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.
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(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: Fiscal year ended 11/30/04
Item 1. Reports to Stockholders
EMERGING MARKETS FIXED INCOME CORE FUND
ANNUAL REPORT
NOVEMBER 30, 2004
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND TRUST OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
Period
Year Ended November 30 Ended
2004 2003 11/30/2002 1
Net Asset Value, Beginning of
Period $14.39 $10.98 $10.00
Income From Investment Operations:
Net investment income 0.91 0.85 0.83 2
Net realized and unrealized gain
on investments 0.61 2.56 0.15 2
TOTAL FROM INVESTMENT
OPERATIONS 1.52 3.41 0.98
Net Asset Value, End of Period $15.91 $14.39 $10.98
Total Return3 10.56% 31.06% 9.80%
Ratios to Average Net Assets:
Expenses 0.05% 0.05% 0.05% 4
Net investment income 7.80% 8.85% 10.58% 2, 4
Expense waiver/reimbursement5 0.21% 0.23% 0.42% 4
Supplemental Data:
Net assets, end of period (000
omitted) $146,778 $131,056 $80,515
Portfolio turnover 54% 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. Total returns for periods
of less than one year are not annualized.
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
SHAREHOLDER EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; to the extent applicable, distribution (12b-1) fees and/or shareholder
services 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 June 1, 2004 to November 30, 2004.
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 provided to enable you to
compare the ongoing costs of investing in the Fund and 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.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. 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.
Beginning Ending Expenses Paid
Account Value Account Value During Period 1
6/1/2004 11/30/2004
Actual $1,000 $1,132.40 $0.27
Hypothetical (assuming a
5% return before $1,000 $1,024.75 $0.25
expenses) $1,000 - -
1 Expenses are equal to the Fund's annualized expense ratio of 0.05%,
multiplied by the average account value over the period, multiplied by
183/366 (to reflect the one-half year period).
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Emerging Markets Fixed Income Core Fund1 slightly trailed the return of its
benchmark, the Lehman Emerging Markets Bond Index2, which returned 12.8% for the
reporting period.
The underperformance reflects risk aversion to specific credits mainly
high-beta3 assets as well as increasing concerns over the effects of a tighter
monetary policy by the U.S. Federal Reserve Board (the "U.S. Fed").
The fund maintained underweight exposure to Brazil -despite strong credit
fundamentals, because of its position as a proxy to the asset class; while we
increased the fund's exposure to key oil-credits such as Russia and Venezuela. 4
The fund also maintained a cautious approach towards countries we consider
especially risky, or with binary outcomes on their current situations -the fund
had no positions in Argentina or Ecuador. These countries benefited with the
strong inflow into speculative assets, and recorded strong returns of 21.2% for
the Argentina sub-index and 30.1% for the Ecuador sub-index.
Our concerns over the possible impact of a more aggressive monetary policy by
the U.S. Fed lead us to maintain higher than average cash positions in the fund.
The much better than expected performance of the U.S. bond market in the face of
U.S. Fed rate hikes was beneficial to all fixed income spread products including
emerging markets.
As an asset class, emerging market debt continued to benefit from important
credit ratings moves during the year. Standard & Poor's5 upgraded Russia to BB+
in January, Turkey to BB- in August and Brazil to BB- in September. Moody's
Investors Service6 upgraded Brazil to B1 and Venezuela to B2 both in September.
1 Prices of emerging markets securities can be significantly more volatile
than prices of securities in developed countries.
2 The Lehman Brothers Emerging Markets Bond Index tracks total returns for
external-currency-denominated debt instruments of the emerging markets:
Brady bonds, loans, Eurobonds and U.S. dollar-denominated local market
instruments. Countries covered are Argentina, Brazil, Bulgaria, Ecuador,
Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland, Russia and
Venezuela. The index is unmanaged, and investments cannot be made in an
index.
3 Beta analyzes the market risk of a fund by showing how responsive the fund
is to the market. The beta of the market is 1.00. Accordingly, a fund with
a 1.10 beta is expected to perform 10% better than the market in up markets
and 10% worse in down markets. Usually the higher betas represent riskier
investments.
4 International investing involves special risks including currency risk,
increased volatility of foreign securities, and differences in auditing and
other financial standards.
5 Standard & Poor's Credit Ratings are obtained after Standard & Poor's
evaluates a number of factors, including credit quality, market price
exposure and management. Credit Ratings are subject to change and do not
remove market risk.
6 Moody's Investors Service Credit Ratings are obtained after Moody's
Investors Service evaluates a number of factors, including credit quality,
market price exposure and management. Credit Ratings are subject to change
and do not remove market risk.
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Emerging
Markets Fixed Income Core Fund (the "Fund") from January 14, 2002 (start of
performance) to November 30, 2004, compared to the Lehman Emerging Markets Bond
Index (LEMBI)2.
Average Annual Total Return for the Period Ended
11/30/2004
1 Year 10.56%
Start of Performance (1/14/2002) 17.50%
The graphic presentation here displayed consists of a line graph. Emerging
Markets Fixed Income Core Fund (the "Fund") is represented by a black box line.
The Lehman Emerging Markets Bond Index ("LEMBI") is represented by a gray box
line. The line graph is a visual representation of a comparison of change in
value of a $10,000 hypothetical investment in the Fund and the LEMBI. The "x"
axis reflects computation periods from 1/14/2002 to 11/30/2004. The "y" axis
reflects the cost of the investment ranging from $9,500 to $15,500, in
increments of $3,000. For each point listed on the graph, the values for Fund
were $10,000, $10,980, $14,390 and $15,910 for the periods ended 1/14/2002,
11/30/2002, 11/30/2003 and 11/30/2004, respectively. For each point listed on
the graph, the values for the LEMBI were $10,000, $10,749, $13,637 and $15,341
for the periods ended 1/14/2002, 11/30/2002, 11/30/2003 and 11/30/2004,
respectively.
Performance data quoted represents past performance which is no guarantee of
future results. Returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
For after-tax returns, call 1-800-341-7400 . 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. Mutual funds
are not obligations of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000. The Fund's performance
assumes the reinvestment of all dividends and distributions. The LEMBI has
been adjusted to reflect reinvestment of dividends on securities in the
index.
2 The LEMBI is not adjusted to reflect sales loads, 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 cashflows.
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
At November 30, 2004, the Fund's credit quality ratings composition1 was as follows:
S&P Long-Term Ratings as Moody's Long-Term Ratings as
Percentage of Total Net Assets Percentage of Total Net Assets
AAA 0.0% Aaa 0.0%
AA 0.0% Aa 0.0%
A 1.2% A 1.2%
BBB 16.7% Baa 28.3%
BB 60.4% Ba 23.6%
B 13.2% B 35.2%
CCC 0.0% Caa 1.7%
CC 0.0% Ca 0.0%
C 0.0% C 0.0%
DDD 0.0% Daa 0.0%
DD 0.0% Da 0.0%
D 0.0% D 0.0%
Not Rated by S&P2 1.0% Not Rated by Moody's2 2.5%
Cash Equivalents3 8.4% Cash Equivalents3 8.4%
Other Assets and Other Assets and
Liabilities - Net4 (0.9)% Liabilities - Net4 (0.9)%
TOTAL 100.0% total 100.0%
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At November 30, 2004, the Fund's issuer country and currency exposure
composition5 were as follows:
Country
Exposure
as a
Percentage Currency Exposure
of Total as a Percentage of
Country Net Assets Total Net Assets
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Russia 22.6% 0.0%
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Brazil 20.2% 0.0%
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Mexico 18.9% 0.0%
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Venezuela 8.6% 0.0%
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Colombia 4.8% 0.0%
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- -------------------------------------------------------------------
Turkey 4.8% 0.0%
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- -------------------------------------------------------------------
Philippines 4.0% 0.0%
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Peru 2.0% 0.0%
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- -------------------------------------------------------------------
United States 1.8% 92.5%
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Malaysia 1.2% 0.0%
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Bulgaria 0.9% 0.0%
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Kazakhstan 0.9% 0.0%
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- -------------------------------------------------------------------
Guatemala 0.7% 0.0%
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- -------------------------------------------------------------------
El Salvador 0.6% 0.0%
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- -------------------------------------------------------------------
Tunisia 0.5% 0.0%
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Cash Equivalents3 8.4% 8.4%
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- -------------------------------------------------------------------
Other Assets and Liabilities - (0.9)% (0.9)%
Net4
- -------------------------------------------------------------------
- -------------------------------------------------------------------
TOTAL 100.0% 100.0%
- -------------------------------------------------------------------
1 These tables depict the long-term credit quality ratings assigned to the
Fund's portfolio holdings by Standard & Poor's (S&P) and Moody's Investors
Service (Moody's), each of which is a Nationally Recognized Statistical
Rating Organization (NRSRO). Holdings that are rated only by a different
NRSRO than the one identified have been included in the "Not rated by..."
category.
Rated securities include a security with an obligor and/or credit enhancer
that has received a rating from an NRSRO with respect to a class of debt
obligations that is comparable in priority and security with the security held
by the Fund. Credit quality ratings are an assessment of the risk that a
security will default in payment and do not address other risks presented by the
security. Please see the descriptions of credit quality ratings in the Fund's
Statement of Additional Information.
These tables depict the long-term credit quality ratings as assigned only
by the NRSRO identified in each table.
2 Holdings that are rated only by a different NRSRO than the one identified
have been included in this category.
3 Cash Equivalents includes investments in money market mutual funds and any
investments in overnight repurchase agreements.
4 See Statement of Assets and Liabilities.
5 This table depicts the Fund's exposure to various countries and currencies
through its investment in foreign fixed income securities (includes fixed
income securities issued by foreign governments and corporations). With
respect to foreign corporate fixed income securities, country allocations
are based primarily on the country in which the issuing company (the
"Issuer") is incorporated. However, the Fund's adviser may allocate the
Issuer to a country based on other factors such as the location of the
Issuer's office, the location of the principal trading market for the
Issuer's securities or the country from where a majority of the Issuer's
revenues are derived.
PORTFOLIO OF INVESTMENTS
November 30, 2004
Value in
Principal
Amount U.S. Dollars
Corporate Bonds--26.9%
Brewing--1.3%
$ 1,2 Bavaria, Series 144A, 8.875%, 11/1/2010
1,700,000 $ 1,844,500
Broadcast Radio & TV--1.5%
Grupo Televisa S.A., Sr. Note, 8.50%, 3/11/2032
1,900,000 2,185,000
Cable & Wireless Television--0.3%
360,000 Innova S De R.L., 9.375%, 9/19/2013 409,500
Container & Glass Products--1.7%
600,000 Vicap SA, Sr. Note, Series EXCH, 11.375%, 5/15/2007 608,280
1,2 Vitro SA, Note, Series 144A, 11.75%, 11/1/2013
1,950,000 1,896,375
Total 2,504,655
Hotels, Motels, Inns & Casinos--0.7%
1,2 Grupo Posadas SA de C.V., Sr. Note, 8.75%,
1,000,000 10/4/2011 1,070,000
Oil & Gas--9.2%
1,2 Gaz Capital SA, Note, Series 144A, 8.625%,
3,300,000 4/28/2034 3,729,000
1,2 Gazprom, Note, Series 144A, 9.625%, 3/1/2013
1,440,000 1,668,600
Pemex Project Funding Master, Company Guarantee,
2,500,000 7.375%, 12/15/2014 2,733,750
Petronas Capital Ltd., Series REGS, 7.875%,
1,500,000 5/22/2022 1,820,340
1,2 Petrozuata Finance, Inc., Company Guarantee,
2,200,000 Series 144A, 8.22%, 4/1/2017 2,191,750
1,2 Tengizchevroil LLP, Series 144A, 6.124%, 11/15/2014
1,420,000 1,420,000
Total 13,563,440
Sovereign--7.2%
1,2 Aries Vermogensverwaltng, Note, Series 144A,
7,000,000 9.60%, 10/25/2014 8,268,750
Aries Vermogensverwaltng, Series REGS, 9.60%,
2,000,000 10/25/2014 2,358,700
Total 10,627,450
Steel--1.1%
1,2 CSN Islands VIII Corp., Company Guarantee, Series
1,500,000 144A, 9.75%, 12/16/2013 1,616,250
Telecommunications & Cellular--2.6%
Axtel SA, 11.00%, 12/15/2013
1,225,000 1,307,687
1,2 Mobile Telesystems, Series 144A, 8.375%, 10/14/2010
1,000,000 1,037,500
Philippine Long Distance Telephone Co., Sr.
1,300,000 Unsub., 11.375%, 5/15/2012 1,488,500
Total 3,833,687
Utilities--1.3%
1,2 CIA Saneamento Basico, Note, Series 144A, 12.00%,
1,700,000 6/20/2008 1,908,250
Total Corporate Bonds (identified cost $89,473,414) 39,562,732
Governments/Agencies--65.6%
Government Agency--0.5%
600,000 Banque Centrale de Tunisie, Unsub., 7.375%,
4/25/2012 687,990
Sovereign--65.1%
Brazil, Government of, 14.50%, 10/15/2009
3,300,000 4,331,250
Brazil, Government of, Bond, 10.125%, 5/15/2027
3,800,000 4,170,500
Brazil, Government of, C Bond, 8.00%, 4/15/2014
3,788,042 3,802,058
Brazil, Government of, Note, 12.00%, 4/15/2010
3,400,000 4,131,000
Brazil, Government of, Unsub., 11.00%, 8/17/2040
8,400,000 9,674,700
1,2 Bulgaria, Government of, Bond, 8.25%, 1/15/2015
1,100,000 1,369,500
Colombia, Government of, 10.00%, 1/23/2012
1,780,000 2,024,750
Colombia, Government of, 10.75%, 1/15/2013
1,000,000 1,177,000
Colombia, Government of, Bond, 11.75%, 2/25/2020
1,600,000 2,010,400
900,000 El Salvador, Government of, Bond, 8.25%, 4/10/2032 907,875
900,000 1,2 Guatemala, Government of, Note, 9.25%, 8/1/2013 1,014,750
Mexico, Government of, Bond, 8.00%, 9/24/2022
3,600,000 4,041,720
Mexico, Government of, Bond, 8.30%, 8/15/2031
1,500,000 1,702,500
Mexico, Government of, Bond, 11.50%, 5/15/2026
2,000,000 2,985,000
Mexico, Government of, Note, 7.50%, 1/14/2012
1,400,000 1,576,400
Mexico, Government of, Note, 8.375%, 1/14/2011
3,650,000 4,261,375
Mexico, Government of, Note, 9.875%, 2/1/2010
2,400,000 2,941,200
Peru, Government of, Bond, 8.75%, 11/21/2033
1,300,000 1,320,150
Peru, Government of, Note, 9.875%, 2/6/2015
1,380,000 1,611,150
Philippines, Government of, 9.375%, 1/18/2017
1,000,000 1,042,500
750,000 Philippines, Government of, 9.875%, 1/15/2019 753,750
Philippines, Government of, Note, 8.25%, 1/15/2014
1,200,000 1,162,200
Philippines, Government of, Note, 10.625%,
1,325,000 3/16/2025 1,381,312
Russia, Government of, 8.25%, 3/31/2010
3,950,000 4,348,555
Russia, Government of, 10.00%, 6/26/2007
2,900,000 3,271,925
1,2 Russia, Government of, Unsub., 5.00%, 3/31/2030
7,000,000 6,957,300
Russia, Government of, Unsub., 12.75%, 6/24/2028
1,000,000 1,582,500
750,000 Turkey, Government of, 9.00%, 6/30/2011 841,125
Turkey, Government of, 9.50%, 1/15/2014
1,850,000 2,153,400
Turkey, Government of, 11.00%, 1/14/2013
1,810,000 2,250,735
Turkey, Government of, Sr. Unsub., 12.375%,
1,450,000 6/15/2009 1,805,250
Ukraine, Government of, 7.65%, 6/11/2013
1,500,000 1,511,025
Ukraine, Government of, Sr. Note, 11.00%, 3/15/2007
1,073,364 1,123,061
800,000 Venezuela, Government of, 8.50%, 10/8/2014 834,000
Venezuela, Government of, 10.75%, 9/19/2013
3,475,000 4,126,563
Venezuela, Government of, Bond, 9.25%, 9/15/2027
4,400,000 4,598,000
850,000 Venezuela, Government of, Par Bond, 6.75%,
3/31/2020 828,750
Total 95,625,229
Total Governments/Agencies (identified cost
$36,885,462) 96,313,219
Repurchase Agreement--8.4%
Interest in $2,000,000,000 joint repurchase
12,284,000 agreement with UBS Securities LLC, 2.08%, dated
11/30/2004 to be repurchased at $12,284,710 on
12/1/2004, collateralized by U.S. Government
Agency Obligations with various maturities to
8/15/2034, collateral market value $2,060,004,602
(at amortized cost) 12,284,000
Total Investments---100.9% (identified cost
$138,642,876)3 148,159,951
other assets and liabilities---net---(0.9)% (1,382,349)
total net assets---100% $ 146,777,602
1 Denotes a restricted security, including securities purchased under
Rule 144A of the Securities Act of 1933. These securities, unless
registered under the Act or exempted from registration, may only be
sold to qualified institutional investors. At November 30, 2004,
these securities amounted to $35,992,525 which represents 24.5% of
total net assets.
2 Denotes a restricted security, including securities purchased under
Rule 144A that have been deemed liquid by criteria approved by the
fund's Board of Directors. At November 30, 2004, these securities
amounted to $35,992,525 which represents 24.5% of total net assets.
3 The cost of investments for federal tax purposes amounts to
$139,118,039.
Note: The categories of investments are shown as a percentage of total net assets
at November 30, 2004.
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2004
Assets:
Total investments in securities, at value
(identified cost $138,642,876) $ 148,159,951
Cash 1,405,849
Income receivable 2,616,465
Total assets 152,182,265
Liabilities:
Payable for investments purchased $ 5,360,435
Payable for custodian fees (Note 5) 5,610
Payable for transfer and dividend
disbursing agent fees and expenses (Note 5) 5,310
Payable for portfolio accounting fees
(Note 5) 1,975
Accrued expenses 31,333
Total liabilities 5,404,663
Net assets for 9,224,609 shares outstanding $ 146,777,602
Net Assets Consist of:
Paid in capital $ 102,911,589
Net unrealized appreciation of investments 9,517,075
Accumulated net realized gain on
investments 10,452,335
Undistributed net investment income 23,896,603
Total Net Assets $ 146,777,602
Net Asset Value, Offering Price and
Redemption Proceeds Per Share
$146,777,602 / 9,224,609 shares outstanding $15.91
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended November 30, 2004
Investment Income:
Interest $ 8,683,713
Expenses:
Administrative personnel and
services fee (Note 5) 125,000
Custodian fees (Note 5) 35,964
Transfer and dividend
disbursing agent fees and
expenses (Note 5) 14,326
Directors'/Trustees' fees 9,518
Auditing fees 24,016
Legal fees 6,825
Portfolio accounting fees (Note
5) 58,282
Insurance premiums 8,664
Miscellaneous 7,159
Total expenseS 289,754
Waiver and Reimbursement (Note
6):
Waiver of administrative
personnel and services fee $ (125,000)
Reimbursement of other
operating expenses (104,061)
Total waiver and reimbursement (229,061)
Net expenses 60,693
Net investment income 8,623,020
Realized and Unrealized Gain
(Loss) on Investments:
Net realized gain on
investments and option
transactions 2,938,245
Net change in unrealized
appreciation of investments (1,530,719)
Net realized and unrealized
gain on investments and option
transactions 1,407,526
Change in net assets resulting
from operations $ 10,030,546
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
Year Ended November 30 2004 2003
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 8,623,020 $ 9,186,509
Net realized gain on investments and
option transactions 2,938,245 5,253,640
Net change in unrealized
appreciation/depreciation of
investments (1,530,719) 11,721,465
Change in net assets resulting from
operations 10,030,546 26,161,614
Share Transactions:
Contributions 42,556,000 67,180,000
Withdrawals (36,865,089) (42,800,000)
Change in net assets resulting from
share transactions 5,690,911 24,380,000
Change in net assets 15,721,457 50,541,614
Net Assets:
Beginning of period 131,056,145 80,514,531
End of period (including
undistributed net investment income
of $23,896,603 and $15,273,583,
respectively) $ 146,777,602 $ 131,056,145
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
November 30, 2004
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 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
Fixed income, listed corporate bonds, unlisted securities and private placement
securities are generally valued at the latest bid and asked price as furnished
by an independent pricing service. 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. 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 occurring 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 and Distributions
Interest income and expenses are accrued daily. All net income, realized and
gain/ loss (realized and unrealized) will be allocated daily 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
(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 November 30, 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 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. Realized gains
and losses from investment transactions are recorded on an identified cost
basis.
3. contributions/withdrawals
Transactions in shares were as follows:
Year Ended November 30 2004 2003
Proceeds from contributions 2,704,394 5,035,032
Fair value of withdrawals (2,586,633) (3,257,885)
TOTAL CHANGE RESULTING FROM
contributions/withdrawals 117,761 1,777,147
4. FEDERAL TAX INFORMATION
At November 30, 2004, the cost of investments for federal tax purposes was
$139,118,039. The net unrealized appreciation of investments for federal tax
purposes excluding any unrealized appreciation resulting from changes in foreign
currency exchange rates was $9,041,912. This consists of net unrealized
appreciation from investments for those securities having an excess of value
over cost of $9,483,407 and net unrealized depreciation from investments for
those securities having an excess of cost over value of $441,495.
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 service (including
certain legal and financing 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. The administrative fee received during any fiscal year
shall be at least $125,000 per portfolio. 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 wavier 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 waiver at any time at its sole
discretion.
Custodian
FASI is the Fund's custodian. 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 Fund 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 year
ended November 30, 2004, were as follows:
- ------------------------------------------------------------------------------
Purchases $ 72,966,210
Sales $ 57,530,481
- ------------------------------------------------------------------------------
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 of 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 and volatility of portfolio
securities and currency holdings.
At November 30, 2004, the diversification of countries was as follows:
Country Percentage of Net Assets
Russia 22.6%
Brazil 20.2%
Mexico 18.9%
Venezuela 8.6%
Colombia 4.8%
Turkey 4.8%
Philippines 4.0%
Peru 2.0%
United States 1.8%
Malaysia 1.2%
Kazakhstan 0.9%
Bulgaria 0.9%
Guatemala 0.7%
El Salvador 0.6%
Tunisia 0.5%
8. Legal Proceedings
Beginning 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. Federated and various
Funds have also been named as defendants in several additional lawsuits, the
majority of which are now pending in the United States District Court for the
Western District of Pennsylvania, alleging, among other things, excessive
advisory and rule 12b-1 fees, and seeking damages of unspecified amounts. 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 may be filed
in the future. The potential impact of these recent lawsuits and future
potential similar suits is uncertain. Although we do 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 the regulatory investigations will not result in
increased Fund redemptions, reduced sales of Fund shares, or other adverse
consequences for the Funds.
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
To the Board of Directors of Federated Core Trust II, L.P. and
Shareholders of Emerging Markets Fixed Income Core Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Emerging Markets Fixed Income Core Fund (the
"Fund") (one of the portfolios constituting Federated Core Trust II, L.P.) as of
November 30, 2004, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the periods indicated
therein. 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 conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in financial statements. Our procedures included confirmation of
securities owned as of November 30, 2004, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where replies from the
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Emerging Markets Fixed Income Core Fund of Federated Core Trust II, L.P. at
November 30, 2004, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the periods indicated therein, in
conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
January 12, 2005
BOARD OF DIRECTORS AND TRUST OFFICERS
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The following tables give information about each Board member and the senior
officers of the Fund. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA. As of December 31, 2004, the Trust comprised two
portfolios, and the Federated Fund Complex consisted of 44 investment companies
(comprising 133 portfolios). Unless otherwise noted, each Officer is elected
annually. Unless otherwise noted, each Board member oversees all portfolios in
the Federated Fund Complex and serves for an indefinite term. The Fund`s
Statement of Additional Information includes additional information about Trust
Directors and is available, without charge and upon request, by calling
1-800-341-7400.
Interested Directors Background
Name Principal Occupation(s) for Past Five Years, Other
Birth Date Directorships Held and Previous Position(s)
Address
Positions Held with
Trust
Date Service Began
John F. Donahue* Principal Occupations: Chairman and Director or Trustee of
Birth Date: July the Federated Fund Complex; Chairman and Director,
28, 1924 Federated Investors, Inc.
CHAIRMAN AND
DIRECTOR Previous Positions: Trustee, Federated Investment
Began serving: Management Company and Chairman and Director, Federated
November 2000 Investment Counseling.
J. Christopher Principal Occupations: Principal Executive Officer and
Donahue* President of the Federated Fund Complex; Director or
Birth Date: April Trustee of some of the Funds in the Federated Fund Complex;
11, 1949 President, Chief Executive Officer and Director, Federated
PRESIDENT AND Investors, Inc.; Chairman and Trustee, Federated Investment
DIRECTOR Management Company; Trustee, Federated Investment
Began serving: Counseling; Chairman and Director, Federated Global
November 2000 Investment Management Corp.; Chairman, Passport Research,
Ltd.; 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.
Lawrence D. Ellis, Principal Occupations: Director or Trustee of the Federated
M.D.* Fund Complex; Professor of Medicine, University of
Birth Date: October Pittsburgh; Medical Director, University of Pittsburgh
11, 1932 Medical Center Downtown; Hematologist, Oncologist and
3471 Fifth Avenue Internist, University of Pittsburgh Medical Center.
Suite 1111
Pittsburgh, PA Other Directorships Held: Member, National Board of
DIRECTOR Trustees, Leukemia Society of America.
Began serving:
November 2001 Previous Positions: Trustee, University of Pittsburgh;
Director, University of Pittsburgh Medical Center.
* Family relationships and reasons for "interested" status: John F. Donahue is the
father of J. Christopher Donahue; both are "interested" due to the positions they hold
with Federated Investors, Inc. and its subsidiaries. Lawrence D. Ellis, M.D. is
"interested" because his son-in-law is employed by the Fund's principal underwriter,
Federated Securities Corp.
Independent Directors Background
Name Principal Occupation(s) for Past Five Years, Other
Birth Date Directorships Held and Previous Position(s)
Address
Positions Held with
Trust
Date Service Began
Thomas G. Bigley Principal Occupation: Director or Trustee of the Federated
Birth Date: Fund Complex.
February 3, 1934
15 Old Timber Trail Other Directorships Held: Director, Member of Executive
Pittsburgh, PA Committee, Children's Hospital of Pittsburgh; Director,
DIRECTOR University of Pittsburgh.
Began serving:
November 2001 Previous Position: Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr. Principal Occupations: Director or Trustee of the Federated
Birth Date: June Fund Complex; Chairman of the Board, Investment Properties
23, 1937 Corporation; Partner or Trustee in private real estate
Investment ventures in Southwest Florida.
Properties
Corporation Previous Positions: President, Investment Properties
3838 North Tamiami Corporation; Senior Vice President, John R. Wood and
Trail Associates, Inc., Realtors; President, Naples Property
Suite 402 Management, Inc. and Northgate Village Development
Naples, FL Corporation.
DIRECTOR
Began serving:
November 2001
Nicholas P. Principal Occupations: Director or Trustee of the Federated
Constantakis Fund Complex.
Birth Date:
September 3, 1939 Other Directorships Held: Director and Member of the Audit
175 Woodshire Drive Committee, Michael Baker Corporation (engineering and energy
Pittsburgh, PA services worldwide).
DIRECTOR
Began serving: Previous Position: Partner, Andersen Worldwide SC.
November 2001
John F. Cunningham Principal Occupation: Director or Trustee of the Federated
Birth Date: March Fund Complex.
5, 1943
353 El Brillo Way Other Directorships Held: Chairman, President and Chief
Palm Beach, FL Executive Officer, Cunningham & Co., Inc. (strategic
DIRECTOR business consulting); Trustee Associate, Boston College.
Began serving:
November 2001 Previous Positions: Director, Redgate Communications and
EMC Corporation (computer storage systems); Chairman of the
Board and Chief Executive Officer, Computer Consoles, Inc.;
President and Chief Operating Officer, Wang Laboratories;
Director, First National Bank of Boston; Director, Apollo
Computer, Inc.
Peter E. Madden Principal Occupation: Director or Trustee of the Federated
Birth Date: March Fund Complex; Management Consultant.
16, 1942 -------------------------------------------------------------
One Royal Palm Way
100 Royal Palm Way Other Directorships Held: Board of Overseers, Babson College.
Palm Beach, FL
DIRECTOR Previous Positions: Representative, Commonwealth of
Began serving: Massachusetts General Court; President, State Street Bank
November 2001 and Trust Company and State Street Corporation (retired);
Director, VISA USA and VISA International; Chairman and
Director, Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The Boston Stock
Exchange.
Charles F. Principal Occupations: Director or Trustee of the Federated
Mansfield, Jr. Fund Complex; Management Consultant; Executive Vice
Birth Date: April President, DVC Group, Inc. (marketing communications and
10, 1945 technology) (prior to 9/1/00).
80 South Road
Westhampton Beach, Previous Positions: Chief Executive Officer, PBTC
NY International Bank; Partner, Arthur Young & Company (now
DIRECTOR Ernst & Young LLP); Chief Financial Officer of Retail
Began serving: Banking Sector, Chase Manhattan Bank; Senior Vice President,
November 2001 HSBC Bank USA (formerly, Marine Midland Bank); Vice
President, Citibank; Assistant Professor of Banking and
Finance, Frank G. Zarb School of Business, Hofstra
University.
John E. Murray, Principal Occupations: Director or Trustee of the Federated
Jr., J.D., S.J.D. Fund Complex; Chancellor and Law Professor, Duquesne
Birth Date: University; Partner, Murray, Hogue and Lannis.
December 20, 1932
Chancellor, Other Directorships Held: Director, Michael Baker Corp.
Duquesne University (engineering, construction, operations and technical
Pittsburgh, PA services).
DIRECTOR
Began serving: Previous Positions: President, Duquesne University; Dean and
November 2001 Professor of Law, University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova University School of
Law.
Marjorie P. Smuts Principal Occupations: Director or Trustee of the Federated
Birth Date: June Fund Complex; Public Relations/Marketing
21, 1935 Consultant/Conference Coordinator.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum Company
DIRECTOR of America; television producer; President, Marj Palmer
Began serving: Assoc.; Owner, Scandia Bord.
November 2001
John S. Walsh Principal Occupations: Director or Trustee of the Federated
Birth Date: Fund Complex; President and Director, Heat Wagon, Inc.
November 28, 1957 (manufacturer of construction temporary heaters); President
2604 William Drive and Director, Manufacturers Products, Inc. (distributor of
Valparaiso, IN portable construction heaters); President, Portable Heater
DIRECTOR Parts, a division of Manufacturers Products, Inc.
Began serving:
November 2001 Previous Position: Vice President, Walsh & Kelly, Inc.
- ------------------------------------------------------------------------------------------
Officers
Name Principal Occupation(s) for Past Five Years and Previous
Birth Date Position(s)
Positions Held
with Trust
Date Began Serving
John W. McGonigle Principal Occupations: Executive Vice President and Secretary
Birth Date: of the Federated Fund Complex; Executive Vice President,
October 26, 1938 Secretary and Director, Federated Investors, Inc.
EXECUTIVE VICE
PRESIDENT AND
SECRETARY
Began serving:
November 2000
Richard J. Thomas Principal Occupations: Principal Financial Officer and
Birth Date: June Treasurer of the Federated Fund Complex; Senior Vice
17, 1954 President, Federated Administrative Services.
TREASURER
Began serving:
November 2000
Richard B. Fisher Principal Occupations: Vice Chairman or President of some of
Birth Date: May the Funds in the Federated Fund Complex; Vice Chairman,
17, 1923 Federated Investors, Inc.; Chairman, Federated Securities
VICE CHAIRMAN Corp.
Began serving:
August 2002 Previous Positions: President and Director or Trustee of
some of the Funds in the Federated Fund Complex; Executive
Vice President, Federated Investors, Inc.; and Director and
Chief Executive Officer, Federated Securities Corp.
Stephen F. Auth Principal Occupations: Chief Investment Officer of this Fund
Birth Date: and various other Funds in the Federated Fund Complex;
September 3, 1956 Executive Vice President, Federated Investment Counseling,
CHIEF INVESTMENT Federated Global Investment Management Corp., Federated
OFFICER Equity Management Company of Pennsylvania and Passport
Began serving: Research II, Ltd.
May 2004
Previous Positions: Executive Vice President, Federated
Investment Management Company, and Passport Research, Ltd.;
Senior Vice President, Global Portfolio Management Services
Division; Senior Vice President, Federated Investment
Management Company and Passport Research, Ltd.; Senior
Managing Director and Portfolio Manager, Prudential
Investments.
Todd A. Abraham Todd A. Abraham is Vice President of the Trust. Mr. Abraham
Birth Date: has been a Portfolio Manager since 1995 and a Vice President
February 10, 1966 of the Fund's Adviser since 1997. Mr. Abraham joined
VICE PRESIDENT Federated in 1993 as an Investment Analyst and served as
Began serving: Assistant Vice President from 1995 to 1997. Mr. Abraham
May 2004 served as a Portfolio Analyst at Ryland Mortgage Co. from
1992-1993. Mr. Abraham is a Chartered Financial Analyst and
received his M.B.A. in Finance from Loyola College.
David P. Gilmore David P. Gilmore is Vice President of the Trust. Mr. Gilmore
Birth Date: joined Federated in August 1997 as an Investment Analyst. He
November 11, 1970 was promoted to Senior Investment Analyst in July 1999 and
VICE PRESIDENT became an Assistant Vice President of the Fund's Adviser in
Began serving: July 2000. Mr. Gilmore was a Senior Associate with Coopers &
May 2004 Lybrand from January 1992 to May 1995. Mr. Gilmore is a
Chartered Financial Analyst and attended the University of
Virginia, where he earned his M.B.A., from September 1995 to
May 1997. Mr. Gilmore has a B.S. from Liberty University.
Robert M. Kowit Robert M. Kowit has been the Fund's Portfolio Manager since
Birth Date: June inception. He is Vice President of the Trust. Mr. Kowit
27, 1945 joined Federated in 1995 as a Senior Portfolio Manager and a
VICE PRESIDENT Vice President of the Fund's Adviser. Mr. Kowit served as a
Began serving: Managing Partner of Copernicus Global Asset Management from
February 2001 January 1995 through October 1995. From 1990 to 1994, he
served as Senior Vice President/Portfolio Manager of
International Fixed Income and Foreign Exchange for John
Hancock Advisers. Mr. Kowit received his M.B.A. from Iona
College with a concentration in finance.
- -------------------------------------------------------------------------------
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.
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to securities held in the Fund's portfolio is available
without charge and upon request, by calling 1-800-341-7400. 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 from the EDGAR database on the SEC's website
at http://www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
These filings are available on the SEC's website at http://www.sec.gov and may
be reviewed and copied at the SEC's Public Reference Room in Washington, DC.
(Call 1-800-SEC-0330 for information on the operation of the Public Reference
Room.)
Cusip 31409R102
28172 (1/05)
CAPITAL APPRECIATION CORE FUND
ANNUAL REPORT
NOVEMBER 30, 2004
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF DIRECTORS AND TRUST OFFICERS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
Year Period
Ended Ended
11/30/2004 11/30/2003 1
Net Asset Value, Beginning of Period $10.14 $10.00
Income From Investment Operations:
Net investment income 0.25 0.01
Net realized and unrealized gain on
investments 0.82 0.13
Total from investment operations 1.07 0.14
Net Asset Value, End of Period $11.21 $10.14
Total Return2 10.55% 1.40%
Ratios to Average Net Assets:
Expenses 0.05% 0.05%3
Net investment income 2.09% 2.21%3
Expense waiver/reimbursement4 0.08% 0.49%3
Supplemental Data:
Net assets, end of period (000 omitted) $197,818 $185,555
Portfolio turnover 55% 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,
redemption fee or contingent deferred sales charge, if applicable. Total
returns for periods of less than one year are not annualized.
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
SHAREHOLDER EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management
fees; to the extent applicable, distribution (12b-1) fees and/or shareholder
services 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 June 1, 2004 to November 30, 2004.
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 provided to enable you to
compare the ongoing costs of investing in the Fund and 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.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. 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.
Beginning Ending Expenses Paid
Account Value Account Value During Period1
6/1/2004 11/30/2004
Actual $1,000 $1,042.80 $0.26
Hypothetical (assuming a
5% return before
expenses) $1,000 $1,024.75 $0.25
1 Expenses are equal to the Fund's annualized expense ratio of 0.05%,
multiplied by the average account value over the period, multiplied by
183/366 (to reflect the one-half year period).
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
This report covers Capital Appreciation Core Fund's fiscal year performance
period from December 1, 2003 through November 30, 2004. During this reporting
period, the fund produced a total return 10.55%, based on net asset value
(NAV).1
The fund underperformed its benchmark, the S&P 500 Index2, which returned 12.86%
during the same period. The fund outperformed its peer group as measured by the
Lipper Large Cap Core Funds Average3 category, which produced an average total
return of 9.10% for the same period.
The past twelve months generated positive returns for most domestic and global
equity market benchmarks, continuing the trend begun in the first quarter of
2003. In general, small and mid cap investment strategies outperformed large cap
strategies during the reporting period and as a result, negatively influenced
the fund's relative performance, as it had a larger market cap bias as compared
to the index. Value-based strategies generally outperformed growth-based
strategies as well. This positively influenced the fund's performance, as it had
a slight value tilt during the period.
Sector allocation was a positive contributor to performance while stock
selection was a negative contributor. From a sector positioning standpoint, the
fund's returns were aided by being overweight Energy, Industrials and
Telecommunication Services. The fund's returns were limited by its cash position
in a rising market, as well as by being underweight Utilities and overweight
Materials. On a stock selection basis, the fund's return was hindered by stock
performance within Information Technology, Utilities and Healthcare. The fund
benefited from stock performance within Energy and Industrials.
Top Contributors during the year were: Exxon Mobil Corp., General Electric Co.,
Transocean Sedco Forex, Inc., Halliburton Co. and Microsoft Corp. Bottom
Contributors during the year were: Intel Corp., Pfizer, Inc., Cisco Systems,
Inc., Hewlett-Packard Co. and Tenet Healthcare.
1 Performance data quoted represents past performance which is no guarantee
of future results. Investment return and principal value will fluctuate so
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. To view current to
the most recent month-end performance and after-tax returns, call
1-800-341-7400.
2 The S&P 500 Index is an unmanaged capitalization-weighted index of 500
stocks designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing
all major industries. Investments cannot be made in an index.
3 Lipper figures represent the average total returns reported by all mutual
funds designated by Lipper, Inc. as falling into the category indicated.
They do not reflect sales charges. Investments cannot be made in an
average.
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Capital
Appreciation Core Fund (the "Fund") from October 28, 2003 (start of performance)
to November 30, 2004, compared to the S&P 500 Index2.
- -------------------------------------------------------------------------
Average Annual Total Return for the Period Ended
11/30/2004
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
1 Year 10.55%
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Start of Performance (10/28/2003) 11.02%
- -------------------------------------------------------------------------
The graphic presentation here displayed consists of a line graph. Capital
Appreciation Core Fund (the "Fund") is represented by a black box line. The S&P
500 Index is represented by a gray box line. The line graph is a visual
representation of a comparison of change in value of a $10,000 hypothetical
investment in the Fund and the S&P 500 Index. The "x" axis reflects computation
periods from 10/28/2003 to 11/30/2004. The "y" axis reflects the cost of the
investment ranging from $10,000 to $12,000, in increments of $500. For each
point listed on the graph, the values for Fund were $10,000, $10,020, $10,140,
$10,680, $10,820, $11,010, $10,850, $10,620, $10,750, $10,930, $10,580, $10,560,
$10,630, $10,860 and $11,210 for the periods ended 10/28/2003, 10/31/2003,
11/30/2003, 12/31/2003, 1/31/2004, 2/29/2004, 3/31/2004, 4/30/2004, 5/31/2004,
6/30/2004, 7/31/2004, 8/31/2004, 9/30/2004, 10/31/2004 and 11/30/2004,
respectively. For each point listed on the graph, the values for the S&P 500
Index were $10,000, $10,195, $10,284, $10,824, $11,022, $11,175, $11,007,
$10,834, $10,983, $11,196, $10,825, $10,869, $10,987, $11,155 and $11,606 for
the periods ended 10/28/2003, 10/31/2003, 11/30/2003, 12/31/2003, 1/31/2004,
2/29/2004, 3/31/2004, 4/30/2004, 5/31/2004, 6/30/2004, 7/31/2004, 8/31/2004,
9/30/2004, 10/31/2004 and 11/30/2004, respectively.
Performance data quoted represents past performance which is no guarantee of
future results. Returns shown do not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
For after-tax returns, call 1-800-341-7400. 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. Mutual funds
are not obligations of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000. The Fund's performance
assumes the reinvestment of all dividends and distributions. The S&P 500
has been adjusted to reflect reinvestment of dividends on securities in the
index.
2 The S&P 500 is not adjusted to reflect sales loads, 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 cashflows.
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
At November 30, 2004 the Fund's sector composition1 was as follows:
Percentage of
Sector Total Investments2
Financials 17.5%
Information Technology 16.9%
Industrials 13.1%
Healthcare 11.9%
Consumer Discretionary 11.0%
Consumer Staples 10.7%
Energy 8.2%
Telecommunication Services 5.1%
Materials 3.0%
Utilities 0.1%
Cash Equivalents3 2.5%
Total 100.0%
1 Except for Cash Equivalents, sector classifications are based upon, and
individual portfolio securities are assigned to, the classifications of the
Standard & Poor's Global Industry Classification Standard (SPGIC).
Individual securities that are not included in the SPGIC are assigned to an
index classification by the Fund's adviser.
2 Percentages are based on total investments, which may differ from the
Fund's total net assets used in computing the percentages in the Portfolio
of Investments which follows.
3 Cash Equivalents includes any investments in money market mutual funds and
investments in overnight repurchase agreements.
PORTFOLIO OF INVESTMENTS
November 30, 2004
Shares or
Principal
Amount Value
Common Stocks--97.5%
Consumer Discretionary--11.0%
51,900 Clear Channel Communications, Inc. $ 1,747,992
42,500 Gap (The), Inc. 928,625
74,300 Home Depot, Inc. 3,102,025
29,200 Johnson Controls, Inc. 1,792,880
75,700 McDonald's Corp. 2,327,018
21,600 Nike, Inc., Class B 1,828,656
18,100 Omnicom Group, Inc. 1,466,100
48,700 Target Corp. 2,494,414
84,113 Viacom, Inc., Class B 2,918,721
120,200 Walt Disney Co. 3,230,976
Total 21,837,407
Consumer Staples--10.6%
72,600 Altria Group, Inc. 4,173,774
56,500 Coca-Cola Co. 2,221,015
53,600 Gillette Co. 2,331,064
91,400 Kroger Co. 1,478,852
45,700 PepsiCo, Inc. 2,280,887
29,400 Procter & Gamble Co. 1,572,312
69,500 Sara Lee Corp. 1,631,860
102,900 Wal-Mart Stores, Inc. 5,356,974
Total 21,046,738
Energy--8.2%
39,574 ChevronTexaco Corp. 2,160,740
19,500 ConocoPhillips 1,774,305
149,464 Exxon Mobil Corp. 7,660,030
61,700 Halliburton Co. 2,551,295
50,700 1 Transocean Sedco Forex, Inc. 2,041,689
Total 16,188,059
Financials--17.6%
46,004 Allstate Corp. 2,323,202
27,916 American International Group, Inc. 1,768,479
60,792 Bank of America Corp. 2,812,846
64,500 Bank of New York Co., Inc. 2,122,695
96,965 Citigroup, Inc. 4,339,184
27,600 Federal National Mortgage Association 1,896,120
30,100 Goldman Sachs Group, Inc. 3,153,276
97,500 J.P. Morgan Chase & Co. 3,670,875
19,400 Lehman Brothers Holdings, Inc. 1,625,332
58,400 MBNA Corp. 1,551,104
53,900 Merrill Lynch & Co., Inc. 3,002,769
57,400 Morgan Stanley 2,913,050
31,400 Wachovia Corp. 1,624,950
30,600 Wells Fargo & Co. 1,890,162
Total 34,694,044
Healthcare--11.9%
34,700 Abbott Laboratories 1,456,012
46,200 Baxter International, Inc. 1,462,230
28,485 1 Biogen Idec, Inc. 1,671,500
51,200 Bristol-Myers Squibb Co. 1,203,200
33,500 Johnson & Johnson 2,020,720
46,600 McKesson HBOC, Inc. 1,377,030
55,500 Medtronic, Inc. 2,666,775
74,900 Merck & Co., Inc. 2,098,698
181,341 Pfizer, Inc. 5,035,840
85,500 Schering Plough Corp. 1,526,175
75,300 Wyeth 3,002,211
Total 23,520,391
Industrials--13.1%
36,600 3M Co. 2,912,994
16,500 Caterpillar, Inc. 1,510,575
65,300 Cendant Corp. 1,480,351
16,200 Deere & Co. 1,162,026
19,100 FedEx Corp. 1,815,073
238,200 General Electric Co. 8,422,752
31,800 Ingersoll-Rand Co., Class A 2,366,556
46,800 Raytheon Co. 1,887,912
74,100 Tyco International Ltd. 2,517,177
58,100 Waste Management, Inc. 1,731,961
Total 25,807,377
Information Technology--16.9%
54,800 Analog Devices, Inc. 2,024,860
306,700 1 Applied Materials, Inc. 5,103,488
202,500 1 Cisco Systems, Inc. 3,788,775
55,700 1 Dell, Inc. 2,256,964
174,100 EMC Corp. Mass 2,336,422
29,300 IBM Corp. 2,761,232
163,300 Intel Corp. 3,649,755
51,600 1 KLA-Tencor Corp. 2,325,096
43,600 1 Lam Research Corp. 1,134,036
211,100 Microsoft Corp. 5,659,591
179,600 1 Oracle Corp. 2,273,736
Total 33,313,955
Materials--3.0%
61,400 Alcoa, Inc. 2,086,372
42,600 Du Pont (E.I.) de Nemours & Co. 1,930,632
46,900 International Paper Co. 1,947,288
Total 5,964,292
Telecommunication Services--5.1%
81,841 AT&T Corp. 1,497,690
86,900 BellSouth Corp. 2,330,658
111,600 SBC Communications, Inc. 2,808,972
84,918 Verizon Communications 3,501,169
Total 10,138,489
Utilities--0.1%
12,700 NiSource, Inc. 276,733
Total Common Stocks (identified cost
$177,697,721) 192,787,485
Repurchase Agreements--2.5%
$ 5,017,000 Interest in $2,000,000,000 joint repurchase
agreement with UBS Securities LLC, 2.08%, dated
11/30/2004, to be repurchased at $5,017,290 on
12/1/2004, collateralized by U.S. Government
Agency Obligations with various maturities to
8/15/2034, collateral market value $2,060,004,602
(at amortized cost) 5,017,000
Total Investments--100.0%
===================================================
(identified cost $182,714,721 )2 197,804,485
other assets and liabilities-0.0% 13,746
total net assets--100% $ 197,818,231
1 Non-income producing security.
============================================================================================
2 The cost of investments for federal tax purposes amounts to $182,714,721.
Note: The categories of investments are shown as a percentage of total net assets at
November 30, 2004.
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2004
Assets:
Total investments in securities, at value
(identified cost $182,714,721) $ 197,804,485
Cash 710
Income receivable 1,166,119
Total assets 198,971,314
Liabilities:
Payable for investments purchased $ 1,119,968
Payable for custodian fees (Note 5) 1,567
Payable for transfer and dividend disbursing
agent fees and expenses (Note 5) 6,683
Payable for portfolio accounting fees (Note 5) 3,495
Accrued expenses 21,370
Total liabilities 1,153,083
Net assets for 17,652,997 shares outstanding $ 197,818,231
Net Assets Consist of:
Paid in capital $ 174,500,098
Net unrealized appreciation of investments 15,089,764
Accumulated net realized gain on investments 3,642,807
Undistributed net investment income 4,585,562
Total Net Assets $ 197,818,231
Net Asset Value, Offering Price and
Redemption Proceeds Per Share:
$197,818,231 / 17,652,997 shares outstanding $11.21
- --------------------------------------------------------------------------------------------
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended November 30, 2004
Investment Income:
Dividends $ 4,435,182
Interest 41,670
Total income 4,476,852
Expenses:
Administrative personnel and services
fee (Note 5) $ 156,745
Custodian fees (Note 5) 5,519
Transfer and dividend disbursing
agent fees and expenses (Note 5) 12,584
Auditing fees 20,056
Legal fees 4,810
Portfolio accounting fees (Note 5) 78,337
Insurance premiums 7,869
Miscellaneous 320
Total expenseS 286,240
Waiver and Reimbursement (Note 5):
Waiver of administrative personnel
and services fee $ (156,745)
Reimbursement of other operating
expenses (15,064)
Total waiver and reimbursement (171,809)
Net expenses 114,431
Net investment income 4,362,421
Realized and Unrealized Gain on
Investments:
Net realized gain on investments 3,813,589
Net change in unrealized
appreciation of investments 12,487,319
Net realized and unrealized gain on
investments 16,300,908
Change in net assets resulting from
operations $ 20,663,329
See Notes which are an integral part of the Financial Statements
============================================================================================
STATEMENT OF CHANGES IN NET ASSETS
Year Period
Ended Ended
11/30/2004 11/30/2003 1
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 4,362,421 $ 223,141
Net realized gain (loss) on investments 3,813,589 (170,782)
Net change in unrealized
appreciation/depreciation of investments 12,487,319 2,602,445
Change in net assets resulting from
operations 20,663,329 2,654,804
Share Transactions:
Contributions 28,600,100 182,900,100
Withdrawals (37,000,001) (101)
Change in net assets resulting from
share transactions (8,399,901) 182,899,999
Change in net assets 12,263,428 185,554,803
Net Assets:
Beginning of period 185,554,803 ---
End of period (including undistributed
net investment income of $4,585,562 and $ $
$223,141, respectively) 197,818,231 185,554,803
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
NOTES TO FINANCIAL STATEMENTS
November 30, 2004
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 market
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 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 and 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. Realized gains
and losses from investment transactions are recorded on an identified cost
basis.
3. COntributions/withdrawals
Transactions in shares were as follows:
Year Ended Period Ended
11/30/2004 11/30/2003 1
Proceeds from contributions 2,713,791 18,305,997
Fair value withdrawals (3,366,781) (10)
TOTAL CHANGE RESULTING FROM (652,990) 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 November 30, 2004, the cost of investments for federal tax purposes was
$182,714,721. The net unrealized appreciation of investments for federal tax
purposes was $15,089,764. This consists of net unrealized appreciation from
investments for those securities having an excess of value over cost of
$21,559,954 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $6,470,190.
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. The administrative fee received during any fiscal year
shall be at least $125,000 per portfolio. 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 recieves 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.
Custodian
FASI is the Fund's custodian. 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 Fund 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 year
ended November 30, 2004, were as follows:
Purchases $ 112,365,742
Sales $ 120,096,669
7. Legal Proceedings
Beginning 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. Federated and various
Funds have also been named as defendants in several additional lawsuits, the
majority of which are now pending in the United States District Court for the
Western District of Pennsylvania, alleging, among other things, excessive
advisory and rule 12b-1 fees, and seeking damages of unspecified amounts. 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 may be filed
in the future. The potential impact of these recent lawsuits and future
potential similar suits is uncertain. Although we do 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 the regulatory investigations will not result in
increased Fund redemptions, reduced sales of Fund shares, or other adverse
consequences for the Funds.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Federated Core Trust II, L.P. and Shareholders of
Capital Appreciation Core Fund:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Capital Appreciation Core Fund (the "Fund")
(one of the portfolios constituting Federated Core Trust II, L.P.) as of
November 30, 2004, and the related statement of operations for the year then
ended, and the statement of changes in net assets and financial highlights for
each of the periods indicated therein. 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 conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). 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. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in financial statements. Our procedures included confirmation of
securities owned as of November 30, 2004, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where replies from the
brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Capital Appreciation Core Fund of Federated Core Trust II, L.P. at November 30,
2004, the results of its operations for the year then ended, and the changes in
its net assets and financial highlights for each of the periods indicated
therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
January 12, 2005
BOARD OF DIRECTORS AND TRUST OFFICERS
The Board is responsible for managing theTrust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The following tables give information about each Board member and the senior
officers of the Fund. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA. As of December 31, 2004, the Trust comprised two
portfolios, and the Federated Fund Complex consisted of 44 investment companies
(comprising 133 portfolios). Unless otherwise noted, each Officer is elected
annually. Unless otherwise noted, each Board member oversees all portfolios in
the Federated Fund Complex and serves for an indefinite term. The Fund`s
Statement of Additional Information includes additional information about Trust
Directors and is available, without charge and upon request, by calling
1-800-341-7400.
Interested Directors Background
Name
Birth Date
Address
Positions Held with
Trust Principal Occupation(s) for Past Five Years, Other
Date Service Began Directorships Held and Previous Position(s)
John F. Donahue* Principal Occupations: Chairman and Director or
Birth Date: July 28, Trustee of the Federated Fund Complex; Chairman and
1924 Director, Federated Investors, Inc.
CHAIRMAN AND DIRECTOR
Began serving: Previous Positions: Trustee, Federated Investment
November 2000 Management Company and Chairman and Director,
Federated Investment Counseling.
J. Christopher Donahue* Principal Occupations: Principal Executive Officer and
Birth Date: April 11, President of the Federated Fund Complex; Director or
1949 Trustee of some of the Funds in the Federated Fund
PRESIDENT AND DIRECTOR Complex; President, Chief Executive Officer and
Began serving: Director, Federated Investors, Inc.; Chairman and
November 2000 Trustee, Federated Investment Management Company;
Trustee, Federated Investment Counseling; Chairman and
Director, Federated Global Investment Management
Corp.; Chairman, Passport Research, Ltd.; 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.
Lawrence D. Ellis, Principal Occupations: Director or Trustee of the
M.D.* Federated Fund Complex; Professor of Medicine,
Birth Date: October University of Pittsburgh; Medical Director, University
11, 1932 of Pittsburgh Medical Center Downtown; Hematologist,
3471 Fifth Avenue Oncologist and Internist, University of Pittsburgh
Suite 1111 Medical Center.
Pittsburgh, PA
DIRECTOR Other Directorships Held: Member, National Board of
Began serving: Trustees, Leukemia Society of America.
November 2001
Previous Positions: Trustee, University of
Pittsburgh; Director, University of Pittsburgh Medical
Center.
* Family relationships and reasons for "interested" status: John F. Donahue is the father
of J. Christopher Donahue; both are "interested" due to the positions they hold with
Federated Investors, Inc. and its subsidiaries. Lawrence D. Ellis, M.D. is "interested"
because his son-in-law is employed by the Fund's principal underwriter, Federated
Securities Corp.
- --------------------------------------------------------------------------------------------
Independent directors background
Name
Birth Date
Address
Positions Held with
Trust Principal Occupation(s) for Past Five Years, Other
Date Service Began Directorships Held and Previous Position(s)
Thomas G. Bigley Principal Occupation: Director or Trustee of the
Birth Date: Federated Fund Complex.
February 3, 1934
15 Old Timber Trail Other Directorships Held: Director, Member of Executive
Pittsburgh, PA Committee, Children's Hospital of Pittsburgh; Director,
DIRECTOR University of Pittsburgh.
Began serving:
November 2001 Previous Position: Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr. Principal Occupations: Director or Trustee of the
Birth Date: June Federated Fund Complex; Chairman of the Board,
23, 1937 Investment Properties Corporation; Partner or Trustee in
Investment private real estate ventures in Southwest Florida.
Properties
Corporation Previous Positions: President, Investment Properties
3838 North Tamiami Corporation; Senior Vice President, John R. Wood and
Trail Associates, Inc., Realtors; President, Naples Property
Suite 402 Management, Inc. and Northgate Village Development
Naples, FL Corporation.
DIRECTOR
Began serving:
November 2001
Nicholas P. Principal Occupations: Director or Trustee of the
Constantakis Federated Fund Complex.
Birth Date:
September 3, 1939 Other Directorships Held: Director and Member of the
175 Woodshire Drive Audit Committee, Michael Baker Corporation (engineering
Pittsburgh, PA and energy services worldwide).
DIRECTOR
Began serving: Previous Position: Partner, Andersen Worldwide SC.
November 2001
John F. Cunningham Principal Occupation: Director or Trustee of the
Birth Date: March Federated Fund Complex.
5, 1943
353 El Brillo Way Other Directorships Held: Chairman, President and Chief
Palm Beach, FL Executive Officer, Cunningham & Co., Inc. (strategic
DIRECTOR business consulting); Trustee Associate, Boston College.
Began serving:
November 2001 Previous Positions: Director, Redgate Communications
and EMC Corporation (computer storage systems); Chairman
of the Board and Chief Executive Officer, Computer
Consoles, Inc.; President and Chief Operating Officer,
Wang Laboratories; Director, First National Bank of
Boston; Director, Apollo Computer, Inc.
Peter E. Madden Principal Occupation: Director or Trustee of the
Birth Date: March Federated Fund Complex; Management Consultant.
16, 1942 -----------------------------------------------------------
One Royal Palm Way
100 Royal Palm Way Other Directorships Held: Board of Overseers, Babson
Palm Beach, FL College.
DIRECTOR
Began serving: Previous Positions: Representative, Commonwealth of
November 2001 Massachusetts General Court; President, State Street
Bank and Trust Company and State Street Corporation
(retired); Director, VISA USA and VISA International;
Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation;
Director, The Boston Stock Exchange.
Charles F. Principal Occupations: Director or Trustee of the
Mansfield, Jr. Federated Fund Complex; Management Consultant; Executive
Birth Date: April Vice President, DVC Group, Inc. (marketing
10, 1945 communications and technology) (prior to 9/1/00).
80 South Road
Westhampton Beach, Previous Positions: Chief Executive Officer, PBTC
NY International Bank; Partner, Arthur Young & Company (now
DIRECTOR Ernst & Young LLP); Chief Financial Officer of Retail
Began serving: Banking Sector, Chase Manhattan Bank; Senior Vice
November 2001 President, HSBC Bank USA (formerly, Marine Midland
Bank); Vice President, Citibank; Assistant Professor of
Banking and Finance, Frank G. Zarb School of Business,
Hofstra University.
John E. Murray, Principal Occupations: Director or Trustee of the
Jr., J.D., S.J.D. Federated Fund Complex; Chancellor and Law Professor,
Birth Date: Duquesne University; Partner, Murray, Hogue and Lannis.
December 20, 1932
Chancellor, Other Directorships Held: Director, Michael Baker Corp.
Duquesne University (engineering, construction, operations and technical
Pittsburgh, PA services).
DIRECTOR
Began serving: Previous Positions: President, Duquesne University; Dean
November 2001 and Professor of Law, University of Pittsburgh School of
Law; Dean and Professor of Law, Villanova University
School of Law.
Marjorie P. Smuts Principal Occupations: Director or Trustee of the
Birth Date: June Federated Fund Complex; Public Relations/Marketing
21, 1935 Consultant/Conference Coordinator.
4905 Bayard Street
Pittsburgh, PA Previous Positions: National Spokesperson, Aluminum
DIRECTOR Company of America; television producer; President, Marj
Began serving: Palmer Assoc.; Owner, Scandia Bord.
November 2001
John S. Walsh Principal Occupations: Director or Trustee of the
Birth Date: Federated Fund Complex; President and Director, Heat
November 28, 1957 Wagon, Inc. (manufacturer of construction temporary
2604 William Drive heaters); President and Director, Manufacturers
Valparaiso, IN Products, Inc. (distributor of portable construction
DIRECTOR heaters); President, Portable Heater Parts, a division
Began serving: of Manufacturers Products, Inc.
November 2001
Previous Position: Vice President, Walsh & Kelly, Inc.
Officers
- --------------------------------------------------------------------------------------------
Name
Birth Date
Positions Held
with Trust Principal Occupation(s) for Past Five Years and
Date Began Serving Previous Position(s)
John W. McGonigle Principal Occupations: Executive Vice President and
Birth Date: Secretary of the Federated Fund Complex; Executive Vice
October 26, 1938 President, Secretary and Director, Federated Investors,
EXECUTIVE VICE Inc.
PRESIDENT AND
SECRETARY
Began serving:
November 2000
Richard J. Thomas Principal Occupations: Principal Financial Officer and
Birth Date: June Treasurer of the Federated Fund Complex; Senior Vice
17, 1954 President, Federated Administrative Services.
TREASURER
Began serving:
November 2000
Richard B. Fisher Principal Occupations: Vice Chairman or President of
Birth Date: May some of the Funds in the Federated Fund Complex; Vice
17, 1923 Chairman, Federated Investors, Inc.; Chairman,
VICE CHAIRMAN Federated Securities Corp.
Began serving:
August 2002 Previous Positions: President and Director or Trustee
of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.;
and Director and Chief Executive Officer, Federated
Securities Corp.
Stephen F. Auth Principal Occupations: Chief Investment Officer of this
Birth Date: Fund and various other Funds in the Federated Fund
September 3, 1956 Complex; Executive Vice President, Federated Investment
CHIEF INVESTMENT Counseling, Federated Global Investment Management
OFFICER Corp., Federated Equity Management Company of
Began serving: Pennsylvania and Passport Research II, Ltd.
May 2004
Previous Positions: Executive Vice President, Federated
Investment Management Company, and Passport Research,
Ltd.; Senior Vice President, Global Portfolio
Management Services Division; Senior Vice President,
Federated Investment Management Company and Passport
Research, Ltd.; Senior Managing Director and Portfolio
Manager, Prudential Investments.
Todd A. Abraham Todd A. Abraham is Vice President of the Trust. Mr.
Birth Date: Abraham has been a Portfolio Manager since 1995 and a
February 10, 1966 Vice President of the Fund's Adviser since 1997. Mr.
VICE PRESIDENT Abraham joined Federated in 1993 as an Investment
Began serving: Analyst and served as Assistant Vice President from
May 2004 1995 to 1997. Mr. Abraham served as a Portfolio Analyst
at Ryland Mortgage Co. from 1992-1993. Mr. Abraham is a
Chartered Financial Analyst and received his M.B.A. in
Finance from Loyola College.
David P. Gilmore David P. Gilmore has been the Fund's Portfolio Manager
Birth Date: since inception. He is Vice President of the Trust. Mr.
November 11, 1970 Gilmore joined Federated in August 1997 as an
VICE PRESIDENT Investment Analyst. He was promoted to Senior
Began serving: Investment Analyst in July 1999 and became an Assistant
May 2004 Vice President of the Fund's Adviser in July 2000. Mr.
Gilmore was a Senior Associate with Coopers & Lybrand
from January 1992 to May 1995. Mr. Gilmore is a
Chartered Financial Analyst and attended the University
of Virginia, where he earned his M.B.A., from September
1995 to May 1997. Mr. Gilmore has a B.S. from Liberty
University.
Robert M. Kowit Robert M. Kowit is Vice President of the Trust. Mr.
Birth Date: June Kowit joined Federated in 1995 as a Senior Portfolio
27, 1945 Manager and a Vice President of the Fund's Adviser. Mr.
VICE PRESIDENT Kowit served as a Managing Partner of Copernicus Global
Began serving: Asset Management from January 1995 through October
February 2001 1995. From 1990 to 1994, he served as Senior Vice
President/Portfolio Manager of International Fixed
Income and Foreign Exchange for John Hancock Advisers.
Mr. Kowit received his M.B.A. from Iona College with a
concentration in finance.
- --------------------------------------------------------------------------------------------
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.
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to securities held in the Fund's portfolio is
available, without charge and upon request, by calling 1-800-341-7400. 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 from the EDGAR database on the SEC's
website at http://www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
These filings are available on the SEC's website at http://www.sec.gov and may
be reviewed and copied at the SEC's Public Reference Room in Washington, DC.
(Call 1-800-SEC-0330 for information on the operation of the Public Reference
Room.)
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) Not Applicable
(d) Not Applicable
(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 member of the Board's Audit
Committee is an "audit committee financial expert," and that each such member is
"independent," for purposes of this Item. The Audit Committee consists of the
following Board members: Thomas G. Bigley, John T. Conroy, Jr., Nicholas P.
Constantakis and Charles F. Mansfield, Jr.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees billed to the registrant for the two most recent
fiscal years:
Fiscal year ended 2004 - $25,968
Fiscal year ended 2003 - $25,000
(b) Audit-Related Fees billed to the registrant for the two most recent
fiscal years:
Fiscal year ended 2004 - $0
Fiscal year ended 2003 - $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.
(c) Tax Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2004 - $12,000
Fiscal year ended 2003 - $0
Preparation and Filing of Tax Return
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 2004 - $0
Fiscal year ended 2003 - $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
its responsibilities to pre-approve services performed by the independent
auditor to management.
The Audit Committee has delegated pre-approval authority to its Chairman.
The Chairman will report any 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 must approve
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, 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 Company'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 Company 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, 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 services other than audit, review or
attest services the pre-approval requirement is waived if:
(1) The aggregate amount of all such services provided constitutes no more than
five percent of the total amount of revenues paid by the registrant, 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 investment adviser that provides ongoing services
to the registrant to its accountant during the fiscal year in which the
services are provided;
(2) Such services were not recognized by the registrant, 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 investment adviser that provides ongoing services to the
registrant at the time of the engagement to be non-audit services; and
(3) Such services are promptly brought to the attention of the Audit Committee
of the issuer 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 classified as All Other services that it believes are routine
and recurring services, and would not impair the independence of the auditor.
The SEC's rules and relevant guidance should be consulted to determine the
precise definitions of prohibited non-audit services and the 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 both the
independent auditor and the Principal Accounting Officer and/or Internal
Auditor, and must include a joint statement as to whether, in their view, 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 registrants audit committee pursuant to paragraph (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2004 - 0%
Fiscal year ended 2003 - 0%
Percentage of services provided to the registrants investment adviser
and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the
registrant that were approved by the registrants 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 2004 - 0%
Fiscal year ended 2003 - 0%
Percentage of services provided to the registrants investment adviser and
any entity controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant that
were approved by the registrants 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 2004 - 0%
Fiscal year ended 2003 - 0%
Percentage of services provided to the registrants investment adviser
and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the
registrant that were approved by the registrants 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 investment
adviser, and certain entities controlling, controlled by or under common
control with the investment adviser:
Fiscal year ended 2004 - $62,542
Fiscal year ended 2003 - $79,940
(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
investment 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
Not Applicable
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
Not Applicable
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 last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
Item 12. 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
(insert name and title)
Date January 24, 2005
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 January 24, 2005
By /S/ Richard J. Thomas, Principal Financial Officer
Date January 24, 2005