SOUTH CAROLINA MUNICIPAL BOND FUND
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ANNUAL REPORT FOR FISCAL YEAR ENDED NOVEMBER 30, 1993
INVESTMENT REVIEW
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The twelve months ended November 30, 1993 provided a favorable
investment environment for investors in fixed-income securities. Inflation
was never perceived as a threat to the purchasing power of interest income
during the period, as evidenced by a subdued core Producer Price Index that
averaged 0.3% on an annual basis for the 12-month period.
Gross Domestic Product averaged 2.72% for the period. This slow rate
of growth, combined with the modest inflation rate, helped to push the
yield on 10-year Treasury notes down from 6.95%, on November 30, 1992, to
5.83%, on November 30, 1993. The 10-year AAA general obligation municipal
bond yield followed the same trend, declining from 5.33%, at the outset of
the period to 4.6% at November 30.
For the 12 months, the Fund invested primarily in AA or AAA rated
issues, as the spreads between these and lower-quality sectors became
historically narrow. When ascertaining the credit quality of issues for
potential investment by the Fund, the Fund's adviser focused upon a variety
of economic and financial parameters. For general obligation bonds,
analysis was directed toward demographic constitution, income distribution,
property value levels and growth, provision of governmental services and
debt authorization. For revenue obligations, examination was made of issuer
cashflow generation abilities, sensitivity to product/service pricing, debt
structure, debt service coverage, and contingent liabilities, if any.
Issues purchased by the Fund largely consisted of general obligations
of state and county governments of the State of South Carolina, and revenue
obligations of South Carolina municipalities.
During the 14-month period ended November 30, 1993*, net assets of the
Fund grew from $63.1 million, at fiscal year end September 30, 1992, to
$83.4 million. Reflecting market activity, the net asset value per share of
the Fund increased during the period from $10.53, at fiscal year end
September 30, 1992, to $11.12. Also during the 14-month period, the 30-day
yield, based upon net asset value, of the Fund decreased from 5.72% to
4.53%, reflecting the general decline in interest rates during the year.
The 30-day SEC yield, based upon offering price, for the same period,
decreased from 5.46% to 4.33%. The total return for the Fund was (0.48%)
and (4.96%), based upon net asset value and offering price, respectively,
for the two months ended November 30, 1993. The Fund ended the fiscal year
with an average duration of 6.94 years.
The Fund's adviser continues to monitor the short-and long-term
municipal bond market for additional opportunities that are consistent with
the investment objective of the Fund.
* Note: Effective October 1, 1993 the Fund changed its fiscal year end from
September 30 to November 30.
PERFORMANCE COMPARISON
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COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 PURCHASE IN
SOUTH CAROLINA MUNICIPAL BOND FUND AND
THE LEHMAN BROTHERS STATE GENERAL OBLIGATIONS BOND INDEX
Graphic representation "A" omitted. See Appendix.
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than original cost. Mutual funds are not obligations of or
guaranteed by any bank and are not federally insured.
This annual report incorporates by reference and updates the prospectus dated
January 31, 1994.
*Reflects operations of South Carolina Municipal Bond Fund from the date of
initial public investment, January 11, 1991, through November 30, 1993.
**Represents a hypothetical investment of $10,000 in South Carolina Municipal
Bond Fund, after deducting the maximum applicable sales charge of 4.50%
($10,000 investment minus $450 sales charge = $9,550).
***Effective October 1, 1993, the Fund changed its fiscal year end from
September 30 to November 30.
The Fund's performance assumes the reinvestment of all dividends and
distributions. The Lehman Brothers State General Obligations Bond Index is
adjusted to reflect reinvestment of dividends on securities in the index.
The Lehman Brothers State General Obligations Bond Index is not adjusted to
reflect sales loads, expenses, or other fees that the SEC requires be reflected
in the Fund's performance.
[LOGO] FEDERATED SECURITIES CORP.
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Distributor
0120501ARS (1/94)
Appendix
A. The graphic presentation displayed consists of a boxed
legend in the bottom center indicating the components of the
corresponding line graph. The line graph is a visual
representation of a comparison of change in value of a
hypothetical $10,000 purchase in South Carolina Municipal
Bond Fund (the "Fund") and The Lehman Brothers State General
Obligations Bond Index. The "x" axis reflects the cost of
the investment. The "y" axis reflects computation periods
from the Fund's date of initial public investment 1/11/91,
through 11/30/93. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared
to The Lehman Brothers State General Obligations Bond Index;
the ending values are $12,518 and $13,207, respectively.
There is also a legend in the upper left corner of the
graphic presentation which indicates the "one year," and
"since initial public investment" Average Annual Total
Returns for the period ended 11/30/93. The one year Average
Annual Total Return for the period ended 11/30/93 is 6/45%.
The Average Annual Return of the Fund for the period from
1/11/91 through 11/30/93 is 8.10%.
