<PAGE> 1
ESC STRATEGIC FUNDS
- --------------------------------------------------------------------------------
May 20, 1998
Dear Shareholder:
We are pleased to present the March 31, 1998 annual report for the ESC Strategic
Funds, Inc. (the "Funds"). This report is our opportunity to inform you of the
progress of the Funds, to discuss expectations and to express our sincere
gratitude for your investment and confidence in our effort.
1997 was the continuation of significant developments for the Funds. As a result
of the merger between SunTrust Banks and Equitable Securities Corporation which
resulted in the formation of SunTrust Equitable Securities, BISYS assumed the
role of Distributor of the Funds. This change in distributorship was essential
under regulatory requirements which dictate that banks and bank owned entities
cannot distribute their own funds. The Funds also added another fund to the
family with the successful launch of the ESC Strategic Value Fund. Unlike some
of the well known value funds which are oriented toward the largest
capitalization stocks with numerous holdings therein, the Value Fund
concentrates on seeking the most compelling value opportunities emphasizing
individual stock selections over broad sector or industry themes. Also, the ESC
Strategic Growth Fund, launched in 1997, continued to advance in terms of asset
growth and in terms of performance against relevant benchmarks. In 1997 we
closed access to new investors to the ESC Strategic Small Cap Fund. This was
done solely for the purpose of protecting prospects of future performance. It is
essential that this Fund maintain the ability to invest in the shares of any
small capitalization company and not be hindered by assets under management
which could become too great and therefore inhibit the Fund's ability. We feel
so strongly about this that we anticipate taking similar actions with both the
Growth and Value Funds as they approach certain asset levels. Lastly, just as
the previous fiscal year was benchmarked with surpassing $200 million in assets,
this most recent year ended with the approach of $300 million. This growth
improves economies of scale, thus reducing further Fund expenses as a percent of
assets, which ultimately has a direct impact upon the Fund's performance.
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. This 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 to invest 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 8.18% during the twelve months ended March 31, 1998 as compared
to 7.65% for the Lipper Global Income Fund Index and 5.38% for the Salomon World
Government Index.
The past twelve months were a period of great divergence in world bond markets.
The developed markets of the United States and Western Europe were generally
positive. The U.S. benefited from continued low inflation and, with respect to
producer prices, the very possible prospect of deflation. Europe finally caught
a glimpse of the benefits of enhanced competition of the free market system and
government austerity with the approach of the European Union and the
<PAGE> 2
requirements thereof. Conversely, several Asian countries experienced real
deflation as their currencies collapsed the first of which occurred in Thailand.
Despite this divergence within world currencies, the Income Fund was able to
maintain stability by way of careful and arduous attention to security and
sector selection analysis.
ESC STRATEGIC APPRECIATION FUND gained on Class A shares, without sales load,
46.73% during the twelve months ended March 31, 1998, as compared to 41.60% and
47.98% for the Lipper Capital Appreciation Index and the S&P 500, respectively.
The past year witnessed the continuation of the largest capitalization stocks.
The result is increased valuation of this market sector at a time when corporate
earnings of these companies is expected to slow. Accordingly, we are confident
in the diversified strategy employed by the Fund which rebalances from the most
appreciated, resultingly over-weighted, presumably over-valued sectors toward
those which are under-weighted and presumably under-valued. Eventually, we
believe values will revert to the mean, thus improving prospects for
performance.
ESC STRATEGIC GLOBAL EQUITY FUND returned on Class A shares, without sales load,
22.24% during the twelve months ended March 31, 1998 while the Lipper Global
Index and FTA World Index gained 27.18% and 29.22%, respectively.
Investors continued to grow increasingly wary of international markets given
recent difficulty in Asia, the 1995 problems in Latin America and continued
strength and resulting ebullience in the U.S. Meanwhile, the result is appealing
valuations outside of the U.S. Ultimately, we believe valuations will revert to
the mean which means, in our view, that the international markets should provide
the basis for appreciation in the future.
SINGLE MANAGER SERIES
This series utilizes a single management firm approach to seek to provide
investors access to more focused portfolio disciplines.
ESC STRATEGIC SMALL CAP FUND returned on Class A shares, without sales load,
40.64% during the twelve months ended March 31, 1998, as compared to 40.61% for
the Lipper Small Cap Index and 40.32% for the Russell 2000 without income.
The Fund seeks fundamentally sound companies generating historically
consistently superior earnings growth rather than competing with the legions of
analysts and economists attempting to determine the next direction of the
economy or other vague macro-economic trends. Investor confusion combined with a
lack of sustained diligence on the part of Wall Street continues to create
opportunities which seem to present themselves at an accelerating pace. We
attribute this also to the nature of the small cap end of the spectrum which
benefits from the greatest entrance of companies to the public marketplace which
includes the introduction of new management techniques, new technologies and new
distribution strategies in addition to other significant competitive advantages.
As mentioned in last year's report, this Fund was closed to new investors as
assets surpassed $100 million in assets in order to protect the viability of the
Fund. We consider this an essential step that all mutual funds should consider
given that the liquidity of any market sector, no matter how great or dynamic,
is finite. Accordingly, we remain confident in the prospects for the ESC
Strategic Small Cap Fund.
ESC STRATEGIC GROWTH FUND returned on Class A shares, without sales load, 48.92%
as compared to the Lipper Small Cap Index of 40.61%, the Russell 2000 Index
without income of 40.32% and the S&P Mid Cap of 47.11%.
This Fund and the Small Cap Fund are managed by the same investment teams. The
Small Cap Fund can invest only in companies with small market capitalizations.
The Growth Fund has more flexibility. However, the Growth Fund is not designed
as either a mid-cap or large cap fund. In fact, management of the Fund has used
the flexibility of this Fund to invest in a greater number of stocks with
smaller market capitalizations than that of the Small Cap Fund. Meanwhile,
growth of the overall public market in terms of market capitalization and sheer
number of public companies, has allowed the Fund to identify compelling
investments in stocks with slightly larger market capitalizations.
<PAGE> 3
The Board of the ESC Strategic Funds anticipates taking action similar to that
imposed on the Small Cap Fund whereby access to new investors will be limited if
Fund assets continue to grow to a level which could threaten Fund liquidity in
the smallest capitalization stocks.
ESC STRATEGIC VALUE FUND was launched in May 1997. The Fund returned 16.47% from
inception to March 31, 1998 as compared to 33.85% for the Lipper Small Company
Growth Index and 33.49% for the Russell 2000 without Income.
This Fund emphasizes stock selection of individual companies as the means to
enhance performance. Currently, the Fund is oriented toward the small
capitalization sector where the greatest opportunities abound. While the Fund
finds this sector appealing, management of the Fund seeks specific company
situations which are expected to be recognized by the market as a result of a
pre-identified catalyst. Accordingly, the Fund may not perform in tandem with
any certain index or the market though management seeks superior performance
over time.
As mentioned with the Growth Fund, the Board of the ESC Strategic Funds also
anticipates limiting access to the Value Fund in order to maintain viability for
the benefit of shareholders.
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,
W. Howard Cammack, Jr.
Chairman
<PAGE> 4
ESC STRATEGIC FUNDS, INC. (CLASS A)
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
$12,170 (as of March 31,
1998). 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 21.70%,
reflecting the sales load.
Without the sales load, the
return would have been 27.44%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
(Income Fund Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Income Fund......................... 12,170 3.31% 5.15%
Lipper Global Income Index.......... 13,503 7.65% 7.99%
Weighted Index*..................... 14,076 10.68% 9.14%
</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 A,
with a maximum sales load of
4.50% made on the inception
date would have increased to
$14,349 (as of March 31,
1998). 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 43.49%,
reflecting the sales load.
Without the sales load, the
return would have been 50.25%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
(Global Equity Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Global Equity Fund.................. 14,349 16.74% 9.73%
Lipper Global Index................. 17,244 27.18% 15.02%
FTA World Index..................... 16,852 29.22% 14.38%
</TABLE>
Past performance is not predictive of future performance. Investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance of the Income Fund is measured against the Lipper Global
Income Index, an equally weighted benchmark composed of mutual funds and the
Weighted Index, a blended index.
The performance of the Global Equity Fund is measured against the Lipper
Global Index, an equally weighted benchmark composed of mutual funds and the FTA
World Index, an international index.
International investing involves increased risk and volatility.
<PAGE> 5
ESC STRATEGIC FUNDS, INC. (CLASS A) -- (CONTINUED)
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
$25,917 (as of March 31,
1998). 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 159.17%,
reflecting the sales load.
Without the sales load, the
return would have been
171.38%. Lipper indices do not
reflect sales loads. All other
indices do not reflect sales
loads or Fund expenses.
(Small Cap Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Small Cap Fund...................... 25,917 34.31% 28.36%
Lipper Small Cap Index.............. 19,807 40.61% 19.62%
Russell 2000 w/out Income........... 19,100 40.32% 18.49%
NASDAQ Industrials.................. 18,142 33.77% 16.90%
</TABLE>
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
$21,487 (as of March 31,
1998). 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 114.87%,
reflecting the sales load.
Without the sales load, the
return would have been
125.00%. Lipper indices do not
reflect sales loads. All other
indices do not reflect sales
loads of Fund expenses.
(Appreciation Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Appreciation Fund................... 21,487 40.13% 22.71%
Lipper Capital Appreciation Index... 21,325 41.60% 22.49%
S&P Midcap 400...................... 22,335 47.11% 24.01%
S&P 500............................. 26,832 47.98% 30.26%
</TABLE>
Past performance is not predictive of future performance. Investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance of the Small Cap Fund is measured against the Lipper Small
Cap Index, an equally weighted benchmark composed of mutual funds, the Russell
2000 Index, an unmanaged index of small-cap growth stocks and the NASDAQ
Industrials generally representative of the performance of small companies in
the U.S. stock market.
The performance of the Appreciation Fund is measured against the Lipper
Capital Appreciation Index, an equally weighted benchmark composed of mutual
funds, the S&P Midcap 400, and the S&P 500, which are both unmanaged indices
generally representative of the U.S. stock market.
Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure.
<PAGE> 6
ESC STRATEGIC FUNDS, INC. (CLASS A) -- (CONTINUED)
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 increased to
$13,710 (as of March 31,
1998). 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 37.10%,
reflecting the sales load.
Without the sales load, the
return would have been 43.56%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads of
Fund expenses.
(Growth Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Growth Fund......................... 13,710 42.21% 30.96%
Lipper Small Cap Index.............. 12,569 40.61% 21.48%
Russell 2000 w/out Income........... 13,116 40.32% 25.98%
</TABLE>
VALUE FUND
A $10,000 investment at
the Fund's inception, in the
Value Fund, Class A. With a
maximum sales load of 4.50%
would have increased to
$11,123 (as of March 31,
1998). 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 11.23%,
reflecting the sales load.
Without the sales load, the
return would have been 16.47%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
l'(Value Fund Graph)'
<TABLE>
<CAPTION>
VALUE AT SINCE INCEPTION
AGGREGATE TOTAL RETURN 3/98 (5/7/97)
---------------------- -------- ---------------
<S> <C> <C>
Value Fund.................................. 11,123 11.23%
Lipper Small Co. Growth Index............... 13,385 33.85%
Russell 2000 w/out Income................... 13,349 33.49%
</TABLE>
Past performance is not predictive of future performance. Investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance of the Growth Fund is measured against the Lipper Small Cap
Index, an equally weighted benchmark composed of mutual funds and the Russell
2000 index, an unmanaged index of small cap growth stocks.
The performance of the Value Fund is measured against the Lipper Small Co.
Growth Index, an equally weighted benchmark composed of mutual funds and the
Russell 2000 Index, an unmanaged index of small cap growth stocks.
Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure.
<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
$12,299 (as of March 31,
1998). 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 22.99%.
Without the sales load, the
return would have been 24.87%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
(Income Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Income Fund......................... 12,299 6.03% 5.44%
Lipper Global Income Index.......... 13,503 7.65% 7.99%
Weighted Index*..................... 14,076 10.68% 9.14%
</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
$14,539 (as of March 31,
1998). 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 45.39%.
Without the sales load, the
return would have been 47.60%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
(Global Equity Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Global Equity Fund.................. 14,539 20.26% 10.11%
Lipper Global Index................. 17,244 27.18% 15.02%
FTA World Index..................... 16,852 29.22% 14.38%
</TABLE>
Past performance is not predictive of future performance. Investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance of the Income Fund is measured against the Lipper Global
Income Index, an equally weighted benchmark composed of mutual funds and the
Weighted Index, a blended index.
The performance of the Global Equity Fund is measured against the Lipper
Global Index, an equally weighted benchmark composed of mutual funds and the FTA
World Index, an international index.
International investing involves increased risk and volatility.
<PAGE> 8
ESC STRATEGIC FUNDS, INC. (CLASS D) -- (CONTINUED)
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
$26,411 (as of March 31,
1998). 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 164.11%.
Without the sales load, the
return would have been
168.13%. Lipper indices do not
reflect sales loads. All other
indices do not reflect sales
loads or Fund expenses.
(Small Cap Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Small Cap Fund...................... 26,411 38.37% 29.00%
Lipper Small Cap Index.............. 19,807 40.61% 19.62%
Russell 2000 w/out Income........... 19,100 40.32% 18.49%
NASDAQ Industrials.................. 18,142 33.77% 16.90%
</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
$21,899 (as of March 31,
1998). 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 118.99%.
Without the sales load, the
return would have been
122.32%. Lipper indices do not
reflect sales loads. All other
indices do not reflect sales
loads or Fund expenses.
(Appreciation Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- -------- ------ ---------------
<S> <C> <C> <C>
Appreciation Fund................... 21,899 44.56% 23.34%
Lipper Capital Appreciation Index... 21,325 41.60% 22.49%
S&P Midcap 400...................... 22,335 47.11% 24.01%
S&P 500............................. 26,832 47.98% 30.26%
</TABLE>
Past performance is not predictive of future performance. Investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance of the Small Cap Fund is measured against the Lipper Small
Cap Index, an equally weighted benchmark composed of mutual funds, the Russell
2000 Index, an unmanaged index of small-cap growth stocks and the NASDAQ
Industrials generally representative of the performance of small companies in
the U.S. stock market.
The performance of the Appreciation Fund is measured against the Lipper
Capital Appreciation Index, an equally weighted benchmark composed of mutual
funds, the S&P Midcap 400, and the S&P 500, which are both unmanaged indices
generally representative of the U.S. stock market.
Small capitalization funds typically carry additional risks since smaller
companies generally have a higher risk of failure.
<PAGE> 9
ESC STRATEGIC FUNDS, INC. (CLASS D) -- (CONTINUED)
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 increased to
$14,070 (as of March 31,
1998). 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 40.70%.
Without the sales load, the
return would have been 42.84%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
(Growth Fund Graph)
<TABLE>
<CAPTION>
VALUE AT
AVERAGE ANNUAL TOTAL RETURN 3/98 1 YEAR SINCE INCEPTION
--------------------------- --------- ------ ---------------
<S> <C> <C> <C>
Growth Fund......................... 14,070 46.10% 33.89%
Lipper Small Cap Index.............. 12,569 40.61% 21.48%
Russell 2000 w/out Income........... 13,116 40.32% 25.98%
</TABLE>
VALUE FUND
A $10,000 investment at
the Fund's inception, in the
Value Fund, Class D, with a
maximum sales load of 1.50%
would have increased to
$11,421 (as of March 31,
1998). 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 14.21%,
reflecting the sales load.
Without the sales load, the
return would have been 15.95%.
Lipper indices do not reflect
sales loads. All other indices
do not reflect sales loads or
Fund expenses.
l'(Aggregate Total Return)'
<TABLE>
<CAPTION>
VALUE AT SINCE INCEPTION
AGGREGATE TOTAL RETURN 3/98 (5/7/97)
---------------------- -------- ---------------
<S> <C> <C>
Value Fund.................................. 11,421 14.21%
Lipper Small Co. Growth Index............... 13,385 33.85%
Russell 2000 w/out Income................... 13,349 33.49%
</TABLE>
Past performance is not predictive of future performance. Investment
return and net asset value will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
The performance of the Growth Fund is measured against the Lipper Small Cap
Index, an equally weighted benchmark composed of mutual funds and the Russell
2000 index, an unmanaged index of small cap growth stocks.
The performance of the Value Fund is measured against the Lipper Small Co.
Growth Index, an equally weighted benchmark composed of mutual funds and the
Russell 2000 Index, an unmanaged index of small cap growth stocks.
<PAGE> 10
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND* *
Portfolio of Investments -- March 31, 1998
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS -- 57.9%
BANKING & FINANCIAL SERVICES --
3.3%
Aaa/AAA European Investment
Bank,
6.88%, 6/16/2009.. $ 310,000 $ 329,361
Aa3/AA- Norwest Financial,
Inc.,
6.38%, 12/1/2007.. 500,000 499,468
-----------
828,829
-----------
BANKS -- 3.8%
Aaa/AAA Export/Import Bank
of Japan,
2.88%, 7/28/2005.. 40,000,000(a) 324,144
B3/B First Nationwide
Holdings,
12.50%,4/15/2003.. 175,000 199,500
Aaa/AAA Japan Development
Bank,
6.50%, 9/20/2001.. 48,000,000(a) 427,803
-----------
951,447
-----------
BASIC INDUSTRY -- 0.9%
B3/B- Gray Communications
Systems,
10.63%, 10/1/2006,
Callable 10/1/2001
@ 105.31.......... 200,000 219,000
-----------
BEVERAGES -- 2.0%
A1/A+ Anheuser Busch Cos.,
6.90%, 10/2/2002.. 500,000 503,863
-----------
BROADCASTING -- 2.3%
B3/B- Allbritton
Communications,
9.75%,
11/30/2007........ 290,000 305,225
B2/B Intermedia Capital
Partners,
11.25%, 8/1/2006.. 250,000 281,250
-----------
586,475
-----------
CABLE -- 1.1%
B1/B Helicon Group, Inc.,
11.00%,
11/1/2003......... 250,000 269,375
-----------
CHEMICALS -- 1.2%
NR/B+ Pioneer Americas
Acquisition,
9.25%, 6/15/2007.. 290,000 296,525
-----------
</TABLE>
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
CONSUMER GOODS & SERVICES --
2.0%
Aa2/AA Wal-Mart,
6.75%, 5/15/2002.. 500,000 $ 511,260
-----------
CONSUMER GROUPS -- 1.4%
B1/B+ Chiquita Brands,
9.63%, 1/15/2004.. 250,000 265,313
B1/BB- Fleming Companies,
Inc.,
10.63%,
12/15/2001........ 89,000 94,896
-----------
360,209
-----------
ELECTRIC UTILITY -- 1.4%
Aa1/NA Kyushu Electric
Power Company,
7.25%, 5/16/2007.. 340,000 359,912
-----------
ENTERTAINMENT -- 1.1%
B3/B- Plitt Theatres,
Inc.,
10.88%,
6/15/2004......... 250,000 271,875
-----------
FINANCIAL & INSURANCE -- 2.0%
Aa3/AA- Merrill Lynch,
6.00%, 2/12/2003.. 500,000 495,916
-----------
FINANCIAL SERVICES -- 2.0%
A2/A Household Finance
Corp.,
6.88%, 3/1/2007... 500,000 509,144
-----------
FOOD PRODUCTS -- 1.1%
B3/B- Envirodyne
Industries,
10.25%,
12/1/2001......... 290,000 288,913
-----------
FOREST PRODUCTS & PAPERS --
2.1%
B1/BB- Doman Industries
Ltd.,
8.75%, 3/15/2004.. 282,000 280,238
B3/B Pacific Lumber Co.,
10.50%, 3/1/2003.. 250,000 257,500
-----------
537,738
-----------
GENERAL INDUSTRIES &
MANUFACTURING -- 2.4%
B1/B+ Dawson Production
Services,
9.38% 2/1/2007.... 290,000 297,975
B3/B Envirosource, Inc.,
9.75%, 6/15/2003.. 290,000 295,800
-----------
593,775
-----------
</TABLE>
See accompanying notes to financial statements.
1
<PAGE> 11
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND* *
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS
(CONTINUED)
HOTELS & GAMING -- 0.8%
B1/B+ Horseshoe Gaming,
LLC,
12.75%,
9/30/2000......... 180,000 $ 199,800
-----------
INDUSTRIAL GOODS & SERVICES --
4.9%
A2/A American Home
Products,
6.50%,
10/15/2002........ 500,000 507,540
Caa2/CCC+ Ameritruck
Distribution,
12.25%,
11/15/2005,
Callable
11/15/2000 @
106.25............ 290,000 272,600
Aa3/AA- Campbell Soup Co.,
5.63%, 9/15/2003.. 500,000 490,104
-----------
1,270,244
-----------
INDUSTRIALS -- 4.1%
B3/B+ Delta Mills, Inc.,
9.63%, 9/1/2007... 290,000 298,700
A1/A+ Nike, Inc., 6.38%,
12/1/2003......... 500,000 504,193
B3/B- Outdoor
Communications,
Inc.,
9.25%, 8/15/2007.. 230,000 239,775
-----------
1,042,668
-----------
MANUFACTURING-CONSUMER
GOODS -- 2.1%
B3/B Hartmarx Corp.,
10.88%,
1/15/2002......... 250,000 257,500
B3/B- International Wire
Group,
11.75%, 6/1/2005.. 250,000 277,500
-----------
535,000
-----------
OIL & GAS -- 3.0%
NR/NR Cliffs Drilling Co.,
10.25%,
5/15/2003......... 250,000 270,625
B3/B- Kelley Oil & Gas
Corporation,
10.38%,
10/15/2006,
Callable
10/15/2001 @
105.19............ 160,000 166,400
</TABLE>
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
B2/B Plains Resources,
Inc.,
10.25%,
3/15/2006......... 290,000 $ 311,750
-----------
748,775
-----------
OIL & GAS TRANSMISSION -- 0.9%
B2/B+ Petroleum Heat &
Power,
12.25%, 2/1/2005.. 245,000 229,075
-----------
PAPER PRODUCTS -- 1.1%
B2/B Stone Container,
Inc.,
9.88%, 2/1/2001... 273,000 278,119
-----------
RADIO & TV -- 1.1%
B2/B JCAC, Inc.,
10.13%,
6/15/2006......... 250,000 275,312
-----------
TELECOMMUNICATIONS -- 3.2%
A2/A Lucent Technologies,
Inc.,
6.90%, 7/15/2001.. 500,000 513,706
Caa2/CCC Phonetel
Technologies,
12.00%,
12/15/2006,
Callable12/15/2001
@ 106............. 290,000 290,000
-----------
803,706
-----------
TIRE & RUBBER -- 1.3%
B2/B Applied Extrusion
Tech.,
11.50%, 4/1/2002.. 300,000 318,000
-----------
TRANSPORTATION -- 1.3%
B3/B- Greyhound Lines,
11.50%,
4/15/2007......... 290,000 322,625
-----------
UTILITIES -- 2.0%
A1/A+ Consolidated Edison,
6.63%, 2/1/2002... 500,000 508,645
-----------
UTILITIES -- ELECTRICAL & GAS--
2.0%
Baa1/BBB+ Texas Utilities,
6.75%, 3/1/2003... 500,000 510,868
-----------
TOTAL CORPORATE
OBLIGATIONS
(COST
$14,456,331)...... 14,627,093
-----------
FOREIGN GOVERNMENT BONDS --
24.0%
AUSTRIA -- 1.5%
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 12
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND* *
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
FOREIGN GOVERNMENT BONDS
(CONTINUED)
Aaa/AAA Republic of Austria,
8.25%, 1/5/2005... 340,000 $ 377,965
-----------
CANADA -- 2.8%
Aa2/AA+ Province of Alberta,
7.00%, 2/18/2003.. 340,000 353,038
Aa3/AA- Province of Ontario,
6.00%, 2/21/2006.. 370,000 365,649
-----------
718,687
-----------
FINLAND -- 1.5%
Aa1/AA Republic of Finland,
7.88%, 7/28/2004.. 340,000 373,812
GERMANY -- 6.8%
Aaa/NR Deutcshland,
2.95%, 4/6/2000... 1,770,000(b) 954,994
Aaa/NA Deutschland
Republic,
6.50%, 7/4/2027... 1,220,000(b) 755,748
-----------
1,710,742
-----------
ITALY -- 1.5%
Aa3/AA Republic of Italy,
7.00%, 9/18/2001.. 360,000 370,700
-----------
JAPAN -- 1.5%
NA/NA Japan Highway Public
Corporation,
6.88%,
11/27/2006........ 360,000 373,847
-----------
SWEDEN -- 1.8%
Aa1/NR Sweden Government,
10.25%, 5/5/2003.. 3,000,000(c) 461,070
-----------
UNITED KINGDOM -- 6.6%
Aaa/NA United Kingdom
Treasury,
4.00%, 1/28/2000.. 910,000(d) 977,258
Aaa/NA United Kingdom
Treasury,
7.50%, 12/7/2006.. 375,000(e) 692,736
-----------
1,669,994
-----------
TOTAL FOREIGN
GOVERNMENT BONDS
(COST
$6,054,120)....... 6,056,817
-----------
</TABLE>
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
PREFERRED STOCKS -- 1.4%
CABLE -- 1.4%
B2/BB- CSC Holdings,
11.13%............ 3,009 $ 343,778
-----------
TOTAL PREFERRED
STOCKS
(COST $334,530)... 343,778
-----------
U.S. TREASURY NOTES -- 1.8%
U. S. Treasury
Notes,
6.13%, 8/15/2007.. $ 435,000 447,099
-----------
TOTAL U.S. TREASURY
NOTES
(COST $435,391)... 447,099
-----------
SHORT-TERM INVESTMENTS -- 13.5%
CASH SWEEP ACCOUNT -- 0.0%
Chase Bank.......... 8,895 8,895
-----------
REPURCHASE AGREEMENTS -- 11.8%
Investors Fiduciary
Trust Co.
4.25%, dated
3/31/1998 and
maturing 4/1/1998
with a maturity
value of $774,277.
(Collateralized by
$765,000 U.S.
Treasury Bill,
6.38%, due
4/30/1999 with a
market value of
$791,319)......... 774,185 774,185
-----------
Investors Fiduciary
Trust Co.
4.25%, dated
3/31/1998 and
maturing 4/1/1998
with a maturity
value of
$2,203,874.
(Collateralized by
$1,780,000 U.S.
Treasury Bond,
8.13%, due
8/15/2021 with a
market value of
$2,250,922)....... 2,203,614 2,203,614
-----------
2,977,799
-----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 13
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC INCOME FUND* *
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
CREDIT
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS (CONTINUED)
TIME DEPOSIT -- 1.7%
Edinburgh Overnight
Time Deposit,
5.63%, 4/1/1998... 430,314 $ 430,314
-----------
TOTAL SHORT-TERM
INVESTMENTS
(COST
$3,417,008)....... 3,417,008
-----------
TOTAL INVESTMENTS --
98.6%
(COST
$24,697,380)(1)... 24,891,795
Other Assets and
Liabilities
(Net) -- 1.4% 344,439
-----------
NET ASSETS -- 100.0%........... $25,236,234
===========
</TABLE>
<TABLE>
<CAPTION>
RATING # PRINCIPAL/ MARKET
(UNAUDITED) SHARES VALUE
- ----------- ---------- ------
<S> <C> <C> <C>
Percentages indicated are based on net assets.
(1) The cost of securities for Federal income tax purposes
is substantially the same.
# See page 22 for Credit Ratings.
** See page 22 for Concentration by Country.
</TABLE>
Principal denominated in U.S. Dollars unless indicated by the following
currencies:
(a) Japanese Yen
(b) German Mark
(c) Swedish Krona
(d) European Currency Unit
(e) British Pound
See accompanying notes to financial statements.
4
<PAGE> 14
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS -- 95.4%
AEROSPACE & MILITARY TECHNOLOGY --
0.4%
2,150 British Aerospace
PLC ................ $ 44,706 $ 70,856
----------- -----------
2,400 AUTO RELATED -- 0.6%
Arvin Industries,
Inc................. 89,384 98,250
----------- -----------
AUTOMOTIVE -- 2.3%
4,500 Navistar International
Corp.*.............. 99,752 157,500
21,000 Nissan Motors
Company............. 131,444 80,314
2,100 PACCAR, Inc........... 75,603 125,081
----------- -----------
306,799 362,895
----------- -----------
BANKING -- 8.2%
11,816 Allied Irish Banks
PLC................. 56,263 145,435
2,900 Banco Frances Del Rio
de La Plata, S.A.,
ADR................. 65,399 87,363
2,290 Banque Nationale de
Paris............... 115,492 177,968
2,500 Barclays PLC, ORD..... 63,615 74,813
5,000 Commonwealth Bank of
Australia........... 50,681 59,561
6,000 Dai-Ichi Kangyo
Bank................ 71,102 43,644
200 First Empire State
Corp................ 72,973 99,975
2,850 Imperial Bancorp*..... 87,901 91,912
1,800 Popular, Inc.......... 45,892 105,638
3,500 Standard Bank......... 159,282 212,130
9,000 Sumitomo Bank Ltd..... 144,320 91,788
1,200 Union Bank San
Francisco........... 74,798 119,700
----------- -----------
1,007,718 1,309,927
----------- -----------
BEVERAGES -- 0.6%
4,000 Embotelladora Andina,
ADR................. 93,237 92,000
----------- -----------
BUILDING MATERIALS -- 2.0%
2,400 Texas Industries,
Inc................. 94,579 138,750
2,100 USG Corp.*............ 76,161 113,794
8,400 Williams Holdings
PLC................. 47,671 66,606
----------- -----------
218,411 319,150
----------- -----------
CHEMICALS -- 0.4%
1,600 Quimica y Minera Chile
S.A., ADR........... 71,038 70,400
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
COMMERCIAL SERVICES -- 0.5%
2,900 Billing Information
Concepts*........... $ 81,392 $ 75,219
----------- -----------
COMPUTER EQUIPMENT -- 2.1%
3,700 CHS Electronics,
Inc.*............... 93,878 69,375
1,000 Misys PLC............. 44,060 49,032
3,200 Smart Modular
Technologies*....... 83,176 73,000
2,000 Storage Technology
Corp.*.............. 72,220 152,125
----------- -----------
293,334 343,532
----------- -----------
COMPUTER SOFTWARE -- 4.6%
1,800 Citrix Systems,
Inc.*............... 65,515 97,537
1,800 Computer Horizons
Corp.*.............. 84,951 90,450
3,200 Compuware Corp.*...... 31,299 158,000
1,637 Network Associates,
Inc.*............... 48,433 108,451
3,800 Reynolds & Reynolds... 82,900 83,125
1,500 Sterling Software*.... 85,434 84,750
4,300 Symantec Corp.*....... 66,660 115,831
----------- -----------
465,192 738,144
----------- -----------
CONSTRUCTION -- 1.7%
3,000 Centex Corp. ......... 51,666 114,375
9,000 Empresas ICA S.A.,
ADR................. 134,559 108,000
8,400 Gujarat Ambuja Cement,
ADR................. 50,000 54,600
----------- -----------
236,225 276,975
----------- -----------
CONSUMER NON-DURABLE -- 0.6%
2,400 Department 56,
Inc.*............... 87,905 91,200
----------- -----------
DISTRIBUTION -- 1.2%
7,000 Canon Sales Co........ 158,959 97,112
1,500 United Stationers,
Inc.*............... 83,709 92,719
----------- -----------
242,668 189,831
----------- -----------
DIVERSIFIED -- 2.1%
13,394 Barlow Ltd............ 143,653 108,983
26,000 Beijing
Enterprises*........ 103,628 66,946
2,700 Grupo Imsa S.A.,
ADR................. 57,265 53,325
20,000 Swire Pacific Ltd..... 167,926 105,833
----------- -----------
472,472 335,087
----------- -----------
ELECTRIC UTILITY -- 0.4%
6,300 Scottish Power PLC,
ORD................. 49,366 59,291
----------- -----------
ELECTRICAL & ELECTRONICS -- 0.4%
2,100 Credence Systems
Corp.*.............. 91,372 60,769
----------- -----------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 15
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
ELECTRONIC COMPONENTS/INSTRUMENTS -- 2.3%
3,100 Apple Computer,
Inc.*............... $ 81,850 $ 85,250
1,000 Creative Technology
Limited*............ 27,806 22,044
2,200 Dallas
Semi-Conductors..... 86,608 73,975
3,000 Fanuc Co. Ltd. ....... 111,638 103,487
12,000 Hitachi Ltd. ......... 113,115 87,288
----------- -----------
421,017 372,044
----------- -----------
ELECTRONICS -- 0.6%
2,000 Lexmark International
Group*.............. 84,180 90,250
----------- -----------
ENERGY -- 2.4%
1,300 Energy Ventures,
Inc.*............... 30,813 60,206
2,680 Total S.A............. 230,091 321,824
----------- -----------
260,904 382,030
----------- -----------
ENGINEERING -- 1.5%
340 Mannesmann AG......... 111,531 245,991
----------- -----------
FINANCIAL SERVICES -- 5.9%
3,000 A.G. Edwards, Inc. ... 82,620 131,250
2,675 Bear Stearns
Companies, Inc. .... 48,896 137,428
1,300 Donaldson Lufkin &
Jenrette............ 86,788 110,338
1,500 Legg Mason, Inc. ..... 82,381 88,969
2,100 Lehman Brothers
Holdings, Inc. ..... 46,188 157,237
4,012 Lloyds TSB Group
PLC................. 35,528 62,616
3,450 Paine Webber Group,
Inc. ............... 72,908 138,431
2,900 Raymond James
Financial........... 76,507 126,331
----------- -----------
531,816 952,600
----------- -----------
FOOD PRODUCTS -- 1.9%
5,000 Cadbury Schweppes PLC,
ORD................. 42,554 69,412
6,800 Companhia Brasileira
De Distribuicao
Grupo............... 73,100 156,088
31,000 Marudai Food Co.
Ltd. ............... 83,549 81,597
----------- -----------
199,203 307,097
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
FOREST PRODUCTS & PAPERS -- 1.2%
8,000 Grupo Industrial
Durango S.A.,
ADR*................ $ 78,212 $ 121,000
6,800 Maderas y Sinteticos
S.A., ADR........... 95,857 70,125
----------- -----------
174,069 191,125
----------- -----------
HEALTH CARE -- 2.7%
1,900 Lincare Holdings,
Inc.*............... 74,865 134,188
1,800 Medimmune, Inc.*...... 71,656 99,225
5,800 NovaCare, Inc.*....... 75,095 86,275
1,300 Sofamor Danek Group,
Inc.*............... 45,962 110,825
----------- -----------
267,578 430,513
----------- -----------
HOMEBUILDERS -- 1.6%
3,400 Champion Enterprises,
Inc.*............... 83,317 90,738
1,900 Fleetwood Enterprises,
Inc................. 87,423 88,469
2,500 Kaufman And Broad Home
Corp................ 81,578 81,406
----------- -----------
252,318 260,613
----------- -----------
INDUSTRIAL -- 0.4%
5,000 Sumitomo Electric
Industries.......... 68,628 64,491
----------- -----------
INDUSTRIAL HOLDING COMPANY -- 0.9%
3,000 Sonae Investimentos-
Sociedade Gestora de
Paticipacoes Sicais,
S.A. ............... 91,573 141,217
----------- -----------
INSURANCE -- 7.0%
666 Allianz AG Holdings... 171,288 200,052
2,099 AXA Co................ 105,609 216,144
644 Fortis AG............. 121,277 178,941
5,000 Liberty Life
Association of
Africa Ltd. ........ 139,674 168,688
67 Marschollek
Lautenshlaeger...... 22,067 21,882
5,300 Norwich Union PLC*.... 29,988 41,160
520 Zuerich Versicherungs-
Gesellschaft........ 147,313 301,872
----------- -----------
737,216 1,128,739
----------- -----------
INVESTMENT COMPANY -- 0.9%
2,800 Morgan Keegan,
Inc. ............... 71,105 61,075
10,000 ROC Taiwan Fund....... 103,015 88,125
----------- -----------
174,120 149,200
----------- -----------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 16
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
LEISURE & GAMING -- 1.0%
1,200 Anchor Gaming*........ $ 102,773 $ 89,100
12,200 Ladbroke Group PLC,
ORD................. 47,896 68,441
----------- -----------
150,669 157,541
----------- -----------
MACHINE-DIVERSIFIED -- 0.5%
2,500 AGCO Corp............. 76,260 74,219
----------- -----------
MANUFACTURING -- 0.5%
21,000 Shanghai Industrial
Holdings Ltd. ...... 102,526 85,918
----------- -----------
MANUFACTURING -- CAPITAL GOODS -- 0.4%
7,700 Wolseley PLC.......... 55,103 59,185
----------- -----------
MANUFACTURING -- CONSUMER GOODS -- 0.7%
3,000 Fuji Photo Film
Ltd. ............... 115,923 111,585
----------- -----------
MEDICAL -- BIOTECHNOLOGY -- 0.8%
3,400 Arterial Vascular
Engineer*........... 96,661 124,525
----------- -----------
METALS -- DIVERSIFIED -- 1.0%
9,000 Tubos De Acero De
Mexico*............. 154,243 168,188
----------- -----------
MINING -- 0.4%
3,700 Madeco S.A............ 93,503 64,056
----------- -----------
MORTGAGE BANKERS & CORRESPONDENTS -- 0.4%
3,950 Halifax PLC........... 46,799 61,252
----------- -----------
OFFICE EQUIPMENT & SERVICES -- 0.5%
8,000 Ricoh Company,
Ltd. ............... 119,739 80,389
----------- -----------
OIL & GAS TRANSMISSION -- 0.8%
4,000 Magyar Olaj-Es
Gazipare
Reszvenytar -- GDR... 65,000 122,000
----------- -----------
OIL/GAS -- 0.3%
810 Petroleum
Geo-Services*....... 45,830 48,094
----------- -----------
OIL/GAS EQUIPMENT -- 0.7%
3,200 National-Oilwell,
Inc.*............... 88,419 105,000
----------- -----------
OIL/GAS EXPLORATION -- 2.3%
2,400 BJ Services Co.*...... 98,893 87,450
1,200 Cliffs Drilling
Co.*................ 57,434 49,575
2,000 ENSCO International,
Inc................. 44,848 55,500
8,500 Shell Transport &
Trading Co.......... 64,483 62,488
2,400 Veritas DGC, Inc.*.... 98,293 121,350
----------- -----------
363,951 376,363
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
OIL/GAS SERVICES -- 1.3%
1,300 Cooper Cameron
Corp.*.............. $ 100,729 $ 78,488
2,000 Input/Output, Inc.*... 55,998 46,750
1,800 Tidewater, Inc. ...... 85,431 78,862
----------- -----------
242,158 204,100
----------- -----------
PACKAGING -- 1.2%
3,800 Cristalerias de Chile,
ADR................. 87,985 51,775
5,538 N.V. Koninklijke KNP
BT ORD.............. 123,805 145,578
----------- -----------
211,790 197,353
----------- -----------
PHARMACEUTICALS -- 4.7%
1,520 Gedeon Richter, GDR... 85,435 158,460
3,000 ICN Pharmaceuticals,
Inc. ............... 46,208 147,750
1,700 NBTY, Inc.*........... 85,691 103,275
112 Novartis AG........... 121,291 198,216
1,796 Rhone Poulenc S.A.
ORD................. 80,826 91,283
4,900 SmithKline Beecham
PLC................. 48,066 61,377
----------- -----------
467,517 760,361
----------- -----------
PUBLISHING & PRINTING -- 2.5%
6,000 Singapore Press
Holdings Ltd. ...... 68,116 68,733
3,500 Valassis
Communications,
Inc.*............... 73,974 143,500
5,650 VNU-Verenigde
Nederlandse
Uitgeversbedrijven... 71,300 193,241
----------- -----------
213,390 405,474
----------- -----------
REAL ESTATE -- 1.0%
15,000 City Development...... 65,813 73,841
2,300 Vallehermoso S.A. .... 46,124 88,918
----------- -----------
111,937 162,759
----------- -----------
RESTAURANTS -- 0.5%
2,100 CKE Restaurants,
Inc. ............... 85,963 77,175
----------- -----------
RETAIL -- 2.3%
4,680 Burlington Coat
Factory............. 70,449 81,315
3,400 Kingfisher PLC........ 32,687 63,712
7,000 Makro Atacadista S.A.
ADR................. 99,750 89,266
6,100 Safeway PLC........... 34,672 37,770
1,480 Vendex International
N.V................. 43,406 93,713
----------- -----------
280,964 365,776
----------- -----------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 17
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GLOBAL EQUITY FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ----------- -----------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
RETAIL -- SPECIALTY LINE -- 1.3%
1,700 Best Buy*............. $ 46,160 $ 113,262
3,000 Rexall Sundown,
Inc.*............... 89,957 102,188
----------- -----------
136,117 215,450
----------- -----------
TECHNOLOGY -- 0.6%
2,400 Avid Technology*...... 85,800 98,700
----------- -----------
TELECOMMUNICATIONS -- 7.9%
1,300 Philippine Long
Distance Telephone
Co. ................ 39,452 36,188
2,000 Portugal Telecom
S.A. ............... 43,442 104,029
3,400 Premisys
Communications*..... 88,392 97,538
580 SPT Telekom A.S.*..... 71,794 75,081
3,000 Telecom Argentina,
ADR................. 82,840 107,438
21,989 Telecom Italia Mobile
SpA................. 26,151 118,156
17,688 Telecom Italia SpA.... 91,894 139,389
3,632 Telefonica de
Espana.............. 90,420 160,075
10,000 Telefonica del Peru
S.A., ADR........... 214,671 215,625
44,000 Telstra Corp. ........ 74,886 113,506
9,100 Videsh Sanchar Nigam
Ltd., GDR*.......... 148,743 104,650
----------- -----------
972,685 1,271,675
----------- -----------
TEXTILES & APPAREL -- 2.7%
3,600 Ross Stores, Inc. .... 55,010 158,850
3,600 TJX Companies,
Inc. ............... 57,446 162,900
2,000 V.F. Corp. ........... 68,003 105,125
----------- -----------
180,459 426,875
----------- -----------
TRANSPORTATION -- 0.7%
2,800 Airborne Freight
Corp. .............. 52,537 105,350
----------- -----------
UTILITIES -- 0.5%
50,000 Hong Kong & China Gas
Company Ltd. ....... 87,140 83,892
----------- -----------
WHOLESALE & INTERNATIONAL TRADE -- 0.6%
15,000 Mitsui & Co. ORD...... 103,138 95,387
----------- -----------
TOTAL COMMON STOCKS... 12,031,593 15,318,078
----------- -----------
RIGHTS & WARRANTS --
0.0%
RIGHTS -- FOREIGN --
0.0%
666 Dem Allianz, @220.00
*................... 0 3,295
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL/ MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
TOTAL RIGHTS &
WARRANTS............ $ 0 $ 3,295
----------- -----------
SHORT TERM
INVESTMENTS -- 5.5%
CASH SWEEP ACCOUNT --
0.3%
46,393 Chase Bank London..... 46,393 46,393
----------- -----------
REPURCHASE
AGREEMENT -- 2.7%
442,186 Investors Fiduciary
Trust Co., 4.25%,
dated 3/31/1998 and
maturing 4/1/1998
with a maturity
value of $442,238.
(Collateralized by
$450,000 U.S.
T-Bill, 5.88%, due
1/31/1999 with a
market value of
$455,625)........... 442,186 442,186
----------- -----------
TIME DEPOSIT -- 2.5%
400,292 Scotland PLC, 5.63%,
4/1/1998............ 400,292 400,292
----------- -----------
TOTAL SHORT-TERM
INVESTMENTS......... 888,871 888,871
----------- -----------
TOTAL INVESTMENTS --
101.0%.............. $12,920,464(1) 16,210,244
===========
OTHER ASSETS AND
LIABILITIES (NET) --
(1.0)%.............. (148,276)
-----------
NET ASSETS --100.0%... $16,061,968
===========
</TABLE>
Percentages indicated are based on net assets.
(1) The cost of securities for Federal income tax purposes
is substantially the same.
* Represents non-income producing security.
** See page 22 for Concentration by Country.
ADR -- American Depository Receipts.
GDR -- Global Depository Receipts/Shares.
ORD -- Ordinary.
PLC -- Public Limited Company.
See accompanying notes to financial statements.
8
<PAGE> 18
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC SMALL CAP FUND
Portfolio of Investments -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS -- 85.1%
BUSINESS SERVICES -- 2.7%
77,100 Aaron Rents,
Inc. .......... $ 953,091 $ 1,874,494
26,800 Aaron Rents,
Inc., Class
A.............. 325,255 599,650
100,000 Alrenco, Inc.*... 1,768,826 2,000,000
------------ ------------
3,047,172 4,474,144
------------ ------------
AUTO-RELATED -- 4.5%
260,300 Sonic Automotive,
Inc.*.......... 2,895,813 4,490,175
132,000 Wynn's
International,
Inc. .......... 1,690,179 3,003,000
------------ ------------
4,585,992 7,493,175
------------ ------------
BUILDING MATERIAL -- 2.4%
450,700 International
Comfort
Products
Corp.*......... 2,541,843 3,999,962
------------ ------------
CHEMICALS -- 0.6%
75,000 Synalloy
Corp. ......... 1,181,485 1,059,375
------------ ------------
COMMERCIAL SERVICES -- 7.3%
28,800 Childrens
Comprehensive
Services,
Inc.*.......... 348,216 547,200
225,000 Group Maintenance
America*....... 3,150,000 3,810,937
120,000 Norrell Corp. ... 2,179,688 2,707,500
100,000 Regis Corp. ..... 2,348,750 3,000,000
100,000 Wackenhut Corp.,
Class B........ 2,161,463 2,118,750
------------ ------------
10,188,117 12,184,387
------------ ------------
COMPUTERS -- 2.6%
109,700 Zebra
Technologies
Corp., Class
A*............. 2,524,904 4,223,450
------------ ------------
CONSTRUCTION -- 1.9%
133,000 Benchmark
Electronics,
Inc.*.......... 2,032,417 3,167,062
------------ ------------
DISTRIBUTION -- 1.1%
101,600 Pameco Corp.*.... 1,681,662 1,866,900
------------ ------------
ELECTRICAL & ELECTRONICS --2.0%
84,200 Electro
Scientific
Industries,
Inc.*.......... 2,365,970 3,252,225
------------ ------------
ELECTRICAL EQUIPMENT -- 3.4%
79,600 Kemet Corp.*..... 1,649,506 1,477,575
85,000 Kuhlman Corp. ... 2,533,606 4,138,438
------------ ------------
4,183,112 5,616,013
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
ELECTRONIC
COMPONENTS/INSTRUMENTS --
4.7%
40,000 Hadco Corp.*..... $ 2,104,059 $ 1,585,000
85,700 PCD, Inc.*....... 1,549,563 1,928,250
109,000 Plexus Corp.*.... 1,943,962 2,166,375
125,000 Power-One,
Inc.*.......... 1,827,500 2,125,000
------------ ------------
7,425,084 7,804,625
------------ ------------
ELECTRONICS -- 2.4%
144,000 ADE Corp.*....... 3,446,812 2,439,000
122,100 FEI Company*..... 1,351,030 1,526,250
------------ ------------
4,797,842 3,965,250
------------ ------------
ENTERTAINMENT -- 2.2%
137,700 Speedway
Motorsports,
Inc.*.......... 2,545,722 3,692,081
------------ ------------
ENVIRONMENTAL -- 1.8%
160,000 Newpark
Resources,
Inc.*.......... 1,361,980 2,920,000
------------ ------------
FINANCIAL SERVICES -- 2.3%
113,900 Amresco, Inc.*... 2,047,343 3,730,225
------------ ------------
FOOD SERVING -- 2.1%
205,666 Worthington
Foods.......... 3,434,489 3,419,197
------------ ------------
HOUSING DEVELOPMENT -- 2.2%
164,000 Fairfield
Communities,
Inc.*.......... 3,123,934 3,618,250
------------ ------------
INVESTMENT COMPANY -- 4.5%
139,800 Allied Capital
Corp. ......... 3,022,522 3,870,713
120,000 Sirrom Capital
Corp. ......... 1,252,697 3,607,500
------------ ------------
4,275,219 7,478,213
------------ ------------
MANUFACTURING -- 1.1%
76,900 Asyst
Technologies,
Inc.*.......... 964,305 1,787,925
------------ ------------
MANUFACTURING-CONSUMER GOODS
-- 0.0%
3,500 Genesco, Inc.*... 61,460 63,438
------------ ------------
MEDICAL SUPPLIES -- 1.4%
63,500 Res -- Care,
Inc.*.......... 897,655 2,365,375
------------ ------------
METALS -- DIVERSIFIED -- 3.7%
114,300 Quanex Corp. .... 3,392,876 3,436,144
65,000 Wolverine Tube,
Inc.*.......... 2,016,552 2,608,125
------------ ------------
5,409,428 6,044,269
------------ ------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 19
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC SMALL CAP FUND
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
NUTRITION & VITAMIN PRODUCTS --
6.1%
155,300 Twinlab Corp.*... $ 2,104,369 $ 6,289,650
245,900 Weider Nutrition
International,
Inc. .......... 2,844,943 3,811,450
------------ ------------
4,949,312 10,101,100
OIL/GAS EQUIPMENT -- 2.1%
103,450 National-Oilwell,
Inc.*.......... 2,031,714 3,394,453
------------ ------------
OIL/GAS SERVICES -- 3.5%
120,000 Patterson Energy,
Inc.*.......... 1,065,886 1,380,000
86,400 Veritas DGC,
Inc.*.......... 1,650,162 4,368,600
------------ ------------
2,716,048 5,748,600
------------ ------------
PHARMACEUTICALS -- 1.9%
74,300 Medicis
Pharmaceutical
Corp., Class
A*............. 1,917,322 3,241,337
------------ ------------
PIPELINES -- 2.0%
131,500 Shaw Group,
Inc.*.......... 2,860,182 3,279,281
------------ ------------
REAL ESTATE -- 2.4%
183,700 Intrawest
Corp. ......... 3,243,714 3,892,144
------------ ------------
RESTAURANTS -- 2.8%
110,000 Logan's
Roadhouse,
Inc.*.......... 2,011,013 2,488,750
140,000 Apple South,
Inc. .......... 2,009,567 2,073,750
------------ ------------
4,020,580 4,562,500
------------ ------------
RETAIL -- 1.6%
311,000 Compucom Systems,
Inc.*.......... 2,537,532 2,565,750
------------ ------------
TECHNOLOGY -- 2.3%
170,000 Datastream
Systems,
Inc.*.......... 1,785,063 3,761,250
------------ ------------
TEXTILES & APPAREL -- 3.5%
252,500 I.C. Isaacs &
Company,
Inc.*.......... 2,525,000 1,767,500
155,000 Quaker Fabric
Corp.*......... 2,229,125 3,952,500
------------ ------------
4,754,125 5,720,000
------------ ------------
TOTAL COMMON
STOCKS......... 101,492,727 140,491,956
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL/ MARKET
SHARES COST VALUE
- ---------- ------------ ------------
<C> <S> <C> <C>
SHORT-TERM INVESTMENTS -- 15.0%
REPURCHASE AGREEMENT -- 15.0%
24,798,702 United Missouri
Bank, 4.25%,
dated 3/31/1998
and maturing
4/1/1998 with a
maturity value
of $24,801,629.
(Collateralized
by $24,865,000
U.S. T-Bill,
6.35%, due
6/30/98 with a
market value of
$25,297,999)... $ 24,798,702 $ 24,798,702
------------ ------------
TOTAL SHORT-TERM
INVESTMENTS.... 24,798,702 24,798,702
------------ ------------
TOTAL INVESTMENTS
-- 100.1%...... $126,291,429(1) 165,290,658
============
OTHER ASSETS AND
LIABILITIES
(NET) -- (0.1)%.. (159,364)
------------
Net Assets -- 100.0%........... $165,131,294
============
Percentages indicated are based on net assets.
(1) The cost of securities for Federal income tax purposes
is substantially the same.
* Represents non-income producing security.
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 20
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS -- 94.3%
AUTO RELATED -- 0.4%
3,800 Arvin Industries,
Inc............... $ 125,703 $ 155,562
----------- -----------
AUTOMOTIVE -- 2.8%
7,400 Daimler-Benz AG,
ADR............... 371,519 687,275
7,100 Navistar
International
Corp., Inc.*...... 176,151 248,500
3,300 PACCAR, Inc......... 121,927 196,556
----------- -----------
669,597 1,132,331
----------- -----------
BANKING -- 13.0%
10,000 Bostonfed Bancorp,
Inc............... 124,350 230,000
5,200 Chase Manhattan
Corp.............. 348,062 701,350
14,700 Corporacion Bancaria
De Espana, ADR.... 311,532 604,537
9,200 First Bell Bancorp,
Inc............... 85,450 193,200
400 First Empire State
Corp.............. 132,868 199,950
6,500 First Mutual
Bancorp, Inc...... 83,076 128,375
14,600 FSF Financial
Corp.............. 187,975 295,650
11,000 Georgia Financial,
Inc............... 121,660 224,125
11,700 Home Bancorp of
Elgin, Inc........ 147,712 198,900
780 HSBC Holdings PLC,
ADR............... 195,047 236,437
4,500 Imperial Bancorp*... 134,055 145,125
7,100 Istituto Mobiliare
Italiano, ADR..... 169,726 341,687
30,400 North Central
Bancshares,
Inc............... 328,664 676,400
10,000 PFF Bancorp,
Inc.*............. 115,000 206,250
2,900 Popular, Inc........ 82,479 170,194
10,600 Societe Generale
France, ADR....... 264,364 424,294
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
2,000 Union Bank of
California
Corp.............. $ 125,392 $ 199,500
5,400 Westerfed Financial
Corp.............. 73,224 142,762
----------- -----------
3,030,636 5,318,736
----------- -----------
BUILDING MATERIALS -- 1.0%
3,800 Texas Industries,
Inc............... 150,949 219,687
3,300 USG Corp.*.......... 123,382 178,819
----------- -----------
274,331 398,506
----------- -----------
BUSINESS & PUBLIC SERVICES --0.3%
3,800 Waste Management,
Inc............... 94,516 117,088
----------- -----------
CAPITAL GOODS -- 0.6%
7,375 Corrections Corp. of
America*.......... 230,739 251,672
----------- -----------
COMMERCIAL SERVICES -- 4.9%
14,325 Accustaff, Inc.*.... 310,978 494,213
3,500 AHL Services,
Inc.*............. 56,000 114,188
4,800 Billing Concepts
Corp.*............ 135,132 124,500
26,600 Personnel Group of
America, Inc.*.... 359,651 605,150
10,387 Robert Half
International,
Inc.*............. 266,128 498,576
5,200 Romac International,
Inc.*............. 104,208 143,000
----------- -----------
1,232,097 1,979,627
----------- -----------
COMPUTER EQUIPMENT -- 2.0%
24,975 CHS Electronics,
Inc.*............. 417,687 468,281
5,100 Smart Modular
Technologies,
Inc.*............. 141,525 116,344
3,100 Storage Technology
Corp.*............ 125,773 235,794
----------- -----------
684,985 820,419
----------- -----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 21
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
COMPUTER SOFTWARE -- 4.2%
9,400 CCC Information
Services Group,
Inc.*............. $ 267,302 $ 258,500
2,850 Citrix Systems,
Inc.*............. 128,488 154,435
2,700 Computer Horizons
Corp.*............ 127,426 135,675
5,000 Compuware Corp.*.... 57,200 246,875
8,000 Inspire Insurance
Solutions,
Inc.*............. 252,000 265,999
2,587 Network Associates,
Inc.*............. 123,555 171,389
5,900 Reynolds & Reynolds
Cos., Class A..... 128,719 129,063
2,400 Sterling Software,
Inc.*............. 136,735 135,600
7,800 Symantec Corp.*..... 130,465 210,113
----------- -----------
1,351,890 1,707,649
----------- -----------
COMPUTERS -- 0.7%
5,000 Daou Systems,
Inc.*............. 330,768 293,438
----------- -----------
CONSTRUCTION -- 0.5%
4,800 Centex Corp......... 88,703 183,000
----------- -----------
CONSUMER CYCLICAL -- 2.8%
16,800 Analysts
International
Corp.............. 308,200 491,400
16,650 Apple South, Inc.... 257,253 246,628
13,862 Wolverine World
Wide, Inc......... 303,793 391,602
----------- -----------
869,246 1,129,630
----------- -----------
CONSUMER NON-DURABLE -- 2.1%
17,850 Central Garden & Pet
Co.*.............. 396,178 697,266
3,800 Department 56,
Inc.*............. 138,766 144,400
----------- -----------
534,944 841,666
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
CONSUMER STAPLES -- 1.1%
13,400 Smithfield Foods,
Inc.*............. $ 319,475 $ 462,300
----------- -----------
DISTRIBUTION -- 0.3%
2,300 United Stationers,
Inc.*............. 128,464 142,169
----------- -----------
ELECTRIC UTILITY -- 2.5%
17,800 Centrais Electricas
Brasileiras,
ADR............... 362,044 414,845
18,500 P G & E Corp........ 421,985 610,500
----------- -----------
784,029 1,025,345
----------- -----------
ELECTRICAL & ELECTRONICS -- 1.3%
3,400 Credence Systems
Corp.*............ 85,425 98,387
10,800 Alcatel Alsthom Cge
SA, ADR........... 182,868 410,400
----------- -----------
268,293 508,787
----------- -----------
ELECTRONIC COMPONENTS/INSTRUMENTS -- 0.6%
5,000 Apple Computer,
Inc.*............. 131,972 137,500
3,500 Dallas
Semi-Conductor
Corp.............. 159,460 117,688
----------- -----------
291,432 255,188
----------- -----------
ELECTRONICS -- 0.3%
3,100 Lexmark
International
Group, Inc., Class
A*................ 130,478 139,887
----------- -----------
ENERGY -- 3.0%
13,725 EVI, Inc.*.......... 413,760 635,639
13,100 Peco Energy Corp.... 284,485 289,837
13,175 Pool Energy Services
Co.*.............. 220,875 307,966
----------- -----------
919,120 1,233,442
----------- -----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 22
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES -- 4.7%
4,950 Edwards A.G.,
Inc............... $ 136,323 $ 216,562
4,250 Bear Stearns Co.,
Inc............... 112,790 218,344
2,700 Donaldson Lufkin &
Jenrette, Inc..... 180,239 229,162
2,300 Legg Mason, Inc..... 126,298 136,419
3,500 Lehman Brothers
Holdings, Inc..... 89,723 262,062
5,400 Paine Webber Group,
Inc............... 116,407 216,675
4,600 Raymond James
Financial, Inc.... 121,848 200,388
9,700 SLM Holding Corp.... 400,707 423,162
----------- -----------
1,284,335 1,902,774
----------- -----------
FOOD & HOUSEHOLD PRODUCTS -- 4.0%
21,300 Groupe Danone,
ADR............... 639,722 1,025,063
3,400 Nestle S.A., ADR.... 190,400 324,838
10,000 Rubbermaid, Inc..... 265,600 285,000
----------- -----------
1,095,722 1,634,901
----------- -----------
FOOD PROCESSING -- 1.1%
7,300 Suiza Foods
Corp.*............ 268,186 448,950
----------- -----------
HEALTH CARE -- 4.5%
3,600 Columbia/HCA
Healthcare
Corp.............. 97,416 116,100
11,500 Curative Health
Services, Inc.*... 327,375 383,094
16,987 Health Management
Associates, Inc.,
Class A*.......... 278,946 486,253
3,000 Lincare Holdings,
Inc.*............. 120,412 211,875
16,150 Medcath, Inc.*...... 246,456 293,223
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
2,900 Medimmune, Inc.*.... $ 115,461 $ 159,863
2,100 Sofamor Danek Group,
Inc.*............. 63,618 179,025
----------- -----------
1,249,684 1,829,433
----------- -----------
HOMEBUILDERS -- 1.0%
5,200 Champion
Enterprises,
Inc.*............. 127,427 138,775
2,900 Fleetwood
Enterprises,
Inc............... 133,558 135,031
4,000 Kaufman & Broad Home
Corp.............. 130,523 130,250
----------- -----------
391,508 404,056
----------- -----------
INSURANCE -- 1.3%
5,600 Safeco Corp......... 158,493 306,075
4,000 Tokio Marine & Fire
Insurance, ADR.... 217,250 224,000
----------- -----------
375,743 530,075
----------- -----------
INVESTMENT COMPANY -- 0.2%
4,500 Morgan Keegan,
Inc............... 90,270 98,156
----------- -----------
LEISURE & GAMING -- 0.3%
1,900 Anchor Gaming*...... 112,812 141,075
----------- -----------
MACHINE-DIVERSIFIED -- 0.3%
4,000 AGCO Corp........... 110,240 118,750
----------- -----------
MANUFACTURING -- 0.4%
13,000 Pentacon, Inc....... 182,780 182,000
----------- -----------
MEDICAL -- BIOTECHNOLOGY -- 0.5%
5,400 Arterial Vascular
Engineer, Inc.*... 170,100 197,775
----------- -----------
MULTI-INDUSTRY -- 0.7%
2,800 Loews Corp.......... 123,409 291,900
----------- -----------
OIL/GAS EQUIPMENT -- 0.4%
4,900 National-Oilwell,
Inc.*............. 135,485 160,781
----------- -----------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE> 23
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
OIL/GAS EXPLORATION -- 5.1%
3,800 BJ Services Co.*.... $ 110,195 $ 138,463
9,400 Cliffs Drilling
Co.*.............. 344,540 388,337
10,100 Elf Aquitane, ADR... 358,447 653,975
3,200 ENSCO International,
Inc............... 74,902 88,800
12,750 Oceaneering
International,
Inc.*............. 229,359 251,812
3,600 Veritas DGC,
Inc.*............. 147,472 182,025
11,400 YPF Sociedad
Anonima, ADR...... 221,847 387,600
----------- -----------
1,486,762 2,091,012
----------- -----------
OIL/GAS SERVICES -- 0.8%
2,100 Cooper Cameron
Corp.*............ 108,901 126,788
3,300 Input/Output,
Inc.*............. 63,723 77,138
2,900 Tidewater, Inc...... 131,421 127,056
----------- -----------
304,045 330,982
----------- -----------
PHARMACEUTICALS -- 1.0%
4,800 ICN Pharmaceuticals,
Inc............... 80,261 236,400
2,600 NBTY, Inc.*......... 131,118 157,950
----------- -----------
211,379 394,350
----------- -----------
PUBLISHING & PRINTING -- 1.3%
7,850 Mail-Well Holdings,
Inc.*............. 308,407 297,319
5,500 Valassis
Communications,
Inc.*............. 120,350 225,500
----------- -----------
428,757 522,819
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
RESTAURANTS -- 0.3%
3,200 CKE Restaurants,
Inc............... $ 130,989 $ 117,600
----------- -----------
RETAIL -- 1.5%
7,400 Burlington Coat
Factory
Warehouse......... 116,069 128,575
13,200 Wet Seal, Inc.*..... 360,388 499,125
----------- -----------
476,457 627,700
----------- -----------
RETAIL -- SPECIALTY LINE -- 1.0%
3,500 Best Buy Co.,
Inc.*............. 165,148 233,187
4,700 Rexall Sundown,
Inc.*............. 160,388 160,094
----------- -----------
325,536 393,281
----------- -----------
TECHNOLOGY -- 6.0%
3,800 Avid Technology,
Inc.*............. 119,700 156,275
11,750 Computer Management
Sciences, Inc.*... 233,012 325,328
24,750 Datastream Systems,
Inc.*............. 251,734 547,593
22,850 Inter-Tel, Inc...... 156,197 615,522
9,800 National Techteam,
Inc.*............. 226,582 99,225
6,450 SBS Technologies,
Inc.*............. 209,594 185,438
13,200 Vantive Corp.*...... 347,111 482,625
----------- -----------
1,543,930 2,412,006
----------- -----------
TELECOMMUNICATION SERVICES -- 1.4%
20,975 Aspect
Telecommunications
Corp.*............ 531,049 562,392
----------- -----------
</TABLE>
See accompanying notes to financial statements.
14
<PAGE> 24
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS -- 6.5%
10,695 Excel
Communications,
Inc.*............. $ 170,276 $ 252,001
5,200 Premisys
Communications,
Inc.*............. 135,102 149,175
29,000 Tele Danmark A.S.
ADR............... 748,047 1,323,125
5,500 Telecom Italia SPA,
ADR............... 172,297 436,906
8,600 Telefonos De Mexico
SA, ADR........... 274,979 484,825
----------- -----------
1,500,701 2,646,032
----------- -----------
TEXTILES & APPAREL -- 2.4%
10,000 Reebok International
Ltd.*............. 268,094 305,000
5,700 Ross Stores, Inc.... 114,981 251,513
5,700 TJX Cos., Inc....... 94,709 257,925
3,200 V.F. Corp........... 113,285 168,200
----------- -----------
591,069 982,638
----------- -----------
TRANSPORTATION -- 1.3%
4,400 Airborne Freight
Corp.............. 87,775 165,550
11,075 Hvide Marine, Inc.,
Class A*.......... 298,563 195,197
8,850 Trico Marine
Services, Inc.*... 207,444 186,403
----------- -----------
593,782 547,150
----------- -----------
UTILITIES -- 1.9%
22,400 Unicom Corp......... 533,344 784,000
----------- -----------
TOTAL COMMON
STOCKS............ 26,607,520 38,449,030
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL/ MARKET
SHARES COST VALUE
- ---------- ----------- -----------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS -- 6.6%
REPURCHASE AGREEMENTS -- 6.6%
612,379 Investors Fiduciary
Trust Co., 4.25%,
dated 3/31/1998
and maturing
4/1/1998 with a
maturity value of
$612,451.
(Collateralized by
$605,000 U.S.
T-Bill, 6.38%, due
4/30/1999 with a
market value of
$625,814)......... $ 612,379 $ 612,379
797,245 Investors Fiduciary
Trust Co., 4.25%,
dated 3/31/1998
and maturing
4/1/1998 with a
maturity value of
$797,339.
(Collateralized by
$645,000 U.S.
Bond, 8.13%, due
8/15/2021 with a
market value of
$815,643)......... 797,245 797,245
</TABLE>
See accompanying notes to financial statements.
15
<PAGE> 25
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC APPRECIATION FUND**
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
PRINCIPAL COST VALUE
- --------- ----------- -----------
<C> <S> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
1,293,502 Investors Fiduciary
Trust Co., 4.25%,
dated 3/31/1998
and maturing
4/1/1998 with a
maturity value of
$1,293,655.
(Collateralized by
$1,290,000 U.S.
T-Bill, 5.88%, due
10/31/1998 with a
market value of
$1,323,426)....... $ 1,293,502 $ 1,293,502
----------- -----------
TOTAL SHORT TERM
INVESTMENTS....... 2,703,126 2,703,126
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
COST VALUE
----------- -----------
<C> <S> <C> <C>
TOTAL INVESTMENTS --
100.9%............ $29,310,646(1) $41,152,156
===========
OTHER ASSETS AND
LIABILITIES
(NET) -- (0.9)%... (374,261)
-----------
NET
ASSETS -- 100.0%.. $40,777,895
===========
</TABLE>
Percentages indicated are based on net assets.
(1) The cost of securities for federal income tax purposes
is substantially the same.
* Represents non-income producing security.
** See page 22 for Concentration by Country.
ADR -- American Depository Receipts.
PLC -- Public Limited Company.
See accompanying notes to financial statements.
16
<PAGE> 26
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GROWTH FUND
Portfolio of Investments -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS -- 91.0%
AIRLINES -- 2.2%
5,800 Ryanair Holdings
PLC, ADR*......... $ 139,775 $ 214,600
11,700 Skywest, Inc........ 466,650 427,050
----------- -----------
606,425 641,650
----------- -----------
AUTO-RELATED -- 1.3%
16,800 Wynn's
International,
Inc............... 303,820 382,200
----------- -----------
BUILDING MATERIALS -- 2.6%
21,500 Cameron Ashley
Building
Products*......... 328,625 393,719
41,200 International
Comfort Products
Corp.*............ 253,374 365,650
----------- -----------
581,999 759,369
----------- -----------
COMMERCIAL SERVICES -- 4.2%
26,000 Group Maintenance
America Corp.*.... 366,317 440,375
17,500 Medirisk, Inc.*..... 193,867 371,875
24,400 PMT Services,
Inc.*............. 386,844 437,675
----------- -----------
947,028 1,249,925
----------- -----------
COMPUTER SOFTWARE -- 6.0%
80,800 Acclaim
Entertainment,
Inc.*............. 375,294 535,300
18,300 Intersolv, Inc.*.... 290,662 328,256
46,000 Mecon, Inc.*........ 318,500 506,000
43,300 Orcad, Inc.*........ 389,425 422,175
----------- -----------
1,373,881 1,791,731
----------- -----------
COMPUTERS -- 4.8%
35,000 Powerhouse
Technologies,
Inc.*............. 441,157 498,750
52,100 WPI Group, Inc.*.... 425,293 429,825
12,700 Zebra Technologies
Corp., Class A*... 354,309 488,950
----------- -----------
1,220,759 1,417,525
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
CONSTRUCTION -- 1.4%
28,400 Schuff Steel Co.*... $ 241,700 $ 404,700
----------- -----------
DISTRIBUTION -- 1.5%
23,900 Pameco Corp.*....... 380,834 439,163
----------- -----------
ELECTRICAL & ELECTRONICS -- 1.2%
9,500 Electro Scientific
Industries,
Inc.*............. 396,029 366,938
----------- -----------
ELECTRICAL EQUIPMENT -- 1.4%
48,150 Sigma Circuits,
Inc.*............. 426,306 418,303
ELECTRONIC COMPONENTS/INSTRUMENTS -- 6.0%
6,700 Hadco Corp.*........ 373,979 265,488
18,000 Kulicke & Soffa
Industries,
Inc.*............. 339,313 391,500
10,000 PCD, Inc.*.......... 179,375 225,000
31,100 Percon Acquisition,
Inc.*............. 408,796 345,016
14,600 Plexus Corp.*....... 210,890 290,175
16,100 Power-One, Inc.*.... 225,400 273,700
----------- -----------
1,737,753 1,790,879
----------- -----------
ELECTRONICS -- 2.9%
36,500 FEI Company*........ 465,156 456,250
5,600 Pittway Corp., Class
A................. 365,710 397,600
----------- -----------
830,866 853,850
----------- -----------
ENTERTAINMENT -- 2.4%
7,900 Regal Cinemas,
Inc.*............. 202,931 236,013
18,100 Speedway
Motorsports,
Inc.*............. 419,830 485,306
----------- -----------
622,761 721,319
----------- -----------
FINANCIAL SERVICES -- 1.6%
14,200 Amresco, Inc.*...... 368,372 465,050
----------- -----------
HOME FURNISHINGS -- 1.7%
20,500 Ladd Furniture,
Inc.*............. 380,188 492,000
----------- -----------
INVESTMENT COMPANY -- 2.9%
15,650 Allied Capital
Corp.............. 317,653 433,309
14,500 Sirrom Capital
Corp.............. 283,706 435,906
----------- -----------
601,359 869,215
----------- -----------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE> 27
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GROWTH FUND
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
MACHINE-DIVERSIFIED -- 0.9%
16,100 CTB International
Corp.*............ $ 229,993 $ 276,719
----------- -----------
MANUFACTURING -- 1.2%
15,100 Asyst Technologies,
Inc.*............. 345,434 351,075
----------- -----------
MANUFACTURING-CONSUMER GOODS -- 2.1%
10,500 Boston Acoustics.... 332,063 333,375
15,400 Genesco, Inc.*...... 202,079 279,125
----------- -----------
534,142 612,500
----------- -----------
MEDICAL SUPPLIES -- 2.0%
19,400 American
Homepatient,
Inc.*............. 413,583 377,087
8,000 Hologic, Inc.*...... 199,625 222,000
----------- -----------
613,208 599,087
----------- -----------
MEDICAL-HOSPITAL SERVICES -- 1.5%
14,600 Vencor, Inc.*....... 420,772 437,088
----------- -----------
NUTRITION & VITAMIN PRODUCTS -- 3.9%
16,700 Twinlab Corp.*...... 293,150 676,350
30,100 Weider Nutrition
International,
Inc., Class A..... 412,646 466,550
----------- -----------
705,796 1,142,900
----------- -----------
OFFICE/BUSINESS EQUIPMENT -- 0.8%
7,000 W. H. Brady Co.,
Class A........... 198,450 234,500
----------- -----------
OIL/GAS -- 0.8%
50,000 Grey Wolf, Inc.*.... 368,885 225,000
----------- -----------
OIL/GAS EQUIPMENT -- 1.3%
11,900 National-Oilwell,
Inc.*............. 379,647 390,469
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
OIL/GAS SERVICES -- 6.7%
12,300 Carbo Ceramics,
Inc............... $ 359,332 $ 479,700
15,300 Nabors Industries,
Inc.*............. 421,978 362,419
19,700 Patterson Energy,
Inc.*............. 303,250 226,550
13,500 Rowan Cos., Inc.*... 382,697 391,500
10,200 Veritas DGC,
Inc.*............. 297,226 515,738
----------- -----------
1,764,483 1,975,907
----------- -----------
PHARMACEUTICALS -- 3.3%
10,000 D & K Healthcare
Resources*........ 135,000 135,000
12,650 Medicis
Pharmaceutical
Corp., Class A*... 543,721 551,856
13,500 Nutraceutical Intl.
Corp.*............ 245,437 297,000
----------- -----------
924,158 983,856
----------- -----------
REAL ESTATE -- 1.5%
21,500 Intrawest Corp...... 347,498 455,531
----------- -----------
REAL ESTATE INVESTMENT TRUST -- 1.4%
10,000 CCA Prison Realty
Trust............. 210,000 414,375
----------- -----------
RESTAURANTS -- 1.0%
19,100 Apple South, Inc.... 280,588 282,919
----------- -----------
RETAIL -- 3.0%
30,700 Compucom Systems,
Inc.*............. 267,340 253,275
12,600 Heilig Meyers Co.... 204,264 177,188
21,400 O' Charley's,
Inc.*............. 409,275 454,749
----------- -----------
880,879 885,212
----------- -----------
RETAIL -- DEPARTMENT STORE -- 1.5%
19,900 Elder-Beerman Stores
Corp.*............ 430,338 445,262
----------- -----------
RETAIL -- GENERAL MERCHANDISE -- 1.4%
26,400 S&K Famous Brands,
Inc.*............. 367,775 424,050
----------- -----------
STEEL/IRON -- 1.6%
21,700 Northwest Pipe
Co.*.............. 387,887 471,975
----------- -----------
</TABLE>
See accompanying notes to financial statements.
18
<PAGE> 28
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC GROWTH FUND
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
TEXTILES & APPAREL -- 4.1%
50,700 Delta Woodside
Industries,
Inc............... $ 281,385 $ 285,187
20,000 Dixie Group, Inc.,
Class A........... 164,305 231,250
30,000 I.C. Isaacs &
Company, Inc.*.... 300,000 210,000
19,000 Quaker Fabric
Corp.*............ 330,899 484,500
----------- -----------
1,076,589 1,210,937
----------- -----------
TOYS -- 1.0%
8,500 The First Years,
Inc............... 165,013 298,562
----------- -----------
TRANSPORTATION -- 2.7%
20,000 Covenant Transport,
Inc., Class A*.... 320,000 438,125
12,900 Gulfmark Offshore,
Inc.*............. 406,655 354,750
----------- -----------
726,655 792,875
----------- -----------
TRUCKING & LEASING -- 1.7%
15,100 MS Carriers,
Inc.*............. 362,825 511,512
----------- -----------
WHOLESALE -- 1.5%
21,300 ScanSource, Inc.*... 356,237 447,300
----------- -----------
TOTAL COMMON
STOCKS............ 23,097,332 26,933,428
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
PRINCIPAL COST VALUE
- --------- ----------- -----------
<C> <S> <C> <C>
SHORT TERM INVESTMENTS -- 10.6%
REPURCHASE AGREEMENT -- 10.6%
3,164,283 Investors Fiduciary
Trust Co., 4.25%,
dated 3/31/1998
and maturing
4/1/1998 with a
maturity value of
$3,164,657.
(Collateralized by
$3,150,000 U.S. T-
Bill, 5.88%, due
10/31/1998 with a
market value of
$3,231,623)....... $ 3,164,283 $ 3,164,283
----------- -----------
TOTAL SHORT TERM
INVESTMENTS....... 3,164,283 3,164,283
----------- -----------
TOTAL INVESTMENTS --
101.6%............ $26,261,615(1) 30,097,711
===========
OTHER ASSETS AND
LIABILITIES
(NET) -- (1.6%)... (466,512)
-----------
NET
ASSETS -- 100.0%.. $29,631,199
===========
</TABLE>
Percentages indicated are based on net assets.
(1) The cost of securities for Federal income tax purposes
is substantially the same.
* Represents non-income producing security.
ADR --American Depository Receipts.
PLC --Public Limited Company.
See accompanying notes to financial statements.
19
<PAGE> 29
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC VALUE FUND
Portfolio of Investments -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS -- 75.6%
BUILDING MATERIALS -- 0.6%
9,000 Cameron Ashley
Building
Products*........ $ 91,687 $ 109,875
----------- -----------
CONSTRUCTION -- 4.4%
55,800 Schuff Steel
Co.*............. 502,149 795,150
----------- -----------
CONTAINERS & PACKAGING -- 3.4%
16,000 Grief Brothers Co.,
Class A*......... 551,875 620,000
----------- -----------
ELECTRONIC COMPONENTS/
INSTRUMENTS -- 3.5%
19,300 Marshall
Industries*...... 580,053 644,138
----------- -----------
ENTERTAINMENT -- 3.6%
51,200 Jackpot
Enterprises,
Inc.*............ 581,104 665,600
----------- -----------
FINANCIAL SERVICES -- 4.2%
8,000 Bay Bancshares,
Inc.............. 128,000 176,000
83,500 First Investors
Financial
Services*........ 627,343 584,500
----------- -----------
755,343 760,500
----------- -----------
FOOD -- 3.3%
44,800 Bridgford Foods
Corp............. 450,132 610,400
----------- -----------
FOREST PRODUCTS & PAPERS -- 3.2%
19,600 Deltic Timber
Corp............. 547,619 586,775
----------- -----------
HOME FURNISHINGS -- 6.8%
48,150 Flexsteel
Industries....... 584,704 668,081
18,800 Bassett Furniture
Industries,
Inc.............. 525,737 576,925
----------- -----------
1,110,441 1,245,006
----------- -----------
HOUSEHOLD PRODUCTS -- 4.1%
43,900 The Rival Co....... 638,888 757,275
----------- -----------
INSTITUTIONAL FURNISHINGS --3.0%
42,500 Falcon Products,
Inc.............. 596,284 557,812
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
INSURANCE -- 3.7%
17,000 Leucadia National
Corp............. $ 569,259 $ 669,375
----------- -----------
METALS & MINING -- 1.9%
313,000 MK Gold Co.*....... 496,341 342,344
----------- -----------
RAILROADS -- 2.2%
24,000 Railtex, Inc.*..... 395,375 396,000
----------- -----------
RECREATION -- 3.2%
77,200 Rockshox, Inc.*.... 626,775 586,238
----------- -----------
REAL ESTATE -- 3.2%
17,000 St. Joe Corp....... 594,607 571,625
----------- -----------
RESTAURANTS -- 5.5%
61,800 Cooker
Restaurant....... 574,158 621,862
9,900 Outback Steakhouse,
Inc.*............ 259,813 387,338
----------- -----------
833,971 1,009,200
----------- -----------
RETAIL -- SPECIALTY LINE -- 1.7%
68,100 Natural Wonders,
Inc.*............ 298,673 306,450
----------- -----------
STEEL/IRON -- 7.0%
31,300 Northwest Pipe
Co.*............. 634,344 680,775
11,200 Nucor Corp......... 560,258 609,700
----------- -----------
1,194,602 1,290,475
----------- -----------
TEXTILES & APPAREL -- 3.9%
40,900 Burlington
Industry,
Inc.*............ 551,520 718,306
----------- -----------
TRANSPORTATION -- 3.2%
1,000 Greyhound Lines,
Inc.*............ 4,883 4,750
34,100 International
Shipholding...... 584,937 577,569
----------- -----------
589,820 582,319
----------- -----------
TOTAL COMMON
STOCKS........... 12,556,518 13,824,863
----------- -----------
</TABLE>
See accompanying notes to financial statements.
20
<PAGE> 30
ESC STRATEGIC FUNDS, INC.
ESC STRATEGIC VALUE FUND
Portfolio of Investments (continued) -- March 31, 1998
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
------ ---- ------
<C> <S> <C> <C>
COMMON STOCKS (CONTINUED)
PREFERRED STOCKS -- 3.6%
ENTERTAINMENT -- 3.6%
58,100 Craig Corp., Class
A*............... $ 545,439 $ 660,887
----------- -----------
TOTAL PREFERRED
STOCKS........... 545,439 660,887
----------- -----------
SHORT TERM
INVESTMENTS --
21.1%
REPURCHASE
AGREEMENT --
21.1%
3,871,453 Investors Fiduciary
Trust Co., 4.25%,
dated 3/31/1998
and maturing
4/1/1998 with a
maturity value of
$3,871,911.
(Collateralized
by $3,850,000
U.S. T-Bill,
5.88%, due
10/31/1998 with a
market value of
$3,949,761)...... 3,871,453 3,871,453
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
COST VALUE
----------- -----------
<C> <S> <C> <C>
TOTAL SHORT TERM
INVESTMENTS...... $ 3,871,453 $ 3,871,453
----------- -----------
TOTAL INVESTMENTS--
100.3%........... $16,973,410(1) 18,357,203
===========
OTHER ASSETS AND
LIABILITIES
(NET) --
(0.3)%........... (48,078)
-----------
NET
ASSETS -- 100.0%.. $18,309,125
===========
</TABLE>
Percentages indicated are based on net assets.
(1) The cost of securities for Federal income tax purposes
is substantially the same.
* Represents non-income producing security.
See accompanying notes to financial statements.
21
<PAGE> 31
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.................................................. $ -- $ 194,800 $ 387,600
Australia.................................................. -- 173,067 --
Belgium.................................................... -- 178,941 --
Brazil..................................................... -- 156,089 414,845
Chile...................................................... -- 256,356 --
Czech Republic............................................. -- 75,082 --
Denmark.................................................... -- -- 1,323,125
France..................................................... -- 807,219 2,513,731
Germany.................................................... 1,710,742 471,220 687,275
Hong Kong.................................................. -- 342,589 --
Hungary.................................................... -- 280,460 --
India...................................................... -- 159,250 --
Italy...................................................... -- 257,545 778,594
Japan...................................................... 751,948 937,083 224,000
Mexico..................................................... -- 450,513 484,825
Netherlands................................................ -- 432,531 --
Peru....................................................... -- 215,625 --
Philippines................................................ -- 36,188 --
Portugal................................................... -- 245,246 --
Singapore.................................................. -- 164,617 --
South Africa............................................... -- 489,803 --
Spain...................................................... -- 248,993 604,538
Sweden..................................................... 461,070 -- --
Switzerland................................................ -- 500,088 324,838
Taiwan..................................................... -- 88,125 --
United Kingdom............................................. 1,669,993 1,053,446 236,437
United States.............................................. 20,298,042 7,995,368 33,172,348
----------- ----------- -----------
Total Investments.......................................... $24,891,795 $16,210,244 $41,152,156
=========== =========== ===========
</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.
22
<PAGE> 32
ESC STRATEGIC FUNDS, INC.
Statements of Assets and Liabilities
March 31, 1998
<TABLE>
<CAPTION>
GLOBAL SMALL
INCOME EQUITY CAP APPRECIATION GROWTH VALUE
FUND FUND FUND FUND FUND FUND
----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost
$21,719,581; $12,478,278;
$101,492,727; $26,607,520;
$23,097,332; and $13,101,957,
respectively)....................... $21,913,996 $15,768,058 $140,491,956 $38,449,030 $26,933,428 $14,485,750
Repurchase Agreements (cost
$2,977,799; $442,186; $24,798,702;
$2,703,126; $3,164,283 and
$3,871,453, respectively)........... 2,977,799 442,186 24,798,702 2,703,126 3,164,283 3,871,453
----------- ----------- ------------ ----------- ----------- -----------
Total Investments............... 24,891,795 16,210,244 165,290,658 41,152,156 30,097,711 18,357,203
----------- ----------- ------------ ----------- ----------- -----------
Foreign Currency (cost $0; $17,945;
$0; $0; $0; and $0 respectively).... -- 17,901 -- -- -- --
Interest and dividends receivable..... 497,269 20,215 24,899 33,636 6,826 11,965
Receivable for securities sold........ 79,680 829,472 403,192 28,754 --
Withholding tax reclaim receivable.... -- 9,785 -- -- -- --
Receivable for fund shares sold....... -- -- 42,314 22,973 153,523 39,337
Unamortized organizational expense.... 9,267 9,349 12,127 10,506 -- --
Prepaid expenses and other assets..... 12,053 -- 49,313 17,978 20,452 39,984
----------- ----------- ------------ ----------- ----------- -----------
Total Assets.................... 25,410,384 16,347,174 166,248,783 41,640,441 30,307,266 18,448,489
----------- ----------- ------------ ----------- ----------- -----------
LIABILITIES
Income distribution payable........... 113,384 -- -- -- -- --
Payable for fund shares repurchased... -- -- 48,290 -- 4,869 12,513
Payable for securities purchased...... 8,146 228,712 854,472 795,194 611,217 67,702
Unrealized loss on open forward
currency contracts.................. -- 1,761 -- -- -- --
Advisory fee payable.................. 21,564 13,306 131,535 33,241 17,643 41,163
Administration fee payable............ 3,235 1,996 19,730 4,986 3,529 1,617
Audit fees payable.................... 10,237 13,724 8,953 9,160 16,380 9,416
Reports to shareholders payable....... 5,846 6,080 -- -- 6,220 --
12b-1 Distribution fee payable........ 5,788 4,483 49,549 11,296 9,617 5,385
Other accrued expenses................ 5,950 15,144 4,960 8,669 6,592 1,568
----------- ----------- ------------ ----------- ----------- -----------
Total Liabilities............... 174,150 285,206 1,117,489 862,546 676,067 139,364
----------- ----------- ------------ ----------- ----------- -----------
NET ASSETS...................... $25,236,234 $16,061,968 $165,131,294 $40,777,895 $29,631,199 $18,309,125
=========== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 33
ESC STRATEGIC FUNDS, INC.
Statements of Assets and Liabilities -- (Continued)
March 31, 1998
<TABLE>
<CAPTION>
GLOBAL SMALL
INCOME EQUITY CAP APPRECIATION GROWTH VALUE
FUND FUND FUND FUND FUND FUND
----------- ----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Assets Consist of:
Shares of beneficial interest, at par
($0.001)............................ $ 2,526 $ 1,337 $ 7,262 $ 2,589 $ 2,170 $ 1,593
Additional paid-in capital............ 25,101,762 12,032,034 122,756,245 25,478,697 26,241,854 16,735,775
Accumulated undistributed
(distributions in excess of) net
investment income................... (174,854) (28,171) -- (228) -- 8,043
Accumulated undistributed
(distributions in excess of)
realized gain/loss on investments
and foreign currency transactions... 114,179 766,574 3,368,558 3,454,441 (448,921) 179,921
Net unrealized
appreciation/(depreciation) on
investments and foreign currency
translations........................ 192,621 3,290,194 38,999,229 11,842,396 3,836,096 1,383,793
----------- ----------- ------------ ----------- ----------- -----------
NET ASSETS............................ $25,236,234 $16,061,968 $165,131,294 $40,777,895 $29,631,199 $18,309,125
=========== =========== ============ =========== =========== ===========
Class A............................... $24,413,525 $13,286,358 $126,856,720 $33,393,499 $19,942,173 $13,804,305
Class D............................... $ 822,709 $ 2,775,610 $ 38,274,574 $ 7,384,396 $ 9,689,026 $ 4,504,820
----------- ----------- ------------ ----------- ----------- -----------
$25,236,234 $16,061,968 $165,131,294 $40,777,895 $29,631,199 $18,309,125
=========== =========== ============ =========== =========== ===========
SHARES OF BENEFICIAL INTEREST
Class A Shares of beneficial interest
issued and outstanding.............. 2,443,891 1,101,884 5,561,203 2,114,008 1,458,113 1,199,696
=========== =========== ============ =========== =========== ===========
Net Asset Value and redemption price
per share outstanding............. $ 9.99 $ 12.06 $ 22.81 $ 15.80 $ 13.68 $ 11.51
=========== =========== ============ =========== =========== ===========
Maximum Offering Price per share
($9.99/.955, $12.06/.955,
$22.81/.955, $15.80/.955,
$13.68/.955, $11.51/.955
respectively)..................... $ 10.46 $ 12.63 $ 23.89 $ 16.54 $ 14.32 $ 12.05
=========== =========== ============ =========== =========== ===========
Class D
Shares of beneficial interest issued
and outstanding................... 82,351 234,924 1,701,274 475,250 711,840 392,807
=========== =========== ============ =========== =========== ===========
Net Asset Value and redemption price
per share outstanding............. $ 9.99 $ 11.81 $ 22.50 $ 15.54 $ 13.61 $ 11.47
=========== =========== ============ =========== =========== ===========
Maximum Offering Price per share
($9.99/.985, $11.81/.985,
$22.50/.985, $15.54/.985,
$13.61/.985, $11.47/.985
respectively)..................... $ 10.14 $ 11.99 $ 22.84 $ 15.77 $ 13.82 $ 11.64
=========== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 34
ESC STRATEGIC FUNDS, INC.
Statements of Operations
For the Year Ended March 31, 1998
<TABLE>
<CAPTION>
INCOME GLOBAL SMALL CAP APPRECIATION GROWTH VALUE
FUND EQUITY FUND FUND FUND FUND FUND(A)
---------- ----------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Interest (net of withholding
tax of $241; $0; $0; $0; $0;
$0, respectively)............ $2,014,084 $ 70,733 $ 1,624,643 $ 153,397 $ 142,166 $ 144,904
Dividend (net of withholding
tax of $0;$18,915; $0; $0;
$0; $0, respectively)........ 16,098 304,604 430,642 519,880 59,663 57,625
---------- ---------- ----------- ----------- ---------- ----------
Total income................... 2,030,182 375,337 2,055,284 673,277 201,829 202,529
---------- ---------- ----------- ----------- ---------- ----------
Expenses
Advisory....................... 285,164 189,362 1,387,887 482,226 199,592 125,668
Administration................. 42,775 28,404 208,183 72,334 23,951 15,080
Fund accounting................ 35,603 58,333 40,451 46,868 34,533 20,038
Professional fees.............. 21,779 18,465 32,683 20,292 15,453 10,819
Reports to shareholders........ 10,220 12,772 66,693 29,453 7,703 5,063
Registration................... 10,917 17,172 29,606 10,556 23,860 17,299
Custodian...................... 23,470 63,652 66,068 43,017 16,404 8,119
Directors...................... 3,016 3,542 5,004 4,535 3,284 1,494
Transfer agent fees and
expenses..................... 13,634 19,876 153,667 21,462 20,351 8,792
12b-1 Distribution
fees -- Class A.............. 69,082 36,835 265,118 106,750 27,168 20,278
12b-1 Distribution
fees -- Class D.............. 6,626 31,515 245,556 41,418 38,252 14,566
Insurance...................... 2,672 2,377 7,872 4,295 490 0
Amortization of organizational
costs........................ 8,797 8,786 10,844 8,789 0 0
Miscellaneous.................. 5,416 356 9,080 5,360 7,721 1,319
---------- ---------- ----------- ----------- ---------- ----------
Total expenses before
waivers...................... 539,171 491,447 2,528,712 897,355 418,762 248,535
Less: expenses
waived/reimbursed............ -- -- -- -- (128,530) (73,254)
Less: expenses paid by third
parties...................... (3,320) (917) (64,260) (5,035) (4,884) (4,296)
---------- ---------- ----------- ----------- ---------- ----------
Net expenses................... 535,851 490,530 2,464,452 892,320 285,348 170,985
---------- ---------- ----------- ----------- ---------- ----------
Net investment income/(loss)..... 1,494,331 (115,193) (409,168) (219,043) (83,519) 31,544
---------- ---------- ----------- ----------- ---------- ----------
Realized gain/(loss) on
investments.................... 626,116 2,619,715 13,586,328 12,458,936 601,246 305,111
Net realized gain/(loss) on
foreign currency
transactions................... (310,557) 587 -- -- -- --
Net change in unrealized
appreciation/ (depreciation) on
investments.................... 505,601 1,603,548 30,415,943 6,933,791 3,963,507 1,383,793
Net change in unrealized
gain/(loss) on foreign currency
translations................... 1,309 (749) -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
Net realized and unrealized
gain/(loss).................... 822,469 4,223,101 44,002,271 19,392,727 4,564,753 1,688,904
---------- ---------- ----------- ----------- ---------- ----------
Net increase/(decrease) in net
assets resulting from
operations..................... $2,316,800 $4,107,908 $43,593,103 $19,173,684 $4,481,234 $1,720,448
========== ========== =========== =========== ========== ==========
</TABLE>
- ---------------
(a) For the period from May 7, 1997 (commencement of operations) through March
31, 1998.
See accompanying notes to financial statements.
25
<PAGE> 35
ESC STRATEGIC FUNDS, INC.
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
INCOME FUND GLOBAL EQUITY FUND
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income/(loss)................ $ 1,494,331 $ 2,077,199 $ (115,193) $ (103,754)
Net realized gain/(loss) on investments and
foreign currency transactions............. 315,559 (537,499) 2,620,302 1,450,841
Net change unrealized
appreciation/(depreciation) of investments
and foreign currency translations......... 506,910 1,011 1,602,799 328,576
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations.................................. 2,316,800 1,540,711 4,107,908 1,675,663
------------ ------------ ------------ ------------
Dividends and Distributions to Shareholders:
From net investment income
Class A................................... (1,452,325) (2,004,240) -- --
Class D................................... (42,035) (72,963) -- --
------------ ------------ ------------ ------------
(1,494,360) (2,077,203) -- --
------------ ------------ ------------ ------------
From net realized gains
Class A................................... -- -- (1,988,043) (538,288)
Class D................................... -- -- (658,846) (124,560)
------------ ------------ ------------ ------------
-- -- (2,646,889) (662,848)
------------ ------------ ------------ ------------
Change in net assets resulting from
dividends and distributions to
shareholders.............................. (1,494,360) (2,077,203) (2,646,889) (662,848)
------------ ------------ ------------ ------------
Capital Share Transactions:
Proceeds from sales of shares
Class A................................... 1,530,230 6,683,254 1,271,346 2,936,685
Class D................................... 172,805 84,695 162,830 314,954
------------ ------------ ------------ ------------
1,703,035 6,767,949 1,434,176 3,251,639
------------ ------------ ------------ ------------
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions:
Class A................................... 1,298,541 1,821,515 1,337,906 430,207
Class D................................... 36,502 67,648 658,846 124,562
------------ ------------ ------------ ------------
1,335,043 1,889,163 1,996,752 554,769
------------ ------------ ------------ ------------
Net asset value of shares redeemed:
Class A................................... (11,722,261) (12,379,107) (8,953,584) (555,272)
Class D................................... (827,987) (152,695) (2,362,618) (99,859)
------------ ------------ ------------ ------------
(12,550,248) (12,531,802) (11,316,202) (655,131)
------------ ------------ ------------ ------------
Change in net assets from capital share
transactions.............................. (9,512,170) (3,874,690) (7,885,274) 3,151,277
------------ ------------ ------------ ------------
Total change in net assets.................... (8,689,730) (4,411,182) (6,424,255) 4,164,092
Net Assets:
Beginning of Year......................... 33,925,964 38,337,146 22,486,223 18,322,131
------------ ------------ ------------ ------------
End of Year............................... $ 25,236,234 $ 33,925,964 $ 16,061,968 $ 22,486,223
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
26
<PAGE> 36
ESC STRATEGIC FUNDS, INC.
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
SMALL CAP FUND APPRECIATION FUND
------------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operations:
Net investment income/(loss)................ $ (409,168) $ (363,908) $ (219,043) $ (143,046)
Net realized gain/(loss) on investments and
foreign currency transactions............. 13,586,328 3,281,474 12,458,936 3,760,548
Net change unrealized
appreciation/(depreciation) of investments
and foreign currency translations......... 30,415,943 1,691,183 6,933,791 751,608
------------ ------------ ------------ -----------
Net increase in net assets resulting from
operations.................................. 43,593,103 4,608,749 19,173,684 4,369,110
------------ ------------ ------------ -----------
Dividends and Distributions to Shareholders:
From net realized gains
Class A................................... (8,972,632) (2,245,054) (9,402,699) (2,410,033)
Class D................................... (2,767,599) (589,117) (1,466,362) (183,443)
------------ ------------ ------------ -----------
(11,740,231) (2,834,171) (10,869,061) (2,593,476)
------------ ------------ ------------ -----------
Capital Share Transactions:
Proceeds from sales of shares
Class A................................... 35,090,045 44,903,590 6,480,292 17,929,334
Class D................................... 8,450,667 13,740,847 2,468,392 1,473,420
------------ ------------ ------------ -----------
43,540,712 58,644,437 8,948,684 19,402,754
------------ ------------ ------------ -----------
Net asset value of shares issued to
shareholders in reinvestment of dividends
and distributions:
Class A................................... 8,110,200 1,996,351 8,381,574 2,230,880
Class D................................... 2,759,244 587,122 1,440,941 181,288
------------ ------------ ------------ -----------
10,869,444 2,583,473 9,822,515 2,412,168
------------ ------------ ------------ -----------
Net asset value of shares redeemed:
Class A................................... (12,927,511) (4,643,523) (34,006,037) (2,602,856)
Class D................................... (3,084,106) (1,216,361) (1,113,196) (209,187)
------------ ------------ ------------ -----------
(16,011,617) (5,859,884) (35,119,233) (2,812,043)
------------ ------------ ------------ -----------
Change in net assets from capital share
transactions.............................. 38,398,539 55,368,026 (16,348,034) 19,002,879
------------ ------------ ------------ -----------
Total change in net assets.................... 70,251,411 57,142,604 (8,043,411) 20,778,513
Net Assets:
Beginning of Year........................... 94,879,883 37,737,279 48,821,306 28,042,793
------------ ------------ ------------ -----------
End of Year................................. $165,131,294 $ 94,879,883 $ 40,777,895 $48,821,306
============ ============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
27
<PAGE> 37
ESC STRATEGIC FUNDS, INC.
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GROWTH FUND VALUE FUND
---------------------------------- -----------------
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, 1998 MARCH 31, 1997(A) MARCH 31, 1998(B)
-------------- ----------------- -----------------
<S> <C> <C> <C>
Operations:
Net investment income/(loss)......................... $ (83,519) $ 511 $ 31,544
Net realized gain/(loss) on investments.............. 601,246 (25,751) 305,111
Net change unrealized appreciation/(depreciation) of
investments........................................ 3,963,507 (127,411) 1,383,793
----------- ---------- -----------
Net increase/(decrease) in net assets resulting from
operations........................................... 4,481,234 (152,651) 1,720,448
----------- ---------- -----------
Dividends and Distributions to Shareholders:
Distributions of net investment income
Class A............................................ -- -- (28,213)
Class D............................................ -- -- (4,506)
----------- ---------- -----------
-- -- (32,719)
----------- ---------- -----------
Distributions from net realized gains
Class A............................................ (388,459) -- (98,921)
Class D............................................ (187,036) -- (26,269)
----------- ---------- -----------
(575,495) -- (125,190)
----------- ---------- -----------
Distributions in excess of realized gains
Class A............................................ (271,796) -- --
Class D............................................ (130,865) -- --
----------- ---------- -----------
(402,661) -- --
----------- ---------- -----------
Change in net assets resulting from dividends and
distributions to shareholders...................... (978,156) -- (157,909)
----------- ---------- -----------
Capital Share Transactions:
Proceeds from sales of shares
Class A............................................ 14,983,054 2,970,948 13,081,834
Class D............................................ 7,349,742 1,359,717 4,290,509
----------- ---------- -----------
22,332,796 4,330,665 17,372,343
----------- ---------- -----------
Net asset value of shares issued to shareholders in
reinvestment of dividends and distributions:
Class A............................................ 610,656 -- 120,393
Class D............................................ 312,261 -- 30,587
----------- ---------- -----------
922,917 -- 150,980
----------- ---------- -----------
Net asset value of shares redeemed:
Class A............................................ (934,557) (17,776) (661,791)
Class D............................................ (348,585) (4,788) (114,946)
----------- ---------- -----------
(1,283,142) (22,564) (776,737)
----------- ---------- -----------
Change in net assets from capital share
transactions....................................... 21,972,571 4,308,101 16,746,586
----------- ---------- -----------
Total change in net assets............................. 25,475,649 4,155,450 18,309,125
Net Assets:
Beginning of Year.................................... 4,155,550 100 --
----------- ---------- -----------
End of Year.......................................... $29,631,199 $4,155,550 $18,309,125
=========== ========== ===========
</TABLE>
- ---------------
(a) For the period from January 28, 1997 (commencement of operations) through
March 31, 1997.
(b) For the period from May 7, 1997 (commencement of operations) through March
31, 1998.
See accompanying notes to financial statements.
28
<PAGE> 38
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements -- March 31, 1998
1. DESCRIPTION. ESC Strategic Funds, Inc. (The "Company") was
incorporated in Maryland on November 24, 1993. The Company currently comprises
six portfolios; 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), ESC Strategic Growth Fund (commencement date
January 28, 1997), and ESC Strategic Value Fund (commencement date May 7,
1997)(individually a "Fund"; collectively the "Funds"). The Company is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company. Each Fund, with the
exception of ESC Strategic Small Cap Fund, and ESC Strategic Value Fund,
operates as a diversified fund. ESC Strategic Small Cap Fund and ESC Strategic
Value Fund, operate as non-diversified funds. 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. Class A shares are offered with a maximum
front-end sales charge of 4.50% which may be reduced or waived in certain cases.
Class A shares are also subject to a Service and Distribution Fee calculated at
an annual rate of up to 0.25% of the average daily net asset value of Class A
shares. Class D shares are offered with a front-end sales charge of 1.50% and
are subject to a Service and Distribution Fee at an annual rate of up to 0.75%
of the average daily net asset value of Class D shares. 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 Income Fund -- To seek a high level of current income
with a secondary objective of total return. The Fund seeks to achieve its
investment objective by investing primarily in a diversified portfolio of
corporate, government and other debt instruments of U. S. issuers.
ESC Strategic Global Equity Fund -- To seek long-term capital
appreciation. The Fund seeks to achieve its investment objective by
primarily investing in a diversified portfolio of publicly traded common
stocks and securities convertible into or exchangeable for common stock in
domestic and international markets.
ESC Strategic Small Cap Fund -- To seek a high level of capital
appreciation. The Fund pursues its objective by investing primarily in
equity securities of domestic and foreign issuers.
ESC Strategic Appreciation Fund -- To seek long-term capital
appreciation. The Fund seeks to achieve its investment objective by
primarily investing in a diversified portfolio of U.S. based companies
publicly traded common stocks and securities convertible into or
exchangeable for common stock.
ESC Strategic Growth Fund -- To seek a high level of capital
appreciation. The Fund pursues its objective by investing primarily in
equity securities of domestic and foreign issuers believed to offer
superior opportunities for growth.
ESC Strategic Value Fund -- To seek long-term capital appreciation.
The Fund pursues its objective by investing primarily in equity securities
of domestic and foreign issuers believed to be undervalued.
2. SIGNIFICANT ACCOUNTING POLICIES. The following is a summary of the
significant accounting policies followed by the Funds in the preparation of
their financial statements. The policies are in conformity with generally
accepted accounting principles. The preparation of financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts and disclosures. Actual results could differ from those estimates.
29
<PAGE> 39
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
A. PORTFOLIO VALUATION. Investments in securities 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 are valued at the closing bid price. Bonds and
other fixed income securities are valued by using market quotations, and
may be valued on the basis of prices provided by a pricing service.
Securities for which market quotations are not readily available are valued
at fair value as determined in good faith by or at the direction of the
Board of Directors. Short-term securities which mature in 60 days or less
are valued at amortized cost, if their terms to maturity at purchase were
60 days or less, or by amortizing their value on the 61st day prior to
maturity, if their original term to maturity at purchase exceeded 60 days.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME. Securities
transactions are recorded on a trade date basis. Realized gains and losses
from securities transactions are recorded on the identified cost basis.
Dividend income is recognized on the ex-dividend date and interest income,
including amortization of premium and accretion of discount on investments,
is accrued daily as earned.
C. DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS TO
SHAREHOLDERS. Distributions to shareholders are recorded on the
ex-dividend date. The amount of dividends and distributions are determined
in accordance with federal income tax regulations, which may differ from
generally accepted accounting principles. These "book/tax" differences are
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, 1998, the reclassification arising from
permanent book/tax differences resulted in increases (decreases) to the
components of net assets as follows:
<TABLE>
<CAPTION>
GLOBAL SMALL
INCOME EQUITY CAP
--------- ------- --------
<S> <C> <C> <C>
Accumulated undistributed net investment income/(loss)..... $(572,480) $89,402 $409,168
Accumulated undistributed net realized gain/(loss) on
investments.............................................. 578,292 (83,503) (400,895)
Additional paid-in capital................................. (5,812) (5,899) (8,273)
</TABLE>
<TABLE>
<CAPTION>
APPRECIATION GROWTH VALUE
------------ ------- ------
<S> <C> <C> <C>
Accumulated undistributed net investment income/(loss)...... $218,815 $82,958 $9,218
Accumulated undistributed net realized gain/(loss) on
investments............................................... (213,104) (46,260) --
Additional paid-in capital.................................. (5,711) (36,698) (9,218)
</TABLE>
Permanent book/tax differences are primarily attributable to
non-deductible organization costs, foreign exchange gains/losses, realized
gains on passive foreign investment companies, and net operating losses.
D. REPURCHASE AGREEMENTS. The Funds may purchase instruments from
financial institutions, such as banks and broker-dealers, subject to the
seller's agreement to repurchase them at an agreed upon time and price
("repurchase agreements"). The seller under a repurchase agreement is
required to maintain the value of the securities subject to the agreement
at not less than the repurchase price. Default by the seller would,
however, expose the relevant Funds to possible loss because of adverse
market action or delay in connection with the disposition of
30
<PAGE> 40
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
the underlying obligations. Risks may arise from the potential inability of
counterparties to honor the terms of the repurchase agreements.
Accordingly, the Funds could receive less than the repurchase of the sale
of collateral securities.
E. 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.
F. ORGANIZATIONAL EXPENSES. Costs incurred in connection with the
organization and initial registration of the Funds, with the exception of
the Growth Fund and Value 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.
G. 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.
H. FOREIGN EXCHANGE TRANSACTIONS. The books and records of the Funds
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. However, the Funds do isolate the effect of
fluctuations in foreign exchange rates when determining the gain or loss
upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. Federal income tax regulations. Such amounts are
categorized as foreign exchange gain or loss for both financial reporting
and income tax reporting purposes.
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 period end, resulting
from changes in the foreign exchange rate.
31
<PAGE> 41
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
I. 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.
J. OFF-BALANCE SHEET RISK. The Funds may invest in various financial
instruments with off-balance sheet risk. These financial instruments
include taking positions in 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 the 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 Fund's 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, 1998, the Global Equity
Fund had the following open forward foreign currency buy contracts:
GLOBAL EQUITY FUND
<TABLE>
<CAPTION>
SETTLEMENT UNREALIZED
AMOUNT/CURRENCY DATE DELIVER VALUE (LOSS)
--------------- ---------- ------------ ------- ----------
<S> <C> <C> <C> <C>
4,180/German Mark............................... 4/2/98 U.S.$ 2,280 $ 2,260 $ (20)
4,630,495/Japanese Yen.......................... 4/2/98 35,297 34,724 (573)
101,555/Singapore Dollar........................ 4/2/98 64,053 62,885 (1,168)
------------ ------- -------
Total........................................... U.S.$101,630 $99,869 $(1,761)
============ ======= =======
</TABLE>
K. 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, 1998, custodian fees and expenses
were increased by the amount of the reduction, and a corresponding credit
for such reduction was recorded and included in the statement of
operations.
3. RELATED PARTY TRANSACTIONS. Effective January 2, 1998, Equitable
Securities Corporation ("ESC"), was acquired by SunTrust Banks, Inc.
("SunTrust"). In connection with the acquisition, ESC was renamed SunTrust
Equitable Securities ("STES"). At a special meeting held December 19, 1997,
shareholders approved a new Investment Advisory Agreement between the Company
and STES or (the "Adviser"). Prior to that date, ESC served as investment
adviser to the Funds, and received the same fee rates as follows. 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 1.25% of average daily net
assets for ESC Strategic Growth Fund and ESC Strategic Value 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 Management, a wholly-owned subsidiary of the Adviser,
provides portfolio management services for the Small Cap, Growth and Value
Funds. The Adviser has retained various other Managers to advise the Global
Equity Fund, Income Fund and the remaining assets of the Appreciation
32
<PAGE> 42
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
Fund. The Adviser pays any fees payable under these agreements with the
Managers. For the year ended March 31, 1998, the Adviser voluntarily waived fees
of $109,801 for the Growth Fund and $32,150 for the period from May 7, 1997
(commencement of operations) through March 31, 1998 for the Value Fund.
BISYS Fund Services Limited Partnership d/b/a/ BISYS Fund Services
("BISYS") and BISYS Fund Services, Inc ("BFSI") are each a wholly-owned
subsidiary of the BISYS Group, Inc. BISYS serves as Administrator 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, BISYS is entitled to a fee calculated and accrued daily and paid
monthly at the annual rate of 0.15% of the average daily net assets of each Fund
and are accrued daily.
BFSI serves as transfer agent and fund accountant for the Company. Pursuant
to a Transfer Agent Agreement between the Company and BFSI, BFSI provides the
Company with transfer and dividend 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 Company and BFSI, BFSI assists the Company in
calculating net asset values and provides certain other accounting services for
each Fund for an annual fee of $30,000 per Fund plus out-of-pocket expenses.
For the year ended March 31, 1998, BISYS voluntarily waived administration
fees of $18,729 for the Growth Fund and for the period from May 7, 1998 through
March 31, 1998, $12,870 for the Value Fund.
STES has voluntarily agreed to reimburse the Funds to the extent that their
ratios of expenses to average net assets exceed certain percentages as follows:
Income -- 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);
Appreciation -- 2.00% (Class A), 2.50% (Class D); Growth -- 2.00% (Class A),
2.50% (Class D), and Value -- 2.00% (Class A), 2.50% (Class D). Accordingly,
STES has reimbursed expenses of the Value Fund in the amount of $28,234, under
this voluntary agreement. No reimbursements were necessary for the Appreciation,
Global Equity, Small Cap, Income, or Growth Funds.
Beginning January 1, 1998, BISYS replaced ESC as Distributor for the Funds
pursuant to a Distribution Contract. Each Fund has adopted a service and
distribution plan ("Plan") with respect to each class of its shares. The Plans
provide that Class A shares will pay the Distributor a fee up to an annual rate
of 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. The Plans provide that Class D shares will pay the Distributor
amounts up to an annual rate of 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, 1998, the Income, Global Equity, Small Cap,
Appreciation, Growth, and Value Fund paid brokerage commissions of $309,
$85,306, $228,380, $109,329, $48,666, and $47,708, to Equitable Securities, a
subsidiary of the Adviser's subsidiary, Equitable Trust Company.
33
<PAGE> 43
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
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, 1998 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ -----------
<S> <C> <C>
Income(a).................................. $ 32,313,732 $37,486,784
Global Equity.............................. 14,163,461 23,752,925
Small Cap.................................. 103,116,408 67,414,359
Appreciation............................... 29,687,947 56,348,666
Growth..................................... 30,785,638 11,141,863
Value(b)................................... 15,308,301 2,511,356
</TABLE>
(a) Includes long-term purchases of U.S. government obligations in the
amount of $500,469 and sales in the amount of $2,931,992.
(b) For the period from May 7, 1997 (commencement of operations) through
March 31, 1998.
B. FEDERAL INCOME TAX BASIS. Cost for book and federal income tax
purposes were substantially the same as of March 31, 1998. Gross unrealized
appreciation and depreciation on investment securities at March 31, 1998,
based on cost for Federal income tax purposes is as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
APPRECIATION DEPRECIATION APPRECIATION
------------ ------------ ------------
<S> <C> <C> <C>
Income.......................... $ 471,109 $ (276,694) $ 194,415
Global Equity................... 4,108,824 (819,044) 3,289,780
Small Cap....................... 42,266,066 (3,266,837) 38,999,229
Appreciation.................... 12,291,554 (450,044) 11,841,510
Growth.......................... 4,593,654 (757,558) 3,836,096
Value........................... 1,690,126 (306,333) 1,383,793
</TABLE>
34
<PAGE> 44
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
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
each class of shares of the Funds for the year ended March 31, 1998, and the
year ended March 31, 1997, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
----------------------------------
GLOBAL SMALL
INCOME EQUITY CAP
---------- --------- ---------
<S> <C> <C> <C>
CLASS A
Beginning Balance........................................... 3,339,466 1,568,551 4,129,592
---------- --------- ---------
Shares Sold................................................. 155,058 102,868 1,661,014
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 131,084 122,744 384,551
Shares redeemed............................................. (1,181,717) (692,279) (613,954)
---------- --------- ---------
Net increase/(decrease) in shares........................... (895,575) (466,667) 1,431,611
---------- --------- ---------
Ending Balance.............................................. 2,443,891 1,101,884 5,561,203
========== ========= =========
CLASS D
Beginning Balance........................................... 145,898 366,560 1,290,948
---------- --------- ---------
Shares Sold................................................. 17,012 13,339 428,750
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 3,690 61,747 132,655
Shares redeemed............................................. (84,249) (206,722) (151,079)
---------- --------- ---------
Net increase/(decrease) in shares........................... (63,547) (131,636) 410,326
---------- --------- ---------
Ending Balance.............................................. 82,351 234,924 1,701,274
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1998
------------------------------------
APPRECIATION GROWTH VALUE(A)
------------ ------ --------
<S> <C> <C> <C>
CLASS A
Beginning Balance........................................... 3,190,643 295,961 0
---------- --------- ---------
Shares Sold................................................. 402,557 1,186,062 1,248,837
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 595,282 48,311 10,945
Shares redeemed............................................. (2,074,474) (72,221) (60,086)
---------- --------- ---------
Net increase/(decrease) in shares........................... (1,076,635) 1,162,152 1,199,696
---------- --------- ---------
Ending Balance.............................................. 2,114,008 1,458,113 1,199,696
========== ========= =========
CLASS D
Beginning Balance........................................... 292,678 135,392 0
---------- --------- ---------
Shares Sold................................................. 154,004 579,982 400,749
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 104,039 24,782 2,786
Shares redeemed............................................. (75,471) (28,316) (10,728)
---------- --------- ---------
Net increase/(decrease) in shares........................... 182,572 576,448 392,807
---------- --------- ---------
Ending Balance.............................................. 475,250 711,840 392,807
========== ========= =========
</TABLE>
(a) For the period from May 7, 1997 (commencement of operations) through March
31, 1998.
35
<PAGE> 45
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997
----------------------------------
GLOBAL
INCOME EQUITY SMALL CAP
---------- --------- ---------
<S> <C> <C> <C>
CLASS A
Beginning Balance........................................... 3,730,042 1,321,204 1,816,310
---------- --------- ---------
Shares Sold................................................. 676,705 258,134 2,460,003
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 184,080 37,151 109,931
Shares redeemed............................................. (1,251,361) (47,938) (256,652)
---------- --------- ---------
Net increase/(decrease) in shares........................... (390,576) 247,347 2,313,282
---------- --------- ---------
Ending Balance.............................................. 3,339,466 1,568,551 4,129,592
========== ========= =========
CLASS D
Beginning Balance........................................... 145,876 336,540 564,447
---------- --------- ---------
Shares Sold................................................. 8,550 27,967 762,148
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 6,828 10,917 32,655
Shares redeemed............................................. (15,356) (8,864) (68,302)
---------- --------- ---------
Net increase/(decrease) in shares........................... 22 30,020 726,501
---------- --------- ---------
Ending Balance.............................................. 145,898 366,560 1,290,948
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1997
------------------------
APPRECIATION GROWTH(A)
------------ ---------
<S> <C> <C>
CLASS A
Beginning Balance........................................... 1,963,842 10
--------- -------
Shares Sold................................................. 1,249,192 297,773
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 154,922 0
Shares redeemed............................................. (177,313) (1,822)
--------- -------
Net increase/(decrease) in shares........................... 1,226,801 295,951
--------- -------
Ending Balance.............................................. 3,190,643 295,961
========= =======
CLASS D
Beginning Balance........................................... 192,247 0
--------- -------
Shares Sold................................................. 102,108 135,884
Shares issued in reinvestment of net investment income and
capital gain distributions................................ 12,722 0
Shares redeemed............................................. (14,399) (492)
--------- -------
Net increase/(decrease) in shares........................... 100,431 135,392
--------- -------
Ending Balance.............................................. 292,678 135,392
========= =======
</TABLE>
(a) For the period from January 28, 1997 (commencement of operations) through
March 31, 1997.
36
<PAGE> 46
ESC STRATEGIC FUNDS, INC.
Notes to Financial Statements (continued) -- March 31, 1998
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 of both the total Fund portfolio and of each
Manager. The Adviser will reallocate Fund assets among individual Manager's or
recommend to the Company that it employ or terminate particular Manager's to the
extent the Adviser deems appropriate to achieve the overall objectives of the
particular Fund.
The Managers are as follows:
ESC Strategic Income Fund -- Llama Asset Management Company, L.P.;
Cincinnati Assert 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, L.P., Scott & Stringfellow Capital Management,
Inc. (effective February 27, 1998, Atlantic Capital Management, LLC).
ESC Strategic Growth Fund -- Equitable Asset Management, Inc.
ESC Strategic Value Fund -- Equitable Asset Management, Inc.
Equitable Asset Management, Inc. is an affiliate of the Adviser.
7. FEDERAL INCOME TAXES. Capital losses and foreign currency losses
incurred after October 31, 1997 through March 31, 1998, are deemed to arise on
the first business day of the following fiscal year. Such losses may be deferred
and treated as occurring on the first day of the following fiscal year. The
Income and Growth Fund incurred, and will elect to defer post October foreign
currency and post October capital losses of approximately $57,573 and $448,921,
respectively. The Income Fund utilized approximately $217,195 of capital loss
carryforwards to offset capital gains as provided by the regulations.
8. ELIGIBLE DISTRIBUTIONS. (Unaudited) For the taxable year ended March
31, 1998, 1.41%, 7.95%, 7.95%, 5.46%, 4.48% and 11.03% of the income dividends
paid by the Income Fund, Global Equity Fund, Small Cap Fund, Appreciation Fund,
Growth Fund and Value Fund, respectively, qualifies for the dividends received
deduction available for corporations.
The following table presents capital gain dividend distributions from
long-term capital gains for the following Funds for the year ended March 31,
1998:
<TABLE>
<CAPTION>
FUND AMOUNT
- ------------------- ----------
<S> <C>
ESC Global Equity Fund...................................... $1,537,764
ESC Small Cap Fund.......................................... 7,249,294
ESC Appreciation Fund....................................... 7,331,759
</TABLE>
37
<PAGE> 47
ESC STRATEGIC FUNDS, INC.
Financial Highlights
<TABLE>
<CAPTION>
INCOME FUND
--------------------------------------------------------------------------------------
CLASS A CLASS D
-------------------------------------------------- ---------------------------------
MAY 4, 1994
(COMMENCEMENT
YEAR YEAR YEAR OF OPERATIONS) YEAR YEAR YEAR
ENDED ENDED ENDED THROUGH ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996 1995 1998 1997 1996
--------- --------- --------- -------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period.............. $ 9.73 $ 9.89 $ 9.94 $ 10.00 $ 9.73 $ 9.89 $ 9.94
------- ------- ------- ------- ------ ------ ------
Income from Investment Operations
Net investment income/(loss)..... 0.34 0.60 0.59 0.55 0.28 0.50 0.54
Net realized and unrealized
gains/(losses) on
investments.................... 0.44 (0.16) 0.16 (0.05) 0.45 (0.16) 0.16
------- ------- ------- ------- ------ ------ ------
Total from investment operations... 0.78 0.44 0.75 0.50 0.73 0.34 0.70
------- ------- ------- ------- ------ ------ ------
Less Dividends and Distributions:
From net investment income....... (0.52) (0.60) (0.59) (0.01) (0.47) (0.50) (0.54)
From realized gains.............. -- -- (0.21) (0.55) -- -- (0.21)
------- ------- ------- ------- ------ ------ ------
Total Dividends and
Distributions.................... (0.52) (0.60) (0.80) (0.56) (0.47) (0.50) (0.75)
------- ------- ------- ------- ------ ------ ------
Net asset value per share, end of
period........................... $ 9.99 $ 9.73 $ 9.89 $ 9.94 $ 9.99 $ 9.73 $ 9.89
======= ======= ======= ======= ====== ====== ======
Total Return (excludes sales
charge)...................... 8.18% 3.91% 7.67% 5.30% 7.64% 3.39% 7.11%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $24,413 $32,506 $36,891 $32,373 $ 823 $1,420 $1,446
Ratios to Average Net Assets of:
Net investment income/(loss)... 5.27% 5.49% 5.87% 6.29%* 4.77% 4.99% 5.37%
Expenses net of waivers/
reimbursements and expenses
paid by third parties........ 1.87% 1.65% 1.70% 1.85%* 2.37% 2.15% 2.20%
Expenses before waivers/
reimbursements and expenses
paid by third parties........ 1.87% 1.70% 1.75% 1.86%* 2.37% 2.21% 2.25%
Portfolio Turnover Rate........ 130% 123% 138% 92% 144% 123% 138%
<CAPTION>
INCOME FUND
--------------
CLASS D
--------------
MAY 4, 1994
(COMMENCEMENT
OF OPERATIONS)
THROUGH
MARCH 31,
1995
--------------
<S> <C>
Net asset value per share,
beginning of period.............. $10.00
------
Income from Investment Operations
Net investment income/(loss)..... 0.50
Net realized and unrealized
gains/(losses) on
investments.................... (0.05)
------
Total from investment operations... 0.45
------
Less Dividends and Distributions:
From net investment income....... (0.01)
From realized gains.............. (0.50)
------
Total Dividends and
Distributions.................... (0.51)
------
Net asset value per share, end of
period........................... $ 9.94
======
Total Return (excludes sales
charge)...................... 4.74%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $1,241
Ratios to Average Net Assets of:
Net investment income/(loss)... 5.73%*
Expenses net of waivers/
reimbursements and expenses
paid by third parties........ 2.29%*
Expenses before waivers/
reimbursements and expenses
paid by third parties........ 2.31%*
Portfolio Turnover Rate........ 92%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
38
<PAGE> 48
ESC STRATEGIC FUNDS, INC.
Financial Highlights -- (Continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY FUND
--------------------------------------------------------------------------
CLASS A CLASS D
-------------------------------------------------- ---------------------
MAY 12, 1994
(COMMENCEMENT
YEAR YEAR YEAR OF OPERATIONS) YEAR YEAR
ENDED ENDED ENDED THROUGH ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996 1995 1998 1997
--------- --------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period.............. $ 11.66 $ 11.08 $ 9.90 $ 10.00 $11.47 $10.95
------- ------- ------- ------- ------ ------
Income from Investment Operations
Net investment income/(loss)..... -- (0.04) (0.04) (0.05) (0.13) (0.10)
Net realized and unrealized
gains/ (losses) on
investments.................... 2.37 0.97 1.46 (0.03) 2.44 0.97
------- ------- ------- ------- ------ ------
Total from investment operations... 2.37 0.93 1.42 (0.08) 2.31 0.87
------- ------- ------- ------- ------ ------
Less Dividends and Distributions:
From realized gains.............. (1.97) (0.35) (0.24) (0.02)(a) (1.97) (0.35)
------- ------- ------- ------- ------ ------
Total Dividends and
Distributions.................... (1.97) (0.35) (0.24) (0.02) (1.97) (0.35)
------- ------- ------- ------- ------ ------
Net asset value per share, end of
period......................... $ 12.06 $ 11.66 $ 11.08 $ 9.90 $11.81 $11.47
======= ======= ======= ======= ====== ======
Total Return (excludes sales
charge)........................ 22.24% 8.44% 14.41% (0.84%) 22.09% 7.99%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $13,286 $18,282 $14,597 $ 9,213 $2,776 $4,204
Ratios to Average Net Assets of:
Net investment income/(loss)... (0.50%) (0.40%) (0.36%) (0.65%)* (1.00%) (0.90%)
Expenses net of waivers/
reimbursements and expenses
paid by third parties........ 2.48% 2.25% 2.37% 2.50%* 2.98% 2.78%
Expenses before waivers/
reimbursements and expenses
paid by third parties........ 2.48% 2.25% 2.43% 3.22%* 2.98% 2.79%
Portfolio Turnover Rate........ 79% 94% 92% 76% 79% 94%
<CAPTION>
GLOBAL EQUITY FUND
--------------------------
CLASS D
--------------------------
MAY 12, 1994
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
MARCH 31, MARCH 31,
1996 1995
--------- --------------
<S> <C> <C>
Net asset value per share,
beginning of period.............. $ 9.82 $10.00
------ ------
Income from Investment Operations
Net investment income/(loss)..... (0.09) (0.07)
Net realized and unrealized
gains/ (losses) on
investments.................... 1.46 (0.10)
------ ------
Total from investment operations... 1.37 (0.17)
------ ------
Less Dividends and Distributions:
From realized gains.............. (0.24) (0.01)(a)
------ ------
Total Dividends and
Distributions.................... (0.24) (0.01)
------ ------
Net asset value per share, end of
period......................... $10.95 $ 9.82
====== ======
Total Return (excludes sales
charge)........................ 14.01% (1.72%)
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $3,725 $3,322
Ratios to Average Net Assets of:
Net investment income/(loss)... (0.83%) (1.51%)*
Expenses net of waivers/
reimbursements and expenses
paid by third parties........ 2.87% 2.98%*
Expenses before waivers/
reimbursements and expenses
paid by third parties........ 2.96% 3.69%*
Portfolio Turnover Rate........ 92% 76%
</TABLE>
(a) Represents distribution in excess of net investment income.
* Annualized.
See accompanying notes to financial statements.
39
<PAGE> 49
ESC STRATEGIC FUNDS, INC.
Financial Highlights -- (Continued)
<TABLE>
<CAPTION>
SMALL CAP FUND
--------------------------------------------------------------------------
CLASS A CLASS D
-------------------------------------------------- ---------------------
JUNE 8, 1994
(COMMENCEMENT
YEAR YEAR YEAR OF OPERATIONS) YEAR YEAR
ENDED ENDED ENDED THROUGH ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996 1995 1998 1997
--------- --------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period.............. $ 17.55 $ 15.88 $ 11.25 $ 10.00 $ 17.35 $ 15.76
-------- ------- ------- ------- ------- -------
Income from Investment Operations
Net investment income/(loss)..... 0.02 (0.05) (0.08) (0.03) (0.07) (0.11)
Net realized and unrealized
gains/ (losses) on
investments.................... 6.97 2.46 5.19 1.52 6.95 2.44
-------- ------- ------- ------- ------- -------
Total from investment operations... 6.99 2.41 5.11 1.49 6.88 2.33
-------- ------- ------- ------- ------- -------
Less Dividends and Distributions:
From net investment income....... -- -- -- (0.24) -- --
From realized gains.............. (1.73) (0.74) (0.48) -- (1.73) (0.74)
-------- ------- ------- ------- ------- -------
Total Dividends and
Distributions.................... (1.73) (0.74) (0.48) (0.24) (1.73) (0.74)
-------- ------- ------- ------- ------- -------
Net asset value per share, end of
period........................... $ 22.81 $ 17.55 $ 15.88 $ 11.25 $ 22.50 $ 17.35
======== ======= ======= ======= ======= =======
Total Return (excludes sales
charge)........................ 40.64% 14.99% 45.88% 15.03% 40.47% 14.59%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $126,857 $72,488 $28,840 $ 8,785 $38,274 $22,392
Ratios to Average Net Assets of:
Net investment income/(loss)... (0.18%) (0.44%) (0.80%) (0.43%)* (0.68%) (0.96%)
Expenses net of waivers/
reimbursements and expenses
paid by third parties........ 1.65% 1.66% 2.00% 2.00%* 2.15% 2.19%
Expenses before waivers/
reimbursements and expenses
paid by third parties........ 1.68% 1.74% 2.18% 3.28%* 2.18% 2.29%
Portfolio turnover rate.......... 67% 65% 102% 151% 67% 65%
<CAPTION>
SMALL CAP FUND
--------------------------
CLASS D
--------------------------
JUNE 8, 1994
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
MARCH 31, MARCH 31,
1996 1995
--------- --------------
<S> <C> <C>
Net asset value per share,
beginning of period.............. $11.22 $10.00
------ ------
Income from Investment Operations
Net investment income/(loss)..... (0.16) (0.05)
Net realized and unrealized
gains/ (losses) on
investments.................... 5.18 1.51
------ ------
Total from investment operations... 5.02 1.46
------ ------
Less Dividends and Distributions:
From net investment income....... -- (0.24)
From realized gains.............. (0.48) --
------ ------
Total Dividends and
Distributions.................... (0.48) (0.24)
------ ------
Net asset value per share, end of
period........................... $15.76 $11.22
====== ======
Total Return (excludes sales
charge)........................ 45.19% 14.72%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $8,897 $3,367
Ratios to Average Net Assets of:
Net investment income/(loss)... (1.30%) (0.93%)*
Expenses net of waivers/
reimbursements and expenses
paid by third parties........ 2.50% 2.50%*
Expenses before waivers/
reimbursements and expenses
paid by third parties........ 2.74% 3.68%*
Portfolio turnover rate.......... 102% 151%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
40
<PAGE> 50
ESC STRATEGIC FUNDS, INC.
Financial Highlights -- (Continued)
<TABLE>
<CAPTION>
APPRECIATION FUND
--------------------------------------------------------------------------
CLASS A CLASS D
-------------------------------------------------- ---------------------
JULY 6, 1994
(COMMENCEMENT
YEAR YEAR YEAR OF OPERATIONS) YEAR YEAR
ENDED ENDED ENDED THROUGH ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1998 1997 1996 1995 1998 1997
--------- --------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share,
beginning of period.............. $ 14.03 $ 13.02 $ 10.67 $ 10.00 $13.85 $12.91
------- ------- ------- ------- ------ ------
Income from Investment Operations
Net investment income/(loss)..... 0.02 (0.04) (0.05) -- (0.08) (0.08)
Net realized and unrealized
gains/(losses)
on investments................. 6.02 1.92 2.71 0.73 6.04 1.89
------- ------- ------- ------- ------ ------
Total from investment operations... 6.04 1.88 2.66 0.73 5.96 1.81
------- ------- ------- ------- ------ ------
Less Dividends and Distributions:
From realized gains.............. (4.27) (0.87) (0.31) (0.06) (4.27) (0.87)
------- ------- ------- ------- ------ ------
Total Dividends and
Distributions.................... (4.27) (0.87) (0.31) (0.06) (4.27) (0.87)
------- ------- ------- ------- ------ ------
Net asset value per share, end of
period........................... $ 15.80 $ 14.03 $ 13.02 $ 10.67 $15.54 $13.85
======= ======= ======= ======= ====== ======
Total Return (excludes sales
charge)........................ 46.73% 14.25% 25.07% 7.32% 46.76% 13.81%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $33,394 $44,767 $25,561 $15,126 $7,384 $4,054
Ratios to Average Net Assets of:
Net investment income/(loss)... (0.40%) (0.30%) (0.39%) (0.04%)* (0.90%) (0.78%)
Expenses net of
waivers/reimbursements and
expenses paid by third
parties...................... 1.80% 1.82% 2.00% 2.00%* 2.30% 2.34%
Expenses before
waivers/reimbursements and
expenses paid by third
parties...................... 1.80% 1.84% 2.10% 2.88%* 2.30% 2.36%
Portfolio turnover rate.......... 67% 71% 78% 58% 67% 71%
<CAPTION>
APPRECIATION FUND
--------------------------
CLASS D
--------------------------
JULY 6, 1994
(COMMENCEMENT
YEAR OF OPERATIONS)
ENDED THROUGH
MARCH 31, MARCH 31,
1996 1995
--------- --------------
<S> <C> <C>
Net asset value per share,
beginning of period.............. $10.63 $10.00
------ ------
Income from Investment Operations
Net investment income/(loss)..... (0.09) (0.03)
Net realized and unrealized
gains/(losses)
on investments................. 2.68 0.72
------ ------
Total from investment operations... 2.59 0.69
------ ------
Less Dividends and Distributions:
From realized gains.............. (0.31) (0.06)
------ ------
Total Dividends and
Distributions.................... (0.31) (0.06)
------ ------
Net asset value per share, end of
period........................... $12.91 $10.63
====== ======
Total Return (excludes sales
charge)........................ 24.50% 6.92%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands)..................... $2,482 $1,693
Ratios to Average Net Assets of:
Net investment income/(loss)... (0.86%) (0.56%)*
Expenses net of
waivers/reimbursements and
expenses paid by third
parties...................... 2.50% 2.50%*
Expenses before
waivers/reimbursements and
expenses paid by third
parties...................... 2.64% 3.40%*
Portfolio turnover rate.......... 78% 58%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
41
<PAGE> 51
ESC STRATEGIC FUNDS, INC.
Financial Highlights -- (Continued)
<TABLE>
<CAPTION>
GROWTH FUND
-----------------------------------------------------------------------
CLASS A CLASS D
---------------------------------- ----------------------------------
JANUARY 28, 1997 JANUARY 28, 1997
(COMMENCEMENT) (COMMENCEMENT)
OF OPERATIONS) OF OPERATIONS)
YEAR ENDED THROUGH YEAR ENDED THROUGH
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1998 MARCH 31, 1997
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
Net asset value per share,
beginning of period............ $ 9.64 $10.00 $ 9.63 $10.00
------- ------ ------ ------
Income from Investment Operations
Net investment income/(loss)... 0.01 -- (0.03) --
Net realized and unrealized
gains/(losses) on
investments................. 4.65 (0.36) 4.63 (0.37)
------- ------ ------ ------
Total from investment
operations..................... 4.66 (0.36) 4.60 (0.37)
------- ------ ------ ------
Less Dividends and Distributions:
From realized gains............ (0.36) -- (0.36) --
Distributions in excess of
realized gains................. (0.26) -- (0.26) --
------- ------ ------ ------
Total Dividends and
Distributions.................. (0.62) -- (0.62) --
------- ------ ------ ------
Net asset value per share, end of
period......................... $ 13.68 $ 9.64 $13.61 $ 9.63
======= ====== ====== ======
Total Return (excludes sales
charge)..................... 48.92% (3.60)% 48.33% (3.70)%
Ratios/Supplemental Data:
Net Assets End of Period (in
thousands).................. $19,942 $2,852 $9,689 $1,304
Ratios to Average Net Assets
of:
Net investment
income/(loss)............. (0.36)% 0.25%* (0.86)% (0.23)%*
Expenses net of
waivers/reimbursements and
expenses paid by third
parties................... 1.62% 2.00%* 2.12% 2.50%*
Expenses before
waivers/reimbursements and
expenses paid by third
parties................... 2.45% 5.51%* 2.95% 6.91%*
Portfolio turnover rate........ 86% 14% 86% 14%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
42
<PAGE> 52
ESC STRATEGIC FUNDS, INC.
Financial Highlights -- (Continued)
<TABLE>
<CAPTION>
VALUE FUND
-------------------------------
CLASS A CLASS D
-------------- --------------
MAY 7, 1997 MAY 7, 1997
(COMMENCEMENT (COMMENCEMENT
OF OPERATIONS) OF OPERATIONS)
THROUGH THROUGH
MARCH 31, MARCH 31,
1998 1998
-------------- --------------
<S> <C> <C>
Net asset value per share, beginning of period.............. $ 10.00 $10.00
------- ------
Income from Investment Operations
Net investment income..................................... 0.04 0.01
Net realized and unrealized gains on investments.......... 1.60 1.58
------- ------
Total from investment operations.......................... 1.64 1.59
------- ------
Less Dividends and Distributions:
From net investment income................................ (0.03) (0.02)
From realized gains....................................... (0.10) (0.10)
------- ------
Total Dividends and Distributions........................... (0.13) (0.12)
------- ------
Net asset value per share, end of period.................. $ 11.51 $11.47
======= ======
Total Return (excludes sales charge)...................... 16.47% 15.95%
Ratios/Supplemental Data:
Net Assets End of Period (in thousands)................... $13,804 $4,505
Ratios to Average Net Assets of:
Net investment income/(loss)........................... 0.42%* (0.13)%*
Expenses net of waivers/reimbursements and expenses
paid by third parties................................. 1.56%* 2.06%*
Expenses before waivers/reimbursements and expenses
paid by third parties................................. 2.31%* 2.81%*
Portfolio turnover rate................................... 32% 32%
</TABLE>
* Annualized.
See accompanying notes to financial statements.
43
<PAGE> 53
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of ESC Strategic Funds, Inc.:
In our opinion, the accompanying statements 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 Income Fund, ESC
Strategic Global Equity Fund, ESC Strategic Small Cap Fund, ESC Strategic
Appreciation Fund, ESC Strategic Growth Fund, and ESC Strategic Value Fund
(constituting ESC Strategic Funds Inc., hereafter referred to as the "Funds") at
March 31, 1998, 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, 1998 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 19, 1998
<PAGE> 54
ESC STRATEGIC FUNDS, INC.
3435 STELZER ROAD
COLUMBUS, OHIO 43219-8006
GENERAL AND ACCOUNT INFORMATION:
(800) 261-FUND(3863)
INVESTMENT ADVISER
- ---------------------
SunTrust Equitable Securities
800 Nashville City Center
Nashville, Tennessee 37219-1743
ADMINISTRATOR AND DISTRIBUTOR
- ---------------------------------
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219
COUNSEL
- --------
Dechert Price & Rhoads
1775 I Street, N.W.
Washington, D.C. 20006
INDEPENDENT ACCOUNTANTS
- ---------------------------
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
6/98
ESC Strategic INCOME Fund
ESC Strategic GLOBAL EQUITY Fund
ESC Strategic SMALL CAP Fund
ESC Strategic APPRECIATION Fund
ESC Strategic GROWTH Fund
ESC Strategic VALUE Fund
ANNUAL REPORT
MARCH 31, 1998
