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: 11/30/06
Date of Reporting Period: Six months ended May 31, 2006
Item 1. Reports to Stockholders
CAPITAL APPRECIATION CORE FUND
SEMI-ANNUAL SHAREHOLDER REPORT
May 31, 2006
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
SIX MONTHS YEAR ENDED NOVEMBER 30, PERIOD
ENDED ENDED
(unaudited)
5/31/2006 2005 2004 11/30/2003 1
NET ASSET VALUE, BEGINNING OF PERIOD $11.95 $11.21 $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.12 2 0.22 2 0.25 0.01
Net realized and unrealized gain on investments 0.17 0.52 0.82 0.13
TOTAL FROM INVESTMENT OPERATIONS 0.29 0.74 1.07 0.14
NET ASSET VALUE, END OF PERIOD $12.24 $11.95 $11.21 $10.14
TOTAL RETURN3 2.43 % 6.60 % 10.55 % 1.40 %
RATIOS TO AVERAGE NET ASSETS:
Net expenses 0.05 %4,5 0.05 %5 0.05 % 0.05 %4
Net investment income 1.92 %4 1.89 % 2.09 % 2.21 %4
Expense waiver/reimbursement6 0.13 %4 0.11 % 0.08 % 0.49 %4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $150,784 $162,139 $197,818 $185,555
Portfolio turnover 72 % 51 % 55 % 8 %
1 Reflects operations for the period from October 28, 2003 (date of initial
investment) to November 30, 2003.
2 Based on average shares outstanding.
3 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, if any, are not annualized.
4 Computed on an annualized basis.
5 The expense ratio is calculated without reduction for fees paid indirectly for
directed brokerage arrangements.
The expense ratios for the six months ended May 31, 2006 and the year ended
November 30, 2005 are 0.05% and 0.05%, respectively, after taking into account
these expense reductions.
6 This expense decrease is reflected in both the net expense and the net
investment income ratios shown above.
SHAREHOLDER EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, 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 December 1, 2005 to May 31, 2006.
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 with other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second section of the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD1
12/1/2005 5/31/2006
ACTUAL $1,000 $1,024.30 $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 net 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, 2006, the Fund's sector composition1 was as follows:
SECTOR PERCENTAGE OF
TOTAL NET ASSETS
Health Care 18.5%
Information Technology 14.1%
Financials 13.1%
Energy 12.1%
Industrials 11.3%
Consumer Staples 8.9%
Consumer Discretionary 6.2%
Telecommunication Services 5.0%
Utilities 3.9%
Materials 2.9%
Cash Equivalents2 3.9%
Other Assets and Liabilities-Net3 0.1%
TOTAL 100.0%
1 Except for Cash Equivalents and Other Assets and Liabilities-Net, sector
classifications are based upon, and individual portfolio 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 include any investments in money market mutual funds and/or
overnight repurchase agreements.
3 Assets, other than investments in securities, less liabilities. See Statement
of Assets and Liabilities.
PORTFOLIO OF INVESTMENTS
May 31, 2006 (unaudited)
SHARES VALUE
COMMON STOCKS-96.0%
CONSUMER DISCRETIONARY-6.2%
71,800 McDonald's Corp. $ 2,381,606
34,300 Nike, Inc., Class B 2,754,633
45,100 Target Corp. 2,206,292
32,400 Wendy's International, Inc. 1,953,072
TOTAL 9,295,603
CONSUMER STAPLES-8.9%
53,200 Altria Group, Inc. 3,849,020
64,700 Diageo PLC, ADR 4,282,493
43,800 General Mills, Inc. 2,272,782
44,900 PepsiCo, Inc. 2,714,654
10,600 1 Smithfield Foods, Inc. 294,786
TOTAL 13,413,735
ENERGY-12.1%
38,300 Apache Corp. 2,484,904
87,064 Exxon Mobil Corp. 5,303,068
36,500 GlobalSantaFe Corp. 2,194,745
29,600 1 Transocean Sedco Forex, Inc. 2,408,552
54,200 1 Weatherford International Ltd. 2,820,568
74,200 XTO Energy, Inc. 3,058,524
TOTAL 18,270,361
FINANCIALS-13.1%
55,500 Ace Ltd. 2,873,235
65,104 Allstate Corp. 3,581,371
83,416 American International Group, Inc. 5,071,693
77,265 Citigroup, Inc. 3,809,165
30,500 Merrill Lynch & Co., Inc. 2,208,505
37,500 Morgan Stanley 2,235,750
TOTAL 19,779,719
HEALTH CARE-18.5%
47,700 1 Amgen, Inc. 3,224,043
58,900 AstraZeneca PLC, ADR 3,118,166
81,200 1 Forest Laboratories, Inc., Class A 3,043,376
13,700 1 Gilead Sciences, Inc. 785,421
35,200 Johnson & Johnson 2,119,744
30,400 McKesson HBOC, Inc. 1,504,800
50,000 1 Medimmune, Inc. 1,591,000
57,800 Novartis AG, ADR 3,206,744
50,541 Pfizer, Inc. 1,195,800
65,500 Shire PLC, ADR 2,894,445
38,900 1 St. Jude Medical, Inc. 1,326,490
85,100 Wyeth 3,892,474
TOTAL 27,902,503
INDUSTRIALS-11.3%
43,400 Avery Dennison Corp. 2,577,526
27,900 Deere & Co. 2,388,240
79,600 1 Foster Wheeler Ltd. 3,522,300
57,700 Northrop Grumman Corp. 3,732,036
77,200 United Technologies Corp. 4,826,544
TOTAL 17,046,646
SHARES OR VALUE
PRINCIPAL
AMOUNT
COMMON STOCKS-continued
INFORMATION TECHNOLOGY-14.1%
135,700 Applied Materials, Inc. $ 2,294,687
113,000 1 Cadence Design Systems, Inc. 2,038,520
82,900 1 Cisco Systems, Inc. 1,631,472
294,900 1 EMC Corp. Mass 3,774,720
31,400 IBM Corp. 2,508,860
26,500 Linear Technology Corp. 894,375
119,500 Microsoft Corp. 2,706,675
111,000 1 Oracle Corp. 1,578,420
30,500 SAP AG, ADR 1,605,215
158,900 1 Xerox Corp. 2,181,697
TOTAL 21,214,641
MATERIALS-2.9%
29,000 Alcan, Inc. 1,518,150
91,000 Alcoa, Inc. 2,886,520
TOTAL 4,404,670
TELECOMMUNICATION SERVICES-5.0%
157,600 AT&T, Inc. 4,107,056
102,300 BellSouth Corp. 3,454,671
TOTAL 7,561,727
UTILITIES-3.9%
48,400 Consolidated Edison Co. 2,134,440
43,100 FirstEnergy Corp. 2,259,302
26,400 TXU Corp. 1,512,720
TOTAL 5,906,462
TOTAL COMMON STOCKS 144,796,067
(IDENTIFIED COST $133,399,947)
REPURCHASE AGREEMENT-3.9%
$ 5,916,000 Interest in $3,100,000,000 joint repurchase agreement 5.05%, dated 5/31/2006 under which UBS 5,916,000
Securities LLC will repurchase a U.S. Treasury security and U.S. Government Agency securities
with various maturities to 5/25/2036 for $3,100,434,861 on 6/1/2006. The market value of the
underlying securities at the end of the period was $3,177,005,067. (AT COST)
TOTAL INVESTMENTS-99.9% 150,712,067
(IDENTIFIED COST $139,315,947)2
OTHER ASSETS AND LIABILITIES - NET-0.1% 72,245
TOTAL NET ASSETS-100% $ 150,784,312
1 Non-income producing security.
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2006.
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, 2006 (unaudited)
ASSETS:
Total investments in securities, at value (identified cost $139,315,947) $ 150,712,067
Cash 841
Income receivable 248,687
Receivable for investments sold 3,182,969
TOTAL ASSETS 154,144,564
LIABILITIES:
Payable for investments purchased $ 3,324,980
Payable for custodian fees 2,640
Payable for transfer and dividend disbursing agent fees and expenses 3,245
Payable for Directors'/Trustees' fee 879
Payable for portfolio accounting fees 8,405
Accrued expenses 20,103
TOTAL LIABILITIES 3,360,252
Net assets for 12,321,022 shares outstanding $ 150,784,312
NET ASSETS CONSIST OF:
Paid-in capital $ 112,050,098
Net unrealized appreciation of investments 11,396,120
Accumulated net realized gain on investments 17,855,420
Undistributed net investment income 9,482,674
TOTAL NET ASSETS $ 150,784,312
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE
$150,784,312 {divide} 12,321,022 shares outstanding, no par value, unlimited shares authorized $12.24
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2006 (unaudited)
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld of $8,863) $ 1,453,197
Interest 105,587
TOTAL INCOME 1,558,784
EXPENSES:
Administrative personnel and services fee (Note 5) $ 74,795
Custodian fees 6,921
Transfer and dividend disbursing agent fees and expenses 6,907
Directors'/Trustees' fees 3,147
Auditing fees 9,931
Legal fees 2,664
Portfolio accounting fees 24,066
Insurance premiums 3,853
Taxes 12,491
Miscellaneous 841
TOTAL EXPENSES 145,616
WAIVER, REIMBURSEMENT AND EXPENSE REDUCTION (NOTE 5):
Waiver of administrative personnel and services fee $ (74,795 )
Reimbursement of other operating expenses (27,470 )
Fees paid indirectly from directed brokerage arrangements (1,978 )
TOTAL WAIVER, REIMBURSEMENT AND EXPENSE REDUCTION (104,243 )
Net expenses 41,373
Net investment income 1,517,411
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 8,528,423
Net change in unrealized appreciation of investments (6,100,339 )
Net realized and unrealized gain on investments 2,428,084
Change in net assets resulting from operations $ 3,945,495
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
(unaudited) 11/30/2005
5/31/2006
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 1,517,411 $ 3,379,701
Net realized gain on investments 8,528,423 5,684,190
Net change in unrealized appreciation/depreciation of investments (6,100,339 ) 2,406,695
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 3,945,495 11,470,586
SHARE TRANSACTIONS:
Withdrawals (15,300,000 ) (47,150,000 )
Change in net assets (11,354,505 ) (35,679,414 )
NET ASSETS:
Beginning of period 162,138,817 197,818,231
End of period (including undistributed net investment income of $9,482,674 and $ 150,784,312 $ 162,138,817
$7,965,263, respectively)
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
May 31, 2006 (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 three portfolios. The financial
statements included herein are only those of the Fund. The investment objective
of the Fund is to provide capital appreciation.
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. If unavailable, the security
is generally valued at the mean between the last closing bid and asked prices.
The Fund generally values short-term securities according to prices furnished by
an independent pricing service, except that short-term securities with remaining
maturities of less than 60 days at the time of purchase may be valued at
amortized cost, which approximates fair market value. 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. 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 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. 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.
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 YEAR ENDED 11/30/2005
ENDED
5/31/2006
Fair value of withdrawals (1,242,120 ) (4,089,855 )
TOTAL CHANGE RESULTING FROM CONTRIBUTIONS/WITHDRAWALS (1,242,120 ) (4,089,855 )
4. FEDERAL TAX INFORMATION
At May 31, 2006, the cost of investments for federal tax purposes was
$139,315,947. The net unrealized appreciation of investments for federal tax
purposes was $11,396,120. This consists of net unrealized appreciation from
investments for those securities having an excess of value over cost of
$14,843,793 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $3,447,673.
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 oversight 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 voluntary 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:
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 six months ended May 31, 2006, FASI voluntarily waived its
entire fee. For the six months ended May 31, 2006, the net fee paid to FASI was
$0.
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, 2006, the Fund's
expenses were reduced by $1,978 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, for the six months ended May 31, 2006,
were as follows:
Purchases $ 110,255,183
Sales $ 127,863,696
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 LLP to represent the Funds in these lawsuits. Federated and
the Funds, and their respective counsel, are reviewing the allegations and
intend to defend this litigation. 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.
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
The Fund's Board reviewed the Fund's investment advisory contract at meetings
held in May 2006. The Board's decision regarding 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 although it or its affiliates may receive compensation for managing
assets invested in the Fund.
Prior to the meeting, the Adviser had recommended that the Federated Funds
appoint a Senior Officer, whose duties include specified responsibilities
relating to the process by which advisory fees are to be charged to a Federated
Fund. The Senior Officer appointed by the Funds has the authority to retain
consultants, experts, or staff as may be reasonably necessary to assist in the
performance of his duties, reports directly to the Board, and may be terminated
only with the approval of a majority of the independent members of the Board.
The Senior Officer prepared and furnished to the Board an independent written
evaluation that covered topics discussed below, which the Board considered,
along with other information, in deciding to approve the advisory contract.
As previously noted, the Adviser does not charge an investment advisory fee for
its services; however, the Board did consider 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 Federated fund trades. The Board is also
familiar with judicial decisions concerning allegedly excessive investment
advisory fees which have indicated 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 the Board deems relevant bearing on
the Adviser's services and fees. The Board further considered management fees
(including any components thereof) charged to institutional and other clients of
the Adviser for like services and costs to the Adviser and its affiliates of
supplying services pursuant to the management fee agreements, excluding any
intra-corporate profit and profit margins of the Adviser and its affiliates from
supplying such services. The Board was aware of these considerations and was
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 considered and weighed 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 was assisted in its deliberations
by the advice of independent legal counsel. Throughout the year, the Board has
requested and received substantial and detailed information about the Fund and
the Federated organization that was in addition to the extensive materials that
comprise the Senior Officer's evaluation. Federated provided much of this
information at each regular meeting of the Board, and furnished additional
reports in connection with the particular meeting at which the Board's formal
review of the advisory contract occurred. Between regularly scheduled meetings,
the Board has received information on particular matters as the need arose.
Thus, the Board's consideration of the advisory contract included review of the
Senior Officer's evaluation, accompanying data and additional reports covering
such matters as: the Adviser's investment philosophy, personnel and processes;
investment and operating strategies; the Fund's short- and long-term
performance, and comments on the reasons for performance; the Fund's investment
objectives; the Fund's overall expense structure; the use and allocation of
brokerage commissions derived from trading the Fund's portfolio securities (if
any); the nature, quality and extent of the advisory and other services provided
to the Fund by the Adviser and its affiliates; the preferences and expectations
of Fund shareholders and their relative sophistication; the continuing state of
competition in the mutual fund industry and market practices; the range of
comparable fees for similar funds in the mutual fund industry; the Fund's
relationship to the Federated family of funds which include a comprehensive
array of funds with different investment objectives, policies and strategies
which are available for exchange without the incurrence of additional sales
charges; 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 Board's evaluation process is
evolutionary. The criteria considered and the emphasis placed on relevant
criteria change in recognition of changing circumstances in the mutual fund
marketplace.
The Board also received financial information about Federated, including reports
on the compensation and benefits Federated derived 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 Federated funds under separate
contracts (e.g., for serving as the Federated funds' administrator). The reports
also discussed 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. In order for a fund to be
competitive in the marketplace, Federated and its affiliates frequently waive
non-advisory fees and/or reimburse other expenses and have indicated to the
Board their intention to do so in the future, where appropriate.
The Board also reviewed profitability information for Federated and other
publicly held fund management companies, provided by the Senior Officer, who
noted the limited availability of such information, and concluded that
Federated's profit margins did not appear to be excessive.
The Senior Officer also made recommendations relating to the organization and
availability of data and verification of processes for purposes of implementing
future evaluations which the Adviser has agreed to implement.
The Board based its decision to approve the 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
were relevant to every Federated fund, nor did 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 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 were relevant, the Board's decision to approve the contract
reflects its determination that Federated's performance and actions provided a
satisfactory basis to support the decision to continue the existing arrangement.
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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend
to deliver a single copy of certain documents to each household in which more
than one shareholder of the Fund(s) resides (so-called "householding"), as
permitted by applicable rules. The Fund's "householding" program covers
its/their Prospectus and Statement of Additional Information, and supplements to
each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or
information statements. Shareholders must give their written consent to
participate in the "householding" program. The Fund is also permitted to treat a
shareholder as having given consent ("implied consent") if (i) shareholders with
the same last name, or believed to be members of the same family, reside at the
same street address or receive mail at the same post office box, (ii) the Fund
gives notice of its intent to "household" at least sixty (60) days before it
begins "householding" and (iii) none of the shareholders in the household have
notified the Fund(s) or their agent of the desire to "opt out" of
"householding." Shareholders who have granted written consent, or have been
deemed to have granted implied consent, can revoke that consent and opt out of
"householding" at any time: shareholders who purchased shares through an
intermediary should contact their representative; other shareholders may call
the Fund at 1-800-341-7400.
Cusip 31409R201
31869 (7/06)
EMERGING MARKETS FIXED INCOME CORE FUND
SEMI-ANNUAL SHAREHOLDER REPORT
May 31, 2006
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
SIX MONTHS YEAR ENDED NOVEMBER 30, PERIOD
ENDED ENDED
(unaudited)
5/31/2006 2005 2004 2003 11/30/2002 1
NET ASSET VALUE, BEGINNING OF PERIOD $18.08 $15.91 $14.39 $10.98 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.65 2 1.29 2 0.91 0.85 0.83
Net realized and unrealized gain (loss) (0.21 ) 0.88 0.61 2.56 0.15
on investments, options, futures
contracts and foreign currency
transactions
TOTAL FROM INVESTMENT OPERATIONS 0.44 2.17 1.52 3.41 0.98
NET ASSET VALUE, END OF PERIOD $18.52 $18.08 $15.91 $14.39 $10.98
TOTAL RETURN3 2.43 % 13.64 % 10.56 % 31.06 % 9.80 %
RATIOS TO AVERAGE NET ASSETS:
Net expenses 0.05 %4 0.05 % 0.05 % 0.05 % 0.05 %4
Net investment income 6.94 %4 7.54 % 7.80 % 8.85 % 10.58 %4
Expense waiver/reimbursement5 0.09 %4 0.08 % 0.21 % 0.23 % 0.42 %4
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $315,027 $350,521 $146,778 $131,056 $80,515
Portfolio turnover 26 % 23 % 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 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, if any, are not annualized.
4 Computed on an annualized basis.
5 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, 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 December 1, 2005 to May 31, 2006.
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 with other funds. To do so,
compare this 5% hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only. Therefore, the second section of the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds.
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD1
12/1/2005 5/31/2006
ACTUAL $1,000 $1,024.30 $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 net 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, 2006 the Fund's issuer country and currency exposure composition1
were as follows:
COUNTRY COUNTRY EXPOSURE AS CURRENCY EXPOSURE AS A
A PERCENTAGE OF PERCENTAGE OF TOTAL NET ASSETS
TOTAL NET ASSETS
Russia 18.8% 0.0%
Brazil 13.7% 0.0%
Mexico 12.2% 7.8%
Philippines 8.8% 0.0%
Venezuela 7.7% 0.0%
Turkey 5.9% 0.0%
Peru 4.4% 0.0%
Colombia 3.0% 0.0%
Kazakhstan 3.0% 0.0%
Indonesia 2.2% 0.0%
Argentina 2.0% 0.0%
El Salvador 1.1% 0.0%
Hong Kong 0.7% 0.0%
Guatemala 0.6% 0.0%
Uruguay 0.6% 0.0%
Ukrainan SSR 0.4% 0.0%
United States2 0.0% 77.3%
Cash Equivalents3 12.1% 12.1%
Other Assets and Liabilities - Net4 2.8% 2.8%
TOTAL 100.0% 100.0%
1 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.
2 Consists of non-U.S. dollar denominated fixed income securities issued by an
entity domiciled in the United States.
3 Cash Equivalents include 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.
4 Assets, other than investments in securities, less liabilities. See Statement
of Assets and Liabilities.
PORTFOLIO OF INVESTMENTS
May 31, 2006 (unaudited)
PRINCIPAL AMOUNT VALUE IN
U.S. DOLLARS
CORPORATE BONDS-27.5%
BANKING-3.6%
$ 2,550,000 1 Kazkommerts International BV, Company Guarantee, Series 144A, 8.00%, 11/3/2015 $ 2,550,000
2,500,000 1 Turanalem Finance BV, Bank Guarantee, 8.50%, 2/10/2015 2,543,750
3,000,000 1 Turanalem Finance BV, Series 144A, 7.75%, 4/25/2013 2,985,000
3,500,000 1 VTB Capital SA, Bond, 6.25%, 6/30/2035 3,395,000
TOTAL 11,473,750
BROADCAST RADIO & TV-1.4%
3,800,000 Grupo Televisa S.A., Sr. Note, 8.50%, 3/11/2032 4,387,670
CHEMICALS & PLASTICS-0.4%
1,250,000 Braskem SA, Series REGS, 11.75%, 1/22/2014 1,450,000
CONTAINER & GLASS PRODUCTS-0.8%
600,000 Vicap SA, Sr. Note, Series EXCH, 11.375%, 5/15/2007 577,500
1,950,000 1 Vitro SA, Note, Series 144A, 11.75%, 11/1/2013 1,852,500
TOTAL 2,430,000
HOTELS, MOTELS, INNS & CASINOS-0.8%
2,500,000 1 Grupo Posadas SA de C.V., Sr. Note, 8.75%, 10/4/2011 2,537,500
LEISURE & ENTERTAINMENT-0.7%
1,100,000 1 Galaxy Entertainment Finance Co. Ltd., Company Guarantee, 9.655%, 12/15/2010 1,155,000
900,000 1 Galaxy Entertainment Finance Co. Ltd., Company Guarantee, 9.875%, 12/15/2012 945,000
TOTAL 2,100,000
METALS & MINING-1.4%
3,350,000 1 Adaro Finance BV, Company Guarantee, Series 144A, 8.50%, 12/8/2010 3,425,375
900,000 Grupo Minero Mexico, 9.25%, 4/1/2028 1,026,000
TOTAL 4,451,375
OIL & GAS-8.5%
10,850,000 1 Gaz Capital SA, Note, Series 144A, 8.625%, 4/28/2034 12,735,188
4,960,000 1 Gazprom, Note, Series 144A, 9.625%, 3/1/2013 5,741,200
7,180,000 1 Petrozuata Finance, Inc., Company Guarantee, Series 144A, 8.22%, 4/1/2017 6,856,900
1,420,000 1 Tengizchevroil LLP, Series 144A, 6.124%, 11/15/2014 1,398,700
TOTAL 26,731,988
SOVEREIGN-2.2%
5,750,000 1 Aries Vermogensverwaltng, Credit-Linked Note, Series 144A, 9.60%, 10/25/2014 7,071,616
STEEL-2.1%
2,700,000 1 CSN Islands IX Corp., Sr. Note, Series 144A, 10.00%, 1/15/2015 3,057,750
3,200,000 1 CSN Islands VIII Corp., Company Guarantee, Series 144A, 9.75%, 12/16/2013 3,464,000
TOTAL 6,521,750
TELECOMMUNICATIONS & CELLULAR-4.5%
9,500,000 America Movil S.A. de C.V., Bond, 9.00%, 1/15/2016 787,224
791,000 Axtel SA, 11.00%, 12/15/2013 885,920
3,000,000 1 Mobile Telesystems, Series 144A, 8.375%, 10/14/2010 3,071,250
5,400,000 Philippine Long Distance Telephone Co., Sr. Unsub., 11.375%, 5/15/2012 6,547,500
3,000,000 Telefonos de Mexico, Note, Series WI, 5.50%, 1/27/2015 2,783,790
TOTAL 14,075,684
UTILITIES-1.1%
3,200,000 1 National Power Corp., Foreign Gov't. Guarantee, Series 144A, 9.44375%, 8/23/2011 3,568,566
TOTAL CORPORATE BONDS (IDENTIFIED COST $84,308,261) 86,799,899
GOVERNMENTS/AGENCIES-57.6%
SOVEREIGN-57.6%
1,700,000 Argentina, Government of, Bond, 4.889%, 8/3/2012 1,394,000
5,227,328 Argentina, Government of, Note, 8.28%, 12/31/2033 4,874,483
10,204,000 Brazil, Government of, Bond, 8.25%, 1/20/2034 10,418,284
5,752,000 Brazil, Government of, Note, 8.00%, 1/15/2018 6,010,840
6,000,000 Brazil, Government of, Note, 8.75%, 2/4/2025 6,405,000
7,310,000 Brazil, Government of, Note, 11.00%, 1/11/2012 8,720,830
3,000,000 Brazil, Government of, Unsub., 11.00%, 8/17/2040 3,678,000
5,650,000 Colombia, Government of, Bond, 8.125%, 5/21/2024 5,960,750
2,600,000 Colombia, Government of, Bond, 11.75%, 2/25/2020 3,539,900
3,250,000 El Salvador, Government of, Bond, 8.25%, 4/10/2032 3,428,750
1,750,000 1 Guatemala, Government of, Note, 9.25%, 8/1/2013 1,986,250
3,200,000 1 Indonesia, Government of, 8.50%, 10/12/2035 3,468,000
108,938,900 Mexico, Government of, 8.00%, 12/7/2023 8,422,764
84,299,900 Mexico, Government of, Bond, 8.00%, 12/19/2013 7,032,052
88,451,300 Mexico, Government of, Bond, 10.00%, 12/5/2024 8,177,631
5,300,000 Peru, Government of, Bond, 8.75%, 11/21/2033 5,909,500
6,630,000 Peru, Government of, Note, 9.875%, 2/6/2015 7,823,400
4,600,000 Philippines, Government of, 9.375%, 1/18/2017 5,203,750
3,250,000 Philippines, Government of, 9.875%, 1/15/2019 3,810,625
3,500,000 Philippines, Government of, Bond, 7.75%, 1/14/2031 3,434,375
3,000,000 Philippines, Government of, Bond, 9.50%, 10/21/2024 3,435,000
1,580,000 Philippines, Government of, Sr. Note, 9.50%, 2/2/2030 1,824,900
22,050,000 Russia, Government of, Unsub., 5.00%, 3/31/2030 23,586,885
2,600,000 1 Russia, Government of, Unsub., 11.00%, 7/24/2018 3,601,000
2,850,000 Turkey, Government of, 9.50%, 1/15/2014 3,238,313
6,610,000 Turkey, Government of, 11.00%, 1/14/2013 7,973,313
2,000,000 Turkey, Government of, Note, 7.375%, 2/5/2025 1,935,000
1,300,000 Turkey, Government of, Note, 11.50%, 1/23/2012 1,571,375
1,000,000 Turkey, Government of, Sr. Unsub., 11.875%, 1/15/2030 1,425,000
2,275,000 Turkey, Government of, Sr. Unsub., 12.375%, 6/15/2009 2,619,094
600,000 Ukraine, Government of, Bond, 7.65%, 6/11/2013 606,660
681,419 Ukraine, Government of, Sr. Note, 11.00%, 3/15/2007 699,374
2,000,000 Uruguay, Government of, Note, 8.00%, 11/18/2022 1,980,000
9,000,000 Venezuela, Government of, Bond, 5.75%, 2/26/2016 8,041,500
9,050,000 Venezuela, Government of, Note, 7.65%, 4/21/2025 9,205,207
TOTAL GOVERNMENT/AGENICES (IDENTIFIED COST $182,615,106) 181,441,805
REPURCHASE AGREEMENT-12.1%
$ 37,997,000 Interest in $3,100,000,000 joint repurchase agreement 5.05%, dated 5/31/2006 under $ 37,997,000
which UBS Securities LLC will repurchase a U.S. Treasury security and U.S. Government
Agency securities with various maturities to 5/25/2036 for $3,100,434,861 on 6/1/2006.
The market value of the underlying securities at the end of the period was
$3,177,005,067. (AT COST)
TOTAL INVESTMENTS-97.2% (IDENTIFIED COST $304,920,367)2 306,238,704
OTHER ASSETS AND LIABILITIES--NET-2.8% 8,788,228
TOTAL NET ASSETS--100% $ 315,026,932
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, 2006, these securities amounted to
$77,409,545 which represents 24.6% of total net assets.
2 The cost of investments for federal tax purposes amounts to $306,121,661.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2006.
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2006 (unaudited)
ASSETS:
Investments in securities $ 268,241,704
Investments in repurchase agreements 37,997,000
Total investments in securities, at value (identified cost $304,920,367) $ 306,238,704
Cash denominated in foreign currencies (identified cost $32,753) 34,985
Cash 507
Income receivable 5,666,602
Receivable for investments sold 3,152,875
TOTAL ASSETS 315,093,673
LIABILITIES:
Payable for custodian fees 35,502
Payable for transfer and dividend disbursing agent fees and expenses 3,355
Payable for Directors'/Trustees' fees 522
Payable for auditing fees 20,745
Payable for portfolio accounting fees 3,945
Accrued expenses 2,672
TOTAL LIABILITIES 66,741
Net assets for 17,006,237 shares outstanding $ 315,026,932
NET ASSETS CONSIST OF:
Paid-in capital $ 225,711,916
Net unrealized appreciation of investments and translation of assets and liabilities in 1,271,427
foreign currency
Accumulated net realized gain on investments, options and foreign currency transactions 31,236,709
Undistributed net investment income 56,806,880
TOTAL NET ASSETS $ 315,026,932
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE
$315,026,932 {divide} 17,006,237 shares outstanding $18.52
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2006 (unaudited)
INVESTMENT INCOME:
Interest (net of foreign taxes withheld of $21,097) $ 12,542,864
EXPENSES:
Administrative personnel and services fee (Note 5) $ 142,597
Custodian fees 58,828
Transfer and dividend disbursing agent fees and expenses 7,270
Directors'/Trustees' fees 4,291
Auditing fees 14,756
Legal fees 3,053
Portfolio accounting fees 16,578
Insurance premiums 5,111
Taxes 12,495
Miscellaneous 1,078
TOTAL EXPENSES 266,057
WAIVER AND REIMBURSEMENT (NOTE 5):
Waiver of administrative personnel and services fee $ (142,597 )
Reimbursement of other operating expenses (25,126 )
TOTAL WAIVER AND REIMBURSEMENT (167,723 )
Net expenses 98,334
Net investment income 12,444,530
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES
CONTRACTS:
Net realized gain on investments and foreign currency transactions 10,245,943
(net of foreign taxes withheld of $29,351)
Net change in unrealized appreciation of investments and )
translation of assets and liabilities in foreign currency (13,582,356
Net realized and unrealized loss on investments and translation of (3,336,413 )
assets and liabilities in foreign currency
Change in net assets resulting from operations $ 9,108,117
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
(unaudited) 11/30/2005
5/31/2006
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 12,444,530 $ 20,465,747
Net realized gain on investments, futures contracts and foreign currency 10,245,943 10,538,431
transactions
Net change in unrealized appreciation/depreciation of investments and translation (13,582,356 ) 5,336,708
of assets and liabilities
in foreign currency
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 9,108,117 36,340,886
SHARE TRANSACTIONS:
Contributions 31,439,000 298,508,368
Withdrawals (76,041,000 ) (131,106,041 )
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (44,602,000 ) 167,402,327
Change in net assets (35,493,883 ) 203,743,213
NET ASSETS:
Beginning of period 350,520,815 146,777,602
End of period (including undistributed net investment income of $56,806,880 and $ 315,026,932 $ 350,520,815
$44,362,350, respectively)
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
May 31, 2006 (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 three
portfolios. The financial statements included herein are only those of the Fund.
The Fund's primary investment objective is to achieve a total return on its
assets. Its secondary investment objective is to achieve a high level of income.
The Fund pursues these objectives by investing primarily in emerging market
fixed income securities.
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, which approximates fair market value. 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. 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 in 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.
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 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. 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
(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 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. Futures contracts have market risks,
including the risk that the change in the value of the contract may not
correlate with the changes in the value of the underlying securities. For the
six months ended May 31, 2006, the Fund had no realized gains on futures
contracts.
Futures contracts outstanding at period end, if any, are listed after the Fund's
portfolio of investments.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign currency commitments for the delayed delivery of
securities or foreign currency exchange transactions. The Fund may enter into
foreign currency contract transactions to protect assets against adverse changes
in foreign currency exchange rates or exchange control regulations. Purchased
contracts are used to acquire exposure to foreign currencies; whereas, contracts
to sell are used to hedge the Fund's securities against currency fluctuations.
Risks may arise upon entering into these transactions from the potential
inability of counterparties to meet the terms of their commitments and from
unanticipated movements in security prices or foreign exchange rates. The
foreign currency transactions are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded for financial statement
purposes as unrealized until the settlement date.
At May 31, 2006, the Fund had no outstanding foreign currency commitments.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies (FCs) are translated into
U.S. dollars based on the rate of exchange of such currencies against
U.S. dollars on the date of valuation. Purchases and sales of securities, income
and expenses are translated at the rate of exchange quoted on the respective
date that such transactions are recorded. The Fund does not isolate that portion
of the results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
FCs, currency gains or losses realized between the trade and settlement dates on
securities transactions, the difference between the amounts of dividends,
interest and foreign withholding taxes recorded on the Fund's books, and the
U.S. dollar equivalent of the amounts actually received or paid. Net unrealized
foreign exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end, resulting
from changes in the exchange rate.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined in accordance with
procedures established by and under general supervision of the Directors.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts of assets,
liabilities, expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on a trade date basis. Realized gains
and losses from investment transactions are recorded on an identified cost
basis.
3. CONTRIBUTIONS/WITHDRAWALS
Transactions in shares were as follows:
SIX MONTHS ENDED 5/31/2006 YEAR ENDED
11/30/2005
Proceeds from contributions 1,640,926 17,702,635
Fair value of withdrawals (4,020,104 ) (7,541,829 )
TOTAL CHANGE RESULTING FROM CONTRIBUTIONS/WITHDRAWALS (2,379,178 ) 10,160,806
4. FEDERAL TAX INFORMATION
At May 31, 2006, the cost of investments for federal tax purposes was
$306,121,661. The net unrealized appreciation of investments for federal tax
purposes excluding any unrealized appreciation resulting from changes in foreign
currency exchange rates was $117,043. This consists of net unrealized
appreciation from investments for those securities having an excess of value
over cost of $4,814,138 and net unrealized depreciation from investments for
those securities having an excess of cost over value of $4,697,095.
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 oversight 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 voluntary 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. For the six months ended May 31, 2006, FASI voluntarily waived its
entire fee. For the six months ended May 31, 2006, the net fee paid to FASI was
$0.
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 for the six months ended May 31, 2006,
were as follows:
Purchases $ 83,360,949
Sales $ 143,437,243
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.
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. 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 LLP to represent the Funds in these lawsuits. Federated and
the Funds, and their respective counsel, are reviewing the allegations and
intend to defend this litigation. 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.
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
The Fund's Board reviewed the Fund's investment advisory contract at meetings
held in May 2006. The Board's decision regarding 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 although it or its affiliates may receive compensation for managing
assets invested in the Fund.
Prior to the meeting, the Adviser had recommended that the Federated Funds
appoint a Senior Officer, whose duties include specified responsibilities
relating to the process by which advisory fees are to be charged to a Federated
Fund. The Senior Officer appointed by the Funds has the authority to retain
consultants, experts, or staff as may be reasonably necessary to assist in the
performance of his duties, reports directly to the Board, and may be terminated
only with the approval of a majority of the independent members of the Board.
The Senior Officer prepared and furnished to the Board an independent written
evaluation that covered topics discussed below, which the Board considered,
along with other information, in deciding to approve the advisory contract.
As previously noted, the Adviser does not charge an investment advisory fee for
its services; however, the Board did consider 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 Federated fund trades. The Board is also
familiar with judicial decisions concerning allegedly excessive investment
advisory fees which have indicated 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 the Board deems relevant bearing on
the Adviser's services and fees. The Board further considered management fees
(including any components thereof) charged to institutional and other clients of
the Adviser for like services and costs to the Adviser and its affiliates of
supplying services pursuant to the management fee agreements, excluding any
intra-corporate profit and profit margins of the Adviser and its affiliates from
supplying such services. The Board was aware of these considerations and was
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 considered and weighed 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 was assisted in its deliberations
by the advice of independent legal counsel. Throughout the year, the Board has
requested and received substantial and detailed information about the Fund and
the Federated organization that was in addition to the extensive materials that
comprise the Senior Officer's evaluation. Federated provided much of this
information at each regular meeting of the Board, and furnished additional
reports in connection with the particular meeting at which the Board's formal
review of the advisory contract occurred. Between regularly scheduled meetings,
the Board has received information on particular matters as the need arose.
Thus, the Board's consideration of the advisory contract included review of the
Senior Officer's evaluation, accompanying data and additional reports covering
such matters as: the Adviser's investment philosophy, personnel and processes;
investment and operating strategies; the Fund's short- and long-term
performance, and comments on the reasons for performance; the Fund's investment
objectives; the Fund's overall expense structure; the use and allocation of
brokerage commissions derived from trading the Fund's portfolio securities (if
any); the nature, quality and extent of the advisory and other services provided
to the Fund by the Adviser and its affiliates; the preferences and expectations
of Fund shareholders and their relative sophistication; the continuing state of
competition in the mutual fund industry and market practices; the range of
comparable fees for similar funds in the mutual fund industry; the Fund's
relationship to the Federated family of funds which include a comprehensive
array of funds with different investment objectives, policies and strategies
which are available for exchange without the incurrence of additional sales
charges; 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 Board's evaluation process is
evolutionary. The criteria considered and the emphasis placed on relevant
criteria change in recognition of changing circumstances in the mutual fund
marketplace.
The Board also received financial information about Federated, including reports
on the compensation and benefits Federated derived 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 Federated funds under separate
contracts (e.g., for serving as the Federated funds' administrator). The reports
also discussed 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. In order for a fund to be
competitive in the marketplace, Federated and its affiliates frequently waive
non-advisory fees and/or reimburse other expenses and have indicated to the
Board their intention to do so in the future, where appropriate.
The Board also reviewed profitability information for Federated and other
publicly held fund management companies, provided by the Senior Officer, who
noted the limited availability of such information, and concluded that
Federated's profit margins did not appear to be excessive.
The Senior Officer also made recommendations relating to the organization and
availability of data and verification of processes for purposes of implementing
future evaluations which the Adviser has agreed to implement.
The Board based its decision to approve the 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
were relevant to every Federated fund, nor did 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 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 were relevant, the Board's decision to approve the contract
reflects its determination that Federated's performance and actions provided a
satisfactory basis to support the decision to continue the existing arrangement.
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 http://www.sec.gov and may
be reviewed and copied at the SEC's Public Reference Room in Washington, DC.
(Call 1-800-SEC-0330 for information on the operation of the Public Reference
Room.).
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.
IMPORTANT NOTICE ABOUT FUND DOCUMENT DELIVERY
In an effort to reduce costs and avoid duplicate mailings, the Fund(s) intend
to deliver a single copy of certain documents to each household in which more
than one shareholder of the Fund(s) resides (so-called "householding"), as
permitted by applicable rules. The Fund's "householding" program covers
its/their Prospectus and Statement of Additional Information, and supplements to
each, as well as Semi-Annual and Annual Shareholder Reports and any Proxies or
information statements. Shareholders must give their written consent to
participate in the "householding" program. The Fund is also permitted to treat a
shareholder as having given consent ("implied consent") if (i) shareholders with
the same last name, or believed to be members of the same family, reside at the
same street address or receive mail at the same post office box, (ii) the Fund
gives notice of its intent to "household" at least sixty (60) days before it
begins "householding" and (iii) none of the shareholders in the household have
notified the Fund(s) or their agent of the desire to "opt out" of
"householding." Shareholders who have granted written consent, or have been
deemed to have granted implied consent, can revoke that consent and opt out of
"householding" at any time: shareholders who purchased shares through an
intermediary should contact their representative; other shareholders may call
the Fund at 1-800-341-7400.
Cusip 31409R102
31868 (7/06)
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 A. Novak
Richard A. Novak, Principal Financial Officer
(insert name and title)
Date July 25, 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 Donahue, Principal Executive Officer
Date July 25, 2006
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date July 25, 2006