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: Fiscal year ended 11/30/07
ITEM 1. REPORTS TO STOCKHOLDERS
EMERGING MARKETS FIXED INCOME CORE FUND
A PORTFOLIO OF FEDERATED CORE TRUST II, L.P.
ANNUAL SHAREHOLDER REPORT
November 30, 2007
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
YEAR ENDED NOVEMBER 30 2007 2006 2005 2004 2003
NET ASSET VALUE, BEGINNING OF PERIOD $20.69 $18.08 $15.91 $14.39 $10.98
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.47 1 1.34 1 1.29 1 0.91 0.85
Net realized and unrealized gain (loss) on (0.09 ) 1.27 0.88 0.61 2.56
investments, options, futures contracts, swap
contracts and foreign currency transactions
TOTAL FROM INVESTMENT OPERATIONS 1.38 2.61 2.17 1.52 3.41
NET ASSET VALUE, END OF PERIOD $22.07 $20.69 $18.08 $15.91 $14.39
TOTAL RETURN2 6.67 % 14.44 % 13.64 % 10.56 % 31.06 %
RATIOS TO AVERAGE NET ASSETS:
Net expenses 0.05 % 0.05 % 0.05 % 0.05 % 0.05 %
Net investment income 6.82 % 6.94 % 7.54 % 7.80 % 8.85 %
Expense waiver/reimbursement3 0.10 % 0.09 % 0.08 % 0.21 % 0.23 %
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $417,205 $422,057 $350,521 $146,778 $131,056
Portfolio turnover 65 % 75 % 23 % 54 % 97 %
1 Per share numbers have been calculated using the average shares method.
2 Based on net asset value, which does not reflect the sales charge, redemption
fee or contingent deferred sales charge, if applicable.
3 This expense decrease is reflected in both the net expense and the net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
SHAREHOLDER EXPENSE EXAMPLE
As a shareholder of the Fund, you incur ongoing costs, including management fees
and to the extent applicable, distribution (12b-1) fees and/or shareholder
services fees and other Fund expenses. This Example is intended to help you to
understand your ongoing costs (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
It is based on an investment of $1,000 invested at the beginning of the period
and held for the entire period from June 1, 2007 to November 30, 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
6/1/2007 11/30/2007
ACTUAL $1,000 $1,001.80 $0.25
HYPOTHETICAL (ASSUMING A 5% RETURN BEFORE EXPENSES) $1,000 $1,024.82 $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
183/365 (to reflect the one-half year period).
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
The Emerging Markets Fixed Income Core Fund's1 total return, based on net asset
value, for the 12-month reporting period was 6.67%. The total return of the
Lehman Emerging Market Index2 ("LEMI"), a broad-based securities market index
was 5.42% during the 12-month reporting period. The fund's total return for the
most recently completed fiscal year reflected actual cash flows, transactions
costs and other expenses which were not reflected in the total return of the
LEMI.
During the 12-month reporting period, the most significant factors affecting the
fund's performance relative to the LEMI were (1) the credit quality of the
portfolio securities (which indicates the risk that securities will default);
(2) the duration3 of its portfolio (which indicates the portfolio's price
sensitivity to interest rates); and (3) the allocation of securities to
corporate credits versus sovereign credits.
MARKET OVERVIEW
Emerging debt markets had positive performance during the fiscal year despite a
number of diverging global macroeconomic factors such as positive global growth,
strong commodity prices, higher global inflation, and ongoing debate on the
U.S. economic outlook and deterioration of the housing market.
Since the spring of 2007 the global markets grew increasingly concerned about
the scope and depth of the sub-prime mortgage market implosion and potential
impact to the U.S. and global economy. The consistent deterioration of the
housing market, in general, and the sub-prime sector, in particular, has
severely affected the viability and liquidity of all structured products in this
asset class. The lack of transparency in the sector and potential negative
impact to the U.S. and global financial system translated into increased
volatility and risk aversion in both equity and fixed income markets. In late-
summer the sub-prime market fallout evolved into severe stresses in the
U.S. money markets due to lack of short-term liquidity in the global financial
system; this, in turn, forced the Federal Reserve and other G-7 Central Banks to
aggressively inject liquidity into the system. The aggressive monetary policy
response by the Fed resulted in renewed risk-taking and carry-trade strategies
in U.S. and global equity markets from mid-August until end of October. The
month of November was another wake-up call on the fragility of the sub-prime
market and impact to the financial system with significant asset write-offs
reported by some of the larger U.S. banks.
While economic data in the U.S. had been mixed, the global economy continued to
perform well, particularly the BRIC economies (Brazil, Russia, India and China)
which are both key suppliers and buyers of commodities. On top of well supported
technicals for emerging markets as an asset class due to significantly reduced
U.S. Dollar financing needs and solid strategic inflows into the asset class,
emerging economies have focused on reducing their vulnerability to external
shocks via fast international reserve accumulation and liability management. For
most of the fiscal year emerging debt markets followed the performance of global
equity markets, and the increased demand for carry-trades strongly benefited
both local debt markets and currencies.
Emerging markets traded in a relatively narrow range between 140 basis points
(bps) and 280 bps ending the reporting period inside 270 bps, significantly
outperforming other spread products.
CREDIT QUALITY
Early in the reporting period, fund management allocated, as compared to the
LEMI, more of its portfolio to high-beta countries such as Argentina and
Ecuador, and local debt markets in Mexico and Brazil as global markets remained
fairly insulated from the U.S. mortgage market turmoil.4 Fund management became
more concerned about potential contagion from U.S. markets to the global
financial system, spread products in particular, and shifted the fund into
higher quality sovereign credits. For the remainder of the fiscal year, the fund
maintained a defensive profile as compared to LEMI with neutral exposure to
high-beta countries Argentina and Ecuador, underweight exposure to Venezuela,
and hedged local debt markets exposure.
After strong performance starting in mid-summer, emerging debt markets suffered
a decent correction in the month of November as a result of renewed risk
aversion to global spread products and global equity markets. The fund was well
positioned for the increased market volatility and recovered the positive
performance differential versus the LEMI that it had achieved early in the
fiscal year.
DURATION
During most of the reporting period, fund management allocated a larger
percentage of the sovereign bonds from each country owned by the fund to
securities with shorter duration than the equivalent sub-indices in LEMI. With
the anticipation of a larger adjustment to global spreads and increased
volatility, the fund was positioned to be relatively insulated from large bond
price movements.
This strategy was implemented in various stages during the year, to adjust for
periods of greater or reduced market uncertainty regarding the U.S. and global
economic outlooks and expectations for monetary policy actions which have an
immediate impact on emerging markets.
LOCAL MARKETS
During the reporting period, fund management increased the percentage of the
portfolio allocated to local currency denominated emerging market bonds, a type
of investment not represented in the LEMI. With good prospects for economic
growth and declining inflation rates in countries such as Mexico and Brazil,
local market securities benefited from declining nominal and real interest rates
and appreciation of the currency. The fund's investments in local market
securities were positive contributors to fund performance during the reporting
period.
CORPORATE CREDITS
Corporate credits are a core component of the fund's portfolio and a type of
investment represented in the LEMI. The corporate portfolio is represented by
companies with a strong position in each of its markets, in some cases on a
global basis. One particular factor that contributed positively to fund
performance was the fund's allocation to corporate issuers within the
commodities sector (and, in particular, the oil & gas sub-sectors). Overall, the
corporate credits owned by the fund performed better than the sovereign credits
in its portfolio.
Performance data quoted represents past performance which is no guarantee of
future results. Investment return and principal value will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. Mutual fund performance changes over time and current performance may be
lower or higher than what is stated. For current to the most recent month end
performance, visit www.federatedinvestors.com or call 1-800-341-7400.
1. Prices of emerging markets securities can be significantly more volatile than
the prices of securities in developed countries.
2. The LEMI tracks total returns for U.S.: Dollar-denominated debt instruments
issued by sovereign and corporate credits in emerging economies from the
following regions: Americas, Europe, Middle East and Asia. Countries covered
include among others: Argentina, Brazil, Bulgaria, Ecuador, Mexico, Panama,
Peru, the Philippines, Russia and Venezuela. The LEMI is not adjusted to reflect
sales charges, expenses, or other fees that the Securities and Exchange
Commission (SEC) requires to be reflected in the fund's performance. Indexes are
unmanaged, and it is not possible to invest directly in an index.
3. Duration is a measure of a security's price sensitivity to changes in
interest rates. Securities with longer durations are more sensitive to changes
in interest rates than securities with shorter durations. For purposes of this
Management's Discussion of Fund Performance, duration is determined using a
third-party analytical system.
4. International investing involves special risks including currency risk,
increased volatility of foreign securities, political risks and differences in
auditing and other financial standards.
GROWTH OF A $10,000 INVESTMENT
The graph below illustrates the hypothetical investment of $10,0001 in Emerging
Markets Fixed Income Core Fund (the "Fund") from January 14, 2002 (start of
performance) to November 30, 2007, compared to the Lehman Emerging Market Index
(LEMI)2.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED 11/30/2007
1 Year 6.67%
5 Year 14.98%
Start of Performance (1/14/2002) 14.41%
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE WHICH IS NO GUARANTEE OF
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT AN
INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. MUTUAL FUND PERFORMANCE CHANGES OVER TIME AND CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN WHAT IS STATED. FOR CURRENT TO THE MOST RECENT MONTH-END
PERFORMANCE AND AFTER-TAX RETURNS, CALL 1-800-341-7400. RETURNS SHOWN DO NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. MUTUAL FUNDS ARE NOT OBLIGATIONS
OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
1 Represents a hypothetical investment of $10,000 in the Fund. The Fund's
performance assumes the reinvestment of all dividends and distributions. The
LEMI has been adjusted to reflect reinvestment of dividends on securities in
the index.
2 The LEMI tracks total returns for external-currency-denominated debt
instruments of the emerging markets. The LEMI is not adjusted to reflect sales
charges, expenses, or other fees that the Securities and Exchange Commission
requires to be reflected in the Fund's performance. The index is unmanaged
and, unlike the Fund, is not affected by cashflows. It is not possible to
invest directly in an index.
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
At November 30, 2007, the Fund's issuer country and currency exposure
composition1 were as follows:
COUNTRY COUNTRY EXPOSURE AS A PERCENTAGE OF CURRENCY EXPOSURE AS A PERCENTAGE OF
TOTAL NET ASSETS2 TOTAL NET ASSETS2
Mexico 18.5% 2.1%
Brazil 17.7% 0.0%3
Russia 13.9% ---
Turkey 7.8% 0.0%3
Philippines 7.7% ---
Venezuela 5.6% ---
Colombia 3.3% 0.0%3
Argentina 2.5% ---
Peru 1.9% ---
Indonesia 1.8% ---
Kazakhstan 1.6% ---
Uruguay 1.6% ---
Ecuador 1.2% ---
India 1.2% ---
El Salvador 0.9% ---
Guatemala 0.5% ---
Ukrainian SSR 0.2% ---
United States 0.0%3 84.9%
Euro --- 0.9%
Derivative Contracts 0.0%3 0.0%3
Cash Equivalents4 11.0% 11.0%
Other Assets and Liabilities - Net5 1.1% 1.1%
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") has
registered the security. 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 jurisdiction of the Issuer's incorporation, 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. This
table does not give effect to the impact of derivative contract instruments
owned by the Fund.
2 The fixed income securities of some Issuers may not be denominated in the
currency of the country to which the Issuer has been allocated. Therefore,
the two columns above, "Country Exposure as a Percentage of Total Net
Assets," and "Currency Exposure as a Percentage of Total Net Assets" may
not be equal.
3 Represents less than 0.1%.
4 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.
5 Assets, other than investments in securities, less liabilities. See
Statement of Assets and Liabilities.
PORTFOLIO OF INVESTMENTS
November 30, 2007
SHARES OR VALUE IN U.S. DOLLARS
PRINCIPAL
AMOUNT
COMMON STOCKS-0.6%
TELECOMMUNICATIONS & CELLULAR-0.6%
8,000 1 Satelites Mexicanos SA de CV, Class INS (IDENTIFIED COST $4,960,000) $ 2,320,000
CORPORATE BONDS-27.7%
AEROSPACE & DEFENSE-0.9%
$ 4,000,000 Embraer Overseas Ltd., Sr. Unsecd. Note, 6.375%, 1/24/2017 3,890,000
BANKING-4.4%
4,100,000 2,3 Banco Credito del Peru, Sub. Note, Series 144A, 6.95%, 11/7/2021 4,276,318
4,700,000 2,3 ICICI Bank Ltd., Note, Series 144A, 6.625%, 10/3/2012 4,849,845
1,200,000 2,3 Kazkommerts International BV, Company Guarantee, Series 144A, 8.00%, 11/3/2015 978,000
2,500,000 2,3 Turanalem Finance BV, Bank Guarantee, Series 144A, 8.50%, 2/10/2015 2,078,125
3,000,000 2,3 Turanalem Finance BV, Series 144A, 7.75%, 4/25/2013 2,471,250
3,500,000 2,3 VTB Capital SA, Bond, Series 144A, 6.25%, 6/30/2035 3,446,975
TOTAL 18,100,513
BROADCAST RADIO & TV-1.2%
3,800,000 Grupo Televisa SA, Sr. Note, 8.50%, 3/11/2032 4,748,290
CABLE & WIRELESS TELEVISION-0.9%
3,873,358 Satelites Mexicanos SA, Sr. Note, 10.125%, 11/30/2013 3,786,207
CHEMICALS & PLASTICS-0.4%
1,250,000 Braskem SA, Series REGS, 11.75%, 1/22/2014 1,512,500
CONTAINER & GLASS PRODUCTS-1.8%
5,400,000 Vitro SA, Note, 11.75%, 11/1/2013 5,616,000
2,000,000 Vitro SA, Series 144A, 9.125%, 2/1/2017 1,875,000
TOTAL 7,491,000
FOOD PRODUCTS-0.5%
2,000,000 2,3 JBS SA, Company Guarantee, Series 144A, 10.50%, 8/4/2016 2,037,500
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 2,575,000
METALS & MINING-1.8%
3,350,000 2,3 Adaro Finance BV, Company Guarantee, Series 144A, 8.50%, 12/8/2010 3,668,250
3,850,000 Vale Overseas Ltd., 6.875%, 11/21/2036 3,998,803
TOTAL 7,667,053
OIL & GAS-8.0%
10,850,000 2,3 Gazprom, Note, Series 144A, 8.625%, 4/28/2034 13,627,600
4,960,000 2,3 Gazprom, Note, Series 144A, 9.625%, 3/1/2013 5,703,752
2,750,000 2,3 Gazprom, Series 144A, 5.03%, 2/25/2014 3,695,834
7,180,000 2,3 Petrozuata Finance, Inc., Company Guarantee, Series 144A, 8.22%, 4/1/2017 7,359,500
1,420,000 2,3 Tengizchevroil LLP, Series 144A, 6.124%, 11/15/2014 1,336,575
2,000,000 2,3 Transportadora de Gas de Sur SA, Series 144A, 7.875%, 5/14/2017 1,685,000
TOTAL 33,408,261
SOVEREIGN-0.8%
3,050,000 United Mexican States, Series A, MTN, 6.75%, 9/27/2034 3,411,425
STATE/PROVINCIAL-0.2%
2,000,000,000 2,3 Bogota Distrito Capital, Sr. Note, Series 144A, 9.75%, 7/26/2028 931,882
STEEL-1.6%
2,700,000 2,3 CSN Islands IX Corp., Sr. Note, Series 144A, 10.50%, 1/15/2015 3,145,500
3,200,000 2,3 CSN Islands VIII Corp., Company Guarantee, Series 144A, 9.75%, 12/16/2013 3,616,000
TOTAL 6,761,500
TELECOMMUNICATIONS & CELLULAR-3.4%
9,500,000 America Movil SAB de CV, Bond, 9.00%, 1/15/2016 889,380
791,000 Axtel SA, 11.00%, 12/15/2013 864,168
3,000,000 2,3 Mobile Telesystems, Series 144A, 8.375%, 10/14/2010 3,083,100
5,400,000 Philippine Long Distance Telephone Co., Sr. Unsub., 11.375%, 5/15/2012 6,385,500
3,000,000 Telefonos de Mexico, Note, Series WI, 5.50%, 1/27/2015 2,949,150
TOTAL 14,171,298
UTILITIES-1.2%
1,500,000 2,3 ISA Capital DO Brasil SA, Series 144A, 8.80%, 1/30/2017 1,548,750
3,200,000 2,3 National Power Corp., Foreign Gov't. Guarantee, Series 144A, 9.265%, 8/23/2011 3,464,000
TOTAL 5,012,750
TOTAL CORPORATE BONDS (IDENTIFIED COST $112,734,097) 115,505,179
FLOATING RATE LOANS-1.3%5
2,100,000 4 Carolbrl, 4.051%, 12/31/2007 2,084,250
3,500,000 4 National Factoring Co., 6.698%, 12/28/2007 3,473,750
TOTAL FLOATING RATE LOANS (IDENTIFIED COST $5,584,443) 5,558,000
GOVERNMENTS/AGENCIES-58.4%
SOVEREIGN-58.4%
2,000,000 6 Argentina, Government of, Note, 1.32%, 12/15/2035 255,500
8,881,327 Argentina, Government of, Note, 8.28%, 12/31/2033 8,526,073
16,096 Brazil Nota Do Tesouro Nacional, Note, 6.00%, 5/15/2015 13,881,527
4,415,000 Brazil, Government of, 6.00%, 1/17/2017 4,547,450
7,510,000 Brazil, Government of, Bond, 8.25%, 1/20/2034 9,575,250
6,500,000 Brazil, Government of, Note, 8.00%, 1/15/2018 7,322,250
6,800,000,000 Colombia, Government of, 9.85%, 6/28/2027 3,345,267
8,600,000 Colombia, Government of, Note, 7.375%, 1/27/2017 9,434,200
3,250,000 El Salvador, Government of, Bond, 8.25%, 4/10/2032 3,948,750
1,750,000 2,3 Guatemala, Government of, Note, Series 144A, 9.25%, 8/1/2013 2,021,250
3,200,000 2,3 Indonesia, Government of, Series 144A, 8.50%, 10/12/2035 3,768,000
30,534 6 Letra Tesouro Nacional, 11.07% - 11.13%, 1/1/2008 16,890,103
84,299,900 Mexico, Government of, Bond, 8.00%, 12/19/2013 7,757,987
10,700,000 Mexico, Government of, Note, 4.625%, 10/8/2008 10,671,913
3,495,000 Peru, Government of, 6.55%, 3/14/2037 3,643,538
7,380,000 Philippines, Government of, 9.00%, 2/15/2013 8,431,650
4,600,000 Philippines, Government of, 9.375%, 1/18/2017 5,646,500
3,250,000 Philippines, Government of, 9.875%, 1/15/2019 4,220,938
3,000,000 Philippines, Government of, Bond, 9.50%, 10/21/2024 3,915,000
5,050,000 Republic of Ecuador, 10.00%, 8/15/2030 4,848,000
2,198,000 Republica Oriental del Uruguay, 7.625%, 3/21/2036 2,428,790
22,027,500 2,3 Russia, Government of, Unsub., Series 144A, 7.50%, 3/31/2030 25,041,963
7,510,000 Turkey, Government of, 10.00%, 2/15/2012 6,923,033
4,300,000 Turkey, Government of, 6.75%, 4/3/2018 4,439,750
8,320,000 Turkey, Government of, 6.875%, 3/17/2036 8,174,400
6,650,000 Turkey, Government of, 7.00%, 9/26/2016 6,982,500
5,650,000 Turkey, Government of, Note, 7.375%, 2/5/2025 6,038,438
600,000 Ukraine, Government of, Bond, 7.65%, 6/11/2013 635,100
29,500,000 United Mexican States, Note, 5.625%, 1/15/2017 30,001,500
3,600,000 Uruguay, Government of, Note, 8.00%, 11/18/2022 4,068,000
6,150,000 Venezuela, Government of, Bond, 9.25%, 9/15/2027 6,119,250
11,750,000 Venezuela, Government of, Note, 7.65%, 4/21/2025 9,980,450
TOTAL GOVERNMENTS/AGENCIES (IDENTIFIED COST $235,198,233) 243,484,320
PURCHASED PUT OPTION-0.0%
28,400,000 1 BONY ZAR PUT USD CALL, Strike Price $7.965, Expiration Date 12/27/2007 5,680
(IDENTIFIED COST $127,800)
MUTUAL FUND-10.9%
45,699,584 7,8 Prime Value Obligations Fund, Institutional Shares, 4.87% (AT NET ASSET VALUE) 45,699,584
TOTAL INVESTMENTS - 98.9% 412,572,763
(IDENTIFIED COST $404,304,157)9
OTHER ASSETS AND LIABILITIES - NET - 1.1% 4,632,299
TOTAL NET ASSETS - 100% $ 417,205,062
At November 30, 2007, the Fund had outstanding foreign exchange contracts as
follows:
SETTLEMENT DATE FOREIGN CURRENCY IN EXCHANGE FOR UNREALIZED APPRECIATION/
UNITS TO (DEPRECIATION)
DELIVER/RECEIVE
CONTRACTS PURCHASED:
12/4/2007 28,760,023 Brazilian Real $16,034,356 $8,497
12/4/2007 28,760,023 Brazilian Real $16,056,198 $(13,345)
12/13/2007 43,458,000 Mexican Peso $3,976,393 $4,601
12/14/2007 10,227,991 Euro Currency 1,636,182,000 Japanese Yen $217,009
12/14/2007 1,636,182,000 Japanese Yen 10,075,012 Euro $6,865
12/14/2007 562,285,200 Japanese Yen 3,400,000 Euro $93,600
CONTRACTS SOLD:
12/4/2007 57,520,045 Brazilian Real $32,790,649 $713,947
12/13/2007 43,458,000 Mexican Peso $4,000,000 $19,006
12/14/2007 562,285,200 Japanese Yen 3,393,434 Euro $(103,209)
12/18/2007 4,027,646 Turkey New Lira $3,265,217 $(119,416)
12/18/2007 4,228,624 Turkey New Lira $3,442,384 $(111,142)
12/21/2007 8,265,000,000 Colombian Peso $4,073,435 $60,957
1/3/2008 57,520,045 Brazilian Real $31,992,727 $(11,864)
NET UNREALIZED APPRECIATION ON FOREIGN EXCHANGE CONTRACTS $765,506
At November 30, 2007, the Fund had the following open swap contracts:
CREDIT DEFAULT REFERENCE BUY/SELL PAY/RECEIVE EXPIRATION NOTIONAL UNREALIZED APPRECIATION/
SWAP COUNTERPARTY ENTITY FIXED RATE DATE AMOUNT (DEPRECIATION)
Lehman Brothers Special Financing, Government of Buy 0.98% 10/20/2012 $13,850,000 $(23,086)
Inc. Brazil
Barclays Bank PLC Government of Buy 0.99% 10/20/2012 $6,925,000 $(14,579)
Brazil
J.P. Morgan Chase Bank Republic of Buy 0.30% 11/20/2011 $3,500,000 $20,501
Hungary
NET TOTAL UNREALIZED DEPRECIATION ON SWAP CONTRACTS $(17,164)
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 November 30, 2007,
these restricted securities amounted to $106,409,969, which represented
25.5% 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 Trustees. At November 30, 2007,
these liquid restricted securities amounted to $106,409,969, which
represented 25.5% of total net assets.
4 Floating rate note with current rate and next reset date shown.
5 The rate shown represents a weighted average coupon rate on settled
positions at year end. Remaining maturities of floating rate loans may be
less than stated maturities shown as result of contractual or optional
prepayments by the borrower. Such prepayments cannot be predicted with
certainty. These loans may be subject to restrictions on resale. Floating
rate loans generally have rates of interest which are determined
periodically by reference to a base lending rate plus premium.
6 Zero coupon bond, reflects effective rate at time of purchase.
7 Affiliated company.
8 7- Day net yield.
9 The cost of investments for federal tax purposes amounts to $404,454,369.
Note: The categories of investments are shown as a percentage of total net
assets at November 30, 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
November 30, 2007
ASSETS:
Total investments in securities, at value including $45,699,584 of investments in an $ 412,572,763
affiliated issuer (Note 5) (identified cost $404,304,157)
Cash denominated in foreign currencies (identified cost $1,598,530) 1,658,132
Income receivable 5,691,160
Receivable for investments sold 11,318,351
Receivable for shares sold 16,000
Receivable for foreign exchange contracts 1,124,482
TOTAL ASSETS 432,380,888
LIABILITIES:
Payable for investments purchased $ 14,666,095
Payable for foreign exchange contracts 358,976
Net payable for swap contracts 58,906
Accrued expenses 91,849
TOTAL LIABILITIES 15,175,826
Net assets for 18,905,212 shares outstanding $ 417,205,062
NET ASSETS CONSIST OF:
Paid-in capital $ 262,001,155
Net unrealized appreciation of investments, options, swap contracts and translation 9,076,490
of assets and liabilities in foreign currency
Accumulated net realized gain on investments, futures contracts, swap contracts and 47,574,732
foreign currency transactions
Undistributed net investment income 98,552,685
TOTAL NET ASSETS $ 417,205,062
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE
$417,205,062 {divide} 18,905,212 shares outstanding $22.07
See Notes which are an integral part of the Financial Statements
STATEMENT OF OPERATIONS
Year Ended November 30, 2007
INVESTMENT INCOME:
Dividends received from affiliated issuers (Note 5) $ 1,826,544
Interest (net of foreign taxes withheld of $6,742) 27,039,055
TOTAL INCOME 28,865,599
EXPENSES:
Administrative personnel and services fee (Note 5) $ 331,962
Custodian fees 182,438
Transfer and dividend disbursing agent fees and expenses 14,950
Directors'/Trustees' fees 8,188
Auditing fees 18,667
Legal fees 11,979
Portfolio accounting fees 56,138
Insurance premiums 6,475
Taxes 25,100
Miscellaneous 6,350
TOTAL EXPENSES 662,247
WAIVER AND REIMBURSEMENT (NOTE 5):
Waiver of administrative personnel and services fee $ (331,962 )
Reimbursement of other operating expenses (99,768 )
TOTAL WAIVER AND REIMBURSEMENT (431,730 )
Net expenses 230,517
Net investment income 28,635,082
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES
CONTRACTS, SWAP CONTRACTS, OPTIONS AND FOREIGN CURRENCY
TRANSACTIONS:
Net realized gain on investments and foreign currency transactions 14,040,588
Net realized loss on futures contracts (148,604 )
Net realized loss on swap contracts (432,840 )
Net change in unrealized appreciation of investments, options and (15,208,937 )
translation of assets and liabilities in foreign currency
Net change in unrealized depreciation on swap contracts (6,878 )
Net realized and unrealized loss on investments, futures (1,756,671 )
contracts, swap contracts, options and translation of asets and
liabilities in foreign currency
Change in net assets resulting from operations $ 26,878,411
See Notes which are an integral part of the Financial Statements
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED NOVEMBER 30 2007 2006
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS:
Net investment income $ 28,635,082 $ 25,555,253 1
Net realized gain on investments, futures contracts, swap contracts and foreign 13,459,144 13,124,822
currency transactions
Net change in unrealized appreciation/depreciation of investments, swap contracts, (15,215,815 ) 9,438,522 1
options and translation of assets and liabilities in foreign currency
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 26,878,411 48,118,597
SHARE TRANSACTIONS:
Contributions 105,520,000 130,984,000
Withdrawals (137,250,761 ) (107,566,000 )
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS (31,730,761 ) 23,418,000
Change in net assets (4,852,350 ) 71,536,597
NET ASSETS:
Beginning of period 422,057,412 350,520,815
End of period (including undistributed net investment income of $98,552,685 and $ 417,205,062 $ 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
November 30, 2007
1. ORGANIZATION
Emerging Markets Fixed Income Core Fund (the "Fund") is a non-diversified
portfolio of Federated Core Trust II, L.P. (the "Trust"). The Trust is
registered under the Investment Company Act of 1940, as amended (the "Act"). The
Trust is a limited partnership that was established under the laws of the State
of Delaware on November 13, 2000 and offered only to registered investment
companies and other accredited investors. The Trust consists of two portfolios.
The financial statements included herein are only those of the Fund. The Fund's
primary investment objective is to achieve total return on 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
In calculating its net asset value (NAV), the Fund generally values investments
as follows:
{circle}Equity securities listed on an exchange or traded through a regulated
market system are valued at their last reported sale price or official
closing price in their principal exchange or market.
{circle}Fixed-income securities acquired with remaining maturities greater
than 60 days are fair valued using price evaluations provided by a pricing
service approved by the Board of Directors (the "Directors").
{circle}Fixed-income securities acquired with remaining maturities of 60 days
or less are valued at their cost (adjusted for the accretion of any
discount or amortization of any premium).
{circle}Derivative contracts listed on exchanges are valued at their reported
settlement or closing price.
{circle}Over-the-counter (OTC) derivative contracts are fair valued using
price evaluations provided by a pricing service approved by the Directors.
{circle}Shares of other mutual funds are valued based upon their reported
NAVs.
If the Fund cannot obtain a price or price evaluation from a pricing service for
an investment, the Fund may attempt to value the investment based upon the mean
of bid and asked quotations or fair value the investment based on price
evaluations, from one or more dealers. If any price, quotation, price evaluation
or other pricing source is not readily available when the NAV is calculated, the
Fund uses the fair value of the investment determined in accordance with the
procedures described below. There can be no assurance that the Fund could
purchase or sell an investment at the price used to calculate the Fund's NAV.
FAIR VALUATION AND SIGNIFICANT EVENTS PROCEDURE
The Directors have authorized the use of pricing services to provide evaluations
of the current fair value of certain investments for purposes of calculating the
NAV. Factors considered by pricing services in evaluating an investment include
the yields or prices of investments of comparable quality, coupon, maturity,
call rights and other potential prepayments, terms and type, reported
transactions, indications as to values from dealers, and general market
conditions. Some pricing services provide a single evaluation reflecting the
bid-side of the market for an investment (a "bid" evaluation). Other pricing
services offer both bid evaluations and price evaluations indicative of a price
between the prices bid and asked for the investment (a "mid" evaluation). The
Fund normally uses bid evaluations for U.S. Treasury and Agency securities,
mortgage-backed securities and municipal securities. The Fund normally uses mid
evaluations for other types of fixed-income securities and OTC derivative
contracts. In the event that market quotations and price evaluations are not
available for an investment, the fair value of the investment is determined in
accordance with procedures adopted by the Directors.
The Directors also have adopted procedures requiring an investment to be priced
at its fair value whenever the Adviser determines that a significant event
affecting the value of the investment has occurred between the time as of which
the price of the investment would otherwise be determined and the time as of
which the NAV is computed. An event is considered significant if there is both
an affirmative expectation that the investment's value will change in response
to the event and a reasonable basis for quantifying the resulting change in
value. Examples of significant events that may occur after the close of the
principal market on which a security is traded, or after the time of a price
evaluation provided by a pricing service or a dealer, include:
{circle}With respect to securities traded in foreign markets, significant
trends in U.S. equity markets or in the trading of foreign securities
index futures or options contracts;
{circle}With respect to price evaluations of fixed-income securities
determined before the close of regular trading on the NYSE, actions by
the Federal Reserve Open Market Committee and other significant trends in
the U.S. fixed-income markets;
{circle}Political or other developments affecting the economy or markets in
which an issuer conducts its operations or its securities are traded; and
{circle}Announcements concerning matters such as acquisitions,
recapitalizations, litigation developments, a natural disaster affecting
the issuer's operations or regulatory changes or market developments
affecting the issuer's industry.
The Directors have approved the use of a pricing service to determine the fair
value of equity securities traded principally in foreign markets when the
Adviser determines that there has been a significant trend in the U.S. equity
markets or in index futures trading. For other significant events, the Fund may
seek to obtain more current quotations or price evaluations from alternative
pricing sources. If a reliable alternative pricing source is not available, the
Fund will determine the fair value of the investment using another method
approved by the Directors.
REPURCHASE AGREEMENTS
It is the policy of the Fund to require the other party to a repurchase
agreement to transfer to the Fund's custodian or sub-custodian eligible
securities or cash with a market value (after transaction costs) at least equal
to the repurchase price to be paid under the repurchase agreement. The eligible
securities are transferred to accounts with the custodian or sub-custodian in
which the Fund holds a "securities entitlement" and exercises "control" as those
terms are defined in the Uniform Commercial Code. The Fund has established
procedures for monitoring the market value of the transferred securities and
requiring the transfer of additional eligible securities if necessary to equal
at least the repurchase price. These procedures also allow the other party to
require securities to be transferred from the account to the extent that their
market value exceeds the repurchase price or in exchange for other eligible
securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash
items, the Fund treats the repurchase agreement as an investment in the
underlying securities and not as an obligation of the other party to the
repurchase agreement. Other repurchase agreements are treated as obligations of
the other party secured by the underlying securities. Nevertheless, the
insolvency of the other party or other failure to repurchase the securities may
delay the disposition of the underlying securities or cause the Fund to receive
less than the full repurchase price. Under the terms of the repurchase
agreement, any amounts received by the Fund in excess of the repurchase price
and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are
transferred into joint trading accounts maintained by the custodian or sub-
custodian for investment companies and other clients advised by the Fund's
adviser and its affiliates. The Fund will participate on a pro rata basis with
the other investment companies and clients in its share of the securities
transferred under such repurchase agreements and in its share of proceeds from
any repurchase or other disposition of such securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. 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. 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. 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 payable for swap contracts on the Statement
of Assets and Liabilities, and periodic payments are reported as Net realized
loss on swap contracts in the Statement of Operations. For the year ended
November 30, 2007, the Fund had net realized losses on swap contracts of
$432,840.
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
year ended November 30, 2007, the Fund had net realized losses on futures
contracts of $148,604.
At November 30, 2007, the Fund had no outstanding futures contracts.
FOREIGN EXCHANGE CONTRACTS
The Fund may enter into foreign exchange contracts for the delayed delivery of
securities or foreign currency exchange transactions. The Fund may enter into
foreign exchange contracts 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 exchange
contracts 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.
Foreign exchange contracts outstanding at period end are listed after the Fund's
portfolio of investments.
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:
YEAR ENDED NOVEMBER 30 2007 2006
Proceeds from contributions 4,912,171 6,720,393
Fair value of withdrawals (6,401,315 ) (5,711,452 )
TOTAL CHANGE RESULTING FROM
CONTRIBUTIONS/WITHDRAWALS (1,489,144 ) 1,008,941
4. FEDERAL TAX INFORMATION
At November 30, 2007, the cost of investments for federal tax purposes was
$404,454,369. The net unrealized appreciation of investments for federal tax
purposes excluding any unrealized appreciation/depreciation resulting from
changes in foreign currency exchange rates and swap contracts was $8,268,606.
This consists of net unrealized appreciation from investments for those
securities having an excess of value over cost of $16,235,699 and net unrealized
depreciation from investments for those securities having an excess of cost over
value of $7,967,093.
The difference between book-basis and tax-basis net unrealized appreciation is
attributable to differing treatments for discount accretion/premium on debt
securities.
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 year
ended November 30, 2007, the Adviser voluntarily reimbursed $99,768 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 year ended November 30, 2007, FASI voluntarily waived its
entire fee. For the year ended November 30, 2007, the net fee paid to FASI was
$0.
GENERAL
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
TRANSACTIONS WITH AFFILIATED COMPANIES
Affiliated holdings are mutual funds which are managed by the Adviser or an
affiliate of the Adviser. Transactions with the affiliated company during the
year ended November 30, 2007, are as follows:
AFFILIATE BALANCE OF SHARES PURCHASES/ SALES/ BALANCE OF SHARES VALUE DIVIDEND
HELD 11/30/2006 ADDITIONS REDUCTIONS HELD 11/30/2007 INCOME
Prime Value Obligations Fund, - 284,232,881 238,533,297 45,699,584 $45,699,584 $1,826,544
Institutional Shares
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government
securities and short-term obligations, for the year ended November 30, 2007,
were as follows:
Purchases $ 237,680,774
Sales $ 249,190,648
7. CONCENTRATION OF 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. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission
(SEC), the Fund, along with other funds advised by subsidiaries of Federated
Investors, Inc., may participate in an interfund lending program. This program
provides an alternative credit facility allowing the funds to borrow from other
participating affiliated funds. As of November 30, 2007, there were no
outstanding loans. During the year ended November 30, 2007, the program was not
utilized.
9. 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 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.
10. 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 31, 2008. Management has concluded that the
adoption of FIN 48 is not expected to have a material impact on the Fund's net
assets or results of operations.
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.
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS OF FEDERATED CORE TRUST II, L.P. AND SHAREHOLDERS OF
EMERGING MARKETS FIXED INCOME CORE FUND:
We have audited the accompanying statement of assets and liabilities of Emerging
Markets Fixed Income Core Fund (the "Fund") (one of the portfolios constituting
Federated Core Trust II, L.P.), including the portfolio of investments, as of
November 30, 2007, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statement and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. We were not engaged to
perform an audit of the Fund's internal control over financial reporting. Ours
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Fund's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of November 30,
2007, by correspondence with the custodian, agent banks and brokers or by other
appropriate auditing procedures where replies from brokers were not received. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Emerging Markets Fixed Income Core Fund, a portfolio of Federated Core Trust II,
L.P., at November 30, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its financial highlights for each of the five years in the
period then ended, in conformity U.S. generally accepted accounting principles.
Boston, Massachusetts
January 17, 2008
BOARD OF DIRECTORS AND TRUST OFFICERS
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The following tables give information about each Board member and the senior
officers of the Fund. Where required, the tables separately list Board members
who are "interested persons" of the Fund (i.e., "Interested" Board members) and
those who are not (i.e., "Independent" Board members). Unless otherwise noted,
the address of each person listed is Federated Investors Tower, 1001 Liberty
Avenue, Pittsburgh, PA. As of December 31, 2007, the Trust comprised two
portfolios, and the Federated Fund Complex consisted of 40 investment companies
(comprising 148 portfolios). Unless otherwise noted, each Officer is elected
annually. Unless otherwise noted, each Board member oversees all portfolios in
the Federated Fund Complex and serves for an indefinite term. The Fund's
Statement of Additional Information includes additional information about Trust
Directors and is available, without charge and upon request, by calling 1-800-
341-7400.
INTERESTED DIRECTORS BACKGROUND
NAME PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS,
BIRTH DATE OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S)
ADDRESS
POSITIONS HELD
WITH TRUST
DATE SERVICE
BEGAN
JOHN F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated
DONAHUE* Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee.
Birth Date:
July 28, 1924 PREVIOUS POSITIONS: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company and
DIRECTOR Chairman and Director, Federated Investment Counseling.
Began serving:
November 2001
J. CHRISTOPHER PRINCIPAL OCCUPATIONS: Principal Executive Officer and President of the Federated Fund Complex; Director or
DONAHUE* Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director,
Birth Date: Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated
April 11, 1949 Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated
PRESIDENT AND Equity Management Company of Pennsylvania and Passport Research, Ltd. (Investment advisory subsidiary of
DIRECTOR Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company.
Began serving:
November 2000 PREVIOUS POSITIONS: President, Federated Investment Counseling; President and Chief Executive Officer, Federated
Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.
* Family relationships and reasons for "interested" status: John F. Donahue is
the father of J. Christopher Donahue; both are "interested" due to the positions
they hold with Federated Investors, Inc. and its subsidiaries.
INDEPENDENT DIRECTORS BACKGROUND
NAME PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS,
BIRTH DATE OTHER DIRECTORSHIPS HELD AND PREVIOUS POSITION(S)
ADDRESS
POSITIONS
HELD WITH
TRUST
DATE SERVICE
BEGAN
THOMAS G. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex.
BIGLEY
Birth Date: OTHER DIRECTORSHIPS HELD: Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director,
February 3, University of Pittsburgh.
1934
15 Old Timber PREVIOUS POSITION: Senior Partner, Ernst & Young LLP.
Trail
Pittsburgh,
PA
DIRECTOR
Began
serving:
November 2001
JOHN T. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment
CONROY, JR. Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida.
Birth Date:
June 23, 1937 PREVIOUS POSITIONS: President, Investment Properties Corporation; Senior Vice President, John R. Wood and
Investment Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development
Properties Corporation.
Corporation
3838 North
Tamiami Trail
Suite 402
Naples, FL
DIRECTOR
Began
serving:
November 2001
NICHOLAS P. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex.
CONSTANTAKIS
Birth Date: OTHER DIRECTORSHIPS HELD: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and
September 3, energy services worldwide).
1939
175 Woodshire PREVIOUS POSITION: Partner, Andersen Worldwide SC.
Drive
Pittsburgh,
PA
DIRECTOR
Began
serving:
November 2001
JOHN F. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex; Director, QSGI, Inc. (technology services
CUNNINGHAM company).
Birth Date:
March 5, 1943 OTHER DIRECTORSHIPS HELD: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic
353 El Brillo business consulting); Trustee Associate, Boston College.
Way
Palm Beach, PREVIOUS POSITIONS: Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of
FL the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang
DIRECTOR Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc.
Began
serving:
November 2001
PETER E. PRINCIPAL OCCUPATION: Director or Trustee of the Federated Fund Complex.
MADDEN
Birth Date: OTHER DIRECTORSHIPS HELD: Board of Overseers, Babson College.
March 16,
1942 PREVIOUS POSITIONS: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and
One Royal Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and
Palm Way Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock
100 Royal Exchange.
Palm Way
Palm Beach,
FL
DIRECTOR
Began
serving:
November 2001
CHARLES F. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Management Consultant.
MANSFIELD,
JR. PREVIOUS POSITIONS: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst &
Birth Date: Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC
April 10, Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance,
1945 Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing,
80 South Road communications and technology).
Westhampton
Beach, NY
DIRECTOR
Began
serving:
November 2001
JOHN E. PRINCIPAL OCCUPATIONS: Director or Trustee, and Chairman of the Board of Directors or Trustees, of the Federated
MURRAY, JR., Fund Complex; Chancellor and Law Professor, Duquesne University; Partner, Murray, Hogue & Lannis.
J.D., S.J.D.
Birth Date: OTHER DIRECTORSHIPS HELD: Director, Michael Baker Corp. (engineering, construction, operations and technical
December 20, services).
1932
Chancellor, PREVIOUS POSITIONS: President, Duquesne University; Dean and Professor of Law, University of Pittsburgh School of
Duquesne Law; Dean and Professor of Law, Villanova University School of Law.
University
Pittsburgh,
PA
DIRECTOR
Began
serving:
November 2001
R. JAMES PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Former Secretary of the U.S. Dept. of
NICHOLSON* Veteran Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee.
Birth Date:
February 4, OTHER DIRECTORSHIPS HELD: Director, Horatio Alger Association.
1938
P.O. Box 6396 PREVIOUS POSITIONS: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General
McLean, VA Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc.; Chairman and
DIRECTOR CEO, Renaissance Homes of Colorado.
Began
serving:
January 2008
THOMAS M. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator
O'NEILL Management Company, L.P. (investment and strategic consulting).
Birth Date:
June 14, 1951 OTHER DIRECTORSHIPS HELD: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics,
95 Standish Harvard College.
Street
P.O. Box 2779 PREVIOUS POSITIONS: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet
Duxbury, MA Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner,
DIRECTOR Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; and Credit
Began Analyst and Lending Officer, Fleet Bank.
serving:
October 2006
MARJORIE P. PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; formerly, Public Relations/Marketing
SMUTS Consultant/Conference Coordinator.
Birth Date:
June 21, 1935 PREVIOUS POSITIONS: National Spokesperson, Aluminum Company of America; television producer; President, Marj
4905 Bayard Palmer Assoc.; Owner, Scandia Bord.
Street
Pittsburgh,
PA
DIRECTOR
Began
serving:
November 2001
JOHN S. WALSH PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc.
Birth Date: (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc.
November 28, (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers
1957 Products, Inc.
2604 William
Drive PREVIOUS POSITION: Vice President, Walsh & Kelly, Inc.
Valparaiso,
IN
DIRECTOR
Began
serving:
November 2001
JAMES F. WILL PRINCIPAL OCCUPATIONS: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President,
Birth Date: Saint Vincent College.
October 12,
1938 OTHER DIRECTORSHIPS HELD: Trustee, Saint Vincent College; Alleghany Corporation.
721 E.
McMurray Road PREVIOUS POSITIONS: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive
McMurray, PA Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation.
DIRECTOR
Began
serving:
November 2001
OFFICERS
NAME PRINCIPAL OCCUPATION(S) FOR PAST FIVE YEARS AND PREVIOUS POSITION(S)
BIRTH DATE
POSITIONS
HELD WITH
TRUST
DATE BEGAN
SERVING
JOHN W. PRINCIPAL OCCUPATIONS: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman,
MCGONIGLE Executive Vice President, Secretary and Director, Federated Investors, Inc.
Birth Date:
October 26, PREVIOUS POSITIONS: Trustee, Federated Investment Management Company and Federated Investment Counseling;
1938 Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp.
EXECUTIVE VIE
PRESIDENT
AND SECRETARY
Began
serving:
November 2000
RICHARD A. PRINCIPAL OCCUPATIONS: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice
NOVAK President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp.,
Birth Date: Edgewood Services, Inc. and Southpointe Distribution Services, Inc.
December 25,
1963 PREVIOUS POSITIONS: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services
TREASURER Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur
Began Andersen & Co.
serving:
January 2006
RICHARD B. PRINCIPAL OCCUPATIONS: Vice Chairman or Vice President of some of the Funds in the Federated Fund Complex; Vice
FISHER Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.
Birth Date:
May 17, 1923 PREVIOUS POSITIONS: President and Director or Trustee of some of the Funds in the Federated Fund Complex;
VICE CHAIRMAN Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities
Began Corp.
serving:
August 2002
BRIAN P. PRINCIPAL OCCUPATIONS: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice
BOUDA President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its
Birth Date: subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar
February 28, Association of Wisconsin.
1947
CHIEF
COMPLIANCE
OFFICER
AND SENIOR
VICE
PRESIDENT
Began
serving:
August 2004
ROBERT PRINCIPAL OCCUPATIONS: Robert J. Ostrowski joined Federated in 1987 as an Investment Analyst and became a
J. OSTROWSKI Portfolio Manager in 1990. He was named Chief Investment Officer of taxable fixed-income products in 2004 and also
Birth Date: serves as a Senior Portfolio Manager. He has been a Senior Vice President of the Fund's Adviser since 1997.
April 26, Mr. Ostrowski is a Chartered Financial Analyst. He received his M.S. in Industrial Administration from Carnegie
1963 Mellon University.
CHIEF
INVESTMENT
OFFICER
Began
serving:
May 2004
TODD A. PRINCIPAL OCCUPATIONS: Todd A. Abraham is Vice President of the Trust. Mr. Abraham has been a Portfolio Manager
ABRAHAM since 1995, a Vice President of the Fund's Adviser since 1997 and a Senior Vice President of the Fund's Adviser
Birth Date: beginning 2007. Mr. Abraham joined Federated in 1993 as an Investment Analyst and served as Assistant Vice
February 10, President of the Fund's Adviser from 1995 to 1997. Mr. Abraham served as a Portfolio Analyst at Ryland Mortgage
1966 Co. from 1992-1993. Mr. Abraham is a Chartered Financial Analyst and received his M.B.A. in Finance from Loyola
VICE College.
PRESIDENT
Began
serving:
May 2004
DAVID P. PRINCIPAL OCCUPATIONS: David P. Gilmore is Vice President of the Trust. Mr. Gilmore joined Federated in
GILMORE August 1997 as an Investment Analyst. He was promoted to Senior Investment Analyst in July 1999 and became a Vice
Birth Date: President of the Fund's Adviser in July 2001. Mr. Gilmore was a Senior Associate with Coopers & Lybrand from
November 11, January 1992 to May 1995. Mr. Gilmore is a Chartered Financial Analyst and attended the University of Virginia,
1970 where he earned his M.B.A., from September 1995 to May 1997. Mr. Gilmore has a B.S. from Liberty University.
VICE
PRESIDENT
Began
serving:
May 2004
IHAB SALIB PRINCIPAL OCCUPATIONS: Ihab Salib is Vice President of the Trust. Mr. Salib joined Federated in April 1999 as a
Birth Date: Senior Fixed-Income Trader/Assistant Vice President of the Fund's Adviser. In July 2000, he was named a Vice
December 14, President of the Fund's Adviser and in January 2007 he was named a Senior Vice President of the Fund's Adviser. He
1964 has served as a Portfolio Manager since January 2002. From January 1994 through March 1999, Mr. Salib was employed
VICE as a Senior Global Fixed-Income Analyst with UBS Brinson, Inc. Mr. Salib received his B.A. with a major in
PRESIDENT Economics from Stony Brook University.
Began
serving:
May 2006
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 from the Edgar database on the SEC's
website at www.sec.gov.
QUARTERLY PORTFOLIO SCHEDULE
The Fund files with the SEC a complete schedule of its portfolio holdings, as of
the close of the first and third quarters of its fiscal year, on "Form N-Q."
These filings are available on the SEC's website at www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.)
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus, which contains facts
concerning its objective and policies, management fees, expenses, and other
information.
Cusip 31409R102
28172 (1/08)
ITEM 2. CODE OF ETHICS
(a) As of the end of the period covered by this report, the registrant has
adopted a code of ethics (the "Section 406 Standards for Investment Companies -
Ethical Standards for Principal Executive and Financial Officers") that applies
to the registrant's Principal Executive Officer and Principal Financial Officer;
the registrant's Principal Financial Officer also serves as the Principal
Accounting Officer.
(c) Not Applicable
(d) Not Applicable
(e) Not Applicable
(f)(3) The registrant hereby undertakes to provide any person, without charge,
upon request, a copy of the code of ethics. To request a copy of the code of
ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the
Section 406 Standards for Investment Companies - Ethical Standards for Principal
Executive and Financial Officers.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board has determined that each of the following members of the
Board's Audit Committee is an "audit committee financial expert," and is
"independent," for purposes of this Item: Thomas G. Bigley, Nicholas P.
Constantakis and Charles F. Mansfield, Jr.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2007 - $40,400
Fiscal year ended 2006 - $49,895
(b) Audit-Related Fees billed to the registrant for the two most recent
fiscal years:
Fiscal year ended 2007 - $0
Fiscal year ended 2006 - $0
Fiscal year ended 2005 - Transfer agent testing.
Amount requiring approval of the registrant's audit committee pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $940 and $0,
respectively. Fiscal year ended 2007 - Discussions related to accounting
for swap contracts.
(c) Tax Fees billed to the registrant for the two most recent fiscal
years:
Fiscal year ended 2007 - $0
Fiscal year ended 2006 - $0
Amount requiring approval of the registrant's audit committee pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0
respectively.
(d) All Other Fees billed to the registrant for the two most recent
fiscal years:
Fiscal year ended 2007 - $0
Fiscal year ended 2006 - $0
Amount requiring approval of the registrant's audit committee pursuant to
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, $0 and $0
respectively.
(e)(1) Audit Committee Policies regarding Pre-approval of Services.
The Audit Committee is required to pre-approve audit and non-audit
services performed by the independent auditor in order to assure that the
provision of such services do not impair the auditor's independence. Unless a
type of service to be provided by the independent auditor has received general
pre-approval, it will require specific pre-approval by the Audit Committee. Any
proposed services exceeding pre-approved cost levels will require specific pre-
approval by the Audit Committee.
Certain services have the general pre-approval of the Audit
Committee. The term of the general pre-approval is 12 months from the date of
pre-approval, unless the Audit Committee specifically provides for a different
period. The Audit Committee will annually review the services that may be
provided by the independent auditor without obtaining specific pre-approval from
the Audit Committee and may grant general pre-approval for such services. The
Audit Committee will revise the list of general pre-approved services from time
to time, based on subsequent determinations. The Audit Committee will not
delegate its responsibilities to pre-approve services performed by the
independent auditor to management.
The Audit Committee has delegated pre-approval authority to its
Chairman. The Chairman will report any pre-approval decisions to the Audit
Committee at its next scheduled meeting. The Committee will designate another
member with such pre-approval authority when the Chairman is unavailable.
AUDIT SERVICES
The annual Audit services engagement terms and fees will be subject to the
specific pre-approval of the Audit Committee. The Audit Committee must approve
any changes in terms, conditions and fees resulting from changes in audit scope,
registered investment company (RIC) structure or other matters.
In addition to the annual Audit services engagement specifically approved
by the Audit Committee, the Audit Committee may grant general pre-approval for
other Audit Services, which are those services that only the independent auditor
reasonably can provide. The Audit Committee has pre-approved certain Audit
services, all other Audit services must be specifically pre-approved by the
Audit Committee.
AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements or that are traditionally performed by the independent
auditor. The Audit Committee believes that the provision of Audit-related
services does not impair the independence of the auditor, and has pre-approved
certain Audit-related services, all other Audit-related services must be
specifically pre-approved by the Audit Committee.
TAX SERVICES
The Audit Committee believes that the independent auditor can provide Tax
services to the Company such as tax compliance, tax planning and tax advice
without impairing the auditor's independence. However, the Audit Committee will
not permit the retention of the independent auditor in connection with a
transaction initially recommended by the independent auditor, the purpose of
which may be tax avoidance and the tax treatment of which may not be supported
in the Internal Revenue Code and related regulations. The Audit Committee has
pre-approved certain Tax services, all Tax services involving large and complex
transactions must be specifically pre-approved by the Audit Committee.
ALL OTHER SERVICES
With respect to the provision of services other than audit, review or
attest services the pre-approval requirement is waived if:
(1) The aggregate amount of all such services provided constitutes
no more than five percent of the total amount of revenues paid
by the registrant, the registrant's adviser (not including any
sub-adviser whose role is primarily portfolio management and
is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under
common control with the investment adviser that provides
ongoing services to the registrant to its accountant during
the fiscal year in which the services are provided;
(2) Such services were not recognized by the registrant, the
registrant's adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the
registrant at the time of the engagement to be non-audit
services; and
(3) Such services are promptly brought to the attention of the
Audit Committee of the issuer and approved prior to the
completion of the audit by the Audit Committee or by one or
more members of the Audit Committee who are members of the
board of directors to whom authority to grant such approvals
has been delegated by the Audit Committee.
The Audit Committee may grant general pre-approval to those permissible
non-audit services classified as All Other services that it believes are routine
and recurring services, and would not impair the independence of the auditor.
The SEC's rules and relevant guidance should be consulted to determine the
precise definitions of prohibited non-audit services and the applicability of
exceptions to certain of the prohibitions.
PRE-APPROVAL FEE LEVELS
Pre-approval fee levels for all services to be provided by the independent
auditor will be established annually by the Audit Committee. Any proposed
services exceeding these levels will require specific pre-approval by the Audit
Committee.
PROCEDURES
Requests or applications to provide services that require specific
approval by the Audit Committee will be submitted to the Audit Committee by both
the independent auditor and the Principal Accounting Officer and/or Internal
Auditor, and must include a joint statement as to whether, in their view, the
request or application is consistent with the SEC's rules on auditor
independence.
(e)(2) Percentage of services identified in items 4(b) through 4(d) that
were approved by the registrants audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X:
4(b)
Fiscal year ended 2007 - 0%
Fiscal year ended 2006 - 0%
Percentage of services provided to the registrants investment
adviser and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were approved by the registrants audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, 0% and 0% respectively.
4(c)
Fiscal year ended 2007 - 0%
Fiscal year ended 2006 - 0%
Percentage of services provided to the registrants investment
adviser and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were approved by the registrants audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, 0% and 0% respectively.
4(d)
Fiscal year ended 2007 - 0%
Fiscal year ended 2006 - 0%
Percentage of services provided to the registrants investment
adviser and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were approved by the registrants audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X, 0% and 0% respectively.
(f) NA
(g) Non-Audit Fees billed to the registrant, the registrant's investment
adviser, and certain entities controlling, controlled by or under common
control with the investment adviser:
Fiscal year ended 2007 - $15,857
Fiscal year ended 2006 - $17,035
(h) The registrant's Audit Committee has considered that the provision
of non-audit services that were rendered to the registrant's adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-approved
pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not Applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not Applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Act) are effective in design and operation and are sufficient
to form the basis of the certifications required by Rule 30a-(2) under the Act,
based on their evaluation of these disclosure controls and procedures within 90
days of the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) during the last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
REGISTRANT FEDERATED CORE TRUST II, L.P.
BY /S/ RICHARD A. NOVAK
RICHARD A. NOVAK
PRINCIPAL FINANCIAL OFFICER
DATE JANUARY 23, 2008
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 JANUARY 23, 2008
BY /S/ RICHARD A. NOVAK
RICHARD A. NOVAK
PRINCIPAL FINANCIAL OFFICER
DATE JANUARY 23, 2008