United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-21822
(Investment Company Act File Number)
Federated Hermes Managed Pool Series
______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 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: 11/30/20
Date of Reporting Period: Six months ended 05/31/20
| Item 1. | Reports to Stockholders |
Semi-Annual Shareholder Report
May 31, 2020
| Ticker FIBPX |
Federated International Bond Strategy Portfolio
(Effective close of business June 26, 2020, the fund name was changed to Federated Hermes International Bond Strategy Portfolio)
A Portfolio of Federated Managed Pool Series
(Effective close of business June 26, 2020, the registrant name was changed to Federated Hermes Managed Pool Series)
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ■ May Lose Value ■ No Bank Guarantee
Portfolio of Investments Summary Table (unaudited)
At May 31, 2020, the Fund’s issuer country and currency exposure composition1 were as follows:
| Country | Country Exposure as a Percentage of Total Net Assets2 | Currency Exposure as a Percentage of Total Net Assets3,4 |
| China | 8.7% | — |
| France | 6.8% | — |
| Mexico | 5.7% | 0.3% |
| Turkey | 5.6% | — |
| Brazil | 5.5% | (0.1)% |
| Japan | 5.5% | 23.0% |
| United Kingdom | 3.9% | 5.5% |
| Italy | 3.6% | — |
| Spain | 2.4% | — |
| Argentina | 2.1% | — |
| Germany | 2.0% | — |
| Egypt | 2.0% | 0.3% |
| Russia | 1.9% | — |
| Netherlands | 1.8% | — |
| South Africa | 1.8% | (0.1)% |
| Bahrain | 1.7% | — |
| Belgium | 1.7% | — |
| Ukraine | 1.7% | — |
| United States | 1.6% | 33.3% |
| Canada | 1.1% | 1.1% |
| Colombia | 1.1% | — |
| United Arab Emirates | 1.1% | — |
| Nigeria | 1.0% | — |
| Oman | 1.0% | — |
| Australia | 0.9% | 0.9% |
| Chile | 0.7% | 0.1% |
| Poland | 0.4% | 0.4% |
| Euro | — | 22.3% |
| Other Countries5 | 13.7% | — |
| SUB-TOTAL | 87.0% | 87.0% |
| Cash Equivalents6 | 6.5% | 6.5% |
| Derivative Contracts7 | (0.7)% | (0.7)% |
| Other Assets and Liabilities—Net8 | 7.2% | 7.2% |
| TOTAL | 100.0% | 100.0% |
| 1 | The fixed-income securities of some issuers may not be denominated in the currency of the issuer’s designated country. Therefore, the two columns above “Country Exposure as a Percentage of Total Net Assets” and “Currency Exposure as a Percentage of Total Net Assets” may not be equal. |
| 2 | This column depicts the Fund's exposure to various countries through its investment in foreign fixed-income securities, along with the Fund’s holdings of cash equivalents and other assets and liabilities. With respect to foreign corporate fixed-income securities, country allocations are based primarily on the country in which the issuing company has registered the security. However, the Fund’s Adviser may allocate the company to a country based on other factors such as the location of the company’s head office, the jurisdiction of the company’s incorporation, the location of the principal trading market for the company’s securities or the country from which a majority of the company’s revenue is derived. |
| 3 | As of the date specified above, the Fund owned shares of one or more affiliated investment companies. For purposes of this table, the affiliated investment company (other than an affiliated money market fund) is not treated as a single portfolio security, but rather the Fund is treated as owning a pro rata portion of each security and each other asset and liability owned by the affiliated investment company. Accordingly, the percentages of total net assets shown in the table will differ from those presented on the Portfolio of Investments. |
| 4 | This column depicts the Fund’s exposure to various currencies through its investment in foreign fixed-income securities, currency derivative contracts and foreign exchange contracts (which for purposes of this report includes any currency options sold by the Fund and currency forward contracts). |
| 5 | This line depicts the Fund’s exposure to various countries, each of which represents less than 1.0% of the Fund’s Total Net Assets. |
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| 6 | Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements. This does not include cash held in the Fund that is denominated in foreign currencies. See the Statement of Assets and Liabilities for information regarding the Fund’s foreign cash position. |
| 7 | 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 investment 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. |
| 8 | Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities. |
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Portfolio of Investments
May 31, 2020 (unaudited)
| Foreign Currency Par Amount, Principal Amount or Shares | Value in U.S. Dollars | ||
| BONDS—31.8% | |||
| AUSTRALIAN DOLLAR—0.9% | |||
| Sovereign—0.9% | |||
| $120,000 | Australia, Government of, Series 128, 5.750%, 7/15/2022 | $89,225 | |
| 100,000 | Australia, Government of, Series 137, 2.750%, 4/21/2024 | 72,915 | |
| 75,000 | Australia, Government of, Sr. Unsecd. Note, Series 148, 2.750%, 11/21/2027 | 57,540 | |
| TOTAL | 219,680 | ||
| BRITISH POUND—3.9% | |||
| Sovereign—3.9% | |||
| 100,000 | United Kingdom, Government of, 2.750%, 9/7/2024 | 138,230 | |
| 95,000 | United Kingdom, Government of, 3.250%, 1/22/2044 | 185,995 | |
| 190,000 | United Kingdom, Government of, Unsecd. Note, 1.500%, 7/22/2047 | 288,565 | |
| 180,000 | United Kingdom, Government of, Unsecd. Note, 4.250%, 6/7/2032 | 326,158 | |
| TOTAL | 938,948 | ||
| CANADIAN DOLLAR—1.1% | |||
| Sovereign—1.1% | |||
| 145,000 | Canada, Government of, 1.500%, 6/1/2023 | 109,174 | |
| 155,000 | Canada, Government of, Series WL43, 5.750%, 6/1/2029 | 165,098 | |
| TOTAL | 274,272 | ||
| EURO—19.2% | |||
| Consumer Products—1.0% | |||
| 190,000 | Philip Morris International, Inc., Sr. Unsecd. Note, 2.875%, 5/14/2029 | 236,835 | |
| Sovereign—18.2% | |||
| 110,000 | Belgium, Government of, Series 68, 2.250%, 6/22/2023 | 132,497 | |
| 230,000 | Belgium, Government of, Series 74, 0.800%, 6/22/2025 | 270,669 | |
| 495,000 | France, Government of, 0.500%, 5/25/2025 | 575,423 | |
| 220,000 | France, Government of, 2.750%, 10/25/2027 | 299,018 | |
| 300,000 | France, Government of, 4.250%, 10/25/2023 | 387,916 | |
| 220,000 | France, Government of, O.A.T., 5.500%, 4/25/2029 | 367,735 | |
| 210,000 | Germany, Government of, Bond, Series 03, 4.750%, 7/4/2034 | 403,088 | |
| 55,000 | Germany, Government of, Unsecd. Note, 1.000%, 8/15/2024 | 65,368 | |
| 150,000 | Italy, Government of, Sr. Unsecd. Note, 0.650%, 10/15/2023 | 166,759 | |
| 185,000 | Italy, Government of, Sr. Unsecd. Note, 4.750%, 9/1/2028 | 258,991 | |
| 340,000 | Italy, Government of, Unsecd. Note, 1.600%, 6/1/2026 | 388,136 | |
| 45,000 | Italy, Government of, Unsecd. Note, 3.250%, 9/1/2046 | 58,539 | |
| 240,000 | Netherlands, Government of, Unsecd. Note, 0.250%, 7/15/2025 | 277,242 | |
| 100,000 | Netherlands, Government of, Unsecd. Note, 2.500%, 1/15/2033 | 148,826 | |
| 335,000 | Spain, Government of, Sr. Unsecd. Note, 1.950%, 7/30/2030 | 424,638 | |
| 25,000 | Spain, Government of, Sr. Unsecd. Note, 2.750%, 10/31/2024 | 31,271 | |
| 90,000 | Spain, Government of, Unsecd. Note, 1.600%, 4/30/2025 | 108,038 | |
| TOTAL | 4,364,154 | ||
| JAPANESE YEN—5.5% | |||
| Sovereign—5.5% | |||
| 36,000,000 | Japan, Government of, Sr. Unsecd. Note, Series 122, 1.800%, 9/20/2030 | 394,653 | |
| 55,000,000 | Japan, Government of, Sr. Unsecd. Note, Series 153, 1.300%, 6/20/2035 | 590,228 |
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| Foreign Currency Par Amount, Principal Amount or Shares | Value in U.S. Dollars | ||
| BONDS—continued | |||
| JAPANESE YEN—continued | |||
| Sovereign—continued | |||
| $28,000,000 | Japan, Government of, Sr. Unsecd. Note, Series 44, 1.700%, 9/20/2044 | $335,356 | |
| TOTAL | 1,320,237 | ||
| MEXICAN PESO—0.7% | |||
| Sovereign—0.7% | |||
| 3,700,000 | Mexico, Government of, Sr. Unsecd. Note, Series M, 5.750%, 3/5/2026 | 167,623 | |
| POLISH ZLOTY—0.4% | |||
| Sovereign—0.4% | |||
| 350,000 | Poland, Government of, Unsecd. Note, Series 0726, 2.500%, 7/25/2026 | 95,653 | |
| TOTAL BONDS (IDENTIFIED COST $7,293,043) | 7,617,402 | ||
| PURCHASED CALL OPTION—0.0% | |||
| Foreign Currency—0.0% | |||
| 1,100,000 | USD CALL/JPY PUT, JP Morgan, Notional Amount $1,100,000, Exercise Price $109.850, Expiration Date 7/15/2020 (IDENTIFIED COST $6,468) | 1,392 | |
| PURCHASED PUT OPTION—0.0% | |||
| Foreign Currency—0.0% | |||
| 1,100,000 | USD CALL/JPY PUT, BNP Paribas, Notional Amount $1,100,000, Exercise Price $111.000, Expiration Date 7/8/2020 (IDENTIFIED COST $7,673) | 359 | |
| REPURCHASE AGREEMENTS—6.0% | |||
| 1,427,000 | Interest in $80,000,000 joint repurchase agreement, 0.07% dated 5/29/2020 under which BNP Paribas will repurchase the securities provided as collateral for $80,000,467 on 6/1/2020. The securities provided as collateral at the end of the period held with BNY Mellon, tri-party agent, were U.S. Treasury Bill with various maturities to 6/2/2020 and the market value of those underlying securities was $81,600,558. | 1,427,000 | |
| INVESTMENT COMPANY—55.5% | |||
| 1,400,374 | Emerging Markets Core Fund (IDENTIFIED COST $14,294,102) | 13,303,552 | |
| TOTAL INVESTMENT IN SECURITIES—93.2% (IDENTIFIED COST $23,028,286)1 | 22,349,705 | ||
| OTHER ASSETS AND LIABILITIES - NET—6.8%2 | 1,633,467 | ||
| TOTAL NET ASSETS—100% | $23,983,172 |
At May 31, 2020, the Fund had the following outstanding futures contracts:
| Description | Number of Contracts | Notional Value | Expiration Date | Value and Unrealized Appreciation (Depreciation) |
| Long Futures | ||||
| 3Euro Bund Futures | 3 | EUR 574,318 | June 2020 | $3,502 |
| 3JPN 10Y BOND | 2 | JPY 2,822,569 | June 2020 | $(47,277) |
| NET UNREALIZED DEPRECIATION ON FUTURES CONTRACTS | $(43,775) | |||
At May 31, 2020, the Fund had the following outstanding written option contracts:
| Counterparty | Description | Notional Amount | Expiration Date | Exercise Price | Value in U.S Dollar |
| Put Options: | |||||
| 3JP Morgan | USD PUT/JPY CALL | $1,100,000 | 7/15/2020 | $104.500 | $(773) |
| 3BNP Paribas | USD PUT/MXN CALL | $10,000 | 6/10/2020 | $22.147 | $(116) |
| 3BNP Paribas | USD PUT/JPY CALL | $1,100,000 | 7/8/2020 | $101.750 | $(1,509) |
| (PREMIUM RECEIVED $16,389) | $(2,398) | ||||
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At May 31, 2020, the Fund had the following outstanding foreign exchange contracts:
| Settlement Date | Counterparty | Foreign Currency Units to Receive/Deliver | In Exchange For | Unrealized Appreciation (Depreciation) |
| Contracts Purchased: | ||||
| 6/2/2020 | Bank of America | $225,000 | 5,125,615 MXN | $(6,149) |
| 6/2/2020 | Bank of America | $50,000 | 913,595 ZAR | $(2,051) |
| 6/2/2020 | Barclays Bank | $112,500 | 2,670,469 MXN | $(7,930) |
| 6/2/2020 | JPMorgan | $225,000 | 5,321,781 MXN | $(14,995) |
| 6/2/2020 | Morgan Stanley | $112,500 | 2,622,324 MXN | $(5,759) |
| 6/15/2020 | Bank of America | 28,084,760 CLP | $34,737 | $350 |
| 6/15/2020 | Bank of America | $34,100 | 28,084,760 CLP | $(987) |
| 7/10/2020 | Goldman Sachs | $550,000 | 58,824,205 JPY | $4,220 |
| 8/3/2020 | Bank of America | 633,898 EUR | 2,818,446 PLN | $2,029 |
| 8/3/2020 | Credit Agricole | 216,102 EUR | 960,794 PLN | $702 |
| 8/3/2020 | Credit Agricole | 650,000 EUR | $703,347 | $19,178 |
| 8/3/2020 | Credit Agricole | 300,000 GBP | $370,885 | $(285) |
| 8/3/2020 | JPMorgan | 600,000 EUR | 68,907,396 JPY | $27,364 |
| 8/3/2020 | State Street | $180,000 | 4,539,876 MXN | $(22,749) |
| 8/4/2020 | State Street | 600,000 EUR | 1,004,629 AUD | $(2,680) |
| 8/10/2020 | Barclays Bank | $34,100 | 52,178 AUD | $(679) |
| 8/10/2020 | JPMorgan | 35,000 EUR | $37,874 | $1,037 |
| 8/10/2020 | JPMorgan | $10,000 | 225,686 MXN | $(69) |
| 8/11/2020 | Credit Agricole | $50,000 | 875,030 ZAR | $520 |
| Contracts Sold: | ||||
| 6/2/2020 | JPMorgan | $112,500 | 2,745,525 MXN | $11,315 |
| 6/2/2020 | JPMorgan | $112,500 | 2,678,046 MXN | $8,271 |
| 7/10/2020 | BNY Mellon | $1,100,000 | 118,176,740 JPY | $(3,538) |
| 7/10/2020 | JPMorgan | $550,000 | 58,655,388 JPY | $(5,786) |
| 7/17/2020 | BNY Mellon | $550,000 | 59,147,715 JPY | $(1,156) |
| 8/3/2020 | Citibank | $85,000 | 68,333 GBP | $(586) |
| 8/3/2020 | Credit Agricole | 850,000 EUR | 3,858,901 PLN | $17,127 |
| 8/3/2020 | Credit Agricole | $2,635,000 | 282,775,289 JPY | $(10,348) |
| 8/3/2020 | JPMorgan | 600,000 EUR | 68,900,826 JPY | $(27,425) |
| 8/3/2020 | State Street | $75,000 | 1,840,983 MXN | $7,217 |
| 8/4/2020 | Citibank | 300,000 EUR | 510,155 AUD | $6,566 |
| 8/4/2020 | JPMorgan | 300,000 EUR | 505,248 AUD | $3,295 |
| 8/10/2020 | JPMorgan | 35,000 EUR | $38,178 | $(733) |
| NET UNREALIZED DEPRECIATION ON FOREIGN EXCHANGE CONTRACTS | $(4,714) | |||
At May 31, 2020, the Fund had the following open swap contracts:
CREDIT DEFAULT SWAPS
| Counter-party | Reference Entity | Buy/ Sell | Pay/ Receive Fixed Rate | Expiration Date | Implied Credit Spread at 5/31/20204 | Notional Amount | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation (Depreciation) |
| OTC Swaps: | |||||||||
| Barclays Bank | CDX.EM.33 | Buy | 1.00% | 6/20/2025 | 2.92% | $1,200,000 | $104,107 | $109,800 | $(5,693) |
Net Unrealized Depreciation on Futures Contracts, Foreign Exchange Contracts, value for Written Option Contracts and Swap Contract are included in “Other Assets and Liabilities—Net.”
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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 May 31, 2020, were as follows:
| Emerging Markets Core Fund | |
| Balance of Shares Held 11/30/2019 | 1,494,857 |
| Purchases/Additions | 366,425 |
| Sales/Reductions | (460,908) |
| Balance of Shares Held 5/31/2020 | 1,400,374 |
| Value | $13,303,552 |
| Change in Unrealized Appreciation/(Depreciation) | $(701,233) |
| Net Realized Gain/(Loss) | $183,903 |
| Dividend Income | $364,824 |
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund invests in a portfolio of Federated Core Trust (“Core Trust”), which is managed by Federated Investment Management Company (the “Adviser”). Core Trust is an open-end management company, registered under the Act, available only to registered investment companies and other institutional investors. The investment objective of Emerging Markets Core Fund (EMCOR), a portfolio of Core Trust, is to achieve a total return on its assets. EMCOR’s secondary objective is to achieve a high level of income. Distributions of net investment income from EMCOR are declared daily and paid monthly. Capital gain distributions, if any, from EMCOR are declared and paid annually, and are recorded by the Fund as capital gains. Federated Hermes, Inc. (“Federated”) receives no advisory or administrative fees from EMCOR. Copies of the EMCOR financial statements are available on the EDGAR Database on the SEC’s website or upon request from the Fund.
| 1 | The cost of investments for federal tax purposes amounts to $23,203,920. |
| 2 | Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| 3 | Non-income-producing security. |
| 4 | Implied credit spreads, represented in absolute terms, utilized in determining the market value of credit default swap agreements serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation. |
Note: The categories of investments are shown as a percentage of total net assets at May 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.
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The following is a summary of the inputs used, as of May 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: | ||||
| Bonds | $— | $7,617,402 | $— | $7,617,402 |
| Purchased Call Options | — | 1,392 | — | 1,392 |
| Purchased Put Options | — | 359 | — | 359 |
| Repurchase Agreement | — | 1,427,000 | — | 1,427,000 |
| Investment Company | 13,303,552 | — | — | 13,303,552 |
| TOTAL SECURITIES | $13,303,552 | $9,046,153 | $— | $22,349,705 |
| Other Financial Instruments: | ||||
| Assets | ||||
| Futures Contracts | $3,502 | $— | $— | $3,502 |
| Written Put Options | — | — | — | — |
| Foreign Exchange Contracts | — | 109,191 | — | 109,191 |
| Swap Contracts | — | 104,107 | — | 104,107 |
| Liabilities | ||||
| Futures Contracts | (47,277) | — | — | (47,277) |
| Written Put Options | — | (2,398) | — | (2,398) |
| Foreign Exchange Contracts | — | (113,905) | — | (113,905) |
| Swap Contracts | — | — | — | — |
| TOTAL OTHER FINANCIAL INSTRUMENTS | $(43,775) | $96,995 | $— | $53,220 |
The following acronyms are used throughout this portfolio:
| AUD | —Australian Dollar |
| CLP | —Chilean Peso |
| EUR | —Euro |
| GBP | —Great British Pound |
| JPY | —Japanese Yen |
| MXN | —Mexican Peso |
| PLN | —Polish Zloty |
| USD | —United States Dollars |
| ZAR | —South African Rand |
See Notes which are an integral part of the Financial Statements
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Financial Highlights
(For a Share Outstanding Throughout Each Period)
| Six Months Ended (unaudited) 5/31/2020 | Year Ended November 30, | |||||
| 2019 | 2018 | 2017 | 2016 | 2015 | ||
| Net Asset Value, Beginning of Period | $14.75 | $14.01 | $15.08 | $14.48 | $13.77 | $15.00 |
| Income From Investment Operations: | ||||||
| Net investment income1 | 0.25 | 0.53 | 0.54 | 0.47 | 0.51 | 0.49 |
| Net realized and unrealized gain (loss) | (0.35) | 0.81 | (1.20) | 0.77 | 0.20 | (1.13) |
| TOTAL FROM INVESTMENT OPERATIONS | (0.10) | 1.34 | (0.66) | 1.24 | 0.71 | (0.64) |
| Less Distributions: | ||||||
| Distributions from net investment income | (0.50) | (0.60) | (0.41) | (0.64) | — | (0.54) |
| Distributions from net realized gain | — | — | — | — | — | (0.05) |
| TOTAL DISTRIBUTIONS | (0.50) | (0.60) | (0.41) | (0.64) | — | (0.59) |
| Net Asset Value, End of Period | $14.15 | $14.75 | $14.01 | $15.08 | $14.48 | $13.77 |
| Total Return2 | (0.76)% | 9.92% | (4.50)% | 8.95% | 5.16% | (4.31)% |
| Ratios to Average Net Assets: | ||||||
| Net expenses3,4 | 0.00%5 | 0.00% | 0.00% | 0.00% | 0.02% | 0.03% |
| Net investment income | 3.57%5 | 3.66% | 3.76% | 3.24% | 3.50% | 3.49% |
| Expense waiver/reimbursement6 | 1.14%5 | 1.24% | 1.55% | 1.65% | 1.80% | 2.01% |
| Supplemental Data: | ||||||
| Net assets, end of period (000 omitted) | $23,983 | $23,369 | $18,179 | $14,229 | $12,911 | $11,488 |
| Portfolio turnover | 17% | 52% | 20% | 55% | 33% | 85% |
| 1 | Per share numbers have been calculated using the average shares method. |
| 2 | Based on net asset value. Total returns for periods of less than one year are not annualized. |
| 3 | See Note 5, Investment Adviser Fee and Other Transactions with Affiliates. |
| 4 | Amount does not reflect net expenses incurred by the investment companies in which the Fund may invest. |
| 5 | Computed on an annualized basis. |
| 6 | This expense decrease is reflected in both the net expense and 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
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Statement of Assets and Liabilities
May 31, 2020 (unaudited)
| Assets: | ||
| Investment in securities, at value including $13,303,552 of investment in an affiliated holding* (identified cost $23,028,286) | $22,349,705 | |
| Cash denominated in foreign currencies (identified cost $501,855) | 500,696 | |
| Due from broker | 29,472 | |
| Cash | 721 | |
| Receivable for investments sold | 1,651,929 | |
| Unrealized appreciation on foreign exchange contracts | 109,191 | |
| Swaps, at value (net premium paid of $109,800) | 104,107 | |
| Income receivable | 66,415 | |
| Receivable for shares sold | 3,275 | |
| Prepaid expenses | 476 | |
| TOTAL ASSETS | 24,815,987 | |
| Liabilities: | ||
| Unrealized depreciation on foreign exchange contracts | 113,905 | |
| Payable for investments purchased | 610,653 | |
| Written options outstanding, at value (premiums received $16,389) | 2,398 | |
| Payable for shares redeemed | 427 | |
| Payable for portfolio accounting fees | 101,343 | |
| Payable to adviser (Note 5) | 2,502 | |
| Payable for administrative fee (Note 5) | 983 | |
| Payable for variation margin on futures contracts | 489 | |
| Payable for Directors'/Trustees' fees (Note 5) | 115 | |
| TOTAL LIABILITIES | 832,815 | |
| Net assets for 1,694,410 shares outstanding | $23,983,172 | |
| Net Assets Consists of: | ||
| Paid-in capital | $24,862,069 | |
| Total distributable earnings (loss) | (878,897) | |
| TOTAL NET ASSETS | $23,983,172 | |
| Net Asset Value, Offering Price and Redemption Proceeds Per Share: | ||
| $23,983,172 ÷ 1,694,410 shares outstanding, no par value, unlimited shares authorized | $14.15 |
| * | See information listed after the Fund’s Portfolio of Investments |
See Notes which are an integral part of the Financial Statements
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Statement of Operations
Six Months Ended May 31, 2020 (unaudited)
| Investment Income: | |||
| Dividends received from an affiliated holding* | $364,824 | ||
| Interest | 52,371 | ||
| TOTAL INCOME | 417,195 | ||
| Expenses: | |||
| Administrative fee (Note 5) | $9,110 | ||
| Custodian fees | 7,269 | ||
| Transfer agent fees | 2,040 | ||
| Directors'/Trustees' fees (Note 5) | 762 | ||
| Auditing fees | 15,500 | ||
| Legal fees | 4,413 | ||
| Portfolio accounting fees | 69,696 | ||
| Share registration costs | 11,836 | ||
| Printing and postage | 8,294 | ||
| Miscellaneous (Note 5) | 3,691 | ||
| TOTAL EXPENSES | 132,611 | ||
| Reimbursement of other operating expenses (Note 5) | $(132,611) | ||
| Net expenses | — | ||
| Net investment income | 417,195 | ||
| Realized and Unrealized Gain (Loss) on Investments, Foreign Exchange Contracts, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions: | |||
| Net realized gain on investments (including realized gain of $183,903 on sales of investments in an affiliated holding*) and foreign currency transactions | 116,529 | ||
| Net realized (loss) on foreign exchange contracts | (25,726) | ||
| Net realized gain on futures contracts | 2,278 | ||
| Net realized gain on written options | 34,333 | ||
| Net realized (loss) on swap contracts | (7,582) | ||
| Net change in unrealized depreciation of investments and translation of assets and liabilities in foreign currency (including net change in unrealized depreciation of $(701,233) of investments in an affiliated holding*) | (695,053) | ||
| Net change in unrealized depreciation of foreign exchange contracts | 11,405 | ||
| Net change in unrealized appreciation of futures contracts | (43,775) | ||
| Net change in unrealized appreciation of swap contracts | (5,693) | ||
| Net change in unrealized depreciation of written options | 11,232 | ||
| Net realized and unrealized gain (loss) on investments, foreign exchange contracts, futures contracts, written options, swap contracts and foreign currency transactions | (602,052) | ||
| Change in net assets resulting from operations | $(184,857) |
| * | See information listed after the fund’s Portfolio of Investments |
See Notes which are an integral part of the Financial Statements
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Statement of Changes in Net Assets
| Six Months Ended (unaudited) 5/31/2020 | Year Ended 11/30/2019 | |
| Increase (Decrease) in Net Assets | ||
| Operations: | ||
| Net investment income | $417,195 | $757,645 |
| Net realized gain (loss) | 119,832 | (62,010) |
| Net change in unrealized appreciation/depreciation | (721,884) | 1,134,588 |
| CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (184,857) | 1,830,223 |
| Distributions to Shareholders: | ||
| Distribution to shareholders | (793,186) | (788,294) |
| Share Transactions: | ||
| Proceeds from sale of shares | 3,783,788 | 6,139,788 |
| Net asset value of shares issued to shareholders in payment of distributions declared | 26,941 | 27,046 |
| Cost of shares redeemed | (2,218,293) | (2,019,290) |
| CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 1,592,436 | 4,147,544 |
| Change in net assets | 614,393 | 5,189,473 |
| Net Assets: | ||
| Beginning of period | 23,368,779 | 18,179,306 |
| End of period | $23,983,172 | $23,368,779 |
See Notes which are an integral part of the Financial Statements
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Notes to Financial Statements
May 31, 2020 (unaudited)
1. ORGANIZATION
Federated Managed Pool Series (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of five portfolios. The financial statements included herein are only those of Federated International Bond Strategy Portfolio (the “Fund”), a non-diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The investment objective of the Fund is to achieve total return on its assets, by investing primarily in foreign government and corporate bonds in both developed and emerging markets.
Effective on or about June 29, 2020, the name of the Trust and Fund will change to Federated Hermes Managed Pool Series and Federated Hermes International Bond Strategy Portfolio, 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 generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
| ■ | Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs. |
| ■ | Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market. |
| ■ | Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund’s Board of Trustees (the “Trustees”). |
| ■ | 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 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.
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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; |
| ■ | 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 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. Distributions of net investment income, if any, are declared and paid annually. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Amortization/accretion of premium and discount is included in investment income. During part of the fiscal year, the Fund invested in Emerging Markets Core Fund, a portfolio of Federated Core Trust. The detail of the total fund expense reimbursement of $132,611 is disclosed in Note 5.
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 six months ended May 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 May 31, 2020, tax years 2016 through 2019 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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Swap Contracts
Swap contracts involve two parties that agree to exchange the returns (or the differential in rates of return) earned or realized on particular predetermined investments, instruments, indices or other measures. The gross returns to be exchanged or “swapped” between parties are generally calculated with respect to a “notional amount” for a determined period of time. The Fund may enter into interest rate, total return, credit default, currency and other swap agreements to seek to increase yield, income and return, and to manage currency risk, duration risk, market risk and yield curve risk. Risks may arise upon entering into swap agreements from the potential inability of the counterparties to meet the terms of their contract from unanticipated changes in the value of the swap agreement. In connection with these agreements, securities or cash may be identified as collateral or margin in accordance with the terms of the respective swap agreements to provide assets of value and recourse in the event of default.
The “buyer” in a credit default swap is obligated to pay the “seller” a periodic stream of payments over the term of the contract provided that no event of default on an underlying reference obligation has occurred. If an event of default occurs, the seller must pay the buyer the full notional value, or the “par value,” of the reference obligation in exchange for the reference obligation. In connection with these agreements, securities may be identified as collateral in accordance with the terms of the respective swap agreements to provide assets of the value and recourse in the event of default or bankruptcy/solvency. Recovery values are assumed by market makers considering either industry standard recovery rates or entity specific factors and considerations until a credit event occurs. If a credit event has occurred, the recovery value is typically determined by a facilitated auction whereby a minimum number of allowable broker bids, together with a specific valuation method, are used to calculate the settlement value. The maximum amount of the payment that may occur, as a result of a credit event payable by the protection seller, is equal to the notional amount of the underlying index or security. The Fund's maximum exposure to loss of the notional value of credit default swaps outstanding at May 31, 2020 is $0. The Fund's maximum risk of loss from counterparty credit risk, either as the protection buyer or as the protection seller, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund's exposure to the counterparty.
Upfront payments received or paid by the Fund will be reflected as an asset or liability on the Statement of Assets and Liabilities. Changes in the value of swap contracts are included in “Swaps, at value” on the Statement of Assets and Liabilities, and periodic payments are reported as “Net realized gain (loss) on swap contracts” in the Statement of Operations.
Certain swap contracts may be centrally cleared (“centrally cleared swaps”), whereby all payments made or received by the Fund pursuant to the contract are with a central clearing party (CCP) rather than the counterparty. The CCP guarantees the performance of the parties to the contract. Upon entering into centrally cleared swaps, the Fund is required to deposit with the CCP, either in cash or securities, an amount of initial margin determined by the CCP, which is subject to adjustment. For centrally cleared swaps, the daily change in valuation is recorded as a receivable or payable for variation margin and settled in cash with the CCP daily. In the case of centrally cleared swaps, counterparty risk is minimal due to protections provided by the CCP.
Swaps contracts outstanding at the period end are listed after the Fund’s Portfolio of Investments.
The average notional amount of credit default swap contracts held by the Fund throughout the period was $171,429. This is based on amounts held as of each month-end throughout the six-month fiscal period.
Foreign Exchange Contracts
The Fund may enter into foreign exchange contracts to seek to increase return and to manage currency risk. Purchased contracts are used to acquire exposure to foreign currencies, whereas, contracts to sell are used to hedge the Fund’s securities against currency fluctuations. Risks may arise upon entering into these transactions from the potential inability of counterparties to meet the terms of their commitments and from unanticipated movements in security prices or foreign exchange rates. The foreign exchange contracts are adjusted by the daily exchange rate of the underlying currency and any gains or losses are recorded for financial statement purposes as unrealized until the settlement date.
Foreign exchange contracts are subject to Master Netting Agreements (MNA) 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.
Foreign exchange contracts outstanding at period end, including net unrealized appreciation/depreciation or net settlement amounts, are listed after the Fund’s Portfolio of Investments.
The average value at settlement date payable and receivable of foreign exchange contracts purchased and sold by the Fund throughout the period was $164,100 and $167,406, respectively. This is based on the contracts held as of each month-end throughout the six-month fiscal period.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rates of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at period end, resulting from changes in the exchange rate.
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Futures Contracts
The Fund purchases and sells financial futures contracts to seek to manage currency, duration 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 clearing house, as counterparty to all exchange-traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at the period end are listed after the Fund’s Portfolio of Investments.
The average notional value of long futures contracts held by the Fund throughout the period was $2,951,462. This is based on amounts held as of each month-end throughout the six-month fiscal period.
Option Contracts
The Fund buys or sells put and call options to seek to manage currency, duration and market risk. The seller (“writer”) of an option receives a payment or premium, from the buyer, which the writer keeps regardless of whether the buyer exercises the option. When the Fund writes a put or call option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the underlying reference instrument. When the Fund purchases a put or call option, an amount equal to the premium paid is recorded as an increase to the cost of the investment and subsequently marked to market to reflect the current value of the option purchased. Premiums paid for purchasing options which expire are treated as realized losses. Premiums received/paid for writing/purchasing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying reference instrument to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Options can trade on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. This protects investors against potential defaults by the counterparty.
Purchased option contracts outstanding at period end are listed in the Fund’s Portfolio of Investments and written option contracts outstanding at period end are listed after the Fund’s Portfolio of Investments.
The average market value of purchased options and written options held by the Fund throughout the period was $5,950 and $32,594, respectively. This is based on amounts held as of each month-end throughout the six-month fiscal period.
Restricted Securities
The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer’s expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund’s restricted securities, like other securities, are priced in accordance with procedures established by and under the general supervision of the Trustees.
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Additional Disclosure Related to Derivative Instruments
| Fair Value of Derivative Instruments | ||||
| Asset | Liability | |||
| Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | |
| Derivatives not accounted for as hedging instruments under ASC Topic 815 | ||||
| Foreign exchange contracts | Unrealized appreciation on foreign exchange contracts | $109,191 | Unrealized depreciation on foreign exchange contracts | $113,905 |
| Foreign exchange contracts | Purchased options, Investments in securities, at value | $1,751 | ||
| Foreign exchange contracts | Written Options outstanding, at value | $2,398 | ||
| Interest rate contracts | Payable for daily variation margin on futures contracts | $43,775* | ||
| Credit contracts | Credit default swaps | $104,107 | ||
| Total derivatives not accounted for as hedging instruments under ASC Topic 815 | $215,049 | $160,078 | ||
| * | Includes cumulative appreciation\depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended May 31, 2020
| Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | ||||||
| Purchased Options1 | Credit Default Swap Contracts | Written Options | Foreign Exchange Contracts | Futures Contracts | Total | |
| Foreign exchange contracts | $6,739 | $— | $34,333 | $(25,726) | $— | $15,346 |
| Credit contracts | — | (7,582) | — | — | — | (7,582) |
| Interest rate contracts | — | — | — | — | 2,278 | 2,278 |
| TOTAL | $6,739 | $(7,582) | $34,333 | $(25,726) | $2,278 | $10,042 |
| Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income | ||||||
| Purchased Options2 | Credit Default Swap Contracts | Written Option Contracts | Foreign Exchange Contracts | Futures Contracts | Total | |
| Foreign exchange contracts | $(7,330) | $— | $11,232 | $11,405 | $— | $15,307 |
| Credit contracts | — | (5,693) | — | — | — | (5,693) |
| Interest rate contracts | — | — | — | — | (43,775) | (43,775) |
| TOTAL | $(7,330) | $(5,693) | $11,232 | $11,405 | $(43,775) | $(34,161) |
| 1 | The net realized gain on Purchased Options is found within the Net realized gain on investments and foreign currency transactions on the Statement of Operations. |
| 2 | The net change in unrealized depreciation of Purchased Options is found within the Net change in unrealized depreciation of investments and translation of assets and liabilities in foreign currency on the Statement of Operations. |
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As indicated above, certain derivative investments are transacted subject to MNA. These agreements permit the Fund to offset with a counter party certain derivative payables and/or receivables with collateral held and create one single net payment in the event of default or termination of the agreement by either the Fund or the counterparty. Amounts presented on the Portfolio of Investments and Statement of Assets and Liabilities are not net settlement amounts but gross. As of May 31, 2020, the impact of netting assets and liabilities and the collateral pledged or received based on MNA are detailed below:
| Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||
| Transaction | Gross Asset Derivatives Presented in Statement of Assets and Liabilities | Financial Instruments | Collateral Received | Net Amount |
| Swap Contracts | $104,107 | $— | $— | $104,107 |
| Foreign Exchange Contracts | 109,191 | (69,823) | — | 39,368 |
| TOTAL | $213,298 | $(69,823) | $— | $143,475 |
| Transaction | Gross Liability Derivatives Presented in Statement of Assets and Liabilities | Financial Instruments | Collateral Pledged | Net Amount |
| Swap Contracts | $— | $— | $— | $— |
| Foreign Exchange Contracts | 113,905 | (69,823) | — | 44,082 |
| TOTAL | $113,905 | $(69,823) | $— | $44,082 |
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ materially from those estimated. The Fund applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following table summarizes share activity:
| Six Months Ended 5/31/2020 | Year Ended 11/30/2019 | |
| Shares sold | 266,117 | 424,736 |
| Shares issued to shareholders in payment of distributions declared | 1,859 | 1,980 |
| Shares redeemed | (158,096) | (139,924) |
| NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 109,880 | 286,792 |
4. FEDERAL TAX INFORMATION
At May 31, 2020, the cost of investments for federal tax purposes was $23,203,920. The net unrealized depreciation of investments for federal tax purposes was $894,406. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $418,063 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,312,469. The amounts presented are inclusive of derivatives contracts.
As of November 30, 2019, the Fund had a capital loss carryforward of $665,538 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 |
| $515,347 | $150,191 | $665,538 |
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5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The Adviser provides investment adviser services at no fee, because all eligible investors are: (1) in separately managed or wrap-free programs, who often pay a single aggregate fee to the wrap program sponsor for all costs and expenses of the wrap-free programs; or (2) in certain other separately managed accounts and discretionary investment accounts. The Adviser has contractually agreed to reimburse all expenses of the Fund, excluding extraordinary expenses. Acquired Fund Fees and Expenses are not direct obligations of the Fund and are not contractual reimbursements under the investment advisory contract. For the six months ended May 31, 2020, the Adviser reimbursed $132,611 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Hermes Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
| Administrative Fee | Average Daily Net Assets of the Investment Complex |
| 0.100% | on assets up to $50 billion |
| 0.075% | on assets over $50 billion |
FAS may voluntarily choose to waive any portion of its fee. For the six months ended May 31, 2020, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund. Fees paid to FAS by the Fund were reimbursed by the Adviser.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Directors’/Trustees’ and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent Directors’/Trustees’ fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended May 31, 2020, were as follows:
| Purchases | $3,578,288 |
| Sales | $5,031,494 |
7. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund, along with other funds advised by subsidiaries of Federated Hermes, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of May 31, 2020, there were no outstanding loans. During the six months ended May 31, 2020, the program was not utilized.
8. LINE OF CREDIT
The Fund participates with certain other Federated Hermes Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement. The LOC was made available to temporarily finance the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund’s ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to the highest, on any day, of (a) (i) the federal funds effective rate, (ii) the one month London Interbank Offered Rate (LIBOR), or a replacement rate as appropriate, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays its pro rata share of an upfront fee, and, its pro 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 May 31, 2020, the Fund had no outstanding loans. During the six months ended May 31, 2020, the Fund did not utilize the LOC.
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9. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 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 negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the market in general in significant and unforeseen ways. Any such impact could adversely affect the Fund’s performance.
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Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including to the extent applicable, management fees, 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 December 1, 2019 to May 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.
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 12/1/2019 | Ending Account Value 5/31/2020 | Expenses Paid During Period1 | |
| Actual | $1,000 | $992.40 | $0.00 |
| Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,025.00 | $0.00 |
| 1 | Expenses are equal to the Fund's annualized net expense ratio of 0.00%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half-year period). Federated Investment Management Company, the Adviser, has contractually agreed to reimburse all operating expenses excluding extraordinary expenses and expenses allocated from affiliated holdings, incurred by the Fund. This agreement has no fixed term. |
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Evaluation and Approval of Advisory Contract–May 2020
Federated International Bond Strategy Portfolio (the “Fund”)
(EFFECTIVE CLOSE OF BUSINESS ON JUNE 26, 2020, THE FUND'S NAME CHANGED TO FEDERATED HERMES INTERNATIONAL BOND STRATEGY PORTFOLIO)
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.
The Fund is distinctive in that it is used to implement particular investment strategies that are offered to investors in certain separately managed or wrap fee accounts or programs, or certain other discretionary investment accounts, and may also be offered to other funds (each, a “Federated Hermes Fund”) advised by the Adviser or its affiliates (collectively, “Federated Hermes”).
In addition, the Board considered that the Adviser does not charge an investment advisory fee for its services, although Federated Hermes may receive compensation for managing assets invested in the Fund.
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 or 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 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, 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
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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.
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 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 benchmark index 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.
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Fund Investment Performance
For the periods ended December 31, 2019, the Fund outperformed its benchmark index for the one-year period, and the Fund underperformed its benchmark index the three-year and five-year periods. The Board discussed the Fund’s performance with the Adviser and recognized the efforts being taken by the Adviser in the context of other factors considered relevant by the Board.
Following such evaluation, and full deliberations, the Board concluded that the performance of the Fund supported renewal of the Contract.
Fund Expenses
The Board considered that the Adviser does not charge an investment advisory fee to this Fund for its services. However, the Board considered the compensation and benefits received by the Adviser, including fees received for services provided to the Fund by Federated Hermes and research services received by the Adviser from brokers that execute trades for other Federated Hermes Funds.
Because the Adviser does not charge the Fund an investment advisory fee, the Board does not consider fee comparisons to other mutual funds or other institutional or separate accounts to be relevant to its deliberations.
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. As the Adviser does not charge an investment advisory fee for its services, this information generally covered 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 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 considered Federated Hermes’ previous reductions in contractual management fees to certain Federated Hermes Funds during the prior year, including in response to the CCO’s recommendations in the prior year’s CCO Fee Evaluation Report.
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.
Economies of Scale
Because of the unusual nature of the Fund as primarily an internal product with no advisory fee, the Board does not consider the assessment of whether economies of scale would be realized if the Fund were to grow to a sufficient size to be particularly relevant.
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 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.
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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.
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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 Managed Pool Series (the “Trust'') has adopted and implemented a liquidity risk management program (the “LRMP”) for each series of the “Trust'', including Federated Hermes International Bond Strategy Portfolio (the “Fund” and collectively, the “Funds”). The LRMP 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 Funds’ investment advisers as the administrators for the LRMP (collectively, the “Administrator”). The Administrator has established a Liquidity Risk Management Committee (the “Committee”) comprised of representatives from various departments across the Administrator to assist it in the implementation and on-going administration of the LRMP. The Committee, in turn, has delegated to the Fixed Income and Equities Liquidity Committees, each a separate committee previously established by the Administrator, the responsibility to review and assess certain information related to the liquidity of the Funds that fall within their respective asset classes.
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 from the Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the LRMP for the period from the LRMP’s inception on December 1, 2018 through March 31, 2020 (the “Period”). The Report addressed the operation of the LRMP and assessed its adequacy and effectiveness, including, where applicable, the operation of any HLIM established for a Fund. There were no material changes to the LRMP 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 Funds. Such information and factors included, among other things:
| ■ | the liquidity risk framework used to assess, manage, and periodically review each Fund’s liquidity risk and the results of this assessment, including a review of the Funds’ access to other available funding sources such as the Funds’ interfund lending facility, redemptions in-kind and committed lines of credit and confirmation that the Fund did not have to access any of these 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 Administrator concluded that the LRMP 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.
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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, as well as a report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30, are 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 Report (Form N-PX) link associated with the Fund at www.FederatedInvestors.com/product-landing/managed-account-pools.do. Select a product name, then click “Documents” and click on “Proxy Voting Record Report.” Form N-PX filings are also available at the SEC’s website at www.sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly holds 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 at www.FederatedInvestors.com/product-landing/managed-account-pools.do. Select a product name, then click “Documents” and select “Form N-PORT.”
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 Private Offering Memorandum, which contains facts concerning its objective and policies, management fees, expenses and other information.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend to deliver a single copy of certain documents to each household in which more than one shareholder of the Fund(s) resides (so-called “householding”), as permitted by applicable rules. The Fund’s “householding” program covers its/their Prospectus and Statement of Additional Information, and supplements to each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or information statements. Shareholders must give their written consent to participate in the “householding” program. The Fund is also permitted to treat a shareholder as having given consent (“implied consent”) if (i) shareholders with the same last name, or believed to be members of the same family, reside at the same street address or receive mail at the same post office box, (ii) the Fund gives notice of its intent to “household” at least sixty (60) days before it begins “householding” and (iii) none of the shareholders in the household have notified the Fund(s) or their agent of the desire to “opt out” of “householding.” Shareholders who have granted written consent, or have been deemed to have granted implied consent, can revoke that consent and opt out of “householding” at any time: shareholders who purchased shares through an intermediary should contact their representative; other shareholders may call the Fund at 1-800-341-7400.
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Federated International Bond Strategy Portfolio
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 31421P308
40809 (7/20)
© 2020 Federated Hermes, Inc.
| Item 2. | Code of Ethics |
Not Applicable
| Item 3. | Audit Committee Financial Expert |
Not Applicable
| Item 4. | Principal Accountant Fees and Services |
Not Applicable
| 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.
(b) Certifications pursuant to 18 U.S.C. Section 1350.
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 Managed Pool Series
By /S/ Lori A. Hensler
Lori A. Hensler
Principal Financial Officer
Date July 27, 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 July 27, 2020
By /S/ Lori A. Hensler
Lori A. Hensler
Principal Financial Officer
Date July 27, 2020