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: 12/31/05
Date of Reporting Period: Fiscal year ended 12/31/05
Item 1. Reports to Stockholders
MARKET PLUS CORE FUND
ANNUAL SHAREHOLDER REPORT
December 31, 2005
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS STATEMENT OF CHANGES IN NET ASSETS NOTES TO FINANCIAL
STATEMENTS REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS AND TRUST OFFICERS
BOARD REVIEW OF ADVISORY CONTRACT VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout the Period)
Period
Ended
12/31/2005
Net Asset Value, Beginning of Period $10.00
Income From Investment Operations:
Net investment income 0.11
Net realized and unrealized gain on investments, futures contracts
and swap contracts 0.21
TOTAL FROM INVESTMENT OPERATIONS 0.32
Net Asset Value, End of Period $10.32
Total Return(2) 3.20%
Ratios to Average Net Assets:
Net expenses 0.05%(3)
Net investment income 4.30%(3)
Expense waiver/reimbursement(4) 6.45%(3)
Supplemental Data:
Net assets, end of period (000 omitted) $5,160 Portfolio turnover 11% 1 Reflects
operations for the period from October 4, 2005 (date of initial investment) to
December 31, 2005.
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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 expense decrease is reflected in both the net 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 to the extent
applicable, management fees, 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 October 4, 2005 (date of initial investment)
to December 31, 2005, with respect to "Actual" expense information, and July 1,
2005 to December 31, 2005 with respect to "Hypothetical" expense information.
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 ---------------------
10/4/2005 12/31/2005 During Period(1)
Actual $1,000 $1,032.00 $0.12
Hypothetical
(assuming a 5% return
before expenses) $1,000 $1,024.95 $0.26
1 "Actual" expense information for the Fund's Shares is for the period from
October 4, 2005 (date of initial investment) to December 31, 2005. Actual
expenses are equal to the Fund's annualized net expense ratio, multiplied
by 89/365 (to reflect the period from initial investment to December 31,
2005)."Hypothetical" expense information is presented on the basis of the
one-half year period to enable comparisons to other funds. It is based on
assuming the same expense ratio and average account value over the period,
but it is multiplied by 184/365 (to reflect the full-half year period). The
annualized net expense ratio is 0.05%.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
FUND PERFORMANCE AND SUMMARY
Market Plus Core Fund (the "Fund") commenced operation on October 4, 2005. The
Fund produced a total return of 3.20% from inception through year end 2005. By
comparison, the Standard & Poor's 500 Index1 (S&P 500) had a total return of
3.29% for this same period. The Fund's total return reflected actual cash flows,
transaction costs and other expenses which were not reflected in the total
return of the S&P 500.
The Fund's overall investment strategy focused on the combination of a short
duration bond portfolio and S&P 500-based equity derivatives to effectively
transform the bond portfolio into a "synthetic" equity portfolio. The goal of
the Fund's equity derivatives strategy is to be as close to 100% hedged, thereby
not over-hedging or under-hedging, the market value of the bond portfolio.
The Fund's bond investment strategy focused on: (a) the effective duration(2) of
its portfolio; (b) the selection of securities with different maturities
(expressed by a "yield curve" showing the relative yield of similar securities
with different maturities); (c) the allocation of portfolio among securities of
similar issuers (referred to as "sectors"); (d) the credit ratings of portfolio
securities (which indicates the risk that securities will default); (e) the
structure risk of asset-backed securities (ABS) and mortgage-backed securities
(MBS); and (f) the selection of individual securities. These were the most
significant factors affecting the Fund's performance during the reporting
period.
MARKET OVERVIEW
Stocks had a good fourth quarter, while it was relatively quiet in the bond
market as worries over inflation seemed to subside on lower oil prices. Also
contributing to a less stressful atmosphere was increased market expectations of
a pause in monetary policy tightening after the new Federal Reserve Board
Chairman takes control on February 1, 2006. At December 31, 2005, the federal
funds target rate stood at 4.25%. Short-term interest rates, which affect the
Fund's strategy most, rose about 50 basis points from Fund inception to year-end
2005.
POSITIONING AND STRATEGY
The basic strategy of the Fund is to use a short-duration bond portfolio to
outperform the implied financing rate (approximately the 3-month London
Interbank Offered Rate (LIBOR)) in the Fund's portfolio of derivative contracts,
the performance of which is related to the performance of the S&P 500 Index. Two
fundamental means by which the bond portion of the portfolio is positioned to
beat the 3-month LIBOR when interest rates are falling and when bond spread
product is doing well. This was not the environment in the bond markets during
late 2005. As a result, we have been very conservative in our bond portfolio
risk management approach, both on the interest rate risk side, and on the credit
and structure risk side, given this adverse environment at the end of 2005. That
approach seems to have paid off in that the portfolio by and large avoided
securities that deteriorated significantly during the reporting period. The
yield of the portfolio as of December 31, 2005 stood at 4.57%, slightly above
the 3-month LIBOR rate which stood at 4.536% on December 31, 2005.(3) Our
strategy on the equity derivatives portion of the portfolio is to match the
return of the S&P 500 Index, and not be over hedged or under hedged.
BOND PORTFOLIO DURATION
At the end of the reporting period, the fund's dollar-weighted average effective
duration was 0.26 years, similar to the 0.23 year duration of the implied
financing rate of the 3-month LIBOR. Duration positioning had a slight positive
effect on fund performance in the fourth quarter's interest rate environment.
MATURITY AND YIELD CURVE
Yield curve positioning had little effect on performance for the reporting
period. The Fund held mostly floating rate securities. The Fund's holdings in
cash equivalents detracted from Fund performance slightly, since the portfolio
avoided being invested in higher yielding securities but experienced greater
relative price decline during the reporting period on a general weakening in
bond spreads during the fourth quarter.
SECTOR ALLOCATION AND CREDIT QUALITY
It was a tough period for spread product, and as a result, our sector call hurt
performance slightly. At the end of the reporting period, corporate bonds
totaled 15% of the portfolio while MBS and ABS together totaled 26.1%.
SECURITY SELECTION
Security selection detracted from performance. Our auto exposure, in particular
a Ford floater, was a poor performer, along with our positions in bank-trust
preferreds (JP Morgan Chase, Wachovia, Wells Fargo, and Bank of
America/Nationsbank). Positive performance came from our positions in Goldman
Sachs and Telecom Italia. Our positions in ABS and TIPs (Treasury Inflation
Protection Securities) also did poorly while our MBS positions performed well.
1 The S&P 500 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.
2 Duration is a measure of a security's price sensitivity to changes in interest
rates. Securities with longer durations are more sensitive to changes in
interest rates than securities of shorter durations. 3 The London InterBank
Offered Rate, or LIBOR, is the interest rate charged when banks in the London
interbank market borrow money from each other. This rate is set for
dollar-denominated deposits or "Eurodollars" and the most common terms are 1, 3,
6 and 12 months.
Performance data quoted represents past performance which is no guarantee of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Mutual fund performance changes over time and current performance may be
lower or higher than what is stated. For current to the most recent month end
performance and after-tax returns, call 1-800-341-7400.
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,000(1) in the
Market Plus Core Fund (the "Fund") from October 4, 2005 (start of performance)
to December 31, 2005, compared to the Standard & Poor's 500 Index (S&P 500).(2)
Average Annual Total Return for the Period Ended 12/31/2005
Start of Performance (10/4/2005) 3.20%
[GRAPHIC OMITTED]
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Performance data quoted represents past performance which is no guarantee of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Mutual fund performance changes over time and current performance may be
lower or higher than what is stated. For current to the most recent month-end
performance and after-tax returns, call 1-800-341-7400. Returns shown do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares. Mutual funds are not obligations
of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. 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 charges, expenses, or other fees
that the Securities and Exchange Commission (SEC) requires to be reflected in
the Fund's performance. The index is unmanaged, and unlike the Fund, is not
affected by cashflows. It is not possible to invest directly in an index.
PORTFOLIO OF INVESTMENTS SUMMARY TABLES
At December 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(2) Percentage of Total Net Assets(2)
AAA 39.8% Aaa 38.5%
AA 0.0% Aa 3.8%
A 8.6% A 5.7%
BBB 4.9% Baa 4.7%
BB 2.5% Ba 1.6%
B 1.7% B 1.6%
CCC 0.3% Caa 0.6%
Not Rated by S&P(3) 0.1% Not Rated by Moody's(3) 1.4%
Cash Equivalents(4) 41.4% Cash Equivalents(4) 41.4%
Other Assets and Other Assets and
Liabilities--Net(5) 0.7% Liabilities--Net(5) 0.7%
TOTAL 100% TOTAL 100%
At December 31, 2005, the Fund's portfolio composition(6) was as follows:
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Percentage of
Total Net
Security Type Assets(2)
Corporate Debt Securities 18.1%
Asset-Backed Securities 16.2%
U.S. Treasury and Agency
Securities(7) 13.7%
Mortgage-Backed Securities(8) 9.9%
Cash Equivalents(4) 41.4%
Other Assets and
Liabilities--Net(5) 0.7%
TOTAL 100%
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). These credit quality ratings are shown without
regard to gradations within a given rating category. For example,
securities rated "A-" have been included in the "A" rated 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.
2 As of the date specified above, the Fund owned shares of one or more
affiliated investment companies. For purposes of these tables, the affiliated
investment company (other than an affiliated money market fund) is not treated
as a single portfolio security, but rather the Fund is treated as owning a pro
rata portion of each security and each asset and liability owned by the
affiliated investment company.
3 Holdings that are rated only by a different NRSRO than the one identified have
been included in this category. Of the portfolio's total net assets, 0.1% are
fixed income securities (excluding cash equivalents) that do not have long-term
credit quality ratings by either of these NRSROs. 4 Cash Equivalents includes
any investments in money market mutual funds and/or overnight repurchase
agreements.
5 See Statement of Assets and Liabilities.
6 See the Fund's Prospectus and Statement of Additional Information for a
description of these security types. 7 For purposes of this table, U.S. Treasury
and Agency Securities does not include mortgage-backed securities guaranteed by
GSEs. 8 For purposes of this table, mortgage-backed securities includes
mortgage-backed securities guaranteed by Government Sponsored Entities (GSEs)
and adjustable rate mortgage-backed securities.
PORTFOLIO OF INVESTMENTS
December 31, 2005
Principal
Amount
or Shares Value
ADJUSTABLE RATE MORTGAGES--7.5%
Federal National Mortgage Association--7.5%
$ 157,146 Federal National Mortgage Association, 3.066%,
4/1/2035 $ 158,896
136,892 Federal National Mortgage Association, 3.153%,
6/1/2035 137,944
93,272 Federal National Mortgage Association, 4.435%,
2/1/2035 92,815
TOTAL ADJUSTABLE RATE MORTGAGES
(IDENTIFIED COST $387,412) 389,655
ASSET-BACKED SECURITIES--16.2%
Home Equity Loan--11.5%
70,996 Asset Backed Funding Certificate 2005-OPT1 A1MZ,
7/25/2035 71,141
100,000 Centex Home Equity 2005-D AV2, 10/25/2035 100,180
47,722 Chase Funding Mortgage Loan As 2002-4 1A4, 4.21%,
3/25/2029 47,393
150,000 First Franklin Mortgage Loan Asset Backed
Certificates 2004-FFH4 2A2, 1/25/2035 150,258
75,000 GSAA Home Equity Trust 2005-15 1A2 1A2, 1/25/2036 75,293
75,000 GSAA Home Equity Trust 2005MTR1 A3, 10/25/2035 75,165
75,000 Popular ABS Mortgage Pass-Through Trust 2005-5
AV2B, 11/25/2035 75,175
TOTAL 594,605
Non-Agency Mortgage--2.9%
97,766 Washington Mutual 2003-S4 1A3, 6/25/2018 97,973
50,000 Washington Mutual 2005-AR17 A-1A1, 4.64%, 12/25/2045 50,000
TOTAL 147,973
Residental Mortgage Loan--1.8%
91,487 (1) GSAMP Trust 2005-SEA2 A1, 1/25/2045 91,744
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST
$833,515) 834,322
COLLATERALIZED MORTGAGE OBLIGATIONS--2.4%
Federal Home Loan Mortgage Corp.--2.4%
121,667 Federal Home Loan Mortgage Corp. REMIC 2395 FT,
4.819%, 12/15/2031
(IDENTIFIED COST $122,142) 122,092
CORPORATE BONDS--15.2%
Communications - Telecom Wirelines--1.9%
50,000 SBC Communications, Inc., 11/14/2008 50,019
50,000 Telecom Italia Capital, Note, 2/01/2011 50,342
TOTAL 100,361
Consumer Cyclical - Automotive--2.7%
50,000 DaimlerChrysler North Am, Floating Rate Note,
3/07/2007 49,970
50,000 Ford Motor Credit Co., Floating Rate Note, 1/15/2010 43,587
50,000 General Motors Acceptance, 12/01/2014 45,093
TOTAL 138,650
Consumer Non-Cyclical Supermarkets--1.0%
50,000 Kroger Co., 7.625%, 9/15/2006 50,764
Energy - Independent--1.0%
50,000 Devon Energy Corp., Sr. Note, 2.75%, 8/01/2006 49,412
Financial Institution - Banking--5.7%
50,000 Chase Capital II, Company Guarantee, 2/01/2027 47,318
50,000 Household Finance Corp., Floating Rate Note,
11/16/2009 50,115
50,000 Nationsbank Capital Trust, Bond, 1/15/2027 48,250
50,000 Wachovia Capital Trust II, Company Guarantee,
1/15/2027 48,242
50,000 Washington Mutual Bank, Sr. Note, 1/15/2015 50,166
50,000 Wells Fargo Capital II, Company Guarantee, 1/30/2027 48,546
TOTAL 292,637
Principal
Amount
or Shares Value
CORPORATE BONDS--continued
Financial Institution - Brokerage--1.9%
$ 50,000 Goldman Sachs Group, Inc., Floating Rate Note,
9/29/2014 $ 50,408
50,000 Merrill Lynch & Co., Inc., Floating Rate Note,
7/21/2009 50,162
TOTAL 100,570
Financial Institution - REITs--1.0%
50,000 Duke Realty Corp., Floating Rate Note, 12/22/2006 50,014
TOTAL CORPORATE BONDS (IDENTIFIED COST $785,309) 782,408
U.S. TREASURY--13.7%
Treasury Securities--13.7%
154,117 U.S. Treasury Inflation Protected Note, Series
A-2008, 3.625%, 1/15/2008 158,286
550,000 (2,3) United States Treasury Bill, 3.92%, 2/2/2006 548,125
TOTAL U.S. TREASURY (IDENTIFIED COST $709,852) 706,411
MUTUAL FUND--3.0%
23,497 (4) High Yield Bond Portfolio (IDENTIFIED COST $157,203) 157,669
REPURCHASE AGREEMENTS--41.3%
1,000,000 Interest in $3,000,000,000 joint repurchase ,000,000
agreement 4.33%, dated 12/30/2005 under which
Goldman Sachs & Co., will repurchase
U.S. Government Agency securities with various
maturities to 12/25/2035 for $3,001,443,333 on
1/3/2006. The market value of the underlying
securities at the end of the period was
$3,081,078,318 1
1,130,000 Interest in $2,200,000,000 joint repurchase ,130,000
agreement 4.33%, dated 12/30/2005 under which UBS
Securities LLC, will repurchase U.S. Government
Agency securities with various maturities to
11/25/2035 for $2,201,058,444 on 1/3/2006. The
market value of the underlying securities at the
end of the period was $2,266,002,803 1
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 2,130,000
TOTAL INVESTMENTS--99.3% ,122,557
(IDENTIFIED COST $5,125,433)(5) 5
OTHER ASSETS AND LIABILITIES - NET--0.7% 37,690
TOTAL NET ASSETS--100% $ 5,160,247
1 Denotes a restricted security, including securities purchased under Rule
144A of the Securities Act of 1933. This security which has 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 December 31, 2005, this security
amounted to $91,744 which represents 1.8% of total net assets.
2 Pledged as collateral to ensure the Fund is able to satisfy the obligations
of its outstanding long futures contracts.
3 Discount rate at time of purchase.
4 Affiliated company.
5 The cost of investments for federal tax purposes amounts to $5,125,433. At
December 31, 2005, the Fund had the following outstanding futures
contracts:
Number of Unrealized
Description Contracts Notional Value Expiration Date Depreciation
(6)S&P 500 Index Futures 1 $313,700 March 2006 $(3,156)
(6)S&P Mini 500 Index
Futures 3 $188,213 March 2006 $(1,897)
At December 31, 2005, the Fund had the following open swap contract:
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Notional
Principal Unrealized
Description Expiration Amount Appreciation
S&P 500 Total Return Swap (Receive
Total Return S&P 500/Pay 3-month
LIBOR + 0.15%) 10/4/2006 $4,500,000 $99,900
6 Non- income producing security.
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Note: The categories of investments are shown as a percentage of total net
assets at December 31, 2005.
The following acronyms are used throughout this portfolio:
REITs --Real Estate Investment
Trusts
REMIC --Real Estate Mortgage
Investment Conduit
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2005
Assets:
Investments in securities $ 2,992,557
Investments in repurchase agreements 2,130,000
Total investments in securities, at value including
$157,669 of investments in affiliated issuers (Note 5)
(identified cost $5,125,433) $ 5,122,557
Cash 688
Income receivable 11,942
Unrealized appreciation on swap contracts 99,900
TOTAL ASSETS 5,235,087
Liabilities:
Payable for administrative personnel and services fee
(Note 5) 30,137
Payable for auditing fees 16,895
Payable for legal fees 1,852
Payable for portfolio accounting fees 21,791
Payable for daily variation margin 2,128
Accrued expenses 2,037
TOTAL LIABILITIES 74,840
Net assets for 500,010 shares outstanding $ 5,160,247
Net Assets Consist of:
Paid-in capital $ 5,000,100
Net unrealized appreciation of investments, futures
contracts and swap contracts 91,971
Accumulated net realized gain on investments and
futures contracts 15,545
Undistributed net investment income 52,631
TOTAL NET ASSETS $ 5,160,247
Net Asset Value, Offering Price and Redemption
Proceeds Per Share:
$5,160,247 / 500,010 shares outstanding, no par value,
unlimited shares authorized $10.32
See Notes which are an integral part of the Financial Statements
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STATEMENT OF OPERATIONS
Period Ended December 31, 2005(1)
Investment Income:
Dividends received from affiliated issuers (Note 5) $ 1,321
Interest 51,922
TOTAL INCOME 53,243
Expenses:
Administrative personnel and services fee (Note 5) $ 36,164
Custodian fees 1,993
Transfer and dividend disbursing agent fees and expenses 530
Auditing fees 16,895
Legal fees 1,950
Portfolio accounting fees 21,791
Miscellaneous 300
TOTAL EXPENSES 79,623
Waiver and Reimbursement (Note 5):
Waiver of administrative personnel and services fee (6,027)
Reimbursement of other operating expenses (72,984)
TOTAL WAIVER AND REIMBURSEMENT (79,011)
Net expenses 612
Net investment income 52,631
Realized and Unrealized Gain (Loss) on Investments, Futures
Contracts and Swap Contracts:
Net realized loss on investments (433)
Net realized gain on futures contracts 15,978
Net change in unrealized depreciation of investments (2,876)
Net change in unrealized depreciation on futures contracts (5,053)
Net change in unrealized appreciation on swap contracts 99,900
Net realized and unrealized gain on investments, futures
contracts and swap contracts 107,516
Change in net assets resulting from operations $ 160,147
1 Reflects operations for the period from October 4, 2005 (date of initial
investment) to December 31, 2005.
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See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
Period
Ended
12/312005
Increase (Decrease) in Net Assets
Operations:
Net investment income $ 52,631
Net realized gain on investments and futures contracts 15,545
Net change in unrealized appreciation/depreciation of
investments, future contracts and swap contracts 91,971
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 160,147
Share Transactions:
Proceeds from sale of shares 5,000,200
Cost of shares redeemed (100)
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 5,000,100
Change in net assets 5,160,247
Net Assets:
Beginning of period -- End of period (including undistributed net investment
income of $52,631) $ 5,160,247 1 Reflects operations for the period from October
4, 2005 (date of initial investment) to December 31, 2005.
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See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
1. ORGANIZATION
Market Plus 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 three diversified portfolios. The financial
statements included herein are only those of the Fund. The primary investment
objective of the Fund is to seek total return over the business cycle (which may
be longer or shorter than a 12-month period) in excess of the S&P 500 Index.
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
The Fund generally values fixed income and short-term securities according to
prices furnished by an independent pricing service, except that securities with
remaining maturities of less than 60 days at the time of purchase may be valued
at amortized cost. For mortgage-backed securities, prices furnished by the
independent pricing service are based on the aggregate investment value of the
projected cash flows to be generated by the security. For other fixed-income
securities, prices furnished by an independent pricing service are intended to
be indicative of the mean between the bid and asked prices currently offered to
institutional investors for the securities. Investments in other open-end
regulated investment companies are valued at net asset value. Investments in
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 Agreement
It is the policy of the Fund to require the other party to a repurchase
agreement to transfer to the Fund's custodian or sub-custodian eligible
securities or cash with a market value (after transaction costs) at least equal
to the repurchase price to be paid under the repurchase agreement. The eligible
securities are transferred to accounts with the custodian or sub-custodian in
which the Fund holds a "securities entitlement" and exercises "control" as those
terms are defined in the Uniform Commercial Code. The Fund has established
procedures for monitoring the market value of the transferred securities and
requiring the transfer of additional eligible securities if necessary to equal
at least the repurchase price. These procedures also allow the other party to
require securities to be transferred from the account to the extent that their
market value exceeds the repurchase price or in exchange for other eligible
securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash
items, the Fund treats the repurchase agreement as an investment in the
underlying securities and not as an obligation of the other party to the
repurchase agreement. Other repurchase agreements are treated as obligations of
the other party secured by the underlying securities. Nevertheless, the
insolvency of the other party or other failure to repurchase the securities may
delay the disposition of the underlying securities or cause the Fund to receive
less than the full repurchase price. Under the terms of the repurchase
agreement, any amounts received by the Fund in excess of the repurchase price
and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are
transferred into joint trading accounts maintained by the custodian or sub
custodian for investment companies and other clients advised by the Adviser and
its affiliates. The Fund will participate on a pro rata basis with the other
investment companies and clients in its share of the securities transferred
under such repurchase agreements and in its share of proceeds from any
repurchase or other disposition of such securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Dividend income is recorded on
the ex-dividend date. All net income earned 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/ Paydown Gains and Losses All premiums and
discounts on fixed income securities other than mortgage-backed securities are
amortized/accreted for financial statement purposes. Gains and losses realized
on principal payment of mortgage backed securities (paydown gains and losses)
are classified as part of investment income.
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, deduction 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.
Swap Contracts
The Fund may enter into total return swap contracts. A swap is an exchange of
cash payments between the Fund and another party, which is based on a specific
financial index. The value of the swap is adjusted daily and the change in value
is recorded as unrealized appreciation or depreciation. When a swap contract is
closed, the Fund recognizes a realized gain or loss. The swap contracts entered
into by the Fund are on a forward settling basis. For the period ended December
31, 2005, the Fund had no realized gains (losses) on swap contracts.
Risks may arise upon entering into these agreements from the potential inability
of the counterparties to meet the terms of their contract and from unanticipated
changes in the value of the financial index on which the swap agreement is
based. The Fund uses swaps for hedging purposes to reduce its exposure to
interest rate fluctuations.
Swap contracts outstanding at period end, if any, are listed after the Fund's
portfolio of investments.
Futures Contracts
The Fund may purchase and sell stock index futures contracts to manage cash
flows, enhance yield, and to establish and maintain continual economic exposure
to changes in the value of the S&P 500 Index. Upon entering into a stock index
futures contract with a broker, the Fund is required to deposit in a segregated
account a specified amount of cash or 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
year ended December 31, 2005, the Fund had net realized gains of $15,978 on
futures contracts.
Futures contracts outstanding at period end, if any, are listed after the Fund's
portfolio of investments.
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 Trustees. 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/WITHDRAWLS Transactions in shares were as follows:
Period Ended
12/31/2005
Proceeds from contributions 500,020
Fair value withdrawls (10)
TOTAL CHANGE RESULTING FROM CONTRIBUTIONS/WITHDRAWLS 500,010 1
Reflects operations for the period from October 4, 2005 (date of initial
investment) to December 31, 2005.
4. FEDERAL TAX INFORMATION
At December 31, 2005, the cost of investments for federal tax purposes was
$5,125,433. The net unrealized depreciation of investments for federal tax
purposes excluding any unrealized appreciation/depreciation from futures
contracts and swap contracts was $2,876. This consists of net unrealized
appreciation from investments for those securities having an excess of value
over cost of $6,335 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $9,211.
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 because all investors in the Fund are
other Federated funds, insurance company separate accounts, common or commingled
trust funds or similar organizations or entities that are "accredited investors"
within the meaning of Regulation D of the 1933 Act. 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.
During the period ended December 31, 2005, the Adviser voluntarily reimbursed
$72,984 of other operating expenses.
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:
Maximum Average Aggregate Daily Net Assets
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. For the period ended December 31, 2005, the net fee paid to FASI was
0.600% of average aggregate daily net assets of the Fund.
- ------------------------------------------------------------------------------
General
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
Transactions with Affiliates
Affiliated holdings are mutual funds which are managed by the Adviser or an
affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for
certain investment adviser fees as a result of transactions in other mutual
funds. Transactions with affiliated companies during the period ended December
31, 2005 are as follows:
Balance of Balance of
Shares Held Shares Held
October 4, Purchase Sales Dividend December 31,
Affiliate 2005(1) Cost Proceeds Income 2005 Value
High Yield Bond
Portfolio 0 $256,000 $99,703 $1,321 23,497 $157,669
1 Reflects operations for the period from October 4, 2005 (date of initial
investment) to December 31, 2005.
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6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government
securities and short-term obligations, for the period ended December 31, 2005,
were as follows:
Purchases $ 6,397,451
Sales $ 132,715
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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. 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. These lawsuits began to be filed shortly after Federated's
first public announcement that it had received requests for information on
shareholder trading activities in the Funds from the Securities and Exchange
Commission ("SEC"), the Office of the New York State Attorney General ("NYAG"),
and other authorities. In that regard, on November 28, 2005, Federated announced
that it had reached final settlements with the SEC and the NYAG with respect to
those matters. As Federated previously reported in 2004, it has already paid
approximately $8.0 million to certain funds as determined by an independent
consultant. As part of these settlements, Federated agreed to pay for the
benefit of fund shareholders additional disgorgement and a civil money penalty
in the aggregate amount of an additional $72 million. 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. 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
lawsuits, all of which seek unquantified damages, attorneys' fees and expenses,
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 INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS OF FEDERATED CORE TRUST II, L.P. AND SHAREHOLDERS
OF MARKET PLUS CORE FUND:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Market Plus Core Fund (the "Fund"), (one of the
portfolios constituting Federated Core Trust II, L.P.) as of December 31, 2005,
and the related statement of operations, the statement of changes in net assets
and the financial highlights for the period from October 4, 2005 (Commencement
of Operations) to December 31, 2005. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the 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. We were not engaged to
perform an audit of the Fund's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of December 31,
2005, by correspondence with the custodian and brokers. We believe that our
audit provides 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 Market
Plus Core Fund, a portfolio of Federated Core Trust II, L.P., at December 31,
2005, the results of its operations, the changes in its net assets and its
financial highlights for the period from October 4, 2005 (Commencement of
Operations) to December 31, 2005, in conformity with accounting principles
generally accepted in the United States.
[GRAPHIC
OMITTED][GRAPHIC OMITTED]
Boston, Massachusetts
February 10, 2006
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, 2005, the Trust comprised three
portfolios, and the Federated Fund Complex consisted of 43 investment companies
(comprising 136 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,
Birth Date Other Directorships Held and Previous Position(s)
Address
Positions Held with
Trust
Date Service Began
John F. Donahue* Principal Occupations: Director or Trustee of the Federated
Birth Date: Fund Complex; Chairman and Director, Federated Investors, Inc.
July 28, 1924
DIRECTOR Previous Positions: Chairman of the Federated Fund Complex;
Began serving: Trustee, Federated Investment Management Company and Chairman
November 2001 and Director, Federated Investment Counseling.
J. Christopher Principal Occupations: Principal Executive Officer and
Donahue* President of the Federated Fund Complex; Director or Trustee of
Birth Date: some of the Funds in the Federated Fund Complex; President,
April 11, 1949 Chief Executive Officer and Director, Federated Investors,
PRESIDENT AND Inc.; Chairman and Trustee, Federated Investment Management
DIRECTOR Company; Trustee, Federated Investment Counseling; Chairman and
Began serving: Director, Federated Global Investment Management Corp.;
November 2000 Chairman, Passport Research, Ltd. (Investment advisory
subsidiary of Federated) and Passport Research II, Ltd.
(Investment advisory subsidiary of Federated); 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 Pittsburgh;
Birth Date: Medical Director, University of Pittsburgh Medical Center
October 11, 1932 Downtown; Hematologist, Oncologist and Internist, University of
3471 Fifth Avenue Pittsburgh Medical Center.
Suite 1111
Pittsburgh, PA Other Directorships Held: Member, National Board of Trustees,
DIRECTOR 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.
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INDEPENDENT DIRECTORS BACKGROUND
Name Principal Occupation(s) for Past Five Years,
Birth Date Other 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: Fund Complex; Chairman of the Board, Investment Properties
June 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 Occupation: 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: Fund Complex.
March 5, 1943
353 El Brillo Way Other Directorships Held: Chairman, President and Chief
Palm Beach, FL Executive Officer, Cunningham & Co., Inc. (strategic business
DIRECTOR 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: Fund Complex.
March 16, 1942
One Royal Palm Way Other Directorships Held: Board of Overseers, Babson College.
100 Royal Palm Way
Palm Beach, FL Previous Positions: Representative, Commonwealth of
DIRECTOR Massachusetts General Court; President, State Street Bank and
Began serving: Trust Company and State Street Corporation (retired);
November 2001 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.
Birth Date:
April 10, 1945 Previous Positions: Chief Executive Officer, PBTC
80 South Road International Bank; Partner, Arthur Young & Company (now
Westhampton Beach, Ernst & Young LLP); Chief Financial Officer of Retail Banking
NY Sector, Chase Manhattan Bank; Senior Vice President, HSBC
DIRECTOR Bank USA (formerly, Marine Midland Bank); Vice President,
Began serving: Citibank; Assistant Professor of Banking and Finance, Frank
November 2001 G. Zarb School of Business, Hofstra University; Executive
Vice President, DVC Group, Inc.
John E. Murray, Principal Occupations: Director or Trustee, and Chairman of
Jr., J.D., S.J.D. the Board of Directors or Trustees, of the Federated Fund
Birth Date: Complex; Chancellor and Law Professor, Duquesne University;
December 20, 1932 Partner, Murray, Hogue & Lannis.
Chancellor,
Duquesne University Other Directorships Held: Director, Michael Baker Corp.
Pittsburgh, PA (engineering, construction, operations and technical
DIRECTOR services).
Began serving:
November 2001 Previous Positions: President, Duquesne University; Dean 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 Federated
Birth Date: Fund Complex; Public Relations/Marketing
June 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.
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OFFICERS
Name Principal Occupation(s) for Past Five Years and Previous
Birth Date Position(s)
Positions Held with
Trust
Date Service Began
John W. McGonigle Principal Occupations: Executive Vice President and
Birth Date: Secretary of the Federated Fund Complex; Vice Chairman,
October 26, 1938 Executive Vice President, Secretary and Director,
EXECUTIVE VICE Federated Investors, Inc.
PRESIDENT
AND SECRETARY Previous Positions: Trustee, Federated Investment
Began serving: Management Company and Federated Investment Counseling;
November 2000 Director, Federated Global Investment Management Corp.,
Federated Services Company and Federated Securities Corp.
Richard A. Novak Principal Occupations: Principal Financial Officer and
Birth Date: Treasurer of the Federated Fund Complex; Senior Vice
December 25, 1963 President, Federated Administrative Services; Financial
TREASURER and Operations Principal for Federated Securities Corp.,
Began serving: Edgewood Services, Inc. and Southpointe Distribution
January 2006 Services, Inc.; Senior Vice President and Controller of
Federated Investors, Inc.
Previous Positions: Vice President, Finance of Federated
Services Company; held various financial management
positions within The Mercy Hospital of Pittsburgh;
Auditor, Arthur Anderson & Co.
Richard B. Fisher Principal Occupations: Vice Chairman or Vice President of
Birth Date: May 17, some of the Funds in the Federated Fund Complex; Vice
1923 Chairman, Federated Investors, Inc.; Chairman, Federated
VICE CHAIRMAN 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.
Robert J. Ostrowski Principal Occupations: Robert J. Ostrowski joined
Birth Date: April 26, Federated in 1987 as an Investment Analyst and became a
1963 Portfolio Manager in 1990. He was named Chief Investment
CHIEF INVESTMENT Officer of taxable fixed income products in 2004 and also
OFFICER serves as a Senior Portfolio Manager. He has been a Senior
Began serving: May 2004 Vice President of the Fund's Adviser since 1997.
Mr. Ostrowski is a Chartered Financial Analyst. He
received his M.S. in Industrial Administration from
Carnegie Mellon University.
Todd A. Abraham Todd A. Abraham is Vice President of the Trust.
Birth Date: Mr. Abraham has been a Portfolio Manager since 1995 and a
February 10, 1966 Vice President of the Fund's Adviser since 1997.
VICE PRESIDENT Mr. Abraham joined Federated in 1993 as an Investment
Began serving: May 2004 Analyst and served as Assistant Vice President from 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 is Vice President of the Trust.
Birth Date: Mr. Gilmore joined Federated in August 1997 as an
November 11, 1970 Investment Analyst. He was promoted to Senior Investment
VICE PRESIDENT Analyst in July 1999 and became a Vice President of the
Began serving: May 2004 Fund's Adviser in July 2001. 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. Kowit
Birth Date: June 27, joined Federated in 1995 as a Senior Portfolio Manager and
1945 a Vice President of the Fund's Adviser. Mr. Kowit served
VICE PRESIDENT as a Managing Partner of Copernicus Global Asset
Began serving: Management from January 1995 through October 1995. From
February 2001 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.
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BOARD REVIEW OF ADVISORY CONTRACT
As required by the Act, the Fund's Board has reviewed the Fund's investment
advisory contract. The Board's decision to approve the contract reflects the
exercise of its business judgment on whether to continue the existing
arrangements. The Fund is distinctive in that it is designed for the efficient
management of a particular asset class and is made available for investment only
to other Federated funds and a limited number of other accredited investors. In
addition, the Adviser does not charge an investment advisory fee for its
services.
During its review of the investment advisory contract, the Board considers many
factors, among the most material of which are: the Fund's investment objectives;
the Adviser's management philosophy, personnel, processes, and investment and
operating strategies; long term performance; the range and quality of services
provided to the Fund by the Federated organization in addition to investment
advisory services; and the Fund's relationship to the Federated family of funds.
In its decision to appoint or renew the Adviser, the Board is mindful of the
potential disruptions of the Fund's operations and various risks, uncertainties
and other effects that could occur as a result of a decision to terminate or not
renew an advisory contract. As previously noted, the Adviser does not charge an
investment advisory fee for its services; however, the Board does consider the
compensation and benefits received by the Adviser, including fees received for
services provided to the Fund by other entities in the Federated organization
and research services received by the Adviser from brokers that execute fund
trades. In this regard, the Board is aware that various courts have interpreted
provisions of the Act and have indicated in their decisions that the following
factors may be relevant to an Adviser's fiduciary duty with respect to its
receipt of compensation from a fund: the nature and quality of the services
provided by the Adviser, including the performance of the Fund; the Adviser's
cost of providing the services; the extent to which the Adviser may realize
"economies of scale" as the Fund grows larger; any indirect benefits that may
accrue to the Adviser and its affiliates as a result of the Adviser's
relationship with the Fund; performance and expenses of comparable funds; and
the extent to which the independent Board members are fully informed about all
facts bearing on the Adviser's service and fee. The Fund's Board is aware of
these factors and is guided by them in its review of the Fund's advisory
contract to the extent they are appropriate and relevant, as discussed further
below.
The Board considers and weighs these circumstances in light of its substantial
accumulated experience in governing the Fund and working with Federated on
matters relating to the Federated funds, and is assisted in its deliberations by
the advice of independent legal counsel. In this regard, the Board requests and
receives substantial and detailed information about the Fund and the Federated
organization. Federated provides much of this information at each regular
meeting of the Board, and furnishes additional reports in connection with the
particular meeting at which the Board's formal review of the advisory contract
occurs. In between regularly scheduled meetings, the Board may receive
information on particular matters as the need arises. Thus, the Board's
evaluation of an advisory contract is informed by reports covering such matters
as: the Adviser's investment philosophy, personnel, and processes; operating
strategies; the Fund's short- and long-term performance (in absolute terms, both
on a gross basis and net of expenses, as well as in relationship to its
particular investment program and certain competitor or "peer group" funds
and/or other benchmarks, as appropriate), and comments on the reasons for
performance; the overall expense structure of the Fund, both in absolute terms
and relative to similar and/or competing funds, with due regard for contractual
or voluntary expense limitations; the use and allocation of brokerage
commissions derived from trading the Fund's portfolio securities (if any); the
nature and extent of the advisory and other services provided to the Fund by the
Adviser and its affiliates; compliance and audit reports concerning the
Federated funds and the Federated companies that service them (including
communications from regulatory agencies), as well as Federated's responses to
any issues raised therein; and relevant developments in the mutual fund industry
and how the Federated funds and/or Federated are responding to them. The
evaluation process is evolutionary, reflecting continually developing
considerations. The criteria considered and the emphasis placed on relevant
criteria change in recognition of changing circumstances in the mutual fund
marketplace. For the past year, the Board concluded that the nature, quality and
scope of services provided the Fund by the Adviser and its affiliates was
satisfactory.
The Board also receives financial information about Federated, including reports
on the compensation and benefits Federated derives from its relationships with
the Federated funds. Because the Adviser does not charge an investment advisory
fee for its services, these reports generally cover fees received by Federated's
subsidiaries for providing other services to the Fund under separate contracts
(e.g., for serving as the Funds' administrator). The reports also discuss any
indirect benefit Federated may derive from its receipt of research services from
brokers who execute Federated fund trades as well as waivers of fees and/or
reimbursements of expenses.
The Board bases its decision to approve an advisory contract on the totality of
the circumstances and relevant factors and with a view to past and future
long-term considerations. Not all of the factors and considerations identified
above are relevant to the Fund, nor does the Board consider any one of them to
be determinative. In particular, due to the unusual nature of the Fund as
primarily an internal product with no advisory fee, the Board does not consider
the profitability of the Adviser, the cost of providing the advisory services or
the assessment of whether economies of scale would be realized if the Fund were
to grow to some sufficient size to be relevant. With respect to the factors that
are relevant, the Board's decision to approve the contract reflects its
determination that Federated's performance and actions provide a satisfactory
basis to support the decision to continue the existing arrangements.
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses to determine how
to vote proxies, if any, relating to securities held in the Fund's portfolio is
available, without charge and upon request, by calling 1-800-341-7400. 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 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.).
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 31409R300
34315 (2/06)
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 2005 - $33,766
Fiscal year ended 2004 - $25,968
(b) Audit-Related Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2005 - $161
Fiscal year ended 2004 - $0
Transfer agent testing.
Amount requiring approval of the registrant's audit committee pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $443 and $0
respectively. Sarbanes Oxley sec. 302 procedures.
(c) Tax Fees billed to the registrant for the two most recent fiscal years:
Fiscal year ended 2005 - $0
Fiscal year ended 2004 - $0
Amount requiring approval of the registrant's audit committee pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0
respectively.
(d) All Other Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2005 - $0
Fiscal year ended 2004 - $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 2005 - 0%
Fiscal year ended 2004 - 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 2005 - 0%
Fiscal year ended 2004 - 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 2005 - 0%
Fiscal year ended 2004 - 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 2005 - $26,284
Fiscal year ended 2004 - $62,542
(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 A. Novak
Richard A. Novak, Principal Financial Officer
(insert name and title)
Date February 23, 2006
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, Principal Executive Officer
Date February 22, 2006
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date February 23, 2006