3.600%, 5/14/2025
|
1,116,725
|
|
2,950,000
|
|
Amgen, Inc., Sr. Unsecd. Note, 1.900%, 2/21/2025
|
3,096,908
|
|
940,000
|
|
AstraZeneca PLC, 0.700%, 4/8/2026
|
932,886
|
|
1,595,000
|
|
AstraZeneca PLC, Sr. Unsecd. Note, 2.375%, 6/12/2022
|
1,650,530
|
|
1,000,000
|
|
Bayer US Finance II LLC, Sr. Unsecd. Note, 144A,
3.875%, 12/15/2023
|
1,097,490
|
|
385,000
|
|
Bristol-Myers Squibb Co., Sr. Unsecd. Note, Series WI,
2.900%, 7/26/2024
|
419,961
|
|
1,000,000
|
|
Bristol-Myers Squibb Co., Sr. Unsecd. Note, Series WI,
3.250%, 2/20/2023
|
1,069,194
|
|
1,500,000
|
|
Merck & Co., Inc., Sr. Unsecd. Note, 0.750%, 2/24/2026
|
1,508,288
|
|
790,000
|
|
Merck & Co., Inc., Sr. Unsecd. Note, 2.900%, 3/7/2024
|
855,403
|
|
1,200,000
|
|
Pfizer, Inc., Sr. Unsecd. Note, 3.200%, 9/15/2023
|
1,301,523
|
Annual Shareholder Report
12
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Consumer Non-Cyclical - Pharmaceuticals—continued
|
|
|
$1,195,000
|
|
Royalty Pharma PLC, 144A, 1.200%, 9/2/2025
|
$1,193,038
|
|
1,000,000
|
|
Teva Pharmaceutical Finance Netherlands III BV, Sr. Unsecd. Note,
2.200%, 7/21/2021
|
996,900
|
|
|
|
TOTAL
|
24,604,367
|
|
|
|
Consumer Non-Cyclical - Products—0.1%
|
|
|
875,000
|
|
Procter & Gamble Co., Sr. Unsecd. Note, 2.450%, 3/25/2025
|
950,220
|
|
|
|
Consumer Non-Cyclical - Tobacco—0.7%
|
|
|
2,000,000
|
|
Altria Group, Inc., 2.850%, 8/9/2022
|
2,088,519
|
|
2,680,000
|
|
Altria Group, Inc., Sr. Unsecd. Note, 2.350%, 5/6/2025
|
2,853,689
|
|
365,000
|
|
Altria Group, Inc., Sr. Unsecd. Note, 3.800%, 2/14/2024
|
400,543
|
|
750,000
|
|
Bat Capital Corp., Sr. Unsecd. Note, 2.789%, 9/6/2024
|
798,196
|
|
1,000,000
|
|
Bat Capital Corp., Sr. Unsecd. Note, 3.222%, 8/15/2024
|
1,079,005
|
|
500,000
|
|
Bat Capital Corp., Sr. Unsecd. Note, Series WI,
2.764%, 8/15/2022
|
520,160
|
|
1,000,000
|
|
Philip Morris International, Inc., Sr. Unsecd. Note,
1.125%, 5/1/2023
|
1,018,357
|
|
1,000,000
|
|
Philip Morris International, Inc., Sr. Unsecd. Note,
1.500%, 5/1/2025
|
1,035,262
|
|
|
|
TOTAL
|
9,793,731
|
|
|
|
Energy - Independent—0.1%
|
|
|
1,000,000
|
|
Canadian Natural Resources Ltd., Sr. Unsecd. Note,
2.050%, 7/15/2025
|
1,025,916
|
|
840,000
|
|
Canadian Natural Resources Ltd., Sr. Unsecd. Note,
2.950%, 1/15/2023
|
875,205
|
|
|
|
TOTAL
|
1,901,121
|
|
|
|
Energy - Integrated—1.3%
|
|
|
1,500,000
|
|
BP Capital Markets America, Inc., Sr. Unsecd. Note,
2.937%, 4/6/2023
|
1,592,427
|
|
2,000,000
|
|
BP Capital Markets America, Inc., Sr. Unsecd. Note,
3.194%, 4/6/2025
|
2,205,428
|
|
500,000
|
|
BP Capital Markets America, Inc., Sr. Unsecd. Note,
3.245%, 5/6/2022
|
525,222
|
|
500,000
|
|
Chevron Corp., Sr. Unsecd. Note, 1.141%, 5/11/2023
|
510,646
|
|
4,000,000
|
|
Chevron Corp., Sr. Unsecd. Note, 1.554%, 5/11/2025
|
4,164,181
|
|
2,000,000
|
|
Exxon Mobil Corp., Sr. Unsecd. Note, 1.571%, 4/15/2023
|
2,063,531
|
|
1,000,000
|
|
Exxon Mobil Corp., Sr. Unsecd. Note, 2.992%, 3/19/2025
|
1,099,144
|
|
880,000
|
|
Husky Energy, Inc., Sr. Unsecd. Note, 3.950%, 4/15/2022
|
908,180
|
|
835,000
|
|
Shell International Finance B.V., Sr. Unsecd. Note,
2.375%, 4/6/2025
|
897,884
|
Annual Shareholder Report
13
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Energy - Integrated—continued
|
|
|
$2,000,000
|
|
Shell International Finance B.V., Sr. Unsecd. Note,
3.500%, 11/13/2023
|
$2,186,826
|
|
1,320,000
|
|
Suncor Energy, Inc., Sr. Unsecd. Note, 3.100%, 5/15/2025
|
1,447,180
|
|
|
|
TOTAL
|
17,600,649
|
|
|
|
Energy - Midstream—1.0%
|
|
|
150,000
|
|
Energy Transfer Partners LP, Sr. Unsecd. Note, 4.900%, 2/1/2024
|
161,753
|
|
1,000,000
|
|
Enterprise Products Operating LLC, 3.900%, 2/15/2024
|
1,099,792
|
|
2,437,000
|
|
Enterprise Products Operating LLC, Sr. Unsecd. Note,
3.350%, 3/15/2023
|
2,596,338
|
|
675,000
|
|
Enterprise Products Operating LLC, Sr. Unsecd. Note,
3.500%, 2/1/2022
|
703,100
|
|
2,000,000
|
|
Kinder Morgan Energy Partners LP, Sr. Unsecd. Note,
4.150%, 2/1/2024
|
2,192,950
|
|
500,000
|
|
Kinder Morgan Energy Partners LP, Sr. Unsecd. Note,
4.300%, 5/1/2024
|
554,915
|
|
50,000
|
|
Kinder Morgan Energy Partners LP, Sr. Unsecd. Note,
5.800%, 3/1/2021
|
51,279
|
|
295,000
|
1
|
MPLX LP, Sr. Unsecd. Note, 1.212% (3-month USLIBOR
+0.900%), 9/9/2021
|
294,992
|
|
1,165,000
|
|
MPLX LP, Sr. Unsecd. Note, 1.750%, 3/1/2026
|
1,166,168
|
|
450,000
|
|
MPLX LP, Sr. Unsecd. Note, Series WI, 3.500%, 12/1/2022
|
471,181
|
|
1,500,000
|
|
Oneok Partners LP, Sr. Unsecd. Note, 3.375%, 10/1/2022
|
1,563,386
|
|
2,000,000
|
|
Williams Partners LP, Sr. Unsecd. Note, 3.350%, 8/15/2022
|
2,087,113
|
|
1,241,000
|
|
Williams Partners LP, Sr. Unsecd. Note, 3.600%, 3/15/2022
|
1,289,268
|
|
|
|
TOTAL
|
14,232,235
|
|
|
|
Energy - Oil Field Services—0.0%
|
|
|
275,000
|
2
|
Nabors Industries, Inc., Company Guarantee, 5.000%, 9/15/2020
|
273,243
|
|
|
|
Energy - Refining—0.2%
|
|
|
1,000,000
|
|
Marathon Petroleum Corp., Sr. Unsecd. Note, 4.500%, 5/1/2023
|
1,089,029
|
|
100,000
|
|
Marathon Petroleum Corp., Sr. Unsecd. Note, 5.125%, 3/1/2021
|
102,326
|
|
1,020,000
|
|
Valero Energy Corp., Sr. Unsecd. Note, 2.850%, 4/15/2025
|
1,092,013
|
|
|
|
TOTAL
|
2,283,368
|
|
|
|
Financial Institution - Banking—7.4%
|
|
|
2,000,000
|
1
|
American Express Co., 0.901% (3-month USLIBOR
+0.650%), 2/27/2023
|
2,015,810
|
|
143,000
|
|
American Express Co., 2.650%, 12/2/2022
|
150,148
|
|
1,000,000
|
|
American Express Co., Sr. Unsecd. Note, 3.400%, 2/22/2024
|
1,094,015
|
|
1,000,000
|
|
American Express Credit Corp., Sr. Unsecd. Note, Series MTN,
2.700%, 3/3/2022
|
1,034,171
|
Annual Shareholder Report
14
Annual Shareholder Report
15
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Financial Institution - Banking—continued
|
|
|
$1,500,000
|
1
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 1.006% (3-month
USLIBOR +0.750%), 2/23/2023
|
$1,508,427
|
|
1,000,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note,
2.350%, 11/15/2021
|
1,004,063
|
|
500,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 2.905%, 7/24/2023
|
521,183
|
|
500,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 2.908%, 6/5/2023
|
520,518
|
|
500,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.272%, 9/29/2025
|
544,932
|
|
2,000,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.500%, 1/23/2025
|
2,198,731
|
|
500,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.625%, 1/22/2023
|
536,883
|
|
1,500,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.625%, 2/20/2024
|
1,638,342
|
|
250,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 5.250%, 7/27/2021
|
261,074
|
|
1,125,000
|
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, 5.750%, 1/24/2022
|
1,207,804
|
|
1,000,000
|
1
|
Goldman Sachs Group, Inc., Sr. Unsecd. Note, Series MTN,
1.855% (3-month USLIBOR +1.600%), 11/29/2023
|
1,032,804
|
|
1,000,000
|
|
Huntington Bancshares, Inc., Sr. Unsecd. Note, 2.625%, 8/6/2024
|
1,071,096
|
|
1,010,000
|
|
Huntington Bancshares, Inc., Sub. Note, 7.000%, 12/15/2020
|
1,028,630
|
|
1,000,000
|
|
Huntington National Bank, Sr. Unsecd. Note, Series BKNT,
3.550%, 10/6/2023
|
1,092,673
|
|
1,000,000
|
1
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 1.493% (3-month
USLIBOR +1.230%), 10/24/2023
|
1,018,295
|
|
2,000,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 1.514%, 6/1/2024
|
2,046,117
|
|
2,000,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 3.125%, 1/23/2025
|
2,183,688
|
|
200,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 3.200%, 1/25/2023
|
213,257
|
|
2,000,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 3.514%, 6/18/2022
|
2,049,893
|
|
2,500,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 3.559%, 4/23/2024
|
2,689,766
|
|
1,000,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 3.625%, 5/13/2024
|
1,105,894
|
|
1,200,000
|
|
JPMorgan Chase & Co., Sr. Unsecd. Note, 4.500%, 1/24/2022
|
1,269,474
|
|
725,000
|
|
JPMorgan Chase & Co., Sub. Note, 3.375%, 5/1/2023
|
776,993
|
|
450,000
|
|
MUFG Union Bank, N.A., Sr. Unsecd. Note, Series BKNT,
3.150%, 4/1/2022
|
469,466
|
|
1,500,000
|
|
Morgan Stanley, Sr. Unsecd. Note, Series GMTN,
3.125%, 1/23/2023
|
1,590,931
|
|
4,165,000
|
1
|
Morgan Stanley, Sr. Unsecd. Note, Series MTN, 1.663% (3-month
USLIBOR +1.400%), 10/24/2023
|
4,244,381
|
|
1,000,000
|
|
Morgan Stanley, Sr. Unsecd. Note, Series MTN,
2.720%, 7/22/2025
|
1,070,249
|
|
500,000
|
|
Morgan Stanley, Sub. Note, Series MTN, 4.100%, 5/22/2023
|
543,776
|
|
1,000,000
|
|
PNC Bank, N.A., Series BKNT, 2.150%, 4/29/2021
|
1,011,203
|
|
1,000,000
|
|
PNC Financial Services Group, Inc., Sr. Unsecd. Note,
3.500%, 1/23/2024
|
1,096,255
|
Annual Shareholder Report
16
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Financial Institution - Banking—continued
|
|
|
$2,330,000
|
|
Regions Financial Corp., Sr. Unsecd. Note, 2.250%, 5/18/2025
|
$2,476,416
|
|
1,100,000
|
|
Regions Financial Corp., Sr. Unsecd. Note, 2.750%, 8/14/2022
|
1,145,910
|
|
1,000,000
|
|
Regions Financial Corp., Sr. Unsecd. Note, 3.800%, 8/14/2023
|
1,091,159
|
|
3,080,000
|
|
SunTrust Banks, Inc., Sr. Unsecd. Note, 2.700%, 1/27/2022
|
3,175,412
|
|
1,250,000
|
|
Truist Bank, Sr. Unsecd. Note, Series BKNT, 1.500%, 3/10/2025
|
1,296,175
|
|
980,000
|
|
Truist Financial Corp., Sr. Unsecd. Note, Series MTN,
2.750%, 4/1/2022
|
1,015,835
|
|
750,000
|
|
U.S. Bancorp, Sr. Unsecd. Note, Series V, 2.625%, 1/24/2022
|
773,535
|
|
1,000,000
|
|
U.S. Bancorp, Sr. Unsecd. Note, 1.450%, 5/12/2025
|
1,036,801
|
|
2,500,000
|
|
U.S. Bancorp, Sr. Unsecd. Note, 2.400%, 7/30/2024
|
2,671,501
|
|
7,760,000
|
1
|
Wells Fargo & Co., Sr. Unsecd. Note, 1.490% (3-month USLIBOR
+1.230%), 10/31/2023
|
7,873,514
|
|
1,820,000
|
|
Wells Fargo & Co., Sr. Unsecd. Note, 2.188%, 4/30/2026
|
1,903,937
|
|
750,000
|
|
Wells Fargo & Co., Sr. Unsecd. Note, 3.069%, 1/24/2023
|
776,057
|
|
1,000,000
|
|
Wells Fargo & Co., Sr. Unsecd. Note, Series MTN,
3.750%, 1/24/2024
|
1,093,180
|
|
350,000
|
|
Wells Fargo & Co., Sr. Unsecd. Note, Series MTN,
4.600%, 4/1/2021
|
358,758
|
|
|
|
TOTAL
|
102,026,092
|
|
|
|
Financial Institution - Finance Companies—0.1%
|
|
|
420,000
|
|
AerCap Ireland Capital Ltd / AerCap Global Aviation Trust, Sr.
Unsecd. Note, 3.950%, 2/1/2022
|
425,466
|
|
1,500,000
|
|
GE Capital Funding LLC, Sr. Unsecd. Note, 144A,
3.450%, 5/15/2025
|
1,592,274
|
|
|
|
TOTAL
|
2,017,740
|
|
|
|
Financial Institution - Insurance - Health—0.6%
|
|
|
2,000,000
|
1
|
CIGNA Corp., Sr. Unsecd. Note, 1.165% (3-month USLIBOR
+0.890%), 7/15/2023
|
2,023,636
|
|
1,544,000
|
|
CIGNA Corp., Sr. Unsecd. Note, 3.400%, 9/17/2021
|
1,592,536
|
|
499,000
|
|
CIGNA Corp., Sr. Unsecd. Note, 3.750%, 7/15/2023
|
543,489
|
|
200,000
|
|
UnitedHealth Group, Inc., Sr. Unsecd. Note, 1.250%, 1/15/2026
|
205,311
|
|
2,000,000
|
|
UnitedHealth Group, Inc., Sr. Unsecd. Note, 3.500%, 2/15/2024
|
2,201,701
|
|
1,000,000
|
|
UnitedHealth Group, Inc., Sr. Unsecd. Note, 3.500%, 6/15/2023
|
1,086,595
|
|
|
|
TOTAL
|
7,653,268
|
|
|
|
Financial Institution - Insurance - Life—1.2%
|
|
|
1,000,000
|
|
AIA Group Ltd., Sr. Unsecd. Note, 144A, 3.200%, 3/11/2025
|
1,077,718
|
|
1,000,000
|
|
American International Group, Inc., Sr. Unsecd. Note,
4.875%, 6/1/2022
|
1,076,099
|
Annual Shareholder Report
17
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Financial Institution - Insurance - Life—continued
|
|
|
$3,250,000
|
|
American International Group, Sr. Unsecd. Note,
2.500%, 6/30/2025
|
$3,479,168
|
|
1,000,000
|
|
Mass Mutual Global Funding II, 144A, 2.000%, 4/15/2021
|
1,011,183
|
|
1,250,000
|
|
Mass Mutual Global Funding II, Sr. Secd. Note, 144A,
0.850%, 6/9/2023
|
1,265,301
|
|
1,110,000
|
|
Met Life Global Funding I, Sec. Fac. Bond, 144A,
0.900%, 6/8/2023
|
1,124,161
|
|
335,000
|
|
PRICOA Global Funding I, 144A, 2.450%, 9/21/2022
|
349,553
|
|
2,500,000
|
|
PRICOA Global Funding I, Sec. Fac. Bond, 144A,
0.800%, 9/1/2025
|
2,499,866
|
|
1,000,000
|
|
PRICOA Global Funding I, Sec. Fac. Bond, 144A,
3.450%, 9/1/2023
|
1,088,682
|
|
500,000
|
|
Principal Financial Group, Inc., Sr. Unsecd. Note,
3.300%, 9/15/2022
|
526,590
|
|
2,000,000
|
|
Principal Life Global Funding II, Sec. Fac. Bond, 144A,
1.250%, 6/23/2025
|
2,042,107
|
|
1,000,000
|
|
Principal Life Global Funding II, Sec. Fac. Bond, 144A,
2.250%, 11/21/2024
|
1,061,146
|
|
|
|
TOTAL
|
16,601,574
|
|
|
|
Financial Institution - Insurance - P&C—0.1%
|
|
|
750,000
|
|
Liberty Mutual Group, Inc., 144A, 4.950%, 5/1/2022
|
800,087
|
|
500,000
|
|
Liberty Mutual Group, Inc., Sr. Unsecd. Note, 144A,
4.250%, 6/15/2023
|
549,189
|
|
|
|
TOTAL
|
1,349,276
|
|
|
|
Financial Institution - REIT - Healthcare—0.1%
|
|
|
700,000
|
|
Healthcare Trust of America, 3.700%, 4/15/2023
|
738,884
|
|
|
|
Financial Institution - REIT - Other—0.0%
|
|
|
300,000
|
|
WP Carey, Inc., Sr. Unsecd. Note, 4.600%, 4/1/2024
|
330,036
|
|
|
|
Supranational—0.1%
|
|
|
1,000,000
|
|
Corp Andina De Fomento, Sr. Unsecd. Note, 3.250%, 2/11/2022
|
1,031,215
|
|
475,000
|
|
Corp Andina De Fomento, Sr. Unsecd. Note, 4.375%, 6/15/2022
|
503,987
|
|
|
|
TOTAL
|
1,535,202
|
|
|
|
Technology—2.0%
|
|
|
2,000,000
|
|
Apple, Inc., Sr. Unsecd. Note, 0.750%, 5/11/2023
|
2,024,523
|
|
1,000,000
|
|
Apple, Inc., Sr. Unsecd. Note, 1.125%, 5/11/2025
|
1,026,933
|
|
1,150,000
|
|
Apple, Inc., Sr. Unsecd. Note, 1.550%, 8/4/2021
|
1,163,246
|
|
2,000,000
|
|
Apple, Inc., Sr. Unsecd. Note, 1.800%, 9/11/2024
|
2,103,839
|
|
700,000
|
|
Apple, Inc., Sr. Unsecd. Note, 3.000%, 2/9/2024
|
757,784
|
|
2,000,000
|
|
Broadcom Corp., Sr. Unsecd. Note, Series WI, 3.625%, 1/15/2024
|
2,160,870
|
Annual Shareholder Report
18
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Technology—continued
|
|
|
$835,000
|
|
Broadcom, Inc., Sr. Unsecd. Note, 2.250%, 11/15/2023
|
$869,327
|
|
290,000
|
|
Broadcom, Inc., Sr. Unsecd. Note, 4.700%, 4/15/2025
|
331,614
|
|
750,000
|
|
Dell International LLC / EMC Corp., 144A, 4.000%, 7/15/2024
|
810,287
|
|
352,000
|
|
Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Secd.
Note, 144A, 4.420%, 6/15/2021
|
361,139
|
|
630,000
|
|
Equifax, Inc., Sr. Unsecd. Note, 2.300%, 6/1/2021
|
638,164
|
|
3,450,000
|
|
Fiserv, Inc., Sr. Unsecd. Note, 2.750%, 7/1/2024
|
3,700,576
|
|
620,000
|
1
|
IBM Credit Corp., Sr. Unsecd. Note, 0.725% (3-month USLIBOR
+0.470%), 11/30/2020
|
620,786
|
|
750,000
|
|
Intel Corp., 3.300%, 10/1/2021
|
774,839
|
|
2,000,000
|
|
Intel Corp., Sr. Unsecd. Note, 2.875%, 5/11/2024
|
2,165,903
|
|
290,000
|
|
Micron Technology, Inc., Sr. Unsecd. Note, 2.497%, 4/24/2023
|
303,080
|
|
1,000,000
|
|
Oracle Corp., Sr. Unsecd. Note, 1.900%, 9/15/2021
|
1,015,903
|
|
3,500,000
|
|
Oracle Corp., Sr. Unsecd. Note, 2.500%, 10/15/2022
|
3,658,980
|
|
1,855,000
|
|
Oracle Corp., Sr. Unsecd. Note, 2.500%, 4/1/2025
|
2,001,795
|
|
560,000
|
|
Salesforce.com, Inc., Sr. Unsecd. Note, 3.250%, 4/11/2023
|
601,287
|
|
720,000
|
|
Total System Services, Inc., Sr. Unsecd. Note, 3.800%, 4/1/2021
|
732,332
|
|
150,000
|
|
Verisk Analytics, Inc., Sr. Unsecd. Note, 4.125%, 9/12/2022
|
160,371
|
|
|
|
TOTAL
|
27,983,578
|
|
|
|
Technology Services—0.2%
|
|
|
3,000,000
|
|
Global Payments, Inc., Sr. Unsecd. Note, 2.650%, 2/15/2025
|
3,209,699
|
|
|
|
Transportation - Airlines—0.2%
|
|
|
1,825,000
|
|
Southwest Airlines Co., Sr. Unsecd. Note, 4.750%, 5/4/2023
|
1,948,359
|
|
770,000
|
|
Southwest Airlines Co., Sr. Unsecd. Note, 5.250%, 5/4/2025
|
841,276
|
|
|
|
TOTAL
|
2,789,635
|
|
|
|
Transportation - Services—0.3%
|
|
|
585,000
|
|
FedEx Corp., Sr. Unsecd. Note, 2.700%, 4/15/2023
|
619,044
|
|
1,000,000
|
|
FedEx Corp., Sr. Unsecd. Note, 3.200%, 2/1/2025
|
1,099,170
|
|
210,000
|
|
Ryder System, Inc., Sr. Unsecd. Note, Series MTN,
2.800%, 3/1/2022
|
216,700
|
|
485,000
|
|
Ryder System, Inc., Sr. Unsecd. Note, Series MTN,
2.875%, 6/1/2022
|
503,746
|
|
1,000,000
|
|
United Parcel Service, Inc., Sr. Unsecd. Note, 3.900%, 4/1/2025
|
1,140,960
|
|
|
|
TOTAL
|
3,579,620
|
|
|
|
Utility - Electric—2.4%
|
|
|
2,000,000
|
|
AEP Texas, Inc., Sr. Unsecd. Note, Series WI, 2.400%, 10/1/2022
|
2,072,841
|
|
850,000
|
|
Alabama Power Co., Sr. Unsecd. Note, Series 17A,
2.450%, 3/30/2022
|
876,394
|
Annual Shareholder Report
19
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Utility - Electric—continued
|
|
|
$870,000
|
|
Ameren Corp., Sr. Unsecd. Note, 2.700%, 11/15/2020
|
$872,512
|
|
1,000,000
|
|
American Electric Power Co., Inc., Sr. Unsecd. Note, Series I,
3.650%, 12/1/2021
|
1,041,287
|
|
560,000
|
|
Avangrid, Inc., Sr. Unsecd. Note, 3.200%, 4/15/2025
|
618,748
|
|
605,000
|
|
Consolidated Edison Co., Sr. Unsecd. Note, 2.000%, 5/15/2021
|
611,401
|
|
610,000
|
|
Dominion Energy, Inc., Jr. Sub. Note, 3.071%, 8/15/2024
|
662,253
|
|
2,000,000
|
|
Dominion Energy, Inc., Sr. Unsecd. Note, Series A,
3.300%, 3/15/2025
|
2,223,250
|
|
1,665,000
|
|
Duke Energy Corp., Sr. Unsecd. Note, 1.800%, 9/1/2021
|
1,687,807
|
|
2,000,000
|
|
Duke Energy Corp., Sr. Unsecd. Note, 3.750%, 4/15/2024
|
2,205,156
|
|
460,000
|
|
Emera US Finance LP, Sr. Unsecd. Note, 2.700%, 6/15/2021
|
467,331
|
|
1,000,000
|
|
Enel Finance International NV, Sr. Unsecd. Note, 144A,
2.650%, 9/10/2024
|
1,059,547
|
|
930,000
|
|
Enel Finance International NV, Sr. Unsecd. Note, 144A,
2.875%, 5/25/2022
|
962,489
|
|
710,000
|
|
EverSource Energy, Sr. Unsecd. Note, 2.500%, 3/15/2021
|
717,091
|
|
1,500,000
|
|
EverSource Energy, Sr. Unsecd. Note, Series K,
2.750%, 3/15/2022
|
1,551,203
|
|
2,180,000
|
|
Exelon Generation Co. LLC, Sr. Unsecd. Note, 3.250%, 6/1/2025
|
2,405,247
|
|
245,000
|
|
FirstEnergy Corp., Sr. Unsecd. Note, Series A, 1.600%, 1/15/2026
|
243,042
|
|
1,445,000
|
|
Florida Power & Light Co., Sec. Fac. Bond, 2.850%, 4/1/2025
|
1,591,654
|
|
460,000
|
|
National Rural Utilities Cooperative Finance Corp., Sr. Unsecd.
Note, 2.950%, 2/7/2024
|
494,706
|
|
3,655,000
|
|
NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note,
2.750%, 5/1/2025
|
3,981,733
|
|
1,935,000
|
|
NiSource, Inc., Sr. Unsecd. Note, 0.950%, 8/15/2025
|
1,942,152
|
|
450,000
|
|
PPL Capital Funding, Inc., Sr. Unsecd. Note, 4.200%, 6/15/2022
|
475,734
|
|
2,080,000
|
|
Public Service Enterprises Group, Inc., Sr. Unsecd. Note,
0.800%, 8/15/2025
|
2,081,344
|
|
365,000
|
|
Public Service Enterprises Group, Inc., Sr. Unsecd. Note,
2.875%, 6/15/2024
|
394,612
|
|
1,000,000
|
|
Southern Co., Sr. Unsecd. Note, 2.950%, 7/1/2023
|
1,064,131
|
|
300,000
|
|
UIL Holdings Corp., Sr. Unsecd. Note, 4.625%, 10/1/2020
|
300,578
|
|
|
|
TOTAL
|
32,604,243
|
|
|
|
Utility - Natural Gas—0.4%
|
|
|
255,000
|
|
Dominion Energy Gas Holdings LLC, Sr. Unsecd. Note, Series A,
2.500%, 11/15/2024
|
273,191
|
|
600,000
|
|
Enbridge Energy Partners LP, Sr. Unsecd. Note,
4.200%, 9/15/2021
|
617,870
|
|
1,500,000
|
|
Enbridge, Inc., Sr. Unsecd. Note, 2.500%, 1/15/2025
|
1,583,543
|
Annual Shareholder Report
20
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
CORPORATE BONDS—continued
|
|
|
|
|
Utility - Natural Gas—continued
|
|
|
$1,200,000
|
|
National Fuel Gas Co., Sr. Unsecd. Note, 3.750%, 3/1/2023
|
$1,242,424
|
|
1,985,000
|
|
National Fuel Gas Co., Sr. Unsecd. Note, 5.500%, 1/15/2026
|
2,174,978
|
|
250,000
|
|
Sempra Energy, Sr. Unsecd. Note, 2.850%, 11/15/2020
|
250,700
|
|
|
|
TOTAL
|
6,142,706
|
|
|
|
Utility - Natural Gas Distributor—0.1%
|
|
|
1,700,000
|
|
The East Ohio Gas Company, Sr. Unsecd. Note, 144A,
1.300%, 6/15/2025
|
1,741,222
|
|
|
|
TOTAL CORPORATE BONDS
(IDENTIFIED COST $402,084,813)
|
410,244,554
|
|
|
|
MORTGAGE-BACKED SECURITIES—0.2%
|
|
|
|
|
Federal National Mortgage Association—0.2%
|
|
|
1,622,940
|
|
FNMA, Pool AS2976, 4.000%, 8/1/2044
|
1,777,095
|
|
839,684
|
|
FNMA, Pool AW0029, 3.500%, 7/1/2044
|
905,938
|
|
|
|
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $2,571,498)
|
2,683,033
|
|
|
|
ASSET-BACKED SECURITIES—4.7%
|
|
|
|
|
Auto Receivables—3.8%
|
|
|
1,940,000
|
|
AmeriCredit Automobile Receivables Trust 2020-2, Class A3,
0.660%, 12/18/2024
|
1,945,359
|
|
3,000,000
|
|
BMW Vehicle Owner Trust 2020-A, Class A3, 0.480%, 10/25/2024
|
3,011,289
|
|
1,900,000
|
|
Fifth Third Auto Trust 2019-1, Class A4, 2.690%, 11/16/2026
|
1,982,773
|
|
2,000,000
|
|
Ford Credit Auto Owner Trust 2019-B, Class A3,
2.230%, 10/15/2023
|
2,046,599
|
|
1,500,000
|
|
GM Financial Automobile Leasing Trust 2019-2, Class B,
2.890%, 3/20/2023
|
1,533,221
|
|
1,500,000
|
|
GM Financial Automobile Leasing Trust 2020-2, Class A3,
0.800%, 7/20/2023
|
1,513,647
|
|
2,425,000
|
|
General Motors 2019-1, Class A, 2.700%, 4/15/2024
|
2,515,879
|
|
1,290,815
|
|
Honda Auto Receivables Owner Trust 2018-1, Class A3,
2.640%, 2/15/2022
|
1,301,021
|
|
925,000
|
|
Honda Auto Receivables Owner Trust 2019-2, Class A4,
2.540%, 3/21/2025
|
968,739
|
|
1,616,870
|
|
Mercedes-Benz Auto Lease Trust 2019-A, Class A3,
3.100%, 11/15/2021
|
1,633,503
|
|
1,200,000
|
|
Mercedes-Benz Master Owner Trust 2019-BA, Class A,
2.610%, 5/15/2024
|
1,244,509
|
|
3,450,000
|
1
|
Navistar Financial Dealer Note Master Trust 2020-1 A, Class A,
1.125% (1-month USLIBOR +0.950%), 7/25/2025
|
3,462,488
|
|
1,650,000
|
|
Nissan Auto Receivables Owner Trust 2020-A, Class A3,
1.380%, 12/16/2024
|
1,695,130
|
Annual Shareholder Report
21
Annual Shareholder Report
22
Annual Shareholder Report
23
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
U.S. TREASURIES—continued
|
|
|
$45,000,000
|
|
United States Treasury Note, 0.250%, 7/31/2025
|
$44,956,512
|
|
2,500,000
|
|
United States Treasury Note, 0.375%, 3/31/2022
|
2,509,275
|
|
15,000,000
|
|
United States Treasury Note, 0.375%, 4/30/2025
|
15,083,616
|
|
5,000,000
|
|
United States Treasury Note, 0.500%, 3/15/2023
|
5,045,069
|
|
12,500,000
|
|
United States Treasury Note, 0.500%, 3/31/2025
|
12,643,190
|
|
5,000,000
|
|
United States Treasury Note, 1.125%, 2/28/2022
|
5,073,505
|
|
10,000,000
|
|
United States Treasury Note, 1.125%, 2/28/2025
|
10,395,979
|
|
5,520,000
|
|
United States Treasury Note, 1.250%, 3/31/2021
|
5,555,639
|
|
7,000,000
|
|
United States Treasury Note, 1.375%, 5/31/2021
|
7,064,464
|
|
10,000,000
|
|
United States Treasury Note, 1.375%, 10/15/2022
|
10,260,910
|
|
18,000,000
|
|
United States Treasury Note, 1.375%, 1/31/2025
|
18,895,469
|
|
10,000,000
|
|
United States Treasury Note, 1.500%, 1/15/2023
|
10,320,205
|
|
6,500,000
|
|
United States Treasury Note, 1.500%, 10/31/2024
|
6,843,036
|
|
2,000,000
|
|
United States Treasury Note, 1.625%, 6/30/2021
|
2,024,570
|
|
5,000,000
|
|
United States Treasury Note, 1.625%, 8/31/2022
|
5,147,771
|
|
6,500,000
|
|
United States Treasury Note, 1.625%, 5/31/2023
|
6,762,892
|
|
1,000,000
|
|
United States Treasury Note, 1.750%, 5/31/2022
|
1,027,963
|
|
17,000,000
|
|
United States Treasury Note, 1.750%, 6/30/2024
|
17,999,806
|
|
7,500,000
|
|
United States Treasury Note, 1.750%, 7/31/2024
|
7,949,890
|
|
7,500,000
|
|
United States Treasury Note, 1.875%, 2/28/2022
|
7,693,726
|
|
4,000,000
|
|
United States Treasury Note, 1.875%, 3/31/2022
|
4,108,935
|
|
1,000,000
|
|
United States Treasury Note, 1.875%, 9/30/2022
|
1,035,899
|
|
4,950,000
|
|
United States Treasury Note, 2.000%, 10/31/2022
|
5,148,539
|
|
3,000,000
|
|
United States Treasury Note, 2.000%, 11/30/2022
|
3,124,791
|
|
2,500,000
|
|
United States Treasury Note, 2.000%, 2/28/2021
|
2,523,250
|
|
9,500,000
|
|
United States Treasury Note, 2.000%, 5/31/2024
|
10,136,718
|
|
2,500,000
|
3
|
United States Treasury Note, 2.125%, 6/30/2022
|
2,590,210
|
|
10,000,000
|
|
United States Treasury Note, 2.125%, 3/31/2024
|
10,690,027
|
|
5,000,000
|
|
United States Treasury Note, 2.500%, 1/15/2022
|
5,160,820
|
|
7,500,000
|
|
United States Treasury Note, 2.500%, 1/31/2024
|
8,091,848
|
|
5,000,000
|
|
United States Treasury Note, 2.750%, 7/31/2023
|
5,376,668
|
|
7,250,000
|
|
United States Treasury Note, 2.750%, 8/31/2023
|
7,812,404
|
|
8,000,000
|
|
United States Treasury Note, 2.875%, 11/30/2023
|
8,700,006
|
|
|
|
TOTAL U.S. TREASURIES
(IDENTIFIED COST $612,601,240)
|
622,393,838
|
|
|
|
INVESTMENT COMPANIES—20.0%
|
|
|
3,753,214
|
|
Emerging Markets Core Fund
|
37,944,995
|
|
4,828,504
|
|
Bank Loan Core Fund
|
45,194,794
|
Annual Shareholder Report
24
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
|
INVESTMENT COMPANIES—continued
|
|
|
284,240
|
|
Federated Hermes Government Obligations Fund,
Premier Shares, 0.05%4
|
$284,240
|
|
36,221,499
|
|
Federated Hermes Institutional Prime Value Obligations Fund,
Institutional Shares, 0.16%4
|
36,239,610
|
|
9,856,516
|
|
Federated Mortgage Core Portfolio
|
99,747,939
|
|
6,341,905
|
|
Project and Trade Finance Core Fund
|
55,808,763
|
|
|
|
TOTAL INVESTMENT COMPANIES
(IDENTIFIED COST $274,241,995)
|
275,220,341
|
|
|
|
TOTAL INVESTMENT IN SECURITIES—100.3%
(IDENTIFIED COST $1,363,025,401)5
|
1,383,529,456
|
|
|
|
OTHER ASSETS AND LIABILITIES - NET—(0.3)%6
|
(3,528,855)
|
|
|
|
TOTAL NET ASSETS—100%
|
$1,380,000,601
|
At August 31, 2020, the Fund had the following outstanding futures contracts:
|
Description
|
Number of
Contracts
|
Notional
Value
|
Expiration
Date
|
Value and
Unrealized
Depreciation
|
|
Short Futures
|
|
|
|
|
|
7United States Treasury Notes 10-Year
Short Futures
|
5
|
$696,250
|
December 2020
|
$(1,574)
|
Unrealized Depreciation on Futures Contracts is included in “Other Assets and
Liabilities—Net.”
Annual Shareholder Report
25
Affiliated fund holdings are investment companies which are managed by the Adviser or
an affiliate of the Adviser. Transactions with affiliated fund holdings during the period
ended August 31, 2020, were as follows:
|
|
Purchases
at Cost
|
Proceeds
from Sales
|
|
|
Emerging Markets Core Fund
|
$2,207,005
|
$36,875,721
|
$(2,269,438)
|
|
Bank Loan Core Fund
|
$6,083,676
|
$38,864,402
|
$—
|
|
Federated Hermes Government Obligations Fund,
Premier Shares*
|
$—
|
$40,161,210
|
$(39,876,970)
|
|
Federated Hermes Institutional Prime Value Obligations
Fund, Institutional Shares
|
$10,259,685
|
$418,122,875
|
$(392,136,190)
|
|
Federated Mortgage Core Portfolio
|
$20,000,895
|
$89,223,842
|
$(10,000,000)
|
|
Project and Trade Finance Core Fund
|
$16,172,895
|
$39,861,170
|
$—
|
|
High Yield Bond Portfolio
|
$5,681,972
|
$—
|
$(5,691,035)
|
|
TOTAL OF AFFILIATED TRANSACTIONS
|
$60,406,128
|
$663,109,220
|
$(449,973,633)
|
Annual Shareholder Report
27
|
Change in
Unrealized
Appreciation/
Depreciation
|
Net
Realized
Gain/
(Loss)
|
Value as of
8/31/2020
|
Shares
Held as of
8/31/2020
|
Dividend
Income
|
|
$967,507
|
$164,200
|
$37,944,995
|
3,753,214
|
$377,513
|
|
$246,716
|
$—
|
$45,194,794
|
4,828,504
|
$614,419
|
|
N/A
|
N/A
|
$284,240
|
284,240
|
$30,695
|
|
$9,484
|
$(16,244)
|
$36,239,610
|
36,221,499
|
$119,778
|
|
$440,285
|
$82,917
|
$99,747,939
|
9,856,516
|
$972,825
|
|
$(225,302)
|
$—
|
$55,808,763
|
6,341,905
|
$861,356
|
|
$(94,341)
|
$103,404
|
$—
|
—
|
$28,324
|
|
$1,344,349
|
$334,277
|
$275,220,341
|
61,285,878
|
$3,004,910
|
*
All or a portion of the balance/activity for the fund relates to cash collateral received on security
lending transactions.
1
Floating/variable note with current rate and current maturity or next reset date shown.
2
All or a portion of these securities are temporarily on loan to unaffiliated broker/dealers.
3
Pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding short
futures contracts.
4
7-day net yield.
5
The cost of investments for federal tax purposes amounts to $1,363,121,598.
6
Assets, other than investments in securities, less liabilities. See Statement of Assets
and Liabilities.
7
Non-income-producing security.
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
28
The following is a summary of the inputs used, as of August 31, 2020, in valuing the
Fund’s assets carried at fair value:
|
Valuation Inputs
|
|
|
|
|
|
|
Level 1—
Quoted
Prices
|
Level 2—
Other
Significant
Observable
Inputs
|
Level 3—
Significant
Unobservable
Inputs
|
Total
|
|
Debt Securities:
|
|
|
|
|
|
Corporate Bonds
|
$—
|
$410,244,554
|
$—
|
$410,244,554
|
|
Mortgage-Backed Securities
|
—
|
2,683,033
|
—
|
2,683,033
|
|
Asset-Backed Securities
|
—
|
64,418,452
|
—
|
64,418,452
|
|
Collateralized
Mortgage Obligations
|
—
|
8,569,238
|
—
|
8,569,238
|
|
U.S. Treasuries
|
—
|
622,393,838
|
—
|
622,393,838
|
|
Investment Companies1
|
219,411,578
|
—
|
—
|
275,220,341
|
|
TOTAL SECURITIES
|
$219,411,578
|
$1,108,309,115
|
$—
|
$1,383,529,456
|
|
Other Financial Instruments2
|
|
|
|
|
|
Assets
|
$—
|
$—
|
$—
|
$—
|
|
Liabilities
|
(1,574)
|
—
|
—
|
(1,574)
|
|
TOTAL OTHER
FINANCIAL INSTRUMENTS
|
$(1,574)
|
$—
|
$—
|
$(1,574)
|
1
As permitted by U.S. generally accepted accounting principles (GAAP), an Investment Company
valued at $55,808,763 is measured at fair value using the net asset value (NAV) per share
practical expedient and has not been categorized in the chart above but is included in the Total
column. The price of shares redeemed of Federated Project and Trade Finance Core Fund may
be determined as of the closing NAV of the fund up to twenty-four days after receipt of a
shareholder redemption request.
2
Other financial instruments are futures contracts.
The following acronyms are used throughout this portfolio:
|
BKNT
|
—Bank Notes
|
|
FHLMC
|
—Federal Home Loan Mortgage Corporation
|
|
FNMA
|
—Federal National Mortgage Association
|
|
GMTN
|
—Global Medium Term Note
|
|
LIBOR
|
—London Interbank Offered Rate
|
|
MTN
|
—Medium Term Note
|
|
REIT
|
—Real Estate Investment Trust
|
|
REMIC
|
—Real Estate Mortgage Investment Conduit
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
29
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
Net Asset Value, Beginning of Period
|
$10.45
|
$10.13
|
$10.37
|
$10.43
|
$10.34
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.18
|
0.22
|
0.191
|
0.18
|
0.231
|
|
Net realized and unrealized gain (loss)
|
0.28
|
0.32
|
(0.24)
|
(0.06)
|
0.10
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.46
|
0.54
|
(0.05)
|
0.12
|
0.33
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.18)
|
(0.22)
|
(0.19)
|
(0.18)
|
(0.24)
|
|
Net Asset Value, End of Period
|
$10.73
|
$10.45
|
$10.13
|
$10.37
|
$10.43
|
|
Total Return2
|
4.41%
|
5.35%
|
(0.44)%
|
1.16%
|
3.23%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.62%
|
0.62%
|
0.63%
|
0.61%
|
0.61%
|
|
Net investment income
|
1.18%
|
2.10%
|
1.89%
|
1.73%
|
2.22%
|
|
Expense waiver/reimbursement4
|
0.20%
|
0.17%
|
0.15%
|
0.16%
|
0.17%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$835,680
|
$23,774
|
$25,078
|
$27,334
|
$26,374
|
|
Portfolio turnover
|
20%
|
33%
|
27%
|
11%
|
30%
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value, which does not reflect the sales charge, redemption fee or contingent
deferred sales charge, if applicable.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund
may invest.
4
This expense decrease is reflected in both the net expense and the net investment income ratios
shown above. Amount does not reflect expense waiver/reimbursement recorded by investment
companies in which the Fund may invest.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
30
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
Net Asset Value, Beginning of Period
|
$10.45
|
$10.13
|
$10.37
|
$10.43
|
$10.33
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.20
|
0.24
|
0.221
|
0.20
|
0.261
|
|
Net realized and unrealized gain (loss)
|
0.27
|
0.32
|
(0.24)
|
(0.06)
|
0.10
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.47
|
0.56
|
(0.02)
|
0.14
|
0.36
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.20)
|
(0.24)
|
(0.22)
|
(0.20)
|
(0.26)
|
|
Net Asset Value, End of Period
|
$10.72
|
$10.45
|
$10.13
|
$10.37
|
$10.43
|
|
Total Return2
|
4.58%
|
5.61%
|
(0.19)%
|
1.41%
|
3.59%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.37%
|
0.37%
|
0.38%
|
0.36%
|
0.36%
|
|
Net investment income
|
1.87%
|
2.36%
|
2.15%
|
1.98%
|
2.51%
|
|
Expense waiver/reimbursement4
|
0.16%
|
0.15%
|
0.16%
|
0.20%
|
0.20%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$449,201
|
$289,131
|
$278,385
|
$266,383
|
$230,866
|
|
Portfolio turnover
|
20%
|
33%
|
27%
|
11%
|
30%
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund
may invest.
4
This expense decrease is reflected in both the net expense and the net investment income ratios
shown above. Amount does not reflect expense waiver/reimbursement recorded by investment
companies in which the Fund may invest.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
31
Financial Highlights–Service Shares
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
Net Asset Value, Beginning of Period
|
$10.44
|
$10.12
|
$10.36
|
$10.42
|
$10.33
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.19
|
0.21
|
0.191
|
0.18
|
0.231
|
|
Net realized and unrealized gain (loss)
|
0.27
|
0.32
|
(0.24)
|
(0.06)
|
0.10
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.46
|
0.53
|
(0.05)
|
0.12
|
0.33
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.18)
|
(0.21)
|
(0.19)
|
(0.18)
|
(0.24)
|
|
Net Asset Value, End of Period
|
$10.72
|
$10.44
|
$10.12
|
$10.36
|
$10.42
|
|
Total Return2
|
4.42%
|
5.35%
|
(0.43)%
|
1.16%
|
3.23%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.62%
|
0.62%
|
0.63%
|
0.61%
|
0.61%
|
|
Net investment income
|
1.62%
|
2.10%
|
1.84%
|
1.72%
|
2.27%
|
|
Expense waiver/reimbursement4
|
0.17%
|
0.15%
|
0.16%
|
0.18%
|
0.20%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$18,388
|
$12,477
|
$12,525
|
$34,375
|
$27,975
|
|
Portfolio turnover
|
20%
|
33%
|
27%
|
11%
|
30%
|
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund
may invest.
4
This expense decrease is reflected in both the net expense and the net investment income ratios
shown above. Amount does not reflect expense waiver/reimbursement recorded by investment
companies in which the Fund may invest.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
32
Financial Highlights–Class R6 Shares*
(For a Share Outstanding Throughout Each Period)
|
Year Ended August 31
|
2020
|
2019
|
2018
|
2017
|
2016
|
|
Net Asset Value, Beginning of Period
|
$10.45
|
$10.13
|
$10.37
|
$10.43
|
$10.33
|
|
Income From Investment Operations:
|
|
|
|
|
|
|
Net investment income
|
0.20
|
0.24
|
0.221
|
0.21
|
0.161
|
|
Net realized and unrealized gain (loss)
|
0.27
|
0.32
|
(0.24)
|
(0.06)
|
0.13
|
|
TOTAL FROM INVESTMENT OPERATIONS
|
0.47
|
0.56
|
(0.02)
|
0.15
|
0.29
|
|
Less Distributions:
|
|
|
|
|
|
|
Distributions from net investment income
|
(0.20)
|
(0.24)
|
(0.22)
|
(0.21)
|
(0.19)
|
|
Net Asset Value, End of Period
|
$10.72
|
$10.45
|
$10.13
|
$10.37
|
$10.43
|
|
Total Return2
|
4.59%
|
5.62%
|
(0.18)%
|
1.42%
|
2.82%
|
|
Ratios to Average Net Assets:
|
|
|
|
|
|
|
Net expenses3
|
0.36%
|
0.36%
|
0.37%
|
0.35%
|
1.11%
|
|
Net investment income
|
1.87%
|
2.37%
|
2.16%
|
2.00%
|
1.57%
|
|
Expense waiver/reimbursement4
|
0.13%
|
0.12%
|
0.12%
|
0.15%
|
0.15%
|
|
Supplemental Data:
|
|
|
|
|
|
|
Net assets, end of period (000 omitted)
|
$76,732
|
$48,105
|
$28,523
|
$28,306
|
$753
|
|
Portfolio turnover
|
20%
|
33%
|
27%
|
11%
|
30%
|
*
Prior to September 1, 2016, the Fund’s Class R6 Shares were designated as Class R Shares.
1
Per share numbers have been calculated using the average shares method.
2
Based on net asset value.
3
Amount does not reflect net expenses incurred by investment companies in which the Fund
may invest.
4
This expense decrease is reflected in both the net expense and the net investment income ratios
shown above. Amount does not reflect expense waiver/reimbursement recorded by investment
companies in which the Fund may invest.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
33
Statement of Assets and Liabilities
August 31, 2020
|
Assets:
|
|
|
|
Investment in securities, at value including $270,262 of securities
loaned and $275,220,341 of investment in affiliated holdings*
(identified cost $1,363,025,401)
|
|
$1,383,529,456
|
|
Income receivable
|
|
3,540,210
|
|
Income receivable from affiliated holdings
|
|
628,769
|
|
Receivable for shares sold
|
|
7,670,093
|
|
TOTAL ASSETS
|
|
1,395,368,528
|
|
Liabilities:
|
|
|
|
Payable for investments purchased
|
$12,218,848
|
|
|
Payable for shares redeemed
|
2,349,408
|
|
|
Income distribution payable
|
29,228
|
|
|
Payable to bank
|
83,600
|
|
|
Payable for variation margin on futures contracts
|
806
|
|
|
Payable for collateral due to broker for securities lending
|
284,240
|
|
|
Payable for investment adviser fee (Note 5)
|
5,546
|
|
|
Payable for administrative fees (Note 5)
|
2,924
|
|
|
Payable for other service fees (Notes 2 and 5)
|
156,604
|
|
|
Accrued expenses (Note 5)
|
236,723
|
|
|
TOTAL LIABILITIES
|
|
15,367,927
|
|
Net assets for 128,654,525 shares outstanding
|
|
$1,380,000,601
|
|
Net Assets Consist of:
|
|
|
|
Paid-in capital
|
|
$1,366,711,853
|
|
Total distributable earnings (loss)
|
|
13,288,748
|
|
TOTAL NET ASSETS
|
|
$1,380,000,601
|
Annual Shareholder Report
34
Statement of Assets and Liabilities–continued
|
Net Asset Value, Offering Price and Redemption Proceeds
Per Share
|
|
|
|
Class A Shares:
|
|
|
|
Net asset value per share ($835,679,870 ÷ 77,897,555 shares
outstanding), no par value, unlimited shares authorized
|
|
$10.73
|
|
Offering price per share (100/99.00 of $10.73)
|
|
$10.84
|
|
Redemption proceeds per share
|
|
$10.73
|
|
Institutional Shares:
|
|
|
|
Net asset value per share ($449,200,672 ÷ 41,884,967 shares
outstanding), no par value, unlimited shares authorized
|
|
$10.72
|
|
Offering price per share
|
|
$10.72
|
|
Redemption proceeds per share
|
|
$10.72
|
|
Service Shares:
|
|
|
|
Net asset value per share ($18,387,776 ÷ 1,715,919 shares
outstanding), no par value, unlimited shares authorized
|
|
$10.72
|
|
Offering price per share
|
|
$10.72
|
|
Redemption proceeds per share
|
|
$10.72
|
|
Class R6 Shares:
|
|
|
|
Net asset value per share ($76,732,283 ÷ 7,156,084 shares
outstanding), no par value, unlimited shares authorized
|
|
$10.72
|
|
Offering price per share
|
|
$10.72
|
|
Redemption proceeds per share
|
|
$10.72
|
*
See information listed after the Fund’s Portfolio of Investments.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
35
Statement of Operations
Year Ended August 31, 2020
|
Investment Income:
|
|
|
|
|
Interest
|
|
|
$8,462,366
|
|
Dividends received from affiliated holdings*
|
|
|
2,974,215
|
|
Net income on securities loaned (includes $30,695
received from an affiliated holding* related to cash
collateral balances)
|
|
|
8,193
|
|
TOTAL INCOME
|
|
|
11,444,774
|
|
Expenses:
|
|
|
|
|
Investment adviser fee (Note 5)
|
|
$1,622,971
|
|
|
Administrative fee (Note 5)
|
|
425,434
|
|
|
Custodian fees
|
|
21,002
|
|
|
Transfer agent fee (Note 2)
|
|
201,726
|
|
|
Directors’/Trustees’ fees (Note 5)
|
|
4,356
|
|
|
Auditing fees
|
|
30,990
|
|
|
Legal fees
|
|
8,147
|
|
|
Portfolio accounting fees
|
|
140,587
|
|
|
Other service fees (Notes 2 and 5)
|
|
417,785
|
|
|
Share registration costs
|
|
434,413
|
|
|
Printing and postage
|
|
39,152
|
|
|
Miscellaneous (Note 5)
|
|
26,830
|
|
|
TOTAL EXPENSES
|
|
3,373,393
|
|
|
Waiver and Reimbursements:
|
|
|
|
|
Waiver/Reimbursement of investment adviser fee (Note 5)
|
$(826,223)
|
|
|
|
Reimbursement of other operating expenses
(Notes 2 and 5)
|
(107,137)
|
|
|
|
TOTAL WAIVER AND REIMBURSEMENTS
|
|
(933,360)
|
|
|
Net expenses
|
|
|
2,440,033
|
|
Net investment income
|
|
|
$9,004,741
|
Annual Shareholder Report
36
Statement of Operations–continued
|
Realized and Unrealized Gain (Loss) on Investments and
Futures Contracts:
|
|
|
|
|
Net realized gain on investments (including net realized
gain of $334,277 on sales of investments in
affiliated holdings*)
|
|
|
$650,141
|
|
Net realized loss on futures contracts
|
|
|
(38,210)
|
|
Net change in unrealized appreciation of investments
(including net change in unrealized depreciation of
$1,344,349 on investments in affiliated holdings*)
|
|
|
14,669,947
|
|
Net change in unrealized depreciation of futures contracts
|
|
|
(1,797)
|
|
Net realized and unrealized gain on investments and
futures contracts
|
|
|
15,280,081
|
|
Change in net assets resulting from operations
|
|
|
$24,284,822
|
*
See information listed after the Fund’s Portfolio of Investments.
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
37
Statement of Changes in Net Assets
|
Year Ended August 31
|
2020
|
2019
|
|
Increase (Decrease) in Net Assets
|
|
|
|
Operations:
|
|
|
|
Net investment income
|
$9,004,741
|
$8,299,552
|
|
Net realized gain (loss)
|
611,931
|
(1,384,025)
|
|
Net change in unrealized appreciation/depreciation
|
14,668,150
|
12,528,343
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
24,284,822
|
19,443,870
|
|
Distributions to Shareholders:
|
|
|
|
Class A Shares
|
(1,773,080)
|
(498,380)
|
|
Institutional Shares
|
(5,903,146)
|
(6,352,111)
|
|
Service Shares
|
(231,632)
|
(241,118)
|
|
Class R6 Shares
|
(1,046,425)
|
(1,206,372)
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS
TO SHAREHOLDERS
|
(8,954,283)
|
(8,297,981)
|
|
Share Transactions:
|
|
|
|
Proceeds from sale of shares
|
1,214,223,944
|
162,319,837
|
|
Net asset value of shares issued to shareholders in payment of
distributions declared
|
8,510,563
|
7,739,288
|
|
Cost of shares redeemed
|
(231,551,164)
|
(152,229,499)
|
|
CHANGE IN NET ASSETS RESULTING FROM
SHARE TRANSACTIONS
|
991,183,343
|
17,829,626
|
|
Change in net assets
|
1,006,513,882
|
28,975,515
|
|
Net Assets:
|
|
|
|
Beginning of period
|
373,486,719
|
344,511,204
|
|
End of period
|
$1,380,000,601
|
$373,486,719
|
See Notes which are an integral part of the Financial Statements
Annual Shareholder Report
38
Notes to Financial Statements
August 31, 2020
1. ORGANIZATION
Federated Hermes Institutional Trust (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 three diversified portfolios. The financial
statements included herein are only those of Federated Hermes Short-Intermediate
Total Return Bond Fund (the “Fund”). 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 four classes of shares: Class A Shares,
Institutional Shares, Service Shares, and Class R6 Shares. All shares of the Fund have
equal rights with respect to voting, except on class-specific matters. The investment
objective of the Fund is to provide total return.
Prior to June 29, 2020, the name of the Trust and Fund was Federated Institutional
Trust and Federated Short-Intermediate Total Return Bond Fund, respectively.
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 GAAP.
Investment Valuation
In calculating its NAV, the Fund generally values investments as follows:
■ Fixed-income securities are fair valued using price evaluations provided by a pricing
service approved by the Fund’s Board of Trustees (the “Trustees”).
■ Shares of other mutual funds or non-exchange-traded investment companies are
valued based upon their reported NAVs.
■ 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.
■ 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.
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
Annual Shareholder Report
39
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
that the investment’s value will change in response to the event and a reasonable basis
for quantifying the resulting change in value. Examples of significant events that may
occur after the close of the principal market on which a security is traded, or after the
time of a price evaluation provided by a pricing service or a dealer, include:
■ With respect to securities traded principally in foreign markets, significant trends in
U.S. equity markets or in the trading of foreign securities index futures contracts;
Annual Shareholder Report
40
■ 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.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is
the policy of the Fund to require the other party to a repurchase agreement to transfer
to the Fund’s custodian or sub-custodian eligible securities or cash with a market value
(after transaction costs) at least equal to the repurchase price to be paid under the
repurchase agreement. The eligible securities are transferred to accounts with the
custodian or sub-custodian in which the Fund holds a “securities entitlement” and
exercises “control” as those terms are defined in the Uniform Commercial Code. The
Fund has established procedures for monitoring the market value of the transferred
securities and requiring the transfer of additional eligible securities if necessary to equal
at least the repurchase price. These procedures also allow the other party to require
securities to be transferred from the account to the extent that their market value
exceeds the repurchase price or in exchange for other eligible securities of equivalent
market value.
The insolvency of the other party or other failure to repurchase the securities may
delay the disposition of the underlying securities or cause the Fund to receive less than
the full repurchase price. Under the terms of the repurchase agreement, any amounts
received by the Fund in excess of the repurchase price and related transaction costs
must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are
transferred into joint trading accounts maintained by the custodian or sub-custodian for
investment companies and other clients advised by the Fund’s Adviser and its affiliates.
The Fund will participate on a pro rata basis with the other investment companies and
clients in its share of the securities transferred under such repurchase agreements and in
its share of proceeds from any repurchase or other disposition of such securities.
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. Positive or
negative inflation adjustments on Treasury Inflation-Protected Securities are included in
interest income.
Annual Shareholder Report
41
Distributions of net investment income, if any, are declared daily 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.
Gains and losses realized on principal payment of mortgage-backed securities (paydown
gains and losses) are classified as part of investment income.
Investment income, realized and unrealized gains and losses, and certain fund-level
expenses are allocated to each class based on relative average daily net assets, except
that select classes will bear certain expenses unique to those classes. The detail of the
total fund expense waiver and reimbursements of $933,360 is disclosed in various
locations in this Note 2 and Note 5. For the year ended August 31, 2020, transfer agent
fees for the Fund were as follows:
|
|
Transfer Agent
Fees Reimbursed
|
|
|
Class A Shares
|
$31,247
|
$(5,827)
|
|
Institutional Shares
|
157,608
|
(96,319)
|
|
Service Shares
|
7,716
|
(4,991)
|
|
Class R6 Shares
|
5,155
|
—
|
|
TOTAL
|
$201,726
|
$(107,137)
|
Dividends are declared separately for each class. No class has preferential dividend
rights; differences in per share dividend rates are generally due to differences in
separate class expenses.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the
Fund’s Class A Shares and Service 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
year ended August 31, 2020, other service fees for the Fund were as follows:
|
|
Other Service
Fees Incurred
|
|
Class A Shares
|
$381,984
|
|
Service Shares
|
35,801
|
|
TOTAL
|
$417,785
|
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 year 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,
tax years 2017 through 2020 remain subject to examination by the Fund’s major tax
jurisdictions, which include the United States of America and the Commonwealth
of Massachusetts.
Annual Shareholder Report
42
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.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration risk and
yield curve 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 clearinghouse, 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 value of short futures contracts held by the Fund throughout
the period was $673,780. This is based on amounts held as of each month-end
throughout the fiscal period.
Additional Disclosure Related to Derivative Instruments
|
Fair Value of Derivative Instruments
|
||
|
|
Liability
|
|
|
|
Statement of
Assets and
Liabilities
Location
|
Fair
Value
|
|
Derivatives not accounted for as hedging
instruments under ASC Topic 815
|
|
|
|
Interest rate contracts
|
Payable for daily
variation margin on
futures contracts
|
$1,574*
|
*
Includes cumulative net 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.
Annual Shareholder Report
43
The Effect of Derivative Instruments on the Statement of Operations
for the Year Ended August 31, 2020
|
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
|
|
|
|
Futures
Contracts
|
|
Interest rate contracts
|
$(38,210)
|
|
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income
|
|
|
|
Futures
Contracts
|
|
Interest rate contracts
|
$(1,797)
|
Securities Lending
The Fund participates in a securities lending program providing for the lending of
government securities to qualified brokers. The term of the loans within the program is
one year or less. The Fund normally receives cash collateral for securities loaned that
may be invested in affiliated money market funds, other money market instruments
and/or repurchase agreements. Investments in money market funds may include funds
with a “floating” NAV that can impose redemption fees and liquidity gates, impose
certain operational impediments to investing cash collateral, and, if the investee fund’s
NAV decreases, result in the Fund recognizing losses and being required to cover the
decrease in the value of the cash collateral. Collateral is maintained at a minimum level
of 100% of the market value of investments loaned, plus interest, if applicable. In
accordance with the Fund’s securities lending agreement, the market value of securities
on loan is determined each day at the close of business and any additional collateral
required to cover the value of securities on loan is delivered to the Fund on the next
business day. Earnings on collateral are allocated between the borrower of the security,
the securities lending agent, as a fee for its services under the program and the Fund,
according to agreed-upon rates. The Fund will not have the right to vote on securities
while they are on loan. However, the Fund will attempt to terminate a loan in an effort to
reacquire the securities in time to vote on matters that are deemed to be material by
the Adviser. There can be no assurance that the Fund will have sufficient notice of such
matters to be able to terminate the loan in time to vote thereon.
Securities lending transactions are subject to Master Netting Agreements which are
agreements between the Fund and its counterparties that provide 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. As
indicated below, the cash collateral received by the Fund exceeds the market value of
the securities loaned reducing the net settlement amount to zero. The chart below
identifies the amount of collateral received as well as the market value of securities on
loan. Additionally, the securities lending agreement executed by the Fund includes an
indemnification clause. This clause stipulates that the borrower will reimburse the Fund
for any losses as a result of any failure of the borrower to return equivalent securities to
the Fund.
Annual Shareholder Report
44
As of August 31, 2020, securities subject to this type of arrangement and related
collateral were as follows:
|
Market Value of
Securities Loaned
|
Collateral
Received
|
|
$270,262
|
$284,240
|
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.
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
|
Year Ended August 31
|
2020
|
2019
|
||
|
Class A Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
81,339,704
|
$868,621,088
|
555,377
|
$5,673,406
|
|
Shares issued to shareholders in payment of
distributions declared
|
163,485
|
1,742,709
|
44,640
|
456,935
|
|
Shares redeemed
|
(5,880,519)
|
(62,632,806)
|
(799,820)
|
(8,155,427)
|
|
NET CHANGE RESULTING FROM
CLASS A SHARE TRANSACTIONS
|
75,622,670
|
$807,730,991
|
(199,803)
|
$(2,025,086)
|
Annual Shareholder Report
45
|
Year Ended August 31
|
2020
|
2019
|
||
|
Service Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
848,708
|
$8,959,161
|
293,947
|
$3,029,961
|
|
Shares issued to shareholders in payment of
distributions declared
|
21,569
|
226,870
|
22,407
|
229,076
|
|
Shares redeemed
|
(349,651)
|
(3,668,411)
|
(358,430)
|
(3,645,677)
|
|
NET CHANGE RESULTING FROM
SERVICE SHARE TRANSACTIONS
|
520,626
|
$5,517,620
|
(42,076)
|
$(386,640)
|
|
Year Ended August 31
|
2020
|
2019
|
||
|
Class R6 Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
5,796,205
|
$61,524,029
|
3,766,949
|
$38,191,567
|
|
Shares issued to shareholders in payment of
distributions declared
|
88,881
|
934,973
|
117,933
|
1,206,322
|
|
Shares redeemed
|
(3,334,322)
|
(35,391,266)
|
(2,095,747)
|
(21,410,721)
|
|
NET CHANGE RESULTING FROM
CLASS R6 SHARE TRANSACTIONS
|
2,550,764
|
$27,067,736
|
1,789,135
|
$17,987,168
|
|
NET CHANGE RESULTING FROM
TOTAL FUND SHARE TRANSACTIONS
|
92,904,192
|
$991,183,343
|
1,743,415
|
$17,829,626
|
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net
Assets for the years ended August 31, 2020 and 2019, was as follows:
|
|
2020
|
2019
|
|
Ordinary income
|
$8,954,283
|
$8,297,981
|
As of August 31, 2020, the components of distributable earnings on a tax-basis were
as follows:
|
Undistributed ordinary income
|
$54,366
|
|
Net unrealized appreciation
|
$20,407,858
|
|
Capital loss carryforwards
|
$(7,173,476)
|
The difference between book-basis and tax-basis net unrealized appreciation/depreciation
is attributable to differing treatments for deferral of losses on wash sales
and mark to market of futures contracts.
Annual Shareholder Report
46
At August 31, 2020, the cost of investments for federal tax purposes was
$1,363,121,598. The net unrealized appreciation of investments for federal tax purposes
was $20,407,858. This consists of net unrealized appreciation from investments for those
securities having an excess of value over cost of $21,270,920 and net unrealized
depreciation from investments for those securities having an excess of cost over value of
$863,062. The amounts presented are inclusive of derivative contracts.
As of August 31, 2020, the Fund had a capital loss carryforward of $7,173,476 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
|
|
$2,943,028
|
$4,230,448
|
$7,173,476
|
The Fund used capital loss carryforwards of $465,693 to offset capital gains realized
during the year ended August 31, 2020.
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 0.30% 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. For the year ended
August 31, 2020, the Adviser voluntarily waived $814,363 of its fee and voluntarily
reimbursed $107,137 of transfer agent fees.
The Adviser has agreed to reimburse the Fund for certain investment adviser fees as
a result of transactions in other affiliated investment companies. For the year ended
August 31, 2020, the Adviser reimbursed $11,860.
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:
Annual Shareholder Report
47
Subject to the terms described in the Expense Limitation note, FAS may voluntarily
choose to waive any portion of its fee. For the year ended August 31, 2020, the
annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the
Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp.
(FSC), the principal distributor, from the daily net assets of the Fund’s Class A Shares to
finance activities intended to result in the sale of these shares. The Plan provides that
the Fund may incur distribution expenses at 0.05% of average daily net assets annually,
to compensate FSC.
Subject to the terms described in the Expense Limitation note, FSC may voluntarily
choose to waive any portion of its fee. When FSC receives fees, it may pay some or all of
them to financial intermediaries whose customers purchase shares. For the year ended
August 31, 2020, the Fund’s Class A Shares did not incur a distribution services fee;
however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges do not represent
expenses of the Fund. They are deducted from the proceeds of sales of Fund shares
prior to investment or from redemption proceeds prior to remittance, as applicable. For
the year ended August 31, 2020, FSC did not retain sales charges from the sale of the
Class A Shares.
Other Service Fees
For the year ended August 31, 2020, FSSC received $1,913 of the other service fees
disclosed in Note 2.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, 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 Class A Shares, Institutional
Shares, Service Shares and Class R6 Shares (after the voluntary waivers and/or
reimbursements) will not exceed 0.62%, 0.37%, 0.62% and 0.36% (the “Fee Limit”),
respectively, 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
Annual Shareholder Report
48
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.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and
short-term obligations, for the year ended August 31, 2020, were as follows:
|
Purchases
|
$581,752,597
|
|
Sales
|
$65,012,273
|
7. 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 rata 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 year ended
August 31, 2020, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, 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 year ended
August 31, 2020, the program was not utilized.
Annual Shareholder Report
49
9. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in
China in late 2019 and subsequently spread globally. 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, and disruptions to supply chains, workflow operations and consumer
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 markets in general in significant
and unforeseen ways. Any such impact could adversely affect the Fund’s performance.
Annual Shareholder Report
50
Report of Independent Registered Public
Accounting Firm
TO THE BOARD OF TRUSTEES OF the federated Hermes
institutional TRUST AND THE SHAREHOLDERS OF FEDERATED
hermes Short-intermediate total return bond 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
Short-Intermediate Total Return Bond (formerly, Federated Short-Intermediate
Total Return Bond Fund the “Fund”), a portfolio of Federated Hermes
Institutional Trust (formerly, Federated Institutional Trust), as of
August 31, 2020, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended, and the related notes (collectively, the “financial
statements”) and the financial highlights for each of the years in the five-year
period then ended. 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 for the year then
ended, the changes in its net assets for each of the years in the two-year period
then ended, and the financial highlights for each of the years in the five-year
period then ended, 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 audits. 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
51
We conducted our audits 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
audits 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 custodians and brokers or by other
appropriate auditing procedures. Our audits 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 audits provide a reasonable basis for
our opinion.
We have served as the auditor of one or more of Federated Hermes’ investment
companies since 2006.
Boston, Massachusetts
October 23, 2020
October 23, 2020
Annual Shareholder Report
52
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
53
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:
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,023.00
|
$3.15
|
|
Institutional Shares
|
$1,000
|
$1,024.30
|
$1.88
|
|
Service Shares
|
$1,000
|
$1,024.00
|
$3.15
|
|
Class R6 Shares
|
$1,000
|
$1,024.30
|
$1.83
|
|
Hypothetical (assuming a 5% return
before expenses):
|
|
|
|
|
Class A Shares
|
$1,000
|
$1,022.00
|
$3.15
|
|
Institutional Shares
|
$1,000
|
$1,023.30
|
$1.88
|
|
Service Shares
|
$1,000
|
$1,022.00
|
$3.15
|
|
Class R6 Shares
|
$1,000
|
$1,023.30
|
$1.83
|
1
Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half-year period). The
annualized net expense ratios are as follows:
Annual Shareholder Report
54
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 three 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: April 1999
|
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
55
|
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 2016
|
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:
October 2013
|
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
56
|
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: August 2015
|
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: August 2009
|
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
57
|
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: April 1999
|
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: August 2006
|
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:
October 2013
|
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).
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Annual Shareholder Report
58
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: April 2013
|
Principal Occupations: Principal Financial Officer and Treasurer of the
Federated Hermes Fund Family; Senior Vice President, Federated
Administrative Services; Financial and Operations Principal for
Federated Securities Corp.; and Assistant Treasurer, Federated
Investors Trust Company. Ms. Hensler has received the Certified
Public Accountant designation.
Previous Positions: Controller of Federated Hermes, 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.
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Annual Shareholder Report
59
|
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: January 2005
|
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: July 2015
|
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.
|
|
Robert J. Ostrowski
Birth Date: April 26, 1963
Chief Investment Officer
Officer since: May 2004
|
Principal Occupations: Robert J. Ostrowski joined Federated Hermes
in 1987 as an Investment Analyst and became a Portfolio Manager in
1990. He was named Chief Investment Officer of Federated Hermes’
taxable fixed-income products in 2004 and also serves as a Senior
Portfolio Manager. Mr. Ostrowski became an Executive Vice President
of the Fund’s Adviser in 2009 and served as a Senior Vice President of
the Fund’s Adviser from 1997 to 2009. Mr. Ostrowski has received the
Chartered Financial Analyst designation. He received his M.S. in
Industrial Administration from Carnegie Mellon University.
|
Annual Shareholder Report
60
Evaluation and Approval of Advisory
Contract–May 2020
Federated Short-Intermediate Total Return Bond Fund
(the “Fund”)
(EFFECTIVE CLOSE OF BUSINESS ON JUNE 26, 2020, THE FUND’S
NAME CHANGED TO FEDERATED HERMES SHORT-INTERMEDIATE
TOTAL RETURN BOND FUND)
At its meetings in May 2020 (the “ May Meetings ” ), 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 (the “ Independent Trustees ” ), reviewed and unanimously approved the
continuation of the investment advisory contract between the Fund and
Federated Investment Management Company (the “Adviser”) (the “Contract”)
for an additional one-year term. The Board’s determination to approve the
continuation of the Contract reflects the exercise of its business judgment after
considering all of the information and factors believed to be relevant and
appropriate on whether to continue the existing arrangements. The information,
factors and conclusions that formed the basis for the Board’s approval are
summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance
Officer (the “CCO”) furnished to the Board in advance of its May Meetings an
independent written evaluation presenting on the topics discussed below. The
Board considered the CCO’s independent written evaluation (the “CCO Fee
Evaluation Report”), along with other information, in evaluating the
reasonableness of the Fund’s management fee and in determining to approve
the continuation of the Contract. 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.
In addition to the extensive materials that comprise and accompany the
CCO Fee Evaluation Report, in the months preceding the May Meetings, the
Board requested and reviewed written responses and supporting materials
prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in
response to requests posed to Federated Hermes on behalf of the Independent
Trustees encompassing a wide variety of topics. The Board also considered
such additional matters as the Independent Trustees deemed reasonably
necessary to evaluate the Contract, which included detailed information about
Annual Shareholder Report
61
the Fund and Federated Hermes furnished to the Board at its meetings
throughout the year and in between regularly scheduled meetings on particular
matters as the need arose, as well as information specifically prepared in
connection with the approval of the continuation of the Contract that was
presented at the May Meetings.
The Board’s consideration of the Contract included review of materials and
information covering the following matters, among others: the Adviser’s and
sub-adviser’s investment philosophy, revenue, profitability, personnel and
processes; investment and operating strategies; the Fund’s short-term and
long-term performance (in absolute terms, both on a gross basis and net of
expenses, and relative to the Fund’s particular investment program and a group
of its peer funds and/or its benchmark, as appropriate) and comments on the
reasons for the Fund’s performance; the Fund’s investment objectives; the
Fund’s expenses, including the advisory fee and the overall expense structure
of the Fund (both in absolute terms and relative to a group of its peer funds),
with due regard for contractual or voluntary expense limitations (if any); the
use and allocation of brokerage commissions derived from trading the Fund’s
portfolio securities (if any); and the nature, quality and extent of the advisory
and other services provided to the Fund by the Adviser and its affiliates. The
Board also considered the preferences and expectations of Fund shareholders;
the entrepreneurial and other risks assumed by the Adviser in sponsoring and
managing 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 other funds advised by
Federated Hermes (each, a “Federated Hermes Fund”), which include a
comprehensive array of funds with different investment objectives, policies
and strategies which are generally available for exchange without the
incurrence of additional sales charges; compliance and audit reports
concerning the Federated Hermes Funds and the Federated Hermes’ affiliates
that service them (including communications from regulatory agencies), as
well as Federated Hermes’ responses to any issues raised therein; and relevant
developments in the mutual fund industry and how the Federated Hermes
Funds and/or Federated Hermes may be responding to them. In addition, the
Board received and considered information furnished by Federated Hermes on
the impacts of the coronavirus (COVID-19) outbreak on Federated Hermes
generally and the Fund in particular, including, among other information, the
current and anticipated impacts on the management, operations and
performance of the Fund. The Board noted that its evaluation process is
evolutionary and that the criteria considered and the emphasis placed on
relevant criteria may change in recognition of changing circumstances in the
mutual fund marketplace.
Annual Shareholder Report
62
The Board also considered judicial decisions concerning allegedly excessive
investment advisory fees in determining to approve the Contract. 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 adviser 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 a fund board’s approval of the fund’s investment
advisory 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 Contract 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 the Fund and working with Federated
Hermes on matters relating to the Federated Hermes Funds. While individual
members of the Board may have weighed certain factors differently, the
Board’s determination to continue the Contract was based on a comprehensive
consideration of all information provided to the Board throughout the year and
specifically with respect to the continuation of the Contract. The Independent
Trustees were assisted throughout the evaluation process by independent legal
counsel. In connection with their deliberations at the May Meetings, the
Independent Trustees met separately in executive session with their
independent legal counsel and without management present to review the
relevant materials and consider their responsibilities under applicable laws. In
addition, senior management representatives of Federated Hermes also met
with the Independent Trustees and their independent legal counsel to discuss
Annual Shareholder Report
63
the materials and presentations furnished to the Board at the May Meetings.
The Board considered the approval of the Contract for the Fund as part of its
consideration of agreements for funds across the Federated Hermes Funds
family, but its approvals were made on a fund-by-fund basis.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided
to the Fund by the Adviser and the resources of the Adviser and its affiliates
dedicated to the Fund. In this regard, the Board evaluated, among other things,
the Adviser’s personnel, experience and track record, as well as the financial
resources and overall reputation of Federated Hermes and its willingness to
invest in personnel and infrastructure that benefit the Federated Hermes Funds.
The Board noted the significant acquisition of Hermes Fund Managers Limited
by Federated Hermes in 2018, which has deepened the organization’s
investment management expertise and capabilities and expanded the
investment process for all of the Federated Hermes Funds to incorporate
environmental, social and governance (“ESG”) factors and issuer engagement
on ESG matters.
In addition, the Board reviewed the qualifications, backgrounds and
responsibilities of the portfolio management team primarily responsible for the
day-to-day management of the Fund and the Adviser’s ability and experience
in attracting and retaining qualified personnel to service the Fund. The Board
noted the compliance program of the Adviser and the compliance-related
resources devoted by the Adviser and its affiliates in support of the Fund’s
obligations pursuant to Rule 38a-1 under the Investment Company Act of
1940, including the Adviser’s commitment to respond to rulemaking and other
regulatory initiatives of the SEC such as the liquidity risk management
program rules. In addition, the Board considered the response by the Adviser to
recent market conditions and considered the overall performance of the
Adviser in this context. The Fund’s ability to deliver competitive performance
when compared to its Performance Peer Group (as defined below) was also
deemed to be relevant by the Board as a useful indicator of how the Adviser is
executing the Fund’s investment program. The Adviser’s ability to execute this
program was one of the Board’s considerations in reaching a conclusion that
the nature, extent and quality of the Adviser’s investment management and
related services warrant the continuation of the Contract.
Fund Investment Performance
In evaluating the Fund’s investment performance, the Board considered
performance results in light of the Fund’s investment objective, strategies and
risks, as disclosed in the Fund’s prospectus. The Board also considered the
Fund’s performance in light of the overall recent market conditions. The Board
considered detailed investment reports on the Fund’s performance over
different time periods that were provided to the Board throughout the year and
in connection with the May Meetings and evaluated the Adviser’s analysis of
Annual Shareholder Report
64
the Fund’s performance for these time periods. The Board also reviewed
comparative information regarding the performance of other mutual funds in
the category of peer funds selected by Morningstar, Inc. (the “Morningstar”),
an independent fund ranking organization (the “Performance Peer Group”),
noting the CCO’s view that comparisons to fund peer groups may be helpful,
though not conclusive, in evaluating the performance of the Adviser in
managing the Fund. The Board considered, in evaluating such comparisons,
that in some cases there may be differences in the funds’ objectives or
investment management techniques, or the costs to implement the funds, even
within the same Performance Peer Group.
For the one-year, three-year and five-year periods ended
December 31, 2019, the Fund’s performance was above the median of the
relevant Performance Peer Group.
Following such evaluation, and full deliberations, the Board concluded that
the performance of the Fund supported renewal of the Contract.
Fund Expenses
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
contractual advisory fee rates, net advisory fee rates, total expense ratios and
each element of the Fund’s total expense ratio (i.e., gross and net advisory fees,
administrative fees, custody fees, portfolio accounting fees and transfer agency
fees) relative to an appropriate group of peer funds compiled by Federated
Hermes from the category of peer funds selected by Morningstar (the “Expense
Peer Group”). The Board received a description of the methodology used to
select the Expense Peer Group from the overall Morningstar category. The
Board also reviewed comparative information regarding the fees and expenses
of the broader group of funds in the overall Morningstar category. The Board
focused on comparisons with other similar mutual funds more heavily than
non-mutual fund products or services because such comparisons are believed
to be more relevant. The Board considered that other mutual funds are the
products most like the Fund, in that they are readily available to Fund
shareholders as alternative investment vehicles, and they are the type of
investment vehicle, in fact, chosen and maintained by the Fund’s investors.
The Board noted that 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 competes.
Annual Shareholder Report
65
The Board reviewed the contractual advisory fee rate, net advisory fee rate
and other expenses of the Fund and noted the position of the Fund’s fee rates
relative to its Expense Peer Group. In this regard, the Board noted that the
contractual advisory fee rate was below the median of the Expense Peer Group
and the Board was satisfied that the overall expense structure of the Fund
remained competitive.
For comparison, the Board received and considered information about the
fees charged by Federated Hermes for providing advisory services to other
types of clients with investment strategies similar to those of the Federated
Hermes Funds, including non-mutual fund clients such as institutional separate
accounts and third-party unaffiliated mutual funds for which the Adviser or its
affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that
non-mutual fund clients are inherently different products due to the following
differences, among others: (i) different types of targeted investors; (ii) different
applicable laws and regulations; (iii) different legal structures; (iv) different
average account sizes and portfolio management techniques made necessary by
different cash flows and different associated costs; (v) and the time spent by
portfolio managers and their teams (among other personnel across various
departments, including legal, compliance and risk management) in reviewing
securities pricing, addressing different administrative responsibilities, and
addressing different degrees of risk associated with management; and (vi) a
variety of different costs. The Board also considered information regarding the
differences in the nature of the services required for Federated Hermes to
manage its proprietary mutual fund business versus managing a discrete pool
of assets as a sub-adviser to another institution’s mutual fund, noting that
Federated Hermes generally performs significant additional services and
assumes substantially greater risks in managing the Fund and other Federated
Hermes Funds than in its role as sub-adviser to an unaffiliated third-party
mutual fund. The Board noted that the CCO did not consider the fees for
providing advisory services to other types of clients to be determinative in
judging the appropriateness of the Federated Hermes Funds’ advisory fees.
Following such evaluation, and full deliberations, the Board concluded that
the fees and expenses of the Fund are reasonable and supported renewal of
the Contract.
Profitability and Other Benefits
The Board also received financial information about Federated Hermes,
including information regarding the compensation and ancillary (or “fall-out”)
benefits Federated Hermes derived from its relationships with the Federated
Hermes Funds. This information covered not only the fees under the Federated
Hermes Funds’ investment advisory contracts, but also fees received by
Federated Hermes’ affiliates for providing other services to the Federated
Hermes Funds under separate contracts (e.g., for serving as the Federated
Hermes Funds’ administrator and distributor). In this regard, the Board
Annual Shareholder Report
66
considered that certain of Federated Hermes’ affiliates provide distribution and
shareholder services to the Federated Hermes Funds, for which they may be
compensated through distribution and servicing fees paid pursuant to
Rule 12b-1 plans or otherwise. The Board also received and considered
information detailing any indirect benefit Federated Hermes may derive from
its receipt of research services from brokers who execute portfolio trades for
the Federated Hermes Funds. In addition, the Board considered the fact that, in
order for the Federated Hermes Funds to be competitive in the marketplace, the
Adviser and its affiliates frequently waived fees and/or reimbursed expenses
and have disclosed to Federated Hermes Fund shareholders and/or reported to
the Board their intention to do so in the future. Moreover, the Board received
and considered regular reports from Federated Hermes throughout the year
as to the institution, adjustment or elimination of these voluntary waivers
and/or reimbursements.
The Board received and considered information furnished by Federated
Hermes, as requested by the CCO, that reported revenues on a fund-by-fund
basis and made estimates of the allocation of expenses on a fund-by-fund basis,
using allocation methodologies specified by the CCO and described to the
Board. The Board considered the CCO’s view 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, because a single
change in an allocation estimate may dramatically alter the resulting estimate
of cost and/or profitability of a Federated Hermes Fund and may produce
unintended consequences. The allocation information, including the CCO’s
view that fund-by-fund estimations may be unreliable, was considered in the
evaluation by the Board. In addition, the Board considered that, during the
prior year, an independent consultant conducted a review of the allocation
methodologies used by Federated Hermes in estimating profitability for
purposes of reporting to the Board in connection with the continuation of the
Contract. The Board noted the consultant’s view that, although there is no
single best method to allocate expenses, the methodologies used by Federated
Hermes are reasonable.
The Board also reviewed information compiled by Federated Hermes
comparing its profitability information to other publicly held fund management
companies, including information regarding profitability trends over time. The
Board considered the CCO’s conclusion that, based on such profitability
information, Federated Hermes’ profit margins did not appear to be excessive.
The Board also considered the CCO’s view that Federated Hermes appeared
financially sound, with the resources necessary to fulfill its obligations under
its contracts with the Federated Hermes Funds.
Annual Shareholder Report
67
Economies of Scale
The Board received and considered information about 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 shared with shareholders. In this regard, the
Board considered that the Adviser has made significant and long-term
investments in areas that support all of the Federated Hermes Funds, such as
personnel and processes for the portfolio management, trading operations,
issuer engagement (including with respect to ESG matters), shareholder
services, compliance, business continuity, internal audit and risk management
functions, as well as systems technology (including technology relating to
cybersecurity) and use of data. The Board noted that Federated Hermes’
investments in these areas are extensive and are designed to provide enhanced
services to the Federated Hermes Funds and their shareholders. The Board
considered that the benefits of these investments (as well as the benefits of any
economies of scale, should they exist) are likely to be shared with the
Federated Hermes Fund family as a whole. In addition, the Board considered
that the Adviser and its affiliates have frequently waived fees and/or
reimbursed expenses for the Federated Hermes Funds and that such waivers
and reimbursements are another means for potential economies of scale to be
shared with shareholders and can provide protection from an increase in
expenses if a Federated Hermes Fund’s assets decline. Federated Hermes, as it
does throughout the year, and specifically in connection with the Board’s
review of the Contract, furnished information relative to adviser-paid fees
(commonly referred to as revenue sharing). The Board considered the beliefs
of Federated Hermes and the CCO 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.
Conclusions
The Board considered the CCO’s conclusion that his observations and the
information accompanying the CCO Fee Evaluation Report show that the
management fee for the Fund was reasonable and the CCO’s recommendation
that the Board approve the management fee. The Board noted that, under these
circumstances, no changes were recommended to, and no objection was raised
to the continuation of, the Contract by the CCO. The CCO also recognized that
the Board’s evaluation of the Federated Hermes Funds’ advisory and
subadvisory arrangements is a continuing and on-going process that is
informed by the information that the Board requests and receives from
Annual Shareholder Report
68
management throughout the course of the year and, in this regard, the CCO
noted certain items for future reporting to the Board or further consideration by
management as the Board continues its on-going oversight of the Federated
Hermes Funds.
In its determination to continue an existing investment advisory contract, the
Board was mindful of the potential disruptions of the Fund’s operations and
various risks, uncertainties and other effects that could occur as a result of a
decision to terminate or not renew an investment advisory contract. In
particular, the Board recognized that many shareholders have invested in the
Fund on the strength of the Adviser’s industry standing and reputation and
with the expectation that the Adviser will have a continuing role in providing
advisory services to the Fund. Thus, the Board’s approval of the Contract
reflected the fact that it is the shareholders who have effectively selected the
Adviser by virtue of having invested in the Fund. The Board concluded that, in
light of the factors summarized above, including the nature, quality and scope
of the services provided to the Fund by the Adviser and its affiliates,
continuation of the Contract was appropriate.
The Board based its determination to approve the Contract 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 deemed to be relevant to the Fund, nor did the Board
consider any one of them to be determinative. With respect to the factors that
were deemed to be relevant, the Board’s determination to approve the
continuation of the Contract reflects its view that Federated Hermes’
performance and actions provided a satisfactory basis to support the
determination to continue the existing arrangement.
Annual Shareholder Report
69
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 Institutional Trust (the
“Trust”) has adopted and implemented a liquidity risk management program
(the “Program”) for Federated Hermes Short-Intermediate Total Return Bond
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
70
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
71
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
72
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 Short-Intermediate Total Return Bond Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at
FederatedInvestors.com
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 31420B870
CUSIP 31420B607
CUSIP 31420B508
CUSIP 31420B862
CUSIP 31420B607
CUSIP 31420B508
CUSIP 31420B862
35671 (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 - $96,440
Fiscal year ended 2019 - $97,990
(b) Audit-Related 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.
(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, $0 and $0 respectively.
(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 - $171,372
Fiscal year ended 2019 - $626,569
| (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 Institutional Trust
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