N-CSR 1 fctform.txt United States Securities and Exchange Commission Washington, D.C. 20549 Form N-CSR Certified Shareholder Report of Registered Management Investment Companies 811-8519 (Investment Company Act File Number) Federated Core Trust _______________________________________________________________ (Exact Name of Registrant as Specified in Charter) Federated Investors Funds 5800 Corporate Drive Pittsburgh, Pennsylvania 15237-7000 (412) 288-1900 (Registrant's Telephone Number) John W. McGonigle, Esquire Federated Investors Tower 1001 Liberty Avenue Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) (Notices should be sent to the Agent for Service) Date of Fiscal Year End: 12/31/03 Date of Reporting Period: Fiscal year ended 12/31/03 Item 1. Reports to Stockholders FEDERATED MORTGAGE CORE PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2003
Principal Value Amount Mortgage Backed Securities--98.6% Federal Home Loan Mortgage Corporation-39.3% $40,765,397 1 4.500%, 8/1/2018 - 2/1/2019 $40,778,035 72,611,835 5.000%, 8/1/2033 - 11/1/2033 71,681,677 103,211,783 1 5.500%, 8/1/2033 - 2/1/2034 104,832,819 21,103,905 1 6.000%, 5/1/2014 - 2/1/2034 21,944,952 47,008,945 6.500%, 7/1/2014 - 9/1/2033 49,326,452 5,266,671 7.000%, 12/1/2011 - 4/1/2032 5,577,393 3,761,024 7.500%, 12/1/2022 - 7/1/2031 4,031,645 2,937,856 8.000%, 5/1/2006 - 3/1/2031 3,170,710 62,304 8.500%, 9/1/2025 68,087 138,895 9.000%, 5/1/2017 154,043 8,717 9.500%, 4/1/2021 9,701 TOTAL 301,575,514 Federal National Mortgage Association-46.1% 17,567,527 4.500%, 9/1/2010 - 12/1/2018 17,632,318 71,500,350 1 5.000%, 4/1/2018 - 7/1/2023 72,855,793 71,532,344 1 5.500%, 2/1/2009 - 2/1/2034 73,014,964 94,225,223 1 6.000%, 7/1/2006 - 2/1/2034 97,687,572 44,880,105 6.500%, 5/1/2006 - 11/1/2032 47,037,343 34,709,343 7.000%, 2/1/2008 - 10/1/2032 36,783,134 5,911,017 7.500%, 6/1/2011 - 6/1/2033 6,325,623 1,651,581 8.000%, 7/1/2023 - 3/1/2031 1,791,788 12,100 8.500%, 3/1/2030 13,189 80,761 9.000%, 11/1/2021 - 6/1/2025 88,991 TOTAL 353,230,715 Government National Mortgage Association-13.2% 9,710,449 5.000%, 6/20/2033 9,622,472 28,571,620 1 5.500%, 4/15/2033 - 2/1/2034 29,053,908 19,083,246 1 6.000%, 10/15/2028 - 2/1/2034 19,845,223 19,213,856 6.500%, 10/15/2028 - 8/15/2032 20,274,883 11,093,519 1 7.000%, 11/15/2027 - 2/1/2034 11,833,458 4,730,168 7.500%, 6/20/2007 - 1/15/2031 5,076,880 3,176,155 8.000%, 2/15/2010 - 11/15/2030 3,447,643 1,373,914 8.500%, 3/15/2022 - 11/15/2030 1,494,917 53,733 9.000%, 10/15/2016 - 6/15/2025 59,290 9,878 9.500%, 10/15/2020 11,081 734,650 12.000%, 4/15/2015 - 6/15/2015 835,892 TOTAL 101,555,647 TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST 756,361,876 $748,153,198) Repurchase Agreements--31.1% 68,500,000 2,3 Interest in $435,000,000 joint repurchase 68,500,000 agreement with Credit Suisse First Boston Corp., 1.05%, dated 12/16/2003, to be repurchased at $68,569,927 on 1/20/2004, collateralized by U.S. Government Agency Obligations with various maturities to 6/1/2033 40,000,000 2,3 Interest in $178,000,000 joint repurchase 40,000,000 agreement with Credit Suisse First Boston Corp., 1.05%, dated 12/18/2003, to be repurchased at $40,040,833 on 1/22/2004, collateralized by U.S. Government Agency Obligations with various maturities to 6/1/2033 12,236,000 3 Interest in $800,000,000 joint repurchase 12,236,000 agreement with Greenwich Capital Markets, Inc., 1.03%, dated 12/31/2003, to be repurchased at $12,236,700 on 1/2/2004, collateralized by U.S. Government Agency Obligations with various maturities to 2/25/2042 Principal Value Amount $118,000,000 2,3 Interest in $522,500,000 joint repurchase $118,000,000 agreement with UBS Warburg LLC, 1.05%, dated 12/11/2003, to be repurchased at $118,117,017 on 1/14/2004, collateralized by U.S. Government Agency Obligations with various maturities to 6/25/2029 TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 238,736,000 TOTAL INVESTMENTS-129.7% (IDENTIFIED COST 995,097,876 $986,889,198) 4 OTHER ASSETS AND LIABILITIES-NET-(29.7)% (228,085,952) TOTAL NET ASSETS--100% $767,011,924
1 All or a portion of these securities may be subject to dollar roll transactions. 2 Although final maturity falls beyond seven days, a liquidity feature is included in each transaction to permit termination of the repurchase agreement within seven days if the creditworthiness of the issuer is downgraded. 3 Security held as collateral for dollar roll transactions. 4 The cost of investments for federal tax purposes amounts to $986,900,895. Note: The categories of investments are shown as a percentage of total net assets at December 31, 2003. See Notes which are an integral part of the Financial Statements FEDERATED MORTGAGE CORE PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2003 Assets: Investments in securities $756,361,876 Investments in repurchase agreements 238,736,000 Total investments in securities, at value $995,097,876 (identified cost $986,889,198) Cash 752,469 Income receivable 2,614,931 Total assets 998,465,276 Liabilities: Payable for investments purchased 751,475 Payable for dollar roll transactions 230,666,260 Payable for transfer and dividend 2,560 disbursing agent fees and expenses (Note 5) Payable for Directors'/Trustees' fee 734 Payable for portfolio accounting fees (Note 5) 4,954 Accrued expenses 27,369 TOTAL LIABILITIES 231,453,352 Net assets for 75,288,283 shares outstanding $767,011,924 Net Assets Consist of: Paid in capital $759,543,223 Net unrealized appreciation of investments 8,208,678 Accumulated net realized loss on (893,404) investments Undistributed net investment income 153,427 TOTAL NET ASSETS $767,011,924 Net Asset Value, Offering Price and Redemption Proceeds Per Share $767,011,924 / 75,288,283 shares outstanding $10.19 See Notes which are an integral part of the Financial Statements Federated Mortgage Core Portfolio Statement of Operations Year Ended December 31, 2003 Investment Income: Interest (net of dollar roll expense $36,757,837 of $4,805,903) Expenses: Administrative personnel and services $625,886 fees (Note 5) Custodian fees 48,117 Transfer and dividend disbursing 14,627 agent fees and expenses (Note 5) Directors'/Trustees' fees 8,525 Auditing fees 14,290 Legal fees 7,666 Portfolio accounting fees (Note 5) 121,206 Insurance premiums 2,391 Miscellaneous 340 TOTAL EXPENSES 843,048 Waiver of administrative personnel (625,886) and services fees (Note 5) Net expenses 217,162 Net investment income 36,540,675 Realized and Unrealized Gain (Loss) on Investments: Net realized loss on investments (1,065,716) Net change in unrealized appreciation (11,098,372) of investments Net increase due to voluntary 36,719 contribution from adviser (Note 6) Net realized and unrealized loss on (12,127,369) investments Change in net assets resulting from $24,413,306 operations See Notes which are an integral part of the Financial Statements Federated Mortgage Core Portfolio Statement of Changes in Net Assets Year Ended December 31 2003 2002 Increase (Decrease) in Net Assets Operations: Net investment income $36,540,675 $28,951,730 Net realized gain (loss) on investments (1,065,716) 1,775,463 Net change in unrealized (11,098,372) 12,334,549 appreciation/depreciation of investments Net increase due to voluntary contribution 36,719 -- from adviser (Note 6) Change in net assets resulting from 24,413,306 43,061,742 operations Distributions to Shareholders: Distributions from net investment income (36,407,589) (28,985,744) Distributions from net realized gain on (263,696) (1,229,213) investments Change in net assets resulting from (36,671,285) (30,214,957) distributions to shareholders Share Transactions: Proceeds from sale of shares 418,182,000 229,200,412 Net asset value of shares issued to 36,607,046 30,214,957 shareholders in payment of distributions declared Cost of shares redeemed (276,736,448) (124,828,629) Change in net assets resulting from share 178,052,598 134,586,740 transactions Change in net assets 165,794,619 147,433,525 Net Assets: Beginning of period 601,217,305 453,783,780 End of period (including undistributed net $767,011,924 $601,217,305 investment income of $153,427 and $20,341, respectively) See Notes which are an integral part of the Financial Statements FEDERATED MORTGAGE CORE PORTFOLIO STATEMENT OF CASH FLOWS For the Year Ended December 31, 2003 Increase (Decrease) in Cash Cash Flows From Operating Activities: ------------------------------------------------------------------------------- Change in net assets resulting from operations $ 24,413,306 ------------------------------------------------------------------------------- Adjustments to reconcile change in net assets resulting from operations to net cash used in operating activities: (3,444,068,723) Purchases of investment securities -------------------------------------------------------------------- Paydowns on investment securities 249,771,787 -------------------------------------------------------------------- Realized loss on paydowns 3,882,339 -------------------------------------------------------------------- Proceeds from sale of investment securities 3,019,596,035 -------------------------------------------------------------------- Net purchases of short-term investment securities (34,090,000) -------------------------------------------------------------------- Increase in income receivable (299,963) -------------------------------------------------------------------- Decrease in payable for accrued expenses (7,057) -------------------------------------------------------------------- Decrease in payable for investments purchased (47,049,596) -------------------------------------------------------------------- Net realized loss on investments 1,065,716 -------------------------------------------------------------------- Net unrealized depreciation on investments 11,098,372 ------------------------------------------------------------------------------- NET CASH USED IN OPERATING ACTIVITIES (215,687,784) -------------------------------------------------------------------------------- Cash Flows from Financing Activities: -------------------------------------------------------------------- -------------------------------------------------------------------- Cash received from dollar roll transactions, net 75,525,481 -------------------------------------------------------------------- -------------------------------------------------------------------- Proceeds from sale of shares 418,182,000 -------------------------------------------------------------------- -------------------------------------------------------------------- Cash distributions paid (64,239) -------------------------------------------------------------------- -------------------------------------------------------------------- Payment for shares redeemed (277,203,910) ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- NET CASH PROVIDED FROM FINANCING ACTIVITIES 216,439,332 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- NET INCREASE IN CASH 751,548 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Cash: -------------------------------------------------------------------- -------------------------------------------------------------------- Cash at beginning of the period 921 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Cash at end of the period $ 752,469 ------------------------------------------------------------------------------- See Notes which are an integral part of the Financial Statements. FEDERATED MORTGAGE CORE PORTFOLIO FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period)
Year Ended December 31, Period Ended December 31, 2003 2002 2001 2000 1999 1 ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Net Asset Value, Beginning $10.32 $10.04 $9.89 $9.55 $10.00 of Period Income From Investment Operations: Net investment income 0.48 0.61 0.66 0.68 0.55 Net realized and (0.13) 0.31 0.15 0.34 (0.45) unrealized gain (loss) on investments TOTAL FROM INVESTMENT 0.35 0.92 0.81 1.02 0.10 OPERATIONS Less Distributions: Distributions from net (0.48) (0.61) (0.66) (0.68) (0.55) investment income Distributions from net (0.00) 2 (0.03) --- --- --- realized gain on investments TOTAL DISTRIBUTIONS (0.48) (0.64) (0.66) (0.68) (0.55) Net Asset Value, End of $10.19 $10.32 $10.04 $9.89 $9.55 Period Total Return3 3.52% 9.43% 8.37% 11.15% 1.07% Ratios to Average Net Assets: Expenses 0.03% 0.04% 0.04% 0.05% 0.05% 4 Net investment income 4.67% 6.00% 6.56% 7.09% 6.66% 4 Expense 0.08% 0.08% 0.08% 0.08% 0.08% 4 waiver/reimbursement 5 Supplemental Data: Net assets, end of period $767,012 $601,217 $453,784 $371,659 $258,304 (000 omitted) Portfolio turnover 90% 84% 93% 81% 153% ---------------------------------------------------------------------------------
1 Reflects operations for the period from February 22, 1999 (date of initial investment) to December 31, 1999. 2 Represents less than $0.01. 3 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 4 Computed on an annualized basis. 5 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above. See Notes which are an integral part of the Financial Statements Federated Mortgage Core Portfolio Notes to Financial Statements December 31, 2003 ------------------------------------------------------------------------------- 1. ORGANIZATION Federated Core Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of two diversified portfolios, Federated Mortgage Core Portfolio (the "Fund") and High Yield Bond Portfolio. The financial statements included herein are only for the Fund. The financial statements of the other portfolio are presented separately. The Fund's investment objective is to provide total return by investing in U.S. Treasury bills, notes, bonds, discount notes and mortgage backed securities issued or guaranteed by the U.S. government. The Fund is an investment vehicle used by other Federated funds that invest some portion of their assets in mortgage backed securities. Currently, the Fund is only available for purchase by other Federated funds and their affiliates, or insurance company separate accounts, common or commingled trust funds or similar organizations or entities that are "accredited investors" within the meaning of Regulation D of the 1933 Act. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles ("GAAP") in the United States of America. Investment Valuation Listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees"). Statement of Cash Flows Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Fund's Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount reported as cash in the Fund's Statement of Assets and Liablities and represents cash on hand at its custodian bank account and does not include any short-term investments at December 31, 2003. Repurchase Agreements It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Trustees. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Investment Income, Expenses and Distributions Interest income and expenses are accrued daily. Distributions to shareholders are recorded on the ex-dividend date. Premium and Discount Amortization/Paydown Gains and Losses All premiums and discount on fixed income securities are amortized/accreted. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. Federal Taxes It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary. 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. Dollar Roll Transactions The Fund may engage in dollar roll transactions, with respect to mortgage securities issued by GNMA, FNMA and FHLMC, in which the Fund sells mortgage securities to financial institutions and simultaneously agrees to accept substantially similar (same type, coupon and maturity) securities at a later date at an agreed-upon price. Dollar roll transactions involve "to be announced" securities and are treated as short-term financing arrangements which will not exceed twelve months. The Fund will use the proceeds generated from the transactions to invest in short-term investments, which may enhance the Fund's current yield and total return. Information regarding dollar roll transactions for the Fund for the year ended December 31, 2003, was as follows: ------------------------------------------------------------------------------- Maximum amount outstanding during the period $273,645,891 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Average amount outstanding during the period1 $215,483,739 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Average monthly shares outstanding during the 155,686,554 period ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Average debt per shares outstanding during the 1.38 period ------------------------------------------------------------------------------- 1 The average amount outstanding during the period was calculated by adding the borrowings at the end of the day and dividing the sum by the number of days in the year ended December 31, 2003. ------------------------------------------------------------------------------- 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. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows: Year Ended December 31 2003 2002 ------------------------------------------------------------------------- Shares sold 40,713,943 22,436,674 Shares issued to shareholders in payment of 3,584,553 2,958,829 distributions declared Shares redeemed (27,289,692) (12,328,217) NET CHANGE RESULTING FROM SHARE 17,008,804 13,067,286 TRANSACTIONS ------------------------------------------------------------------------- 4. FEDERAL TAX INFORMATION The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2003 and 2002 was as follows: 2003 2002 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Ordinary income1 $ 36,671,285 $ 30,214,957 ------------------------------------------------------------------------------- 1 For tax purposes short-term capital gain distributions are considered ordinary income distributions. As of December 31, 2003, the components of distributable earnings on a tax basis were as follows: ------------------------------------------------------------------------------- Undistributed ordinary income $ 153,427 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- Net unrealized appreciation 8,196,981 ------------------------------------------------------------------------------- The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the tax deferral of losses on wash sales. At December 31, 2003, the cost of investments for federal tax purposes was $986,900,895. The net unrealized appreciation of investments for federal tax purposes was $8,196,981. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $9,908,477 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,711,496. Under current tax regulations, capital losses realized after October 31, may be deferred and treated as occurring on the first day of the following fiscal year. As of December 31, 2003, for federal income tax purposes, post October losses of $844,989 were deferred to January 1, 2004. 5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES Investment Adviser Fee Federated Investment Management Company is the Fund's investment adviser (the "Adviser"), subject to direction of the Trustees. The Adviser provides investment adviser services at no fee. Administrative Fee Federated Administrative Services ("FAS"), under the Administrative Services Agreement ("Agreement"), provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of all Federated funds as specified below: Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 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 and $40,000 per each additional class of Shares. FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. Prior to November 1, 2003, Federated Service Company ("FServ") provided the fund with administrative personnel and services. The fee paid to FServ was based on the average aggregate daily net assets of all Federated funds as specified below. Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds -------------------------------------------------------------------------- -------------------------------------------------------------------------- 0.150% on the first $250 million -------------------------------------------------------------------------- -------------------------------------------------------------------------- 0.125% on the next $250 million -------------------------------------------------------------------------- -------------------------------------------------------------------------- 0.100% on the next $250 billion -------------------------------------------------------------------------- -------------------------------------------------------------------------- 0.075% on assets in excess of $750 billion -------------------------------------------------------------------------- The administrative fee received during any fiscal year was at least $125,000 per portfolio and $30,000 per each additional class of Shares. For the year ended December 31, 2003, the fees paid to FAS and FServ were $0 and $0, respectively, after voluntary waiver, if applicable. Transfer and Dividend Disbursing Agent Fees and Expenses FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC"), serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders. FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion. Portfolio Accounting Fees FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. FServ may voluntarily choose to waive any portion of its fee. FServ can modify or terminate this voluntary waiver at any time at its sole discretion. General Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 6. OTHER On July 14, 2003, the Adviser made a voluntary contribution to the Fund of $36,719 for losses incurred due to investment transactions entered into inadvertently. 7. LEGAL PROCEEDINGS In October, 2003, Federated Investors, Inc. and various subsidiaries thereof (collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations have been filed, and others may be filed in the future. Although Federated does 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 related regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Trustees of Federated Core Trust and Shareholders of Federated Mortgage Core Portfolio: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated Mortgage Core Portfolio (the "Fund") (one of the portfolios constituting the Federated Core Trust) as of December 31, 2003, and the related statements of operations and cash flows for the year then ended, the statement of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 Federated Mortgage Core Portfolio of Federated Core Trust at December 31, 2003, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States. [GRAPHIC OMITTED] Boston, Massachusetts February 10, 2004 HIGH YIELD BOND PORTFOLIO PORTFOLIO OF INVESTMENTS December 31, 2003
Principal Value Amount Corporate Bonds--95.9% Aerospace / Defense--1.3% $2,800,000 Alliant Techsystems, Inc., Sr. Sub. Note, 8.50%, $3,094,000 5/15/2011 500,000 4 Condor Systems, Inc., Sr. Sub. Note, Series B, 125,000 11.875%, 5/1/2009 1,550,000 1,2 DRS Technologies, Inc., Sr. Sub. Note, 6.875%, 1,596,500 11/1/2013 2,400,000 1,2 GenCorp, Inc., Sr. Sub. Note, 9.50%, 8/15/2013 2,508,000 625,000 Hexcel Corp., Sr. Secd. Note, 9.875%, 10/1/2008 703,125 4,350,000 Hexcel Corp., Sr. Sub. Note, Series B, 9.75%, 4,578,375 1/15/2009 1,125,000 1,2 L-3 Communications Corp., Sr. Sub. Note, 6.125%, 1,133,437 1/15/2014 2,175,000 1,2 TransDigm, Inc., Sr. Sub. Note, 8.375%, 7/15/2011 2,324,531 Total 16,062,968 Automotive--4.8% 950,000 Accuride Corp., Sr. Sub. Note, Series B, 9.25%, 983,250 2/1/2008 3,500,000 Advanced Accessory Systems LLC, Sr. Note, 10.75%, 3,893,750 6/15/2011 4,700,000 American Axle & Manufacturing, Inc., Company 4,976,125 Guarantee, 9.75%, 3/1/2009 1,625,000 Arvin Industries, Inc., Note, 6.75%, 3/15/2008 1,708,281 1,650,000 Arvin Industries, Inc., Note, 7.125%, 3/15/2009 1,751,062 2,550,000 ArvinMeritor, Inc., Note, 8.75%, 3/1/2012 2,926,125 775,000 Dana Corp., Note, 9.00%, 8/15/2011 937,750 3,300,000 Ford Motor Credit Co., Note, 5.625%, 10/1/2008 3,406,920 4,475,000 General Motors Corp., Note, 7.125%, 7/15/2013 4,851,616 4,450,000 General Motors Corp., Note, 8.375%, 7/15/2033 5,083,502 9,450,000 Lear Corp., Company Guarantee, 8.11%, 5/15/2009 11,127,375 3,975,000 Stoneridge, Inc., Company Guarantee, 11.50%, 4,705,406 5/1/2012 7,025,000 TRW Automotive, Inc., Sr. Sub. Note, 11.00%, 8,342,187 2/15/2013 2,300,000 United Components, Inc., Sr. Sub. Note, 9.375%, 2,524,250 6/15/2013 Total 57,217,599 Building Materials--2.3% 1,375,000 American Builders & Contractors Supply Co. Inc., 1,430,000 Sr. Sub. Note, 10.625%, 5/15/2007 1,950,000 Associated Materials, Inc., Company Guarantee, 2,145,000 9.75%, 4/15/2012 2,425,000 Collins & Aikman Floorcoverings, Inc., Company 2,606,875 Guarantee, 9.75%, 2/15/2010 4,275,000 1,2 Euramax International PLC, Sr. Sub. Note, 8.50%, 4,574,250 8/15/2011 1,600,000 Legrand SA, Sr. Note, 10.50%, 2/15/2013 1,866,800 4,150,000 MMI Products, Inc., Sr. Sub. Note, 11.25%, 3,403,000 4/15/2007 3,650,000 NCI Building System, Inc., Sr. Sub. Note, Series 3,859,875 B, 9.25%, 5/1/2009 1,000,000 1,2 Norcraft Cos. LLC, Sr. Sub. Note, 9.00%, 11/1/2011 1,075,000 4,000,000 1,2,3 Nortek Holdings, Inc., Sr. Disc. Note, 0/10.00%, 2,920,000 5/15/2011 3,050,000 Nortek Holdings, Inc., Sr. Note, 9.125%, 9/1/2007 3,164,375 Total 27,045,175 Chemicals--4.0% 2,425,000 Compass Minerals Group, Inc., Sr. Sub. Note, 2,728,125 10.00%, 8/15/2011 3,850,000 Equistar Chemicals LP, Sr. Note, 10.125%, 9/1/2008 4,254,250 2,100,000 FMC Corp., Sr. Secd. Note, 10.25%, 11/1/2009 2,467,500 1,960,000 1,4 General Chemical Industrial Products, Inc., Sr. 357,700 Sub. Note, 10.625%, 5/1/2009 1,275,000 1,2 Huntsman Advanced Materials, Inc., Sr. Secd. Note, 1,415,250 11.00%, 7/15/2010 5,875,000 Huntsman ICI Chemicals LLC, Sr. Sub. Note, 6,110,000 10.125%, 7/1/2009 2,050,000 1,2 Koppers, Inc, Sr. Secd. Note, 9.875%, 10/15/2013 2,275,500 $775,000 1,2 Kraton Polymers Capital Corp., Sr. Sub. Note, $811,812 8.125%, 1/15/2014 2,100,000 Lyondell Chemical Co., Sr. Secd. Note, 9.50%, 2,226,000 12/15/2008 3,100,000 Lyondell Chemical Co., Sr. Secd. Note, 9.875%, 3,286,000 5/1/2007 5,675,000 Lyondell Chemical Co., Sr. Sub. Note, 10.875%, 5,873,625 5/1/2009 950,000 1,2 Nalco Co., Sr. Note, 7.75%, 11/15/2011 1,021,250 1,950,000 1,2 Nalco Co., Sr. Sub. Note, 8.875%, 11/15/2013 2,096,250 625,000 1,2 Rhodia SA, Sr. Note, 7.625%, 6/1/2010 603,125 1,625,000 1,2 Rhodia SA, Sr. Sub. Note, 8.875%, 6/1/2011 1,503,125 2,500,000 1,2 Salt Holdings Corp., Sr. Disc. Note, 0/12.75%, 1,987,500 12/15/2012 4,575,000 1,2 Salt Holdings Corp., Sr. Sub. Disc. Note, 3,179,625 0/12.00%, 6/1/2013 2,500,000 1,4 Texas Petrochemicals Corp., Sr. Sub. Note, 812,500 11.125%, 7/1/2006 1,650,000 Union Carbide Corp., Deb., 6.79%, 6/1/2025 1,606,687 350,000 Union Carbide Corp., Sr. Deb., 7.875%, 4/1/2023 321,562 3,250,000 Union Carbide Corp., Sr. Deb., 8.75%, 8/1/2022 3,132,187 Total 48,069,573 Construction Machinery--2.5% 3,750,000 AGCO Corp., Sr. Note, 9.50%, 5/1/2008 4,115,625 3,150,000 Case Corp., Unsecd. Note, 7.25%, 8/1/2005 3,299,625 4,475,000 1,2 Case New Holland, Sr. Note, 9.25%, 8/1/2011 5,034,375 1,000,000 1,2 Case New Holland, Sr. Note, 9.25%, 8/1/2011 1,125,000 1,775,000 1,4 Clark Material Handling Corp., Sr. Note, 10.75%, 177 11/15/2006 525,000 Columbus McKinnon Corp., Sr. Secd. Note, 10.00%, 560,437 8/1/2010 3,775,000 Columbus McKinnon Corp., Sr. Sub. Note, 8.50%, 3,548,500 4/1/2008 950,000 1,2 Great Lakes Dredge & Dock Corp., Sr. Sub. Note, 980,875 7.75%, 12/15/2013 2,400,000 1,2 NationsRent Cos., Inc., Sr. Secd. Note, 9.50%, 2,592,000 10/15/2010 6,025,000 United Rentals, Inc., Company Guarantee, Series B, 6,808,250 10.75%, 4/15/2008 1,825,000 United Rentals, Inc., Company Guarantee, Series B, 1,925,375 9.00%, 4/1/2009 Total 29,990,239 Consumer Products--5.0% 4,275,000 Alltrista Corp., Unsecd. Note, 9.75%, 5/1/2012 4,734,562 4,300,000 American Achievement Corp., Sr. Note, Series W.I., 4,837,500 11.625%, 1/1/2007 5,375,000 American Greetings Corp., Sr. Sub. Note, 11.75%, 6,235,000 7/15/2008 600,000 American Safety Razor Co., Sr. Note, 9.875%, 597,000 8/1/2005 2,350,000 Amscan Holdings, Inc., Sr. Sub. Note, 9.875%, 2,367,625 12/15/2007 2,600,000 Armkel Finance, Inc., Sr. Sub. Note, 9.50%, 2,876,250 8/15/2009 775,000 1,2 Bombardier Recreational Products, Inc., 8.375%, 809,875 12/15/2013 4,325,000 Chattem, Inc., Sr. Sub. Note, 8.875%, 4/1/2008 4,465,562 500,000 Commemorative Brands, Inc., Sr. Sub. Note, 11.00%, 512,500 1/15/2007 325,000 4 Diamond Brands Operating Corp., Sr. Sub. Note, 32 10.125%, 4/15/2008 925,000 4 Diamond Brands, Inc., Sr. Disc. Deb., 12.875%, 92 4/15/2009 1,800,000 ICON Health & Fitness, Inc., Company Guarantee, 2,007,000 11.25%, 4/1/2012 575,000 1,2 Jacuzzi Brands, Inc., Sr. Secd. Note, 9.625%, 635,375 7/1/2010 4,950,000 1,2,3 Jostens Holding Corp., Sr. Disc. Note, 0/10.25%, 3,168,000 12/1/2013 3,425,000 Jostens, Inc., Sr. Sub. Note, 12.75%, 5/1/2010 3,955,875 4,250,000 Playtex Products, Inc., Company Guarantee, 9.375%, 4,292,500 6/1/2011 2,550,000 Sealy Mattress Co., Company Guarantee, 10.875%, 2,664,750 12/15/2007 2,025,000 Sealy Mattress Co., Sr. Sub. Note, 9.875%, 2,111,062 12/15/2007 750,000 1,2 Simmons Co., Sr. Sub. Note, 7.875%, 1/15/2014 761,250 950,000 1,4 Sleepmaster LLC, Company Guarantee, Series B, 263,625 11.00%, 5/15/2009 3,700,000 1,2 Tempur World, Sr. Sub. Note, 10.25%, 8/15/2010 4,148,625 2,970,000 True Temper Sports, Inc., Sr. Sub. Note, Series B, 3,163,050 10.875%, 12/1/2008 4,750,000 United Industries Corp., Sr. Sub. Note, Series D, 4,999,375 9.875%, 4/1/2009 Total 59,606,485 Diversified Manufacturing--2.0% 4,200,000 1,2 Amsted Industries, Inc., Sr. Note, 10.25%, 4,662,000 10/15/2011 $472,000 Simonds Industries, Inc., Sr. Sub. Note, 10.00%, $ 472,000 10/1/2008 7,550,000 Tyco International Group, Company Guarantee, 8,048,149 6.375%, 2/15/2006 5,625,000 Tyco International Group, Note, 5.80%, 8/1/2006 6,000,694 4,000,000 Tyco International Group, Sr. Note, 6.375%, 4,197,200 6/15/2005 Total 23,380,043 Energy--2.7% 3,225,000 CITGO Petroleum Corp., Sr. Note, 11.375%, 2/1/2011 3,789,375 3,350,000 Compton Petroleum Corp., Sr. Note, 9.90%, 5/15/2009 3,676,625 4,000,000 Continental Resources, Inc., Sr. Sub. Note, 4,040,000 10.25%, 8/1/2008 3,800,000 Lone Star Technologies, Inc., Company Guarantee, 3,781,000 Series B, 9.00%, 6/1/2011 1,625,000 Magnum Hunter Resources, Inc., Sr. Note, 9.60%, 1,852,500 3/15/2012 2,450,000 Petroleum Helicopters, Inc., Company Guarantee, 2,609,250 Series B, 9.375%, 5/1/2009 4,325,000 Pogo Producing Co., Sr. Sub. Note, Series B, 4,622,344 10.375%, 2/15/2009 3,300,000 Swift Energy Co., Sr. Sub. Note, 9.375%, 5/1/2012 3,613,500 3,250,000 Tesoro Petroleum Corp., Company Guarantee, Series 3,477,500 B, 9.625%, 11/1/2008 625,000 Tesoro Petroleum Corp., Sr. Secd. Note, 8.00%, 673,437 4/15/2008 300,000 Tesoro Petroleum Corp., Sr. Sub. Note, 9.00%, 312,750 7/1/2008 Total 32,448,281 Entertainment--3.3% 1,875,000 AMC Entertainment, Inc., Sr. Sub. Note, 9.50%, 1,950,000 3/15/2009 3,075,000 AMC Entertainment, Inc., Sr. Sub. Note, 9.875%, 3,428,625 2/1/2012 3,050,000 1,2 AMF Bowling Worldwide, Inc., Sr. Sub. Note, 3,461,750 13.00%, 2/28/2008 1,875,000 Cinemark USA, Sr. Sub. Note, 9.00%, 2/1/2013 2,118,750 3,950,000 Intrawest Corp., Company Guarantee, 10.50%, 4,394,375 2/1/2010 1,100,000 Premier Parks, Inc., Sr. Note, 9.75%, 6/15/2007 1,159,125 3,375,000 Regal Cinemas, Inc., Company Guarantee, Series B, 3,830,625 9.375%, 2/1/2012 1,075,000 1,2 Six Flags, Inc., Sr. Note, 9.625%, 6/1/2014 1,128,750 1,675,000 Six Flags, Inc., Sr. Note, 9.75%, 4/15/2013 1,767,125 5,700,000 1,2 Universal City Development Partners Ltd., Sr. 6,726,000 Note, 11.75%, 4/1/2010 4,800,000 1,2 Vivendi Universal SA, Sr. Note, 6.25%, 7/15/2008 5,100,000 3,625,000 1,2 Vivendi Universal SA, Sr. Note, 9.25%, 4/15/2010 4,295,625 Total 39,360,750 Environmental--1.8% 11,500,000 Allied Waste North America, Inc., Company 11,960,000 Guarantee, 7.875%, 1/1/2009 1,500,000 Allied Waste North America, Inc., Company 1,702,500 Guarantee, Series B, 9.25%, 9/1/2012 500,000 Allied Waste North America, Inc., Sr. Sub. Note, 542,500 10.00%, 8/1/2009 1,500,000 Browning-Ferris Industries, Inc., Deb., 9.25%, 1,657,500 5/1/2021 2,575,000 1,2 Sensus Metering Systems, Inc., Sr. Sub. Note, 2,652,250 8.625%, 12/15/2013 2,475,000 Synagro Technologies, Inc., Sr. Sub. Note, 9.50%, 2,716,312 4/1/2009 Total 21,231,062 Financial Institutions--0.3% 800,000 1,2 CBRE Escrow, Inc., Sr. Note, 9.75%, 5/15/2010 892,000 2,675,000 1,2 Dollar Financial Group, Inc., Sr. Note, 9.75%, 2,782,000 11/15/2011 Total 3,674,000 Food & Beverage-5.4% 1,144,000 Agrilink Foods, Inc., Company Guarantee, 11.875%, 1,212,640 11/1/2008 3,725,000 American Seafoods Group LLC, Company Guarantee, 4,451,375 10.125%, 4/15/2010 2,125,000 B&G Foods, Inc., Company Guarantee, Series D, 2,210,000 9.625%, 8/1/2007 2,300,000 Constellation Brands, Inc., Company Guarantee, 2,599,000 Series B, 8.00%, 2/15/2008 1,000,000 Constellation Brands, Inc., Sr. Sub. Note, 8.125%, 1,112,500 1/15/2012 3,525,000 Cott Beverages, Inc., Company Guarantee, 8.00%, 3,833,437 12/15/2011 4,525,000 Del Monte Corp., Company Guarantee, Series B, 5,022,750 9.25%, 5/15/2011 1,950,000 Del Monte Corp., Sr. Sub. Note, 8.58%, 12/15/2012 2,159,625 1,650,000 Dole Food, Inc., Company Guarantee, 7.25%, 1,716,000 6/15/2010 4,200,000 Dole Food, Inc., Sr. Note, 8.625%, 5/1/2009 4,630,500 675,000 Dole Food, Inc., Sr. Note, 8.875%, 3/15/2011 740,812 $2,550,000 Eagle Family Foods, Inc., Sr. Sub. Note, 8.75%, $ 1,874,250 1/15/2008 3,950,000 Land O'Lakes, Inc., Sr. Note, 8.75%, 11/15/2011 3,495,750 1,925,000 1,2 Michael Foods, Inc., Sr. Sub. Note, 8.00%, 2,011,625 11/15/2013 2,000,000 1,2 National Beef Packaging Co. LLC, Sr. Note, 10.50%, 2,070,000 8/1/2011 3,075,000 New World Pasta Co., Sr. Sub. Note, 9.25%, 807,187 2/15/2009 3,875,000 1,2 PPC Escrow Corp., Sr. Sub. Note, 9.25%, 11/15/2013 4,049,375 5,450,000 Pilgrim's Pride Corp., Sr. Note, 9.625%, 9/15/2011 6,022,250 2,700,000 1,2 Reddy Ice Group, Inc., Sr. Sub. Note, 8.875%, 2,882,250 8/1/2011 2,950,000 Smithfield Foods, Inc., Note, 7.75%, 5/15/2013 3,082,750 3,400,000 Smithfield Foods, Inc., Sr. Note, Series B, 8.00%, 3,587,000 10/15/2009 1,775,000 Smithfield Foods, Inc., Sr. Sub. Note, 7.625%, 1,801,625 2/15/2008 1,425,000 Swift & Co., Sr. Note, 10.125%, 10/1/2009 1,521,187 1,200,000 1,2 Swift & Co., Sr. Sub. Note, 12.50%, 1/1/2010 1,275,000 950,000 1,2 United Agri Products, Inc., Sr. Note, 8.25%, 980,875 12/15/2011 Total 65,149,763 Gaming--7.3% 1,500,000 Boyd Gaming Corp., Sr. Sub. Note, 7.75%, 12/15/2012 1,608,750 2,875,000 Boyd Gaming Corp., Sr. Sub. Note, 8.75%, 4/15/2012 3,162,500 3,050,000 Coast Hotels & Casinos, Inc., Company Guarantee, 3,233,000 9.50%, 4/1/2009 9,025,000 Harrah's Operations, Inc., Company Guarantee, 9,882,375 7.875%, 12/15/2005 1,800,000 Isle of Capri Casinos, Inc., Company Guarantee, 2,011,500 9.00%, 3/15/2012 1,500,000 Isle of Capri Casinos, Inc., Sr. Sub. Note, 8.75%, 1,582,500 MGM Grand, Inc., Sr. Note, 6.00%, 10/1/2009 2,065,000 5,100,000 MGM Grand, Inc., Sr. Note, 8.50%, 9/15/2010 5,877,750 1,850,000 MGM Grand, Inc., Sr. Sub. Note, 8.375%, 2/1/2011 2,109,000 5,300,000 MGM Grand, Inc., Sr. Sub. Note, 9.75%, 6/1/2007 6,095,000 2,925,000 MTR Gaming Group, Inc., Company Guarantee, Series 3,144,375 B, 9.75%, 4/1/2010 2,125,000 1,2 Majestic Star Casino LLC, Sr. Secd. Note, 9.50%, 2,188,750 10/15/2010 975,000 Mandalay Resort Group, Sr. Note, 9.50%, 8/1/2008 1,143,187 7,775,000 Mandalay Resort Group, Sr. Sub. Note, 10.25%, 9,019,000 8/1/2007 2,300,000 Mohegan Tribal Gaming Authority, Sr. Sub. Note, 2,380,500 6.375%, 7/15/2009 1,525,000 Mohegan Tribal Gaming Authority, Sr. Sub. Note, 1,654,625 8.00%, 4/1/2012 1,200,000 Mohegan Tribal Gaming Authority, Sr. Sub. Note, 1,314,000 8.375%, 7/1/2011 4,225,000 Park Place Entertainment Corp., Sr. Sub. Note, 4,700,312 7.875%, 3/15/2010 5,425,000 Park Place Entertainment Corp., Sr. Sub. Note, 6,130,250 8.125%, 5/15/2011 2,025,000 Penn National Gaming, Inc., Company Guarantee, 2,290,781 11.125%, 3/1/2008 1,775,000 Penn National Gaming, Inc., Company Guarantee, 1,939,187 8.875%, 3/15/2010 825,000 1,2 Poster Financial Group, Inc., Sr. Secd. Note, 876,562 8.75%, 12/1/2011 1,250,000 1,2 River Rock Entertainment Authority, Sr. Note, 1,348,437 9.75%, 11/1/2011 3,700,000 Sun International Hotels Ltd., Sr. Sub. Note, 4,051,500 8.875%, 8/15/2011 3,475,000 Venetian Casino/LV Sands, Company Guarantee, 4,048,375 11.00%, 6/15/2010 2,850,000 Wynn Las Vegas LLC, Second Mortgage Notes, 12.00%, 3,341,625 11/1/2010 Total 87,198,841 Healthcare--4.5% 1,600,000 Alaris Medical Systems, Sr. Sub. Note, 7.25%, 1,660,000 7/1/2011 4,050,000 AmeriPath, Inc., Company Guarantee, 10.50%, 4,394,250 4/1/2013 2,000,000 1,2 Ardent Health Services, Sr. Sub. Note, 10.00%, 2,190,000 8/15/2013 2,500,000 Concentra Operating Corp., Sr. Sub. Note, 9.50%, 2,718,750 8/15/2010 3,300,000 1,2 Fisher Scientific International, Inc., Sr. Sub. 3,564,000 Note, 8.00%, 9/1/2013 6,800,000 HCA - The Healthcare Corp., Note, 8.75%, 9/1/2010 8,071,328 4,850,000 HCA - The Healthcare Corp., Sr. Note, 7.875%, 5,466,435 2/1/2011 2,950,000 HCA Inc., 5.25%, 11/6/2008 3,013,543 1,850,000 Hanger Orthopedic Group, Inc., Company Guarantee, 2,109,000 10.375%, 2/15/2009 1,350,000 Hudson Respiratory Care, Inc., Sr. Sub. Note, 1,167,750 9.125%, 4/15/2008 1,150,000 1,2 Kinetic Concepts, Inc., Sr. Sub. Note, 7.375%, 1,207,500 5/15/2013 $2,400,000 1,2 Magellan Health Services, Inc., Sr. Note, 9.375%, $ 2,532,000 11/15/2007 4,475,000 Manor Care, Inc., Sr. Note, 8.00%, 3/1/2008 5,045,831 2,125,000 Sybron Dental Specialties, Inc., Company 2,321,562 Guarantee, 8.125%, 6/15/2012 3,475,000 1,2 Universal Hospital Services, Inc., Sr. Note, 3,648,750 10.125%, 11/1/2011 4,950,000 Vanguard Health Systems, Company Guarantee, 9.75%, 5,407,875 8/1/2011 Total 54,518,574 Industrial - Other--3.8% 3,625,000 Brand Services, Inc., Company Guarantee, 12.00%, 4,205,000 10/15/2012 2,350,000 Briggs & Stratton Corp., Company Guarantee, 2,767,125 8.875%, 3/15/2011 1,600,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 1,636,000 12.50%, 7/15/2005 500,000 Continental Global Group, Inc., Sr. Note, 11.00%, 102,500 4/1/2007 6,150,000 1,2 Eagle Picher Industries, Inc., Sr. Note, 9.75%, 6,734,250 9/1/2013 1,600,000 Foamex LP, Company Guarantee, 10.75%, 4/1/2009 1,528,000 2,400,000 Foamex LP, Sr. Sub. Note, 9.875%, 6/15/2007 1,956,000 725,000 1,2 General Cable Corp., Sr. Note, 9.50%, 11/15/2010 777,563 2,400,000 Greif Brothers Corp., Sr. Sub. Note, 8.875%, 2,652,000 8/1/2012 2,000,000 1,2 Hines Nurseries, Inc., Sr. Note, 10.25%, 10/1/2011 2,190,000 3,275,000 Interline Brands, Inc., Sr. Sub. Note, 11.50%, 3,627,063 5/15/2011 2,703,900 1,2 Neenah Corp., Sr. Sub. Note, 13.00%, 9/30/2013 2,764,738 3,245,000 1,2 Neenah Corp., Sr. Secd. Note, 11.00%, 10/1/2010 3,585,725 4,200,000 1,2 Norcross Safety Products, Sr. Sub. Note, 9.875%, 4,662,000 8/15/2011 3,525,000 Rexnord Corp., Company Guarantee, 10.125%, 3,895,125 12/15/2012 1,350,000 WESCO Distribution, Inc., Company Guarantee, 1,397,250 9.125%, 6/1/2008 725,000 WESCO Distribution, Inc., Sr. Sub. Note, 9.125%, 750,375 6/1/2008 Total 45,230,714 Lodging--2.7% 2,325,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2,348,250 2/1/2008 950,000 Felcor Lodging LP, Company Guarantee, 9.50%, 1,030,750 9/15/2008 900,000 Felcor Lodging LP, Company Guarantee, 8.50%, 985,500 6/1/2011 4,025,000 Florida Panthers Holdings, Inc., Company 4,306,750 Guarantee, 9.875%, 4/15/2009 4,300,000 HMH Properties, Inc., Sr. Note, Series B, 7.875%, 4,488,125 8/1/2008 1,384,000 HMH Properties, Inc., Sr. Note, Series C, 8.45%, 1,453,200 12/1/2008 2,700,000 Hilton Hotels Corp., Note, 7.625%, 5/15/2008 3,013,875 3,200,000 Hilton Hotels Corp., Sr. Note, 8.25%, 2/15/2011 3,696,000 1,050,000 MeriStar Hospitality Corp., Company Guarantee, 1,144,500 10.50%, 6/15/2009 475,000 MeriStar Hospitality Corp., Company Guarantee, 505,281 9.125%, 1/15/2011 1,925,000 Royal Caribbean Cruises Ltd., Sr. Note, 8.00%, 2,107,875 5/15/2010 2,700,000 Starwood Hotels & Resorts Worldwide, Inc., Company 3,037,500 Guarantee, 7.875%, 5/1/2012 2,975,000 Starwood Hotels & Resorts Worldwide, Inc., Note, 3,220,438 7.375%, 5/1/2007 1,300,000 Starwood Hotels & Resorts Worldwide, Inc., Unsecd. 1,374,750 Note, 6.75%, 11/15/2005 Total 32,712,794 Media - Cable--2.3% 4,150,000 CSC Holdings, Inc., Sr. Deb., 8.125%, 8/15/2009 4,471,625 2,910,000 CSC Holdings, Inc., Sr. Note, 7.875%, 12/15/2007 3,077,325 5,500,000 CSC Holdings, Inc., Sr. Sub. Deb., 9.875%, 5,761,250 2/15/2013 2,575,000 3 Charter Communications Holdings Capital Corp., 1,725,250 Discount Bond, 0/11.75%, 5/15/2011 9,000,000 3 Charter Communications Holdings Capital Corp., Sr. 5,535,000 Disc. Note, 0/12.125%, 1/15/2012 5,025,000 1,2 Charter Communications Holdings II, Sr. Note, 5,288,813 10.25%, 9/15/2010 1,400,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 1,631,000 11.00%, 12/1/2015 Total 27,490,263 Media - Non-Cable--8.6% 4,150,000 Advanstar Communications, Company Guarantee, 4,388,625 Series B, 12.00%, 2/15/2011 450,000 1,2 Advanstar Communications, Sr. 2nd Priority Note, 489,375 10.75%, 8/15/2010 1,250,000 1,2 Advanstar Communications, Sr. Secd. Note, 10.75%, 1,359,375 8/15/2010 1,900,000 3 Advanstar, Inc., Company Guarantee, Series B, 1,486,750 0/15.00%, 10/15/2011 $2,700,000 American Media Operations, Inc., Company $ 2,902,500 Guarantee, Series B, 10.25%, 5/1/2009 1,850,000 American Media Operations, Inc., Sr. Sub. Note, 2,025,750 8.875%, 1/15/2011 3,175,000 Block Communications, Inc., Company Guarantee, 3,421,063 9.25%, 4/15/2009 4,675,000 DIRECTV Holdings LLC, Sr. Note, 8.375%, 3/15/2013 5,446,375 6,225,000 Dex Media East LLC, Company Guarantee, 12.125%, 7,719,000 11/15/2012 5,800,000 1,2 Dex Media West LLC, Sr. Sub. Note, 9.875%, 6,771,500 8/15/2013 2,300,000 1,2,3 Dex Media, Inc., Discount Note, 0/9.00%, 11/15/2013 1,627,250 1,175,000 1,2 Dex Media, Inc., Note, 8.00%, 11/15/2013 1,248,438 5,300,000 Echostar DBS Corp., Sr. Note, 10.375%, 10/1/2007 5,849,875 3,475,000 Echostar DBS Corp., Sr. Note, 9.375%, 2/1/2009 3,679,156 2,350,000 Lamar Media Corp., Sr. Sub. Note, 7.25%, 1/1/2013 2,538,000 2,275,000 Liberty Media Corp., Sr. Note, 7.75%, 7/15/2009 2,614,931 2,575,000 Lodgenet Entertainment, Sr. Sub. Note, 9.50%, 2,832,500 6/15/2013 2,250,000 Muzak LLC, Sr. Note, 10.00%, 2/15/2009 2,396,250 5,550,000 PanAmSat Corp., Sr. Note, 8.50%, 2/1/2012 6,160,500 1,350,000 Primedia, Inc., Sr. Note, 8.875%, 5/15/2011 1,427,625 2,300,000 3 Quebecor Media Inc., Sr. Disc. Note, 0/13.75%, 2,047,000 7/15/2011 2,950,000 Quebecor Media Inc., Sr. Note, 11.125%, 7/15/2011 3,429,375 3,600,000 1,2 R. H. Donnelly Finance Corp., Sr. Sub. Note, 4,293,000 10.875%, 12/15/2012 4,425,000 Sinclair Broadcast Group, Inc., Company Guarantee, 4,933,875 8.75%, 12/15/2011 1,075,000 Sinclair Broadcast Group, Inc., Sr. Sub. Note, 1,166,375 8.00%, 3/15/2012 2,100,000 Sun Media Corp., Company Guarantee, 7.625%, 2,257,500 2/15/2013 7,100,000 Vertis, Inc., Sr. Note, Series B, 10.875%, 7,597,000 6/15/2009 675,000 Vertis, Inc., Sr. Secd. 2nd Priority Note, 9.75%, 735,750 4/1/2009 2,846,700 3 XM Satellite Radio, Inc., Sec. Fac. Bond, 2,562,030 0/14.00%, 12/31/2009 2,900,000 XM Satellite Radio, Inc., Sr. Secd. Note, 12.00%, 3,298,750 6/15/2010 2,681,000 3 Yell Finance BV, Sr. Disc. Note, 0/13.50%, 8/1/2011 2,479,925 1,365,000 Yell Finance BV, Sr. Note, 10.75%, 8/1/2011 1,610,700 388,298 Ziff Davis Media, Inc., Company Guarantee, Series, 361,117 12.00%, 8/12/2009 Total 103,157,235 Metals & Mining--0.8% 975,000 Commonwealth Aluminum Corp., Sr. Sub. Note, 999,375 10.75%, 10/1/2006 2,725,000 1,2 Imco Recycling, Inc., Sr. Secd. Note, 10.375%, 2,834,000 10/15/2010 2,000,000 4 Republic Technologies International, Inc., Company 30,000 Guarantee, 13.75%, 7/15/2009 2,675,000 Ryerson Tull, Inc., Sr. Note, 9.125%, 7/15/2006 2,701,750 2,700,000 United States Steel Corp., Sr. Note, 9.75%, 3,078,000 5/15/2010 Total 9,643,125 Packaging--3.5% 2,225,000 Berry Plastics Corp., Company Guarantee, 10.75%, 2,572,656 7/15/2012 1,550,000 1,2 Berry Plastics Corp., Sr. Sub. Note, 10.75%, 1,792,188 7/15/2012 300,000 1,2 Graham Packaging Co., Sr. Sub. Note, 8.75%, 309,000 1/15/2008 2,950,000 Graham Packaging Co., Sr. Sub. Note, 8.75%, 3,038,500 1/15/2008 2,225,000 Graham Packaging Co., Sub. Note, 4.735%, 1/15/2008 1,980,250 1,400,000 Graham Packaging Holdings Co., Sr. Note, 10.75%, 1,449,000 1/15/2009 3,900,000 Huntsman Packaging Corp., Company Guarantee, 3,607,500 13.00%, 6/1/2010 2,500,000 Owens-Brockway Glass Container, Inc., Company 2,693,750 Guarantee, 7.75%, 5/15/2011 1,800,000 Owens-Brockway Glass Container, Inc., Company 1,939,500 Guarantee, 8.25%, 5/15/2013 2,550,000 Owens-Illinois, Inc., Sr. Note, 7.15%, 5/15/2005 2,639,250 2,700,000 Owens-Illinois, Inc., Sr. Note, 7.35%, 5/15/2008 2,787,750 5,250,000 Owens-Illinois, Inc., Sr. Note, 8.10%, 5/15/2007 5,551,875 2,525,000 Plastipak Holdings, Company Guarantee, 10.75%, 2,815,375 9/1/2011 650,000 Pliant Corp., Sr. Secd. Note, 11.125%, 9/1/2009 706,875 2,075,000 Pliant Corp., Sr. Sub. Note, 13.00%, 6/1/2010 1,919,375 455,610 1 Russell Stanley Holdings, Inc., Sr. Sub. Note, 4,556 9.00%, 11/30/2008 5,650,000 Tekni-Plex, Inc., Company Guarantee, Series B, 6,215,000 12.75%, 6/15/2010 Total 42,022,400 Paper--3.4% $350,000 Boise Cascade Corp., Sr. Note, 6.50%, 11/1/2010 $ 367,154 725,000 Boise Cascade Corp., Sr. Note, 7.00%, 11/1/2013 762,156 5,725,000 Georgia-Pacific Corp., Note, 7.50%, 5/15/2006 6,082,813 6,150,000 Georgia-Pacific Corp., Sr. Note, 8.125%, 5/15/2011 6,826,500 5,600,000 Georgia-Pacific Corp., Sr. Note, 9.375%, 2/1/2013 6,468,000 2,900,000 1,2 Graphic Packaging International Corp., Sr. Sub. 3,219,000 Note, 9.50%, 8/15/2013 3,000,000 Jefferson Smurfit Corp., Company Guarantee, 8.25%, 3,255,000 10/1/2012 4,050,000 MDP Acquisitions PLC, 9.625%, 10/1/2012 4,556,250 2,562,017 MDP Acquisitions PLC, Sub. Note, 15.50%, 10/1/2013 2,981,547 3,675,000 Stone Container Corp., Sr. Note, 9.75%, 2/1/2011 4,079,250 1,800,000 Tembec Industries, Inc., 8.50%, 2/1/2011 1,872,000 Total 40,469,670 Restaurants--0.7% 2,100,000 Advantica Restaurant Group, Sr. Note, 11.25%, 1,470,000 1/15/2008 1,700,000 Buffets, Inc., Sr. Sub. Note, 11.25%, 7/15/2010 1,844,500 4,200,000 Carrols Corp., Company Guarantee, 9.50%, 12/1/2008 4,305,000 1,050,000 1,2 Domino's, Inc., Sr. Sub. Note, 8.25%, 7/1/2011 1,139,250 Total 8,758,750 Retailers--3.5% 4,975,000 Buhrmann US, Inc., Company Guarantee, 12.25%, 5,596,875 11/1/2009 425,000 Community Distributors, Inc., Sr. Note, 10.25%, 366,563 10/15/2004 2,900,000 1,2 Couche-Tard Financing Corp, Sr. Sub. Note, 7.50%, 3,066,750 12/15/2013 1,100,000 1,2 General Nutrition Center, Sr. Sub. Note, 8.50%, 1,133,000 12/1/2010 2,225,000 Michaels Stores, Inc., Sr. Note, 9.25%, 7/1/2009 2,458,625 1,850,000 Mothers Work, Inc., Sr. Note, 11.25%, 8/1/2010 2,044,250 4,175,000 PCA International, Inc., Sr. Note, 11.875%, 4,571,625 8/1/2009 1,800,000 Penney (J.C.) Co., Inc., Note, 7.60%, 4/1/2007 1,993,500 7,376,000 Penney (J.C.) Co., Inc., Note, 9.00%, 8/1/2012 8,851,200 4,500,000 Rite Aid Corp., Sr. Deb., 6.875%, 8/15/2013 4,342,500 1,500,000 Rite Aid Corp., Sr. Secd. Note, 8.125%, 5/1/2010 1,620,000 2,550,000 Rite Aid Corp., Sr. Secd. Note, 9.50%, 2/15/2011 2,887,875 2,600,000 United Auto Group, Inc., Company Guarantee, 2,892,500 9.625%, 3/15/2012 Total 41,825,263 Services--0.6% 1,000,000 Coinmach Corp., Sr. Note, 9.00%, 2/1/2010 1,090,000 2,750,000 SITEL Corp., Sr. Sub. Note, 9.25%, 3/15/2006 2,722,500 3,050,000 The Brickman Group Ltd., Sr. Sub. Note, Series B, 3,568,500 11.75%, 12/15/2009 Total 7,381,000 Technology--2.7% 1,560,000 AMI Semiconductor, Inc., Sr. Sub. Note, 10.75%, 1,864,200 2/1/2013 2,125,000 Activant Solutions, Inc., Sr. Note, 10.50%, 2,310,938 6/15/2011 2,100,000 Danka Business Systems PLC, Sr. Note, 11.00%, 2,084,250 6/15/2010 3,875,000 Ingram Micro, Inc., Sr. Sub. Note, 9.875%, 4,301,250 8/15/2008 2,800,000 Seagate Technology HDD Holdings, Sr. Note, 8.00%, 3,038,000 5/15/2009 1,050,000 1,2 Telex Communications, Inc., Sr. Secd. Note, 1,120,875 11.50%, 10/15/2008 1,175,000 Unisys Corp., Sr. Note, 6.875%, 3/15/2010 1,269,000 950,000 1,2 Viasystems, Inc., Sr. Sub. Note, 10.50%, 1/15/2011 1,016,500 1,075,000 Xerox CapEurope PLC, Company Guarantee, 5.875%, 1,091,125 5/15/2004 4,425,000 Xerox Corp., Sr. Note, 7.625%, 6/15/2013 4,801,125 7,625,000 Xerox Corp., Sr. Note, 9.75%, 1/15/2009 8,978,438 Total 31,875,701 Textile--1.8% 1,875,000 1,2 Broder Brothers Co., Sr. Note, 11.25%, 10/15/2010 1,865,625 675,000 4 Dyersburg Corp., Sr. Sub. Note, 9.75%, 9/1/2007 68 $ GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 $ 2,821,250 3,050,000 2,400,000 Levi Strauss & Co., Sr. Note, 11.625%, 1/15/2008 1,572,000 2,150,000 Levi Strauss & Co., Sr. Note, 12.25%, 12/15/2012 1,408,250 1,550,000 Phillips Van Heusen Corp., Sr. Note, 8.125%, 1,650,750 5/1/2013 2,925,000 Russell Corp., Company Guarantee, 9.25%, 5/1/2010 3,042,000 6,000,000 1,2 Warnaco Group, Inc., Sr. Note, 8.875%, 6/15/2013 6,210,000 2,145,000 William Carter Co., Sr. Sub. Note, Series B, 2,472,113 10.875%, 8/15/2011 Total 21,042,056 Tobacco--0.5% 3,225,000 1,2 Commonwealth Brands, Inc., Sr. Sub. Secd. Note, 3,531,375 10.625%, 9/1/2008 1,800,000 1,2 Dimon, Inc., Sr. Note, 7.75%, 6/1/2013 1,827,000 1,075,000 Dimon, Inc., Sr. Note, Series B, 9.625%, 10/15/2011 1,206,688 Total 6,565,063 Transportation--0.7% 2,850,000 Allied Holdings, Inc., Sr. Note, 8.625%, 10/1/2007 2,743,125 1,025,000 4 AmeriTruck Distribution Corp., Sr. Sub. Note, 0 12.25%, 11/15/2005 600,000 1,2 Stena AB, Sr. Note, 7.50%, 11/1/2013 607,662 4,650,000 Stena AB, Sr. Note, 9.625%, 12/1/2012 5,254,500 1,050,000 4 The Holt Group, Inc., Company Guarantee, 9.75%, 35,438 1/15/2006 Total 8,640,725 Utility - Electric--3.5% 5,350,000 CMS Energy Corp., Sr. Note, 8.50%, 4/15/2011 5,804,750 3,000,000 CMS Energy Corp., Sr. Note, 8.90%, 7/15/2008 3,277,500 4,310,550 Caithness Coso Funding Corp., Sr. Secd. Note, 4,698,500 Series B, 9.05%, 12/15/2009 2,250,000 Calpine Canada Energy Finance Corp., Company 1,794,375 Guarantee, 8.50%, 5/1/2008 4,500,000 Calpine Corp., Note, 8.50%, 2/15/2011 3,566,250 5,025,000 Illinois Power Co., 1st Mtg. Bond, 11.50%, 6,105,375 12/15/2010 2,900,000 1,2 NRG Energy, Inc., Sr. Secd. Note, 8.00%, 12/15/2013 3,063,125 1,500,000 1,2 P G & E Corp., Sr. Secd. Note, 6.875%, 7/15/2008 1,623,075 4,225,000 PSEG Energy Holdings, Sr. Note, 10.00%, 10/1/2009 4,980,219 2,700,000 PSEG Energy Holdings, Sr. Note, 8.625%, 2/15/2008 2,963,250 1,850,000 1,2 Reliant Resources, Inc., Sr. Secd. Note, 9.25%, 1,988,750 7/15/2010 2,175,000 1,2 Reliant Resources, Inc., Sr. Secd. Note, 9.50%, 2,338,125 7/15/2013 Total 42,203,294 Utility - Natural Gas--3.5% 750,000 ANR Pipeline Co., Sr. Note, 8.875%, 3/15/2010 846,563 800,000 El Paso Corp., 6.75%, 5/15/2009 766,000 4,725,000 El Paso Corp., Note, 6.95%, 12/15/2007 4,536,000 8,150,000 El Paso Corp., Sr. Note, 7.80%, 8/1/2031 6,978,438 5,125,000 El Paso Corp., Sr. Note, 8.05%, 10/15/2030 4,484,375 4,250,000 1,2 El Paso Production Holding Co., Sr. Note, 7.75%, 4,244,688 6/1/2013 1,750,000 Semco Energy, Inc., Sr. Note, 7.125%, 5/15/2008 1,830,938 2,225,000 Tennessee Gas Pipeline, Bond, 8.375%, 6/15/2032 2,369,625 1,100,000 Tennessee Gas Pipeline, Sr. Deb., 7.50%, 4/1/2017 1,131,625 275,000 Transcontinental Gas Pipe Corp., Note, 7.00%, 297,688 8/15/2011 2,700,000 Transcontinental Gas Pipe Corp., Sr. Note, 8.875%, 3,253,500 7/15/2012 4,775,000 Williams Cos., Inc. (The), Note, 7.625%, 7/15/2019 5,019,719 3,425,000 Williams Cos., Inc. (The), Note, 7.875%, 9/1/2021 3,621,938 2,400,000 Williams Cos., Inc. (The), Sr. Note, 8.625%, 2,730,000 6/1/2010 Total 42,111,097 Wireless Communications--2.2% 4,275,000 1,2 American Cellular Corp., Sr. Note, 10.00%, 8/1/2011 4,766,625 10,725,000 NEXTEL Communications, Inc., Sr. Note, 9.375%, 11,717,063 11/15/2009 2,000,000 Nextel Partners, Inc., Sr. Note, 12.50%, 11/15/2009 2,340,000 1,200,000 Nextel Partners, Inc., Sr. Note, 8.125%, 7/1/2011 1,284,000 3,525,000 Rogers Cantel Mobile, Inc., Sr. Sub. Note, 8.80%, 3,639,563 10/1/2007 $ 2,300,000 Triton PCS, Inc., Sr. Note, 8.50%, 6/1/2013 $ 2,484,000 Total 26,231,251 Wireline Communications--3.9% 2,400,000 1,2 Alaska Communications Systems Holdings, Inc., Sr. 2,532,000 Note, 9.875%, 8/15/2011 1,550,000 Alaska Communications Systems Holdings, Inc., Sr. 1,557,750 Sub. Note, 9.375%, 5/15/2009 3,750,000 1,2 Cincinnati Bell, Inc., Sr. Note, 7.25%, 7/15/2013 4,002,375 2,875,000 1,2 Cincinnati Bell, Inc., Unsecd. Note, 8.375%, 3,119,375 1/15/2014 2,200,000 Eircom Funding, Sr. Sub. Note, 8.25%, 8/15/2013 2,447,500 1,000,000 Qwest Communications International, Inc., Note, 1,022,500 6.125%, 11/15/2005 10,125,000 1,2 Qwest Communications International, Inc., Note, 11,643,750 8.875%, 3/15/2012 17,075,000 1,2 Qwest Communications International, Inc., Sr. Sub. 20,831,500 Note, 13.50%, 12/15/2010 Total 47,156,750 Total Corporate Bonds (identified cost 1,149,470,504 $1,081,304,207) Common Stocks & Warrants--0.2%5 Diversified Manufacturing--0.0% 31,283 Simonds Industries, Inc. 784,890 Entertainment--0.0% 4,320 AMF Bowling Worldwide, Inc. 104,112 10,165 AMF Bowling Worldwide, Inc., Warrants 33,036 9,931 AMF Bowling Worldwide, Inc., Warrants 497 Total 137,645 Industrial - Other--0.1% 1,027,481 1,2 ACP Holdings Corp. 616,489 926,163 1,2 ACP Holdings Corp., Warrants 546,436 Total 1,162,925 Media - Cable--0.1% 11,970 NTL, Inc. 834,907 Media - Non-Cable--0.0% 1,000 Advanstar, Inc., Warrants 10 1,800 XM Satellite Radio, Inc., Warrants 38,250 19,800 Ziff Davis Media, Inc., Warrants 198 Total 38,458 Metals & Mining--0.0% 2,000 Republic Technologies International, Inc., Warrants 20 57,533 Royal Oak Mines, Inc. 173 Total 193 Other--0.0% 171 1 CVC Claims Litigation LLC 0 Packaging--0.0% 1,000 Pliant Corp., Warrants 10 57,000 Russell Stanley Holdings, Inc. 570 Total 580 Paper--0.0% 1,600 1,2 MDP Acquisitions PLC, Warrants 10,400 Wireline Communications--0.0% 68,141 McLeodUSA, Inc., Warrants 34,752 15,348 Viatel Holding (Bermuda) Ltd. 42,207 Total 76,959 Total Common Stocks & Warrants (identified cost 3,046,957 $12,564,726) Preferred Stocks--0.7% Healthcare--0.0% 6,486 River Holding Corp., Sr. Exchangeable PIK 65 Media - Non-Cable--0.4% 39,650 Primedia, Inc., Exchangeable Pfd. Stock, Series G, 3,618,063 $8.624, Annual Dividend 11,475 Primedia, Inc., Pfd., $9.20, Annual Dividend 1,087,256 108 Ziff Davis Media, Inc., PIK Pfd., Series E-1 $ 24 Total 4,705,343 Retailers--0.3% 3,125 1,2 General Nutrition Centers Holding Co., 3,132,813 Exchangeable Pfd. Stock, Series A Wireline Communications--0.0% 30,751 4 McLeodUSA, Inc., Conv. Pfd., Series A 234,323 Total Preferred Stocks (identified cost 8,072,544 $15,407,681) Repurchase Agreement-1.1% $13,247,000 Interest in $800,000,000 joint repurchase 13,247,000 agreement with Greenwich Capital Markets, Inc., 1.03%, dated 12/31/2003, to be repurchased at $13,247,758 on 1/2/2004, collateralized by U.S. Government Agency Obligations with various maturities to 11/15/2033 (AT AMORTIZED COST) TOTAL INVESTMENTS-97.9% (IDENTIFIED COST 1,173,837,005 $1,122,523,614)5 OTHER ASSETS AND LIABILITIES - NET - 2.1% 24,841,358 TOTAL NET ASSETS-100% $ 1,198,678,363
1 Denotes a restricted security which is subject to restrictions on resale under federal securities laws. At December 31, 2003, these securities amounted to $250,168,365 which represents 20.9% of net assets. Included in these amounts, securities which have been deemed liquid amounted to $249,729,807 which represents 20.8% of total net assets. 2 Denotes a restricted security that has been deemed liquid by criteria approved by the Fund's Board of Trustees 3 Denotes a Zero Coupon bond with effective rate at time of purchase. 4 Non-income producing security. 5 The cost of investments for federal tax purposes amounts to $1,129,336,704. Note: The categories of investments are shown as a percentage of total net assets at December 31, 2003. The following acronyms are used throughout this portfolio: GTD --Guaranteed PCA --Pollution Control Authority PCs --Participation Certificates PIK -Payment in Kind See Notes which are an integral part of the Financial Statements. HIGH YIELD BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES December 31, 2003
Assets: Total investments in securities, at value $1,173,837,005 (identified cost $1,122,523,614) Cash 235 Income receivable 24,974,591 Total assets 1,198,811,831 Liabilities: Income distribution payable $109,390 Payable for transfer and dividend disbursing 2,735 agent fees and expenses (Note 5) Payable for portfolio accounting fees (Notes 5) 6,506 Payable for legal fees 6,374 Payable for insurance premiums 2,315 Accrued expenses 6,148 Total liabilities 133,468 Net assets for 173,055,224 shares outstanding $1,198,678,363 Net Assets Consist of: Paid in capital $1,365,013,970 Net unrealized appreciation of investments 51,313,391 Accumulated net realized loss on investments (216,285,912) Distributions in excess of net investment income (1,363,086) Total Net Assets $1,198,678,363 Net Asset Value, Offering Price and Redemption Proceeds Per Share $1,198,678,363 / 173,055,224 shares outstanding $6.93 See Notes which are an integral part of the Financial Statements HIGH YIELD BOND PORTFOLIO STATEMENT OF OPERATIONS Year Ended December 31, 2003 Investment Income: Dividends $913,066 Interest 90,762,570 Total income 91,675,636 Expenses: Administrative personnel and $ 775,424 services fee (Note 5) Custodian fees 50,792 Transfer and dividend 18,755 disbursing agent fees and expenses (Note 5) Directors'/Trustees' fees 12,235 Auditing fees 15,907 Legal fees 17,429 Portfolio accounting fees (Note 140,685 5) Insurance premiums 3,028 Miscellaneous 3,040 Total expenseS 1,037,295 Waiver of administrative (775,424) personnel and services fee (Notes 5) Net expenses 261,871 Net investment income 91,413,765 Realized and Unrealized Gain (Loss) on Investments: Net realized loss on (22,574,214) investments Net change in unrealized 152,101,332 appreciation of investments Net realized and unrealized 129,527,118 gain on investments Change in net assets resulting $220,940,883 from operations
See Notes which are an integral part of the Financial Statements HIGH YIELD BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS Year Ended December 31 2003 2002 Increase (Decrease) in Net Assets Operations: Net investment income $91,413,765 $78,901,575 Net realized loss on investments (22,574,214) (97,325,493) Net change in unrealized 152,101,332 41,741,790 appreciation/depreciation of investments Change in net assets resulting from 220,940,883 23,317,872 operations Distributions to Shareholders: Distributions from net investment income (94,132,273) (79,992,687) Share Transactions: Proceeds from sale of shares 486,204,000 363,389,131 Net asset value of shares issued to 92,852,372 79,983,723 shareholders in payment of distributions declared Cost of shares redeemed (304,683,083) (254,948,136) Change in net assets resulting from 274,373,289 188,424,718 share transactions Change in net assets 401,181,899 131,749,903 Net Assets: Beginning of period 797,496,464 665,746,561 End of period (including distributions $1,198,678,363 $797,496,464 excess of net investment income of $(1,363,086) and $(1,488,982), respectively) See Notes which are an integral part of the Financial Statements HIGH YIELD BOND PORTFOLIO FINANCIAL HIGHLIGHTS (For a Share Outstanding Throughout Each Period)
Year Ended December 31 2003 2002 2001 2000 1999 Net Asset Value, Beginning of $6.11 $6.51 $7.14 $8.72 $9.30 Period Income From Investment Operations: Net investment income 0.60 0.63 0.77 1 0.91 0.91 Net realized and unrealized gain 0.82 (0.39) (0.61)1 (1.57) (0.56) (loss) on investments Total from investment operations 1.42 0.24 0.16 (0.66) 0.35 Less Distributions: Distributions from net investment (0.60) (0.64) (0.79) (0.92) (0.91) income Distributions from net realized --- --- --- --- (0.02) gain on investments TOTAL DISTRIBUTIONS (0.60) (0.64) (0.79) (0.92) (0.93) Net Asset Value, End of Period $6.93 $6.11 $6.51 $7.14 $8.72 Total Return2 24.32% 3.90% 2.16% (8.04)% 3.83% Ratios to Average Net Assets: Expenses 0.03% 0.03% 0.04% 0.04% 0.03% Net investment income 8.95% 10.03% 11.13% 1 11.38% 10.07% Expense waiver/reimbursement3 0.08% 0.08% 0.08% 0.08% 0.08% Supplemental Data: Net assets, end of period (000 $1,198,678 $797,496 $665,747 $532,820 $699,088 omitted) Portfolio turnover 38% 39% 33% 16% 49%
1 Effective January 1, 2001, the Fund adopted the provisions of the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies and began amortizing premium and discount on debt securities. For the year ended December 31, 2001, this change had no effect on the net investment income per share or net realized loss per share, but increased the ratio of net investment income to average net assets from 10.98% to 11.13%. Per share, ratios and supplemental data for the periods prior to December 31, 2001 have not been restated to reflect this change in presentation. 2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable. 3 This voluntary expense decrease is reflected in both the expense and the net investment income ratios shown above. See Notes which are an integral part of the Financial Statements High Yield Bond Portfolio Notes to Financial Statements December 31, 2003 --------------------------------------------------------------------------- 1. ORGANIZATION Federated Core Trust (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Trust consists of two diversified portfolios, High Yield Bond Portfolio (the "Fund") and Federated Mortgage Core Portfolio. The financial statements included herein are only those of the Fund. The financial statements of the other portfolio are presented separately. The Fund's investment objective is to seek high current income by investing primarily in a professionally managed, diversified portfolio of fixed income securities. The Fund's portfolio of investments consists primarily of lower rated corporate debt obligations. These lower rated debt obligations may be more susceptible to real or perceived adverse economic conditions than investment grade bonds. These lower rated debt obligations are regarded as predominantly speculative with respect to each issuer's continuing ability to make interest and principal payments (i.e., the obligations are subject to the risk of default). Currently, the Fund is only available for purchase by other Federated funds and their affiliates, or insurance company separate accounts, common or commingled trust funds or similar organizations or parties that are accredited investors within the meaning of Regulation D of the 1933 Act. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles ("GAAP") in the United States of America. Investment Valuation Listed corporate bonds, other fixed income and asset-backed securities, and unlisted securities and private placement securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of 60 days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end regulated investment companies are valued at net asset value. Securities for which no quotations are readily available are valued at fair value as determined in good faith using methods approved by the Board of Trustees (the "Trustees"). Repurchase Agreements It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Trustees. Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. The Fund, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements. Investment Income, Expenses and Distributions Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at fair value. Premium and Discount Amortization/Paydown Gains and Losses All premiums and discount on fixed income securities are amortized/accreted. Gains and losses realized on principal payment of mortgage-backed securities (paydown gains and losses) are classified as part of investment income. Federal Taxes It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal tax is necessary. 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. Restricted Securities Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in good faith using methods approved by the Trustees. Additional information on each illiquid restricted security held at December 31, 2003 is as follows: --------------------------------------------------------------------------- Security Acquisition Date Acquisition Cost ------------------------------------------------------------------------- ------------------------------------------------------------------------- Clark Material Handling Corp., Sr. 11/22/1996 1,843,830 Note, 10.75%, 11/15/2006 ------------------------------------------------------------------------- ------------------------------------------------------------------------- General Chemical Industrial Products, 6/3/1999 1,754,362 Inc., Sr. Sub. Note, 10.625%, 5/1/2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Sleepmaster LLC, Company Guarantee, 5/12/1999 926,114 Series B, 11.00%, 5/15/2009 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Russell Stanley Holdings, Inc. Sr. 2/5/1999 2,904,182 Sub. Note, 9.00%, 11/30/2008 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Texas Petrochemicals Corp., SR. Sub 3/9/1999 2,442,500 Note, 11.125%, 7/1/2006 ------------------------------------------------------------------------- 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. 3. SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows: Year Ended December 31, 2003 2002 -------------------------------------------------------------------------- Shares sold 75,243,430 57,741,036 -------------------------------------------------------------------------- Shares issued to shareholders 14,095,912 12,855,850 in payment of distributions declared -------------------------------------------------------------------------- Shares redeemed (46,849,589) (42,261,982) -------------------------------------------------------------------------- NET CHANGE RESULTING 42,489,753 28,334,904 FROM SHARE TRANSACTIONS -------------------------------------------------------------------------- 4. FEDERAL TAX INFORMATION The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due in part to differing treatments for discount accretion/premium amortization debt securities, defaulted bond adjustments and tax entries for market discount. For the year ended December 31, 2003, permanent differences identified and reclassified among the components of net assets were as follows: Increase (Decrease) ------------------------------------------------------ Distributions In Excess Accumulated Net of Net Investment Income Realized Loss ------------------------------------------------------ ------------------------------------------------------ $2,844,404 $(2,844,404) ------------------------------------------------------ Net investment income (loss), net realized gains (losses) as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended December 31, 2003 and 2002 was as follows: 2003 2002 --------------- ------------------ --------------- ------------------ Ordinary income1 $94,132,273 $79,992,687 1For tax purposes short-term capital gain distributions are considered ordinary income distributions As of December 31, 2003, the components of distributable earnings on a tax basis were as follows: -------------------------------------------------------------------------- Undistributed ordinary income $ 568,165 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Net unrealized appreciation 44,500,301 -------------------------------------------------------------------------- -------------------------------------------------------------------------- Capital loss carryforward 211,294,683 -------------------------------------------------------------------------- The difference between book-basis and tax-basis net unrealized appreciation is attributable in part to differing treatments for discount accretion/premium amortization debt securities and adjustments for defaulted bonds. At December 31, 2003, the cost of investments for federal tax purposes was $1,129,336,704. The net unrealized appreciation of investments for federal tax purposes was $44,500,301. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $90,014,203 and net unrealized depreciation from investments for those securities having an excess of cost over value of $45,513,902. At December 31, 2003, the Fund had a capital loss carryforward of $211,294,683, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as follows: Expiration Year Expiration Amount ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2007 $1,148,442 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2008 14,429,102 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2009 61,615,797 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2010 88,455,746 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2011 45,645,596 ------------------------------------------------------------------------- 5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES Investment Adviser Fee Federated Investment Management Company, is the Fund's investment adviser (the "Adviser"), subject to direction of the Trustees. The Adviser provides investment adviser services at no fee. Administrative Fee Federated Administrative Services ("FAS"), under the Administrative Services Agreement ("Agreement"), provides the Fund with administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. The fee paid to FAS is based on the average aggregate daily net assets of all Federated funds as specified below: Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds -------------------------------------------------------------------------- 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 and $40,000 per each additional class of Shares. FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. Prior to November 1, 2003, Federated Services Company ("FServ") provided the Fund with administrative personnel and services. The fee paid to FServ was based on the average aggregate daily net assets of all Federated funds as specified below:- Maximum Administrative Fee Average Aggregate Daily Net Assets of the Federated Funds -------------------------------------------------------------------------- 0.150% on the first $250 million 0.125% on the next $250 million 0.100% on the next $250 million 0.075% on assets in excess of $750 million -------------------------------------------------------------------------- The administrative fee received during any fiscal year was at least $125,000 per portfolio and $30,000 per each additional class of Shares. For the year ended December 31, 2003, the fee paid to FAS and FServ were $0 and $0, respectively, after voluntary waiver, if applicable. Transfer and Dividend Disbursing Agent Fees and Expenses FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is based on the size, type and number of accounts and transactions made by shareholders. FSSC may voluntarily choose to waive any portion of its fee. FSSC can terminate this voluntary waiver at any time at its own discretion. Portfolio Accounting Fees FServ maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. FServ may voluntarily choose to waive any portion of its fee. FServ can terminate this voluntary waiver at any time at its own discretion. General Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. 6. INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations (and in-kind contributions), for the year ended December 31, 2003, were as follows: -------------------------------------------------------------------------- Purchases $641,911,793 -------------------------------------------------------------------------- Sales $372,097,139 -------------------------------------------------------------------------- 7. LEGAL PROCEEDINGS In October, 2003, Federated Investors, Inc. and various subsidiaries thereof (collectively, "Federated"), along with various investment companies sponsored by Federated ("Funds") were named as defendants in several class action lawsuits filed in the United States District Court for the Western District of Pennsylvania seeking damages of unspecified amounts. 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. The Board of the Funds has retained the law firm of Dickstein Shapiro Morin & Oshinsky LLP to represent the Funds in these lawsuits. Federated and the Funds, and their respective counsel, are reviewing the allegations and will respond appropriately. Additional lawsuits based upon similar allegations have been filed, and others may be filed in the future. Although Federated does 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 related regulatory investigations will not result in increased Fund redemptions, reduced sales of Fund shares, or other adverse consequences for the Funds. 8. FEDERAL TAX INFORMATION (UNAUDITED) Of the ordinary income (including short-term capital gain) distributions made by the Fund during the year ended, December 31, 2003, 1.24% qualify for the dividend received deduction available to corporate shareholders. For the fiscal year ended December 31, 2003, 0.88% of the distributions from investment income by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15% as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information will be reported in conjunction with your 2003 Form 1099-DIV. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Board of Trustees of Federated Core Trust and Shareholders of High Yield Bond Portfolio: We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of High Yield Bond Portfolio (the "Fund") (one of the portfolios constituting the Federated Core Trust) as of December 31, 2003, and the related statement of operations for the year then ended, the statement 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 statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2003, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 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 High Yield Bond Portfolio of Federated Core Trust at December 31, 2003, 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 the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. [GRAPHIC OMITTED] Boston, Massachusetts February 10, 2004 Item 2. Code of Ethics 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. The registrant hereby undertakes to provide any person, without charge, upon request, a copy of the code of ethics. To request a copy of the code of ethics, contact the registrant at 1-800-341-7400, and ask for a copy of the Section 406 Standards for Investment Companies - Ethical Standards for Principal Executive and Financial Officers. Item 3. Audit Committee Financial Expert The registrant's Board has determined that each member of the Board's Audit Committee is an "audit committee financial expert," and that each such member is "independent," for purposes of this Item. The Audit Committee consists of the following Board members: Thomas G. Bigley, John T. Conroy, Jr., Nicholas P. Constantakis and Charles F. Mansfield, Jr. Item 4. Principal Accountant Fees and Services (a) Audit Fees billed to the registrant for the two most recent fiscal years: Fiscal year ended 2003 - $28,000 Fiscal year ended 2002 - $28,000 (b) Audit-Related Fees billed to the registrant for the two most recent fiscal years: Fiscal year ended 2003 - $0 Fiscal year ended 2002 - $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. (c) Tax Fees billed to the registrant for the two most recent fiscal years: Fiscal year ended 2003 - $0 Fiscal year ended 2002 - $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 2003 - $0 Fiscal year ended 2002 - $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 $19,872 respectively. Executive compensation analysis. (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 2003 - 0% Fiscal year ended 2002 - 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 2003 - 0% Fiscal year ended 2002 - 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 2003 - 0% Fiscal year ended 2002 - 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 2003 - $108,005 Fiscal year ended 2002 - $353,738 (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 [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies Not Applicable Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers Not Applicable Item 9. Submission of Matters to a Vote of Security Holders Not Applicable Item 10. 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), or the internal control over financial reporting of its service providers during the last fiscal half year (the registrant's second half year in the case of an annual report) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. 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 By /S/ Richard J. Thomas, Principal Financial Officer (insert name and title) Date February 18, 2004 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, Principal Executive Officer Date February 18, 2004 By /S/ Richard J. Thomas, Principal Financial Officer Date February 18, 2004