Federated Hermes Government Income Trust
09/26/2024 | Press release | Distributed by Public on 09/26/2024 12:51
Semi Annual Report by Investment Company Form N CSRS
Consolidated ssr-output-EDGAR XBRL File
The following is a summary of the inputs used, as of July 31, 2024, in valuing the Fund's assets carried at fair value:
United States Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSRS
Certified Shareholder Report of Registered Management Investment Companies
811-3352
(Investment Company Act File Number)
Federated Hermes Government Income 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: 2025-01-31
Date of Reporting Period: Six months ended 2024-07-31
| Item 1. | Reports to Stockholders |
Federated Hermes Government Income Fund
Institutional SharesFICMX
Semi-Annual Shareholder Report - July 31, 2024
A Portfolio of Federated Hermes Government Income Trust
This semi-annual shareholder report contains important information about the Federated Hermes Government Income Fund (the "Fund") for the period of February 1, 2024 to July 31, 2024. You can find additional information at www.FederatedHermes.com/us/FundInformation. You can also request this information by contacting us at 1-800-341-7400, Option 4, or your financial advisor.
What were the Fund costs for the last six months?
(based on a hypothetical $10,000 investment)
|
Class Name
|
Cost of a $10,000 investment
|
Costs paid as a percentage of a $10,000 investment
|
|
Institutional Shares
|
$32
|
0.63%
|
Key Fund Statistics
|
Net Assets
|
$167,041,609
|
|
Number of Investments
|
98
|
|
Portfolio Turnover
|
108%
|
|
Portfolio Turnover (excluding purchases and sales from dollar-roll transactions)
|
20%
|
Fund Holdings
Top Security Types (% of Net Assets)
|
Value
|
Value
|
|
Cash Equivalents
|
3.5%
|
|
Collateralized Mortgage Obligations
|
17.8%
|
|
U.S. Government Agency Mortgage-Backed Securities
|
98.7%
|
Semi-Annual Shareholder Report
Federated Hermes Government Income Fund
Additional Information about the Fund
Additional information is available on the Fund's website at www.FederatedHermes.com/us/FundInformation, including its:
• prospectus • financial information • holdings • proxy voting information
CUSIP 314199100
8082203-A (09/24)
Federated Securities Corp., Distributor
www.federatedhermes.com/us
© 2024 Federated Hermes, Inc.
Federated Hermes Government Income Fund
Service SharesFITSX
Semi-Annual Shareholder Report - July 31, 2024
A Portfolio of Federated Hermes Government Income Trust
This semi-annual shareholder report contains important information about the Federated Hermes Government Income Fund (the "Fund") for the period of February 1, 2024 to July 31, 2024. You can find additional information at www.FederatedHermes.com/us/FundInformation. You can also request this information by contacting us at 1-800-341-7400, Option 4, or your financial advisor.
What were the Fund costs for the last six months?
(based on a hypothetical $10,000 investment)
|
Class Name
|
Cost of a $10,000 investment
|
Costs paid as a percentage of a $10,000 investment
|
|
Service Shares
|
$42
|
0.83%
|
Key Fund Statistics
|
Net Assets
|
$167,041,609
|
|
Number of Investments
|
98
|
|
Portfolio Turnover
|
108%
|
|
Portfolio Turnover (excluding purchases and sales from dollar-roll transactions)
|
20%
|
Fund Holdings
Top Security Types (% of Net Assets)
|
Value
|
Value
|
|
Cash Equivalents
|
3.5%
|
|
Collateralized Mortgage Obligations
|
17.8%
|
|
U.S. Government Agency Mortgage-Backed Securities
|
98.7%
|
Semi-Annual Shareholder Report
Federated Hermes Government Income Fund
Additional Information about the Fund
Additional information is available on the Fund's website at www.FederatedHermes.com/us/FundInformation, including its:
• prospectus • financial information • holdings • proxy voting information
CUSIP 314199209
8082203-B (09/24)
Federated Securities Corp., Distributor
www.federatedhermes.com/us
© 2024 Federated Hermes, Inc.
| Item 2. | Code of Ethics |
Not Applicable
| Item 3. | Audit Committee Financial Expert |
Not Applicable
| Item 4. | Principal Accountant Fees and Services |
Not Applicable
| Item 5. | Audit Committee of Listed Registrants |
Not Applicable
| Item 6. | Schedule of Investments |
(a) The registrant's Schedule of Investments is included as part of the Financial Statements filed under Item 7 of this form.
(b) Not Applicable
| Item 7. | Financial Statements and Financial Highlights for Open-End Management Companies |
Semi-Annual Financial Statements
and Additional Information
and Additional Information
July 31, 2024
|
Share Class| Ticker
|
Institutional| FICMX
|
Service| FITSX
|
|
|
Federated Hermes Government Income Fund
A Portfolio of Federated Hermes Government Income Trust
Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee
CONTENTS
|
Portfolio of Investments
|
1
|
|
Financial Highlights
|
5
|
|
Statement of Assets and Liabilities
|
7
|
|
Statement of Operations
|
8
|
|
Statement of Changes in Net Assets
|
9
|
|
Notes to Financial Statements
|
10
|
|
Evaluation and Approval of Advisory Contract
|
16
|
Portfolio of Investments
July 31, 2024 (unaudited)
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
1
|
MORTGAGE-BACKED SECURITIES-98.7%
|
|
|
|
Federal Home Loan Mortgage Corporation-27.9%
|
||
|
$ 3,673,910
|
|
1.500%, 2/1/2052
|
$ 2,819,635
|
|
1,214,547
|
|
2.000%, 4/1/2036
|
1,098,301
|
|
2,338,013
|
|
2.000%, 10/1/2036
|
2,098,896
|
|
2,858,091
|
|
2.000%, 6/1/2050
|
2,321,496
|
|
4,829,461
|
|
2.000%, 5/1/2051
|
3,907,656
|
|
872,054
|
|
2.000%, 1/1/2052
|
714,052
|
|
7,419,554
|
|
2.000%, 1/1/2052
|
6,003,375
|
|
1,149,446
|
|
2.000%, 2/1/2052
|
926,099
|
|
4,295,722
|
|
2.500%, 10/1/2051
|
3,638,223
|
|
2,173,423
|
|
2.500%, 11/1/2051
|
1,858,421
|
|
2,614,449
|
|
2.500%, 4/1/2052
|
2,232,259
|
|
413,650
|
|
3.000%, 5/1/2046
|
371,340
|
|
1,536,298
|
|
3.000%, 11/1/2051
|
1,360,916
|
|
113,087
|
|
3.500%, 12/1/2047
|
104,269
|
|
382,633
|
|
3.500%, 6/1/2052
|
351,930
|
|
132,651
|
|
4.000%, 12/1/2047
|
126,198
|
|
57,364
|
|
4.000%, 6/1/2049
|
54,412
|
|
439,036
|
|
4.000%, 4/1/2052
|
416,855
|
|
6,789,905
|
|
4.000%, 6/1/2052
|
6,389,572
|
|
150,950
|
|
4.500%, 9/1/2039
|
149,548
|
|
1,850,919
|
|
4.500%, 6/1/2052
|
1,807,282
|
|
845,698
|
|
4.500%, 5/1/2053
|
821,201
|
|
2,122,531
|
|
5.000%, 10/1/2052
|
2,090,551
|
|
2,318,998
|
|
5.500%, 5/1/2053
|
2,325,505
|
|
2,440,516
|
|
6.500%, 1/1/2054
|
2,515,077
|
|
3
|
|
7.000%, 9/1/2030
|
3
|
|
|
TOTAL
|
46,503,072
|
|
|
|
Federal National Mortgage Association-38.5%
|
||
|
3,637,377
|
|
2.000%, 7/1/2050
|
2,954,474
|
|
9,427,187
|
|
2.000%, 9/1/2050
|
7,657,270
|
|
4,211,039
|
|
2.000%, 11/1/2050
|
3,413,853
|
|
2,529,256
|
|
2.000%, 5/1/2051
|
2,050,446
|
|
6,574,810
|
|
2.000%, 2/1/2052
|
5,344,524
|
|
4,583,842
|
|
2.500%, 10/1/2050
|
3,898,001
|
|
2,038,585
|
|
2.500%, 1/1/2052
|
1,726,562
|
|
2,849,404
|
|
2.500%, 1/1/2052
|
2,410,606
|
|
1,622,595
|
|
2.500%, 2/1/2052
|
1,375,509
|
|
762,673
|
|
2.500%, 2/1/2052
|
653,089
|
|
865,559
|
|
2.500%, 5/1/2052
|
733,889
|
|
6,668,383
|
|
3.000%, 10/1/2046
|
5,967,558
|
|
2,665,863
|
|
3.000%, 9/1/2047
|
2,387,356
|
|
1,937,205
|
|
3.000%, 2/1/2048
|
1,733,612
|
|
998,292
|
|
3.000%, 6/1/2052
|
882,456
|
|
2,485,092
|
|
3.500%, 12/1/2041
|
2,334,030
|
|
1,368,442
|
|
3.500%, 9/1/2042
|
1,285,214
|
|
160,160
|
|
3.500%, 12/1/2047
|
147,772
|
|
2,713,870
|
|
3.500%, 5/1/2049
|
2,510,735
|
Semi-Annual Financial Statements and Additional Information
1
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
1
|
MORTGAGE-BACKED SECURITIES-continued
|
|
|
|
Federal National Mortgage Association-continued
|
||
|
$ 2,464,068
|
|
3.500%, 9/1/2049
|
$ 2,286,561
|
|
2,152,243
|
|
3.500%, 12/1/2049
|
1,984,420
|
|
1,455,709
|
|
3.500%, 11/1/2050
|
1,344,929
|
|
2,040,545
|
|
4.000%, 12/1/2042
|
1,967,850
|
|
127,225
|
|
4.000%, 9/1/2048
|
120,837
|
|
1,612,312
|
|
4.000%, 5/1/2053
|
1,521,155
|
|
32,787
|
|
4.500%, 10/1/2040
|
32,476
|
|
109,205
|
|
4.500%, 4/1/2041
|
108,172
|
|
888,469
|
|
4.500%, 2/1/2053
|
857,249
|
|
1,892,268
|
|
4.500%, 3/1/2053
|
1,824,594
|
|
2,902,972
|
|
5.000%, 9/1/2053
|
2,860,503
|
|
|
TOTAL
|
64,375,702
|
|
|
|
Government National Mortgage Association-12.0%
|
||
|
11,321,669
|
|
2.500%, 6/20/2051
|
9,655,358
|
|
2,952,951
|
|
3.000%, 9/20/2050
|
2,655,887
|
|
410,561
|
|
5.000%, 8/20/2053
|
405,906
|
|
1,076,989
|
|
5.500%, 8/20/2053
|
1,080,489
|
|
1,921,795
|
|
5.500%, 9/20/2053
|
1,928,640
|
|
4,274,676
|
|
6.000%, 10/20/2053
|
4,325,984
|
|
2,873
|
|
7.000%, 1/15/2028
|
2,909
|
|
495
|
|
7.000%, 3/15/2028
|
500
|
|
3,160
|
|
7.000%, 10/15/2028
|
3,213
|
|
879
|
|
7.500%, 7/15/2029
|
896
|
|
506
|
|
7.500%, 8/15/2029
|
516
|
|
11,971
|
|
7.500%, 1/15/2031
|
12,459
|
|
12,387
|
|
8.500%, 6/15/2030
|
12,878
|
|
|
TOTAL
|
20,085,635
|
|
|
2
|
Uniform Mortgage-Backed Securities, TBA-20.3%
|
||
|
5,250,000
|
|
1.500%, 8/1/2039
|
4,588,407
|
|
5,300,000
|
|
2.000%, 8/1/2039
|
4,755,510
|
|
3,300,000
|
|
2.500%, 8/1/2039
|
3,035,229
|
|
1,250,000
|
|
2.500%, 8/1/2054
|
1,048,535
|
|
4,000,000
|
|
3.000%, 8/1/2054
|
3,492,344
|
|
2,500,000
|
|
3.500%, 8/20/2054
|
2,300,459
|
|
1,500,000
|
|
4.000%, 8/20/2054
|
1,417,150
|
|
3,525,000
|
|
4.500%, 8/20/2054
|
3,413,838
|
|
3,250,000
|
|
5.000%, 8/20/2054
|
3,213,241
|
|
2,500,000
|
|
5.500%, 8/1/2054
|
2,504,297
|
|
2,750,000
|
|
6.000%, 8/1/2054
|
2,789,638
|
|
1,350,000
|
|
6.500%, 8/20/2054
|
1,375,770
|
|
|
TOTAL
|
33,934,418
|
|
|
|
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $175,818,208)
|
164,898,827
|
|
|
|
COLLATERALIZED MORTGAGE OBLIGATIONS-17.8%
|
||
|
3
|
Federal Home Loan Mortgage Corporation-9.2%
|
||
|
74,452
|
|
Federal Home Loan Mortgage Corp. REMIC, Series 3331, Class FC, 5.881% (30-DAY AVERAGE SOFR +0.544%), 6/15/2037
|
73,663
|
|
4,796,902
|
|
Federal Home Loan Mortgage Corp. REMIC, Series 5396, Class DF, 6.500% (30-DAY AVERAGE SOFR +1.250%), 4/25/2054
|
4,780,560
|
|
1,918,761
|
|
Federal Home Loan Mortgage Corp. REMIC, Series 5396, Class JF, 6.500% (30-DAY AVERAGE SOFR +1.200%), 4/25/2054
|
1,912,812
|
|
4,819,387
|
|
Federal Home Loan Mortgage Corp. REMIC, Series 5400, Class FA, 6.068% (30-DAY AVERAGE SOFR +0.000%), 4/25/2054
|
4,716,629
|
Semi-Annual Financial Statements and Additional Information
2
|
Principal
Amount
or Shares
|
|
|
Value
|
|
|
COLLATERALIZED MORTGAGE OBLIGATIONS-continued
|
||
|
3
|
Federal Home Loan Mortgage Corporation-continued
|
||
|
$ 3,836,258
|
|
Federal Home Loan Mortgage Corp. REMIC, Series 5409, Class JF, 6.500% (30-DAY AVERAGE SOFR +1.450%), 5/25/2054
|
$ 3,844,583
|
|
|
TOTAL
|
15,328,247
|
|
|
3
|
Federal National Mortgage Association-5.9%
|
||
|
541,390
|
|
Federal National Mortgage Association REMIC, Series 2019-41, Class F, 5.961% (30-DAY AVERAGE SOFR
+0.614%), 8/25/2059
|
533,165
|
|
4,764,988
|
|
Federal National Mortgage Association REMIC, Series 2024-15, Class FA, 6.500% (30-DAY AVERAGE SOFR
+0.000%), 4/25/2054
|
4,727,939
|
|
4,764,988
|
|
Federal National Mortgage Association REMIC, Series 2024-15, Class FB, 6.121% (30-DAY AVERAGE SOFR
+0.000%), 4/25/2054
|
4,655,948
|
|
|
TOTAL
|
9,917,052
|
|
|
|
Government National Mortgage Association-2.7%
|
||
|
426,941
|
|
Government National Mortgage Association REMIC, Series 2015-47, Class AE, 2.900%, 11/16/2055
|
401,739
|
|
4,141,330
|
3
|
Government National Mortgage Association REMIC, Series 2024-59, Class FJ, 6.500% (30-DAY AVERAGE SOFR
+1.250%), 4/20/2054
|
4,147,615
|
|
|
TOTAL
|
4,549,354
|
|
|
|
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(IDENTIFIED COST $29,969,428)
|
29,794,653
|
|
|
|
INVESTMENT COMPANY-3.5%
|
||
|
5,744,803
|
|
Federated Hermes Government Obligations Fund, Premier Shares, 5.24%4
(IDENTIFIED COST $5,744,803)
|
5,744,803
|
|
|
TOTAL INVESTMENT IN SECURITIES-120.0%
(IDENTIFIED COST $211,532,439)5
|
200,438,283
|
|
|
|
OTHER ASSETS AND LIABILITIES - NET-(20.0)%6
|
(33,396,674)
|
|
|
|
TOTAL NET ASSETS-100%
|
$167,041,609
|
At July 31, 2024, the Fund had the following outstanding futures contracts:
|
Description
|
Number of
Contracts
|
Notional
Value
|
Expiration
Date
|
Value and
Unrealized
Appreciation
(Depreciation)
|
|
Long Futures:
|
|
|||
|
United States Treasury Notes 2-Year Long Futures
|
100
|
$20,536,719
|
September 2024
|
$166,718
|
|
United States Treasury Notes 5-Year Long Futures
|
107
|
$11,544,297
|
September 2024
|
$119,458
|
|
United States Treasury Notes 10-Year Long Futures
|
15
|
$1,677,187
|
September 2024
|
$7,669
|
|
Short Futures:
|
|
|||
|
United States Treasury Long Bond Short Futures
|
24
|
$2,898,750
|
September 2024
|
$(89,573)
|
|
United States Treasury Notes 10-Year Ultra Short Futures
|
27
|
$3,120,609
|
September 2024
|
$(84,266)
|
|
United States Treasury Ultra Bond Short Futures
|
26
|
$3,327,188
|
September 2024
|
$(83,028)
|
|
NET UNREALIZED APPRECIATION ON FUTURES CONTRACTS
|
$36,978
|
Net Unrealized Appreciation on Futures Contracts is included in "Other Assets and Liabilities-Net."
Semi-Annual Financial Statements and Additional Information
3
Transactions with affiliated investment companies, which are funds managed by the Adviser or an affiliate of the Adviser, during the period ended July 31, 2024, were as follows:
|
|
Federated
Hermes
Government
Obligations Fund,
Premier Shares
|
|
Value as of 1/31/2024
|
$1,612,981
|
|
Purchases at Cost
|
$111,548,233
|
|
Proceeds from Sales
|
$(107,416,411)
|
|
Change in Unrealized Appreciation/Depreciation
|
$-
|
|
Net Realized Gain/(Loss)
|
$-
|
|
Value as of 7/31/2024
|
$5,744,803
|
|
Shares Held as of 7/31/2024
|
5,744,803
|
|
Dividend Income
|
$159,885
|
|
1
|
Due to monthly principal payments, the average lives of the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Government
National Mortgage Association securities approximates one to ten years.
|
|
2
|
All or a portion of these To Be Announced Securities (TBAs) are subject to dollar-roll transactions.
|
|
3
|
Floating/variable note with current rate and current maturity or next reset date shown.
|
|
4
|
7-day net yield.
|
|
5
|
The cost of investments for federal tax purposes amounts to $211,334,364.
|
|
6
|
Assets, other than investments in securities, less liabilities. A significant portion of this balance is a result of dollar-roll transactions as of July 31, 2024. See
Statement of Assets and Liabilities.
|
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2024.
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 July 31, 2024, in valuing the Fund's assets carried at fair value:
|
Valuation Inputs
|
||||
|
|
Level 1-
Quoted
Prices
|
Level 2-
Other
Significant
Observable
Inputs
|
Level 3-
Significant
Unobservable
Inputs
|
Total
|
|
Debt Securities:
|
||||
|
Mortgage-Backed Securities
|
$-
|
$164,898,827
|
$-
|
$164,898,827
|
|
Collateralized Mortgage Obligations
|
-
|
29,794,653
|
-
|
29,794,653
|
|
Investment Company
|
5,744,803
|
-
|
-
|
5,744,803
|
|
TOTAL SECURITIES
|
$5,744,803
|
$194,693,480
|
$-
|
$200,438,283
|
|
Other Financial Instruments:1
|
||||
|
Assets
|
$293,845
|
$-
|
$-
|
$293,845
|
|
Liabilities
|
(256,867)
|
-
|
-
|
(256,867)
|
|
TOTAL OTHER FINANCIAL INSTRUMENTS
|
$36,978
|
$-
|
$-
|
$36,978
|
|
1
|
Other financial instruments are futures contracts.
|
|
The following acronym(s) are used throughout this portfolio:
|
|
|
REMIC
|
-Real Estate Mortgage Investment Conduit
|
|
SOFR
|
-Secured Overnight Financing Rate
|
See Notes which are an integral part of the Financial Statements
Semi-Annual Financial Statements and Additional Information
4
Financial Highlights-Institutional Shares
(For a Share Outstanding Throughout Each Period)
|
|
Six Months
Ended
(unaudited)
7/31/2024
|
Year Ended January 31,
|
||||
|
|
2024
|
2023
|
2022
|
2021
|
2020
|
|
|
Net Asset Value, Beginning of Period
|
$8.97
|
$9.20
|
$10.15
|
$10.56
|
$10.31
|
$9.97
|
|
Income From Investment Operations:
|
||||||
|
Net investment income (loss)1
|
0.16
|
0.24
|
0.18
|
0.02
|
0.09
|
0.21
|
|
Net realized and unrealized gain (loss)
|
(0.04)
|
(0.22)
|
(0.94)
|
(0.34)
|
0.29
|
0.35
|
|
Total From Investment Operations
|
0.12
|
0.02
|
(0.76)
|
(0.32)
|
0.38
|
0.56
|
|
Less Distributions:
|
||||||
|
Distributions from net investment income
|
(0.15)
|
(0.25)
|
(0.19)
|
(0.07)
|
(0.13)
|
(0.22)
|
|
Distributions from net realized gain
|
-
|
-
|
-
|
(0.02)
|
-
|
-
|
|
Total Distributions
|
(0.15)
|
(0.25)
|
(0.19)
|
(0.09)
|
(0.13)
|
(0.22)
|
|
Net Asset Value, End of Period
|
$8.94
|
$8.97
|
$9.20
|
$10.15
|
$10.56
|
$10.31
|
|
Total Return2
|
1.41%
|
0.24%
|
(7.52)%
|
(3.07)%
|
3.73%
|
5.69%
|
|
Ratios to Average Net Assets:
|
||||||
|
Net expenses3
|
0.63%4
|
0.63%
|
0.63%
|
0.63%
|
0.63%
|
0.63%
|
|
Net investment income
|
3.62%4
|
2.76%
|
1.94%
|
0.29%
|
0.86%
|
2.09%
|
|
Expense waiver/reimbursement5
|
0.13%4
|
0.29%
|
0.23%
|
0.16%
|
0.13%
|
0.12%
|
|
Supplemental Data:
|
||||||
|
Net assets, end of period (000 omitted)
|
$88,532
|
$94,815
|
$117,673
|
$163,080
|
$235,598
|
$240,047
|
|
Portfolio turnover6
|
108%
|
18%
|
130%
|
227%
|
336%
|
302%
|
|
Portfolio turnover (excluding purchases and sales from dollar-roll transactions)6
|
20%
|
7%
|
79%
|
21%
|
85%
|
49%
|
|
1
|
Per share numbers have been calculated using the average shares method.
|
|
2
|
Based on net asset value. Total returns for periods of less than one year are not annualized.
|
|
3
|
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
|
|
4
|
Computed on an annualized basis.
|
|
5
|
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.
|
|
6
|
Securities that mature are considered sales for purposes of this calculation.
|
See Notes which are an integral part of the Financial Statements
Semi-Annual Financial Statements and Additional Information
5
Financial Highlights-Service Shares
(For a Share Outstanding Throughout Each Period)
|
|
Six Months
Ended
(unaudited)
7/31/2024
|
Year Ended January 31,
|
||||
|
|
2024
|
2023
|
2022
|
2021
|
2020
|
|
|
Net Asset Value, Beginning of Period
|
$8.96
|
$9.20
|
$10.15
|
$10.56
|
$10.31
|
$9.97
|
|
Income From Investment Operations:
|
||||||
|
Net investment income (loss)1
|
0.15
|
0.23
|
0.16
|
0.01
|
0.14
|
0.19
|
|
Net realized and unrealized gain (loss)
|
(0.02)
|
(0.24)
|
(0.94)
|
(0.35)
|
0.22
|
0.35
|
|
Total From Investment Operations
|
0.13
|
(0.01)
|
(0.78)
|
(0.34)
|
0.36
|
0.54
|
|
Less Distributions:
|
||||||
|
Distributions from net investment income
|
(0.14)
|
(0.23)
|
(0.17)
|
(0.05)
|
(0.11)
|
(0.20)
|
|
Distributions from net realized gain
|
-
|
-
|
-
|
(0.02)
|
-
|
-
|
|
Total Distributions
|
(0.14)
|
(0.23)
|
(0.17)
|
(0.07)
|
(0.11)
|
(0.20)
|
|
Net Asset Value, End of Period
|
$8.95
|
$8.96
|
$9.20
|
$10.15
|
$10.56
|
$10.31
|
|
Total Return2
|
1.54%
|
(0.07)%
|
(7.70)%
|
(3.25)%
|
3.52%
|
5.48%
|
|
Ratios to Average Net Assets:
|
||||||
|
Net expenses3
|
0.83%4
|
0.83%
|
0.83%
|
0.83%
|
0.83%
|
0.83%
|
|
Net investment income
|
3.55%4
|
2.56%
|
1.73%
|
0.10%
|
1.36%
|
1.91%
|
|
Expense waiver/reimbursement5
|
0.16%4
|
0.24%
|
0.17%
|
0.12%
|
0.10%
|
0.09%
|
|
Supplemental Data:
|
||||||
|
Net assets, end of period (000 omitted)
|
$78,509
|
$8,309
|
$10,907
|
$15,249
|
$16,292
|
$17,083
|
|
Portfolio turnover6
|
108%
|
18%
|
130%
|
227%
|
336%
|
302%
|
|
Portfolio turnover (excluding purchases and sales from dollar-roll transactions)6
|
20%
|
7%
|
79%
|
21%
|
85%
|
49%
|
|
1
|
Per share numbers have been calculated using the average shares method.
|
|
2
|
Based on net asset value. Total returns for periods of less than one year are not annualized.
|
|
3
|
Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
|
|
4
|
Computed on an annualized basis.
|
|
5
|
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.
|
|
6
|
Securities that mature are considered sales for purposes of this calculation.
|
See Notes which are an integral part of the Financial Statements
Semi-Annual Financial Statements and Additional Information
6
Statement of Assets and Liabilities
July 31, 2024 (unaudited)
|
Assets:
|
|
|
Investment in securities, at value including $5,744,803 of investments in affiliated holdings* (identified cost $211,532,439, including
$5,744,803 of identified cost in affiliated holdings)
|
$200,438,283
|
|
Cash
|
3,393
|
|
Due from broker (Note 2)
|
194,585
|
|
Income receivable
|
489,257
|
|
Receivable for investments sold
|
866,518
|
|
Receivable for shares sold
|
13,442
|
|
Total Assets
|
202,005,478
|
|
Liabilities:
|
|
|
Payable for investments purchased
|
34,549,926
|
|
Payable for shares redeemed
|
203,687
|
|
Payable for variation margin on futures contracts
|
17,168
|
|
Income distribution payable
|
114,227
|
|
Payable for investment adviser fee (Note 5)
|
2,494
|
|
Payable for administrative fee (Note 5)
|
351
|
|
Payable for other service fees (Notes 2 and 5)
|
26,639
|
|
Accrued expenses (Note 5)
|
49,377
|
|
Total Liabilities
|
34,963,869
|
|
Net assets for 18,675,119 shares outstanding
|
$167,041,609
|
|
Net Assets Consist of:
|
|
|
Paid-in capital
|
$196,556,943
|
|
Total distributable earnings (loss)
|
(29,515,334)
|
|
Total Net Assets
|
$167,041,609
|
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
|
|
|
Institutional Shares:
|
|
|
Net asset value per share ($88,532,197 ÷ 9,898,446 shares outstanding), no par value, unlimited shares authorized
|
$8.94
|
|
Service Shares:
|
|
|
Net asset value per share ($78,509,412 ÷ 8,776,673 shares outstanding), no par value, unlimited shares authorized
|
$8.95
|
|
*
|
See information listed after the Fund's Portfolio of Investments.
|
See Notes which are an integral part of the Financial Statements
Semi-Annual Financial Statements and Additional Information
7
Statement of Operations
Six Months Ended July 31, 2024 (unaudited)
|
Investment Income:
|
|
|
Interest
|
$3,261,966
|
|
Dividends received from affiliated holdings*
|
159,885
|
|
TOTAL INCOME
|
3,421,851
|
|
Expenses:
|
|
|
Investment adviser fee (Note 5)
|
317,660
|
|
Administrative fee (Note 5)
|
62,357
|
|
Custodian fees
|
11,980
|
|
Transfer agent fees
|
86,014
|
|
Directors'/Trustees' fees (Note 5)
|
2,878
|
|
Auditing fees
|
16,634
|
|
Legal fees
|
5,041
|
|
Portfolio accounting fees
|
57,197
|
|
Other service fees (Notes 2 and 5)
|
82,938
|
|
Share registration costs
|
20,818
|
|
Printing and postage
|
10,979
|
|
Miscellaneous (Note 5)
|
13,729
|
|
TOTAL EXPENSES
|
688,225
|
|
Waiver and Reimbursements:
|
|
|
Waiver/reimbursement of investment adviser fee (Note 5)
|
(101,070)
|
|
Reimbursement of other operating expenses (Notes 2 and 5)
|
(14,573)
|
|
TOTAL WAIVER AND REIMBURSEMENTS
|
(115,643)
|
|
Net expenses
|
572,582
|
|
Net investment income
|
2,849,269
|
|
Realized and Unrealized Gain (Loss) on Investments and Futures Contracts:
|
|
|
Net realized loss on investments
|
(1,202,669)
|
|
Net realized loss on futures contracts
|
(286,887)
|
|
Net change in unrealized depreciation of investments
|
2,288,245
|
|
Net change in unrealized depreciation of futures contracts
|
254,313
|
|
Net realized and unrealized gain (loss) on investments and futures contracts
|
1,053,002
|
|
Change in net assets resulting from operations
|
$3,902,271
|
|
*
|
See information listed after the Fund's Portfolio of Investments.
|
See Notes which are an integral part of the Financial Statements
Semi-Annual Financial Statements and Additional Information
8
Statement of Changes in Net Assets
|
|
Six Months
Ended
(unaudited)
7/31/2024
|
Year Ended
1/31/2024
|
|
Increase (Decrease) in Net Assets
|
||
|
Operations:
|
||
|
Net investment income
|
$2,849,269
|
$3,126,943
|
|
Net realized gain (loss)
|
(1,489,556)
|
(2,063,952)
|
|
Net change in unrealized appreciation/depreciation
|
2,542,558
|
(1,583,698)
|
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS
|
3,902,271
|
(520,707)
|
|
Distributions to Shareholders:
|
||
|
Institutional Shares
|
(1,575,451)
|
(2,917,684)
|
|
Service Shares
|
(1,151,156)
|
(222,240)
|
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS
|
(2,726,607)
|
(3,139,924)
|
|
Share Transactions:
|
||
|
Proceeds from sale of shares
|
2,159,279
|
5,217,161
|
|
Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Hermes Government Income
Securities, Inc.
|
78,251,314
|
-
|
|
Net asset value of shares issued to shareholders in payment of distributions declared
|
2,082,023
|
2,431,254
|
|
Cost of shares redeemed
|
(19,751,028)
|
(29,443,058)
|
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS
|
62,741,588
|
(21,794,643)
|
|
Change in net assets
|
63,917,252
|
(25,455,274)
|
|
Net Assets:
|
||
|
Beginning of period
|
103,124,357
|
128,579,631
|
|
End of period
|
$167,041,609
|
$103,124,357
|
See Notes which are an integral part of the Financial Statements
Semi-Annual Financial Statements and Additional Information
9
Notes to Financial Statements
July 31, 2024 (unaudited)
1. ORGANIZATION
Federated Hermes Government Income Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Trust consists of one portfolio, Federated Hermes Government Income Fund (the "Fund"). 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 current income.
Effective as of the close of business on February 23, 2024, the Fund acquired all of the net assets of Federated Hermes Government Income Securities, Inc. (the "Acquired Fund"), an open-end investment company, in a tax-free reorganization in exchange for shares of the Fund, pursuant to a plan of reorganization approved by the Acquired Fund's Board of Directors on November 9, 2023. The purpose of the transaction was to combine two portfolios with comparable investment objectives and strategies. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from the Acquired Fund was carried forward to align ongoing reporting of the Fund's realized gains and losses with amounts distributable to shareholders for tax purposes.
For every one share of the Acquired Fund's Class A Shares exchanged, a shareholder received 0.855 shares of the Fund's Service Shares.
For every one share of the Acquired Fund's Class C Shares exchanged, a shareholder received 0.857 shares of the Fund's Service Shares.
For every one share of the Acquired Fund's Class F Shares exchanged, a shareholder received 0.853 shares of the Fund's Service Shares.
For every one share of the Acquired Fund's Institutional Shares exchanged, a shareholder received 0.852 shares of the Fund's Institutional Shares.
|
Shares of the
Fund Issued
|
Acquired Fund's
Net Assets
Received
|
Unrealized
Depreciation1
|
Net Assets
of the Fund
Immediately
Prior to
Acquisition
|
Net Assets
of the Fund
Immediately
After
Acquisition
|
|
8,943,007
|
$78,251,314
|
$(1,442,685)
|
$99,729,204
|
$177,980,518
|
|
1
|
Unrealized Depreciation is included in the Net Assets Received amount shown above.
|
Assuming the acquisition had been completed on February 1,2024, the beginning of the annual reporting period of the Fund, the Fund's proforma results of operations for the six months ended July 31,2024, were as follows:
|
Net investment income
|
$3,113,473
|
|
Net realized and unrealized gain (loss) on investments
|
(486,350)
|
|
Net increase in net assets resulting from operations
|
$2,627,123
|
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Acquired Fund that have been included in the Fund's Statement of Operations as of July 31, 2024.
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 Federated Investment Management Company (the "Adviser").
■
Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs, or NAV per share practical expedient, as applicable.
■
Derivative contracts listed on exchanges are valued at their reported settlement or closing price, except that options are valued at the mean of closing bid and ask quotations.
■
Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Adviser.
■
For securities that are fair valued in accordance with procedures established by and under the general supervision of the Adviser, 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 Financial Statements and Additional Information
10
If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Adviser's valuation policies and procedures for the Fund, or if information furnished by a pricing service, in the opinion of the Adviser's 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 Procedures
Pursuant to Rule 2a-5 under the Act, the Fund's Board of Trustees (the "Trustees") has designated the Adviser as the Fund's valuation designee to perform any fair value determinations for securities and other assets held by the Fund. The Adviser is subject to the Trustees' oversight and certain reporting and other requirements intended to provide the Trustees the information needed to oversee the Adviser's fair value determinations.
The Adviser, acting through its Valuation Committee, is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of the Adviser and certain of the Adviser's affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is also authorized to use pricing services 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-partypricing 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 Adviser. The Trustees periodically review the fair valuations made by the Valuation Committee. The Trustees have also approved the Adviser's fair valuation and significant events procedures as part of the Fund's compliance program and will review any changes made to the procedures.
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 ask 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-incomesecurities 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 Adviser.
Repurchase Agreements
The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. 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 $115,643 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.
Semi-Annual Financial Statements and Additional Information
11
Other Service Fees
The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund's Service Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Prior to February 16, 2024, the Fund's Institutional Shares were also subject to these fees. 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 July 31, 2024, other service fees for the Fund were as follows:
|
|
Other Service
Fees Incurred
|
Other Service
Fees Reimbursed
|
|
Service Shares
|
$82,938
|
$(14,573)
|
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code of 1986 (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 July 31, 2024, 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 July 31, 2024, tax years 2021 through 2024 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
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.
The Fund may transact in To Be Announced Securities (TBAs). As with other delayed-delivery transactions, a seller agrees to issue TBAs at a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Fund agrees to accept any security that meets specified terms such as issuer, interest rate and terms of underlying mortgages. The Fund records TBAs on the trade date utilizing information associated with the specified terms of the transaction as opposed to the specific mortgages. TBAs are marked to market daily and begin earning interest on the settlement date. Losses may occur due to the fact that the actual underlying mortgages received may be less favorable than those anticipated by the Fund.
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 $17,951,536 and $7,000,181, respectively. This is based on amounts held as of each month-end throughout the six-month period.
Dollar-Roll Transactions
The Fund engages in dollar-roll transactions in which the Fund sells mortgage-backed securities with a commitment to buy similar (same type, coupon and maturity), but not identical mortgage-backed securities on a future date. Both securities involved are TBA mortgage-backedsecurities. The Fund treats dollar-roll transactions as purchases and sales. Dollar-rolls are subject to interest rate risks and credit risks.
Option Contracts
The Fund buys or sells put and call options to manage duration and yield curve risks. The seller ("writer") of an option receives a payment or premium, from the buyer, which the writer keeps regardless of whether the buyer exercises the option. When the Fund writes a put or call option, an amount equal to the premium received is recorded as a liability and subsequently marked to market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the underlying reference instrument. When the Fund purchases a put or call option, an amount equal to the premium paid is recorded as an increase to the cost of the investment and subsequently marked to market to reflect the current value of the option purchased. Premiums paid for purchasing options which expire are treated as realized losses. Premiums received/paid for writing/purchasing options which are exercised or closed are added to the proceeds or offset against amounts paid on the underlying reference instrument to determine the realized gain or loss. The risk associated with purchasing put and call options is limited to the premium paid. Options can trade on securities or commodities exchanges. In this case, the exchange sets all the terms of the contract except for the price. Most exchanges require investors to maintain margin accounts through their brokers to cover their potential obligations to the exchange. This protects investors against potential defaults by the counterparty.
Semi-Annual Financial Statements and Additional Information
12
At July 31, 2024, the Fund had no outstanding purchased or written option contracts.
The average market value of purchased call options held by the Fund throughout the period was $857. This is based on amounts held as of each month-end throughout the six-month period.
Additional Disclosure Related to Derivative Instruments
|
Fair Value of Derivative Instruments
|
||
|
|
Liabilities
|
|
|
|
Statement of
Assets and
Liabilities
Location
|
Fair
Value
|
|
Derivatives not accounted for as hedging
instruments under ASC Topic 815
|
|
|
|
Interest rate contracts
|
Payable for variation margin
on futures contracts
|
$(36,978)*
|
|
*
|
Includes cumulative 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 July 31, 2024
|
Amount of Realized Gain or (Loss) on Derivatives Recognized in Income
|
|
|
|
Futures
Contracts
|
|
Interest rate contracts
|
$(286,887)
|
|
Change in Unrealized Appreciation or (Depreciation) on Derivatives Recognized in Income
|
|
|
|
Futures
Contracts
|
|
Interest rate contracts
|
$254,313
|
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 Trust applies investment company accounting and reporting guidance.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
|
Six Months Ended
7/31/2024
|
Year Ended
1/31/2024
|
||
|
Institutional Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
177,652
|
$1,558,522
|
528,681
|
$4,628,864
|
|
Proceeds from shares issued in connection with the tax-free transfer of assets from the
Acquired Fund
|
663,763
|
5,807,925
|
-
|
-
|
|
Shares issued to shareholders in payment of distributions declared
|
138,015
|
1,204,514
|
250,407
|
2,210,538
|
|
Shares redeemed
|
(1,656,944)
|
(14,510,024)
|
(2,987,472)
|
(26,316,946)
|
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS
|
(677,514)
|
$(5,939,063)
|
(2,208,384)
|
$(19,477,544)
|
|
|
Six Months Ended
7/31/2024
|
Year Ended
1/31/2024
|
||
|
Service Shares:
|
Shares
|
Amount
|
Shares
|
Amount
|
|
Shares sold
|
68,702
|
$600,757
|
66,480
|
$588,297
|
|
Proceeds from shares issued in connection with the tax-free transfer of assets from the
Acquired Fund
|
8,279,244
|
72,443,389
|
-
|
-
|
|
Shares issued to shareholders in payment of distributions declared
|
100,561
|
877,509
|
25,013
|
220,716
|
|
Shares redeemed
|
(598,893)
|
(5,241,004)
|
(349,625)
|
(3,126,112)
|
|
NET CHANGE RESULTING FROM SERVICE SHARE TRANSACTIONS
|
7,849,614
|
$68,680,651
|
(258,132)
|
$(2,317,099)
|
|
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS
|
7,172,100
|
$62,741,588
|
(2,466,516)
|
$(21,794,643)
|
Semi-Annual Financial Statements and Additional Information
13
4. FEDERAL TAX INFORMATION
At July 31, 2024, the cost of investments for federal tax purposes was $211,334,364. The net unrealized depreciation of investments for federal tax purposes was $10,859,103. This consists of unrealized appreciation from investments for those securities having an excess of value over cost of $1,231,275 and unrealized depreciation from investments for those securities having an excess of cost over value of $12,090,378. The amounts presented are inclusive of derivative contracts.
As of January 31, 2024, the Fund had a capital loss carryforward of $17,336,275 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, these net capital losses retain their character as either short-term or long-term and do not expire.
The following schedule summarizes the Fund's capital loss carryforwards:
|
Short-Term
|
Long-Term
|
Total
|
|
$8,979,606
|
$8,356,669
|
$17,336,275
|
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 0.40% 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 competitive reasons such as to maintain the Fund's expense ratio, or as and when appropriate, to maintain positive or zero net yields. For the six months ended July 31, 2024, the Adviser voluntarily waived $98,877 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 July 31, 2024, the Adviser reimbursed $2,193.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, "Investment Complex" is defined as all of the Federated Hermes Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below:
|
Administrative Fee
|
Average Daily Net Assets
of the Investment Complex
|
|
0.100%
|
on assets up to $50 billion
|
|
0.075%
|
on assets over $50 billion
|
Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee.
For the six months ended July 31, 2024, 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 0.05% 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.
Effective Feburary16, 2024, Distribution Services Fees for the Fund's Service Shares were eliminated.
Other Service Fees
For the six months ended July 31, 2024, FSSC received $10,067 and reimbursed $14,573 of the other service fees disclosed in Note 2.
Expense Limitation
The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses and proxy-related expenses, if any) paid by the Fund's Institutional Shares and Service Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.63% and 0.83% (the "Fee Limit"), respectively, up to but not including the later of (the "Termination Date"): (a) April 1, 2025; or (b) the date of the Fund's next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.
Semi-Annual Financial Statements and Additional Information
14
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. 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 18, 2024. 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 (a) the highest, on any day, of (i) the federal funds effective rate, (ii) the published secured overnight financing rate plus an assigned percentage, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays 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 July 31, 2024, the Fund had no outstanding loans. During the six months ended July 31, 2024, the Fund did not utilize the LOC.
7. 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 July 31, 2024, there were no outstanding loans. During the six months ended July 31, 2024, the program was not utilized.
8. INDEMNIFICATIONS
Under the Fund's organizational documents, its Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund (other than liabilities arising out of their willful misfeasance, bad faith, gross negligence or reckless disregard of their duties to the Fund). In addition, in the normal course of business, the Fund provides certain indemnifications under arrangements with third parties. Typically, obligations to indemnify a third party arise in the context of an arrangement entered into by the Fund under which the Fund agrees to indemnify such third party for certain liabilities arising out of actions taken pursuant to the arrangement, provided the third party's actions are not deemed to have breached an agreed-upon standard of care (such as willful misfeasance, bad faith, gross negligence or reckless disregard of their duties under the contract). The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet arisen. The Fund does not anticipate any material claims or losses pursuant to these arrangements at this time, and accordingly expects the risk of loss to be remote.
Semi-Annual Financial Statements and Additional Information
15
Evaluation and Approval of Advisory Contract-May 2024
Federated Hermes Government Income Fund (the "Fund")
At its meetings in May 2024 (the "May Meetings"), the Fund's Board of Trustees (the "Board"), including 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 approve the continuation of the existing arrangement. 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 of the Fund's management fee (the "CCO Fee Evaluation Report"). The Board considered 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.
In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board considered information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings. In this regard, 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 by independent legal counsel on behalf of the Independent Trustees encompassing a wide variety of topics, including those summarized below. The Board also considered such additional matters as the Independent Trustees deemed reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings throughout the year and in between regularly scheduled meetings on particular matters as the need arose.
The Board's consideration of the Contract included review of materials and information covering the following matters, among others: (1) copies of the Contracts; (2) the nature, quality and extent of the advisory and other services provided to the Fund by Federated Hermes; (3) Federated Hermes' business and operations; (4) the Adviser's investment philosophy, personnel and processes; (5) the Fund's investment objectives and strategies; (6) the Fund's short-term and long-term performance - in absolute terms (both on a gross basis and net of expenses) and relative to an appropriate group of peer funds and its benchmark; (7) the Fund's fees and expenses, including the advisory fee and the overall expense structure of the Fund - in absolute terms and relative to an appropriate group of peer funds, with due regard for contractual or voluntary expense limitations (if any); (8) the financial condition of Federated Hermes; (9) the Adviser's profitability with respect to managing the Fund; (10) distribution and sales activity for the Fund; and (11) the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any).
The Board also considered judicial decisions concerning allegedly excessive investment advisory fees charged to other registered funds in evaluating the Contract. Using these judicial decisions as a guide, the Board considered several factors they deemed relevant to an adviser's fiduciary duty with respect to its receipt of compensation from a fund, including: (1) the nature and quality of the services provided by the adviser to the fund and its shareholders, including the performance of the fund, its benchmark and comparable funds; (2) the adviser's cost of providing the services and the profitability to the adviser of providing advisory services to the fund; (3) the extent to which the adviser may realize "economies of scale" as the fund grows larger and, if such economies of scale exist, whether they have been appropriately shared with the fund and its shareholders or the family of funds; (4) any "fall-out" benefits that accrue to the adviser because of its relationship with the fund, including research services received from brokers that execute fund trades and any fees paid to affiliates of the adviser for services rendered to the fund; (5) comparative fees and expenses, including a comparison of management fees paid to the adviser with those paid by similar funds managed by the same adviser or other advisers as well as management fees charged to institutional and other advisory clients of the same 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 the adviser's services and fees. The Board considered that the Securities and Exchange Commission ("SEC") disclosure requirements regarding the basis for a fund board's approval of the fund's investment advisory contract generally align with the factors listed above. The Board was guided by these factors in its evaluation 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 oversight of the other funds advised by Federated Hermes (each, a "Federated Hermes Fund" and, collectively, the "Federated Hermes Funds").
Semi-Annual Financial Statements and Additional Information
16
In addition, the Board considered the preferences and expectations of Fund shareholders and 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 the Contract. In particular, the Board recognized that many shareholders likely have invested in the Fund based on the strength of Federated Hermes' industry standing and reputation and with the expectation that Federated Hermes will have a continuing role in providing advisory services to the Fund. Thus, the Board observed that there are a range of investment options available to the Fund's shareholders in the marketplace, and such shareholders, having had the opportunity to consider other investment options, have effectively selected Federated Hermes by virtue of investing in the Fund.
In determining to approve the continuation of the Contract, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board's determination to approve the continuation of 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 Board recognized that its evaluation process is evolutionary and that the factors considered and emphasis placed on relevant factors may change in recognition of changing circumstances in the registered fund marketplace. 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 family of Federated Hermes Funds, but its approvals were made on a fund-by-fund basis.
Nature, Extent and Quality of Services
The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of Federated Hermes dedicated to the Fund. In this regard, the Board evaluated, among other things, the terms of the Contract and the full range of services provided to the Fund by Federated Hermes. The Board considered the Adviser's personnel, investment philosophy and process, investment research capabilities and resources, trade operations capabilities, experience and performance track record. 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 evaluated Federated Hermes' ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered the trading operations by the Advisers, including the execution of portfolio transactions and the selection of brokers for those transactions. The Board also considered the Adviser's ability to deliver competitive investment performance for the Fund when compared to the Fund's Performance Peer Group (as defined below), which was deemed by the Board to be a useful indicator of how the Adviser is executing the Fund's investment program.
In addition, the Board considered the financial resources and overall reputation of Federated Hermes and its willingness to consider and make investments in personnel, infrastructure, technology, cybersecurity, business continuity planning and operational enhancements that are designed to benefit the Federated Hermes Funds. The Board noted the benefits of the previous significant acquisition of Hermes Fund Managers Limited by Federated Hermes, which has deepened Federated Hermes' investment management expertise and capabilities and expanded its access to analytical resources related to environmental, social and governance ("ESG") factors and issuer engagement on ESG matters where appropriate. The Board considered Federated Hermes' oversight of the securities lending program for the Federated Hermes Funds that engage in securities lending and noted the income earned by the Federated Hermes Funds that participate in such program. In addition, the Board considered the quality of Federated Hermes' communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Federated Hermes Funds. The Board also considered that Federated Hermes is responsible for providing the Federated Hermes Funds' officers.
The Board received and evaluated information regarding Federated Hermes' regulatory and compliance environment. The Board considered Federated Hermes' compliance program and compliance history and reports from the CCO about Federated Hermes' compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulatory agencies. The Board also noted Federated Hermes' support of the Federated Hermes Funds' compliance control structure and the compliance-related resources devoted by Federated Hermes in support of the Fund's obligations pursuant to Rule 38a-1 under the Investment Company Act of 1940, including Federated Hermes' commitment to respond to rulemaking and other regulatory initiatives of the SEC. The Board considered Federated Hermes' approach to internal audits and risk management with respect to the Federated Hermes Funds and its day-to-day oversight of the Federated Hermes Funds' compliance with their investment objectives and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led, and continue to lead, to an increase in the scope of Federated Hermes' oversight in this regard.
Semi-Annual Financial Statements and Additional Information
17
In addition, the Board noted Federated Hermes' commitment to maintaining high quality systems and expending substantial resources to prepare for and respond to ongoing changes due to the market, regulatory and control environments in which the Fund and its service providers operate.
The Board considered Federated Hermes' efforts to provide shareholders in the Federated Hermes Funds with a comprehensive array of funds with different investment objectives, policies and strategies. The Board considered the expenses that Federated Hermes had incurred, as well as the entrepreneurial and other risks assumed by Federated Hermes, in sponsoring and providing on-going services to new funds to expand these opportunities for shareholders. The Board noted the benefits to shareholders of being part of the family of Federated Hermes Funds, which include the general right to exchange investments between the same class of shares without the incurrence of additional sales charges.
Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided by the Adviser to the Fund.
Fund Investment Performance
The Board considered the investment performance of the Fund. In evaluating the Fund's investment performance, the Board considered performance results in light of the Fund's investment objective, strategies and risks. The Board considered detailed investment reports on, and the Adviser's analysis of, the Fund's performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings. These reports included, among other items, information on the Fund's gross and net returns, the Fund's investment performance compared to one or more relevant categories or groups of peer funds and the Fund's benchmark index, performance attribution information and commentary on the effect of market conditions. The Board considered that, in its evaluation of investment performance at meetings throughout the year, it focused particular attention on information indicating less favorable performance of certain Federated Hermes Funds for specific time periods and discussed with Federated Hermes the reasons for such performance as well as any specific actions Federated Hermes had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those actions.
The Board also reviewed comparative information regarding the performance of other registered funds in the category of peer funds selected by Morningstar, Inc. (the "Morningstar"), an independent fund ranking organization (the "Performance Peer Group"). The Board noted the CCO's view that comparisons to fund peer groups may be helpful, though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered the CCO's view that, in evaluating such comparisons, 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 Board also considered comparative performance data from Lipper, Inc. that was included in reports provided to the Board throughout the year. The Board noted that differences may exist between the Performance Peer Group and Lipper peers and that the results of these performance comparisons may vary.
The Board considered that the Fund's performance fell below the median of the Performance Peer Group for the one-year,three-year and five-year periods ended December 31, 2023. 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.
Based on these considerations, the Board concluded that it had continued confidence in the Adviser's overall capabilities to manage the Fund.
Fund Expenses
The Board considered the advisory fee and overall expense structure of the Fund and the comparative fee and expense information that had been provided in connection with the May Meetings. 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 overall 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.
While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged to funds by other advisers, the use of comparisons between the Fund and its Expense Peer Group assisted the Board in its evaluation of the Fund's fees and expenses. The Board focused on comparisons with other registered funds more heavily than non-registered fund products or services because such comparisons are believed to be more relevant.
Semi-Annual Financial Statements and Additional Information
18
The Board considered that other registered 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 shareholders. The Board noted that the range of such other registered funds' fees and expenses, therefore, appears to be a relevant indicator of what investors have found to be reasonable in the marketplace in which the Fund competes.
The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund with the Adviser 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 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.
The Board also received and considered information about the nature and extent of services offered and fees charged by Federated Hermes to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-registered fund clients (such as institutional separate accounts) and third-party unaffiliated registered funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO's conclusion that non-registered 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) 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; (vi) different SEC mandated risk management programs with respect to fund liquidity and use of derivatives; (vii) different administrative responsibilities; (viii) different degrees of risk associated with management; and (ix) 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 registered fund business versus managing a discrete pool of assets as a sub-adviser to another institution's registered fund, noting the CCO's view 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 registered 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.
In the case of the Fund, the Board noted that Federated Hermes does not manage any other types of clients that are comparable to the Fund.
Based on these considerations, the Board concluded that the fees and total operating expenses of the Fund, in conjunction with other matters considered, are reasonable in light of the services provided.
Profitability
The Board received and considered profitability information furnished by Federated Hermes. Such profitability information included revenues reported on a fund-by-fund basis and estimates of the allocation of expenses made 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 on a fund-by-fund basis 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. In addition, the Board considered the CCO's view that 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 are consistent with the methodologies previously reviewed by an independent consultant. The Board noted that the independent consultant had previously conducted a review of the allocation methodologies and reported to the Board that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable. The Board considered the CCO's view that the estimated profitability to the Adviser from its relationship with the Fund was not unreasonable in relation to the services provided.
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 recognized that profitability comparisons among fund management companies are difficult because of the variation in the type of comparative information that is publicly available, and the profitability of any fund management company is affected by numerous factors. 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 Financial Statements and Additional Information
19
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 isolating and quantifying 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 Federated Hermes has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as: portfolio management, investment research and trading operations; shareholder services; compliance; business continuity, cybersecurity and information security programs; internal audit and risk management functions; and technology, systems capabilities and use of data. The Board noted that Federated Hermes' investments in these areas are extensive and are designed to provide enhanced or expanded services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments are likely to be shared with the family of Federated Hermes Funds as a whole. In addition, the Board considered that fee waivers and expense 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. The Board considered that, in order for the Federated Hermes Funds to remain competitive in the marketplace, Federated Hermes has frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and has disclosed to shareholders and/or reported to the Board its intention to do so (or continue to do so) in the future. The Board also considered that Federated Hermes has been active in managing expenses of the Federated Hermes Funds in recent years, which has resulted in benefits being realized by shareholders.
The Board also received and considered information on adviser-paid fees (commonly referred to as "revenue sharing" payments) that was provided to the Board throughout the year and in connection with the May Meetings. The Board considered that Federated Hermes and the CCO believe that this information is relevant to considering whether Federated Hermes had an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, but should not be considered when evaluating the reasonableness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines on economies of scale, which is compounded by the lack of any uniform methodology or pattern with respect to structuring fund advisory fees with breakpoints that serve to reduce the fees as a fund attains a certain size.
Other Benefits
The Board considered information regarding the compensation and other ancillary (or "fall-out") benefits that Federated Hermes derived from its relationships with the Federated Hermes Funds. The Board noted that, in addition to receiving advisory fees under the Federated Hermes Funds' investment advisory contracts, Federated Hermes' affiliates also receive fees for providing other services to the Federated Hermes Funds under separate service contracts including for serving as the Federated Hermes Funds' administrator and distributor. In this regard, the Board considered that 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 the benefits, if any, that Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds.
Conclusions
The Board considered: (i) the CCO's conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund is reasonable; and (ii) 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 sub-advisory arrangements is a continuing and ongoing 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, and management has committed to reviewing certain items, for future reporting to the Board as the Board continues its ongoing oversight of the Federated Hermes Funds.
On the basis of the information and factors summarized above, among other information and factors deemed relevant by the Board, and the evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the continuation of the Contract. The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view of 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.
Semi-Annual Financial Statements and Additional Information
20
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 information 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, Option #4.
Federated Hermes Government Income Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedHermes.com/us
or call 1-800-341-7400.
or call 1-800-341-7400.
Federated Securities Corp., Distributor
CUSIP 314199100
CUSIP 314199209
CUSIP 314199209
8082203 (9/24)
©2024 Federated Hermes, Inc.
| Item 8. | Changes in and Disagreements with Accountants for Open-End Management Investment Companies |
Federated Hermes Government Income Fund: Not Applicable.
| Item 9. | Proxy Disclosures for Open-End Management Investment Companies. |
Federated Hermes Government Income Fund: Not Applicable.
| Item 10. | Remuneration Paid to Directors, Officers, and Others of Open-End Management Investment Companies. |
Federated Hermes Government Income Fund: The Fund's disclosure of remuneration items is included as part of the Financial Statements filed under Item 7 of this form.
| Item 11. | Statement Regarding Basis for Approval of Investment Advisory Contract. |
Federated Hermes Government Income Fund: The Fund's Evaluation and Approval of Advisory Contract summary by fund appear in the Financial Statements filed under Item 7 of this form.
| Item 12. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Not Applicable
| Item 13. | Portfolio Managers of Closed-End Management Investment Companies. |
Not Applicable
| Item 14. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not Applicable
| Item 15. | Submission of Matters to a Vote of Security Holders. |
No Changes to Report
| Item 16. | Controls and Procedures. |
(a) The registrant's Principal Executive Officer and Principal Financial Officer 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 as of a date within 90 days 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 period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting.
| Item 17. | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies. |
Not Applicable
| Item 18. | Recovery of Erroneously Awarded Compensation |
(a) Not Applicable
(b) Not Applicable
| Item 19. | Exhibits |
(a)(1) Not Applicable.
(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.
(a)(3) Not Applicable.
(a)(4) 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 Government Income Trust
By: /s/ Jeremy D. Boughton
Jeremy D. Boughton, Principal Financial Officer
Date: September 23, 2024
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: September 23, 2024
By: /s/ Jeremy D. Boughton
Jeremy D. Boughton, Principal Financial Officer
Date: September 23, 2024