United States

Securities and Exchange Commission

Washington, D.C. 20549

Form N-CSR

Certified Shareholder Report of Registered Management Investment Companies

811-4539

(Investment Company Act File Number)

Federated Hermes Adjustable Rate Securities Trust

_______________________________________________________________

(Exact Name of Registrant as Specified in Charter)

Federated Hermes Funds

4000 Ericsson Drive

Warrendale, Pennsylvania 15086-7561

(Address of Principal Executive Offices)

(412) 288-1900

(Registrant's Telephone Number)

Peter J. Germain, Esquire

1001 Liberty Avenue

Pittsburgh, Pennsylvania 15222-3779

(Name and Address of Agent for Service)

(Notices should be sent to the Agent for Service)

Date of Fiscal Year End: 08/31/23

Date of Reporting Period: 08/31/23

Item 1. Reports to Stockholders

Annual Shareholder Report

August 31, 2023

 

 

Share Class | Ticker A | FEUGX Institutional | FEUNX

Federated Hermes Adjustable Rate Fund

Fund Established 1985

A Portfolio of Federated Hermes Adjustable Rate Securities Trust

Dear Valued Shareholder,

We are pleased to present the Annual Shareholder Report for your fund covering the period from September 1, 2022 through August 31, 2023. This report includes Management’s Discussion of Fund Performance, a complete listing of your fund’s holdings, performance information and financial statements along with other important fund information.

As a global leader in active, responsible investment management, Federated Hermes is guided by our conviction that responsible investing is the best way to create wealth over the long term. The company provides capabilities across a wide range of asset classes to investors around the world.

In addition, FederatedHermes.com/us offers quick and easy access to valuable resources that include timely fund updates, economic and market insights from our investment strategists and financial planning tools. You can also access many of those insights by following us on Twitter (@FederatedHermes) and LinkedIn.

Thank you for investing with us. We hope you find this information useful and look forward to keeping you informed.

Sincerely,
 

J. Christopher Donahue, President

Not FDIC Insured ▪ May Lose Value ▪ No Bank Guarantee

CONTENTS 

Management’s Discussion of Fund Performance	1
Portfolio of Investments Summary Table	5
Portfolio of Investments	6
Financial Highlights	15
Statement of Assets and Liabilities	17
Statement of Operations	18
Statement of Changes in Net Assets	19
Notes to Financial Statements	20
Report of Independent Registered Public Accounting Firm	29
Shareholder Expense Example	31
Board of Trustees and Fund Officers	33
Evaluation and Approval of Advisory Contract	40
Liquidity Risk Management Program– Annual Evaluation of Adequacy and Effectiveness	50
Voting Proxies on Fund Portfolio Securities	52
Quarterly Portfolio Schedule	52

Management’s Discussion of Fund Performance (unaudited)

The total return of Federated Hermes Adjustable Rate Fund (the “Fund”), based on net asset value for the 12-month reporting period ended August 31, 2023, was 1.25% for the Class A Shares and 1.50% for the Institutional Shares. The 1.50% total return of the Institutional Shares consisted of 4.24% in taxable dividends and -2.74% of price depreciation in the net asset value of the shares. The ICE BofA 1-Year US Treasury Note Index (IBA1T),1the Fund’s broad-based securities market index benchmark, returned 2.87% for the same period. The Fund’s total return for the most recently completed fiscal year reflected actual cash flows, transaction costs and expenses not reflected in the total return of the IBA1T.

During the reporting period, the Fund’s investment strategy focused on sector allocation. This was the most significant factor affecting the Fund’s performance relative to the IBA1T.

The following discussion will focus on the performance of the Fund’s Institutional Shares relative to the IBA1T.

MARKET OVERVIEw

The U.S. economy produced approximately 3.1 million jobs during the period and the unemployment rate was steady when measured on a year-over-year basis. The unemployment rate was 3.8% on August 31, 2023. While economic expansion and job creation posted solid growth, inflation fell as the Federal Reserve (the “Fed”) tightened monetary policy.

The Federal Open Market Committee (FOMC) raised the federal funds target rate at seven of the eight meetings held during the reporting period a total of 300 basis points to a range of 5.25%–5.50%. The FOMC repeatedly reiterated a 2% inflation goal with restrictive policy decisions designed to tighten credit and slow aggregate demand. The consumer price index (CPI) fell during the reporting period to an annualized rate of 3.2% at period end, a decline of over 500 basis points.

Treasury yields increased across the maturity spectrum as did financing rates for home and auto purchases. The 30-year mortgage rate reached levels not seen in the past 20 years, and the combination of higher debt service costs and elevated home prices resulted in low affordability for potential home buyers.

Excess return for mortgage-backed securities (MBS) was negative for the reporting period due to lackluster demand. Mortgage supply was also strong due in part to the failure of banks whose securities portfolios were liquidated by the Federal Deposit Insurance Corporation (FDIC). Such portfolios consisted of large amounts of mortgage securities which the FDIC sold in a series of auctions. As a result of the supply and demand dynamics, spreads widened to levels well above historical averages.

Annual Shareholder Report

1

During the reporting period, 2- and 10-year U.S. Treasury yields increased 137 and 92 basis points to yield 4.86% and 4.11%, respectively.2

SECTOR ALLOCATION

As stated in the Fund’s prospectus, under normal circumstances, at least 80% of the Fund’s net assets will be invested in adjustable-rate securities, including adjustable-rate mortgage pass-throughs and monthly adjustable collateralized mortgage obligations (CMO).3 The Fund utilizes these sectors to pursue its investment objective of providing current income consistent with minimal volatility of principal. Similar to the broad MBS index which posted large, negative excess returns due to wider Treasury-to-mortgage yield spreads, shorter duration MBS sectors, notably floating rate4 CMOs, which comprised a significant portion of portfolio assets, also underperformed as spreads widened due to slack demand. Overall, sector allocation made a negative impact on Fund performance.

1

Please see the footnotes to the line graph under “Fund Performance and Growth of a $10,000 Investment” below for the definition of, and more information about, the IBA1T.

2

Bond prices are sensitive to changes in interest rates, and a rise in interest rates can cause a decline in their prices.

3

The value of some mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates, and although the securities are generally supported by some form of government or private insurance, there is no assurance that private guarantors or insurers will meet their obligations.

4

Variable and floating rate loans and securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much or as quickly as interest rates in general. Conversely, variable and floating-rate loans and securities generally will not increase in value as much or as quickly as fixed-rate debt instruments if interest rates decline.

Annual Shareholder Report

2

FUND PERFORMANCE AND GROWTH OF A $10,000 INVESTMENT

The graph below illustrates the hypothetical investment of $10,0001 in the Federated Hermes Adjustable Rate Fund from August 31, 2013 to August 31, 2023, compared to the ICE BofA 1-Year US Treasury Note Index (IBA1T).2 The Average Annual Total Return table below shows returns for each class averaged over the stated periods.

Growth of a $10,000 INVESTMENT

Growth of $10,000 as of August 31, 2023
 

◾ Total returns shown for Class A Shares include the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900). 

The Fund offers multiple share classes whose performance may be greater than or less than its other share class(es) due to differences in sales charges and expenses.

Average Annual Total Returns for the Periods Ended 8/31/2023 

Share Class*	1 Year	5 Years	10 Years
Class A Shares3	0.19%	0.64%	0.56%
Institutional Shares4	1.50%	1.04%	0.76%
IBA1T	2.87%	1.40%	0.97%

Annual Shareholder Report

3

Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedHermes.com/us or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. 

*

Effective at the start of business on July 28, 2022, the former Service Shares were re-designated as new Class A Shares. Previously, effective at close of business on August 2, 2019, the former Institutional Shares had been re-designated as the former Service Shares, an earlier class of Service Shares was converted into the re-designated former Service Shares, and a new Institutional Share class was created.

1

Represents a hypothetical investment of $10,000 in the Fund after deducting the applicable sales charge: For Class A Shares, the maximum sales charge of 1.00% ($10,000 investment minus $100 sales charge = $9,900). The Fund’s performance assumes the reinvestment of all dividends and distributions. The IBA1T has been adjusted to reflect reinvestment of dividends on securities in the index.

2

The IBA1T is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month that issue is sold and rolled into a newly selected issue. The issue selected at each month-end rebalancing is the outstanding two-year Treasury note that matures closest to, but not beyond, one year from the rebalancing date. To qualify for selection, an issue must have settled on or before the month-end rebalancing date. The IBA1T is not adjusted to reflect expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.

3

For the periods prior to the July 28, 2022 re-designation, the performance information shown for the Class A Shares is for the Fund’s former Service Shares and has not been adjusted, except that it includes Class A sales charges. Following the August 2, 2019 changes, the performance for the former Institutional Shares was carried over in the re-designation as the performance of the re-designated former Service Shares.

4

The Fund’s new Institutional Shares (IS) commenced operations on August 5, 2019. For the period prior to the commencement of the Fund’s new IS, the performance information shown is for the Fund’s re-designated former Service Shares, the Fund’s previously existing Institutional Shares. The performance of the Fund’s new IS has not been adjusted since the new IS has a lower expense ratio than the Fund’s previously existing Institutional Shares.

Annual Shareholder Report

4

Portfolio of Investments Summary Table (unaudited)

At August 31, 2023, the Fund’s portfolio composition1 was as follows: 

Type of Investment	Percentage of Total Net Assets
Collateralized Mortgage Obligations	64.0%
U.S. Government Agency Adjustable Rate Mortgage Securities	12.9%
U.S. Government Agency Commercial Mortgage-Backed Securities	12.2%
U.S. Treasury Securities	2.7%
U.S. Government Agency Mortgage-Backed Securities	2.6%
Asset-Backed Securities	2.4%
Non-Agency Mortgage-Backed Securities	1.3%
Cash Equivalents2	2.0%
Other Assets and Liabilities—Net3	(0.1)%
TOTAL	100%

 

1	See the Fund’s Prospectus and Statement of Additional Information for a description of the types of securities in which the Fund invests.
2	Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
3	Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.

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5

Portfolio of Investments

August 31, 2023 

Principal Amount or Shares			Value
	1	COLLATERALIZED MORTGAGE OBLIGATIONS—   65.3%
		Federal Home Loan Mortgage Corporation—   20.0%
$   73,161		REMIC, Series 2380, Class FL, 5.902% (30-DAY AVERAGE SOFR +0.714%), 11/15/2031	$     72,925
89,370		REMIC, Series 2434, Class FA, 6.302% (30-DAY AVERAGE SOFR +1.114%), 3/15/2032	89,489
33,452		REMIC, Series 2448, Class FA, 6.302% (30-DAY AVERAGE SOFR +1.114%), 1/15/2032	33,497
35,393		REMIC, Series 2452, Class FC, 6.302% (30-DAY AVERAGE SOFR +1.114%), 1/15/2032	35,441
103,151		REMIC, Series 2459, Class FP, 6.302% (30-DAY AVERAGE SOFR +1.114%), 6/15/2032	103,288
28,088		REMIC, Series 2470, Class EF, 6.302% (30-DAY AVERAGE SOFR +1.114%), 3/15/2032	28,125
127,293		REMIC, Series 2475, Class F, 6.302% (30-DAY AVERAGE SOFR +1.114%), 2/15/2032	127,461
88,646		REMIC, Series 2475, Class FD, 5.852% (30-DAY AVERAGE SOFR +0.664%), 6/15/2031	88,014
77,094		REMIC, Series 2480, Class NF, 6.302% (30-DAY AVERAGE SOFR +1.114%), 1/15/2032	77,193
27,657		REMIC, Series 2498, Class AF, 6.302% (30-DAY AVERAGE SOFR +1.114%), 3/15/2032	27,694
102,480		REMIC, Series 3085, Class UF, 5.752% (30-DAY AVERAGE SOFR +0.564%), 12/15/2035	100,649
227,250		REMIC, Series 3156, Class HF, 5.787% (30-DAY AVERAGE SOFR +0.599%), 8/15/2035	223,346
379,374		REMIC, Series 3208, Class FD, 5.702% (30-DAY AVERAGE SOFR +0.514%), 8/15/2036	376,518
369,120		REMIC, Series 3208, Class FG, 5.702% (30-DAY AVERAGE SOFR +0.514%), 8/15/2036	366,342
84,639		REMIC, Series 3213, Class GF, 5.732% (30-DAY AVERAGE SOFR +0.544%), 9/15/2036	82,968
527,000		REMIC, Series 3284, Class AF, 5.612% (30-DAY AVERAGE SOFR +0.424%), 3/15/2037	514,265
782,332		REMIC, Series 3314, Class FE, 5.572% (30-DAY AVERAGE SOFR +0.384%), 5/15/2037	761,179
671,793		REMIC, Series 3346, Class FT, 5.652% (30-DAY AVERAGE SOFR +0.464%), 10/15/2033	660,077
250,177		REMIC, Series 3380, Class FP, 5.652% (30-DAY AVERAGE SOFR +0.464%), 11/15/2036	244,684
288,001		REMIC, Series 3550, Class GF, 6.052% (30-DAY AVERAGE SOFR +0.864%), 7/15/2039	285,841

Annual Shareholder Report

6

Principal Amount or Shares			Value
	1	COLLATERALIZED MORTGAGE OBLIGATIONS—   continued
		Federal Home Loan Mortgage Corporation—   continued
$  378,013		REMIC, Series 3556, Class FA, 6.212% (30-DAY AVERAGE SOFR +1.024%), 7/15/2037	$    381,147
154,485		REMIC, Series 3593, Class CF, 5.902% (30-DAY AVERAGE SOFR +0.714%), 2/15/2036	154,232
1,064,400		REMIC, Series 4242, Class F, 5.702% (30-DAY AVERAGE SOFR +0.514%), 8/15/2043	1,011,979
1,817,967		REMIC, Series 4508, Class CF, 5.702% (30-DAY AVERAGE SOFR +0.514%), 9/15/2045	1,752,988
1,618,151		REMIC, Series 4752, Class PF, 5.602% (30-DAY AVERAGE SOFR +0.414%), 11/15/2047	1,533,574
4,085,310		REMIC, Series 4803, Class FA, 5.602% (30-DAY AVERAGE SOFR +0.414%), 6/15/2048	3,913,933
638,217		REMIC, Series 4829, Class FA, 5.552% (30-DAY AVERAGE SOFR +0.364%), 7/15/2037	618,511
1,085,686		REMIC, Series 4915, Class FG, 5.852% (30-DAY AVERAGE SOFR +0.564%), 9/25/2049	1,052,600
863,975		REMIC, Series 4921, Class FN, 5.852% (30-DAY AVERAGE SOFR +0.564%), 10/25/2049	828,689
544,371		REMIC, Series 4959, Class JF, 5.852% (30-DAY AVERAGE SOFR +0.564%), 3/25/2050	520,445
6,922,187		REMIC, Series 4983, Class FJ, 5.852% (30-DAY AVERAGE SOFR +0.564%), 6/25/2050	6,597,012
2,419,236		REMIC, Series 4998, Class KF, 5.637% (30-DAY AVERAGE SOFR +0.350%), 8/25/2050	2,286,683
		TOTAL	24,950,789
		Federal National Mortgage Association—   41.2%
75,674		REMIC, Series 2001-32, Class FA, 5.952% (30-DAY AVERAGE SOFR +0.664%), 7/25/2031	75,387
39,271		REMIC, Series 2001-57, Class FA, 5.852% (30-DAY AVERAGE SOFR +0.564%), 6/25/2031	38,784
31,525		REMIC, Series 2001-62, Class FC, 6.052% (30-DAY AVERAGE SOFR +0.764%), 11/25/2031	31,384
39,482		REMIC, Series 2001-71, Class FS, 6.002% (30-DAY AVERAGE SOFR +0.714%), 11/25/2031	39,249
133,437		REMIC, Series 2002-7, Class FG, 6.302% (30-DAY AVERAGE SOFR +1.014%), 1/25/2032	133,303
66,053		REMIC, Series 2002-8, Class FA, 6.094% (30-DAY AVERAGE SOFR +0.864%), 3/18/2032	65,888
80,986		REMIC, Series 2002-52, Class FG, 5.902% (30-DAY AVERAGE SOFR +0.614%), 9/25/2032	80,281
218,701		REMIC, Series 2002-58, Class FG, 6.402% (30-DAY AVERAGE SOFR +1.114%), 8/25/2032	219,089
35,539		REMIC, Series 2002-60, Class FH, 6.402% (30-DAY AVERAGE SOFR +1.114%), 8/25/2032	35,602

Annual Shareholder Report

7

Principal Amount or Shares			Value
	1	COLLATERALIZED MORTGAGE OBLIGATIONS—   continued
		Federal National Mortgage Association—   continued
$   70,733		REMIC, Series 2002-77, Class FA, 6.344% (30-DAY AVERAGE SOFR +1.114%), 12/18/2032	$     70,837
29,215		REMIC, Series 2002-77, Class FG, 5.894% (30-DAY AVERAGE SOFR +0.664%), 12/18/2032	28,969
81,395		REMIC, Series 2005-67, Class FM, 5.752% (30-DAY AVERAGE SOFR +0.464%), 8/25/2035	80,610
1,438,646		REMIC, Series 2005-95, Class FH, 5.702% (30-DAY AVERAGE SOFR +0.414%), 11/25/2035	1,407,274
110,067		REMIC, Series 2006-11, Class FB, 5.702% (30-DAY AVERAGE SOFR +0.414%), 3/25/2036	108,419
2,232,521		REMIC, Series 2006-42, Class CF, 5.852% (30-DAY AVERAGE SOFR +0.564%), 6/25/2036	2,194,819
1,213,416		REMIC, Series 2006-50, Class FE, 5.802% (30-DAY AVERAGE SOFR +0.514%), 6/25/2036	1,187,764
416,867		REMIC, Series 2006-65, Class DF, 5.752% (30-DAY AVERAGE SOFR +0.464%), 7/25/2036	408,892
165,773		REMIC, Series 2006-76, Class QF, 5.802% (30-DAY AVERAGE SOFR +0.514%), 8/25/2036	162,820
1,112,471		REMIC, Series 2006-81, Class FA, 5.752% (30-DAY AVERAGE SOFR +0.464%), 9/25/2036	1,089,906
540,502		REMIC, Series 2006-85, Class PF, 5.782% (30-DAY AVERAGE SOFR +0.494%), 9/25/2036	530,794
443,140		REMIC, Series 2006-103, Class FB, 5.802% (30-DAY AVERAGE SOFR +0.514%), 10/25/2036	434,306
915,959		REMIC, Series 2006-123, Class CF, 5.662% (30-DAY AVERAGE SOFR +0.374%), 1/25/2037	893,671
1,471,839		REMIC,Series 2006-W1, Class 2AF1, 5.622% (30-DAY AVERAGE SOFR +0.334%), 2/25/2046	1,450,695
75,983		REMIC, Series 2007-20, Class F, 5.662% (30-DAY AVERAGE SOFR +0.374%), 3/25/2037	74,138
879,063		REMIC, Series 2007-71, Class WF, 5.852% (30-DAY AVERAGE SOFR +0.564%), 7/25/2037	863,545
187,367		REMIC, Series 2007-88, Class FW, 5.952% (30-DAY AVERAGE SOFR +0.664%), 9/25/2037	185,946
55,673		REMIC, Series 2007-102, Class FA, 5.972% (30-DAY AVERAGE SOFR +0.684%), 11/25/2037	54,855
222,161		REMIC, Series 2008-69, Class FB, 6.402% (30-DAY AVERAGE SOFR +1.114%), 6/25/2037	222,034
24,403		REMIC, Series 2008-75, Class DF, 6.652% (30-DAY AVERAGE SOFR +1.364%), 9/25/2038	24,563
395,671		REMIC, Series 2009-78, Class UF, 6.172% (30-DAY AVERAGE SOFR +0.884%), 10/25/2039	392,973
615,180		REMIC, Series 2009-87, Class FX, 6.152% (30-DAY AVERAGE SOFR +0.864%), 11/25/2039	611,467

Annual Shareholder Report

8

Principal Amount or Shares			Value
	1	COLLATERALIZED MORTGAGE OBLIGATIONS—   continued
		Federal National Mortgage Association—   continued
$  721,321		REMIC, Series 2009-87, Class HF, 6.252% (30-DAY AVERAGE SOFR +0.964%), 11/25/2039	$    716,895
1,031,133		REMIC, Series 2009-106, Class FN, 6.152% (30-DAY AVERAGE SOFR +0.864%), 1/25/2040	1,023,892
322,736		REMIC, Series 2010-39, Class EF, 5.922% (30-DAY AVERAGE SOFR +0.634%), 6/25/2037	318,044
2,036,836		REMIC, Series 2010-68, Class BF, 5.902% (30-DAY AVERAGE SOFR +0.614%), 7/25/2040	1,996,790
1,143,900		REMIC, Series 2011-4, Class PF, 5.952% (30-DAY AVERAGE SOFR +0.664%), 2/25/2041	1,129,607
365,766		REMIC, Series 2012-65, Class FB, 5.922% (30-DAY AVERAGE SOFR +0.634%), 6/25/2042	350,567
1,007,292		REMIC, Series 2012-122, Class LF, 5.802% (30-DAY AVERAGE SOFR +0.514%), 11/25/2042	981,098
1,370,270		REMIC, Series 2012-130, Class DF, 5.802% (30-DAY AVERAGE SOFR +0.514%), 12/25/2042	1,324,330
1,448,322		REMIC, Series 2014-20, Class FB, 5.802% (30-DAY AVERAGE SOFR +0.514%), 4/25/2044	1,411,729
991,150		REMIC, Series 2016-32, Class FA, 5.802% (30-DAY AVERAGE SOFR +0.514%), 10/25/2034	973,953
821,403		REMIC, Series 2016-83, Class FA, 5.902% (30-DAY AVERAGE SOFR +0.614%), 11/25/2046	797,693
1,637,567		REMIC, Series 2018-15, Class JF, 5.702% (30-DAY AVERAGE SOFR +0.414%), 3/25/2048	1,564,803
4,522,973		REMIC, Series 2018-57, Class FL, 5.702% (30-DAY AVERAGE SOFR +0.414%), 8/25/2048	4,343,660
2,467,747		REMIC, Series 2018-70, Class HF, 5.752% (30-DAY AVERAGE SOFR +0.464%), 10/25/2058	2,396,325
2,574,443		REMIC, Series 2019-5, Class FA, 5.802% (30-DAY AVERAGE SOFR +0.514%), 3/25/2049	2,503,167
2,559,604		REMIC, Series 2019-21, Class FB, 5.852% (30-DAY AVERAGE SOFR +0.564%), 5/25/2049	2,480,430
3,704,734		REMIC, Series 2019-25, Class PF, 5.600% (30-DAY AVERAGE SOFR +0.564%), 6/25/2049	3,601,706
1,785,451		REMIC, Series 2019-33, Class FB, 5.852% (30-DAY AVERAGE SOFR +0.564%), 7/25/2049	1,692,055
440,506		REMIC, Series 2019-41, Class FC, 5.852% (30-DAY AVERAGE SOFR +0.564%), 8/25/2049	426,153
1,405,789		REMIC, Series 2019-42, Class LF, 5.752% (30-DAY AVERAGE SOFR +0.464%), 8/25/2049	1,386,714
4,973,280		REMIC, Series 2020-27, Class FD, 5.852% (30-DAY AVERAGE SOFR +0.564%), 5/25/2050	4,793,799
1,888,624		REMIC, Series 2020-34, Class FA, 5.852% (30-DAY AVERAGE SOFR +0.564%), 6/25/2050	1,823,987
		TOTAL	51,235,661

Annual Shareholder Report

9

Principal Amount or Shares			Value
	1	COLLATERALIZED MORTGAGE OBLIGATIONS—   continued
		Government National Mortgage Association—   2.8%
$  301,564		REMIC, Series 2012-42, Class HF, 5.798% (CME Term SOFR 1 Month +0.484%), 3/20/2042	$    293,158
1,355,481		REMIC, Series 2014-2, Class BF, 5.778% (CME Term SOFR 1 Month +0.464%), 1/20/2044	1,321,182
2,031,818		REMIC, Series 2015-119, Class FN, 5.678% (CME Term SOFR 1 Month +0.364%), 8/20/2045	1,948,704
		TOTAL	3,563,044
		Non-Agency Mortgage-Backed Securities—   1.3%
1,728,103		JP Morgan Mortgage Trust 2021-1, Class A11, 5.719% (30-DAY AVERAGE SOFR +0.650%), 6/25/2051	1,584,164
		TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (IDENTIFIED COST $83,828,425)	81,333,658
	1	ADJUSTABLE RATE MORTGAGES—   12.9%
		Federal Home Loan Mortgage Corporation ARM—   5.3%
392,898		4.047%, 12/1/2034	394,624
670,245		4.483%, 2/1/2035	673,508
248,183		4.640%, 7/1/2038	247,270
499,554		4.645%, 8/1/2035	506,038
647,254		4.750%, 10/1/2033	648,919
387,819		4.829%, 4/1/2037	389,868
1,196,078		4.954%, 7/1/2034	1,188,565
592,793		4.982%, 7/1/2035	596,929
584,406		5.103%, 7/1/2036	585,736
453,143		5.226%, 4/1/2034	456,593
493,091		5.253%, 5/1/2035	494,345
437,847		5.469%, 11/1/2034	442,904
		TOTAL	6,625,299
		Federal National Mortgage Association ARM—   7.6%
460,130		3.465%, 10/1/2034	460,798
112,889		3.565%, 10/1/2037	113,015
113,388		3.887%, 12/1/2034	114,192
217,452		4.085%, 11/1/2039	221,332
203,064		4.114%, 9/1/2033	202,622
542,507		4.119%, 1/1/2040	551,420
260,648		4.123%, 12/1/2034	263,246
86,621		4.143%, 10/1/2035	88,083
350,226		4.195%, 2/1/2042	354,648
70,105		4.292%, 5/1/2035	70,423
252,675		4.307%, 1/1/2035	256,777
149,037		4.340%, 12/1/2033	149,853

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10

Principal Amount or Shares			Value
	1	ADJUSTABLE RATE MORTGAGES—   continued
		Federal National Mortgage Association ARM—   continued
$  172,786		4.398%, 10/1/2035	$    174,031
34,001		4.505%, 2/1/2036	34,213
192,162		4.543%, 1/1/2035	193,038
997,518		4.603%, 8/1/2039	1,003,599
428,722		4.701%, 5/1/2039	429,501
2,232		4.715%, 7/1/2027	2,206
234,612		4.725%, 6/1/2034	235,487
24,284		4.871%, 4/1/2034	24,390
132,631		5.048%, 7/1/2035	134,144
328,396		5.049%, 7/1/2035	331,580
25,028		5.105%, 5/1/2038	25,102
27,692		5.112%, 5/1/2035	27,926
574,313		5.313%, 10/1/2035	581,655
79,162		5.315%, 5/1/2035	79,717
103,388		5.340%, 6/1/2033	104,324
1,009,925		5.468%, 8/1/2035	1,023,280
1,118,492		5.543%, 7/1/2034	1,132,936
180,562		5.731%, 7/1/2035	182,720
241,971		5.732%, 7/1/2035	244,883
146,725		5.896%, 7/1/2035	148,108
228,199		5.953%, 7/1/2034	231,658
48,717		6.106%, 11/1/2035	49,048
169,807		6.844%, 8/1/2034	171,703
		TOTAL	9,411,658
		Government National Mortgage Association ARM—   0.0%
62		2.625%, 9/20/2023	62
449		2.750%, 11/20/2023	447
14,987		2.750%, 10/20/2029	14,421
7,669		3.625%, 1/20/2030	7,470
8,559		3.875%, 5/20/2029	8,334
		TOTAL	30,734
		TOTAL ADJUSTABLE RATE MORTGAGES (IDENTIFIED COST $16,615,387)	16,067,691
		COMMERCIAL MORTGAGE-BACKED SECURITIES—   12.2%
	1	Agency Commercial Mortgage-Backed Securities—   12.2%
726,884		FHLMC REMIC, Series KF90, Class AS, 5.481% (30-DAY AVERAGE SOFR +0.380%), 9/25/2030	715,397
1,834,856		FHLMC REMIC, Series KF94, Class AL, 5.515% (1-month USLIBOR +0.300%), 11/25/2030	1,818,333

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11

Principal Amount or Shares			Value
		COMMERCIAL MORTGAGE-BACKED SECURITIES—   continued
	1	Agency Commercial Mortgage-Backed Securities—   continued
$1,575,000		FHLMC REMIC, Series KF148, Class AS, 5.941% (30-DAY AVERAGE SOFR +0.840%), 11/25/2032	$  1,601,753
1,999,682		FHLMC REMIC, Series KF149, Class AS, 5.741% (30-DAY AVERAGE SOFR +0.640%), 12/25/2032	1,988,742
3,999,443		FHLMC REMIC, Series KF154, Class AS, 5.781% (30-DAY AVERAGE SOFR +0.680%), 3/25/2033	4,002,899
2,000,000		FHLMC REMIC, Series KF155, Class AS, 5.771% (30-DAY AVERAGE SOFR +0.670%), 2/25/2030	1,997,549
2,650,000		FHLMC REMIC, Series KF157, Class AS, 5.700% (30-DAY AVERAGE SOFR +0.660%), 4/25/2033	2,625,771
379,264		FNMA REMIC, Series 2020-M5, Class FA, 5.652% (30-DAY AVERAGE SOFR +0.574%), 1/25/2027	376,851
		TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $15,164,594)	15,127,295
		U.S. TREASURY—   2.7%
		U.S. Treasury Bills—   2.7%
3,500,000		0.000%, 2/22/2024 (IDENTIFIED COST $3,418,846)	3,410,525
		MORTGAGE-BACKED SECURITIES—   2.6%
		Federal Home Loan Mortgage Corporation—   1.8%
2,242,112		5.500%, 5/1/2038	2,243,699
		Federal National Mortgage Association—   0.4%
489,776		4.000%, 4/1/2053	452,372
3,241		5.000%, 1/1/2024	3,225
		TOTAL	455,597
		Government National Mortgage Association—   0.4%
500,000		5.500%, 8/20/2053	495,088
		TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $3,196,569)	3,194,384
		ASSET-BACKED SECURITIES—   2.4%
		Auto Receivables—   0.7%
871,902	1	Chesapeake Funding II LLC 2023-1A, Class A2, 6.438% (30-DAY AVERAGE SOFR +1.250%), 5/15/2035	872,235
		Student Loans—   1.7%
281,340		Navient Student Loan Trust 2020-HA, Class A, 1.310%, 1/15/2069	256,657
783,758		Navient Student Loan Trust 2021-FA, Class A, 1.110%, 2/18/2070	660,541
821,899		Navient Student Loan Trust 2021-GA, Class A, 1.580%, 4/15/2070	710,423
498,924	1	SMB Private Education Loan Trust 2020-BA, Class A1B, 6.524% (CME Term SOFR 1 Month +1.214%), 7/15/2053	493,758
		TOTAL	2,121,379
		TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $3,256,124)	2,993,614

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12

Principal Amount or Shares		Value
	INVESTMENT COMPANY—   2.0%
2,462,587	Federated Hermes Government Obligations Fund, Premier Shares, 5.23%2 (IDENTIFIED COST $2,462,587)	$  2,462,587
	TOTAL INVESTMENT IN SECURITIES—100.1% (IDENTIFIED COST $127,942,532)3	124,589,754
	OTHER ASSETS AND LIABILITIES - NET—(0.1)%4	(133,900)
	TOTAL NET ASSETS—100%	$124,455,854

Transactions with affiliated investment companies, which are funds managed by the Adviser or an affiliate of the Adviser, during the period ended August 31, 2023, were as follows: 

	Federated Hermes Government Obligations Fund, Premier Shares
Value as of 8/31/2022	$2,366,327
Purchases at Cost	$93,249,795
Proceeds from Sales	$(93,153,535)
Change in Unrealized Appreciation/Depreciation	$—
Net Realized Gain/(Loss)	$—
Value as of 8/31/2023	$2,462,587
Shares Held as of 8/31/2023	2,462,587
Dividend Income	$191,965

 

1	Floating/adjustable note with current rate and current maturity or next reset date shown. Adjustable rate mortgage security coupons are based on the weighted average note rates of the underlying mortgages less the guarantee and servicing fees. These securities do not indicate an index and spread in their description above.
2	7-day net yield.
3	Also represents cost of investments for federal tax purposes.
4	Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.

Note: The categories of investments are shown as a percentage of total net assets at August 31, 2023.

Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:

Level 1—quoted prices in active markets for identical securities.

Level 2—other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Also includes securities valued at amortized cost.

Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).

The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

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13

The following is a summary of the inputs used, as of August 31, 2023, in valuing the Fund’s assets carried at fair value: 

Valuation Inputs
	Level 1— Quoted Prices	Level 2— Other Significant Observable Inputs	Level 3— Significant Unobservable Inputs	Total
Debt Securities:
Collateralized Mortgage Obligations	$—	$81,333,658	$—	$81,333,658
Adjustable Rate Mortgages	—	16,067,691	—	16,067,691
Commercial Mortgage-Backed Securities	—	15,127,295	—	15,127,295
U.S. Treasury	—	3,410,525	—	3,410,525
Mortgage-Backed Securities	—	3,194,384	—	3,194,384
Asset-Backed Securities	—	2,993,614	—	2,993,614
Investment Company	2,462,587	—	—	2,462,587
TOTAL SECURITIES	$2,462,587	$122,127,167	$—	$124,589,754

 

The following acronym(s) are used throughout this portfolio:
ARM	—Adjustable Rate Mortgage
FHLMC	—Federal Home Loan Mortgage Corporation
FNMA	—Federal National Mortgage Association
LIBOR	—London Interbank Offered Rate
REMIC	—Real Estate Mortgage Investment Conduit
SOFR	—Secured Overnight Financing Rate

See Notes which are an integral part of the Financial Statements

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14

Financial Highlights–Class A Shares1

(For a Share Outstanding Throughout Each Period) 

	Year Ended August 31,
	2023	2022	2021	2020	2019
Net Asset Value, Beginning of Period	$9.48	$9.63	$9.65	$9.67	$9.64
Income From Investment Operations:
Net investment income (loss)	0.372	0.052	0.02	0.15	0.22
Net realized and unrealized gain (loss)	(0.26)	(0.15)	(0.01)	(0.01)	0.03
Total From Investment Operations	0.11	(0.10)	0.01	0.14	0.25
Less Distributions:
Distributions from net investment income	(0.37)	(0.05)	(0.03)	(0.16)	(0.22)
Net Asset Value, End of Period	$9.22	$9.48	$9.63	$9.65	$9.67
Total Return3	1.25%	(1.08)%	0.09%	1.42%	2.61%
Ratios to Average Net Assets:
Net expenses4	0.55%	0.55%	0.53%	0.52%	0.65%
Net investment income	3.96%	0.48%	0.26%	1.63%	2.24%
Expense waiver/reimbursement5	0.29%	0.26%	0.31%	0.35%	0.38%
Supplemental Data:
Net assets, end of period (000 omitted)	$29,438	$33,685	$74,655	$93,198	$122,537
Portfolio turnover6	44%	54%	82%	80%	35%
Portfolio turnover (excluding purchases and sales from dollar-roll transactions)6	42%	53%	51%	67%	35%

 

1	Effective at the start of business on July 28, 2022, the Fund’s Service Shares were re-designated as Class A Shares. Prior to August 5, 2019, the former Service Shares were designated as the Institutional Shares.
2	Per share numbers have been calculated using the average shares method.
3	Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
4	Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
5	This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
6	Securities that mature are considered sales for purposes of this calculation.

See Notes which are an integral part of the Financial Statements

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15

Financial Highlights–Institutional Shares1

(For a Share Outstanding Throughout Each Period) 

	Year Ended August 31,				Period Ended 8/31/20192
	2023	2022	2021	2020
Net Asset Value, Beginning of Period	$9.48	$9.63	$9.65	$9.67	$9.67
Income From Investment Operations:
Net investment income (loss)	0.383	0.093	0.05	0.17	0.02
Net realized and unrealized gain (loss)	(0.24)	(0.17)	(0.02)	(0.01)	—
Total From Investment Operations	0.14	(0.08)	0.03	0.16	0.02
Less Distributions:
Distributions from net investment income	(0.40)	(0.07)	(0.05)	(0.18)	(0.02)
Net Asset Value, End of Period	$9.22	$9.48	$9.63	$9.65	$9.67
Total Return4	1.50%	(0.84)%	0.31%	1.64%	0.18%
Ratios to Average Net Assets:
Net expenses5	0.30%	0.30%	0.30%	0.30%	0.30%6
Net investment income	4.10%	0.93%	0.47%	1.78%	3.10%6
Expense waiver/reimbursement7	0.29%	0.26%	0.31%	0.34%	0.38%6
Supplemental Data:
Net assets, end of period (000 omitted)	$95,018	$156,311	$65,393	$60,878	$7,773
Portfolio turnover8	44%	54%	82%	80%	35%9
Portfolio turnover (excluding purchases and sales from dollar-roll transactions)8	42%	53%	51%	67%	35%9

 

1	The Fund’s Institutional Shares are a new class of Shares effective as of the close of business on August 2, 2019.
2	Reflects operations for the period from August 5, 2019 (commencement of operations) to August 31, 2019.
3	Per share numbers have been calculated using the average shares method.
4	Based on net asset value. Total returns for periods of less than one year are not annualized.
5	Amount does not reflect net expenses incurred by investment companies in which the Fund may invest.
6	Computed on an annualized basis.
7	This expense decrease is reflected in both the net expense and the net investment income ratios shown above. Amount does not reflect expense waiver/reimbursement recorded by investment companies in which the Fund may invest.
8	Securities that mature are considered sales for purposes of this calculation.
9	Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the fiscal year ended August 31, 2019.

See Notes which are an integral part of the Financial Statements

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Statement of Assets and Liabilities
August 31, 2023

 

Assets:
Investment in securities, at value including $2,462,587 of investments in affiliated holdings* (identified cost $127,942,532, including $2,462,587 of identified cost in affiliated holdings)	$124,589,754
Income receivable	247,118
Income receivable from affiliated holdings	7,485
Receivable for investments sold	2,261,992
Receivable for shares sold	301,597
Total Assets	127,407,946
Liabilities:
Payable for investments purchased	2,247,935
Payable for shares redeemed	414,877
Income distribution payable	221,897
Payable to adviser (Note 5)	1,222
Payable for administrative fee (Note 5)	265
Payable for other service fees (Notes 2 and 5)	6,005
Accrued expenses (Note 5)	59,891
Total Liabilities	2,952,092
Net assets for 13,497,519 shares outstanding	$124,455,854
Net Assets Consist of:
Paid-in capital	$132,894,883
Total distributable earnings (loss)	(8,439,029)
Total Net Assets	$124,455,854
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
Class A Shares:
Net asset value per share ($29,438,178 ÷ 3,192,574 shares outstanding), no par value, unlimited shares authorized	$9.22
Offering price per share (100/99.00 of $9.22)	$9.31
Redemption proceeds per share	$9.22
Institutional Shares:
Net asset value per share ($95,017,676 ÷ 10,304,945 shares outstanding), no par value, unlimited shares authorized	$9.22
Offering price per share	$9.22
Redemption proceeds per share	$9.22

 

* See information listed after the Fund’s Portfolio of Investments.

See Notes which are an integral part of the Financial Statements

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17

Statement of Operations
Year Ended August 31, 2023

 

Investment Income:
Interest	$6,014,615
Dividends received from affiliated holdings*	191,965
TOTAL INCOME	6,206,580
Expenses:
Investment adviser fee (Note 5)	350,611
Administrative fee (Note 5)	112,022
Custodian fees	26,821
Transfer agent fees	86,742
Directors’/Trustees’ fees (Note 5)	7,870
Auditing fees	39,739
Legal fees	12,127
Portfolio accounting fees	114,600
Other service fees (Notes 2 and 5)	74,537
Share registration costs	47,613
Printing and postage	26,520
Miscellaneous (Note 5)	13,580
TOTAL EXPENSES	912,782
Waiver and Reimbursements:
Waiver/reimbursement of investment adviser fee (Note 5)	(350,611)
Reimbursement of other operating expenses (Note 5)	(60,028)
TOTAL WAIVER AND REIMBURSEMENTS	(410,639)
Net expenses	502,143
Net investment income	5,704,437
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments	(1,952,072)
Net change in unrealized depreciation of investments	(2,567,736)
Net realized and unrealized gain (loss) on investments	(4,519,808)
Change in net assets resulting from operations	$1,184,629

 

* See information listed after the Fund’s Portfolio of Investments.

See Notes which are an integral part of the Financial Statements

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18

Statement of Changes in Net Assets 

 

Year Ended August 31	2023	2022
Increase (Decrease) in Net Assets
Operations:
Net investment income	$5,704,437	$1,156,922
Net realized gain (loss)	(1,952,072)	(732,918)
Net change in unrealized appreciation/depreciation	(2,567,736)	(1,729,125)
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS	1,184,629	(1,305,121)
Distributions to Shareholders:
Class A Shares1	(1,221,428)	(296,399)
Institutional Shares	(4,527,856)	(803,614)
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS	(5,749,284)	(1,100,013)
Share Transactions:
Proceeds from sale of shares	58,276,312	172,680,133
Net asset value of shares issued to shareholders in payment of distributions declared	3,325,644	693,050
Cost of shares redeemed	(122,577,116)	(121,021,211)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS	(60,975,160)	52,351,972
Change in net assets	(65,539,815)	49,946,838
Net Assets:
Beginning of period	189,995,669	140,048,831
End of period	$124,455,854	$189,995,669

 

1 The Fund’s former Service Shares have been re-designated as Class A Shares, effective July 28, 2022.

See Notes which are an integral part of the Financial Statements

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19

Notes to Financial Statements

August 31, 2023

1. ORGANIZATION

Federated Hermes Adjustable Rate Securities Trust (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of one portfolio: Federated Hermes Adjustable Rate Fund (the “Fund”), a diversified portfolio. The Fund offers two classes of shares: Class A Shares and Institutional Shares . All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The investment objective of the Fund is to provide current income consistent with minimal volatility of principal.

Effective at the start of business on July 28, 2022, the Fund’s existing Service Shares were re-designated as Class A Shares.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).

Investment Valuation

In calculating its net asset value (NAV), the Fund generally values investments as follows:

◾

Fixed-income securities are fair valued using price evaluations provided by a pricing service approved by Federated Investment Management Company (the “Adviser”).

◾

Shares of other mutual funds or non-exchange-traded investment companies are valued based upon their reported NAVs, or NAV per share practical expedient, as applicable.

◾

For securities that are fair valued in accordance with procedures established by and under the general supervision of the Adviser, certain factors may be considered, such as: the last traded or purchase price of the security, information obtained by contacting the issuer or dealers, analysis of the issuer’s financial statements or other available documents, fundamental analytical data, the nature and duration of restrictions on disposition, the movement of the market in which the security is normally traded, public trading in similar securities or derivative contracts of the issuer or comparable issuers, movement of a relevant index, or other factors including but not limited to industry changes and relevant government actions.

If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, if the Fund cannot obtain price evaluations from a pricing service or from more than one dealer for an investment within a reasonable period of time as set forth in the Adviser’s valuation policies and procedures for the Fund, or if information furnished by a pricing service, in the opinion of the Adviser’s valuation committee (“Valuation Committee”), is deemed not representative of the fair value of such security, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could obtain the fair value assigned to an investment if it sold the investment at approximately the time at which the Fund determines its NAV per share, and the actual value obtained could be materially different.

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Fair Valuation Procedures

Pursuant to Rule 2a-5 under the Act, the Fund’s Board of Trustees (the “Trustees”) has designated the Adviser as the Fund’s valuation designee to perform any fair value determinations for securities and other assets held by the Fund. The Adviser is subject to the Trustees’ oversight and certain reporting and other requirements intended to provide the Trustees the information needed to oversee the Adviser’s fair value determinations.

The Adviser, acting through its Valuation Committee, is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of the Adviser and certain of the Adviser’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is also authorized to use pricing services to provide fair value evaluations of the current value of certain investments for purposes of calculating the NAV. The Valuation Committee employs various methods for reviewing third-party pricing-service evaluations including periodic reviews of third-party pricing services’ policies, procedures and valuation methods (including key inputs, methods, models and assumptions), transactional back-testing, comparisons of evaluations of different pricing services, and review of price challenges by the Adviser based on recent market activity. In the event that market quotations and price evaluations are not available for an investment, the Valuation Committee determines the fair value of the investment in accordance with procedures adopted by the Adviser. The Trustees periodically review the fair valuations made by the Valuation Committee. The Trustees have also approved the Adviser’s fair valuation and significant events procedures as part of the Fund’s compliance program and will review any changes made to the procedures.

Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and ask for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for any U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for any other types of fixed-income securities and any OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Adviser.

Repurchase Agreements

The Fund may invest in repurchase agreements for short-term liquidity purposes. It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund’s custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred

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21

securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.

The insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.

The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund’s Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.

Investment Income, Gains and Losses, Expenses and Distributions

Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Distributions of net investment income, if any, are declared daily and paid monthly. Non-cash dividends included in dividend income, if any, are recorded at fair value. Amortization/accretion of premium and discount is included in investment income. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that select classes will bear certain expenses unique to those classes. The detail of the total fund expense waiver and reimbursements of $410,639 is disclosed in Note 5. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.

Other Service Fees

The Fund may pay other service fees up to 0.25% of the average daily net assets of the Fund’s Class A Shares and Institutional Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for other service fees. For the year ended August 31, 2023, other service fees for the Fund were as follows: 

	Other Service Fees Incurred
Class A Shares	$74,537

For the year ended August 31, 2023, the Fund’s Institutional Shares did not incur other service fees.

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Federal Taxes

It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code of 1986 (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. As of and during the year ended August 31, 2023, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of August 31, 2023, tax years 2020 through 2023 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.

When-Issued and Delayed-Delivery Transactions

The Fund may engage in when-issued or delayed-delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed-delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.

Dollar-Roll Transactions

The Fund engages in dollar-roll transactions in which the Fund sells mortgage-backed securities with a commitment to buy similar (same type, coupon and maturity), but not identical mortgage-backed securities on a future date. Both securities involved are to-be-announced (TBA) mortgage-backed securities. The Fund treats dollar-roll transactions as purchases and sales. Dollar-rolls are subject to interest rate risks and credit risks.

Restricted Securities

The Fund may purchase securities which are considered restricted. Restricted securities are securities that either: (a) cannot be offered for public sale without first being registered, or being able to take advantage of an exemption from registration, under the Securities Act of 1933; or (b) are subject to contractual restrictions on public sales. In some cases, when a security cannot be offered for public sale without first being registered, the issuer of the restricted security has agreed to register such securities for resale, at the issuer’s expense, either upon demand by the Fund or in connection with another registered offering of the securities. Many such restricted securities may be resold in the secondary market in transactions exempt from registration. Restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund’s restricted securities, like other securities, are priced in accordance with procedures established by and under the general supervision of the Adviser.

Other

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ materially from those estimated. The Fund applies investment company accounting and reporting guidance.

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3. SHARES OF BENEFICIAL INTEREST

The following tables summarize share activity: 

	Year Ended 8/31/2023		Year Ended 8/31/2022
Class A Shares:1	Shares	Amount	Shares	Amount
Shares sold	525,725	$4,887,955	3,546,115	$33,768,104
Shares issued to shareholders in payment of distributions declared	116,091	1,078,969	16,722	159,008
Shares redeemed	(1,001,902)	(9,326,601)	(7,758,991)	(73,967,635)
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS	(360,086)	$(3,359,677)	(4,196,154)	$(40,040,523)
	Year Ended 8/31/2023		Year Ended 8/31/2022
Institutional Shares:	Shares	Amount	Shares	Amount
Shares sold	5,730,338	$53,388,357	14,574,293	$138,912,029
Shares issued to shareholders in payment of distributions declared	241,628	2,246,675	56,168	534,042
Shares redeemed	(12,154,554)	(113,250,515)	(4,933,332)	(47,053,576)
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS	(6,182,588)	$(57,615,483)	9,697,129	$92,392,495
NET CHANGE RESULTING FROM TOTAL FUND SHARE TRANSACTIONS	(6,542,674)	$(60,975,160)	5,500,975	$52,351,972

 

1 The Fund’s former Service Shares have been re-designated as Class A Shares, effective July 28, 2022.

4. FEDERAL TAX INFORMATION

The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended August 31, 2023 and 2022, was as follows: 

	2023	2022
Ordinary income	$5,749,284	$1,100,013

As of August 31, 2023, the components of distributable earnings on a tax-basis were as follows: 

Undistributed ordinary income	$8,626
Net unrealized depreciation	$(3,352,778)
Capital loss carryforwards	$(5,094,877)
TOTAL	$(8,439,029)

At August 31, 2023, the cost of investments for federal tax purposes was $127,942,532. The net unrealized depreciation of investments for federal tax purposes was $3,352,778. This consists of unrealized appreciation from investments for those securities having an excess of value over cost of $66,007 and unrealized depreciation from investments for those securities having an excess of cost over value of $3,418,785.

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As of August 31, 2023, the Fund had a capital loss carryforward of $5,094,877 which will reduce the Fund’s taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code, thereby reducing the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, these net capital losses retain their character as either short-term or long-term and do not expire.

The following schedule summarizes the Fund’s capital loss carryforwards: 

Short-Term	Long-Term	Total
$4,820,273	$274,604	$5,094,877

5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES

Investment Adviser Fee

The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.25% of the Fund’s average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund for competitive reasons such as to maintain the Fund’s expense ratio, or as and when appropriate, to maintain positive or zero net yields. For the year ended August 31, 2023, the Adviser voluntarily waived $347,443 of its fee and voluntarily reimbursed $60,028 of other operating expenses. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated investment companies. For the year ended August 31, 2023, the Adviser reimbursed $3,168.

Administrative Fee

Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. For purposes of determining the appropriate rate breakpoint, “Investment Complex” is defined as all of the Federated Hermes Funds subject to a fee under the Administrative Services Agreement. The fee paid to FAS is based on the average daily net assets of the Investment Complex as specified below: 

Administrative Fee	Average Daily Net Assets of the Investment Complex
0.100%	on assets up to $50 billion
0.075%	on assets over $50 billion

Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. For the year ended August 31, 2023, the annualized fee paid to FAS was 0.080% of average daily net assets of the Fund.

In addition, FAS may charge certain out-of-pocket expenses to the Fund.

Sales Charges

Front-end sales charges and contingent deferred sales charges do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable.

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For the year ended August 31, 2023, Federated Securities Corp. (FSC) did not retain any sales charges from the sale of Class A Shares.

Other Service Fees

For the year ended August 31, 2023, FSSC received $395 of the other service fees disclosed in Note 2.

Expense Limitation

The Adviser and certain of its affiliates (which may include FSC, FAS and FSSC) on their own initiative have agreed to waive certain amounts of their respective fees and/or reimburse expenses. Total annual fund operating expenses (as shown in the financial highlights, excluding interest expense, extraordinary expenses and proxy-related expenses paid by the Fund, if any) paid by the Fund’s Class A Shares and Institutional Shares (after the voluntary waivers and/or reimbursements) will not exceed 0.55% and 0.30% (the “Fee Limit”), respectively, up to but not including the later of (the “Termination Date”): (a) November 1, 2024 or (b) the date of the Fund’s next effective Prospectus. While the Adviser and its applicable affiliates currently do not anticipate terminating or increasing these arrangements prior to the Termination Date, these arrangements may only be terminated or the Fee Limit increased prior to the Termination Date with the agreement of the Trustees.

Directors’/Trustees’ and Miscellaneous Fees

Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of certain of the above companies. To efficiently facilitate payment, Independent Directors’/Trustees’ fees and certain expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses are paid by an affiliate of the Adviser which in due course are reimbursed by the Fund. These expenses related to conducting meetings of the Directors/Trustees and other miscellaneous expenses may be included in Accrued and Miscellaneous Expenses on the Statement of Assets and Liabilities and Statement of Operations, respectively.

6. INVESTMENT TRANSACTIONS

Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended August 31, 2023, were as follows: 

Purchases	$2,599,933
Sales	$9,918,960

7. LINE OF CREDIT

The Fund participates with certain other Federated Hermes Funds, on a several basis, in an up to $500,000,000 unsecured, 364-day, committed, revolving line of credit (LOC) agreement dated June 21, 2023. The LOC was made available to temporarily finance the repurchase or redemption of shares of the Fund, failed trades, payment of dividends, settlement of trades and for other short-term, temporary or emergency general business purposes. The Fund cannot borrow under the LOC if an inter-fund loan is outstanding. The Fund’s ability to borrow under the LOC also is subject to the limitations of the Act and various conditions precedent that must be satisfied before the Fund can borrow. Loans under the LOC are charged interest at a fluctuating rate per annum equal to (a) the highest, on any day, of (i) the federal funds effective rate, (ii) the

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published secured overnight financing rate plus an assigned percentage, and (iii) 0.0%, plus (b) a margin. Any fund eligible to borrow under the LOC pays its pro rata share of a commitment fee based on the amount of the lenders’ commitment that has not been utilized, quarterly in arrears and at maturity. As of August 31, 2023, the Fund had no outstanding loans. During the year ended August 31, 2023, the Fund did not utilize the LOC.

8. INTERFUND LENDING

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission, the Fund, along with other funds advised by subsidiaries of Federated Hermes, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the Fund to borrow from other participating affiliated funds. As of August 31, 2023, there were no outstanding loans. During the year ended August 31, 2023, the program was not utilized.

9. INDEMNIFICATIONS

Under the Fund’s organizational documents, its Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund (other than liabilities arising out of their willful misfeasance, bad faith, gross negligence or reckless disregard of their duties to the Fund). In addition, in the normal course of business, the Fund provides certain indemnifications under arrangements with third parties. Typically, obligations to indemnify a third party arise in the context of an arrangement entered into by the Fund under which the Fund agrees to indemnify such third party for certain liabilities arising out of actions taken pursuant to the arrangement, provided the third party’s actions are not deemed to have breached an agreed-upon standard of care (such as willful misfeasance, bad faith, gross negligence or reckless disregard of their duties under the contract). The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet arisen. The Fund does not anticipate any material claims or losses pursuant to these arrangements at this time, and accordingly expects the risk of loss to be remote.

10. OTHER MATTERS

An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally. As of the date of the issuance of these financial statements, this coronavirus has resulted in, and may continue to result in, closed 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 has resulted in 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,

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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 investments. Any such impact could adversely affect the Fund’s performance.

11. Recent Accounting Pronouncements

In December 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-06 “Reference Rate Reform (Topic 848)”. ASU No. 2022-06 updates and clarifies ASU No. 2020-04, which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of LIBOR and other interbank-offered reference rates. The temporary relief provided by ASU No. 2022-06 is effective immediately for certain reference rate-related contract modifications that occur through December 31, 2024. Management does not expect ASU No. 2022-06 to have a material impact on the financial statements.

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees of Federated Hermes Adjustable Rate Securities Trust and the Shareholders of Federated Hermes Adjustable Rate Fund:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Federated Hermes Adjustable Rate Fund (the Fund), a portfolio of Federated Hermes Adjustable Rate Securities Trust, including the portfolio of investments, as of August 31, 2023, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of August 31, 2023, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of August 31, 2023, by correspondence with custodians and brokers; when replies were not received from brokers, we performed other auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

We have served as the auditor for one or more of Federated Hermes’ investment companies since 2006.

Boston, Massachusetts
October 24, 2023

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Shareholder Expense Example (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or other service fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from March 1, 2023 to August 31, 2023.

ACTUAL EXPENSES

The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.

HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES

The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

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Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher. 

	Beginning Account Value 3/1/2023	Ending Account Value 8/31/2023	Expenses Paid During Period1
Actual:
Class A Shares	$1,000	$1,013.50	$2.79
Institutional Shares	$1,000	$1,014.70	$1.52
Hypothetical (assuming a 5% return before expenses):
Class A Shares	$1,000	$1,022.43	$2.80
Institutional Shares	$1,000	$1,023.69	$1.53

 

1 Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:

 

Class A Shares	0.55%
Institutional Shares	0.30%

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Board of Trustees and Fund Officers

The Board of Trustees is responsible for managing the Fund’s business affairs and for exercising all the Fund’s powers except those reserved for the shareholders. The following tables give information about each Trustee and the senior officers of the Fund. Where required, the tables separately list Trustees who are “interested persons” of the Fund (i.e., “Interested” Trustees) and those who are not (i.e., “Independent” Trustees). Unless otherwise noted, the address of each person listed is 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. The address of all Independent Trustees listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2022, the Fund comprised one portfolio(s), and the Federated Hermes Fund Family consisted of 33 investment companies (comprising 102 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Trustee oversees all portfolios in the Federated Hermes Fund Family and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Fund Trustees and is available, without charge and upon request, by calling 1-800-341-7400, Option #4.

Interested TRUSTEES Background 

Name Birth Date Positions Held with Fund Date Service Began

Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)

J. Christopher Donahue* Birth Date: April 11, 1949 President and Trustee Indefinite Term Began serving: April 1999

Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Hermes Fund Family; Director or Trustee of the Funds in the Federated Hermes Fund Family; President, Chief Executive Officer and Director, Federated Hermes, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman and Trustee, Federated Equity Management Company of Pennsylvania; Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd; Chairman, Passport Research, Ltd.

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Name Birth Date Positions Held with Fund Date Service Began

Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s)

John B. Fisher* Birth Date: May 16, 1956 Trustee Indefinite Term Began serving: May 2016

Principal Occupations: Principal Executive Officer and President of certain of the Funds in the Federated Hermes Fund Family; Director or Trustee of certain of the Funds in the Federated Hermes Fund Family; Director and Vice President, Federated Hermes, Inc.; President, Director/Trustee and CEO, 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; Director, Federated Investors Trust Company. Previous Positions: President and Director of the Institutional Sales Division of Federated Securities Corp.; President and CEO of Passport Research, Ltd.; Director and President, Technology, Federated Services Company.

*

Reasons for “interested” status: J. Christopher Donahue and John B. Fisher are interested due to their beneficial ownership of shares of Federated Hermes, Inc. and due to positions they hold with Federated Hermes, Inc. and its subsidiaries.

INDEPENDENT TRUSTEES Background 

Name Birth Date Positions Held with Fund Date Service Began

Principal Occupation(s) for Past Five Years, Other Directorships Held, Previous Position(s) and Qualifications

John T. Collins Birth Date: January 24, 1947 Trustee Indefinite Term Began serving: October 2013

Principal Occupations: Director or Trustee, and Chair of the Board of Directors or Trustees, of the Federated Hermes Fund Family; formerly, Chairman and CEO, The Collins Group, Inc. (a private equity firm) (Retired). Other Directorships Held: Director, KLX Energy Services Holdings, Inc. (oilfield services); former Director of KLX Corp. (aerospace). Qualifications: Mr. Collins has served in several business and financial management roles and directorship positions throughout his career. Mr. Collins previously served as Chairman and CEO of The Collins Group, Inc. (a private equity firm) and as a Director of KLX Corp. Mr. Collins serves as Chairman Emeriti, Bentley University. Mr. Collins previously served as Director and Audit Committee Member, Bank of America Corp.; Director, FleetBoston Financial Corp.; and Director, Beth Israel Deaconess Medical Center (Harvard University Affiliate Hospital).

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Name Birth Date Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held, Previous Position(s) and Qualifications
G. Thomas Hough Birth Date: February 28, 1955 Trustee Indefinite Term Began serving: August 2015	Principal Occupations: Director or Trustee, Chair of the Audit Committee of the Federated Hermes Fund Family; formerly, Vice Chair, Ernst & Young LLP (public accounting firm) (Retired). Other Directorships Held: Director, Chair of the Audit Committee, Equifax, Inc.; Lead Director, Member of the Audit and Nominating and Corporate Governance Committees, Haverty Furniture Companies, Inc.; formerly, Director, Member of Governance and Compensation Committees, Publix Super Markets, Inc. Qualifications: Mr. Hough has served in accounting, business management and directorship positions throughout his career. Mr. Hough most recently held the position of Americas Vice Chair of Assurance with Ernst & Young LLP (public accounting firm). Mr. Hough serves on the President’s Cabinet and Business School Board of Visitors for the University of Alabama. Mr. Hough previously served on the Business School Board of Visitors for Wake Forest University, and he previously served as an Executive Committee member of the United States Golf Association.
Maureen Lally-Green Birth Date: July 5, 1949 Trustee Indefinite Term Began serving: August 2009	Principal Occupations: Director or Trustee of the Federated Hermes Fund Family; Adjunct Professor Emerita of Law, Duquesne University School of Law; formerly, Dean of the Duquesne University School of Law and Professor of Law and Interim Dean of the Duquesne University School of Law; formerly, Associate General Secretary and Director, Office of Church Relations, Diocese of Pittsburgh. Other Directorships Held: Director, CNX Resources Corporation (natural gas). Qualifications: Judge Lally-Green has served in various legal and business roles and directorship positions throughout her career. Judge Lally-Green previously held the position of Dean of the School of Law of Duquesne University (as well as Interim Dean). Judge Lally-Green previously served as Associate General Secretary of the Diocese of Pittsburgh, a member of the Superior Court of Pennsylvania and as a Professor of Law, Duquesne University School of Law. Judge Lally- Green was appointed by the Supreme Court of Pennsylvania to serve on the Supreme Court’s Board of Continuing Judicial Education and the Supreme Court’s Appellate Court Procedural Rules Committee. Judge Lally-Green also currently holds the positions on not for profit or for profit boards of directors as follows: Director and Chair, UPMC Mercy Hospital; Regent, Saint Vincent Seminary; Member, Pennsylvania State Board of Education (public); Director, Catholic Charities, Pittsburgh; and Director CNX Resources Corporation (natural gas). Judge Lally-Green has held the positions of: Director, Auberle; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Ireland Institute of Pittsburgh; Director, Saint Thomas More Society; Director and Chair, Catholic High Schools of the Diocese of Pittsburgh, Inc.; Director, Pennsylvania Bar Institute; Director, St. Vincent College; Director and Chair, North Catholic High School, Inc.; Director and Vice Chair, Our Campaign for the Church Alive!, Inc.; and Director and Vice Chair, Saint Francis University.

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Name Birth Date Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held, Previous Position(s) and Qualifications
Thomas M. O’Neill Birth Date: June 14, 1951 Trustee Indefinite Term Began serving: August 2006	Principal Occupations: Director or Trustee of the Federated Hermes Fund Family; Sole Proprietor, Navigator Management Company (investment and strategic consulting). Other Directorships Held: None. Qualifications: Mr. O’Neill has served in several business, mutual fund and financial management roles and directorship positions throughout his career. Mr. O’Neill serves as Director, Medicines for Humanity. Mr. O’Neill previously served as Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber); and Director, The Golisano Children’s Museum of Naples, Florida.
Madelyn A. Reilly Birth Date: February 2, 1956 Trustee Indefinite Term Began serving: November 2020	Principal Occupations: Director or Trustee of the Federated Hermes Fund Family; formerly, Senior Vice President for Legal Affairs, General Counsel and Secretary of Board of Directors, Duquesne University (Retired). Other Directorships Held: None. Qualifications: Ms. Reilly has served in various business and legal management roles throughout her career. Ms. Reilly previously served as Senior Vice President for Legal Affairs, General Counsel and Secretary of Board of Directors and Director of Risk Management and Associate General Counsel, Duquesne University. Prior to her work at Duquesne University, Ms. Reilly served as Assistant General Counsel of Compliance and Enterprise Risk as well as Senior Counsel of Environment, Health and Safety, PPG Industries. Ms. Reilly currently serves as a member of the Board of Directors of UPMC Mercy Hospital.

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Name Birth Date Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years, Other Directorships Held, Previous Position(s) and Qualifications
P. Jerome Richey Birth Date: February 23, 1949 Trustee Indefinite Term Began serving: October 2013	Principal Occupations: Director or Trustee of the Federated Hermes Fund Family; Retired; formerly, Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh and Executive Vice President and Chief Legal Officer, CONSOL Energy Inc. (now split into two separate publicly traded companies known as CONSOL Energy Inc. and CNX Resources Corp.). Other Directorships Held: None. Qualifications: Mr. Richey has served in several business and legal management roles and directorship positions throughout his career. Mr. Richey most recently held the positions of Senior Vice Chancellor and Chief Legal Officer, University of Pittsburgh. Mr. Richey previously served as Chairman of the Board, Epilepsy Foundation of Western Pennsylvania and Chairman of the Board, World Affairs Council of Pittsburgh. Mr. Richey previously served as Chief Legal Officer and Executive Vice President, CONSOL Energy Inc. and CNX Gas Company; and Board Member, Ethics Counsel and Shareholder, Buchanan Ingersoll & Rooney PC (a law firm).
John S. Walsh Birth Date: November 28, 1957 Trustee Indefinite Term Began serving: April 1999	Principal Occupations: Director or Trustee of the Federated Hermes Fund Family; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Other Directorships Held: None. Qualifications: Mr. Walsh has served in several business management roles and directorship positions throughout his career. Mr. Walsh previously served as Vice President, Walsh & Kelly, Inc. (paving contractors).

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OFFICERS 

Name Birth Date Positions Held with Fund Date Service Began	Principal Occupation(s) for Past Five Years and Previous Position(s)
Lori A. Hensler Birth Date: January 6, 1967 TREASURER Officer since: April 2013	Principal Occupations: Principal Financial Officer and Treasurer of the Federated Hermes Fund Family; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp.; and Assistant Treasurer, Federated Investors Trust Company. Ms. Hensler has received the Certified Public Accountant designation. Previous Positions: Controller of Federated Hermes, Inc.; Senior Vice President and Assistant Treasurer, Federated Investors Management Company; Treasurer, Federated Investors Trust Company; Assistant Treasurer, Federated Administrative Services, Federated Administrative Services, Inc., Federated Securities Corp., Edgewood Services, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company, Passport Research, Ltd., and Federated MDTA, LLC; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
Peter J. Germain Birth Date: September 3, 1959 CHIEF LEGAL OFFICER, SECRETARY and EXECUTIVE VICE PRESIDENT Officer since: January 2005	Principal Occupations: Mr. Germain is Chief Legal Officer, Secretary and Executive Vice President of the Federated Hermes Fund Family. He is General Counsel, Chief Legal Officer, Secretary and Executive Vice President, Federated Hermes, Inc.; Trustee and Senior Vice President, Federated Investors Management Company; Trustee and President, Federated Administrative Services; Director and President, Federated Administrative Services, Inc.; Director and Vice President, Federated Securities Corp.; Director and Secretary, Federated Private Asset Management, Inc.; Secretary, Federated Shareholder Services Company; and Secretary, Retirement Plan Service Company of America. Mr. Germain joined Federated Hermes, Inc. in 1984 and is a member of the Pennsylvania Bar Association. Previous Positions: Deputy General Counsel, Special Counsel, Managing Director of Mutual Fund Services, Federated Hermes, Inc.; Senior Vice President, Federated Services Company; and Senior Corporate Counsel, Federated Hermes, Inc.
Stephen Van Meter Birth Date: June 5, 1975 CHIEF COMPLIANCE OFFICER AND SENIOR VICE PRESIDENT Officer since: July 2015	Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Hermes Fund Family; Vice President and Chief Compliance Officer of Federated Hermes, Inc. and Chief Compliance Officer of certain of its subsidiaries. Mr. Van Meter joined Federated Hermes, Inc. in October 2011. He holds FINRA licenses under Series 3, 7, 24 and 66. Previous Positions: Mr. Van Meter previously held the position of Compliance Operating Officer, Federated Hermes, Inc. Prior to joining Federated Hermes, Inc., Mr. Van Meter served at the United States Securities and Exchange Commission in the positions of Senior Counsel, Office of Chief Counsel, Division of Investment Management and Senior Counsel, Division of Enforcement.

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Name Birth Date Positions Held with Fund Date Service Began

Principal Occupation(s) for Past Five Years and Previous Position(s)

Robert J. Ostrowski Birth Date: April 26, 1963 Chief Investment Officer Officer since: May 2004

Principal Occupations: Robert J. Ostrowski joined Federated Hermes, Inc. in 1987 as an Investment Analyst and became a Portfolio Manager in 1990. He was named Chief Investment Officer of Federated Hermes’ taxable fixed-income products in 2004 and also serves as a Senior Portfolio Manager. Mr. Ostrowski became an Executive Vice President of the Fund’s Adviser in 2009 and served as a Senior Vice President of the Fund’s Adviser from 1997 to 2009. Mr. Ostrowski has received the Chartered Financial Analyst designation. He received his M.S. in Industrial Administration from Carnegie Mellon University.

 

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Evaluation and Approval of Advisory Contract–May 2023

Federated Hermes Adjustable Rate Fund (the “Fund”)

At its meetings in May 2023 (the “May Meetings”), the Fund’s Board of Trustees (the “Board”), including those Trustees who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940 (the “Independent Trustees”), reviewed and unanimously approved the continuation of the investment advisory contract between the Fund and Federated Investment Management Company (the “Adviser”) (the “Contract”) for an additional one-year term. The Board’s determination to approve the continuation of the Contract reflects the exercise of its business judgment after considering all of the information and factors believed to be relevant and appropriate on whether to approve the continuation of the existing arrangement. The information, factors and conclusions that formed the basis for the Board’s approval are summarized below.

Information Received and Review Process

At the request of the Independent Trustees, the Fund’s Chief Compliance Officer (the “CCO”) furnished to the Board in advance of its May Meetings an independent written evaluation of the Fund’s management fee (the “CCO Fee Evaluation Report”). The Board considered the CCO Fee Evaluation Report, along with other information, in evaluating the reasonableness of the Fund’s management fee and in determining to approve the continuation of the Contract. The CCO, in preparing the CCO Fee Evaluation Report, has the authority to retain consultants, experts or staff as reasonably necessary to assist in the performance of his duties, reports directly to the Board, and can be terminated only with the approval of a majority of the Independent Trustees. At the request of the Independent Trustees, the CCO Fee Evaluation Report followed the same general approach and covered the same topics as that of the report that had previously been delivered by the CCO in his capacity as “Senior Officer” prior to the elimination of the Senior Officer position in December 2017.

In addition to the extensive materials that comprise and accompany the CCO Fee Evaluation Report, the Board considered information specifically prepared in connection with the approval of the continuation of the Contract that was presented at the May Meetings. In this regard, in the months preceding the May Meetings, the Board requested and reviewed written responses and supporting materials prepared by the Adviser and its affiliates (collectively, “Federated Hermes”) in response to requests posed to Federated Hermes by independent legal counsel on behalf of the Independent Trustees encompassing a wide variety of topics, including those summarized below. The Board also considered such additional matters as the Independent Trustees deemed

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reasonably necessary to evaluate the Contract, which included detailed information about the Fund and Federated Hermes furnished to the Board at its meetings throughout the year and in between regularly scheduled meetings on particular matters as the need arose.

The Board’s consideration of the Contract included review of materials and information covering the following matters, among others: the nature, quality and extent of the advisory and other services provided to the Fund by Federated Hermes; Federated Hermes’ business and operations; the Adviser’s investment philosophy, personnel and processes; the Fund’s investment objectives and strategies; the Fund’s short-term and long-term performance (in absolute terms, both on a gross basis and net of expenses, and relative to the Fund’s particular investment program and a group of its peer funds and/or its benchmark, as appropriate); the Fund’s fees and expenses, including the advisory fee and the overall expense structure of the Fund (both in absolute terms and relative to a group of its peer funds), with due regard for contractual or voluntary expense limitations (if any); the financial condition of Federated Hermes; the Adviser’s profitability with respect to managing the Fund; distribution and sales activity for the Fund; and the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any).

The Board also considered judicial decisions concerning allegedly excessive investment advisory fees charged to other registered funds in evaluating the Contract. Using these judicial decisions as a guide, the Board observed that the following factors may be relevant to an adviser’s fiduciary duty with respect to its receipt of compensation from a fund: (1) the nature and quality of the services provided by the adviser to the fund and its shareholders, including the performance of the fund, its benchmark and comparable funds; (2) the adviser’s cost of providing the services and the profitability to the adviser of providing advisory services to the fund; (3) the extent to which the adviser may realize “economies of scale” as the fund grows larger and, if such economies of scale exist, whether they have been appropriately shared with the fund and its shareholders or the family of funds; (4) any “fall-out” benefits that accrue to the adviser because of its relationship with the fund, including research services received from brokers that execute fund trades and any fees paid to affiliates of the adviser for services rendered to the fund; (5) comparative fee and expense structures, including a comparison of management fees paid to the adviser with those paid by similar funds managed by the same adviser or other advisers as well as management fees charged to institutional and other advisory clients of the same adviser for what might be viewed as like services; and (6) the extent of care, conscientiousness and independence with which the fund’s board members perform their duties and their expertise, including whether they are fully informed about all facts the board deems relevant to its consideration of the adviser’s services and fees. The Board noted that the Securities and Exchange Commission (“SEC”) disclosure requirements

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regarding the basis for a fund board’s approval of the fund’s investment advisory contract generally align with the factors listed above. The Board was guided by these factors in its evaluation of the Contract to the extent it considered them to be appropriate and relevant, as discussed further below. The Board considered and weighed these factors in light of its substantial accumulated experience in governing the Fund and working with Federated Hermes on matters relating to the oversight of the other funds advised by Federated Hermes (each, a “Federated Hermes Fund” and, collectively, the “Federated Hermes Funds”).

In addition, the Board considered the preferences and expectations of Fund shareholders and the potential disruptions of the Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew the Contract. In particular, the Board recognized that many shareholders likely have invested in the Fund based on the strength of Federated Hermes’ industry standing and reputation and with the expectation that Federated Hermes will have a continuing role in providing advisory services to the Fund. Thus, the Board observed that there are a range of investment options available to the Fund’s shareholders and such shareholders in the marketplace, having had the opportunity to consider other investment options, have effectively selected Federated Hermes by virtue of investing in the Fund.

In determining to approve the continuation of the Contract, the members of the Board reviewed and evaluated information and factors they believed to be relevant and appropriate through the exercise of their reasonable business judgment. While individual members of the Board may have weighed certain factors differently, the Board’s determination to approve the continuation of the Contract was based on a comprehensive consideration of all information provided to the Board throughout the year and specifically with respect to the continuation of the Contract. The Board recognized that its evaluation process is evolutionary and that the factors considered and emphasis placed on relevant factors may change in recognition of changing circumstances in the registered fund marketplace. The Independent Trustees were assisted throughout the evaluation process by independent legal counsel. In connection with their deliberations at the May Meetings, the Independent Trustees met separately in executive session with their independent legal counsel and without management present to review the relevant materials and consider their responsibilities under applicable laws. In addition, senior management representatives of Federated Hermes also met with the Independent Trustees and their independent legal counsel to discuss the materials and presentations furnished to the Board at the May Meetings. The Board considered the approval of the Contract for the Fund as part of its consideration of agreements for funds across the family of Federated Hermes Funds, but its approvals were made on a fund-by-fund basis.

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Nature, Extent and Quality of Services

The Board considered the nature, extent and quality of the services provided to the Fund by the Adviser and the resources of Federated Hermes dedicated to the Fund. In this regard, the Board evaluated, among other things, the terms of the Contract and the range of services provided to the Fund by Federated Hermes. The Board considered the Adviser’s personnel, investment philosophy and process, investment research capabilities and resources, trade operations capabilities, experience and performance track record. The Board reviewed the qualifications, backgrounds and responsibilities of the portfolio management team primarily responsible for the day-to-day management of the Fund and Federated Hermes’ ability and experience in attracting and retaining qualified personnel to service the Fund. The Board considered the trading operations by the Advisers, including the execution of portfolio transactions and the selection of brokers for those transactions. The Board also considered the Adviser’s ability to deliver competitive investment performance for the Fund when compared to the Fund’s Performance Peer Group (as defined below), which was deemed by the Board to be a useful indicator of how the Adviser is executing the Fund’s investment program.

In addition, the Board considered the financial resources and overall reputation of Federated Hermes and its willingness to consider and make investments in personnel, infrastructure, technology, cybersecurity, business continuity planning and operational enhancements that are designed to benefit the Federated Hermes Funds. The Board noted that the significant acquisition of Hermes Fund Managers Limited by Federated Hermes has deepened Federated Hermes’ investment management expertise and capabilities and its access to analytical resources related to environmental, social and governance (“ESG”) factors and issuer engagement on ESG matters. The Board considered Federated Hermes’ oversight of the securities lending program for the Federated Hermes Funds that engage in securities lending and noted the income earned by the Federated Hermes Funds that participate in such program. In addition, the Board considered the quality of Federated Hermes’ communications with the Board and responsiveness to Board inquiries and requests made from time to time with respect to the Federated Hermes Funds. The Board also considered that Federated Hermes is responsible for providing the Federated Hermes Funds’ officers.

The Board received and evaluated information regarding Federated Hermes’ regulatory and compliance environment. The Board considered Federated Hermes’ compliance program and compliance history and reports from the CCO about Federated Hermes’ compliance with applicable laws and regulations, including responses to regulatory developments and any compliance or other issues raised by regulatory agencies. The Board also noted Federated Hermes’ support of the Federated Hermes Funds’ compliance control structure and the compliance-related resources devoted by Federated Hermes in support of the Fund’s obligations pursuant to Rule 38a-1 under the

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Investment Company Act of 1940, including Federated Hermes’ commitment to respond to rulemaking and other regulatory initiatives of the SEC. The Board considered Federated Hermes’ approach to internal audits and risk management with respect to the Federated Hermes Funds and its day-to-day oversight of the Federated Hermes Funds’ compliance with their investment objectives and policies as well as with applicable laws and regulations, noting that regulatory and other developments had over time led, and continue to lead, to an increase in the scope of Federated Hermes’ oversight in this regard, including in connection with the implementation of new rules on derivatives risk management and fair valuation.

The Board also considered the implementation of Federated Hermes’ business continuity plans. In addition, the Board noted Federated Hermes’ commitment to maintaining high quality systems and expending substantial resources to prepare for and respond to ongoing changes due to the market, regulatory and control environments in which the Fund and its service providers operate.

The Board considered Federated Hermes’ efforts to provide shareholders in the Federated Hermes Funds with a comprehensive array of funds with different investment objectives, policies and strategies. The Board considered the expenses that Federated Hermes had incurred, as well as the entrepreneurial and other risks assumed by Federated Hermes, in sponsoring and providing on-going services to new funds to expand these opportunities for shareholders. The Board noted the benefits to shareholders of being part of the family of Federated Hermes Funds, which include the general right to exchange investments between the same class of shares without the incurrence of additional sales charges.

Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of the services provided by the Adviser to the Fund.

Fund Investment Performance

The Board considered the investment performance of the Fund. In evaluating the Fund’s investment performance, the Board considered performance results in light of the Fund’s investment objective, strategies and risks. The Board considered detailed investment reports on, and the Adviser’s analysis of, the Fund’s performance over different time periods that were provided to the Board throughout the year and in connection with the May Meetings. These reports included, among other items, information on the Fund’s gross and net returns, the Fund’s investment performance compared to one or more relevant categories or groups of peer funds and the Fund’s benchmark index, performance attribution information and commentary on the effect of market conditions. The Board considered that, in its evaluation of investment performance at meetings throughout the year, it focused particular attention on information indicating less favorable performance of certain

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Federated Hermes Funds for specific time periods and discussed with Federated Hermes the reasons for such performance as well as any specific actions Federated Hermes had taken, or had agreed to take, to seek to enhance Fund investment performance and the results of those actions.

The Board also reviewed comparative information regarding the performance of other registered funds in the category of peer funds selected by Morningstar, Inc. (the “Morningstar”), an independent fund ranking organization (the “Performance Peer Group”). The Board noted the CCO’s view that comparisons to fund peer groups may be helpful, though not conclusive, in evaluating the performance of the Adviser in managing the Fund. The Board considered in the CCO’s view that, in evaluating such comparisons, in some cases there may be differences in the funds’ objectives or investment management techniques, or the costs to implement the funds, even within the same Performance Peer Group.

The Board considered that for the one-year, three-year and five-year periods ended December 31, 2022, the Fund’s performance was above the median of the Performance Peer Group.

Based on these considerations, the Board concluded that it had continued confidence in the Adviser’s overall capabilities to manage the Fund.

Fund Expenses

The Board considered the advisory fee and overall expense structure of the Fund and the comparative fee and expense information that had been provided in connection with the May Meetings. In this regard, the Board was presented with, and considered, information regarding the contractual advisory fee rates, net advisory fee rates, total expense ratios and each element of the Fund’s total expense ratio (i.e., gross and net advisory fees, administrative fees, custody fees, portfolio accounting fees and transfer agency fees) relative to an appropriate group of peer funds compiled by Federated Hermes from the category of peer funds selected by Morningstar (the “Expense Peer Group”). The Board received a description of the methodology used to select the Expense Peer Group from the overall Morningstar category. The Board also reviewed comparative information regarding the fees and expenses of the broader group of funds in the overall Morningstar category.

While mindful that courts have cautioned against giving too much weight to comparative information concerning fees charged to funds by other advisers, the use of comparisons between the Fund and its Expense Peer Group assisted the Board in its evaluation of the Fund’s fees and expenses. The Board focused on comparisons with other registered funds with comparable investment programs more heavily than non-registered fund products or services because such comparisons are believed to be more relevant. The Board considered that other registered funds are the products most like the Fund, in that they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle, in fact, chosen and maintained by the

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Fund’s shareholders. The Board noted that the range of such other registered funds’ fees and expenses, therefore, appears to be a relevant indicator of what investors have found to be reasonable in the marketplace in which the Fund competes.

The Board noted that, for the year ended December 31, 2022, the Fund’s investment advisory fee was waived in its entirety. The Board reviewed the contractual advisory fee rate, net advisory fee rate and other expenses of the Fund with the Adviser and noted the position of the Fund’s fee rates relative to its Expense Peer Group. In this regard, the Board noted that the contractual advisory fee rate was below the median of the Expense Peer Group and the Board was satisfied that the overall expense structure of the Fund remained competitive. In 2021, the Board approved a reduction of 5 basis points in the contractual advisory fee. In 2022, the Board approved a reduction of 5 basis points in the contractual advisory fee.

The Board also received and considered information about the nature and extent of services offered and fees charged by Federated Hermes to other types of clients with investment strategies similar to those of the Federated Hermes Funds, including non-registered fund clients (such as institutional separate accounts) and third-party unaffiliated registered funds for which the Adviser or its affiliates serve as sub-adviser. The Board noted the CCO’s conclusion that non-registered fund clients are inherently different products due to the following differences, among others: (i) different types of targeted investors; (ii) different applicable laws and regulations; (iii) different legal structures; (iv) different average account sizes and portfolio management techniques made necessary by different cash flows and different associated costs; (v) the time spent by portfolio managers and their teams (among other personnel across various departments, including legal, compliance and risk management) in reviewing securities pricing and fund liquidity; (vi) different administrative responsibilities; (vii) different degrees of risk associated with management; and (viii) a variety of different costs. The Board also considered information regarding the differences in the nature of the services required for Federated Hermes to manage its proprietary registered fund business versus managing a discrete pool of assets as a sub-adviser to another institution’s registered fund, noting the CCO’s view that Federated Hermes generally performs significant additional services and assumes substantially greater risks in managing the Fund and other Federated Hermes Funds than in its role as sub-adviser to an unaffiliated third-party registered fund. The Board noted that the CCO did not consider the fees for providing advisory services to other types of clients to be determinative in judging the appropriateness of the Federated Hermes Funds’ advisory fees.

Based on these considerations, the Board concluded that the fees and total operating expenses of the Fund, in conjunction with other matters considered, are reasonable in light of the services provided.

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Profitability

The Board received and considered profitability information furnished by Federated Hermes, as requested by the CCO. Such profitability information included revenues reported on a fund-by-fund basis and estimates of the allocation of expenses made on a fund-by-fund basis, using allocation methodologies specified by the CCO and described to the Board. The Board considered the CCO’s view that, while these cost allocation reports apply consistent allocation processes, the inherent difficulties in allocating costs on a fund-by-fund basis continues to cause the CCO to question the precision of the process and to conclude that such reports may be unreliable because a single change in an allocation estimate may dramatically alter the resulting estimate of cost and/or profitability of a Federated Hermes Fund and may produce unintended consequences. In addition, the Board considered the CCO’s view that the allocation methodologies used by Federated Hermes in estimating profitability for purposes of reporting to the Board in connection with the continuation of the Contract are consistent with the methodologies previously reviewed by an independent consultant. The Board noted that the independent consultant had previously conducted a review of the allocation methodologies and reported to the Board that, although there is no single best method to allocate expenses, the methodologies used by Federated Hermes are reasonable. The Board considered the CCO’s view that the estimated profitability to the Adviser from its relationship with the Fund was not unreasonable in relation to the services provided.

The Board also reviewed information compiled by Federated Hermes comparing its profitability information to other publicly held fund management companies, including information regarding profitability trends over time. The Board recognized that profitability comparisons among fund management companies are difficult because of the variation in the type of comparative information that is publicly available, and the profitability of any fund management company is affected by numerous factors. The Board considered the CCO’s conclusion that, based on such profitability information, Federated Hermes’ profit margins did not appear to be excessive. The Board also considered the CCO’s view that Federated Hermes appeared financially sound, with the resources necessary to fulfill its obligations under its contracts with the Federated Hermes Funds.

Economies of Scale

The Board received and considered information about the notion of possible realization of “economies of scale” as a fund grows larger, the difficulties of determining economies of scale at an individual fund level, and the extent to which potential scale benefits are shared with shareholders. In this regard, the Board considered that Federated Hermes has made significant and long-term investments in areas that support all of the Federated Hermes Funds, such as: portfolio management, investment research and trading operations; shareholder services; compliance; business continuity, cybersecurity and information

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security programs; internal audit and risk management functions; and technology and use of data. The Board noted that Federated Hermes’ investments in these areas are extensive and are designed to provide enhanced services to the Federated Hermes Funds and their shareholders. The Board considered that the benefits of these investments are likely to be shared with the family of Federated Hermes Funds as a whole. In addition, the Board considered that fee waivers and expense reimbursements are another means for potential economies of scale to be shared with shareholders and can provide protection from an increase in expenses if a Federated Hermes Fund’s assets decline. The Board considered that, in order for the Federated Hermes Funds to remain competitive in the marketplace, Federated Hermes has frequently waived fees and/or reimbursed expenses for the Federated Hermes Funds and has disclosed to shareholders and/or reported to the Board its intention to do so (or continue to do so) in the future. The Board also considered that Federated Hermes has been active in managing expenses of the Federated Hermes Funds in recent years, which has resulted in benefits being realized by shareholders.

The Board also received and considered information on adviser-paid fees (commonly referred to as “revenue sharing” payments) that was provided to the Board throughout the year and in connection with the May Meetings. The Board considered that Federated Hermes and the CCO believe that this information is relevant to considering whether Federated Hermes had an incentive to either not apply breakpoints, or to apply breakpoints at higher levels, but should not be considered when evaluating the reasonableness of advisory fees. The Board also noted the absence of any applicable regulatory or industry guidelines economies of scale, which is compounded by the lack of any uniform methodology or pattern with respect to structuring fund advisory fees with breakpoints that serve to reduce the fees as a fund attains a certain size.

Other Benefits

The Board considered information regarding the compensation and other ancillary (or “fall-out”) benefits that Federated Hermes derived from its relationships with the Federated Hermes Funds. The Board noted that, in addition to receiving advisory fees under the Federated Hermes Funds’ investment advisory contracts, Federated Hermes’ affiliates also receive fees for providing other services to the Federated Hermes Funds under separate service contracts including for serving as the Federated Hermes Funds’ administrator and distributor. In this regard, the Board considered that certain of Federated Hermes’ affiliates provide distribution and shareholder services to the Federated Hermes Funds, for which they may be compensated through distribution and servicing fees paid pursuant to Rule 12b-1 plans or otherwise. The Board also received and considered information detailing the benefits, if any, that Federated Hermes may derive from its receipt of research services from brokers who execute portfolio trades for the Federated Hermes Funds.

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Conclusions

The Board considered: (i) the CCO’s conclusion that his observations and the information accompanying the CCO Fee Evaluation Report show that the management fee for the Fund is reasonable; and (ii) the CCO’s recommendation that the Board approve the management fee. The Board noted that, under these circumstances, no changes were recommended to, and no objection was raised to the continuation of, the Contract by the CCO. The CCO also recognized that the Board’s evaluation of the Federated Hermes Funds’ advisory and sub-advisory arrangements is a continuing and ongoing process that is informed by the information that the Board requests and receives from management throughout the course of the year and, in this regard, the CCO noted certain items for future reporting to the Board or further consideration by management as the Board continues its ongoing oversight of the Federated Hermes Funds.

On the basis of the information and factors summarized above, among other information and factors deemed relevant by the Board, and the evaluation thereof, the Board, including the Independent Trustees, unanimously voted to approve the continuation of the Contract. The Board based its determination to approve the Contract on the totality of the circumstances and relevant factors and with a view of past and future long-term considerations. Not all of the factors and considerations identified above were necessarily deemed to be relevant to the Fund, nor did the Board consider any one of them to be determinative.

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Liquidity Risk Management Program–
Annual Evaluation of Adequacy and Effectiveness

In accordance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Federated Hermes Adjustable Rate Securities Trust (the “Trust”) has adopted and implemented a liquidity risk management program (the “Program”) for Federated Hermes Adjustable Rate Fund (the “Fund” and, collectively with the other non-money market open-end funds advised by Federated Hermes, the “Federated Hermes Funds”). The Program seeks to assess and manage the Fund’s liquidity risk. “Liquidity risk” is defined under the Liquidity Rule as the risk that the Fund is unable to meet redemption requests without significantly diluting remaining investors’ interests in the Fund. The Board of Trustees of the Trust (the “Board”) has approved the designation of each Federated Hermes Fund’s investment adviser as the administrator for the Program (the “Administrator”) with respect to that Fund. The Administrator, in turn, has delegated day-to-day responsibility for the administration of the Program to multiple Liquidity Risk Management Committees, which are comprised of representatives from certain divisions within Federated Hermes.

The Program is comprised of various components designed to support the assessment and/or management of liquidity risk, including: (1) the periodic assessment (no less frequently than annually) of certain factors that influence the Fund’s liquidity risk; (2) the periodic classification (no less frequently than monthly) of the Fund’s investments into one of four liquidity categories that reflect an estimate of their liquidity under current market conditions; (3) a 15% limit on the acquisition of “illiquid investments” (as defined under the Liquidity Rule); (4) to the extent a Fund does not invest primarily in “highly liquid investments” (as defined under the Liquidity Rule), the determination of a minimum percentage of the Fund’s assets that generally will be invested in highly liquid investments (an “HLIM”); (5) if a Fund has established an HLIM, the periodic review (no less frequently than annually) of the HLIM and the adoption of policies and procedures for responding to a shortfall of the Fund’s highly liquid investments below its HLIM; and (6) periodic reporting to the Board.

At its meetings in May 2023, the Board received and reviewed a written report (the “Report”) from the Federated Hermes Funds’ Chief Compliance Officer and Chief Risk Officer, on behalf of the Administrator, concerning the operation of the Program for the period from April 1, 2022 through March 31, 2023 (the “Period”). The Report addressed the operation of the Program and assessed the adequacy and effectiveness of its implementation, including, where applicable, the operation of any HLIM established for a Federated Hermes Fund. There were no material changes to the Program during the Period. The Report summarized the operation of the Program and

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the information and factors considered by the Administrator in assessing whether the Program has been adequately and effectively implemented with respect to the Federated Hermes Funds. Such information and factors included, among other things:

◾ confirmation that it was not necessary for the Fund to utilize, and the Fund did not utilize, any alternative funding sources that were available to the Federated Hermes Funds during the Period, such as the Federated Hermes Funds’ interfund lending facility, redemptions in-kind, reverse repurchase agreement transactions, redemptions delayed beyond the normal T+1 settlement but within seven days of the redemption request, and committed lines of credit;

◾ the periodic classifications of the Fund’s investments into one of four liquidity categories and the methodologies and inputs used to classify the investments, including the Fund’s reasonably anticipated trade size;

◾ the analysis received from a third-party liquidity assessment vendor that is taken into account in the process of determining the liquidity classifications of the Fund’s investments, and the results of the Administrator’s evaluation of the services performed by the vendor in support of this process, including the Administrator’s view that the methodologies utilized by the vendor continue to be appropriate;

◾ the fact that the Fund invested primarily in highly liquid investments during the Period and, therefore, was not required to establish, and has not established, an HLIM and the operation of the procedures for monitoring the status of the Fund as investing primarily in highly liquid investments;

◾ the fact that the Fund invested no more than 15% of its assets in illiquid investments during the Period, and the operation of the procedures for monitoring this limit;

◾ the fact that there were no liquidity events during the Period that materially affected the Fund’s liquidity risk;

◾ the impact on liquidity and management of liquidity risk, if any, caused by extended non-U.S. market closures and confirmation that there were no issues for any of the affected Federated Hermes Funds in meeting shareholder redemptions at any time during these temporary non-U.S. market closures.

Based on this review, the Administrator concluded that the Program is operating effectively to assess and manage the Fund’s liquidity risk, and that the Program has been and continues to be adequately and effectively implemented to monitor and, as applicable, respond to the Fund’s liquidity developments.

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Voting Proxies on Fund Portfolio Securities

A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400, Option #4. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available via the Proxy Voting Record (Form N-PX) link associated with the Fund and share class name at FederatedHermes.com/us/FundInformation. Form N-PX filings are also available at the SEC’s website at sec.gov.

Quarterly Portfolio Schedule

Each fiscal quarter, the Fund will file with the SEC a complete schedule of its monthly portfolio holdings on “Form N-PORT.” The Fund’s holdings as of the end of the third month of every fiscal quarter, as reported on Form N-PORT, will be publicly available on the SEC’s website at sec.gov within 60 days of the end of the fiscal quarter upon filing. You may also access this information via the link to the Fund and share class name at FederatedHermes.com/us.

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Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.

This Report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
  

 

Federated Hermes Adjustable Rate Fund
Federated Hermes Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561

Contact us atFederatedHermes.com/us
or call 1-800-341-7400.

Federated Securities Corp., Distributor

CUSIP 314082108
CUSIP 314082306

28996 (10/23)

© 2023 Federated Hermes, Inc.

Item 2. Code of Ethics

(a) As of the end of the period covered by this report, the registrant has adopted a code of ethics (the "Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers") that applies to the registrant's Principal Executive Officer and Principal Financial Officer; the registrant's Principal Financial Officer also serves as the Principal Accounting Officer.

(c) There was no amendment to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.

(d) There was no waiver granted, either actual or implicit, from a provision to the registrant’s code of ethics described in Item 2(a) above during the period covered by the report.

(e) Not Applicable

(f)(3) The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers.

Item 3. Audit Committee Financial Expert

The registrant's Board has determined that each of the following members of the Board's Audit Committee is an “audit committee financial expert,” and is "independent," for purposes of this Item:   G. Thomas Hough and Thomas M. O'Neill.

Item 4. Principal Accountant Fees and Services

(a)       Audit Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2023 – $36,801

Fiscal year ended 2022 - $35,049

(b)       Audit-Related Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2023 - $0

Fiscal year ended 2022 - $4,690

Fiscal year ended 2022- Audit consent fee for N-1A filing.

Amount requiring approval of the registrant’s Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.

(c)        Tax Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2023 - $0

Fiscal year ended 2022 - $0

Amount requiring approval of the registrant’s Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.

(d)       All Other Fees billed to the registrant for the two most recent fiscal years:

Fiscal year ended 2023 - $0

Fiscal year ended 2022 - $0

Amount requiring approval of the registrant’s Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0 respectively.

(e)(1) Audit Committee Policies regarding Pre-approval of Services.

The Audit Committee is required to pre-approve audit and non-audit services performed by the independent auditor in order to assure that the provision of such services do not impair the auditor’s independence. Unless a type of service to be provided by the independent auditor has received general pre-approval, it will require specific pre-approval by the Audit Committee. Any proposed services exceeding pre-approved cost levels will require specific pre-approval by the Audit Committee.

Certain services have the general pre-approval of the Audit Committee. The term of the general pre-approval is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different period. The Audit Committee will annually review the services that may be provided by the independent auditor without obtaining specific pre-approval from the Audit Committee and may grant general pre-approval for such services. The Audit Committee will revise the list of general pre-approved services from time to time, based on subsequent determinations. The Audit Committee will not delegate to management its responsibilities to pre-approve services performed by the independent auditor.

The Audit Committee has delegated pre-approval authority to its chairman (the “Chairman”) for services that do not exceed a specified dollar threshold. The Chairman or Chief Audit Executive will report any such pre-approval decisions to the Audit Committee at its next scheduled meeting. The Committee will designate another member with such pre-approval authority when the Chairman is unavailable.

AUDIT SERVICES

The annual audit services engagement terms and fees will be subject to the specific pre-approval of the Audit Committee. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope, registered investment company (RIC) structure or other matters.

In addition to the annual audit services engagement specifically approved by the Audit Committee, the Audit Committee may grant general pre-approval for other audit services, which are those services that only the independent auditor reasonably can provide. The Audit Committee has pre-approved certain audit services; with limited exception, all other audit services must be specifically pre-approved by the Audit Committee.

AUDIT-RELATED SERVICES

Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the RIC’s financial statements or that are traditionally performed by the independent auditor. The Audit Committee believes that the provision of audit-related services does not impair the independence of the auditor, and has pre-approved certain audit-related services; all other audit-related services must be specifically pre-approved by the Audit Committee.

TAX SERVICES

The Audit Committee believes that the independent auditor can provide tax services to the RIC such as tax compliance, tax planning and tax advice without impairing the auditor’s independence. However, the Audit Committee will not permit the retention of the independent auditor in connection with a transaction initially recommended by the independent auditor, the purpose of which may be tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Audit Committee has pre-approved certain tax services; with limited exception, all tax services involving large and complex transactions must be specifically pre-approved by the Audit Committee.

ALL OTHER SERVICES

With respect to the provision of permissible services other than audit, review or attest services the pre-approval requirement is waived if:

(1)With respect to such services rendered to the Funds, the aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the audit client to its accountant during the fiscal year in which the services are provided; and,

(2)With respect to such services rendered to the Fund’s investment adviser ( the “Adviser”)and any entity controlling, controlled by to under common control with the Adviser such as affiliated non-U.S. and U.S. funds not under the Audit Committee’s purview and which do not fall within a category of service which has been determined by the Audit Committee not to have a direct impact on the operations or financial reporting of the RIC, the aggregate amount of all services provided constitutes no more than five percent of the total amount of revenues paid to the RIC’s auditor by the RIC, its Adviser and any entity controlling, controlled by, or under common control with the Adviser during the fiscal year in which the services are provided; and

(3)Such services were not recognized by the issuer or RIC at the time of the engagement to be non-audit services; and

(4)Such services are promptly brought to the attention of the Audit Committee and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the Board of Directors to whom authority to grant such approvals has been delegated by the Audit Committee.

The Audit Committee may grant general pre-approval to those permissible non-audit services which qualify for pre-approval and which it believes are routine and recurring services, and would not impair the independence of the auditor.

The Securities and Exchange Commission’s (the “SEC”) rules and relevant guidance should be consulted to determine the precise definitions of these services and applicability of exceptions to certain of the prohibitions.

PRE-APPROVAL FEE LEVELS

Pre-approval fee levels for all services to be provided by the independent auditor will be established annually by the Audit Committee. Any proposed services exceeding these levels will require specific pre-approval by the Audit Committee.

PROCEDURES

Requests or applications to provide services that require specific approval by the Audit Committee will be submitted to the Audit Committee by the Fund’s Principal Accounting Officer and/or the Chief Audit Executive of Federated Hermes, Inc., only after those individuals have determined that the request or application is consistent with the SEC’s rules on auditor independence.

(e)(2) Percentage of services identified in items 4(b) through 4(d) that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X:

4(b)

Fiscal year ended 2023 – 0%

Fiscal year ended 2022 - 0%

Percentage of services provided to the registrant’s Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.

4(c)

Fiscal year ended 2023 – 0%

Fiscal year ended 2022 – 0%

Percentage of services provided to the registrant’s Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.

4(d)

Fiscal year ended 2023 – 0%

Fiscal year ended 2022 – 0%

Percentage of services provided to the registrant’s Adviser and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were approved by the registrant’s Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X, 0% and 0% respectively.

(f)NA

(g)Non-Audit Fees billed to the registrant, the registrant’s Adviser, and certain entities controlling, controlled by or under common control with the Adviser:

Fiscal year ended 2023 - $51,847

Fiscal year ended 2022 - $23,216

(h)       The registrant’s Audit Committee has considered that the provision of non-audit services that were rendered to the registrant’s Adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

Item 5. Audit Committee of Listed Registrants

Not Applicable

Item 6. Schedule of Investments

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.

(b) Not Applicable; Fund had no divestments during the reporting period covered since the previous Form N-CSR filing.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not Applicable

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Not Applicable

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

Not Applicable

Item 10. Submission of Matters to a Vote of Security Holders

No Changes to Report

Item 11. Controls and Procedures

(a) The registrant’s President and Treasurer have concluded that the

registrant’s disclosure controls and procedures (as defined in rule 30a-3(c) under the Act) are effective in design and operation and are sufficient to form the basis of the certifications required by Rule 30a-(2) under the Act, based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in rule 30a-3(d) under the Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies

Not Applicable

Item 13. Exhibits

(a)(1) Code of Ethics- Not Applicable to this Report.

(a)(2) Certifications of Principal Executive Officer and Principal Financial Officer.

(a)(3) Not Applicable.

(b) Certifications pursuant to 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant Federated Hermes Adjustable Rate Securities Trust

By /S/ Lori A. Hensler

Lori A. Hensler, Principal Financial Officer

Date October 24, 2023

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By /S/ J. Christopher Donahue

J. Christopher Donahue, Principal Executive Officer

Date October 24, 2023

By /S/ Lori A. Hensler

Lori A. Hensler, Principal Financial Officer

Date October 24, 2023