<PAGE> 1
ESC STRATEGIC FUNDS, INC.
- --------------------------------------------------------------------------------
November 22, 1996
Dear Shareholder:
We are pleased to present the September 30, 1996 semi-annual report for the ESC
Strategic Funds. We take this opportunity to inform you of the progress of the
Funds, to discuss expectations and to express our great appreciation for your
investment and confidence in our effort.
The ESC Strategic Funds are comprised of a Multiple Manager Series and a Single
Manager Series. This report addresses the progress of each series and each
specific fund.
MULTIPLE MANAGER SERIES
Each Fund in this series is diversified across several counter-balancing, yet
compatible, investment styles. The purpose is to ensure that a successful
manager, which runs the risk of being over-valued by way of superior
appreciation, does not become over-weighted within a particular fund and that an
underperforming manager is able to receive additional cash in advance of
returning to favor. Unlike some funds which attempt to anticipate trends, the
Multiple Manager Series adheres to a consistent strategy of maintaining target
allocations to each manager and respective market sectors.
ESC STRATEGIC INCOME FUND achieved a total return of 3.8% during the six months
ended September 30, 1996, as compared to 6.8% for the Lipper Global Income Fund
Index and 3.1% for the Salomon World Government Index.
1996 has been a year of uncertainty for bond investors. Meanwhile the high yield
allocation of the ESC Strategic Income Fund continued to provide stability and
return during the quarter-ended September 30, 1996. Because this segment of the
Fund out-performed the allocations to international bonds and domestic
investment grade bonds, the high yield allocation became over-weighted relative
to its target allocation and presumably over-valued. Accordingly, at
quarter-end, cash was redirected from high yield bonds toward the international
and U.S. investment grade sectors with the understanding that these sectors are
relatively under-valued. Following are the management firms, actual allocations
and target allocations at quarter-end:
<TABLE>
<CAPTION>
ALLOCATIONS AS OF
9/30/96
ACTUAL TARGET
------ ------
<S> <C> <C> <C>
Cincinnati Asset Management U.S. High Yield 34.3% 33.3%
Murray Johnstone International International 32.4% 33.3%
Llama Asset Management Investment Grade 33.3% 33.4%
</TABLE>
ESC STRATEGIC APPRECIATION FUND gained 12.1% during the six months ended
September 30, 1996, as compared to 6.3% and 7.7% for the Lipper Capital
Appreciation Fund Index and the S&P 500, respectively.
We take this opportunity to remind investors that the Fund was re-balanced
toward the mid to large cap segments as of March 31, 1996 following superior
performance in the small cap portfolio. Subsequent to this previous
re-balancing, the mid to large cap segment of the Fund produced the strongest
performance thus causing it to become relatively over-weighted, presumably
over-valued. Accordingly, at quarter end, the Fund was re-balanced toward Small
Cap Growth and Value as noted below:
<TABLE>
<CAPTION>
ALLOCATIONS AS OF
9/30/96
ACTUAL TARGET
------ -------
<S> <C> <C> <C>
GlobeFlex Capital Mid to Large Cap Growth 36.3% 33.3%
Equitable Asset Management Small Cap Growth 31.4% 33.4%
Brandes Investment Partners Value 32.3% 33.3%
</TABLE>
<PAGE> 2
ESC STRATEGIC GLOBAL EQUITY FUND returned 4.5% during the six months ended
September 30, 1996, while the Lipper Global Fund Index and FTA World Index
gained 5.4% and 3.2% respectively.
The Fund has recently benefited from strong performance in each of its
respective sectors of domestic equities, international developed and emerging
markets. While we are pleased with the superior performance of the domestic
equities within the Fund, we are gratified by renewed investor interest in the
emerging and international developed markets given previous re-balancing toward
these latter sectors. At quarter-end, the Fund was re-balanced as noted below:
<TABLE>
<CAPTION>
ALLOCATIONS AS OF
9/30/96
ACTUAL TARGET
------ -------
<S> <C> <C> <C>
GlobeFlex Capital Mid to Large Cap Growth 37.4% 35.0%
Murray Johnstone International Developed Markets 37.5% 39.0%
Murray Johnstone International Emerging Markets 25.1% 26.0%
</TABLE>
SINGLE MANAGER SERIES
This series utilizes a traditional single management firm approach to provide
investors access to more focused portfolio disciplines.
ESC STRATEGIC SMALL CAP FUND returned 18.3% during the six months ended
September 30, 1996, as compared to 9.5% for the Lipper Small Company Growth Fund
Index and 4.7% for the Russell 2000 without income.
The Fund seeks fundamentally sound companies generating consistently superior
earnings growth rather than competing with legions of analysts and economists to
determine the next direction of the economy or the market. Investor confusion
combined with a lack of sustained diligence on the part of Wall Street creates
opportunities which continue to present themselves at an accelerating pace.
ESC STRATEGIC ASSET PRESERVATION FUND provided a total return of 2.0% during the
six months ended September 30, 1996, while the Lipper Short Investment Grade
Investment returned 4.2%. The Merrill Lynch 1-3 Year Government Index returned
2.7%. We continue to be pleased with the relative stability of the Fund in the
midst of what will surely remain a confusing interest rate environment.
We appreciate your interest in the ESC Strategic Funds and invite all questions
and comments. For more complete information, including management fees and
expenses in addition to the unique risks involved with investing in the
international markets and small capitalization stocks, please call
1-800-372-3360 for a prospectus and read it carefully before investing in any of
the Funds.
Sincerely,
/s/ W. Howard Cammack, Jr.
W. Howard Cammack, Jr.
Treasurer
<PAGE> 3
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (unaudited) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 50.0%
ASSET BACKED -- 1.7%
AAA/Aaa Prudential Home Mortgage
Securities,
6.50%, 2/25/2000....... $206,581 $ 205,463
-----------
BANKING -- 6.2%
A-/A2 Bank America Corp.,
7.50%, 3/15/1997....... 250,000 251,877
A-/A3 First Union Corp.,
9.45%, 6/15/1999....... 250,000 267,326
A/A2 NationsBank Corp.,
5.125%, 9/15/1998...... 250,000 244,175
-----------
763,378
-----------
CHEMICALS -- 3.5%
A+/A2 ICI Wilmington Corp.,
7.625%, 3/15/1997...... 300,000 302,387
A/A1 Monsanto Corp.,
6.00%, 7/01/2000....... 140,000 136,096
-----------
438,483
-----------
COMPUTERS -- 3.2%
A/A3 IBM Corp.,
6.375%, 11/01/1997..... 250,000 250,625
A/A3 IBM Corp.,
6.375%, 6/15/2000...... 150,000 148,314
-----------
398,939
-----------
ENTERTAINMENT -- 2.0%
A+/A1 Bass America, Inc.,
6.75%, 8/01/1999....... 250,000 251,230
-----------
FINANCIAL SERVICES -- 8.9%
AA-/AA3 Associates Corp. North
America,
8.50%, 1/10/2000....... 100,000 105,372
A-/A3 Chrysler Financial Corp.
Medium Term Notes,
7.10%, 4/14/1997....... 250,000 251,811
A/Baa1 Lehman Brothers Holdings
Corp.,
6.90%, 7/15/1999....... 200,000 200,092
BBB/Baa1 Salomon, Inc.,
6.00%, 4/15/1998....... 200,000 198,128
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C> <C>
FINANCIAL SERVICES (CONTINUED)
A/A3 Smith Barney Shearson
Holdings Corp.,
6.00%, 3/15/1997....... $250,000 $ 250,270
A+/A2 Travelers, Inc.,
7.75%, 6/15/1999....... 100,000 102,950
-----------
1,108,623
-----------
FOOD AND BEVERAGE -- 2.0%
A/A1 PepsiCo, Inc.,
6.80%, 5/15/2000....... 250,000 251,085
-----------
FOOD SERVING -- 2.0%
A+/A2 Grand Metropolitan
Investment Corp.,
6.50%, 9/15/1999....... 250,000 249,558
-----------
INSURANCE -- 2.1%
AA-/A2 Capital Holding Corp.
Medium Notes,
8.90%, 10/20/1999...... 250,000 264,630
-----------
OIL/GAS - EXPLORATION -- 2.1%
AA-/A1 BP America Corp.,
7.48%, 2/15/1999....... 250,000 254,517
-----------
PHARMACEUTICALS -- 2.9%
A-/A2 American Home Products
Corp.,
7.70%, 2/15/2000....... 250,000 257,687
A-/A2 American Home Products
Corp.,
6.875%, 4/15/1997...... 100,000 100,534
-----------
358,221
-----------
RETAIL -- 6.2%
BBB-/Baa3 Black & Decker Notes,
6.625%, 11/15/2000..... 60,000 59,356
BBB+/A3 Dayton Hudson Corp.,
9.50%, 3/01/2000....... 250,000 269,650
A-/Baa1 Mattel, Inc.,
6.75%, 5/15/2000....... 90,000 90,006
A-/A2 Sears Roebuck Co.,
8.20%, 4/15/1999....... 100,000 103,102
AA/Aa1 Wal-Mart Stores, Inc.,
6.125%, 10/01/1999..... 250,000 246,772
-----------
768,886
-----------
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 4
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
TOBACCO -- 3.2%
A/A2 American Brands, Inc.,
7.50%, 5/15/1999....... $100,000 $ 102,175
A/A2 Philip Morris Cos.,
6.375%, 1/15/1998...... 300,000 300,487
-----------
402,662
-----------
UTILITIES -- 4.0%
A-/A2 Carolina Power & Light
Co.,
6.875%, 10/01/1998..... 250,000 250,843
A-/A2 Pacific Gas & Electric,
6.625%, 6/01/2000...... 250,000 246,250
-----------
497,093
-----------
TOTAL CORPORATE
OBLIGATIONS (IDENTIFIED
COST $6,191,693)....... 6,212,768
-----------
MUNICIPAL OBLIGATIONS --
TENNESSEE -- 5.7%
GOVERNMENT AGENCY -- 0.8%
A/NR Loudon County, Tennessee,
4.90%, 3/01/1997....... 105,000 104,388
-----------
HOUSING DEVELOPMENT -- 2.0%
AA/Aa Tennessee HDC,
5.20%, 1/01/1998....... 250,000 245,392
-----------
UTILITIES -- 2.9%
AAA/Aaa West Knox Utilities
District,
8.40%, 12/01/1997...... 250,000 255,004
AAA/Aaa White House Utility
District of Robertson &
Summer Co.,
7.60%, 1/01/2000....... 100,000 102,957
-----------
357,961
-----------
TOTAL MUNICIPAL
OBLIGATIONS (IDENTIFIED
COST $702,692)......... 707,741
-----------
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS -- 17.6%
MORTGAGED BACKED
SECURITIES -- 12.8%
NR/NR Government National
Mortgage Association
Pool #276718,
9.75%, 8/15/1998....... $104,729 $ 109,966
NR/NR Federal Home Loan
Mortgage Corp.,
7.05%, 8/27/2001....... 100,000 99,580
NR/NR Federal Home Loan
Mortgage Corp. Gold
Balloon #13099,
6.00%, 3/01/1997....... 236,959 231,775
NR/NR Federal Home Loan
Mortgage Corp. Gold
Balloon #M15202,
6.00%, 9/01/1997....... 313,582 306,722
NR/NR Federal Home Loan
Mortgage Corp. Gold
Balloon #L90037,
6.00%, 7/01/1998....... 360,544 352,658
NR/NR Federal Home Loan
Mortgage Corp. Gold
Balloon #L90057,
6.00%, 11/01/1998...... 159,079 157,994
NR/NR Federal Home Loan
Mortgage Corp. Gold
Balloon #M90304,
6.00%, 11/01/1998...... 136,269 135,339
NR/NR Federal Home Loan
Mortgage Corp. Pool
#M90163,
7.00%, 12/01/1997...... 159,394 160,190
NR/NR Federal National Mortgage
Association #1508,
6.00%, 3/01/1998....... 42,622 38,866
-----------
1,593,090
-----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (CONTINUED)
GOVERNMENT AGENCY
OBLIGATIONS -- 4.8%
NR/NR Federal Home Loan Bank,
5.345%, 11/10/1997..... $100,000 $ 99,309
NR/NR Federal Home Loan Bank,
6.625%, 12/17/1998..... 250,000 250,583
NR/NR Federal Home Loan Bank,
7.00%, 3/28/2001....... 250,000 249,154
-----------
599,046
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS (IDENTIFIED
COST $2,208,234)....... 2,192,136
-----------
U.S. TREASURY OBLIGATIONS -- 2.0%
NR/NR U.S. Treasury Notes,
6.875%, 10/31/1996..... 250,000 250,390
-----------
TOTAL U.S. TREASURY
OBLIGATIONS (IDENTIFIED
COST $250,200)......... 250,390
-----------
TOTAL INVESTMENTS -- 75.3%
(IDENTIFIED COST
$9,352,819)+.................... 9,363,035
Cash and other assets,
net of
liabilities -- 24.7%... 3,063,409
-----------
NET ASSETS -- 100.0%..... $12,426,444
==========
</TABLE>
+ The cost of securities for Federal income tax purposes is substantially the
same.
* See page 18 for Credit Ratings.
See accompanying notes to financial statements.
3
<PAGE> 6
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (unaudited) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 39.0%
ADVERTISING/COMMUNICATIONS -- 2.2%
B/B2 Big Flower Press,
Inc.,
10.75%, 8/01/2003... $ 350,000 $ 353,500
B-/B3 Bruno's, Inc.,
10.50%, 8/01/2005... 350,000 358,750
B/B2 Heritage Media Corp.,
8.75%, 2/15/2006.... 181,000 171,497
-----------
883,747
-----------
BANKING -- 7.2%
BB-/B1 Banco Rio de la Plata,
8.50%, 7/15/1998.... 420,000 424,725
B/B2 First Nationwide,
12.50%, 4/15/2003... 175,000 189,875
NR/Aaa International Bank of
Reconstruction &
Development,
4.50%, 6/20/2000.... 50,000,000(H) 496,953
NR/Aaa Japanese Development
Bank,
6.50%, 9/20/2001.... 158,000,000(H) 1,726,869
-----------
2,838,422
-----------
BUILDING/FOREST PRODUCTS -- 1.2%
B+/B3 Pacific Lumber, Co.,
10.50%, 3/01/2003... 500,000 492,500
-----------
BROADCASTING - CABLE
TELEVISION -- 6.4%
B/B3 Adelphia
Communications
Corp.,
12.50%, 5/15/2002... 500,000 525,625
B/B2 Cablevision Systems
Corp.,
9.25%, 11/01/2005... 190,000 184,300
BB-/Ba3 Century Communications
Corp.,
9.75%, 2/15/2002.... 350,000 356,125
B/B1 Helicon Group-Series,
9.00%, 11/01/2003... 350,000 353,500
B/B2 Jacor Communications,
10.125%,
6/15/2006........... 350,000 363,562
B+/B1 Jones Intercable Inc.,
11.50%, 7/15/2004... 350,000 382,813
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
BROADCASTING - CABLE TELEVISION (CONTINUED)
B/B2 Sinclair Broadcasting
Group,
10.00%,
12/15/2003.......... $ 350,000 $ 357,000
-----------
2,522,925
-----------
CHEMICALS -- 0.9%
B/B1 NL Industries, Inc.,
11.75%,
10/15/2003.......... 350,000 367,500
-----------
CONTAINERS - METAL -- 0.7%
BB-/B1 Sea Containers, Ltd.,
12.50%,
12/01/2002.......... 250,000 273,750
-----------
ELECTRICAL & ELECTRONICS -- 0.9%
B-/B3 International Wire
Group,
11.75%, 6/01/2005... 350,000 370,125
-----------
FOOD AND HOUSEHOLD
PRODUCTS -- 0.9%
B+/B1 Chiquita Brands Int'l,
Inc.,
9.625%, 1/15/2004... 350,000 355,250
-----------
HEALTH CARE -- 0.4%
B-/B3 Merit Behavioral Care
Corp.,
11.50%,
11/15/2005.......... 160,000 169,600
-----------
INDUSTRIAL COMPONENTS -- 1.0%
NR/NR DESC Sociedad de
Fomento,
11.00%,
12/15/1997.......... 375,000 387,188
-----------
LEISURE & TOURISM -- 1.5%
B-/B3 Casino Magic of LA,
13.00%, 8/15/2003... 250,000 254,063
NR/B3 Griffin Gaming,
8.40%, 6/30/2000.... 350,000 329,000
-----------
583,063
-----------
MANUFACTURING -- 0.3%
B/B2 Weirton Steel Corp.,
10.875%,
10/15/1999.......... 103,000 106,863
-----------
METALS - DIVERSIFIED -- 0.5%
B/B3 Envirosource, Inc.,
9.75%, 6/15/2003.... 200,000 190,000
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
OIL/GAS - EXPLORATION -- 2.8%
B/B2 Cliffs Drilling Co.,
10.25%, 5/15/2003... $ 350,000 $ 352,625
B-/B2 Plains Resources,
Inc.,
10.25%, 3/15/2006... 220,000 225,500
BB/B2 Trans Texas Gas Corp.,
11.50%, 6/15/2002... 500,000 530,000
-----------
1,108,125
-----------
PAPER PRODUCTS -- 4.2%
B+/B3 Printpack Inc.,
10.625%,
8/15/2006++......... 380,000 389,500
BB-/B1 Repap New Brunswick,
9.875%, 7/15/2000... 350,000 360,500
B/B2 Stone Container,
Corp.,
9.875%, 2/01/2001... 250,000 251,250
B/B2 Stone Container,
Corp.,
10.75%, 4/01/2002... 250,000 256,250
B-/B3 United Stationers
Supply Co.,
12.75%, 5/01/2005... 378,000 410,130
-----------
1,667,630
-----------
PHARMACEUTICALS -- 0.9%
B/B3 Twin Labs, Inc.,
10.25%,
5/15/2006++......... 350,000 351,750
-----------
PLASTIC PRODUCTS -- 1.8%
B/B2 Applied Extrusion
Technologies Corp.,
11.50%,4/01/2002.... 350,000 360,062
B-/B3 Plastic Specialties &
Technologies Inc.,
11.25%,
12/01/2003.......... 350,000 350,000
-----------
710,062
-----------
RETAIL -- 0.8%
B-/Caa Parisian, Inc.,
9.875%, 7/15/2003... 300,000 297,000
-----------
TELECOMMUNICATIONS -- 2.6%
AAA/Aaa British Telecom plc,
7.125%, 9/15/2003... 275,000(K) 420,039
B-/B2 Metrocall, Inc.,
10.375%,
10/01/2007.......... 350,000 295,750
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
TELECOMMUNICATIONS (CONTINUED)
BB-/B1 Telecom Argentina,
8.375%,
10/18/2000.......... $ 315,000 $ 306,149
-----------
1,021,938
-----------
TEXTILES & APPAREL -- 1.8%
B/B3 Hartmarx Corp.,
10.875%,
1/15/2002........... 350,000 339,500
B+/B3 West Point Stevens,
Inc.,
9.375%,
12/15/2005.......... 350,000 350,000
-----------
689,500
-----------
TOTAL CORPORATE
OBLIGATIONS
(IDENTIFIED COST
$15,141,760)........ 15,386,938
-----------
GOVERNMENT OBLIGATIONS -- 41.7%
ARGENTINA GOVERNMENT -- 1.1%
BB-/B1 Argentina Note,
5.00%, 3/31/2023#... 715,000 423,638
-----------
AUSTRALIA GOVERNMENT -- 0.3%
AAA/NR Australian Government,
8.75%, 1/15/2001.... 130,000(A) 108,566
-----------
BELGIUM GOVERNMENT -- 2.6%
NR/NR Belgium (Kingdom of),
9.00%, 3/28/2003.... 8,250,000(B) 311,036
NR/NR Belgium (Kingdom of),
5.00%, 3/28/2001.... 14,700,000(B) 468,753
AAA/Aa1 Belgium (Kingdom of),
8.25%, 2/14/2000.... 250,000 261,554
-----------
1,041,343
-----------
CANADA GOVERNMENT -- 1.1%
AAA/Aa1 Canada Government,
7.25%, 6/01/2003.... 575,000(C) 434,225
-----------
DENMARK GOVERNMENT -- 1.0%
AAA/NR Denmark (Kingdom of),
6.00%, 12/10/1999... 1,625,000(D) 285,991
AAA/Aaa Denmark (Kingdom of),
8.00%, 3/15/2006.... 710,000(D) 130,705
-----------
416,696
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 8
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
GOVERNMENT OBLIGATIONS (CONTINUED)
FRANCE GOVERNMENT -- 2.6%
NR/Aaa France O.A.T.,
9.50%, 1/25/2001.... 700,000(E) $ 158,869
NR/Aaa France O.A.T.,
5.50%, 4/25/2004.... 1,490,000(E) 283,256
NR/Aaa France O.A.T.,
8.50%, 4/25/2003.... 2,600,000(E) 584,323
-----------
1,026,448
-----------
GERMANY GOVERNMENT -- 8.4%
NR/NR Deutsche Bundesbahn,
6.125%,
10/28/2003.......... 555,000(F) 380,586
NR/NR Deutsche Bundesbahn,
6.00%, 8/03/1998.... 1,335,000(F) 910,921
AAA/Aaa Treuhandansalt GRM,
6.25%, 3/04/2004.... 675,000(F) 455,350
AAA/Aaa Treuhandansalt GRM,
6.625%, 7/09/2003... 635,000(F) 454,326
AAA/Aaa Treuhandansalt GRM,
6.00%, 11/12/2003... 1,590,000(F) 1,096,421
-----------
3,297,604
-----------
ITALY GOVERNMENT -- 2.1%
AAA/Aa3 Buoni Poliennali del
Tes,
9.50%, 2/01/2001.... 800,000,000(G) 554,957
AAA/Aa3 Buoni Poliennali del
Tes,
12.50%, 3/19/1998... 370,000,000(G) 257,372
-----------
812,329
-----------
NETHERLANDS GOVERNMENT -- 0.7%
NR/NR Netherlands
Government,
6.50%, 4/15/2003.... 180,000(I) 110,962
NR/NR Netherlands
Government,
5.75%, 1/15/2004.... 294,000(I) 172,482
-----------
283,444
-----------
SPAIN GOVERNMENT -- 0.6%
NR/NR Spanish Government,
10.15%, 1/31/2006... 11,980,000(J) 106,697
NR/NR Spanish Government,
9.90%, 10/31/1998... 15,200,000(J) 125,019
-----------
231,716
-----------
UNITED KINGDOM GOVERNMENT -- 1.5%
NR/Aaa Treasury Bond,
8.00%, 12/07/2000... 110,000(K) 179,317
<CAPTION>
CREDIT PRINCIPAL/ MARKET
RATING* SHARES VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
UNITED KINGDOM GOVERNMENT (CONTINUED)
NR/NR Treasury Bond, 8.50%,
12/07/2005.......... 240,000(K) $ 398,088
-----------
577,405
-----------
UNITED STATES GOVERNMENT -- 19.7%
GOVERNMENT AGENCY
OBLIGATIONS -- 1.8%
NR/NR Federal National
Mortgage
Association,
5.83%, 2/20/2001.... $ 750,000 719,984
-----------
U.S. TREASURY OBLIGATIONS -- 17.9%
NR/NR U.S. Treasury Note,
5.875%, 4/30/1998... 3,000,000 2,993,436
NR/NR U.S. Treasury Note,
6.125%, 8/31/1998... 4,050,000 4,052,531
-----------
7,045,967
-----------
TOTAL UNITED STATES
GOVERNMENT
OBLIGATIONS......... 7,765,951
-----------
TOTAL GOVERNMENT
OBLIGATIONS
(IDENTIFIED COST
$16,129,338)........ 16,419,365
-----------
EQUITIES -- 1.5%
COMMON STOCK -- 0.1%
RETAIL -- 0.1%
NR/NR Grand Union Co.##..... 4,419 28,171
-----------
PREFERRED STOCK -- 1.4%
PUBLISHING & PRINTING -- 1.4%
B/B2 K-III Communications
Corp.,
2.875%,
Exchangeable........ 20,000 532,500
-----------
TOTAL EQUITIES
(IDENTIFIED COST
$777,450)........... 560,671
-----------
TOTAL INVESTMENTS
EXCLUDING SHORT-TERM
INVESTMENTS
(IDENTIFIED COST
$32,048,548)........ 32,366,974
-----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 9
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
CREDIT PRINCIPAL/ MARKET
RATING* SHARES VALUE
- ------- ------------ -----------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 1.6%
MONEY MARKET -- 1.6%
NR/NR Chase Manhattan Bank
Bournemouth,
5.00%, 10/01/1996... $ 620,258 $ 620,258
-----------
TOTAL SHORT-TERM
INVESTMENTS
(IDENTIFIED COST
$620,258)........... 620,258
-----------
TOTAL INVESTMENTS -- 83.8%
(IDENTIFIED COST
$32,668,806)+................... 32,987,232
Cash and other assets,
of
liabilities -- 16.2%... 6,395,951
-----------
NET ASSETS -- 100.0%.............. $39,383,183
==========
+ The cost of securities for Federal income tax
purposes is substantially the same.
# Step bond. Republic of Argentina, Brady Bond,
5.00% through 3/31/97; maturity rate increases to
6.00% on 3/31/99, until ultimate maturity date of
3/31/23.
++ Security restricted as to resale to qualified
institutional buyers under Rule 144A of the
Securities Act.
## Non income producing security.
* See page 18 for Credit Ratings.
** See page 18 for Concentration by Country.
</TABLE>
Principal denominated in U.S. Dollars unless indicated by the following
currencies:
<TABLE>
<S> <C>
(A) Australia
(B) Belgium
(C) Canada
(D) Denmark
(E) France
(F) Germany
(G) Italy
(H) Japan
(I) Netherlands
(J) Spain
(K) United Kingdom
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 10
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (unaudited) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 91.7%
AEROSPACE/DEFENSE -- 0.4%
22,600 Rolls-Royce plc.........$ 62,198 $ 84,568
----------- -----------
AGRICULTURE -- 0.7%
105,600 Parmalat Finanziaria
S.p.A................. 97,939 151,848
----------- -----------
AUTO RELATED -- 2.8%
5,500 Debica S.A.............. 70,950 117,459
21,000 Nissan Motor Co.,
Ltd. ................. 131,444 169,364
10,000 Suzuki Motor Co.,
Ltd. ................. 114,748 122,006
440 Volkswagen AG........... 159,310 164,020
----------- -----------
476,452 572,849
----------- -----------
BANKING -- 8.0%
8,900 Abbey National plc...... 77,948 82,571
26,070 Allied Irish Banks
plc................... 126,536 156,426
6,000 Banco Frances del Rio de
la Plata
S.A. -- ADR#.......... 106,041 156,750
2,020 Banco Santander S.A. ... 85,031 105,115
20,000 Bangkok Bank Co.,
Ltd. ................. 203,670 261,366
3,400 Banponce Corp. ......... 86,266 91,800
50,000 CMIC Finance &
Securities Co.,
Ltd. ................. 189,066 121,039
415 Commerzbank A.G. ....... 87,757 94,343
1,420 C.S. Holding A.G. ...... 133,599 140,325
14,012 Lloyds TSB Group plc.... 66,250 82,795
18,000 Malayan Banking
Berhad................ 173,562 178,865
4,000 Sumitomo Bank Ltd. ..... 77,996 73,921
3,000 Washington Mutual,
Inc. ................. 92,266 111,750
----------- -----------
1,505,988 1,657,066
----------- -----------
BUILDING MATERIALS AND COMPONENTS -- 1.3%
4,290 Cimpor Cimentos De
Portugal S.A. ........ 69,823 90,227
1,300 Texas Industries,
Inc. ................. 78,415 77,837
13,900 Wolseley plc............ 99,052 105,818
----------- -----------
247,290 273,882
----------- -----------
BROADCASTING -- TELEVISION -- 0.4%
11,300 Carlton Communications
plc................... 81,305 85,318
----------- -----------
CHEMICALS -- 2.9%
6,200 BOC Group plc........... 74,282 84,852
25,000 Nippon Sanso Corp. ..... 131,200 112,138
1,700 Norsk Hydro AS.......... 79,569 79,602
650,000 Shanghai Petrochemical
Co., Ltd. -- H........ 190,744 172,318
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
CHEMICALS (CONTINUED)
2,600 Sociedad Quimica y
Minera De
Chile -- ADR#.........$ 114,920 $ 145,275
----------- -----------
590,715 594,185
----------- -----------
COMMERCIAL SERVICES -- 1.5%
2,900 Accustaff, Inc.*........ 89,899 75,038
2,100 APAC Teleservices,
Inc.*................. 82,696 107,625
3,400 Robert Half
International,
Inc.*................. 48,983 125,375
----------- -----------
221,578 308,038
----------- -----------
COMPUTER EQUIPMENT -- 1.7%
1,900 Gateway 2000, Inc.*..... 41,049 90,962
2,700 Storage Technology
Corp.*................ 97,256 102,263
3,800 Western Digital
Corp.*................ 99,070 152,475
----------- -----------
237,375 345,700
----------- -----------
COMPUTER SOFTWARE -- 2.1%
1,400 ABR Information
Services, Inc.*....... 77,779 100,800
2,400 Compuware Corp.*........ 95,158 109,800
1,425 McAfee Associates,
Inc.*................. 45,259 98,325
2,700 Parametric Technology
Corp.*................ 94,673 133,312
----------- -----------
312,869 442,237
----------- -----------
CONGLOMERATE -- 2.1%
10,000 I.T.C., Ltd. -- GDR++... 75,500 88,700
21,000 Itochu Corp. ........... 141,774 133,193
371,250 Mondragon International
Philippines, Inc.*.... 68,230 212,305
----------- -----------
285,504 434,198
----------- -----------
CONSTRUCTION -- 4.3%
1,900 Centex Corp............. 67,889 61,988
5,600 Champion Enterprises,
Inc.*................. 117,664 126,700
7,000 Empresas Ica
S.A. -- ADR........... 100,927 106,750
8,400 Gujarat Ambuja Cements,
Ltd. -- GDR++......... 50,000 76,650
13,000 JGC Corp. .............. 166,614 149,278
25,000 Keppel Corporation
Ltd. ................. 211,490 193,578
3,100 Lennar Corp. ........... 76,611 68,975
3,800 Oakwood Homes Corp. .... 92,138 104,500
----------- -----------
883,333 888,419
----------- -----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 11
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL AND ELECTRONICS -- 1.8%
5,700 American Power
Conversion Corp.*..... $ 77,870 $ 83,362
7,700 Elektrim Spolka Akcyjna
S.A. ................. 57,647 75,369
1,600 SCI Systems, Inc.*...... 75,065 90,000
9,000 Sumitomo Electric
Industries............ 123,630 123,531
----------- -----------
334,212 372,262
----------- -----------
ENTERTAINMENT -- 2.2%
1,200 Anchor Gaming*.......... 78,972 74,700
4,690 Filmes Lusomundo Co. ... 58,780 47,885
3,700 International Game
Technology............ 76,293 75,850
2,100 King World Productions,
Inc.*................. 86,431 77,437
13,500 Rank Organisation plc... 92,163 90,322
15,000 Resorts World Berhad.... 88,970 85,003
----------- -----------
481,609 451,197
----------- -----------
FINANCIAL SERVICES -- 6.1%
1,800 Aames Financial
Corp. ................ 91,030 90,675
4,305 Bear Stearns Companies,
Inc. ................. 83,821 100,091
2,835 Charter One Financial,
Inc. ................. 94,312 113,400
1,725 Cie Parisienne De
Reescompte............ 129,711 137,526
539 Cie Bancaire S.A. ...... 53,078 56,259
3,500 Edwards (A.G.), Inc. ... 82,123 101,937
1,800 Golden West Financial
Corp. ................ 94,658 105,075
10,800 Instituto Mobiliare
Italiano S.p.A. ...... 72,452 91,761
4,300 Lehman Brothers Holding,
Inc. ................. 91,695 109,650
3,400 Paine Webber Group,
Inc. ................. 66,079 71,400
2,100 Salomon, Inc. .......... 77,676 95,812
2,100 Standard Federal
Bancorp............... 91,425 96,075
3,000 SunAmerica Inc. ........ 72,290 103,500
----------- -----------
1,100,350 1,273,161
----------- -----------
FOOD & HOUSEHOLD PRODUCTS -- 0.9%
90 Nestle S.A. ............ 97,039 100,271
4,000 Unilever plc............ 79,228 85,445
----------- -----------
176,267 185,716
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
FOREST PRODUCTS & PAPER -- 0.6%
5,200 Grupo Industrial Durango
S.A. -- ADR*#......... $ 69,532 $ 61,750
4,000 Maderas y Sinteticos
S.A. -- ADR........... 57,589 56,500
----------- -----------
127,121 118,250
----------- -----------
HOLDING COMPANIES - DIVERSIFIED -- 2.8%
16,500 Benpress Holdings
Corp.*................ 111,250 123,750
60,000 Berjaya Sports Berhad... 235,704 211,908
12,700 BTR plc................. 68,632 53,701
70,000 Hicom Holdings Berhad... 201,712 191,356
----------- -----------
617,298 580,715
----------- -----------
INSURANCE -- 5.5%
2,800 American Bankers
Insurance Group,
Inc. ................. 88,856 140,000
1,200 American National
Insurance Co. ........ 77,833 81,600
3,500 Assurances Generales
de France............. 114,955 98,005
2,099 AXA Co. ................ 105,609 125,753
3,900 Bankers Life Holding
Corp.................. 89,166 95,062
7,300 Commercial Union plc.... 69,084 68,525
2,600 Conseco, Inc. .......... 70,008 128,050
3,650 Fremont General
Corp. ................ 85,654 107,675
4,300 Old Republic
International
Corp. ................ 98,437 106,425
2,700 Penncorp Financial
Group, Inc. .......... 88,990 87,075
3,300 USLife Corp. ........... 95,376 99,000
----------- -----------
983,968 1,137,170
----------- -----------
INVESTMENT COMPANIES -- 1.6%
22,500 Korea-Europe Fund,
Ltd. ................. 128,438 146,250
22,500 Korea-Europe Fund,
Ltd. -- Rights due
10/8/1996*............ 46,875 46,875
13,000 ROC Taiwan Fund*........ 135,040 139,750
----------- -----------
310,353 332,875
----------- -----------
MACHINERY & MANUFACTURING -- 3.0%
2,480 Continental A.G. ....... 40,011 45,346
340 Mannesmann A.G. ........ 111,531 127,366
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 12
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
MACHINERY & MANUFACTURING (CONTINUED)
7,000 Mori Seiki Co. ......... $ 150,381 $ 108,011
150,000 Shanghai Industrial
Holdings, Ltd.*....... 185,073 344,313
----------- -----------
486,996 625,036
----------- -----------
MEDICAL SUPPLIES -- 1.2%
5,100 Kinetic Concepts,
Inc. ................. 85,448 73,631
2,400 Lincare Holdings,
Inc.*................. 96,207 96,000
2,400 Sofamor Danek Group,
Inc.*................. 83,779 74,100
----------- -----------
265,434 243,731
----------- -----------
METALS -- DIVERSIFIED -- 0.5%
4,100 Madeco S.A. -- ADR#..... 103,897 94,813
----------- -----------
MINING -- 0.7%
5,000 De Beers Consolidated
Mines, Ltd. -- Cent.
Linked................ 153,212 155,716
----------- -----------
OIL/GAS -- EXPLORATION -- 6.5%
3,300 Apache Corp. ........... 97,475 98,175
11,700 British Petroleum plc... 100,528 121,259
2,500 Cooper Cameron Corp.*... 90,874 143,437
2,500 Helmerich & Payne,
Inc. ................. 85,816 109,062
1,700 Newfield Exploration
Co.*.................. 75,688 76,500
8,000 Noble Drilling Corp.*... 79,625 121,000
7,500 Santa Fe Energy
Resources Inc. ....... 83,883 106,875
4,300 Seagull Energy Corp.*... 95,571 84,387
1,270 Total S.A. -- Cl B...... 99,840 99,972
4,200 USX -- Marathon Group... 89,850 90,825
3,800 Vintage Petroleum,
Inc. ................. 97,328 111,625
8,100 YPF Sociedad Anonima --
ADR................... 142,953 185,288
----------- -----------
1,139,431 1,348,405
----------- -----------
PACKAGING/CONTAINER -- 0.5%
5,200 Cristalerias de Chile
S.A. -- ADR........... 120,401 109,850
----------- -----------
PERSONAL CARE -- 0.8%
13,000 Shiseido Co., Ltd. ..... 165,213 156,275
----------- -----------
PETROCHEMICALS -- 0.7%
125,000 Aromatics (Thailand)
plc*.................. 172,660 136,538
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
PHARMACEUTICALS -- 1.7%
3,600 Bergen Brunswig Corp Cl
A..................... $ 99,611 $ 114,300
2,600 Dura Pharmaceuticals
Inc.*................. 74,794 95,875
4,400 Glaxo Wellcome plc...... 53,563 68,884
3,300 ICN Pharmaceuticals
Inc. ................. 81,783 67,650
----------- -----------
309,751 346,709
----------- -----------
PUBLISHING & PRINT -- 2.0%
1,790 Elsevier NV............. 16,370 29,586
41,000 News Corp., Ltd. ....... 238,072 215,208
8,550 VNU-Ver Ned Uitgev Ver
Bezit................. 105,791 167,285
----------- -----------
360,233 412,079
----------- -----------
REAL ESTATE -- 4.9%
150,000 Amoy Properties,
Ltd. ................. 179,684 174,581
15,000 Cheung Kong Holdings,
Ltd. ................. 82,038 115,417
85,000 Hong Kong Land Holdings,
Ltd................... 180,676 198,050
175,000 Selangor Properties
Berhad................ 199,057 201,832
20,000 Singapore Land, Ltd. ... 129,033 121,475
12,000 Sun Hung Kai Properties,
Ltd. ................. 74,045 127,638
3,450 Vallehermoso S.A. ...... 60,871 66,785
----------- -----------
905,404 1,005,778
----------- -----------
RECREATION -- 0.4%
2,300 Callaway Golf Co. ...... 72,918 78,488
----------- -----------
RETAIL -- 6.3%
80,000 Cifra S.A. de C.V. --
ADR*#................. 128,400 115,272
5,250 Claire's Stores,
Inc. ................. 95,627 112,219
6,800 Cia Brasileira de Distr.
Grupo Pao de
Acucar -- GDR++....... 73,100 134,300
4,300 Hollywood Entertainment
Corp.*................ 90,355 88,150
7,000 Kingfisher plc.......... 55,629 69,320
2,100 Long Drug Stores,
Inc. ................. 94,939 91,350
1,500 Mercantile Stores Co.,
Inc. ................. 95,692 81,000
2,600 Proffitt's, Inc.*....... 98,381 102,700
2,300 Ross Stores, Inc. ...... 63,250 82,800
16,900 Safeway plc............. 82,021 86,783
2,000 Sonae Investimentos
SA.................... 54,337 57,975
2,700 TJX Companies Inc. ..... 86,075 96,863
2,400 Vendex International
NV.................... 70,387 93,494
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 13
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL (CONTINUED)
2,100 Vons Companies, Inc.*... $ 47,751 $ 90,037
----------- -----------
1,135,944 1,302,263
----------- -----------
STEEL -- 0.6%
40,000 Nippon Steel Co. ....... 141,818 124,159
----------- -----------
TELECOMMUNICATIONS -- 5.2%
6,000 Cable & Wireless plc.... 36,985 42,066
8,500 CPT Telefonica del Peru
Cl B*................. 187,627 190,188
3,500 Portugal Telecom
S.A. ................. 76,024 89,957
45,000 PT Indonesian
Satellite -- Foreign
Registered............ 165,359 157,733
880 SPT Telekom A.S.*....... 108,929 108,654
32,000 Telecom Italia Mobile
S.p.A. ............... 38,179 71,018
40,600 Telecom Italia Mobile
S.p.A. -- Drnc.
Risp. ................ 39,614 50,490
1,300 Telecomunicacoes
Brasileiras
S.A. -- ADR #......... 52,487 102,684
8,750 Telefonica de Espana.... 140,052 162,567
3,000 Telefonos De Mexico
S.A.,
Cl L -- ADR#.......... 115,085 96,375
----------- -----------
960,341 1,071,732
----------- -----------
TEXTILES AND APPAREL -- 1.6%
2,600 Liz Claiborne, Inc. .... 75,106 96,850
3,300 Mohawk Industries,
Inc.*................. 79,314 84,562
2,200 Russell Corp............ 72,956 70,950
2,800 Westpoint Stevens,
Inc. ................. 76,612 79,450
----------- -----------
303,988 331,812
----------- -----------
TRANSPORTATION -- 2.2%
2,500 Amerco*................. 88,105 99,687
11,000 BAA plc................. 82,401 85,460
4,350 Comair Holdings,
Inc. ................. 73,985 102,225
20,000 Swire Pacific, Ltd. Cl
A..................... 167,926 179,107
----------- -----------
412,417 466,479
----------- -----------
UTILITIES -- 2.6%
8,756 Citizens Utilities Co.
Cl A*................. 95,861 106,165
4,100 Delmarva Power & Light
Co. .................. 83,685 84,050
3,500 Oneok, Inc. ............ 77,993 96,250
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
UTILITIES (CONTINUED)
3,100 Peoples Energy Corp. ... $ 99,095 $ 105,400
3,000 Washington Gas Light
Co. .................. 66,247 66,000
2,700 Western Resources,
Inc. ................. 80,418 78,638
----------- -----------
503,299 536,503
----------- -----------
WATER SERVICES -- 0.3%
1,900 Culligan Water
Technologies, Inc.*... 75,945 71,962
----------- -----------
WINE & SPIRITS -- 0.3%
9,200 Grand Metropolitan
plc................... 59,185 68,528
----------- -----------
TOTAL COMMON STOCKS..... 16,982,211 18,976,510
----------- -----------
WARRANTS -- 0.6%
BANKING -- 0.6%
100,000 Development & Commercial
Bank Holdings Berhad
Expire 12/27/1999*.... 140,603 132,493
----------- -----------
TOTAL EXCLUDING
SHORT-TERM
INVESTMENTS........... 17,122,814 19,109,003
----------- -----------
<CAPTION>
SHARES/
PRINCIPAL
- ----------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS -- 6.3%
$1,297,540 Chase Manhattan Bank
Bourmouth Time Deposit
5.00%, due
10/01/1996............ 1,297,540 1,297,540
----------- -----------
TOTAL INVESTMENTS --
98.6%................. $18,420,354+ 20,406,543
==========
Cash and other assets,
net of
liabilities -- 1.4%... 287,180
-----------
NET ASSETS -- 100.00%.............. $20,693,723
==========
+ The cost of securities for Federal income tax purposes is
substantially the same.
* Non-Income Producing Securities.
# American Depository Receipts.
++ Global Depository Shares.
** See page 18 for Concentration by Country.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 14
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC SMALL CAP FUND
Portfolio of Investments (unaudited) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 74.3%
AGRICULTURAL PRODUCTS -- 0.4%
64,700 Consep, Inc.*............ $ 181,969 $ 258,800
----------- -----------
AUTO RELATED -- 0.8%
37,400 Metrotrans Corp.*........ 372,781 495,550
----------- -----------
BROADCASTING -- 0.4%
56,400 NTN Communications,
Inc.*.................. 283,728 264,375
----------- -----------
CHEMICALS -- 1.1%
45,000 Synalloy Corp............ 648,005 697,500
----------- -----------
COMMERCIAL SERVICES -- 12.2%
71,300 B.I., Inc.*.............. 520,804 588,225
59,800 Childrens Comprehensive
Services, Inc.*........ 396,484 1,061,450
96,350 Compucom Systems,
Inc.*.................. 728,800 843,063
67,600 Norrell Corp, Inc........ 765,376 2,129,400
44,950 Regis Corp............... 560,541 1,168,700
56,475 Right Management
Consultants, Inc.*..... 637,919 1,369,519
12,500 Service Experts, Inc.*... 195,313 253,125
25,000 Staffmark, Inc.*......... 300,000 353,125
----------- -----------
4,105,237 7,766,607
----------- -----------
ELECTRONICS -- 4.4%
47,700 Computational Systems,
Inc.*.................. 702,732 775,125
25,000 Wandek & Golterman
Technologies, Inc.*.... 408,313 468,750
59,950 Zebra Technologies Corp.,
Class A*............... 962,947 1,536,219
----------- -----------
2,073,992 2,780,094
----------- -----------
ENTERTAINMENT -- 2.0%
48,700 Speedway Motorsports,
Inc.*.................. 557,163 1,278,375
----------- -----------
ENVIRONMENTAL -- 2.0%
35,000 Newpark Resources,
Inc.*.................. 1,050,000 1,273,125
----------- -----------
FINANCIAL SERVICES -- 4.0%
60,000 Amresco, Inc.*........... 719,713 1,372,500
38,950 Sirrom Capital Corp...... 467,856 1,178,238
----------- -----------
1,187,569 2,550,738
----------- -----------
FURNITURE -- 1.8%
88,400 Aaron Rents, Inc., Class
B...................... 672,451 1,149,200
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ----------- -----------
<C> <S> <C> <C>
HEALTHCARE SERVICE PROVIDERS -- 5.3%
94,000 American Healthcorp,
Inc.*.................. $ 885,863 $ 998,750
21,300 America Service Group,
Inc.*.................. 360,929 298,200
35,000 Renal Treatment Centers,
Inc.*.................. 554,036 1,163,750
55,500 Res-Care, Inc.*.......... 730,155 943,500
----------- -----------
2,530,983 3,404,200
----------- -----------
INDUSTRIAL EQUIPMENT -- 1.9%
25,000 Roper Industries, Inc.... 927,771 1,181,250
----------- -----------
INSURANCE -- 1.7%
29,000 Vesta Insurance Group,
Inc.................... 668,828 1,112,875
----------- -----------
MANUFACTURED HOUSING -- 1.7%
60,000 Cavalier Homes, Inc...... 441,133 1,110,000
----------- -----------
MANUFACTURING EQUIPMENT -- 3.7%
35,000 Asesco Corp.*............ 351,624 319,375
49,400 Asyst Technologies,
Inc.*.................. 1,303,115 950,950
33,000 Electro Scientific
Industries, Inc.*...... 822,045 610,500
51,000 Quad Systems Corp.*...... 338,564 471,750
----------- -----------
2,815,348 2,352,575
----------- -----------
MANUFACTURING SERVICES -- 1.8%
38,400 Benchmark Electronic,
Inc.*.................. 1,192,622 1,152,000
----------- -----------
MEDICAL EQUIPMENT -- 4.2%
46,550 American Homepatient,
Inc.*.................. 687,176 1,035,737
45,700 Fuqua Enterprises,
Inc.*.................. 1,039,358 1,079,662
29,200 Pediatric Services of
America, Inc.*......... 525,838 540,200
----------- -----------
2,252,372 2,655,599
----------- -----------
METALS - DIVERSIFIED -- 7.9%
55,000 Carbide/Graphite Group,
Inc. (The)*............ 850,525 1,010,625
40,000 Maverick Tube Corp.*..... 465,000 560,000
33,600 Oregon Metallurgical
Corp.*................. 851,056 1,092,000
42,100 Sinter Metals, Inc.,
Class A*............... 722,820 842,000
35,000 Wolverine Tube, Inc.*.... 1,160,265 1,505,000
----------- -----------
4,049,666 5,009,625
----------- -----------
OILFIELD SERVICES -- 1.2%
45,000 Oceaneering
International, Inc.*... 574,038 765,000
----------- -----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 15
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC SMALL CAP FUND
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
PHARMACEUTICALS -- 6.8%
56,550 Medicis Pharmaceutical
Corp.*................. $ 977,080 $ 2,728,538
20,000 Natures Sunshine
Products, Inc.......... 340,000 350,000
33,950 Rexall Sundown, Inc.*.... 534,505 1,239,175
----------- -----------
1,851,585 4,317,713
----------- -----------
PERSONAL CARE -- 2.0%
45,400 Inbrand Corp.*........... 673,425 1,293,900
----------- -----------
RESTAURANT -- 0.7%
5,400 Daka International,
Inc.................... 116,775 48,600
25,000 Longhorn Steak House,
Inc.*.................. 390,000 381,250
----------- -----------
506,775 429,850
----------- -----------
RETAIL -- 1.8%
31,800 Cash America Investments,
Inc.................... 218,032 226,575
30,000 Genesco, Inc.*........... 238,050 281,250
70,000 Moovies, Inc.*........... 591,875 385,000
50,500 Natural Wonders, Inc.*... 309,125 277,750
----------- -----------
1,357,082 1,170,575
----------- -----------
TEXTILES AND APPAREL -- 1.7%
35,000 Interface, Inc........... 482,500 603,750
50,000 Quaker Fabric Corp.*..... 473,125 500,000
----------- -----------
955,625 1,103,750
----------- -----------
MARKET
SHARES COST VALUE
- ------- ----------- -----------
TOYS AND HOBBIES -- 0.7%
22,550 Action Performance
Companies, Inc.*....... $ 264,894 $ 290,331
10,000 The First Years, Inc..... 135,000 140,000
----------- -----------
399,894 430,331
----------- -----------
TRANSPORTATION - AIR -- 1.1%
62,500 Mesaba Holdings Inc.*.... 480,625 679,687
----------- -----------
UTILITIES -- 1.0%
59,200 York Research Corp.*..... 559,218 643,800
----------- -----------
TOTAL
INVESTMENTS -- 74.3%... $33,369,885+ 47,327,094
==========
Cash and other assets,
net of
liabilities -- 25.7%... 16,330,465
-----------
NET ASSETS -- 100.0%..... $63,657,559
==========
</TABLE>
* Non-income producing securities
+ The cost of securities for Federal income tax purposes is substantially
the same.
See accompanying notes to financial statements.
13
<PAGE> 16
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (unaudited) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 94.2%
AUTO RELATED -- 2.0%
9,000 Custom Chrome, Inc.*..... $ 180,540 $ 165,375
7,400 Daimler Benz
A.G. -- ADR#........... 371,519 408,850
9,400 Metrotrans Corp.*........ 93,125 124,550
20,000 Spartan Motors, Inc. .... 193,375 147,500
----------- -----------
838,559 846,275
----------- -----------
BANKING -- 6.8%
3,800 Astoria Financial
Corp. ................. 60,677 110,200
3,000 Banco Bilbao
Vizcaya -- ADR#........ 67,417 137,625
5,200 Chase Manhattan Corp. ... 348,062 416,650
9,200 First Bell Bancorp,
Inc. .................. 112,590 136,850
6,500 First Mutual Bancorp,
Inc. .................. 83,077 86,429
5,900 Frankfort First Bancorp,
Inc. .................. 74,004 63,425
14,600 F.S.F. Financial
Corp. ................. 187,975 186,150
13,000 Glendale Federal Bank
FSB*................... 197,060 230,750
5,500 GP Financial Corp. ...... 132,055 209,688
8,140 IBS Financial Corp. ..... 69,819 121,083
6,000 Industrial Bancorp,
Inc. .................. 75,042 73,500
14,800 Instituto Mobiliare
Italiano -- ADR#*...... 286,950 377,400
2,400 Morgan (J.P.) & Co. ..... 146,444 213,300
4,100 Lincoln National
Corp. ................. 148,982 179,888
6,800 MLF Bancorp, Inc.*....... 47,804 95,625
5,500 Washington Mutual,
Inc. .................. 165,161 204,875
5,400 Westerfed Financial
Corp. ................. 73,224 87,075
----------- -----------
2,276,343 2,930,513
----------- -----------
BROADCASTING -- 0.2%
15,700 NTN Communications,
Inc.*.................. 79,692 73,594
----------- -----------
BUILDING MATERIALS & COMPONENTS -- 0.3%
2,300 Texas Industries,
Inc. .................. 139,856 137,713
----------- -----------
CHEMICALS -- 0.6%
16,000 Synalloy Corp. .......... 205,925 248,000
----------- -----------
COMMERCIAL SERVICES -- 5.9%
5,200 Accustaff, Inc.*......... 161,512 134,550
4,000 Apac Teleservices,
Inc.*.................. 157,565 205,000
19,600 B.I., Inc.*.............. 140,340 161,700
9,900 Children's Comprehensive
Services, Inc.*........ 54,598 175,725
24,050 Compucom Systems,
Inc.*.................. 144,300 210,438
18,000 Norrell Corp. ........... 175,500 567,000
15,000 Regis Corp. ............. 156,663 390,000
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMERCIAL SERVICES (CONTINUED)
18,225 Right Management
Consultants, Inc.*..... $ 169,263 $ 441,956
6,300 Robert Half
International, Inc.*... 104,598 232,313
----------- -----------
1,264,339 2,518,682
----------- -----------
COMPUTER EQUIPMENT -- 2.1%
3,700 Gateway 2000, Inc.*...... 106,650 177,138
5,000 Parametric Technology
Corp.*................. 187,515 246,875
5,000 Storage Technology
Corp.*................. 180,764 189,375
7,100 Western Digital Corp.*... 178,392 284,888
----------- -----------
653,321 898,276
----------- -----------
COMPUTER SOFTWARE -- 1.4%
2,800 ABR Information Services,
Inc.*.................. 154,909 201,600
4,500 Compuware Corp.*......... 176,122 205,875
2,725 McAfee Associates,
Inc.*.................. 93,540 188,025
----------- -----------
424,571 595,500
----------- -----------
ELECTRICAL & ELECTRONICS -- 4.2%
1,600 ABB-AG-ADR#.............. 131,896 195,795
11,100 American Power Conversion
Corp.*................. 151,747 162,338
11,750 Computational Systems,
Inc.*.................. 171,844 190,938
7,000 Hitachi, Ltd. -- ADR#.... 693,838 674,625
3,200 Sci Systems, Inc.*....... 150,130 180,000
14,950 Zebra Technologies Corp.,
Class A*............... 240,134 383,094
----------- -----------
1,539,589 1,786,790
----------- -----------
ENTERTAINMENT -- 1.9%
2,300 Anchor Gaming*........... 151,363 143,175
7,100 Intl Game Technology..... 146,406 145,550
3,900 King World Productions,
Inc.*.................. 159,966 143,812
14,000 Speedway Motorsports,
Inc.*.................. 126,420 367,500
----------- -----------
584,155 800,037
----------- -----------
ENVIRONMENTAL -- 0.9%
10,500 Newpark Resources,
Inc.*.................. 354,613 381,938
----------- -----------
FINANCIAL SERVICES -- 9.9%
3,400 Aames Financial Corp. ... 171,947 171,275
4,900 Amerco................... 171,183 195,387
15,900 Ampresco, Inc.*.......... 198,725 363,711
6,600 Banponce Corp. .......... 167,518 178,200
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 17
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES (CONTINUED)
8,900 Bear Stearns Cos.,
Inc. .................. $ 183,547 $ 206,925
10,000 Bostonfed Bancorp.,
Inc. .................. 124,350 132,500
5,880 Charter One Financial,
Inc. .................. 197,077 235,200
14,700 Corp Bancaria
Espana -- ADR#*........ 311,532 306,863
7,300 Edwards (A.G.), Inc. .... 178,746 212,612
11,000 GA Financial, Inc. ...... 121,660 144,375
3,400 Golden West Financial
Corp. ................. 180,666 198,475
7,800 Lehman Brothers Holding,
Inc. .................. 170,243 198,900
30,400 North Central Bancshares,
Inc. .................. 328,664 380,000
7,200 Paine Webber Group,
Inc. .................. 145,632 151,200
10,000 PFF Bancorp., Inc.*...... 115,000 123,750
4,400 Salomon, Inc. ........... 170,129 200,750
14,000 Sirrom Capital Corp. .... 163,688 423,500
4,400 Standard Federal
Bancorporation......... 185,889 201,300
6,200 Sumamerica, Inc. ........ 157,936 213,900
----------- -----------
3,444,132 4,238,823
----------- -----------
FOOD & HOUSEHOLD PRODUCTS -- 3.1%
24,000 Groupe Danone ADR#*...... 740,548 701,222
11,200 Nestle S.A. -- ADR#...... 569,477 624,528
----------- -----------
1,310,025 1,325,750
----------- -----------
FURNITURE/HOME APPLIANCE -- 0.8%
28,000 Aaron Rents, Inc., Class
B...................... 204,679 364,000
----------- -----------
HEALTHCARE SERVICE PROVIDERS -- 2.3%
29,000 American Healthcorp,
Inc.*.................. 275,500 308,125
5,000 America Service Group,
Inc.*.................. 102,890 70,000
10,200 Renal Treatment Centers,
Inc.*.................. 175,164 339,150
14,850 Res-Care, Inc.*.......... 199,931 252,450
----------- -----------
753,485 969,725
----------- -----------
HOMEBUILDERS -- 2.0%
13,300 Allied Waste
Ind.,Inc.*............. 123,025 123,025
4,100 Centex Corp. ............ 140,641 133,763
10,400 Champion Enterprises,
Inc.*.................. 217,143 235,300
6,600 Lennar Corp. ............ 168,066 146,850
8,000 Oakwood Homes Corp. ..... 190,676 220,000
----------- -----------
839,551 858,938
----------- -----------
INDUSTRIAL EQUIPMENT -- 0.8%
7,000 Roper Industries,
Inc. .................. 241,500 330,750
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
INSURANCE -- 6.6%
5,200 American Bankers
Insurance Group,
Inc. .................. $ 176,280 $ 260,000
2,500 American National
Insurance Co. ......... 158,943 170,000
7,000 Bankers Life Holding
Corp. ................. 156,272 170,625
5,400 Conseco, Inc. ........... 162,015 265,950
6,450 Fremont General Corp. ... 151,503 190,275
2,800 Loews Corp. ............. 123,409 216,650
8,900 Old Republic Intl
Corp. ................. 202,893 220,275
4,700 Penncorp Financial Group,
Inc. .................. 154,908 151,575
9,000 Reliastar Financial
Corp. ................. 391,915 427,500
5,600 Safeco Corp. ............ 158,493 196,000
6,100 Uslife Corp. ............ 178,162 183,000
9,750 Vesta Insurance Group,
Inc. .................. 204,567 374,156
----------- -----------
2,219,360 2,826,006
----------- -----------
MANUFACTURED HOUSING -- 0.9%
20,000 Cavalier Homes, Inc. .... 128,603 370,000
----------- -----------
MANUFACTURING EQUIPMENT -- 3.3%
13,000 Aseco Corp.*............. 105,500 118,625
10,000 Asyst Technologies,
Inc.*.................. 298,713 192,500
10,000 Electro Scientific
Industries Inc.*....... 209,605 185,000
63,700 Jardine Matheson
Holdings,
Ltd. -- ADR#........... 483,100 398,125
6,800 Seimens AG -- ADR#*...... 329,700 358,710
20,000 Quad Systems Corp.*...... 130,700 185,000
----------- -----------
1,557,318 1,437,960
----------- -----------
MANUFACTURING SERVICES -- 0.6%
9,100 Benchmark Electronic,
Inc.*.................. 282,627 273,000
----------- -----------
MEDICAL EQUIPMENT -- 2.7%
13,500 American Homepatient,
Inc.*.................. 179,000 300,375
11,800 Fuqua Enterprises,
Inc.*.................. 282,614 278,775
10,700 Kinetic Concepts,
Inc. .................. 177,967 154,480
4,400 Lincare Holdings,
Inc.*.................. 174,301 176,000
5,800 Pediatric Services Of
America, Inc.*......... 100,413 107,300
5,200 Sofamor Danek Group,
Inc.*.................. 171,117 160,550
----------- -----------
1,085,412 1,177,480
----------- -----------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 18
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
METALS -- DIVERSIFIED -- 2.0%
12,600 Carbide/Graphite Group,
Inc. (The)*............ $ 212,840 $ 231,525
8,950 Maverick Tube Corp.*..... 110,756 125,300
10,150 Sinter Metals, Inc. Class
"A"*................... 180,339 203,000
7,000 Wolverine Tube, Inc.*.... 196,188 301,000
----------- -----------
700,123 860,825
----------- -----------
OILFIELD SERVICES -- 0.4%
11,200 Oceaneering
International, Inc.*... 175,276 190,400
----------- -----------
OIL/GAS -- EXPLORATION -- 6.6%
6,000 Apache Corp. ............ 179,893 178,500
4,600 Cooper Cameron Corp.*.... 175,002 263,925
10,100 Elf Aquitane -- ADR#..... 358,447 397,688
4,600 Helmerich & Payne........ 159,844 200,675
3,300 Newfield Exploration
Co.*................... 146,897 148,500
16,400 Noble Drilling Corp.*.... 182,920 248,050
11,400 Repsol S.A. -- ADR#...... 358,459 377,625
15,700 Santa Fe Energy
Resources, Inc.*....... 177,997 223,725
7,700 Seagull Energy Corp.*.... 178,894 151,111
7,600 USX-Marathon Group....... 162,927 164,350
6,900 Vintage Petroleum,
Inc. .................. 178,089 202,688
11,400 YPF Sociedad
Anonima -- ADR#........ 221,847 260,775
----------- -----------
2,481,216 2,817,612
----------- -----------
PERSONAL CARE -- 0.8%
12,500 Inbrand Corp.*........... 172,720 356,250
----------- -----------
PHARMACEUTICALS -- 3.2%
6,500 Bergen Brunswig Corp.,
Class A................ 179,131 206,375
5,500 Dura Pharmaceuticals,
Inc.*.................. 156,908 202,813
6,300 ICN Pharmaceuticals,
Inc. .................. 156,139 129,150
12,000 Medicis Pharmaceutical
Corp.*................. 201,945 579,000
7,400 Rexall Sundown, Inc.*.... 94,017 270,100
----------- -----------
788,140 1,387,438
----------- -----------
RECREATION -- 0.4%
4,500 Callaway Golf Company.... 142,664 153,563
----------- -----------
RESTAURANTS -- 0.4%
10,000 Longhorn Steak House,
Inc.*.................. 155,000 152,500
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
RETAIL -- 5.5%
9,750 Claire's Stores, Inc. ... $ 178,060 $ 208,406
10,000 Genesco, Inc.*........... 79,350 93,750
8,300 Hollywood Entertainment
Corp.*................. 174,400 170,150
4,400 Longs Drug Stores,
Inc. .................. 195,212 191,400
13,000 Mac Frugals Bargains
Close.................. 242,905 307,125
2,800 Mercantile Stores Co.,
Inc. .................. 179,436 151,200
15,000 Moovies, Inc.*........... 127,500 82,500
4,700 Proffitt's, Inc.*........ 177,157 185,650
4,400 Ross Stores, Inc. ....... 134,824 158,400
5,000 TJX Companies, Inc. ..... 159,050 179,375
4,000 Vons Companies, Inc.*.... 103,069 171,500
23,000 Woolworth Corp.*......... 327,968 474,375
----------- -----------
2,078,931 2,373,831
----------- -----------
SHOES -- 1.7%
17,200 Reebol International
LTD. .................. 502,470 597,700
14,000 Stride Rite Corp. ....... 170,251 126,000
----------- -----------
672,721 723,700
----------- -----------
TELECOMMUNICATIONS -- 6.9%
42,800 Alcatel
Alsthom -- ADR#........ 775,053 722,250
19,500 Stet-Societa Finanziaria
Telefonica
P.A. -- ADR#........... 599,686 677,096
29,000 Tele Denmark AS, Class
B -- ADR#.............. 748,047 685,125
9,000 Telefonica de
Espana -- ADR#......... 353,115 500,625
12,100 Telefonos de Mexico S.A.,
Class L -- ADR#........ 455,613 388,712
----------- -----------
2,931,514 2,973,808
----------- -----------
TEXTILES & APPAREL -- 2.2%
10,000 Interface, Inc. ......... 138,750 172,500
4,600 Liz Claiborne, Inc. ..... 138,476 171,350
6,300 Mohawk Industries,
Inc.*.................. 151,363 161,438
15,000 Quaker Fabric Corp.*..... 142,500 150,000
4,200 Russell Corp. ........... 139,301 135,450
5,400 Westpoint Stevens,
Inc. .................. 147,796 153,225
----------- -----------
858,186 943,963
----------- -----------
TOYS AND HOBBIES -- 0.3%
9,650 The First Years, Inc. ... 132,688 135,100
----------- -----------
TRANSPORTATION -- 0.4%
7,750 Comair Holdings, Inc. ... 145,937 182,125
----------- -----------
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 19
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
UTILITIES -- 3.8%
14,000 British Gas
plc -- ADR#............ $ 402,365 $ 442,750
16,021 Citizens Utilities Co.,
Class A*............... 177,826 194,257
8,600 Delmarva Power & Light
Co. ................... 175,026 176,300
6,400 Oneok, Inc. ............. 146,718 176,000
5,700 Peoples Energy Corp. .... 181,599 193,800
5,300 Washington Gas Light
Co. ................... 115,919 116,600
5,600 Western Resources,
Inc. .................. 166,262 163,100
14,300 York Research Corp.*..... 136,834 155,513
----------- -----------
1,502,549 1,618,320
----------- -----------
WATER TREATMENT SERVICES -- 0.3%
3,700 Culligan Water
Technologies, Inc.*.... 147,850 140,138
----------- -----------
TOTAL
INVESTMENTS -- 94.2%... $33,513,170+ $40,399,323
==========
Cash and other assets,
net of
liabilities -- 5.8%.... 2,490,947
-----------
NET ASSETS -- 100.0%..... $42,890,270
==========
+ The cost of securities for Federal income tax purposes
is substantially the same.
* Non-income producing security.
# American Depository Receipts.
** See page 18 for Concentration by Country.
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 20
ESC STRATEGIC FUNDS, INC.
Concentration by Country (unaudited)
<TABLE>
<CAPTION>
INCOME FUND GLOBAL EQUITY FUND APPRECIATION FUND
COUNTRY MARKET VALUE MARKET VALUE MARKET VALUE
------------ ------------------ ------------------
<S> <C> <C> <C>
Argentina............................................... $ 1,541,700 $ 156,750 $ 260,775
Australia............................................... 108,566 215,208 --
Belgium................................................. 1,041,343 -- --
Brazil.................................................. -- 236,984 --
Canada.................................................. 434,225 -- --
Chile................................................... -- 411,875 --
Czech Republic.......................................... -- 108,654 --
Denmark................................................. 416,696 -- 685,125
France.................................................. 1,026,448 517,515 2,445,689
Germany................................................. 3,297,604 385,729 767,560
Great Britain........................................... 997,444 1,520,056 442,750
Hong Kong............................................... -- 1,113,374 398,125
India................................................... -- 165,350 --
Indonesia............................................... -- 157,733 --
Italy................................................... 812,329 388,588 1,054,497
Japan................................................... 2,223,822 1,271,876 674,625
Malaysia................................................ -- 1,001,457 --
Mexico.................................................. -- 609,997 388,713
Netherlands............................................. 283,444 290,364 --
Norway.................................................. -- 79,602 --
Peru.................................................... -- 190,188 --
Philippines............................................. -- 212,305 --
Poland.................................................. -- 192,828 --
Portugal................................................ -- 286,044 --
Singapore............................................... -- 513,103 --
South Africa............................................ -- 155,716 --
Spain................................................... 231,716 334,468 1,322,738
Switzerland............................................. -- 240,596 195,796
Thailand................................................ -- 518,943 --
United States........................................... 20,571,895 9,131,240 31,762,930
----------- ----------- -----------
Total Investments....................................... $32,987,232 $ 20,406,543 $ 40,399,323
=========== =========== ===========
</TABLE>
* CREDIT RATINGS (unaudited)
<TABLE>
<CAPTION>
MOODY'S STANDARD & POOR'S
-------- ------------------
<C> <C> <S>
Aaa AAA Instrument judged to be of the highest quality
and carrying the smallest amount of investment
risk.
Aa AA Instrument judged to be of high quality by all
standards.
A A Instrument judged to be adequate by all
standards.
Baa BBB Instrument judged to be of moderate quality by
all standards.
Ba-B BB-B Instrument judged to have speculative elements,
and generally lack desirable characteristics.
Caa-C CCC-C Instrument judged to be predominately speculative
with respect to pay interest and repay
principal in accordance with terms of
obligation.
NR NR Not Rated. In the opinion of the Investment
Adviser, instrument judged to be of comparable
investment quality to rated securities which
may be purchased by the Fund.
</TABLE>
For items possessing the strongest investment attributes of their
category, Moody's gives that letter rating followed by a number. The
Standard & Poor's ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
U.S. Government Issues have an assumed rating of AAA/Aaa.
18
<PAGE> 21
ESC STRATEGIC FUNDS, INC.
Statement of Assets and Liabilities (unaudited)
September 30, 1996
<TABLE>
<CAPTION>
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments at value (cost $9,352,819; $32,048,548;
$17,122,814 ; $33,369,885; $33,513,170,
respectively)...................................... $ 9,363,035 $32,366,974 $19,109,003 $47,327,094 $40,399,323
Short-Term Investments (cost $0; $620,258;
$1,297,540; $0; $0, respectively).................. 0 620,258 1,297,540 0 0
Cash................................................. 2,906,023 6,262,427 276,969 15,789,207 2,493,504
Foreign Cash (cost $0; $0; $1,536; $0; $0,
respectively)...................................... 0 0 1,536 0 0
Dividends and interest receivable.................... 126,585 772,254 20,569 1,088 17,006
Receivable for investments sold...................... 0 0 23,508 110,625 0
Receivable for Advisor............................... 29,465 0 0 0 0
Receivable for fund shares sold...................... 2,948 2,450 132,151 1,019,915 86,562
Withholding tax reclaim.............................. 0 0 6,465 0 0
Unrealized appreciation on foreign currency.......... 0 0 0 0 0
Unamortized organizational expenses (Note 2e)........ 25,282 26,105 23,031 33,175 24,360
----------- ----------- ----------- ----------- -----------
Total Assets................................... 12,453,338 40,050,468 20,890,772 64,281,104 43,020,755
----------- ----------- ----------- ----------- -----------
LIABILITIES
Payable for securities purchased..................... 0 563,865 99,840 390,000 0
Income distribution payable.......................... 0 12,321 0 0 0
Payable for fund shares repurchased.................. 0 200 28,269 13,491 0
Advisory fee payable (Note 3)........................ 2,536 32,219 16,607 49,165 34,748
Administrative services fee payable (Note 3)......... 590 4,833 2,491 7,375 5,212
Transfer agent fee payable (Note 3).................. 2,436 0 3,280 9,554 8,186
12b-1 Distribution fee payable....................... 3,600 12,900 13,500 45,000 24,600
Other accrued expenses............................... 17,732 40,947 33,062 108,960 57,739
----------- ----------- ----------- ----------- -----------
Total Liabilities.............................. 26,894 667,285 197,049 623,545 130,485
----------- ----------- ----------- ----------- -----------
NET ASSETS............................................. $12,426,444 $39,383,183 $20,693,723 $63,657,559 $42,890,270
=========== =========== =========== =========== ===========
Net Assets Consist of:
Capital stock........................................ $ 1,250 $ 3,941 $ 1,792 $ 3,392 $ 2,939
Additional paid-in capital........................... 12,446,161 39,154,856 18,285,057 47,218,771 34,006,263
Accumulated undistributed net investment
income/(loss) on investments....................... 0 509,096 57,790 (230,830) (28,419 )
Accumulated undistributed realized gain/(loss) on
investments and foreign currency................... (31,183 ) (599,200) 362,167 2,709,017 2,023,334
Net unrealized appreciation/(depreciation) on
investments and foreign currency translations...... 10,216 314,490 1,986,917 13,957,209 6,886,153
----------- ----------- ----------- ----------- -----------
NET ASSETS........................................... $12,426,444 $39,383,183 $20,693,723 $63,657,559 $42,890,270
=========== =========== =========== =========== ===========
SHARES OF BENEFICIAL INTEREST
Class A:
Shares of beneficial interest outstanding.......... 1,250,480 3,791,728 1,440,651 2,646,588 2,731,151
=========== =========== =========== =========== ===========
Net asset value per share outstanding.............. $9.94 $9.99 $11.58 $18.80 $14.60
=========== =========== =========== =========== ===========
Maximum offering price per share (N/A, $9.99/.955,
$11.58/.955, $18.80/.955, $14.60/.955,
respectively).................................... $9.94 $10.46 $12.13 $19.69 $15.29
=========== =========== =========== =========== ===========
Class D:
Shares of beneficial interest outstanding.......... N/A 149,283 351,172 745,752 207,565
=========== =========== =========== =========== ===========
Net asset value per share outstanding.............. N/A $9.99 $11.42 $18.63 $14.46
=========== =========== =========== =========== ===========
Maximum offering price per share (N/A, $9.99/.985,
$11.42/.985, $18.63/.985, $14.46/.985,
respectively).................................... N/A $10.14 $11.59 $18.91 $14.68
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 22
ESC STRATEGIC FUNDS, INC.
Statement of Operations (unaudited)
For the Six Months Ended September 30, 1996
<TABLE>
<CAPTION>
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest (net of withholding tax of $0,
$6,249, $0,
$0, $0, respectively)..................... $358,738 $1,335,817 $ 38,575 $ 225,998 $ 53,250
Dividends (net of withholding tax of $0, $0,
$10,757, $0, $13,392, respectively)....... 0 28,751 168,019 66,670 287,899
------------ ---------- ------------- ---------- ------------
358,738 1,364,568 206,594 292,668 341,149
------------ ---------- ------------- ---------- ------------
Expenses:
Advisory (Note 3)........................... 29,474 193,348 96,367 248,966 183,374
Administrative services (Note 3)............ 8,842 29,002 14,455 37,345 27,506
Fund Accounting (Note 3).................... 18,778 20,081 27,126 16,842 21,725
Legal....................................... 1,582 3,605 2,451 5,802 4,363
Reports to shareholders..................... 1,350 2,750 5,940 12,540 5,760
Audit....................................... 8,400 8,400 9,600 8,400 8,400
Registration................................ 4,215 5,720 7,015 9,795 7,555
Custodian................................... 6,893 19,716 25,370 19,608 17,836
Trustee..................................... 2,200 2,200 2,200 2,200 2,200
Transfer agent fees and expenses (Note 3)... 6,084 7,507 8,001 21,317 8,186
12b-1 Distribution fee -- Class A........... 6,785 19,645 21,105 45,404 38,020
12b-1 Distribution fee -- Class D........... 0 5,673 5,135 43,140 10,362
Amortization of organizational expenses..... 4,421 4,421 4,421 5,455 4,421
Miscellaneous............................... 2,448 389 3,617 62,918 33,174
------------ ---------- ------------- ---------- ------------
Total expenses before waivers............... 101,472 322,457 232,803 539,732 372,882
Less: expenses waived/reimbursed............ (48,622) 0 0 0 0
expenses paid by third parties.......... (2,751) (10,149) (474) (16,234) (3,314)
------------ ---------- ------------- ---------- ------------
Net expenses................................ 50,099 312,308 232,329 523,498 369,568
------------ ---------- ------------- ---------- ------------
Net investment income/(loss).................. 308,639 1,052,260 (25,735) (230,830) (28,419)
------------ ---------- ------------- ---------- ------------
Realized gain/(loss) on investments........... (20,098) (229,808) 418,538 900,539 990,020
Net realized gain/(loss) on foreign currency
transactions and assets and liabilities
denominated in foreign currencies........... 0 3,243 (150,491) 0 0
Net change in unrealized
appreciation/(depreciation) of
investments................................. (46,241) 634,508 627,329 7,065,106 2,729,156
Net change in unrealized gain/(loss) on
foreign currency translation................ 0 (4,678) 768 0 0
------------ ---------- ------------- ---------- ------------
Net realized and unrealized gain/(loss) on
investments and foreign currency
translation................................. (66,339) 403,265 896,144 7,965,645 3,719,176
------------ ---------- ------------- ---------- ------------
Net increase in net assets resulting from
operations.................................. $242,300 $1,455,525 $ 870,409 $7,734,815 $3,690,757
=========== ========== ============ ========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 23
ESC STRATEGIC FUNDS, INC.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
ASSET PRESERVATION INCOME
----------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income................. $ 308,639 $ 705,577 $ 1,052,260 $ 2,178,866
Net realized gain/(loss) on
investments......................... (20,098) 1,024 (226,565) 741,500
Net unrealized
appreciation/(depreciation) of
investments......................... (46,241) 128,200 629,830 (285,681)
------------------ -------------- ------------------ --------------
Net increase in net assets resulting
from operations....................... 242,300 834,801 1,455,525 2,634,685
------------------ -------------- ------------------ --------------
Distributions to Shareholders:
From net investment income:
Class A............................. (308,639) (705,577) (1,015,892) (2,104,878)
Class D............................. 0 0 (36,368) (73,988)
------------------ -------------- ------------------ --------------
(308,639) (705,577) (1,052,260) (2,178,866)
------------------ -------------- ------------------ --------------
From capital gains:
Class A............................. 0 0 0 (741,974)
Class D............................. 0 0 0 (28,940)
------------------ -------------- ------------------ --------------
0 0 0 (770,914)
------------------ -------------- ------------------ --------------
Decrease in net assets resulting from
distributions to shareholders....... (308,639) (705,577) (1,052,260) (2,949,780)
------------------ -------------- ------------------ --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A............................. 3,961,895 1,045,974 5,617,183 4,281,407
Class D............................. 0 0 74,135 307,314
------------------ -------------- ------------------ --------------
3,961,895 1,045,974 5,691,318 4,588,721
------------------ -------------- ------------------ --------------
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A............................. 275,779 705,053 922,980 2,614,384
Class D............................. 0 0 33,784 67,280
------------------ -------------- ------------------ --------------
275,779 705,053 956,764 2,681,664
------------------ -------------- ------------------ --------------
Net asset value of shares redeemed:
Class A............................. (4,985,562) (563,282) (5,930,922) (2,073,972)
Class D............................. 0 0 (74,388) (158,592)
------------------ -------------- ------------------ --------------
(4,985,562) (563,282) (6,005,310) (2,232,564)
------------------ -------------- ------------------ --------------
Net increase/(decrease) in net
assets from capital share
transactions...................... (747,888) 1,187,745 642,772 5,037,821
------------------ -------------- ------------------ --------------
Total increase/(decrease) in net
assets................................ (814,227) 1,316,969 1,046,037 4,722,726
Net Assets:
Beginning of period................... 13,240,671 11,923,702 38,337,146 33,614,420
------------------ -------------- ------------------ --------------
End of period......................... $ 12,426,444 $ 13,240,671 $ 39,383,183 $ 38,337,146
================= ============== ================= ==============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 24
ESC STRATEGIC FUNDS, INC.
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY SMALL CAP
----------------------------------- -----------------------------------
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1996 YEAR ENDED SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996 (UNAUDITED) MARCH 31, 1996
------------------ -------------- ------------------ --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income/(loss).......... $ (25,735) $ (66,431) $ (230,830) $ (207,011)
Net realized gain/(loss) on
investments......................... 268,047 899,527 900,539 2,358,416
Net unrealized
appreciation/(depreciation) of
investments......................... 628,097 1,134,339 7,065,106 6,353,643
------------------ -------------- ------------------ --------------
Net increase in net assets resulting
from operations....................... 870,409 1,967,435 7,734,815 8,505,048
------------------ -------------- ------------------ --------------
Distributions to Shareholders:
From net investment income:
Class A............................. 0 0 0 0
Class D............................. 0 0 0 0
------------------ -------------- ------------------ --------------
0 0 0 0
------------------ -------------- ------------------ --------------
From capital gains:
Class A............................. 0 (282,697) 0 (648,997)
Class D............................. 0 (75,804) 0 (188,574)
------------------ -------------- ------------------ --------------
0 (358,501) 0 (837,571)
------------------ -------------- ------------------ --------------
Decrease in net assets resulting from
distributions to shareholders....... 0 (358,501) 0 (837,571)
------------------ -------------- ------------------ --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A............................. 1,672,777 4,242,822 16,187,238 14,484,625
Class D............................. 234,878 419,411 4,002,284 3,972,125
------------------ -------------- ------------------ --------------
1,907,655 4,662,233 20,189,522 18,456,750
------------------ -------------- ------------------ --------------
Net asset value of shares issued to
shareholders in reinvestment of
dividends and distributions:
Class A............................. 0 210,986 0 555,664
------------------ -------------- ------------------ --------------
Class D............................. 0 77,940 0 186,118
------------------ -------------- ------------------ --------------
0 288,926 0 741,782
Net asset value of shares redeemed:
Class A............................. (335,572) (242,681) (1,228,082) (887,112)
Class D............................. (70,900) (530,488) (775,975) (393,753)
------------------ -------------- ------------------ --------------
(406,472) (773,169) (2,004,057) (1,280,865)
------------------ -------------- ------------------ --------------
Net increase in net assets from
capital share transactions........ 1,501,183 4,177,990 18,185,465 17,917,667
------------------ -------------- ------------------ --------------
Total increase in net assets............ 2,371,592 5,786,924 25,920,280 25,585,144
Net Assets:
Beginning of period................... 18,322,131 12,535,207 37,737,279 12,152,135
------------------ -------------- ------------------ --------------
End of period......................... $ 20,693,723 $ 18,322,131 $ 63,657,559 $ 37,737,279
================= ============== ================= ==============
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 25
ESC STRATEGIC FUNDS, INC.
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
APPRECIATION
-----------------------------------
SIX MONTHS ENDED
SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) MARCH 31, 1996
------------------ --------------
<S> <C> <C>
Operations:
Net investment income/(loss)......................................... $ (28,419) $ (101,265)
Net realized gain/(loss) on investments.............................. 990,020 1,695,907
Net unrealized appreciation/(depreciation) of investments............ 2,729,156 3,346,495
------------------ --------------
Net increase in net assets resulting from operations................... 3,690,757 4,941,137
------------------ --------------
Distributions to Shareholders:
From net investment income:
Class A............................................................ 0 0
Class D............................................................ 0 0
------------------ --------------
0 0
------------------ --------------
From capital gains:
Class A............................................................ 0 (572,885)
Class D............................................................ 0 (50,608)
------------------ --------------
0 (623,493)
------------------ --------------
Decrease in net assets resulting from distributions to
shareholders....................................................... 0 (623,493)
------------------ --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A............................................................ 11,863,394 8,089,429
Class D............................................................ 276,811 669,839
------------------ --------------
12,140,205 8,759,268
------------------ --------------
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions:
Class A............................................................ 0 495,951
Class D............................................................ 0 49,839
------------------ --------------
0 545,790
------------------ --------------
Net asset value of shares redeemed:
Class A............................................................ (913,126) (2,076,796)
Class D............................................................ (70,359) (322,285)
------------------ --------------
(983,485) (2,399,081)
------------------ --------------
Net increase in net assets from capital share transactions......... 11,156,720 6,905,977
------------------ --------------
Total increase in net assets........................................... 14,847,477 11,223,621
Net Assets:
Beginning of period.................................................. 28,042,793 16,819,172
------------------ --------------
End of period........................................................ $ 42,890,270 $ 28,042,793
================= ==============
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 26
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) -- September 30, 1996
1. DESCRIPTION. The ESC Strategic Funds, Inc. (the "Company") was
incorporated in Maryland on November 24, 1993. The Company currently comprises
six portfolios, ESC Strategic Asset Preservation (commencement date April 25,
1994), ESC Strategic Income (commencement date May 4, 1994), ESC Strategic
Global Equity (commencement date May 12, 1994), ESC Strategic Small Cap
(commencement date June 8, 1994), ESC Strategic Appreciation (commencement date
July 6, 1994), ESC Strategic Growth Fund (has not commenced operations at
September 30, 1996) (collectively the "Funds"). The Company is registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
management investment company. Each Fund, with the exception of the Small Cap
Fund, operates as a diversified fund. The Small Cap Fund operates as a
non-diversified fund. The Company's Articles of Incorporation authorize the
issuance of two classes of common stock designated as Class A and Class D for
each Fund, except for the Asset Preservation Fund, which shall only have Class A
Shares. Class A shares are offered with a maximum front-end sales charge of
4.50%, which may be reduced or waived in certain cases. Class A shares are also
subject to a Service and Distribution Fee calculated at an annual rate of up to
0.25% of the average daily net asset value of Class A shares. Class D shares are
offered with a front-end sales charge of 1.50% and are subject to a Service and
Distribution Fee at an annual rate of up to 0.75% based on the average daily net
asset value of Class D shares. Prior to November 1, 1995, the 1.50% sales load
on Class D shares was being waived. The Asset Preservation Fund offers only one
class of shares with no front-end sales charge and a Service and Distribution
Fee calculated at an annual rate of up to 0.25% of the average daily value of
its net assets. The Company's Board of Directors may, in the future, authorize
the issuance of additional classes of capital stock for the Funds.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies followed by the Funds:
A. Portfolio Valuation. Investments in securities (including options
and financial futures) are valued at the last sales price on the securities
exchange or the NASDAQ National Market System on which such securities are
primarily traded or, if there are no trades, at the current bid price, as
of 4:15 p.m. eastern time. Over-the-counter securities, or securities for
which there were no transactions, are valued at the closing bid price,
except for open short positions, when the asked price is used. Bid price is
used when no asked price is available. Bonds and other fixed income
securities are valued by using market quotations, and may be valued on the
basis of prices provided by a pricing service. Securities for which market
quotations are not readily available are valued at fair value as determined
in good faith by or at the direction of the Board of Directors. Short-term
securities which mature in 60 days or less are valued at amortized cost, if
their terms to maturity at purchase were 60 days or less, or by amortizing
their value on the 61st day prior to maturity, if their original term to
maturity at purchase exceeded 60 days.
B. Securities transactions and investment income. Securities
transactions are recorded on a trade date basis. Realized gains and losses
from securities transactions are recorded on the identified cost basis.
Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium and accretion of discount on investments,
is accrued daily as earned.
C. Dividend and Capital Gain Distributions to
Shareholders. Distributions to shareholders are recorded on the
ex-dividend date. The amount of dividends and distributions are determined
in accordance with federal income tax regulations which may differ from
generally accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent these
differences are permanent in nature, such amounts are reclassified within
the capital accounts based on their federal tax basis treatment; temporary
differences do not require reclassification. Dividends and distributions
which exceed net investment income and net realized capital gains for
financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of
net realized capital gains.
24
<PAGE> 27
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) (continued) -- September 30, 1996
For the year ended March 31, 1996, the reclassification arising from
permanent book/tax differences resulted in increases (decreases) to the
components of net assets as follows:
<TABLE>
<CAPTION>
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Accumulated undistributed net
investment income/(loss) on
investments...................... $ (867) $ 360,285 $ 149,956 $ 207,011 $101,265
Accumulated undistributed net
realized gain/(loss) on
investments...................... 7,514 (354,775) (152,039) (199,439) (95,759)
Additional paid-in capital......... (6,647) (5,510) 2,083 (7,572) (5,506)
</TABLE>
Permanent book/tax differences are primarily attributable to
non-deductible organization costs, foreign exchange gains/losses and net
operating losses.
D. Federal income taxes. It is the policy of each of the Funds to
qualify as a "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended. By so qualifying, the Funds will
not be subject to Federal income taxes to the extent that they distribute
all of their taxable and tax-exempt income for the fiscal year. The Funds
also intend to meet the distribution requirements to avoid the payment of
an excise tax. Accordingly, no provision for taxes is recorded.
E. Organizational expenses. Costs incurred in connection with the
organization and initial registration of the Funds have been deferred and
are being amortized on a straightline basis over sixty months beginning
with each Fund's commencement of operations. In the event any of the
initial shares of the Funds are redeemed during the amortization period,
the redemption proceeds will be reduced by a pro rata portion of any
unamortized organization expenses in the proportion as the number of shares
being redeemed bears to the number of initial shares outstanding at the
time of redemption.
F. Determination of net asset value and calculation of
expenses. Expenses directly attributable to a Fund are charged to that
Fund. Other expenses are allocated proportionately among each Fund in
relation to the net assets of each Fund or on another reasonable basis. In
calculating net asset value per share of each class, investment income,
realized and unrealized gains and losses, and expenses other than class
specific expenses are allocated daily to each class of shares based upon
the proportion of net assets of each class at the beginning of each day.
Distribution expenses are solely borne by the class incurring the expense.
G. Foreign Exchange Transactions. The books and records of the Fund
are maintained in U.S. dollars; non-U.S. dollar denominated amounts are
translated into U.S. dollars as follows with the resultant exchange gains
and losses recorded in the Statement of Operations:
(i) market value of investment securities and other assets and
liabilities at the exchange rate on the valuation date,
(ii) purchases and sales of investment securities, income and
expenses at the exchange rate prevailing on the respective date of such
transactions.
The Funds do not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from
sales and maturities of short-term securities, currency gains and losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest and foreign
withholding taxes recorded on the Funds' books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses
25
<PAGE> 28
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) (continued) -- September 30, 1996
arise from changes in the value of the assets and liabilities other than
investments in securities at year end, resulting from changes in the
foreign exchange rate.
H. Forward Foreign Exchange Contracts. A forward foreign exchange
contract is a commitment to sell a foreign currency at a future date at a
negotiated exchange rate. The Funds bear the market risk which arises from
possible changes in foreign exchange values. Risks may arise from the
potential inability of counterparties to meet the terms of their contracts
and from unanticipated movements in the value of the foreign currency
relative to the U.S. dollar. The gain or loss from the difference between
the cost or original contracts and the amount realized upon the closing of
such contracts is included in net realized gain on foreign exchange.
I. Use of Estimates. Estimates and assumptions are required to be
made regarding assets, liabilities, and changes in net assets resulting
from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ from these
amounts.
J. Other. The Funds maintain cash balances with their custodian and
receive a reduction of their custody fees and expenses for the amount of
interest earned on such uninvested cash balances. For financial reporting
purposes for the six months ended September 30, 1996, custodian fees and
expenses paid by third parties were increased by $2,751, $10,149, $474,
$16,234 and $3,314 for the Asset Preservation, Income, Global Equity, Small
Cap, and Appreciation Funds, respectively. There was no effect on interest
income. The Funds could have invested such cash amounts in an income
producing asset if they had not agreed to a reduction of fees under the
expense offset arrangement with their custodian.
3. INVESTMENT ADVISORY AND ADMINISTRATION CONTRACTS AND DISTRIBUTION
AGREEMENT. The Company entered into an investment advisory agreement (the
"Investment Advisory Agreement") with Equitable Securities Corporation ("ESC")
(the "Adviser"). The Investment Advisory Agreement provides for the Adviser to
be paid a fee calculated and accrued daily and paid monthly at the annual rates
of 0.50% for ESC Strategic Asset Preservation Fund and 1.00% for each of the
other funds. The Adviser provides portfolio management supervision and certain
administrative, clerical and bookkeeping services for the Company. Equitable
Asset Management is the Adviser for Asset Preservation, Small Cap and also
advises approximately one-third of the assets of the Appreciation Fund. The
Adviser has entered into agreements with various portfolio managers to advise
the Global Equity Fund, Income Fund and the remaining assets of the Appreciation
Fund. Any fees payable under these agreements are paid by the Adviser. For the
six months ended September 30, 1996, the Adviser voluntarily waived fees of
$14,737 for the Asset Preservation Fund.
Furman Selz LLC ("Furman Selz") provides the Funds with administrative,
fund accounting, dividend and capital gain distribution disbursing and transfer
agency services pursuant to the administration agreement (the "Administration
Agreement"). The services under the Administration Agreement are subject to the
supervision of the Company's Board of Directors and officers and include
day-to-day administration of matters related to the corporate existence of the
Company, maintenance of its records, preparation of reports, supervision of the
Funds' arrangement with their custodian and assistance in the preparation of the
Company's Registration Statement under federal and state laws. Pursuant to the
Administration Agreement, the Funds pay Furman Selz a monthly fee for its
services at the annual rate of 0.15% of the average daily net assets of the
Funds and is accrued daily. Furman Selz voluntarily waived fees of $4,421 for
the Asset Preservation Fund for the six months ended September 30, 1996.
Pursuant to a Services Agreement between the Funds and Furman Selz, Furman
Selz provides the Funds with transfer and dividend and capital gain disbursing
agent services, for which it receives a fee of $15.00 per account per year
subject to a required minimum fee of $10,000 for each Fund, plus out-of-pocket
expenses. Pursuant to the Fund Accounting Agreement between the Funds and Furman
Selz, Furman Selz assists the Funds in calculating net asset values
26
<PAGE> 29
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) (continued) -- September 30, 1996
and provides certain other account services for each Fund for an annual fee of
$30,000 per Fund plus out-of-pocket expenses. For the six months ended September
30, 1996, Furman Selz earned Transfer Agent and Fund Accounting fees, including
out of pocket expenses as shown in the Statement of Operations.
ESC has voluntarily agreed to reimburse the Funds to the extent that their
ratios of expenses to average net assets exceed certain percentages as follows:
Appreciation -- 2.00% (Class A), 2.50% (Class D); Global Equity -- 2.50% (Class
A), 3.00% (Class D); Small Cap -- 2.00% (Class A), 2.50% (Class D);
Income -- 1.70% (Class A), 2.20% (Class D); Asset Preservation -- 0.90% (Class
A). ESC has agreed to reimburse expenses to the Asset Preservation Fund in the
amount of $29,465. No reimbursements were necessary for the Appreciation, Global
Equity, Small Cap, or Income Funds.
The Company entered into a distribution agreement (the "Distribution
Agreement") with ESC. Under the Distribution Agreement, ESC as agent for the
Funds, agrees to use its best efforts as sole distributor of the Funds' shares.
Under the Plan of Distribution, Class A shares will pay the Distributor a fee at
an annual rate up to 0.25% of the value of average daily net assets of Class A
shares in return for financing certain distribution and shareholder service
activities related to Class A shares. During the six months ended September 30,
1996, the actual rates incurred by Class A shares were: 0.12%; 0.11%; 0.15%;
0.23% and 0.22% for the Asset Preservation, Income, Global Equity, Small Cap and
Appreciation Funds, respectively. The Plans provide that Class D shares will pay
the Distributor amounts up to an annual rate up to 0.75% of the average daily
net assets of Class D shares to finance certain distribution and shareholder
services activities related to Class D shares. During the six months ended
September 30, 1996, the actual rates incurred by Class D shares were: 0.75%;
0.75%; 0.71% and 0.75% for the Income, Global Equity, Small Cap and Appreciation
Funds, respectively.
During the six months ended September 30, 1996, the Appreciation Fund and
the Global Equity Fund paid brokerage commissions of $18,854 and $4,356,
respectively, to Equitable Securities, a subsidiary of the Adviser's subsidiary,
Equitable Trust Company. The Funds were advised that front-end sales charges of
$1,043, $6,326, $73,843 and $11,676 were paid to ESC from the Income, Global
Equity, Small Cap and Appreciation Funds, respectively.
On July 1, 1996, Furman Selz announced that it had entered into an
agreement pursuant to which its mutual funds division would be acquired by BISYS
Group, Inc. ("BISYS") subject to certain conditions. It is anticipated that,
following consummation of that transaction, services currently provided to the
Company by Furman Selz will be provided to the Company by BISYS and certain of
its affiliates under terms and conditions substantially the same as those in
effect with respect to such services.
4. SECURITIES TRANSACTIONS.
A. Purchase and sale transactions. The aggregate amount of purchases
and sales of investment securities, other than short-term securities, for
the six months ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
COMMON STOCKS U.S. GOVERNMENT
AND CORPORATE BONDS OBLIGATIONS
-------------------------- ------------------------
PURCHASES SALES PURCHASES SALES
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Asset
Preservation...... $ 512,068 $ 4,344,499 $ 597,969 $ 479,836
Income.............. 8,364,630 12,813,529 7,036,200 3,196,855
Global Equity....... 10,090,743 8,195,783 0 0
Small Cap........... 20,808,628 11,108,417 0 0
Appreciation........ 20,294,666 10,469,252 0 0
</TABLE>
27
<PAGE> 30
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) (continued) -- September 30, 1996
B. Federal Income Tax basis. Cost for book and Federal Income Tax
purposes were substantially identical as of September 30, 1996. Gross
unrealized appreciation and depreciation on investment securities at
September 30, 1996, based on cost for Federal income tax purposes is as
follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED APPRECIATION
APPRECIATION DEPRECIATION (DEPRECIATION)
----------- ----------- -----------
<S> <C> <C> <C>
Asset Preservation............ $ 59,784 $ (49,568) $ 10,216
Income........................ 706,609 (388,183) 318,426
Global Equity................. 2,560,448 (574,259) 1,986,189
Small Cap..................... 14,991,047 (1,033,838) 13,957,209
Appreciation.................. 7,794,615 (908,462) 6,886,153
</TABLE>
5. CAPITAL SHARE TRANSACTIONS. The Company is authorized to issue 650
million shares of capital stock with a par value $0.001 each. Transactions in
shares of the Funds for the six months ended September 30, 1996, and the year
ended March 31, 1995, were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
----------------------------------------------------------------------------
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CLASS A
Beginning Balance..................... 1,323,793 3,730,042 1,321,204 1,816,310 1,963,842
------------ ------------ ------------ ------------ ------------
Shares sold........................... 402,528 570,516 149,082 899,183 832,249
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... 27,793 93,297 0 0 0
Shares redeemed....................... (503,634) (602,127) (29,635) (68,905) (64,940)
------------ ------------ ------------ ------------ ------------
Net increase/(decrease) in shares..... (73,313) 61,686 119,447 830,278 767,309
------------ ------------ ------------ ------------ ------------
Closing Balance....................... 1,250,480 3,791,728 1,440,651 2,646,588 2,731,151
========= ======== ======== ======== =========
CLASS D
Beginning Balance..................... -- 145,876 336,540 564,447 192,247
------------ ------------ ------------ ------------ ------------
Shares sold........................... -- 7,493 21,028 225,367 20,288
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... -- 3,415 0 0 0
Shares redeemed....................... -- (7,501) (6,396) (44,062) (4,970)
------------ ------------ ------------ ------------ ------------
Net increase/(decrease) in shares..... -- 3,407 14,632 181,305 15,318
------------ ------------ ------------ ------------ ------------
Closing Balance....................... -- 149,283 351,172 745,752 207,565
========= ======== ======== ======== =========
</TABLE>
28
<PAGE> 31
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) (continued) -- September 30, 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------------------------------------------------
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A
Beginning Balance..................... 1,205,690 3,256,233 931,096 780,607 1,418,131
------------ --------- --------- --------- ------------
Shares sold........................... 103,797 421,654 392,583 1,059,794 670,203
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... 70,131 259,064 19,718 38,534 40,093
Shares redeemed....................... (55,825) (206,909) (22,193) (62,625) (164,585)
------------ --------- --------- --------- ------------
Net increase/(decrease) in shares..... 118,103 473,809 390,108 1,035,703 545,711
------------ --------- --------- --------- ------------
Closing Balance....................... 1,323,793 3,730,042 1,321,204 1,816,310 1,963,842
========= ======== ======== ======== =========
CLASS D
Beginning Balance..................... -- 124,831 338,355 300,196 159,350
------------ --------- --------- --------- ------------
Shares sold........................... -- 30,034 39,211 280,236 55,499
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... -- 6,665 7,360 12,979 4,055
Shares redeemed....................... -- (15,654) (48,386) (28,964) (26,657)
------------ --------- --------- --------- ------------
Net increase/(decrease) in shares..... -- 21,045 (1,815) 264,251 32,897
------------ --------- --------- --------- ------------
Closing Balance....................... -- 145,876 336,540 564,447 192,247
========= ======== ======== ======== =========
</TABLE>
6. MULTIPLE MANAGER STRATEGY. The Adviser uses the Multiple Manager
Strategy for certain of the Funds from time to time. Under this strategy, the
Adviser allocates portions of a Fund's assets among multiple specialist Managers
with dissimilar investment styles and security selection disciplines. The
Adviser monitors the performance both of the total Fund portfolio and of each
Manager and will reallocate Fund assets among individual Managers, or recommend
to the Company that it employ or terminate particular Managers, to the extent
the Adviser deems appropriate to achieve the overall objectives of the
particular Fund.
The Managers are as follows:
ESC Strategic Asset Preservation Fund -- Equitable Asset Management,
Inc.
ESC Strategic Income Fund -- Llama Asset Management Company; Cincinnati
Asset Management, Inc. and Murray Johnstone International Limited.
ESC Strategic Global Equity Fund -- Globeflex Capital, L.P. and Murray
Johnstone International Limited.
ESC Strategic Small Cap Fund -- Equitable Asset Management, Inc.
ESC Strategic Appreciation Fund -- GlobeFlex Capital, L.P.; Brandes
Investment Partners, Inc., and Equitable Asset Management, Inc.
Equitable Asset Management, Inc. is an affiliate of the Adviser.
29
<PAGE> 32
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (unaudited) (continued) -- September 30, 1996
7. OFF-BALANCE SHEET RISK. The Funds may invest in various financial
instruments with off-balance sheet risk. These financial instruments include
taking positions in forward contracts. The Funds enter into such contracts for
the purpose of hedging exposure to change in foreign currency exchange rates on
their portfolio holdings. A lack of correlation between the price of the
security and the underlying contract could result in a loss to the Funds. There
were no open contracts on September 30, 1996.
8. FEDERAL INCOME TAXES. Capital losses and foreign currency losses
incurred after October 31, 1995 through March 31, 1996, are deemed to arise on
the first business day of the following fiscal year. The Funds incurred and will
elect to defer post October capital losses and foreign currency losses of
approximately $372,635 and $102,223 for the Income Fund and Global Equity Fund,
respectively.
At March 31, 1996, the Asset Preservation Fund had net capital loss
carryforwards of approximately $18,000, which will be available through March
2003 to offset future capital gains as provided by the regulations. To the
extent that these carryover losses are used to offset future capital gains, the
gains so offset would not be distributed to the shareholders. During the year
ended March 31, 1996, the Global Equity Fund utilized $42,000 of available
capital loss carryforward.
30
<PAGE> 33
ESC STRATEGIC FUNDS, INC.
Financial Highlights
<TABLE>
<CAPTION>
ASSET PRESERVATION
---------------------------------------------------
APRIL 25,
1994
(COMMENCEMENT
OF
OPERATIONS)
SIX MONTHS ENDED THROUGH
SEPTEMBER 30, 1996 YEAR ENDED MARCH 31,
(UNAUDITED) MARCH 31, 1996 1995
------------------ -------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......................... $ 10.00 $ 9.89 $ 10.00
------- ------- -------
Income from Investment Operations:
Net investment income...................................... 0.26 0.56 0.47
Net realized and unrealized gains on investments........... (0.06) 0.11 (0.11)
------- ------- -------
Total from investment operations........................... 0.20 0.67 0.36
------- ------- -------
Less Distributions:
Dividends from net investment income....................... (0.26) (0.56) 0
Dividends from capital gains............................... 0.00 0.00 (0.47)
------- ------- -------
Total distributions.......................................... (0.26) (0.56) (0.47)
------- ------- -------
Net Asset Value, End of Period............................... $ 9.94 $ 10.00 $ 9.89
======= ======= =======
Total Return................................................. 2.04% 6.85% 3.75%
Net Assets End of Period (in thousands)...................... $ 12,426 $ 13,241 $11,924
Ratios to Average Net Assets of:
Net investment income...................................... 5.24%* 5.53% 5.15%*
Expenses net of waivers/reimbursements..................... 0.85%* 0.90% 1.00%*
Expenses before waivers/reimbursements..................... 1.72%* 1.58% 2.12%*
Portfolio Turnover Rate...................................... 11% 40% 30%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
31
<PAGE> 34
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
INCOME
----------------------------------------------------------------------------------------------------
CLASS A CLASS D
------------------------------------------------- -------------------------------------------------
MAY 4, 1994 MAY 4, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
SIX MONTHS ENDED THROUGH SIX MONTHS ENDED THROUGH
SEPTEMBER 30, 1996 YEAR ENDED MARCH 31, SEPTEMBER 30, 1996 YEAR ENDED MARCH 31,
(UNAUDITED) MARCH 31, 1996 1995 (UNAUDITED) MARCH 31, 1996 1995
------------------ -------------- ------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period............... $ 9.89 $ 9.94 $ 10.00 $ 9.89 $ 9.94 $ 10.00
-------- -------------- ------------- ------- ------- -------------
Income from Investment
Operations:
Net investment income... 0.27 0.59 0.55 0.24 0.54 0.50
Net realized and
unrealized gains on
investments........... 0.10 0.16 (0.05) 0.10 0.16 (0.05)
-------- -------------- ------------- ------- ------- -------------
Total from investment
operations............ 0.37 0.75 0.50 0.34 0.70 0.45
-------- -------------- ------------- ------- ------- -------------
Less Distributions:
Dividends from net
investment income..... (0.27) (0.59) (0.01) (0.24) (0.54) (0.01)
Dividends from capital
gains................. 0.00 (0.21) (0.55) 0.00 (0.21) (0.50)
-------- -------------- ------------- ------- ------- -------------
Total distributions....... (0.27) (0.80) (0.56) (0.24) (0.75) (0.51)
-------- -------------- ------------- ------- ------- -------------
Net Asset Value, End of
Period.................. $ 9.99 $ 9.89 $ 9.94 $ 9.99 $ 9.89 $ 9.94
=============== ============ ============= =============== ============ =============
Total Return.............. 3.80% 7.67% 5.30% 3.54% 7.11% 4.74%*
Net Assets End of Period
(in thousands).......... $ 37,891 $ 36,891 $32,373 $1,492 $1,446 $ 1,241
Ratios to Average Net Assets of:
Net investment income... 5.46%* 5.87% 6.29%* 4.84%* 5.37% 5.73%*
Expenses net of waivers/
reimbursements........ 1.60%* 1.70% 1.85%* 2.05%* 2.20% 2.29%*
Expenses before waivers/
reimbursements........ 1.65%* 1.75% 1.86%* 2.10%* 2.25% 2.31%*
Portfolio Turnover Rate... 50% 138% 92% 50% 138% 92%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
32
<PAGE> 35
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY
----------------------------------------------------------------------------------------------------
CLASS A CLASS D
------------------------------------------------- -------------------------------------------------
MAY 12, 1994 MAY 12, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
SIX MONTHS ENDED THROUGH SIX MONTHS ENDED THROUGH
SEPTEMBER 30, 1996 YEAR ENDED MARCH 31, SEPTEMBER 30, 1996 YEAR ENDED MARCH 31,
(UNAUDITED) MARCH 31, 1996 1995 (UNAUDITED) MARCH 31, 1996 1995
------------------ -------------- ------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period............... $ 11.08 $ 9.90 $ 10.00 $10.95 $ 9.82 $ 10.00
-------- -------------- ------------- ------- ------- -------------
Income from Investment
Operations:
Net investment income... (0.01) (0.04) (0.05) (0.04) (0.09) (0.07)
Net realized and
unrealized gains on
investments........... 0.51 1.46 (0.03) 0.51 1.46 (0.10)
-------- -------------- ------------- ------- ------- -------------
Total from investment
operations............ 0.50 1.42 (0.08) 0.47 1.37 (0.17)
-------- -------------- ------------- ------- ------- -------------
Less Distributions:
Dividends from net
investment income..... 0.00 0.00 0.00 0.00 0.00 0.00
Dividends from capital
gains................. 0.00 (0.24) (0.02)** 0.00 (0.24) (0.01)**
-------- -------------- ------------- ------- ------- -------------
Total distributions....... 0.00 (0.24) (0.02) 0.00 (0.24) (0.01)
-------- -------------- ------------- ------- ------- -------------
Net Asset Value, End of
Period.................. $ 11.58 $ 11.08 $ 9.90 $11.42 $10.95 $ 9.82
=============== ============ ============= =============== ============ =============
Total Return.............. 4.51% 14.41% (0.84)% 4.29% 14.01% (1.72)%
Net Assets End of Period
(in thousands).......... $ 16,683 $ 14,597 $ 9,213 $4,011 $3,725 $ 3,322
Ratios to Average Net Assets of:
Net investment income... (0.17)%* (0.36)% (0.65)%* (0.66)%* (0.83)% (1.51)%*
Expenses net of waivers/
reimbursements........ 2.30%* 2.37% 2.50%* 2.80%* 2.87% 2.98%*
Expenses before waivers/
reimbursements........ 2.30%* 2.43% 3.22%* 2.80%* 2.96% 3.69%*
Portfolio Turnover Rate... 46% 92% 76% 46% 92% 76%
Average Commission per
Share................... $ 0.02 -- -- $ 0.02 -- --
</TABLE>
* Annualized.
** Represents distribution in excess of net investment income.
See accompanying notes to financial statements.
33
<PAGE> 36
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
SMALL CAP
----------------------------------------------------------------------------------------------------
CLASS A CLASS D
------------------------------------------------- -------------------------------------------------
JUNE 8, 1994 JUNE 8, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
SIX MONTHS ENDED THROUGH SIX MONTHS ENDED THROUGH
SEPTEMBER 30, 1996 YEAR ENDED MARCH 31, SEPTEMBER 30, 1996 YEAR ENDED MARCH 31,
(UNAUDITED) MARCH 31, 1996 1995 (UNAUDITED) MARCH 31, 1996 1995
------------------ -------------- ------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period............... $ 15.88 $ 11.25 $ 10.00 $ 15.76 $11.22 $ 10.00
-------- -------------- ------------- -------- ------- -------------
Income from Investment
Operations:
Net investment income... (0.07) (0.08) (0.03) (0.11) (0.16) (0.05)
Net realized and
unrealized gains on
investments........... 2.99 5.19 1.52 2.98 5.18 1.51
-------- -------------- ------------- -------- ------- -------------
Total from investment
operations............ 2.92 5.11 1.49 2.87 5.02 1.46
-------- -------------- ------------- -------- ------- -------------
Less Distributions:
Dividends from net
investment income..... 0.00 0.00 (0.24) 0.00 0.00 (0.24)
Dividends from capital
gains................. 0.00 (0.48) 0.00 0.00 (0.48) 0.00
-------- -------------- ------------- -------- ------- -------------
Total distributions....... 0.00 (0.48) (0.24) 0.00 (0.48) (0.24)
-------- -------------- ------------- -------- ------- -------------
Net Asset Value, End of
Period.................. $ 18.80 $ 15.88 $ 11.25 $ 18.63 $15.76 $ 11.22
=============== ============ ============= =============== ============ =============
Total Return.............. 18.32% 45.88% 15.03% 18.15% 45.19% 14.72%
Net Assets End of Period
(in thousands).......... $ 49,761 $ 28,840 $ 8,785 $ 13,897 $8,897 $ 3,367
Ratios to Average Net Assets of:
Net investment income... (0.77)%* (0.80)% (0.43)%* (1.28)%* (1.30)% (0.93)%*
Expenses net of waivers/
reimbursements........ 1.90%* 2.00% 2.00%* 2.42%* 2.50% 2.50%*
Expenses before waivers/
reimbursements........ 1.96%* 2.18% 3.28%* 2.48%* 2.74% 3.68%*
Portfolio Turnover Rate... 28% 102% 151% 28% 102% 151%
Average Commission per
Share................... $ 0.06 -- -- $ 0.06 -- --
</TABLE>
* Annualized.
See accompanying notes to financial statements.
34
<PAGE> 37
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
APPRECIATION
----------------------------------------------------------------------------------------------------
CLASS A CLASS D
------------------------------------------------- -------------------------------------------------
JULY 6, 1994 JULY 6, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
SIX MONTHS ENDED THROUGH SIX MONTHS ENDED THROUGH
SEPTEMBER 30, 1996 YEAR ENDED MARCH 31, SEPTEMBER 30, 1996 YEAR ENDED MARCH 31,
(UNAUDITED) MARCH 31, 1996 1995 (UNAUDITED) MARCH 31, 1996 1995
------------------ -------------- ------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period............... $ 13.02 $ 10.67 $ 10.00 $12.91 $10.63 $ 10.00
-------- -------------- ------------- ------- ------- -------------
Income from Investment
Operations:
Net investment income... (0.01) (0.05) 0.00 (0.04) (0.09) (0.03)
Net realized and
unrealized gains on
investments........... 1.59 2.71 0.73 1.59 2.68 0.72
-------- -------------- ------------- ------- ------- -------------
Total from investment
operations............ 1.58 2.66 0.73 1.55 2.59 0.69
-------- -------------- ------------- ------- ------- -------------
(0.06)Less Distributions:
Dividends from net
investment income..... 0.00 0.00 (0.06) 0.00 0.00 (0.06)
Dividends from capital
gains................. 0.00 (0.31) 0.00 0.00 (0.31) 0.00
-------- -------------- ------------- ------- ------- -------------
Total distributions....... 0.00 (0.31) (0.06) 0.00 (0.31) (0.06)
-------- -------------- ------------- ------- ------- -------------
Net Asset Value, End of
Period.................. $ 14.60 $ 13.02 $ 10.67 $14.46 $12.91 $ 10.63
=============== ============ ============= =============== ============ =============
Total Return.............. 12.14% 25.07% 7.32% 12.01% 24.50% 6.92%
Net Assets End of Period
(in thousands).......... $ 39,888 $ 25,561 $15,126 $3,002 $2,482 $ 1,693
Ratios to Average Net Assets of:
Net investment income... (0.12)%* (0.39)% (0.04)%* (0.56)%* (0.86)% (0.56)%*
Expenses net of waivers/
reimbursements........ 1.97%* 2.00% 2.00%* 2.47%* 2.50% 2.50%*
Expenses before waivers/
reimbursements........ 1.99%* 2.10% 2.88%* 2.49%* 2.64% 3.40%*
Portfolio Turnover Rate... 31% 78% 58% 31% 78% 58%
Average Commission per
Share................... $ 0.06 -- -- $ 0.06 -- --
</TABLE>
* Annualized.
See accompanying notes to financial statements.
35
<PAGE> 38
ESC STRATEGIC FUNDS, INC.
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS
WILLIAM H. CAMMACK* Chairman, Equitable Securities Corporation
W. HOWARD CAMMACK, JR.* Managing Director, Equitable Securities Corporation
J. BRANSFORD WALLACE Chairman, Willis Coroon, PLC
BROWNLEE O. CURREY, JR. President, The Nashville Banner
E. TOWNES DUNCAN Chairman and Chief Executive Officer, Comptronix
Corporation
* "Interested Person" as that term is defined in the Investment Company Act of 1940.
- ---------------------------------------------------------------------------------------------
OFFICERS
WILLIAM H. CAMMACK President
W. HOWARD CAMMACK, JR. Treasurer
JOHN J. PILEGGI Secretary
JOHN L. McALLISTER Assistant Secretary and Assistant Treasurer
GORDON FORRESTER Assistant Treasurer
JOAN V. FIORE Assistant Secretary
SHERYL HIRSCHFELD Assistant Secretary
</TABLE>
<PAGE> 39
ADDRESS FOR:
[ESC LOGO]
ESC STRATEGIC FUNDS, INC.
237 PARK AVENUE
NEW YORK, NEW YORK 10017
GENERAL AND ACCOUNT INFORMATION:
(800) 261-FUND(3863)
INVESTMENT ADVISER AND DISTRIBUTOR
- ---------------------------------------
Equitable Securities Corporation
800 Nashville City Center
511 Union Street
Nashville, Tennessee 37219-1743
ADMINISTRATOR
- ---------------
Furman Selz LLC
230 Park Avenue
New York, New York 10169
CUSTODIAN
- ----------
Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, Missouri 64105
COUNSEL
- --------
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
ESC Strategic ASSET PRESERVATION Fund
ESC Strategic INCOME Fund
ESC Strategic GLOBAL EQUITY Fund
ESC Strategic SMALL CAP Fund
ESC Strategic APPRECIATION Fund
[ESC LOGO]
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1996
