<PAGE> 1
ESC STRATEGIC FUNDS, INC.
- --------------------------------------------------------------------------------
May 5, 1997
Dear Shareholder:
We are pleased to present the March 31, 1997 annual report for the ESC
Strategic Funds Inc. (the "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 past year has seen several significant developments for the Funds, all
of which we expect to be positive for our shareholders. First, Fund
administration was transferred from Furman Selz LLC of New York, New York to
BISYS Fund Services of Columbus, Ohio. BISYS provides the Funds significant
depth by way of state-of-the-art technology, trained personnel and systematic
reporting and record keeping. Second, the ESC Strategic Growth Fund was launched
on January 28, 1997. Third, the ESC Strategic Value Fund was filed with the
Securities & Exchange Commission with the expectation of launching the Fund in
May, 1997. This year also saw the Funds surpass $200 million in shareholder
assets. While we think this growth speaks well for the Funds' success as an
entity, it displays expanding confidence on the part of a growing field of
financial professionals and their clients. In addition, this growth improves
economies of scale, thus reducing further Fund expenses as a percent of assets
which ultimately has a direct positive impact on the performance of shareholders
of the Funds.
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 strategy is operated to provide that a
successful manager, which runs the risk of being over-valued by way of superior
market 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 potentially 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 on Class A shares,
without sales load, of 3.9% during the twelve months ended March 31, 1997, as
compared to 8.5% for the Lipper Global Income Fund Index and 1.2% for the
Salomon World Government Index.
The past 12 months have been challenging for many bond investors with some
bond indices posting negative returns. This environment impacted the
international and investment grade sectors of the Fund the most while the high
yield sector achieved the most positive returns. This is largely attributable to
the coupons available in the high yield market and their tendency to mitigate
volatility in the bond market despite anticipated changes in Federal Reserve
Policy. By comparison, investment grade bonds, despite their creditworthiness,
are highly correlated to such macro economic developments. As a result of the
improved performance of the high yield sector and the underperformance of
investment grade and international bonds, spreads narrowed between corporate and
government bonds rendering investment grade and government bonds in particular
more attractive from a risk/reward standpoint. At quarter-end, cash was
redirected from high yield bonds toward the international and investment grade
sectors with the understanding that these sectors are
<PAGE> 2
underweighted relative to Fund policy and are, therefore, relatively
undervalued. Following are the management firms, actual allocations and target
allocations at quarter-end:
<TABLE>
<CAPTION>
ALLOCATIONS AS
OF 3/31/97
ACTUAL TARGET
------ ------
<S> <C> <C> <C>
Cincinnati Asset Management U.S. High Yield 34.1% 33.3%
Murray Johnstone International International 31.7% 33.3%
Llama Asset Management Investment Grade 34.2% 33.4%
</TABLE>
ESC STRATEGIC APPRECIATION FUND gained on Class A shares, without sales
load, 14.3% during the twelve months ended March 31, 1997, as compared to 3.4%
and 19.8% for the Lipper Capital Appreciation Fund Index and the S&P 500,
respectively.
The negative interest rate environment in the U.S. had a similar impact on
U.S. stocks in general with the exception of the largest capitalization
companies which continued to advance. During the same period, international
stocks enjoyed a generally positive environment with the exception of Japan. The
global value sector of the Fund, managed by Brandes Investment Partners,
emphasizes both large cap U.S. stocks and the ADRs of international companies,
thus this portfolio segment provided the best returns of the past twelve months.
Meanwhile, the mid cap and small cap portfolios underperformed on a relative
basis. This is evidenced by the 8.9% and 3.10% return of the S&P Mid Cap Index
and the Russell 2000 Index, respectively, in contrast to the 19.8% return of the
S&P 500 from March 31, 1996 through March 31, 1997. Accordingly, at quarter-end,
the Fund was re-balanced toward Small Cap and Mid Cap Growth as noted below:
<TABLE>
<CAPTION>
ALLOCATIONS AS
OF 3/31/97
ACTUAL TARGET
------ ------
<S> <C> <C> <C>
GlobeFlex Capital Mid to Large Cap Growth 30.9% 33.3%
Equitable Asset Management Small Cap Growth 22.9% 16.7%
Scott & Stringfellow Cap. Mgmt. Small Cap Growth 9.4% 16.7%
Brandes Investment Partners Value 36.8% 33.3%
</TABLE>
ESC STRATEGIC GLOBAL EQUITY FUND returned on Class A shares, without sales
load, 8.4% during the twelve months ended March 31, 1997, while the Lipper
Global Fund Index and FTA World Index gained 12.4% and 6.7% respectively.
Following a challenging period of the past several years, investor interest
returned to the international equity markets, especially the emerging markets.
Most recently, the best performing regions were Latin America and Eastern
Europe. We remain confident in the prospects for the international arena. The
Fund rebalanced as noted below in its on-going effort to maintain the
risk/reward ratio of the Fund:
<TABLE>
<CAPTION>
ALLOCATIONS AS
OF 3/31/97
ACTUAL TARGET
------ ------
<S> <C> <C> <C>
GlobeFlex Capital Mid to Large Cap Growth 32.2% 35.0%
Murray Johnstone International Developed Markets 40.7% 39.0%
Murray Johnstone International Emerging Markets 27.1% 26.0%
</TABLE>
SINGLE MANAGER SERIES
This series utilizes a traditional single management firm approach to
provide investors access to more focused portfolio disciplines.
<PAGE> 3
ESC STRATEGIC SMALL CAP FUND returned on Class A shares, without sales
load, 15.0% during the twelve months ended March 31, 1997, as compared to (2.5%)
for the Lipper Small Cap Index and 3.6% for the Russell 2000 without income.
The Fund seeks fundamentally sound companies generating consistently
superior earnings growth rather than competing with the legions of analysts and
economists to determine the next direction of the economy or the market.
Investor confusion combined with a lack of sustained diligence on the part of
Wall Street creates opportunities which continue to present themselves at an
accelerating pace.
In order to maintain the viability of the Fund in its effort to invest in
the small capitalization sector of the U.S. equity market, it is important for
the Fund itself to remain relatively small. Accordingly, the Board of Directors
of the Funds approved closing access to the Fund to new accounts effective May
31, 1997. This coincides with asset growth of the Fund which is approaching $100
million. This allows the Fund to maintain liquidity in this market sector as
well as to accommodate the level of appreciation which the Fund seeks for its
shareholders.
ESC STRATEGIC GROWTH FUND returned on Class A shares, without sales load,
(3.6%) as compared to the Lipper Small Cap Index of (10.6%), the Russell 2000
without income (6.5%) and the S&P Mid Cap of (4.1%) since its inception of
January 28, 1997.
The ESC Strategic Growth Fund was formed because of a growing gap between
adequate Wall Street coverage of many companies and the number of opportunities
in which to invest. Simultaneously, Equitable Asset Management believes that an
increasing number of professional managers have departed from traditional,
fundamental analysis in favor of more quantitative screening models. With
emphasis on fundamental analysis and personal meetings with company managements,
combined with a significant correction that has occurred in the small to mid cap
sector of the domestic equity market, we consider this Fund to be well
positioned for the coming years.
ESC STRATEGIC ASSET PRESERVATION FUND provided a total return on Class A
shares, without sales load, of 4.1% during the twelve months ended March 31,
1997, while the Lipper Short Investment Grade Index returned 5.1%. The Merrill
Lynch 1-3 Year Government Index returned 5.3%. 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> 4
ESC STRATEGIC FUNDS, INC. (CLASS A)
ASSET PRESERVATION FUND
A $10,000 investment at
the Fund's inception, in the
Asset Preservation Fund, Class
A, would have increased to
$11,542 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 15.42%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Lipper Short
Measurement Period Asset Investment Grade
(Fiscal Year Covered) Preservation Fund Index 90-Day T-Bills
<S> <C> <C> <C>
4/26/94 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
6/96 11157 11295 11250
9/96 11311 11480 11412
12/96 11476 11693 11564
3/97 11542 11772 11713
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
-------------------------------------------- ------ ---------------
<S> <C> <C>
Asset Preservation Fund..................... 4.12% 5.01%
Lipper Short Investment Grade Index......... 5.07% 5.66%
90-Day T-Bills.............................. 5.48% 5.55%
'
</TABLE>
INCOME FUND
A $10,000 investment at
the Fund's inception, in the
Income Fund, Class A, with a
maximum sales load of 4.50%
would have increased to
$11,251 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 12.51%,
reflecting the sales load.
Without the sales load, the
return would have been 17.81%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Income Lipper Global Weighted
Fund Income Index Index*
<S> <C> <C> <C>
5/4/94 9550 10000 10000
6/94 9498 9843 10044
9/94 9491 9951 10133
12/94 9419 9867 10184
3/95 10056 10280 10928
6/95 10533 10867 11568
9/95 10591 11092 11723
12/95 10820 11619 12137
3/96 10825 11558 12049
6/96 10909 11804 12140
9/96 11237 12262 12485
12/96 11451 12802 12874
3/97 11251 12544 12718
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------ ------- ---------------
<S> <C> <C>
Income Fund............................... (0.77)% 5.80%
Lipper Global Income Index................ 8.53% 8.11%
Weighted Index*........................... 5.55% 8.61%
</TABLE>
* 1/3 Merrill High Yield
Index, 1/3 Salomon Broad
Index, 1/3 Salomon World
Govt. Index
Past performance is not
predictive of future
performance.
<PAGE> 5
ESC STRATEGIC FUNDS, INC. (CLASS A)
GLOBAL EQUITY FUND
A $10,000 investment at
the Fund's inception, in the
Global Equity Fund, Class A,
with a maximum sales load of
4.50% made on the inception
date would have increased to
$11,749 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 17.49%,
reflecting the sales load.
Without the sales load, the
return would have been 23.02%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Global FTA
Equity Lipper Global World
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 10834 12046 12222
6/96 11117 12589 12507
9/96 11322 12700 12614
12/96 11688 13326 13095
3/97 11748 13543 13041
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Global Equity Fund......................... 3.56% 7.44%
Lipper Global Index........................ 12.42% 11.09%
FTA World Index............................ 6.69% 9.64%
</TABLE>
SMALL CAP FUND
A $10,000 investment at
the Fund's inception, in the
Small Cap Fund, Class A, with
a maximum sales load of 4.50%
would have increased to
$18,428 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 84.28%,
reflecting the sales load.
Without the sales load, the
return would have been 92.96%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Russell
Small Lipper Small 2000
Cap Cap w/out NASDAQ
Fund Index Income Industrials
<S> <C> <C> <C> <C>
6/7/94 9550 10000 10000 10000
6/94 9416 9527 9548 9515
9/94 10323 10416 10177 10358
12/94 10448 10402 9948 10042
3/95 10985 10986 10362 10681
6/95 11854 12003 11270 11791
9/95 13983 13504 12333 13078
12/95 14865 13671 12555 12852
3/96 16025 14442 13143 13653
6/96 18568 15616 13773 14793
9/96 18962 15813 13764 14757
12/96 18942 15675 14408 14783
3/97 18428 14087 13611 13562
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
----------------------------------------- -------- ---------------
<S> <C> <C>
Small Cap Fund........................... 9.81% 26.32%
Lipper Small Cap Index................... (2.46)% 12.95%
Russell 2000 w/out Income................ 3.56% 11.58%
NASDAQ Industrials....................... (0.67)% 11.43%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 6
ESC STRATEGIC FUNDS, INC. (CLASS A)
APPRECIATION FUND
A $10,000 investment at
the Fund's inception, in the
Appreciation Fund, Class A,
with a maximum sales load of
4.50% would have increased to
$14,645 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 46.45%,
reflecting the sales load.
Without the sales load, the
return would have been 53.35%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Lipper Capital S&P
Appreciation Appreciation Midcap S&P
Fund Index 400 500
<S> <C> <C> <C> <C>
7/6/94 9550 10000 10000 10000
9/94 10047 10710 10583 10442
12/94 9759 10557 10256 10440
3/95 10249 11293 11039 11456
6/95 11075 12354 11947 12538
9/95 12256 13571 13056 13548
12/95 12256 13807 13186 14359
3/96 12817 14568 13940 15133
6/96 13949 15119 14285 15801
9/96 14373 15486 14644 16296
12/96 15029 15776 15470 17660
3/97 14645 15060 15183 18132
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Appreciation Fund.......................... 9.14% 16.92%
Lipper Capital Appreciation Index.......... 3.37% 16.16%
S&P Midcap 400............................. 8.92% 16.50%
S&P 500.................................... 19.82% 24.32%
</TABLE>
GROWTH FUND
A $10,000 investment at
the Fund's inception, in the
Growth Fund, Class A, with a
maximum sales load of 4.50%
would have decreased to $9,206
(as of March 31, 1997). The
graph to the right shows how
this compares to our benchmark
over the same period. Total
return for the life of the
Fund was (7.94)%, reflecting
the sales load. Without the
sales load, the return would
have been (3.60)%. Lipper
indices do not reflect sales
loads. All other indices do
not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Russell
2000
Growth Lipper Small w/out
Fund Cap Index Income
<S> <C> <C> <C>
1/28/97 9550 10000 10000
3/97 9206 8939 9348
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
AGGREGATE TOTAL RETURN (1/28/97)
---------------------------------------------------- ---------------
<S> <C>
Growth Fund......................................... (7.94)%
Lipper Small Cap Index.............................. (10.61)%
Russell 2000 w/out Income........................... (6.52)%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 7
ESC STRATEGIC FUNDS, INC. (CLASS D)
INCOME FUND
A $10,000 investment at
the Fund's inception, in the
Income Fund, Class D, with a
maximum sales load of 1.50%
would have increased to
$11,425 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 14.25%.
Without the sales load, the
return would have been 15.99%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Lipper
Global
Income Weighted
Income Fund Index Index*
<S> <C> <C> <C>
5/4/94 9850 10000 10000
6/94 9791 9843 10044
9/94 9772 9951 10133
12/94 9672 9867 10184
3/95 10316 10280 10932
6/95 10792 10867 11568
9/95 10838 11092 11723
12/95 11060 11619 12137
3/96 11049 11558 12049
6/96 11121 11804 12140
9/96 11441 12262 12485
12/96 11644 12802 12874
3/97 11425 12544 12718
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
-------------------------------------------- ------ ---------------
<S> <C> <C>
Income Fund................................. 1.85% 5.24%
Lipper Global Income Index.................. 8.53% 8.11%
Weighted Index*............................. 5.55% 8.61%
</TABLE>
* 1/3 Merrill High Yield
Index, 1/3 Salomon Broad
Index, 1/3 Salomon World
Govt. Index
GLOBAL EQUITY FUND
A $10,000 investment at
the Fund's inception, in the
Global Equity Fund, Class D,
with a maximum sales load of
1.50% would have increased to
$11,919 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 19.19%.
Without the sales load, the
return would have been 21.00%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Global FTA
Equity Lipper Global World
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 11037 12046 12222
6/96 11319 12589 12507
9/96 11511 12700 12614
12/96 11877 13326 13095
3/97 11919 13543 13041
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------ ---------------
<S> <C> <C>
Global Equity Fund......................... 6.37% 6.82%
Lipper Global Index........................ 12.42% 11.09%
FTA World Index............................ 6.69% 9.64%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 8
ESC STRATEGIC FUNDS, INC. (CLASS D)
SMALL CAP FUND
A $10,000 investment at
the Fund's inception, in the
Small Cap Fund, Class D, with
a maximum sales load of 1.50%
would have increased to
$18,800 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 88.00%.
Without the sales load, the
return would have been 90.86%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Russell
Small 2000
Cap Lipper Small NASDAQ w/out
Fund Cap Index Industrials Income
<S> <C> <C> <C> <C>
6/7/94 9850 10000 10000 10000
6/94 9712 9527 9548 9515
9/94 10638 10416 10177 10358
12/94 10747 10402 9948 10042
3/95 11301 10986 10362 10681
6/95 12167 12003 11270 11791
9/95 14363 13504 12333 13078
12/95 15252 13671 12555 12852
3/96 16407 14442 13143 13653
6/96 19000 15616 13773 14793
9/96 19385 15813 13764 14757
12/96 19343 15675 14408 14783
3/97 18802 14087 13611 13562
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------- ---------------
<S> <C> <C>
Small Cap Fund............................. 12.87% 25.83%
Lipper Small Cap Index..................... (2.46)% 12.95%
Russell 2000 w/out Income.................. 3.56% 11.58%
NASDAQ Industrials......................... (0.67)% 11.43%
</TABLE>
APPRECIATION FUND
A $10,000 investment at
the Fund's inception, in the
Appreciation Fund, Class D,
with a maximum sales load of
1.50% would have increased to
$14,923 (as of March 31,
1997). The graph to the right
shows how this compares to our
benchmark over the same
period. Total return for the
life of the Fund was 49.23%.
Without the sales load, the
return would have been 51.50%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
S&P
Appreciation Lipper Capital Midcap S&P
Fund Appreciation Index 400 500
<S> <C> <C> <C> <C>
7/6/94 9850 Index 10000 10000
9/94 10352 10710 10583 10442
12/94 10036 10557 10256 10440
3/95 10531 11293 11039 11456
6/95 11363 12354 11947 12538
9/95 12572 13571 13056 13548
12/95 12563 13807 13186 14359
3/96 13111 14568 13940 15133
6/96 14258 15119 14285 15801
9/96 14685 15486 14644 16296
12/96 15341 15776 15470 17660
3/97 14921 15060 15183 18132
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR SINCE INCEPTION
------------------------------------------- ------- ---------------
<S> <C> <C>
Appreciation Fund.......................... 12.08% 16.41%
Lipper Capital Appreciation Index.......... 3.37% 16.16%
S&P Midcap 400............................. 8.92% 16.50%
S&P 500.................................... 19.82% 24.32%
</TABLE>
Past performance is not
predictive of future
performance.
<PAGE> 9
ESC STRATEGIC FUNDS, INC. (CLASS D)
GROWTH FUND
A $10,000 investment at
the Fund's inception, in the
Growth Fund, Class D, with a
maximum sales load of 1.50%
would have decreased to $9,486
(as of March 31, 1997). The
graph to the right shows how
this compares to our benchmark
over the same period. Total
return for the life of the
Fund was (5.14)%. Without the
sales load, the return would
have been (3.70)%. Lipper
indices do not reflect sales
loads. All other indices do
not reflect sales loads or
Fund expenses.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered)
Russell
2000
Growth Lipper Small w/out
Fund Cap Index Income
<S> <C> <C> <C>
1/28/97 9850 10000 10000
3/97 9486 8939 9348
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPTION
AGGREGATE TOTAL RETURN (1/28/97)
---------------------------------------------------- ---------------
<S> <C>
Growth Fund......................................... (5.14)%
Lipper Small Cap Index.............................. (10.61)%
Russell 2000 w/out Income........................... (6.52)%
</TABLE>
Past performance is not predictive of future performance.
<PAGE> 10
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments -- March 31, 1997
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C>
CORPORATE OBLIGATIONS -- 44.2%
ASSET BACKED -- 1.4%
AAA/Aaa Prudential Home Mortgage
Securities,
6.50%, 2/25/2000...... $183,140 $ 182,191
-----------
BANKING -- 4.0%
A-/A2 First Union Corp.,
9.45%, 6/15/1999...... 250,000 263,024
A/A1 NationsBank Corp.,
5.13%, 9/15/1998...... 250,000 244,962
-----------
507,986
-----------
CHEMICALS -- 1.1%
A/A1 Monsanto Corp.,
6.00%, 7/01/2000...... 140,000 135,663
-----------
COMPUTERS -- 3.1%
A/A1 IBM Corp.,
6.38%, 11/01/1997..... 250,000 251,563
A/A1 IBM Corp.,
6.38%, 6/15/2000...... 150,000 147,862
-----------
399,425
-----------
FINANCIAL SERVICES -- 6.7%
AA-/Aa3 Associates Corp. North
America,
8.50%, 1/01/2000...... 100,000 103,929
A-/A3 Chrysler Financial
Corp.,
7.10%, 4/14/1997...... 250,000 250,118
A/Baa1 Lehman Brothers
Holdings,
6.90%, 7/15/1999...... 200,000 199,786
BBB/Baa1 Salomon, Inc.,
6.00%, 4/15/1998...... 200,000 199,070
AA-/Aa3 Travelers, Inc.,
7.75%, 6/15/1999...... 100,000 101,927
-----------
854,830
-----------
FOOD & BEVERAGE -- 3.9%
A+/A1 Bass American,
6.75%, 8/01/1999...... 250,000 249,650
A/A1- PepsiCo, Inc.,
6.80%, 5/15/2000...... 250,000 249,681
-----------
499,331
-----------
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C>
FOOD SERVING -- 2.0%
A+/A2- Grand Metropolitan
Investment Corp.,
6.50%, 9/15/1999...... $250,000 $ 248,284
-----------
INSURANCE -- 2.1%
AA/NR Capital Holding Corp.,
8.90%, 10/20/1999..... 250,000 261,608
-----------
OIL & GAS - EXPLORATION -- 2.0%
AA-/Aa3 BP America Corp.,
7.48%, 2/15/1999...... 250,000 252,786
-----------
PHARMACEUTICALS -- 2.8%
A-/A2 American Home Products
Corp.,
6.88%, 4/15/1997...... 100,000 100,039
A-/A2 American Home Products
Corp.,
7.70%, 2/15/2000...... 250,000 255,531
-----------
355,570
-----------
RETAIL -- 8.0%
BBB-/Baa3 Black & Decker,
6.63%, 11/15/2000..... 60,000 59,129
BBB+/A3 Dayton Hudson Corp.,
9.50%, 3/01/2000...... 250,000 265,548
A-/A3 Mattel, Inc.,
6.75%, 5/15/2000...... 90,000 89,115
A-/A2 Sears Roebuck Co.,
8.20%, 4/15/1999...... 100,000 102,139
A-/A2 Sears Roebuck Co.,
6.68%, 8/14/2001...... 250,000 246,222
AA/Aa2 Wal-Mart Stores, Inc.,
6.13%, 10/01/1999..... 250,000 246,582
-----------
1,008,735
-----------
TOBACCO -- 3.2%
A-/A2 American Brands, Inc.,
7.50%, 5/15/1999...... 100,000 101,456
A-/A2 Philip Morris Cos.,
6.38%, 1/15/1998...... 300,000 299,864
-----------
401,320
-----------
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 11
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- ---------- --------- -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
UTILITIES -- 3.9%
A-/A2 Carolina Power & Light
Co.,
6.88%, 10/01/1998..... $250,000 $ 250,607
A-/A2 Pacific Gas & Electric,
6.63%, 6/01/2000...... 250,000 245,857
-----------
496,464
-----------
TOTAL CORPORATE
OBLIGATIONS (COST
$5,615,099)........... 5,604,193
-----------
MUNICIPAL TAXABLE OBLIGATIONS --
TENNESSEE -- 4.7%
HOUSING DEVELOPMENT -- 1.9%
AA/Aa Tennessee HDC,
5.20%, 1/01/1998...... 250,000 246,728
-----------
UTILITIES -- 2.8%
AAA/Aaa West Knox Utility
District,
8.40%, 12/01/1997..... 250,000 252,413
AAA/Aaa White House Utility
District of Robertson
& Summer County,
7.60%, 1/01/2000...... 100,000 102,060
-----------
354,473
-----------
TOTAL TAXABLE MUNICIPAL
OBLIGATIONS (COST
$598,265)............. 601,201
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 31.5%
MORTGAGE BACKED
SECURITIES -- 12.8%
Government National
Mortgage Association
Pool #276718,
9.75%, 8/15/1998...... 55,974 58,519
Federal Home Loan
Mortgage Corp., Gold
Balloon #L70023
6.00%, 7/01/1998...... 281,473 280,285
Federal Home Loan
Mortgage Corp., Gold
Balloon #L90037
6.00%, 7/01/1998...... $331,954 $ 323,759
Federal Home Loan
Mortgage Corp., Gold
Balloon #L90057
6.00%, 11/01/1998..... 141,557 140,959
Federal Home Loan
Mortgage Corp., Gold
Balloon #M15202
6.00%, 9/01/1997...... 283,283 276,289
Federal Home Loan
Mortgage Corp., Gold
Balloon #M90163
7.00%, 12/01/1997..... 139,442 139,355
Federal Home Loan
Mortgage Corp., Gold
Balloon #M90191
6.00%, 8/01/1998...... 265,917 259,352
Federal Home Loan
Mortgage Corp., Gold
Balloon #M90304
6.00%, 11/01/1998..... 124,489 123,964
Federal National
Mortgage Association
#1508
6.00%, 3/01/1998...... 17,596 15,847
-----------
1,618,329
-----------
GOVERNMENT AGENCY
OBLIGATIONS -- 18.7%
Federal Farm Credit
Bank,
6.27%, 12/04/2000..... 250,000 245,331
Federal Home Loan Bank,
5.345%, 11/10/1997.... 100,000 99,679
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 12
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC ASSET PRESERVATION FUND
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
--------- -----------
<S> <C> <C> <C>
MORTGAGE BACKED SECURITIES (CONTINUED)
U.S. GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
GOVERNMENT AGENCY OBLIGATIONS (CONTINUED)
Federal Home Loan Bank,
6.06%, 11/27/1998..... $250,000 $ 248,428
Federal Home Loan Bank,
6.375%, 10/25/2001.... 500,000 495,313
Federal Home Loan Bank
Variable Rate
Security**
6.5%, 3/02/2001....... 250,000 248,052
Federal Home Loan
Mortgage Corp.,
6.25%, 11/12/1999..... 250,000 247,292
Federal Home Loan
Mortgage Corp.,
6.32%, 11/20/2000..... 250,000 245,745
Federal Home Loan
Mortgage Corp.,
6.47%, 2/04/2000...... 300,000 297,570
Federal Home Loan
Mortgage Corp.,
7.05%, 8/27/2001...... 100,000 99,334
Federal National
Mortgage Association
6.30%, 2/25/2000...... 150,000 148,453
-----------
2,375,197
-----------
TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (COST
$4,039,564).................... 3,993,526
-----------
TOTAL INVESTMENTS -- 80.4%
(COST $10,252,928)+............ 10,198,920
Cash and other assets,
net of
liabilities -- 19.6%... 2,488,807
-----------
NET ASSETS -- 100.0%.... $12,687,727
==========
</TABLE>
+ The cost of securities for Federal income tax purposes is substantially the
same.
* See page 20 for Credit Ratings.
** Security has a general call feature. Interest will reset annually if security
is not called by the issuer.
See accompanying notes to financial statements.
3
<PAGE> 13
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND**
Portfolio of Investments -- March 31, 1997
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ------------ -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 45.2%
ADVERTISING/COMMUNICATIONS -- 1.6%
B2-/B Big Flower Press,
Inc.
10.75%,
8/01/2003.......... $ 350,000 $ 365,750
B2-/B Heritage Media Corp.,
8.75%, 2/15/2006... 181,000 190,050
-----------
555,800
-----------
BANKING -- 8.0%
B1-/BB Banco Rio de la
Plata,
8.50%, 7/15/1998... 420,000 425,250
AAA-/AAA Export/Import Bank
Japan,
2.875%,
7/28/2005.......... 50,000,000(F) 419,527
B3-/B First Nationwide
Holdings,
12.50%,
4/15/2003.......... 175,000 191,625
A2-/A Household Finance
Corp.,
6.875%,
3/01/2007.......... 500,000 477,120
AAA-/NR Japanese Development
Bank,
6.50%, 9/20/2001... 120,000,000(F) 1,189,863
-----------
2,703,385
-----------
BROADCASTING/CABLE
TELEVISION -- 7.2%
B3-/B Adelphia
Communications
Corp.,
10.25%,
7/15/2000.......... 500,000 486,250
B2-/B Cablevision Systems
Corp.,
9.25%,
11/01/2005......... 285,000 274,313
CAA-/B Helicon Group-Series,
11.00%,
11/01/2003......... 350,000 354,375
NR/NR Intermedia Capital
Partners,
11.25%,
8/01/2006.......... 350,000 357,000
B2-/B JCAC, Inc.,
10.125%,
6/15/2006.......... 350,000 351,750
B1-/B+ Jones Intercable
Inc.,
11.50%,
7/15/2004.......... 250,000 267,500
B2-/B+ Sinclair Broadcasting
Group,
10.00%,
12/15/2003......... $ 350,000 $ 350,875
-----------
2,442,063
-----------
BROADCASTING/TELECOMMUNICATIONS -- 0.4%
B2-B Paging Network,
10.125%,
8/01/2007.......... 162,000 145,800
-----------
CHEMICALS -- 1.1%
B1-/B NL Industries, Inc.
11.75%,
10/15/2003......... 350,000 368,375
-----------
CONTAINERS - METAL -- 0.8%
B1-/BB- Sea Containers, Ltd.,
12.50%,
12/01/2004......... 250,000 279,375
-----------
ENTERTAINMENT -- 1.0%
B3-/B- Plitt Theatres, Inc.,
10.875%,
6/15/2004.......... 350,000 354,375
-----------
FOOD AND HOUSEHOLD
PRODUCTS -- 1.9%
B3-/B- Brunos, Inc.,
10.50%,
8/01/2005.......... 301,000 305,891
B1-/B+ Chiquita Brands
Int'l, Inc.
9.625%,
1/15/2004.......... 250,000 256,250
B3-/B- Envirodyne
Industries,
10.25%,
12/01/2001......... 100,000 96,750
-----------
658,891
-----------
FOREST AND PAPER PRODUCTS -- 1.1%
B3-/B+ Pacific Lumber Co.,
10.50%,
3/01/2003.......... 350,000 357,000
-----------
HEALTH CARE -- 1.4%
B3-/NR Merit Behavioral
Care,
11.50%,
11/15/2005......... 260,000 284,700
B1-/B- Parisian, Inc.,
9.875%,
7/15/2003.......... 200,000 201,750
-----------
486,450
-----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 14
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ------------ -----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS (CONTINUED)
LEISURE AND TOURISM -- 3.6%
B3/NR Griffin Gaming,
8.40%, 6/30/2000... $ 350,000 $ 339,500
B1-/B+ Horseshoe Gaming,
LLC,
12.75%,
9/30/2000.......... 180,000 195,300
B1-/NA Riviera Holdings
Corp.,
11.00%,
12/31/2002......... 350,000 364,000
B1-/BB- Trump Atlantic City,
11.25%,
5/01/2006.......... 350,000 315,875
-----------
1,214,675
-----------
INDUSTRIAL GOODS AND
SERVICES -- 2.6%
A2-/A- American Home
Products,
6.50%,
10/15/2002......... 500,000 485,432
NA/NA Desc Sociedad de
Fomento,
11.00%,
12/15/1997......... 375,000 385,313
-----------
870,745
-----------
MANUFACTURING - CONSUMER
GOODS -- 2.1%
B3-/B- Hartmarx Corp.,
10.875%,
1/15/2002.......... 350,000 350,875
B3-/B- International Wire
Group,
11.75%,
6/01/2005.......... 350,000 369,250
-----------
720,125
-----------
METALS - DIVERSIFIED -- 0.8%
B3-/B Envirosource, Inc.,
9.75%, 6/15/2003... 275,000 262,625
-----------
OIL AND GAS - EXPLORATION -- 2.3%
B1-/B- Cliffs Drilling Co.,
10.25%,
5/15/2003.......... 350,000 357,000
B2/B Cross Timber Oil Co.
9.25%,
4/01/2007++........ 195,000 187,931
B2-/B- Plains Resources,
Inc.,
10.25%,
3/15/2006.......... 220,000 228,250
-----------
773,181
-----------
PAPER PRODUCTS -- 2.2%
B1-/B+ Stone Container Inc.,
9.875%,
2/01/2001.......... $ 500,000 $ 466,875
B3-/B- United Stationer
Supply,
12.75%,
5/01/2005.......... 250,000 280,000
-----------
746,875
-----------
PLASTIC PRODUCTS -- 2.2%
B2-/B Applied Extrusion
Technologies Corp.,
11.50%,
4/01/2002.......... 350,000 362,250
B3-/B- Plastic Specialty,
Inc.,
11.25%,
12/01/2003......... 350,000 378,000
-----------
740,250
-----------
PUBLISHING/ADVERTISING -- 1.2%
B3-/B+ Printpack, Inc.,
10.625%,
8/15/2006.......... 380,000 396,150
-----------
TELECOMMUNICATIONS -- 3.7%
AA1-/AAA British Telecom PLC,
7.125%,
9/15/2003.......... 275,000(I) 438,500
A2-/A Lucent Technologies
Inc.,
6.90%, 7/15/2001... 500,000 497,696
B1-/BB Telecom Argentina
Stet -- France
Telecom
8.375%,
10/18/2000......... 315,000 315,312
-----------
1,251,508
-----------
TOTAL CORPORATE
OBLIGATIONS
(COST
$15,206,628)....... 15,327,648
-----------
GOVERNMENT OBLIGATIONS -- 31.7%
ARGENTINA GOVERNMENT -- 1.3%
B1-/BB Republic of
Argentina,
5.25%,
3/31/2023#......... 715,000 444,614
-----------
BELGIUM GOVERNMENT -- 2.0%
AA1/NR Belgium (Kingdom of),
9.00%, 3/28/2003... 18,965,000(A) 660,162
-----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 15
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
CREDIT MARKET
RATING* PRINCIPAL VALUE
- -------- ------------ -----------
<S> <C> <C> <C>
GOVERNMENT OBLIGATIONS (CONTINUED)
CANADA GOVERNMENT -- 2.7%
AA1-/AAA Canada Government,
5.50%, 2/01/2000... $ 385,000(B) $ 279,641
AA1-/AAA Canada Government,
10.00%,
6/01/2008.......... 695,000(B) 624,021
-----------
903,662
-----------
FRANCE GOVERNMENT -- 4.1%
AAA/NR France O.A.T., 8.50%,
11/25/2002......... 2,570,000(C) 534,770
AAA/NR Government of France,
6.75%,
10/25/2003......... 2,370,000(C) 456,741
AAA/NR Government of France,
6.75%,
10/25/2004......... 2,020,000(C) 387,352
-----------
1,378,863
-----------
GERMANY GOVERNMENT -- 6.0%
AAA/NR Deutscheland
Republic,
7.50%,
11/11/2004......... 860,000(D) 574,225
AAA/NR Deutscheland
Republic,
8.50%, 8/21/2000... 2,170,000(D) 1,465,532
-----------
2,039,757
-----------
ITALY GOVERNMENT -- 1.9%
AA3/AAA Buoni Poliennali del
Tesoro,
12.50%,
3/19/1998.......... 370,000,000(E) 229,754
AA3/AAA Buoni Poliennali del
Tesoro,
9.50%, 2/01/2001... 640,000,000(E) 406,228
-----------
635,982
-----------
SPAIN GOVERNMENT -- 0.6%
AA2/NA Spanish Government,
9.90%,
10/31/1998......... 15,200,000(G) 113,555
AA2/NA Spanish Government,
10.15%,
1/31/2006.......... 11,980,000(G) 101,227
-----------
214,782
-----------
SWEDEN GOVERNMENT -- 0.9%
AA1/NR Sweden (Kingdom of),
13.00%,
6/15/2001.......... 1,900,000(H) 316,128
-----------
<CAPTION>
CREDIT PRINCIPAL/ MARKET
RATING* SHARES VALUE
- -------- ------------ -----------
<S> <C> <C> <C>
UNITED KINGDOM GOVERNMENT -- 1.8%
AAA/NR United Kingdom
Treasury,
8.50%,
12/07/2005......... $ 240,000(I) $ 417,437
AAA/NR United Kingdom
Treasury,
8.00%,
12/07/2000......... 110,000(I) 185,222
-----------
602,659
-----------
UNITED STATES GOVERNMENT -- 10.4%
GOVERNMENT AGENCY
OBLIGATIONS -- 2.1%
Federal National
Mortgage
Association,
5.83%, 2/20/2001... 750,000 725,162
-----------
U.S. TREASURY OBLIGATIONS -- 8.3%
U.S. Treasury Note,
5.875%,
10/31/1998......... 1,625,000 1,612,814
U.S. Treasury Note,
5.875%,
11/30/2001......... 1,250,000 1,205,860
-----------
2,818,674
-----------
TOTAL UNITED STATES
GOVERNMENT
OBLIGATIONS........ 3,543,836
-----------
TOTAL GOVERNMENT
OBLIGATIONS
(COST
$10,940,944)....... 10,740,445
-----------
EQUITIES -- 1.6%
COMMON STOCK -- 0.1%
RETAIL -- 0.1%
Grand Union Co.##.... 4,419 15,743
-----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 16
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL/ MARKET
SHARES VALUE
------------ -----------
<S> <C> <C> <C>
EQUITIES (CONTINUED)
CONVERTIBLE PREFERRED
STOCK -- 1.5%
PUBLISHING & PRINTING --
K-III Communications
Corp., 2.875%...... 20,000 $ 530,000
-----------
TOTAL EQUITIES
(COST $777,450).... 545,743
-----------
TOTAL INVESTMENTS
EXCLUDING SHORT-
TERM INVESTMENTS
(COST
$26,925,022)....... 26,613,836
-----------
SHORT-TERM INVESTMENTS -- 0.5%
Chase Manhattan Bank
Time Deposit
5.25%,
04/01/1997......... 175,000 175,000
-----------
TOTAL SHORT-TERM
INVESTMENTS
(COST $175,000).... 175,000
-----------
TOTAL INVESTMENTS -- 79.0%
(COST $27,100,022)+............ 26,788,836
Cash and other
assets, net of
liabilities -- 21.0%.. 7,137,128
-----------
NET ASSETS -- 100.0%............. $33,925,964
==========
+ The cost of securities for Federal income tax
purposes is substantially the same.
# Step bond. Republic of Argentina, Brady Bond, 5.00%
through 3/31/96; maturity rate increases to 6.00% on
3/31/99, until ultimate maturity date of 3/31/23.
## Non-income producing security.
++ Security restricted as to resale to qualified
institutional buyers under Rule 144a of the
Securities Act of 1933.
* See page 20 for Credit Ratings.
** See page 20 for Concentration by Country.
</TABLE>
Principal denominated in U.S. Dollars unless indicated by the following
currencies:
<TABLE>
<S> <C>
(A) Belgian Francs
(B) Canadian Dollars
(C) French Francs
(D) German Marc
(E) Italian Lira
(F) Japanese Yen
(G) Spanish Peseta
(H) Swedish Krona
(I) British Pounds
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 17
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 91.7%
AEROSPACE/DEFENSE -- 0.3%
2,800 British Aerospace plc... $ 54,533 $ 62,631
----------- -----------
AIRLINES -- 0.3%
6,700 BAA plc................. 50,041 56,454
----------- -----------
AUTO RELATED -- 2.0%
21,000 Nissan Motor Co. ....... 131,444 126,373
1,300 Paccar Inc. ............ 94,129 86,775
440 Volkswagen AG........... 159,310 242,149
----------- -----------
384,883 455,297
----------- -----------
BANKING -- 11.0%
7,000 Abbey National plc...... 62,017 85,490
26,508 Allied Irish Banks
plc................... 126,536 180,988
23,000 Australia/New Zealand
Banking Group plc..... 132,864 145,513
6,900 Banco Frances del Rio de
la Plata
S.A. -- ADR#.......... 106,041 207,000
3,400 Bancponce Corp. ........ 86,266 120,700
22,000 Bangkok Bank Co.,
Ltd. ................. 227,442 213,411
4,150 Commerzbank AG.......... 87,757 119,905
25,000 Commonwealth Bank of
Australia............. 253,407 249,581
10,000 Dai-Ichi Kangyo Bank.... 118,503 105,816
300 First Empire State
Corp. ................ 99,651 96,000
4,125 First Financial
Corp. ................ 97,785 107,766
8,212 Lloyds TSB Group plc.... 45,692 67,242
18,000 Malayan Banking
Berhard............... 173,562 205,189
9,370 OTP Bank -- GDR++....... 165,413 206,140
100,000 PT Bank Bira*........... 139,608 139,554
9,000 Sumitomo Bank Ltd. ..... 144,320 106,865
2,200 Washington Mutual
Inc. ................. 68,390 106,289
----------- -----------
2,135,254 2,463,449
----------- -----------
BROADCASTING -- TELEVISION -- 0.3%
7,700 Carlton Communications
plc................... 56,257 65,890
----------- -----------
BUILDING MATERIALS -- 0.7%
4,290 Cimpor Cimentos De
Portugal S.A. ........ 69,823 89,625
2,500 USG Corp.*.............. 92,625 78,437
----------- -----------
162,448 168,062
----------- -----------
CAPITAL GOODS -- 0.9%
2,400 Adaptec Inc. ........... 92,400 85,800
5,300 American Power
Conversion Corp.*..... 76,790 114,612
----------- -----------
169,190 200,412
----------- -----------
CHEMICALS -- 1.7%
125,000 Aromatics (Thailand)*... $ 172,660 $ 80,597
3,800 BOC Group plc........... 47,201 59,553
210 Ciba Specialty Chemicals
AG.................... 13,097 17,288
25,000 Nippon Sanso Corp. ..... 131,200 81,785
2,600 Sociedad Quimica Y
Minera
Chili -- ADR#......... 114,920 149,825
----------- -----------
479,078 389,048
----------- -----------
COAL -- 0.4%
3,600 Zeigler Coal Holding
Co. .................. 92,164 85,500
----------- -----------
COMPUTER EQUIPMENT -- 2.5%
3,000 Applied Magnetics
Corp.*................ 98,055 84,750
1,900 Gateway 2000 Inc.*...... 41,049 97,375
2,400 Quantum Corp.*.......... 94,409 92,700
2,700 Storage Technology
Corp.*................ 97,256 105,975
6,500 Tandem Computers*....... 75,878 77,187
1,900 Western Digital
Corp.*................ 51,183 107,588
----------- -----------
457,830 565,575
----------- -----------
COMPUTER SOFTWARE -- 2.1%
2,700 Cap Gemini Sogeti SA*... 130,807 163,727
2,400 Compuware Corp.*........ 95,158 150,600
1,837 McAfee Associates
Inc.*................. 40,638 81,287
5,800 Symantec Corp.*......... 90,963 82,650
----------- -----------
357,566 478,264
----------- -----------
CONSTRUCTION -- 0.6%
1,900 Centex Corp. ........... 67,889 66,975
8,400 Gujarat Ambuja Cements,
Ltd -- GDR++.......... 50,000 78,750
----------- -----------
117,889 145,725
----------- -----------
CONSUMER STAPLES -- 0.2%
2,900 Accustaff Incorp.*...... 89,899 48,575
----------- -----------
DISTRIBUTION -- 0.8%
4,400 Canon Sales............. 101,295 87,076
21,000 Itochu Corp. ........... 141,774 102,795
----------- -----------
243,069 189,871
----------- -----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 18
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
DIVERSIFIED -- 2.0%
2,000 Barlow Ltd. ............ $ 22,369 $ 22,194
6,000 Grupo Imsa
S.A.* -- ADR#......... 126,971 139,500
10,000 ITC Ltd -- GDR++........ 75,500 128,500
20,000 Swire Pacific Ltd. ..... 167,926 157,450
----------- -----------
392,766 447,644
----------- -----------
ELECTRICAL & ELECTRONICS -- 2.8%
2,400 Advanced Micro
Devices*.............. 91,264 99,600
1,600 Arrow Electronics
Inc.*................. 92,896 90,200
7,700 Elektrim Spolka Akcyjna
S.A. ................. 57,646 67,347
2,800 ESS Technology*......... 92,873 67,900
12,000 Hitachi Ltd.*........... 113,115 106,624
1,600 SCI Systems Inc.*....... 75,065 81,000
9,000 Sumitomo Electric
Industries............ 123,630 122,132
----------- -----------
646,489 634,803
----------- -----------
ENERGY -- 3.3%
5,360 British Petroleum Co.,
plc................... 53,893 62,078
2,300 Energy Ventures Inc.*... 105,275 141,738
4,400 Oryx Energy*............ 95,093 84,700
5,270 Total S.A. ............. 443,260 455,766
----------- -----------
697,521 744,282
----------- -----------
ENGINEERING -- 0.6%
340 Mannesmann AG........... 111,531 129,658
----------- -----------
ENTERTAINMENT -- 2.3%
1,200 Anchor Gaming*.......... 78,972 33,450
60,000 Berjaya Sports Toto..... 235,704 307,481
24,500 Ladbroke Group plc...... 93,145 90,366
2,100 King World Productions
Inc.*................. 86,431 76,650
----------- -----------
494,252 507,947
----------- -----------
FINANCIAL SERVICES -- 4.3%
3,300 Aaames Financial
Corp. ................ 94,962 66,825
1,700 Alex Brown Inc. ........ 96,532 72,250
3,575 Bear Stearns Companies
Inc. ................. 65,931 93,844
539 Cie Bancaire S.A. ...... 53,078 71,324
2,700 Cityscape Financial
Corp.*................ 78,688 47,925
37,500 CMIC Finance &
Securities, plc*...... 141,799 64,959
1,420 Credit Suisse Group..... 133,599 169,702
3,600 Imperial Credit
Industries*........... 95,816 72,450
10,800 Instituto Mobilaire
Italiano S.P.A. ...... $ 72,452 $ 93,740
3,300 Lehman Brothers Holdings
Inc. ................. 71,010 96,112
3,000 SunAmerica Inc. ........ 72,290 112,875
----------- -----------
976,157 962,006
----------- -----------
FOOD PRODUCTS -- 2.5%
7,400 Cadbury Schweppes plc... 59,252 65,506
6,800 Companhia Brasileira
Distribuicao Grupo Pao
de Acucar -- ADR#..... 73,100 147,506
1,900 Interstate Bakeries
Corp. ................ 76,071 89,775
90 Nestle S.A.............. 97,039 104,912
105,600 Parmalat Finanziaria.... 97,939 146,386
----------- -----------
403,401 554,085
----------- -----------
FOREST PRODUCTS & PAPER -- 1.1%
11,000 Grupo Industrial
Durqango
S.A.* -- ADR#......... 130,642 108,625
9,000 Maderas y Sinteticos
S.A. -- ADR#.......... 127,299 140,625
----------- -----------
257,941 249,250
----------- -----------
HEALTH CARE & SUPPLIES -- 2.6%
3,800 Allegiance Corp. ....... 98,188 84,075
4,400 Glaxo Wellcome plc...... 53,563 80,532
3,300 Herbalife
International......... 96,820 59,813
2,400 Lincaire Holdings
Inc.*................. 96,207 99,000
7,100 Novacare, Inc.*......... 93,117 86,087
2,400 Sofamor Danek Group
Inc.*................. 83,779 86,700
2,200 Wellpoint Health Net*... 93,350 91,300
----------- -----------
615,024 587,507
----------- -----------
HOLDING COMPANIES - DIVERSIFIED -- 3.9%
16,500 Benpress Holdings
Corp.* -- GDR++....... 111,250 124,575
17,400 BTR plc................. 88,852 76,016
8,200 Grand Metropolitan
plc................... 55,144 66,001
70,000 Hicom Holdings Berhad... 201,712 182,189
5,000 Sonae Investmentos --
Sociedade Gestora de
Participacoes Sociais,
SA.................... 145,910 168,591
90,000 Wing Tai Holdings
Ltd. ................. 288,154 265,421
----------- -----------
891,022 882,793
----------- -----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 19
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
INVESTMENT COMPANIES -- 0.7%
13,000 ROC Taiwan Fund*........ $ 135,040 $ 154,375
----------- -----------
INSURANCE -- 4.8%
3,500 Assurances Generales de
France................ 114,955 127,940
2,099 AXA Co. ................ 105,609 138,793
4,300 Commercial Union plc.... 40,630 47,334
3,400 Conseco Inc. ........... 45,774 121,125
1,350 Fortis Ag............... 228,425 240,722
3,650 Fremont General
Corp. ................ 85,654 102,656
3,200 Old Republic
International
Corp. ................ 73,255 82,000
710 Zuerich
Vericherungsgesellschaft
Reg................... 200,960 222,504
----------- -----------
895,262 1,083,074
----------- -----------
MACHINERY & MANUFACTURING -- 2.9%
290 Linde AG................ 184,240 203,488
25,000 Keppel Corp. ........... 211,490 157,494
20,000 Mitsubishi Heavy
Industries Ltd. ...... 149,744 130,048
3,000 Murata Manufacturing
Co., Ltd. ............ 103,651 107,593
7,700 Wolseley plc............ 54,783 62,040
----------- -----------
703,908 660,663
----------- -----------
METALS & MINING -- 2.3%
5,000 De Beers Consolidated
Mines Ltd. -- Cent.
Linked................ 153,212 182,118
7,500 LTV Corp. .............. 93,657 94,688
5,000 Madeco S.A. -- ADR#..... 125,449 133,750
40,000 Nippon Steel Corp. ..... 141,818 109,855
----------- -----------
514,136 520,411
----------- -----------
OFFICE EQUIPMENT -- 0.3%
2,400 John Harland Co. ....... 76,898 57,000
----------- -----------
OIL/GAS -- 8.0%
3,300 Apache Corp. ........... 97,475 110,550
1,700 Ensco International
Inc.*................. 74,812 83,725
2,400 Falcon Drilling Co.
Inc.*................. 93,286 88,800
2,000 Flores & Rucks Inc.*.... 90,982 81,000
4,900 Global Marine Inc.*..... 96,740 105,350
1,700 Helmerich & Payne
Inc. ................. 58,722 78,625
5,600 Marine Drilling Co.
Inc.*................. $ 94,556 $ 99,400
1,900 Murphy Oil Corp. ....... 94,402 89,300
3,400 Newfield Exploration
Co.*.................. 75,688 64,600
4,900 Noble Drilling Corp.*... 49,000 84,525
3,510 Norsk Hydro AS.......... 165,922 175,168
1,600 Nuevo Energy Co.*....... 81,331 61,400
2,800 Parker & Parsley Petro
Co.*.................. 76,996 82,600
4,100 Rowan Cos. Inc.*........ 90,332 92,763
4,200 USX -- Marathon Group... 89,850 117,075
3,800 Vintage Petroleum
Inc. ................. 97,328 114,000
8,100 YPF Sociedad Anonima --
ADR#.................. 142,953 214,650
3,243 Yukong Ltd. ............ 86,597 57,989
----------- -----------
1,656,972 1,801,520
----------- -----------
PACKAGING -- 0.5%
5,200 Cristalerias de Chile
S.A. -- ADR#.......... 120,401 109,850
----------- -----------
PERSONAL CARE -- 0.5%
8,000 Shiseido Co. Ltd. ...... 101,670 103,393
----------- -----------
PHARMACEUTICALS -- 2.8%
7,000 Eisai Co. .............. 126,307 119,871
2,920 Gedeon
Richter -- ADR#....... 159,635 180,310
3,300 ICN Pharmaceuticals
Inc. ................. 81,783 73,425
210 Novartis AG*............ 227,419 259,467
----------- -----------
595,144 633,073
----------- -----------
PUBLISHING & PRINT -- 2.6%
1,790 Elsevier NV............. 16,370 29,040
3,200 Lee Enterprises,
Inc. ................. 74,156 77,600
41,000 News Corp. Ltd. ........ 238,072 191,013
4,600 Valassis
Communications*....... 94,351 102,925
8,550 VNU -- Ver Ned Uitgev
Ver Bezit............. 105,791 175,548
----------- -----------
528,740 576,126
----------- -----------
REAL ESTATE -- 4.1%
15,000 Cheung Kong Holdings
Ltd. ................. 82,037 132,122
85,000 Hong Kong Land Holdings
Ltd. ................. 180,676 198,022
3,100 Lennar Corp. ........... 76,611 75,950
175,000 Selangor Properties
Berhad................ 199,057 199,843
20,000 Singapore Land Ltd. .... 129,033 102,458
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 20
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
REAL ESTATE (CONTINUED)
12,000 Sun Hung Kai Properties
Inc. ................. $ 74,045 $ 126,992
3,290 Vallehermoso S.A. ...... 64,500 76,636
----------- -----------
805,959 912,023
----------- -----------
RETAIL -- 1.9%
4,300 Hollywood Entertainment
Corp.*................ 90,355 104,812
5,000 Kingfisher plc.......... 40,946 57,417
3,300 Land's End*............. 92,428 87,450
10,100 Safeway plc............. 49,837 59,025
2,400 Vendex International
NV.................... 70,387 113,362
----------- -----------
343,953 422,066
----------- -----------
TELECOMMUNICATIONS -- 6.1%
1,600 Dynatech Corp.*......... 75,270 48,000
2,600 Mastec Inc.*............ 91,619 73,450
3,500 Portugal Telecom
S.A. ................. 76,024 130,096
880 SPT Telecom AS*......... 108,929 103,973
52,000 Telecom Corporation of
New Zealand, Ltd. .... 267,472 236,479
32,000 Telecom Italia Mobile
S.p.A. ............... 38,178 91,976
1,300 Telecomunicacoes
Brasileiras
S.A. -- ADR#.......... 52,488 133,087
10,310 Telefonica de Espana.... 170,524 248,526
10,000 Telefonica del
Peru -- ADR#.......... 214,671 222,500
5,100 Videsh Sanchar Nigam
Ltd.*................. 71,043 90,015
----------- -----------
1,166,218 1,378,102
----------- -----------
TEXTILES & APPAREL -- 2.1%
2,100 Fruit of the Loom*...... 74,365 87,150
3,300 Mohawk Industries
Inc.*................. 79,314 68,888
4,600 Ross Stores Inc. ....... 63,250 116,725
2,700 TJX Companies Inc. ..... 86,074 115,425
1,400 V.F. Corp. ............. 95,001 93,625
----------- -----------
398,004 481,813
----------- -----------
TIRE & RUBBER -- 0.9%
2,480 Continental AG.......... 40,011 55,261
5,500 Debica S.A.*............ 70,950 145,206
----------- -----------
110,961 200,467
----------- -----------
UTILITIES -- 1.7%
9,037 Citizens Utilities Co.
Cl A*................. $ 95,850 $ 105,059
4,100 Delmarva Light & Power
Co. .................. 83,685 75,337
4,200 Korea Electric Power
Co. .................. 137,376 122,038
3,200 Minnesota Power & Light
Co. .................. 92,700 89,200
----------- -----------
409,611 391,634
----------- -----------
WATER SERVICES -- 0.3%
1,900 Culligan Water
Technologies Inc.*.... 75,945 74,339
----------- -----------
TOTAL COMMON STOCKS..... 18,975,027 20,634,657
----------- -----------
WARRANTS -- 0.8%
BANKING -- 0.8%
100,000 Development & Commercial
Bank Holdings Berhad
Expires 12/27/1999*... 140,603 168,671
----------- -----------
TOTAL INVESTMENTS
EXCLUDING SHORT-TERM
INVESTMENTS........... 19,115,630 20,803,328
----------- -----------
<CAPTION>
PRINCIPAL
- ----------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS -- 5.5%
$1,240,000 Chase Manhattan Bank
Time Deposit 5.25% due
04/01/1997............ 1,240,000 1,240,000
----------- -----------
TOTAL INVESTMENTS --
98.0%................. $20,355,630+ 22,043,328
===========
Cash and other assets,
net of
liabilities -- 2.0%... 442,895
-----------
NET ASSETS -- 100.0%............... $22,486,223
===========
+ The cost of securities for Federal income tax purposes is
substantially the same.
* Non-Income Producing Securities.
# American Depository Receipts
++ Global Depository Receipts/Shares.
** See page 20 for Concentration by Country.
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 21
ESC STRATEGIC FUNDS, INC.
ESC SMALL CAP FUND
Portfolio of Investments -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- -------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 64.1%
APPLIANCES & HOUSEHOLD PRODUCTS -- 3.4%
100,000 Aaron Rents Inc. ....... $ 818,901 $ 1,150,000
40,000 Computational Systems, 606,481 720,000
Inc.*.................
102,000 Quaker Fabric Corp.*.... 1,289,375 1,326,000
----------- -----------
2,714,757 3,196,000
----------- -----------
AUTOMOTIVE -- 3.8%
67,200 Speedway Motorsports, 959,725 1,596,000
Inc.*.................
86,950 Wynn's International, 1,664,381 2,010,719
Inc...................
----------- -----------
2,624,106 3,606,719
----------- -----------
CAPITAL GOODS -- 1.0%
120,000 York Research Corp.*.... 1,105,818 960,000
----------- -----------
CHEMICALS -- 2.8%
55,000 The Carbide/Graphite 850,525 1,237,500
Group*................
90,100 Synalloy Corp........... 1,318,868 1,441,600
----------- -----------
2,169,393 2,679,100
----------- -----------
COMMERCIAL SERVICES -- 2.6%
66,100 Childrens Comprehensive 480,200 760,150
Services, Inc.*.......
67,600 Norrell Corp............ 765,375 1,664,650
----------- -----------
1,245,575 2,424,800
----------- -----------
COMPUTERS -- 1.9%
80,000 Zebra Technologies Corp. 1,657,904 1,840,000
Class "A"*............
----------- -----------
COMPUTER SOFTWARE -- 1.3%
133,000 American Software Class 871,563 931,000
"A"*..................
38,400 Total Control Products, 307,200 302,400
Inc.*.................
----------- -----------
1,178,763 1,233,400
----------- -----------
ELECTRICAL & ELECTRONICS -- 4.5%
35,000 Aseco Corp.*............ 351,623 371,875
66,500 Benchmark 2,032,417 1,945,125
Electronics -- BHE,
Inc.*.................
57,000 Electro Scientific 1,427,490 1,439,250
Industries, Inc.*.....
51,000 Quad Systems Corp.*..... 338,564 535,500
----------- -----------
4,150,094 4,291,750
----------- -----------
ENVIRONMENTAL -- 1.9%
41,600 Newpark Resources, 1,273,259 1,820,000
Inc.*.................
----------- -----------
FINANCIAL SERVICES -- 3.1%
70,000 Amresco Inc.*........... $ 930,750 $ 1,172,500
48,450 Sirrom Capital Corp. ... 823,454 1,756,313
----------- -----------
1,754,204 2,928,813
----------- -----------
FOOD -- 2.1%
30,000 Rare Hospitality 489,376 390,000
International*........
120,000 Twinlab Corp.*.......... 1,475,157 1,620,000
----------- -----------
1,964,533 2,010,000
----------- -----------
HOMEBUILDERS -- 0.9%
75,000 Cavalier Homes, Inc. ... 441,133 843,750
----------- -----------
MACHINERY & EQUIPMENT -- 4.2%
15,000 ASM Lithograpy 1,052,500 1,125,000
Holdings*.............
50,000 Cognex Corp.*........... 895,625 950,000
45,000 Roper Industries, 1,741,293 1,895,625
Inc...................
----------- -----------
3,689,418 3,970,625
----------- -----------
MANUFACTURING -- 3.0%
51,400 Asyst Technologies, 1,335,505 1,002,300
Inc.*.................
129,700 Consep Inc.*............ 376,969 389,100
70,000 Scientific Games 1,697,892 1,487,500
Corp.*................
----------- -----------
3,410,366 2,878,900
----------- -----------
MANUFACTURING - CONSUMER GOODS -- 2.4%
45,700 Fuqua Enterprises, 1,039,359 1,039,675
Inc.*.................
110,000 Genesco, Inc.*.......... 930,650 1,237,500
----------- -----------
1,970,009 2,277,175
----------- -----------
MEDICAL - HOSPITAL MANAGEMENT -- 1.3%
25,000 Arbor Health Care 628,125 634,375
Co.*..................
29,200 Pediatric Services of 525,838 551,150
America*..............
----------- -----------
1,153,963 1,185,525
----------- -----------
MEDICAL SUPPLIES -- 6.7%
100,000 American Healthcorp, 966,113 1,137,500
Inc.*.................
60,000 American Homepatient, 1,003,211 1,335,000
Inc.*.................
60,000 Hologic, Inc.*.......... 1,470,080 1,462,500
50,000 Laserscope*............. 302,563 368,750
45,000 Renal Treatment 873,580 1,012,500
Centers*..............
63,500 Res-care, Inc.*......... 897,655 1,047,750
----------- -----------
5,513,202 6,364,000
----------- -----------
METALS - CAPITAL GOODS -- 1.1%
40,000 Wolverine Tube, Inc.*... 1,344,365 1,040,000
----------- -----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 22
ESC STRATEGIC FUNDS, INC.
ESC SMALL CAP FUND
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- -------- ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
METAL FABRICATE/HARDWARE -- 2.3%
78,400 Sinter Metals, Inc. $ 1,601,335 $ 2,156,000
Class "A"*............
----------- -----------
OIL/GAS EQUIPMENT -- 2.0%
59,600 National-Oilwell, 1,905,271 1,907,200
Inc.*.................
----------- -----------
OIL/GAS EXPLORATION -- 3.0%
60,000 Oceaneering 810,663 937,500
International,
Inc.*.................
96,400 Veritas DGC, Inc.*...... 1,828,262 1,903,900
----------- -----------
2,638,925 2,841,400
----------- -----------
PERSONAL CARE -- 1.0%
68,100 Inbrand Corp.*.......... 673,425 944,887
----------- -----------
PHARMACEUTICALS -- 2.7%
84,825 Medicis Pharmaceutical 977,080 2,523,544
Corp. Class "A"*......
----------- -----------
MARKET
SHARES COST VALUE
- -------- ----------- -----------
RETAIL -- 4.6%
110,000 Compucom Systems, $ 802,781 $ 660,000
Inc.*.................
100,000 Maxim Group Inc., 1,629,125 1,325,000
(The)*................
100,000 Moovies, Inc.*.......... 745,625 550,000
71,700 Rexall Sundown, Inc.*... 1,523,798 1,837,312
----------- -----------
4,701,329 4,372,312
----------- -----------
TRANSPORTATION - AIR -- 0.5%
42,300 Mesaba Holdings,
Inc.*................. 346,125 491,738
----------- -----------
TOTAL
INVESTMENTS -- 64.1%.. $52,204,352+ 60,787,638
===========
Cash and other assets,
net of
liabilities -- 35.9%... 34,092,245
-----------
NET ASSETS -- 100.0%.... $94,879,883
===========
</TABLE>
* Non-income producing securities
+ The cost of securities for Federal income tax purposes is substantially
the same.
See accompanying notes to financial statements.
13
<PAGE> 23
ESC STRATEGIC FUNDS, INC.
ESC APPRECIATION FUND**
Portfolio of Investments -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 93.7%
APPLIANCES & HOUSEHOLD
PRODUCTS -- 2.1%
28,000 Aaron Rents, Inc. ....... $ 204,679 $ 322,000
11,750 Computational Systems,
Inc.*.................. 171,844 211,500
15,000 Quaker Fabric Corp.*..... 142,500 195,000
11,950 Zebra Technologies Corp.
Class "A"*............. 209,322 274,850
----------- -----------
728,345 1,003,350
----------- -----------
AUTOMOTIVE -- 3.9%
7,400 Daimler-Benz AG Sponsored
ADR#*.................. 371,519 571,650
2,700 PACCAR, Inc. ............ 194,373 180,225
15,900 Peugeot Citroen ADR#..... 486,874 452,691
14,000 Speedway Motorsports,
Inc.*.................. 126,420 332,500
15,825 Wynn's International,
Inc. .................. 302,165 365,953
----------- -----------
1,481,351 1,903,019
----------- -----------
BANKING -- 9.2%
3,000 Banco Bilbao Vizcaya
ADR#................... 67,418 179,625
6,600 Banponce Corp. .......... 167,518 234,300
10,000 Bostonfed Bancorp,
Inc. .................. 124,350 151,250
5,200 Chase Manhattan Corp. ... 348,062 486,850
14,700 Corporacion Bancaria
Espana ADR#............ 311,532 319,725
9,200 First Bell Bancorp,
Inc. .................. 85,450 147,200
600 First Empire State
Corp. ................. 198,642 192,000
7,625 First Financial Corp. ... 180,676 199,203
6,500 First Mutual Bancorp,
Inc. .................. 83,077 98,312
5,900 Frankfort First Bancorp,
Inc. .................. 74,004 62,688
14,600 FSF Financial Corp. ..... 187,975 251,850
11,000 Georgia Financial,
Inc. .................. 121,660 163,625
13,000 Glendale Federal Bank*... 197,060 299,000
11,700 Home Bancorp Of Elgin,
Inc.*.................. 147,713 175,500
8,140 IBS Financial Corp. ..... 69,819 138,380
6,000 Industrial Bancorp,
Inc. .................. 75,042 75,750
19,000 Istituto Mobiliare
Italiano ADR#*......... 393,777 498,750
6,800 MLF Bancorp, Inc. ....... 47,804 104,550
30,400 North Central Bancshares,
Inc. .................. 328,664 482,600
10,000 PFF Bancorp, Inc.*....... 115,000 143,750
5,400 Westerfed Financial
Corp. ................. 73,224 108,675
----------- -----------
3,398,467 4,513,583
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
BUILDING MATERIALS -- 0.3%
4,900 USG Corp.*............... $ 181,545 $ 153,738
----------- -----------
CAPITAL GOODS -- 1.3%
4,800 Adaptec, Inc.*........... 184,800 171,600
11,100 American Power Conversion
Corp.*................. 165,523 240,038
5,075 Corrections Corp. of
America*............... 166,776 123,069
14,300 York Research Corp.*..... 136,833 114,400
----------- -----------
653,932 649,107
----------- -----------
CHEMICALS -- 1.2%
12,600 The Carbide/Graphite
Group*................. 212,840 283,500
19,500 Synalloy Corp. .......... 257,988 312,000
----------- -----------
470,828 595,500
----------- -----------
COAL -- 0.4%
7,200 Zeigler Coal Holding
Co. ................... 184,327 171,000
----------- -----------
COMMERCIAL SERVICES -- 0.7%
9,900 Childrens Comprehensive
Services, Inc.*........ 54,599 113,850
10,000 Norrell Corp. ........... 97,500 246,250
25 Right Management
Consultants, Inc.*..... 244 241
----------- -----------
152,343 360,341
----------- -----------
COMPUTERS -- 0.3%
13,500 Tandem Computers,
Inc.*.................. 159,632 160,313
----------- -----------
COMPUTER EQUIPMENT -- 2.3%
5,800 Applied Magnetics
Corp.*................. 189,573 163,850
7,000 CHS Electronics, Inc.*... 126,625 142,625
3,700 Gateway 2000, Inc.*...... 106,650 189,625
4,700 Quantum Corp.*........... 184,729 181,538
5,700 Storage Technology
Corp.*................. 211,273 223,725
4,000 Western Digital Corp.*... 109,968 226,500
----------- -----------
928,818 1,127,863
----------- -----------
COMPUTER SOFTWARE -- 1.3%
5,000 Compuware Corp.*......... 206,652 313,750
3,787 McAfee Associates,
Inc.* ................. 113,705 167,575
11,800 Symantec Corp.*.......... 185,062 168,150
----------- -----------
505,419 649,475
----------- -----------
CONSTRUCTION -- 0.3%
4,100 Centex Corp. ............ 140,641 144,525
----------- -----------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 24
ESC STRATEGIC FUNDS, INC.
ESC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
CONSUMER NON-DURABLE -- 0.9%
18,000 IBP, Inc. ............... $ 428,238 $ 443,250
----------- -----------
CONSUMER STAPLES -- 1.5%
14,700 Accustaff, Inc.*......... 384,145 246,225
6,950 Personnel Group of
America, Inc.*......... 191,220 136,394
4,900 Robert Half
International, Inc.*... 190,082 170,888
4,000 Smithfield Foods,
Inc.*.................. 147,000 169,000
----------- -----------
912,447 722,507
----------- -----------
CONSUMER CYCLICAL -- 1.1%
5,000 Analysts International
Corp. ................. 143,125 110,000
12,775 Apple South, Inc. ....... 170,506 167,672
6,600 Wolverine World Wide,
Inc. .................. 202,970 240,900
----------- -----------
516,601 518,572
----------- -----------
DIVERSIFIED -- 5.0%
28,300 Allied Waste Industries,
Inc.*.................. 259,900 226,400
33,700 BTR PLC ADR#............. 535,830 589,874
76,000 Jardine Matheson Hd
ADR#................... 555,363 433,200
6,800 Siemens AG ADR#.......... 329,700 366,412
19,500 Stet Soc Finanz Telef
ADR#................... 564,212 845,813
----------- -----------
2,245,005 2,461,699
----------- -----------
ELECTRIC UTILITY -- 1.7%
9,800 Centrais Electricas
Brasileiras Sponsored
ADR#................... 186,788 199,643
6,500 Minnesota Power & Light
Co. ................... 188,297 181,188
18,500 PC&G Corp. .............. 421,985 434,750
----------- -----------
797,070 815,581
----------- -----------
ELECTRICAL & ELECTRONICS -- 1.1%
9,950 Benchmark Electronics
BHE, Inc.*............. 308,127 291,038
10,000 Electro Scientific
Industries, Inc.*...... 209,605 252,500
----------- -----------
517,732 543,538
----------- -----------
ELECTRICAL EQUIPMENT -- 0.7%
3,200 Arrow Electronics,
Inc.*.................. 185,792 180,400
3,200 SCI Systems, Inc.*....... 150,130 162,000
----------- -----------
335,922 342,400
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
ELECTRONICS -- 0.7%
13,000 Aseco Corp.*............. $ 105,500 $ 138,125
20,000 Quad Systems Corp.*...... 130,700 210,000
----------- -----------
236,200 348,125
----------- -----------
ELECTRONIC COMPONENTS/
INSTRUMENTS -- 3.7%
1,600 ABB AG Sponsored ADR#.... 131,896 192,139
4,800 Advanced Micro Devices,
Inc.*.................. 182,527 199,200
5,600 ESS Technology, Inc.*.... 185,734 135,800
7,000 Hitachi Ltd. ADR#........ 693,837 615,125
9,000 Telefonica De Espana
ADR#................... 353,115 645,750
----------- -----------
1,547,109 1,788,014
----------- -----------
ENERGY -- 1.3%
5,375 Energy Ventures, Inc.*... 259,519 331,234
9,100 Oryx Energy*............. 198,005 175,175
9,400 Pool Energy Services
Co.*................... 168,025 138,650
----------- -----------
625,549 645,059
----------- -----------
ENVIRONMENTAL -- 0.9%
10,500 Newpark Resources,
Inc.*.................. 354,613 459,375
----------- -----------
FINANCIAL SERVICES -- 3.0%
3,400 Alex Brown, Inc. ........ 193,063 144,500
15,900 Amresco, Inc.*........... 198,725 266,325
7,350 Bear Stearns Companies,
Inc. .................. 155,246 192,937
6,800 Lehman Brothers Holdings,
Inc. .................. 158,958 198,050
6,900 Sirrom Capital Corp. .... 83,813 250,125
6,200 SunAmerica, Inc. ........ 157,936 233,275
4,000 Washington Mutual,
Inc. .................. 120,336 193,250
----------- -----------
1,068,077 1,478,462
----------- -----------
FOOD PRODUCTS & SERVICES -- 0.6%
3,900 Interstate Bakeries
Corp. ................. 157,335 184,275
10,000 Rare Hospitality
International,Inc.*.... 155,000 130,000
----------- -----------
312,335 314,275
----------- -----------
FOOD - WHOLESALE -- 0.7%
24,950 Twinlab Corp.*........... 299,819 336,825
----------- -----------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 25
ESC STRATEGIC FUNDS, INC.
ESC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FOOD -- 3.1%
27,700 Groupe Danone Sponsored
ADR#*.................. $ 848,810 $ 877,974
11,200 Nestle SA Sponsored
ADR#................... 569,476 654,995
----------- -----------
1,418,286 1,532,969
----------- -----------
GAS DISTRIBUTION -- 0.7%
14,000 BG PLC Sponsored ADR#.... 292,841 358,750
----------- -----------
HEALTH CARE -- 2.1%
7,600 Allegiance Corp. ........ 196,377 168,150
6,000 Curative Health Services,
Inc.*.................. 194,625 138,000
8,000 HPR, Inc.*............... 126,000 90,000
6,500 Health Management
Associates, Inc. Class
"A"*................... 160,452 154,375
8,000 Medcath, Inc.*........... 122,000 119,000
14,300 Nova Care*............... 187,546 173,388
4,400 Wellpoint Health
Networks, Inc.*........ 186,700 182,600
----------- -----------
1,173,700 1,025,513
----------- -----------
HEALTH & PERSONAL CARE -- 0.3%
6,800 Herbalife International,
Inc. .................. 197,055 123,250
----------- -----------
HOMEBUILDERS -- 0.3%
14,500 Cavalier Homes, Inc. .... 71,507 163,125
----------- -----------
INSURANCE -- 1.8%
7,100 Conseco, Inc. ........... 124,750 252,938
7,650 Fremont General Corp. ... 187,125 215,156
6,600 Old Republic
International Corp. ... 153,245 169,125
5,600 Safeco Corp. ............ 158,493 224,000
----------- -----------
623,613 861,219
----------- -----------
LEISURE & GAMING -- 0.4%
2,300 Anchor Gaming*........... 151,363 64,113
3,900 King World Productions,
Inc.*.................. 159,967 142,350
----------- -----------
311,330 206,463
----------- -----------
MACHINERY & EQUIPMENT -- 1.0%
10,000 Cognex Corp.*............ 182,500 190,000
7,000 Roper Industries,
Inc. .................. 241,500 294,875
----------- -----------
424,000 484,875
----------- -----------
MANUFACTURING -- 0.4%
10,000 Asyst Technologies,
Inc.*.................. 298,713 195,000
----------- -----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
MANUFACTURING - CONSUMER
GOODS -- 1.9%
8,800 Fuqua Enterprises,
Inc.*.................. $ 210,763 $ 200,200
20,000 Genesco, Inc.*........... 160,575 225,000
10,800 Reebok International
Ltd. .................. 288,950 484,650
----------- -----------
660,288 909,850
----------- -----------
MEDICAL EQUIPMENT & SUPPLIES -- 1.1%
8,650 Lincare Holdings,
Inc.*.................. 343,051 356,813
5,200 Sofamor Danek Group,
Inc.*.................. 171,117 187,850
----------- -----------
514,168 544,663
----------- -----------
MEDICAL SUPPLIES -- 2.1%
29,000 American Healthcorp,
Inc.*.................. 275,500 329,875
13,500 American Homepatient,
Inc.*.................. 179,000 300,375
6,200 Renal Treatment Centers,
Inc.*.................. 130,039 139,500
14,850 Res - Care, Inc.*........ 199,931 245,025
----------- -----------
784,470 1,014,775
----------- -----------
METAL FABRICATE/HARDWARE -- 0.6%
10,650 Sinter Metals, Inc. Class
"A"*................... 215,947 292,875
----------- -----------
METALS - CAPITAL GOODS -- 0.4%
7,000 Wolverine Tube, Inc.*.... 196,188 182,000
----------- -----------
MORTGAGE BANKERS &
CORRESPOND -- 0.8%
6,700 Aames Financial Corp. ... 192,840 135,675
5,200 Cityscape Financial
Corp.*................. 151,362 92,300
7,300 Imperial Credit
Industries, Inc.*...... 194,384 146,913
----------- -----------
538,586 374,888
----------- -----------
MULTI-INDUSTRY -- 0.5%
2,800 Loews Corp. ............. 123,409 248,850
----------- -----------
OFFICE/BUSINESS EQUIPMENT -- 0.3%
5,000 John Harland Co. ........ 159,001 118,750
----------- -----------
OIL/GAS EQUIPMENT -- 0.8%
4,000 Flores & Rucks, Inc. .... 181,762 162,000
7,300 National - Oilwell,
Inc.* ................. 245,733 233,600
----------- -----------
427,495 395,600
----------- -----------
OIL/GAS - EXPLORATION -- 9.7%
6,700 Apache Corp. ............ 204,835 224,450
3,000 Diamond Offshore
Drilling, Inc.*........ 215,055 205,500
</TABLE>
See accompanying notes to financial statements.
16
<PAGE> 26
ESC STRATEGIC FUNDS, INC.
ESC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL/GAS - EXPLORATION (CONTINUED)
10,100 Elf Aquitane ADR#........ $ 358,447 $ 497,425
3,500 Energy Ventures, Inc.*... 218,834 215,687
3,600 Ensco International,
Inc.*.................. 161,515 177,300
5,000 Falcon Drilling Co.,
Inc.*.................. 192,666 185,000
10,100 Global Marine, Inc.*..... 202,494 217,150
3,500 Helmerich & Payne,
Inc. .................. 126,246 161,875
11,600 Marine Drilling Co.,
Inc.*.................. 194,039 205,900
3,700 Murphy Oil Corp. ........ 183,835 173,900
6,600 Newfield Exploration
Co.*................... 146,898 125,400
9,300 Noble Drilling Corp.*.... 112,482 160,425
3,300 Nuevo Energy Co.*........ 167,570 126,637
18,400 Oceaneering
International, Inc.*... 300,808 287,500
5,300 Parker & Parsley Petro
Co. ................... 145,743 156,350
11,400 Repsol, SA ADR#.......... 358,459 464,550
8,200 Rowan Cos., Inc.*........ 180,664 185,525
8,600 USX-Marathon Group
Corp. ................. 190,362 239,725
9,800 Veritas DGC, Inc.*....... 181,986 193,550
7,800 Vintage Petroleum,
Inc. .................. 207,956 234,000
11,400 YPF Sociedad Anonima
ADR#................... 221,845 302,100
----------- -----------
4,272,739 4,739,949
----------- -----------
PERSONAL CARE -- 0.5%
18,750 Inbrand Corp.*........... 172,720 260,155
----------- -----------
PHARMACEUTICALS -- 1.0%
7,000 ICN Pharmaceuticals,
Inc. .................. 172,719 155,750
10,500 Medicis Pharmaceutical
Corp. Class "A" *...... 118,612 312,375
----------- -----------
291,331 468,125
----------- -----------
PUBLISHING & PRINTING -- 1.3%
5,800 Lee Enterprises, Inc. ... 134,486 140,650
13,050 Scientific Games
Corp.*................. 315,010 277,312
9,300 Valassis Communications,
Inc.*.................. 190,753 208,088
----------- -----------
640,249 626,050
----------- -----------
REAL ESTATE -- 0.3%
6,600 Lennar Corp. ............ 168,066 161,700
----------- -----------
MARKET
SHARES COST VALUE
- ------ ----------- -----------
RETAIL -- 2.0%
9,000 Hollywood Entertainment
Corp.*................. $ 190,937 $ 219,375
6,800 Lands End, Inc.*......... 191,192 180,200
13,000 Mac Frugal's Bargains
Close-outs, Inc.*...... 242,905 344,500
14,000 Stride Rite Corp. ....... 170,252 210,000
----------- -----------
795,286 954,075
----------- -----------
RETAIL - SPECIALTY LINE -- 1.2%
27,900 Compucom Systems,
Inc.*.................. 177,506 167,400
15,600 Maxim Group Inc.,
(The)*................. 249,600 206,700
8,700 Rexall Sundown, Inc.*.... 128,304 222,936
----------- -----------
555,410 597,036
----------- -----------
STEEL -- 0.4%
15,000 LTV Corp. ............... 187,306 189,375
----------- -----------
TECHNOLOGY -- 1.9%
4,900 ACC Corp.*............... 164,500 109,025
6,800 Computer Management
Sciences, Inc.*........ 147,900 100,300
7,000 Datastream Systems,
Inc.*.................. 146,250 112,000
7,250 Ikos Systems, Inc.*...... 165,212 124,156
6,000 Inter-Tel, Inc.*......... 103,500 68,250
8,800 National Education
Corp.*................. 118,228 111,100
6,450 SBS Technologies,
Inc.*.................. 209,594 98,362
10,000 Telco Communications,
Inc.*.................. 159,125 198,750
----------- -----------
1,214,309 921,943
----------- -----------
TELECOMMUNICATIONS -- 3.8%
14,000 AT&T Corp. .............. 501,340 486,500
5,200 Mastec, Inc.*............ 183,237 146,900
29,000 Tele Denmark A/S ADR#.... 748,047 757,625
12,100 Telefonos de Mexico
ADR#................... 455,614 465,850
----------- -----------
1,888,238 1,856,875
----------- -----------
TELECOMMUNICATIONS - EQUIPMENT -- 2.3%
42,800 Alcatel Alsthom Cge SA
ADR#................... 775,053 1,016,500
3,000 Dynatech Corp. .......... 141,130 90,000
----------- -----------
916,183 1,106,500
----------- -----------
TELECOMMUNICATIONS - SERVICES -- 0.4%
10,000 Aspect Telecommunications
Corp.*................. 281,549 195,000
----------- -----------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 27
ESC STRATEGIC FUNDS, INC.
ESC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TEXTILES & APPAREL -- 2.0%
4,400 Fruit of The Loom Inc.
Class "A"*............. $ 157,346 $ 182,600
6,800 Mohawk Industries,
Inc.*.................. 164,456 141,950
9,400 Ross Stores, Inc. ....... 148,080 238,525
5,500 TJX Cos., Inc. .......... 179,005 235,125
2,900 V.F. Corp................ 196,719 193,937
----------- -----------
845,606 992,137
----------- -----------
TRANSPORTATION -- 0.7%
7,400 Hvide Marine, Inc. Class
A*..................... 191,475 168,350
3,350 Trico Marine Services,
Inc.*.................. 161,219 159,125
----------- -----------
352,694 327,475
----------- -----------
TRANSPORTATION - AIR -- 0.4%
15,250 Mesaba Holdings, Inc.*... 152,500 177,280
----------- -----------
UTILITIES -- 0.7%
18,569 Citizens Utilities
Co.*................... 200,943 215,870
7,400 Delmarva Power & Light
Co. ................... 150,800 135,975
----------- -----------
351,743 351,845
----------- -----------
WATER TREATMENT -- 0.3%
3,700 Culligan Water Tech
Inc.*.................. 145,697 144,762
----------- -----------
TOTAL
INVESTMENTS -- 93.7%... $40,844,588+ 45,753,193
===========
Cash and other assets,
net of
liabilities -- 6.3%.... 3,068,113
-----------
NET ASSETS -- 100.0%..... $48,821,306
===========
+ The cost of securities for Federal income tax purposes
is substantially the same.
* Non-income producing security.
# American Depository Receipts.
** See page 20 for Concentration by Country.
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 28
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GROWTH FUND
Portfolio of Investments -- March 31, 1997
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ---------- ----------
<C> <S> <C> <C>
COMMON STOCKS -- 65.6%
APPLIANCES & HOUSEHOLD PRODUCTS -- 2.1%
6,700 Quaker Fabric Corp.*....... $ 93,800 $ 87,100
---------- ----------
AUTOMOTIVE -- 2.4%
4,300 Wynn's International 88,017 99,438
Inc. ....................
---------- ----------
COMMERCIAL SERVICES -- 2.1%
4,900 U.S. Rentals Inc.*......... 96,710 88,809
---------- ----------
COMPUTERS -- 2.3%
15,000 WPI Group Inc.*............ 116,250 93,750
---------- ----------
COMPUTER SOFTWARE -- 8.9%
13,200 American Software 92,800 92,400
Common*..................
10,000 Gateway Data Sciences*..... 122,500 105,000
10,000 Intl Microcomputer 95,625 81,250
Software*................
11,600 Total Control Products*.... 92,800 91,350
---------- ----------
403,725 370,000
---------- ----------
CONSUMER STAPLES -- 2.0%
2,000 Smithfield Foods Inc.*..... 83,015 84,500
---------- ----------
ELECTRIC COMPONENTS/INSTRUMENTS -- 1.9%
7,500 Percon Inc.*............... 97,313 78,750
---------- ----------
ELECTRICAL & ELECTRONICS -- 4.1%
4,800 American Precision 89,725 81,600
Industries...............
3,100 Benchmark 89,592 90,675
Electronics -- BHE*......
---------- ----------
179,317 172,275
---------- ----------
ELECTRICAL EQUIPMENT -- 2.2%
3,900 Kuhlman*................... 84,311 90,675
---------- ----------
ENERGY -- 1.8%
4,700 Oceaneering International, 75,329 73,438
Inc.*....................
---------- ----------
FINANCIAL SERVICES -- 2.0%
2,300 Sirrom Capital Corp. ...... 89,479 83,375
---------- ----------
FOOD -- 1.1%
3,500 Twinlab Corp.*............. 45,500 47,250
---------- ----------
HOME FURNISHINGS -- 2.0%
10,300 Rowe Furniture Corp. ...... 92,107 81,113
---------- ----------
<CAPTION>
MARKET
SHARES COST VALUE
- ------- ---------- ----------
<C> <S> <C> <C>
MACHINERY & EQUIPMENT -- 6.4%
1,000 ASM Lithography $ 68,973 $ 75,000
Holdings*................
4,900 Cognex*.................... 90,049 93,100
2,300 Roper Industries Inc. ..... 95,024 96,888
---------- ----------
254,046 264,988
---------- ----------
MEDICAL SUPPLIES -- 2.0%
11,100 Laserscope*................ 87,202 81,863
---------- ----------
METAL FABRICATE/HARDWARE -- 2.5%
3,800 Sinter Metals Inc, Class 94,859 104,500
A*.......................
---------- ----------
OIL/GAS EQUIPMENT -- 3.8%
7,400 American Oilfield 89,809 83,250
Divers*..................
2,300 National-Oilwell Inc.*..... 74,219 73,600
---------- ----------
164,028 156,850
---------- ----------
OIL/GAS EXPLORATION -- 2.2%
4,700 Veritas DGC, Inc.*......... 86,042 92,825
---------- ----------
PERSONAL CARE -- 1.5%
4,500 Inbrand Corp.*............. 59,526 62,438
---------- ----------
RETAIL -- 5.6%
12,500 Compucaom Systems, Inc.*... 99,174 75,000
5,600 Maxim Group Inc., (The)*... 89,691 74,200
3,300 Rexall Sundown, Inc.*...... 84,381 84,563
---------- ----------
273,246 233,763
---------- ----------
TEXTILES & APPAREL -- 4.5%
16,000 Dixie Yarns, Inc.*......... 109,726 102,000
7,000 Pluma, Inc.*............... 84,000 84,000
---------- ----------
193,726 186,000
---------- ----------
TOYS -- 2.2%
5,700 The First Years, Inc. ..... 94,763 91,200
---------- ----------
TOTAL
INVESTMENTS -- 65.6%..... $2,852,311+ 2,724,900
==========
Cash and other assets, net
of
liabilities -- 34.4%..... 1,430,650
----------
NET ASSETS -- 100.0%....... $4,155,550
==========
</TABLE>
+ The cost for Federal income tax purposes is substantially the same.
* Non-income producing securities.
See accompanying notes to financial statements.
19
<PAGE> 29
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............................................... $ 1,185,176 $ 421,650 $ 302,100
Australia............................................... -- 586,107 --
Belgium................................................. 660,162 240,722 --
Brazil.................................................. -- 280,594 199,643
Canada.................................................. 903,662 -- --
Chile................................................... -- 534,050 --
Czech Republic.......................................... -- 103,972 --
Denmark................................................. -- -- 757,625
France.................................................. 1,378,863 957,549 2,844,589
Germany................................................. 2,039,757 750,461 938,063
Great Britain........................................... 1,041,160 1,244,565 948,624
Hong Kong............................................... -- 614,587 433,200
Hungary................................................. -- 386,450 --
India................................................... -- 297,265 --
Indonesia............................................... -- 139,554 --
Italy................................................... 635,982 332,102 1,344,562
Japan................................................... 1,609,390 1,410,226 615,125
Korea................................................... -- 180,027 --
Malaysia................................................ -- 1,063,373 --
Mexico.................................................. 385,313 248,125 465,850
Netherlands............................................. -- 317,949 --
New Zealand............................................. -- 236,479 --
Norway.................................................. -- 175,168 --
Peru.................................................... -- 222,500 --
Philippines............................................. -- 124,575 --
Poland.................................................. -- 212,553 --
Portugal................................................ -- 388,313 --
Singapore............................................... -- 525,372 --
South Africa............................................ -- 204,313 --
Spain................................................... 214,782 325,162 1,609,650
Sweden.................................................. 316,128 -- --
Switzerland............................................. -- 773,874 847,134
Taiwan.................................................. -- 154,375 --
Thailand................................................ -- 358,967 --
United States........................................... 16,418,461 8,232,349 34,447,028
----------- ----------- -----------
Total Investments....................................... $26,788,836 $ 22,043,328 $ 45,753,193
=========== =========== ===========
</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.
20
<PAGE> 30
ESC STRATEGIC FUNDS, INC.
Statements of Assets and Liabilities
March 31, 1997
<TABLE>
<CAPTION>
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION GROWTH
------------ ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at value (cost $10,252,928;
$26,925,022; $19,115,630; $52,204,352;
$40,844,588; $2,852,311,
respectively)........................... $10,198,920 $26,613,836 $20,803,328 $60,787,638 $45,753,193 $2,724,900
Short-Term Investments (cost $0; $175,000;
$1,240,000, $0, $0, $0, respectively)... 0 175,000 1,240,000 0 0 0
Cash...................................... 2,298,854 6,640,359 442,646 34,168,048 3,118,808 1,618,670
Foreign currency (cost $0; $0; $11,007;
$0; $0; $0, respectively)............... 0 0 10,711 0 0 0
Dividends and interest receivable......... 145,989 742,553 41,312 2,704 23,060 1,100
Receivable from Adviser................... 58,375 0 0 0 0 12,626
Receivable for fund shares sold........... 0 0 1,000 370,596 6,893 49,716
Withholding tax reclaim receivable........ 0 0 11,048 0 5,484 0
Unamortized organizational expenses (Note
2e)..................................... 18,175 18,416 18,585 23,736 19,914 0
----------- ----------- ----------- ----------- ----------- ----------
Total Assets........................ 12,720,313 34,190,164 22,568,630 95,352,722 48,927,352 4,407,012
----------- ----------- ----------- ----------- ----------- ----------
LIABILITIES
Payable for securities purchased.......... 0 191,404 22,386 78,750 0 230,036
Income distribution payable............... 0 1,729 0 0 0 0
Payable for fund shares repurchased....... 0 1,853 1,158 209,949 1,981 7,776
Unrealized loss on open forward currency
contracts............................... 0 0 6 0 0 0
Advisory fee payable (Note 3)............. 2,691 29,426 19,384 80,571 42,746 0
Administrative services fee payable (Note
3)...................................... 636 4,414 2,908 12,086 6,412 0
Transfer agent fee payable (Note 3)....... 1,614 3,387 4,785 11,017 6,532 1,158
12b-1 Distribution fee payable............ 4,699 13,455 14,400 79,656 35,667 849
Other accrued expenses.................... 22,946 18,532 17,380 810 12,708 11,643
----------- ----------- ----------- ----------- ----------- ----------
Total Liabilities................... 32,586 264,200 82,407 472,839 106,046 251,462
----------- ----------- ----------- ----------- ----------- ----------
NET ASSETS.................................. $12,687,727 $33,925,964 $22,486,223 $94,879,883 $48,821,306 $4,155,550
=========== =========== =========== =========== =========== ==========
NET ASSETS CONSIST OF:
Capital stock............................. $ 1,283 $ 3,485 $ 1,935 $ 5,421 $ 3,483 $ 431
Additional paid-in capital................ 12,759,701 34,618,785 19,922,609 84,367,820 41,831,548 4,307,720
Accumulated undistributed net investment
income/ (loss) on investments........... 8,319 397,655 (2,380) 0 0 561
Accumulated undistributed realized
gain/(loss) on investments and foreign
currency transactions................... (27,568) (779,672) 876,664 1,923,356 2,077,670 (25,751)
Net unrealized appreciation/(depreciation)
on investments and foreign currency
translations............................ (54,008) (314,289) 1,687,395 8,583,286 4,908,605 (127,411)
----------- ----------- ----------- ----------- ----------- ----------
NET ASSETS................................ $12,687,727 $33,925,964 $22,486,223 $94,879,883 $48,821,306 $4,155,550
=========== =========== =========== =========== =========== ==========
SHARES OF BENEFICIAL INTEREST
Class A:
Shares of beneficial interest
outstanding........................... 1,282,927 3,339,466 1,568,551 4,129,592 3,190,643 295,961
=========== =========== =========== =========== =========== ==========
Net asset value per share outstanding... $9.89 $9.73 $11.66 $17.55 $14.03 $9.64
=========== =========== =========== =========== =========== ==========
Maximum offering price per share (N/A,
$9.73/.955, $11.66/.955, $17.55/.955,
$14.03/.955, $9.64/.955,
respectively)......................... $9.89 $10.19 $12.21 $18.38 $14.69 $10.09
=========== =========== =========== =========== =========== ==========
Class D:
Shares of beneficial interest
outstanding........................... N/A 145,898 366,560 1,290,948 292,678 135,392
=========== =========== =========== =========== =========== ==========
Net asset value per share outstanding... N/A $9.73 $11.47 $17.35 $13.85 $9.63
=========== =========== =========== =========== =========== ==========
Maximum offering price per share (N/A,
$9.73/.985, $11.47/.985, $17.35/.985,
$13.85/.985, $9.63/.985,
respectively)......................... N/A $9.88 $11.64 $17.61 $14.06 $9.78
=========== =========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 31
ESC STRATEGIC FUNDS, INC.
Statements of Operations
For the Year Ended March 31, 1997
<TABLE>
<CAPTION>
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION GROWTH(a)
------------ ---------- ------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Interest (net of withholding tax of
$0, $16,564, $0, $0, $0, $0,
respectively)...................... $724,137 $2,655,328 $ 66,069 $ 434,542 $ 96,988 $ 11,499
Dividends (net of withholding tax of
$0, $0, $21,679, $0, $0, $0,
respectively)...................... 15,340 57,500 318,440 367,313 540,427 1,444
------------ ---------- ------------- ---------- ------------ ---------
739,477 2,712,828 384,509 801,855 637,415 $ 12,943
------------ ---------- ------------- ---------- ------------ ---------
Expenses:
Advisory............................. 60,856 380,147 207,116 652,644 419,329 7,185
Administrative services.............. 18,257 57,022 31,067 96,544 62,899 862
Fund Accounting...................... 37,379 40,289 54,374 34,033 45,913 5,923
Legal................................ 3,128 9,072 5,403 16,213 10,170 456
Reports to shareholders.............. 1,744 5,921 4,774 12,298 7,999 200
Audit................................ 16,800 16,800 21,000 19,500 18,000 6,500
Registration......................... 12,317 19,384 20,060 26,020 21,140 5,093
Custodian............................ 13,312 36,973 49,506 53,412 39,657 2,019
Trustee.............................. 4,050 4,050 4,050 4,050 4,050 750
Transfer agent fees and expenses..... 12,400 15,980 19,157 49,501 21,167 2,872
12b-1 Distribution fee -- Class A.... 17,770 42,069 24,898 127,326 96,480 570
12b-1 Distribution fee -- Class D.... 0 10,963 30,169 108,542 23,480 279
Insurance............................ 1,395 4,042 1,931 3,979 2,956 0
Amortization of organizational
expenses........................... 8,867 8,867 8,867 10,940 8,867 0
Miscellaneous........................ 7,575 693 7,157 880 6,987 1,718
------------ ---------- ------------- ---------- ------------ ---------
Total expenses before waivers........ 215,850 652,272 489,529 1,215,882 789,094 34,427
Less: expenses waived/reimbursed..... (97,929) 0 0 0 0 (20,673)
Less: expenses paid by third
parties............................ (5,458) (16,643) (1,266) (50,119) (8,633) (1,322)
------------ ---------- ------------- ---------- ------------ ---------
Net expenses......................... 112,463 635,629 488,263 1,165,763 780,461 12,432
------------ ---------- ------------- ---------- ------------ ---------
Net investment income/(loss)........... 627,014 2,077,199 (103,754) (363,908) (143,046) 511
------------ ---------- ------------- ---------- ------------ ---------
Realized gain/(loss) on investments.... (17,562) (779,634) 1,451,123 3,281,474 3,760,548 (25,751)
Net realized gain/(loss) on foreign
currency transactions and assets and
liabilities denominated in foreign
currencies........................... 0 242,135 (282) 0 0 0
Net change in unrealized appreciation/
(depreciation) of investments........ (110,465) 4,896 328,837 1,691,183 751,608 (127,411)
Net change in unrealized gain/(loss) on
foreign currency translation......... 0 (3,885) (261) 0 0 0
------------ ---------- ------------- ---------- ------------ ---------
Net realized and unrealized gain/(loss)
on investments and foreign currency
translation.......................... (128,027) (536,488) 1,779,417 4,972,657 4,512,156 (153,162)
------------ ---------- ------------- ---------- ------------ ---------
Net increase/(decrease) in net assets
resulting from operations............ $498,987 $1,540,711 $ 1,675,663 $4,608,749 $4,369,110 $(152,651)
=========== ========== ============ ========== =========== ==========
</TABLE>
(a) For the period from January 28, 1997 (commencement of operations) through
March 31, 1997.
See accompanying notes to financial statements.
22
<PAGE> 32
ESC STRATEGIC FUNDS, INC.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
ASSET PRESERVATION INCOME
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income....................... $ 627,014 $ 705,577 $ 2,077,199 $ 2,178,866
Net realized gain/(loss) on investments and
foreign currency transactions............. (17,562) 1,024 (537,499) 741,500
Net unrealized appreciation/(depreciation)
of investments and foreign currency
transactions.............................. (110,465) 128,200 1,011 (285,681)
-------------- -------------- -------------- --------------
Net increase in net assets resulting from
operations.................................. 498,987 834,801 1,540,711 2,634,685
-------------- -------------- -------------- --------------
Dividends and Distributions to Shareholders:
From net investment income:
Class A................................... (627,014) (705,577) (2,004,240) (2,104,878)
Class D................................... 0 0 (72,963) (73,988)
-------------- -------------- -------------- --------------
(627,014) (705,577) (2,077,203) (2,178,866)
-------------- -------------- -------------- --------------
From realized gains:
Class A................................... 0 0 0 (741,974)
Class D................................... 0 0 0 (28,940)
-------------- -------------- -------------- --------------
0 0 0 (770,914)
-------------- -------------- -------------- --------------
Decrease in net assets resulting from
dividends and distributions to
shareholders.............................. (627,014) (705,577) (2,077,203) (2,949,780)
-------------- -------------- -------------- --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A................................... 3,981,188 1,045,974 6,683,254 4,281,407
Class D................................... 0 0 84,695 307,314
-------------- -------------- -------------- --------------
3,981,188 1,045,974 6,767,949 4,588,721
-------------- -------------- -------------- --------------
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions:
Class A................................... 594,129 705,053 1,821,515 2,614,384
Class D................................... 0 0 67,648 67,280
-------------- -------------- -------------- --------------
594,129 705,053 1,889,163 2,681,664
-------------- -------------- -------------- --------------
Net asset value of shares redeemed:
Class A................................... (5,000,234) (563,282) (12,379,107) (2,073,972)
Class D................................... 0 0 (152,695) (158,592)
-------------- -------------- -------------- --------------
(5,000,234) (563,282) (12,531,802) (2,232,564)
-------------- -------------- -------------- --------------
Net increase/(decrease) in net assets from
capital share transactions.............. (424,917) 1,187,745 (3,874,690) 5,037,821
-------------- -------------- -------------- --------------
Total increase/(decrease) in net assets....... (552,944) 1,316,969 (4,411,182) 4,722,726
Net Assets:
Beginning of year........................... 13,240,671 11,923,702 38,337,146 33,614,420
-------------- -------------- -------------- --------------
End of year................................. $ 12,687,727 $ 13,240,671 $ 33,925,964 $ 38,337,146
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 33
ESC STRATEGIC FUNDS, INC.
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY SMALL CAP
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income/(loss)................ $ (103,754) $ (66,431) $ (363,908) $ (207,011)
Net realized gain/(loss) on investments and
foreign currency transactions............. 1,450,841 899,527 3,281,474 2,358,416
Net unrealized appreciation/(depreciation)
of investments and foreign currency
transactions.............................. 328,576 1,134,339 1,691,183 6,353,643
-------------- -------------- -------------- --------------
Net increase in net assets resulting from
operations.................................. 1,675,663 1,967,435 4,608,749 8,505,048
-------------- -------------- -------------- --------------
Dividends and Distributions to Shareholders:
From net investment income:
Class A................................... 0 0 0 0
Class D................................... 0 0 0 0
-------------- -------------- -------------- --------------
0 0 0 0
-------------- -------------- -------------- --------------
From realized gains:
Class A................................... (538,288) (282,697) (2,245,054) (648,997)
Class D................................... (124,560) (75,804) (589,117) (188,574)
-------------- -------------- -------------- --------------
(662,848) (358,501) (2,834,171) (837,571)
-------------- -------------- -------------- --------------
Decrease in net assets resulting from
dividends and distributions to
shareholders.............................. (662,848) (358,501) (2,834,171) (837,571)
-------------- -------------- -------------- --------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A................................... 2,936,685 4,242,822 44,903,590 14,484,625
Class D................................... 314,954 419,411 13,740,847 3,972,125
-------------- -------------- -------------- --------------
3,251,639 4,662,233 58,644,437 18,456,750
-------------- -------------- -------------- --------------
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions:
Class A................................... 430,207 210,986 1,996,351 555,664
Class D................................... 124,562 77,940 587,122 186,118
-------------- -------------- -------------- --------------
554,769 288,926 2,583,473 741,782
-------------- -------------- -------------- --------------
Net asset value of shares redeemed:
Class A................................... (555,272) (242,681) (4,643,523) (887,112)
Class D................................... (99,859) (530,488) (1,216,361) (393,753)
-------------- -------------- -------------- --------------
(655,131) (773,169) (5,859,884) (1,280,865)
-------------- -------------- -------------- --------------
Net increase in net assets from capital
share transactions...................... 3,151,277 4,177,990 55,368,026 17,917,667
-------------- -------------- -------------- --------------
Total increase in net assets.................. 4,164,092 5,786,924 57,142,604 25,585,144
Net Assets:
Beginning of year........................... 18,322,131 12,535,207 37,737,279 12,152,135
-------------- -------------- -------------- --------------
End of year................................. $ 22,486,223 $ 18,322,131 $ 94,879,883 $ 37,737,279
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 34
ESC STRATEGIC FUNDS, INC.
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GROWTH
-------------------
APPRECIATION JANUARY 28, 1997
------------------------------- (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) THROUGH
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1997
-------------- -------------- -------------------
<S> <C> <C> <C>
Operations:
Net investment income/(loss).......................... $ (143,046) $ (101,265) $ 511
Net realized gain/(loss) on investments and foreign
currency transactions............................... 3,760,548 1,695,907 (25,751)
Net unrealized appreciation/(depreciation) of
investments and foreign currency transactions....... 751,608 3,346,495 (127,411)
-------------- -------------- -------------------
Net increase in net assets resulting from operations.... 4,369,110 4,941,137 (152,651)
-------------- -------------- -------------------
Dividends and Distributions to Shareholders:
From net investment income:
Class A............................................. 0 0 0
Class D............................................. 0 0 0
-------------- -------------- -------------------
0 0 0
-------------- -------------- -------------------
From realized gains:
Class A............................................. (2,410,033) (572,885) 0
Class D............................................. (183,443) (50,608) 0
-------------- -------------- -------------------
(2,593,476) (623,493) 0
-------------- -------------- -------------------
Decrease in net assets resulting from dividends and
distributions to shareholders....................... (2,593,476) (623,493) 0
-------------- -------------- -------------------
Capital Share Transactions:
Proceeds from sales of shares:
Class A............................................. 17,929,334 8,089,429 2,970,948
Class D............................................. 1,473,420 669,839 1,359,717
-------------- -------------- -------------------
19,402,754 8,759,268 4,330,665
-------------- -------------- -------------------
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A............................................. 2,230,880 495,951 0
Class D............................................. 181,288 49,839 0
-------------- -------------- -------------------
2,412,168 545,790 0
-------------- -------------- -------------------
Net asset value of shares redeemed:
Class A............................................. (2,602,856) (2,076,796) (17,776)
Class D............................................. (209,187) (322,285) (4,788)
-------------- -------------- -------------------
(2,812,043) (2,399,081) (22,564)
-------------- -------------- -------------------
Net increase in net assets from capital share
transactions...................................... 19,002,879 6,905,977 4,308,101
-------------- -------------- -------------------
Total increase in net assets............................ 20,778,513 11,223,621 4,155,450
Net Assets:
Beginning of period................................... 28,042,793 16,819,172 100
-------------- -------------- -------------------
End of period......................................... $ 48,821,306 $ 28,042,793 $ 4,155,550
============== ============== ==================
</TABLE>
See accompanying notes to financial statements.
25
<PAGE> 35
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements -- March 31, 1997
1. DESCRIPTION. ESC Strategic Funds, Inc. (the "Company") was
incorporated in Maryland on November 24, 1993. The Company currently comprises
seven portfolios, ESC Strategic Asset Preservation (commencement date April 25,
1994), ESC Strategic Income Fund (commencement date May 4, 1994), ESC Strategic
Global Equity Fund (commencement date May 12, 1994), ESC Strategic Small Cap
Fund (commencement date June 8, 1994), ESC Strategic Appreciation Fund
(commencement date July 6, 1994), and ESC Strategic Growth Fund (commencement
date January 28, 1997) (collectively the "Funds"). ESC Strategic Value Fund has
not commenced operations as of March 31, 1997. 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 ESC Strategic
Small Cap Fund, operates as a diversified fund. ESC Strategic 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 ESC Strategic 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% except for ESC Asset Preservation Fund, 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. ESC Strategic Asset Preservation Fund offers only one class
of shares with no front-end sales charge and is subject to 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.
The Funds' investment objectives are as follows:
ESC Strategic Asset Preservation Fund -- as high a level of current
income as is consistent with limiting the risk of potential loss.
ESC Strategic Income Fund -- a high level of current income, with a
secondary objective of total return.
ESC Strategic Global Equity Fund -- long-term capital appreciation.
ESC Strategic Small Cap Fund -- high level of capital appreciation.
ESC Strategic Appreciation Fund -- long-term capital appreciation.
ESC Strategic Growth Fund -- high level of capital appreciation.
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.
26
<PAGE> 36
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
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
considered either 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.
For the year ended March 31, 1997, 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 GROWTH
------------ --------- -------- --------- ------------ ------
<S> <C> <C> <C> <C> <C> <C>
Accumulated undistributed net
investment income/(loss) on
investments....................... $ 8,319 $(111,437) $ 17,849 $ 363,908 $143,046 $ 50
Accumulated undistributed net
realized gain/(loss) on
investments....................... 1,079 130,500 (5,449) (332,426) (122,717) --
Additional paid-in capital.......... (9,398) (19,063) (12,400) (31,482) (20,329) (50)
</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, with the exception of
the Growth Fund, have been deferred and are being amortized on a
straight-line 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 of the Company are allocated proportionately among the
Funds 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.
27
<PAGE> 37
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
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 at period
end. 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 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 buy or 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 of original contracts and the amount realized upon the closing of
such contracts is included in net realized gains on foreign exchange
transactions.
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 in accordance with
generally accepted accounting principles. 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, 1997, custodian fees and expenses
paid by third parties were increased by $5,458, $16,643, $1,266, $50,119,
$8,633 and $1,322 for the Asset Preservation, Income, Global Equity, Small
Cap, Appreciation, and Growth 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 has entered into an investment advisory agreement (the
"Investment Advisory Agreement") with Equitable Securities Corporation ("ESC")
or (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% of average daily net assets for ESC Strategic Asset Preservation
Fund, 1.25% of such net assets for ESC Strategic Growth Fund and 1.00% of such
net assets for each of the other Funds. The Adviser provides portfolio
management supervision and certain administrative, clerical and bookkeeping
services for the Company. The Adviser has entered into agreements with various
portfolio managers (the "Managers") to provide portfolio management services for
the Funds. Equitable Asset
28
<PAGE> 38
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
Management, a wholly-owned subsidiary of the Adviser, provides portfolio
management services for Asset Preservation, Small Cap, and Growth Funds and
approximately one-third of the assets of the Appreciation Fund. The Adviser has
retained various other Managers to advise the Global Equity Fund, Income Fund
and the remaining assets of the Appreciation Fund. Any fees payable under these
agreements with the Managers are paid by the Adviser. For the year ended March
31, 1997, the Adviser voluntarily waived fees of $30,428 for the Asset
Preservation Fund and $7,185 for the Growth Fund.
Furman Selz LLC ("Furman Selz") provided the Funds with administrative,
fund accounting, dividend and capital gain distribution disbursing and transfer
agency services. All services were subject to the supervision of the Company's
Board of Directors and officers pursuant to the administration agreement (the
"Administration Agreement"). The services under the Administration Agreement
included 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 paid 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 was accrued daily.
Pursuant to a Services Agreement between the Funds and Furman Selz, Furman
Selz provided the Funds with transfer and dividend and capital gain disbursing
agent services, for which it received 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 assisted the Funds in calculating net asset values and
provided certain other account services for each Fund for an annual fee of
$30,000 per Fund plus out-of-pocket expenses.
Effective November 9, 1996, BISYS Fund Services, Inc. ("BISYS") became the
successor transfer agent to Furman Selz. Also, effective January 1, 1997, BISYS
Fund Services became the successor Administrator to Furman Selz. In addition,
effective January 1, 1997, BISYS became the successor Fund Accounting Agent to
Furman Selz. Each of these services is provided by BISYS or BISYS Fund Services
on substantially similar terms as described above.
For the year ended March 31, 1997, Furman Selz and BISYS were entitled to
the following fees excluding out-of pocket expenses:
<TABLE>
<CAPTION>
FURMAN SELZ BISYS
---------------------------------------- ----------------------------------------
TRANSFER FUND TRANSFER FUND
ADMINISTRATION AGENCY ACCOUNTING ADMINISTRATION AGENCY ACCOUNTING
-------------- -------- ---------- -------------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Asset
Preservation.... $ 13,579 $ 7,500 $ 22,500 $ 4,678 $ 2,500 $7,500
Income............ 43,472 7,500 22,500 13,550 2,500 7,500
Global Equity..... 22,578 7,500 22,500 8,489 2,500 7,500
Small Cap......... 63,535 20,812 22,500 33,009 12,470 7,500
Appreciation...... 44,387 7,500 22,500 18,512 2,500 7,500
Growth............ -- -- -- 862 1,774 5,323
</TABLE>
For the year ended March 31, 1997, Furman Selz and BISYS voluntarily waived
administration fees of $6,790 and $2,338, respectively, for the Asset
Preservation Fund. In addition, BISYS voluntarily waived administration fees of
$862, for the Growth Fund.
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 -- 2.00% (Class A), 2.50% (Class D); Asset Preservation -- 1.00% (Class
A) and Growth -- 2.00% (Class A), 2.50% (Class D). Accordingly, ESC has
reimbursed expenses of the Asset Preservation Fund and the Growth Fund in the
amounts of $58,373 and
29
<PAGE> 39
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
$12,626, respectively under this voluntary agreement. No reimbursements were
necessary for the Appreciation, Global Equity, Small Cap, or Income Funds.
The Company has entered into a distribution agreement (the "Distribution
Agreement") with ESC. Under the Distribution Agreement, ESC as agent for the
Funds, agrees to use its best efforts as sole distributor of the Funds' shares.
Under the Plan of Distribution, Class A shares will pay the Distributor a fee at
an annual rate up to 0.25% of the value of average daily net assets of Class A
shares in return for financing certain distribution and shareholder service
activities related to Class A shares. During the year ended March 31, 1997, the
actual rates incurred by Class A shares were: 0.15%; 0.12%; 0.15%; 0.25%; 0.25%
and 0.14% for the Asset Preservation, Income, Global Equity, Small Cap,
Appreciation and Growth 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, 1997, the actual rates incurred by Class D shares were: 0.75%; 0.75%;
0.74%; 0.75% and 0.14% for the Income, Global Equity, Small Cap, Appreciation
and Growth Funds, respectively.
During the year ended March 31, 1997, the Appreciation Fund, the Global
Equity Fund and the Small Cap Fund paid brokerage commissions of $38,132, $8,976
and $2,400, respectively, to Equitable Securities, a subsidiary of the Adviser's
subsidiary, Equitable Trust Company. Also, the Funds were advised that front-end
sales charges of $1,212, $8,018, $212,117, $18,063 and $74,807 were paid to ESC
from the Income, Global Equity, Small Cap, Appreciation and Growth 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, 1997 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.... $ 764,613 $ 3,865,850 $ 3,356,205 $ 3,061,934
Income............ 19,120,251 20,343,515 19,851,656 23,737,621
Global Equity..... 20,952,784 18,267,407 0 0
Small Cap......... 57,024,886 30,866,420 0 0
Appreciation...... 42,004,439 27,589,822 0 0
Growth(a)......... 3,038,036 159,975 0 0
</TABLE>
B. FEDERAL INCOME TAX BASIS. Cost for book and federal income tax
purposes were substantially the same as of March 31, 1997. Gross unrealized
appreciation and depreciation on investment securities at March 31, 1997,
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............ $ 31,794 $ (85,802) $ (54,008)
Income........................ 434,117 (745,303) (311,186)
Global Equity................. 3,016,244 (1,328,546) 1,687,698
Small Cap..................... 10,518,646 (1,935,360) 8,583,286
Appreciation.................. 7,340,963 (2,430,520) 4,910,443
Growth(a)..................... 52,566 (179,977) (127,411)
</TABLE>
(a) For the period from January 28, 1997 (commencement of operations) through
March 31, 1997.
30
<PAGE> 40
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
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 year ended March 31, 1997, and the year ended March
31, 1996, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
------------------------------------------------------------------------------------
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION GROWTH(a)
------------ ------------ ------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Beginning Balance............ 1,323,793 3,730,042 1,321,204 1,816,310 1,963,842 10
--------- ---------- --------- --------- --------- -------
Shares sold.................. 401,718 676,705 258,134 2,460,003 1,249,192 297,773
Shares issued in reinvestment
of net investment income
and capital gain
distributions.............. 59,774 184,080 37,151 109,931 154,922 0
Shares redeemed.............. (502,358) (1,251,361) (47,938) (256,652) (177,313) (1,822)
--------- ---------- --------- --------- --------- -------
Net increase/(decrease) in
shares..................... (40,866) (390,576) 247,347 2,313,282 1,226,801 295,951
--------- ---------- --------- --------- --------- -------
Ending Balance............... 1,282,927 3,339,466 1,568,551 4,129,592 3,190,643 295,961
========= ========== ========= ========= ========= =======
CLASS D
Beginning Balance............ -- 145,876 336,540 564,447 192,247 0
--------- ---------- --------- --------- --------- -------
Shares sold.................. -- 8,550 27,967 762,148 102,108 135,884
Shares issued in reinvestment
of net investment income
and capital gain
distributions.............. -- 6,828 10,917 32,655 12,722 0
Shares redeemed.............. -- (15,356) (8,864) (68,302) (14,399) (492)
--------- ---------- --------- --------- --------- -------
Net increase/(decrease) in
shares..................... -- 22 30,020 726,501 100,431 135,392
--------- ---------- --------- --------- --------- -------
Ending Balance............... -- 145,898 366,560 1,290,948 292,678 135,392
========= ========== ========= ========= ========= =======
</TABLE>
(a) For the period from January 28, 1997 (commencement of operations) through
March 31, 1997.
31
<PAGE> 41
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1996
-------------------------------------------------------------------
ASSET GLOBAL
PRESERVATION INCOME EQUITY SMALL CAP APPRECIATION
------------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
CLASS A
Beginning Balance..................... 1,205,690 3,256,233 931,096 780,607 1,418,131
--------- --------- --------- --------- ---------
Shares sold........................... 103,797 421,654 392,583 1,059,794 670,203
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... 70,131 259,064 19,718 38,534 40,093
Shares redeemed....................... (55,825) (206,909) (22,193) (62,625) (164,585)
--------- --------- --------- --------- ---------
Net increase/(decrease) in shares..... 118,103 473,809 390,108 1,035,703 545,711
--------- --------- --------- --------- ---------
Closing Balance....................... 1,323,793 3,730,042 1,321,204 1,816,310 1,963,842
========= ========= ========= ========= =========
CLASS D
Beginning Balance..................... -- 124,831 338,355 300,196 159,350
--------- --------- --------- --------- ---------
Shares sold........................... -- 30,034 39,211 280,236 55,499
Shares issued in reinvestment of net
investment income and capital gain
distributions....................... -- 6,665 7,360 12,979 4,055
Shares redeemed....................... -- (15,654) (48,386) (28,964) (26,657)
--------- --------- --------- --------- ---------
Net increase/(decrease) in shares..... -- 21,045 (1,815) 264,251 32,897
--------- --------- --------- --------- ---------
Closing Balance....................... -- 145,876 336,540 564,447 192,247
========= ========= ========= ========= =========
</TABLE>
6. MULTIPLE MANAGER STRATEGY. The Adviser uses the Multiple Manager
Strategy for certain of the Funds from time to time. Under this strategy, the
Adviser allocates portions of a Fund's assets among multiple specialist Managers
with dissimilar investment styles and security selection disciplines. The
Adviser monitors the performance both of the total Fund portfolio and of each
Manager and will reallocate Fund assets among individual Managers, or recommend
to the Company that it employ or terminate particular Managers, to the extent
the Adviser deems appropriate to achieve the overall objectives of the
particular Fund.
The Managers are as follows:
ESC Strategic Asset Preservation Fund -- Equitable Asset Management,
Inc.
ESC Strategic Income Fund -- Llama Asset Management Company, L.P.;
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., Scott & Stringfellow Capital Management,
Inc. and Equitable Asset Management, Inc.
ESC Strategic Growth Fund -- Equitable Asset Management, Inc.
Equitable Asset Management, Inc. is an affiliate of the Adviser.
32
<PAGE> 42
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1997
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 foreign currency contracts. During the period the
forward contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" such contract on a daily basis
to reflect the market value of the contract at the end of each day's trading.
When the forward contract is closed, the Fund records a realized gain or loss
between the proceeds from (or cost of) the closing transaction and the Fund's
basis in the contract. The Funds enter into such contracts for the purpose of
hedging exposure to change in foreign currency exchange rates on their portfolio
holdings. A lack of correlation between the price of the security and the
underlying contract could result in a loss to the Funds. At March 31, 1997, the
Global Equity Fund had the following open forward foreign currency contracts:
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
SETTLEMENT UNREALIZED
AMOUNT/CURRENCY DATE DELIVER VALUE (LOSS)
- ------------------------------ ---------- ----------- ------- ----------
<S> <C> <C> <C> <C>
98,948/South African Rand 4/1/97 U.S.$22,392 $22,386 $ (6)
========== ======= ========
</TABLE>
8. FEDERAL INCOME TAXES. Capital losses and foreign currency losses
incurred after October 31, 1996 through March 31, 1997, are deemed to arise on
the first business day of the following fiscal year. The Income and Growth Funds
incurred and will elect to defer post October capital losses of approximately
$562,477 and $25,751, respectively. The Global Equity Fund incurred and will
elect to defer post October foreign currency losses of approximately $2,380.
At March 31, 1997, the Asset Preservation Fund had net capital loss
carryforwards of approximately $11,086 and $16,482, which will be available
through March 2003 and March 2005, respectively, to offset future capital gains
as provided by the regulations. The Income Fund had net capital loss
carryforwards of approximately $217,195, which will be available through March
2005 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.
33
<PAGE> 43
ESC STRATEGIC FUNDS, INC.
Financial Highlights
<TABLE>
<CAPTION>
ASSET PRESERVATION
-----------------------------------------------
APRIL 25,
1994
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 1995
-------------- -------------- -------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............................ $ 10.00 $ 9.89 $ 10.00
------- ------- -------
Income from Investment Operations:
Net investment income......................................... 0.49 0.56 0.47
Net realized and unrealized gain/(loss) on investments........ (0.11) 0.11 (0.11)
------- ------- -------
Total from investment operations.............................. 0.38 0.67 0.36
------- ------- -------
Less Dividends and Distributions:
From net investment income.................................... (0.49) (0.56) 0.00
From realized gains........................................... 0.00 0.00 (0.47)
------- ------- -------
Total distributions............................................. (0.49) (0.56) (0.47)
------- ------- -------
Net Asset Value, End of Period.................................. $ 9.89 $ 10.00 $ 9.89
======= ======= =======
Total Return.................................................... 4.12% 6.85% 3.75%
Net Assets End of Period (in thousands)......................... $ 12,688 $ 13,241 $11,924
Ratios to Average Net Assets of:
Net investment income......................................... 5.15% 5.53% 5.15%*
Expenses net of waivers/reimbursements and expenses paid by
third parties............................................... 0.92% 0.90% 1.00%*
Expenses before waivers/reimbursements and expenses paid by
third parties............................................... 1.77% 1.58% 2.12%*
Portfolio Turnover Rate......................................... 41% 40% 30%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
34
<PAGE> 44
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
INCOME
--------------------------------------------------------------------------------------------
CLASS A CLASS D
--------------------------------------------- ---------------------------------------------
MAY 4, 1994 MAY 4, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
THROUGH THROUGH
YEAR ENDED YEAR ENDED MARCH 31, YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 1995 MARCH 31, 1997 MARCH 31, 1996 1995
-------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $ 9.89 $ 9.94 $ 10.00 $ 9.89 $ 9.94 $ 10.00
-------------- -------------- ------------- ------- ------- -------------
Income from Investment
Operations:
Net investment income........ 0.60 0.59 0.55 0.50 0.54 0.50
Net realized and unrealized
gain/(loss) on investments
and foreign currency
transactions............... (0.16) 0.16 (0.05) (0.16) 0.16 (0.05)
-------------- -------------- ------------- ------- ------- -------------
Total from investment
operations................. 0.44 0.75 0.50 0.34 0.70 0.45
-------------- -------------- ------------- ------- ------- -------------
Less Dividends and
Distributions:
From net investment income... (0.60) (0.59) (0.01) (0.50) (0.54) (0.01)
From realized gains.......... 0.00 (0.21) (0.55) 0.00 (0.21) (0.50)
-------------- -------------- ------------- ------- ------- -------------
Total distributions............ (0.60) (0.80) (0.56) (0.50) (0.75) (0.51)
-------------- -------------- ------------- ------- ------- -------------
Net Asset Value, End of
Period....................... $ 9.73 $ 9.89 $ 9.94 $ 9.73 $ 9.89 $ 9.94
============ ============ ============= ============ ============ =============
Total Return (excludes sales
charge)...................... 3.91% 7.67% 5.30% 3.39% 7.11% 4.74%*
Net Assets End of Period
(in thousands)............... $ 32,506 $ 36,891 $32,373 $1,420 $1,446 $ 1,241
Ratios to Average Net Assets of:
Net investment income........ 5.49% 5.87% 6.29%* 4.99% 5.37% 5.73%*
Expenses net of waivers/
reimbursements and expenses
paid by third parties...... 1.65% 1.70% 1.85%* 2.15% 2.20% 2.29%*
Expenses before waivers/
reimbursements and expenses
paid by third parties...... 1.70% 1.75% 1.86%* 2.21% 2.25% 2.31%*
Portfolio Turnover Rate........ 123% 138% 92% 123% 138% 92%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
35
<PAGE> 45
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY
--------------------------------------------------------------------------------------------
CLASS A CLASS D
--------------------------------------------- ---------------------------------------------
MAY 12, 1994 MAY 12, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
THROUGH THROUGH
YEAR ENDED YEAR ENDED MARCH 31, YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 1995 MARCH 31, 1997 MARCH 31, 1996 1995
-------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................... $ 11.08 $ 9.90 $ 10.00 $ 10.95 $ 9.82 $ 10.00
-------------- -------------- ------------- -------------- ------- -------------
Income from Investment
Operations:
Net investment loss.......... (0.04) (0.04) (0.05) (0.10) (0.09) (0.07)
Net realized and unrealized
gain/(loss) on investments
and foreign currency
transactions............... 0.97 1.46 (0.03) 0.97 1.46 (0.10)
-------------- -------------- ------------- -------------- ------- -------------
Total from investment
operations................. 0.93 1.42 (0.08) 0.87 1.37 (0.17)
-------------- -------------- ------------- -------------- ------- -------------
Less Dividends and
Distributions:
From net investment income... 0.00 0.00 0.00 0.00 0.00 0.00
From realized gains.......... (0.35) (0.24) (0.02)** (0.35) (0.24) (0.01)**
-------------- -------------- ------------- -------------- ------- -------------
Total distributions............ (0.35) (0.24) (0.02) (0.35) (0.24) (0.01)
-------------- -------------- ------------- -------------- ------- -------------
Net Asset Value, End of
Period....................... $ 11.66 $ 11.08 $ 9.90 $ 11.47 $10.95 $ 9.82
============ ============ ============= ============ ============ =============
Total Return (excludes sales
charge)...................... 8.44% 14.41% (0.84)% 7.99% 14.01% (1.72)%
Net Assets End of Period
(in thousands)............... $ 18,282 $ 14,597 $ 9,213 $ 4,204 $3,725 $ 3,322
Ratios to Average Net Assets of:
Net investment loss.......... (0.40)% (0.36)% (0.65)%* (0.90)% (0.83)% (1.51)%*
Expenses net of waivers/
reimbursements and expenses
paid by third parties...... 2.25% 2.37% 2.50%* 2.78% 2.87% 2.98%*
Expenses before waivers/
reimbursements and expenses
paid by third parties...... 2.25% 2.43% 3.22%* 2.79% 2.96% 3.69%*
Portfolio Turnover Rate........ 94% 92% 76% 94% 92% 76%
Average Commission per
Share........................ $ 0.0201 -- -- $ 0.0201 -- --
</TABLE>
* Annualized.
** Represents distribution in excess of net investment income.
See accompanying notes to financial statements.
36
<PAGE> 46
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
SMALL CAP
--------------------------------------------------------------------------------------------
CLASS A CLASS D
--------------------------------------------- ---------------------------------------------
JUNE 8, 1994 JUNE 8, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
THROUGH THROUGH
YEAR ENDED YEAR ENDED MARCH 31, YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 1995 MARCH 31, 1997 MARCH 31, 1996 1995
-------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................... $ 15.88 $ 11.25 $ 10.00 $ 15.76 $11.22 $ 10.00
-------------- -------------- ------------- -------------- ------- -------------
Income from Investment
Operations:
Net investment loss.......... (0.05) (0.08) (0.03) (0.11) (0.16) (0.05)
Net realized and unrealized
gains on investments....... 2.46 5.19 1.52 2.44 5.18 1.51
-------------- -------------- ------------- -------------- ------- -------------
Total from investment
operations................. 2.41 5.11 1.49 2.33 5.02 1.46
-------------- -------------- ------------- -------------- ------- -------------
Less Dividends and
Distributions:
From net investment income... 0.00 0.00 (0.24) 0.00 0.00 (0.24)
From realized gains.......... (0.74) (0.48) 0.00 (0.74) (0.48) 0.00
-------------- -------------- ------------- -------------- ------- -------------
Total distributions............ (0.74) (0.48) (0.24) (0.74) (0.48) (0.24)
-------------- -------------- ------------- -------------- ------- -------------
Net Asset Value, End of
Period....................... $ 17.55 $ 15.88 $ 11.25 $ 17.35 $15.76 $ 11.22
============ ============ ============= ============ ============ =============
Total Return (excludes sales
charge)...................... 14.99% 45.88% 15.03% 14.59% 45.19% 14.72%
Net Assets End of Period
(in thousands)............... $ 72,488 $ 28,840 $ 8,785 $ 22,392 $8,897 $ 3,367
Ratios to Average Net Assets of:
Net investment loss.......... (0.44)% (0.80)% (0.43)%* (0.96)% (1.30)% (0.93)%*
Expenses net of waivers/
reimbursements and expenses
paid by third parties...... 1.66% 2.00% 2.00%* 2.19% 2.50% 2.50%*
Expenses before waivers/
reimbursements and expenses
paid by third parties...... 1.74% 2.18% 3.28%* 2.29% 2.74% 3.68%*
Portfolio Turnover Rate........ 65% 102% 151% 65% 102% 151%
Average Commission per
Share........................ $ 0.0634 -- -- $ 0.0634 -- --
</TABLE>
* Annualized.
See accompanying notes to financial statements.
37
<PAGE> 47
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
APPRECIATION
--------------------------------------------------------------------------------------------
CLASS A CLASS D
--------------------------------------------- ---------------------------------------------
JULY 6, 1994 JULY 6, 1994
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
THROUGH THROUGH
YEAR ENDED YEAR ENDED MARCH 31, YEAR ENDED YEAR ENDED MARCH 31,
MARCH 31, 1997 MARCH 31, 1996 1995 MARCH 31, 1997 MARCH 31, 1996 1995
-------------- -------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................... $ 13.02 $ 10.67 $ 10.00 $ 12.91 $10.63 $ 10.00
-------------- -------------- ------------- -------------- ------- -------------
Income from Investment
Operations:
Net investment loss.......... (0.04) (0.05) 0.00 (0.08) (0.09) (0.03)
Net realized and unrealized
gains on investments....... 1.92 2.71 0.73 1.89 2.68 0.72
-------------- -------------- ------------- -------------- ------- -------------
Total from investment
operations................. 1.88 2.66 0.73 1.81 2.59 0.69
-------------- -------------- ------------- -------------- ------- -------------
Less Dividends and
Distributions:
From net investment income... 0.00 0.00 0.00 0.00 0.00 0.00
From realized gains.......... (0.87) (0.31) (0.06) (0.87) (0.31) (0.06)
-------------- -------------- ------------- -------------- ------- -------------
Total distributions............ (0.87) (0.31) (0.06) (0.87) (0.31) (0.06)
-------------- -------------- ------------- -------------- ------- -------------
Net Asset Value, End of
Period....................... $ 14.03 $ 13.02 $ 10.67 $ 13.85 $12.91 $ 10.63
============ ============ ============= ============ ============ =============
Total Return (excludes sales
charge)...................... 14.25% 25.07% 7.32% 13.81% 24.50% 6.92%
Net Assets End of Period
(in thousands)............... $ 44,767 $ 25,561 $15,126 $ 4,054 $2,482 $ 1,693
Ratios to Average Net Assets of:
Net loss..................... (0.30)% (0.39)% (0.04)%* (0.78)% (0.86)% (0.56)%*
Expenses net of waivers/
reimbursements and expenses
paid by third parties...... 1.82% 2.00% 2.00%* 2.34% 2.50% 2.50%*
Expenses before waivers/
reimbursements and expenses
paid by third parties...... 1.84% 2.10% 2.88%* 2.36% 2.64% 3.40%*
Portfolio Turnover Rate........ 71% 78% 58% 71% 78% 58%
Average Commission per
Share........................ $ 0.0599 -- -- $ 0.0599 -- --
</TABLE>
* Annualized.
See accompanying notes to financial statements.
38
<PAGE> 48
ESC STRATEGIC FUNDS, INC.
Financial Highlights (continued)
<TABLE>
<CAPTION>
GROWTH
-----------------------------
CLASS A CLASS D
------------- -------------
JANUARY 28, JANUARY 28,
1997 1997
(COMMENCEMENT (COMMENCEMENT
OF OF
OPERATIONS) OPERATIONS)
THROUGH THROUGH
MARCH 31, MARCH 31,
1997 1997
------------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period....................................... $ 10.00 $ 10.00
------------- -------------
Income from Investment Operations:
Net investment income.................................................... 0.00 0.00
Net realized and unrealized (loss) on investments........................ (0.36) (0.37)
------------- -------------
Total from investment operations......................................... (0.36) (0.37)
------------- -------------
Less Dividends and Distributions:
From net investment income............................................... 0.00 0.00
From realized gains...................................................... 0.00 0.00
------------- -------------
Total distributions........................................................ 0.00 0.00
------------- -------------
Net Asset Value, End of Period............................................. $ 9.64 $ 9.63
============= =============
Total Return (excludes sales charge)....................................... (3.60)% (3.70)%
Net Assets End of Period (in thousands).................................... $ 2,852 $ 1,304
Ratios to Average Net Assets of:
Net investment income.................................................... .251%* (0.23)%*
Expenses net of waivers/reimbursements and expenses paid by third
parties................................................................ 2.00%* 2.50%*
Expenses before waivers/reimbursements and expenses paid by third
parties................................................................ 5.51%* 6.91%*
Portfolio Turnover Rate.................................................... 14% 14%
Average Commission per Share............................................... $0.0681 $0.0681
</TABLE>
* Annualized.
See accompanying notes to financial statements.
39
<PAGE> 49
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, ESC Strategic Appreciation Fund and ESC Strategic Growth Fund
(six of the seven portfolios constituting ESC Strategic Funds, Inc. hereafter
referred to as the "Funds") at March 31, 1997, and the results of each of their
operations, the changes in each of their net assets and the financial highlights
for each of the periods presented, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Funds' 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, 1997 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, 1997
FEDERAL TAXATION NOTICE -- UNAUDITED
During the fiscal year ended March 31, 1997, Global Equity Fund, Small Cap Fund
and Appreciation Fund made long-term capital gain distributions of $0.238,
$0.482, $0.308 per share, respectively.
40
<PAGE> 50
ESC STRATEGIC FUNDS, INC.
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS
WILLIAM H. CAMMACK* Chairman, Equitable Securities Corporation
W. HOWARD CAMMACK, JR.* Managing Director, Equitable Securities Corporation
J. BRANSFORD WALLACE Chairman, Willis Coroon, PLC
BROWNLEE O. CURREY, JR. President, The Nashville Banner
E. TOWNES DUNCAN Chairman and Chief Executive Officer, Comptronix
Corporation
* "Interested Person" as that term is defined in the Investment Company Act of 1940.
- ---------------------------------------------------------------------------------------------
OFFICERS
WILLIAM H. CAMMACK President
W. HOWARD CAMMACK, JR. Treasurer
ELLEN STOUTAMIRE Secretary
JOHN L. McALLISTER Assistant Secretary and Assistant Treasurer
MICHAEL SAKALA Assistant Treasurer
R. JEFFREY YOUNG Assistant Treasurer
ALAINA METZ Assistant Secretary
</TABLE>
<PAGE> 51
[ESC STRATEGIC FUNDS LOGO]
ESC STRATEGIC FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OHIO 43219-8006
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
- ---------------
Bisys Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
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
ESC Strategic GROWTH Fund
ANNUAL REPORT
MARCH 31, 1997
