United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-4577
(Investment Company Act File Number)
Federated Hermes Income Securities Trust
______________________________________________________________
(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: 04/30/21
Date of Reporting Period: Six months ended 10/31/20
| Item 1. | Reports to Stockholders |
Semi-Annual Shareholder Report
October 31, 2020
Federated Hermes Intermediate Corporate Bond Fund(formerly, Federated Intermediate Corporate Bond Fund)
Fund Established 1993
A Portfolio of Federated Hermes Income Securities Trust(formerly, Federated Income Securities Trust)
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
J. Christopher
Donahue
President
Federated Hermes Intermediate Corporate Bond Fund
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Semi-Annual Shareholder Report for your fund covering the period from May 1, 2020 through October 31, 2020.
As we all confront the unprecedented effects of the coronavirus and the challenges it presents to our families, communities, businesses and the financial markets, I want you to know that everyone at Federated Hermes is dedicated to helping you successfully navigate the markets ahead. You can count on us for the insights, investment management knowledge and client service that you have come to expect. Please refer to our website, FederatedInvestors.com, for timely updates on this and other economic and market matters.
Thank you for investing with us. I hope you find this information useful and look forward to keeping you informed.
Sincerely, 
J. Christopher Donahue, President
Portfolio of Investments Summary Table (unaudited)
At October 31, 2020, the Fund’s portfolio composition1 was as follows:
| Percentage of
Total Net Assets |
Corporate Debt Securities | |
| |
| |
Other Assets and Liabilities—Net5 | |
| |
| See the Fund’s Prospectus and Statement of Additional Information for a description of these security types. |
| Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund’s performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract’s significance to the portfolio. More complete information regarding the Fund’s direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report. |
| Represents less than 0.1%. |
| Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements. |
| Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
October 31, 2020 (unaudited)
| | | |
| | | |
| | Basic Industry - Chemicals— 0.5% | |
| | FMC Corp., Sr. Unsecd. Note, 3.950%, 2/1/2022 | |
| | Nutrition & Biosciences, Inc., Sr. Unsecd. Note, 144A, 1.230%, 10/1/2025 | |
| | RPM International, Inc., Sr. Unsecd. Note, 4.550%, 3/1/2029 | |
| | | |
| | Basic Industry - Metals & Mining— 0.8% | |
| | Carpenter Technology Corp., Sr. Unsecd. Note, 4.450%, 3/1/2023 | |
| | Reliance Steel & Aluminum Co., Sr. Unsecd. Note, 4.500%, 4/15/2023 | |
| | | |
| | Basic Industry - Paper— 0.2% | |
| | Weyerhaeuser Co., Sr. Unsecd. Note, 7.375%, 3/15/2032 | |
| | Capital Goods - Aerospace & Defense— 2.5% | |
| | Airbus Group SE, Sr. Unsecd. Note, 144A, 3.150%, 4/10/2027 | |
| | BAE Systems Holdings, Inc., Sr. Unsecd. Note, 144A, 3.850%, 12/15/2025 | |
| | BAE Systems PLC, Sr. Unsecd. Note, 144A, 3.400%, 4/15/2030 | |
| | Boeing Co., Sr. Unsecd. Note, 1.875%, 6/15/2023 | |
| | Boeing Co., Sr. Unsecd. Note, 2.700%, 2/1/2027 | |
| | Boeing Co., Sr. Unsecd. Note, 2.950%, 2/1/2030 | |
| | Embraer Netherlands BV, Sr. Unsecd. Note, 5.050%, 6/15/2025 | |
| | Huntington Ingalls Industries, Inc., Sr. Unsecd. Note, 3.483%, 12/1/2027 | |
| | Leidos, Inc., Sr. Unsecd. Note, 144A, 2.300%, 2/15/2031 | |
| | Leidos, Inc., Unsecd. Note, 144A, 3.625%, 5/15/2025 | |
| | Lockheed Martin Corp., Sr. Unsecd. Note, 3.100%, 1/15/2023 | |
| | Textron Financial Corp., Jr. Sub. Note, 144A, 2.015% (3-month USLIBOR +1.735%), 2/15/2042 | |
| | | |
| | Capital Goods - Building Materials— 1.3% | |
| | Allegion PLC, Sr. Unsecd. Note, 3.500%, 10/1/2029 | |
| | Allegion US Holdings Co., Inc., Sr. Unsecd. Note, 3.200%, 10/1/2024 | |
| | Masco Corp., Sr. Unsecd. Note, 2.000%, 10/1/2030 | |
| | Masco Corp., Sr. Unsecd. Note, 3.500%, 11/15/2027 | |
| | Masco Corp., Sr. Unsecd. Note, 5.950%, 3/15/2022 | |
| | | |
| | Capital Goods - Construction Machinery— 1.1% | |
| | CNH Industrial Capital America LLC, Sr. Unsecd. Note, 1.950%, 7/2/2023 | |
| | CNH Industrial Capital America LLC, Sr. Unsecd. Note, 4.375%, 4/5/2022 | |
| | CNH Industrial NV, Sr. Unsecd. Note, Series MTN, 3.850%, 11/15/2027 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Capital Goods - Construction Machinery— continued | |
| | Deere & Co., Sr. Unsecd. Note, 2.600%, 6/8/2022 | |
| | John Deere Capital Corp., Sr. Unsecd. Note, Series MTN, 3.450%, 3/7/2029 | |
| | | |
| | Capital Goods - Diversified Manufacturing— 3.2% | |
| | CK Hutchison Holdings Ltd., Sr. Unsecd. Note, 144A, 2.750%, 3/29/2023 | |
| | General Electric Co., Sr. Unsecd. Note, 4.350%, 5/1/2050 | |
| | Honeywell International, Inc., Sr. Unsecd. Note, 1.350%, 6/1/2025 | |
| | Honeywell International, Inc., Sr. Unsecd. Note, 1.950%, 6/1/2030 | |
| | Lennox International, Inc., Sr. Unsecd. Note, 1.700%, 8/1/2027 | |
| | Lennox International, Inc., Sr. Unsecd. Note, 3.000%, 11/15/2023 | |
| | Otis Worldwide Corp., Sr. Unsecd. Note, Series WI, 2.565%, 2/15/2030 | |
| | Roper Technologies, Inc., Sr. Unsecd. Note, 2.000%, 6/30/2030 | |
| | Roper Technologies, Inc., Sr. Unsecd. Note, 3.650%, 9/15/2023 | |
| | Roper Technologies, Inc., Sr. Unsecd. Note, 3.800%, 12/15/2026 | |
| | United Technologies Corp., Sr. Unsecd. Note, 4.125%, 11/16/2028 | |
| | Wabtec Corp., Sr. Unsecd. Note, 3.200%, 6/15/2025 | |
| | Xylem, Inc., Sr. Unsecd. Note, 1.950%, 1/30/2028 | |
| | Xylem, Inc., Sr. Unsecd. Note, 2.250%, 1/30/2031 | |
| | | |
| | Capital Goods - Packaging— 0.2% | |
| | WestRock Co., Sr. Unsecd. Note, Series WI, 3.750%, 3/15/2025 | |
| | Communications - Cable & Satellite— 1.5% | |
| | CCO Safari II LLC, 4.908%, 7/23/2025 | |
| | Charter Communications Operating, LLC/Charter Communications Operating Capital Corp., Sec. Fac. Bond, 2.800%, 4/1/2031 | |
| | Comcast Corp., Sr. Unsecd. Note, 2.350%, 1/15/2027 | |
| | Comcast Corp., Sr. Unsecd. Note, 4.150%, 10/15/2028 | |
| | | |
| | Communications - Media & Entertainment— 2.0% | |
| | British Sky Broadcasting Group PLC, 144A, 3.750%, 9/16/2024 | |
| | Discovery Communications LLC, Sr. Unsecd. Note, 3.625%, 5/15/2030 | |
| | Fox Corp., Sr. Unsecd. Note, 3.500%, 4/8/2030 | |
| | Fox Corp., Sr. Unsecd. Note, Series WI, 4.709%, 1/25/2029 | |
| | Omnicom Group, Inc., Sr. Unsecd. Note, 4.200%, 6/1/2030 | |
| | ViacomCBS Inc., Sr. Unsecd. Note, 3.700%, 8/15/2024 | |
| | ViacomCBS, Inc., Sr. Unsecd. Note, 4.950%, 1/15/2031 | |
| | Walt Disney Co., Sr. Unsecd. Note, 4.000%, 10/1/2023 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Communications - Telecom Wireless— 2.1% | |
| | American Tower Corp., Sr. Unsecd. Note, 2.100%, 6/15/2030 | |
| | American Tower Corp., Sr. Unsecd. Note, 2.400%, 3/15/2025 | |
| | Crown Castle International Corp., Sr. Unsecd. Note, 2.250%, 1/15/2031 | |
| | Crown Castle International Corp., Sr. Unsecd. Note, 3.300%, 7/1/2030 | |
| | Crown Castle International Corp., Sr. Unsecd. Note, 4.450%, 2/15/2026 | |
| | T-Mobile USA, Inc., Sec. Fac. Bond, 144A, 1.500%, 2/15/2026 | |
| | T-Mobile USA, Inc., Sec. Fac. Bond, 144A, 3.875%, 4/15/2030 | |
| | T-Mobile USA, Inc., Term Loan - 1st Lien, 144A, 3.750%, 4/15/2027 | |
| | Vodafone Group PLC, Sr. Unsecd. Note, 4.375%, 5/30/2028 | |
| | | |
| | Communications - Telecom Wirelines— 1.3% | |
| | AT&T, Inc., Sr. Unsecd. Note, 2.300%, 6/1/2027 | |
| | AT&T, Inc., Sr. Unsecd. Note, 2.750%, 6/1/2031 | |
| | AT&T, Inc., Sr. Unsecd. Note, 4.250%, 3/1/2027 | |
| | AT&T, Inc., Sr. Unsecd. Note, 5.150%, 3/15/2042 | |
| | Telefonica SA, Company Guarantee, 7.045%, 6/20/2036 | |
| | Verizon Communications, Inc., Sr. Unsecd. Note, 3.150%, 3/22/2030 | |
| | Verizon Communications, Inc., Sr. Unsecd. Note, 3.500%, 11/1/2024 | |
| | | |
| | Consumer Cyclical - Automotive— 3.2% | |
| | Daimler Finance NA LLC, Sr. Unsecd. Note, 144A, 3.250%, 8/1/2024 | |
| | Fiat Chrysler Automobiles NV, Sr. Unsecd. Note, 5.250%, 4/15/2023 | |
| | Ford Motor Co., Sr. Unsecd. Note, 4.346%, 12/8/2026 | |
| | General Motors Co., Sr. Unsecd. Note, 4.000%, 4/1/2025 | |
| | General Motors Co., Sr. Unsecd. Note, 6.125%, 10/1/2025 | |
| | General Motors Financial Co., Inc., Sr. Unsecd. Note, 4.000%, 1/15/2025 | |
| | Hyundai Capital America, Sr. Unsecd. Note, 144A, 2.375%, 2/10/2023 | |
| | Nissan Motor Acceptance Corp., Sr. Unsecd. Note, 144A, 2.650%, 7/13/2022 | |
| | Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN, 0.800%, 10/16/2025 | |
| | Volkswagen Group of America Finance LLC, Sr. Unsecd. Note, 144A, 4.000%, 11/12/2021 | |
| | Volkswagen Group of America Finance LLC, Sr. Unsecd. Note, 144A, 4.250%, 11/13/2023 | |
| | | |
| | Consumer Cyclical - Retailers— 4.4% | |
| | Advance Auto Parts, Inc., Sr. Unsecd. Note, Series WI, 3.900%, 4/15/2030 | |
| | Alimentation Couche-Tard, Inc., 144A, 2.950%, 1/25/2030 | |
| | AutoNation, Inc., Sr. Unsecd. Note, 4.750%, 6/1/2030 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Consumer Cyclical - Retailers— continued | |
| | Costco Wholesale Corp., Sr. Unsecd. Note, 1.375%, 6/20/2027 | |
| | CVS Health Corp., Pass Thru Cert., 144A, 5.298%, 1/11/2027 | |
| | CVS Health Corp., Sr. Unsecd. Note, 2.625%, 8/15/2024 | |
| | CVS Health Corp., Sr. Unsecd. Note, 4.300%, 3/25/2028 | |
| | Dollar General Corp., Sr. Unsecd. Note, 4.150%, 11/1/2025 | |
| | Dollar Tree, Inc., Sr. Unsecd. Note, 3.700%, 5/15/2023 | |
| | Home Depot, Inc., Sr. Unsecd. Note, 2.125%, 9/15/2026 | |
| | O’Reilly Automotive, Inc., Sr. Unsecd. Note, 1.750%, 3/15/2031 | |
| | O’Reilly Automotive, Inc., Sr. Unsecd. Note, 4.200%, 4/1/2030 | |
| | Tractor Supply Co., Sr. Unsecd. Note, 1.750%, 11/1/2030 | |
| | WalMart, Inc., Sr. Unsecd. Note, 3.550%, 6/26/2025 | |
| | | |
| | Consumer Cyclical - Services— 1.8% | |
| | Amazon.com, Inc., Sr. Unsecd. Note, 3.150%, 8/22/2027 | |
| | Booking Holdings, Inc., Sr. Unsecd. Note, 4.625%, 4/13/2030 | |
| | Cintas Corp. No. 2, Sr. Unsecd. Note, 3.700%, 4/1/2027 | |
| | Expedia Group, Inc., Sr. Unsecd. Note, 144A, 6.250%, 5/1/2025 | |
| | Expedia, Inc., 4.500%, 8/15/2024 | |
| | IHS Markit Ltd., Sr. Unsecd. Note, 4.125%, 8/1/2023 | |
| | IHS Markit Ltd., Sr. Unsecd. Note, Series 5YR, 3.625%, 5/1/2024 | |
| | Visa, Inc., Sr. Unsecd. Note, 3.150%, 12/14/2025 | |
| | | |
| | Consumer Non-Cyclical - Food/Beverage— 6.2% | |
| | Anheuser-Busch InBev Worldwide, Inc., Sr. Unsecd. Note, 4.750%, 1/23/2029 | |
| | Coca-Cola Femsa S.A.B. de C.V., Sr. Unsecd. Note, 2.750%, 1/22/2030 | |
| | Conagra Brands, Inc., Sr. Unsecd. Note, 1.375%, 11/1/2027 | |
| | Constellation Brands, Inc., Sr. Unsecd. Note, 4.650%, 11/15/2028 | |
| | Flowers Foods, Inc., Sr. Unsecd. Note, 3.500%, 10/1/2026 | |
| | Grupo Bimbo S.A.B. de CV, Sr. Unsecd. Note, 144A, 3.875%, 6/27/2024 | |
| | Grupo Bimbo S.A.B. de CV, Sr. Unsecd. Note, 144A, 4.500%, 1/25/2022 | |
| | Kerry Group Financial Services, Sr. Unsecd. Note, 144A, 3.200%, 4/9/2023 | |
| | Keurig Dr Pepper, Inc., Sr. Unsecd. Note, 3.200%, 5/1/2030 | |
| | Keurig Dr Pepper, Inc., Sr. Unsecd. Note, 4.057%, 5/25/2023 | |
| | Keurig Dr Pepper, Inc., Sr. Unsecd. Note, 4.417%, 5/25/2025 | |
| | McCormick & Co., Inc., Sr. Unsecd. Note, 3.150%, 8/15/2024 | |
| | Smithfield Foods, Inc., Sr. Unsecd. Note, 144A, 2.650%, 10/3/2021 | |
| | Smithfield Foods, Inc., Sr. Unsecd. Note, 144A, 3.000%, 10/15/2030 | |
| | Smithfield Foods, Inc., Sr. Unsecd. Note, 144A, 3.350%, 2/1/2022 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Consumer Non-Cyclical - Food/Beverage— continued | |
| | Smithfield Foods, Inc., Sr. Unsecd. Note, 144A, 4.250%, 2/1/2027 | |
| | Smucker (J.M.) Co., Sr. Unsecd. Note, 2.375%, 3/15/2030 | |
| | Tyson Foods, Inc., 3.950%, 8/15/2024 | |
| | Tyson Foods, Inc., Sr. Unsecd. Note, 3.900%, 9/28/2023 | |
| | | |
| | Consumer Non-Cyclical - Health Care— 2.3% | |
| | Agilent Technologies, Inc., Sr. Unsecd. Note, 2.100%, 6/4/2030 | |
| | Agilent Technologies, Inc., Sr. Unsecd. Note, 2.750%, 9/15/2029 | |
| | Agilent Technologies, Inc., Sr. Unsecd. Note, 3.875%, 7/15/2023 | |
| | Alcon Finance Corp., Sr. Unsecd. Note, 144A, 2.600%, 5/27/2030 | |
| | Alcon Finance Corp., Sr. Unsecd. Note, 144A, 3.000%, 9/23/2029 | |
| | Becton Dickinson & Co., Sr. Unsecd. Note, 3.700%, 6/6/2027 | |
| | Becton Dickinson & Co., Sr. Unsecd. Note, 3.734%, 12/15/2024 | |
| | Becton Dickinson & Co., Sr. Unsecd. Note, 4.685%, 12/15/2044 | |
| | Dentsply Sirona, Inc., Sr. Unsecd. Note, 3.250%, 6/1/2030 | |
| | DH Europe Finance II S.a.r.l., Sr. Unsecd. Note, 2.600%, 11/15/2029 | |
| | DH Europe Finance II S.a.r.l., Sr. Unsecd. Note, Series 5YR, 2.200%, 11/15/2024 | |
| | PerkinElmer, Inc., Sr. Unsecd. Note, 3.300%, 9/15/2029 | |
| | | |
| | Consumer Non-Cyclical - Pharmaceuticals— 5.1% | |
| | Abbott Laboratories, Sr. Unsecd. Note, 3.400%, 11/30/2023 | |
| | Abbott Laboratories, Sr. Unsecd. Note, 3.750%, 11/30/2026 | |
| | AbbVie, Inc., Sr. Unsecd. Note, 144A, 2.950%, 11/21/2026 | |
| | AbbVie, Inc., Sr. Unsecd. Note, 144A, 3.200%, 11/21/2029 | |
| | AbbVie, Inc., Sr. Unsecd. Note, 144A, 4.750%, 3/15/2045 | |
| | AstraZeneca PLC, 0.700%, 4/8/2026 | |
| | AstraZeneca PLC, Sr. Unsecd. Note, 3.125%, 6/12/2027 | |
| | Bayer US Finance II LLC, Sr. Unsecd. Note, 144A, 3.875%, 12/15/2023 | |
| | Bayer US Finance II LLC, Sr. Unsecd. Note, 144A, 4.250%, 12/15/2025 | |
| | Biogen, Inc., Sr. Unsecd. Note, 2.250%, 5/1/2030 | |
| | Biogen, Inc., Sr. Unsecd. Note, 4.050%, 9/15/2025 | |
| | Bio-Rad Laboratories, Inc., Sr. Unsecd. Note, 4.875%, 12/15/2020 | |
| | Bristol-Myers Squibb Co., Sr. Unsecd. Note, Series WI, 3.400%, 7/26/2029 | |
| | Bristol-Myers Squibb Co., Sr. Unsecd. Note, Series WI, 3.875%, 8/15/2025 | |
| | Bristol-Myers Squibb Co., Sr. Unsecd. Note, Series WI, 5.000%, 8/15/2045 | |
| | Eli Lilly & Co., Sr. Unsecd. Note, 3.375%, 3/15/2029 | |
| | Merck & Co., Inc., Sr. Unsecd. Note, 3.400%, 3/7/2029 | |
| | Regeneron Pharmaceuticals, Inc., Sr. Unsecd. Note, 1.750%, 9/15/2030 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Consumer Non-Cyclical - Pharmaceuticals— continued | |
| | Royalty Pharma PLC, 144A, 1.200%, 9/2/2025 | |
| | Teva Pharmaceutical Finance Netherlands III BV, Sr. Unsecd. Note, 2.200%, 7/21/2021 | |
| | Teva Pharmaceutical Finance Netherlands III BV, Sr. Unsecd. Note, 3.150%, 10/1/2026 | |
| | | |
| | Consumer Non-Cyclical - Products— 0.5% | |
| | Reckitt Benckiser Treasury Services PLC, Sr. Unsecd. Note, 144A, 2.375%, 6/24/2022 | |
| | Consumer Non-Cyclical - Supermarkets— 0.3% | |
| | Kroger Co., Sr. Unsecd. Note, 2.650%, 10/15/2026 | |
| | Consumer Non-Cyclical - Tobacco— 1.0% | |
| | Altria Group, Inc., Sr. Unsecd. Note, 4.400%, 2/14/2026 | |
| | Bat Capital Corp., Sr. Unsecd. Note, 3.215%, 9/6/2026 | |
| | BAT International Finance PLC, Sr. Unsecd. Note, 144A, 3.950%, 6/15/2025 | |
| | Reynolds American, Inc., Sr. Unsecd. Note, 7.000%, 8/4/2041 | |
| | | |
| | Energy - Independent— 1.4% | |
| | Canadian Natural Resources Ltd., Sr. Unsecd. Note, 2.050%, 7/15/2025 | |
| | Canadian Natural Resources Ltd., Sr. Unsecd. Note, 3.800%, 4/15/2024 | |
| | Cimarex Energy Co., Sr. Unsecd. Note, 3.900%, 5/15/2027 | |
| | Marathon Oil Corp., Sr. Unsecd. Note, 3.850%, 6/1/2025 | |
| | Occidental Petroleum Corp., Sr. Unsecd. Note, 2.900%, 8/15/2024 | |
| | Occidental Petroleum Corp., Sr. Unsecd. Note, 3.450%, 7/15/2024 | |
| | | |
| | Energy - Integrated— 1.8% | |
| | BP Capital Markets PLC, Sr. Unsecd. Note, 3.535%, 11/4/2024 | |
| | Chevron Corp., Sr. Unsecd. Note, 1.141%, 5/11/2023 | |
| | Chevron Corp., Sr. Unsecd. Note, 1.554%, 5/11/2025 | |
| | Husky Energy, Inc., Sr. Unsecd. Note, 3.950%, 4/15/2022 | |
| | Husky Energy, Inc., Sr. Unsecd. Note, 4.400%, 4/15/2029 | |
| | Shell International Finance B.V., Sr. Unsecd. Note, 2.375%, 4/6/2025 | |
| | Shell International Finance B.V., Sr. Unsecd. Note, 2.875%, 5/10/2026 | |
| | | |
| | | |
| | Boardwalk Pipeline Partners LP, Sr. Unsecd. Note, 3.400%, 2/15/2031 | |
| | Boardwalk Pipeline Partners LP, Sr. Unsecd. Note, 4.800%, 5/3/2029 | |
| | Energy Transfer Partners LP, Sr. Unsecd. Note, 4.900%, 2/1/2024 | |
| | Energy Transfer Partners LP, Sr. Unsecd. Note, Series 5Y, 4.200%, 9/15/2023 | |
| | Kinder Morgan Energy Partners LP, 4.250%, 9/1/2024 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Energy - Midstream— continued | |
| | MPLX LP, Sr. Unsecd. Note, 1.750%, 3/1/2026 | |
| | MPLX LP, Sr. Unsecd. Note, 3.375%, 3/15/2023 | |
| | MPLX LP, Sr. Unsecd. Note, 4.125%, 3/1/2027 | |
| | MPLX LP, Sr. Unsecd. Note, Series WI, 3.500%, 12/1/2022 | |
| | ONEOK, Inc., Sr. Unsecd. Note, 4.000%, 7/13/2027 | |
| | TC Pipelines, LP, Sr. Unsecd. Note, 3.900%, 5/25/2027 | |
| | Texas Eastern Transmission LP, Sr. Unsecd. Note, 144A, 2.800%, 10/15/2022 | |
| | Williams Partners LP, Sr. Unsecd. Note, 3.900%, 1/15/2025 | |
| | | |
| | | |
| | Valero Energy Corp., Sr. Unsecd. Note, 2.150%, 9/15/2027 | |
| | Financial Institution - Banking— 19.6% | |
| | American Express Co., Sr. Unsecd. Note, 2.500%, 7/30/2024 | |
| | Associated Banc-Corp., Sub. Note, 4.250%, 1/15/2025 | |
| | Bank of America Corp., Sr. Unsecd. Note, 2.592%, 4/29/2031 | |
| | Bank of America Corp., Sr. Unsecd. Note, 3.004%, 12/20/2023 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 0.981%, 9/25/2025 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 1.197%, 10/24/2026 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 1.319%, 6/19/2026 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 2.456%, 10/22/2025 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 3.248%, 10/21/2027 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 3.458%, 3/15/2025 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 3.824%, 1/20/2028 | |
| | Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 2.100%, 10/24/2024 | |
| | Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 3.250%, 9/11/2024 | |
| | Capital One NA, Sr. Unsecd. Note, 2.150%, 9/6/2022 | |
| | Citigroup, Inc., 4.125%, 7/25/2028 | |
| | Citigroup, Inc., Sr. Unsecd. Note, 2.572%, 6/3/2031 | |
| | Citigroup, Inc., Sr. Unsecd. Note, 2.876%, 7/24/2023 | |
| | Citigroup, Inc., Sr. Unsecd. Note, 3.142%, 1/24/2023 | |
| | Citigroup, Inc., Sr. Unsecd. Note, 3.200%, 10/21/2026 | |
| | Citizens Bank N.A., Sr. Unsecd. Note, Series BKNT, 3.750%, 2/18/2026 | |
| | Citizens Financial Group, Inc., Sr. Unsecd. Note, 2.500%, 2/6/2030 | |
| | Citizens Financial Group, Inc., Sub. Note, 144A, 4.150%, 9/28/2022 | |
| | Comerica, Inc., 3.800%, 7/22/2026 | |
| | Compass Bank, Birmingham, Sub. Note, Series BKNT, 3.875%, 4/10/2025 | |
| | Fifth Third Bancorp, Sr. Unsecd. Note, 2.375%, 1/28/2025 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Financial Institution - Banking— continued | |
| | Fifth Third Bancorp, Sr. Unsecd. Note, 2.600%, 6/15/2022 | |
| | Fifth Third Bank, Sr. Unsecd. Note, Series BKNT, 2.250%, 2/1/2027 | |
| | FNB Corp. (PA), Sr. Unsecd. Note, 2.200%, 2/24/2023 | |
| | Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.500%, 11/16/2026 | |
| | Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.691%, 6/5/2028 | |
| | Goldman Sachs Group, Inc., Sr. Unsecd. Note, 3.750%, 2/25/2026 | |
| | Goldman Sachs Group, Inc., Sub. Note, 4.250%, 10/21/2025 | |
| | Huntington Bancshares, Inc., Sr. Unsecd. Note, 2.550%, 2/4/2030 | |
| | JPMorgan Chase & Co., 3.250%, 9/23/2022 | |
| | JPMorgan Chase & Co., Sr. Unsecd. Note, 1.514%, 6/1/2024 | |
| | JPMorgan Chase & Co., Sr. Unsecd. Note, 2.083%, 4/22/2026 | |
| | JPMorgan Chase & Co., Sr. Unsecd. Note, 3.207%, 4/1/2023 | |
| | JPMorgan Chase & Co., Sr. Unsecd. Note, 3.220%, 3/1/2025 | |
| | JPMorgan Chase & Co., Sr. Unsecd. Note, 3.782%, 2/1/2028 | |
| | JPMorgan Chase & Co., Sub. Note, 3.375%, 5/1/2023 | |
| | Manufacturers & Traders Trust Co., Sub. Note, Series BKNT, 0.886% (3-month USLIBOR +0.640%), 12/1/2021 | |
| | Morgan Stanley, Sr. Unsecd. Note, 2.188%, 4/28/2026 | |
| | Morgan Stanley, Sr. Unsecd. Note, 3.625%, 1/20/2027 | |
| | Morgan Stanley, Sr. Unsecd. Note, Series GMTN, 3.700%, 10/23/2024 | |
| | Morgan Stanley, Sub. Note, 5.000%, 11/24/2025 | |
| | MUFG Americas Holdings Corp., Sr. Unsecd. Note, 3.000%, 2/10/2025 | |
| | MUFG Americas Holdings Corp., Sr. Unsecd. Note, 3.500%, 6/18/2022 | |
| | MUFG Union Bank, N.A., Sr. Unsecd. Note, Series BKNT, 2.100%, 12/9/2022 | |
| | PNC Bank, N.A., Sub. Note, Series BKNT, 2.700%, 11/1/2022 | |
| | Regional Diversified Funding, 144A, 9.250%, 3/15/2030 | |
| | Regions Financial Corp., Sr. Unsecd. Note, 2.250%, 5/18/2025 | |
| | Synovus Bank GA, Sr. Unsecd. Note, 2.289%, 2/10/2023 | |
| | Truist Bank, Sr. Unsecd. Note, Series BKNT, 2.800%, 5/17/2022 | |
| | Truist Bank, Sub. Note, Series BKNT, 3.300%, 5/15/2026 | |
| | Truist Financial Corp., Sr. Unsecd. Note, Series MTN, 2.750%, 4/1/2022 | |
| | U.S. Bank, N.A., Sr. Unsecd. Note, Series BKNT, 3.450%, 11/16/2021 | |
| | Wells Fargo & Co., Sr. Unsecd. Note, 2.188%, 4/30/2026 | |
| | Wells Fargo & Co., Sr. Unsecd. Note, 3.069%, 1/24/2023 | |
| | Wells Fargo & Co., Sr. Unsecd. Note, Series MTN, 2.393%, 6/2/2028 | |
| | Wells Fargo & Co., Sr. Unsecd. Note, Series MTN, 2.406%, 10/30/2025 | |
| | Wells Fargo & Co., Sr. Unsecd. Note, Series MTN, 2.572%, 2/11/2031 | |
| | Wells Fargo & Co., Sr. Unsecd. Note, Series MTN, 3.584%, 5/22/2028 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Financial Institution - Broker/Asset Mgr/Exchange— 2.6% | |
| | Eaton Vance Corp., Sr. Unsecd. Note, 3.625%, 6/15/2023 | |
| | FMR LLC, Bond, 144A, 7.570%, 6/15/2029 | |
| | Invesco Finance PLC, Sr. Unsecd. Note, 3.750%, 1/15/2026 | |
| | Jefferies Group LLC, Sr. Unsecd. Note, 6.500%, 1/20/2043 | |
| | Nuveen LLC, Sr. Unsecd. Note, 144A, 4.000%, 11/1/2028 | |
| | Raymond James Financial, Inc., Sr. Unsecd. Note, 4.650%, 4/1/2030 | |
| | Stifel Financial Corp., 4.250%, 7/18/2024 | |
| | Stifel Financial Corp., Sr. Unsecd. Note, 3.500%, 12/1/2020 | |
| | TD Ameritrade Holding Corp., Sr. Unsecd. Note, 3.300%, 4/1/2027 | |
| | | |
| | Financial Institution - Finance Companies— 0.9% | |
| | Discover Financial Services, Sr. Unsecd. Note, 3.850%, 11/21/2022 | |
| | GE Capital Funding LLC, Sr. Unsecd. Note, 144A, 4.400%, 5/15/2030 | |
| | GE Capital International Funding Co., Sr. Unsecd. Note, 3.373%, 11/15/2025 | |
| | | |
| | Financial Institution - Insurance - Health— 0.7% | |
| | CIGNA Corp., Sr. Unsecd. Note, 3.750%, 7/15/2023 | |
| | CIGNA Corp., Sr. Unsecd. Note, 4.375%, 10/15/2028 | |
| | UnitedHealth Group, Inc., Sr. Unsecd. Note, 3.750%, 7/15/2025 | |
| | | |
| | Financial Institution - Insurance - Life— 1.5% | |
| | AIA Group Ltd., Sr. Unsecd. Note, 144A, 3.600%, 4/9/2029 | |
| | AIG Global Funding, Sec. Fac. Bond, 144A, 2.300%, 7/1/2022 | |
| | American International Group, Inc., Sr. Unsecd. Note, 4.125%, 2/15/2024 | |
| | Lincoln National Corp., Sr. Unsecd. Note, 4.200%, 3/15/2022 | |
| | Massachusetts Mutual Life Insurance Co., Sub. Note, 144A, 8.875%, 6/1/2039 | |
| | MetLife, Inc., Jr. Sub. Note, 10.750%, 8/1/2039 | |
| | Penn Mutual Life Insurance Co., Sr. Note, 144A, 7.625%, 6/15/2040 | |
| | Principal Financial Group, Inc., Sr. Unsecd. Note, 3.125%, 5/15/2023 | |
| | | |
| | Financial Institution - Insurance - P&C— 1.3% | |
| | Chubb INA Holdings, Inc., Sr. Unsecd. Note, 2.700%, 3/13/2023 | |
| | Chubb INA Holdings, Inc., Sr. Unsecd. Note, 3.350%, 5/15/2024 | |
| | CNA Financial Corp., Sr. Unsecd. Note, 3.450%, 8/15/2027 | |
| | Liberty Mutual Group, Inc., 144A, 4.950%, 5/1/2022 | |
| | Liberty Mutual Group, Inc., Sr. Unsecd. Note, 144A, 4.250%, 6/15/2023 | |
| | Nationwide Mutual Insurance Co., Sub. Note, 144A, 9.375%, 8/15/2039 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Financial Institution - REIT - Apartment— 0.7% | |
| | Avalonbay Communities, Inc., Sr. Unsecd. Note, Series MTN, 3.350%, 5/15/2027 | |
| | Camden Property Trust, Sr. Unsecd. Note, 2.800%, 5/15/2030 | |
| | Mid-America Apartment Communities LP, Sr. Unsecd. Note, 3.750%, 6/15/2024 | |
| | Mid-America Apartment Communities LP, Sr. Unsub. Note, 1.700%, 2/15/2031 | |
| | | |
| | Financial Institution - REIT - Healthcare— 1.5% | |
| | Health Care REIT, Inc., Sr. Unsecd. Note, 4.000%, 6/1/2025 | |
| | Healthcare Trust of America, Sr. Unsecd. Note, 2.000%, 3/15/2031 | |
| | Physicians Realty Trust, Sr. Unsecd. Note, 4.300%, 3/15/2027 | |
| | Welltower, Inc., Sr. Unsecd. Note, 2.700%, 2/15/2027 | |
| | Welltower, Inc., Sr. Unsecd. Note, 2.750%, 1/15/2031 | |
| | Welltower, Inc., Sr. Unsecd. Note, 3.100%, 1/15/2030 | |
| | | |
| | Financial Institution - REIT - Office— 1.1% | |
| | Alexandria Real Estate Equities, Inc., Sr. Unsecd. Note, 1.875%, 2/1/2033 | |
| | Alexandria Real Estate Equities, Inc., Sr. Unsecd. Note, 3.950%, 1/15/2028 | |
| | Boston Properties LP, Sr. Unsecd. Note, 3.125%, 9/1/2023 | |
| | Boston Properties LP, Sr. Unsecd. Note, 3.250%, 1/30/2031 | |
| | Boston Properties LP, Sr. Unsecd. Note, 4.125%, 5/15/2021 | |
| | | |
| | Financial Institution - REIT - Other— 0.5% | |
| | ProLogis LP, Sr. Unsecd. Note, 4.375%, 2/1/2029 | |
| | WP Carey, Inc., Sr. Unsecd. Note, 2.400%, 2/1/2031 | |
| | WP Carey, Inc., Sr. Unsecd. Note, 4.600%, 4/1/2024 | |
| | | |
| | Financial Institution - REIT - Retail— 0.7% | |
| | Kimco Realty Corp., Sr. Unsecd. Note, 1.900%, 3/1/2028 | |
| | Kimco Realty Corp., Sr. Unsecd. Note, 2.700%, 10/1/2030 | |
| | Kimco Realty Corp., Sr. Unsecd. Note, 2.700%, 3/1/2024 | |
| | Kimco Realty Corp., Sr. Unsecd. Note, 3.400%, 11/1/2022 | |
| | Regency Centers LP, Sr. Unsecd. Note, 3.750%, 6/15/2024 | |
| | | |
| | | |
| | Inter-American Development Bank, Series MTN, 6.750%, 7/15/2027 | |
| | | |
| | Corp Andina De Fomento, Sr. Unsecd. Note, 4.375%, 6/15/2022 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | | |
| | Adobe, Inc., Sr. Unsecd. Note, 3.250%, 2/1/2025 | |
| | Apple, Inc., Sr. Unsecd. Note, 0.550%, 8/20/2025 | |
| | Apple, Inc., Sr. Unsecd. Note, 1.125%, 5/11/2025 | |
| | Apple, Inc., Sr. Unsecd. Note, 1.800%, 9/11/2024 | |
| | Automatic Data Processing, Inc., 3.375%, 9/15/2025 | |
| | Broadcom Corp., Sr. Unsecd. Note, Series WI, 3.625%, 1/15/2024 | |
| | Broadcom Corp., Sr. Unsecd. Note, Series WI, 3.875%, 1/15/2027 | |
| | Broadcom, Inc., Sr. Unsecd. Note, 4.110%, 9/15/2028 | |
| | Broadcom, Inc., Sr. Unsecd. Note, 4.700%, 4/15/2025 | |
| | Dell International LLC / EMC Corp., Sec. Fac. Bond, 144A, 5.850%, 7/15/2025 | |
| | Dell International LLC / EMC Corp., Term Loan - 1st Lien, 144A, 6.200%, 7/15/2030 | |
| | Diamond 1 Finance Corp./Diamond 2 Finance Corp., Sr. Secd. Note, 144A, 6.020%, 6/15/2026 | |
| | Equifax, Inc., Sr. Unsecd. Note, 2.600%, 12/1/2024 | |
| | Equifax, Inc., Sr. Unsecd. Note, Series 5Y, 3.950%, 6/15/2023 | |
| | Fidelity National Information Services, Inc., Sr. Unsecd. Note, 5.000%, 10/15/2025 | |
| | Fiserv, Inc., Sr. Unsecd. Note, 2.650%, 6/1/2030 | |
| | Fiserv, Inc., Sr. Unsecd. Note, 2.750%, 7/1/2024 | |
| | Fiserv, Inc., Sr. Unsecd. Note, 4.200%, 10/1/2028 | |
| | Ingram Micro, Inc., Sr. Unsecd. Note, 5.000%, 8/10/2022 | |
| | Intel Corp., Sr. Unsecd. Note, 3.700%, 7/29/2025 | |
| | Keysight Technologies, Inc., 4.550%, 10/30/2024 | |
| | Keysight Technologies, Inc., Sr. Unsecd. Note, 3.000%, 10/30/2029 | |
| | Lam Research Corp., Sr. Unsecd. Note, 4.000%, 3/15/2029 | |
| | Micron Technology, Inc., Sr. Unsecd. Note, 2.497%, 4/24/2023 | |
| | Micron Technology, Inc., Sr. Unsecd. Note, 4.640%, 2/6/2024 | |
| | Microsoft Corp., Sr. Unsecd. Note, 2.400%, 8/8/2026 | |
| | Molex Electronics Technologies LLC, Unsecd. Note, 144A, 3.900%, 4/15/2025 | |
| | Oracle Corp., Sr. Unsecd. Note, 1.900%, 9/15/2021 | |
| | Oracle Corp., Sr. Unsecd. Note, 2.400%, 9/15/2023 | |
| | Qualcomm, Inc., Sr. Unsecd. Note, 2.600%, 1/30/2023 | |
| | Total System Services, Inc., Sr. Unsecd. Note, 4.800%, 4/1/2026 | |
| | Verisk Analytics, Inc., Sr. Unsecd. Note, 4.125%, 3/15/2029 | |
| | Verisk Analytics, Inc., Sr. Unsecd. Note, 4.125%, 9/12/2022 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Technology Services— 0.1% | |
| | Global Payments, Inc., Sr. Unsecd. Note, 2.900%, 5/15/2030 | |
| | Transportation - Airlines— 0.3% | |
| | Southwest Airlines Co., Sr. Unsecd. Note, 4.750%, 5/4/2023 | |
| | Southwest Airlines Co., Sr. Unsecd. Note, 5.250%, 5/4/2025 | |
| | | |
| | Transportation - Railroads— 0.5% | |
| | Burlington Northern Santa Fe Corp., Pass Thru Cert., Series 99-2, 7.570%, 1/2/2021 | |
| | Kansas City Southern Industries, Inc., Sr. Unsecd. Note, 3.000%, 5/15/2023 | |
| | Union Pacific Corp., Sr. Unsecd. Note, 2.150%, 2/5/2027 | |
| | | |
| | Transportation - Services— 1.7% | |
| | FedEx Corp., Sr. Unsecd. Note, 3.100%, 8/5/2029 | |
| | Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, 144A, 1.200%, 11/15/2025 | |
| | Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, 144A, 4.450%, 1/29/2026 | |
| | Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 2.875%, 6/1/2022 | |
| | Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 3.400%, 3/1/2023 | |
| | | |
| | | |
| | AEP Texas, Inc., Sr. Unsecd. Note, 3.850%, 10/1/2025 | |
| | American Electric Power Co., Inc., Sr. Unsecd. Note, 2.300%, 3/1/2030 | |
| | Cleveland Electric Illuminating Co., Sr. Unsecd. Note, 5.950%, 12/15/2036 | |
| | Dominion Energy, Inc., Jr. Sub. Note, 3.071%, 8/15/2024 | |
| | EDP Finance BV, Sr. Unsecd. Note, 144A, 1.710%, 1/24/2028 | |
| | EDP Finance BV, Sr. Unsecd. Note, 144A, 3.625%, 7/15/2024 | |
| | Enel Finance International NV, Sr. Unsecd. Note, 144A, 2.650%, 9/10/2024 | |
| | Enel Finance International NV, Sr. Unsecd. Note, 144A, 2.875%, 5/25/2022 | |
| | Exelon Corp., Sr. Unsecd. Note, 4.050%, 4/15/2030 | |
| | Exelon Generation Co. LLC, Sr. Unsecd. Note, 3.250%, 6/1/2025 | |
| | Fortis, Inc. / Canada, Sr. Unsecd. Note, 3.055%, 10/4/2026 | |
| | Great Plains Energy, Inc., Note, 4.850%, 6/1/2021 | |
| | National Rural Utilities Cooperative Finance Corp., Sec. Fac. Bond, 2.400%, 4/25/2022 | |
| | PPL Capital Funding, Inc., Sr. Unsecd. Note, 3.950%, 3/15/2024 | |
| | Public Service Enterprises Group, Inc., Sr. Unsecd. Note, 2.000%, 11/15/2021 | |
| | Public Service Enterprises Group, Inc., Sr. Unsecd. Note, 2.875%, 6/15/2024 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Utility - Electric— continued | |
| | Southern Co., Sr. Unsecd. Note, 3.250%, 7/1/2026 | |
| | | |
| | Utility - Natural Gas— 1.2% | |
| | Dominion Energy Gas Holdings LLC, Sr. Unsecd. Note, Series A, 2.500%, 11/15/2024 | |
| | National Fuel Gas Co., Sr. Unsecd. Note, 3.750%, 3/1/2023 | |
| | National Fuel Gas Co., Sr. Unsecd. Note, 4.900%, 12/1/2021 | |
| | National Fuel Gas Co., Sr. Unsecd. Note, 5.500%, 1/15/2026 | |
| | Sempra Energy, Sr. Unsecd. Note, 2.900%, 2/1/2023 | |
| | Southeast Supply Header LLC, Sr. Unsecd. Note, 144A, 4.250%, 6/15/2024 | |
| | | |
| | Utility - Natural Gas Distributor— 0.4% | |
| | Southern Co. Gas Capital, Sr. Unsecd. Note, 2.450%, 10/1/2023 | |
| | TOTAL CORPORATE BONDS
(IDENTIFIED COST $150,110,638) | |
| | | |
| | Federated Hermes Institutional Prime Value Obligations Fund, Institutional Shares, 0.10%3
(IDENTIFIED COST $3,817,865) | |
| | TOTAL INVESTMENT IN SECURITIES—99.2%
(IDENTIFIED COST $153,928,503)4 | |
| | OTHER ASSETS AND LIABILITIES - NET—0.8%5 | |
| | | |
Semi-Annual Shareholder Report
At October 31, 2020, the Fund had the following outstanding futures contracts:
| | | | Value and
Unrealized
Appreciation
(Depreciation) |
| | | | |
6United States Treasury Notes 10-Year Long Futures | | | | |
| | | | |
6United States Treasury Long Bond Short Futures | | | | |
6United States Treasury Ultra Bond Short Futures | | | | |
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS | |
Net Unrealized Appreciation on Futures Contracts is included in “Other Assets and Liabilities—Net.”
Affiliated fund holdings are investment companies which are managed by the Adviser or an affiliate of the Adviser. Transactions with the affiliated fund holdings during the period ended October 31, 2020, were as follows:
| Federated Hermes
Institutional
Prime Value
Obligations Fund,
Institutional Shares |
| |
| |
| |
Change in Unrealized Appreciation/Depreciation | |
| |
| |
Shares Held as of 10/31/2020 | |
| |
| Floating/variable note with current rate and current maturity or next reset date shown. |
| Market quotations and price evaluations are not available. Fair value determined using significant unobservable inputs in accordance with procedures established by and under the general supervision of the Fund’s Board of Trustees (the “Trustees”). |
| |
| The cost of investments for federal tax purposes amounts to $153,928,503. |
| Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| Non-income-producing security. |
Note: The categories of investments are shown as a percentage of total net assets at October 31, 2020.
Semi-Annual Shareholder Report
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.
The following is a summary of the inputs used, as of October 31, 2020, in valuing the Fund’s assets carried at fair value:
|
| | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | |
| | | | |
| | | | |
| | | | |
| | | | |
Other Financial Instruments:1 | | | | |
| | | | |
| | | | |
TOTAL OTHER FINANCIAL INSTRUMENTS | | | | |
| Other financial instruments are futures contracts. |
The following acronym(s) are used throughout this portfolio: | |
| |
| |
| —London Interbank Offered Rate |
| |
| —Real Estate Investment Trust |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Institutional Shares
(For a Share Outstanding Throughout Each Period)
| Six Months
Ended
(unaudited)
10/31/2020 | |
| | | | | |
Net Asset Value, Beginning of Period | | | | | | |
Income From Investment Operations: | | | | | | |
| | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total From Investment Operations | | | | | | |
| | | | | | |
Distributions from net investment income | | | | | | |
Distributions from net realized gain | | | | | | |
| | | | | | |
Net Asset Value, End of Period | | | | | | |
| | | | | | |
Ratios to Average Net Assets: | | | | | | |
| | | | | | |
| | | | | | |
Expense waiver/reimbursement4 | | | | | | |
| | | | | | |
Net assets, end of period (000 omitted) | | | | | | |
| | | | | | |
| Based on net asset value. Total returns for periods of less than one year are not annualized. |
| Amount does not reflect net expenses incurred by investment companies in which the Fund may invest. |
| Computed on an annualized basis. |
| This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Service Shares
(For a Share Outstanding Throughout Each Period)
| Six Months
Ended
(unaudited)
10/31/2020 | |
| | | | | |
Net Asset Value, Beginning of Period | | | | | | |
Income From Investment Operations: | | | | | | |
| | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total From Investment Operations | | | | | | |
| | | | | | |
Distributions from net investment income | | | | | | |
Distributions from net realized gain | | | | | | |
| | | | | | |
Net Asset Value, End of Period | | | | | | |
| | | | | | |
Ratios to Average Net Assets: | | | | | | |
| | | | | | |
| | | | | | |
Expense waiver/reimbursement5 | | | | | | |
| | | | | | |
Net assets, end of period (000 omitted) | | | | | | |
| | | | | | |
| Represents less than $0.005. |
| Based on net asset value. Total returns for periods of less than one year are not annualized. |
| Amount does not reflect net expenses incurred by investment companies in which the Fund may invest. |
| Computed on an annualized basis. |
| This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and LiabilitiesOctober 31, 2020 (unaudited)
| |
Investment in securities, at value including $3,819,098 of investments in an affiliated holding* (identified cost $153,928,503) | |
| |
| |
| |
Income receivable from an affiliated holding | |
Receivable for investments sold | |
Receivable for shares sold | |
Receivable for variation margin on futures contracts | |
| |
| |
Payable for shares redeemed | |
Income distribution payable | |
Payable for investment adviser fee (Note 5) | |
Payable for administrative fee (Note 5) | |
Payable for other service fees (Notes 2 and 5) | |
Accrued expenses (Note 5) | |
| |
Net assets for 17,162,856 shares outstanding | |
| |
| |
Total distributable earnings (loss) | |
| |
Net Asset Value, Offering Price and Redemption Proceeds Per Share: | |
| |
Net asset value per share ($146,784,269 ÷ 15,175,564 shares outstanding), no par value, unlimited shares authorized | |
| |
Net asset value per share ($19,224,132 ÷ 1,987,292 shares outstanding), no par value, unlimited shares authorized | |
| See information listed after the Fund’s Portfolio of Investments. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of OperationsSix Months Ended October 31, 2020 (unaudited)
| |
| |
Dividends received from an affiliated holding* | |
| |
| |
Investment adviser fee (Note 5) | |
Administrative fee (Note 5) | |
| |
| |
Directors’/Trustees’ fees (Note 5) | |
| |
| |
Portfolio accounting fees | |
Distribution services fee (Note 5) | |
Other service fees (Notes 2 and 5) | |
| |
| |
| |
| |
Waivers and Reimbursements: | |
Waiver/reimbursement of investment adviser fee (Note 5) | |
Waiver/reimbursement of other operating expenses (Notes 2 and 5) | |
TOTAL WAIVERS AND REIMBURSEMENTS | |
| |
| |
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | |
Net realized gain on investments (including net realized gain of $4,591 on sales of investments in an affiliated holding*) | |
Net realized loss on futures contracts | |
Net change in unrealized appreciation of investments (including net change in unrealized appreciation of $(3,953) on investments in an affiliated holding*) | |
Net change in unrealized depreciation of futures contracts | |
Net realized and unrealized gain (loss) on investments and futures contracts | |
Change in net assets resulting from operations | |
| See information listed after the Fund’s Portfolio of Investments. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| Six Months
Ended
(unaudited)
10/31/2020 | |
Increase (Decrease) in Net Assets | | |
| | |
| | |
| | |
Net change in unrealized appreciation/depreciation | | |
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | | |
Distributions to Shareholders: | | |
| | |
| | |
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | | |
| | |
Proceeds from sale of shares | | |
Net asset value of shares issued to shareholders in payment of distributions declared | | |
| | |
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | | |
| | |
| | |
| | |
| | |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
October 31, 2020
1. ORGANIZATION
Federated Hermes Income Securities Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of seven portfolios. The financial statements included herein are only those of Federated Hermes Intermediate Corporate Bond Fund (the “Fund”), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers two classes of shares: Institutional Shares and Service Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The investment objective of the Fund is to provide current income.
Prior to June 29, 2020, the name of the Trust and Fund was Federated Income Securities Trust and Federated Intermediate Corporate Bond Fund, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
■
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Fund’s Board of Trustees.
■
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
■
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
■
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
■
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Trustees, certain factors may be considered, such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer’s financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund’s valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation
Semi-Annual Shareholder Report
Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share, and the actual value obtained could be materially different.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (the “Adviser”) and certain of the Adviser’s affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services’ policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation
Semi-Annual Shareholder Report
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 Fund’s Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
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Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that select classes will bear certain expenses unique to those classes. The detail of the total fund expense waivers and reimbursements of $201,999 is disclosed in various locations in this Note 2 and Note 5.
Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund’s Institutional Shares and Service Shares to unaffiliated financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the six months ended October 31, 2020, other service fees for the Fund were as follows:
| Other Service
Fees Incurred | Other Service
Fees Reimbursed |
| | |
| | |
| | |
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 October 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 October 31, 2020, tax years 2017 through 2020 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
Semi-Annual Shareholder Report
When-Issued and Delayed-Delivery Transactions
The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage duration and yield curve risks. Upon entering into a financial futures contract with a broker, the Fund is required to deposit with a broker, either U.S. government securities or a specified amount of cash, which is shown as due from broker in the Statement of Assets and Liabilities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. The Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at period end are listed after the Fund’s Portfolio of Investments.
The average notional value of long and short futures contracts held by the Fund throughout the period was $5,026,866 and $5,025,402, respectively. This is based on amounts held as of each month-end throughout the six-month 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 | | |
| |
| Statement of
Assets and
Liabilities
Location | |
Derivatives not accounted for as hedging instruments under ASC Topic 815 | | |
| Receivable for variation margin on futures contracts | |
| Includes cumulative net appreciation 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 October 31, 2020
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | |
| |
| |
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income | |
| |
| |
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 tables summarize share activity:
| Six Months Ended
10/31/2020 | |
| | | | |
| | | | |
Shares issued to shareholders in payment of distributions declared | | | | |
| | | | |
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | | | | |
Semi-Annual Shareholder Report
| Six Months Ended
10/31/2020 | |
| | | | |
| | | | |
Shares issued to shareholders in payment of distributions declared | | | | |
| | | | |
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS | | | | |
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | | | | |
4. FEDERAL TAX INFORMATION
At October 31, 2020, the cost of investments for federal tax purposes was $153,928,503. The net unrealized appreciation of investments for federal tax purposes was $10,879,570. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $11,454,707 and net unrealized depreciation from investments for those securities having an excess of cost over value of $575,137. The amounts presented are inclusive of derivative contracts.
As of April 30, 2020, the Fund had a capital loss carryforward of $191,156 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.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.50% of the Fund’s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee. For the six months ended October 31, 2020, the Adviser voluntarily waived $163,807 of its fee.
The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated investment companies. For the six months ended October 31, 2020, the Adviser reimbursed $1,168.
Semi-Annual Shareholder Report
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:
| Average Daily Net Assets
of the Investment Complex |
| on assets up to $50 billion |
| on assets over $50 billion |
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended October 31, 2020, the annualized fee paid to FAS was 0.079% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund’s Service Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at 0.25% of average daily net assets, annually, to compensate FSC. Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee.
For the six months ended October 31, 2020, distribution services fees for the Fund were as follows:
| Distribution Services
Fees Incurred | Distribution Services
Fees Waived |
| | |
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares.
Other Service Fees
For the six months ended October 31, 2020, FSSC received $1,573 and reimbursed $13,568 of the other service fees disclosed in Note 2.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding extraordinary expenses, interest expense and proxy-related expenses paid by the Fund, if any) paid by the Fund’s Institutional Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.57% and 0.82% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) July 1, 2021; or (b) the date of the Fund’s next effective
Semi-Annual Shareholder Report
Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Directors’/Trustees’ and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent Directors’/Trustees’ fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the six months ended October 31, 2020, were as follows:
7. Line of Credit
The Fund participates with certain other Federated Hermes Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement dated June 24, 2020. 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 October 31, 2020, the Fund had no outstanding loans. During the six months ended October 31, 2020, the Fund did not utilize the LOC.
8. Interfund Lending
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Hermes, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of October 31, 2020, there were no outstanding loans. During the six months ended October 31, 2020, the program was not utilized.
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9. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus may be short-term or may last for an extended period of time and has resulted in a substantial economic downturn. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the markets in general in significant and unforeseen ways. Any such impact could adversely affect the Fund’s performance.
Semi-Annual Shareholder Report
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2020 to October 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.
Semi-Annual Shareholder Report
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
5/1/2020 | Ending
Account Value
10/31/2020 | Expenses Paid
During Period1 |
| | | |
| | | |
| | | |
Hypothetical (assuming a 5% return before expenses): | | | |
| | | |
| | | |
| Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2020
Federated Intermediate Corporate Bond Fund (the “Fund”)
(EFFECTIVE CLOSE OF BUSINESS ON JUNE 26, 2020, THE FUND’S NAME CHANGED TO FEDERATED HERMES INTERMEDIATE CORPORATE BOND FUND)
At its meetings in May 2020 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including a majority of those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved the continuation of the investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to continue the existing arrangements. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation presenting on the topics discussed below. The Board considered the CCO’s independent written evaluation (the “CCO Fee Evaluation Report”), along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the Contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer” prior to the elimination of the Senior Officer position in December 2017.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes on behalf of the Independent Trustees encompassing a wide variety of topics. The Board also considered such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings
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throughout the year and in between regularly scheduled meetings on particular matters as the need arose, as well as information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings.
The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the Adviser’s and sub-adviser’s investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate) and comments on the reasons for the Fund’s performance; the Fund’s investment objectives; the Fund’s expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial and other risks assumed by the Adviser in sponsoring and managing the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund’s relationship to the other funds advised by Federated Hermes (each, a “Federated Hermes Fund”), which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Hermes Funds and the Federated Hermes’ affiliates that service them (including communications from regulatory agencies), as well as Federated Hermes’ responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Hermes Funds and/or Federated Hermes may be responding to them. In addition, the Board received and considered information furnished by Federated Hermes on the impacts of the coronavirus (COVID-19) outbreak on Federated Hermes generally and the Fund in particular, including, among other information, the current and anticipated impacts on the management, operations and performance of the Fund. The Board noted that its evaluation process is evolutionary and that the criteria considered and the emphasis placed on relevant criteria may change in recognition of changing circumstances in the mutual fund marketplace.
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
Semi-Annual Shareholder Report
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.
Semi-Annual Shareholder Report
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser’s personnel, experience and track record, as well as the financial resources and overall reputation of Federated Hermes and its willingness to invest in personnel and infrastructure that benefit the Federated Hermes Funds. The Board noted the significant acquisition of Hermes Fund Managers Limited by Federated Hermes in 2018, which has deepened the organization’s investment management expertise and capabilities and expanded the investment process for all of the Federated Hermes Funds to incorporate environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters.
In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund and the Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board noted the compliance program of the Adviser and the compliance-related resources devoted by the Adviser and its affiliates in support of the Fund’s obligations pursuant to Rule 38a-1 under the Investment Company Act of 1940, including the Adviser’s commitment to respond to rulemaking and other regulatory initiatives of the SEC such as the liquidity risk management program rules. In addition, the Board considered the response by the Adviser to recent market conditions and considered the overall performance of the Adviser in this context. The Fund’s ability to deliver competitive performance when compared to its Performance Peer Group (as defined below) was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund’s investment program. The Adviser’s ability to execute this program was one of the Board’s considerations in reaching a conclusion that the nature, extent and quality of the Adviser’s investment management and related services warrant the continuation of the Contract.
Fund Investment Performance
In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board also considered the Fund’s performance in light of the overall recent market conditions. The Board considered detailed investment reports on the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings and evaluated the Adviser’s analysis of the Fund’s performance for these time periods. The Board also reviewed comparative information regarding the performance of other mutual funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”), noting the CCO’s view that comparisons to fund peer groups may be helpful,
Semi-Annual Shareholder Report
though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered, in evaluating such comparisons, that in some cases there may be differences in the funds’ objectives or investment management techniques, or the costs to implement the funds, even within the same Performance Peer Group.
The Fund’s performance fell below the median of the relevant Performance Peer Group for the one-year, three-year and five-year periods ended December 31, 2019. The Board discussed the Fund’s performance with the Adviser, including the reasons for and plans to improve the Fund’s performance, 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
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged by other advisers for managing funds with comparable investment programs, the Board has found the use of such comparisons to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund’s total expense ratio (i.e., gross and net advisory fees, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because such comparisons are believed to be more relevant. The Board considered that other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the Fund’s investors. The Board noted that the range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
Semi-Annual Shareholder Report
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund and noted the position of the Fund’s fee rates relative to its Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was above the median of the relevant Expense Peer Group, but the Board noted the applicable waivers and reimbursements, and that the overall expense structure of the Fund remained competitive in the context of other factors considered by the Board.
For comparison, the Board received and considered information about the fees charged by Federated Hermes for providing advisory services to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-mutual fund clients such as institutional separate accounts and third-party unaffiliated mutual funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-mutual fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) and the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing, addressing different administrative responsibilities, and addressing different degrees of risk associated with management; and (vi) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary mutual fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s mutual fund, noting that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party mutual fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.
The Board considered the CCO’s view that the services, administrative responsibilities and risks associated with such relationships are quite different than serving as a primary adviser to a fund.
Following such evaluation, and full deliberations, the Board concluded that the fees and expenses of the Fund are reasonable and supported renewal of the Contract.
Profitability and Other Benefits
The Board also received financial information about Federated Hermes, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated Hermes derived from its relationships with the Federated Hermes Funds. This information covered not only the fees under the Federated
Semi-Annual Shareholder Report
Hermes Funds’ investment advisory contracts, but also fees received by Federated Hermes’ affiliates for providing other services to the Federated Hermes Funds under separate contracts (e.g., for serving as the Federated Hermes Funds’ administrator and distributor). In this regard, the Board considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing any indirect benefit Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds. In addition, the Board considered the fact that, in order for the Federated Hermes Funds to be competitive in the marketplace, the Adviser and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Federated Hermes Fund shareholders and/or reported to the Board their intention to do so in the future. Moreover, the Board received and considered regular reports from Federated Hermes throughout the year as to the institution, adjustment or elimination of these voluntary waivers and/or reimbursements.
The Board received and considered information furnished by Federated Hermes, as requested by the CCO, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable, because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. The allocation information, including the CCO’s view that fund-by-fund estimations may be unreliable, was considered in the evaluation by the Board. In addition, the Board considered that, during the prior year, an independent consultant conducted a review of the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract. The Board noted the consultant’s view that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable.
The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board considered the CCO’s conclusion that, based on such profitability
Semi-Annual Shareholder Report
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
The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of calculating economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as personnel and processes for the portfolio management, trading operations, issuer engagement (including with respect to ESG matters), shareholder services, compliance, business continuity, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments (as well as the benefits of any economies of scale, should they exist) are likely to be shared with the Federated Hermes Fund family as a whole. In addition, the Board considered that the Adviser and its affiliates have frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and that such waivers and reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. Federated Hermes, as it does throughout the year, and specifically in connection with the Board’s review of the Contract, furnished information relative to adviser-paid fees (commonly referred to as revenue sharing). The Board considered the beliefs of Federated Hermes and the CCO that this information should be viewed to determine if there was an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, and should not be viewed to determine the appropriateness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
Conclusions
The Board considered the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund was reasonable and the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised
Semi-Annual Shareholder Report
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.
In its determination to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser’s industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board’s approval of the Contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors summarized above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the Contract was appropriate.
The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were deemed to be relevant, the Board’s determination to approve the continuation of the Contract reflects its view that Federated Hermes’ performance and actions provided a satisfactory basis to support the determination to continue the existing arrangement.
Semi-Annual Shareholder Report
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 Income Securities Trust (the “Trust”) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Intermediate Corporate Bond Fund (the “Fund” and, collectively with the Federated Hermes funds, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of the Fund’s investment adviser as the administrator for the Program for the Fund. Each affiliated Federated Hermes advisory subsidiary (including the Fund’s investment adviser) that serves as investment adviser to a Federated Hermes Fund (including the Fund) has been approved as the administrator of the Program for each Federated Hermes Fund they manage (each an “Administrator”). The Administrator in turn has delegated daily responsibility for the administration of the Program to multiple Liquidity Risk Management Committees (the “Committees”). The Committees, which are comprised of representatives of Enterprise Risk Management, Compliance, Investment Management and Trading, must review and assess certain information related to the liquidity of the Federated Hermes Funds, including the Fund.
The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.
At its meetings in May 2020, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from the Program’s inception on December 1, 2018 through March 31, 2020 (the “Period”). The Report
Semi-Annual Shareholder Report
addressed the operation of the Program and assessed its adequacy and effectiveness, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund and each Federated Hermes Fund’s access to other available funding sources such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind and committed lines of credit. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:
■ confirmation that the Fund did not utilize alternative funding sources during the Period;
■ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;
■ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments and the results of an evaluation of the services performed by the vendor in support of this process;
■ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;
■ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period and the procedures for monitoring this limit; and
■ liquidity events during the Period, including the impact on liquidity caused by extended non-U.S. market closures and the market disruptions resulting from the novel coronavirus outbreak, and the fact that there were no specific liquidity events during the Period that materially affected the Fund’s liquidity risk.
Based on this review, the Fund’s investment adviser, in its role as Administrator, collectively with the other investment advisers to the Federated Hermes Funds, concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.
Semi-Annual Shareholder Report
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC’s website at sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund’s holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC’s website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedInvestors.com.
Semi-Annual Shareholder Report
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
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.
Semi-Annual Shareholder Report
Federated Hermes Intermediate Corporate Bond Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 31420C407
CUSIP 31420C506
G00715-01 (12/20)
© 2020 Federated Hermes, Inc.
Semi-Annual Shareholder Report
October 31, 2020
Federated Hermes Short-Term Income Fund(formerly, Federated Short-Term Income Fund)
Fund Established 1986
A Portfolio of Federated Hermes Income Securities Trust(formerly, Federated Income Securities Trust)
IMPORTANT NOTICE REGARDING REPORT DELIVERY
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary, such as a broker-dealer or bank. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund or your financial intermediary electronically by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4.
You may elect to receive all future reports in paper free of charge. You can inform the Fund or your financial intermediary that you wish to continue receiving paper copies of your shareholder reports by contacting your financial intermediary (such as a broker-dealer or bank); other shareholders may call the Fund at 1-800-341-7400, Option 4. Your election to receive reports in paper will apply to all funds held with the Fund complex or your financial intermediary.
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
J. Christopher
Donahue
President
Federated Hermes Short-Term Income Fund
Letter from the President
Dear Valued Shareholder,
I am pleased to present the Semi-Annual Shareholder Report for your fund covering the period from May 1, 2020 through October 31, 2020.
As we all confront the unprecedented effects of the coronavirus and the challenges it presents to our families, communities, businesses and the financial markets, I want you to know that everyone at Federated Hermes is dedicated to helping you successfully navigate the markets ahead. You can count on us for the insights, investment management knowledge and client service that you have come to expect. Please refer to our website, FederatedInvestors.com, for timely updates on this and other economic and market matters.
Thank you for investing with us. I hope you find this information useful and look forward to keeping you informed.
Sincerely, J. Christopher Donahue, President
Portfolio of Investments Summary Table (unaudited)
At October 31, 2020, the Fund’s portfolio composition1 was as follows:
| Percentage of
Total Net Assets2 |
| |
Corporate Debt Securities | |
| |
Collateralized Mortgage Obligations | |
Commercial Mortgage-Backed Securities | |
Non-Agency Mortgage-Backed Securities | |
Adjustable Rate Mortgages | |
Foreign Government/Agency | |
| |
Mortgage-Backed Securities5,6 | |
High Yield Bond Portfolio | |
Federated Mortgage Core Portfolio | |
| |
Securities Lending Collateral7 | |
| |
Other Assets and Liabilities—Net9 | |
| |
| See the Fund’s Prospectus and Statement of Additional Information for a description of these security types. |
| As of the date specified above, the Fund owned shares of one or more affiliated investment companies. For purposes of this table, affiliated investment companies (other than an affiliated money market mutual fund) in which the Fund invested less than 10% of its net assets, are listed individually in the table. |
| For purposes of this table, U.S. Treasury and Agency Securities do not include mortgage-backed securities guaranteed by Government Sponsored Entities (GSEs). |
| Based upon net unrealized appreciation (depreciation) or value of the derivative contracts as applicable. Derivative contracts may consist of futures, forwards, options and swaps. The impact of a derivative contract on the Fund’s performance may be larger than its unrealized appreciation (depreciation) or value may indicate. In many cases, the notional value or amount of a derivative contract may provide a better indication of the contract’s significance to the portfolio. More complete information regarding the Fund’s direct investments in derivative contracts, including unrealized appreciation (depreciation), value and notional values or amounts of such contracts, can be found in the table at the end of the Portfolio of Investments included in this Report. |
| Represents less than 0.1%. |
| For purposes of this table, Mortgage-Backed Securities may include mortgage-backed securities guaranteed by GSEs and adjustable rate mortgage-backed securities. |
| Represents cash collateral received for portfolio securities on loan that may be invested in affiliated money market funds, other money market instruments and/or repurchase agreements. |
| Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements other than those representing securities lending collateral. |
| Assets, other than investments in securities and derivative contracts, less liabilities. See Statement of Assets and Liabilities. |
Semi-Annual Shareholder Report
Portfolio of Investments
October 31, 2020 (unaudited)
| | | |
| | ASSET-BACKED SECURITIES— 40.1% | |
| | | |
| | AmeriCredit Automobile Receivables Trust 2017-2, Class D, 3.420%, 4/18/2023 | |
| | AmeriCredit Automobile Receivables Trust 2018-1, Class A3, 3.070%, 12/19/2022 | |
| | AmeriCredit Automobile Receivables Trust 2018-1, Class B, 3.260%, 1/18/2024 | |
| | AmeriCredit Automobile Receivables Trust 2020-1, Class D, 1.800%, 12/18/2025 | |
| | AmeriCredit Automobile Receivables Trust 2020-2, Class D, 2.130%, 3/18/2026 | |
| | BMW Floorplan Master Owner Trust 2018-1, Class A2, 0.468% (1-month USLIBOR +0.320%), 5/15/2023 | |
| | BMW Vehicle Lease Trust 2018-1, Class A4, 3.360%, 3/21/2022 | |
| | BMW Vehicle Owner Trust 2018-A, Class A3, 2.350%, 4/25/2022 | |
| | California Republic Auto Receivables Trust 2016-2, Class B, 2.520%, 5/16/2022 | |
| | California Republic Auto Receivables Trust 2016-2, Class C, 3.510%, 3/15/2023 | |
| | Canadian Pacer Auto Receivable 2018-1A, Class A3, 3.000%, 11/19/2021 | |
| | Canadian Pacer Auto Receivable 2018-1A, Class B, 3.470%, 2/19/2023 | |
| | Canadian Pacer Auto Receivable 2018-2A, Class B, 3.630%, 1/19/2024 | |
| | Canadian Pacer Auto Receivable 2020-1A, Class B, 2.000%, 7/21/2025 | |
| | Canadian Pacer Auto Receivable 2020-1A, Class C, 2.490%, 5/19/2026 | |
| | Capital One Prime Auto Receivables Trust 2019-1, Class A4, 2.560%, 10/15/2024 | |
| | Daimler Trucks Retail Trust 2020-1, Class A3, 1.220%, 9/15/2023 | |
| | Drive Auto Receivables Trust 2019-4, Class A3, 2.160%, 5/15/2023 | |
| | Drive Auto Receivables Trust 2020-1, Class D, 2.700%, 5/17/2027 | |
| | Fifth Third Auto Trust 2019-1, Class A4, 2.690%, 11/16/2026 | |
| | Ford Credit Auto Lease Trust 2018-B, Class B, 3.490%, 3/15/2022 | |
| | Ford Credit Auto Lease Trust 2019-A, Class B, 3.250%, 7/15/2022 | |
| | Ford Credit Auto Lease Trust 2020-A, Class B, 2.050%, 6/15/2023 | |
| | Ford Credit Auto Lease Trust 2020-B, Class B, 1.000%, 11/15/2023 | |
| | Ford Credit Auto Lease Trust 2020-B, Class C, 1.700%, 2/15/2025 | |
| | Ford Credit Auto Owner Trust 2019-B, Class B, 2.400%, 11/15/2024 | |
| | Ford Credit Auto Owner Trust 2019-B, Class C, 2.580%, 12/15/2025 | |
| | Ford Credit Auto Owner Trust 2019-C, Class C, 2.250%, 5/15/2026 | |
| | Ford Credit Auto Owner Trust/Ford Credit 2020-2, Class C, 1.740%, 4/15/2033 | |
| | Ford Credit Floorplan Master Owner Trust 2020-1, Class C, 1.420%, 9/15/2025 | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | Auto Receivables— continued | |
| | Ford Credit Floorplan Master Owner Trust 2020-1, Class D, 2.120%, 9/15/2025 | |
| | General Motors 2019-2, Class C, 3.300%, 4/15/2026 | |
| | General Motors 2020-1, Class B, 1.030%, 8/15/2025 | |
| | General Motors 2020-1, Class C, 1.480%, 8/15/2025 | |
| | General Motors 2020-2, Class A, 0.690%, 10/15/2025 | |
| | General Motors 2020-2, Class B, 0.960%, 10/15/2025 | |
| | General Motors 2020-2, Class C, 1.310%, 10/15/2025 | |
| | GM Financial Automobile Leasing Trust 2019-3, Class A4, 2.030%, 7/20/2023 | |
| | GM Financial Automobile Leasing Trust 2020-2, Class C, 2.560%, 7/22/2024 | |
| | GM Financial Automobile Leasing Trust 2020-3, Class D, 1.710%, 2/20/2025 | |
| | GM Financial Consumer Automobile Receivables Trust 2017-1A, Class C, 2.450%, 7/17/2023 | |
| | GM Financial Securitized Term 2018-1, Class C, 2.770%, 7/17/2023 | |
| | GM Financial Securitized Term 2018-4, Class C, 3.620%, 6/17/2024 | |
| | GM Financial Securitized Term 2020-3, Class B, 0.810%, 1/16/2026 | |
| | GM Financial Securitized Term 2020-3, Class C, 1.370%, 1/16/2026 | |
| | GM Financial Securitized Term 2020-3, Class D, 1.910%, 9/16/2027 | |
| | Harley-Davidson Motorcycle Trust 2019-A, Class A4, 2.390%, 11/15/2026 | |
| | Honda Auto Receivables Owner Trust 2018-2, Class A3, 3.010%, 5/18/2022 | |
| | Honda Auto Receivables Owner Trust 2019-2, Class A3, 2.520%, 6/21/2023 | |
| | Honda Auto Receivables Owner Trust 2019-3, Class A2, 1.900%, 4/15/2022 | |
| | Hyundai Auto Lease Securitization Trust 2018-B, Class A3, 3.040%, 10/15/2021 | |
| | Hyundai Auto Lease Securitization Trust 2019-A, Class B, 3.250%, 10/16/2023 | |
| | Hyundai Auto Lease Securitization Trust 2020-A, Class B, 2.120%, 5/15/2024 | |
| | Hyundai Auto Lease Securitization Trust 2020-B, Class B, 0.810%, 10/15/2024 | |
| | Hyundai Auto Receivables Trust 2019-A, Class C, 3.030%, 11/17/2025 | |
| | Hyundai Auto Receivables Trust 2019-B, Class B, 2.210%, 4/15/2025 | |
| | Hyundai Auto Receivables Trust 2019-B, Class C, 2.400%, 6/15/2026 | |
| | Hyundai Auto Receivables Trust 2020-B, Class C, 1.600%, 12/15/2026 | |
| | Mercedes-Benz Auto Lease Trust 2019-A, Class A4, 3.250%, 10/15/2024 | |
| | NextGear Floorplan Master Owner Trust 2018-2A, Class A1, 0.748% (1-month USLIBOR +0.600%), 10/15/2023 | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | Auto Receivables— continued | |
| | NextGear Floorplan Master Owner Trust 2019-1A, Class B, 3.460%, 2/15/2024 | |
| | NextGear Floorplan Master Owner Trust 2020-1A, Class B, 1.790%, 2/15/2025 | |
| | Nissan Master Owner Trust Receivables 2019-B, Class A, 0.578% (1-month USLIBOR +0.430%), 11/15/2023 | |
| | Santander Consumer Auto Receivables Trust 2020-B, Class D, 2.140%, 12/15/2026 | |
| | Santander Drive Auto Receivables Trust 2016-2, Class D, 3.390%, 4/15/2022 | |
| | Santander Drive Auto Receivables Trust 2017-3, Class C, 2.760%, 12/15/2022 | |
| | Santander Drive Auto Receivables Trust 2019-2, Class C, 2.900%, 10/15/2024 | |
| | Santander Drive Auto Receivables Trust 2019-3, Class D, 2.680%, 10/15/2025 | |
| | Santander Drive Auto Receivables Trust 2020-2, Class D, 2.220%, 9/15/2026 | |
| | Santander Drive Auto Receivables Trust 2020-3, Class D, 1.640%, 11/16/2026 | |
| | Santander Retail Auto Lease Trust 2019-A, Class D, 3.660%, 5/20/2024 | |
| | Santander Retail Auto Lease Trust 2020-A, Class D, 2.520%, 11/20/2024 | |
| | Santander Retail Auto Lease Trust 2020-B, Class C, 1.180%, 12/20/2024 | |
| | Santander Retail Auto Lease Trust 2020-B, Class D, 1.980%, 10/20/2025 | |
| | Securitized Term Auto Receivables Trust 2019-1A, Class A3, 2.986%, 2/27/2023 | |
| | Securitized Term Auto Receivables Trust 2019-1A, Class A4, 3.141%, 11/27/2023 | |
| | Tesla Auto Lease Trust 2020-A, Class C, 1.680%, 2/20/2024 | |
| | Toyota Auto Loan Extended Note 2019-1A, Class A, 2.560%, 11/25/2031 | |
| | Toyota Auto Receivables Owner 2019-B, Class A3, 2.570%, 8/15/2023 | |
| | Toyota Auto Receivables Owner Trust 2019-C, Class A3, 1.910%, 9/15/2023 | |
| | Toyota Auto Receivables Owner Trust 2020-C, Class A3, 0.440%, 10/15/2024 | |
| | Volkswagen Auto Lease Trust 2019-A, Class A4, 2.020%, 8/20/2024 | |
| | World Omni Auto Receivables Trust 2017-B, Class B, 2.370%, 5/15/2024 | |
| | World Omni Auto Receivables Trust 2018-B, Class B, 3.170%, 1/15/2025 | |
| | World Omni Auto Receivables Trust 2020-C, Class B, 0.870%, 10/15/2026 | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | Auto Receivables— continued | |
| | World Omni Automobile Lease Securitization Trust 2018-B, Class B, 3.430%, 3/15/2024 | |
| | World Omni Automobile Lease Securitization Trust 2019-A, Class B, 3.240%, 7/15/2024 | |
| | World Omni Automobile Lease Securitization Trust 2019-B, Class B, 2.130%, 2/18/2025 | |
| | World Omni Automobile Lease Securitization Trust 2020-A, Class B, 1.930%, 6/16/2025 | |
| | World Omni Select Auto Trust 2019-A, Class A3, 2.000%, 8/15/2024 | |
| | World Omni Select Auto Trust 2020-A, Class A2, 0.470%, 6/17/2024 | |
| | World Omni Select Auto Trust 2020-A, Class B, 0.840%, 6/15/2026 | |
| | World Omni Select Auto Trust 2020-A, Class D, 1.700%, 10/15/2026 | |
| | | |
| | | |
| | American Express Credit Account Master Trust 2018-5, Class B, 0.698% (1-month USLIBOR +0.550%), 12/15/2025 | |
| | American Express Credit Account Master Trust 2018-7, Class B, 0.718% (1-month USLIBOR +0.570%), 2/17/2026 | |
| | American Express Credit Account Master Trust 2018-8, Class B, 3.350%, 4/15/2024 | |
| | Bank of America Credit Card Trust 2019-A1, Class A1, 1.740%, 1/15/2025 | |
| | Barclays Dryrock Issuance Trust 2018-1, Class A, 0.478% (1-month USLIBOR +0.330%), 7/15/2024 | |
| | Capital One Multi-Asset Execution Trust 2016-A2, Class A2, 0.778% (1-month USLIBOR +0.630%), 2/15/2024 | |
| | Capital One Multi-Asset Execution Trust 2019-A2, Class A2, 1.720%, 8/15/2024 | |
| | Cards II Trust 2019-1A, Class A, 0.538% (1-month USLIBOR +0.390%), 5/15/2024 | |
| | Chase Issuance Trust 2018-A1, Class A1, 0.348% (1-month USLIBOR +0.200%), 4/17/2023 | |
| | Citibank Credit Card Issuance Trust 2018-A4, Class A4, 0.482% (1-month USLIBOR +0.340%), 6/7/2025 | |
| | Discover Card Execution Note Trust 2017-A7, Class A7, 0.508% (1-month USLIBOR +0.360%), 4/15/2025 | |
| | Discover Card Execution Note Trust 2018-A6, Class A6, 0.538% (1-month USLIBOR +0.390%), 3/15/2026 | |
| | Evergreen Credit Card Trust 2019-3, Class B, 2.360%, 10/16/2023 | |
| | Evergreen Credit Card Trust 2019-3, Class C, 2.710%, 10/16/2023 | |
| | Evergreen Credit Card Trust Series 2018-1, Class A, 2.950%, 3/15/2023 | |
| | Evergreen Credit Card Trust Series 2019-1, Class B, 3.590%, 1/15/2023 | |
| | Evergreen Credit Card Trust Series 2019-1, Class C, 3.980%, 1/15/2023 | |
| | Evergreen Credit Card Trust Series 2019-2 C, Class C, 2.620%, 9/15/2024 | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | | |
| | First National Master Note Trust 2018-1, Class A, 0.608% (1-month USLIBOR +0.460%), 10/15/2024 | |
| | Golden Credit Card Trust 2017-4A, Class A, 0.668% (1-month USLIBOR +0.520%), 7/15/2024 | |
| | Golden Credit Card Trust 2018-1A, Class A, 2.620%, 1/15/2023 | |
| | Master Credit Card Trust 2018-1A, Class A, 0.633% (1-month USLIBOR +0.490%), 7/21/2024 | |
| | Master Credit Card Trust 2018-1A, Class B, 3.245%, 7/21/2024 | |
| | Master Credit Card Trust 2019-1A, Class A, 0.623% (1-month USLIBOR +0.480%), 7/21/2022 | |
| | Master Credit Card Trust 2020-1A, Class B, 2.270%, 9/21/2024 | |
| | Master Credit Card Trust 2020-1A, Class C, 2.590%, 9/21/2024 | |
| | Trillium Credit Card Trust II 2019-1A, Class B, 3.522%, 1/26/2024 | |
| | Trillium Credit Card Trust II 2019-1A, Class C, 3.915%, 1/26/2024 | |
| | Trillium Credit Card Trust II 2019-2A, Class B, 3.522%, 1/26/2024 | |
| | Trillium Credit Card Trust II 2020-1A, Class C, 2.628%, 12/26/2024 | |
| | | |
| | | |
| | CNH Equipment Trust 2019-A, Class B, 3.340%, 7/15/2026 | |
| | CNH Equipment Trust 2019-B, Class B, 2.870%, 11/16/2026 | |
| | Dell Equipment Finance Trust 2018-2, Class D, 3.970%, 10/22/2024 | |
| | Dell Equipment Finance Trust 2019-1, Class D, 3.450%, 3/24/2025 | |
| | Dell Equipment Finance Trust 2019-2, Class D, 2.480%, 4/22/2025 | |
| | Dell Equipment Finance Trust 2020-1, Class D, 5.920%, 3/23/2026 | |
| | Dell Equipment Finance Trust 2020-2, Class C, 1.370%, 1/22/2024 | |
| | Dell Equipment Finance Trust 2020-2, Class D, 1.920%, 3/23/2026 | |
| | DLL Securitization Trust 2019-DA1, Class A4, 2.920%, 4/20/2027 | |
| | DLL Securitization Trust 2019-MA2, Class A4, 2.390%, 4/20/2027 | |
| | Great America Leasing Receivable 2020-1, Class A3, 1.760%, 8/15/2023 | |
| | Great America Leasing Receivables 2018-1, Class B, 2.990%, 6/17/2024 | |
| | Great America Leasing Receivables 2018-1, Class C, 3.140%, 6/16/2025 | |
| | Great America Leasing Receivables 2019-1, Class C, 3.540%, 2/17/2026 | |
| | Great America Leasing Receivables 2020-1, Class C, 2.120%, 2/15/2027 | |
| | HPEFS Equipment Trust 2019-1, Class D, 2.720%, 9/20/2029 | |
| | HPEFS Equipment Trust 2020-1A, Class D, 2.260%, 2/20/2030 | |
| | HPEFS Equipment Trust 2020-2A, Class D, 2.790%, 7/22/2030 | |
| | Kubota Credit Owner Trust 2019-1A, Class A2, 2.490%, 6/15/2022 | |
| | Kubota Credit Owner Trust 2020-1A, Class A3, 1.960%, 3/15/2024 | |
| | Kubota Credit Owner Trust 2020-2A, Class A2, 0.410%, 6/15/2023 | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | Equipment Lease— continued | |
| | Transportation Finance Equipment Trust 2019-1, Class D, 2.570%, 1/25/2027 | |
| | Volvo Financial Equipment LLC 2019-1A, Class B, 3.260%, 1/16/2024 | |
| | Volvo Financial Equipment LLC 2019-2A, Class C, 2.500%, 5/17/2027 | |
| | Volvo Financial Equipment LLC 2020-1A, Class A4, 0.600%, 3/15/2028 | |
| | Volvo Financial Equipment Master Series 2017- A, Class A, 0.648% (1-month USLIBOR +0.500%), 11/15/2022 | |
| | Volvo Financial Equipment Master Series 2018- A, Class A, 0.668% (1-month USLIBOR +0.520%), 7/17/2023 | |
| | | |
| | | |
| | ContiMortgage Home Equity Loan Trust 1996-4, Class A10, 0.628% (1-month USLIBOR +0.480%), 1/15/2028 | |
| | Green Tree Home Improvement Loan Trust 1997-C, Class HEB2, 7.590%, 8/15/2028 | |
| | NC Finance Trust 1999-1, Class D, 8.750%, 1/25/2029 | |
| | | |
| | | |
| | ARI Fleet Lease Trust 2017-A, Class A3, 2.280%, 4/15/2026 | |
| | Chesapeake Funding II LLC 2017-2A, Class D, 3.710%, 5/15/2029 | |
| | Chesapeake Funding II LLC 2017-4A, Class C, 2.760%, 11/15/2029 | |
| | Chesapeake Funding II LLC 2018-1A, Class C, 3.570%, 4/15/2030 | |
| | Chesapeake Funding II LLC 2018-2A, Class D, 4.060%, 8/15/2030 | |
| | Chesapeake Funding II LLC 2019-1A, Class C, 3.360%, 4/15/2031 | |
| | Chesapeake Funding II LLC 2019-1A, Class D, 3.800%, 4/15/2031 | |
| | Chesapeake Funding II LLC 2020-1A, Class B, 1.240%, 8/16/2032 | |
| | Chesapeake Funding II LLC 2020-1A, Class D, 2.830%, 8/16/2032 | |
| | Chesapeake Funding LLC 2017-3A, Class B, 2.570%, 8/15/2029 | |
| | Chesapeake Funding LLC 2017-3A, Class C, 2.780%, 8/15/2029 | |
| | Chesapeake Funding LLC 2017-3A, Class D, 3.380%, 8/15/2029 | |
| | Enterprise Fleet Financing LLC 2018-2 A2, Class A2, 3.140%, 2/20/2024 | |
| | Enterprise Fleet Financing LLC 2019-2, Class A3, 2.380%, 2/20/2025 | |
| | Enterprise Fleet Financing LLC 2020-1, Class A3, 1.860%, 12/22/2025 | |
| | Mississippi Higher Education Assistance Corp. 2014-1, Class A1, 0.829% (1-month USLIBOR +0.680%), 10/25/2035 | |
| | Navient Student Loan Trust 2019-D, Class A2A, 3.010%, 12/15/2059 | |
| | Navient Student Loan Trust 2020-GA, Class A, 144A, 1.170%, 9/16/2069 | |
| | Navistar Financial Dealer Note Master Trust 2019-1, Class B, 0.899% (1-month USLIBOR +0.750%), 5/25/2024 | |
| | Navistar Financial Dealer Note Master Trust 2019-1, Class D, 1.599% (1-month USLIBOR +1.450%), 5/25/2024 | |
| | Navistar Financial Dealer Note Master Trust 2020-1 A, Class A, 1.099% (1-month USLIBOR +0.950%), 7/25/2025 | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | | |
| | Navistar Financial Dealer Note Master Trust 2020-1 A, Class C, 2.299% (1-month USLIBOR +2.150%), 7/25/2025 | |
| | Navistar Financial Dealer Note Master Trust 2020-1 A, Class D, 3.049% (1-month USLIBOR +2.900%), 7/25/2025 | |
| | PFS Financing Corp. 2018-B, Class B, 3.080%, 2/15/2023 | |
| | PFS Financing Corp. 2018-F, Class B, 3.770%, 10/15/2023 | |
| | PFS Financing Corp. 2019-B, Class A, 0.698% (1-month USLIBOR +0.550%), 9/15/2023 | |
| | PFS Financing Corp. 2019-C, Class B, 2.420%, 10/15/2024 | |
| | PFS Financing Corp. 2020-E, Class B, 1.570%, 10/15/2025 | |
| | PFS Financing Corp. 2020-G, Class A, 0.970%, 2/15/2026 | |
| | PFS Financing Corp. 2020-G, Class B, 1.570%, 2/15/2026 | |
| | Public Service New Hampshire 2018-1, Class A1, 3.094%, 2/1/2026 | |
| | Sierra Receivables Funding Co. 2020-2A, Class A, 1.330%, 7/20/2037 | |
| | SLM Student Loan Trust 2011-2, Class A1, 0.749% (1-month USLIBOR +0.600%), 11/25/2027 | |
| | Social Professional Loan Program LLC 2017-A, Class A1, 0.849% (1-month USLIBOR +0.700%), 3/26/2040 | |
| | Social Professional Loan Program LLC 2017-E, Class A1, 0.649% (1-month USLIBOR +0.500%), 11/26/2040 | |
| | Social Professional Loan Program LLC 2018-A, Class A1, 0.499% (1-month USLIBOR +0.350%), 2/25/2042 | |
| | Social Professional Loan Program LLC 2018-C, Class A1FX, 3.080%, 1/25/2048 | |
| | Social Professional Loan Program LLC 2019-A, Class A1FX, 3.180%, 6/15/2048 | |
| | Social Professional Loan Program LLC 2019-B, Class A1FX, 2.780%, 8/17/2048 | |
| | Sofi Consumer Loan Program Trust 2016-1, Class A, 3.260%, 8/25/2025 | |
| | Sofi Consumer Loan Program Trust 2019-3, Class A, 2.900%, 5/25/2028 | |
| | Sofi Consumer Loan Program Trust 2020-1, Class B, 2.250%, 1/25/2029 | |
| | State Board of Regents of the State of Utah 2016-1, Class A, 0.899% (1-month USLIBOR +0.750%), 9/25/2056 | |
| | Verizon Owner Trust 2018-1A, Class A1A, 2.820%, 9/20/2022 | |
| | Verizon Owner Trust 2018-1A, Class C, 3.550%, 4/20/2023 | |
| | Verizon Owner Trust 2019-A, Class C, 2.600%, 12/20/2023 | |
| | Verizon Owner Trust 2019-B, Class A1A, 2.330%, 12/20/2023 | |
| | Verizon Owner Trust 2019-C, Class A1A, 1.940%, 4/22/2024 | |
| | Verizon Owner Trust 2019-C, Class C, 2.160%, 4/22/2024 | |
| | Verizon Owner Trust 2020-A, Class C, 2.060%, 7/22/2024 | |
| | Verizon Owner Trust 2020-B, Class C, 0.830%, 2/20/2025 | |
| | Verizon Owner Trust 2020-C, Class B, 0.670%, 4/21/2025 | |
| | Verizon Owner Trust 2020-C, Class C, 0.770%, 4/21/2025 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | ASSET-BACKED SECURITIES— continued | |
| | Rate Reduction Bond— 0.0% | |
| | Atlantic City Electric Transition Funding 2002-1, Class A4, 5.550%, 10/20/2023 | |
| | TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $760,923,081) | |
| | | |
| | Basic Industry - Chemicals— 0.1% | |
| | Nutrition & Biosciences, Inc., Sr. Unsecd. Note, 144A, 0.697%, 9/15/2022 | |
| | Capital Goods - Aerospace & Defense— 1.1% | |
| | Boeing Co., Sr. Unsecd. Note, 1.950%, 2/1/2024 | |
| | Boeing Co., Sr. Unsecd. Note, 4.508%, 5/1/2023 | |
| | Leidos, Inc., Unsecd. Note, 144A, 2.950%, 5/15/2023 | |
| | Textron, Inc., Sr. Unsecd. Note, 3.900%, 9/17/2029 | |
| | | |
| | Capital Goods - Construction Machinery— 0.5% | |
| | CNH Industrial Capital America LLC, Sr. Unsecd. Note, 1.875%, 1/15/2026 | |
| | CNH Industrial Capital America LLC, Sr. Unsecd. Note, 1.950%, 7/2/2023 | |
| | CNH Industrial Capital America LLC, Sr. Unsecd. Note, 4.375%, 11/6/2020 | |
| | John Deere Capital Corp., Sr. Unsecd. Note, Series MTN, 0.400%, 10/10/2023 | |
| | | |
| | Capital Goods - Diversified Manufacturing— 1.7% | |
| | 3M Co., Sr. Unsecd. Note, 1.750%, 2/14/2023 | |
| | CK Hutchison Holdings Ltd., Sr. Unsecd. Note, 144A, 2.750%, 3/29/2023 | |
| | Honeywell International, Inc., Sr. Unsecd. Note, 0.483%, 8/19/2022 | |
| | Honeywell International, Inc., Sr. Unsecd. Note, 1.350%, 6/1/2025 | |
| | Lennox International, Inc., Sr. Unsecd. Note, 1.350%, 8/1/2025 | |
| | Roper Technologies, Inc., Sr. Unsecd. Note, 1.000%, 9/15/2025 | |
| | Roper Technologies, Inc., Sr. Unsecd. Note, 2.350%, 9/15/2024 | |
| | Wabtec Corp., Sr. Unsecd. Note, 3.200%, 6/15/2025 | |
| | | |
| | Communications - Cable & Satellite— 0.2% | |
| | Comcast Corp., Sr. Unsecd. Note, 0.866% (3-month USLIBOR +0.630%), 4/15/2024 | |
| | Communications - Media & Entertainment— 0.6% | |
| | Alphabet, Inc., Sr. Unsecd. Note, 0.450%, 8/15/2025 | |
| | Fox Corp., Sr. Unsecd. Note, Series WI, 3.666%, 1/25/2022 | |
| | Walt Disney Co., Sr. Unsecd. Note, 0.496% (3-month USLIBOR +0.250%), 9/1/2021 | |
| | Walt Disney Co., Sr. Unsecd. Note, 1.750%, 1/13/2026 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Communications - Telecom Wireless— 0.5% | |
| | Vodafone Group PLC, Sr. Unsecd. Note, 1.220% (3-month USLIBOR +0.990%), 1/16/2024 | |
| | Communications - Telecom Wirelines— 0.2% | |
| | AT&T, Inc., Sr. Unsecd. Note, 1.429% (3-month USLIBOR +1.180%), 6/12/2024 | |
| | Consumer Cyclical - Automotive— 3.0% | |
| | American Honda Finance Corp., Sr. Unsecd. Note, Series GMTN, 0.466% (3-month USLIBOR +0.210%), 2/12/2021 | |
| | American Honda Finance Corp., Sr. Unsecd. Note, Series MTN, 0.650%, 9/8/2023 | |
| | Daimler Finance NA LLC, Sr. Unsecd. Note, 144A, 0.706% (3-month USLIBOR +0.450%), 2/22/2021 | |
| | Daimler Finance NA LLC, Sr. Unsecd. Note, 144A, 3.400%, 2/22/2022 | |
| | General Motors Co., Sr. Unsecd. Note, 5.400%, 10/2/2023 | |
| | General Motors Financial Co., Inc., Sr. Unsecd. Note, 1.778% (3-month USLIBOR +1.550%), 1/14/2022 | |
| | General Motors Financial Co., Inc., Sr. Unsecd. Note, 2.900%, 2/26/2025 | |
| | General Motors Financial Co., Inc., Sr. Unsecd. Note, 5.200%, 3/20/2023 | |
| | Hyundai Capital America, Sr. Unsecd. Note, 144A, 1.800%, 10/15/2025 | |
| | Hyundai Capital America, Sr. Unsecd. Note, 144A, 2.375%, 2/10/2023 | |
| | Nissan Motor Acceptance Corp., Sr. Unsecd. Note, 144A, 0.857% (3-month USLIBOR +0.630%), 9/21/2021 | |
| | Toyota Motor Credit Corp., Sr. Unsecd. Note, Series GMTN, 3.050%, 1/8/2021 | |
| | Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN, 0.378% (3-month USLIBOR +0.125%), 8/13/2021 | |
| | Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN, 0.914% (3-month USLIBOR +0.690%), 1/11/2022 | |
| | Toyota Motor Credit Corp., Sr. Unsecd. Note, Series MTN, 1.150%, 5/26/2022 | |
| | Volkswagen Group of America Finance LLC, Sr. Unsecd. Note, 144A, 2.500%, 9/24/2021 | |
| | Volkswagen Group of America Finance LLC, Sr. Unsecd. Note, 144A, 2.900%, 5/13/2022 | |
| | | |
| | Consumer Cyclical - Retailers— 0.4% | |
| | Alimentation Couche-Tard, Inc., Sr. Unsecd. Note, 144A, 2.700%, 7/26/2022 | |
| | CVS Health Corp., Sr. Unsecd. Note, 0.961% (3-month USLIBOR +0.720%), 3/9/2021 | |
| | CVS Health Corp., Sr. Unsecd. Note, 2.125%, 6/1/2021 | |
| | Home Depot, Inc., Sr. Unsecd. Note, 3.250%, 3/1/2022 | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Consumer Cyclical - Services— 0.4% | |
| | Amazon.com, Inc., Sr. Unsecd. Note, 2.400%, 2/22/2023 | |
| | Cintas Corp. No. 2, Sr. Unsecd. Note, 2.900%, 4/1/2022 | |
| | IHS Markit Ltd., Sr. Unsecd. Note, Series 5YR, 3.625%, 5/1/2024 | |
| | | |
| | Consumer Non-Cyclical - Food/Beverage— 1.5% | |
| | Constellation Brands, Inc., Sr. Unsecd. Note, 0.980% (3-month USLIBOR +0.700%), 11/15/2021 | |
| | General Mills, Inc., Sr. Unsecd. Note, 1.227% (3-month USLIBOR +1.010%), 10/17/2023 | |
| | Keurig Dr Pepper, Inc., Sr. Unsecd. Note, 3.551%, 5/25/2021 | |
| | McCormick & Co., Inc., Sr. Unsecd. Note, 2.700%, 8/15/2022 | |
| | Mondelez International, Inc., Sr. Unsecd. Note, 0.625%, 7/1/2022 | |
| | PepsiCo, Inc., Sr. Unsecd. Note, 0.400%, 10/7/2023 | |
| | PepsiCo, Inc., Sr. Unsecd. Note, 2.250%, 3/19/2025 | |
| | | |
| | Consumer Non-Cyclical - Health Care— 0.6% | |
| | Becton Dickinson & Co., Sr. Unsecd. Note, 1.279% (3-month USLIBOR +1.030%), 6/6/2022 | |
| | DH Europe Finance II S.a r.l., Sr. Unsecd. Note, Series 3YR, 2.050%, 11/15/2022 | |
| | | |
| | Consumer Non-Cyclical - Pharmaceuticals— 1.7% | |
| | AstraZeneca PLC, 0.700%, 4/8/2026 | |
| | AstraZeneca PLC, Sr. Unsecd. Note, 0.869% (3-month USLIBOR +0.620%), 6/10/2022 | |
| | Bayer US Finance II LLC, Sr. Unsecd. Note, 144A, 1.260% (3-month USLIBOR +1.010%), 12/15/2023 | |
| | Bristol-Myers Squibb Co., Sr. Unsecd. Note, Series WI, 2.900%, 7/26/2024 | |
| | Eli Lilly & Co., Sr. Unsecd. Note, 2.350%, 5/15/2022 | |
| | Gilead Sciences, Inc., Sr. Unsecd. Note, 0.750%, 9/29/2023 | |
| | Merck & Co., Inc., Sr. Unsecd. Note, 2.900%, 3/7/2024 | |
| | Royalty Pharma PLC, 144A, 1.200%, 9/2/2025 | |
| | | |
| | Consumer Non-Cyclical - Products— 0.7% | |
| | Procter & Gamble Co., Sr. Unsecd. Note, 0.550%, 10/29/2025 | |
| | Unilever Capital Corp., Sr. Unsecd. Note, 0.375%, 9/14/2023 | |
| | | |
| | Consumer Non-Cyclical - Tobacco— 0.5% | |
| | BAT International Finance PLC, Sr. Unsecd. Note, 1.668%, 3/25/2026 | |
| | Philip Morris International, Inc., Sr. Unsecd. Note, 1.125%, 5/1/2023 | |
| | | |
| | Energy - Independent— 0.5% | |
| | Canadian Natural Resources Ltd., Sr. Unsecd. Note, 2.050%, 7/15/2025 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Energy - Independent— continued | |
| | Occidental Petroleum Corp., Sr. Unsecd. Note, 1.730% (3-month USLIBOR +1.450%), 8/15/2022 | |
| | | |
| | Energy - Integrated— 1.8% | |
| | BP Capital Markets America, Inc., Sr. Unsecd. Note, 2.937%, 4/6/2023 | |
| | Chevron Corp., Sr. Unsecd. Note, 1.230% (3-month USLIBOR +0.950%), 5/16/2021 | |
| | Chevron U.S.A., Inc., Sr. Unsecd. Note, 0.687%, 8/12/2025 | |
| | Exxon Mobil Corp., Sr. Unsecd. Note, 1.902%, 8/16/2022 | |
| | Exxon Mobil Corp., Sr. Unsecd. Note, 2.222%, 3/1/2021 | |
| | Exxon Mobil Corp., Sr. Unsecd. Note, 2.992%, 3/19/2025 | |
| | Shell International Finance B.V., Sr. Unsecd. Note, 0.375%, 9/15/2023 | |
| | Shell International Finance B.V., Sr. Unsecd. Note, 1.875%, 5/10/2021 | |
| | Suncor Energy, Inc., Sr. Unsecd. Note, 2.800%, 5/15/2023 | |
| | | |
| | | |
| | Boardwalk Pipeline Partners LP, Sr. Unsecd. Note, 4.800%, 5/3/2029 | |
| | Enterprise Products Operating LLC, Sr. Unsecd. Note, 3.500%, 2/1/2022 | |
| | Kinder Morgan, Inc., Sr. Unsecd. Note, 1.516% (3-month USLIBOR +1.280%), 1/15/2023 | |
| | | |
| | Energy - Oil Field Services— 0.1% | |
| | Schlumberger Holdings Corp., Sr. Unsecd. Note, 144A, 3.750%, 5/1/2024 | |
| | | |
| | Valero Energy Corp., Sr. Unsecd. Note, 1.200%, 3/15/2024 | |
| | Valero Energy Corp., Sr. Unsecd. Note, 2.700%, 4/15/2023 | |
| | | |
| | Financial Institution - Banking— 10.6% | |
| | Associated Banc-Corp., Sr. Unsecd. Note, Series BKNT, 3.500%, 8/13/2021 | |
| | Associated Banc-Corp., Sub. Note, 4.250%, 1/15/2025 | |
| | Australia & New Zealand Banking Group Ltd New York, Unsecd. Note, 144A, 0.740% (3-month USLIBOR +0.460%), 5/17/2021 | |
| | Australia & New Zealand Banking Group, Melbourne, Sr. Unsecd. Note, 144A, 0.736% (3-month USLIBOR +0.490%), 11/21/2022 | |
| | Bank of America Corp., Sr. Unsecd. Note, 1.214% (3-month USLIBOR +1.000%), 4/24/2023 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series FRN, 0.589% (3-month USLIBOR +0.380%), 1/23/2022 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 0.810%, 10/24/2024 | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 3.458%, 3/15/2025 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Financial Institution - Banking— continued | |
| | Bank of America Corp., Sr. Unsecd. Note, Series MTN, 3.559%, 4/23/2027 | |
| | Bank of New York Mellon Corp., Sr. Unsecd. Note, Series MTN, 1.850%, 1/27/2023 | |
| | Bank of Nova Scotia, Sr. Unsecd. Note, 0.550%, 9/15/2023 | |
| | Bank of Nova Scotia, Sr. Unsecd. Note, 1.625%, 5/1/2023 | |
| | Canadian Imperial Bank of Commerce, Sr. Unsecd. Note, 0.887% (Secured Overnight Financing Rate +0.800%), 3/17/2023 | |
| | Canadian Imperial Bank of Commerce, Sr. Unsecd. Note, 0.950%, 6/23/2023 | |
| | Capital One Financial Corp., Sr. Unsecd. Note, 3.450%, 4/30/2021 | |
| | Citibank NA, Sr. Unsecd. Note, Series BKNT, 0.606% (3-month USLIBOR +0.350%), 2/12/2021 | |
| | Citibank NA, Sr. Unsecd. Note, Series BKNT, 3.165%, 2/19/2022 | |
| | Citigroup, Inc., Sr. Unsecd. Note, 0.956% (Secured Overnight Financing Rate +0.870%), 11/4/2022 | |
| | Citigroup, Inc., Sr. Unsecd. Note, 3.352%, 4/24/2025 | |
| | Citizens Bank N.A., Sr. Unsecd. Note, Series BKNT, 3.250%, 2/14/2022 | |
| | Citizens Bank, N.A., Providence, Sr. Unsecd. Note, Series BKNT, 2.250%, 4/28/2025 | |
| | Compass Bank, Birmingham, Sr. Unsecd. Note, Series BKNT, 0.980% (3-month USLIBOR +0.730%), 6/11/2021 | |
| | Fifth Third Bank, Sr. Unsecd. Note, Series BKNT, 1.800%, 1/30/2023 | |
| | FNB Corp. (PA), Sr. Unsecd. Note, 2.200%, 2/24/2023 | |
| | Goldman Sachs Group, Inc., Sr. Unsecd. Note, 0.994% (3-month USLIBOR +0.780%), 10/31/2022 | |
| | Goldman Sachs Group, Inc., Sr. Unsecd. Note, 1.006% (3-month USLIBOR +0.750%), 2/23/2023 | |
| | HSBC Holdings PLC, Sr. Unsecd. Note, 1.270% (3-month USLIBOR +1.000%), 5/18/2024 | |
| | HSBC Holdings PLC, Sr. Unsecd. Note, 1.645%, 4/18/2026 | |
| | Huntington National Bank, Sr. Unsecd. Note, 1.800%, 2/3/2023 | |
| | Huntington National Bank, Sr. Unsecd. Note, Series BKNT, 3.125%, 4/1/2022 | |
| | JPMorgan Chase & Co., Sr. Unsecd. Note, 1.514%, 6/1/2024 | |
| | Manufacturers & Traders Trust Co., Sr. Unsecd. Note, Series BKNT, 0.880% (3-month USLIBOR +0.610%), 5/18/2022 | |
| | Manufacturers & Traders Trust Co., Sub. Note, Series BKNT, 0.886% (3-month USLIBOR +0.640%), 12/1/2021 | |
| | Mitsubishi UFJ Financial Group, Inc., Sr. Unsecd. Note, 0.848%, 9/15/2024 | |
| | Morgan Stanley, Sr. Unsecd. Note, Series GMTN, 0.789% (Secured Overnight Financing Rate +0.700%), 1/20/2023 | |
| | Morgan Stanley, Sr. Unsecd. Note, Series I, 0.864%, 10/21/2025 | |
| | Morgan Stanley, Sr. Unsecd. Note, Series MTN, 2.720%, 7/22/2025 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Financial Institution - Banking— continued | |
| | MUFG Union Bank, N.A., Sr. Unsecd. Note, Series BKNT, 0.798% (Secured Overnight Financing Rate +0.710%), 12/9/2022 | |
| | MUFG Union Bank, N.A., Sr. Unsecd. Note, Series BKNT, 3.150%, 4/1/2022 | |
| | National Australia Bank Ltd., Sr. Unsecd. Note, 1.875%, 12/13/2022 | |
| | National Bank of Canada, Montreal, Sr. Unsecd. Note, Series MTN, 2.100%, 2/1/2023 | |
| | PNC Bank National Association, Sr. Unsecd. Note, 0.671% (3-month USLIBOR +0.430%), 12/9/2022 | |
| | PNC Bank National Association, Sr. Unsecd. Note, Series BKNT, 2.232%, 7/22/2022 | |
| | PNC Bank National Association, Sr. Unsecd. Note, Series BKNT, 2.500%, 1/22/2021 | |
| | PNC Financial Services Group, Inc., Sr. Unsecd. Note, 3.500%, 1/23/2024 | |
| | Regions Financial Corp., Sr. Unsecd. Note, 2.250%, 5/18/2025 | |
| | Regions Financial Corp., Sr. Unsecd. Note, 3.800%, 8/14/2023 | |
| | Royal Bank of Canada, Sr. Unsecd. Note, Series GMTN, 0.944% (3-month USLIBOR +0.730%), 2/1/2022 | |
| | Royal Bank of Canada, Sr. Unsecd. Note, Series MTN, 0.500%, 10/26/2023 | |
| | State Street Corp., Sr. Unsecd. Note, 1.950%, 5/19/2021 | |
| | State Street Corp., Sr. Unsecd. Note, 144A, 2.825%, 3/30/2023 | |
| | Toronto Dominion Bank, Sr. Unsecd. Note, Series MTN, 0.450%, 9/11/2023 | |
| | Toronto Dominion Bank, Sr. Unsecd. Note, Series MTN, 0.680% (3-month USLIBOR +0.430%), 6/11/2021 | |
| | Truist Bank, Sr. Unsecd. Note, Series BKNT, 0.804% (3-month USLIBOR +0.590%), 8/2/2022 | |
| | Truist Bank, Sr. Unsecd. Note, Series BKNT, 2.800%, 5/17/2022 | |
| | UBS AG London, Sr. Unsecd. Note, 144A, 1.750%, 4/21/2022 | |
| | Wells Fargo Bank, N.A., Sr. Unsecd. Note, Series BKNT, 0.546% (3-month USLIBOR +0.310%), 1/15/2021 | |
| | Wells Fargo Bank, N.A., Sr. Unsecd. Note, Series BKNT, 2.082%, 9/9/2022 | |
| | Wells Fargo Bank, N.A., Sr. Unsecd. Note, Series BKNT, 2.600%, 1/15/2021 | |
| | Westpac Banking Corp., Sr. Unsecd. Note, 0.794% (3-month USLIBOR +0.570%), 1/11/2023 | |
| | | |
| | Financial Institution - Broker/Asset Mgr/Exchange— 0.3% | |
| | TD Ameritrade Holding Corp., Sr. Unsecd. Note, 0.644% (3-month USLIBOR +0.430%), 11/1/2021 | |
| | Financial Institution - Finance Companies— 0.2% | |
| | AerCap Ireland Capital Ltd. / AerCap Global Aviation Trust, Sr. Unsecd. Note, 4.450%, 12/16/2021 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Financial Institution - Finance Companies— continued | |
| | AerCap Ireland Capital Ltd. / AerCap Global Aviation Trust, Sr. Unsecd. Note, 4.875%, 1/16/2024 | |
| | | |
| | Financial Institution - Insurance - Health— 0.2% | |
| | CIGNA Corp., Sr. Unsecd. Note, Series WI, 0.896% (3-month USLIBOR +0.650%), 9/17/2021 | |
| | UnitedHealth Group, Inc., Sr. Unsecd. Note, 1.250%, 1/15/2026 | |
| | | |
| | Financial Institution - Insurance - Life— 1.3% | |
| | AIG Global Funding, Sec. Fac. Bond, 144A, 0.900%, 9/22/2025 | |
| | AIG Global Funding, Sr. Secd. Note, 144A, 0.800%, 7/7/2023 | |
| | Met Life Global Funding I, Sec. Fac. Bond, 144A, 2.400%, 6/17/2022 | |
| | Met Life Global Funding I, Sr. Secd. Note, 144A, 2.650%, 4/8/2022 | |
| | Met Life Real Estate Investments, Sec. Fac. Bond, 144A, 3.450%, 10/9/2021 | |
| | New York Life Global Funding, Sec. Fac. Bond, 144A, 0.400%, 10/21/2023 | |
| | New York Life Global Funding, Sec. Fac. Bond, 144A, 0.769% (3-month USLIBOR +0.520%), 6/10/2022 | |
| | New York Life Global Funding, Sec. Fac. Bond, 144A, 2.950%, 1/28/2021 | |
| | | |
| | Financial Institution - Insurance - P&C— 0.0% | |
| | HSB Group, Inc., Company Guarantee, Series B, 1.146% (3-month USLIBOR +0.910%), 7/15/2027 | |
| | Financial Institution - REIT - Office— 0.0% | |
| | Alexandria Real Estate Equities, Inc., Sr. Unsecd. Note, 4.000%, 1/15/2024 | |
| | | |
| | Apple, Inc., Sr. Unsecd. Note, 0.750%, 5/11/2023 | |
| | Apple, Inc., Sr. Unsecd. Note, 1.700%, 9/11/2022 | |
| | Broadcom, Inc., Sr. Unsecd. Note, 2.250%, 11/15/2023 | |
| | Broadcom, Inc., Sr. Unsecd. Note, 4.700%, 4/15/2025 | |
| | Dell International LLC / EMC Corp., 144A, 4.000%, 7/15/2024 | |
| | Dell International LLC / EMC Corp., Sec. Fac. Bond, 144A, 5.850%, 7/15/2025 | |
| | Equifax, Inc., Sr. Unsecd. Note, Series FRN, 1.150% (3-month USLIBOR +0.870%), 8/15/2021 | |
| | Fiserv, Inc., Sr. Unsecd. Note, 2.750%, 7/1/2024 | |
| | Fiserv, Inc., Sr. Unsecd. Note, 3.800%, 10/1/2023 | |
| | IBM Credit Corp., Sr. Unsecd. Note, 3.600%, 11/30/2021 | |
| | Micron Technology, Inc., Sr. Unsecd. Note, 2.497%, 4/24/2023 | |
| | | |
| | Transportation - Airlines— 0.3% | |
| | Southwest Airlines Co., Sr. Unsecd. Note, 4.750%, 5/4/2023 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Transportation - Services— 0.8% | |
| | Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, 144A, 1.200%, 11/15/2025 | |
| | Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, 144A, 2.700%, 3/14/2023 | |
| | Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, 144A, 3.450%, 7/1/2024 | |
| | Penske Truck Leasing Co. LP & PTL Finance Corp., Sr. Unsecd. Note, 144A, 3.650%, 7/29/2021 | |
| | Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 3.500%, 6/1/2021 | |
| | Ryder System, Inc., Sr. Unsecd. Note, Series MTN, 3.650%, 3/18/2024 | |
| | | |
| | | |
| | AEP Texas, Inc., Sr. Unsecd. Note, Series WI, 2.400%, 10/1/2022 | |
| | American Electric Power Co., Inc., Sr. Unsecd. Note, 2.150%, 11/13/2020 | |
| | Avangrid, Inc., Sr. Unsecd. Note, 3.200%, 4/15/2025 | |
| | Consolidated Edison Co., Sr. Unsecd. Note, Series C, 0.625% (3-month USLIBOR +0.400%), 6/25/2021 | |
| | Dominion Energy, Inc., Sr. Unsecd. Note, Series D, 0.776% (3-month USLIBOR +0.530%), 9/15/2023 | |
| | Duke Energy Progress LLC, Sr. Unsecd. Note, Series A, 0.433% (3-month USLIBOR +0.180%), 2/18/2022 | |
| | EverSource Energy, Sr. Unsecd. Note, Series Q, 0.800%, 8/15/2025 | |
| | Exelon Corp., Jr. Sub. Note, 3.497%, 6/1/2022 | |
| | Exelon Generation Co. LLC, Sr. Unsecd. Note, 3.250%, 6/1/2025 | |
| | Florida Power & Light Co., Sr. Unsecd. Note, 0.602% (3-month USLIBOR +0.380%), 7/28/2023 | |
| | National Rural Utilities Cooperative Finance Corp., Sr. Unsecd. Note, Series MTN, 1.750%, 1/21/2022 | |
| | National Rural Utilities Cooperative Finance Corp., Sr. Unsecd. Note, Series MTN, 2.900%, 3/15/2021 | |
| | NextEra Energy Capital Holdings, Inc., Sr. Unsecd. Note, 2.750%, 5/1/2025 | |
| | Oncor Electric Delivery Co. LLC, Sec. Fac. Bond, 144A, 0.550%, 10/1/2025 | |
| | PPL Electric Utilities Corp., Term Loan - 1st Lien, 0.475% (3-month USLIBOR +0.250%), 9/28/2023 | |
| | Public Service Enterprises Group, Inc., Sr. Unsecd. Note, 2.875%, 6/15/2024 | |
| | WEC Energy Group, Inc., Sr. Unsecd. Note, 0.550%, 9/15/2023 | |
| | Wisconsin Public Service, Sr. Unsecd. Note, 3.350%, 11/21/2021 | |
| | Xcel Energy, Inc., Sr. Unsecd. Note, 0.500%, 10/15/2023 | |
| | | |
| | Utility - Natural Gas— 0.4% | |
| | National Fuel Gas Co., Sr. Unsecd. Note, 5.500%, 1/15/2026 | |
Semi-Annual Shareholder Report
| | | |
| | CORPORATE BONDS— continued | |
| | Utility - Natural Gas Distributor— 0.2% | |
| | Southern California Gas Co., Sr. Unsecd. Note, 0.569% (3-month USLIBOR +0.350%), 9/14/2023 | |
| | TOTAL CORPORATE BONDS
(IDENTIFIED COST $700,574,096) | |
| | | |
| | U.S. Treasury Notes— 3.9% | |
| | United States Treasury Floating Rate Notes, 0.400% (91-day T-Bill +0.300%), 11/3/2020 | |
| | United States Treasury Note, 2.125%, 2/29/2024 | |
| | United States Treasury Note, 2.500%, 2/28/2026 | |
| | TOTAL U.S. TREASURIES
(IDENTIFIED COST $69,915,254) | |
| | COLLATERALIZED MORTGAGE OBLIGATIONS— 2.9% | |
| | Federal Home Loan Mortgage Corporation— 1.7% | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 1686, Class PJ, 5.000%, 2/15/2024 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 2091, Class PG, 6.000%, 11/15/2028 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 2647, Class A, 3.250%, 4/15/2032 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 2694, Class BA, 4.000%, 6/15/2031 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 2756, Class NA, 5.000%, 2/15/2024 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 3117, Class FE, 0.448% (1-month USLIBOR +0.300%), 2/15/2036 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 3152, Class WF, 0.608% (1-month USLIBOR +0.460%), 2/15/2034 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 3317, Class F, 0.548% (1-month USLIBOR +0.400%), 7/15/2036 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 3542, Class NF, 0.898% (1-month USLIBOR +0.750%), 7/15/2036 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 3556, Class FA, 1.058% (1-month USLIBOR +0.910%), 7/15/2037 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 3843, Class F, 0.478% (1-month USLIBOR +0.330%), 4/15/2041 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series 5031, Class FB, 0.386% (Secured Overnight Financing Rate +0.300%), 4/25/2041 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series K105, Class A1, 1.536%, 9/25/2029 | |
| | Federal Home Loan Mortgage Corp. REMIC, Series T-51, Class 1A, 6.500%, 9/25/2043 | |
| | | |
| | Federal National Mortgage Association— 0.9% | |
| | Federal National Mortgage Association REMIC, Series 1991-141, Class PZ, 8.000%, 10/25/2021 | |
Semi-Annual Shareholder Report
| | | |
| | COLLATERALIZED MORTGAGE OBLIGATIONS— continued | |
| | Federal National Mortgage Association— continued | |
| | Federal National Mortgage Association REMIC, Series 1992-162, Class D, 7.000%, 9/25/2022 | |
| | Federal National Mortgage Association REMIC, Series 1993-113, Class SB, 9.749% (10-year Constant Maturity Treasury +48.285%), Maximum Rate 9.749%, 7/25/2023 | |
| | Federal National Mortgage Association REMIC, Series 1993-179, Class FO, 4.000% (3-month Constant Maturity Treasury +0.700%), 10/25/2023 | |
| | Federal National Mortgage Association REMIC, Series 1993-32, Class H, 6.000%, 3/25/2023 | |
| | Federal National Mortgage Association REMIC, Series 1997-81, Class PD, 6.350%, 12/18/2027 | |
| | Federal National Mortgage Association REMIC, Series 2002-52, Class FG, 0.649% (1-month USLIBOR +0.500%), 9/25/2032 | |
| | Federal National Mortgage Association REMIC, Series 2003-35, Class UC, 3.750%, 5/25/2033 | |
| | Federal National Mortgage Association REMIC, Series 2006-44, Class FK, 0.579% (1-month USLIBOR +0.430%), 6/25/2036 | |
| | Federal National Mortgage Association REMIC, Series 2007-97, Class FE, 0.599% (1-month USLIBOR +0.450%), 7/25/2037 | |
| | Federal National Mortgage Association REMIC, Series 2008-69, Class FB, 1.149% (1-month USLIBOR +1.000%), 6/25/2037 | |
| | Federal National Mortgage Association REMIC, Series 2009-42, Class FG, 0.949% (1-month USLIBOR +0.800%), 5/25/2039 | |
| | Federal National Mortgage Association REMIC, Series 2009-69, Class F, 0.999% (1-month USLIBOR +0.850%), 4/25/2037 | |
| | Federal National Mortgage Association REMIC, Series 2010-74, Class AF, 0.689% (1-month USLIBOR +0.540%), 7/25/2037 | |
| | Federal National Mortgage Association REMIC, Series 2011-17, Class FP, 0.599% (1-month USLIBOR +0.450%), 3/25/2041 | |
| | Federal National Mortgage Association REMIC, Series 2012-1, Class PF, 0.549% (1-month USLIBOR +0.400%), 2/25/2042 | |
| | Federal National Mortgage Association REMIC, Series 2016-24, Class FG, 0.499% (1-month USLIBOR +0.350%), 5/25/2046 | |
| | Federal National Mortgage Association REMIC, Series 2017-24, Class FB, 0.499% (1-month USLIBOR +0.350%), 4/25/2047 | |
| | Federal National Mortgage Association REMIC, Series 2020-68, Class FB, 0.449% (1-month USLIBOR +0.300%), 10/25/2060 | |
| | Federal National Mortgage Association REMIC, Series G92-44, Class ZQ, 8.000%, 7/25/2022 | |
| | Federal National Mortgage Association REMIC, Series G92-54, Class ZQ, 7.500%, 9/25/2022 | |
| | Federal National Mortgage Association, Class FB, 0.649% (1-month USLIBOR +0.500%), 8/25/2039 | |
| | | |
| | Government National Mortgage Association— 0.3% | |
| | Government National Mortgage Association REMIC, Series 2013-H16, Class FA, 0.695% (1-month USLIBOR +0.540%), 7/20/2063 | |
Semi-Annual Shareholder Report
| | | |
| | COLLATERALIZED MORTGAGE OBLIGATIONS— continued | |
| | Government National Mortgage Association— continued | |
| | Government National Mortgage Association REMIC, Series 2013-H17, Class FA, 0.705% (1-month USLIBOR +0.550%), 7/20/2063 | |
| | | |
| | TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $55,752,736) | |
| | COMMERCIAL MORTGAGE-BACKED SECURITIES— 2.5% | |
| | Commercial Mortgage— 2.5% | |
| | BHMS Mortgage Trust 2018-ATLS, Class A, 1.398% (1-month USLIBOR +1.250%), 7/15/2035 | |
| | Cosmopolitan Hotel Trust 2017-CSMO, Class B, 1.548% (1-month USLIBOR +1.400%), 11/15/2036 | |
| | DBWF Mortgage Trust 2018-GLKS, Class A, 1.177% (1-month USLIBOR +1.030%), 12/19/2030 | |
| | DBWF Mortgage Trust 2018-GLKS, Class B, 1.497% (1-month USLIBOR +1.350%), 12/19/2030 | |
| | Deutsche Bank Commercial Mortgage Trust 2016-C1, Class A1, 1.676%, 5/10/2049 | |
| | Fontainebleau Miami Beach Trust, Class B, 3.447%, 12/10/2036 | |
| | UBS-Barclays Commercial Mortgage Trust 2013-C6, Class A3FL, 0.935% (1-month USLIBOR +0.790%), 4/10/2046 | |
| | WF-RBS Commercial Mortgage Trust 2012-C7, Class AFL, 1.347% (1-month USLIBOR +1.200%), 6/15/2045 | |
| | TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $49,341,046) | |
| | NON-AGENCY MORTGAGE-BACKED SECURITIES— 1.3% | |
| | Non-Agency Mortgage— 1.3% | |
| | Banc of America Mortgage Securities 2003-B, Class 2A2, 4.371%, 3/25/2033 | |
| | Countrywide Alternative Loan Trust 2003-J3, Class 2A1, 6.250%, 12/25/2033 | |
| | Gosforth Funding PLC 2018-1A, Class A1, 0.700% (3-month USLIBOR +0.450%), 8/25/2060 | |
| | Holmes Master Issuer PLC 2018-2A, Class A2, 0.695% (3-month USLIBOR +0.420%), 10/15/2054 | |
| | Lanark Master Issuer PLC 2018-2A, Class 1A, 0.676% (3-month USLIBOR +0.420%), 12/22/2069 | |
| | Lanark Master Issuer PLC 2020-1A, Class 1A, 2.277%, 12/22/2069 | |
| | Residential Accredit Loans, Inc. 2004-QA4, Class NB1, 0.246%, 9/25/2034 | |
| | Sequoia Mortgage Trust 2012-6, Class A2, 1.808%, 12/25/2042 | |
| | Sequoia Mortgage Trust 2013-1, Class 2A1, 1.855%, 2/25/2043 | |
| | Sequoia Mortgage Trust 2013-2, Class A, 1.874%, 2/25/2043 | |
| | Silverstone Master Issuer 2018-1A, Class 1A, 0.598% (3-month USLIBOR +0.390%), 1/21/2070 | |
| | Vendee Mortgage Trust 1994-3A, Class 1ZB, 6.500%, 9/15/2024 | |
Semi-Annual Shareholder Report
| | | |
| | NON-AGENCY MORTGAGE-BACKED SECURITIES— continued | |
| | Non-Agency Mortgage— continued | |
| | Washington Mutual 2006-AR15, Class 1A, 1.722% (Fed Reserve 12Mo Cumulative Avg 1 Yr CMT +0.840%), 11/25/2046 | |
| | Washington Mutual 2006-AR17, Class 1A, 1.840% (Fed Reserve 12Mo Cumulative Avg 1 Yr CMT +0.820%), 12/25/2046 | |
| | TOTAL NON-AGENCY MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $24,343,145) | |
| | FOREIGN GOVERNMENTS/AGENCY— 0.1% | |
| | | |
| | Corp Andina De Fomento, Sr. Unsecd. Note, 2.125%, 9/27/2021
(IDENTIFIED COST $2,998,930) | |
| | ADJUSTABLE RATE MORTGAGES— 0.1% | |
| | Federal Home Loan Mortgage Corporation— 0.0% | |
| | FHLMC ARM, 1.897%, 10/1/2030 | |
| | FHLMC ARM, 3.601%, 3/1/2033 | |
| | FHLMC ARM, 5.331%, 11/1/2030 | |
| | | |
| | Federal National Mortgage Association— 0.1% | |
| | FNMA ARM, 1.932%, 8/1/2033 | |
| | FNMA ARM, 2.420%, 5/1/2040 | |
| | FNMA ARM, 2.420%, 5/1/2040 | |
| | FNMA ARM, 2.448%, 10/1/2027 | |
| | FNMA ARM, 2.477%, 5/1/2034 | |
| | FNMA ARM, 2.504%, 4/1/2028 | |
| | | |
| | Government National Mortgage Association— 0.0% | |
| | GNMA ARM, 3.000%, 1/20/2022 | |
| | TOTAL ADJUSTABLE RATE MORTGAGES
(IDENTIFIED COST $1,134,245) | |
| | MORTGAGE-BACKED SECURITIES— 0.0% | |
| | Federal Home Loan Mortgage Corporation— 0.0% | |
| | Federal Home Loan Mortgage Corp., Pool C90493, 6.500%, 11/1/2021 | |
| | Federal National Mortgage Association— 0.0% | |
| | Federal National Mortgage Association, Pool 728568, 6.500%, 10/1/2033 | |
| | Government National Mortgage Association— 0.0% | |
| | Government National Mortgage Association, Pool 354754, 7.500%, 2/15/2024 | |
| | Government National Mortgage Association, Pool 423843, 8.500%, 8/15/2026 | |
| | | |
| | TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $51,204) | |
| | INVESTMENT COMPANIES— 12.9% | |
| | | |
Semi-Annual Shareholder Report
| | | |
| | INVESTMENT COMPANIES— continued | |
| | Federated Hermes Government Obligations Fund, Premier Shares, 0.03%5 | |
| | Federated Hermes Institutional Prime Value Obligations Fund, Institutional Shares, 0.10%5 | |
| | Federated Mortgage Core Portfolio | |
| | High Yield Bond Portfolio | |
| | TOTAL INVESTMENT COMPANIES
(IDENTIFIED COST $247,393,500) | |
| | TOTAL INVESTMENT IN SECURITIES—101.2%
(IDENTIFIED COST $1,912,427,237)6 | |
| | OTHER ASSETS AND LIABILITIES - NET—(1.2)%7 | |
| | | |
At October 31, 2020, the Fund had the following outstanding futures contracts:
| | | | Value and
Unrealized
Depreciation |
| | | | |
8United States Treasury Note 2-Year Long Futures | | | | |
8United States Treasury Note 5-Year Long Futures | | | | |
NET UNREALIZED DEPRECIATION ON FUTURES CONTRACTS | |
Net Unrealized Depreciation on Futures Contracts is included in “Other Assets and Liabilities—Net.”
Semi-Annual Shareholder Report
[PAGE INTENTIONALLY LEFT BLANK]
Semi-Annual Shareholder Report
Affiliated fund holdings are investment companies which are managed by the Adviser or an affiliate of the Adviser. Transactions with the affiliated fund holdings during the period ended October 31, 2020, were as follows:
| | | |
| | | |
Federated Hermes Government Obligations Fund, Premier Shares | | | |
Federated Hermes Institutional Prime Value Obligations Fund, Institutional Shares | | | |
Federated Mortgage Core Portfolio | | | |
High Yield Bond Portfolio | | | |
TOTAL OF AFFILIATED TRANSACTIONS | | | |
Semi-Annual Shareholder Report
Change in
Unrealized
Appreciation/
Depreciation | | | Shares
Held as of
10/31/2020 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| Floating/adjustable note with current rate and current maturity or next reset date shown. Adjustable rate mortgage security coupons are based on the weighted average note rates of the underlying mortgages less the guarantee and servicing fees. These securities do not indicate an index and spread in their description above. |
| Market quotations and price evaluations are not available. Fair value determined using significant unobservable inputs in accordance with procedures established by and under the general supervision of the Fund’s Board of Trustees (the “Trustees”). |
| All or a portion of these securities are temporarily on loan to unaffiliated broker/dealers. |
| All or a portion of this security is pledged as collateral to ensure the Fund is able to satisfy the obligations of its outstanding futures contracts. |
| |
| The cost of investments for federal tax purposes amounts to $1,912,427,237. |
| Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities. |
| Non-income-producing security. |
Note: The categories of investments are shown as a percentage of total net assets at October 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.
Semi-Annual Shareholder Report
The following is a summary of the inputs used, as of October 31, 2020, in valuing the Fund’s assets carried at fair value:
|
| | Level 2—
Other
Significant
Observable
Inputs | Level 3—
Significant
Unobservable
Inputs | |
| | | | |
| | | | |
| | | | |
| | | | |
Collateralized Mortgage Obligations | | | | |
Commercial Mortgage-Backed Securities | | | | |
Non-Agency Mortgage-Backed Securities | | | | |
Foreign Governments/Agency | | | | |
Adjustable Rate Mortgages | | | | |
Mortgage-Backed Securities | | | | |
| | | | |
| | | | |
Other Financial Instruments:1 | | | | |
| | | | |
TOTAL OTHER FINANCIAL INSTRUMENTS | | | | |
| Other financial instruments are futures contracts. |
The following acronym(s) are used throughout this portfolio: | |
| —Adjustable Rate Mortgage |
| |
| —Constant Maturity Treasury |
| —Federal Home Loan Mortgage Corporation |
| —Federal National Mortgage Association |
| |
| —Government National Mortgage Association |
| —London Interbank Offered Rate |
| |
| —Real Estate Investment Trust |
| —Real Estate Mortgage Investment Conduit |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class A Shares
(For a Share Outstanding Throughout Each Period)
| Six Months
Ended
(unaudited)
10/31/2020 | |
| | | | | |
Net Asset Value, Beginning of Period | | | | | | |
Income From Investment Operations: | | | | | | |
| | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total From Investment Operations | | | | | | |
| | | | | | |
Distributions from net investment income | | | | | | |
Net Asset Value, End of Period | | | | | | |
| | | | | | |
Ratios to Average Net Assets: | | | | | | |
| | | | | | |
| | | | | | |
Expense waiver/reimbursement5 | | | | | | |
| | | | | | |
Net assets, end of period (000 omitted) | | | | | | |
| | | | | | |
| Represents less than $0.01. |
| Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized. |
| Amount does not reflect net expenses incurred by investment companies in which the Fund may invest. |
| Computed on an annualized basis. |
| This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights – Institutional Shares1
(For a Share Outstanding Throughout Each Period)
| Six Months
Ended
(unaudited)
10/31/2020 | |
| | | | | |
Net Asset Value, Beginning of Period | | | | | | |
Income From Investment Operations: | | | | | | |
| | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total From Investment Operations | | | | | | |
| | | | | | |
Distributions from net investment income | | | | | | |
Net Asset Value, End of Period | | | | | | |
| | | | | | |
Ratios to Average Net Assets: | | | | | | |
| | | | | | |
| | | | | | |
Expense waiver/reimbursement5 | | | | | | |
| | | | | | |
Net assets, end of period (000 omitted) | | | | | | |
| | | | | | |
| Prior to November 2, 2018, Institutional Shares were designated as the Class Y Shares. |
| Based on net asset value. Total returns for periods of less than one year are not annualized. |
| Amount does not reflect net expenses incurred by investment companies in which the Fund may invest. |
| Computed on an annualized basis. |
| This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights – Service Shares1
(For a Share Outstanding Throughout Each Period)
| Six Months
Ended
(unaudited)
10/31/2020 | |
| | | | | |
Net Asset Value, Beginning of Period | | | | | | |
Income From Investment Operations: | | | | | | |
| | | | | | |
Net realized and unrealized gain (loss) | | | | | | |
Total From Investment Operations | | | | | | |
| | | | | | |
Distributions from net investment income | | | | | | |
Net Asset Value, End of Period | | | | | | |
| | | | | | |
Ratios to Average Net Assets: | | | | | | |
| | | | | | |
| | | | | | |
Expense waiver/reimbursement5 | | | | | | |
| | | | | | |
Net assets, end of period (000 omitted) | | | | | | |
| | | | | | |
| Prior to November 2, 2018, new Service Shares were designated as Institutional Shares. At the close of business on November 2, 2018, the existing Service Shares were converted into the newly re-designated Service Shares. |
| Based on net asset value. Total returns for periods of less than one year are not annualized. |
| Amount does not reflect net expenses incurred by investment companies in which the Fund may invest. |
| Computed on an annualized basis. |
| This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Financial Highlights–Class R6 Shares
(For a Share Outstanding Throughout Each Period)
| Six Months
Ended
(unaudited)
10/31/2020 | | |
| | | |
Net Asset Value, Beginning of Period | | | | | |
Income From Investment Operations: | | | | | |
| | | | | |
Net realized and unrealized gain (loss) | | | | | |
Total From Investment Operations | | | | | |
| | | | | |
Distributions from net investment income | | | | | |
Net Asset Value, End of Period | | | | | |
| | | | | |
Ratios to Average Net Assets: | | | | | |
| | | | | |
| | | | | |
Expense waiver/reimbursement5 | | | | | |
| | | | | |
Net assets, end of period (000 omitted) | | | | | |
| | | | | |
| Reflects operations for the period from January 20, 2017 (date of initial investment) to April 30, 2017. Certain ratios included above in Ratios to Average Net Assets and per share amounts may be inflated or deflated as compared to the fee structure for each respective share class as a result of daily systematic allocations being rounded to the nearest penny for fund level income, expense and realized/unrealized gain/loss amounts. Such differences are immaterial. |
| Based on net asset value. Total returns for periods of less than one year are not annualized. |
| Amount does not reflect net expenses incurred by investment companies in which the Fund may invest. |
| Computed on an annualized basis. |
| This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest. |
| Represents less than $1,000. |
| Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended April 30, 2017. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Assets and LiabilitiesOctober 31, 2020 (unaudited)
| |
Investment in securities, at value including $545,600 of securities loaned and $246,442,518 of investment in affiliated holdings* (identified cost $1,912,427,237) | |
| |
Income receivable from affiliated holdings | |
Receivable for shares sold | |
| |
| |
Payable for investments purchased | |
Payable for shares redeemed | |
Payable for variation margin on futures contracts | |
Payable for collateral due to broker for securities lending | |
Income distribution payable | |
Payable to adviser (Note 5) | |
Payable for administrative fee (Note 5) | |
Payable for other service fees (Notes 2 and 5) | |
Accrued expenses (Note 5) | |
| |
Net assets for 220,544,977 shares outstanding | |
| |
| |
Total distributable earnings (loss) | |
| |
Semi-Annual Shareholder Report
Statement of Assets and Liabilities–continued
Net Asset Value, Offering Price and Redemption Proceeds Per Share: | |
| |
Net asset value per share ($372,215,805 ÷ 42,846,622 shares outstanding), no par value, unlimited shares authorized | |
Offering price per share (100/99.00 of $8.69) | |
Redemption proceeds per share | |
| |
Net asset value per share ($1,011,757,892 ÷ 116,495,717 shares outstanding), no par value, unlimited shares authorized | |
| |
Redemption proceeds per share | |
| |
Net asset value per share ($338,952,467 ÷ 39,047,832 shares outstanding), no par value, unlimited shares authorized | |
| |
Redemption proceeds per share | |
| |
Net asset value per share ($192,521,797 ÷ 22,154,806 shares outstanding), no par value, unlimited shares authorized | |
| |
Redemption proceeds per share | |
| See information listed after the Fund’s Portfolio of Investments. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of OperationsSix Months Ended October 31, 2020 (unaudited)
| |
| |
Dividends (including $1,898,789 received from affiliated holdings*) | |
Net income on securities loaned (includes $87 received from affiliated holdings related to cash collateral balances (Note 2)*) | |
| |
| |
Investment adviser fee (Note 5) | |
Administrative fee (Note 5) | |
| |
Transfer agent fees (Note 2) | |
Directors’/Trustees’ fees (Note 5) | |
| |
| |
Portfolio accounting fees | |
Other service fees (Notes 2 and 5) | |
| |
| |
| |
| |
Waiver and Reimbursements: | |
Waiver/reimbursement of investment adviser fee (Note 5) | |
Reimbursement of other operating expenses (Notes 2 and 5) | |
TOTAL WAIVER AND REIMBURSEMENTS | |
| |
| |
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts: | |
Net realized gain on investments (including net realized gain of $88,746 on sales of investments in affiliated holdings*) | |
Net realized gain on futures contracts | |
Net change in unrealized depreciation of investments (including net change in unrealized depreciation of $1,938,147 on investments in affiliated holdings*) | |
Net change in unrealized appreciation of futures contracts | |
Net realized and unrealized gain (loss) on investments and futures contracts | |
Change in net assets resulting from operations | |
| See information listed after the Fund’s Portfolio of Investments. |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Statement of Changes in Net Assets
| Six Months
Ended
(unaudited)
10/31/2020 | |
Increase (Decrease) in Net Assets | | |
| | |
| | |
| | |
Net change in unrealized appreciation/depreciation | | |
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | | |
Distributions to Shareholders: | | |
| | |
| | |
| | |
| | |
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | | |
| | |
Proceeds from sale of shares | | |
Net asset value of shares issued to shareholders in payment of distributions declared | | |
| | |
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | | |
| | |
| | |
| | |
| | |
See Notes which are an integral part of the Financial Statements
Semi-Annual Shareholder Report
Notes to Financial Statements
October 31, 2020 (unaudited)
1. ORGANIZATION
Federated Hermes Income Securities Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of seven portfolios. The financial statements included herein are only those of Federated Hermes Short-Term Income Fund (the “Fund”), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Class A Shares, Institutional Shares, Service Shares and Class R6 Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The investment objective of the Fund is to seek to provide current income.
Prior to June 29, 2020, the name of the Trust and Fund was Federated Income Securities Trust and Federated Short-Term Income Fund, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
■
Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by the Trustees.
■
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs.
■
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and asked quotations.
■
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
■
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.
■
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.
Semi-Annual Shareholder Report
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Fund’s valuation policies and procedures, or if information furnished by a pricing service, in the opinion of the valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share, and the actual value obtained could be materially different.
Fair Valuation and Significant Events Procedures
The Trustees have ultimate responsibility for determining the fair value of investments for which market quotations are not readily available. The Trustees have appointed a Valuation Committee comprised of officers of the Fund, Federated Investment Management Company (the “Adviser”) and certain of the Adviser’s affiliated companies to assist in determining fair value and in overseeing the calculation of the NAV. The Trustees have also authorized the use of pricing services recommended by the Valuation Committee to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services’ policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Trustees. The Trustees periodically review and approve the fair valuations made by the Valuation Committee and any changes made to the procedures.
Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation
Semi-Annual Shareholder Report
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 Fund’s Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Semi-Annual Shareholder Report
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that select classes will bear certain expenses unique to those classes. The detail of the total fund expense waiver and reimbursements of $728,655 is disclosed in various locations in this Note 2 and Note 5.
For the six months ended October 31, 2020, transfer agent fees for the Fund were as follows:
| Transfer Agent
Fees Incurred | Transfer Agent
Fees Reimbursed |
| | |
| | |
| | |
| | |
| | |
Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund’s Class A Shares and Service Shares to unaffiliated financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the six months ended October 31, 2020, other service fees for the Fund were as follows:
| Other Service
Fees Incurred |
| |
| |
| |
Semi-Annual Shareholder Report
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue 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 October 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 October 31, 2020, tax years 2017 through 2020 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
Futures Contracts
The Fund purchases and sells financial futures contracts to manage currency, duration and market risks. Upon entering into a financial futures contract with a broker, the Fund is required to deposit with a broker, either U.S. government securities or a specified amount of cash, which is shown as due from broker in the Statement of Assets and Liabilities. Futures contracts are valued daily and unrealized gains or losses are recorded in a “variation margin” account. The Fund receives from or pays to the broker a specified amount of cash based upon changes in the variation margin account. When a contract is closed, the Fund recognizes a realized gain or loss. Futures contracts have market risks, including the risk that the change in the value of the contract may not correlate with the changes in the value of the underlying securities. There is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures contracts, guarantees the futures contracts against default.
Futures contracts outstanding at period end are listed after the Fund’s Portfolio of Investments.
The average notional value of long futures contracts held by the Fund throughout the period was $122,461,831. This is based on amounts held as of each month-end throughout the six-month fiscal period.
Foreign Exchange Contracts
The Fund enters into foreign exchange contracts 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
Semi-Annual Shareholder Report
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.
At October 31, 2020, the Fund had no outstanding foreign exchange contracts and no activity for the fiscal period.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rates of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at period end, resulting from changes in the exchange rate.
Securities Lending
The Fund participates in a securities lending program providing for the lending of corporate bonds to qualified brokers. The term of the loans within the program is one year or less. The Fund normally receives cash collateral for securities loaned that may be invested in affiliated money market funds, other money market instruments and/or repurchase agreements. Investments in money market funds may include funds with a “floating” NAV that can impose redemption fees and liquidity gates, impose certain operational impediments to investing cash collateral, and, if the investee fund’s NAV decreases, result in the Fund recognizing losses and being required to cover the decrease in the value of the cash collateral. Collateral is maintained at a minimum level of 100% of the market value of investments loaned, plus interest, if applicable. In accordance with the Fund’s securities lending agreement, the market value of securities on loan is determined each day at the close of business and any additional collateral required to cover the value of securities on loan is delivered to the Fund on the next business day. Earnings on collateral are allocated between the borrower of the security, the securities lending agent, as a fee for its services under the program and the Fund, according to agreed-upon rates. The Fund will not have the right to vote on securities while they are on loan. However, the Fund will attempt to terminate a loan in an effort to reacquire the securities in time to vote on matters that are deemed to be material by the Adviser. There can be no assurance that the Fund will have sufficient notice of such matters to be able to terminate the loan in time to vote thereon.
Semi-Annual Shareholder Report
As of October 31, 2020, securities subject to this type of arrangement and related collateral were as follows:
Market Value of
Securities Loaned | |
| |
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.
Additional Disclosure Related to Derivative Instruments
Fair Value of Derivative Instruments | | |
| |
| Statement of
Assets and
Liabilities
Location | |
Derivatives not accounted for as hedging instruments under ASC Topic 815 | | |
| Payable for variation margin on futures contracts | |
| Includes cumulative net depreciation of futures contracts as reported in the footnotes to the Portfolio of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities. |
The Effect of Derivative Instruments on the Statement of Operations for the Six Months Ended October 31, 2020
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income | |
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Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income | |
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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 tables summarize share activity:
| Six Months Ended
10/31/2020 | |
| | | | |
| | | | |
Shares issued to shareholders in payment of distributions declared | | | | |
| | | | |
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | | | | |
| Six Months Ended
10/31/2020 | |
| | | | |
| | | | |
Shares issued to shareholders in payment of distributions declared | | | | |
| | | | |
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | | | | |
| Six Months Ended
10/31/2020 | |
| | | | |
| | | | |
Shares issued to shareholders in payment of distributions declared | | | | |
| | | | |
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS | | | | |
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| Six Months Ended
10/31/2020 | |
| | | | |
| | | | |
Shares issued to shareholders in payment of distributions declared | | | | |
| | | | |
NET CHANGE RESULTING FROM CLASS R6 SHARE TRANSACTIONS | | | | |
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS | | | | |
4. FEDERAL TAX INFORMATION
At October 31, 2020, the cost of investments for federal tax purposes was $1,912,427,237. The net unrealized appreciation of investments for federal tax purposes was $25,352,595. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $31,150,178 and net unrealized depreciation from investments for those securities having an excess of cost over value of $5,797,583. The amounts presented are inclusive of derivative contracts.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.30% of the Fund’s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. For the six months ended October 31, 2020, the Adviser voluntarily waived $591,639 of its fee and voluntarily reimbursed $101,504 of transfer agent fees.
The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated investment companies. For the six months ended October 31, 2020, the Adviser reimbursed $35,512.
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:
| Average Daily Net Assets
of the Investment Complex |
| on assets up to $50 billion |
| on assets over $50 billion |
Semi-Annual Shareholder Report
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the six months ended October 31, 2020, the annualized fee paid to FAS was 0.078% of average daily net assets of the Fund.
In addition, FAS may charge certain out-of-pocket expenses to the Fund.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund’s Class A Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at 0.05% of average daily net assets, annually, to compensate FSC. Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee.
When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the six months ended October 31, 2020, the Fund’s Class A Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the six months ended October 31, 2020, FSC retained $3,112 in sales charges from the sale of Class A Shares.
Other Service Fees
For the six months ended October 31, 2020, FSSC received $13,222 of the other service fees disclosed in Note 2.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Effective July 1, 2020, total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund’s Class A Shares, Institutional Shares, Service Shares, and Class R6 Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.65%, 0.37%, 0.65% and 0.34% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) July 1, 2021; or (b) the date of the Fund’s next effective Prospectus. Prior to July 1, 2020, the Fee Limit disclosed above for Class A Shares was 0.70%. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Directors’/Trustees’ and Miscellaneous Fees
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent Directors’/Trustees’ fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the
Semi-Annual Shareholder Report
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 October 31, 2020, were as follows:
7. Line of Credit
The Fund participates with certain other Federated Hermes Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement dated June 24, 2020. 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 October 31, 2020, the Fund had no outstanding loans. During the six months ended October 31, 2020, the Fund did not utilize the LOC.
8. Interfund Lending
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Hermes, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of October 31, 2020, there were no outstanding loans. During the six months ended October 31, 2020, the program was not utilized.
9. OTHER MATTERS
An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in closing borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact of this coronavirus may be short-term or may last for an extended period of time and has resulted in a substantial economic downturn. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in
Semi-Annual Shareholder Report
the future, could continue to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies (including certain Fund service providers and issuers of the Fund’s investments) and the markets in general in significant and unforeseen ways. Any such impact could adversely affect the Fund’s performance.
Semi-Annual Shareholder Report
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from May 1, 2020 to October 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.
Semi-Annual Shareholder Report
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. 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. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning
Account Value
5/1/2020 | Ending
Account Value
10/31/2020 | Expenses Paid
During Period1 |
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| | | |
| | | |
| | | |
Hypothetical (assuming a 5% return before expenses): | | | |
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| | | |
| | | |
| | | |
| Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows: |
Semi-Annual Shareholder Report
Evaluation and Approval of Advisory Contract–May 2020
Federated Short-Term Income Fund (the “Fund”)
(EFFECTIVE CLOSE OF BUSINESS ON JUNE 26, 2020, THE FUND’S NAME CHANGED TO FEDERATED HERMES SHORT-TERM INCOME FUND)
At its meetings in May 2020 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including a majority of those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved the continuation of the investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to continue the existing arrangements. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.
Information Received and Review Process
At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation presenting on the topics discussed below. The Board considered the CCO’s independent written evaluation (the “CCO Fee Evaluation Report”), along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the Contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer” prior to the elimination of the Senior Officer position in December 2017.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes on behalf of the Independent Trustees encompassing a wide variety of topics. The Board also considered such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings
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throughout the year and in between regularly scheduled meetings on particular matters as the need arose, as well as information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings.
The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the Adviser’s and sub-adviser’s investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate) and comments on the reasons for the Fund’s performance; the Fund’s investment objectives; the Fund’s expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders; the entrepreneurial and other risks assumed by the Adviser in sponsoring and managing the Fund; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund’s relationship to the other funds advised by Federated Hermes (each, a “Federated Hermes Fund”), which include a comprehensive array of funds with different investment objectives, policies and strategies which are generally available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated Hermes Funds and the Federated Hermes’ affiliates that service them (including communications from regulatory agencies), as well as Federated Hermes’ responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated Hermes Funds and/or Federated Hermes may be responding to them. In addition, the Board received and considered information furnished by Federated Hermes on the impacts of the coronavirus (COVID-19) outbreak on Federated Hermes generally and the Fund in particular, including, among other information, the current and anticipated impacts on the management, operations and performance of the Fund. The Board noted that its evaluation process is evolutionary and that the criteria considered and the emphasis placed on relevant criteria may change in recognition of changing circumstances in the mutual fund marketplace.
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
Semi-Annual Shareholder Report
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.
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Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of the Adviser and its affiliates dedicated to the Fund. In this regard, the Board evaluated, among other things, the Adviser’s personnel, experience and track record, as well as the financial resources and overall reputation of Federated Hermes and its willingness to invest in personnel and infrastructure that benefit the Federated Hermes Funds. The Board noted the significant acquisition of Hermes Fund Managers Limited by Federated Hermes in 2018, which has deepened the organization’s investment management expertise and capabilities and expanded the investment process for all of the Federated Hermes Funds to incorporate environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters.
In addition, the Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund and the Adviser’s ability and experience in attracting and retaining qualified personnel to service the Fund. The Board noted the compliance program of the Adviser and the compliance-related resources devoted by the Adviser and its affiliates in support of the Fund’s obligations pursuant to Rule 38a-1 under the Investment Company Act of 1940, including the Adviser’s commitment to respond to rulemaking and other regulatory initiatives of the SEC such as the liquidity risk management program rules. In addition, the Board considered the response by the Adviser to recent market conditions and considered the overall performance of the Adviser in this context. The Fund’s ability to deliver competitive performance when compared to its Performance Peer Group (as defined below) was also deemed to be relevant by the Board as a useful indicator of how the Adviser is executing the Fund’s investment program. The Adviser’s ability to execute this program was one of the Board’s considerations in reaching a conclusion that the nature, extent and quality of the Adviser’s investment management and related services warrant the continuation of the Contract.
Fund Investment Performance
In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks, as disclosed in the Fund’s prospectus. The Board also considered the Fund’s performance in light of the overall recent market conditions. The Board considered detailed investment reports on the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings and evaluated the Adviser’s analysis of the Fund’s performance for these time periods. The Board also reviewed comparative information regarding the performance of other mutual funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”), noting the CCO’s view that comparisons to fund peer groups may be helpful,
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though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered, in evaluating such comparisons, that in some cases there may be differences in the funds’ objectives or investment management techniques, or the costs to implement the funds, even within the same Performance Peer Group.
For the periods ended December 31, 2019, the Fund’s performance for the three-year and five-year periods was above the median of the relevant Performance Peer Group, and the Fund’s performance fell below the median of the relevant Performance Peer Group for the one-year period. 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
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged by other advisers for managing funds with comparable investment programs, the Board has found the use of such comparisons to be relevant to its deliberations. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund’s total expense ratio (i.e., gross and net advisory fees, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because such comparisons are believed to be more relevant. The Board considered that other mutual funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the Fund’s investors. The Board noted that the range of their fees and expenses, therefore, appears to be a relevant indicator of what consumers have found to be reasonable in the marketplace in which the Fund competes.
Semi-Annual Shareholder Report
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund and noted the position of the Fund’s fee rates relative to its Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was below the median of the Expense Peer Group and the Board was satisfied that the overall expense structure of the Fund remained competitive.
For comparison, the Board received and considered information about the fees charged by Federated Hermes for providing advisory services to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-mutual fund clients such as institutional separate accounts and third-party unaffiliated mutual funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-mutual fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) and the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing, addressing different administrative responsibilities, and addressing different degrees of risk associated with management; and (vi) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary mutual fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s mutual fund, noting that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party mutual fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.
Following such evaluation, and full deliberations, the Board concluded that the fees and expenses of the Fund are reasonable and supported renewal of the Contract.
Profitability and Other Benefits
The Board also received financial information about Federated Hermes, including information regarding the compensation and ancillary (or “fall-out”) benefits Federated Hermes derived from its relationships with the Federated Hermes Funds. This information covered not only the fees under the Federated Hermes Funds’ investment advisory contracts, but also fees received by Federated Hermes’ affiliates for providing other services to the Federated Hermes Funds under separate contracts (e.g., for serving as the Federated Hermes Funds’ administrator and distributor). In this regard, the Board
Semi-Annual Shareholder Report
considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing any indirect benefit Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds. In addition, the Board considered the fact that, in order for the Federated Hermes Funds to be competitive in the marketplace, the Adviser and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to Federated Hermes Fund shareholders and/or reported to the Board their intention to do so in the future. Moreover, the Board received and considered regular reports from Federated Hermes throughout the year as to the institution, adjustment or elimination of these voluntary waivers and/or reimbursements.
The Board received and considered information furnished by Federated Hermes, as requested by the CCO, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable, because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. The allocation information, including the CCO’s view that fund-by-fund estimations may be unreliable, was considered in the evaluation by the Board. In addition, the Board considered that, during the prior year, an independent consultant conducted a review of the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract. The Board noted the consultant’s view that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable.
The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board considered the CCO’s conclusion that, based on such profitability information, Federated Hermes’ profit margins did not appear to be excessive. The Board also considered the CCO’s view that Federated Hermes appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Federated Hermes Funds.
Semi-Annual Shareholder Report
Economies of Scale
The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of calculating economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that the Adviser has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as personnel and processes for the portfolio management, trading operations, issuer engagement (including with respect to ESG matters), shareholder services, compliance, business continuity, internal audit and risk management functions, as well as systems technology (including technology relating to cybersecurity) and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments (as well as the benefits of any economies of scale, should they exist) are likely to be shared with the Federated Hermes Fund family as a whole. In addition, the Board considered that the Adviser and its affiliates have frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and that such waivers and reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. Federated Hermes, as it does throughout the year, and specifically in connection with the Board’s review of the Contract, furnished information relative to adviser-paid fees (commonly referred to as revenue sharing). The Board considered the beliefs of Federated Hermes and the CCO that this information should be viewed to determine if there was an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, and should not be viewed to determine the appropriateness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as a fund attains a certain size.
Conclusions
The Board considered the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund was reasonable and the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Contract by the CCO. The CCO also recognized that the Board’s evaluation of the Federated Hermes Funds’ advisory and subadvisory arrangements is a continuing and on-going process that is informed by the information that the Board requests and receives from
Semi-Annual Shareholder Report
management throughout the course of the year and, in this regard, the CCO noted certain items for future reporting to the Board or further consideration by management as the Board continues its on-going oversight of the Federated Hermes Funds.
In its determination to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an investment advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser’s industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board’s approval of the Contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund. The Board concluded that, in light of the factors summarized above, including the nature, quality and scope of the services provided to the Fund by the Adviser and its affiliates, continuation of the Contract was appropriate.
The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were deemed to be relevant, the Board’s determination to approve the continuation of the Contract reflects its view that Federated Hermes’ performance and actions provided a satisfactory basis to support the determination to continue the existing arrangement.
Semi-Annual Shareholder Report
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 Income Securities Trust (the “Trust”) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Short-Term Income Fund (the “Fund” and, collectively with the Federated Hermes funds, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of the Fund’s investment adviser as the administrator for the Program for the Fund. Each affiliated Federated Hermes advisory subsidiary (including the Fund’s investment adviser) that serves as investment adviser to a Federated Hermes Fund (including the Fund) has been approved as the administrator of the Program for each Federated Hermes Fund they manage (each an “Administrator”). The Administrator in turn has delegated daily responsibility for the administration of the Program to multiple Liquidity Risk Management Committees (the “Committees”). The Committees, which are comprised of representatives of Enterprise Risk Management, Compliance, Investment Management and Trading, must review and assess certain information related to the liquidity of the Federated Hermes Funds, including the Fund.
The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.
At its meetings in May 2020, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from the Program’s inception on December 1, 2018 through March 31, 2020 (the “Period”). The Report
Semi-Annual Shareholder Report
addressed the operation of the Program and assessed its adequacy and effectiveness, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund and each Federated Hermes Fund’s access to other available funding sources such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind and committed lines of credit. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:
■ confirmation that the Fund did not utilize alternative funding sources during the Period;
■ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;
■ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments and the results of an evaluation of the services performed by the vendor in support of this process;
■ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;
■ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period and the procedures for monitoring this limit; and
■ liquidity events during the Period, including the impact on liquidity caused by extended non-U.S. market closures and the market disruptions resulting from the novel coronavirus outbreak, and the fact that there were no specific liquidity events during the Period that materially affected the Fund’s liquidity risk.
Based on this review, the Fund’s investment adviser, in its role as Administrator, collectively with the other investment advisers to the Federated Hermes Funds, concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.
Semi-Annual Shareholder Report
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at FederatedInvestors.com/FundInformation. Form N-PX filings are also available at the SEC’s website at sec.gov.
Quarterly Portfolio Schedule
Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund’s holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC’s website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedInvestors.com.
Semi-Annual Shareholder Report
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
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.
Semi-Annual Shareholder Report
Federated Hermes Short-Term Income Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 31420C795
CUSIP 31420C787
CUSIP 31420C209
CUSIP 31420C563
31499 (12/20)
© 2020 Federated Hermes, Inc.
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
(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 Income Securities Trust
By /S/ Lori A. Hensler
Lori A. Hensler
Principal Financial Officer
Date December 23, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /S/ J. Christopher Donahue
J. Christopher Donahue
Principal Executive Officer
Date December 23, 2020
By /S/ Lori A. Hensler
Lori A. Hensler
Principal Financial Officer
Date December 23, 2020
