United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered Management Investment Companies
811-10625
(Investment Company Act File Number)
Federated Core Trust II, L.P.
_______________________________________________________________
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
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: 11/30/04
Date of Reporting Period: Six months ended 5/31/04
Item 1. Reports to Stockholders
EMERGING MARKETS FIXED INCOME CORE FUND
PORTFOLIO OF INVESTMENTS
May 31, 2004 (unaudited)
Principal Value in
Amount U.S.
Dollars
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Corporate Bonds--22.3%
Banking--1.0%
$ 1,000,000 Banco Mercantil Norte CI, Series 144A, 5.875%,
2/17/2014 $ 970,160
Brewing--1.8%
1,700,000 Bavaria, Series 144A, 8.875%, 11/1/2010 1,721,250
Broadcast Radio & TV--2.0%
1,900,000 Grupo Televisa SA, Sr. Note, 8.500%, 3/11/2032 1,935,625
Cable & Wireless Television--0.8%
360,000 Innova S De R.L., 9.375%, 9/19/2013 373,500
398,933 Innova S De R.L., Sr. Note, 12.875%, 4/1/2007 400,928
Total 774,428
Container & Glass Products--2.1%
600,000 Vicap SA, Sr. Note, Series EXCH, 11.375%, 5/15/2007 597,000
1,600,000 Vitro SA, Note, Series 144A, 11.750%, 11/1/2013 1,464,000
Total 2,061,000
Oil & Gas--8.6%
1,500,000 Gaz Capital SA, Note, Series 144A, 8.625%, 4/28/2034 1,481,250
1,440,000 Gazprom, Note, Series 144A, 9.625%, 3/1/2013 1,484,496
2,500,000 Pemex Project Funding Master, Company Guarantee,
7.375%, 12/15/2014 2,537,500
1,000,000 Petronas Capital Ltd., Series REGS, 7.875%, 5/22/2022 1,100,600
2,200,000 1Petrozuata Finance Inc., Company Guarantee, Series
144A, 8.220%, 4/1/2017 1,859,000
Total 8,462,846
Paper Products--0.6%
600,000 2Corporacion Durango SA De CV, Sr. Note, 13.125%,
8/1/2006 319,500
500,000 2Corporacion Durango SA De CV, Sr. Note, Series 144A,
13.750%, 7/15/2009 266,250
Total 585,750
Steel--1.3%
1,500,000 1CSN Islands VIII Corp., Company Guarantee, Series
144A, 9.750%, 12/16/2013 1,256,250
Telecommunications & Cellular--2.4%
1,000,000 Mobile Telesystems, Series 144A, 8.375%, 10/14/2010 946,400
1,300,000 Philippine Long Distance Telephone Co., Sr. Unsub.,
11.375%, 5/15/2012 1,410,500
Total 2,356,900
Utilities--1.7%
1,700,000 CIA Saneamento Basico, Note, Series 144A, 12.000%,
6/20/2008 1,678,750
Total Corporate Bonds (identified cost 21,802,959
$22,404,804)
Governments/Agencies--70.0%
Government Agency--0.7%
600,000 Banque Centrale de Tunisie, Unsub., 7.375%, 4/25/2012 643,500
Sovereign--69.3%
3,300,000 Brazil, Government of, 14.500%, 10/15/2009 3,753,750
3,987,418 Brazil, Government of, C Bond, 8.000%, 4/15/2014 3,551,194
3,400,000 Brazil, Government of, Note, 12.000%, 4/15/2010 3,536,000
1,100,000 Brazil, Government of, Unsub., 11.00%, 8/17/2040 991,100
1,100,000 1Bulgaria, Government of, Bond, 8.25%, 1/15/2015 1,237,500
1,780,000 Colombia, Government of, 10.00%, 1/23/2012 1,793,350
1,000,000 Colombia, Government of, 10.75%, 1/15/2013 1,040,000
900,000 El Salvador, Government of, Bond, 8.25%, 4/10/2032 832,500
900,000 1Guatemala, Government of, Note, 9.25%, 8/1/2013 918,000
3,600,000 Mexico, Government of, Bond, 8.00%, 9/24/2022 3,766,500
1,500,000 Mexico, Government of, Bond, 8.30%, 8/15/2031 1,586,625
2,000,000 Mexico, Government of, Bond, 11.50%, 5/15/2026 2,792,500
1,400,000 Mexico, Government of, Note, 7.50%, 1/14/2012 1,524,600
3,650,000 Mexico, Government of, Note, 8.375%, 1/14/2011 4,170,125
2,400,000 Mexico, Government of, Note, 9.875%, 2/1/2010 2,919,000
670,000 Panama, Government of, Bond, 9.375%, 1/16/2023 673,350
1,880,000 Peru, Government of, Note, 9.875%, 2/6/2015 1,908,200
1,000,000 Philippines, Government of, 9.375%, 1/18/2017 1,017,700
750,000 Philippines, Government of, 9.875%, 1/15/2019 746,475
1,200,000 Philippines, Government of, Note, 8.25%, 1/15/2014 1,137,600
1,225,000 Philippines, Government of, Note, 10.625%, 3/16/2025 1,262,240
3,950,000 Russia, Government of, 8.25%, 3/31/2010 4,272,123
2,900,000 Russia, Government of, 10.00%, 6/26/2007 3,287,585
7,000,000 1Russia, Government of, Unsub., 5.00%, 3/31/2030 6,373,150
1,000,000 Russia, Government of, Unsub., 12.75%, 6/24/2028 1,456,000
1,050,000 Turkey, Government of, 9.50%, 1/15/2014 1,050,000
1,810,000 Turkey, Government of, 11.00%, 1/14/2013 1,950,275
1,450,000 Turkey, Government of, Sr. Unsub., 12.375%, 6/15/2009 1,634,875
1,288,023 Ukraine, Government of, Sr. Note, 11.00%, 3/15/2007 1,402,464
3,500,000 Venezuela, Government of, 10.75%, 9/19/2013 3,403,750
1,150,000 Venezuela, Government of, Bond, 9.25%, 9/15/2027 974,625
850,000 Venezuela, Government of, Par Bond, 6.75%, 3/31/2020 739,500
Total 67,702,656
Total Governments/Agencies 68,346,156
(identified cost $67,836,264)
Repurchase Agreement--4.0%
3,937,000 Interest in $1,500,000,000 joint repurchase
agreement with Banc of America Securities LLC,
1.05%, dated 5/28/2004, to be repurchased at
$3,937,459 on 6/1/2004, collateralized by U.S.
Government Agency Obligations with various
maturities to 10/1/2033, collateral market value
$1,530,039,205 (at amortized cost) 3,937,000
Total Investments--96.3% 94,086,115
(identified cost $94,178,068)3
other assets and liabilities--net--3.7% 3,627,547
total net assets--100% $97,713,662
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1 Denotes a restricted security which is subject to restrictions on
resale under federal securities laws. These securities have been
deemed liquid based upon criteria approved by the Fund's Board of
Directors. At May 31, 2004, these securities amounted to $11,643,900
which represents 11.9% of net assets.
2 Non-income producing security.
3 The cost of investments for federal tax purposes amounts to
$94,419,137.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2004.
See Notes which are an integral part of the Financial Statements
EMERGING MARKETS FIXED INCOME CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2004 (unaudited)
<table>
<caption>
<s> <c> <c>
Assets:
Total investments in securities, at value
(identified cost $94,178,068) $ 94,086,115
Cash 552
Income receivable 1,952,376
Receivable for investments sold 2,811,834
TOTAL ASSETS 98,850,877
Liabilities:
Payable for investments purchased $ 1,106,968
Payable for transfer and dividend
disbursing agent fees and expenses
- -------------------------------------------
(Note 5) 2,375
Payable for Director's/Trustee's fees 687
Accrued expenses 27,185
TOTAL LIABILITIES 1,137,215
Net assets for 6,956,728 shares outstanding 97,713,662
Net Assets Consist of:
Paid in capital 66,879,678
Net unrealized depreciation of investments (91,953)
Accumulated net realized gain on
investments 11,116,437
Undistributed net investment income 19,809,500
TOTAL NET ASSETS 97,713,662
Net Asset Value, Offering Price and
Redemption Proceeds Per Share
$97,713,662 / 6,956,728 shares outstanding $14.05
- ---------------------------------------------------------------------------------
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2004 (unaudited)
Investment Income:
Interest $ 4,566,753
Expenses:
Administrative personnel and
services fee (Note 5) $ 41,819
Custodian fees 20,397
Transfer and dividend
disbursing agent fees and
expenses (Note 5) 7,797
Directors'/Trustees' fees 4,808
Auditing fees 8,519
Legal fees 3,345
Portfolio accounting fees (Note
5) 35,829
Insurance premiums 3,935
Miscellaneous 1,250
TOTAL EXPENSES 127,699
Waiver and Reimbursement (Note
5):
Waiver of administrative
personnel and services fee $ (41,819)
Reimbursement of other
operating expenses (55,044)
TOTAL WAIVER AND
REIMBURSEMENT (96,863)
Net expenses 30,836
Net investment income 4,535,917
Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain on
investments 3,602,347
Net change in unrealized
appreciation of investments (11,139,747)
Net realized and unrealized
loss on investments (7,537,400)
Change in net assets resulting
from operations $ (3,001,483)
</table>
See Notes which are an integral part of the Financial Statements
- ------------------------------------------------------------------------------
EMERGING MARKETS FIXED INCOME CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
Six
Months Ended
(unaudited) Year Ended
5/31/2004 11/30/2003
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 4,535,917 $ 9,186,509
Net realized gain on investments 3,602,347 5,253,640
Net change in unrealized
appreciation/depreciation of
investments (11,139,747) 11,721,465
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS (3,001,483) 26,161,614
Share Transactions:
Proceeds from sale of shares 6,212,000 67,180,000
Cost of shares redeemed (36,553,000) (42,800,000)
CHANGE IN NET ASSETS RESULTING
FROM SHARE TRANSACTIONS (30,341,000) 24,380,000
Change in net assets (33,342,483) 50,541,614
Net Assets:
Beginning of period 131,056,145 80,514,531
End of period (including
undistributed net investment income
of $19,809,500 and $15,273,583,
respectively) $ 97,713,662 $ 131,056,145
==============================================================================
See Notes which are an integral part of the Financial Statements
EMERGING MARKETS FIXED INCOME CORE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
Six
Months
Ended Year Period
(unaudited) Ended Ended
5/31/2004 11/30/2003 11/30/2002 1
Net Asset Value, Beginning
of Period $14.39 $10.98 $10.00
Income From Investment
Operations:
Net investment income 1.17 0.85 0.83 2
Net realized and
unrealized gain (loss) on (1.51) 2.56 0.15 2
investments
TOTAL FROM INVESTMENT
OPERATIONS (0.34) 3.41 0.98
Net Asset Value, End of Period $14.05 $14.39 $10.98
Total Return3 (2.36)% 31.06% 9.80%
Ratios to Average Net Assets:
Expenses 0.05 %4 0.05% 0.05% 4
Net investment income 8.08 %4 8.85% 10.58 2,4
Expense
waiver/reimbursement5 0.17 %4 0.23% 0.42% 4
Supplemental Data:
Net assets, end of period
(000 omitted) $97,714 $131,056 $80,515
Portfolio turnover 22% 97% 178%
1 Reflects operations for the period from January 14, 2002 (date of initial
investment) to November 30, 2002.
2 Effective January 14, 2002, the Fund adopted the provisions of the American
Institute of Certified Public Accountants ("AICPA") Audit and Accounting
Guide for Investment Companies and began accreting discount/amortizing
premium on long-term debt securities. The effect of this change for the
period ended November 30, 2002 was to increase net investment income per
share by $0.01, decrease net realized and unrealized gain/loss per share by
$0.01, and increase the ratio of net investment income to average net
assets from 10.39% to 10.58%.
3 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
4 Computed on an annualized basis.
5 This voluntary expense decrease is reflected in both the expense and the
net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
EMERGING MARKETS FIXED INCOME CORE FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 2004 (unaudited)
1. ORGANIZATION
Emerging Markets Fixed Income Core Fund (the "Fund") is a non-diversified
portfolio of Federated Core Trust II, L.P. (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended (the "Act"). The
Trust is a limited partnership that was established under the laws of the State
of Delaware on November 13, 2000 and offered only to registered investment
companies and other accredited investors. The Trust consists of two portfolios.
The financial statements included herein are only those of the Fund.
The Fund's primary investment objective is to achieve total return on assets.
Its secondary investment objective is to achieve a high level of income. The
Fund pursues these objectives by investing in an unhedged portfolio of foreign,
high-yield, fixed income securities. Currently, the Fund is only available for
purchase by other Federated funds and their affiliates.
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 generally accepted accounting principles
("GAAP") in the United States of America.
Investment Valuation
Domestic and foreign equity securities are valued at the last sale price or
official closing price reported in the market in which they are primarily traded
(either a national securities exchange or the over-the-counter market), if
available. If unavailable, the security is generally valued at the mean between
the last closing bid and asked prices. With respect to valuation of foreign
securities, trading in foreign cities may be completed at times which vary from
the closing of the New York Stock Exchange ("NYSE"). Therefore, foreign
securities are valued at the latest closing price on the exchange on which they
are traded immediately prior to the closing of the NYSE. Foreign securities
quoted in foreign currencies are translated into U.S. dollars at the foreign
exchange rate in effect at 4:00 p.m., Eastern Time, on the day the value of the
foreign security is determined. Fixed income, listed corporate bonds, unlisted
securities and private placement securities are generally valued at the mean of
the latest bid and asked price as furnished by an independent pricing service.
Short-term securities are valued at the prices provided by an independent
pricing service. However, short-term securities with remaining maturities of 60
days or less at the time of purchase may be valued at amortized cost, which
approximates fair market value. Investments in other open-end regulated
investment companies are valued at net asset value. Securities for which no
quotations are readily available, or whose values have been affected by a
significant event occuring between the close of their primary markets and the
closing of the NYSE, are valued at fair value as determined in accordance with
procedures established by and under general supervision of the Board of
Directors (the "Directors").
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of the collateral at
least equals the repurchase price to be paid under the repurchase agreement.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities. The Fund, along with other affiliated
investment companies, may utilize a joint trading account for the purpose of
entering into one or more repurchase agreements.
Investment Income, Expenses, Distributions and Tax
Interest income and expenses are accrued daily. All net income and gain/loss
(realized and unrealized) will be allocated daily to the shareholders based on
their capital contraibutions to the Fund. The Fund does not currently intend to
declare and pay distributions.
Premium and Discount Amortization
All premiums and discounts on fixed income securities are amortized/accreted for
financial statement purposes.
Federal Taxes
As a partnership, the Fund is not subject to U.S. federal income tax. Instead,
each investor reports separately on its own federal income tax return its
allocated portion of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund).
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.
Foreign Exchange Contracts
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. The Fund may enter into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. Purchased
contracts are used to acquire exposure to foreign currencies; whereas, contracts
to sell are used to hedge the Fund's securities against currency fluctuations.
Risks may arise upon entering these transactions from the potential inability of
counterparties to meet the terms of their commitments and from unanticipated
movements in security prices or foreign exchange rates. The foreign currency
transactions are adjusted by the daily exchange rate of the underlying currency
and any gains or losses are recorded for financial statement purposes as
unrealized until the settlement date.
At May 31, 2004, the Fund had no outstanding foreign currency commitments.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies ("FC") are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, income and
expenses are translated at the rate of exchange quoted on the respective date
that such transactions are recorded. The Fund does not isolate that portion of
the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities 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
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined in accordance with
procedures established by and under the general supervision of the Directors.
Use of Estimates
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 from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
3. Contributions/withdrawals
Transactions in shares were as follows:
Six
Months
Ended
(unaudited) Year Ended
5/31/2004 11/30/2003
Proceeds from contributions 415,198 5,035,032
Fair value of withdrawals (2,565,318) (3,257,885)
total change resulting from (2,150,120) 1,777,147
contributions/withdrawals
4. FEDERAL TAX INFORMATION
At May 31, 2004 the cost of investments for federal tax purposes was
$94,419,137. The net unrealized depreciation of investments for federal tax
purposes was $333,022. This consists of net unrealized apreciation from
investments for those securities having an excess of value over cost of
$2,541,795 and net unrealized depreciation from investments for those securities
having an excess of cost over value of $2,874,817.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Counseling ("FIC"), is the Fund's investment adviser (the
"Adviser"), subject to the direction of the Directors. Prior to January 1, 2004,
the Fund's investment adviser was Federated Global Investment Management Corp.,
("FGIMC"). The Adviser provides investment adviser services at no fee. FIC and
FGIMC may voluntarily choose to reimburse certain operating expenses of the
Fund. FIC and FGIMC can modify or terminate this reimbursement at any time at
their sole discretion.
Administrative Fee
Federated Administrative Services, Inc. ("FASI"), a subsidiary of Federated
Investors, Inc., provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
FASI provides these services at an annual rate that ranges from 0.150% to 0.075%
of the average aggregate net assets of all funds advised by affiliates of
Federated Investors, Inc. FASI may voluntarily choose to waive any portion of
its fee. FASI may terminate this voluntary waiver at any time at its sole
discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
FASI serves as transfer and dividend disbursing agent for the Fund. The fee paid
to FASI is based on the size, type and number of accounts and transactions made
by shareholders. FASI may voluntarily choose to waive certain operating expenses
of the Fund. FASI can modify or terminate this waiver at any time at its sole
discretion.
Portfolio Accounting Fees
FASI maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses. FASI may voluntarily choose to waive any portion of
its fee. FASI can modify or terminate this voluntary waiver at any time at its
sole discretion.
General
Certain of the Officers and Directors of the Trust are Officers and Directors or
Trustees of the above companies.
6. Investment TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government
securities and short-term obligations (and in-kind contributions), for the six
months ended May 31, 2004, were as follows:
Purchases $24,254,576
Sales $45,294,603
7. CONCENTRATION OF CREDIT RISK
Compared to diversified mutual funds, the Fund may invest a higher percentage of
its assets among fewer issuers of portfolio securities. This increases the
Fund's risk by magnifying the impact (positively or negatively) that any one
issuer has on the Fund's share price and performance. The Fund invests in
securities on non-U.S. issuers. The political or economic developments within a
particular country or region may have an adverse effect on the ability of
domiciled issuers to meet their obligations. Additionally, political or economic
developments may have an effect on the liquidity or volatility of portfolio
securities and currency holdings.
At May 31, 2004, the diversification of countries was as follows:
Percentage of
Country Net Assets
Mexico 26.2%
Russia 19.8%
Brazil 15.1%
Venezuela 7.1%
Philippines 5.7%
Colombia 4.7%
Turkey 4.7%
Peru 2.0%
Ukraine 1.4%
Bulgaria 1.3%
Malaysia 1.1%
Guatemala 0.9%
El Salvador 0.9%
Panama 0.7%
Tunisia 0.7%
8. Legal Proceedings
In October, 2003, Federated Investors, Inc. and various subsidiaries thereof
(including the advisers and distributor for various investment companies,
collectively, "Federated"), along with various investment companies sponsored by
Federated ("Funds"), were named as defendants in several class action lawsuits
now pending in the United States District Court for the District of Maryland
seeking damages of unspecified amounts. The lawsuits were purportedly filed on
behalf of people who purchased, owned and/or redeemed shares of
Federated-sponsored mutual funds during specified periods beginning November 1,
1998. The suits are generally similar in alleging that Federated engaged in
illegal and improper trading practices including market timing and late trading
in concert with certain institutional traders, which allegedly caused financial
injury to the mutual fund shareholders. The Board of the Funds has retained the
law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in
these lawsuits. Federated and the Funds, and their respective counsel, are
reviewing the allegations and will respond appropriately. Additional lawsuits
based upon similar allegations have been filed, and others may be filed in the
future. Although Federated does not believe that these lawsuits will have a
material adverse effect on the Funds, there can be no assurance that these
suits, the ongoing adverse publicity and/or other developments resulting from
related regulatory investigations will not result in increased Fund redemptions,
reduced sales of Fund shares, or other adverse consequences for the Funds.
CAPITAL APPRECIATION CORE FUND
PORTFOLIO OF INVESTMENTS
May 31, 2004 (unaudited)
Shares Value
- ------------------------------------------------------------------------------
Common Stocks--98.8%
Consumer Discretionary--9.2%
$ 34,900 Clear Channel Communications, Inc. $ 1,385,530
80,200 Home Depot, Inc. 2,880,784
32,600 Johnson Controls, Inc. 1,757,792
81,100 McDonald's Corp. 2,141,040
23,900 Nike, Inc., Class B 1,700,485
19,900 Omnicom Group, Inc. 1,589,413
52,300 Target Corp. 2,337,810
74,013 Viacom, Inc., Class B 2,730,339
130,000 Walt Disney Co. 3,051,100
Total 19,574,293
Consumer Staples--11.0%
77,200 Altria Group, Inc. 3,703,284
61,200 Coca-Cola Co. 3,142,620
58,700 Gillette Co. 2,529,383
102,300 Kroger Co. 1,707,387
49,500 PepsiCo, Inc. 2,641,815
16,400 Procter & Gamble Co. 1,768,248
76,400 Sara Lee Corp. 1,749,560
111,700 Wal-Mart Stores, Inc. 6,225,041
Total 23,467,338
Energy--6.4%
21,537 ChevronTexaco Corp. 1,946,945
21,800 ConocoPhillips 1,598,594
160,364 Exxon Mobil Corp. 6,935,743
62,000 Halliburton Co. 1,800,480
54,100 1Transocean Sedco Forex, Inc. 1,446,093
Total 13,727,855
Financials--16.6%
49,604 Allstate Corp. 2,181,584
82,616 American International Group, Inc. 6,055,753
33,446 Bank of America Corp. 2,780,366
61,400 Bank of New York Co., Inc. 1,846,298
103,365 Citigroup, Inc. 4,799,237
30,000 Federal National Mortgage Association 2,031,000
106,500 J.P. Morgan Chase & Co. 3,923,460
21,600 Lehman Brothers Holdings, Inc. 1,634,040
64,400 MBNA Corp. 1,635,760
28,000 Merrill Lynch & Co., Inc. 1,590,400
57,800 Morgan Stanley 3,092,878
34,800 Wachovia Corp. 1,642,908
33,100 Wells Fargo & Co. 1,946,280
Total 35,159,964
Healthcare--14.3%
35,000 Abbott Laboratories 1,442,350
52,200 Baxter International, Inc. 1,641,168
29,885 1Biogen Idec, Inc. 1,857,353
44,300 1Boston Scientific Corp. 1,962,490
50,700 Bristol-Myers Squibb Co. 1,281,189
29,600 1Forest Laboratories, Inc., Class A 1,876,344
3,500 1Hospira, Inc. 89,740
49,700 Johnson & Johnson 2,768,787
22,700 Lilly (Eli) & Co. 1,672,309
50,800 McKesson HBOC, Inc. 1,747,520
69,400 1Medimmune, Inc. 1,670,458
33,700 Medtronic, Inc. 1,614,230
52,800 Merck & Co., Inc. 2,497,440
156,141 Pfizer, Inc. 5,518,023
92,000 Schering Plough Corp. 1,554,800
30,200 Wyeth 1,087,200
Total 30,281,401
Industrials--13.1%
18,500 Caterpillar, Inc. 1,393,975
73,900 Cendant Corp. 1,695,266
44,800 Danaher Corp. 2,106,944
18,300 Deere & Co. 1,202,310
21,100 FedEx Corp. 1,552,538
256,100 General Electric Co. 7,969,832
35,200 Ingersoll-Rand Co., Class A 2,298,560
56,200 Masco Corp. 1,626,990
49,800 Raytheon Co. 1,655,850
36,400 Textron, Inc. 1,989,260
79,400 Tyco International Ltd. 2,444,726
65,200 Waste Management, Inc. 1,875,152
Total 27,811,403
Information Technology--19.7%
68,000 1Advanced Micro Devices, Inc. 1,057,400
225,300 1Applied Materials, Inc. 4,496,988
149,700 1Cisco Systems, Inc. 3,315,855
59,600 1Dell, Inc. 2,096,728
54,500 First Data Corp., Class 2,359,305
235,512 Hewlett-Packard Co. 5,002,275
31,700 IBM Corp. 2,808,303
176,300 Intel Corp. 5,033,365
45,300 1KLA-Tencor Corp. 2,182,554
47,300 1Lam Research Corp. 1,188,649
25,400 1Lexmark International Group, Class A 2,395,728
32,400 Maxim Integrated Products, Inc. 1,646,892
263,700 Microsoft Corp. 6,948,495
120,600 1Oracle Corp. 1,365,192
Total 41,897,729
Materials--3.0%
67,500 Alcoa, Inc. 2,112,750
47,100 Du Pont (E.I.) de Nemours & Co. 2,034,720
51,900 International Paper Co. 2,176,167
Total 6,323,637
Telecommunication Services--4.7%
89,741 AT&T Corp. 1,487,906
95,300 BellSouth Corp. 2,378,688
119,900 SBC Communications, Inc. 2,841,630
93,018 Verizon Communications 3,216,562
Total 9,924,786
Utilities--0.8%
61,000 1P G & E Corp. 1,738,500
Total Common Stocks (identified cost 209,906,906
$199,129,103)
Repurchase Agreements--1.1%
2,286,000 Interest in $1,500,000,000 joint repurchase
agreement with Banc of America Securities LLC,
1.05%, dated 5/28/2004, to be repurchased at
$2,286,267 on 6/1/2004, collateralized by U.S,
Government Agency Obligations with various
maturities to 10/1/2003, collateral market value
$1,530,039,205 (at amortized cost) 2,286,000
Total Investments--99.9% 212,192,906
---------------------------------------------------
(identified cost $201,415,103)2
other assets and liabilities--0.1% 235,443
total net assets--100% $212,428,349
- ---------------------------------------------------------------------------
1 Non-income producing security.
2 The cost of investments for federal tax purposes amounts to $201,415,103.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2004.
See Notes which are an integral part of the Financial Statements
CAPITAL APPRECIATION CORE FUND
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2004 (unaudited)
Assets:
Total investments in securities, at value
(identified cost $201,415,103) $ 212,192,906
Cash 626
Income receivable 279,966
Total assets 212,473,498
Liabilities:
Payable for transfer and dividend disbursing
agent fees and expenses (Note 5) 4,691
Accrued expenses 40,458
Total liabilities 45,149
Net assets for 19,763,693 shares outstanding $ 212,428,349
Net Assets Consist of:
Paid in capital $ 197,699,999
Net unrealized appreciation of investments 10,777,803
Accumulated net realized gain on investments 2,006,385
Undistributed net investment income 1,944,162
Total Net Assets $ 212,428,349
Net Asset Value, Offering Price and
Redemption Proceeds Per Share
$212,428,349 / 19,763,693 shares outstanding $10.75
==========================================================================
See Notes which are an integral part of the Financial Statements
CAPITAL APPRECIATION CORE FUND
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2004 (unaudited)
Investment Income:
Dividends $ 1,766,273
Interest 12,867
Total income 1,779,140
Expenses:
Administrative personnel and
services fee (Note 5) 79,610
Custodian fees 12,496
Transfer and dividend
disbursing agent fees and
expenses (Note 5) 7,390
Auditing fees 6,681
Legal fees 2,905
Portfolio accounting fees (Note
5) 39,037
Insurance premiums 3,934
Miscellaneous 150
Total expenseS 152,203
Waiver and Reimbursement (Note
5):
Waiver of administrative
personnel and services fee $ (79,610)
Reimbursement of other
operating expenses (14,474)
TOTAL WAIVER AND
REIMBURSEMENT (94,084)
Net expenses 58,119
Net investment income 1,721,021
Realized and Unrealized Gain on
Investments:
Net realized gain on
investments 2,177,167
Net change in unrealized
appreciation of investments 8,175,358
Net realized and unrealized
gain on investments 10,352,525
Change in net assets resulting
from operations $ 12,073,546
See Notes which are an integral part of the Financial Statements
===========================================================================
CAPITAL APPRECIATION CORE FUND
STATEMENT OF CHANGES IN NET ASSETS
Six
Months
Ended Period
(unaudited) Ended
5/31/2004 11/30/20031
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 1,721,021 $ 223,141
Net realized gain (loss) on
investments 2,177,167 (170,782)
Net change in unrealized
appreciation/depreciation of
investments 8,175,358 2,602,445
Change in net assets resulting
from operations 12,073,546 2,654,804
Share Transactions:
Proceeds from sale of shares 28,600,000 182,900,100
Cost of shares redeemed (13,800,000) (101)
Change in net assets resulting
from share transactions 14,800,000 182,899,999
Change in net assets 26,873,546 185,554,803
Net Assets:
Beginning of period 185,554,803 ---
End of period (including
undistributed net investment income
of $1,944,162 and $223,141,
respectively) $ 212,428,349 $ 185,554,803
1 For the period from October 28, 2003 (date of initial investment) to
November 30, 2003.
===========================================================================
See Notes which are an integral part of the Financial Statements
CAPITAL APPRECIATION CORE FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
Six
Months
Ended Period
(unaudited) Ended
5/31/2004 11/30/2003 1
Net Asset Value, Beginning
of Period $10.14 $10.00
Income From Investment
Operations:
Net investment income 0.09 0.01
Net realized and
unrealized gain on
investments 0.52 0.13
Total from investment
operations 0.61 0.14
Net Asset Value, End of
Period $10.75 $10.14
Total Return2 6.02% 1.40%
Ratios to Average Net
Assets:
Expenses 0.05 %3 0.05 %3
Net investment income 1.63 %3 2.21 %3
Expense
waiver/reimbursement4 0.09 %3 0.49 %3
Supplemental Data:
Net assets, end of period
(000 omitted) $212,428 $185,555
Portfolio turnover 34 % 8 %
1 Reflects operations for the period from October 28, 2003 (date of initial
investment) to November 30, 2003.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 This voluntary expense decrease is reflected in both the expense and the
net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
FEDERATED CAPITAL APPRECIATION CORE FUND
NOTES TO FINANCIAL STATEMENTS
May 31, 2004 (unaudited)
1. ORGANIZATION
Capital Appreciation Core Fund (the "Fund") is a diversified portfolio of
Federated Core Trust II, L.P. (the "Trust"). The Trust is registered under the
Investment Company Act of 1940, as amended (the "Act"). The Trust is a limited
partnership that was established under the laws of the State of Delaware on
November 13, 2000 and offered only to registered investment companies and other
accredited investors. The Trust consists of two portfolios. The financial
statements included herein are only those of the Fund. The investment objective
of the Fund is to provide capital appreciation. Currently, the Fund is only
available for purchase by other Federated funds and their affiliates.
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 generally accepted accounting principles
("GAAP") in the United States of America.
Investment Valuation
Listed equity securities are valued at the last sale price or official closing
price reported on a national securities exchange. Short-term securities are
valued at the prices provided by an independent pricing service. However,
short-term securities with remaining maturities of 60 days or less at the time
of purchase may be valued at amortized cost, which approximates fair value.
Investments in other open-end regulated investment companies are valued at net
asset value. Securities for which no quotations are readily available are valued
at fair value as determined in good faith using methods approved by the Board of
Directors (the "Directors").
Repurchase Agreements
It is the policy of the Fund to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of the collateral at
least equals the repurchase price to be paid under the repurchase agreement.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Directors. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase price on
the sale of collateral securities. The Fund along with other affiliated
investment companies, may utilize a joint trading account for the purpose of
entering into one or more repurchase agreements.
Investment Income, Expenses, Distributions and Tax
Interest income and expenses are accrued daily. Dividend income is recorded on
the ex-dividend date. Non-cash dividends included in dividend income, if any,
are recorded at fair value. All net income and gain/loss (realized and
unrealized) will be allocated daily to the shareholders based on their capital
contributions to the Fund. The Fund does not currently intend to declare and pay
distributions.
Premium and Discount Amortization
All premiums and discounts on fixed income securities are amortized/accreted for
financial statement purposes.
Federal Taxes
As a partnership, the Fund is not subject to U.S. federal income tax. Instead,
each investor reports separately on its own federal income tax return its
allocated portion of the Fund's income, gains, losses, deductions and credits.
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.
Use of Estimates
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 from those estimated.
Other
Investment transactions are accounted for on a trade date basis.
3. Contributions/withdrawAls
Transactions in shares were as follows:
Six
Months
Ended
(unaudited) Period
5/31/2004 Ended
11/30/2003 1
- ---------------------------------------------------------------------
Proceeds from contributions 2,713,783 18,305,997
Fair value withdrawals (1,256,077) (10)
TOTAL CHANGE RESULTING FROM 1,457,706 18,305,987
CONTRIBUTIONS/WITHDRAWALS
- ---------------------------------------------------------------------
1 Reflects operations for the period from October 28, 2003 (date of initial
investment) to November 30, 2003.
======================================================================
4. FEDERAL TAX INFORMATION
At May 31, 2004, the cost of investments for federal tax purposes was
$201,415,103. The net unrealized appreciation of investments for federal tax
purposes was $10,777,803. This consists of net unrealized appreciation from
investments for those securities having an excess of value over cost of
$13,574,201 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $2,796,398.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated Investment Counseling. is the Fund's investment adviser (the
"Adviser"), subject to the direction of the Directors. The Adviser provides
investment adviser services at no fee. The Adviser may voluntarily choose to
reimburse certain operating expenses of the Fund. The Adviser can modify or
terminate this reimbursement at any time at its sole discretion.
Administrative Fee
Federated Administrative Services, Inc. ("FASI"), a subsidiary of Federated
Investors, Inc., provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
FASI provides these services at an annual rate that ranges from 0.150% to 0.075%
of the average aggregate net assets of all funds advised by affiliates of
Federated Investors, Inc. FASI may voluntarily choose to waive any portion of
its fee. FASI may terminate this voluntary waiver at any time at its sole
discretion.
Transfer and Dividend Disbursing Agent Fees and Expenses
FASI serves as transfer and dividend disbursing agent for the Fund. The fee paid
to FASI is based on the size, type and number of accounts and transactions made
by shareholders. FASI may voluntarily choose to waive any portion of its fee.
FASI can modify or terminate this voluntary waiver at any time at its sole
discretion.
Portfolio Accounting Fees
FASI maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses. FASI may voluntarily choose to waive any portion of
its fee. FASI can modify or terminate this voluntary waiver at any time at its
sole discretion.
General
Certain of the Officers and Directors of the Trust are Officers and Directors or
Trustees of the above companies.
6. Investment Transactions
Purchases and sales of investments, excluding long-term U.S. government
securities and short-term obligations (and in-kind contributions), for the six
months ended May 31, 2004, were as follows:
Purchases $86,682,629
Sales $71,345,752
7. Legal Proceedings
In October, 2003, Federated Investors, Inc. and various subsidiaries thereof
(including the advisers and distributor for various investment companies,
collectively, "Federated"), along with various investment companies sponsored by
Federated ("Funds"), were named as defendants in several class action lawsuits
now pending in the United States District Court for the District of Maryland
seeking damages of unspecified amounts. The lawsuits were purportedly filed on
behalf of people who purchased, owned and/or redeemed shares of
Federated-sponsored mutual funds during specified periods beginning November 1,
1998. The suits are generally similar in alleging that Federated engaged in
illegal and improper trading practices including market timing and late trading
in concert with certain institutional traders, which allegedly caused financial
injury to the mutual fund shareholders. The Board of the Funds has retained the
law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in
these lawsuits. Federated and the Funds, and their respective counsel, are
reviewing the allegations and will respond appropriately. Additional lawsuits
based upon similar allegations have been filed, and others may be filed in the
future. Although Federated does not believe that these lawsuits will have a
material adverse effect on the Funds, there can be no assurance that these
suits, the ongoing adverse publicity and/or other developments resulting from
related regulatory investigations will not result in increased Fund redemptions,
reduced sales of Fund shares, or other adverse consequences for the Funds.
Item 2. Code of Ethics
Not Applicable
Item 3. Audit Committee Financial Expert
Not Applicable
Item 4. Principal Accountant Fees and Services
Not Applicable
Item 5. Audit Committee of Listed Registrants
Not Applicable
Item 6. Schedule of Investments
Not Applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies
Not Applicable
Item 8. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers
Not Applicable
Item 9. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 10. 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 last
fiscal half year (the registrant's second half year in the case of an
annual report) that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits
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 Core Trust II, L.P.
By /S/ Richard J. Thomas, Principal Financial Officer
Date July 22, 2004
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, Principal Executive Officer
Date July 23, 2004
By /S/ Richard J. Thomas, Principal Financial Officer
Date July 22, 2004