<PAGE> 1
ESC STRATEGIC FUNDS, INC.
- --------------------------------------------------------------------------------
May 20, 1996
Dear Shareholder:
We are pleased to present the March 31, 1996 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
under-performing 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 0.06% during the most
recent quarter ended March 31, 1996, as compared to a loss of 0.72% for the
Lipper World Income Fund Index and a loss of 1.88% for the Salomon World
Government Index. For the twelve month period ended March 31, 1996, the Fund
returned 7.67% as compared to 13.27% and 5.29% for the same indices,
respectively.
In the face of a more challenging environment for bond investors, the high yield
allocation of the ESC Strategic Income Fund provided stability and return during
the first quarter of 1996. As a result, the allocation to high yield bonds
within the ESC Strategic Income Fund expanded beyond its target allocation.
Accordingly, at quarter-end, cash was redirected from that allocation toward the
international and U.S. investment grade sector 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 3/31/96
ACTUAL TARGET
------ ------
<S> <C> <C> <C>
Cincinnati Asset Management U.S. High Yield 34.1% 33.3%
Murray Johnstone International International 32.9% 33.3%
Llama Asset Management Investment Grade 33.0% 33.4%
</TABLE>
ESC STRATEGIC APPRECIATION FUND gained 4.58% during the quarter ended March 31,
1996, as compared to 5.51% and 5.39% for the Lipper Capital Appreciation Fund
Index and the S&P 500, respectively. For the previous twelve month period ended
March 31, 1996, the Fund gained 25.07% versus 29.00% for the Lipper Index and
32.09% for the S&P 500.
The S&P 500 led the way throughout 1995, out-performing most managers and mutual
funds. The S&P 500 represents less than 5% of public companies in the U.S.
Accordingly, investors were not rewarded for diversification. 1996 has been more
beneficial for diversified investors as earnings growth and fundamentals seem to
be playing a larger role in achieving investment returns. This has been
particularly so within the small cap sector. Accordingly, at quarter end, the
Fund was re-balanced toward Mid to Large Cap Growth and Value as noted below:
<TABLE>
<CAPTION>
ALLOCATIONS AS OF 3/31/96
ACTUAL TARGET
------ -------
<S> <C> <C> <C>
GlobeFlex Capital Mid to Large Cap Growth 32.7% 33.3%
Equitable Asset Management Small Cap Growth 34.6% 33.4%
Brandes Investment Partners Value 32.7% 33.3%
</TABLE>
<PAGE> 2
ESC STRATEGIC GLOBAL EQUITY FUND returned 3.26% during the quarter ended March
31, 1996, while the Lipper Global Fund Index and FTA World Index gained 5.63%
and 3.45% respectively. During the twelve months ended March 31, 1996, the Fund
returned 14.41% as compared to 20.66% and 17.01% for the same indices.
Two punishing years in the international and particularly the emerging markets
left these international investment sectors relatively under-valued. This
temporarily placed the concept of global diversification into doubt. However,
successful investing is the early discovery of value. Unlike other funds which
may have been forced to liquidate holdings at distressed prices in that
environment, the multiple manager concept forced re-balancing toward those
sectors when more attractive prices were available. Accordingly, investors have
been returning to these sectors particularly within India, Asia and Latin
America. Because of recent gains in the international developed and emerging
markets, the ESC Strategic Global Equity Fund was re-balanced as noted below:
<TABLE>
<CAPTION>
ALLOCATIONS AS OF 3/31/96
ACTUAL TARGET
------ -------
<S> <C> <C> <C>
GlobeFlex Capital Mid to Large Cap Growth 34.5% 35.0%
Murray Johnstone International Developed Markets 39.0% 39.0%
Murray Johnstone International Emerging Markets 26.5% 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 7.81% during the quarter ended March 31,
1996, as compared to 5.64% for the Lipper Small Company Growth Fund Index and
4.68% for the Russell 2000 without income. During the twelve month period ended
March 31, 1996, the Fund achieved a return of 45.88% versus 31.46% and 26.84%
for the same indices, respectively.
The Fund seeks fundamentally sound companies generating consistently superior
earnings growth rather than compete with the legions of analysts and economists
attention 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 0.20% during
the quarter ended March 31, 1996, while the Lipper Short Investment Grade Index
returned 0.19%. The Merrill Lynch 1-3 Year Government Index returned 0.33%.
During the twelve month period ended March 31, 1996, the Fund returned 6.85%.
This compares to returns of 7.75% and 7.75% for the same indices, respectively.
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. (CLASS A)
ASSET PRESERVATION FUND
A $10,000 investment in
the Asset Preservation Fund,
Class A, would have increased
to $11,085 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 10.85%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
INCOME FUND
<TABLE>
<CAPTION>
Asset Lipper Short
Measurement Period Preservation Investment 90-Day
(Fiscal Year Covered) Fund Grade Index T-Bills
<S> <C> <C> <C>
4/25/94 10000 10000 10000
6/94 10000 9985 10077
9/94 10066 10073 10190
12/94 10067 10048 10322
3/95 10374 10351 10486
6/95 10688 10704 10649
9/95 10825 10859 10805
12/95 11063 11132 10961
3/96 11085 11154 11105
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
-------------------------------------------- ------ ---------------
<S> <C> <C>
Asset Preservation Fund..................... 6.85% 5.47%
Lipper Short Investment Grade Index......... 7.75% 5.81%
90-Day T-Bills.............................. 5.96% 5.57%
</TABLE>
ESC STRATEGIC FUNDS, INC. (CLASS A)
A $10,000 investment in
the Income Fund, Class A, with
a maximum sales load of 4.50%
would have increased to
$10,827 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 8.27%,
reflecting the sales load.
Without the sales load, the
return would have been 13.35%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
* 1/3 Merrill High Yield
Index, 1/3 Salomon Broad
Index, 1/3 Salomon World
Govt. Index
<TABLE>
<CAPTION>
Measurement Period Weighted Income Lipper World
(Fiscal Year Covered) Index* Fund Income Index
<S> <C> <C> <C>
5/4/94 9550 10000 10000
6/94 9498 9899 10044
9/94 9491 10080 10133
12/94 9419 9952 10184
3/95 10056 10263 10932
6/95 10533 10945 11568
9/95 10591 11197 11723
12/95 10820 11709 12137
3/96 10827 11625 12049
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Income Fund................................ 7.67% 4.25%
Lipper Income Index........................ 13.27% 8.20%
Weighted Index*............................ 10.22% 10.25%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 4
ESC STRATEGIC FUNDS, INC. (CLASS A)
GLOBAL EQUITY FUND
A $10,000 investment in
the Global Equity Fund, Class
A, with a maximum sales load
of 4.50% made on the inception
date would have increased to
$10,835 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 8.35%,
reflecting the sales load.
Without the sales load, the
return would have been 13.44%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period Global Equity Lipper Global FTA World
(Fiscal Year Covered) Fund Index Index
<S> <C> <C> <C>
5/12/94 9550 10000 10000
6/94 9244 9891 10105
9/94 9732 10453 10264
12/94 9202 10002 10109
3/95 9470 9983 10446
6/95 10005 10737 10796
9/95 10512 11334 11346
12/95 10492 11404 11815
3/96 10835 12046 12222
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Global Equity Fund......................... 14.41% 4.34%
Lipper Global Index........................ 20.66% 10.36%
FTA World Index............................ 17.00% 11.22%
</TABLE>
SMALL CAP FUND
A $10,000 investment in
the Small Cap Fund, Class A,
with a maximum sales load of
4.50% would have increased to
$16,027 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 60.27%,
reflecting the sales load.
Without the sales load, the
return would have been 67.80%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Small
Measurement Period NASDAQ Cap Lipper Small
(Fiscal Year Covered) Industrials Fund Co. Growth Index
<S> <C> <C> <C>
6/7/94 9550 10000 10000
6/94 9416 9527 9515
9/94 10323 10416 10358
12/94 10448 10402 10042
3/95 10985 10986 10681
6/95 11854 12003 11791
9/95 13983 13504 13078
12/95 14865 13671 12852
3/96 16027 14442 13653
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Small Cap Fund............................. 45.88% 29.65%
Lipper Small Co. Growth Index.............. 31.47% 22.43%
NASDAQ Industrials......................... 24.28% 18.70%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 5
ESC STRATEGIC FUNDS, INC. (CLASS A)
APPRECIATION FUND
A $10,000 investment in
the Appreciation Fund, Class
A, with a maximum sales load
of 4.50% would have increased
to $12,819 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 28.19%,
reflecting the sales load.
Without the sales load, the
return would have been 34.22%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Lipper
Capital
Measurement Period Appreciation Appreciation
(Fiscal Year Covered) Fund Index S & P 500
<S> <C> <C> <C>
7/6/94 9550 10000 10000
9/94 10047 10710 10442
12/94 9759 10557 10440
3/95 10249 11293 11456
6/95 11075 12354 12538
9/95 12256 13571 13548
12/95 12256 13807 14359
3/96 12819 14568 15133
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Appreciation Fund.......................... 25.07% 15.37%
Lipper Capital Appreciation Index.......... 29.00% 24.19%
S&P 500.................................... 32.10% 26.94%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 6
ESC STRATEGIC FUNDS, INC. (CLASS D)
INCOME FUND
A $10,000 investment in
the Income Fund, Class D, with
a maximum sales load of 1.50%
would have increased to
$11,052 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 10.52%.
Without the sales load, the
return would have been 12.18%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
* 1/3 Merrill High Yield
Index, 1/3 Salomon Broad
Index, 1/3 Salomon World
Govt. Index
<TABLE>
<CAPTION>
Measurement Period Lipper World In-
(Fiscal Year Covered) Income Fund come Index Weighted Index*
<S> <C> <C> <C>
5/4/94 9850 10000 10000
6/94 9791 9899 10044
9/94 9772 10080 10133
12/94 9672 9952 10184
3/95 10316 10263 10932
6/95 10792 10945 11568
9/95 10838 11197 11723
12/95 11060 11709 12137
3/96 11049 11625 12052
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Income Fund................................ 7.11% 5.36%
Lipper World Income Index.................. 13.27% 8.20%
Weighted Index*............................ 10.22% 10.25%
</TABLE>
GLOBAL EQUITY FUND
A $10,000 investment in
the Global Equity Fund, Class
D, with a maximum sales load
of 1.50% would have increased
to $11,040 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 10.40%.
Without the sales load, the
return would have been 12.05%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Global FTA
Measurement Period Equity Lipper Global World
(Fiscal Year Covered) Fund Index Index
<S> <C> <C> <C>
5/12/94 9850 10000 10000
6/94 9525 9891 10105
9/94 9988 10453 10264
12/94 9414 10002 10109
3/95 9681 9983 10446
6/95 10223 10737 10796
9/95 10725 11334 11346
12/95 10694 11404 11815
3/96 11040 12046 12222
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Global Equity Fund......................... 14.01% 5.38%
Lipper Global Index........................ 20.66% 10.36%
FTA World Index............................ 17.00% 11.22%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 7
ESC STRATEGIC FUNDS, INC. (CLASS D)
SMALL CAP FUND
A $10,000 investment in
the Small Cap Fund, Class D,
with a maximum sales load of
1.50% would have increased to
$16,411 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 64.11%.
Without the sales load, the
return would have been 66.57%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Small Lipper Small NASDAQ
Measurement Period Cap Co. Growth Industrials
(Fiscal Year Covered) Fund Index
6/7/94 9850 10000 10000
<S> <C> <C> <C>
6/94 9712 9527 9515
9/94 10638 10416 10358
12/94 10747 10402 10042
3/95 11301 10986 10681
6/95 12167 12003 11791
9/95 14363 13504 13078
12/95 15252 13671 12852
3/96 16411 14442 13653
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Small Cap Fund............................. 45.19% 31.35%
Lipper Small Co. Growth Index.............. 31.47% 22.43%
NASDAQ Industrials......................... 24.28% 18.70%
</TABLE>
APPRECIATION FUND
A $10,000 investment in
the Appreciation Fund, Class
D, with a maximum sales load
of 1.50% would have increased
to $13,114 (as of March 31,
1996). The graph below shows
how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 31.14%.
Without the sales load, the
return would have been 33.11%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Lipper Capital
Measurement Period Appreciation Appreciation S & P
(Fiscal Year Covered) Fund Index 500
<S> <C> <C> <C>
7/6/94 9850 10000 10000
9/94 10352 10710 10442
12/94 10036 10557 10440
3/95 10531 11293 11456
6/95 11363 12354 12538
9/95 12572 13571 13548
12/95 12563 13807 14359
3/96 13114 14568 15133
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Appreciation Fund.......................... 24.50% 16.89%
Lipper Capital Appreciation Index.......... 29.00% 24.19%
S&P 500.................................... 32.10% 26.94%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 8
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C>
CORPORATE OBLIGATIONS -- 62.2%
ASSET BACKED -- 1.8%
AAA/Aaa Prudential Home Mortgage
Securities,
6.50%, 2/25/2000....... 234,748 $ 232,900
-----------
BANKING -- 8.1%
A-/A2 BankAmerica Corp.,
7.50%, 3/15/1997....... 250,000 253,918
A-/A3 First Union Corp.,
9.45%, 6/15/1999....... 250,000 272,079
A/A2 NationsBank Corp.,
5.125%, 9/15/1998...... 250,000 243,769
BBB-/NR Union Planters Corp.,
10.125%, 4/01/1999..... 300,000 300,932
-----------
1,070,698
-----------
CHEMICALS -- 4.6%
A+/A2 ICI Wilmington Corp.,
7.625%, 3/15/1997...... 465,000 472,685
A/A1 Monsanto Corp.,
6.00%, 7/01/2000....... 140,000 137,802
-----------
610,487
-----------
COMPUTERS -- 3.0%
A/A3 IBM Corp.,
6.375%, 11/01/1997..... 250,000 251,250
A/A3 IBM Corp.,
6.375%, 6/15/2000...... 150,000 149,958
-----------
401,208
-----------
ENTERTAINMENT -- 1.9%
A+/A1 Bass America, Inc.,
6.75%, 8/01/1999....... 250,000 252,963
-----------
FINANCIAL SERVICES -- 17.1%
AA-/AA3 Associates Corp. North
America,
8.50%, 1/10/2000....... 100,000 106,750
A-/A3 Chrysler Financial Corp.,
Medium Term Note,
7.10%, 4/14/1997....... 250,000 253,194
AAA/Aaa General Motors Acceptance
Corp.,
8.10%, 9/19/1996....... 250,000 252,903
BBB/A3 Hutton (E.F.) Group Inc.,
8.875%, 5/01/1996...... 250,000 250,604
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C>
FINANCIAL SERVICES (CONTINUED)
A+/A1 ITT Hartford, Inc.,
7.25%, 12/01/1996...... 400,000 $ 402,966
A/Baa1 Lehman Brothers Holdings
Corp.,
6.90%, 7/15/1999....... 200,000 201,274
BBB/Baa1 Salomon, Inc., Medium
Term Note,
5.00%, 7/15/1996....... 250,000 249,232
BBB/Baa1 Salomon, Inc.,
6.00%, 4/15/1998....... 200,000 197,180
A/A3 Smith Barney Shearson
Holdings Corp.,
6.00%, 3/15/1997....... 250,000 250,479
A+/A2 Travelers, Inc.,
7.75%, 6/15/1999....... 100,000 103,873
-----------
2,268,455
-----------
FOOD SERVICING -- 1.9%
A+/A2 Grand Metropolitan
Investment Corp.,
6.50%, 9/15/1999....... 250,000 250,851
-----------
INSURANCE -- 2.3%
A+/A2 International Lease
Finance Corp.,
6.625%, 6/01/1996...... 300,000 300,503
-----------
INDUSTRIAL COMPONENT -- 1.9%
A/A1 Pepsico, Inc.,
6.80%, 5/15/2000....... 250,000 253,642
-----------
OIL/GAS - EXPLORATION -- 1.9%
AA-/A1 BP America Corp.,
7.43%, 2/15/1999....... 250,000 256,967
-----------
PHARMACEUTICALS -- 2.7%
A-/A2 American Home Products
Corp.,
7.70%, 2/15/2000....... 250,000 260,889
A-/A2 American Home Products
Corp.,
6.875%, 4/15/1997...... 100,000 101,080
-----------
361,969
-----------
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 9
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
RETAIL -- 7.8%
BBB-/Baa3 Black & Decker,
6.625%, 11/15/2000..... 60,000 $ 59,792
BBB+/A3 Dayton Hudson Corp.,
9.50%, 3/1/2000........ 250,000 272,085
A-/Baa1 Mattel, Inc., 6.75%,
5/15/2000.............. 90,000 90,375
BBB+/Baa1 Sears Roebuck & Co.,
8.55%, 8/01/1996....... 250,000 252,449
BBB+/A2 Sears Roebuck & Co.,
8.20%, 4/15/1999....... 100,000 104,302
AA/Aa1 Wal-Mart Stores, Inc.,
6.125%, 10/01/1999..... 250,000 249,013
-----------
1,028,016
-----------
TOBACCO -- 3.1%
A/A2 American Brands, Inc.,
7.50%, 5/15/1999....... 100,000 103,261
A/A2 Philip Morris Co.,
6.375%, 1/15/1998...... 300,000 300,694
-----------
403,955
-----------
TRANSPORTATION - SHIPPING -- 1.1%
AA/Aa Federal Express Corp.,
9.83%, 7/09/1996....... 150,000 151,684
-----------
UTILITIES -- 1.9%
A-/A2 Carolina Power & Light
Co.,
6.875%, 10/01/1998..... 250,000 251,043
-----------
WASTE SERVICES -- 1.1%
A+/A1 WMX Technologies, Inc.,
4.875%, 6/15/1996...... 140,000 139,835
-----------
TOTAL CORPORATE
OBLIGATIONS (IDENTIFIED
COST $8,176,067)....... 8,235,176
-----------
MUNICIPAL OBLIGATIONS --
TENNESSEE -- 8.8%
GOVERNMENT AGENCY -- 0.8%
A/NR Loudon County Tennessee,
4.90%, 3/01/1997....... 105,000 104,436
-----------
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C>
MUNICIPAL OBLIGATIONS (CONTINUED)
HOUSING DEVELOPMENT -- 3.7%
AA/Aa Tennessee HDC,
5.20%, 1/01/1998....... 500,000 $ 490,214
-----------
UTILITIES -- 4.3%
AAA/Aaa West Knox Utilities
District, 8.40%,
12/01/1997............. 450,000 465,072
AAA/Aaa White House Utility
District of Robertson &
Summer Co.,
7.60%, 1/01/2000....... 100,000 104,443
-----------
569,515
-----------
TOTAL MUNICIPAL
OBLIGATIONS (IDENTIFIED
COST $1,149,064)....... 1,164,165
-----------
U.S. GOVERNMENT OBLIGATIONS -- 26.4%
MORTGAGED BACKED SECURITIES -- 13.0%
NR/NR Government National
Mortgage Association
Pool #276718,
9.75%, 8/15/1998....... 164,657 173,507
NR/NR Federal Home Loan
Mortgage Corp., Gold
Balloon #M90304,
6.00%, 11/01/1998...... 155,030 154,605
NR/NR Federal Home Loan
Mortgage Corp., Gold
Balloon #L90057,
6.00%, 11/01/1998...... 174,029 173,552
NR/NR Federal Home Loan
Mortgage Corp., Gold
Balloon #M15202,
6.00%, 9/01/1997....... 346,046 342,477
NR/NR Federal Home Loan
Mortgage Corp., Gold
Balloon #13099,
6.00%, 3/01/1997....... 238,756 236,294
NR/NR Federal Home Loan
Mortgage Corp. Pool
#M90163,
7.00%, 12/01/1997...... 179,138 180,761
NR/NR Federal Home Loan
Mortgage Corp. Gold
Balloon #L90037,
6.00%, 7/01/1998....... 405,522 401,340
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 10
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS (CONTINUED)
MORTGAGED BACKED SECURITIES (CONTINUED)
NR/NR Federal National Mortgage
Association #1508,
6.00%, 3/01/1998....... 71,162 $ 65,802
-----------
1,728,338
-----------
GOVERNMENT AGENCY OBLIGATIONS -- 13.4%
NR/NR Federal Home Loan Bank,
5.345%, 11/10/1997..... 100,000 99,090
NR/NR Federal Home Loan Bank,
5.49%, 2/28/2000....... 200,000 193,324
NR/NR Federal Home Loan Bank,
6.155%, 3/22/1999...... 250,000 247,419
NR/NR Federal Home Loan Bank,
6.405%, 4/10/2001**.... 250,000 248,255
NR/NR Federal Home Loan
Mortgage Corp.,
6.53%, 9/28/2000....... 250,000 247,931
NR/NR Federal Home Loan
Mortgage Corp.,
6.15%, 12/01/2000...... 100,000 98,566
NR/NR Federal National Mortgage
Association,
5.25%, 5/13/1998....... 250,000 245,345
NR/NR Federal National Mortgage
Association,
5.93%, 1/29/2001....... 100,000 96,535
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C>
GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
NR/NR Federal National Mortgage
Association,
6.46%, 11/27/2000...... 300,000 $ 294,312
-----------
1,770,777
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS (IDENTIFIED
COST $3,517,604)....... 3,499,115
-----------
U.S. TREASURY OBLIGATIONS -- 1.9%
NR/NR U.S. Treasury Notes,
6.875%, 10/31/1996..... 250,000 252,109
-----------
TOTAL U.S. TREASURY
OBLIGATIONS (IDENTIFIED
COST $251,373)......... 252,109
-----------
TOTAL INVESTMENTS -- 99.3%
(IDENTIFIED COST
$13,094,108)+............ $13,150,565
Cash and other assets in
excess of
liabilities -- 0.7%.... 90,106
-----------
NET ASSETS -- 100.0%..... $13,240,671
===========
</TABLE>
+ The cost of securities for federal income tax purposes is substantially the
same.
* See page 16 for Credit Ratings.
** When-issued security.
See accompanying notes to financial statements.
3
<PAGE> 11
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ----------- -----------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 42.0%
ADVERTISING/COMMUNICATIONS -- 0.9%
B/B2 Big Flower Press,
Inc.,
10.75%, 8/01/2003... 167,000 $ 170,340
B/B2 Heritage Media Corp.,
8.75%, 2/15/2006.... 181,000 175,117
-----------
345,457
-----------
AUTO RELATED -- 0.6%
A-/A3 General Motors Corp.,
8.125%, 4/15/2016... 250,000 250,897
-----------
BANKING -- 8.8%
BB-/B1 Banco Rio de la Plata,
8.50%, 7/15/1998.... 420,000 421,050
A-/A2 Comerica Bank,
8.375%, 7/15/2024... 350,000 371,020
NR/Aaa International Bank of
Reconstruction &
Development,
4.50%, 6/20/2000.... 75,000,000(H) 774,638
NR/Aaa Japanese Development
Bank,
6.50%, 9/20/2001.... 158,000,000(H) 1,793,137
-----------
3,359,845
-----------
BUILDING/FOREST PRODUCTS -- 1.2%
B+/B3 Pacific Lumber Co.,
10.50%, 3/01/2003... 500,000 477,500
-----------
BROADCASTING -- CABLE
TELEVISION -- 3.3%
B/B3 Adelphia
Communications
Corp.,
12.50%, 5/15/2002... 500,000 516,250
BB-/Ba3 Century Communications
Corp.,
9.75%, 2/15/2002.... 350,000 360,500
B+/B1 Jones Intercable Inc.,
11.50%, 7/15/2004... 350,000 385,000
-----------
1,261,750
-----------
CASINO & GAMBLING -- 0.8%
BB-/B2 California Hotel
Finance Corp.,
11.00%,
12/01/2002.......... 300,000 317,250
-----------
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ----------- -----------
<S> <C> <C>
CHEMICALS -- 2.7%
B/B1 NL Industries, Inc.,
11.75%,
10/15/2003.......... 500,000 $ 518,750
BB-/B1 Rexene Corp.,
11.75%,
12/01/2004.......... 500,000 517,500
-----------
1,036,250
-----------
CONTAINERS - METAL -- 0.7%
BB-/B1 Sea Containers, Ltd.,
12.50%,
12/01/2004.......... 250,000 271,875
-----------
EDUCATION -- 0.3%
B/B2 Herff Jones, Inc.,
11.00%, 8/15/2005... 100,000 106,000
-----------
FOOD AND HOUSEHOLD
PRODUCTS -- 2.1%
B+/B1 Chiquita Brands Int'l,
Inc., 9.625%,
1/15/2004........... 350,000 347,375
B-/B2 Flagstar Corp.,
10.875%, 12/01/2002... 500,000 453,125
-----------
800,500
-----------
HEALTH CARE -- 0.3%
B-/B3 Merit Behavioral Care
Corp.,
11.50%, 11/15/2005++ . . . 90,000 96,300
-----------
INDUSTRIAL COMPONENTS -- 1.0%
NR/NR DESC Sociedad de
Fomento,
11.00%,
12/15/1997.......... 375,000 380,625
-----------
OFFICE EQUIPMENT -- 2.1%
B-/B3 Knoll Group, Inc.,
10.875%, 3/15/2006++ . . .250,000 255,000
B-/B3 United Stationers
Supply Co.,
12.75%, 5/01/2005... 500,000 562,500
-----------
817,500
-----------
OIL/GAS - EXPLORATION -- 1.9%
B-/B2 Plains Resources,
Inc.,
10.25%,
3/15/2006++......... 220,000 221,650
BB-/B2 Trans Texas Gas Corp.,
11.50%, 6/15/2002... 500,000 488,750
-----------
710,400
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 12
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ----------- -----------
<S> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
PAGING -- 0.9%
B-/B2 Metrocall, Inc.,
10.375%,
10/01/2007.......... 350,000 $ 343,875
-----------
PAPER PRODUCTS -- 3.1%
B+/B1 Container Corp.,
9.75%, 4/01/2003.... 350,000 347,813
BB-/Ba3 Repap New Brunswick,
9.875%, 7/15/2000... 350,000 350,000
B/B2 Stone Container,
Corp.,
10.75%, 4/01/2002... 500,000 483,125
-----------
1,180,938
-----------
PLASTIC PRODUCTS -- 1.8%
B/B2 Applied Extrusion
Technologies Corp.,
11.50%,
4/01/2002++ . . . . 350,000 360,500
B-/B3 Plastic Specialties &
Technologies Inc.,
11.25%,
12/01/2003.......... 350,000 337,750
-----------
698,250
-----------
POLLUTION CONTROL -- 1.0%
B/B3 Allied Waste
Industries, Inc.,
12.00%, 2/01/2004... 350,000 378,000
-----------
RETAIL -- 2.5%
B-/B3 Bruno's Inc.,
10.50%, 8/01/2005... 350,000 336,875
B/B1 Orchard Supply
Hardware Corp.,
9.375%, 2/15/2002... 350,000 343,000
B-/Caa Parisian, Inc.,
9.875%, 7/15/2003... 300,000 270,000
-----------
949,875
-----------
STEEL -- 0.9%
B/B2 Weirton Steel Corp.,
10.875%,
10/15/1999 . . . . . 350,000 357,000
-----------
TELECOMMUNICATIONS -- 1.8%
AAA/Aaa British Telecom plc,
7.125%, 9/15/2003... 275,000(K) 395,189
BB-/B1 Telecom Argentina,
8.375%,
10/18/2000 . . . . . . 315,000 297,105
-----------
692,294
-----------
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ----------- -----------
<S> <C> <C> <C>
TEXTILES & APPAREL -- 2.7%
B/B3 Hartmarx Corp.,
10.875%,
1/15/2002........... 375,000 $ 318,750
D/Ca Ithaca Industries
Inc.,
11.125%, 12/15/2002## . . 500,000 215,000
B+/B3 West Point Stevens
Inc., 9.375%,
12/15/2005.......... 500,000 496,250
-----------
1,030,000
-----------
UTILITIES -- 0.6%
A+/A1 Consolidated Edison
Co., New York, Inc.,
7.50%, 6/15/2023.... 250,000 240,625
-----------
TOTAL CORPORATE
OBLIGATIONS
(IDENTIFIED COST
$16,242,214)........ 16,103,006
-----------
GOVERNMENT OBLIGATIONS -- 40.8%
ARGENTINA GOVERNMENT -- 1.1%
NR/NR Republic of Argentina,
Brady Bond, 5.00%,
3/31/2023#.......... 715,000 407,550
-----------
AUSTRALIA GOVERNMENT -- 0.6%
AAA/NR Australia Government,
13.00%, 7/15/2000... 240,000(A) 216,855
-----------
BELGIUM GOVERNMENT -- 0.7%
NR/Aa1 Belgium (Kingdom of),
8.25%, 2/14/2000.... 250,000(B) 267,776
-----------
CANADA GOVERNMENT -- 0.8%
NR/Aa1 Canada Government,
7.75%, 9/01/1999.... 195,000(C) 147,627
NR/Aa1 Canada Government,
7.25%, 6/01/2003.... 245,000(C) 178,129
-----------
325,756
-----------
DENMARK GOVERNMENT -- 1.7%
NR/NR Denmark (Kingdom of),
6.00%, 12/10/1999... 2,430,000(D) 433,232
NR/Aaa Denmark (Kingdom of),
8.00%, 3/15/2006.... 1,240,000(D) 225,701
-----------
658,933
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 13
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ----------- -----------
<S> <C> <C>
GOVERNMENT OBLIGATIONS (CONTINUED)
FRANCE GOVERNMENT -- 3.3%
NR/Aaa France O.A.T.,
5.50%, 4/25/2004.... 1,490,000(E) $ 279,824
NR/Aaa France O.A.T.,
8.50%, 4/25/2003.... 4,300,000(E) 968,402
-----------
1,248,226
-----------
GERMANY GOVERNMENT -- 5.2%
NR/NR Deutsche Bundesbahn,
6.125%,
10/28/2003.......... 555,000(F) 379,864
NR/NR Deutsche Bundesbahn,
6.00%, 8/03/1998.... 1,335,000(F) 940,606
AAA/Aaa Treuhandansalt GRM,
6.25%, 3/04/2004.... 675,000(F) 469,449
AAA/Aaa Treuhandansalt GRM,
6.625%, 7/09/2003... 290,000(F) 207,815
-----------
1,997,734
-----------
ITALY GOVERNMENT -- 2.3%
NR/NR Buoni Poliennali del
Tesoro, 9.50%,
2/01/2001........... 920,000,000(G) 572,281
NR/NR Buoni Poliennali del
Tesoro, 12.50%,
3/19/1998........... 480,000,000(G) 319,008
-----------
891,289
-----------
NETHERLANDS GOVERNMENT -- 0.7%
NR/NR Netherlands
Government,
6.50%, 4/15/2003.... 180,000(I) 112,322
NR/NR Netherlands
Government,
5.75%, 1/15/2004.... 294,000(I) 173,734
-----------
286,056
-----------
SPAIN GOVERNMENT -- 1.6%
NR/NR Spain Government,
10.15%, 1/31/2006... 27,000,000(J) 223,500
NR/NR Spain Government,
9.90%, 10/31/1998... 46,000,000(J) 381,035
-----------
604,535
-----------
UNITED KINGDOM GOVERNMENT -- 1.8%
NR/Aaa Treasury Bond,
8.00%, 12/07/2000... 135,000(K) 210,712
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ----------- -----------
<S> <C> <C>
UNITED KINGDOM GOVERNMENT (CONTINUED)
NR/NR Treasury Bond,
8.50%, 12/07/2005... 315,000(K) $ 492,100
-----------
702,812
-----------
UNITED STATES GOVERNMENT -- 21.0%
MORTGAGE-BACKED
SECURITIES -- 10.2%
NR/NR Government National
Mortgage Association
#417293,
6.50%, 3/15/2026.... 1,020,000 966,763
NR/NR Government National
Mortgage Association
#423295,
6.50%, 3/15/2026.... 1,020,000 966,763
NR/NR Government National
Mortgage Association
#389070,
7.00%, 3/15/2026.... 1,019,702 993,885
NR/NR Government National
Mortgage Association
#425972,
7.00%, 3/15/2026.... 1,020,000 994,176
-----------
3,921,587
-----------
GOVERNMENT AGENCY
OBLIGATIONS -- 2.5%
NR/NR Federal National
Mortgage Assoc.,
5.83%, 2/20/2001.... 750,000 722,197
NR/NR Tennessee Valley
Authority,
7.75%, 12/15/2022... 250,000 248,438
-----------
970,635
-----------
U.S. TREASURY OBLIGATIONS -- 8.3%
NR/NR U.S. Treasury Note,
5.875%, 7/31/1997... 3,150,000 3,160,823
-----------
TOTAL UNITED STATES
GOVERNMENT
OBLIGATIONS......... 8,053,045
-----------
TOTAL GOVERNMENT
OBLIGATIONS
(IDENTIFIED COST
$15,624,005)........ 15,660,567
-----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 14
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC INCOME FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
CREDIT PRINCIPAL/ MARKET
RATING* SHARES VALUE
- -------- ----------- -----------
<S> <C> <C>
EQUITIES -- 1.5%
COMMON STOCK -- 0.1%
RETAIL -- 0.1%
NA/NA Grand Union Co.++..... 4,419 $ 26,514
-----------
PREFERRED STOCK -- 1.4%
PUBLISHING & PRINTING -- 1.4%
B/B2 K-III Communications
Corp., 2.875%, Sr.
Exchangeable........ 20,000 537,500
-----------
TOTAL EQUITIES
(IDENTIFIED COST
$777,450)........... 564,014
-----------
TOTAL INVESTMENTS
EXCLUDING SHORT-TERM
(IDENTIFIED COST
$32,643,669)........ 32,327,587
-----------
SHORT-TERM INVESTMENTS -- 1.6%
MONEY MARKET -- 1.6%
NR/NR Chase Manhattan Bank,
Bournemouth
5.375%, 4/01/1996... 615,000 615,000
-----------
TOTAL SHORT-TERM
INVESTMENTS
(IDENTIFIED COST
$615,000)........... 615,000
-----------
TOTAL INVESTMENTS -- 85.9%
(IDENTIFIED
COST $33,258,669)+............. 32,942,587
Cash and other assets,
net of
liabilities -- 14.1%... 5,394,559
-----------
NET ASSETS -- 100.0%............. $38,337,146
==========
</TABLE>
+ The cost of securities for Federal income tax purposes
is substantially the same.
++ Non-income producing security.
# 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.
* See page 16 for Credit Ratings.
** See page 16 for Concentration by Country.
++ Security restricted as to resale to qualified
institutional buyers under Rule 144A of the Securities
Act.
## Issuer in default.
Principal denominated in U.S. Dollars unless indicated by the following
currencies:
(A) Australian Dollars
(B) Belgian Francs
(C) Canadian Dollars
(D) Danish Krone
(E) French Francs
(F) German Deutsche Marks
(G) Italian Lira
(H) Japanese Yen
(I) Dutch Guilder
(J) Spanish Pesetas
(K) British Pounds
See accompanying notes to financial statements.
7
<PAGE> 15
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS -- 89.1%
AEROSPACE/DEFENSE -- 1.1%
16,000 Mitsubishi Heavy
Industries, Ltd. ..... $ 132,111 $ 139,170
20,000 Rolls-Royce plc ........ 52,853 66,001
------------ -----------
184,964 205,171
------------ -----------
AGRICULTURE -- 0.4%
88,000 Parmalat Finanziaria
S.p.A................. 80,542 81,084
------------ -----------
AUTO RELATED -- 2.6%
5,500 Debica S.A.............. 70,950 133,681
35,400 Magneti Marelli
S.p.A. ............... 75,477 47,954
21,000 Nissan Diesel Motor Co.
Ltd. ................. 131,444 163,683
10,000 Suzuki Motor Co.,
Ltd. ................. 114,748 124,259
------------ -----------
392,619 469,577
------------ -----------
BANKING -- 11.4%
5,600 Abbey National plc...... 46,952 48,168
3,100 Ahmanson (H.F.) &
Co. .................. 67,321 75,175
26,070 Allied Irish Banks
plc................... 124,106 132,633
2,100 AmSouth Bancorp......... 85,684 81,637
6,000 Banco Frances del Rio de
la Plata
S.A. -- ADR#.......... 106,041 164,250
2,020 Banco Santander S.A. ... 85,031 96,486
12,000 Bangkok Bank Co.,
Ltd. ................. 104,626 161,584
50,000 CMIC Finance &
Securities Co.,
Ltd. ................. 189,066 166,337
415 Commerzbank AG.......... 91,104 96,144
2,700 First Security Corp. ... 75,087 74,925
1,600 First American Corp. ... 72,019 71,200
6,150 Komercni Banka
A.S. -- GDR*++........ 119,925 153,258
8,112 Lloyds TSB Group plc.... 32,068 38,730
18,000 Malayan Banking
Berhad................ 173,562 168,038
14,000 Oversea -- Chinese
Banking Corp. Ltd..... 165,124 188,167
3,700 Peoples Bank of
Bridgeport............ 77,424 79,550
4,000 Sumitomo Bank Ltd. ..... 77,996 81,333
10,000 Sumitomo Trust &
Banking Ltd. ......... 142,647 138,379
2,600 Washington Mutual,
Inc. ................. 77,891 77,350
------------ -----------
1,913,674 2,093,344
------------ -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
BUILDING MATERIALS AND COMPONENTS -- 2.8%
16,500 Blue Circle Industries
plc................... $ 77,546 $ 85,962
4,290 Cimpor Cimentos De
Portugal S.A. ........ 69,823 81,094
4,800 Matsumoto Kenko
Co., Ltd.*............ 162,151 160,407
1,685 Portland Valderrivas
S.A................... 125,835 104,453
1,300 Texas Industries,
Inc. ................. 78,415 82,712
------------ -----------
513,770 514,628
------------ -----------
BREWERY -- 0.4%
3,800 Coors (Adolph) Co.
Cl. "B"................. 82,854 67,925
------------ -----------
BUSINESS EQUIPMENT -- 0.7%
7,000 Canon Inc. ............. 114,257 134,425
------------ -----------
CHEMICALS -- 2.4%
4,000 BOC Group plc........... 45,135 54,084
10,000 Nippon Sanso Corp. ..... 52,693 52,245
3,145 Norsk Hydro AS.......... 138,029 137,496
5,000 Reliance Industries,
Ltd. -- GDR*++........ 69,375 72,500
2,200 Sociedad Quimica Y
Minera De
Chile -- ADR#......... 94,158 114,950
------------ -----------
399,390 431,275
------------ -----------
COMMERCIAL SERVICES -- 0.6%
2,100 Robert Half
International,
Inc.*................. 49,600 102,112
------------ -----------
COMPUTER EQUIPMENT -- 3.0%
1,800 Adaptec, Inc.*.......... 59,060 86,850
3,600 Cognex Corp.*........... 69,858 92,250
2,800 Gateway 2000, Inc.*..... 56,000 78,050
2,600 Komag, Inc.*............ 90,776 63,050
1,900 Seagate Technology,
Inc.*................. 44,435 104,025
1,000 U.S. Robotics Corp. .... 70,363 129,250
------------ -----------
390,492 553,475
------------ -----------
COMPUTER SOFTWARE -- 0.9%
1,350 McAfee Associates,
Inc.*................. 46,706 73,912
2,200 Parametric Technology
Corp.*................ 73,994 86,075
------------ -----------
120,700 159,987
------------ -----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 16
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
CONGLOMERATE -- 1.4%
10,000 I.T.C.,
Ltd. -- GDR*++........ $ 75,500 $ 75,000
327,500 Mondragon International
Philippines, Inc.*.... 93,459 187,500
------------ -----------
168,959 262,500
------------ -----------
CONSTRUCTION -- 3.0%
1,900 Centex Corp. ........... 67,888 58,900
8,400 Gujarat Ambuja Cements,
Ltd. -- GDR*++........ 50,000 102,901
4,800 Kaufman & Broad
Home Corp. ........... 77,895 76,800
5,000 Keppel Corporation
Ltd................... 42,155 45,513
2,800 Lennar Corp. ........... 69,468 70,350
2,300 Pulte Corp. ............ 74,668 61,812
11,000 Sekisui House, Ltd. .... 140,392 138,756
------------ -----------
522,466 555,032
------------ -----------
ELECTRICAL AND ELECTRONICS -- 7.7%
1,100 Altera Corp.*........... 75,416 61,462
2,700 Atmel Corp.*............ 34,188 68,512
1,700 Avnet, Inc. ............ 92,690 82,025
5,800 Cypress Semiconductor
Corp.*................ 62,471 68,150
84 General Electric Co.
plc................... 341 470
3,900 International
Rectifier Corp.*...... 93,492 70,200
2,400 Kent Electronics
Corp.*................ 79,453 84,900
2,000 Lattice Semiconductor
Corp.*................ 76,701 56,750
1,600 Linear Technology
Corp. ................ 61,200 66,800
6,000 Matsushita
Communications
Industrial Co. ....... 139,090 143,462
2,300 Maxim Integrated
Products, Inc.*....... 66,838 71,300
1,100 Novellus Systems,
Inc.*................. 38,940 48,400
7,000 Omron Corp. ............ 129,104 156,171
1,900 SCI Systems, Inc.*...... 67,761 69,588
1,800 Silicon Valley Group,
Inc.*................. 79,667 43,875
1,600 Solectron Corp.*........ 78,283 70,400
3,000 TDK Corp. .............. 142,084 155,606
2,400 Wyle Electronics Co. ... 97,205 83,100
------------ ----------
1,414,924 1,401,17
------------ ----------
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
ENTERTAINMENT -- 1.9%
4,690 Filmes Lusomundo Co. ... $ 58,780 $ 30,847
1,800 King World Productions,
Inc.*................. 75,463 74,475
12,000 Rank Organisation plc... 81,557 88,918
28,000 Resorts World Berhad.... 161,372 159,494
------------ -----------
377,172 353,734
------------ -----------
FINANCIAL SERVICES -- 5.8%
1,600 Alex Brown, Inc. ....... 65,096 83,000
4,100 Bear Stearns Companies,
Inc. ................. 83,821 101,475
1,650 Cie Parisienne De
Reescompte............ 124,312 143,018
530 Cie Bancaire S.A. ...... 52,250 54,388
2,900 Edwards (A.G.), Inc. ... 67,237 72,138
1,600 Golden West
Financial Corp. ...... 83,971 85,800
10,800 Instituto Mobiliare
Italiano S.p.A........ 72,452 74,116
3,600 Lehman Brothers Holding,
Inc. ................. 74,978 96,300
6,000 Nomura Securities Co.
Ltd. ................. 113,296 132,731
3,400 Paine Webber Group,
Inc. ................. 66,079 74,800
1,900 Salomon, Inc. .......... 69,939 71,250
1,400 SunAmerica Inc. ........ 67,109 70,525
----------- -----------
940,540 1,059,541
----------- -----------
FOOD & HOUSEHOLD PRODUCTS -- 1.2%
90 Nestle SA............... 97,039 101,812
6,000 Unilever plc............ 119,071 111,835
------------ -----------
216,110 213,647
------------ -----------
FOREST PRODUCTS & PAPER -- 0.2%
5,200 Grupo Industrial
Durango,
S.A. -- ADR*#......... 69,532 35,750
------------ -----------
HOLDING COMPANIES, DIVERSIFIED -- 2.2%
15,000 Barlow, Ltd. ........... 210,842 192,081
16,500 Benpress Holdings
Corp. -- GDR*++....... 111,250 107,250
19,000 BTR plc................. 102,678 91,584
1,240 Italmobiliare S.p.A..... 40,133 17,788
------------ -----------
464,903 408,703
------------ -----------
INSURANCE -- 4.5%
2,000 American Bankers
Insurance Group,
Inc. ................. 57,750 70,500
1,100 American National
Insurance Co. ........ 71,145 74,250
3,500 Assurances Generales
de France............. 114,955 97,637
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 17
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
INSURANCE (CONTINUED)
2,057 AXA Co. ................ $ 103,414 $ 126,848
3,300 Bankers Life Holding
Corp. ................ 75,480 73,837
1,600 Berkley Corp. .......... 77,221 74,000
5,500 Commercial Union plc.... 52,227 47,897
1,300 Conseco, Inc. .......... 70,008 94,087
3,450 Fremont General
Corp. ................ 81,142 81,506
2,800 Penncorp Financial
Group, Inc. .......... 64,568 88,200
------------ -----------
767,910 828,762
------------ -----------
INVESTMENT COMPANIES -- 1.4%
15,000 Korea-Europe Fund
Ltd. ................. 110,625 121,875
13,000 ROC Taiwan Fund*........ 135,040 134,875
------------ -----------
245,665 256,750
------------ -----------
MACHINERY & MANUFACTURING -- 1.6%
340 Mannesmann AG........... 111,531 124,621
7,000 Mori Seiki Co. ......... 150,381 148,922
380 Orkla A.S. Cl. "A"...... 20,357 17,535
------------ -----------
282,269 291,078
------------ -----------
MEDICAL SUPPLIES -- 0.4%
1,473 Boston Scientific
Corp.*................ 24,908 67,758
------------ -----------
METALS -- DIVERSIFIED -- 1.3%
3,400 Madeco S.A. --ADR#...... 84,783 85,000
29,000 Mitsubishi Materials
Corp. ................ 137,564 156,971
------------ -----------
222,347 241,971
------------ -----------
MINING -- 1.2%
7,000 De Beers Consolidated
Mines, Ltd.+++........ 214,497 224,973
------------ -----------
OIL/GAS - EXPLORATION -- 3.8%
4,000 British Petroleum plc... 25,157 35,048
1,700 Columbia Gas System,
Inc. ................. 74,872 77,988
2,200 Cooper Cameron Corp.*... 77,694 92,400
2,200 Helmerich & Payne,
Inc. ................. 74,511 74,250
8,000 Noble Drilling
Corp.* ............... 79,625 99,000
3,200 Valero Energy Corp. .... 65,286 78,800
1,500 Williams Cos., Inc. .... 65,029 75,562
8,100 YPF Sociedad
Anonima -- ADR#....... 142,953 163,012
------------ -----------
605,127 696,060
------------ -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
PETROCHEMICALS -- 0.7%
90,000 Aromatics (Thailand)
plc*.................. $ 125,889 $ 120,297
------------ -----------
PHARMACEUTICALS -- 1.3%
1,300 Cardinal Health,
Inc. ................. 77,428 83,525
2,000 Glaxo Wellcome plc...... 23,939 25,086
6,000 Yamanouchi
Pharmaceutical Co. ... 135,479 134,425
------------ -----------
236,846 243,036
------------ -----------
PUBLISHING & PRINT -- 2.2%
1,790 Elsevier NV............. 16,370 27,490
41,000 News Corp., Ltd. ....... 238,072 239,960
8,550 Vnu -- Ver Ned Uitgev
Ver Bezit............. 105,791 142,725
------------ -----------
360,233 410,175
------------ -----------
REAL ESTATE -- 3.1%
15,000 Cheung Kong Holdings,
Ltd. ................. 82,038 105,723
40,000 Hong Kong Land Holdings,
Ltd................... 78,517 96,036
20,000 Singapore Land Ltd...... 129,033 146,494
24,000 Sotogrande S.A.*........ 76,353 51,208
12,000 Sun Hung Kai Properties
Ltd. ................. 74,044 107,469
3,450 Vallehermoso S.A........ 60,871 62,180
------------ -----------
500,856 569,110
------------ -----------
RETAIL -- 4.7%
10,000 Argyll Group plc........ 47,330 46,903
80,000 Cifra S.A. de
C.V. -- ADR*#......... 128,400 106,504
14,000 Cia Brasileira de Distr.
Grupo Pao de Acucar --
GDR*++##.............. 150,500 171,500
1,900 COMPUSA, Inc.* ......... 61,389 105,213
21,000 Itochu Corp. ........... 141,774 148,263
7,000 Kingfisher plc.......... 55,629 60,852
2,900 Ross Stores, Inc. ...... 74,080 72,863
2,400 Vendex International
NV.................... 70,387 68,909
2,300 Vons Companies, Inc.*... 42,042 71,587
------------ -----------
771,531 852,594
------------ -----------
SHOES -- 0.5%
1,200 Nike, Inc. Cl. "B"...... 37,086 97,500
------------ -----------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 18
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
STEEL -- 1.5%
40,000 Nippon Steel Co. ....... $ 141,818 $ 138,567
49,000 Nippon Kokan Kabushiki
Corp.*................ 129,700 142,530
------------ -----------
271,518 281,097
------------ -----------
TELECOMMUNICATIONS -- 4.4%
6,000 Cable & Wireless plc.... 36,985 48,767
1,700 Glenayre Technologies,
Inc.* . . 60,138 65,025
45,000 PT Indonesian
Satellite -- Foreign
Registered............ 165,359 154,459
50,000 Telecom Corporation of
New Zealand........... 184,265 224,301
32,000 Telecom Italia Mobile
S.p.A................. 38,179 58,275
59,600 Telecom Italia Mobile
S.p.A. -- Drnc.
Risp. ................ 58,100 65,808
1,800 Telecomunicacoes
Brasileiras
S.A. -- ADR#.......... 72,675 91,122
3,000 Telefonos De Mexico
S.A., Cl.
"L" -- ADR#........... 115,085 98,625
------------ -----------
730,786 806,382
------------ -----------
TEXTILES AND APPAREL -- 1.4%
2,400 Liz Claiborne, Inc. .... 67,944 82,200
33,000 Teijin Ltd. ............ 168,174 183,282
------------ -----------
236,118 265,482
------------ -----------
TRANSPORTATION -- 1.6%
2,900 Comair Holdings,
Inc. ................. 73,985 100,775
1,700 Continental Airlines,
Inc. Cl "B"*.......... 78,562 95,837
10,000 Swire Pacific, Ltd. Cl.
"A"................... 81,454 87,941
------------ -----------
234,001 284,553
------------ -----------
UTILITIES -- 3.6%
1,400 Consolidated Natural Gas
Co. . . 62,384 60,900
2,200 Illinova Corp. ......... 65,032 61,875
2,900 Indiana Energy, Inc. ... 76,248 69,600
2,300 National Fuel Gas
Co. .................. 75,749 79,638
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C>
UTILITIES (CONTINUED)
8,400 Noram Energy Corp. ..... $ 77,754 $ 77,700
3,000 Oneok, Inc. ............ 65,151 71,625
2,600 Pacific Enterprises..... 66,711 67,275
2,400 Peoples Energy Corp. ... 76,503 77,700
3,723 Union Electrica Fenosa
S.A. ................. 17,546 20,401
3,000 Washington Gas Light
Co. .................. 66,247 65,625
------------ -----------
649,325 652,339
------------ -----------
WINE & SPIRITS -- 0.2%
4,500 Grand Metropolitan
plc................... 28,771 29,013
------------ -----------
TOTAL COMMON STOCKS..... 14,963,151 16,322,011
------------ -----------
TOTAL EXCLUDING
SHORT-TERM
INVESTMENTS . . 14,963,151 16,322,011
------------ -----------
SHORT-TERM INVESTMENTS -- 8.3%
1,527,000 Chase Manhattan Bank,
London Time Deposit,
5.375%, due
4/01/1996............. 1,527,000 1,527,000
------------ -----------
TOTAL SHORT-TERM
INVESTMENTS........... 1,527,000 1,527,000
------------ -----------
TOTAL
INVESTMENTS -- 97.4%.. $16,490,151+ 17,849,011
===========
Cash and other assets,
net of
liabilities -- 2.6%... 473,120
-----------
NET ASSETS -- 100.0%.... $18,322,131
==========
* Non-Income Producing Securities.
+ The cost of securities for Federal income tax purposes
is substantially the same.
** See page 16 for Concentration by Country.
# American Depository Receipts.
++ Global Depository Receipts.
## At fair value as determined by the Board of Directors.
+++ Shares represent a unit, consisting of one deferred
share and one depositary receipt.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 19
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC SMALL CAP FUND
Portfolio of Investments -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ----------- -----------
<C> <S> <C>
COMMON STOCKS -- 78.6%
AUTO RELATED -- 2.2%
37,400 Metrotrans Corp.* ....... $ 372,781 $ 467,500
50,000 Spartan Motors, Inc. .... 528,133 381,250
----------- -----------
900,914 848,750
----------- -----------
BANKING -- 2.4%
38,950 Sirrom Capital Corp. .... 467,856 890,981
----------- -----------
CHEMICALS -- 4.9%
45,000 Synalloy Corp. .......... 648,005 855,000
55,000 Carbide/Graphite Group, 850,525 990,000
Inc. (The)*............
----------- -----------
1,498,530 1,845,000
----------- -----------
COMMERCIAL SERVICES -- 13.3%
71,300 B.I., Inc.*.............. 520,804 597,138
59,800 Childrens Comprehensive 396,484 642,850
Services, Inc.* .......
84,000 Compucom Systems, 536,390 724,500
Inc.*..................
32,000 Norrell Corp., Inc. ..... 700,799 1,060,000
28,800 Regis Corp............... 517,666 885,600
37,650 Right Management 637,919 1,110,675
Consultants, Co.*......
----------- -----------
3,310,062 5,020,763
----------- -----------
COMPUTER SOFTWARE -- 1.1%
16,000 Micro Systems, Inc.* .... 434,456 400,000
----------- -----------
ELECTRICAL & ELECTRONICS -- 4.8%
40,200 Aseco Corp.*............. 393,224 462,300
40,000 CEM Corp.*............... 522,287 560,000
30,000 Electro Scientific 767,835 558,750
Industries, Inc.*......
38,700 Quad Systems Corp..*..... 248,589 246,712
----------- -----------
1,931,935 1,827,762
----------- -----------
ENTERTAINMENT -- 3.6%
48,300 Speedway Motorsports, 546,231 1,364,475
Inc.*..................
----------- -----------
FINANCIAL SERVICES -- 2.5%
64,700 Amresco, Inc. ........... 774,938 946,238
----------- -----------
FURNITURE/HOME APPLIANCE -- 2.2%
39,200 Aaron Rents, Inc. Cl. 569,951 813,400
"B"....................
----------- -----------
HEALTH CARE PROVIDERS -- 9.8%
94,000 American Healthcorp 885,863 834,250
Inc.*..................
30,000 American Homepatient, 645,865 1,177,500
Inc.* . .
39,000 Renal Treatment Centers, 453,664 926,250
Inc.* . .
36,500 Res-Care, Inc.*.......... 719,563 761,938
----------- -----------
2,704,955 3,699,938
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ----------- -----------
<C> <S> <C>
INSURANCE -- 2.2%
25,950 Vesta Insurance Group, $ 569,389 $ 846,619
Inc. ..................
----------- -----------
MACHINERY -- 4.9%
47,700 Computational Systems, 702,732 846,675
Inc.* . .
21,450 Roper Industries Inc. ... 760,229 986,700
----------- -----------
1,462,961 1,833,375
----------- -----------
MANUFACTURING -- 4.6%
33,000 Asyst Technologies, 992,717 750,750
Inc.*..................
64,000 Cavalier Homes, Inc. .... 469,480 992,000
----------- -----------
1,462,197 1,742,750
----------- -----------
MEDICAL SUPPLIES -- 0.2%
5,000 Fischer Imaging Corp. ... 66,250 72,500
----------- -----------
METALS -- DIVERSIFIED -- 2.7%
25,000 Wolverine Tube, Inc.*.... 789,560 1,015,625
----------- -----------
OIL -- GAS EXPLORATION -- 1.4%
40,000 Oceaneering 486,863 545,000
International, Inc.*...
----------- -----------
PHARMACEUTICALS -- 1.6%
25,000 Medicis 611,854 600,000
Pharmaceutical*........
----------- -----------
PERSONAL CARE -- 5.5%
45,400 Inbrand Corp.*........... 673,424 1,032,850
34,800 Rexall Sundown, Inc.*.... 513,104 1,048,350
----------- -----------
1,186,528 2,081,200
----------- -----------
PUBLISHING & PRINT -- 1.1%
23,400 Cadmus Communications 570,525 400,725
Corp. .................
----------- -----------
RESTAURANT -- 2.7%
40,300 Daka International, 930,718 1,017,575
Inc.*..................
----------- -----------
SHOES -- 3.0%
44,700 Fuqua Enterprises, 1,011,837 1,145,437
Inc.*..................
----------- -----------
TRANSPORTATION -- AIR -- 1.9%
62,500 Mesaba Holdings Inc. .... 480,625 703,125
----------- -----------
$22,769,135+ $29,661,238
TOTAL
INVESTMENTS -- 78.6%...
==========
8,076,041
Cash and other assets,
net of
liabilities -- 21.4%...
-----------
$37,737,279
NET ASSETS -- 100.0%.....
==========
</TABLE>
* Non-Income Producing Securities
+ The cost of securities for Federal income tax purposes is substantially
the same.
See accompanying notes to financial statements.
12
<PAGE> 20
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 95.8%
AUTO RELATED -- 2.7%
9,000 Custom Chrome, Inc.*..... $ 180,540 $ 219,375
5,000 Daimler Benz 246,275 270,625
AG -- ADR# . .
9,400 Metrotrans Corp.*........ 93,125 117,500
19,200 Spartan Motors, Inc. .... 187,119 146,400
----------- -----------
707,059 753,900
----------- -----------
BANKING -- 11.0%
4,400 Ahmanson (H.F.) & Co. ... 95,552 106,700
3,100 Amsouth Bancorporation... 121,086 120,513
1,900 Astoria Financial
Corp. ................. 60,677 96,663
3,000 Banco Bilbao Vizcaya --
ADR#................... 67,417 111,375
7,800 Corp Bancaria Espana --
ADR#................... 166,218 162,825
2,400 First American Corp.
Tennessee ............. 108,029 106,800
9,200 First Bell Bancorp,
Inc. .................. 112,590 126,500
6,500 First Mutual Bancorp,
Inc. .................. 83,077 83,687
4,000 First Security Corp. .... 111,240 111,000
5,900 Frankfort First Bancorp,
Inc. .................. 74,004 83,338
14,600 F.S.F. Financial
Corp. ................. 187,975 184,325
13,000 Glendale Federal Bank
FSB*................... 126,030 235,625
5,500 GP Financial Corp. ...... 132,055 151,250
8,140 IBS Financial Corp. ..... 69,819 117,013
6,000 Industrial Bancorp,
Inc. .................. 75,042 91,500
13,400 Instituto Mobiliare
Italiano -- ADR#....... 251,891 278,050
2,400 Morgan (J.P.) & Co. ..... 146,444 199,200
3,400 MLF Bancorp, Inc......... 47,804 81,175
5,900 Peoples Bank of
Bridgeport............. 120,441 126,850
14,000 Sirrom Capital Corp. .... 163,688 320,250
4,000 Washington Mutual,
Inc. .................. 119,846 119,000
5,400 Westerfed Financial
Corp. ................. 73,224 80,325
----------- -----------
2,514,149 3,093,964
----------- -----------
BREWERY -- 0.4%
5,500 Coors (Adolph) Company,
Inc. Cl. "B"........... 124,644 98,313
----------- -----------
BUILDING MATERIALS &
COMPONENTS -- 0.5%
2,000 Texas Industries,
Inc. .................. 120,638 127,250
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C>
CHEMICALS -- 1.9%
12,600 Carbide/Graphite Group,
Inc. (The)*............ $ 212,840 $ 226,800
16,000 Synalloy Corp. .......... 205,925 304,000
----------- -----------
418,765 530,800
----------- -----------
COMMERCIAL SERVICES -- 6.1%
20,000 B.I., Inc.*.............. 143,153 167,500
9,900 Children's Comprehensive
Services, Inc.*........ 54,598 106,425
30,000 Compucom Systems,
Inc.*.................. 180,000 258,750
9,000 Norrell Corp. ........... 175,500 298,125
11,900 Regis Corp. ............. 181,838 365,925
12,150 Right Management
Consultants, Inc.*..... 169,263 358,425
3,100 Robert Half
International, Inc.*... 68,730 150,738
----------- -----------
973,082 1,705,888
----------- -----------
COMPUTER EQUIPMENT -- 3.3%
2,500 Adaptec, Inc.*........... 82,028 120,625
4,800 Cognex Corp.*............ 93,144 123,000
4,300 Gateway 2000, Inc.*...... 91,902 119,863
3,800 Komag, Inc.*............. 122,972 92,150
3,400 Parametric Technology
Corp.* ................ 114,344 133,025
2,800 Seagate Technology,
Inc.*.................. 71,074 153,300
1,400 U.S. Robotics Corp.*..... 98,509 180,950
----------- -----------
673,973 922,913
----------- -----------
COMPUTER SOFTWARE -- 0.8%
2,150 McAfee Associates,
Inc.*.................. 74,383 117,713
4,000 Micros Systems, Inc.*.... 105,214 100,000
----------- -----------
179,597 217,713
----------- -----------
ELECTRICAL & ELECTRONICS -- 11.9%
25,000 Alcatel
Alsthom -- ADR#........ 463,875 462,500
1,600 Altera Corp.*............ 109,696 89,400
13,000 Aseco Corp.*............. 105,500 149,500
3,900 Atmel Corp.*............. 61,891 99,450
2,500 Avnet, Inc. ............. 125,026 120,625
1,600 BBC Brown Boveri,
Ltd. -- ADR#........... 131,896 194,483
16,000 CEM Corp.*............... 210,390 224,000
13,100 Checkmate Electronics,
Inc.*.................. 118,638 170,300
8,600 Cypress Semiconductor
Corp.* ................ 92,921 101,050
8,500 Electro Scientific
Industries Inc.*....... 182,500 158,312
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 21
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
ELECTRICAL & ELECTRONICS (CONTINUED)
4,700 Hitachi, Ltd. ........... $ 478,811 $ 458,838
5,800 Int'l Rectifier
Corp.* ................ 134,374 104,400
3,600 Kent Electronics
Corp.*................. 119,180 127,350
2,700 Lattice Semiconductor
Corp.*................. 103,424 76,613
2,500 Linear Technology
Corp. ................. 95,625 104,375
3,500 Maxim Integrated
Products............... 126,637 108,500
1,600 Novellus Systems,
Inc.*.................. 75,125 71,200
20,000 Quad Systems Corp.*...... 130,700 127,500
2,800 Sci Systems, Inc.*....... 99,868 102,550
2,300 Silicon Valley Group,
Inc.*.................. 101,815 56,063
2,500 Solectron Corp.*......... 122,317 110,000
3,400 Wyle Electronics Co. .... 129,406 117,725
----------- -----------
3,319,615 3,334,734
----------- -----------
ENTERTAINMENT -- 2.0%
2,700 King World Productions,
Inc.* . . 113,195 111,713
16,000 Speedway Motorsports,
Inc.*.................. 144,480 452,000
----------- -----------
257,675 563,713
----------- -----------
FINANCIAL SERVICES -- 4.7%
2,200 Alex Brown, Inc. ........ 112,332 114,125
22,000 Ampresco, Inc. .......... 270,450 321,750
6,000 Bear Stearns Cos.,
Inc. .................. 122,190 148,500
5,000 Edwards (A.G.), Inc. .... 117,470 124,375
2,400 Golden West Financial
Corp. . . 125,957 128,700
5,500 Lehman Brothers Holding,
Inc. .................. 115,043 147,125
4,900 Paine Webber Group,
Inc. .................. 95,232 107,800
3,000 Salomon, Inc. ........... 111,507 112,500
2,200 Sunamerica, Inc. ........ 105,457 110,825
----------- -----------
1,175,638 1,315,700
----------- -----------
FOOD & HOUSEHOLD PRODUCTS -- 2.7%
15,000 Groupe Danone ADR#....... 479,235 459,974
5,200 Nestle S.A. -- ADR#...... 233,477 293,103
----------- -----------
712,712 753,077
----------- -----------
FURNITURE/HOME APPLIANCE -- 1.2%
16,000 Aaron Rents, Inc. Cl.
"B".................... 228,637 332,000
----------- -----------
HOMEBUILDERS -- 1.4%
2,900 Centex Corp. ............ 103,619 89,900
7,000 Kaufman & Broad Home
Corp. ................. 113,597 112,000
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C>
HOMEBUILDERS (CONTINUED)
4,300 Lennar Corp. ............ $ 110,953 $ 106,963
3,300 Pulte Corp. ............. 108,948 88,688
----------- -----------
437,117 397,551
----------- -----------
HEALTH CARE PROVIDERS -- 3.9%
29,000 American Healthcorp.,
Inc.*.................. 275,500 257,375
9,000 American Homepatient,
Inc.* . . 179,000 353,250
12,000 Renal Treatment Centers,
Inc.* . . 138,133 285,000
9,900 Res -- Care, Inc.*....... 199,931 206,663
----------- -----------
792,564 1,102,288
----------- -----------
INSURANCE -- 6.2%
3,100 American Bankers
Insurance Group,
Inc. .................. 92,924 109,275
1,500 American National
Insurance Co. ......... 93,693 101,250
4,800 Bankers Life Holding
Corp. ................. 109,815 107,400
2,300 Berkley Corp. ........... 110,879 106,375
1,900 Conseco, Inc. ........... 102,319 137,513
5,250 Fremont General Corp. ... 123,381 124,031
4,100 Lincoln National
Corp. ................. 148,982 208,075
2,800 Loews Corp............... 123,409 211,750
4,100 Penncorp Financial Group,
Inc. .................. 113,491 129,150
5,600 Safeco Corp. ............ 158,493 187,600
9,750 Vesta Insurance Group,
Inc. .................. 204,567 318,094
----------- -----------
1,381,953 1,740,513
----------- -----------
MANUFACTURING -- 5.3%
10,000 Asyst Technologies,
Inc.*.................. 298,713 227,500
22,500 Cavalier Homes, Inc. .... 146,891 348,750
11,750 Computational Systems,
Inc.* . . 171,844 208,563
7,000 Roper Industries,
Inc. .................. 241,500 322,000
3,400 Seimens AG -- ADR#....... 329,700 374,225
----------- -----------
1,188,648 1,481,038
----------- -----------
MEDICAL SUPPLIES -- 0.4%
2,256 Boston Scientific
Corp.*................. 38,148 103,776
----------- -----------
METALS -- DIVERSIFIED -- 1.0%
7,000 Wolverine Tube, Inc.*.... 196,188 284,375
------------ -----------
MULTI-INDUSTRY -- 0.6%
23,000 Jardine Matheson Holdings
Ltd. -- ADR#........... 172,690 179,400
----------- -----------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 22
ESC STRATEGIC FUNDS, INC.
THE ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1996
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
OIL/GAS - EXPLORATION -- 5.4%
2,500 Columbia Gas............. $ 110,106 $ 114,688
3,200 Cooper Cameron Corp.*.... 112,881 134,400
7,300 Elf Aquitane -- ADR#..... 255,988 247,288
3,300 Helmerich & Payne........ 111,766 111,375
11,700 Noble Drilling Corp.*.... 116,438 144,788
7,800 Repsol S.A. -- ADR#...... 238,093 291,525
4,700 Valero Energy Corp. ..... 95,906 115,737
2,300 Williams Cos. Inc. ...... 99,691 115,861
11,400 YPF Sociedad Anonima --
ADR#................... 221,847 229,425
----------- -----------
1,362,716 1,505,087
----------- -----------
PERSONAL CARE -- 2.4%
12,500 Inbrand Corp.*........... 172,720 284,375
13,000 Rexall Sundown, Inc.*.... 168,938 391,625
----------- -----------
341,658 676,000
----------- -----------
PUBLISHING & PRINTING -- 0.7%
10,550 Cadmus Communications
Corp. ................. 255,284 180,669
----------- -----------
PHARMACEUTICALS -- 1.0%
1,900 Cardinal Health, Inc. ... 113,163 122,075
7,000 Medicis Pharmaceutical
Corp.* . . 175,000 168,000
----------- -----------
288,163 290,075
----------- -----------
RESTAURANTS -- 1.1%
12,000 Daka International,
Inc.*.................. 218,750 303,000
----------- -----------
RETAIL -- 2.6%
2,700 COMPUSA, Inc.*........... 93,477 149,512
4,200 Ross Stores, Inc. ....... 107,288 105,525
3,500 Vons Companies, Inc.*.... 63,975 108,936
23,000 Woolworth Corp.*......... 327,968 359,375
----------- -----------
592,708 723,348
----------- -----------
SHOES -- 3.7%
11,800 Fuqua Enterprises,
Inc.*.................. 282,613 302,374
1,800 Nike, Inc. Cl. "B"....... 69,775 146,250
17,200 Reebok International, 502,471 475,150
Ltd. ..................
14,000 Stride Rite Corp. ....... 170,252 127,750
----------- -----------
1,025,111 1,051,524
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C>
TELECOMMUNICATIONS -- 6.2%
2,600 Glenayre Technologies,
Inc.*.................. $ 91,975 $ 99,450
14,800 Stet-Societa Finanziaria
Telefonica
P.A. -- ADR#........... 439,603 410,591
15,700 Tele Danmark
AS -- ADR#............. 421,759 406,236
9,000 Telefonica de Espana --
ADR#................... 353,115 427,500
12,100 Telefonos de Mexico S.A.
Cl. "L" -- ADR#........ 455,613 399,300
----------- -----------
1,762,065 1,743,077
----------- -----------
TEXTILES & APPAREL -- 0.4%
3,600 Liz Claiborne, Inc. ..... 101,916 123,300
----------- -----------
TRANSPORTATION -- 1.0%
4,300 Comair Holdings, Inc. ... 109,702 149,425
2,400 Continental Airlines,
Inc. Cl. "B"........... 91,344 135,300
----------- -----------
201,046 284,725
----------- -----------
UTILITIES -- 3.3%
2,100 Consolidated Natural Gas
Co. ................... 95,676 91,350
3,300 Illinova Corp. .......... 97,548 92,812
4,200 Indiana Energy, Inc. .... 110,427 100,800
3,900 Pacific Enterprises...... 97,809 100,912
3,600 Peoples Energy Corp. .... 114,798 116,550
3,400 National Fuel Gas Co. ... 112,002 117,725
12,300 Noram Energy Corp. ...... 113,855 113,775
4,300 Oneok, Inc. ............. 93,342 102,661
4,500 Washington Gas Light
Co. ................... 99,370 98,437
----------- -----------
934,827 935,022
----------- -----------
TOTAL
INVESTMENTS -- 95.8% . . $22,697,736+ $26,854,733
==========
CASH AND OTHER ASSETS,
NET OF
LIABILITIES -- 4.2%.... 1,188,060
-----------
NET ASSETS -- 100.0%..... $28,042,793
==========
+ The cost of securities for federal income tax purposes
is substantially the same.
* Non-income producing security.
# American Depository Receipts.
** See page 16 for Concentration by Country.
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 23
ESC STRATEGIC FUNDS, INC.
Concentration by Country
<TABLE>
<CAPTION>
INCOME FUND GLOBAL EQUITY FUND APPRECIATION FUND
COUNTRY MARKET VALUE MARKET VALUE MARKET VALUE
------------ ------------------ ------------------
<S> <C> <C> <C>
Argentina............................................... $ 1,533,255 $ 327,262 $ 229,425
Australia............................................... 216,855 239,960 --
Belgium................................................. 267,776 -- --
Brazil.................................................. -- 262,622 --
Canada.................................................. 325,756 -- --
Chile................................................... -- 114,950 --
Czech Republic.......................................... -- 153,258 --
Denmark................................................. 658,933 -- 406,236
France.................................................. 1,248,226 421,890 1,169,762
Germany................................................. 1,997,734 220,766 644,850
Great Britain........................................... 1,098,001 1,011,482 --
Hong Kong............................................... -- 301,132 --
India................................................... -- 250,401 --
Indonesia............................................... -- 154,459 --
Italy................................................... 891,289 345,024 688,641
Japan................................................... 2,567,775 2,773,586 --
Malaysia................................................ -- 327,532 --
Mexico.................................................. 380,625 325,879 399,300
Netherlands............................................. 286,056 239,123 --
New Zealand............................................. -- 224,301 --
Norway.................................................. -- 155,031 --
Philippines............................................. -- 187,500 --
Poland.................................................. -- 133,681 --
Portugal................................................ -- 111,941 --
Singapore............................................... -- 476,210 179,400
South Africa............................................ -- 417,054 --
Spain................................................... 604,535 334,728 993,225
Switzerland............................................. -- 101,812 487,586
Thailand................................................ -- 448,218 --
United States........................................... 20,865,771 7,789,209 21,656,308
----------- ----------- -----------
Total Investments....................................... $32,942,587 $ 17,849,011 $ 26,854,733
=========== =========== ===========
</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.
16
<PAGE> 24
ESC STRATEGIC FUNDS, INC.
Statement of Assets and Liabilities
March 31, 1996
<TABLE>
<CAPTION>
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments at value (cost $13,094,108; $32,643,669;
$14,963,151; $22,769,135; $22,697,736,
respectively)...................................... $13,150,565 $32,327,587 $16,322,011 $29,661,238 $26,854,733
Short-term investments (cost $0; $615,000;
$1,527,000; $0; $0, respectively).................. 0 615,000 1,527,000 0 0
Cash................................................. 365,521 4,635,507 556,614 7,455,021 1,240,766
Foreign Cash (cost $0; $17,074; $4,343; $0; $0)...... 0 17,020 4,302 0 0
Dividends and interest receivable.................... 208,517 786,982 25,972 4,740 13,428
Receivable for investments sold...................... 0 0 184,832 475,876 0
Receivable for fund shares sold...................... 2,452 29,525 30,982 341,178 35,551
Receivable from sponsor.............................. 10,811 0 0 0 0
Withholding tax reclaim.............................. 0 0 486 0 325
Unamortized organizational expenses (Note 2e)........ 27,042 27,259 27,452 34,677 28,781
------------ ----------- ----------- ----------- ------------
Total Assets................................... 13,764,908 38,438,880 18,679,651 37,972,730 28,173,584
------------ ----------- ----------- ----------- ------------
LIABILITIES
Payable for securities purchased..................... 488,625 0 288,581 105,795 54,060
Payable for fund shares repurchased.................. 0 0 0 8,699 0
Advisory fee payable (Note 3)........................ 0 32,444 15,147 28,436 11,800
Administrative services fee payable (Note 3)......... 840 4,867 2,272 4,265 3,540
Transfer agent fee payable (Note 3).................. 548 1,367 1,843 4,548 1,844
12b-1 Distribution fee payable (Note 3).............. 3,000 12,000 12,000 24,000 21,000
Other accrued expenses............................... 31,224 51,056 37,677 59,708 38,547
------------ ----------- ----------- ----------- ------------
Total Liabilities.............................. 524,237 101,734 357,520 235,451 130,791
------------ ----------- ----------- ----------- ------------
NET ASSETS............................................. $13,240,671 $38,337,146 $18,322,131 $37,737,279 $28,042,793
=========== =========== =========== =========== ===========
Net Assets Consist of
Capital Stock........................................ $ 1,324 $ 3,876 $ 1,658 $ 2,381 $ 2,156
Additional paid-in capital........................... 13,193,975 38,512,147 16,784,009 29,034,316 22,850,325
Accumulated undistributed net investment income/
(loss) on investments.............................. 0 509,096 83,525 0 0
Accumulated undistributed realized gain/(loss) on
investments and foreign currencies................. (11,085) (372,635) 94,120 1,808,479 1,033,315
Net unrealized appreciation/(depreciation) on
investments
and foreign currencies translations................ 56,457 (315,338) 1,358,819 6,892,103 4,156,997
------------ ----------- ----------- ----------- ------------
NET ASSETS........................................... $13,240,671 $38,337,146 $18,322,131 $37,737,279 $28,042,793
=========== =========== =========== =========== ===========
SHARES OF BENEFICIAL INTEREST
Class A:
Shares of beneficial interest outstanding.......... 1,323,793 3,730,042 1,321,204 1,816,310 1,963,842
========= ========= ========= ========= =========
Net asset value per share outstanding.............. $10.00 $9.89 $11.08 $15.88 $13.02
====== ===== ====== ====== ======
Maximum offering price per share (N/A; $9.89/.955;
$11.08/.955; $15.88/.955; $13.02/.955,
respectively).................................... $10.00 $10.36 $11.60 $16.63 $13.63
====== ====== ====== ====== ======
Class D:
Shares of beneficial interest outstanding.......... N/A 145,876 336,540 564,447 192,247
==== ======= ======= ======= =======
Net asset value per share outstanding.............. N/A $9.89 $10.95 $15.76 $12.91
==== ===== ====== ====== ======
Maximum offering price per share (N/A; $9.89/.985;
$10.95/.985; $15.76/.985; $12.91/.985,
respectively).................................... N/A $10.04 $11.12 $16.00 $13.11
==== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 25
ESC STRATEGIC FUNDS, INC.
Statement of Operations
For Year Ended March 31, 1996
<TABLE>
<CAPTION>
ASSET
PRESERVATION INCOME GLOBAL EQUITY SMALL CAP APPRECIATION
------------ ---------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest (net of withholding tax of $0,
$13,818, $0, $0, $0, respectively)........ $820,672 $2,792,331 $ 88,950 $ 191,996 $ 84,775
Dividends (net of withholding tax
of $0, $0, $17,377, $0, $1,129,
respectively)............................. 0 43,125 227,582 80,840 296,001
------------ ---------- ------------- ---------- ------------
820,672 2,835,456 316,532 272,836 380,776
------------ ---------- ------------- ---------- ------------
Expenses:
Advisory (Note 3)........................... 63,894 373,088 156,881 224,932 236,656
Fund Accounting (Note 3).................... 34,056 40,222 39,554 31,533 39,370
Legal....................................... 7,069 17,849 8,090 9,995 12,100
Administrative services (Note 3)............ 19,168 55,963 23,532 33,740 35,498
Reports to shareholders..................... 2,790 6,712 7,562 27,900 11,200
Audit....................................... 16,000 16,000 19,000 16,000 16,000
Registration................................ 7,031 23,173 17,433 27,493 24,013
Custodian................................... 13,226 28,240 43,821 21,231 24,032
12b-1 Distribution fee Class A (Note 3)..... 10,557 32,859 16,888 40,962 55,323
12b-1 Distribution fee Class D (Note 3)..... 0 10,400 27,060 36,932 15,516
Directors................................... 4,000 4,000 4,000 4,000 4,000
Transfer agent fees and expenses (Note 3)... 11,796 14,942 16,307 23,536 16,395
Amortization of organizational expenses..... 8,842 8,843 8,843 10,910 8,842
Insurance................................... 1,965 5,668 1,982 1,965 2,724
Miscellaneous............................... 1,498 34,621 2,524 13,370 5,096
------------ ---------- ------------- ---------- ------------
Total expenses before waivers............... 201,892 672,580 393,477 524,499 506,765
Less: Expenses waived/reimbursed by Adviser,
Administrator and Transfer Agent....... (85,363) (10,000) (10,000) (35,762) (21,800)
Expenses paid by third parties........... (1,434) (5,990) (514) (8,890) (2,924)
------------ ---------- ------------- ---------- ------------
Net expenses................................ 115,095 656,590 382,963 479,847 482,041
------------ ---------- ------------- ---------- ------------
Net investment income/(loss).................. 705,577 2,178,866 (66,431) (207,011) (101,265)
------------ ---------- ------------- ---------- ------------
Realized gain on investments.................. 1,024 419,866 849,710 2,358,416 1,695,907
Net realized gain on foreign currencies
transactions and assets and liabilities
denominated in foreign currencies........... 0 321,634 49,817 0 0
Change in unrealized
appreciation/(depreciation) of
investments................................. 128,200 102,858 1,135,281 6,353,643 3,346,495
Change in net unrealized gain/(loss) on
foreign currencies translation.............. 0 (388,539) (942) 0 0
------------ ---------- ------------- ---------- ------------
Net realized/unrealized gain on investments
and foreign currencies transactions......... 129,224 455,819 2,033,866 8,712,059 5,042,402
------------ ---------- ------------- ---------- ------------
Net increase in net assets resulting from
operations.................................. $834,801 $2,634,685 $ 1,967,435 $8,505,048 $4,941,137
=========== ========== ============ ========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 26
ESC STRATEGIC FUNDS, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
ASSET PRESERVATION INCOME
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income/(loss)................ $ 705,577 $ 496,552 $ 2,178,866 $ 1,753,017
Net realized gain/(loss) on investments and
foreign currencies transactions........... 1,024 (23,866) 741,500 182,152
Change in unrealized
appreciation/(depreciation) of investments
and foreign currencies transactions....... 128,200 (71,743) (285,681) (29,657)
-------------- -------------- -------------- --------------
Net increase/(decrease) in net assets
resulting from operations................... 834,801 400,943 2,634,685 1,905,512
-------------- -------------- -------------- --------------
Distributions to shareholders from net
investment income:
Class A..................................... (705,577) (496,552) (2,104,878) (1,712,325)
Class D..................................... 0 0 (73,988) (40,688)
-------------- -------------- -------------- --------------
(705,577) (496,552) (2,178,866) (1,753,013)
-------------- -------------- -------------- --------------
Distributions to shareholders from realized
gains:
Class A..................................... 0 0 (741,974) (25,981)
Class D..................................... 0 0 (28,940) (837)
-------------- -------------- -------------- --------------
0 0 (770,914) (26,818)
-------------- -------------- -------------- --------------
Decrease in net assets resulting from
distributions to shareholders............. (705,577) (496,552) (2,949,780) (1,779,831)
-------------- -------------- -------------- --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A................................... 1,045,974 12,524,556 4,281,407 35,978,038
Class D................................... 0 0 307,314 1,181,686
-------------- -------------- -------------- --------------
1,045,974 12,524,556 4,588,721 37,159,724
-------------- -------------- -------------- --------------
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions:
Class A................................... 705,053 493,006 2,614,384 1,629,846
Class D................................... 0 0 67,280 31,401
-------------- -------------- -------------- --------------
705,053 493,006 2,681,664 1,661,247
-------------- -------------- -------------- --------------
Net asset value of shares redeemed:
Class A................................... (563,282) (1,005,947) (2,073,972) (5,347,616)
Class D................................... 0 0 (158,592) 0
-------------- -------------- -------------- --------------
(563,282) (1,005,947) (2,232,564) (5,347,616)
-------------- -------------- -------------- --------------
Net increase in net assets from capital
share transactions...................... 1,187,745 12,011,615 5,037,821 33,473,355
-------------- -------------- -------------- --------------
Total increase in net assets.................. 1,316,969 11,916,006 4,722,726 33,599,036
Net Assets:
Beginning of year........................... 11,923,702 7,696 33,614,420 15,384
-------------- -------------- -------------- --------------
End of year................................. $ 13,240,671 $ 11,923,702 $ 38,337,146 $ 33,614,420
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
19
<PAGE> 27
ESC STRATEGIC FUNDS, INC.
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY SMALL CAP
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995 MARCH 31, 1996 MARCH 31, 1995
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income/(loss)................ $ (66,431) $ (71,034) $ (207,011) $ (38,590)
Net realized gain/(loss) on investments and
foreign currencies transactions........... 899,527 (255,749) 2,358,416 734,152
Change in unrealized
appreciation/(depreciation) of investments
and foreign currencies transactions....... 1,134,339 224,480 6,353,643 538,460
-------------- -------------- -------------- --------------
Net increase/(decrease) in net assets
resulting from operations................... 1,967,435 (102,303) 8,505,048 1,234,022
-------------- -------------- -------------- --------------
Distributions to shareholders from net
investment income:
Class A..................................... 0 (13,738) 0 0
Class D..................................... 0 (2,281) 0 0
-------------- -------------- -------------- --------------
0 (16,019)* 0 0
-------------- -------------- -------------- --------------
Distributions to shareholders from realized
gains:
Class A..................................... (282,697) 0 (648,997) (165,997)
Class D..................................... (75,804) 0 (188,574) (48,635)
-------------- -------------- -------------- --------------
(358,501) 0 (837,571) (214,632)
-------------- -------------- -------------- --------------
Decrease in net assets resulting from
distributions to shareholders............. (358,501) (16,019) (837,571) (214,632)
-------------- -------------- -------------- --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A................................... 4,242,822 9,446,593 14,484,625 7,982,612
Class D................................... 419,411 3,411,563 3,972,125 3,244,649
-------------- -------------- -------------- --------------
4,662,233 12,858,156 18,456,750 11,227,261
-------------- -------------- -------------- --------------
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions:
Class A................................... 210,986 11,265 555,664 137,196
Class D................................... 77,940 1,399 186,118 48,033
-------------- -------------- -------------- --------------
288,926 12,664 741,782 185,229
-------------- -------------- -------------- --------------
Net asset value of shares redeemed:
Class A................................... (242,681) (161,554) (887,112) (134,515)
Class D................................... (530,488) (71,121) (393,753) (160,614)
-------------- -------------- -------------- --------------
(773,169) (232,675) (1,280,865) (295,129)
-------------- -------------- -------------- --------------
Net increase in net assets from capital
share transactions...................... 4,177,990 12,638,145 17,917,667 11,117,361
-------------- -------------- -------------- --------------
Total increase in net assets.................. 5,786,924 12,519,823 25,585,144 12,136,751
Net Assets:
Beginning of year........................... 12,535,207 15,384 12,152,135 15,384
-------------- -------------- -------------- --------------
End of year................................. $ 18,322,131 $ 12,535,207 $ 37,737,279 $ 12,152,135
============== ============== ============== ==============
</TABLE>
* Represents distribution in excess of net investment income.
See accompanying notes to financial statements.
20
<PAGE> 28
ESC STRATEGIC FUNDS, INC.
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
APPRECIATION
-------------------------------
YEAR ENDED YEAR ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
<S> <C> <C>
Operations:
Net investment (loss)................................................... $ (101,265) $ (7,090)
Net realized gain on investments and foreign currencies transactions.... 1,695,907 145,295
Change in unrealized appreciation/(depreciation) of investments and
foreign
currencies transactions............................................... 3,346,495 810,502
----------- -----------
Net increase/(decrease) in net assets resulting from operations........... 4,941,137 948,707
----------- -----------
Distributions to shareholders from net investment income:
Class A................................................................. 0 0
Class D................................................................. 0 0
----------- -----------
0 0
----------- -----------
Distributions to shareholders from realized gains:
Class A................................................................. (572,885) (78,778)
Class D................................................................. (50,608) (6,832)
----------- -----------
(623,493) (85,610)
----------- -----------
Decrease in net assets resulting from distributions to shareholders..... (623,493) (85,610)
----------- -----------
Capital Share Transactions:
Proceeds from sales of shares:
Class A............................................................... 8,089,429 14,310,886
Class D............................................................... 669,839 1,616,586
----------- -----------
8,759,268 15,927,472
----------- -----------
Net asset value of shares issued to shareholders in reinvestment of
dividends and distributions:
Class A............................................................... 495,951 69,925
Class D............................................................... 49,839 6,469
----------- -----------
545,790 76,394
----------- -----------
Net asset value of shares redeemed:
Class A............................................................... (2,076,796) (57,078)
Class D............................................................... (322,285) (6,097)
----------- -----------
(2,399,081) (63,175)
----------- -----------
Net increase in net assets from capital share transactions............ 6,905,977 15,940,691
----------- -----------
Total increase in net assets.............................................. 11,223,621 16,803,788
Net Assets:
Beginning of year....................................................... 16,819,172 15,384
----------- -----------
End of year............................................................. $ 28,042,793 $ 16,819,172
=========== ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 29
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements -- March 31, 1996
1. DESCRIPTION. The ESC Strategic Funds, Inc. (the "Company") was
incorporated in Maryland on November 24, 1993. The Company currently comprises
five 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) (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.
22
<PAGE> 30
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 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
23
<PAGE> 31
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 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 year ended March 31, 1996, custodian fees and expenses
paid by third parties were increased by $1,434, $5,990, $514, $8,890, and
$2,924 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 Advisor for Asset Preservation, Small Cap and also
advises 34.6% 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 year ended March
31, 1996, the Adviser voluntarily waived fees of $50,302; $25,762 and $11,800
for the Asset Preservation, Small Cap and Appreciation Funds, respectively.
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 $14,250 for
the Asset Preservation Fund for the year ended March 31, 1996.
Pursuant to a Services Agreement between the Funds and Furman Selz, Furman
Selz will provide 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
24
<PAGE> 32
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 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 year ended March 31, 1996,
Furman Selz voluntarily waived Transfer Agent fees of $10,000 for each portfolio
of the Funds. For Fund Accounting Services, Furman Selz earned 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 $10,811. 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.
ESC does not receive compensation under the Distribution Agreement. 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 year ended March 31, 1996, the actual
rates incurred by Class A shares were: 0.08%; 0.09%; 0.14%; 0.23% and 0.25% 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 year ended March 31, 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 year ended March 31, 1996, the Appreciation Fund, Small Cap Fund
and the Global Equity Fund paid brokerage commissions of $29,031, $1,595 and
$11,994, respectively, to Equitable Securities, a subsidiary of the Adviser's
subsidiary, Equitable Trust Company. The Funds were advised that front-end sales
charges of $3,682, $7,901, $106,790 and $42,946 were paid to ESC from the
Income, Global Equity, Small Cap and Appreciation Funds, respectively.
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 year ended March 31, 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.... $ 3,983,919 $ 0 $ 2,829,058 $ 1,650,000
Income............ 21,607,286 20,457,453 24,519,225 22,855,036
Global Equity..... 17,576,428 12,528,377 0 0
Small Cap......... 30,502,059 18,578,705 0 0
Appreciation...... 24,214,327 16,973,908 0 0
</TABLE>
25
<PAGE> 33
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1996
B. Federal Income Tax basis. Cost for book and Federal Income Tax
purposes were substantially identical as of March 31, 1996. Gross
unrealized appreciation and depreciation on investment securities at March
31, 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................ $ 108,733 $ (52,276) $ 56,457
Income............................ 519,723 (835,805) (316,082)
Global Equity..................... 1,901,056 (542,237) 1,358,819
Small Cap......................... 7,759,638 (867,535) 6,892,103
Appreciation...................... 4,931,457 (774,460) 4,156,997
</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 years ended March 31, 1996, and March 31, 1995, were
as follows:
<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>
26
<PAGE> 34
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1996
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995
-------------------------------------------------------------------
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A
Beginning Balance..................... 769 769 769 769 769
------------ --------- --------- --------- ------------
Shares sold........................... 1,256,945 3,639,895 945,598 779,556 1,416,032
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... 49,971 168,037 1,187 12,870 6,896
Shares redeemed....................... (101,995) (552,468) (16,458) (12,588) (5,566)
------------ --------- --------- --------- ------------
Net increase/(decrease) in shares..... 1,204,921 3,255,464 930,327 779,838 1,417,362
------------ --------- --------- --------- ------------
Closing Balance....................... 1,205,690 3,256,233 931,096 780,607 1,418,131
=========== ========= ========= ========= ===========
CLASS D
Beginning Balance..................... -- 769 769 769 769
------------ --------- --------- --------- ------------
Shares sold........................... -- 120,814 344,535 309,594 158,543
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... -- 3,248 146 4,514 640
Shares redeemed....................... -- 0 (7,095) (14,681) (602)
------------ --------- --------- --------- ------------
Net increase/(decrease) in shares..... -- 124,062 337,586 299,427 158,581
------------ --------- --------- --------- ------------
Closing Balance....................... -- 124,831 338,355 300,196 159,350
=========== ========= ========= ========= ===========
</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.
27
<PAGE> 35
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 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. The lack of correlation between the price of the
security and the underlying contract could result in a loss to the Funds. The
Global Equity Fund had one open forward currency contract at March 31, 1996. At
such date, the Global Equity Fund contracted to deliver $183,862 (U.S. Dollars)
for Y19,584,932 (Japanese Yen) on April 1, 1996. The resulting unrealized
appreciation of $502 is included in net unrealized appreciation/(depreciation)
in the statement of assets and liabilities.
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.
28
<PAGE> 36
ESC STRATEGIC FUNDS, INC.
Financial Highlights
<TABLE>
<CAPTION>
ASSET PRESERVATION
----------------------------------
YEAR ENDED PERIOD ENDED
MARCH 31, 1996 MARCH 31, 1995+
--------------- ---------------
<S> <C> <C>
Net Asset Value, Beginning of Period.................................... $ 9.89 $ 10.00
------- -------
Income from Investment Operations:
Net investment income/(loss).......................................... 0.56 0.47
Net realized/unrealized gain/(loss) on investments.................... 0.11 (0.11)
------- -------
Total from Investment Operations...................................... 0.67 0.36
------- -------
Less Distributions:
Dividends from net investment income.................................. (0.56) (0.47)
Distributions from realized gains..................................... 0 0
------- -------
Total Distributions..................................................... (0.56) (0.47)
------- -------
Net Asset Value, End of Period.......................................... $ 10.00 $ 9.89
======= =======
Total Return (not reflecting sales load)................................ 6.85% 3.75%
Net Assets, End of Period (in thousands)................................ $13,241 $11,924
Ratios to Average Net Assets of:
Net investment income................................................. 5.53% 5.15%*
Expenses net of waivers/reimbursements/expenses paid by third
parties............................................................. 0.90% 1.00%*
Expenses before waivers/reimbursements/expenses paid by third
parties............................................................. 1.58% 2.12%*
Portfolio Turnover Rate................................................. 40% 30%
</TABLE>
+ For the period April 25, 1994 (commencement of operations) through March 31,
1995.
* Annualized.
<TABLE>
<CAPTION>
INCOME
------------------------------------------------------------------------
CLASS A CLASS D
---------------------------------- ----------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1996 MARCH 31, 1995+ MARCH 31, 1996 MARCH 31, 1995+
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 9.94 $ 10.00 $ 9.94 $ 10.00
------- ------- ------- -------
Income from Investment Operations:
Net investment income/(loss)............. 0.59 0.55 0.54 0.50
Net realized/unrealized gain/(loss)
on investments......................... 0.16 (0.05) 0.16 (0.05)
------- ------- ------- -------
Total from Investment Operations......... 0.75 0.50 0.70 0.45
------- ------- ------- -------
Less Distributions:
Dividends from net investment income..... (0.59) (0.55) (0.54) (0.50)
Distributions from realized gains........ (0.21) (0.01) (0.21) (0.01)
------- ------- ------- -------
Total Distributions........................ (0.80) (0.56) (0.75) (0.51)
------- ------- ------- -------
Net Asset Value, End of Period............. $ 9.89 $ 9.94 $ 9.89 $ 9.94
======= ======= ======= =======
Total Return (not reflecting sales load)... 7.67% 5.30% 7.11% 4.74%
Net Assets, End of Period (in thousands)... $36,891 $32,373 $ 1,446 $ 1,241
Ratios to Average Net Assets of:
Net investment income.................... 5.87% 6.29%* 5.37% 5.73%*
Expenses net of
waivers/reimbursements/expenses paid by
third parties.......................... 1.70% 1.85%* 2.20% 2.29%*
Expenses before
waivers/reimbursements/expenses paid by
third parties.......................... 1.75% 1.86%* 2.25% 2.31%*
Portfolio Turnover Rate.................... 138% 92% 138% 92%
</TABLE>
+ For the period May 4, 1994 (commencement of operations) through March 31,
1995.
* Annualized.
See accompanying notes to financial statements.
29
<PAGE> 37
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY
------------------------------------------------------------------------
CLASS A CLASS D
---------------------------------- ----------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1996 MARCH 31, 1995+ MARCH 31, 1996 MARCH 31, 1995+
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 9.90 $ 10.00 $ 9.82 $ 10.00
------- ------ ------ ------
Income from Investment Operations:
Net investment income/(loss)............. (0.04) (0.05) (0.09) (0.07)
Net realized/unrealized gain/(loss) on
investments............................ 1.46 (0.03) 1.46 (0.10)
------- ------ ------ ------
Total from Investment Operations......... 1.42 (0.08) 1.37 (0.17)
------- ------ ------ ------
Less Distributions:
Dividends from net investment income..... 0 (0.02) 0 (0.01)
Distributions from realized gains........ (0.24) 0 (0.24) 0
------- ------ ------ ------
Total Distributions........................ (0.24) (0.02) (0.24) (0.01)
------- ------ ------ ------
Net Asset Value, End of Period............. $ 11.08 $ 9.90 $ 10.95 $ 9.82
======= ====== ====== ======
Total Return (not reflecting sales load)... 14.41% (0.84)% 14.01% (1.72)%
Net Assets, End of Period (in thousands)... $14,597 $ 9,213 $ 3,725 $ 3,322
Ratios to Average Net Assets of:
Net investment income.................... (0.36)% (0.65)%* (0.83)% (1.51)%*
Expenses net of
waivers/reimbursements/expenses paid by
third parties.......................... 2.37% 2.50%* 2.87% 2.98%*
Expenses before
waivers/reimbursements/expenses paid by
third parties.......................... 2.43% 3.22%* 2.96% 3.69%*
Portfolio Turnover Rate.................... 92% 76% 92% 76%
</TABLE>
+ For the period May 12, 1994 (commencement of operations) through March 31,
1995.
* Annualized.
<TABLE>
<CAPTION>
SMALL CAP
------------------------------------------------------------------------
CLASS A CLASS D
---------------------------------- ----------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1996 MARCH 31, 1995+ MARCH 31, 1996 MARCH 31, 1995+
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 11.25 $ 10.00 $ 11.22 $ 10.00
------- ------ ------ ------
Income from Investment Operations:
Net investment income/(loss)............. (0.08) (0.03) (0.16) (0.05)
Net realized/unrealized gain/(loss) on
investments............................ 5.19 1.52 5.18 1.51
------- ------ ------ ------
Total from Investment Operations......... 5.11 1.49 5.02 1.46
------- ------ ------ ------
Less Distributions:
Dividends from net investment income..... 0 0 0 0
Distributions from realized gains........ (0.48) (0.24) (0.48) (0.24)
------- ------ ------ ------
Total Distributions........................ (0.48) (0.24) (0.48) (0.24)
------- ------ ------ ------
Net Asset Value, End of Period............. $ 15.88 $ 11.25 $ 15.76 $ 11.22
======= ====== ====== ======
Total Return (not reflecting sales load)... 45.88% 15.03% 45.19% 14.72%
Net Assets, End of Period (in thousands)... $28,840 $ 8,785 $ 8,897 $ 3,367
Ratios to Average Net Assets of:
Net investment income.................... (0.80)% (0.43)%* (1.30)% (0.93)%*
Expenses net of
waivers/reimbursements/expenses paid by
third parties.......................... 2.00% 2.00%* 2.50% 2.50%*
Expenses before
waivers/reimbursements/expenses paid by
third parties.......................... 2.18% 3.28%* 2.74% 3.68%*
Portfolio Turnover Rate.................... 102% 151% 102% 151%
</TABLE>
+ For the period June 8, 1994 (commencement of operations) through March 31,
1995.
* Annualized.
See accompanying notes to financial statements.
30
<PAGE> 38
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
APPRECIATION
------------------------------------------------------------------------
CLASS A CLASS D
---------------------------------- ----------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
MARCH 31, 1996 MARCH 31, 1995+ MARCH 31, 1996 MARCH 31, 1995+
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 10.67 $ 10.00 $ 10.63 $ 10.00
------- ------- ------ ------
Income from Investment Operations:
Net investment income/(loss)............. (0.05) 0 (0.09) (0.03)
Net realized/unrealized gain/(loss) on
investments............................ 2.71 0.73 2.68 0.72
------- ------- ------ ------
Total from Investment Operations......... 2.66 0.73 2.59 0.69
------- ------- ------ ------
Less Distributions:
Dividends from net investment income..... 0 0 0 0
Distributions from realized gains........ (0.31) (0.06) (0.31) (0.06)
------- ------- ------ ------
Total Distributions........................ (0.31) (0.06) (0.31) (0.06)
------- ------- ------ ------
Net Asset Value, End of Period............. $ 13.02 $ 10.67 $ 12.91 $ 10.63
======= ======= ====== ======
Total Return (not reflecting sales load)... 25.07% 7.32% 24.50% 6.92%
Net Assets, End of Period (in thousands)... $25,561 $15,126 $ 2,482 $ 1,693
Ratios to Average Net Assets of:
Net investment income.................... (0.39)% (0.04)%* (0.86)% (0.56)%*
Expenses net of
waivers/reimbursements/expenses paid by
third parties.......................... 2.00% 2.00%* 2.50% 2.50%*
Expenses before
waivers/reimbursements/expenses paid by
third parties.......................... 2.10% 2.88%* 2.64% 3.40%*
Portfolio Turnover Rate.................... 78% 58% 78% 58%
</TABLE>
+ For the period July 6, 1994 (commencement of operations) through March 31,
1995.
* Annualized.
See accompanying notes to financial statements.
31
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of ESC Strategic Funds, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the portfolios of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of ESC Strategic Asset Preservation
Fund, ESC Strategic Income Fund, ESC Strategic Global Equity Fund, ESC Strategic
Small Cap Fund and ESC Strategic Appreciation Fund (constituting ESC Strategic
Funds, Inc., hereafter referred to as the "Fund") at March 31, 1996, the results
of each of their operations for the year then ended and the changes in each of
their net assets and the financial highlights for the year then ended and for
the period from commencement of operations (as indicated in the respective
statements) through March 31, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at March 31, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
May 16, 1996
FEDERAL TAXATION NOTICE -- UNAUDITED
During the fiscal year ended March 31, 1996, Global Equity Fund, Small Cap Fund
and Appreciation Fund made long-term capital gain distributions of $0.187,
$0.041, $0.156 per share, respectively.
<PAGE> 40
ESC STRATEGIC FUNDS, INC.
DIRECTORS AND OFFICERS
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
<PAGE> 41
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<PAGE> 42
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<PAGE> 43
ADDRESS FOR:
[ESC STRATEGIC FUNDS 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
INDEPENDENT ACCOUNTANTS
- ---------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
[ESC STRATEGIC FUNDS LOGO]
ESC Strategic ASSET PRESERVATION Fund
ESC Strategic INCOME Fund
ESC Strategic GLOBAL EQUITY Fund
ESC Strategic SMALL CAP Fund
ESC Strategic APPRECIATION Fund
ANNUAL REPORT
MARCH 31, 1996
