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
(Address of Principal Executive Offices)
(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: 11/30/07
Date of Reporting Period: Six months ended 5/31/07
ITEM 1. REPORTS TO STOCKHOLDERS
CAPITAL APPRECIATION CORE FUND
A Portfolio of Federated Core Trust II, L.P.
SEMI-ANNUAL SHAREHOLDER REPORT
May 31, 2007
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 PERIOD
ENDED NOVEMBER 30, ENDED
(unaudited)
5/31/2007 2006 2005 2004 11/30/2003 1
NET ASSET VALUE, BEGINNING OF PERIOD $13.95 $11.95 $11.21 $10.14 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.26 0.24 0.22 2 0.25 0.01
Net realized and unrealized gain on 1.54 1.76 0.52 0.82 0.13
investments
TOTAL FROM INVESTMENT OPERATIONS 1.80 2.00 0.74 1.07 0.14
NET ASSET VALUE, END OF PERIOD $15.75 $13.95 $11.95 $11.21 $10.14
TOTAL RETURN3 12.90 % 16.74 % 6.60 % 10.55 % 1.40 %
RATIOS TO AVERAGE NET ASSETS:
Net expenses 0.05 %4,5 0.05 %5 0.05 %5 0.05 % 0.05 %4
Net investment income 1.72 %4 1.90 % 1.89 % 2.09 % 2.21 %4
Expense waiver/reimbursement6 0.15 %4 0.14 % 0.11 % 0.08 % 0.49 %4
SUPPLEMENTAL DATA:
Net assets, end of period (000 $152,443 $152,042 $162,139 $197,818 $185,555
omitted)
Portfolio turnover 72 % 137 % 51 % 55 % 8 %
1 Reflects operations for the period from October 28, 2003 (date of initial
investment) to November 30, 2003.
2 Per share numbers have been calculated using the average shares method.
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 are not annualized.
4 Computed on an annualized basis.
5 The net expense ratio is calculated without reduction for fees paid indirectly
for directed brokerage arrangements. The net expense ratios for the six months
ended May 31, 2007 and for the years ended November 30, 2006 and 2005 are
0.04%, 0.04% 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.
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, 2006 to May 31, 2007.
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
12/1/2006 5/31/2007
ACTUAL $1,000 $1,129.00 $0.27
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, 2007, the Fund's sector composition1 was as follows:
SECTOR PERCENTAGE OF
TOTAL NET ASSETS
Financials 17.0%
Health Care 15.7%
Consumer Staples 14.0%
Information Technology 13.0%
Energy 10.0%
Consumer Discretionary 8.2%
Industrials 8.0%
Materials 3.8%
Telecommunication Services 3.8%
Utilities 3.1%
Cash Equivalents2 4.7%
Other Assets and Liabilities - Net3 (1.3)%
TOTAL 100.0%
1 Except for Cash Equivalents and Other Assets and Liabilities, 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, 2007 (unaudited)
SHARES VALUE
COMMON STOCKS-96.6%
CONSUMER DISCRETIONARY-8.2%
29,000 1 Chicos Fas, Inc. $ 789,960
44,700 Family Dollar Stores, Inc. 1,504,155
67,900 McDonald's Corp. 3,432,345
27,100 TJX Cos., Inc. 757,987
53,100 Target Corp. 3,315,033
127,500 Time Warner, Inc. 2,724,675
TOTAL 12,524,155
CONSUMER STAPLES-14.0%
40,900 Altria Group, Inc. 2,907,990
28,100 Coca-Cola Co. 1,489,019
26,700 Diageo PLC, ADR 2,279,913
60,500 Kellogg Co. 3,265,790
86,772 Kraft Foods, Inc., Class A 2,936,365
46,700 Procter & Gamble Co. 2,967,785
93,100 Unilever N.V., ADR 2,774,380
56,800 Wal-Mart Stores, Inc. 2,703,680
TOTAL 21,324,922
ENERGY-10.0%
28,600 Baker Hughes, Inc. 2,358,928
43,264 Exxon Mobil Corp. 3,598,267
19,700 1 Newfield Exploration Co. 946,388
20,200 Total SA, Class B, ADR 1,524,090
15,600 1 Transocean Sedco Forex, Inc. 1,532,544
50,500 1 Weatherford International Ltd. 2,744,170
45,000 XTO Energy, Inc. 2,610,450
TOTAL 15,314,837
FINANCIALS-17.0%
37,900 Ace Ltd. 2,333,503
78,016 American International Group, Inc. 5,643,677
25,000 CIT Group, Inc. 1,498,250
67,900 Citigroup, Inc. 3,699,871
28,100 Merrill Lynch & Co., Inc. 2,605,713
32,100 Morgan Stanley 2,729,784
19,100 Prudential Financial, Inc. 1,948,582
71,800 U.S. Bancorp 2,482,844
54,700 Wachovia Corp. 2,964,193
TOTAL 25,906,417
HEALTH CARE-15.7%
60,300 Abbott Laboratories 3,397,905
22,300 Bristol-Myers Squibb Co. 675,913
39,500 Cardinal Health, Inc. 2,862,170
32,600 1 Cephalon, Inc. 2,706,126
12,400 1 Express Scripts, Inc., Class A 1,266,040
29,000 1 Genentech, Inc. 2,313,330
23,000 Johnson & Johnson 1,455,210
73,200 Merck & Co., Inc. 3,839,340
29,700 Shire PLC, ADR 2,071,575
56,800 Wyeth 3,285,312
TOTAL 23,872,921
INDUSTRIALS-8.0%
15,348 1 Foster Wheeler Ltd. 1,589,132
99,600 General Electric Co. 3,742,968
41,400 Northrop Grumman Corp. 3,130,254
10,800 United Technologies Corp. 761,940
75,700 Waste Management, Inc. 2,927,319
TOTAL 12,151,613
INFORMATION TECHNOLOGY-13.0%
42,100 1 Amdocs Ltd. 1,636,427
143,100 1 Cisco Systems, Inc. 3,852,252
141,000 1 Corning, Inc. 3,525,000
130,100 EMC Corp. Mass 2,197,389
2,500 1 Google, Inc. 1,244,375
16,700 IBM Corp. 1,780,220
62,800 Intel Corp. 1,392,276
43,500 Maxim Integrated Products, Inc. 1,337,625
91,900 Microsoft Corp. 2,818,573
TOTAL 19,784,137
MATERIALS-3.8%
87,300 Alcoa, Inc. 3,603,744
10,800 Praxair, Inc. 735,372
5,200 Rio Tinto PLC, ADR 1,523,340
TOTAL 5,862,456
TELECOMMUNICATION SERVICES-3.8%
82,700 AT&T, Inc. 3,418,818
32,700 Sprint Nextel Corp. 747,195
37,300 Verizon Communications 1,623,669
TOTAL 5,789,682
UTILITIES-3.1%
37,400 Consolidated Edison Co. 1,825,868
41,600 FirstEnergy Corp. 2,879,968
TOTAL 4,705,836
TOTAL COMMON STOCKS (IDENTIFIED COST $121,752,443) 147,236,976
MUTUAL FUND-4.7%
7,165,466 2,3 Prime Value Obligations Fund, Institutional Shares, 5.24% (AT NET ASSET VALUE) 7,165,466
TOTAL INVESTMENTS - 101.3% (IDENTIFIED COST $128,917,909)4 154,402,442
OTHER ASSETS AND LIABILITIES - NET - (1.3)% (1,959,268 )
TOTAL NET ASSETS - 100% $ 152,443,174
1 Non-income producing security.
2 7-Day net yield.
3 Affiliated company.
4 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of total net
assets at May 31, 2007.
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, 2007 (unaudited)
ASSETS:
Total investments in securities, at value including $7,165,466 of an investment in an $ 154,402,442
affiliated issuer (Note 5) (identified cost $128,917,909)
Income receivable 286,768
TOTAL ASSETS 154,689,210
LIABILITIES:
Payable for investments purchased $ 2,221,200
Payable for Directors'/Trustees' fees 149
Accrued expenses 24,687
TOTAL LIABILITIES 2,246,036
Net assets for 9,678,550 shares outstanding $ 152,443,174
NET ASSETS CONSIST OF:
Paid-in capital $ 76,350,098
Net unrealized appreciation of investments 25,484,533
Accumulated net realized gain on investments 38,464,482
Undistributed net investment income 12,144,061
TOTAL NET ASSETS $ 152,443,174
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE
$152,443,174 {divide} 9,678,550 shares outstanding, no par value, unlimited shares $15.75
authorized
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2007 (unaudited)
INVESTMENT INCOME:
Dividends (including $22,585 received from an affiliated issuer $ 1,256,429
(Note 5) and net of foreign taxes withheld of $8,887)
Interest 52,136
TOTAL INCOME 1,308,565
EXPENSES:
Administrative personnel and services fee (Note 5) $ 74,795
Custodian fees 8,692
Transfer and dividend disbursing agent fees and expenses 7,375
Directors'/Trustees' fees 2,667
Auditing fees 9,755
Legal fees 4,930
Portfolio accounting fees 26,480
Insurance premiums 2,741
Taxes 12,500
Miscellaneous 1,544
TOTAL EXPENSES 151,479
WAIVER, REIMBURSEMENT AND EXPENSE REDUCTION (NOTE 5):
Waiver of administrative personnel and services fee $ (74,795 )
Reimbursement of other operating expenses (36,066 )
Fees paid indirectly from directed brokerage arrangements (6,520 )
TOTAL WAIVER, REIMBURSEMENT AND EXPENSE REDUCTION (117,381 )
Net expenses 34,098
Net investment income 1,274,467
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments 13,882,545
Net change in unrealized appreciation of investments 2,844,276
Net realized and unrealized gain on investments 16,726,821
Change in net assets resulting from operations $ 18,001,288
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
(unaudited) 11/30/2006
MAY 31, 2007
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 1,274,467 $ 2,904,331
Net realized gain on investments 13,882,545 15,254,940
Net change in unrealized appreciation/depreciation of investments 2,844,276 5,143,798
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 18,001,288 23,303,069
SHARE TRANSACTIONS:
Contributions 700,000 -
Withdrawals (18,300,000 ) (33,400,000 )
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (17,600,000 ) (33,400,000 )
Change in net assets 401,288 (10,096,931 )
NET ASSETS:
Beginning of period 152,041,886 162,138,817
End of period (including undistributed net investment income of $12,144,061 and $ 152,443,174 $ 152,041,886
$10,869,594, respectively)
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
May 31, 2007 (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. Each portfolio pays its
own expenses. 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
Market values of the Fund's portfolio securities are determined as follows:
{circle}for equity securities, according to the last sale price or official
closing price reported in the market in which they are primarily traded
(either a national securities exchange or the over-the-counter market), if
available;
{circle}in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
{circle}for investments in other open-end registered investment companies,
based on net asset value (NAV);
{circle}futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board of
Directors (the "Directors") may determine in good faith that another method
of valuing such investments is necessary to appraise their fair market
value;
{circle}prices for total return swaps are based upon a valuation model
determined by management incorporating underlying reference indexes,
interest rates, yield curves and other market data or factors; prices for
credit default swaps are furnished by an independent pricing service and
are based upon a valuation model incorporating default probabilities,
recovery rates and other market data or factors; prices for interest rate
swaps are furnished by an independent pricing service and are based upon a
valuation model incorporating interest rates, yield curves and other market
data or factors;
{circle}for fixed-income securities, according to prices as furnished by an
independent pricing service, except that fixed-income securities with
remaining maturities of less than 60 days at the time of purchase are
valued at amortized cost; and
{circle}for all other securities at fair value as determined in accordance
with procedures established by and under the general supervision of the
Directors.
Prices for fixed-income securities furnished by a pricing service may be based
on a valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Such prices are generally intended to be
indicative of the bid prices currently offered to institutional investors for
the securities, except that prices for corporate fixed-income securities traded
in the United States are generally intended to be indicative of the mean between
such bid prices and asked prices. The Directors have approved the use of such
pricing services. A number of pricing services are available, and the Fund may
use various pricing services or discontinue the use of any pricing service.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities using the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE. Certain
foreign currency exchange rates are generally determined at the latest rate
prior to the closing of the NYSE. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at current rates. Events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Directors, although the actual
calculation is done by others under the direction of Fund management. An event
is considered material if there is both an affirmative expectation that the
security's value will change in response to the event and a reasonable basis for
quantifying the resulting change in value.
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. Foreign dividends are recorded on the ex-dividend date or
when the Fund is informed of the ex-dividend date. Non-cash dividends included
in dividend income, if any, are recorded at fair value. All net income and
gain/loss (realized and unrealized) will be allocated daily to the shareholders
based on their capital contributions to the Fund. The Fund does not currently
intend to declare and pay distributions.
PREMIUM AND DISCOUNT AMORTIZATION
All premiums and discounts on fixed-income securities are amortized/accreted for
financial statements 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.
Withholding taxes and where appropriate, deferred withholding taxes on foreign
interest, dividends and capital gains have been provided for in accordance with
the applicable country's tax rules and rates.
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 ENDED
5/31/2007 11/30/2006
Contributions 50,444 -
Withdrawals (1,271,056 ) (2,663,980)
TOTAL CHANGE RESULTING FROM CONTRIBUTIONS/WITHDRAWALS (1,220,612 ) (2,663,980)
4. FEDERAL TAX INFORMATION
At May 31, 2007, the cost of investments for federal tax purposes was
$128,917,909. The net unrealized appreciation of investments for federal tax
purposes was $25,484,533. This consists of net unrealized appreciation from
investments for those securities having an excess of value over cost of
$26,082,711 and net unrealized depreciation from investments for those
securities having an excess of cost over value of $598,178.
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. For
the six months ended May 31, 2007, the Adviser voluntarily reimbursed $36,066 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:
ADMINISTRATIVE FEE AVERAGE AGGREGATE DAILY NET ASSETS
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, 2007, FASI voluntarily waived its
entire fee.
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, 2007, the Fund's
expenses were reduced by $6,520 under these arrangements.
GENERAL
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
TRANSACTIONS WITH AFFILIATED COMPANIES
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 affiliated
mutual funds. For the six months ended May 31, 2007, the Adviser was not
required to reimburse any investment adviser fees. Transactions with the
affiliated company during the six months ended May 31, 2007 are as follows:
AFFILIATE BALANCE OF PURCHASES/ SALES/ BALANCE OF SHARES HELD VALUE DIVIDEND
SHARES HELD ADDITIONS REDUCTIONS 5/31/2007 INCOME
11/30/2006
Prime Value Obligations 30,347,872 $22,585
Fund, Institutional Shares - 23,182,406 7,165,466 $7,165,466
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, 2007,
were as follows:
Purchases $ 103,549,045
Sales $ 121,290,595
7. LINE OF CREDIT
The Fund participates in a $150,000,000 unsecured, uncommitted revolving line of
credit (LOC) agreement with PNC Bank. The LOC was made available for
extraordinary or emergency purposes, primarily for financing redemption
payments. Borrowings are charged interest at a rate of 0.65% over the federal
funds rate. As of May 31, 2007, there were no outstanding loans. During the six
months ended May 31, 2007, the Fund did not utilize the LOC.
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.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken in the course of preparing the Fund's tax
returns to determine whether the tax positions are "more-likely-than-not" of
being sustained by the applicable tax authority. Tax benefits of positions not
deemed to meet the more-likely-than-not threshold would be recorded as a tax
expense in the current year. Adoption of FIN 48 is required for fiscal years
beginning after December 15, 2006. Recent SEC guidance allows implementing FIN
48 in fund NAV calculations as late as a fund's last NAV calculation in the
first required financial statement reporting period. As a result, the Fund will
adopt FIN 48 no later than May 30, 2008. At this time, management is evaluating
the implications of FIN 48 and its impact in the financial statements has not
yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of FAS 157 will have on the Fund's financial statement disclosures.
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
CAPITAL APPRECIATION CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings
held in May 2007. 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.
The Federated funds had previously appointed 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 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. The Board considered
that evaluation, 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 and considered 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 what might be viewed as 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 factors and was guided by them in its
review of the Fund's advisory contract to the extent it considered them to be
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 and accompany 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); and the nature, quality and extent of
the advisory and other services provided to the Fund by the Adviser and its
affiliates. The Board also considered 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 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.
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. In addition,
the Board considered the fact that, 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 disclosed to fund investors and/or
indicated to the Board their intention to do so in the future, where
appropriate.
The Board and the Senior Officer also reviewed a report compiled by Federated
comparing profitability information for Federated to other publicly held fund
management companies. In this regard, the Senior Officer noted the limited
availability of such information, but nonetheless concluded that Federated's
profit margins did not appear to be excessive and the Board agreed.
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 necessarily relevant to the 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 through Federated's website. Go to
FederatedInvestors.com, select "Products," select the "Prospectuses and
Regulatory Reports" link, then select the Fund to access the link to Form N-PX.
This information is also available from the EDGAR database on the SEC's website
at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
These filings are available on the SEC's website at www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.)
You may also access this information from the "Products" section of Federated's
website at FederatedInvestors.com by clicking on "Portfolio Holdings" and
selecting the name of the Fund, or by selecting the name of the Fund and
clicking on "Portfolio Holdings." You must register on the website the first
time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
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 (7/07)
EMERGING MARKETS FIXED INCOME CORE FUND
A PORTFOLIO OF FEDERATED CORE TRUST II, L.P.
SEMI-ANNUAL SHAREHOLDER REPORT
May 31, 2007
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)
5/31/2007 2006 2005 2004 2003 1
11/30/2002
NET ASSET VALUE, $20.69 $18.08 $15.91 $14.39 $10.98 $10.00
BEGINNING OF PERIOD
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment income 0.75 2 1.34 2 1.29 2 0.91 0.85 0.83
Net realized and 0.59 1.27 0.88 0.61 2.56 0.15
unrealized gain on
investments, options,
futures contracts,
swap contracts and
foreign currency
transactions
TOTAL FROM 1.34 2.61 2.17 1.52 3.41 0.98
INVESTMENT
OPERATIONS
NET ASSET VALUE, END $22.03 $20.69 $18.08 $15.91 $14.39 $10.98
OF PERIOD
TOTAL RETURN3 6.48 % 14.44 % 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 % 0.05 %4
Net investment income 7.02 %4 6.94 % 7.54 % 7.80 % 8.85 % 10.58 %4
Expense 0.09 %4 0.09 % 0.08 % 0.21 % 0.23 % 0.42 %4
waiver/reimbursement5
SUPPLEMENTAL DATA:
Net assets, end of $422,956 $422,057 $350,521 $146,778 $131,056 $80,515
period (000 omitted)
Portfolio turnover 26 % 75 % 23 % 54 % 97 % 178 %
1 Reflects operations for the period from January 14, 2002 (date of initial
investment) to November 30, 2002.
2 Per share numbers have been calculated using the average shares method.
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 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, 2006 to May 31, 2007.
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
12/1/2006 5/31/2007
ACTUAL $1,000 $1,064.80 $0.26
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, 2007, the Fund's issuer country and currency exposure composition1
were as follows:
COUNTRY COUNTRY EXPOSURE AS A PERCENTAGE OF TOTAL NET CURRENCY EXPOSURE AS A PERCENTAGE OF TOTAL NET
ASSETS ASSETS
Brazil 20.5% 7.3%
Mexico 14.0% 2.1%
Russia 13.0% 0.9%
Turkey 7.9% 1.4%
Philippines 7.8% 0.0%
Colombia 4.4% 0.0%
Peru 3.9% 0.0%
Argentina 3.8% 0.0%
Venezuela 3.6% 0.0%
Kazakhstan 1.9% 0.0%
Indonesia 1.8% 0.0%
Ecuador 1.7% 0.0%
Uruguay 1.6% 0.0%
El Salvador 0.9% 0.0%
Netherlands 0.9% 0.0%
Dominican Republic 0.5% 0.0%
Guatemala 0.5% 0.0%
Ukrainian SSR 0.2% 0.0%
United States 0.0% 77.2%
Cash Equivalents2 9.5% 9.5%
Other Assets and Liabilities - 1.6% 1.6%
Net3
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 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.
3 Assets, other than investments in securities, less liabilities. See Statement
of Assets and Liabilities.
PORTFOLIO OF INVESTMENTS
May 31, 2007 (unaudited)
SHARES OR PRINCIPAL VALUE IN
AMOUNT U.S. DOLLARS
CORPORATE BONDS-28.2%
AEROSPACE & DEFENSE-1.0%
$ 4,000,000 Embraer Overseas Ltd., Sr. Unsecd. Note, 6.375%, 1/24/2017 $ 4,022,500
BANKING-3.4%
4,100,000 2,3 Banco Credito del Peru, Sub. Note, Series 144A, 6.95%, 11/7/2021 4,121,274
1,200,000 2,3 Kazkommerts International BV, Company Guarantee, Series 144A, 8.00%, 1,203,600
11/3/2015
2,500,000 2,3 Turanalem Finance BV, Bank Guarantee, Series 144A, 8.50%, 2/10/2015 2,501,250
3,000,000 2,3 Turanalem Finance BV, Series 144A, 7.75%, 4/25/2013 2,949,000
3,500,000 2,3 VTB Capital SA, Bond, Series 144A, 6.25%, 6/30/2035 3,622,150
TOTAL 14,397,274
BROADCAST RADIO & TV - 1.1%
3,800,000 Grupo Televisa SA, Sr. Note, 8.50%, 3/11/2032 4,810,040
CABLE & WIRELESS TELEVISION-0.9%
3,588,592 Satelites Mexicanos SA, Sr. Note, 10.125%, 11/30/2013 3,624,478
CHEMICALS & PLASTICS-0.4%
1,250,000 Braskem SA, Series REGS, 11.75%, 1/22/2014 1,581,250
CONTAINER & GLASS PRODUCTS-1.9%
5,400,000 Vitro SA, Note, 11.75%, 11/1/2013 6,034,500
2,000,000 2,3 Vitro SA, Series 144A, 9.125%, 2/1/2017 2,107,500
TOTAL 8,142,000
FOOD PRODUCTS-0.5%
2,000,000 2,3 JBS SA, Company Guarantee, Series 144A, 10.50%, 8/4/2016 2,237,500
HOTELS, MOTELS, INNS & CASINOS-0.6%
2,500,000 2,3 Grupo Posadas SA de CV, Sr. Note, Series 144A, 8.75%, 10/4/2011 2,637,500
LEISURE & ENTERTAINMENT-0.5%
2,000,000 2,3 Cap Cana SA, Series 144A, 9.625%, 11/3/2013 2,140,000
METALS & MINING-1.8%
3,350,000 2,3 Adaro Finance BV, Company Guarantee, Series 144A, 8.50%, 12/8/2010 3,517,500
3,850,000 Vale Overseas Ltd., 6.875%, 11/21/2036 3,960,688
TOTAL 7,478,188
OIL & GAS-9.0%
3,600,000 Bluewater Finance Ltd., Company Guarantee, 10.25%, 2/15/2012 3,780,000
10,850,000 2,3 Gaz Capital SA, Note, Series 144A, 8.625%, 4/28/2034 14,007,350
4,960,000 2,3 Gazprom, Note, Series 144A, 9.625%, 3/1/2013 5,836,432
2,750,000 2,3 Gazprom, Series 144A, 5.03%, 2/25/2014 3,627,920
7,180,000 2,3 Petrozuata Finance, Inc., Company Guarantee, Series 144A, 8.22%, 4/1/2017 7,323,600
1,420,000 2,3 Tengizchevroil LLP, Series 144A, 6.124%, 11/15/2014 1,413,752
2,000,000 2,3 Transportadora de Gas de Sur SA, Series 144A, 7.875%, 5/14/2017 1,985,000
TOTAL 37,974,054
SOVEREIGN-0.8%
3,050,000 United Mexican States, Series A, MTN, 6.75%, 9/27/2034 3,396,480
STEEL-1.6%
2,700,000 2,3 CSN Islands IX Corp., Sr. Note, Series 144A, 10.50%, 1/15/2015 3,206,250
3,200,000 2,3 CSN Islands VIII Corp., Company Guarantee, Series 144A, 9.75%, 12/16/2013 3,664,000
TOTAL 6,870,250
TELECOMMUNICATIONS & CELLULAR-3.5%
9,500,000 America Movil SAB de CV, Bond, 9.00%, 1/15/2016 930,090
791,000 Axtel SA, 11.00%, 12/15/2013 885,920
3,000,000 2,3 Mobile Telesystems, Series 144A, 8.375%, 10/14/2010 3,175,500
5,400,000 Philippine Long Distance Telephone Co., Sr. Unsub., 11.375%, 5/15/2012 6,635,250
3,000,000 Telefonos de Mexico, Note, Series WI, 5.50%, 1/27/2015 2,957,280
TOTAL 14,584,040
UTILITIES-1.2%
1,500,000 2,3 ISA Capital DO Brasil SA, Series 144A, 8.80%, 1/30/2017 1,618,125
3,200,000 2,3 National Power Corp., Foreign Gov't. Guarantee, Series 144A, 9.61%, 8/23/2011 3,616,000
TOTAL 5,234,125
TOTAL CORPORATE BONDS (IDENTIFIED COST $133,342,051) 119,129,679
GOVERNMENTS/AGENCIES-59.3%
SOVEREIGN-59.3%
2,000,000 Argentina, Government of, Note, 0.00%,12/15/2035 324,500
13,353,484 Argentina, Government of, Note, 8.28%, 12/31/2033 13,954,390
16,096 Brazil Nota Do Tesouro Nacional, Note, 6.00%, 5/15/2015 13,693,691
32,200 Brazil Nota Do Tesouro Nacional, Note, 10.00%, 1/1/2012 17,306,335
900,000 Brazil, Government of, 7.125%, 1/20/2037 1,018,800
21,104,000 Brazil, Government of, Bond, 8.25%, 1/20/2034 27,065,880
6,500,000 Brazil, Government of, Note, 8.00%, 1/15/2018 7,293,000
9,500,000 Colombia, Government of, 7.375%, 9/18/2037 10,635,250
4,600,000 Colombia, Government of, Bond, 8.125%, 5/21/2024 5,515,400
2,200,000 Colombia, Government of, Note, 7.375%, 1/27/2017 2,423,300
3,250,000 El Salvador, Government of, Bond, 8.25%, 4/10/2032 4,021,875
1,750,000 2,3 Guatemala, Government of, Note, Series 144A, 9.25%, 8/1/2013 2,035,250
3,200,000 2,3 Indonesia, Government of, Series 144A, 8.50%, 10/12/2035 3,968,000
84,299,900 Mexico, Government of, Bond, 8.00%, 12/19/2013 8,046,541
10,700,000 Mexico, Government of, Note, 4.625%, 10/8/2008 10,609,050
9,250,000 Peru, Government of, Bond, 8.75%, 11/21/2033 12,385,750
4,600,000 Philippines, Government of, 9.375%, 1/18/2017 5,692,500
3,250,000 Philippines, Government of, 9.875%, 1/15/2019 4,268,875
5,700,000 Philippines, Government of, Bond, 7.75%, 1/14/2031 6,498,000
3,000,000 Philippines, Government of, Bond, 9.50%, 10/21/2024 3,970,500
1,780,000 Philippines, Government of, Sr. Note, 9.50%, 2/2/2030 2,395,880
2,650,000 Republic of Ecuador, 9.375%, 12/15/2015 2,504,250
5,400,000 Republic of Ecuador, 10.00%, 8/15/2030 4,806,000
2,198,000 Republica Oriental del Uruguay, 7.625%, 3/21/2036 2,502,423
22,138,750 2,3 Russia, Government of, Unsub., Series 144A, 7.50%, 3/31/2030 24,824,180
21,915,000 Turkey, Government of, 6.875%, 3/17/2036 21,279,465
7,510,000 Turkey, Government of, 10.00%, 2/15/2012 6,049,326
5,650,000 Turkey, Government of, Note, 7.375%, 2/5/2025 5,890,125
600,000 Ukraine, Government of, Bond, 7.65%, 6/11/2013 651,090
6,000,000 United Mexican States, 7.50%, 4/8/2033 7,271,400
3,600,000 Uruguay, Government of, Note, 8.00%, 11/18/2022 4,208,400
7,750,000 Venezuela, Government of, Note, 7.65%, 4/21/2025 7,763,175
TOTAL GOVERNMENTS/AGENCIES (IDENTIFIED COST $212,808,798) 250,872,601
COMMON STOCKS-1.4%
TELECOMMUNICATIONS & CELLULAR-1.4%
8,000 Satelites Mexicanos SA de CV, Class INS (IDENTIFIED COST $4,960,000) 6,000,000
MUTUAL FUND-9.5%
40,336,468 4,5 Prime Value Obligations Fund, Institutional Shares, 5.24% (AT NET ASSET VALUE) 40,336,468
TOTAL INVESTMENTS-98.4% (IDENTIFIED COST $391,447,317)6 416,338,748
OTHER ASSETS AND LIABILITIES - NET-1.6% 6,617,006
TOTAL NET ASSETS-100% $ 422,955,754
1 Non-income producing security.
2 Denotes a restricted security 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) is subject
to a contractual restriction on public sales. At May 31, 2007, these restricted
securities amounted to $107,338,633, which represented 25.4% of total net
assets.
3 Denotes a restricted security that may be resold without restriction to
"qualified institutional buyers" as defined in Rule 144A under the Securities
Act of 1933 and that the Fund has determined to be liquid under criteria
established by the Fund's Board of Directors. At May 31, 2007, these liquid
restricted securities amounted to $107,338,633, which represented 25.4% of total
net assets.
4 7-Day net yield.
5 Affiliated company.
6 The cost of investments for federal tax purposes amounts to $391,159,606.
At May 31, 2007, the Fund had the following outstanding futures contracts:
DESCRIPTION NUMBER OF NOTIONAL VALUE EXPIRATION DATE UNREALIZED DEPRECIATION
CONTRACTS
1 U.S. Treasury Notes 10 Year Long 190 $20,211,250 September 2007 $(122,399)
Futures
At May 31, 2007, the Fund had the following open swap contracts:
CREDIT REFERENCE ENTITY BUY/SELL PAY/RECEIVE EXPIRATION DATE NOTIONAL AMOUNT UNREALIZED APPRECIATION/
DEFAULT SWAP FIXED RATE (DEPRECIATION)
COUNTERPARTY
JP Morgan Republic of Hungary 4.75%, Buy 0.300% 11/20/2011 $3,500,000 $(13,208)
Chase Bank 2/3/2015
N.A.
Goldman Sachs Bolivarian Republic of Venezuela Buy 0.850% 5/20/2008 $6,800,000 $20,872
International 9.25%, 9/15/2027
TOTAL SWAPS $7,664
Note: The categories of investments are shown as a percentage total of net
assets at May 31, 2007.
The following acronyms are used throughout this portfolio:
INS -Insured
MTN -Medium Term Note
See Notes which are an integral part of the Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2007 (unaudited)
ASSETS:
Total investments in securities, at value, including $40,336,468 of an investment in $ 416,338,748
an affiliated issuer (Note 5) (identified cost $391,447,317)
Cash denominated in foreign currencies (identified cost $1,088,047) 1,113,181
Cash 2,216,355
Net receivable for swap contracts 2,826
Income receivable 5,345,356
TOTAL ASSETS 425,016,466
LIABILITIES :
Payable for investments purchased $ 2,000,000
Payable for daily variation margin 20,781
Accrued expenses 39,931
TOTAL LIABILITIES 2,060,712
Net assets for 19,199,503 shares outstanding $ 422,955,754
NET ASSETS CONSIST OF:
Paid-in capital $ 268,034,916
Net unrealized appreciation of investments, futures contracts, swap contracts and 24,808,257
translation of assets and liabilities in foreign currency
Accumulated net realized gain on investments, swap contracts, futures contracts and 45,138,703
foreign currency transactions
Undistributed net investment income 84,973,878
TOTAL NET ASSETS $ 422,955,754
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE
$422,955,754 {divide} 19,199,503 shares outstanding $22.03
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Six Months Ended May 31, 2007 (unaudited)
INVESTMENT INCOME:
Interest $ 14,867,427
Dividends received from affiliated issuers (Note 5) 306,632
TOTAL INCOME 15,174,059
EXPENSES:
Administrative personnel and services fee (Note 5) $ 169,997
Custodian fees 54,585
Transfer and dividend disbursing agent fees and expenses 7,671
Directors'/Trustees' fees 3,557
Auditing fees 15,739
Legal fees 5,003
Portfolio accounting fees 38,329
Insurance premiums 3,246
Miscellaneous 2,252
TOTAL EXPENSES 300,379
WAIVER AND REIMBURSEMENT (NOTE 5):
Waiver of administrative personnel and services fee $ (169,997 )
Reimbursement of other operating expenses (12,598 )
TOTAL WAIVER AND REIMBURSEMENT (182,595 )
Net expenses 117,784
Net investment income 15,056,275
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS, SWAP CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments and foreign currency transactions 10,963,182
Net realized gain on futures contracts 11,682
Net realized gain on swap contracts 48,251
Net change in unrealized appreciation of investments and 620,401
translation of assets and liabilities in foreign currency
Net change in unrealized depreciation on futures contracts (122,399 )
Net change in unrealized depreciation on swap contracts 17,950
Net realized and unrealized gain on investments, futures contracts, 11,539,067
swap contracts and translation of assets and liabilities in foreign
currency
Change in net assets resulting from operations $ 26,595,342
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
(unaudited) 11/30/2006
5/31/2007
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 15,056,275 $ 25,555,253 1
Net realized gain on investments, futures contracts, swap contracts and foreign 11,023,115 13,124,822
currency transactions
Net change in unrealized appreciation/depreciation of investments, futures 515,952 9,438,522 1
contracts, swap contracts and translation of assets and liabilities in foreign
currency
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 26,595,342 48,118,597
SHARE TRANSACTIONS:
Contributions 39,622,000 130,984,000
Withdrawals (65,319,000 ) (107,566,000 )
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (25,697,000 ) 23,418,000
Change in net assets 893,342 71,536,597
NET ASSETS:
Beginning of period 422,057,412 350,520,815
End of period (including undistributed net investment income of $84,973,878 and $ 422,955,754 $ 422,057,412
$69,917,603, respectively)
1 Due to a misclassification previously reported, the Fund reclassified discount
accretion/premium amortization on long-term debt securities for the year ended
November 30, 2006, to allow proper comparison from year to year. Net assets were
not affected by this reclassification.
See Notes which are an integral part of the Financial Statements
NOTES TO FINANCIAL STATEMENTS
May 31, 2007 (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.
Each portfolio pays its own expenses. The Fund's primary investment objective is
to achieve 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
Market values of the Fund's portfolio securities are determined as follows:
{circle}for mortgage-backed securities, based on the aggregate investment
value of the projected cash flows to be generated by the security, as
furnished by an independent pricing service;
{circle}for other fixed-income securities, according to prices as furnished
by an independent pricing service, except that fixed-income securities
with remaining maturities of less than 60 days at the time of purchase are
valued at amortized cost;
{circle}for investments in other open-end registered investment companies,
based on net asset value (NAV);
{circle}for equity securities, according to the last sale price or official
closing price reported in the market in which they are primarily traded
(either a national securities exchange or the over-the-counter market), if
available;
{circle}in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
{circle}futures contracts and options are generally valued at market values
established by the exchanges on which they are traded at the close of
trading on such exchanges. Options traded in the over-the-counter market
are generally valued according to the mean between the last bid and the
last asked price for the option as provided by an investment dealer or
other financial institution that deals in the option. The Board of
Directors (the "Directors") may determine in good faith that another
method of valuing such investments is necessary to appraise their fair
market value;
{circle}prices for total return swaps are based upon a valuation model
determined by management incorporating underlying reference indexes,
interest rates, yield curves and other market data or factors; prices for
credit default swaps are furnished by an independent pricing service and
are based upon a valuation model incorporating default probabilities,
recovery rates and other market data or factors; prices for interest rate
swaps are furnished by an independent pricing service and are based upon a
valuation model incorporating interest rates, yield curves and other
market data or factors; and
{circle}for all other securities at fair value as determined in accordance
with procedures established by and under the general supervision of the
Directors.
Prices for fixed-income securities furnished by a pricing service may be based
on a valuation matrix which incorporates both dealer-supplied valuations and
electronic data processing techniques. Such prices (other than prices of
mortgage-backed securities) are generally intended to be indicative of the bid
prices currently offered to institutional investors for the securities, except
that prices for corporate fixed-income and asset-backed securities traded in the
United States are generally intended to be indicative of the mean between such
bid prices and asked prices. The Directors have approved the use of such pricing
services. A number of pricing services are available, and the Fund may use
various pricing services or discontinue the use of any pricing service.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities using the latest closing price on the exchange on
which they are traded immediately prior to the closing of the NYSE. Certain
foreign currency exchange rates are generally determined at the latest rate
prior to the closing of the NYSE. Foreign securities quoted in foreign
currencies are translated into U.S. dollars at current rates. Events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Directors, although the actual
calculation is done by others under the direction of Fund management. An event
is considered material if there is both an affirmative expectation that the
security's value will change in response to the event and a reasonable basis for
quantifying the resulting change in value.
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. All net income and gain/loss
(realized and unrealized) will be allocated daily based on their capital
contributions to the Fund. The Fund does not currently intend to declare and pay
distributions.
PREMIUM AND DISCOUNT AMORTIZATION
All premiums and discounts on fixed-income securities are amortized/accreted for
financial statement purposes.
FEDERAL TAXES
As a partnership, the Fund is not subject to U.S. federal income tax. Instead,
each investor reports separately on its own federal income tax return its
allocated portion of the Fund's income, gains, losses, deductions and credits
(including foreign tax credits for creditable foreign taxes imposed on the
Fund).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date. Losses may occur on these transactions due to changes in market
conditions or the failure of counterparties to perform under the contract.
SWAP CONTRACTS
Swap contracts involve two parties that agree to exchange the returns (or the
differential in rates of return) earned or realized on particular predetermined
investments, instruments, indices or other measures. The gross returns to be
exchanged or "swapped" between parties are generally calculated with respect to
a "notional amount" for a predetermined period of time. The Fund may enter into
interest rate, total return, credit default, foreign exchange and other swap
agreements. Total return swap agreements involve the commitment to pay or
receive an amount generally determined by reference to an interest rate in
exchange for a specific market-linked return, based on notional amounts. To the
extent that the total return of the security or index underlying the
transactions exceeds or falls short of the offsetting interest rate based
obligation, the Fund receives or makes a payment to the counterparty. The
"buyer" in a credit default swap is obligated to pay the "seller" a periodic
stream of payments over the term of the contract provided that no event of
default on an underlying reference obligation has occurred. If an event of
default occurs, the seller must pay the buyer the full notional value, or the
"par value", of the reference obligation in exchange for the reference
obligation. The Fund may be either the buyer or seller in a credit default swap
transaction. The maximum amount of the payment that may occur, as a result of a
credit event payable by the protection seller, is equal to the notional amount
of the underlying index or security. Risks may arise upon entering into swap
agreements from the potential inability of the counterparties to meet the terms
of their contract from unanticipated changes in the value of the swap agreement.
Upfront payments received or paid by the Fund will be reflected as an asset or
liability on the Statement of Assets and Liabilities. Changes in the value of
swap contracts are included in Net receivable for swap contracts on the
Statement of Assets and Liabilities, and periodic payments are reported as Net
realized gain on swap contracts in the Statement of Operations.
Swap contracts outstanding at period end are listed after the Fund's portfolio
of investments.
FUTURES CONTRACTS
The Fund purchases and sells bond interest rate futures contracts to manage
cashflows, enhance yield, and to potentially reduce transaction 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, 2007, the Fund had net realized gains on futures
contracts of $11,682.
Futures contracts outstanding at period end 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, 2007, 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 rates 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 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 YEAR ENDED
ENDED 11/30/2006
5/31/2007
Proceeds from contributions 1,873,734 6,720,393
Fair value of withdrawals (3,068,587 ) (5,711,452 )
TOTAL CHANGE RESULTING FROM CONTRIBUTIONS/WITHDRAWALS (1,194,853 ) 1,008,941
4. FEDERAL TAX INFORMATION
At May 31, 2007, the cost of investments for federal tax purposes was
$391,159,606. The net unrealized appreciation of investments for federal tax
purposes excluding any unrealized appreciation resulting from changes in foreign
currency exchange rates, futures contracts and swap contracts was $25,179,142.
This consists of net unrealized appreciation from investments for those
securities having an excess of value over cost of $26,559,705 and net unrealized
depreciation from investments for those securities having an excess of cost over
value of $1,380,563.
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 reimbursement at any time at its sole discretion. For the six
months ended May 31, 2007, the Adviser voluntarily reimbursed $12,598 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:
ADMINISTRATIVE FEE AVERAGE AGGREGATE DAILY NET ASSETS 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, 2007, FASI waived its entire fee.
GENERAL
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
TRANSACTIONS WITH AFFILIATED COMPANIES
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 affiliated
mutual funds. For the six months ended May 31, 2007, the Adviser was not
required to reimburse any investment adviser fees. Transactions with the
affiliated company during the six months ended May 31, 2007, are as follows:
AFFILIATES BALANCE OF SHARES PURCHASES/ SALES/ BALANCE OF VALUE DIVIDEND
HELD 11/30/2006 ADDITIONS REDUCTIONS SHARES HELD INCOME
5/31/2007
Prime Value Obligations Fund, - 148,542,287 108,205,819 40,336,468 $40,336,468 $306,632
Institutional Shares
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, 2007,
were as follows:
Purchases $ 102,102,965
Sales $ 114,338,041
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. 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.
9. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken in the course of preparing the Fund's tax
returns to determine whether the tax positions are "more-likely-than-not" of
being sustained by the applicable tax authority. Tax benefits of positions not
deemed to meet the more-likely-than-not threshold would be recorded as a tax
expense in the current year. Adoption of FIN 48 is required for fiscal years
beginning after December 15, 2006. Recent SEC guidance allows implementing FIN
48 in fund NAV calculations as late as a fund's last NAV calculation in the
first required financial statement reporting period. As a result, the Fund will
adopt FIN 48 no later than May 30, 2008. At this time, management is evaluating
the implications of FIN 48 and its impact in the financial statements has not
yet been determined.
In addition, in September 2006, FASB released Statement on Financial Accounting
Standards No. 157, "Fair Value Measurements" (FAS 157) which is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the impact the
adoption of FAS 157 will have on the Fund's financial statement disclosures.
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
EMERGING MARKETS FIXED INCOME CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings
held in May 2007. 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.
The Federated funds had previously appointed 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 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. The Board considered
that evaluation, 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 and considered 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 what might be viewed as 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 factors and was guided by them in its
review of the Fund's advisory contract to the extent it considered them to be
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 and accompany 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); and the nature, quality and extent of
the advisory and other services provided to the Fund by the Adviser and its
affiliates. The Board also considered 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 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.
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. In addition,
the Board considered the fact that, 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 disclosed to fund investors and/or
indicated to the Board their intention to do so in the future, where
appropriate.
The Board and the Senior Officer also reviewed a report compiled by Federated
comparing profitability information for Federated to other publicly held fund
management companies. In this regard, the Senior Officer noted the limited
availability of such information, but nonetheless concluded that Federated's
profit margins did not appear to be excessive and the Board agreed.
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 necessarily relevant to the 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 through Federated's website. Go to
FederatedInvestors.com, select "Products," select the "Prospectuses and
Regulatory Reports" link, then select the Fund to access the link to Form N-PX.
This information is also available from the EDGAR database on the SEC's website
at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
These filings are available on the SEC's website at www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.)
You may also access this information from the "Products" section of Federated's
website at FederatedInvestors.com by clicking on "Portfolio Holdings" and
selecting the name of the Fund, or by selecting the name of the Fund and
clicking on "Portfolio Holdings." You must register on the website the first
time you wish to access this information.
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
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 (7/07)
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
DATE July 19, 2007
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 19, 2007
BY /S/ RICHARD A. NOVAK
RICHARD A. NOVAK
PRINCIPAL FINANCIAL OFFICER
DATE July 19, 2007