Correspondence 0001623632-22-001533 from Federated Hermes Institutional Trust (CIK 0000925723)
Federated Hermes Institutional Trust (CIK 0000925723)
Date: Dec. 12, 2022 · CIK: 0000925723 · Accession: 0001623632-22-001533
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File numbers found in text: 811-7193
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FEDERATED HERMES INSTITUTIONAL TRUST
4000 Ericsson Drive
Warrendale, Pennsylvania 15086-7561
December 12, 2022
Emily Rowland
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, DC 20549-4720
RE:
FEDERATED HERMES INSTITUTIONAL TRUST (the “Registrant”)
Federated Hermes Institutional High Yield Bond Fund (the “Fund”)
Class A Shares
Class C Shares
1933 Act File No. 33-54445
1940 Act File No. 811-7193
Dear Ms. Rowland:
The Registrant is filing this correspondence
to respond to comments of the Staff of the Securities and Exchange Commission (the “Staff”) provided on November 28, 2022,
with respect to the Fund’s Post-Effective Amendment No. 112 to its registration statement on Form N-1A under the Securities Act
of 1933 and Amendment No. 113 under the Investment Company Act of 1940, as amended (the “1940 Act”) to the Registration Statement
of the above-referenced Registrant and Fund filed on October 13, 2022 (the “Registration Statement”). We believe that the
disclosure changes to the Registration Statement and supplemental responses discussed in this letter are fully responsive to the comments
and resolve the matters raised.
The Fund intends to file
an amended Registration Statement reflecting the responses herein and updated financial information.
General Comments
1. The Registrant is responsible for the accuracy and adequacy of its disclosure
notwithstanding review by the Staff.
2. The Registrant must file its responses on EDGAR no later than 5 business
days before the effective date of the Registration Statement. It is requested that the Registrant provide a courtesy notification to the
Staff upon EDGAR acceptance of the correspondence.
3. The Registrant’s response must include the marked disclosure changes
that the Registrant intends to make by either including specific pages of the Registration Statement with the correspondence or by clearly
indicating the revised disclosure in the correspondence.
4. Please note that where a comment is made in one section such comment should
be addressed in all other sections where it applies in the Registration Statement.
5. Please update the tickers for the Fund’s Class A Shares and Class
C Shares, when available, in the EDGAR system.
RESPONSE:
The Registrant will respond as requested.
COMMENT 1. Risk/Return Summary: Fees and Expenses
We note Footnote 1 to the Fund’s fee table
regarding estimated expenses. Supplementally, please explain the basis for estimating Other Expenses, which should be based on actual
fund expenses incurred in the prior year. Is there an expense component that is unique to the new Class A and Class C Shares?
RESPONSE:
The Registrant confirms that “Other Expenses”
for the new Class A and Class C Shares are estimated, based, in part, on the current fiscal year expense estimates for the Fund. These
estimates are further adjusted for any additional estimated expenses in connection with the operation of the new share classes, which
are primarily based on the Registrant’s projections regarding changes in asset levels related to the new share classes.
Therefore, since the “Other Expenses”
listed in the fee table are based on estimated amounts, the Registrant respectfully believes that the inclusion of the footnote as written
is accurate, appropriate and in accordance with Form N-1A requirements.
COMMENT 2. Risk/Return Summary: Fees and Expenses
- Example
Please delete the parenthetical in the following
sentence:
“The example also assumes that
your investment has a 5% return each year and that operating expenses (excluding any sales loads on reinvested dividends, fee waivers
and/or expense reimbursements) are as shown in the table above and remain the same.”
Please also delete the following sentence:
“The expenses used to calculate
the Fund’s examples do not include fee waivers or expenses reimbursements.”
The Staff believes these disclosures are not
required by Form N-1A.
RESPONSE:
The Registrant will revise the Example introduction
narrative as shown below to reflect the requested deletions and generally to more closely conform to the language in Form N-1A (deletions
stricken and additions bold and underlined):
“Example
This Example is intended to help you
compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest
$10,000 for the time periods indicated and then redeem all of your Shares at the end of those periods. Expenses assuming no redemption
are also shown. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating
expenses (excluding any sales loads on reinvested dividends, fee waivers and/or expense reimbursements) are as shown in the table
above and remain the same. The expenses used to calculate the Fund’s examples do not include fee waivers or expense
reimbursements.
The Example does not reflect
sales charges (loads) on reinvested dividends. If these sales charges (loads) were included, your costs would be higher.
Although your actual costs and returns
may be higher or lower, based on these assumptions your costs would be:”
COMMENT 3. Prospectus - Risk/Return Summary:
What are the Fund’s Main Investment Strategies?
In the following sentence in the third paragraph,
please consider replacing the word “investments” with the word “bonds” or otherwise providing comparable additional
clarity to the disclosure:
“The Fund will invest its assets
so that at least 80% of its net assets (plus any borrowings for investment purposes) are invested in investments rated below investment-grade.”
In the addition, in the following sentence, please
add the phrase “60 days” to the disclosure:
The Fund will notify shareholders
in advance of any change in its investment policy that would enable the Fund to invest, under normal circumstances, less than 80% of its
net assets (plus any borrowings for investment purposes) in investments rated below investment-grade.”
RESPONSE:
The Registrant proposes to make the following
changes (additions bold and underlined):
“The Fund will invest its assets so that at least 80% of
its net assets (plus any borrowings for investment purposes) are invested in investments rated below investment-grade. The Fund will notify
shareholders 60 days in advance of any change in its investment policy that would enable the Fund to invest, under normal
circumstances, less than 80% of its net assets in investments rated below investment-grade. For purposes of this limitation, investments
rated below investment-grade will normally be defined as high yield debt instruments (also known as “junk bonds”).”
COMMENT 4. Prospectus - Risk/Return Summary:
What are the Main Risks of Investing in the Fund?
Under “Interest Rate Risk”, the Staff
notes the following disclosure:
“Recent and potential future changes in
monetary policy made by central banks and/or their governments are likely to affect the level of interest rates.”
Please clarify what the recent and potential
future changes are, how those changes affect interest rates and consequently how that in turn affects the Fund.
RESPONSE:
In response to this comment, the Registrant has
expanded the statutory Interest Rate Risk factor in response to Comment 9 below to reflect these recent and potential changes in more
detail.
COMMENT 5. Prospectus - Performance: Bar Chart
and Table Introduction
In the following sentence, please delete the
phrase “It is anticipated that” so that it is a definitive statement:
“It is anticipated that the
expense ratios of the A and C classes will be higher than the expense ratio of the IS class; accordingly, the actual performance of the
A and C classes is anticipated to be lower than the performance of the IS class.”
RESPONSE:
The following revisions will be made (deletions stricken and additions
bold and underlined):
“It is anticipated that
The expense ratios of the A and C classes will be higher than the expense ratio of the IS class; accordingly, for
the periods prior to the commencement of operations, the actual performance of the A and C classes is
anticipated to be would have been lower than the performance of the IS class”.
COMMENT 6. Prospectus - Risk/Return Summary:
Average Annual Total Return Table
The Staff notes that the Fund compares its performance
to the Lipper High Yield Funds Average. Per Form N-1A requirements, please describe the Lipper High Yield Funds Average in greater detail
in footnote 2 to the Average Annual Total Return Table.
RESPONSE:
The Registrant will revise footnote 2 in its
entirety as follows:
“Lipper figures represent the
average of the total returns reported by all mutual funds designated by Lipper, Inc. with the primary objective of investing in domestic
or regionally focused bonds within the non-investment-grade credit classification (below BBB) and are not adjusted to reflect any sales
charges.”
COMMENT 7. Prospectus – What are the
Fund’s Investment Strategies? – General Comment
Please carry through any changes made in the
summary strategy in response to Comment 3 above and include them in the full investment strategy.
In addition, per Form N-1A, Item 9(a), please
indicate if the Fund’s investment objective can be changed without shareholder approval.
RESPONSE:
The Registrant will make aligning revisions in
the Fund’s 80% policy statement as provided in its response to Comment 3 above.
In addition, the Registrant confirms that the
Fund’s investment objective is fundamental and cannot be changed without shareholder approval. Form N-1A, Item 9(a) requires a statement
if a fund’s investment objective may be changed without shareholder approval. Accordingly, the Registrant respectfully
believes that its disclosure is consistent with Item 9(a) and that no additional disclosure is required since the Fund’s investment
objective is fundamental.
COMMENT 8. Prospectus – What are the
Specific Risks of Investing in the Fund?
With respect to “Epidemic and Pandemic Risk”, please update
the disclosure to reflect current market conditions and remove outdated disclosure.
RESPONSE:
The Registrant will revise the disclosure
(deletions are stricken and additions are bold and underlined):
“Epidemic and Pandemic Risk
An
outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally
(“COVID-19”). This coronavirus has resulted in, and may continue to result in, closed closing
borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations,
and disruptions to supply chains, workflow operations and consumer activity, as well as general concern and uncertainty. The impact
of this coronavirus may be short-term or may last for an extended period of time and has resulted in a
substantial economic volatility. Health crises caused by outbreaks, such as the coronavirus outbreak, may exacerbate other pre-existing political,
social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue
to negatively affect the worldwide economy, as well as the economies of individual countries, individual companies, including certain
Fund service providers and issuers of the Fund’s investments, and the markets in general in significant and unforeseen ways.
In addition, governments, their regulatory agencies, or self-regulatory
organizations may take actions in response to the pandemic, including significant fiscal and monetary policy changes, that may affect
the instruments in which the Fund invests or the issuers of such instruments.
Any such impact could adversely affect the Fund’s performance.
The United States has responded
to the COVID-19 pandemic and resulting economic distress with fiscal and monetary stimulus packages. In late March 2020, the government
passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), a stimulus package providing for over $2.2
trillion in resources to small businesses, state and local governments, and individuals that have been adversely impacted by the COVID-19
pandemic. In addition, in mid-March 2020 the U.S. Federal Reserve (“Fed”) cut interest rates to historically low levels and
announced a new round of quantitative easing, including purchases of corporate and municipal government bonds. The Fed also enacted various
programs to support liquidity operations and funding in the financial markets, including expanding its reverse repurchase agreement operations,
adding $1.5 trillion of liquidity to the banking system; establishing swap lines with other major central banks to provide dollar funding;
establishing a program to support money market funds; easing various bank capital buffers; providing funding backstops for businesses
to provide bridging loans for up to four years; and providing funding to help credit flow in asset-backed securities markets. The Fed
also plans to extend credit to small- and medium-sized businesses.”
COMMENT 9. Prospectus – What are the
Specific Risks of Investing in the Fund?
With respect to “Interest Rate Risk”, please update the disclosure
to reflect current market conditions and remove outdated disclosure.
RESPONSE:
The Registrant will make the following revision
(addition is bold and underlined):
“Prices of fixed-income securities rise and fall in response
to changes in interest rates. Generally, when interest rates rise, prices of fixed-income securities fall. However, market factors, such
as the demand for particular fixed-income securities, may cause the price of certain fixed-income securities to fall while the prices
of other securities rise or remain unchanged. The longer the duration of a fixed-income security, the more susceptible it is to interest
rate risk. The duration of a fixed-income security may be equal to or shorter than the stated maturity of a fixed-income security. Recent
and potential future changes in monetary policy made by central banks and/or their governments are likely to affect the level of interest
rates. Specifically, as the U.S. Federal Reserve “tapers” or reduces the amount of securities it purchases pursuant
to its quantitative easing program, and/or raises the federal funds target rate, there is a heightened risk that interest rates will rise,
which could expose the fixed-income market to heightened volatility and could cause the value of a Fund's investments, and the Fund's
net asset value, to decline, potentially suddenly and significantly, which may negatively impact the Fund's performance. Duration
measures the price sensitivity of a fixed-income security given a change in interest rates. For example, if a fixed-income security has
an effective duration of three years, a 1% increase in general interest rates would be expected to cause the security’s value to
decline about 3% while a 1% decrease in general interest rates would be expected to cause the security’s value to increase about
3%.”
COMMENT 10: Prospectus - What Do Shares Cost
- Sales Charge Information
The Staff notes the third sentence in the second
paragraph following the sales charge information chart. Please either delete the phrase “Among other ways, ” or expand it
to state “Among other ways as described below,” so the disclosure accurately covers all arrangements that result in sales
load breakpoints or elimination of the sales load.
RESPONSE:
The Registrant will revise the statement so that
it reads (addition bold and underlined): “Among other ways as described below, …”
COMMENT 11: Prospectus - What Do Shares Cost
- Sales Charge When You Purchase
With respect to the second column in the table,
please change the column heading to state “Sales Charge as a Percentage of the Net Amount Invested.”
RESPONSE:
The Registrant will revise
the column heading as follows (deletion stric