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Item 1. Business

2021-02-26 compared with 2020-02-21 · 652 added, 424 removed, 106 unchanged (91% of the section changed)

ITEM 1 – BUSINESS

Federated Hermes, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries, including Hermes Fund Managers Limited ( Hermes ) beginning July 1, 2018 (collectively, Federated ), was formerly known as Federated Investors, Inc.

Federated Hermes, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries, including Hermes Fund Managers Limited (HFML) beginning July 1, 2018 (collectively, Federated Hermes), was formerly known as Federated Investors, Inc.

Effective January 31, 2020, Federated Investors, Inc.'s name was changed to Federated Hermes, Inc.

Federated is a leading provider of investment management products and related financial services.

Federated has been in the investment management business since 1955 and is one of the largest investment managers in the United States ( U.S.

) with $575.9 billion in assets under management ( AUM or managed assets) at December 31, 2019 .

Federated operates in one operating segment, the investment management business .

Federated sponsors, markets and provides investment-related services to various investment products, including sponsored investment companies and other funds ( Federated Funds ) and Separate Accounts (which include separately managed accounts ( SMA s), institutional accounts, sub-advised funds and other managed products) in both domestic and international markets, as well as provides stewardship services to various companies.

Federated's principal source of revenue is investment advisory fee income earned by various domestic and/or foreign subsidiaries pursuant to investment advisory contracts and based primarily upon the AUM of the investment products and strategies.

Federated Hermes is a leading provider of investment management products and related financial services.

Federated Hermes has been in the investment management business since 1955 and is one of the largest investment managers in the United States (U.S.) with $619.4 billion in assets under management (AUM or managed assets) at December 31, 2020.

Federated Hermes operates in one operating segment, the investment management business.

Federated Hermes sponsors, markets and provides investment-related services to various investment products, including sponsored investment companies and other funds (Federated Hermes Funds) and Separate Accounts (which include separately managed accounts (SMAs), institutional accounts, sub-advised funds and other managed products) in both domestic and international markets.

In addition, Federated Hermes markets and provides stewardship and real estate development services to various domestic and international companies.

Federated Hermes' principal source of revenue is investment advisory fees earned by various domestic and/or foreign subsidiaries pursuant to investment advisory contracts and based primarily upon the AUM of the investment products and strategies.

Domestic advisory subsidiaries are registered as investment advisors under the Investment Advisers Act of 1940 (Advisers Act), while foreign advisory subsidiaries are registered in the U.S.

and/or with foreign regulators.

Federated provides investment advisory services to 135 Federated Funds as of December 31, 2019 .

Federated markets these funds to institutional customers and banks, broker/dealers and other financial intermediaries who use them to meet the needs of customers and/or clients (collectively, customers), including retail investors, corporations and retirement plans.

The Federated Funds are domiciled in the U.S., as well as Ireland, the United Kingdom ( UK ), Luxembourg, the Cayman Islands and Canada.

Most of Federated's U.S.-domiciled funds are registered under the Investment Company Act of 1940 ( 1940 Act ) and under other applicable federal laws.

Each U.S.-domiciled registered fund enters into an advisory agreement that is subject to annual approval by the fund's board of directors or trustees, a majority of whom are not interested persons, as defined under the 1940 Act , of either the funds or Federated.

In general, material amendments to such advisory agreements must be approved by the funds' shareholders.

Federated Hermes provides investment advisory services to 163 Federated Hermes Funds as of December 31, 2020.

Federated Hermes markets these funds to institutional customers and banks, broker/dealers and other financial intermediaries who use them to meet the needs of customers and/or clients (collectively, customers), including, among others, retail investors, corporations and retirement plans.

The Federated Hermes Funds are domiciled in the U.S., as well as Ireland, the United Kingdom (UK), Luxembourg, Guernsey, Jersey, the Cayman Islands and Canada.

Most of Federated Hermes' U.S.-domiciled funds are registered under the Investment Company Act of 1940 (1940 Act) and under other applicable federal laws.

In general, material amendments to such advisory agreements must be approved by a fund's shareholders.

These advisory agreements are generally terminable upon 60 days' notice to the investment advisor.

See Potential Adverse Effects of Termination or Failure to Renew Advisory Agreements in Item 1A - Risk Factors for additional information on Federated's advisory agreements.

Of the 135 Federated Funds as of December 31, 2019 , Federated's investment advisory subsidiaries managed 27 money market funds totaling $286.6 billion in AUM, 49 fixed-income funds with $44.2 billion in AUM, 43 equity funds with $48.1 billion in AUM, 11 alternative/private markets funds with $11.4 billion in AUM and five multi-asset funds with $4.0 billion in AUM.

As of December 31, 2019 , Federated provided investment advisory services to $181.5 billion in Separate Account assets.

These Separate Accounts represent assets of government entities, high-net-worth individuals, pension and other employee benefit plans, corporations, trusts, foundations, endowments, sub-advised funds and other accounts or products owned or sponsored by third parties.

Fees for Separate Accounts are typically based on AUM pursuant to investment advisory agreements that are generally terminable upon notice to Federated (or, in certain cases, after a 30 day, 60 day or similar notice period).

Certain Federated Funds have adopted distribution plans that, subject to applicable law, provide for payment to Federated for distribution services.

These distribution plans are implemented through distribution agreements between Federated and the Federated Funds .

See Item 1A - Risk Factors under the caption Specific Risk Factors - Potential Adverse Effects of Termination or Failure to Renew Advisory Agreements for additional information on Federated Hermes' advisory agreements.

Of the 163 Federated Hermes Funds as of December 31, 2020, Federated Hermes' investment advisory subsidiaries managed 27 money market funds totaling $301.9 billion in AUM, 49 fixed-income funds with $53.6 billion in AUM, 43 equity funds with $54.3 billion in AUM, 39 alternative/private markets funds with $12.1 billion in AUM and five multi-asset funds with $3.7 billion in AUM.

As of December 31, 2020, Federated Hermes provided investment advisory services to $193.9 billion in Separate Account assets.

Fees for Separate Accounts are typically based on AUM pursuant to investment advisory agreements that are generally terminable upon notice to Federated Hermes (or, in certain cases, after a 30 day, 60 day or similar notice period).

Certain Federated Hermes Funds have adopted distribution plans that, subject to applicable law, provide for payment to Federated Hermes for distribution services.

These distribution plans are implemented through distribution agreements between Federated Hermes and the Federated Hermes Funds.

Although the specific terms of each such agreement vary, the basic terms of the agreements are similar.

Pursuant to these agreements, Federated acts as underwriter for the funds and distributes shares of the funds primarily through unaffiliated dealers.

Pursuant to these agreements, a Federated Hermes subsidiary acts as underwriter for these funds and distributes shares of the funds primarily through unaffiliated broker/dealers.

Each distribution plan and agreement is initially approved by the directors or trustees of the respective fund and is reviewed for approval by such directors or trustees annually as required under applicable law.

Federated also provides a broad range of services to support the operation and administration of the Federated Funds .

These services, for which Federated receives fees pursuant to agreements with the Federated Funds , include administrative services and shareholder servicing.

On July 2, 2018, Federated completed, effective as of July 1, 2018, the acquisition of a controlling interest in Hermes ( Hermes Acquisition ).

As a result of the Hermes Acquisition , Federated provides stewardship services and environmental, social and governance ( ESG ) integrated investment strategies.

Through the stewardship services, Federated offers customers a range of solutions for engagement, advocacy, active ownership and impact and delivers effective engagement with the companies in which they invest.

Federated integrates ESG factors into, or considers ESG factors in connection with, certain of its investment strategies and processes to seek long-term performance for its customers and clients.

Federated Hermes also provides a broad range of services to support the operation and administration of the Federated Hermes Funds.

These services, for which Federated Hermes receives fees pursuant to agreements with the Federated Hermes Funds, include administrative services and shareholder servicing.

On July 2, 2018, Federated Hermes completed, effective as of July 1, 2018, the acquisition of a controlling interest in HFML (HFML Acquisition).

As a result of the HFML Acquisition, Federated Hermes provides stewardship services and environmental, social and governance (ESG) integrated investment strategies.

Through the stewardship services, Federated Hermes offers customers a range of solutions for engagement, advocacy, active ownership and impact and delivers effective engagement with the companies in which its customers may invest.

In 2020, to seek and enhance long-term performance for its customers and clients, Federated Hermes took further steps to integrate the proprietary insights from fundamental ESG factors and engagement research into nearly all of its investment strategies.

On March 5, 2020, Federated Hermes acquired, effective as of March 1, 2020, 100 percent ownership of HGPE Capital Limited for £15.9 million ($20.4 million) (HCL Acquisition).

The principal activity of HGPE Capital Limited is that of a holding company for an infrastructure and private equity investment management business.

As a result of the acquisition of HGPE Capital Limited, Federated Hermes gained control of Hermes GPE LLP (HGPE) (collectively with HGPE Capital Limited, HCL).

The addition of London-based HCL provides the opportunity to further accelerate and broaden Federated Hermes' global growth.

Assets Under Management

Total AUM are composed of Federated Funds and Separate Accounts and represent the balance of AUM at a point in time.

Total AUM are composed of Federated Hermes Funds and Separate Accounts and represent the balance of AUM at a point in time.

Total managed assets for the past two years were as follows:

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dollars in millions 2020 2019

Equity $ 91,788 $ 89,011 3 %

Fixed-Income 84,277 69,023 22

Alternative / Private Markets 1

19,084 18,102 5

Multi-Asset 3,948 4,199 (6)

Total Long-Term Assets 199,097 180,335 10

Money Market 420,333 395,539 6

Total Managed Assets $ 619,430 $ 575,874 8 %

Alternative/Private Markets at December 31, 2019 and 2018 includes $8.2 billion and $8.3 billion , respectively, of fund assets managed by a non-consolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

1 The balance at December 31, 2019 includes $8.2 billion of fund assets managed by a previously non-consolidated entity, HGPE, in w hich Federated Hermes h eld an equity method investment.

Effective March 1, 2020, HGPE became a consolidated subsidiary.

See Note (3) to the Consolidated Financial Statements for additional information.

Average managed assets represent the average balance of AUM during a period of time.

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dollars in millions 2020 2019 2018

Equity $ 80,591 $ 81,212 $ 70,680 (1) % 15 %

Fixed-Income 74,403 65,375 63,454 14 3

Alternative / Private Markets 1

18,206 17,896 9,397 2 90

Multi-Asset 3,813 4,192 4,764 (9) (12)

Total Long-Term Assets 177,013 168,675 148,295 5 14

Money Market 436,895 340,505 267,093 28 27

Total Average Managed Assets $ 613,908 $ 509,180 $ 415,388 21 % 23 %

Alternative/Private Markets for the year ended December 31, 2019 and 2018 includes $8.2 billion and $4.1 billion , respectively, of average fund assets managed by a non-consolidated entity, Hermes GPE LLP, in which Hermes holds an equity method investment.

Changes in Federated's average asset mix year-over-year across both asset classes and product/strategy types have a direct impact on Federated's operating income.

Asset mix impacts Federated's total revenue due to the difference in the fee rates earned on each asset class and product/strategy type per invested dollar.

Generally, management-fee rates charged for advisory services provided to equity and multi-asset products and strategies are higher than management-fee rates charged to fixed-income and alternative/private markets products and strategies, which in turn are higher than management-fee rates charged to money market products and strategies.

Likewise, Federated Funds typically have a higher management-fee rate than Separate Accounts.

1 The average balance for the year ended December 31, 2019 and December 31, 2018 includes $8.2 billion and $4.1 billion, respectively, of average fund assets managed by a previously non-consolidated entity, HGPE, in wh ich Federated Hermes held an equity method investment.

Effective March 1, 2020, HGPE became a consolidated subsidiary.

See Note (3) to the Consolidated Financial Statements for additional information.

Changes in Federated Hermes' average asset mix year-over-year across both asset classes and product/strategy types have a direct impact on Federated Hermes' operating income.

Asset mix impacts Federated Hermes' total revenue due to the difference in the fee rates earned on each asset class and product/strategy type per invested dollar.

Generally, advisory fees charged for services provided to equity and multi-asset products and strategies are higher than advisory fees charged to fixed-income and alternative/private markets products and strategies, which in turn are higher than advisory fees charged to money market products and strategies.

Likewise, Federated Hermes Funds typically have higher advisory fees than Separate Accounts.

Additionally, certain components of distribution expense can vary depending upon the asset class, distribution channel and/or the size or structure of the customer relationship.

Federated generally pays out a larger portion of the revenue earned from managed assets in money market and multi-asset funds than the revenue earned from managed assets in equity, fixed-income and alternative/private markets funds.

Federated's revenues from investment advisory, administrative and other service fees over the last three years were as follows:

Federated Hermes generally pays out a larger portion of the revenue earned from managed assets in money market and multi-asset funds than the revenue earned from managed assets in equity, fixed-income and alternative/private markets funds.

Federated Hermes' revenue from investment advisory, administrative and other service fees over the last three years were as follows:

Year Ended December 31, 2020

2019 2019 vs.

dollars in thousands 2020 2019 2018

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Investment Products and Strategies

Federated offers a wide range of products and strategies, including money market, equity, fixed-income, alternative/private markets and multi-asset investments.

Federated's offerings include products and strategies that Federated expects to be in demand under a variety of economic and market conditions.

Federated has structured its investment process to meet the requirements of fiduciaries and others who use Federated's suitable products and strategies to meet the needs of their customers.

Federated Hermes offers a wide range of products and strategies, including money market, equity, fixed-income, alternative/private markets and multi-asset investments.

Federated Hermes' offerings include products and strategies expected to be in demand under a variety of economic and market conditions.

Federated Hermes has structured its investment process to meet the requirements of fiduciaries and others who use Federated Hermes' products and strategies to meet the needs of their customers.

Fiduciaries typically have stringent demands regarding portfolio composition, risk and investment performance.

Federated, which began selling money market fund products to institutions in 1974, is one of the largest U.S.

Federated Hermes, which began selling money market fund products to institutions in 1974, is one of the largest U.S.

managers of money market assets, with $420.3 billion in AUM at December 31, 2020.

Federated has developed expertise in managing cash for institutions, which typically have strict requirements for regulatory compliance, relative safety, liquidity and competitive yields.

Federated also manages retail money market products that are typically distributed through broker/dealers.

At December 31, 2019 , Federated managed money market assets across a wide range of categories:

Federated Hermes has developed expertise in managing cash for institutions, which typically have strict requirements for regulatory compliance, relative safety, liquidity and competitive yields.

Federated Hermes also manages retail money market products that are typically distributed through broker/dealers.

At December 31, 2020, Federated Hermes managed money market assets across a wide range of categories:

government ($285.6 billion);

prime ($124.8 billion);

and tax-free ( $11.4 billion ).

Federated's equity assets totaled $89.0 billion at December 31, 2019 and are managed across a wide range of categories including:

value and income ( $34.7 billion );

and municipal (or tax-exempt) ($9.9 billion).

Federated Hermes' equity assets totaled $91.8 billion at December 31, 2020 and are managed across a wide range of categories including:

international/global ($35.0 billion);

value and income ($26.5 billion);

growth ($25.6 billion);

and blend ( $5.1 billion ).

Federated's fixed-income assets totaled $69.0 billion at December 31, 2019 and are managed across a wide range of categories including:

and blended ($4.7 billion).

Federated Hermes' fixed-income assets totaled $84.3 billion at December 31, 2020 and are managed across a wide range of categories including:

multisector ($48.7 billion);

high-yield ($17.2 billion);

municipal ( $5.6 billion );

corporate ($6.0 billion);

municipal (or tax-exempt) ($5.7 billion);

government ($4.2 billion);

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and mortgage-backed ($0.9 billion).

Federated's alternative/private markets and multi-asset investments totaled $18.1 billion and $4.2 billion , respectively, at December 31, 2019 .

Federated's alternative/private markets assets are managed across a wide range of categories including:

Federated Hermes' alternative/private markets and multi-asset investments totaled $19.1 billion and $3.9 billion, respectively, at December 31, 2020.

Federated Hermes' alternative/private markets assets are managed across a wide range of categories including:

real estate ($8.0 billion);

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private equity ($4.2 billion);

and other alternative ( $1.8 billion ).

other alternative ($2.4 billion) and bear market ($0.2 billion).

Investment products are generally managed by a team of portfolio managers supported by fundamental and quantitative research analysts.

Federated's proprietary, independent investment research process is centered on the integration of several disciplines including:

Federated Hermes' proprietary, independent investment research process is centered on the integration of several disciplines including:

fundamental research and credit analysis;

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Distribution Channels and Product Markets

Federated's distribution strategy is to provide investment management products and services to more than 11,000 institutions and intermediaries, including banks, broker/dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments.

Federated uses its trained sales force of more than 225 representatives and managers backed by an experienced support staff to offer its products and strategies, add new customer relationships and strengthen and expand existing relationships.

Federated's investment products and strategies are distributed in three markets.

Federated Hermes' distribution strategy is to provide investment management products and services to more than 11,000 institutions and intermediaries, including, among others, banks, broker/dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments.

Federated Hermes uses its trained sales force of more than 228 representatives and managers backed by an experienced support staff to offer its products and strategies, add new customer relationships and strengthen and expand existing relationships.

Federated Hermes' investment products and strategies are offered and distributed in three markets.

These markets and the relative percentage of managed assets at December 31, 2020 attributable to such markets are as follows:

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and international (12%).

Financial Intermediary.

Federated distributes its products and strategies in this market through a large, diversified group of over 7,700 national, regional and independent broker/dealers, banks and registered investment advisors .

Financial intermediaries use Federated's products to meet the needs of their customers, who are often retail investors.

Federated offers a full range of products to these customers, including mutual funds, Separate Accounts and private funds.

Financial Intermediary Federated Hermes offers and distributes its products and strategies in this market through a large, diversified group of over 7,500 national, regional and independent broker/dealers, banks and registered investment advisors.

Financial intermediaries use Federated Hermes' products to meet the needs of their customers, who are often retail investors.

Federated Hermes offers a full range of products to these customers, including mutual funds, Separate Accounts and private funds.

As of December 31, 2020, managed assets in the U.S.

financial intermediary market included $286.2 billion in money market assets, $55.9 billion in equity assets, $44.6 billion in fixed-income assets, $3.1 billion in multi-asset and $0.2 billion in alternative/private markets assets.

Institutional.

Federated offers its products and strategies to a wide variety of domestic institutional customers including government entities, not-for-profit entities, corporations, corporate and public pension funds, foundations, endowments and non-Federated investment companies or other funds.

Institutional Federated Hermes offers and distributes its products and strategies to a wide variety of domestic institutional customers including, among others, government entities, not-for-profit entities, corporations, corporate and public pension funds, foundations, endowments and non-Federated Hermes investment companies or other funds.

As of December 31, 2020, managed assets in the U.S.

institutional market included $117.6 billion in money market assets, $33.3 billion in fixed-income assets, $3.8 billion in equity assets, $0.9 billion in multi-asset and $0.1 billion in alternative/private markets assets.

International.

Federated manages assets from institutional and financial intermediary customers outside the U.S.

through subsidiaries focused on gathering assets in Europe, the Middle East, Canada, Latin America and the Asia Pacific region.

The 2018 Hermes Acquisition expanded the distribution footprint of Federated outside of the U.S.

As of December 31, 2019 ,

managed assets in the international market included $30.2 billion in equity assets, $17.8 billion in alternative/private markets assets, $13.6 billion in money market assets and $5.9 billion in fixed-income assets.

As of December 31, 2019 , Federated had $394.3 billion of Federated Fund AUM and $181.5 billion of Separate Account AUM.

International Federated Hermes manages assets from non-U.S.

institutional and financial intermediary customers through subsidiaries focused on gathering assets in Europe, the Middle East, Canada, Latin America and the Asia Pacific region.

The 2018 HFML Acquisition and the 2020 HCL Acquisition expanded the distribution footprint of Federated Hermes outside of the U.S.

As of December 31, 2020, managed assets in the international market included $32.2 billion in equity assets, $18.8 billion in alternative/private markets assets, $16.6 billion in money market assets and $6.4 billion in fixed-income assets.

As of December 31, 2020, Federated Hermes had $425.6 billion of Federated Hermes Fund AUM and $193.9 billion of Separate Account AUM.

Of the Separate Account AUM, $20.4 billion related to SMAs.

The investment management business is highly competitive across all types of investment products and strategies, including mutual funds, exchange traded funds ( ETF s), SMAs, institutional accounts, sub-advised funds and other managed products and strategies.

The investment management business is highly competitive across all types of investment products and strategies, including mutual funds, exchange traded funds (ETFs), SMAs, institutional accounts, sub-advised funds and other managed products and strategies.

Competition is particularly intense among mutual fund and ETF providers.

According to the Investment Company Institute, at the end of 2019 , there were over 7,900 open-end mutual funds and nearly 2,100 ETFs of varying sizes and investment objectives whose shares are currently being offered.

In addition to competition from other mutual fund managers, ETF providers and investment advisors, Federated competes with investment alternatives offered by insurance companies, commercial banks, broker/dealers, deposit brokers, other financial institutions and hedge funds.

According to the Investment Company Institute (ICI), at the end of 2020, there were over 7,600 open-end mutual funds and over 2,200 ETFs of varying sizes and investment objectives whose shares are currently being offered.

In addition to competition from other mutual fund managers, ETF providers and investment advisors, Federated Hermes competes with investment alternatives offered by insurance companies, commercial banks, broker/dealers, deposit brokers, other financial institutions and hedge funds.

Competition for sales of investment products and strategies is influenced by various factors, including investment performance, attainment of stated objectives, yields and total returns, fees and expenses, advertising and sales promotional efforts, investor confidence and preference, relationships with intermediaries and type and quality of services.

Regulatory Matters

Federated and its investment management business are subject to extensive regulation both in and outside the U.S.

Federated and its products, such as the Federated Funds, and strategies are subject to:

Federated Hermes and its investment management business are subject to extensive regulation both within and outside the U.S.

Federated Hermes and its products, such as t he Federated Hermes Funds, and strategies are subject to:

federal securities laws, principally the Securities Act of 1933 (1933 Act), the Securities Exchange Act of 1934 (1934 Act), the 1940 Act and the Advisers Act;

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and foreign laws, regulations or other rules promulgated by foreign regulatory or other authorities.

See Item 1A - Risk Factors under the caption Potential Adverse Effects of Changes in Laws, Regulations and Other Rules on Federated's Investment Management Business for additional information.

See Item 1A - Risk Factors under the caption General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules for additional information.

Current Regulatory Environment - Domestic

While the pace of new regulation is expected to continue to be moderate in 2020 compared to the post-financial crisis period, the U.S.

Securities and Exchange Commission (SEC) (among other regulatory authorities, self-regulatory organizations or exchanges) continues to propose and finalize new rules and regulations.

The rules and regulations that have or are expected to become effective, and any new proposed rules and regulations, continue to impact the investment management industry (collectively, both domestically and abroad, as applicable, Regulatory Developments).

While new regulations continue to be promulgated, efforts also continue to eliminate certain regulatory requirements.

For example, legislation has been introduced in both the Senate and the House of Representatives in 2019 in a continuing effort to get revisions to money market fund reform passed and signed into law.

The proposed law would permit the use of amortized cost valuation by, and override the floating net asset value ( NAV ) and certain other requirements for, institutional and municipal (or tax-exempt) money market funds.

These requirements were imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance).

Compliance with the 2014 Money Fund Rules and Guidance became effective on October 14, 2016.

Federated continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds.

The current regulatory environment has affected, and is expected to continue to affect, to varying degrees, Federated's business, results of operations, financial condition and/or cash flows.

Increased regulation and Regulatory Developments have required, and are expected to continue to require, additional internal and external resources to be devoted to technology, legal, compliance, operations and other efforts to address regulatory-related matters, and have caused, and may continue to cause, product structure, pricing, offering and development effort adjustments, as well as changes in asset flows and mix, customer relationships, revenues and operating income.

The degree of impact of Regulatory Developments can vary and is uncertain.

In the fourth quarter of 2019, the SEC proposed or adopted new rules that impact U.S.

investment management industry participants, including Federated.

On December 30, 2019, the SEC proposed amendments to Rule 2-01 of Regulation S-X seeking to codify certain staff consultations and modernize certain aspects of its auditor independence framework.

The amendments would limit the

scope of potential independence-impairing relationships that arise among funds in a mutual fund complex, shorten the look-back period for domestic first time filers in assessing compliance with the independence requirements, expand the number of de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships, further develop the concept of beneficial ownership, and introduce a transition framework to address inadvertent independence violations that only arise as a result of merger and acquisition transactions.

Prior amendments to the auditor independence rules, which became effective on October 3, 2019, focused the analysis on beneficial ownership rather than on both record and beneficial ownership;

replaced the ten percent bright-line shareholder ownership test with a significant influence test;

added a known through reasonable inquiry standard with respect to identifying beneficial owners of the audit client's equity securities;

and excluded from the definition of audit client, for a fund under audit, any other funds that otherwise would be considered affiliates of the audit client under the rules for certain lending relationships.

The public comment period on the proposed amendments ends on March 16, 2020.

Federated is assessing the most recent amendments to determine the extent to which they mitigate risk that Federated's or the Federated Funds' auditors will inadvertently implicate the auditor independence rules.

On December 23, 2019, the SEC's newly adopted rule 6c-11 under the 1940 Act (Rule 6c-11) became effective, providing certain exemptions from the 1940 Act and specifically (1) permit ETFs that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order;

(2) impose certain enhanced disclosure requirements regarding ETF trading costs;

and (3) amend Form N-1A to provide more useful, ETF-specific information to investors who purchase ETF shares on an exchange (and amend Form N-8B-2 to provide the same information to investors in ETFs organized as Unit Investment Trusts).

The Form amendments will have a transition period of one year following the effective date.

Additionally, the SEC rescinded exemptive relief previously granted to ETFs as the ETFs will now be able to operate under Rule 6c-11.

On November 25, 2019, the SEC re-proposed Rule 18f-4 under the 1940 Act (the "Derivatives Rule"), which regulates the use of derivatives by mutual funds, closed end funds, ETFs, and other investment companies.

Among other requirements, the Derivatives Rule imposes a requirement for funds to adopt and implement a derivatives risk management program that meets certain criteria (including stress testing and back-testing) with board oversight and reporting by a dedicated administrator appointed by the board.

The re-proposed Derivatives Rule also caps a fund's leverage at 150% based upon the value-at-risk (VaR) relative to a designated reference index.

The VaR approach generally provides more flexibility and is an indication of a fund's risk attributable to using derivatives.

There is an exception for funds that use derivatives only for limited purposes, such as if the fund's derivatives exposure is limited to 10% of fund net assets, or if the fund uses derivatives only for currency hedging purposes.

The SEC has also proposed amendments to investment company reporting requirements to enhance the SEC's ability to oversee funds' use of, and compliance with, the Derivatives Rule, and for the SEC and the public to have greater insight into the impact that funds' use of derivatives would have on their portfolios.

Finally, the SEC proposed to rescind its 1979 general statement of policy (Release 10666), which sets forth the parameters for funds to use derivatives in compliance with Section 18 of the 1940 Act.

The public comment period on the proposed Derivatives Rule ends on March 24, 2020.

Federated is assessing the potential impact of the Derivatives Rule, but does not expect the Derivatives Rule to have a significant impact on its business, results of operations, financial condition and/or cash flows or the Federated Funds.

On November 5, 2019, the SEC proposed two amendments to its rules governing proxy solicitations.

In addition to addressing changes to the procedure for submitting shareholder proposals, the proposed amendments largely seek to codify prior SEC guidance released on August 21, 2019 in several important respects.

The amendments would codify the SEC's interpretation that proxy voting advice generally constitutes a solicitation within the meaning of the 1934 Act.

The amendments would condition the availability of certain exemptions from the existing proxy information and filing requirements of the federal proxy rules used by proxy voting advice businesses on certain additional disclosure requirements, such as disclosing conflicts of interest.

The amendments also would amend the proxy rules to clarify when the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of the rule, depending upon the particular facts and circumstances at issue.

The public comment period on the proposed amendments ended on February 3, 2020.

Federated is assessing the potential impact of the amendments on its business (including its Equity Ownership Services business), results of operations, financial condition and/or cash flows.

On November 4, 2019, the SEC proposed amendments to its investment adviser advertising and cash solicitation rules.

In general the proposed amendments attempt to update and modernize the existing regulations.

The amendments to the advertising rule introduce a new principles-based prohibition on certain advertising practices, and more tailored requirements for the presentation of performance results based on an advertisement's intended audience and permit the use of testimonials, endorsements, and third-party ratings.

The amendments also would require that most advertisements be reviewed and approved internally by designated employees prior to use.

The amendments to the cash solicitation rule

broaden its application considerably, including expanding its application to arrangements that involve compensation other than cash compensation.

The public comment period on the proposed amendments ended on February 10, 2020.

Federated is assessing the potential impact of the amendments on its business, results of operations, financial condition and/or cash flows.

On October 18, 2019 the SEC proposed amendments to Rule 0-5 under the 1940 Act to expedite the review process for exemptive relief applications that are "substantially identical" to recent precedent.

While the relief provided by the amendments would be narrow, the amendments have the potential to streamline an important regulatory process often utilized when bringing new products to market.

The SEC has indicated that firms may not "mix and match relief" from prior orders, and warned that "small changes to the terms and conditions of an application, compared to a precedent application, may either raise a novel issue, or require a significant amount of time for the Staff to consider whether it raises such an issue." The proposed amendments also establish an internal timeframe for review of applications outside of the proposed expedited procedure.

The public comment period on the proposed amendments ended on November 29, 2019.

Federated believes these amendments will benefit the investment management industry.

Investment management industry participants, such as Federated, also continued, and will continue, to monitor, plan for and implement certain changes in response to new proposed or adopted rules, such as the following (which Federated previously described in greater detail in its prior public filings):

On June 5, 2019, the SEC adopted a package of new rules (i.e.

Regulation Best Interest) and amendments and interpretations intended to enhance the quality of retail investors' relationships with broker-dealers and investment advisers and to enhance investor protections while preserving retail investor access and choice in (1) the type of professional with whom they work;

(2) the services they receive;

and (3) how they pay for these services.

The new rules are intended to enhance the standard of conduct that broker-dealers owe to their customers and align the standard of conduct with retail customers' reasonable expectations.

The rules will also provide additional transparency and clarity for retail investors through enhanced disclosures on Form CRS designed to help them understand who they are dealing with, and why that matters.

The interpretations reaffirm, and in some cases clarify, the standard of conduct that investment advisers owe to their clients and clarify the scope of the services a broker-dealer can provide consistent with the statutory definition of investment adviser.

With the adoption of this package, regardless of whether a retail investor chooses a broker-dealer or an investment adviser (or both), the retail investor will be entitled to a recommendation (from a broker-dealer) or advice (from an investment adviser) that is in the best interest of the retail investor and that does not place the interests of the firm or the financial professional ahead of the interests of the retail investor.

Regulation Best Interest and Form CRS became effective on September 10, 2019.

Compliance with Regulation Best Interest and Form CRS reporting is required by June 30, 2020.

The interpretation of an investment adviser's fiduciary duty became effective on July 12, 2019.

On October 18, 2019, the SEC's Division of Investment Management issued Frequently Asked Questions which provide further guidance to investment advisers on disclosure requirements related to:

(i) conflicts of interest regarding compensation that the adviser received in connection with recommended investments;

(ii) investment adviser conflicts related to mutual fund share class recommendations;

(iii) investment advisers' receipt of revenue sharing payments;

and (iv) material amendments to Form ADV.

The Department of Labor (DOL) is also considering regulatory options in light of its modified fiduciary standard for retirement plan advisors, promulgated in 2016 (DOL Fiduciary Rule), being vacated in its entirety in mid-2018, and is expected to issue a new fiduciary rule in the first quarter of 2020.

In response to the DOL Fiduciary Rule, broker-dealer and other intermediaries implemented, or began implementing, changes to their business practices, including eliminating commission-based compensation arrangements, reducing the number of mutual funds offered on their platforms or requiring "clean shares" or other product fee structure changes based on SEC guidance.

It remains uncertain whether, and to what degree, broker-dealers or other intermediaries will roll-back, modify or continue changes made prior to the DOL Fiduciary Rule being vacated, or make new or additional changes in light of Regulation Best Interest, Form CRS, the SEC fiduciary duty interpretations, or any new fiduciary rule proposed by the DOL.

Federated continues to analyze the potential impact of these Regulatory Developments on Federated's business, results of operations, financial condition and/or cash flows.

The SEC proposed rules and amendments on March 20, 2019, to permit registered closed-end funds and business development companies to use the registration, offering and communications reforms the SEC had previously adopted for operating companies under the 1933 Act and to further harmonize the disclosure and regulatory framework for these funds with that of operating companies.

The proposed rules and amendments implement provisions of the Economic Growth, Regulatory Relief, and Consumer Protection Act (the "CEF Act") and Small Business Credit Availability Act (the "BDC Act"), and would generally provide eligible closed-end funds and business development companies with flexibility to follow more lenient securities offering rules currently available to traditional public operating companies.

The proposed rules and amendments may benefit certain types of business development companies or closed-end funds, such as

exchange listed closed-end funds, but would impose additional regulatory requirements on other types of funds, such as continuously offered closed-end funds (including interval and tender offer closed-end funds).

Federated offers exchange listed and continuously offered closed-end funds.

The public comment period on the proposed rules and amendments ended on June 9, 2019.

The SEC proposed rule 12d1-4 and amendments under the 1940 Act on December 19, 2018, which are designed to streamline and enhance the regulatory framework for funds that invest in other funds (or "fund of funds" arrangements).

At the same time, the SEC rescinded rule 12d1-2 under the 1940 Act and most related exemptive orders granted by the SEC to provide relief from Sections 12(d)(1)(A), (B), (C) and (G) of the 1940 Act.

The proposed rule would, under certain specified conditions, permit a fund to acquire shares of another fund in excess of the limits of section 12(d)(1) of the 1940 Act without obtaining an exemptive order from the SEC.

Specifically, proposed rule 12d1-4 would:

(1) prohibit an acquiring fund, except one that is part of the same group of investment companies as the acquired fund or one that has a sub-advisor that acts as advisor to the acquired fund, from controlling an acquired fund and requires an applicable acquiring fund that holds more than 3% of an acquired fund's outstanding voting securities to vote those securities in a prescribed manner in order to minimize influence over the acquired fund;

(2) prohibit an acquiring fund that acquires more than 3% of an acquired fund's outstanding voting securities from redeeming more than 3% of the acquired fund's total outstanding securities in any 30-day period;

(3) impose conditions designed to prevent duplicative and excessive fees in fund of funds arrangements by requiring an evaluation of aggregate fees associated with the investment in the acquired fund and the complexity of the fund of funds arrangement;

and (4) prohibit funds from creating three-tier fund of fund structures, except in certain limited circumstances.

Rule 12d1-2, which is proposed to be rescinded, currently permits funds that primarily invest in funds within the same group of investment companies to invest in unaffiliated funds and certain non-fund assets.

The SEC also proposed related amendments to rule 12d1-1 under the 1940 Act and Form N-CEN.

The proposed amendments to rule 12d1-1 would allow funds that primarily invest in funds within the same group of investment companies to continue to invest in unaffiliated money market funds.

Finally, the amendments to Form N-CEN would require funds to report whether they relied on rule 12d1-4 or the statutory exception in Section 12(d)(1)(G) of the 1940 Act during the applicable reporting period.

The public comment period on the proposed rule ended on May 2, 2019.

Federated continues to analyze the potential impact that the rule, if adopted as proposed, would have on Federated's fund of fund arrangements and relevant products and, as of December 31, 2019, given the uncertainty surrounding the scope and certain requirements of the proposed rule once finalized, Federated is unable to conclusively determine the impact on its business, results of operations, financial condition and/or cash flows.

In addition to the above Regulatory Developments, the SEC staff has been engaging in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including investment advisors and investment management companies such as Federated's investment management subsidiaries and the Federated Funds.

The SEC examinations have included certain sweep examinations of investment management companies and investment advisors involving various topics, including, but not limited to, representations regarding use of ESG factors, cyber-security, certain technology systems, index construction and maintenance, disclosure of risks of investing in smaller or thinly traded ETFs, funds with "aberrational" performance, compliance with the 2014 Money Fund Rules and Guidance, "distribution in guise," the impact of the UK's vote to exit the European Union (EU) (known as "Brexit"), share class selection, fixed-income and high yield liquidity, liquidity controls and liquid alternatives.

In 2019 alone, the SEC staff conducted approximately 2,180 examinations of registered investment advisers, over 350 examinations of broker-dealers, over 150 examinations of registered investment companies, 110 examinations of national security exchanges, and over 90 examinations of municipal advisers and transfer agents.

For 2020, the SEC has announced that it will focus on mutual funds and ETFs, the activities of their registered investment advisors, and oversight practices of their boards of directors, and more generally on matters important to retail investors (including retirement investors), information security, digital assets, electronic investment advice, anti-money laundering, and compliance in registrants responsible for critical market infrastructure, among other matters, as examination priorities.

Over the past three years, the SEC staff also issued various guidance statements and risk alerts on compliance issues related to the cash solicitation rule, risk-based examination initiatives for registered investment companies, observations from investment adviser examinations relating to electronic messaging, transfer agent safeguarding of funds and securities, investment adviser principal and agency cross trading compliance issues, compliance issues related to Regulation S-P privacy notices and safeguard policies, safeguarding customer records and information in network storage, cyber-security, investment company business continuity, mutual fund distribution, revising fund disclosures in light of changing market conditions (including London Inter-Bank Offered Rate (LIBOR) cessation), inadvertent custody, and sales load variation disclosure, among other topics.

These investigations, examinations and actions have led, and may lead, to further regulation, guidance statements and scrutiny of the investment management industry.

Given government regulatory policies, and the possibility of a continuing slower pace for new regulation in the U.S., the degree to which regulatory investigations, actions and examinations will continue, as well as their frequency and scope, can vary and is uncertain.

Regulation or potential regulation by regulators other than the SEC also continued, and may continue, to affect investment management industry participants, including Federated.

For example, the Financial Industry Regulatory Authority (FINRA) also has undertaken examinations, including, for example, a cyber-security sweep examination, and various state legislatures or regulators have adopted or are beginning to adopt state-specific cyber-security and/or privacy requirements that may apply, to varying degrees, in addition to federal regulation.

The activities of the Financial Stability Oversight Council (FSOC) also continue to be monitored by the investment management industry, including Federated.

Since the FSOC indicated in 2014 that it intended to monitor the effectiveness of the 2014 Money Fund Rules, concerns persisted that the FSOC may recommend new or heightened regulation for "non-bank financial companies," which the Board of Governors of the Federal Reserve System (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds.

In its past Annual Reports, the FSOC recommended that the SEC monitor the implementation of these rules and evaluate the extent to which they address potential risks in the asset management industry.

In its 2019 Annual Report published on December 4, 2019, the FSOC turned its focus to other types of cash management vehicles that continue to use amortized cost or have a stable NAV, and that may be sponsored or advised by registered investment advisers, but are nevertheless not subject to SEC oversight.

These include entities such as local government investment pools and private liquidity funds.

Noting that such entities are not subject to the 2014 Money Fund Rules, the FSOC recommended that financial regulators monitor developments concerning such short-term cash management vehicles for any financial stability risk implications.

The FSOC also identified liquidity and redemption risks, as well as the use of leverage, as an area of focus for investment funds and recommended that the SEC monitor the implementation and evaluate the effectiveness of rules intended to reduce such risks (e.g.

the 2016 Liquidity Rule, and the re-proposed Derivatives Rule).

On December 4, 2019, the FSOC voted unanimously to adopt amendments to its interpretive guidance regarding the designation of non-bank financial companies as systemically important financial institutions .

The adopted amendments are substantially similar to those that were proposed on March 6, 2019.

Under the amended guidance, the FSOC changes its designation approach from an entity-based approach to an activities-based approach under which an individual firm would only be so designated if it determined that efforts to address the financial stability risks of that firm's activities by its primary federal and state regulators have been insufficient.

Under the amended guidance, among other things, the FSOC is required first to focus on regulating activities that pose systemic risk, through actions by primary regulators.

This differs from the FSOC's historical focus on designating individual firms as systemically important.

Under the proposed guidance, the FSOC also would make its designation process more efficient by reducing it from three stages to two, and make the designation process more transparent by inviting participation and engagement by firms under consideration for designation.

The FSOC also would be required to conduct a cost benefit analysis ( to the U.S.

financial system, the U.S.

economy, and the nonbank financial company) prior to making a designation, which must include an analysis of the likelihood of the potential systemic impact actually occurring, and to assess the likelihood of a non-bank financial company's material financial distress by considering "not only the impact of an identified risk, but also the likelihood that the risk will be realized."

Certain Democratic candidates for the 2020 Presidential election have expressed support for a financial transactions tax (FTT) that would impose a 0.1% or 0.2% tax on securities transactions.

On March 5, 2019, legislation was introduced in both the House of Representatives and Senate that, if passed and signed into law, would impose a 0.1% tax on stock, bond and derivative transactions.

The tax would apply to sales made in the U.S.

persons, and initial securities issuances and short-term debt would be exempt.

A later proposal would tax stock trades at 0.5%, bond trades at 0.1%, and derivatives transactions at 0.005% coupled with an income tax credit for individuals with income of less than $50,000 ($75,000 for married couples), which is intended to offset the average burden of the tax for such individuals.

Management does not believe this legislation will be enacted under President Trump's administration.

The current regulatory environment has impacted, and will continue to impact, Federated's business, results of operations, financial condition and/or cash flows.

For example, regulatory changes, such as the 2014 Money Fund Rules and Guidance, can result in shifts in asset mixes and flows.

These shifts impact Federated's AUM, revenues and operating income.

Management continues to believe that, as and to the extent interest rates remain at higher levels and do not return to near zero, money market funds will benefit generally from increased yields, particularly as compared to deposit account alternatives, and that assets will continue to flow back into money market funds.

While 2018 and 2019 did see a shift in asset mix back toward institutional prime and municipal (tax-exempt) money market funds, there is no guarantee such shift will continue and return the asset mix between institutional prime, municipal (or tax-exempt) and government money market funds to pre-October 2016 levels;

therefore, the degree of improvement to Federated's prime money market business can vary and is uncertain.

The changes made in response to the DOL Fiduciary Rule impacted, and any modifications or additional changes that may be made in response to Regulation Best Interest, Form CRS, the SEC fiduciary duty interpretations, or any new fiduciary rule proposed by the DOL likely may impact, Federated's AUM, revenues and operating income.

For example, while it remains

uncertain whether, and to what degree, broker-dealers or other intermediaries will roll-back, modify or continue changes made prior to the DOL Fiduciary Rule being vacated, or to make new or additional changes in light of Regulation Best Interest, Form CRS, the SEC fiduciary duty interpretations, or any new fiduciary rule proposed by the DOL, if intermediaries continue to reduce the number of Federated Funds offered on their platforms, mutual fund-related sales and distribution fees earned by Federated may decrease.

In that case, similar to other investment management industry participants, Federated could experience a further shift in asset mix and AUM, and a further impact on revenues and operating income.

On the other hand, management continues to believe that Federated's business may be positively affected because separately managed account/wrap-fee strategies work well in level wrap fee account structures and can provide transparency and potential tax advantages to clients, while Federated's experience with bank trust departments and fiduciary experience and resources presents an opportunity to add value for clients.

Federated has dedicated, and continues to dedicate, significant internal and external resources to analyze and address Regulatory Developments, and their effect on Federated's business, results of operations, financial condition and/or cash flows.

This effort includes considering and/or affecting legislative, regulatory, product structure and development, information system development, reporting capability, business and other options that have been or may be available in an effort to minimize the potential impact of any adverse consequences.

Federated's efforts include having conversations with intermediary customers regarding Regulatory Developments, and analyzing product offering and structure adjustments, regulatory alternatives and other means to comply, and to assist its customers to comply, with new fiduciary rules or interpretations, the 1940 Act and other applicable laws and regulations.

As appropriate, Federated also participated, and will continue to participate, either individually or with industry groups, in the comment process for proposed regulations.

Federated continues to expend legal and compliance resources to examine corporate governance and public company disclosure proposals and final rules issued by the SEC, to adopt, revise and/or implement policies and procedures, and to respond to examinations, inquiries and other matters involving its regulators, including the SEC, customers or other third parties.

Federated continues to devote resources to technology and system investment, cybersecurity and information governance, and the development of other investment management and compliance tools, to enable Federated to, among other benefits, be in a better position to address new or modified regulatory requirements.

The Regulatory Developments discussed above, and related regulatory oversight, also impacted, and/or may impact, Federated's customers and vendors, their preferences and their businesses.

For example, these developments have caused, and/or may cause, certain product line-up, structure, pricing and product development changes, as well as money market, equity, fixed-income, alternative/private markets or multi-asset fund products to be less attractive to institutional and other investors, reductions in the number of Federated Funds offered by intermediaries, changes in the fees Federated, retirement plan advisors and intermediaries will be able to earn on investment products and services sold to retirement plan clients, and reductions in AUM, revenues and operating profits.

In addition, these developments have caused, and/or may cause, changes in asset flows, levels and mix, as well as customer relationships.

Federated will continue to monitor Regulatory Developments as necessary, and may implement additional changes to its business and practices as it deems necessary or appropriate.

Further analysis and planning, or additional refinements to Federated's product line and business practices, may be required in response to market, customer or regulatory changes and developments, such as new conflict of interest or fiduciary rules and other Regulatory Developments, or any additional regulation or guidance issued by the SEC or other regulatory authorities.

In addition to the impact on Federated's AUM, revenues, operating income and other aspects of Federated's business described above, on a cumulative basis, Federated's regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and may continue to have, a material impact on Federated's expenses and, in turn, financial performance.

As of December 31, 2019, given the current regulatory environment, and the possibility of future additional or modified regulation or oversight, Federated is unable to fully assess the impact of adopted or proposed regulations, and other Regulatory Developments, and Federated's efforts related thereto, on its business, results of operations, financial condition and/or cash flows.

The regulatory changes and developments in the current regulatory environment, and Federated's efforts in responding to them, could have a material and adverse effect on Federated's business, results of operations, financial condition and/or cash flows.

As of December 31, 2019, while the FSOC's change in focus and continuing transparency efforts have reduced the possibility of any Federated products being designated a systemically important non-bank financial company, in management's view any such designation and any reforms ultimately put into effect would be detrimental to Federated's money market fund business and could materially and adversely affect Federated's business, results of operations, financial condition and/or cash flows.

Federated also is unable to assess at this time whether, or the degree to which, any continuing deregulation efforts or potential options being evaluated in connection with regulatory changes and developments ultimately may be successful.

International

With the passing of the European Union (Withdrawal Agreement) Bill 2020 (Withdrawal Agreement Bill) by the UK Parliament approving Prime Minister Boris Johnson's Brexit agreement, and the Queen's royal assent, the UK exited the European Union on January 31, 2020.

The Withdrawal Agreement Bill implements the withdrawal agreement reached between the UK and the other 27 EU member states and sets out the arrangements for the UK's withdrawal from the EU.

It provides for a transition period through the end of 2020 for the UK to leave the EU, and this transition period cannot be extended with EU law continuing to be upheld in the UK during the transition period.

The Withdrawal Agreement Bill establishes customs checks on goods being moved between the UK and Northern Ireland in order to avoid a hard border.

Taxes will only have to be paid on goods being moved from the UK to Northern Ireland if those products are considered at risk of then being transported into the Republic of Ireland, with the ability to obtain a refund if the goods are not actually transported to the Republic of Ireland.

Northern Ireland continues to follow EU regulations relating to labeling and manufacturing goods.

UK nationals are able to live and work in EU countries, and EU nationals are able to live and work in the UK, during the transition period and UK citizens in the EU, and EU citizens in the UK, retain their residency and social security rights.

An independent monitoring authority will be established to monitor the rights of EU citizens that remain in the UK after Brexit.

The Withdrawal Agreement Bill also establishes a timeline for the UK to repay approximately £33 billion in financial obligations to the EU.

The UK and EU will utilize the transition period to negotiate a Free Trade Agreement in 2020.

Until a Free Trade Agreement is reached and the transition period ends, significant political, economic, legal and regulatory uncertainty continues to exist regarding the impact of Brexit.

See Item 1A - Risk Factors for further discussion of the risks of political instability, currency abandonment and other market disruptions on Federated and its business.

The UK's exit from the EU also will likely affect the requirements and/or timing of implementation of legislation and regulation applicable to doing business in the UK, including the laws and regulations applicable to Federated, as well as to the sponsoring, management, operation and distribution of Federated's products and services, both in and outside the UK.

Uncertainty exists regarding the ability to passport fund distribution and management services between the UK and EU, increasing regulatory burdens and compliance and other costs for UK funds being distributed in the EU and EU funds (such as Irish-domiciled funds) being distributed in the UK.

In 2020, the outbreak of a novel coronavirus (Covid-19) shifted the regulatory environment in the U.S.

and globally, toward the adoption of measures intended to provide regulatory flexibility and market stabilization.

See Item 1A - Risk Factors under the caption General Risk Factors - Other General Risks - Potential Adverse Effects of Unpredictable Events or Consequences (including Covid-19) for a discussion of the risks posed by Covid-19.

The SEC (among other regulatory authorities, self-regulatory organizations or exchanges) is continuing to implement "physical distancing" requirements for its personnel, including continuing in a full telework posture with limited exceptions at least through March 28, 2021.

The SEC has stated that it is focused on:

(1) maintaining the continuity of its operations;

(2) monitoring market functions and systemic risks;

(3) providing prompt, targeted regulatory relief and guidance to issuers, investment advisors and other registrants impacted by Covid-19 to facilitate continuing operations, including in connection with the execution of their business continuity plans;

and (4) maintaining enforcement and investor protection efforts, particularly with regard to the protection of critical market systems and what the SEC deems to be the most vulnerable investors.

The SEC also has indicated that under its current operating posture, in addition to its Covid-19 focused efforts, it continues to advance rulemaking initiatives, conduct risk-based examinations, bring enforcement actions, and review and comment on issuer and fund filings.

As 2021 begins, the impact of Covid-19 on the regulatory environment in the U.S.

and globally, remains uncertain.

It is possible that the impact of Covid-19 could slowly decrease (but not completely dissipate) as 2021 progresses due to the planned distribution of vaccines, continued, but lessened, market intervention from the U.S.

Federal Reserve Board (Fed), and the additional stimulus package passed by Congress in late December 2020 and potential for additional stimulus packages under the current President's administration.

and global regulators also have begun to focus on the impact of Covid-19 on the markets, re-examine existing laws, rules and regulations, and promulgate new proposed and final laws, rules and regulations.

Despite the uncertainty created by the temporary regulatory freeze imposed by the new administration and the potential for action by Congress under the Congressional Review Act as discussed below, regulatory activity is expected to increase in 2021.

The regulatory actions to address Covid-19, any other laws and regulations that have or are expected to be re-examined, modified or reversed, or that become effective, and any new proposed laws, rule and regulations, continue to impact the investment management industry (collectively, both domestically and abroad, as applicable, Regulatory Developments).

As of February 1, 2021, the Fed's balance sheet remained just under $7.4 trillion.

Facilities such as the Secondary Market Corporate Credit Facility (SMCCF), Commercial Paper Funding Facility (CPFF), Money Market Mutual Fund Liquidity Facility (MMLF) and Term Asset-Backed Securities Loan Facility (TALF) established by the Fed in March 2020 expired on December 31, 2020 or are currently set to expire on March 31, 2021 (unless extended).

These facilities, among others, were established in order to address market inefficiencies and provide financial backstops totaling more than $2.3 trillion.

As of January 31, 2021, the Federal Reserve Bank of New York had approximately $14.1 billion in loans outstanding under the SMCCF, which ceased purchasing eligible assets on December 31, 2020, approximately $3.4 billion in loans outstanding under the TALF, which ceased extending credit on December 31, 2020, and no loans outstanding under the CPFF.

As of January 31, 2021, the Federal Reserve Bank of Boston had approximately $1.9 billion in loans outstanding under the MMLF.

According to a report entitled "Experiences of US Money Market Funds During the Covid-19 Crisis" published by the ICI in November 2020 (ICI MMF Report), prime money market funds' use of the MMLF in 2020 (peaking at approximately $53 billion) was much less than a similar facility that was created and utilized during the financial crisis in 2008 (peaking at approximately $152 billion).

In March 2020, in response to disrupted economic activity as a result of Covid-19, the Federal Open Markets Committee within the Federal Reserve System (FOMC) also decreased the federal funds target rate range to 0% - 0.25%.

The federal funds target rate drives short-term interest rates.

The FOMC has indicated that the federal funds rate would likely stay at near zero at least through 2022.

These low interest rates, and the possibility of negative interest rates, have caused the investment management industry to engage with the SEC (and other regulators globally) to discuss regulatory guidance permitting the implementation of reverse distribution mechanisms or share cancellation methodologies, reverse stock splits, and other tools to maintain the stability of money market fund NAVs in a negative rate environment.

Any solution to the difficulties presented by a negative interest rate environment can require significant internal and external resources to implement necessary changes, including system programming, both for money market funds and their service providers or vendors (service providers).

Following its passage of stimulus packages (such as the $2 trillion Coronavirus Aid, Relief, and Economic Security Act, and $484 billion Paycheck Protection Program) in March and April 2020, on December 27, 2020, Congress approved the Consolidated Appropriations Act, 2021, which includes $900 billion in further Covid-19-related stimulus relief.

The law, among other things, provides additional funds for testing, vaccines, distribution, medical care, and unemployment benefits, as well as money for schools, small businesses, hotels, restaurants, airlines and other industries.

and global regulators are focusing on the market conditions that existed in March 2020, and their impact on open-end funds, including institutional prime and municipal money market funds.

The President's Working Group on Financial Markets (PWG) published a report on December 22, 2020 providing an "Overview of Recent Events and Potential Reform Options for Money Market Funds" (PWG Report).

The PWG Report reviews the effects of Covid-19 on the short-term funding markets, including institutional prime and municipal (or tax-exempt) money market funds which participate in those markets, and outlines ten possible reforms.

The potential reforms outlined in the PWG Report include:

(1) removing the tie between the 30% weekly liquid asset threshold for money market fund liquidity and redemption gates and liquidity fees;

(2) reforming the conditions for imposing redemption gates;

(3) utilizing a minimum balance at risk mechanism for shareholder accounts;

(4) requiring certain liquidity management changes, such as an additional weekly liquid asset threshold;

(5) permitting weekly liquid asset requirements the flexibility to automatically decline in certain circumstances, such as when redemptions are large;

(6) requiring a floating NAV for all prime and municipal (or tax-exempt) money market funds, including retail funds;

(7) requiring swing pricing;

(8) imposing capital buffer requirements;

(9) requiring membership in a private liquidity exchange bank capitalized by the money market funds and their sponsors;

and (10) establishing requirements for fund sponsor support to a money market fund.

On December 23, 2020, the SEC's Division of Investment Management released a statement on the PWG Report requesting comments to assist the Staff in providing recommendations to the SEC.

The Staff requested comment in regard to three specific areas:

(1) potential stress points for funds and short-term funding markets;

(2) measures that can enhance the resilience and function of short-term funding markets;

and (3) measures that can reduce the likelihood of future official sector interventions.

Contrary to the focus placed by the PWG Report on money market funds as a cause of the market turmoil in March 2020, the ICI MMF Report supports the view that the Treasury securities markets, rather than money market funds, triggered the market turmoil.

The ICI MMF Report rebukes suggestions that money market funds, particularly institutional prime money market funds, were a primary, if not the sole, cause of market distress in March 2020, noting that "[t]hese suggestions are inconsistent with the data and early press reports." The ICI MMF Report points to the fact that the market dislocations were widespread, including in markets in which institutional prime money market funds are not significant players, such as the U.S.

Treasury bonds, longer-term U.S.

agency securities, municipal securities, corporate bonds, and foreign exchange markets.

The ICI MMF Report also studies institutional prime money market fund asset flows and spreads in the Treasury bond market, concluding "by March 11 these spreads had widened substantially, yet prime money market funds had seen virtually no outflows." The ICI MMF Report also notes that "press reports do not support the theory that money market funds were at the forefront of the market stress" and that "Treasury markets were in the news several days before any real mention of money market funds .

As discussed above, one of the proposed reforms included in the PWG Report is to eliminate the requirement for a fund's board to consider imposing redemption gates and liquidity fees if weekly liquid assets drop below 30% of the fund's total assets.

This is one of the requirements that was imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance).

Compliance with the 2014 Money Fund Rules and Guidance was required on October 14, 2016.

Management believes money market funds provide a more attractive investment opportunity than other products, such as insured deposit account alternatives.

Management also believes that money market funds are resilient investment products that have proven their resiliency during Covid-19.

While Federated Hermes believes that some regulations could be improved, such improvements should be measured and appropriate, preserving investors' ability to invest in all types of money market funds.

Federated Hermes believes that regulators should look closely at the redemption gates and liquidity fee requirement from the 2014 Money Fund Rules and Guidance and supports efforts to reduce regulation, including the PWG's recommendation to eliminate the redemption gates and liquidity fee requirement.

Federated Hermes also continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds.

Legislation has been introduced in both the Senate and the House of Representatives in a continuing effort to get these revisions to money market fund reform regarding the use of amortized cost passed and signed into law.

With the pending transition of Presidential administrations, regulatory activity increased in the fourth quarter of 2020.

The SEC issued three proposed rules and 17 final rules, five of which (relating to investment advisor advertising, valuation, derivatives, auditor independence and fund of funds) directly affect mutual funds and the investment management industry.

The Department of Labor (DOL) also issued its new final fiduciary rule on December 15, 2020 (Final DOL Fiduciary Rule), its proxy voting and shareholder rights rule on December 11, 2020 (Final DOL Proxy Voting Rule) and its investment duty amendments on October 30, 2020 (Final DOL Investment Duty Amendments), each of which is discussed in more detail below.

With the transition of Presidential administrations, and new SEC leadership, it has been reported that certain regulations promulgated by the SEC in 2020 could be re-examined or reversed, such as the SEC's proxy advisor rule and Regulation Best Interest and the DOL's Final DOL Proxy Voting Rule and Final DOL Investment Duty Amendments.

On January 20, 2021, the

new administration issued a number of regulatory directives freezing regulatory rulemaking, rescinding various executive orders concerning the regulatory process issued by the previous administration and establishing a framework for modernizing the review of regulatory actions.

Among other things, for regulations that were not yet effective, the regulatory freeze asks covered agencies to consider postponing the regulations' effective dates for 60 days, rather than mandating a 60 day delay.

It also is unclear whether independent federal agencies, such as the SEC, are subject to the regulatory freeze imposed by the current administration.

Congress also could take action regarding regulations recently submitted to Congress under the Congressional Review Act.

Under the Congressional Review Act, Congress has a period of time (generally 60 working days) to pass a joint resolution disapproving the regulation.

The SEC also has been adjusting the targeted, temporary Covid-19-related relief and assistance it provided to the investment management industry.

For example, the SEC declined to extend certain previously-issued relief, such as the relief relating to the filing deadlines for public company reporting, investment company prospectus delivery, transmittal of annual and semi-annual shareholder reports, and Form N-CEN, Form N-PORT, Form ADV and FORM PF.

The SEC extended until further notice, among certain other relief, the relief from the requirements to hold in-person board of directors/trustees meetings under the 1940 Act.

In opening remarks at the November 5, 2020 Meeting of the Asset Management Advisory Committee (AMAC), representatives of the SEC urged the AMAC to recommend making permanent certain temporary Covid-19 relief granted to funds and investment advisors.

In his statements to the AMAC, then SEC Chairman Clayton advocated for updated guidance to enable broader use of electronic delivery of disclosure documents and indicated support for related issues such as remote work, e-authorization and dematerialization of physical security certificates.

SEC Commissioner Peirce expressed the desire that the recommendations of the AMAC concerning electronic delivery, remote work, e-authorization, and dematerialization will "lay the foundation for a more flexible, technology-based regulatory structure." Federated Hermes supports many of these recommended actions, particularly allowing for increased use of electronic delivery of disclosure documents.

On January 5, 2021, among other Covid-19 relief updates posted on its website, the SEC also confirmed that the two no-action letters issued by the SEC to the ICI, providing no-action relief for affiliates to make certain purchases of debt securities from open-end investment companies that would otherwise be prohibited under Section 17(a) of, or Rule 17a-9 under, the 1940 Act, and its positions on issuers registered under Section 12 of the Exchange Act conducting virtual or hybrid annual shareholder meetings in light of Covid-19 through the internet or other electronic means in lieu of in-person meetings, remain in effect.

The proposed or adopted new rules and guidance issued by the SEC and DOL in the fourth quarter 2020, among other regulatory authorities, self-regulatory organizations or exchanges, impact U.S.

investment management industry participants, including Federated Hermes.

• On December 22, 2020, the SEC adopted amendments under the Advisers Act to its investment advisor advertising and cash solicitation rules.

The amendments are intended to update and modernize the advertising and cash solicitation rules under the Advisers Act to recognize the increasing use of electronic media and mobile communications, and to seek to improve the quality of information available to investors.

The amendments broaden the definition of "advertisement" to include both advertising and solicitation activities.

They prohibit certain advertising practices, such as, among others, discussing potential benefits without providing a fair and balanced treatment of associated risks and presenting performance in a manner that is not fair and balanced.

They also require certain disclosure, promoter agreement and compliance conditions to be met for an investment advisor to use testimonials and endorsements in advertisements, prohibit the use of third-party ratings in an advertisement, unless the investment advisor provides disclosures and satisfies certain criteria pertaining to the preparation of the rating, and impose various restrictions and conditions on the use of performance information.

The amendments also address certain recordkeeping requirements.

The SEC also intends to withdraw previously issued no-action letters that have been incorporated into the amendments.

Subject to the uncertainty regarding the timing of new regulations discussed above, the amendments will be effective 60 days after publication in the Federal Register, and compliance will be required by the date that is 18 months after the effective date to give investment advisors a transition period to comply with the amendments.

Federated Hermes is reviewing the amendments and their potential impact.

• On December 15, 2020, the DOL issued its Final DOL Fiduciary Rule, which provides a new prohibited transaction exemption for investment advice fiduciaries.

The new prohibited transaction class exemption is based on an existing temporary policy adopted by the DOL after the United States Court of Appeals for the Fifth Circuit vacated the DOL's original 2016 fiduciary rule (Vacated DOL Fiduciary Rule) in March of 2018.

The exemption allows investment advice fiduciaries to offer a wide array of investment advice services in compliance with the DOL's Impartial Conduct Standards, which include a best interest standard, a reasonable compensation standard and a requirement to make no materially misleading statements.

The DOL has indicated that it intended the standard embodied in the exemption to align with standards of other regulators, including the SEC.

The exemption notice also expresses the Department's views on when rollover advice could be considered fiduciary advice under the Employee Retirement Income Security Act (ERISA) and the

Internal Revenue Code.

Subject to the uncertainty regarding the timing of new regulation discussed above, the Final DOL Fiduciary Rule provides that the exemption became effective on February 16, 2021.

• On December 11, 2020, the DOL issued its Final DOL Proxy Voting Rule.

The final rule establishes a regulatory framework for private employee benefit plans' fiduciaries to follow when they exercise shareholder rights, including proxy voting, and select and monitor proxy advisory firms.

Among other requirements, the Final DOL Proxy Voting Rule confirms that proxy voting decisions and other exercises of shareholder rights must be solely in the interest of, and for the exclusive purpose of, providing plan benefits to participants and beneficiaries considering the impact of any costs involved.

Subject to the uncertainty regarding the timing of new regulation discussed above, the final rule provides that it became effective on January 15, 2021, applies to exercises of shareholder rights after that date, and includes delayed compliance dates to January 31, 2022, for certain recordkeeping and proxy voting policy requirements, subject to certain conditions being met.

Federated Hermes is reviewing the final rule requirements with delayed compliance dates and their potential impact.

• On December 3, 2020, the SEC adopted a new rule, Rule 2a-5, under the 1940 Act that establishes an updated regulatory framework for fund valuation practices by establishing requirements for determining fair value in good faith for purposes of the 1940 Act.

The rule expressly permits boards, subject to board oversight and certain other conditions, to designate certain parties, such as fund investment advisors, to perform the fair value determinations.

The rule also defines when market quotations are "readily available" for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security.

This definition contradicts common practices for cross-trades between affiliated funds under Rule 17a-7 under the 1940 Act, and the investment management industry is engaging with the SEC staff to clarify this definition and its interplay with Rule 17a-7.

The SEC also adopted new recordkeeping requirements associated with fair value determinations.

The SEC also is rescinding previously issued guidance on related issues, including the role of the board of directors in determining fair value and the accounting and auditing of fund investments.

Subject to the uncertainty regarding the timing of new regulation discussed above, Rule 2a-5 and the new recordkeeping requirements provide that they become effective on March 8, 2021, and require compliance by August 8, 2022.

A fund can voluntarily comply with the rules after the effective date, and in advance of the compliance date, under certain conditions.

Federated Hermes is reviewing new Rule 2a-5 and the new recordkeeping requirements, and their potential impact.

• On November 12, 2020, President Trump signed Executive Order 13959, "Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies" (Executive Order), and signed an "Executive Order Amending Executive Order 13959 – Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies" on January 13, 2021 (collectively, the Executive Orders).

Under the Executive Orders, beginning on January 11, 2021 at 9:30 a.m.

persons, which includes both individuals and entities, generally are prohibited from transacting in certain securities and derivatives of Communist China military companies (CCMCs), unless such transactions are for purposes of divestment and occur through November 11, 2021.

The Treasury Department's Office of Foreign Asset Control has published guidance concerning the Executive Orders on several occasions, which guidance clarifies the requirements of the Executive Orders.

The SEC staff issued a Risk Alert on the Executive Order on January 6, 2021.

Federated Hermes is taking steps to comply with the Executive Orders, and related guidance, and is assessing their impact.

• On November 2, 2020, the SEC adopted a re-proposed Rule 18f-4 under the 1940 Act (the Derivatives Rule), to regulate the use of derivatives by mutual funds, closed-end funds, ETFs, and other investment companies, among other requirements.

New Rule 18f-4 permits mutual funds (other than money market funds), ETFs, registered closed-end funds, and business development companies (BDCs) to enter into derivatives transactions and certain other transactions notwithstanding the restrictions under Section 18 of the 1940 Act, subject to certain conditions.

The conditions include the adoption of a derivatives risk management program and compliance with certain limits on fund leverage risk, among others.

The rule provides an exception from the derivatives risk management program and leverage risk limits provided that a fund adopts and implements written policies and procedures reasonably designed to manage its derivatives risks and the fund's derivatives exposure is limited to 10% of its net assets, excluding certain currency and interest rate hedging transactions.

The rule also provides an exception from the leverage limits for leveraged or inverse funds currently in operation that seek an investment return above 200% of the return (or inverse of the return) of the fund's underlying index and that satisfy certain conditions.

The rule permits a fund to enter into reverse repurchase agreements and similar financing transactions, as well as "unfunded commitments" to make certain loans or investments, subject to conditions tailored to these transactions.

The rule permits funds, as well as money market funds, to invest in securities on a when-issued or forward-settling basis, or with a non-standard settlement cycle, subject to certain conditions.

The rule also requires that a fund comply with certain recordkeeping requirements, including reporting confidentially to the SEC on a current basis on Form N-RN if the fund is out of compliance with the leverage limits for more than five business days.

Funds currently required to file reports on Form N-PORT and Form N-CEN will be required to provide certain information regarding the fund's derivatives use.

The SEC also adopted amendments to Rule 6c-11 under the 1940 Act to permit leveraged or inverse ETFs to rely on Rule 6c-11 if they comply with all applicable provisions of Rule 18f-4.

The SEC also is withdrawing certain previously issued guidance and no-action letters addressing how funds engage in certain trading practices in light of the restrictions in Section 18 of the 1940 Act and funds' use of derivatives and other transactions covered by Rule 18f-4.

Subject to the uncertainty regarding the timing of new regulation discussed above, Rule 18f-4 provides that it became effective on February 19, 2021, and compliance will be required by August 19, 2022.

Federated Hermes is reviewing new Rule 18f-4 and its potential impact.

• On October 30, 2020, the DOL issued its Final DOL Investment Duty Amendments.

The DOL has indicated that these amendments update and clarify its investment duties regulation by providing regulatory guideposts for fiduciaries of private-sector retirement and other employee benefit plans in light of recent trends involving ESG investing.

The amendments require plan fiduciaries to select investments and investment courses of action based on pecuniary factors – i.e.

, any factor that the responsible fiduciary prudently determines is expected to have a material effect on risk and/or return of an investment based on appropriate investment horizons consistent with the plan's investment objectives and funding policy.

The rule became effective on January 12, 2021.

Unless the Final DOL Investment Duty Amendments are delayed or designated to be reviewed, plans have until April 30, 2022, to make any changes to certain qualified default investment alternatives, where necessary to comply with the final rule.

Federated Hermes is reviewing the amendments and their potential impact.

In response to the Final DOL Investment Duty Amendments, on December 14, 2020, two bills were introduced into the House of Representatives that would require investment advisors and retirement plan fiduciaries to divulge how they incorporate ESG factors into investment decisions.

• On October 16, 2020, the SEC issued a final rule adopting amendments to Rule 2-01 of Regulation S-X that seek to focus the SEC's auditor independence rules on relationships and services that are more likely to jeopardize the objectivity and impartiality of auditors.

The final amendments, among other things:

(1) amend the definitions of "affiliate of the audit client" and "investment company complex" to address certain affiliate relationships, including entities under common control;

(2) amend the auditor independence rule to add certain student loans and de minimis consumer loans to the categorical exclusions from independence-impairing lending relationships;

(3) amend the auditor independence rules to replace the reference to "substantial stockholders" in the business relationships rule with the concept of "beneficial owners with significant influence" and (4) replace the transition provision in the auditor independence rules to introduce a transition framework to address inadvertent independence violations that only arise as a result of a merger or acquisition transaction.

Subject to the uncertainty surrounding the timing of new regulation discussed above, the amendments provide for a June 9, 2021 effective date.

Voluntary early compliance is permitted after December 11, 2020 provided that the final amendments are applied in their entirety from the date of early compliance.

• On October 7, 2020, the SEC adopted Rule 12d1-4 under the 1940 Act regarding fund of funds arrangements, simultaneously rescinding Rule 12d1-2 under the 1940 Act, which permits funds that primarily invest in funds within the same fund group to invest in unaffiliated funds and non-fund assets.

Rule 12d1-4 will permit a registered investment company or BDC (referred to as "acquiring funds") to acquire the securities of any other registered investment company or BDC (referred to as "acquired funds") in excess of the limits in Section 12(d)(1) of the 1940 Act, subject to certain limits on control and voting of acquired fund shares by the acquiring fund, required evaluations and findings as to the lack of duplicative fees and certain other matters, and limits on complex structures.

In addition, the rule will require funds that do not share the same investment advisor to enter into a fund of funds investment agreement memorializing the terms of the arrangement.

This requirement and the evaluation and finding requirements replace a proposed requirement that would have prohibited an acquiring fund that acquires more than 3% of an acquired fund's outstanding shares from redeeming more than 3% of the acquired fund's total outstanding shares in any 30-day period.

The SEC is also rescinding most exemptive orders granting relief from Sections 12(d)(1)(A), (B), (C) and (G) of the 1940 Act.

The SEC also adopted related amendments to Rule 12d1-1 under the 1940 Act to allow funds that primarily invest in funds within the same fund group to continue to invest in unaffiliated money market funds, and amendments to Form N-CEN to require funds to report whether they relied on Rule 12d1-4 or the statutory exception in Section 12(d)(1)(G) of the 1940 Act during an applicable reporting period.

Federated Hermes is evaluating the impact of the rule on its current fund structures.

Subject to the uncertainty surrounding the timing of new regulation discussed above, the final rule provides that Rule 12d1-4 became effective on January 19, 2021, requires compliance with the amendments to Form N-CEN by March 20, 2022 and provides that the rescission of Rule 12d1-2 and the SEC's exemptive orders will be effective on January 19, 2022.

Investment management industry participants, such as Federated Hermes, also continued, and will continue, to monitor, plan for and implement certain changes in response to previously-issued, new, proposed or adopted rules and guidance.

Other proposed and final rules and guidance included, among others:

(1) final rules and amendments that permit registered closed-end funds

and BDCs to use the registration, offering and communications reforms the SEC had previously adopted for operating companies under the 1933 Act;

(2) further changes or guidance in response to the SEC's July 22, 2020 amendments to the rules governing proxy solicitations;

(3) proposed extensive changes to shareholder report and other fund disclosure documents;

and (4) a package of new rules ( i.e.

, Regulation Best Interest), amendments and interpretations intended to enhance the quality of retail investors' relationships with broker/dealers and investment advisors and to enhance investor protections while preserving retail investor access and choice.

On October 26, 2020, the SEC held a virtual roundtable where SEC and the Financial Industry Regulatory Authority (FINRA) staff discussed initial observations on Regulation Best Interest and Form CRS implementation.

The SEC also has requested comment on Rule 35d-1 under the 1940 Act (Names Rule) to determine whether the Names Rule can be improved to help ensure that fund names inform and do not mislead investors.

It remains uncertain whether regulators will consider revisiting, or Congress will require regulators to reconsider, certain recent Regulatory Developments.

It also remains unclear whether, or to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made prior to the original Vacated DOL Fiduciary Rule, or make new or additional changes in light of the new Final DOL Fiduciary Rule, Final DOL Investment Duty Amendments, Final DOL Proxy Voting Rule, Regulation Best Interest, Form CRS, or SEC fiduciary duty interpretations.

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Please refer to our prior public filings for more detailed discussions of these, and other, previously-issued proposed and final rules and guidance.

In addition to the above Regulatory Developments, the SEC staff continues to engage in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including investment advisors and investment management companies such as Federated Hermes' investment management subsidiaries and the Federated Hermes Funds.

In addition to examinations of various mutual fund complexes, the SEC Division of Examinations (formerly the Office of Compliance, Inspections and Examinations) (DOE) conducted examinations that covered 15% of all SEC-registered investment advisors in 2020.

The SEC Division of Enforcement also brought 715 enforcement actions in the SEC's 2020 fiscal year, with 492 of these actions being brought after the SEC instituted mandatory telework in mid-March 2020.

It has been reported that the SEC's enforcement focus under the new administration could shift back to a more aggressive investor protection stance and to publicly-traded company matters (such as insider trading, issuer reporting, and accounting fraud), and toward enforcement of new regulations (such as Regulation Best Interest) and ESG disclosures, with a reinstitution of a "broken windows" enforcement philosophy under which enforcement actions are brought for minor violations.

In addition to routine examinations, the SEC examinations have included certain sweep examinations involving various topics.

Examples of sweep examinations conducted, or being conducted, by the SEC staff include, among others, money market fund liquidity, liquidity risk management, transition from the LIBOR, compliance with Regulations Best Interest and Form CRS, cybersecurity, best execution, and share class allocation, among others.

In addition to its Covid-19 actions and guidance, the SEC staff also issued various guidance statements and risk alerts on a variety of compliance issues, including, among others, the Executive Order on Securities Investments that Finance Communist Chinese Military Companies, cyber-security, large trader obligations, investment advisor compliance, Covid-19-related risks and the transition from LIBOR.

At an industry conference on October 8 and 9, 2020, SEC DOE staff members indicated that DOE will likely assess the longer-term effects of Covid-19 in 2021 (including valuation issues), as well as issues related to conflicts of interest, fees and expenses, investment advisor compliance with fund prospectus ESG disclosure, and compliance with recently promulgated regulations.

The DOE staff also will likely focus on controls surrounding the use of material non-public information, improper allocation of investment opportunities, code of ethics deficiencies, and liquidity events.

The SEC DOE released on December 21, 2020 updated guidance concerning its planned examination program involving Regulation Best Interest in 2021.

The SEC DOE indicated that, in 2021, exams will focus on firms' compliance with Regulation Best Interest's specific mandates, including the requirement of a "reasonable basis" for investment recommendations, and on "enhanced transaction testing" to assess broker/dealer policies and procedures.

The examination priorities include:

(1) continued evaluation of firm policies and procedures (including evaluating specific firm processes for Regulation Best Interest compliance and alterations to firm product offerings, including whether firms are recommending higher cost products when lower cost products are available);

(2) evaluation of how firms have considered costs in making a recommendation, which can include what information is available to firm personnel to identify relevant costs, how any such information has been used and any documentation of the consideration of costs;

(3) evaluation of the processes that firm personnel have used to make recommendations to new customers;

(4) evaluation of the processes that firm personnel have used to recommend complex products, including what information was available and used to consider reasonably available investment alternatives;

and (5) evaluation of the processes that firms have used to identify and address conflicts related to recommendations.

These investigations, examinations and actions have led, and can lead, to further regulation, guidance statements and scrutiny of the investment management industry.

The degree to which regulatory investigations, actions and examinations will continue, as well as their frequency and scope, can vary and is uncertain.

Regulation or potential regulation by regulators other than the SEC and DOL also continued, and can continue, to affect investment management industry participants, including Federated Hermes.

For example, FINRA also has undertaken, and continues to undertake, examinations.

In the fourth quarter 2020, FINRA began reviewing firms' systems and procedures for providing customers waivers and rebates available through rights of reinstatement on mutual fund purchases.

Other FINRA examinations have included bank sweep program, zero commission and cyber-security sweep examinations.

In its 2021 Report on FINRA's Examination and Risk Monitoring Program, FINRA identifies, among other areas of concern, anti-money laundering, outside business activities, private securities transactions, Regulation Best Interest and Form CRS compliance, misrepresentation relating to cash management accounts and digital assets, best execution and liquidity risk management controls as areas of focus and potential examination.

Various state legislatures or regulators also have adopted or are beginning to adopt state-specific cyber-security and/or privacy requirements that can apply, to varying degrees, in addition to federal regulation.

The activities of the Financial Stability Oversight Council (FSOC) also continue to be monitored by the investment management industry, including Federated Hermes.

In December 2019, FSOC changed its systemically important designation approach for non-bank financial companies from an entity-based approach to an activities-based approach under which an individual firm would only be so designated if it determined that efforts to address the financial stability risks of that firm's activities by its primary federal and state regulators have been insufficient.

Since then, FSOC has been required first to focus on regulating activities that pose systemic risk, through actions by primary regulators.

FSOC has focused on potential risks in the asset management industry, including money market funds, and other types of cash management vehicles (such as local government investment pools) that continue to use amortized cost or have a stable NAV but are not subject to the 2014 Money Fund Rules and Guidance.

The FSOC also has recommended that the SEC and other financial regulators monitor developments concerning such short-term cash management vehicles for any financial stability risk implications (such as liquidity, redemption risks and leverage).

As discussed above, the market volatility and liquidity stress on money market funds experienced as a result of Covid-19 in March 2020 has drawn the attention of U.S.

and global regulators, including FSOC.

In its 2020 Annual Report, FSOC noted that "[s]tresses on prime and tax-exempt [money market funds] revealed continued structural vulnerabilities that led to increased redemptions and, in turn, contributed to and increased the stress in short-term funding markets." It has been reported that, during her testimony prior to her confirmation by the Senate on January 25, 2021, Treasury Secretary Janet Yellen expressed comfort with the idea of looking at whether activities of asset managers represent a systemic risk rather than whether asset management firms pose systemic risk.

It had previously been reported that some advocacy groups had been encouraging the Treasury Secretary to set a new direction for FSOC and exercise its powers to subject big financial firms to stricter oversight.

While the Treasury Secretary's testimony is encouraging for the investment management industry, any possibility of FSOC reverting to its pre-December 2019 systemically important designation practices, and recommending new or heightened regulation for non-bank financial companies, which the Fed's Board of Governors (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds, increases the potential for further regulation of the investment management industry, including Federated Hermes and the Federated Hermes Funds.

As a candidate, the current President stated that he is open to the idea of a financial transactions tax (FTT) on securities transactions, an idea proposed by certain former Democratic candidates, including the current Vice President.

Prior federal legislative attempts to enact an FTT would have imposed a 0.1% tax on stock, bond and derivative transactions, which would have applied to sales made in the U.S.

persons, while initial securities issuances and short-term debt would have been exempt.

A later proposal would have taxed stock trades at 0.5%, bond trades at 0.1%, and derivatives transactions at 0.005% coupled with an income tax credit for individuals with income of less than $50,000 ($75,000 for married couples), which was intended to offset the average burden of the tax for such individuals.

Neither bill has progressed in Congress.

While ultimately left out of the New Jersey budget by New Jersey Governor Phil Murphy for 2021, on July 16, 2020, a bill was introduced into the New Jersey state legislature which sought to impose a $0.0025 tax per financial transaction on any person or entity that transacts more than 10,000 financial transactions through electronic infrastructure located in New Jersey during the year.

It has been reported that the New Jersey Governor favors an FTT and could revive the concept in subsequent years.

It also has been reported that certain New York lawmakers are in favor of, and considering, an FTT.

The need to fund state budget deficits, particularly given the impact of Covid-19, is being cited as a renewed justification for enacting FTTs.

On October 27, 2020, a bill was introduced into the U.S.

House of Representatives that would have prohibited states from imposing FTTs on security industry participants.

Management believes that an FTT, particularly if enacted with broad application, would be

detrimental to Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

The current regulatory environment has impacted, and will continue to impact, to various degrees, Federated Hermes' business, results of operations, financial condition and/or cash flows.

For example, Regulatory Developments can result in shifts in product structures, as well as changes in asset flows and mix and customer relationships.

It remains uncertain whether, and to what degree, investment advisors, broker/dealers or other intermediaries will roll-back, modify or continue changes made in response to the original Vacated Final DOL Fiduciary Rule given the new DOL Final Fiduciary Rule and other Regulatory Developments.

If intermediaries continue to reduce the number of Federated Hermes Funds offered on their platforms, mutual fund-related sales and distribution fees earned by Federated Hermes can decrease.

In that case, similar to other investment management industry participants, Federated Hermes could experience a further shift in asset mix and AUM, and a further impact on revenues and operating income.

On the other hand, management continues to believe that Federated Hermes' business can be positively affected because separately managed account/wrap-fee strategies work well in level wrap-fee account structures and can provide transparency and potential tax advantages to clients, while Federated Hermes' experience with bank trust departments and fiduciary experience and resources presents an opportunity to add value for customers.

Federated Hermes has dedicated, and continues to dedicate, significant and additional internal and external resources to monitor, analyze and address regulatory responses to the impact from Covid-19 and Regulatory Developments generally, and their effect on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Additional internal and external resources have been, and will continue to be, devoted to technology, legal, compliance, operations and other efforts to address regulatory-related matters.

These efforts included, and will continue to include, having conversations internally, and with intermediaries, customers, service providers, counsel and other advisors, regarding Regulatory Developments, and analyzing and/or affecting legislative, regulatory, product offering, development and structure adjustments, technology or information system development, reporting capabilities, business processes and other options, in an effort to comply, and/or to assist Federated Hermes' intermediaries and customers to comply, with new Regulatory Developments or minimize the potential impact of any adverse consequences stemming therefrom.

As appropriate, Federated Hermes also participated, and will continue to participate, either individually or with industry groups, in the comment process for proposed regulations.

Federated Hermes continues to expend legal and compliance resources to examine corporate governance and public company disclosure proposals and final rules issued by the SEC, to adopt, revise and/or implement policies and procedures, and to respond to examinations, inquiries and other matters involving its regulators, including the SEC, customers or other third parties.

Federated Hermes also has devoted, and will continue to devote, resources to technology and system investment, business continuity, cybersecurity and information governance, and the development of other investment management and compliance tools, to enable Federated Hermes to, among other benefits, be in a better position to address Regulatory Developments.

In connection with Covid-19, Federated Hermes has devoted internal and external resources to complying with the requirements of federal and state orders imposing work and travel restrictions, and the requirements under the Center for Disease Control and Prevention's (CDC) and state and local health departments' guidance, as well as enhanced disinfection and contamination procedures.

Federated Hermes is unable to fully assess at this time whether, or the degree to which, any continuing efforts or potential options being evaluated in connection with modified or new Regulatory Developments ultimately can be successful.

The degree of impact of Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows can vary and is uncertain.

Management also is monitoring and assessing the potential impact of Covid-19 generally, and the impact of current low interest rate environment on money market fund and other fund asset flows, and related asset mixes, as well as the degree to which these factors impact Federated Hermes' prime and municipal (or tax-exempt) money market business and Federated Hermes' business, results of operations, financial condition and/or cash flows generally.

Management is also monitoring the potential for additional regulatory scrutiny of money market funds, including prime and municipal (or tax-exempt) money market funds.

The Regulatory Developments discussed above, and related regulatory oversight, also impacted, and/or can impact, Federated Hermes' intermediaries, other customers and service providers, their preferences and their businesses.

For example, these developments have caused, and/or can cause, certain product line-up, structure, pricing and product development changes, as well as money market, equity, fixed-income, alternative/private markets or multi-asset fund products to be less attractive to institutional and other investors, reductions in the number of Federated Hermes Funds offered by intermediaries, changes in the fees Federated Hermes, retirement plan advisors and intermediaries will be able to earn on investment products and services sold to retirement plan clients, changes in work arrangements and facility-related expenses, and reductions in AUM, revenues and operating profits.

In addition, these developments have caused, and/or can cause, changes in asset flows, levels and mix, as well as customer and service provider relationships.

Federated Hermes will continue to monitor regulatory actions in response to Covid-19 and other Regulatory Developments as necessary and can implement additional changes to its business and practices as it deems necessary or appropriate.

Further analysis and planning, or additional refinements to Federated Hermes' product line and business practices, can be required in response to market, customer or new or modified Regulatory Developments, such as the new investment advisor advertising, valuation, derivatives, and fund of funds rules, Final DOL Fiduciary Rule, Final DOL Proxy Voting Rule, Final DOL Investment Duty Amendments, and other Regulatory Developments, or any additional regulation or guidance issued by the SEC, DOL or other regulatory authorities.

In addition to the impact on Federated Hermes' AUM, revenues, operating income and other aspects of Federated Hermes' business described above, on a cumulative basis, Federated Hermes' regulatory, product development and restructuring, and other efforts in response to the Regulatory Developments discussed above, including the internal and external resources dedicated to such efforts, have had, and can continue to have, on a cumulative basis, a material impact on Federated Hermes' expenses and, in turn, financial performance.

As of December 31 , 2020, given the current regulatory environment, Covid-19 and the possibility of future additional modified or delayed regulation or oversight, Federated Hermes is unable to fully assess the impact of regulatory actions in response to Covid-19 or other adopted or proposed regulations, and other Regulatory Developments, and Federated Hermes' efforts related thereto, on its business, results of operations, financial condition and/or cash flows.

Modified or new Regulatory Developments in the current regulatory environment, and Federated Hermes' efforts in responding to them, could have a material and adverse effect on Federated Hermes' business, results of operations, financial condition and/or cash flows.

As of December 31, 2020, management also believes that any designation as a systemically important non-bank financial company, or any reforms ultimately put into effect by FSOC, would be detrimental to Federated Hermes' money market fund business and could materially and adversely affect Federated Hermes' business, results of operations, financial condition and/or cash flows.

Current Regulatory Environment - International

Similar to the U.S., in 2020, the outbreak of Covid-19 shifted the regulatory environment in the UK and European Union (EU) toward the adoption of measures intended to provide regulatory flexibility and market stabilization.

While the impact of Covid-19 remains unclear as 2021 begins, regulators in the UK and EU are beginning to allow certain regulatory relief granted in 2020 to expire, while extending other relief, and continue to advance new and proposed consultations, directives, regulations and laws while generally remaining in a remote working environment.

These Regulatory Developments continue to impact the investment management industry in the UK and EU.

In the UK, the transition period under the European Union Withdrawal Agreement Bill (Withdrawal Agreement Bill), which implemented the withdrawal agreement reached between the UK and the other 27 EU member states and set out the arrangements for the UK's withdrawal from the EU (Brexit), ended on December 31, 2020.

On December 30, 2020, the EU–UK Trade and Cooperation Agreement (TCA) became effective.

Among other things, the TCA provides for free trade for goods and limited mutual market access for services, creates certain border checkpoints, imposes visa requirements on UK nationals staying more than 90 days in the EU in a 180-day period, removes any role for the European Court of Justice in the UK, and eliminates the requirement for the UK to comply with EU data protection directives.

The TCA also provides for cooperation between the UK and EU regarding a range of policy areas, as well as transitional provisions about EU access to UK fisheries, and UK participation in certain EU programs.

As of January 2021, the Office for Budget Responsibility in the UK reports that the UK has approximately £25 billion to pay to the EU by 2057, with £18 billion to be paid in the next five years.

In addition to the TCA, since the UK no longer participates in EU trade agreements with other countries, the UK has entered into approximately 60 trade agreements with other countries outside the EU as of January 1, 2021 and continues to negotiate trade agreements with other countries.

Significant political, economic, legal and regulatory uncertainty continues to exist regarding the impact of Brexit on a post-Brexit UK.

See Item 1A - Risk Factors under the captions General Risk Factors - Economic and Market Risks - Potential Adverse Effects of a Decline or Disruption in the Economy or Markets and General Risk Factors - Regulatory and Legal Risks - Potential Adverse Effects of Changes in Laws, Regulations and Other Rules for further discussion of the risks of political instability, currency abandonment and other market disruptions on Federated Hermes and its business.

Brexit has affected, and will likely continue to affect, the requirements and/or timing of implementation of legislation and regulation applicable to doing business in the EU and UK, including the laws and regulations applicable to Federated Hermes, as well as to the sponsoring, management, operation and distribution of Federated Hermes' products and services, both within and outside the EU and UK.

On November 9, 2020, the European Securities and Markets Authority (ESMA) issued a press release reminding financial institutions of the need to be ready for the expiration of the transition period of December 31, 2020, including the need to finalize authorizations and fully establish EU-based operations and appropriate risk management capacity commensurate to the

magnitude, scope and complexity of their activities and risks generated in their EU operations.

On October 1, 2020, ESMA issued an updated statement on the consequences of Brexit under the Benchmark Regulation, which indicates that EU supervised entities can continue to use third-country UK benchmarks until December 31, 2021 and that this transition period is also recognized in the UK.

While the TCA addresses the financial services industry, it does not provide for passporting rights nor address equivalence decisions.

Passporting ended at the end of the transition period and firms now must rely on temporary permission regimes and comply with the local laws of each country.

The UK Financial Conduct Authority (FCA) has implemented a temporary permissions regime that allows European Economic Area (EEA)-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK, and allows EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for up to three years, while they seek full FCA authorization.

The UK also has created a financial services contracts regime that allows, for a limited time, EEA-based firms not taking advantage of the temporary permissions regime in the UK to continue to service UK customers entered into prior to the end of the transition period in order for them to conduct an orderly exit from the UK.

In addition to the UK, EU governments, such as, among others, France, the Netherlands, Italy and Germany also have adopted similar temporary permission regimes or other laws to permit UK products to be sold, and EU-UK financial transactions to continue, for a period of time in their countries.

Pursuant to amendments implemented by the Withdraw of the United Kingdom from the European Union (Consequential Provisions) Bill 2020, a firm that is authorized in the UK and/or Gibraltar, which has previously passported into Ireland, will be deemed to be authorized for specific and limited purposes in Ireland for a 15 year period following the end of the transition period, subject to the fulfillment of certain conditions.

The FCA, ESMA and EU regulators previously signed memoranda of understandings (MoUs) covering cooperation and exchange of information that have come into effect at the end of the transition period ( i.e.

, on December 31, 2020) and provide for some level of regulatory coordination until the new regime is agreed and in place.

In a joint declaration dated December 24, 2020, the EU and UK committed to agreeing to a framework for regulatory cooperation and mutual equivalence by March 2021.

UK regulators also are continuing with an "onshoring" process of amending EU legislation and regulatory requirements so that they work in the UK.

In October 2020, the FCA, Bank of England (BoE) and other UK regulators granted firms until March 31, 2022 to comply with certain regulatory changes including, among others, certain reporting obligations and market abuse requirements.

Despite these developments, there remains a risk of regulatory divergence between the UK and the EU.

For example, EU investment firms in EU Member States are required to comply with the Investment Firms Directive (IFD) and Investment Firms Regulation (IFR) by June 26, 2021.

The IFD and IFR do not bind the UK and UK regulators are considering a new UK prudential regime for MiFID firms (IFPR), which has been included in the Financial Services Bill and is based on the IFD and IFR.

On December 14, 2020, the FCA issued "Consultation Paper 20/24:

A new UK prudential regime for MiFID investment firms," in which the FCA seeks comment on its proposed rules on the IFPR.

The form of the final IFPR is not known and UK regulators are targeting an implementation date of January 1, 2022.

Moreover, rather than adopt the EU Sustainable Finance Disclosure Regulation (SFDR), the UK announced on November 9, 2020 that it will introduce ESG disclosure rules aligning with the Task Force on Climate-related Financial Disclosures (TCFD), which makes the UK the first country to adopt that approach.

On December 22, 2020, the Financial Stability Board (FSB) issued a statement encouraging the International Financial Reporting Standards Foundation and financial authorities to use the TCFD's recommendations as the basis for standards for climate-related financial disclosures.

It also has been reported that an ESG Template for funds to explain their ESG features is expected to be proposed in 2021, to supplement the European Markets in Financial Instruments Directive (MiFID) Template, which is being revised to include ESG fields.

The current post-Brexit regulatory environment (particularly the need to obtain full authorizations on a country-by-country basis) also creates a level of uncertainty regarding the ability and requirements to distribute products and provide management services between the UK and EU, increasing regulatory burdens and compliance and other costs for UK funds being distributed in the EU and EU funds (such as Irish-domiciled funds) being distributed in the UK.

The ability to engage investment managers for EU funds and UK funds also could be impacted, resulting in structural and other changes for UK- and EU-domiciled funds.

The UK Financial Conduct Authority (FCA) has implemented a temporary permissions regime that allows EEA-domiciled investment funds that market in the UK under a passport to continue temporarily marketing in the UK, and allows EEA-based firms currently passporting into the UK to continue new and existing regulated business within the scope of their current permissions in the UK for up to three years, while they seek full FCA authorization.

EU governments, such as, among others, France, the Netherlands, Italy and Germany also have adopted similar temporary permission regimes or other laws to permit UK products to be sold, and EU-UK financial transactions to continue, for a period of time in their countries in the event of a hard Brexit.

UK and EU industry groups have been asking regulators to adopt an EU-wide temporary permissions regime to avoid having to comply with requirements imposed by each EU country.

It also remains unclear whether Brexit may impact various initiatives underway in the EU, such as the implementation of an FTT.

Federated is monitoring the impact of Brexit, and, while Brexit has not had a significant impact on Federated's business as of December 31, 2019, Federated remains unable to assess the degree of any potential impact Brexit, and resulting changes, may have on Federated's business, results of operations, financial condition and/or cash flows.

Federated continues to expend internal and external resources on contingency planning for Brexit.

For example, Hermes organized a subsidiary based in Dublin, Ireland, and established offices in Germany and Denmark, as part of Brexit contingency planning for its business.

The Hermes Acquisition increased the potential impact Brexit, and resulting changes, may have on Federated's business, results of operations, financial condition and/or cash flows.

The European Commission has issued four legislative proposals relating to its Action Plan on Sustainable Finance.

The legislation addresses, among other things, the establishment of a framework to facilitate sustainable investment, including a unified EU classification system setting harmonized criteria to determine whether an economic activity is environmentally sustainable, disclosures relating to sustainable investments and sustainability risks, amendments to the Benchmark Regulation to create a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, and amendments to the Markets in Financial Instruments Directive (MiFID II) to provide consistency and clarity for institutional investors integrating ESG factors into their investment decision-making process.

Pursuant to the Action Plan on Sustainable Finance, in August 2019 the European Commission commissioned studies on sustainability ratios and research, with the objectives of designing a coherent legal and economic classification of sustainability-related products and services and exploring the integration of ESG risks into the EU banking prudential framework and into banks' business strategies and investment policies.

On November 8, 2019, the Council of the EU adopted the Low Carbon Benchmark Regulation (LCBR), which requires new categories of financial benchmarks, one being an EU climate transition benchmark and one being a "Paris-aligned" benchmark

that brings investment portfolios in line with the Paris Agreement (a 2016 agreement within the United Nations Framework Convention on Climate Change dealing with greenhouse-gas-emissions mitigation, adaptation, and finance).

The providers of these benchmarks will have to disclose whether or not, and to what extent, the benchmarks ensure a degree of overall alignment with the target of reducing carbon emissions or the attainment of the objectives of the Paris Agreement is ensured.

The LCBR also requires all benchmark providers to disclose whether their benchmarks pursue ESG objectives and whether the provider offers such ESG-focused benchmarks.

On November 8, 2019, the Council of the EU also adopted the Disclosure Regulation, which is aimed at raising market awareness of sustainability and eliminating "greenwashing" or the provision of unsubstantiated or misleading claims regarding the sustainability characteristics and benefits of an investment product.

The Disclosure Regulation also aims to harmonize disclosures by providing a uniform format for disclosures.

Firms are required to disclose procedures that integrate ESG risks into their investment and advisory processes, the extent to which those risks may impact the profitability of investments, and information on how environmentally friendly strategies are implemented.

The Disclosure Regulation covers investment funds, investment advice, private and occupational pensions, insurance-based investment products and insurance advice.

On November 27, 2019, the European Parliament passed the Sustainability-Related Disclosures Regulation (SRDR), which requires certain website, prospectus and annual report disclosures and implements a product classification system.

Under the SRDR, a firm will be required to (1) disclose on its website(s) information about the integration of sustainability risks into the firm's decision-making processes and investment advice, (2) disclose on its website(s) adverse sustainability impacts arising from the firm's investment decisions, (3) include pre-contractual disclosures on the integration of sustainability risks into investment decisions and the likely impacts of sustainability on investment returns, and (4) disclose on its website(s) information explaining how remuneration policies are consistent with the integration of sustainability risks.

The SRDR also defines "Dark Green Products" as products having an objective of "sustainable investment" and "Light Green Products" as products that promote environmental or social characteristics.

The SRDR became effective on December 29, 2019, with compliance for a majority of its provisions being required from and after March 10, 2021.

On December 18, 2019, the European Parliament and Council of the EU agreed upon the Taxonomy Regulation, which is aimed at establishing a framework to facilitate sustainable investment.

The EU and Member States will be required to apply the taxonomy when adopting measures ( e.g.

, labels or standards) setting requirements regarding financial products or corporate bonds presented as "environmentally sustainable".

The Taxonomy Regulation applies to financial market participants ( e.g.

, institutional investors and asset managers) who offer financial products.

Among other requirements, it requires disclosures for all financial products (with an opt-out with a disclaimer for non-green products) regarding how and to what extent the investments that underlie the financial products support economic activities that meet the criteria of the taxonomy (including details on the respective proportions of enabling and transition activities).

Climate change mitigation and adaptation criteria are to be adopted by the end of 2020 with application by the end of 2021.

Other environmental objectives (e.g.

water and marine resources, circular economy, biodiversity) are to be adopted by the end of 2021 with application by the end of 2022.

Member States, the EU, and covered market participants will have to start complying with the Taxonomy Regulation requirements beginning December 31, 2021.

Federated continues to assess the potential impact that Sustainable Finance proposals may have on its non-U.S.

In March 2020, Her Majesty's Treasury (HM Treasury) released a consultation paper proposing an overseas fund regime which is targeted at Undertakings for the Collective Investment in Transferable Securities (UCITS) and will enable Federated Hermes' Irish UCITS funds to continue to be marketed in the UK after December 31, 2020 and the temporary permissions regime.

HM Treasury proposes an equivalence regime which will determine countries which are equivalent to the UK and will work with the FCA to determine countries of equivalence.

HM Treasury is using the Financial Services Bill 2019 - 2021 to introduce the Overseas Funds Regime (OFR) - an equivalence regime for overseas retail funds to be able to market to UK retail investors.

HM Treasury has also proposed a separate regime for money market funds to be able to market to all investors, noting that the

process will be different if the fund wants to market to retail or professional investors.

These regimes will function similarly to the existing EU approach to equivalence.

Federated Hermes has received permission from the FCA to allow certain Irish-domiciled UCITS funds and Luxembourg-based direct lending funds to continue to be marketed in the UK post-Brexit.

Despite negative deposit interest rates, euro-denominated European money market funds have successfully operated and provided investors with high quality diversified investments which continue to provide same day liquidity, first through the use of an approved share cancellation methodology and more recently through the use of accumulating share classes.

Federated Hermes continues to work with the FCA and the Central Bank of Ireland (CBI) on appropriate permissions to operate in each jurisdiction, in a manner similar to euro-denominated money market funds, should official rates in U.S.

dollars or British pound sterling become negative.

Additionally, Federated Hermes continues to work with the CBI on appropriate permissions to operate its U.S.

dollar money market funds in a manner similar to euro-denominated money market funds, should official rates in U.S.

dollars become negative.

The activities of the International Organization of Securities Commissions (IOSCO) and FSB also continue to be monitored by the investment management industry, including Federated Hermes.

Building on consultations and other reports published from 2015 through 2020 regarding methodologies for identifying non-bank, non-insurance company global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, the FSB and IOSCO continued, and will continue, to assess, recommend and implement regulatory reforms affecting money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry.

On November 20, 2020, IOSCO published its final report providing a thematic review of the consistency in implementation of money market reforms across the nine largest money market fund jurisdictions.

In this report, IOSCO concludes that these jurisdictions generally implemented money market fund reforms in line with 2012 IOSCO policy recommendations for money market funds, but that market conditions in March 2020 highlighted continuing vulnerabilities in certain types of money market funds and the need for further reform.

Similar to the PWG in the U.S., IOSCO issued a paper on "Money Market Funds during the March-April Episode" (IOSCO Paper) in November 2020.

The IOSCO Paper calls for further consideration of the functioning of money market funds, investor behavior and elements of the existing regulatory framework for money market funds which could have played a role in accelerating the outflow of assets from non-government money market funds in March 2020.

In its 2020 Annual Report regarding the "Implementation and Effects of the G20 Financial Regulatory Reforms", among other topics, the FSB reviewed the status of money market fund reforms across G20 jurisdictions, ongoing vulnerabilities from liquidity and leverage in asset management, and measures taken by financial regulators relating to funds (including money market funds) in response to Covid-19.

The FSB also issued a report on its "Holistic Review of the March Market Turmoil" (FSB Review) on November 17, 2020, in which it specifically reviewed the impact of the markets in March 2021 on open-end funds, including money market funds.

In its FSB Review, among other conclusions, the FSB concluded that redemptions from money market funds were "exacerbated by certain fund structures and regulations that could have created perceptions of first-mover advantage." Among other recommendations, the FSB Review calls for an examination of risk factors, including "liquidity risks, core functions and aspects of the structure or regulations in non-government [money market funds] which experienced large outflows and contributed to the stress in short-term funding markets." In a December 16, 2020 "Global Monitoring Report on Non-Bank Financial Intermediation" the FSB further examined the impact of Covid-19 on the markets and the role of non-bank financial intermediaries, including the importance of money market funds in this sector, particularly in the U.S.

In this report, the FSB noted that U.S.

regulations allow fund boards to impose redemption gates and liquidity fees if a money market fund's weekly liquid assets fall below 30% of the fund's total assets, and that a concern that redemptions could be limited or suspended might have led to additional outflows.

As a result of these IOSCO and FSB reports, similar to the SEC in the U.S., UK and EU regulators are expected to re-examine existing money market fund regulation in 2021.

As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during Covid-19.

Federated Hermes intends to engage with UK and EU (as well as U.S.) regulators in 2021, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds can provide.

Since the beginning of the fourth quarter 2020, UK and EU regulators issued, proposed or adopted new consultations, directives, rules, laws and guidance that impact UK and EU investment management industry participants, including Federated Hermes.

• On December 17, 2020, ESMA published its final guidelines under Article 25 of the Alternative Investment Fund Managers Directive (AIFMD) setting out common criteria to promote convergence in the way national competent authorities (NCAs) (1) assess how the use of leverage by alternative investment funds (AIFs) contributes to systemic risk in the financial system and (2) design, calibrate and implement leverage limits.

The ESMA Guidelines follow

recommendations by the European Systemic Risk Board (ESRB) published in April 2018 on how to address liquidity and leverage risk in investment funds.

Federated Hermes is reviewing the final guidelines and assessing their impact.

• On December 17, 2020, the European Banking Authority (EBA) launched two consultations, one seeking comment on its new guidelines on remuneration policies, and a second seeking comment on its new guidelines on internal governance, under the IFD.

The remuneration policy guidelines specify the remuneration provisions that certain investment firms should comply with, taking into account the proportionality principle, for their remuneration policies to ensure an alignment of the variable remuneration of identified staff with the risk profile of the investment firm and the assets it manages.

These new guidelines also clarify how the remuneration framework applies on a consolidated basis to investment firms and others financial institutions that are subject to a specific remuneration framework, such as firms subject to the UCITS, the AIFMD or MiFID II.

The governance guidelines specify the governance provisions that certain investment firms should comply with, taking into account the proportionality principle.

These guidelines set forth a governance framework aimed at ensuring that investment firms have a clear organizational structure, effectively manage their risks and have adequate internal control mechanisms in place.

Both consultation periods end on March 17, 2021.

Federated Hermes is reviewing these consultations and will be monitoring developments.

• On December 16, 2020, ESMA published its 2020 update of the guidelines for money market fund stress tests under the Money Market Fund Regulation (MMFR).

The updated guidelines provide specifications on the type of stress tests and their calibration to allow money market fund managers to have the information needed for reporting under the MMFR.

The update takes into account the experience of money market funds in March 2020, particularly in relation to redemption scenarios.

The updated 2020 guidelines will be required to be used for the first reporting period that is two months after publication of the translations of the updated guidelines.

Federated Hermes has reviewed the updated guidelines and is taking steps to timely comply.

• On December 14, 2020, the FCA issued "Consultation Paper 20/24:

A new UK prudential regime for MiFID investment firms" in which the FCA seeks comment on its proposed rules on the IFPR.

The IFPR is a new prudential regime for UK firms authorized under MiFID II.

This consultation represents the first consultation the FCA will issue on the IFPR.

The consultation period ended on February 5, 2021.

Federated Hermes reviewed this consultation and is monitoring developments.

• On November 17, 2020, the CBI published a "Dear CEO" letter building on its recent thematic inspections of compliance by Regulated Financial Service Providers with their obligations under the Fitness and Probity Regime.

The Dear CEO letter sets out the key findings and observations from the CBI's inspections relating to board appointments, policies and procedures, due diligence, outsourcing, CBI engagement and the compliance function, together with the CBI's expectations.

The Dear CEO letter is to be read in conjunction with an April 2019 letter from the CBI regarding fitness and probity, the CBI's Fitness and Probity Standards, and its associated fitness and probity guidance.

The CBI expects firms to review the findings and observations and, if requested, report on them to the CBI.

Federated Hermes is conducting the assessment called for in the Dear CEO Letter and the relevant Federated Hermes Fund boards will review the assessment as indicated by the CBI in the Dear CEO letter.

• On November 12, 2020, ESMA published a report regarding the preparedness of investment funds with significant exposures to corporate debt and real estate assets for potential future adverse liquidity conditions and valuation shocks.

The report calls for priority areas for action, including:

(1) ongoing supervision by national securities regulators of alignment of funds' strategies, liquidity profiles, and redemption policies;

(2) ongoing supervision of liquidity risk assessment;

(3) enhanced liquidity profile reporting requirements and alignment of UCITS liquidity reporting to the reporting requirements imposed on AIF managers (AIFMs);

(4) the establishment of a legal framework to increase the availability and use of liquidity management tools by UCITS;

and (5) supervision of fund valuation practices in stressed market conditions.

Federated Hermes is reviewing this consultation and will be monitoring developments.

• On November 10, 2020, the CBI published a "Dear CEO" letter regarding its thematic review of compliance by MiFID authorized investment firms with MiFID best execution requirements for consumers.

In the letter, the CBI identified significant shortcomings in best execution governance, including evidence of board or committee oversight and challenge, clear decision-making processes, limited assurance testing, and a lack of independent reviews of the best execution process.

The CBI is requiring firms to review their best execution processes and frameworks and discuss them at their next Board meetings.

Federated Hermes is conducting the review called for in the Dear CEO Letter and the review will be discussed with the relevant Federated Hermes Fund boards.

• On November 9, 2020, ESMA began a "Consultation on guidelines on marketing communications under the regulation on facilitating cross-border distribution of collective investment undertakings" setting forth guidelines specifying the requirements for marketing communication sent to investors to promote UCITS and AIFs.

The guidelines require marketing materials to be identifiable as marketing material, describe the risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner, and contain information which is fair, clear and not misleading.

The guidelines also take into account the online aspects of marketing communications.

The consultation period ended on February 8, 2021 and ESMA intends to issue final guidelines by August 2, 2021.

Federated Hermes has reviewed this consultation and is monitoring developments.

• On October 22, 2020, the European Commission issued a "Public consultation on the review of the alternative investment fund managers directive (AIFMD)" in which the Commission seeks to examine how to strengthen the rules and complete the internal market for AIFs.

The Commission might also consider adjustments to the rules on UCITS.

The consultation period ended on January 29, 2021.

Federated Hermes is working with industry organizations and key Member State regulators to provide meaningful input to the European Commission as matters under review are assessed.

• On October 20, 2020, the CBI issued a "Dear CEO" letter to all Irish management companies expressing the CBI's concerns with the implementation of CP86, which is a set of rules and guidance issued by the CBI related to the governance and effectiveness of Irish management companies, including self-managed funds.

Among other matters, it expects that Irish management companies should have a minimum of three local staff members suitably qualified and of appropriate seniority to fulfil the role.

The letter also expresses the CBI's concerns regarding (1) how some designated persons discharge their role, (2) delegation of oversight, (3) risk management frameworks, (4) board approval of new funds and (5) fund governance.

In the letter, the CBI announced that it has commenced supervisory engagement with Irish management companies where specific concerns have been identified.

The CBI also announced in the letter that all Irish management companies are required to critically assess their day to day operational, resourcing and governance arrangements against all relevant rules and guidance, taking into account the findings of the review, and to implement a timely plan for making the necessary changes to ensure full and effective embedding of all aspects of the CBI's Fund Management Companies – Guidance, dated December 2016.

Investment management industry participants, such as Federated Hermes, also continued and will continue, to monitor, plan for and implement certain changes in response to previously issued new proposed or adopted rules and guidance.

These proposed and final rules and guidance, included:

(1) the application of level 2 requirements for the SFDR, which have been postponed until further notice;

(2) attempts to "synergize" EU legislation (in particular the Non-Financial Reporting Directive (NFRD), the Taxonomy Regulation, and the SFDR) to enhance sustainability as advocated by ESMA's Securities and Markets Stakeholder Group (SMSG) in its advice published September 14, 2020;

(3) general trends in FCA regulatory oversight regarding LIBOR, performance reporting, disclosure, and liquidity management for open-ended funds, as published in the FCA's 2019/2020 Annual Report;

and (4) broad or structural regulatory changes to the EU investment management model, as outlined in ESMA's AIFMD Letter published August 19, 2020.

ESMA's AIFMD Letter recommends changes in the manner in which EU-based AIFs and UCITS funds are managed, with recommendations for increased portfolio management substance within the EU and enhanced restrictions on delegation and the use of group company secondment arrangements.

The European Commission issued a related consultation in October 2020.

ESMA's AIFMD Letter and this consultation will likely result in a formal rule making proposal.

The potential drafting and adoption of a European Commission rule proposal based on the ESMA AIFMD Letter could have a material impact on Federated Hermes' current operating model, and non-U.S.

business, results of operations, financial condition and/or cash flows.

On October 12, 2019, the European Securities and Markets Authority (ESMA) published the final report on the draft regulatory technical standards (RTS) under Article 25 of the regulation on European long-term investment funds (ELTIF).

The new regulatory framework includes revised cost disclosure requirements applicable to packaged retail investment and insurance-based products (PRIIPs).

In March 2019, ESMA released a consultation paper on the draft RTS, mainly because of differences between cost disclosure requirements in the PRIIPs and under the UCITS Directive.

In the final report, ESMA indicated that it would postpone the finalization of the draft RTS until the new PRIIPs delegated acts have been published, and that upon finalization of the review of the PRIIPs Delegated Regulation 2017/653, it will assess the most appropriate way to finalize the draft ELTIF RTS and may carry out another round of consultations.

On September 30, 2019, the FCA's new requirement took effect requiring UK managers to undertake an annual assessment of whether funds under their advisement provide value.

Various factors are to be considered, including the fees the fund charges, performance, whether economies of scale are being obtained and passed on to investors, the quality of service provided to investors, etc.

Managers must make a public statement of the outcome of the value assessment.

Similarly, the Central Bank of Ireland (CBI) has also imposed a value assessment requirement for Irish UCITs funds.

The Fifth Anti-Money Laundering Regulations were implemented in the UK on January 10, 2020.

A key extension of the regulations is to the letting sector of the real estate industry.

The regulations will require additional due diligence to be

undertaken on tenants going forward.

There are also new additional high-risk factors to consider when assessing the need for enhanced due diligence.

Firms must understand the ownership and control structure of their corporate customers, and record any difficulties encountered in identifying beneficial ownership.

Furthermore, there is a new requirement for firms to report to the UK Companies House discrepancies between the information the firm holds on its customers compared with the information held in the Companies House Register.

Investment management industry participants, including Federated, continued, and will continue, to monitor, plan for and implement certain changes in response to new proposed or adopted rules, such as the following (which Federated previously described in greater detail in its prior public filings):

On October 6, 2019, the FCA rules on improving shareholder engagement in connection with the Shareholder Rights Directive II became effective.

The FCA previously issued a Policy Statement, final rules and a consultation paper on the Shareholder Rights Directive II on May 31, 2019.

The final rules and guidance apply to regulated life insurers, asset managers and companies with shares admitted to trading on a regulated market.

The Policy Statement confirmed that firms, such as asset managers, had to implement an engagement policy, and make certain disclosures regarding their engagement policy and investment strategies (or explain why they have not done so), by June 10, 2019.

The engagement policy is required to cover how firms integrate shareholder engagement in their investment strategies, how they monitor investee companies on strategy, financial and non-financial performance, capital structure and social impact, environmental impact and corporate governance, how they conduct dialogue and exercise voting, cooperate with other shareholders, communicate with other stakeholders and manage conflicts of interest.

In addition to engagement policy implementation, the detailed rules require firms to send details of portfolio composition, turnover and turnover costs to certain clients.

Firms that are required to make annual disclosures must do so for the first full period after the rules come into effect.

For Federated's non-U.S.

operations (excluding Hermes) Federated elected to disclose support for the Shareholder Rights Directive II but not adopt a new set of engagement policies.

Hermes also supports the Shareholder Rights Directive II and previously published its engagement policies.

On September 20, 2019, the FCA issued a policy statement on illiquid assets and open-end funds, which sets forth new rules and guidance applicable to non-UCITS retail schemes (NURS), but not other types of funds (including UCITS).

Under the policy statement, NURS holding property and other immovables will be required to suspend dealing when there is material uncertainty about valuation of at least 20% of a fund's property.

Authorized fund managers will be allowed to continue to deal where they agree with the NURS' depositary that doing so is in the best interests of investors.

Fund managers investing mainly in illiquid assets will also be required to produce contingency plans for dealing with liquidity risks.

A fund will also be required to include additional disclosure in its prospectus describing the fund's liquidity risk management strategies, including the tools that will be used and the possible impact on investors.

A standard risk warning also will be required in financial promotions to retail investors.

Compliance with the policy statement is required by September 30, 2020.

On September 2, 2019, ESMA published guidelines on liquidity stress testing in UCITS funds and alternative investment funds (AIFs), with the objectives of increasing the standardization, consistency and frequency of liquidity stress testing currently being undertaken and promoting the convergent supervision of liquidity stress testing by each National Competent Authority (NCA).

The guidelines recommend that, when designing liquidity stress testing models, fund managers should determine the risk factors that may impact a fund's liquidity, the types of scenarios to utilize and their severity, the indicators to be monitored based on the liquidity stress testing results, the manner in which liquidity stress testing results will be reported to management, and how the results will be utilized.

The guidelines further recommend that fund managers should have a strong understanding of the liquidity risks arising from a fund's assets and liabilities and a fund's overall liquidity profile to enable the fund manager to implement appropriate liquidity stress testing for the fund.

The guidelines apply beginning on September 30, 2020.

The ESMA guidelines followed an August 7, 2019 letter from the CBI in which it reminded the investment industry that responsibility for liquidity risk management, which includes compliance with all legal and regulatory obligations in respect of liquidity of each fund under management, rests with the boards of fund companies, individual directors and relevant designated persons.

In September 2019, the FCA also informed asset managers that it wants all open-end funds to adhere to new liquidity rules as soon as possible.

With the increased focus on liquidity, Federated has begun enhancing its formal liquidity procedures for its investment products.

On July 19, 2019, ESMA published a Final Report on Guidelines on stress test scenarios under the EU Money Market Fund Regulation (MMF Regulation) and a Final Report on reporting to competent authorities under Article 37 of the MMF Regulation, which are aimed at ensuring a coherent application of the MMF Regulation.

As required by Article 28 of the MMF Regulation, the Guidelines on stress testing establish common reference parameters of the stress test scenarios money market funds or managers of money market funds should include in their stress testing scenarios.

As required by Article 37 of the MMF Regulation, the Guidelines on reporting provide guidance on how to fill in the reporting template on

money market funds that their managers will transmit to competent authorities as of the first quarter of 2020.

Federated continues to analyze the new Guidelines and the requirements for compliance.

A European FTT also continues to be discussed although it remains unclear when an agreement will be reached regarding its adoption.

Since the European Commission first proposed a European FTT in 2011, proponents of the FTT have sought the widest possible application of the FTT with low tax rates.

Federated Hermes continues to evaluate ESMA's recommendations and the potential impact.

In addition, EU regulators have previously issued or proposed directives, rules and laws regarding sustainable finance.

For example, the European Parliament passed on November 27, 2019 the Sustainability-Related Disclosures Regulation or Sustainable Finance Disclosure Regulation, which requires certain website, prospectus and annual report disclosures and implements a product classification system.

The European Parliament and Council of the EU on December 18, 2019 agreed upon the Taxonomy Regulation, which is aimed at establishing a framework to facilitate sustainable investment, including when Member States establish measures (e.g., labels or standards) setting requirements regarding financial products or corporate bonds presented as "environmentally sustainable." The Taxonomy Regulation will need to be complied with beginning December 31, 2021.

Building on those directives, rules and laws, on December 16, 2020, the Luxembourg financial services regulator announced the implementation of a fast-track approval system for updating funds' prospectuses to incorporate sustainability disclosures, which is among the general principles of the EU's SFDR that come into effect March 10, 2021.

SFDR level 2 RTS will not be implemented on March 10, 2021 as originally intended but will be applicable "at a later stage"

according to the European Commission.

Industry observers have stated that the RTS will likely be implemented closer to January 1, 2022, which is the date that the Taxonomy Regulation goes into effect.

On December 3, 2020, three Commission Delegated Regulations Supplementing the Benchmarks Regulation (BMR) on sustainable financial issues were published in the EU Official Journal and became effective on December 23, 2020.

These supplemental regulations set out (1) sustainability criteria in order for a benchmark to qualify as an EU Climate Transition Benchmark or EU Paris-aligned Benchmark, and (2) ESG requirements for benchmarks provided in accordance with the BMR.

On November 23, 2020, Richard Monks, FCA Director of Strategy, delivered a speech on sustainable investments in which he discussed a number of initiatives intended to address identified concerns, including domestic and international work on issuers' disclosures and ongoing work on implementation of EU regulations.

On November 12, 2020, UK Finance published a white paper on sustainable finance.

The white paper sets out a principles-based framework for the measurement and reporting of multi-year commitments to sustainable finance and gives greater definition to ESG reporting.

On November 5, 2020 ESMA published a consultation setting out draft advice to the European Commission on Article 8 of the Taxonomy Regulation specifying the content, methodology and presentation of the key performance indicators for sustainable activities that non-financial undertakings and asset managers are required to disclose.

The consultation period ended on December 4, 2020.

In addition to the above Regulatory Developments, the FCA, CBI and other global regulators, continue to monitor by examining various reports, financial statements and annual reports and conducting regular review meetings and on-site inspections.

They also continue to take enforcement action when determined necessary.

Examples of recent reviews include reviews regarding closet index fund managers, CP86 compliance, fitness and probity, best execution, client asset arrangements, and operational resilience.

It has been reported that FCA enforcement priorities for 2021 will include financial crime, market abuse, non-financial misconduct and alternative investment managers.

Federated Hermes continues to analyze the potential impact of these Regulatory Developments on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Please refer to our prior public filings for more detailed discussions of these, and other, previously proposed and final rules and guidance.

An EU FTT also continues to be discussed although it remains unclear if or when an agreement will be reached regarding its adoption.

Since the European Commission first proposed an EU FTT in 2011, proponents of the FTT have sought the widest possible application of the FTT with low tax rates.

In December 2019, Germany proposed a draft directive that would impose a 0.2% tax on purchases of shares of large companies worth more than €1 billion, which would cover over 500 companies.

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Under the German proposal, the five countries with the highest incomes would share a small part of their revenues with the other countries, so that each participating country would receive at least €20 million of FTT revenue.

No formal action was taken as of December 31, 2019.

The weakening economy in Europe may increase this risk.

The exact time needed to reach a final agreement on a FTT, implement any agreement and enact legislation is not known at this time.

Brexit also could delay agreement on, and implementation of, the FTT in the EU or UK.

The Labour Party in the UK has also separately proposed a UK FTT, but with the uncertainty surrounding the impact of Brexit, it is unclear whether a UK FTT will be advanced in 2020.

The FCA has issued its final guidance on extending the Senior Managers and Certification Regime (SMCR) to insurers and all other firms offering financial services in the UK, intended to increase accountability for senior personnel and key staff.

The FCA designates certain "senior management functions" and "certification functions." Under the SMCR, personnel conducting senior management functions (called Senior Managers) will need to be approved by the FCA and, those approved will be listed in a Financial Services Register.

Personnel that do not perform senior management functions but whose role could cause significant harm to customers or the firm are considered to perform certification functions (called Certification Staff).

As such, firms are required to certify that such personnel are fit and proper to perform their roles.

Both Senior Managers and Certification Staff were required to be identified and trained by December 9, 2019.

Firms will have an additional twelve months to complete the certification process for Certification Staff.

All staff (other than ancillary staff) will be subject to certain conduct rules set forth by the FCA.

The activities of the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) also continue to be monitored by the investment management industry, including Federated.

Building on consultations and other reports published from 2015 through 2019 regarding methodologies for identifying non-bank non-insurer global systemically important financial institutions, recommendations to address structural vulnerabilities from asset management activities, and liquidity risk management, the FSB and IOSCO continued, and will continue, to assess, recommend and implement regulatory reforms affecting money market funds, liquidity risk management, derivatives, leverage, and other aspects of the investment management industry.

For example, in its Annual Report on the Implementation and Effects of the G20 Financial Regulatory Reforms published on October 16, 2019, the FSB indicates that, to strengthen the monitoring of non-bank financial institutions, the FSB is assessing data availability and making improvements to its annual monitoring exercise and will launch a thematic peer review in 2020 to assess progress in implementing its policy framework.

Among other recommendations, the report specifically recommends that financial stability authorities should continue to contribute to the FSB's monitoring of emerging risks and stand ready to act if such risks materialize.

In its December 13, 2019 report on "Recommendations for a Framework Assessing Leverage in Investment Funds", IOSCO unveiled a two-step framework designed to facilitate monitoring of leverage in investment funds that could potentially pose risks to financial stability.

The framework is aimed at achieving a meaningful and consistent assessment of leverage-related risks of a fund or group of funds.

The recommendations also aim to achieve a balance between precise leverage measures and simple, robust metrics that regulators can apply consistently to the wide range of funds offered in different jurisdictions.

For Step 1, IOSCO recommends that regulators use Gross Notional Exposure (GNE) or adjusted GNE as baseline analytical tools.

For Step 2, IOSCO recommends that each regulator determine its approach to define appropriate risk-based measures for analyzing funds identified under Step 1 that may potentially pose significant leverage-related risks to the financial system.

Global securities regulators are urging the adoption of new risk free reference rates as alternatives to LIBOR.

Separate working groups have been formed in the UK, the U.S., the EU, Japan and Switzerland to recommend an alternative to LIBOR for their respective markets.

The FCA and the Bank of England (BoE) Prudential Regulation Authority continue efforts started in September 2018 regarding the transition from LIBOR to the Sterling Overnight Index Average (SONIA) by the end of 2021.

The BoE continues to encourage firms to consider their actions and preparations in managing the transition from LIBOR to alternative interest rate benchmarks, and to seek assurances that firms' senior managers and boards understand the risks associated with this transition.

In early June 2019, representatives of the BoE and FCA told banks that it is "last orders" for LIBOR and that banks must stop adding to their post-2021 LIBOR exposures.

On January 16, 2020, the BoE, FCA and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) published a series of documents outlining priorities and milestones for 2020 with respect to the LIBOR transition.

The priorities include (1) ceasing issuance of cash products linked to

sterling LIBOR by the end of the third quarter of 2020, (2) throughout 2020, taking steps that demonstrate that compounded SONIA is easily accessible and usable, (3) taking steps to enable a further shift of volumes from LIBOR to SONIA in derivative markets, (4) establishing a framework for the transition of legacy LIBOR products, in order to significantly reduce the stock of LIBOR referencing contracts by the first quarter of 2021;

and (5) considering how best to address issues such as "tough legacy" contracts.

Germany expressed a commitment to introducing an FTT at the EU-level and had Presidency of the EU Council from July 1, 2020 to December 31, 2020.

It also has been reported that European Parliament and the EU Council entered into an agreement regarding the EU budget on November 10, 2020 that confirmed it could be possible to proceed with an EU FTT.

Germany's Presidency of the EU Counsel ended on December 31, 2020, however, with no formal action having been taken on the EU FTT.

An EU FTT does not appear to be a priority for Portugal's six-month Presidency of the EU Council, which began on January 1, 2021.

It has been reported that the key sticking point currently among participating Member States regarding an EU FTT on securities transactions is the mechanism and formula used to distribute the funds raised between the Member States.

As attention turns to a post-Covid-19 economy and as the EU looks to fund their budgets and the Covid-19-related measures it has adopted, an EU FTT on securities transactions, or even bank account transactions, remains a potential additional source of revenue.

The exact time needed to reach a final agreement on an EU FTT, implement any agreement and enact legislation is not known at this time.

Certain individual EU Member States, such as Italy, France and Spain, have implemented FTTs at the Member State-level, with Spain's 0.2% FTT on certain securities transactions, effective on January 16, 2021, being the latest.

The weakening economy in Europe can increase the risk that additional jurisdictions propose to implement FTTs.

The Labour Party in the UK has also separately proposed a UK FTT, but it was not advanced in 2020.

Covid-19 also could delay agreement on, and the implementation of, an FTT in the EU, UK or other European countries.

Notwithstanding the impact of Covid-19, global securities regulators are urging the adoption of new risk free reference rates as alternatives to LIBOR.

Separate working groups have been formed in the UK, the U.S., the EU, and other jurisdictions (e.g., Japan and Switzerland) to recommend an alternative to LIBOR for their respective markets.

The FCA, the BoE and the Prudential Regulation Authority continue efforts started in September 2018 regarding the transition from LIBOR to the Sterling Overnight Index Average (SONIA) by the end of 2021.

On November 30, 2020, Intercontinental Exchange, Inc.

(ICE) announced that the ICE Benchmark Administration Limited (IBA), a wholly-owned subsidiary of ICE and the administrator of LIBOR, will consult in early December 2020 on its intention to (1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021, and (2) cease the publication of all other tenors of USD LIBOR after June 30, 2023.

This follows the announcement on November 18, 2020, that the IBA would consult on its intention to cease the publication of all

tenors of GBP, EUR, CHF and JPY LIBOR after December 31, 2021.

On December 4, 2020, IBA published its consultation on its intention to cease the publication of LIBOR settings.

The consultation period closed on January 25, 2021.

It has been reported that IBA intends to share the results of the consultation with the FCA and to publish a feedback statement summarizing responses from the consultation shortly thereafter.

The consultation is not an announcement that IBA will cease or continue the provision of any LIBOR settings after December 31, 2021 or June 30, 2023.

The deadline for transitioning away from USD LIBOR has been extended to June 30, 2023.

IBA has noted that any publication of the overnight and 1, 3, 6 and 12 month USD LIBOR settings based on panel bank submissions beyond December 31, 2021 will need to comply with applicable regulations, including as to representativeness, and that, based on current information from panel banks, IBA anticipates there being a representative panel for the continuation of these USD LIBOR settings through June 30, 2023.

The Working Group on Sterling Risk-Free Reference Rates (RFRWG), FCA and BoE also will continue to assess the evolving impact of Covid-19 on firms' LIBOR transition efforts and provide further updates in due course.

Regulators in the U.S.

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The SOFR was selected as the preferred LIBOR replacement in the U.S.

by the Alternative Reference Rates Committee at the Federal Reserve Bank of New York.

In early June 2019, a representative of the Federal Reserve Bank of New York urged the finance industry to ramp up preparations for the end of LIBOR and take the warnings seriously.

On July 12, 2019, the SEC issued a "Staff Statement on LIBOR Transition" in which the SEC staff indicated that the expected discontinuation of LIBOR could have a significant impact on the financial markets and may present a material risk for certain market participants, including public companies, investment advisers, investment companies and broker dealers.

The SEC staff further noted that the risks associated with the discontinuation and transition will be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner, and reported that the staff is actively monitoring the extent to which market participants are identifying and addressing these risks.

IOSCO previously published on July 31, 2019 a statement endorsing risk free reference rates as a robust alternative to LIBOR that can be used in the majority of products, and urged transitioning to risk free reference rates "now." On December 18, 2019, the FSB published its "Annual Progress Report on Implementation of Recommendations to Reform Major Interest Rate Benchmarks" in which the FSB emphasized that the continued reliance of global financial markets on LIBOR poses risks to financial stability.

In the report, the FSB calls for significant and sustained efforts by regulators and by financial and non-financial firms across many jurisdictions to transition away from LIBOR by the end of 2021.

The phase-out of LIBOR may cause the renegotiation or re-pricing of certain credit facilities, derivatives or other financial transactions to which investment management industry participants, including Federated and its products, customers or service providers, are parties, alter the accounting treatment of certain instruments or transactions, or have other unintended consequences, which, among other effects, could require additional internal and external resources, and may increase operating expenses.

Federated continues to assess the impact that the transition from LIBOR will have on Federated and Federated's products and strategies, customers and service providers.

Management believes that a UK FTT or EU FTT, particularly if enacted with broad application, would be detrimental to Federated's business and could adversely affect, potentially in a material way, Federated's business, results of operations, financial condition and/or cash flows.

Management continues to monitor and evaluate the impact of regulatory reforms on Federated's business, results of operations, financial condition and/or cash flows.

Regulatory reforms stemming from Brexit or FCA, FSB, IOSCO or other initiatives or Regulatory Developments, as well as the potential political and economic uncertainty surrounding Brexit, also may adversely affect, potentially in a material way, Federated's business, results of operations, financial condition and/or cash flows.

Similar to its efforts in the U.S., Federated has dedicated, and continues to dedicate, significant internal and external resources to analyze and address European reforms that impact Federated's investment management and stewardship business.

European Regulatory Developments, and Federated's efforts relating thereto, have had, and may continue to have, an impact on Federated's expenses and, in turn, financial performance.

As of December 31, 2019, Federated is unable to conclusively assess the potential impact that a FTT or other regulatory reforms or initiatives may have on its business, results of operations, financial condition and/or cash flows.

Federated also is unable to conclusively assess at this time whether, or the degree to which, Federated, any of its investment management subsidiaries or any of the Federated Funds, including money market funds, or any of its other products, could ultimately be determined to be a non-bank, non-insurance company global systemically important financial institution.

The Hermes Acquisition increased the potential impact that the above matters may have on Federated's business, results of operations, financial condition and/or cash flows.

At December 31, 2019 , Federated employed 1,826 persons.

by the Alternative Reference Rates Committee (ARRC) at the Federal Reserve Bank of New York.

Despite the extension of the USD LIBOR transition deadline to June 30, 2023, U.S.

regulators continue to urge financial institutions to stop entering into new LIBOR transactions by the end of 2021.

The Governors have indicated that "[n]ew contracts entered into before December 31, 2021 should either utilize a reference rate other than LIBOR or have robust fallback language that includes a clearly defined alternative reference rate after LIBOR's discontinuation." On October 23, 2020, the International Swaps and Derivatives Association (ISDA) published its ISDA 2020 IBOR Fallbacks Protocol, which enables parties to protocol covered documents to amend the terms of each such protocol covered document to (1) regarding a protocol covered document which incorporates, or references, a rate as defined in a Covered ISDA Definitions Booklet, include in the terms of such protocol covered document either the terms of, or a particular defined term included in, the Supplement to the 2006 ISDA Definitions, and (2) in respect of a protocol covered document which otherwise references a relevant interbank lending rate (IBOR), include in the terms of such protocol covered document new fallbacks for that relevant IBOR.

This protocol was effective January 25, 2021.

The phase-out of LIBOR can cause the renegotiation or re-pricing of certain credit facilities, derivatives or other financial transactions to which investment management industry participants, including Federated Hermes and its products, customers or service providers, are parties, alter the accounting treatment of certain instruments or transactions, or have other unintended consequences, which, among other effects, could require additional internal and external resources, and can increase operating expenses.

Federated Hermes continues to assess the impact that the transition from LIBOR will have on Federated Hermes and Federated Hermes' products and strategies, customers and service providers.

While Brexit has not had a significant impact on Federated Hermes' business as of December 31 , 2020, given the post-Brexit regulatory environment and potential impact of Covid-19, Federated Hermes remains unable to fully assess the degree that any potential Brexit impact and resulting changes could have on Federated Hermes' business, results of operations, financial condition and/or cash flows.

The HFML Acquisition, the HCL Acquisition and HFML's acquisition of MEPC Limited effective as of January 1, 2020 (MEPC Acquisition), each increased the potential Brexit impact to Federated Hermes.

Management also believes that a UK FTT or EU FTT, particularly if enacted with broad application, would be detrimental to Federated Hermes' business and could adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

Management continues to monitor and evaluate the impact of Regulatory Developments (including potential new money market fund reforms) on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Regulatory changes stemming from Brexit, money market fund reform, a EU or UK FTT, or FCA, FSB, CBI, ESMA, IOSCO or other initiatives or Regulatory Developments, as well as the potential political and economic uncertainty surrounding Brexit and Covid-19, also can adversely affect, potentially in a material way, Federated Hermes' business, results of operations, financial condition and/or cash flows.

Similar to its efforts in the U.S., Federated Hermes has dedicated, and continues to dedicate, significant internal and external resources to analyze and address European reforms that impact Federated Hermes' investment management and stewardship business.

European Regulatory Developments, and Federated Hermes' efforts relating thereto, have had, and can continue to have, an impact on Federated Hermes' expenses and, in turn, financial performance.

As of December 31 , 2020, Federated Hermes is unable to conclusively assess the potential impact that an FTT or other Regulatory Developments can have on its business, results of operations, financial condition and/or cash flows.

Federated Hermes also is unable to conclusively assess at this time whether, or the degree to which, Federated Hermes, any of its investment management subsidiaries or any of the Federated

Hermes Funds, including money market funds, or any of its other products, could ultimately be determined to be a non-bank, non-insurance company global systemically important financial institution.

The HFML Acquisition, HCL Acquisition and MEPC Acquisition each increased the potential impact that the above matters can have on Federated Hermes' business, results of operations, financial condition and/or cash flows.

Human Capital Resource Management

At December 31, 2020, Federated Hermes had 1,986 employees, with 1,227 employees in Pittsburgh, Pennsylvania and surrounding areas, 499 employees in London, England, 60 employees in New York, New York, 28 employees in Boston, Massachusetts, 139 employees in other U.S.

locations and 33 employees in other locations outside the U.S.

The investment management business is highly competitive and experienced professionals have significant career mobility.

Like other companies, Federated Hermes experiences employee turnover which is tracked at various levels within the company and conducts exit interviews with departing employees.

Federated Hermes' ability to attract, retain and properly motivate highly qualified professionals across the company is a critical factor in maintaining its competitive position within the investment management industry and ensuring Federated Hermes the opportunity for future success.

Federated Hermes' compensation programs across the company are designed to attract, retain and incentivize talented and qualified individuals.

Federated Hermes endeavors to reward individual contribution, as demonstrated by the delivery of long-term sustainable results.

Federated Hermes' compensation programs are also designed to align the interests of its officers and employees with its business strategy, values and objectives, including the interests of its clients, shareholders and stakeholders, while affording the business the opportunity to grow.

For employees managed out of the U.S., Federated Hermes' compensation programs are comprised of competitive levels of cash compensation together with equity and other components for certain positions.

Compensation is structured in the form of salary, which is competitively evaluated annually;

and, where appropriate, long term incentives.

For employees managed out of the UK, compensation is based on fixed and variable compensation.

Fixed compensation can include base salary, a retirement plan and other corporate benefits, and is designed to provide competitive fixed compensation at a level that reflects market-compensation.

Variable compensation is discretionary based on, among other factors, an employee's performance and behavior, as well as team and overall company performance.

Across Federated Hermes, the mix of overall salary, bonus and long-term incentives varies by division, position and employee.

Across Federated Hermes, national and industry-specific compensation surveys are utilized to monitor competitive pay levels.

Compensation across the company is generally administered in four employee categories:

Sales, Investment Management, Administration and Executive.

The employee category and seniority of position generally drives the mix of fixed versus variable compensation, bonus structure/opportunity and long-term incentive structure/opportunity.

Across the company (unless otherwise noted below):

• The pay mix for Sales employees is more heavily weighted in variable compensation based on quantitative and qualitative sales metrics.

Depending upon the position, U.S.

Sales employees are also eligible to receive cash-based long-term incentive awards annually which generally vest after three years, and, for certain levels of Sales employees, annual bonus restricted stock awards and periodic restricted stock awards.

• The pay mix for Investment Management employees is more heavily weighted in variable compensation in the form of discretionary bonuses and, among other factors deemed relevant, takes into account investment product performance from one- through five-year periods.

For employees managed out of the U.S., all or a portion of any annual performance bonus can be paid in cash or a combination of cash and annual bonus restricted stock.

Investment Management employees are also eligible for periodic restricted stock awards.

• Administrative employees have a pay mix more heavily weighted in fixed pay and are eligible for annual discretionary cash bonuses.

management employees are eligible for periodic restricted stock awards and senior management employees are also eligible for annual bonus restricted stock awards.

• The components of Federated Hermes' executive compensation programs are designed to be competitive within the investment management industry.

Federated Hermes' executive compensation programs are designed to reward outcomes related to a variety of factors including Federated Hermes' financial, investment, sales and customer service performance as measured against other similar companies within the investment management industry.

Please refer to the Compensation

Discussion and Analysis section of Federated Hermes' Information Statement for additional information regarding executive compensation.

Federated Hermes' Stock Incentive Plan is designed to support its retention and attraction objectives.

Under this program, executive officers and certain employees in the U.S.

are eligible to receive periodic restricted stock awards that vest over a ten-year period.

The restrictions on the vested portion of an award typically lapse on the award's fifth- and tenth-year anniversaries.

Additionally, for certain groups of U.S.

employees, a portion of their bonus awards are paid in the form of annual bonus restricted stock with a three-year ratable vesting schedule with restrictions lapsing on each vesting date.

For all employees managed out of the UK, discretionary bonus awards above a certain threshold are subject to deferral.

Under the deferred bonus scheme, a portion of the bonus is deferred, notionally tracks the performance of certain Federated Hermes Funds and vests over three years.

Employees can also receive awards under a long-term incentive plan (LTIP) that offers certain employees the chance to acquire beneficial ownership of ordinary shares in HFML.

These shares normally vest over a five-year period.

The Private Equity and Infrastructure businesses of Federated Hermes also operate carried interest and share of performance fee programs typical to such asset classes.

For 2020, Federated Hermes' total compensation expense was $503.4 million and included salary, bonus and stock-based compensation expense.

Federated Hermes' benefit offerings across the company are designed to equip Federated Hermes employees with resources and services to help them stay healthy, develop their careers, meet their financial goals, and balance the demands of work and personal life, as well as to further employee engagement and retention.

Along with the traditional health and welfare benefits, such as medical, dental, disability, paid time off and retirement, the company also offers flexible work arrangements, education assistance, paid parental leave, paid volunteer time, employee discounts and other programs and services.

Federated Hermes provides a professional work environment for employees across the company that supports employees' career aspirations and professional development interests through training programs and mentoring initiatives.

Training is provided on the job and by Federated Hermes' training staff through a blend of internal/external classroom and online courses.

Federated Hermes' extensive training curriculums focus on Technical, Professional, Leadership & Management, and includes, among others, courses on:

the securities markets and Federated Hermes' products;

compliance/regulatory requirements;

license exam preparation;

sales skills;

customer service skills;

dignity and respect in the workplace, individual and team performance;

communication skills;

technical (systems) topics;

and general professional development.

The attraction, training and retention of qualified employees across the company supports Federated Hermes' succession planning at all levels.

Federated Hermes has developed a diversity and inclusion strategy with the mission to foster a diverse, inclusive and respectful workplace where employees across the company are encouraged to be innovative and creative and where unique perspectives and experiences are recognized and appreciated for the contributions they bring to the company.

Federated Hermes cultivates an appreciation of the benefits of diversity in the workplace across the company through its recruitment process, the onboarding of new employees, and ongoing employee education and programs.

The company's diversity and inclusion initiatives are sponsored and endorsed by the Board and executive management, and advanced, in collaboration with management and employees at all levels, by the various teams and employee resource business groups across the company including Human Resources and, in the U.S., a dedicated Diversity Officer/Senior Talent Acquisition Manager and, in London, a dedicated Head of Inclusion.

Federated Hermes is committed to providing equal employment opportunities across the company to qualified individuals without regard to:

race, color, national origin, religion, sex, pregnancy, sexual orientation, gender identity or expression, mental or physical disability, age, familial or marital status, ancestry, military status, veteran status, or genetic information, as well as any other prohibited criteria under law applicable to Federated Hermes.

Federated Hermes recognizes that a diverse and inclusive workplace benefits employees and supports stronger long-term business performance.

Federated Hermes encourages its employees across the company to raise human resources questions or concerns with their managers or the Human Resources Department in the U.S.

Separately, the company also provides a phone line and website portal through a third-party service provider for employees to report, anonymously should they so choose, various compliance matters.

Information about our Executive Officers

The following section sets forth certain information regarding the executive officers of Federated as of February 21, 2020 :

Christopher Donahue

President, Chief Executive Officer, Chairman and Director of Federated Hermes, Inc.

Vice Chairman of Federated Hermes, Inc.

and President of Federated International Management Limited and Federated International Securities Corp.

Vice President, Treasurer, Chief Financial Officer and Director of Federated Hermes, Inc.

The following section sets forth certain information regarding the executive officers of Federated Hermes as of February 26, 2021:

Name Position Age

Christopher Donahue President, Chief Executive Officer, Chairman and Director of Federated Hermes, Inc.

Ceresino Vice Chairman of Federated Hermes, Inc.

and President of Federated International Management Limited and Chairman and President of Federated International Securities Corp.

Donahue Vice President, Treasurer, Chief Financial Officer and Director of Federated Hermes, Inc.

and President of FII Holdings, Inc.

Vice President and Director of Federated Hermes, Inc.

Dudiak Vice President, and Director, Human Resources of Federated Hermes, Inc.

Fisher Vice President and Director of Federated Hermes, Inc.

and President and Chief Executive Officer of Federated Advisory Companies* 64

Executive Vice President, Chief Legal Officer, General Counsel and Secretary of Federated Hermes, Inc.

Vice President, Assistant Treasurer and Principal Accounting Officer of Federated Hermes, Inc.

Chief Executive Officer, Hermes Fund Managers Limited

Vice President of Federated Hermes, Inc.

Germain Executive Vice President, Chief Legal Officer, General Counsel and Secretary of Federated Hermes, Inc.

Novak Vice President, Assistant Treasurer and Principal Accounting Officer of Federated Hermes, Inc.

Nusseibeh Chief Executive Officer, Hermes Fund Managers Limited 59

Uhlman Vice President of Federated Hermes, Inc.

and President of Federated Securities Corp.

Vice President and Chief Compliance Officer of Federated Hermes, Inc.

Van Meter Vice President and Chief Compliance Officer of Federated Hermes, Inc.

* Federated Advisory Companies include the following:

Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company and Federated MDTA LLC, each wholly owned by Federated.

Christopher Donahue has served as director, President and Chief Executive Officer of Federated since 1998 and was elected as Chairman effective April 2016.

He also serves as a director, trustee or officer of various Federated subsidiaries.

He is President of 29 investment companies managed by subsidiaries of Federated.

He is also director or trustee of 32 investment companies managed by subsidiaries of Federated.

Christopher Donahue has served as director, President and Chief Executive Officer of Federated Hermes since 1998 and was elected as Chairman effective April 2016.

He also serves as a director, trustee or officer of various Federated Hermes subsidiaries.

He is President of 29 investment companies managed by subsidiaries of Federated Hermes.

He is also director or trustee of 32 investment companies managed by subsidiaries of Federated Hermes.

Donahue is the brother of Thomas R.

Donahue who serves as Vice President, Treasurer, Chief Financial Officer and director of Federated.

Ceresino has served as Vice Chairman of Federated since 2007.

He is President of Federated International Management Limited and Federated International Securities Corp.

and Vice Chairman of Federated MDTA LLC, each of which are wholly owned subsidiaries of Federated.

Donahue who serves as Vice President, Treasurer, Chief Financial Officer and director of Federated Hermes.

Ceresino has served as Vice Chairman of Federated Hermes since 2007.

He is Chairman and President of Federated International Management Limited and Federated International Securities Corp.

and Vice Chairman of Federated MDTA LLC, each of which are wholly-owned subsidiaries of Federated Hermes.

He serves as a director of Hermes Fund Managers Limited.

Ceresino also serves as a director, trustee or President or Chief Executive Officer of certain other wholly owned subsidiaries of Federated involved in Federated's non-U.S.

Donahue has served as Vice President, Treasurer and Chief Financial Officer of Federated since 1998.

Ceresino also serves as a director, trustee, President or Chief Executive Officer of certain other wholly-owned subsidiaries of Federated Hermes focusing on Federated Hermes' non-U.S.

Donahue has served as Vice President, Treasurer and Chief Financial Officer of Federated Hermes since 1998.

He previously served as a member of the Board from May 1998 to April 2004 and was re-elected to the Board in April 2016.

He also serves as an Assistant Secretary of Federated and he is President of FII Holdings, Inc., a wholly owned subsidiary of Federated.

He also serves as an Assistant Secretary of Federated Hermes and is a director and President of FII Holdings, Inc., a wholly-owned subsidiary of Federated Hermes.

He serves as a director of Hermes Fund Managers Limited.

He also serves as a director, trustee or officer of various other Federated subsidiaries.

He is also a director or trustee of six investment companies managed by subsidiaries of Federated.

He also serves as a director, trustee or officer of various other Federated Hermes subsidiaries.

He is also a director or trustee of six investment companies managed by subsidiaries of Federated Hermes.

Donahue is the brother of J.

Christopher Donahue who serves as President, Chief Executive Officer, Chairman and director of Federated.

Fisher has served as Vice President of Federated since 1998.

Christopher Donahue who serves as President, Chief Executive Officer, Chairman and director of Federated Hermes.

Dudiak has served as Vice President of Federated Hermes, Inc.

since February 25, 2021.

She has served as Director, Human Resources since November 1997.

She also has served as an officer of various Federated Hermes, Inc.

subsidiaries since 1994, holding the title Senior Vice President since July 2002.

In these capacities, she is responsible for the Human Resources Department at Federated Hermes, Inc., including Total Compensation Management, Employment Services/Employee Relations, Organization Development, and Human Resources Information Management, as well as the company's response to Covid-19.

Fisher has served as Vice President of Federated Hermes since 1998.

He previously served as a member of the Board from May 1998 to April 2004 and was re-elected to the Board in April 2016.

He has also been President and Chief Executive Officer of Federated Advisory Companies since 2006 and serves as a board member for each of these subsidiaries that are wholly owned by Federated.

He has also been President and Chief Executive Officer of Federated Advisory Companies since 2006 and serves as a board member for each of these wholly-owned subsidiaries of Federated Hermes.

He serves as a director of Hermes Fund Managers Limited.

He also serves as a director, trustee or officer of certain other Federated subsidiaries.

He is President of three investment companies managed by subsidiaries of Federated.

He is also director or trustee of 26 investment companies managed by subsidiaries of Federated.

He also serves as a director, trustee or officer of certain other Federated Hermes subsidiaries.

He is President of three investment companies managed by subsidiaries of Federated Hermes.

He is also director or trustee of 26 investment companies managed by subsidiaries of Federated Hermes.

Prior to 2006, Mr.

Fisher served as President of the Institutional Sales Division of Federated Securities Corp., a wholly owned subsidiary of Federated.

Germain has served as Executive Vice President, Chief Legal Officer and Secretary of Federated since October 2017, and as General Counsel and Vice President of Federated since January 2005.

In his capacity as Chief Legal Officer, he oversees the delivery of legal, compliance, internal audit and risk management services to Federated and its affiliates.

serves as a director, trustee or officer of various Federated subsidiaries.

Germain also serves as Chief Legal Officer, Executive Vice President and Secretary of 32 investment companies managed by subsidiaries of Federated.

Novak has served as Vice President, Assistant Treasurer and Principal Accounting Officer of Federated since 2013.

Prior to that time, he served as Fund Treasurer of Federated's domestic mutual funds beginning in 2006 and served as the Controller of Federated from 1997 through 2005.

He also serves as Senior Vice President, Treasurer, Assistant Treasurer, Assistant Company Secretary, President or director for various other subsidiaries of Federated.

Fisher served as President of the Institutional Sales Division of Federated Securities Corp., a wholly-owned subsidiary of Federated Hermes.

Germain has served as Executive Vice President, Chief Legal Officer and Secretary of Federated Hermes since October 2017, and as General Counsel and Vice President of Federated Hermes since January 2005.

In his capacity as Chief Legal Officer, he oversees the delivery of legal, compliance, internal audit and risk management services to Federated Hermes and its affiliates.

He also serves as a director, trustee or officer of various Federated Hermes subsidiaries.

Germain also serves as Chief Legal Officer, Executive Vice President and Secretary of 32 investment companies managed by subsidiaries of Federated Hermes.

Novak has served as Vice President, Assistant Treasurer and Principal Accounting Officer of Federated Hermes since 2013.

Prior to that time, he served as Fund Treasurer of Federated Hermes' domestic mutual funds beginning in 2006 and served as the Controller of Federated Hermes from 1997 through 2005.

He serves as a director of Hermes Fund Managers Limited.

He also serves as Senior Vice President, Treasurer, Assistant Treasurer, Assistant Company Secretary, President or director for various subsidiaries of Federated Hermes.

Novak is a Certified Public Accountant.

Nusseibeh is Chief Executive Officer of Hermes, a majority-owned subsidiary of Federated beginning July 1, 2018.

He joined Hermes in 2009 and was appointed Chief Executive Officer in May 2012, having served as acting Chief Executive Officer since November 2011.

Nusseibeh is a director and Chief Executive Officer of Hermes Fund Managers Limited, a majority-owned subsidiary of Federated Hermes beginning July 1, 2018.

He joined Hermes Fund Managers Limited in 2009 and was appointed Chief Executive Officer in May 2012, having served as acting Chief Executive Officer since November 2011.

He formerly served as Global Head of Equities at Fortis Investments USA, having initially been appointed as Head of Global Equities in 2005.

He also serves as a director of Hermes and as a director or officer of certain subsidiaries of Hermes.

Uhlman has served as Vice President of Federated, and President and a director of Federated Securities Corp., a wholly owned subsidiary of Federated, since June 2016.

He is also a director, trustee or officer of certain subsidiaries of Federated.

As President of Federated Securities Corp., he is responsible for the marketing and sales efforts of Federated.

He also serves as a director of Hermes Fund Managers Limited and as a director or officer of certain subsidiaries of Hermes Fund Managers Limited .

Uhlman has served as Vice President of Federated Hermes, and President and a director of Federated Securities Corp., a wholly-owned subsidiary of Federated Hermes, since June 2016.

He is also a director, trustee or officer of certain subsidiaries of Federated Hermes.

As President of Federated Securities Corp., he is responsible for the marketing and sales efforts of Federated Hermes.

He had previously served as a Vice President of Federated Securities Corp.

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Uhlman also held the position of National Sales Director, Institutional Sales, from 2007 through June 2016.

Van Meter has served as Vice President and Chief Compliance Officer of Federated since July 2015.

Between October 2011 and July 2015, he served as Compliance Operating Officer at Federated.

Van Meter has served as Vice President and Chief Compliance Officer of Federated Hermes since July 2015.

Between October 2011 and July 2015, he served as Compliance Operating Officer at Federated Hermes.

Between October 2007 and October 2011, he served as Senior Counsel in the Division of Investment Management, Office of Chief Counsel, at the SEC.

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Available Information

Federated makes available, free of charge, on its website, www.FederatedHermes.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual information statements and amendments to those reports, including those filed or furnished pursuant to Section 13(a) or 15(d) of the 1934 Act, as soon as reasonably practicable after such information is electronically filed with or furnished to the SEC.

Federated Hermes makes available, free of charge, on its website, www.FederatedHermes.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual information statements and amendments to those reports, including those filed or furnished pursuant to Section 13(a) or 15(d) of the 1934 Act, as soon as reasonably practicable after such information is electronically filed with or furnished to the SEC.

Other Information

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business