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: 12/31/06
Date of Reporting Period: Six months ended 6/30/06
------------------------
Item 1. Reports to Stockholders
MARKET PLUS CORE FUND
A PORTFOLIO OF FEDERATED CORE TRUST II, L.P.
SEMI-ANNUAL SHAREHOLDER REPORT
June 30, 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 PERIOD
ENDED ENDED
(unaudited)
6/30/2006 12/31/2005 1
NET ASSET VALUE, BEGINNING OF PERIOD $10.32 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.27 0.11
Net realized and unrealized gain on investments, futures contracts and swap contracts 0.02 0.21
TOTAL FROM INVESTMENT OPERATIONS 0.29 0.32
NET ASSET VALUE, END OF PERIOD $10.61 $10.32
TOTAL RETURN2 2.81 % 3.20 %
RATIOS TO AVERAGE NET ASSETS:
Net expenses 0.05 %3 0.05 %3
Net investment income 5.07 %3 4.30 %3
Expense waiver/reimbursement4 5.03 %3 6.45 %3
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $5,306 $5,160
Portfolio turnover 277 % 11 %
1 Reflects operations for the period from October 4, 2005 (date of initial
investment) to December 31, 2005.
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, if any, 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 January 1, 2006 to June 30, 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 required to be 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
1/1/2006 6/30/2006
ACTUAL $1,000 $1,028.10 $0.25
HYPOTHETICAL
(ASSUMING A 5% RETURN
BEFORE EXPENSES) $1,000 $1,024.55 $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 181/365
(to reflect the one-half year period).
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
At June 30, 2006, the Fund's portfolio composition1 was as follows:
SECURITY TYPE PERCENTAGE OF 2
TOTAL NET ASSETS
Mortgage-Backed Securities3 41.9 %
Corporate Debt Securities 31.2 %
Asset-Backed Securities 14.9 %
U.S. Treasury and Agency Securities4 12.3 %
Cash Equivalents5 3.1 %
Other Assets and Liabilities-Net6 (3.4 )%
TOTAL 100.0 %
1 See the Fund's Prospectus and Statement of Additional Information for a
description of these security types.
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 other asset and liability owned by the
affiliated investment company. Accordingly, the percentages of total net assets
shown in the table will differ from those presented on the Portfolio of
Investments.
3 For purposes of this table, mortgage-backed securities includes mortgage-
backed securities guaranteed by Government Sponsored Entities (GSEs) and
adjustable rate mortgage-backed securities.
4 For purposes of this table, U.S. Treasury and Agency Securities do not include
mortgage-backed securities guaranteed by GSEs.
5 Cash Equivalents include any investments in money market mutual funds and/or
overnight repurchase agreements.
6 Assets, other than investments in securities, less liabilities. See Statement
of Assets and Liabilities.
PORTFOLIO OF INVESTMENTS
June 30, 2006 (unaudited)
PRINCIPAL VALUE
AMOUNT OR
SHARES
ADJUSTABLE RATE MORTGAGES-9.9%
FEDERAL HOME LOAN MORTGAGE CORP.-2.6%
$ 137,198 Federal Home Loan Mortgage Corp., 5.411%, 3/1/2033 $ 136,616
FEDERAL NATIONAL MORTGAGE ASSOCIATION-7.3%
96,925 Federal National Mortgage Association, 5.040%, 4/1/2035 97,162
95,865 Federal National Mortgage Association, 5.080%, 6/1/2035 96,139
194,271 Federal National Mortgage Association, 5.340%, 5/1/2036 193,069
TOTAL 386,370
TOTAL ADJUSTABLE RATE MORTGAGES 522,986
(IDENTIFIED COST $524,094)
ASSET-BACKED SECURITIES-14.9%
HOME EQUITY LOAN-11.4%
58,213 Asset Backed Funding Certificate 2005-OPT1 A1MZ, 7/25/2035 58,373
100,000 Centex Home Equity 2005-D AV2, 10/25/2035 100,163
28,754 Chase Funding Mortgage Loan As 2002-4 1A4, 4.21%, 3/25/2029 28,533
119,578 First Franklin Mortgage Loan Asset Backed Certificates 2004-FFH4 2A2, 1/25/2035 119,858
68,666 GSAA Home Equity Trust 2005-15 1A2 1A2, 1/25/2036 69,009
75,000 GSAA Home Equity Trust 2005MTR1 A3, 10/25/2035 75,270
77,187 GSAMP Trust 2005-SEA2 A1, 1/25/2045 77,364
75,000 Popular ABS Mortgage Pass-Through Trust 2005-5 AV2B, 11/25/2035 75,215
TOTAL 603,785
NON-AGENCY MORTGAGE-3.5%
49,443 Harborview Mortgage Loan Trust 2006-1 2A1A, 3/19/2037 49,497
91,037 Washington Mutual 2003-S4 1A3, 6/25/2018 90,979
46,561 Washington Mutual 2005-AR17 A-1A1, 12/25/2045 46,655
TOTAL 187,131
TOTAL ASSET-BACKED SECURITIES 790,916
(IDENTIFIED COST $790,030)
COLLATERALIZED MORTGAGE OBLIGATIONS-15.4%
FEDERAL HOME LOAN MORTGAGE CORP.-7.7%
132,507 Federal Home Loan Mortgage Corp. REMIC 2395 FA, 5.799%, 6/15/2029 133,985
115,381 Federal Home Loan Mortgage Corp. REMIC 2395 FT, 5.649%, 12/15/2031 115,866
160,332 Federal Home Loan Mortgage Corp. REMIC 2628 F, 5.599%, 6/15/2032 160,267
TOTAL 410,118
FEDERAL NATIONAL MORTGAGE ASSOCIATION-6.5%
100,000 Federal National Mortgage Association REMIC 0287A FB, 5.591%, 10/25/2031 100,671
186,805 Federal National Mortgage Association REMIC 1993-179 FJ, 6.494%, 10/25/2023 191,942
54,566 Federal National Mortgage Association REMIC 1993-247 FM, 4.959%, 12/25/2023 53,334
TOTAL 345,947
NON-AGENCY MORTGAGE-1.2%
63,375 Countrywide Home Loans 2003-J1 2003-J1 1A7, 5.75%, 3/25/2033 63,209
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS 819,274
(IDENTIFIED COST $817,980)
CORPORATE BONDS-30.5%
COMMUNICATIONS - TELECOM WIRELINES-4.7%
50,000 Telecom Italia Capital, Note, 2/01/2011 50,400
50,000 SBC Communications, Inc., 11/14/2008 50,080
150,000 Telefonica SA, Floating Rate Note, 6/19/2009 150,072
TOTAL 250,552
CONSUMER CYCLICAL - AUTOMOTIVE-5.5%
50,000 DaimlerChrysler North Am, Floating Rate Note, 3/07/2007 50,028
50,000 Ford Motor Credit Co., Floating Rate Note, 1/15/2010 45,590
150,000 Ford Motor Credit Co., Note, 6.5%, 1/25/2007 149,761
50,000 General Motors Acceptance, 12/01/2014 48,526
TOTAL 293,905
CONSUMER NON-CYCLICAL SUPERMARKETS-1.0%
50,000 Kroger Co., 7.625%, 9/15/2006 50,156
ENERGY - INDEPENDENT-0.9%
50,000 Devon Energy Corp., Sr. Note, 2.75%, 8/01/2006 49,905
FINANCIAL INSTITUTION - BANKING-13.6%
150,000 Chase Capital II, Company Guarantee, 2/01/2027 142,179
50,000 Household Finance Corp., Floating Rate Note, 11/16/2009 50,267
150,000 Nationsbank Capital Trust, Bond, 1/15/2027 145,910
40,000 Popular North America, 4/06/2009 40,098
150,000 Wachovia Capital Trust II, Company Guarantee, 1/15/2027 144,874
50,000 Washington Mutual Bank, Sr. Note, 1/15/2015 50,891
150,000 Wells Fargo Capital II, Company Guarantee, 1/30/2027 146,039
TOTAL 720,258
FINANCIAL INSTITUTION - BROKERAGE-2.9%
50,000 Goldman Sachs Group, Inc., Floating Rate Note, 9/29/2014 50,616
50,000 Merrill Lynch & Co., Inc., Floating Rate Note, 7/21/2009 50,143
50,000 Morgan Stanley Group, In, 1/18/2011 50,094
TOTAL 150,853
FINANCIAL INSTITUTION - REITS-0.9%
50,000 Duke Realty Corp., Floating Rate Note, 12/22/2006 50,020
TECHNOLOGY-1.0%
50,000 Oracle Corp., Floating Rate Note, Series WI, 1/13/2009 50,028
TOTAL CORPORATE BONDS 1,615,677
(IDENTIFIED COST $1,611,354)
MORTGAGE-BACKED SECURITIES-16.6%
FEDERAL HOME LOAN MORTGAGE CORP.-16.6%
880,000 Federal Home Loan Mortgage Corp. Pool G18124, 6.000%, 15 Year, 6/1/2021 (IDENTIFIED COST 881,745
$882,750)
U.S. TREASURY-12.3%
TREASURY SECURITIES-12.3%
56,110 U.S. Treasury Inflation Protected Note, Series A-2008, 3.625%, 1/15/2008 57,079
600,000 1,2 United States Treasury Bill, 4.74%, 8/3/2006 597,634
TOTAL U.S. TREASURY 654,713
(IDENTIFIED COST $655,606)
MUTUAL FUND-0.7%
5,588 3 High Yield Bond Portfolio (IDENTIFIED COST $37,376) 37,101
REPURCHASE AGREEMENT-3.1%
$ 166,000 Interest in $2,986,000,000 joint repurchase agreement 5.27%, dated 6/30/2006 under which 166,000
Bank of America N.A. will repurchase U.S. Government Agency securities with various
maturities to 4/1/2036 for $2,987,311,352 on 7/3/2006. The market value of the underlying
securities at the end of the period was $3,045,720,000. (AT COST)
TOTAL INVESTMENTS-103.4% 5,488,412
(IDENTIFIED COST $5,485,190) 4
OTHER ASSETS AND LIABILITIES - NET-(3.4)% (181,989 )
TOTAL NET ASSETS-100% $ 5,306,423
1 Discount rate at time of purchase.
2 Pledged as collateral to ensure the Fund is able to satisfy the obligations of
its outstanding long futures contracts.
3 Affiliated company.
4 Also represents cost for federal tax purposes.
At June 30, 2006, the Fund had the following outstanding futures contracts:
DESCRIPTION NUMBER OF NOTIONAL EXPIRATION UNREALIZED
CONTRACTS VALUE DATE APPRECIATION
5S&P 500 Index Futures 1 $319,850 September 2006 $3,218
5S&P Mini 500 Index Futures 4 $255,900 September 2006 $2,553
At June 30, 2006, the Fund had the following open swap contract:
DESCRIPTION EXPIRATION NOTIONAL UNREALIZED
DEPRECIATION
PRINCIPAL
AMOUNT
S&P 500 Total Return Swap
(Receive Total Return S&P 500/ 10/4/2006 $4,712,415 $(172,871)
Pay 3-month LIBOR +0.15%)
5 Non-income producing security.
Note: The categories of investments are shown as a percentage of total net
assets at June 30, 2006.
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
June 30, 2006 (unaudited)
ASSETS:
Total investments in securities, at value including $37,101 of investments in affiliated $ 5,488,412
issuers (Note 5) (identified cost $5,485,190)
Cash 924
Income receivable 35,254
TOTAL ASSETS 5,524,590
LIABILITIES:
Payable for auditing fees $ 25,274
Payable for portfolio accounting fees 15,211
Payable for daily variation margin 1,420
Unrealized depreciation on swap contracts 172,871
Accrued expenses 3,391
TOTAL LIABILITIES 218,167
Net assets for 500,010 shares outstanding $ 5,306,423
NET ASSETS CONSIST OF:
Paid-in capital $ 5,000,100
Net unrealized depreciation of investments, futures contracts and swap contracts (163,878 )
Accumulated net realized gain on investments and futures contracts 283,581
Undistributed net investment income 186,620
TOTAL NET ASSETS $ 5,306,423
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$5,306,423 {divide} 500,010 shares outstanding, no par value, unlimited shares authorized $10.61
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2006 (unaudited)
INVESTMENT INCOME:
Dividends received from affiliated issuers (Note 5) $ 5,233
Interest 130,077
TOTAL INCOME 135,310
EXPENSES:
Administrative personnel and services fee (Note 5) $ 74,384
Custodian fees 3,614
Transfer and dividend disbursing agent fees and expenses 6,561
Auditing fees 8,378
Legal fees 2,677
Portfolio accounting fees 22,522
Insurance premiums 3,569
Taxes 12,397
Miscellaneous 148
TOTAL EXPENSES 134,250
WAIVER AND REIMBURSEMENT (NOTE 5):
Waiver of administrative personnel and services fee $ (74,384 )
Reimbursement of other operating expenses (58,545 )
TOTAL WAIVER AND REIMBURSEMENT (132,929 )
Net expenses 1,321
Net investment income 133,989
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS
AND SWAP CONTRACTS:
Net realized gain on investments 279,305
Net realized loss on futures contracts (11,269 )
Net change in unrealized depreciation of investments 6,098
Net change in unrealized depreciation on futures contracts 10,824
Net change in unrealized appreciation on swap contracts (272,771 )
Net realized and unrealized gain on investments, futures contracts and 12,187
swap contracts
Change in net assets resulting from operations $ 146,176
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS 1
ENDED PERIOD
(unaudited) ENDED
6/30/2006 12/31/2005
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 133,989 $ 52,631
Net realized gain on investments and futures contracts 268,036 15,545
Net change in unrealized appreciation/depreciation of investments, future contracts (255,849) 91,971
and swap contracts
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 146,176 160,147
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 146,176 5,160,247
NET ASSETS:
Beginning of period 5,160,247 -
End of period (including undistributed net investment income of $186,620 and $52,631, $ 5,306,423 $ 5,160,247
respectively)
1 Reflects operations for the period from October 4, 2005 (date of initial
public investment) to December 31, 2005.
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
June 30, 2006 (unaudited)
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, which approximates fair market value. 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 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 Fund's
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, gain, 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 six months ended
June 30, 2006, 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
six months ended June 30, 2006, the Fund had net realized losses of $(11,269) on
future 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 either (a) cannot be offered for
public sale without first being registered, or being able to take advantage of
an exemption from registration, under the Securities Act of 1933; or (b) are
subject to contractual restrictions on public sales. In some cases, when a
security cannot be offered for public sale without first being registered, the
issuer of the restricted security 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 such restricted
securities may be resold in the secondary market in transactions exempt from
registration. Restricted securities may be determined to be liquid under
criteria established by the Directors. The Fund will not incur any registration
costs upon such resales. The Fund's restricted securities are valued at the
price provided by dealers in the secondary market or, if no market prices are
available, at the fair value as determined in accordance with procedures
established by and under the general supervision of the Directors.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts of assets,
liabilities, expenses and revenues reported in the financial statements. Actual
results could differ from those estimated.
OTHER
Investment transactions are accounted for on a trade date basis. 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 PERIOD ENDED
6/30/2006 12/31/2005 1
Proceeds from contributions - 500,020
Fair value withdrawals - (10)
TOTAL CHANGE RESULTING FROM
CONTRIBUTIONS/WITHDRAWALS - 500,010
1 Reflects operations for the period from October 4, 2005 (date of initial
public investment) to December 31, 2005.
4. FEDERAL TAX INFORMATION
At June 30, 2006, the cost of investments for federal tax purposes was
$5,485,190. The net unrealized appreciation of investments for federal tax
purposes excluding any unrealized appreciation/depreciation from futures
contracts and swap contracts was $3,222. This consists of net unrealized
appreciation from investments for those securities having an excess of value
over cost of $12,103 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $8,881.
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 voluntary reimbursement at any time at its sole
discretion. During the six months ended June 30, 2006, the Adviser voluntarily
reimbursed $58,545 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 six months ended June 30, 2006, the net fee paid to FASI was
0.000% 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.
TRANSACTION 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 six months ended
June 30, 2006, are as follows:
AFFILIATES BALANCE OF SHARES HELD PURCHASES/ SALES/ BALANCE OF SHARES HELD VALUE DIVIDEND
12/31/2005 ADDITIONS REDUCTIONS 6/30/2006 INCOME
High Yield Bond 23,497 779 18,688 5,588 $37,101 $5,233
Portfolio
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government
securities and short-term obligations, for the six months ended June 30, 2006,
were as follows:
Purchases $ 10,648,214
Sales $ 9,919,280
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
MARKET PLUS CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings
held in May 2006. The Board's decision to approve the contract reflects the
exercise of its business judgment on whether to authorize the creation and
offering of this new investment vehicle, as proposed by, and based on
information provided by, the Federated organization, and based on Federated's
recommendation to go forward with development of the Fund. 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 the anticipated compensation and
benefits to be received by the Adviser. This includes fees to be received for
services provided to the Fund by other entities in the Federated organization
and research services that may be received by the Adviser from brokers that
execute 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 working with Federated on matters relating to other
Federated funds, and was assisted in its deliberations by the advice of
independent legal counsel. 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, revenue, profitability, personnel and processes; investment and
operating strategies; the Fund's investment objectives; the Fund's overall
expense structure; the nature, quality and extent of the advisory and other
services to be 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.
Because the Adviser does not charge the Fund an investment advisory fee the
Fund's Board does not consider fee comparisons to other mutual funds or other
institutional or separate accounts to be relevant. Because the Board was
considering the advisory contract in the context of Federated's proposal to
create a new fund, the factors mentioned above relating to such matters as any
indirect benefits that may accrue to the Adviser and its affiliates as a result
of the Adviser's relationship with the Fund, are essentially impossible to apply
before the Fund has experienced any meaningful operating history. Nevertheless,
in connection with the Board's governance of other Federated funds, it should be
noted that the Board regularly receives financial information about Federated,
including reports on the compensation and benefits Federated derives from its
relationships with the other Federated funds. These reports cover not only the
fees under the advisory contracts, but also 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 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. In order for a fund to be
competitive in the marketplace, Federated and its affiliates frequently waive
fees and/or reimburse 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 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. As noted, not all of the factors and considerations
identified above were 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 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, based upon the information requested and supplied,
Federated's proposal to establish and manage the Fund, and its past performance
and actions in providing services to other mutual funds, provide a satisfactory
basis to support the business decision to approve the proposed 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.
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 31409R300
35316 (8/06)
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 August 21, 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 August 21, 2006
By /S/ Richard A. Novak
Richard A. Novak, Principal Financial Officer
Date August 21, 2006