United States
Securities and Exchange Commission
Washington, D.C. 20549
Form N-CSR
Certified Shareholder Report of Registered
Management Investment Companies
811-10625
(Investment Company Act File Number)
Federated Core Trust II, L.P.
---------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
Date of Fiscal Year End: 11/30/05
Date of Reporting Period: Six months ended 5/31/05
------------------------
Item 1. Reports to Stockholders
SEMI-ANNUAL SHAREHOLDER REPORT
May 31, 2005
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
FINANCIAL STATEMENTS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
Six Months
Ended
(unaudited) Year Ended Period Ended
5/31/2005 11/30/2004 11/30/2003 (1)
Net Asset Value, Beginning of Period $11.21 $10.14 $10.00
Income From Investment Operations:
Net investment income 0.15 0.25 0.01
Net realized and unrealized gain on
investments 0.10 0.82 0.13
TOTAL FROM INVESTMENT OPERATIONS 0.25 1.07 0.14
Net Asset Value, End of Period $11.46 $11.21 $10.14
Total Return(2) 2.23 % 10.55 % 1.40 %
Ratios to Average Net Assets:
Expenses 0.05 %(3,4) 0.05 % 0.05 %(3)
Net investment income 1.77 %(3) 2.09 % 2.21 %(3)
Expense waiver/reimbursement(5) 0.10 %(3) 0.08 % 0.49 %(3)
Supplemental Data:
Net assets, end of period (000 omitted) $176,384 $197,818 $185,555
Portfolio turnover 12 % 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 The expense ratio is calculated without reduction for fees paid indirectly
for directed brokerage arrangements. The expense ratio is 0.05% for the six
months ended May 31, 2005 after taking into account these expense reductions.
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 December 1, 2004 to May 31,
2005.
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
12/1/2004 5/31/2005 Period(1)
Actual $1,000 $1,022.30 $0.25
Hypothetical (assuming a 5% return
before expenses) $1,000 $1,024.68 $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
182/365 (to reflect the one-half year period).
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
At May 31, 2005, the Fund's sector composition1 was as follows:
Percentage of
Sector Total Net Assets
Financials 18.9%
Information Technology 18.8%
Consumer Discretionary 13.5%
Consumer Staples 11.2%
Healthcare 11.2%
Industrials 9.6%
Energy 7.9%
Telecommunication Services 3.8%
Materials 1.9%
Utilities 0.9%
Cash Equivalents(2) 2.2%
Other Assets and Liabilities - Net(3) 0.1%
TOTAL 100.0%
1 Except for Cash Equivalents, sector classifications are based upon, and
individual securities are assigned to, the classifications of the Global
Industry Classification Standard (GICS) except that the adviser assigns a
classification to securities not classified by the GICS and to securities
for which the adviser does not have access to the classification made by
the GICS.
2 Cash Equivalents includes any investments in money market mutual funds
and/or overnight repurchase agreements.
3 See Statement of Assets and Liabilities.
PORTFOLIO OF INVESTMENTS
May 31, 2005 (unaudited)
Shares or
Principal
Amount Value
COMMON STOCKS--97.7%
Consumer Discretionary--13.5%
47,900 Clear Channel Communications, Inc. $ 1,400,117
58,500 (1) Comcast Corp., Class A 1,850,940
43,500 Gap (The), Inc. 913,500
22,300 Hasbro, Inc. 450,014
68,700 Home Depot, Inc. 2,703,345
77,900 (1) Interpublic Group Cos., Inc. 961,286
27,000 Johnson Controls, Inc. 1,529,820
71,200 McDonald's Corp. 2,202,928
20,300 Nike, Inc., Class B 1,668,660
17,000 Omnicom Group, Inc. 1,392,130
45,200 Target Corp. 2,427,240
78,600 (1) Time Warner, Inc. 1,367,640
66,513 Viacom, Inc., Class B 2,280,731
97,400 Walt Disney Co. 2,672,656
Total 23,821,007
Consumer Staples--11.2%
67,300 Altria Group, Inc. 4,518,522
56,300 Coca-Cola Co. 2,512,669
62,700 Gillette Co. 3,306,798
114,200 (1) Kroger Co. 1,915,134
44,700 PepsiCo, Inc. 2,516,610
26,500 Procter & Gamble Co. 1,461,475
73,200 Wal-Mart Stores, Inc. 3,457,236
Total 19,688,444
Energy--7.9%
36,974 Chevron Corp. 1,988,462
16,500 ConocoPhillips 1,779,360
138,064 Exxon Mobil Corp. 7,759,197
21,400 Halliburton Co. 914,636
28,900 (1) Transocean Sedco Forex, Inc. 1,439,509
Total 13,881,164
Financials--18.9%
20,200 Ace Ltd. 873,044
42,804 Allstate Corp. 2,491,193
25,716 American International Group, Inc. 1,428,524
59,192 Bank of America Corp. 2,741,773
60,200 Bank of New York Co., Inc. 1,734,964
94,965 Citigroup, Inc. 4,473,801
19,400 Federal National Mortgage Association 1,149,256
16,700 Goldman Sachs Group, Inc. 1,628,250
76,000 J.P. Morgan Chase & Co. 2,717,000
21,300 Lehman Brothers Holdings, Inc. 1,963,860
104,900 MBNA Corp. 2,212,341
50,600 Merrill Lynch & Co., Inc. 2,745,556
60,700 Morgan Stanley 2,971,872
35,300 Wachovia Corp. 1,791,475
41,600 Wells Fargo & Co. 2,513,056
Total 33,435,965
Healthcare--11.2%
43,500 Abbott Laboratories 2,098,440
54,700 Baxter International, Inc. 2,018,430
15,085 (1) Biogen Idec, Inc. 589,823
6,100 (1) Genentech, Inc. 483,425
15,900 HCA Inc. 858,600
31,300 Johnson & Johnson 2,100,230
33,000 McKesson HBOC, Inc. 1,328,910
58,200 Medtronic, Inc. 3,128,250
35,200 Merck & Co., Inc. 1,141,888
107,441 Pfizer, Inc. 2,997,604
71,300 Wyeth 3,092,281
Total 19,837,881
Industrials--9.6%
34,300 3M Co. 2,629,095
19,000 Caterpillar, Inc. 1,788,090
227,200 General Electric Co. 8,288,256
89,800 Tyco International Ltd. 2,597,914
54,100 Waste Management, Inc. 1,595,409
Total 16,898,764
Information Technology--18.8%
51,100 Analog Devices, Inc. 1,894,788
302,700 Applied Materials, Inc. 4,967,307
58,000 (1) BMC Software, Inc. 987,160
187,600 (1) Cisco Systems, Inc. 3,635,688
52,000 (1) Dell, Inc. 2,074,280
194,400 (1) EMC Corp. Mass 2,733,264
27,200 IBM Corp. 2,054,960
123,100 Intel Corp. 3,315,083
50,600 KLA-Tencor Corp. 2,297,746
33,300 (1) Lam Research Corp. 1,021,644
172,900 Microsoft Corp. 4,460,820
218,800 (1) Oracle Corp. 2,805,016
45,200 (1) Siebel Systems, Inc. 416,744
23,400 (1) Symantec Corp. 529,074
Total 33,193,574
Materials--1.9%
57,900 Alcoa, Inc. 1,569,090
39,700 Du Pont (E.I.) de Nemours & Co. 1,846,447
Total 3,415,537
Telecommunication Services--3.8%
80,400 BellSouth Corp. 2,151,504
111,900 SBC Communications, Inc. 2,616,222
45,618 Verizon Communications 1,613,965
10,300 Vodafone Group PLC, ADR 259,354
Total 6,641,045
Utilities--0.9%
62,700 NiSource, Inc. 1,511,070
Total Common Stocks (identified cost $157,298,716) 172,324,451
REPURCHASE AGREEMENT--2.2%
$ 3,868,000 Interest in $3,070,000,000 joint repurchase
agreement with Barclays Capital, Inc., 3.08%, dated
5/31/2005, to be repurchased at $3,868,331 on
6/1/2005, collateralized by U.S. Government Agency
Obligations with various maturities to 5/5/2008,
collateral market value $3,131,400,678 (AT AMORTIZED
COST) 3,868,000
Total Investments--99.9% (identified cost
$161,166,716)(2) 176,192,451
OTHER ASSETS AND LIABILITIES--NET--0.1% 191,925
TOTAL NET ASSETS--100% $ 176,384,376
1 Non-income producing security.
2 The cost of investments for federal tax purposes amounts to $161,166,716.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2005.
The following acronym is used throughout this portfolio:
ADR --American Depositary Receipt
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2005 (unaudited)
Assets:
Total investments in securities, at value
(identified cost $161,166,716) $176,192,451
Cash 916
Income receivable 286,090
Receivable for investments sold 595,224
TOTAL ASSETS 177,074,681
Liabilities:
Payable for investments purchased $665,181
Payable for custodian fees 3,151
Payable for transfer and dividend disbursing
agent fees and expenses 3,971
Payable for portfolio accounting fees (Note 5) 3,248
Accrued expenses 14,754
TOTAL LIABILITIES 690,305
Net assets for 15,394,707 shares outstanding $176,384,376
Net Assets Consist of:
Paid in capital $148,700,098
Net unrealized appreciation of investments 15,025,735
Accumulated net realized gain on investments 6,400,438
Undistributed net investment income 6,258,105
TOTAL NET ASSETS $176,384,376
Net Asset Value, Offering Price and Redemption
Proceeds Per Share:
$176,384,376 / 15,394,707 shares outstanding,
no par value, unlimited shares authorized $11.46
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2005 (unaudited)
Investment Income:
Dividends $1,669,115
Interest 52,201
TOTAL INCOME 1,721,316
Expenses:
Administrative personnel and services fee
(Note 5) $70,908
Custodian fees 6,084
Transfer and dividend disbursing agent fees
and expenses (Note 5) 6,476
Directors'/Trustees' fees 4,034
Auditing fees 9,986
Legal fees 2,526
Portfolio accounting fees (Note 5) 40,426
Insurance premiums 5,374
Miscellaneous 4,199
TOTAL EXPENSES 150,013
Waivers, Reimbursement and Expense
Reduction:
Waiver of administrative personnel and
services fee (Note 5) $(70,908)
Waiver of transfer and dividend disbursing
agent fees and expenses (Note 5) (922)
Reimbursement of other operating expenses
(Note 5) (26,417)
Fees paid indirectly from directed broker
arrangements (2,993)
TOTAL WAIVERS, REIMBURSEMENT AND EXPENSE
REDUCTION (101,240)
Net expenses 48,773
Net investment income 1,672,543
Realized and Unrealized Gain (Loss) on
Investments:
Net realized gain on investments 2,757,631
Net change in unrealized appreciation of
investments (64,029)
Net realized and unrealized gain on
investments 2,693,602
Change in net assets resulting from
operations $4,366,145
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
Six Months
Ended
(unaudited) Year Ended
5/31/2005 11/30/2004
Increase (Decrease) in Net Assets
Operations:
Net investment income $1,672,543 $4,362,421
Net realized gain on investments 2,757,631 3,813,589
Net change in unrealized
appreciation/depreciation of investments (64,029) 12,487,319
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 4,366,145 20,663,329
Share Transactions:
Contributions -- 28,600,100
Withdrawals (25,800,000) (37,000,001)
CHANGE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS (25,800,000) (8,399,901)
Change in net assets (21,433,855) 12,263,428
Net Assets:
Beginning of period 197,818,231 185,554,803
End of period (including undistributed net
investment income of $6,258,105 and
$4,585,562, respectively) $176,384,376 $197,818,231
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
May 31, 2005 (unaudited)
1. ORGANIZATION
Capital Appreciation Core Fund (the "Fund") is a diversified portfolio of
Federated Core Trust II, L.P. (the "Trust"). The Trust is registered under
the Investment Company Act of 1940, as amended (the "Act"). The Trust is a
limited partnership that was established under the laws of the State of
Delaware on November 13, 2000 and offered only to registered investment
companies and other accredited investors. The Trust consists of two
portfolios. The financial statements included herein are only those of the
Fund. The investment objective of the Fund is to provide capital
appreciation. Currently, the Fund is only available for purchase by other
Federated funds and their affiliates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
(GAAP) in the United States of America.
Investment Valuation
Listed equity securities are valued at the last sale price or official
closing price reported on a national securities exchange. Short-term
securities are valued at the prices provided by an independent pricing
service. However, short-term securities with remaining maturities of 60 days
or less at the time of purchase may be valued at amortized cost, which
approximates fair 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:
Six Months Ended Year Ended
(unaudited) 5/31/2005 11/30/2004
Proceeds from contributions - 2,713,791
Fair value withdrawals (2,258,290) (3,366,781)
TOTAL CHANGE RESULTING FROM (2,258,290) (652,990)
CONTRIBUTIONS/WITHDRAWALS
4. FEDERAL TAX INFORMATION
At May 31, 2005, the cost of investments for federal tax purposes was
$161,166,716. The net unrealized appreciation of investments for federal tax
purposes was $15,025,735. This consists of net unrealized appreciation from
investments for those securities having an excess of value over cost of
$19,825,849 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $4,800,114.
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), under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. The fee paid to FASI is based on the average aggregate daily net
assets of the Trust as specified below:
Average Aggregate Daily Net Assets
Maximum Administrative Fee of the Trust
0.150% on the first $5 billion
0.125% on the next $5 billion
0.100% on the next $10 billion
0.075% on assets in excess of $20 billion
The administrative fee received during any fiscal year shall be at least
$150,000 per portfolio. 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.
Transfer and Dividend Disbursing Agent Fees and Expenses
Prior to March 1, 2005, FASI served as transfer and dividend disbursing agent
for the Fund. The fee paid to FASI was based on the size, type and number of
accounts and transactions made by shareholders. The fee paid to FASI during
the reporting period was $2,752, after voluntary waiver, if applicable.
Portfolio Accounting Fees
FASI maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the
period, plus out-of-pocket expenses. FASI may voluntarily choose to waive any
portion of its fee. FASI can modify or terminate this voluntary waiver at any
time at its sole discretion.
Expense Reduction
The Fund directs portfolio trades to a broker that in turn pays a portion of
the Fund's operating expenses. For the six months ended May 31, 2005, the
Fund's expenses were reduced by $2,993 under these arrangements.
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
six-months ended May 31, 2005, were as follows:
Purchases $ 21,890,826
Sales $ 45,037,041
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.
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 through Federated's
website. Go to FederatedInvestors.com, select "Products," select the
"Prospectuses and Regulatory Reports" link, then select the Fund to access
the link to Form N-PX. This information is also available from the EDGAR
database on the SEC's website at 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 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.) You may also access this information from the
"Products" section of Federated's website at FederatedInvestors.com by
clicking on "Portfolio Holdings" and selecting the name of the Fund, or by
selecting the name of the Fund and clicking on "Portfolio Holdings." You must
register on the website the first time you wish to access this information.
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.
Cusip 31409R201
31869 (7/05)
EMERGING MARKETS FIXED INCOME CORE FUND
SEMI-ANNUAL SHAREHOLDER REPORT
May 31, 2005
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
FINANCIAL STATEMENTS
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
Six Months Ended
(unaudited) Year Ended November 30, Period Ended
5/31/2005 2004 2003 11/30/2002 (1)
Net Asset Value, Beginning of
Period $15.91 $14.39 $10.98 $10.00
Income From Investment Operations:
Net investment income 0.62 (2) 0.91 0.85 0.83 (3)
Net realized and unrealized gain
on investments, options, futures
contracts and foreign currency
transactions 0.39 0.61 2.56 0.15 (3)
TOTAL FROM INVESTMENT OPERATIONS 1.01 1.52 3.41 0.98
Net Asset Value, End of Period $16.92 $15.91 $14.39 $10.98
Total Return(4) 6.35 % 10.56 % 31.06 % 9.80 %
Ratios to Average Net Assets:
Expenses 0.05 %(5) 0.05 % 0.05 % 0.05 %(5)
Net investment income 7.68 %(5) 7.80 % 8.85 % 10.58 %3,(5)
Expense waiver/reimbursement(6) 0.11 %(5) 0.21 % 0.23 % 0.42 %(5)
Supplemental Data:
Net assets, end of period (000
omitted) $255,683 $146,778 $131,056 $80,515
Portfolio turnover 39 % 54 % 97 % 178 %
1 Reflects operations for the period from January 14, 2002 (date of initial
investment) to November 30, 2002.
2 Based on average shares outstanding.
3 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%.
4 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.
5 Computed on an annualized basis.
6 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 December 1, 2004 to May 31,
2005.
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
12/1/2004 5/31/2005 Period(1)
Actual $1,000 $1,063.50 $0.26
Hypothetical (assuming a 5%
return beforeexpenses) $1,000 $1,024.68 $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
182/365 (to reflect the one-half year period).
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
At May 31, 2005 the Fund's credit quality ratings composition(1) 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 3.5% A 2.1%
BBB 7.0% Baa 19.2%
BB 65.7% Ba 20.7%
B 10.5% B 40.7%
CCC 0.6% Caa 1.5%
CC 0.0% Ca 0.0%
C 0.0% C 0.0%
D 0.0% D 0.0%
Not Rated by S&P(2) 0.6% Not Rated by Moody's(2) 3.7%
Other Securities(3) 0.0% Other Securities(3) 0.0%
Cash Equivalents(4) 10.4% Cash Equivalents(4) 10.4%
Other Assets and 1.7% Other Assets and Liabilities - Net(5) 1.7%
Liabilities - Net(5)
TOTAL 100.0% TOTAL 100.0%
At May 31, 2005 the Fund's issuer country and currency exposure
composition(6) were as follows:
Country Exposure Currency Exposure as a
as a Percentage of Percentage of Total Net
Country Total Net Assets Assets
Brazil 22.3% 0.0%
Russia 19.9% 0.0%
Mexico 9.0% 2.6%
Venezuela 7.2% 0.0%
Colombia 6.9% 0.0%
Philippines 6.8% 0.0%
Turkey 5.2% 0.0%
Peru 2.7% 0.0%
Kazakhstan 1.6% 0.0%
El Salvador 1.3% 0.0%
Bulgaria 1.0% 0.0%
Malaysia 1.0% 0.0%
Guatemala 0.8% 0.0%
Panama 0.8% 0.0%
Ukrainan SSR 0.8% 0.0%
Argentina 0.6% 0.0%
United States(7) 0.0% 85.3%
Cash Equivalents(4) 10.4% 10.4%
Other Assets and 1.7% 1.7%
Liabilities - Net(5)
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).
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.
2 Holdings that are rated only by a different NRSRO than the one identified
have been included in the "Not rated by..." category. Of the portfolio's total
net assets, 0.2% do not have long-term ratings by either of these NRSROs.
3 Other Securities include options that do not qualify for credit ratings
from an NRSRO. Represents less than 0.01%.
4 Cash Equivalents includes any investments in money market mutual funds
and/or overnight repurchase agreements. This does not include cash held in
the Fund that is denominated in foreign currencies. See the Statement of
Assets and Liabilities for information regarding the Fund's foreign cash
position.
5 See Statement of Assets and Liabilities.
6 This table depicts the Fund's exposure to various countries and currencies
through its investment in foreign fixed income securities. 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 which a majority of the Issuer's revenue is derived.
7 Consists of U.S. dollar denominated fixed income securities issued by an
entity not domiciled in the United States.
PORTFOLIO OF INVESTMENTS
May 31, 2005 (unaudited)
Principal
Amount or Value in
Shares U.S. Dollars
CORPORATE BONDS--25.2%
Banking--1.0%
$ 2,500,000 (1) Turanalem Finance BV, Bank Guarantee, 8.50%,
2/10/2015 $ 2,550,000
Brewing--2.5%
5,850,000 (1) Bavaria, Series 144A, 8.875%, 11/1/2010 6,435,000
Broadcast Radio & TV--1.8%
3,800,000 Grupo Televisa S.A., Sr. Note, 8.50%,
3/11/2032 4,510,638
Cable & Wireless Television--1.1%
2,520,000 Innova S De R.L., 9.375%, 9/19/2013 2,809,800
Chemicals & Plastics--0.6%
1,250,000 Braskem SA, Series REGS, 11.75%, 1/22/2014 1,462,500
Container & Glass Products--0.9%
600,000 Vicap SA, Sr. Note, Series EXCH, 11.375%,
5/15/2007 565,500
1,950,000 (1) Vitro SA, Note, Series 144A, 11.75%, 11/1/2013 1,672,125
Total 2,237,625
Hotels, Motels, Inns & Casinos--1.0%
2,500,000 (1) Grupo Posadas SA de C.V., Sr. Note, 8.75%,
10/4/2011 2,631,250
Oil & Gas--6.8%
4,575,000 (1) Gaz Capital SA, Note, Series 144A, 8.625%,
4/28/2034 5,524,312
4,960,000 (1) Gazprom, Note, Series 144A, 9.625%, 3/1/2013 5,976,800
2,000,000 Petronas Capital Ltd., Series REGS, 7.875%,
5/22/2022 2,491,748
2,200,000 (1) Petrozuata Finance, Inc., Company Guarantee,
Series 144A, 8.22%, 4/1/2017 2,068,000
1,420,000 (1) Tengizchevroil LLP, Series 144A, 6.124%,
11/15/2014 1,441,300
Total 17,502,160
Sovereign--3.0%
6,000,000 (1) Aries Vermogensverwaltng, Credit-Linked Note,
Series 144A, 9.60%, 10/25/2014 7,717,500
Steel--1.8%
2,700,000 (1) CSN Islands IX Corp., Sr. Note, Series 144A,
10.00%, 1/15/2015 2,902,500
1,500,000 (1) CSN Islands VIII Corp., Company Guarantee,
Series 144A, 9.75%, 12/16/2013 1,605,000
Total 4,507,500
Telecommunications & Cellular--4.0%
1,225,000 Axtel SA, 11.00%, 12/15/2013 1,316,875
1,000,000 (1) Mobile Telesystems, Series 144A, 8.375%,
10/14/2010 1,030,000
4,050,000 Philippine Long Distance Telephone Co., Sr.
Unsub., 11.375%, 5/15/2012 4,829,625
3,000,000 (1) Telefonos de Mexico, Series 144A, 5.50%,
1/27/2015 2,956,710
Total 10,133,210
Utilities--0.7%
1,700,000 (1) CIA Saneamento Basico, Note, Series 144A,
12.00%, 6/20/2008 1,912,500
Total Corporate Bonds (identified cost
$61,111,942) 64,409,683
GOVERNMENTS/AGENCIES--62.7%
Sovereign--62.7%
1,700,000 Argentina, Government of, Bond, 3.01%,
8/3/2012 1,513,850
5,435,364 Brazil, Government of, 4.3125%, 4/15/2012 5,217,949
500,000 Brazil, Government of, 8.875%, 10/14/2019 523,500
8,300,000 Brazil, Government of, 14.50%, 10/15/2009 10,852,250
3,800,000 Brazil, Government of, Bond, 10.125%,
5/15/2027 4,332,000
1,000,000 Brazil, Government of, Bond, 10.50%, 7/14/2014 1,175,000
4,475,000 Brazil, Government of, Bond, 11.50%, 3/12/2008 5,168,625
5,752,421 Brazil, Government of, C Bond, 8.00%,
4/15/2014 5,867,469
2,000,000 Brazil, Government of, Note, 8.75%, 2/4/2025 2,025,000
7,310,000 Brazil, Government of, Note, 11.00%, 1/11/2012 8,680,625
4,400,000 Brazil, Government of, Note, 12.00%, 4/15/2010 5,368,000
2,100,000 (1) Bulgaria, Government of, Bond, 8.25%,
1/15/2015 2,635,500
450,000 Colombia, Government of, 9.75%, 4/23/2009 508,838
1,780,000 Colombia, Government of, 10.00%, 1/23/2012 2,044,330
1,750,000 Colombia, Government of, 10.75%, 1/15/2013 2,086,875
3,200,000 Colombia, Government of, Bond, 8.125%,
5/21/2024 3,160,000
2,600,000 Colombia, Government of, Bond, 11.75%,
2/25/2020 3,347,500
3,250,000 El Salvador, Government of, Bond, 8.25%,
4/10/2032 3,388,125
1,750,000 (1) Guatemala, Government of, Note, 9.25%,
8/1/2013 2,047,500
48,311,300 Mexican Fixed Rate Bonds, Bond, 10.00%,
12/5/2024 4,453,249
13,440,000 Mexico, Government of, 8.00%, 12/7/2023 1,031,676
12,970,000 Mexico, Government of, Bond, 8.00%, 12/19/2013 1,077,105
1,700,000 Panama, Government of, 9.625%, 2/8/2011 2,034,900
1,300,000 Peru, Government of, Bond, 8.75%, 11/21/2033 1,449,500
850,000 Peru, Government of, Note, 9.125%, 2/21/2012 1,011,500
3,630,000 Peru, Government of, Note, 9.875%, 2/6/2015 4,432,230
4,600,000 Philippines, Government of, 9.375%, 1/18/2017 4,995,600
3,250,000 Philippines, Government of, 9.875%, 1/15/2019 3,534,375
1,200,000 Philippines, Government of, Note, 8.25%,
1/15/2014 1,227,000
2,425,000 Philippines, Government of, Note, 10.625%,
3/16/2025 2,728,125
3,950,000 Russia, Government of, 8.25%, 3/31/2010 4,317,943
1,500,000 Russia, Government of, 10.00%, 6/26/2007 1,661,850
16,800,000 Russia, Government of, Unsub., 5.00%,
3/31/2030 18,459,000
3,500,000 Russia, Government of, Unsub., 12.75%,
6/24/2028 6,223,700
2,850,000 Turkey, Government of, 9.50%, 1/15/2014 3,320,250
1,810,000 Turkey, Government of, 11.00%, 1/14/2013 2,258,880
2,000,000 Turkey, Government of, Note, 7.375%, 2/5/2025 1,948,000
1,300,000 Turkey, Government of, Note, 11.50%, 1/23/2012 1,635,400
1,000,000 Turkey, Government of, Sr. Unsub., 11.875%,
1/15/2030 1,391,250
2,275,000 Turkey, Government of, Sr. Unsub., 12.375%,
6/15/2009 2,790,970
600,000 Ukraine, Government of, Bond, 7.65%, 6/11/2013 653,550
1,362,728 Ukraine, Government of, Sr. Note, 11.00%,
3/15/2007 1,453,281
800,000 Venezuela, Government of, 8.50%, 10/8/2014 806,000
670,000 Venezuela, Government of, 9.375%, 1/13/2034 678,710
3,475,000 Venezuela, Government of, 10.75%, 9/19/2013 3,961,500
8,920,000 Venezuela, Government of, Bond, 9.25%,
9/15/2027 9,013,660
1,850,000 Venezuela, Government of, Par Bond, 6.75%,
3/31/2020 1,846,300
Total government/agencies (Identified cost
$152,424,783) 160,338,440
PURCHASED PUT OPTION--0.0%
5,200,000 State Street MXN PUT/USD CALL, Expiration
Date, 6/10/2005 (IDENTIFIED COST $60,060) 156
REPURCHASE AGREEMENT--10.4%
26,571,000 Interest in $3,070,000,000 joint repurchase
agreement with Barclays Capital, Inc., 3.08%,
dated 5/31/2005, to be repurchased at
$26,573,273 on 6/1/2005, collateralized by
U.S. Government Agency Obligations with
various maturities to 5/5/2008, collateral
market value $3,131,400,678 (AT AMORTIZED
COST) 26,571,000
Total Investments--98.3%
(identified cost $240,167,785)2 251,319,279
other assets and liabilities--net--1.7% 4,364,215
total net assets--100% $ 255,683,494
1 Denotes a restricted security, including securities purchased under Rule
144A of the Securities Act of 1933. These securities, all of which have been
deemed liquid by criteria approved by the fund's Board of Directors, unless
registered under the Act or exempted from registration, may only be sold to
qualified institutional investors. At May 31, 2005, these securities amounted
to $51,105,997 which represents 20.0% of total net assets.
2 The cost of investments for federal tax purposes amounts to $240,642,948.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2005.
The following acronyms are used throughout this portfolio:
MXN --Mexican Peso
USD --United States Dollar
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2005 (unaudited)
Assets:
Investment in securities $ 224,748,279
Investments in repurchase agreements 26,571,000
Total investments in securities, at value
(identified cost $240,167,785) 251,319,279
Cash denominated in foreign currencies
(identified cost $636) 650
Cash 10,284
Income receivable 4,390,789
TOTAL ASSETS 255,721,002
Liabilities:
Payable for custodian fees $ 9,579
Payable for transfer and dividend disbursing
agent fees and expenses 3,432
Payable for auditing fees 16,980
Payable for portfolio accounting fees (Note 5) 2,767
Payable for insurance premiums 4,321
Accrued expenses 429
TOTAL LIABILITIES 37,508
Net assets for 15,113,739 shares outstanding $ 255,683,494
Net Assets Consist of:
Paid in capital $ 200,844,215
Net unrealized appreciation of investments,
options and translation of assets and
liabilities in foreign currency 11,156,700
Accumulated net realized gain on investments,
options, futures contracts and foreign currency
transactions 13,497,108
Undistributed net investment income 30,185,471
TOTAL NET ASSETS $ 255,683,494
Net Asset Value, Offering Price and Redemption
Proceeds Per Share
$255,683,494 / 15,113,739 shares outstanding $16.92
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2005 (unaudited)
Investment Income:
Interest $ 6,333,837
Expenses:
Administrative personnel and services
fee (Note 5) 62,329
Custodian fees 18,071
Transfer and dividend disbursing agent
fees and expenses (Note 5) 6,619
Directors'/Trustees' fees 2,969
Auditing fees 11,468
Legal fees 3,508
Portfolio accounting fees (Note 5) 25,330
Insurance premiums 4,321
Miscellaneous 2,981
TOTAL EXPENSES 137,596
Waiver and Reimbursement (Note 5):
Waiver of administrative personnel and
services fee $ (62,329)
Reimbursement of other operating expenses (30,298)
TOTAL WAIVER AND REIMBURSEMENT (92,627)
Net expenses 44,969
Net investment income 6,288,868
Realized and Unrealized Gain (Loss) on
Investments, options and futures
contracts:
Net realized gain on investments,
options and foreign currency transactions 3,007,366
Net realized gain on futures contracts 37,407
Net change in unrealized appreciation of
investments, options and translation of
assets and liabilities in foreign
currency 1,639,625
Net realized and unrealized gain on
investments, options, futures contracts
and translation of assets and
liabilities in foreign currency 4,684,398
Change in net assets resulting from
operations $ 10,973,266
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
Six Months
Ended
(unaudited) Year Ended
5/31/2005 11/30/2004
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 6,288,868 $ 8,623,020
Net realized gain on investments, options,
futures contracts and foreign currency
transactions 3,044,773 2,938,245
Net change in unrealized
appreciation/depreciation of investments,
options and translation of assets and
liabilties in foreign currency 1,639,625 (1,530,719)
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 10,973,266 10,030,546
Share Transactions:
Contributions 129,401,626 42,556,000
Withdrawals (31,469,000) (36,865,089)
CHANGE IN NET ASSETS RESULTING FROM SHARE
TRANSACTIONS 97,932,626 5,690,911
Change in net assets 108,905,892 15,721,457
Net Assets:
Beginning of period 146,777,602 131,056,145
End of period (including undistributed net
investment income of $30,185,471 and
$23,896,603, respectively) $ 255,683,494 $ 146,777,602
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
May 31, 2005 (unaudited)
1. ORGANIZATION
Emerging Markets Fixed Income Core Fund (the "Fund") is a non-diversified
portfolio of Federated Core Trust II, L.P. (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended (the "Act").
The Trust is a limited partnership that was established under the laws of the
State of Delaware on November 13, 2000 and offered only to registered
investment companies and other accredited investors. The Trust consists of
two portfolios. The financial statements included herein are only those of
the Fund. The Fund's primary investment objective is to achieve total return
on assets. Its secondary investment objective is to achieve a high level of
income. The Fund pursues these objectives by investing in an unhedged
portfolio of foreign, high-yield, fixed-income securities. Currently, the
Fund is only available for purchase by other Federated funds and their
affiliates.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
(GAAP) in the United States of America.
Investment Valuation
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.
Futures Contracts
The Fund purchases and sells bond interest rate futures contracts to manage
cash flows, enhance yield, and to potentially reduce transactions costs. Upon
entering into a bond interest rate futures contract with a broker, the Fund
is required to deposit in a segregated account a specified amount of cash,
U.S. government securities. Futures contracts are valued daily and unrealized
gains or losses are recorded in a "variation margin" account. Daily, the Fund
receives from or pays to the broker a specified amount of cash based upon
changes in the variation margin account. When a contract is closed, the Fund
recognizes a realized gain or loss. For the six months ended May 31, 2005,
the Fund had net realized gains of $37,407 on futures contracts.
Futures contracts have market risks, including the risk that the change in
the value of the contract may not correlate with change in the value of the
underlying securities.
At May 31, 2005, the Fund had no open futures contracts.
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 period 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:
Six Months Ended 5/31/2005 Year Ended 11/30/2004
Proceeds from contributions 7,789,052 2,704,394
Fair value of withdrawals (1,899,922) (2,586,633)
TOTAL CHANGE RESULTING FROM 5,889,130 117,761
CONTRIBUTIONS/WITHDRAWALS
4. FEDERAL TAX INFORMATION
At May 31, 2005, the cost of investments for federal tax purposes was
$240,642,948. The net unrealized appreciation of investments for federal tax
purposes excluding any unrealized appreciation resulting from changes in
foreign currency exchange rates was $10,676,331. This consists of net
unrealized appreciation from investments for those securities having an
excess of value over cost of $11,232,744 and net unrealized depreciation from
investments for those securities having an excess of cost over value of
$556,413.
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 their sole discretion.
Administrative Fee
Federated Administrative Services, Inc. (FASI), under the Administrative
Services Agreement, provides the Fund with administrative personnel and
services. The fee paid to FASI is based on the average aggregate daily net
assets of the Trust as specified below:
Average Aggregate Daily Net Assets
Maximum Administrative Fee of the Trust
0.150% on the first $5 billion
0.125% on the next $5 billion
0.100% on the next $10 billion
0.075% on assets in excess of $20 billion
The administrative fee received during any fiscal year shall be at least
$150,000 per portfolio. 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.
Transfer and Dividend Disbursing Agent Fees and Expenses
Prior to March 1, 2005, FASI served as transfer and dividend disbursing agent
for the Fund. The fee paid to FASI was based on the size, type and number of
accounts and transactions made by shareholders. The fee paid to FASI during
the reporting period was $3,367, after voluntary waiver, if applicable.
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.
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
six months ended May 31, 2005, were as follows:
Purchases $146,007,023
Sales $61,857,892
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 May 31, 2005, the diversification of countries was as follows:
Percentage of
Country Net Assets
Brazil 22.3%
Russia 19.9%
Mexico 9.0%
Venezuela 7.2%
Colombia 6.9%
Philippines 6.8%
Turkey 5.2%
Peru 2.7%
Kazakhstan 1.6%
El Salvador 1.3%
Bulgaria 1.0%
Malaysia 1.0%
Guatemala 0.8%
Panama 0.8%
Ukrainan SSR 0.8%
Argentina 0.6%
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.
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 through Federated's
website. Go to FederatedInvestors.com, select "Products," select the
"Prospectuses and Regulatory Reports" link, then select the Fund to access
the link to Form N-PX. This information is also available from the EDGAR
database on the SEC's website at 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 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.) You may also access this information from the
"Products" section of Federated's website at FederatedInvestors.com by
clicking on "Portfolio Holdings" and selecting the name of the Fund, or by
selecting the name of the Fund and clicking on "Portfolio Holdings." You must
register on the website the first time you wish to access this information.
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.
Cusip 31409R102
31868 (7/05)
Item 2. Code of Ethics
Not Applicable
Item 3. Audit Committee Financial Expert
Not Applicable
Item 4. Principal Accountant Fees and Services
Not Applicable
Item 5. Audit Committee of Listed Registrants
Not Applicable
Item 6. Schedule of Investments
Not Applicable
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not Applicable
Item 8. 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
Richard J. Thomas, Principal Financial Officer
Date July 15, 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
J. Christopher Donahue, Principal Executive Officer
Date July 15, 2005
By /S/Richard J. Thomas
Richard J. Thomas, Principal Financial Officer
Date July 15, 2005