<PAGE>
Annual Report
September 30, 1998
o Vertex All Cap Fund
o Vertex U.S. All Cap Fund
[Graphic Omitted] (formerly Vertex Research All Cap Fund)
o Vertex Growth Fund
o Vertex Discovery Fund
o Vertex Contrarian Fund
<PAGE>
VERTEX ALL CAP FUND VERTEX DISCOVERY FUND
VERTEX U.S. ALL CAP FUND VERTEX CONTRARIAN FUND
(FORMERLY VERTEX RESEARCH ALL CAP FUND)
VERTEX GROWTH FUND
TRUSTEES INVESTMENT ADVISER
Jeffrey L. Shames* Vertex Investment Management, Inc.
Chairman, Chief Executive Officer, and 500 Boylston Street
Director, Vertex Investment Management Boston, MA 02116-3741
Nelson J. Darling, Jr. DISTRIBUTOR
Professional Trustee MFS Fund Distributors, Inc.
500 Boylston Street
William R. Gutow Boston, MA 02116-3741
Vice Chairman,
Capitol Entertainment Management Company; INVESTOR SERVICE
Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
PORTFOLIO MANAGERS Boston, MA 02107-9906
John W. Ballen* For additional information,
John F. Brennan, Jr.* contact your financial adviser.
John D. Laupheimer, Jr.*
Kevin R. Parke* CUSTODIAN
Brian E. Stack* State Street Bank and Trust Company
CHAIRMAN AND PRESIDENT AUDITORS
Jeffrey L. Shames* Ernst & Young LLP
TREASURER WORLD WIDE WEB
W. Thomas London* www.mfs.com
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
*Affiliated with the Investment Adviser
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
One of the best ways for us to serve our shareholders is to help them
understand some of the reasons behind developments in the investment markets
and, when necessary, to take a more cautious outlook. This is particularly
important during periods of market volatility such as we are experiencing this
year, when equity prices do not follow a straight course. In light of this
volatility, it is clear that equity valuations have risen to a point at which
stock prices have become vulnerable to changes in the investment environment
such as a slowing economy, earnings disappointments, and global economic and
political turmoil. While we continue to hold a favorable long-term outlook for
the equity markets, we also believe that the recent market correction was
overdue but was also a healthy near-term event that should rid the financial
system of excesses that have developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second
quarter, for example, average earnings growth for companies in the Standard &
Poor's 500 Composite Index (the S&P 500), a popular, unmanaged index of common
stock total return performance, was about 3%, well below what people were
expecting a year ago. As a result of this and continuing concerns about Asia
and emerging markets, the stock markets pulled back from the record-high
levels set in mid-July. Although the U.S. stock market has responded
positively to reductions in interest rates by the Federal Reserve Board, the
market's retreat helped correct some -- but not all -- of the overvaluations
that had been building for some time. Prior to July, equity prices had been
rising without a corresponding increase in corporate earnings. As a result,
price-to-earnings (P/E) ratios, or the amount investors paid for stocks in
relation to companies' earnings per share, also went up. If this year's
downturn helps create more reasonable valuations, we believe it could provide
a sounder long-term foundation for the equity markets. On another positive
note, interest rates have begun to decline as inflation has remained low. In
an environment of low interest rates, stocks become more attractive than most
fixed-income investments, while low inflation helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political and economic uncertainty and Latin American
economies are feeling substantial pressure. We believe the United States has
yet to see the full impact of this crisis. There have been brief periods of
improvement in a few countries and countries such as Japan and Brazil have
taken positive steps toward economic reform but, for the most part, most of
these economies are still very weak. At the same time, the Asian turmoil has
had the beneficial effect of moderating U.S. growth and keeping inflation in
check, which has helped establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility
this year. But as these countries move toward economic union, they are
benefiting from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses while providing investment opportunities in developed and emerging
European markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view and
to diversify their investments across a range of asset classes. This includes
portfolios that focus on bond and international investments as well as on the
U.S. stock market. We also believe our commitment to original,
company-by-company research gives us an advantage by helping us find companies
that we think can keep growing or gain market share during periods of turmoil.
To help fulfill this commitment and to provide the broadest possible coverage of
industry sectors and individual companies, Vertex continues to increase its
number of full-time research analysts, who thoroughly investigate each company's
earnings potential and position in its industry as well as the overall prospects
for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both fixed-
income and equity managers meet with thousands of credit issuers and
companies. They also attend many presentations, closely follow sources of
industry research, and keep track of competitors.
We will continue to apply this discipline of thorough, bottom-up research to
both the equity and fixed-income markets because we believe it offers the best
potential for providing favorable long-term performance for our shareholders
- -- regardless of changes in the overall market environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
Vertex Investment Management(R)
October 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Vertex All Cap Fund
Dear Shareholders,
The Fund, which commenced operations on May 1, 1998, seeks capital
appreciation by investing at least 65% of its assets in equity securities and
up to 35% of its assets in fixed-income securities, including fixed-income
securities rated "BB" or lower by Standard & Poor's Corporation and comparable
unrated securities. The Fund is flexibly managed and can pursue either growth-
or value-style investments in companies of all market capitalizations and
global industry sectors. The Fund, which can invest up to 100% of assets in
foreign securities, is nondiversified and may frequently maintain large
weightings in a small number of individual companies, countries, or regions.
The Fund uses a variety of short- and long-term investment techniques,
including short sales, long sales, derivatives, options, and futures
contracts. The Fund also may borrow up to 50% of its net assets to invest in
portfolio securities or for liquidity purposes. Additionally, the Fund may
engage in reverse repurchase agreements through which it can lend securities
as a means of receiving other assets to invest in portfolio securities or for
liquidity purposes.
The Fund's nondiversified nature, its ability to borrow money for investment
purposes, and its potential to engage in short sales all entail significant
risks.
Respectfully,
/s/ John F. Brennan, Jr.
John F. Brennan, Jr.
Portfolio Manager
Vertex U.S. All Cap Fund
Dear Shareholders,
The Fund, which commenced operations on May 1, 1998, seeks capital
appreciation by investing at least 65% of its assets in equity securities and
up to 35% of its assets in fixed-income securities, including fixed-income
securities rated "BB" or lower by Standard & Poor's Corporation and comparable
unrated securities. The Fund is flexibly managed and can invest in companies
of all market capitalizations. Under normal market conditions, the Fund will
invest at least 65% of its total assets in equity securities issued by U.S.
companies or traded on U.S. securities exchanges. The Fund is nondiversified
and may frequently maintain large weightings in a small number of individual
companies, countries, or regions.
The Fund uses a variety of short- and long-term investment techniques,
including short sales, long sales, derivatives, options, and futures
contracts. The Fund also may borrow up to 50% of its net assets to invest in
portfolio securities or for liquidity purposes. Additionally, the Fund may
engage in reverse repurchase agreements through which it can lend securities
as a means of receiving other assets to invest in portfolio securities or for
liquidity purposes.
The Fund's nondiversified nature, its ability to borrow money for investment
purposes, and its potential to engage in short sales all entail significant
risks.
Respectfully,
/s/ Kevin R. Parke
Kevin R. Parke
Portfolio Manager
Note to Shareholders: Effective August 1, 1998, Paul M. McMahon replaced Kevin
R. Parke as portfolio manager of the Fund.
Vertex Growth Fund
Dear Shareholders,
The Fund, which commenced operations on May 1, 1998, seeks capital
appreciation by investing at least 65% of its assets in equity securities and
up to 35% of its assets in fixed income securities, including fixed income
securities rated "BB" or lower by Standard & Poor's Corporation and comparable
unrated securities. The Fund can invest in companies of any size that we
believe can show earnings growth over time well above the rates of the overall
economy and inflation. The Fund is nondiversified, may frequently maintain
large weightings in a small number of individual companies, and can invest up
to 100% of assets in non-U.S. companies.
The Fund uses a variety of short- and long-term investment techniques,
including short sales, long sales, derivatives, options, and futures
contracts. The Fund also may borrow up to 50% of its net assets to invest in
portfolio securities or for liquidity purposes. Additionally, the Fund may
engage in reverse repurchase agreements through which it can lend securities
as a means of receiving other assets to invest in portfolio securities or for
liquidity purposes.
The Fund's nondiversified nature, its ability to borrow money for investment
purposes, and its potential to engage in short sales all entail significant
risks.
Respectfully,
/s/ John W. Ballen
John W. Ballen
Portfolio Manager
Note to Shareholders: Effective October 30, 1998, the Fund was terminated and
its assets liquidated.
Vertex Discovery Fund
Dear Shareholders,
The Fund, which commenced operations on May 1, 1998, seeks capital
appreciation by investing at least 65% of its assets in equity securities and
up to 35% of its assets in fixed-income securities, including fixed income
securities rated "BB" or lower by Standard & Poor's Corporation and comparable
unrated securities. The Fund is flexibly managed and invests in companies that
its manager believes to be early in their corporate life cycles but that have
the potential to be major enterprises in the future and whose expected
earnings growth over time should be much greater than the overall growth rates
of the economy and inflation. The Fund may also invest in larger, more
established companies whose earnings growth rates are expected to accelerate
due to special factors such as new product introductions or changes in
management, consumer demand, and macroeconomic trends. The Fund is
nondiversified and may frequently maintain large weightings in a small number
of individual companies.
The Fund uses a variety of short- and long-term investment techniques,
including short sales, long sales, derivatives, options, and futures
contracts. The Fund also may borrow up to 50% of its net assets to invest in
portfolio securities or for liquidity purposes. Additionally, the Fund may
engage in reverse repurchase agreements through which it can lend securities
as a means of receiving other assets to invest in portfolio securities or for
liquidity purposes.
The Fund's nondiversified nature, its ability to borrow money for investment
purposes, and its potential to engage in short sales all entail significant
risks.
Respectfully,
/s/ Brian E. Stack
Brian E. Stack
Portfolio Manager
Note to Shareholders: Effective October 30, 1998, the Fund was terminated and
its assets liquidated.
Vertex Contrarian Fund
Dear Shareholders,
The Fund, which commenced operations on May 1, 1998, seeks capital
appreciation by investing at least 65% of its assets in equity securities and
up to 35% of its assets in fixed-income securities, including fixed income
securities rated "BB" or lower by Standard & Poor's Corporation and comparable
unrated securities. The Fund is flexibly managed and will seek investments in
companies that its manager considers to be undervalued due to market declines,
poor macroeconomic conditions, actual or anticipated developments that may
affect the issuing company or its industry, or market indifference. The Fund
is nondiversified and may frequently maintain large weightings in a small
number of individual companies.
The Fund uses a variety of short- and long-term investment techniques,
including short sales, long sales, derivatives, options, and futures
contracts. The Fund also may borrow up to 50% of its net assets to invest in
portfolio securities or for liquidity purposes. Additionally, the Fund may
engage in reverse repurchase agreements through which it can lend securities
as a means of receiving other assets to invest in portfolio securities or for
liquidity purposes.
The Fund's nondiversified nature, its ability to borrow money for investment
purposes, and its potential to engage in short sales all entail significant
risks.
Respectfully,
/s/ John D. Laupheimer, Jr.
John D. Laupheimer, Jr.
Portfolio Manager
Note to Shareholders: Effective October 30, 1998, the Fund will be managed by
Brian E. Stack who succeeds John D. Laupheimer, Jr.
The opinions expressed in this report are those of the portfolio managers and
are only through the end of the period of the report as stated on the cover.
The managers' views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - September 30, 1998
VERTEX ALL CAP FUND
Stocks - 112.9%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 101.8%
Advertising - 11.2%
Outdoor Systems, Inc.* 5,900 $ 115,050
- --------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 11.1%
Fleet Financial Group, Inc. 300 $ 22,031
National City Corp. 400 26,375
PNC Bank Corp. 500 22,500
State Street Corp. 800 43,650
----------
$ 114,556
- --------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.7%
Autodesk, Inc. 1,850 $ 48,563
- --------------------------------------------------------------------------------------------------------
Computer Software - Services - 1.9%
PSINet, Inc.* 1,400 $ 19,513
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 4.8%
Oracle Corp.* 1,700 $ 49,513
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.7%
Tyco International Ltd. 500 $ 27,625
- --------------------------------------------------------------------------------------------------------
Containers - 0.9%
Sealed Air Corp.* 300 $ 9,563
- --------------------------------------------------------------------------------------------------------
Entertainment - 12.3%
CBS Corp. 2,300 $ 55,775
Cox Radio, Inc., "A"* 100 3,513
Jacor Communications, Inc.* 900 45,562
MediaOne Group, Inc.* 500 22,219
----------
$ 127,069
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 9.2%
Associates First Capital Corp., "A" 700 $ 45,675
Federal Home Loan Mortgage Corp. 1,000 49,437
----------
$ 95,112
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 7.1%
Hershey Foods Corp. 700 $ 47,906
Nabisco Holdings Corp., "A" 700 25,156
----------
$ 73,062
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 4.5%
Sepracor, Inc.* 700 $ 46,025
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 4.4%
United Healthcare Corp. 1,300 $ 45,500
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 3.6%
Promus Hotel Corp.* 1,350 $ 37,209
- --------------------------------------------------------------------------------------------------------
Stores - 3.4%
Rite Aid Corp. 1,000 $ 35,500
- --------------------------------------------------------------------------------------------------------
Supermarkets - 7.6%
Dominicks Supermarkets, Inc.* 800 $ 34,200
Giant Food, Inc., "A" 200 8,638
Meyer (Fred), Inc.* 900 34,987
----------
$ 77,825
- --------------------------------------------------------------------------------------------------------
Telecommunications - 12.4%
AirTouch Communications, Inc.* 750 $ 42,750
Alltel Corp. 1,000 47,375
Cellular Communications International Co.* 700 37,975
----------
$ 128,100
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $1,049,785
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 11.1%
France - 2.9%
Sanofi S.A. (Medical and Health Products) 200 $ 29,464
- --------------------------------------------------------------------------------------------------------
Germany - 1.8%
Mannesmann AG (Conglomerate) 200 $ 18,346
- --------------------------------------------------------------------------------------------------------
Netherlands - 6.4%
Elsag Bailey Process Automation N.V., ADR (Machinery)* 3,150 $ 66,346
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 114,156
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,145,644) $1,163,941
- --------------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 1.1%
- --------------------------------------------------------------------------------------------------------
Entertainment - 1.1%
MediaOne Group, Inc., 6.25% (Identified Cost, $11,625) 200 $ 11,175
- --------------------------------------------------------------------------------------------------------
Call Options Purchased - 2.8%
- --------------------------------------------------------------------------------------------------------
ISSUER/EXPIRATION MONTH/STRIKE PRICE CONTRACTS
- --------------------------------------------------------------------------------------------------------
AMP, Inc./October/45 410 $ 5,125
Jacor Communications, Inc./December/50 20 10,750
Tyco International Ltd./January/47.5 9 12,825
- --------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Identified Cost, $66,724) $ 28,700
- --------------------------------------------------------------------------------------------------------
Put Options Purchased - 3.6%
- --------------------------------------------------------------------------------------------------------
S & P 500 Index/March/1050 (Premium Paid, $35,612) 4 $ 37,600
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,259,605) $1,241,416
- --------------------------------------------------------------------------------------------------------
Securities Sold Short - (40.0)%
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - (22.9)%
Computer Software - Systems - (6.4)%
Acxiom Corp. (900) $ (22,331)
Daou Systems, Inc. (600) (3,450)
Open Markets, Inc. (1,300) (14,625)
Yahoo, Inc. (200) (25,900)
----------
$ (66,306)
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - (1.0)%
Tupperware Corp. (900) $ (10,575)
- --------------------------------------------------------------------------------------------------------
Engineering - (4.0)%
Fluor Corp. (1,000) $ (41,063)
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - (4.4)%
Wrigley, (WM) Junior Co. (600) $ (45,562)
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - (3.1)%
Integrated Health Services, Inc. (600) $ (10,088)
VISX, Inc. (325) (21,775)
----------
$ (31,863)
- --------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts - (2.1)%
Starwood Hotels and Resorts (700) $ (21,350)
- --------------------------------------------------------------------------------------------------------
Telecommunications - (1.9)%
Leap Wireless International, Inc. (100) $ (469)
Qualcomm, Inc. (400) (19,175)
----------
$ (19,644)
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks Sold Short $ (236,363)
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - (17.1)%
Australia - (4.7)%
National Australia Bank (Banks and Credit Cos.) (4,000) $ (48,403)
- --------------------------------------------------------------------------------------------------------
Hong Kong - (6.9)%
Amway Asia Pacific Ltd. (800) $ (7,750)
Hang Seng Bank (Banks and Credit Cos.) (10,000) (63,238)
----------
$ (70,988)
- --------------------------------------------------------------------------------------------------------
Japan - (2.6)%
Advantest (Telecommunications) (300) $ (12,764)
All Nippon Airways (Airlines) (1,000) (3,228)
Nikko Securities (Financial Institutions) (5,000) (10,747)
----------
$ (26,739)
- --------------------------------------------------------------------------------------------------------
Malaysia - (0.3)%
Malayan Banking Berhad (Banks and Credit Cos.) (3,900) $ (3,073)
- --------------------------------------------------------------------------------------------------------
Thailand - (2.6)%
Bangkok Bank (Banks and Credit Cos.) (15,000) $ (14,259)
Thai Farmers Bank (Banks and Credit Cos.) (18,600) (12,494)
----------
$ (26,753)
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks Sold Short $ (175,956)
- --------------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $461,632) $ (412,319)
- --------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 19.6% 202,090
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,031,187
- --------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - September 30, 1998
VERTEX U.S. ALL CAP FUND
Stocks - 97.0%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 88.1%
Computer Software - Systems - 13.2%
AccuStaff, Inc.* 1,000 $ 14,563
Cambridge Technology Partners, Inc.* 500 11,156
Computer Associates International, Inc. 400 14,800
--------
$ 40,519
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 4.5%
Tyco International Ltd. 250 $ 13,813
- --------------------------------------------------------------------------------------------------------
Entertainment - 26.6%
Clear Channel Communications, Inc.* 300 $ 14,250
Cox Radio, Inc., "A"* 200 7,025
Gemstar International Group Ltd.* 350 16,231
Jacor Communications, Inc.* 600 30,375
MediaOne Group, Inc.* 300 13,331
--------
$ 81,212
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 4.7%
Financial Federal Corp.* 650 $ 14,259
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 16.0%
HBO & Co. 1,700 $ 49,087
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 8.9%
Cendant Corp.* 1,500 $ 17,437
Promus Hotel Corp.* 350 9,647
--------
$ 27,084
- --------------------------------------------------------------------------------------------------------
Stores - 4.1%
Rite Aid Corp. 350 $ 12,425
- --------------------------------------------------------------------------------------------------------
Telecommunications - 10.1%
Crown Castle International Corp.* 1,500 $ 14,438
Global TeleSystems Group, Inc.* 200 6,750
MCI Worldcom, Inc.* 200 9,775
--------
$ 30,963
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $269,362
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 8.9%
Bermuda - 0.7%
Global Crossing Ltd. (Telecommunications)* 100 $ 2,088
- --------------------------------------------------------------------------------------------------------
Netherlands - 8.2%
Elsag Bailey Process Automation N.V., ADR (Machinery)* 1,200 $ 25,275
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 27,363
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $323,138) $296,725
- --------------------------------------------------------------------------------------------------------
Warrants - 4.7%
- ---------------------------------------------------------------------------------------------------------------
Viacom Inc.* (Identified Cost, $13,146) 3,000 $ 14,250
- --------------------------------------------------------------------------------------------------------
Call Options Purchased - 3.3%
- --------------------------------------------------------------------------------------------------------
ISSUER/EXPIRATION MONTH/STRIKE PRICE CONTRACTS
- --------------------------------------------------------------------------------------------------------
Cendant Corp./January/22.5 10 $ 125
Newport News Shipbuilding, Inc./November/25 6 1,388
Philip Morris Cos., Inc./December/47.5 20 4,625
Tyco International Ltd./January/55 4 4,000
United Healthcare Corp./January/70 50 0
- --------------------------------------------------------------------------------------------------------
Total Call Options Purchased (Identified Cost, $22,745) $ 10,138
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $359,029) $321,113
- --------------------------------------------------------------------------------------------------------
Securities Sold Short - (15.9)%
- ---------------------------------------------------------------------------------------------------------
ISSUER SHARES
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - (4.3)%
Food and Beverage Products - (4.3)%
Wrigley, (WM) Junior Co. (175) $(13,289)
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - (11.6)%
Hong Kong - (6.1)%
Amway Asia Pacific Ltd. (Consumer Goods and Services) (400) $ (3,875)
Bank of East Asia Ltd. (Banks and Credit Cos.) (3,676) (5,195)
Hang Seng Bank (Banks and Credit Cos.) (1,500) (9,486)
--------
$(18,556)
- --------------------------------------------------------------------------------------------------------
Japan - (4.2)%
Bank Tokyo Mitsubishi Ltd. ADR (Banks and Credit Cos.) (800) $ (5,250)
Fuji Bank (Banks and Credit Cos.) (2,000) (4,034)
Industrial Bank of Japan (Banks and Credit Cos.) (1,000) (3,668)
--------
$(12,952)
- --------------------------------------------------------------------------------------------------------
Malaysia - (1.3)%
Malayan Banking Berhad (Banks and Credit Cos.) (1,300) $ (1,024)
Bangkok Bank (Banks and Credit Cos.) (3,000) (2,852)
--------
$ (3,876)
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks Sold Short $(35,384)
- --------------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $52,893) $(48,673)
- --------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 10.9% 33,413
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $305,853
- --------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - September 30, 1998
VERTEX GROWTH FUND
Stocks - 106.8%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 106.8%
Business Machines - 0.4%
Affiliated Computer Services, Inc., "A"* 100 $ 3,050
- --------------------------------------------------------------------------------------------------------
Business Services - 7.8%
Cotelligent Group, Inc.* 1,000 $ 17,562
RCM Technologies, Inc.* 1,800 26,550
Renaissance Worldwide, Inc.* 1,300 17,063
--------
$ 61,175
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 18.9%
AccuStaff, Inc.* 1,800 $ 26,212
Cambridge Technology Partners, Inc.* 1,300 29,006
Computer Associates International, Inc. 600 22,200
Oracle Corp.* 900 26,213
Stratus Computer, Inc.* 1,000 33,687
Synopsys, Inc.* 300 9,994
--------
$147,312
- --------------------------------------------------------------------------------------------------------
Entertainment - 9.5%
CBS Corp. 1,500 $ 36,375
Gemstar International Group Ltd.* 700 32,462
Jacor Communications, Inc.* 100 5,063
--------
$ 73,900
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 1.2%
Edwards (A.G.), Inc. 300 $ 9,094
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 6.5%
Concentra Managed Care, Inc.* 4,200 $ 33,600
United Healthcare Corp. 500 17,500
--------
$ 51,100
- --------------------------------------------------------------------------------------------------------
Pharmaceuticals - 5.9%
Sepracor, Inc.* 700 $ 46,025
- --------------------------------------------------------------------------------------------------------
Pollution Control - 0.2%
Republic Services, Inc.* 100 $ 1,950
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 27.5%
Buffets, Inc.* 1,000 $ 10,813
Cendant Corp.* 17,500 203,437
--------
$214,250
- --------------------------------------------------------------------------------------------------------
Stores - 1.9%
Republic Industries, Inc.* 1,000 $ 14,562
- --------------------------------------------------------------------------------------------------------
Telecommunications - 27.0%
Ascend Communications, Inc.* 600 $ 27,300
Intermedia Communications, Inc.* 1,100 27,019
Tel-Save Holdings, Inc.* 14,000 156,625
--------
$210,944
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $944,206) $833,362
- --------------------------------------------------------------------------------------------------------
Securities Sold Short - (10.9)%
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - (9.6)%
Apparel and Textiles - (4.7)%
Nike, Inc., "B" (1,000) $(36,812)
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - (4.9)%
Wrigley, (WM) Junior Co. (500) $(37,969)
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks Sold Short $(74,781)
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - (1.3)%
Japan - (1.3)%
Bank Tokyo Mitsubishi Ltd., ADR (Banks and Credit Cos.) (1,600) $(10,500)
- --------------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $88,480) $(85,281)
- --------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 4.1% 32,358
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $780,439
- --------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - September 30, 1998
VERTEX DISCOVERY FUND
Stocks - 111.5%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 97.1%
Advertising - 1.0%
Outdoor Systems, Inc.* 300 $ 5,850
- --------------------------------------------------------------------------------------------------------
Aerospace - 2.1%
Gulfstream Aerospace Corp.* 300 $ 12,075
- --------------------------------------------------------------------------------------------------------
Business Services - 12.0%
Envoy Corp.* 1,100 $ 24,062
Galileo International, Inc. 500 18,875
Technology Solutions Co.* 2,200 24,750
---------
$ 67,687
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - 7.0%
AccuStaff, Inc.* 950 $ 13,834
Acxiom Corp.* 300 7,444
Cambridge Technology Partners, Inc.* 800 17,850
---------
$ 39,128
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 22.7%
InfoUSA, Inc., "A" 22,000 $ 127,875
- --------------------------------------------------------------------------------------------------------
Entertainment - 10.3%
CBS Corp. 620 $ 15,035
Gemstar International Group Ltd.* 600 27,825
Jacor Communications, Inc.* 300 15,187
---------
$ 58,047
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 8.9%
Concentra Managed Care, Inc.* 2,500 $ 20,000
HealthSouth Corp.* 800 8,400
Total Renal Care Holdings, Inc.* 400 9,600
Virgin Islands Technologies, Inc.* 2,300 12,075
---------
$ 50,075
- --------------------------------------------------------------------------------------------------------
Oil Services - 1.0%
Input/Output, Inc.* 700 $ 5,556
- --------------------------------------------------------------------------------------------------------
Pollution Control - 2.5%
Superior Services, Inc.* 500 $ 14,094
- --------------------------------------------------------------------------------------------------------
Printing and Publishing - 1.6%
Applied Graphics Technologies, Inc.* 700 $ 8,750
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 13.6%
Buffets, Inc.* 2,800 $ 30,275
Cendant Corp.* 2,200 25,575
Landry's Seafood Restaurants, Inc. 1,600 10,800
Promus Hotel Corp.* 350 9,647
---------
$ 76,297
- --------------------------------------------------------------------------------------------------------
Stores - 2.3%
Petco Animal Supplies, Inc.* 1,450 $ 13,050
- --------------------------------------------------------------------------------------------------------
Supermarkets - 5.4%
Dominicks Supermarkets, Inc.* 440 $ 18,810
Meyer (Fred), Inc.* 300 11,663
---------
$ 30,473
- --------------------------------------------------------------------------------------------------------
Telecommunications - 6.7%
Amdocs Ltd.* 1,000 $ 11,313
Intermedia Communications, Inc.* 400 9,825
Lightbridge, Inc.* 3,000 16,500
---------
$ 37,638
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 546,595
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 14.4%
Netherlands - 2.6%
Elsag Bailey Process Automation N.V., ADR (Machinery)* 700 $ 14,744
- --------------------------------------------------------------------------------------------------------
United Kingdom - 11.8%
CBT Group PLC, ADR (Computer Software - Personal
Computers) 4,900 $ 66,150
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 80,894
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $654,904) $ 627,489
- --------------------------------------------------------------------------------------------------------
Securities Sold Short - (38.4)%
- --------------------------------------------------------------------------------------------------------
U.S. Stocks - (29.4)%
Apparel and Textiles - (4.6)%
Nike, Inc., "B" (700) $ (25,769)
- --------------------------------------------------------------------------------------------------------
Computer Software - Systems - (2.9)%
Cerner Corp. (600) $ (16,087)
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - (1.3)%
Procter & Gamble Co. (100) $ (7,094)
- --------------------------------------------------------------------------------------------------------
Financial Institutions - (1.6)%
Merrill Lynch & Co. (200) $ (9,437)
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - (9.4)%
Coca-Cola Co. (400) $ (23,050)
Wrigley, (W.M.) Junior Co. (400) (30,375)
---------
$ (53,425)
- --------------------------------------------------------------------------------------------------------
Medical and Health Technology - (7.6)%
Integrated Health Services, Inc. (800) $ (13,450)
PacifiCare Health Systems, Inc., "B" (300) (22,350)
Province Healthcare Co. (200) (6,813)
---------
$ (42,613)
- --------------------------------------------------------------------------------------------------------
Stores - (2.0)%
Amazon.com, Inc. (100) $ (11,162)
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks Sold Short $(165,587)
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - (9.0)%
Hong Kong - (2.6)%
Hang Seng Bank (Banks and Credit Cos.) (2,300) $ (14,545)
- --------------------------------------------------------------------------------------------------------
Japan - (4.6)%
Bank of Tokyo Ltd. (Banks and Credit Cos.) (1,000) $ (6,419)
Bank Tokyo Mitsubishi Ltd., ADR (Banks and Credit Cos.) (1,000) (6,563)
Dai-Ichi Kangyo Bank Ltd. (Banks and Credit Cos.) (2,000) (8,377)
Sakura Bank Ltd. (Banks and Credit Cos.) (3,000) (4,402)
---------
$ (25,761)
- --------------------------------------------------------------------------------------------------------
Thailand - (1.8)%
Bangkok Bank (Banks and Credit Cos.) (11,000) $ (10,456)
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks Sold Short $ (50,762)
- --------------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $223,750) $(216,349)
- --------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 26.9% 151,605
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 562,745
- --------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS - September 30, 1998
VERTEX CONTRARIAN FUND
Stocks - 77.8%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 72.9%
Aerospace - 4.2%
Allied Signal, Inc. 210 $ 7,429
Raytheon Co., "A" 170 8,808
--------
$ 16,237
- --------------------------------------------------------------------------------------------------------
Automotive - 14.0%
Chrysler Corp. 1,000 $ 47,875
TRW, Inc. 150 6,656
--------
$ 54,531
- --------------------------------------------------------------------------------------------------------
Business Machines - 4.4%
International Business Machines Corp. 80 $ 10,240
Xerox Corp. 80 6,780
--------
$ 17,020
- --------------------------------------------------------------------------------------------------------
Business Services - 0.5%
Answerthink Consulting Group, Inc.* 100 $ 1,806
- --------------------------------------------------------------------------------------------------------
Chemicals - 1.4%
Air Products & Chemicals, Inc. 180 $ 5,355
- --------------------------------------------------------------------------------------------------------
Consumer Goods and Services - 6.3%
International Flavours 160 $ 5,280
Philip Morris Cos., Inc. 250 11,516
Rubbermaid, Inc. 320 7,660
--------
$ 24,456
- --------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.4%
Cooper Industries, Inc. 130 $ 5,298
- --------------------------------------------------------------------------------------------------------
Entertainment - 1.8%
Citadel Communications Corp.* 100 $ 2,044
Jacor Communications, Inc.* 100 5,062
--------
$ 7,106
- --------------------------------------------------------------------------------------------------------
Financial Institutions - 0.6%
Heller Financial, Inc., "A"* 100 $ 2,400
- --------------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.9%
Archer-Daniels-Midland Co. 441 $ 7,387
- --------------------------------------------------------------------------------------------------------
Insurance - 6.3%
Allstate Corp. 200 $ 8,337
CIGNA Corp. 120 7,935
Transamerica Corp. 80 8,480
--------
$ 24,752
- --------------------------------------------------------------------------------------------------------
Machinery - 2.5%
Deere & Co., Inc. 160 $ 4,840
Eaton Corp. 80 5,015
--------
$ 9,855
- --------------------------------------------------------------------------------------------------------
Medical and Health Products - 2.7%
American Home Products Corp. 200 $ 10,475
- --------------------------------------------------------------------------------------------------------
Metals and Minerals - 1.6%
Phelps Dodge Corp. 120 $ 6,263
- --------------------------------------------------------------------------------------------------------
Oils - 4.1%
Phillips Petroleum Co. 150 $ 6,769
Texaco, Inc. 150 9,403
--------
$ 16,172
- --------------------------------------------------------------------------------------------------------
Pollution Control - 2.1%
Browning Ferris Industries, Inc. 270 $ 8,167
- --------------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.4%
Promus Hotel Corp.* 200 $ 5,513
- --------------------------------------------------------------------------------------------------------
Special Products and Services - 3.2%
SPX Corp.* 300 $ 12,394
- --------------------------------------------------------------------------------------------------------
Stores - 1.8%
Nordstrom, Inc. 280 $ 6,930
- --------------------------------------------------------------------------------------------------------
Telecommunications - 2.2%
Century Telephone Enterprises, Inc. 180 $ 8,505
- --------------------------------------------------------------------------------------------------------
Transportation - 1.9%
Union Pacific Corp. 170 $ 7,246
- --------------------------------------------------------------------------------------------------------
Utilities - Electric - 3.9%
Illinova Corp. 250 $ 7,172
Unicom Corp. 220 8,222
--------
$ 15,394
- --------------------------------------------------------------------------------------------------------
Utilities - Gas - 2.7%
Columbia Energy Group, Inc. 180 $ 10,552
- --------------------------------------------------------------------------------------------------------
Total U.S. Stocks $283,814
- --------------------------------------------------------------------------------------------------------
Foreign Stocks - 4.9%
Bermuda - 2.2%
EXEL Ltd., "A" (Insurance) 100 $ 6,300
Global Crossing Ltd. (Telecommunications)* 100 2,087
--------
$ 8,387
- --------------------------------------------------------------------------------------------------------
Canada - 1.1%
Canadian National Railway Co. (Railroads) 100 $ 4,463
- --------------------------------------------------------------------------------------------------------
Netherlands - 1.6%
Elsag Bailey Process Automation N.V., ADR (Machinery)* 300 $ 6,319
- --------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 19,169
- --------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $341,692) $302,983
- --------------------------------------------------------------------------------------------------------
Short-Term Obligations - 21.8%
- ---------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
- --------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 10/01/98, at Amortized Cost $ 85 $ 85,000
- --------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $426,692) $387,983
Other Assets, Less Liabilities - 0.4% 1,503
- --------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $389,486
- --------------------------------------------------------------------------------------------------------
*Non-income producing security.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
Statements of Assets and Liabilities
<CAPTION>
- -----------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP GROWTH
SEPTEMBER 30, 1998 FUND FUND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments, at value (identified cost,
$1,259,605, $359,029, and $944,206, respectively) $1,241,416 $321,113 $ 833,362
Cash 24,483 -- --
Foreign currency, at value (identified cost,
$7,885, $0, and $0, respectively) 6,169 -- --
Deposits with brokers for securities sold short 483,688 64,039 103,505
Receivable for investments sold 35,103 69,459 632,718
Dividends receivable 422 -- --
---------- -------- ----------
Total assets $1,791,281 $454,611 $1,569,585
---------- -------- ----------
Liabilities:
Securities sold short, at value (proceeds
received, $461,632, $52,893, and $88,480,
respectively) $ 412,319 $ 48,673 $ 85,281
Payable for investments purchased 105,704 33,194 584,837
Notes payable 241,133 65,788 118,935
Payable for dividends on securities sold short -- 524 50
Accrued expenses and other liabilities 938 579 43
---------- -------- ----------
Total liabilities $ 760,094 $148,758 $ 789,146
---------- -------- ----------
Net assets $1,031,187 $305,853 $ 780,439
========== ======== ==========
Net assets consist of:
Paid-in capital $1,035,883 $350,655 $ 819,917
Unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities in foreign currencies 35,554 (34,091) (107,645)
Accumulated undistributed net realized gain
(loss) on investments and foreign currency
transactions (40,250) (10,711) 68,167
---------- -------- ----------
Net assets $1,031,187 $305,853 $ 780,439
========== ======== ==========
Shares of beneficial interest outstanding: 102,069 35,507 82,240
========== ======== ==========
Net asset value, offering price, and redemption
price per share
(net assets / shares of beneficial interest
outstanding) $10.10 $8.61 $9.49
====== ===== =====
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Assets and Liabilities - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------
VERTEX VERTEX
DISCOVERY CONTRARIAN
SEPTEMBER 30, 1998 FUND FUND
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments, at value (identified cost, $654,904 and $426,692,
respectively) $ 627,489 $387,983
Cash -- 3,193
Receivable for investments sold 229,424 --
Deposits with brokers for securities sold short 247,729 --
Dividends receivable -- 1,019
Other assets -- 2,100
---------- --------
Total assets $1,104,642 $394,295
---------- --------
Liabilities:
Securities sold short, at value (proceeds received, $223,750
and $0, respectively)
$ 216,349 $ --
Payable for investments purchased 270,635 4,788
Payable for dividends on securities sold short 780 --
Notes payable 53,826 --
Accrued expenses and other liabilities 307 21
---------- --------
Total liabilities $ 541,897 $ 4,809
---------- --------
Net assets $ 562,745 $389,486
========== ========
Net assets consist of:
Paid-in capital $ 628,852 $413,003
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (18,686) (38,709)
Accumulated undistributed net realized gain (loss) on
investments and foreign currency transactions (47,421) 13,800
Accumulated undistributed net investment income -- 1,392
---------- --------
Net assets $ 562,745 $389,486
========== ========
Shares of beneficial interest outstanding 62,768 40,657
========== ========
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $8.97 $9.58
===== =====
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Operations
<CAPTION>
- -----------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP GROWTH
PERIOD ENDED SEPTEMBER 30, 1998* FUND FUND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment loss:
Income -
Dividends $ 2,681 $ 437 $ 196
Interest 1,147 827 477
Foreign taxes withheld (76) -- --
-------- -------- ---------
Total investment income $ 3,752 $ 1,264 $ 673
-------- -------- ---------
Expenses -
Management fee $ 5,848 $ 1,915 $ 3,935
Trustees' compensation 950 950 950
Shareholder servicing agent fee 438 144 295
Distribution and service fee (Class A) 1,372 453 912
Administrative fee 59 19 39
Custodian fee 642 744 616
Interest expense 2,095 693 1,673
Printing 5,277 5,974 5,976
Postage 77 19 56
Auditing fees 8,305 8,105 8,105
Legal fees 4,151 3,952 3,952
Registration fees 2,663 4,000 2,000
Dividend expense on securities sold short 1,567 650 50
Miscellaneous 328 434 720
-------- -------- ---------
Total expenses $ 33,772 $ 28,052 $ 29,279
Fees paid indirectly -- (17) (18)
Reduction of expenses by investment adviser and
distributor (24,408) (24,831) (23,956)
-------- -------- ---------
Net expenses $ 9,364 $ 3,204 $ 5,305
-------- -------- ---------
Net investment loss $ (5,612) $ (1,940) $ (4,632)
-------- -------- ---------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(59,762) $(28,772) $ 45,698
Written option transactions -- 1,898 --
Securities sold short 19,512 16,163 27,119
Foreign currency transactions 866 (13) (18)
-------- -------- ---------
Net realized gain (loss) on investments and
foreign currency transactions $(39,384) $(10,724) $ 72,799
-------- -------- ---------
Change in unrealized appreciation (depreciation) -
Investments $(18,189) $(37,916) $(110,844)
Securities sold short 49,313 4,220 3,199
Translation of assets and liabilities in foreign
currencies 4,430 (395) --
-------- -------- ---------
Net unrealized gain (loss) on investments and
foreign currency translation $ 35,554 $(34,091) $(107,645)
-------- -------- ---------
Net realized and unrealized loss on
investments and foreign currency $ (3,830) $(44,815) $ (34,846)
-------- -------- ---------
Decrease in net assets from operations $ (9,442) $(46,755) $ (39,478)
======== ======== =========
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through September 30, 1998.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Operations - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------
VERTEX VERTEX
DISCOVERY CONTRARIAN
PERIOD ENDED SEPTEMBER 30, 1998* FUND FUND
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income (loss):
Income -
Dividends $ 461 $ 2,768
Interest 2,482 1,741
Foreign taxes withheld -- (5)
-------- --------
Total investment income $ 2,943 $ 4,504
-------- --------
Expenses -
Management fee $ 3,583 $ 2,322
Trustee's compensation 950 950
Shareholder servicing agent fee 269 175
Distribution and service fee (Class A) 856 543
Administrative fee 36 23
Custodian fee 334 468
Interest expense 118 5
Printing 2,977 5,274
Postage 44 23
Auditing fees 8,605 8,200
Legal fees 3,951 4,025
Registration fees 2,000 2,000
Dividend expense on securities sold short 782 --
Miscellaneous 239 397
-------- --------
Total expenses $ 24,744 $ 24,405
Fees paid indirectly (34) (51)
Reduction of expenses by investment adviser and distributor (19,160) (21,259)
-------- --------
Net expenses $ 5,550 $ 3,095
-------- --------
Net investment income (loss) $ (2,607) $ 1,409
-------- --------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $(77,033) $ 13,800
Securities sold short 29,612 --
Foreign currency transactions (16) (17)
-------- --------
Net realized gain (loss) on investments and foreign currency
transactions $(47,437) $ 13,783
-------- --------
Change in unrealized appreciation (depreciation) -
Investments $(27,415) $(38,709)
Securities sold short 7,401 --
Translation of assets and liabilities in foreign currencies 1,328 --
-------- --------
Net unrealized loss on investments and foreign currency
translation $(18,686) $(38,709)
-------- --------
Net realized and unrealized loss on investments and
foreign currency $(66,123) $(24,926)
-------- --------
Decrease in net assets from operations $(68,730) $(23,517)
======== ========
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through
September 30, 1998.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP GROWTH
PERIOD ENDED SEPTEMBER 30, 1998* FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (5,612) $ (1,940) $ (4,632)
Net realized gain (loss) on investments and foreign
currency transactions (39,384) (10,724) 72,799
Net unrealized gain (loss) on investments and
foreign currency translation 35,554 (34,091) (107,645)
---------- -------- ---------
Decrease in net assets from operations $ (9,442) $(46,755) $ (39,478)
---------- -------- ---------
Net increase in net assets from Fund share
transactions $1,040,629 $352,608 $ 819,917
---------- -------- ---------
Total increase in net assets $1,031,187 $305,853 $ 780,439
Net assets:
At end of period (including accumulated net
investment loss of $0, $0 and $0, respectively) $1,031,187 $305,853 $ 780,439
========== ======== =========
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through September 30, 1998.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Changes in Net Assets - continued
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
VERTEX VERTEX
DISCOVERY CONTRARIAN
PERIOD ENDED SEPTEMBER 30, 1998* FUND FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (2,607) $ 1,409
Net realized gain (loss) on investments and foreign currency
transactions (47,437) 13,783
Net unrealized loss on investments and foreign currency
translation (18,686) (38,709)
-------- --------
Decrease in net assets from operations $(68,730) $(23,517)
-------- --------
Net increase in net assets from Fund share transactions $631,475 $413,003
-------- --------
Total increase in net assets $562,745 $389,486
Net assets:
At end of period (including accumulated undistributed net
investment income of $0 and $1,392, respectively) $562,745 $389,486
======== ========
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through September 30, 1998.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Statements of Cash Flows
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP GROWTH
PERIOD ENDED SEPTEMBER 30, 1998* FUND FUND FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash:
Cash flows from operating activities -
Net decrease in net assets from operations $ (9,442) $ (46,755) $ (39,478)
Adjustments to reconcile net increase in net
assets from operations to net cash provided by
(used in) operating activities:
Purchase of investment securities (6,321,002) (3,054,456) (11,173,736)
Proceeds from disposition of investment
securities 5,482,779 2,730,345 10,390,827
Increase in deposits with brokers for
securities sold short (483,688) (64,039) (103,505)
Increase in dividends and interest receivable (422) -- --
Increase in receivable for securities sold (35,103) (69,459) (632,718)
Net premium received on call options written -- 7,264 --
Increase in payable for securities purchased 105,704 33,194 584,837
Increase in accrued expenses and other
liabilities 938 1,103 93
Unrealized (appreciation) depreciation from
investments and securities sold short (31,124) 33,696 107,643
Net realized (gain) loss from investments and
securities sold short 40,250 10,711 (72,815)
----------- ----------- ------------
Net cash provided by (used in) operating
activities $(1,251,110) $ (418,396) $ (938,852)
----------- ----------- ------------
Cash flows from financing activities -
Increase in loan payable $ 241,133 $ 65,788 $ 118,935
Proceeds from Fund shares sold 1,041,011 352,608 853,902
Payment on Fund shares redeemed (382) -- (33,985)
----------- ----------- ------------
Net cash provided by (used in) financing
activities $ 1,281,762 $ 418,396 $ 938,852
----------- ----------- ------------
Net increase in cash $ 30,652 $ -- $ --
Cash and foreign currency:
Beginning balance -- -- --
Ending balance $ 30,652 $ -- $ --
=========== =========== ============
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through September 30, 1998.
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------
PERIOD ENDED
SEPTEMBER 30,
VERTEX ALL CAP FUND 1998*
- -------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment loss(S) $(0.07)
Net realized and unrealized gain on investments and foreign currency 0.17
------
Total from investment operations $ 0.10
------
Net asset value - end of period $10.10
======
Total return 1.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses### 2.39%+
Net investment loss (1.43)%+
Portfolio turnover 446%
Net assets at end of period (000 omitted) $1,031
* For the period from the commencement of the Fund's investment operations, May 1, 1998,
through September 30, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based
upon the amount of cash maintained by the Fund with its custodian and dividend disbursing
agent. The Fund's expenses are calculated without reduction for this expense offset
arrangement.
### Excluding dividend expense on securities sold short, the ratio of expenses to average net
assets is 2.00%.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses
of the Fund, exclusive of management, distribution and service fees, and dividend expense
on securities sold short, at not more than 2.00% of average daily net assets. The
investment adviser and the distributor voluntarily waived their fees for the period
indicated. If these fees had been incurred by the Fund and other expenses had not been
limited, the net investment loss per share and the ratios would have been:
Net investment loss $ (0.36)
Ratios (to average net assets):
Expenses## 8.62%+
Net investment loss (7.66)%+
Leverage analysis:
Debt outstanding at end of period $241,133
Average daily balance of debt outstanding 105,518
Average daily number of shares outstanding 85,412
Average debt per share $ 1.24
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------
PERIOD ENDED
SEPTEMBER 30,
VERTEX U.S. ALL CAP FUND 1998*
- -------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment loss(S) $(0.06)
Net realized and unrealized loss on investments and foreign currency (1.33)
------
Total from investment operations $(1.39)
------
Net asset value - end of period $ 8.61
======
Total return (13.90)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses### 2.50%+
Net investment loss (1.51)%+
Portfolio turnover 928%
Net assets at end of period (000 omitted) $306
* For the period from the commencement of the Fund's investment operations, May 1, 1998,
through September 30, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based
upon the amount of cash maintained by the Fund with its custodian and dividend disbursing
agent. The Fund's expenses are calculated without reduction for this expense offset
arrangement.
### Excluding dividend expense on securities sold short, the ratio of expenses to average net
assets is 2.00%.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses
of the Fund, exclusive of management, distribution and service fees, and dividend expense
on securities sold short, at not more than 2.00% of average daily net assets. The
investment adviser and the distributor voluntarily waived their fees for the period
indicated. If these fees had been incurred by the Fund and other expenses had not been
limited, the net investment loss per share and the ratios would have been:
Net investment loss $(0.88)
Ratios (to average net assets):
Expenses## 21.86%+
Net investment loss (20.87)%+
Leverage analysis:
Debt outstanding at end of period $65,788
Average daily balance of debt outstanding 40,699
Average daily number of shares outstanding 30,138
Average debt per share $ 1.35
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------
PERIOD ENDED
SEPTEMBER 30,
VERTEX GROWTH FUND 1998*
- -------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment loss(S) $(0.07)
Net realized and unrealized loss on investments and foreign currency (0.44)
------
Total from investment operations $(0.51)
------
Net asset value - end of period $ 9.49
======
Total return (5.10)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses### 2.01%+
Net investment loss (1.75)%+
Portfolio turnover 1,309%
Net assets at end of period (000 omitted) $ 780
* For the period from the commencement of the Fund's investment operations, May 1, 1998,
through September 30, 1998.
+ Annualized.
++ Not annualized.
# Per share data is based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based
upon the amount of cash maintained by the Fund with its custodian and dividend disbursing
agent. The Fund's expenses are calculated without reduction for this expense offset
arrangement.
### Excluding dividend expense on securities sold short, the ratio of expenses to average net
assets is 2.00%.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses
of the Fund, exclusive of management, distribution and service fees, and dividend expense
on securities sold short, at not more than 2.00% of average daily net assets. The
investment adviser and the distributor voluntarily waived their fees for the period
indicated. If these fees had been incurred by the Fund and other expenses had not been
limited, the net investment loss per share and the ratios would have been:
Net investment loss $(0.44)
Ratios (to average net assets):
Expenses## 11.07%+
Net investment loss (10.81)%+
Leverage analysis:
Debt outstanding at end of period $118,935
Average daily balance of debt outstanding 91,617
Average daily number of shares outstanding 64,379
Average debt per share $ 1.42
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------
PERIOD ENDED
SEPTEMBER 30,
VERTEX DISCOVERY FUND 1998*
- -------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment loss(S) $(0.05)
Net realized and unrealized loss on investments and foreign currency (0.98)
------
Total from investment operations $(1.03)
------
Net asset value - end of period $ 8.97
======
Total return (10.30)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses### 2.32%+
Net investment loss (1.09)%+
Portfolio turnover 1,195%
Net assets at end of period (000 omitted) $563
* For the period from the commencement of the Fund's investment operations, May 1, 1998,
through September 30, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based
upon the amount of cash maintained by the Fund with its custodian and dividend disbursing
agent. The Fund's expenses are calculated without reduction for this expense offset
arrangement.
### Excluding dividend expense on securities sold short the ratio of expenses to average net
assets is 2.00%.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses
of the Fund, exclusive of management, distribution and service fees, and dividend expense
on securities sold short, at not more than 2.00% of average daily net assets. The
investment adviser and the distributor voluntarily waived their fees for the period
indicated. If these fees had been incurred by the Fund and other expenses had not been
limited, the net investment loss per share and the ratios would have been:
Net investment loss $(0.39)
Ratios (to average net assets):
Expenses## 10.32%+
Net investment loss (9.09)%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS - continued
Financial Highlights
<CAPTION>
- -------------------------------------------------------------------------------------------
PERIOD ENDED
SEPTEMBER 30,
VERTEX CONTRARIAN FUND 1998*
- -------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout the period):
Net asset value - beginning of period $10.00
------
Income from investment operations# -
Net investment income(S) $ 0.04
Net realized and unrealized loss on investments and foreign currency (0.46)
------
Total from investment operations $(0.42)
------
Net asset value - end of period $ 9.58
======
Total return (4.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses### 2.00%+
Net investment income 0.91%+
Portfolio turnover 243%
Net assets at end of period (000 omitted) $ 389
* For the period from the commencement of the Fund's investment operations, May 1, 1998,
through September 30, 1998.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based
upon the amount of cash maintained by the Fund with its custodian and dividend disbursing
agent. The Fund's expenses are calculated without reduction for this expense offset
arrangement.
### The Fund's expenses without reduction for fees paid indirectly for the period ended
September 30, 1998 would have been 2.03%.
(S) Subject to reimbursement by the Fund, the investment adviser agreed to maintain expenses
of the Fund, exclusive of management, and distribution and service fees, at not more than
2.00% of average daily net assets. The investment adviser and the distributor voluntarily
waived their fees for the period indicated. If these fees had been incurred by the Fund
and other expenses had not been limited, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.64)
Ratios (to average net assets):
Expenses## 15.69%+
Net investment loss (12.78)%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Vertex All Cap Fund, MFS Vertex U.S. All Cap Fund, MFS Vertex Growth Fund,
MFS Vertex Discovery Fund, and MFS Vertex Contrarian Fund, (each Fund) are
non-diversified series of MFS Series Trust XI (the Trust). The Trust is
organized as a Massachusetts business trust and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company.
(2) Significant Accounting Policies
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Investments
in foreign securities are vulnerable to the effects of changes in the relative
values of the local currency and the U.S. dollar and to the effects of changes
in each country's legal, political, and economic environment.
Investment Valuations - Equity securities listed on securities exchanges or
reported through the NASDAQ system are reported at market value using last
sale prices. Unlisted equity securities or listed equity securities for which
last sale prices are not available are reported at market value using last
quoted bid prices. Short-term obligations, which mature in 60 days or less,
are valued at amortized cost, which approximates market value. Securities for
which there are no such quotations or valuations are valued at fair value as
determined in good faith by or at the direction of the Trustees.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not
separately disclosed.
Written Options - Each Fund may write call or put options in exchange for a
premium. The premium is initially recorded as a liability which is subsequently
adjusted to the current value of the options contract. When a written option
expires, the Fund realizes a gain equal to the amount of the premium received.
When a written call option is exercised or closed, the premium received is
offset against the proceeds to determine the realized gain or loss. When a
written put option is exercised, the premium reduces the cost basis of the
security purchased by the Fund. The Fund, as writer of an option, may have no
control over whether the underlying securities may be sold (call) or purchased
(put) and, as a result, bears the market risk of an unfavorable change in the
price of the securities underlying the written option. In general, written call
options may serve as a partial hedge against decreases in value in the
underlying securities to the extent of the premium received. Written options may
also be used as part of an income producing strategy reflecting the view of the
Fund's management on the direction of interest rates.
Short Sales - Each Fund may enter into short sales. A short sale transaction
involves selling a security which a Fund does not own with the intent of
purchasing it later at a lower price. A Fund will realize a gain if the security
price decreases and a loss if the security price increases between the date of
the short sale and the date on which The Fund must replace the borrowed
security. Losses can exceed the proceeds from short sales and can be greater
than losses from the actual purchase of a security. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of the
premium, dividends, or interest a Fund may be required to pay in connection with
a short sale. Whenever a Fund engages in short sales, its custodian segregates
cash or marketable securities in an amount that, when combined with the amount
of proceeds from the short sale deposited with the broker, at least equals the
current market value of the security sold short.
Investment Transactions and Income - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All discount is
accreted for financial statement and tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Dividend payments received in additional securities are
recorded on the ex-dividend date in an amount equal to the value of the security
on such date.
Fees Paid Indirectly - Each Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an arrangement
that measures the value of cash deposited with the custodian by the Fund. This
amount is shown as a reduction of expenses on the Statements of Operations.
Tax Matters and Distributions - Each Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided. Each Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the basis
on which these financial statements are prepared. Accordingly, the amount of net
investment income and net realized gain reported on these financial statements
may differ from that reported on the Fund's tax return and, consequently, the
character of distributions to shareholders reported in the financial highlights
may differ from that reported to shareholders on Form 1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. Each Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. During
the period ended September 30, 1998, the following amounts were reclassified
among paid-in capital, accumulated undistributed net investment income (loss)
and accumulated net realized gain (loss) on investments and foreign currency
transactions due to differences between book and tax accounting for currency
transactions and net investment losses. These changes had no effect on the net
assets or net asset values per share.
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
INCREASE (DECREASE) ALL CAP FUND U.S. ALL CAP FUND GROWTH FUND
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paid-in capital $(4,746) $(1,953) $ --
Accumulated undistributed net realized gain
(loss) on investments and foreign currency
transactions $ (866) $ 13 $(4,632)
Accumulated undistributed net investment income $ 5,612 $ 1,940 $ 4,632
</TABLE>
<TABLE>
<CAPTION>
VERTEX VERTEX
INCREASE (DECREASE) DISCOVERY FUND CONTRARIAN FUND
- --------------------------------------------------------------------------------------
<S> <C> <C>
Paid-in capital $(2,623) $ --
Accumulated undistributed net realized gain on
investments and foreign currency transactions $ 16 $ 17
Accumulated undistributed net investment income
(loss) $ 2,607 $(17)
</TABLE>
At September 30, 1998, Vertex All Cap Fund, Vertex U.S. All Cap Fund, and
Vertex Discovery Fund, for federal income tax purposes, each had a capital
loss carryforward. The amounts of $36,588, $10,579, and $47,421, respectively,
may be applied against any net taxable realized gains of each succeeding year
until the earlier of their utilization or expiration on September 30, 2006.
(3) Transactions with Affiliates
Investment Adviser - Each Fund has an investment advisory agreement with
Vertex Investment Management, Inc. (Vertex), a wholly owned subsidiary of
Massachusetts Financial Services Company (MFS), to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 1.50%
of average daily net assets. The investment adviser has voluntarily agreed to
waive its fee, which is reflected as a reduction of expenses in the Statements
of Operations.
Each Fund has a temporary expense reimbursement agreement whereby Vertex has
voluntarily agreed to pay all of each Fund's operating expenses, exclusive of
management, distribution and service fees, and dividend expense on securities
sold short. Each Fund in turn will pay Vertex an expense reimbursement fee not
greater than 2.00% of average daily net assets. To the extent that the expense
reimbursement fee exceeds each Fund's actual expenses, the excess will be
applied to amounts paid by Vertex in prior years.
At September 30, 1998, the aggregate unreimbursed expenses owed to Vertex were
as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX VERTEX VERTEX
ALL CAP FUND U.S. ALL CAP FUND GROWTH FUND DISCOVERY FUND CONTRARIAN FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$17,188 $22,463 $19,109 $14,721 $18,394
</TABLE>
The Trust pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of The Trust, all of whom receive
remuneration for their services to The Trust from Vertex. Certain officers and
Trustees of The Trust are officers or directors of Vertex, MFS, MFS Fund
Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
Administrator - Each Fund has an administrative services agreement with MFS to
provide each Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, each Fund pays MFS an administrative fee
at the following annual percentages of each Fund's average daily net assets:
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges on sales on Class A shares of each Fund for the
period ended September 30, 1998.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
Each Fund's distribution plan provides that each Fund will pay MFD up to 0.35%
per annum of its average daily net assets attributable to Class A shares in
order that MFD may pay expenses on behalf of each Fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD of
up to 0.25% per annum of each Fund's average daily net assets attributable to
Class A shares which are attributable to that securities dealer and a
distribution fee to MFD of up to 0.10% per annum of each Fund's average daily
net assets attributable to Class A shares. Distribution and service fees under
the Class A distribution plan are currently being waived.
Certain Class A shares are subject to a contingent deferred sales charge in
the event of a shareholder redemption within 12 months following purchase.
There were no contingent deferred sales charges imposed on Class A shares of
each Fund during the period ended September 30, 1998.
Shareholder Servicing Agent - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of each Fund's average daily net assets at an effective annual
rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP FUND U.S. ALL CAP FUND GROWTH FUND
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases
- ---------
U.S. government securities $ 43,213 $ -- $ --
---------- ---------- -----------
Investments (non-U.S. government securities) $5,524,109 $2,702,975 $10,637,154
---------- ---------- -----------
Sales
- -----
Investments (non-U.S. government securities) $4,333,811 $2,348,796 $ 9,738,644
---------- ---------- -----------
VERTEX VERTEX
DISCOVERY FUND CONTRARIAN FUND
- --------------------------------------------------------------------------------------
Purchases
- ---------
Investments (non-U.S. government securities) $6,943,796 $1,050,116
---------- ----------
Sales
- -----
Investments (non-U.S. government securities) $6,211,859 $ 723,188
---------- ----------
</TABLE>
The cost and unrealized appreciation or depreciation in the value of the
investments owned by each Fund, as computed on a federal income tax basis, are
as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP FUND U.S. ALL CAP FUND GROWTH FUND
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate cost $1,263,267 $ 359,161 $ 995,182
---------- ---------- -----------
Gross unrealized depreciation $ (84,190) $ (48,921) $ (194,137)
Gross unrealized appreciation 62,339 10,873 32,317
---------- ---------- -----------
Net unrealized depreciation $ (21,851) $ (38,048) $ (161,820)
========== ========== ===========
VERTEX VERTEX
DISCOVERY FUND CONTRARIAN FUND
- ----------------------------------------------------------------------------------------------
Aggregate cost $ 654,904 $ 426,692
---------- ----------
Gross unrealized depreciation $ (48,147) $ (46,756)
Gross unrealized appreciation 20,732 8,047
---------- ----------
Net unrealized depreciation $ (27,415) $ (38,709)
========== ==========
</TABLE>
(5) Shares of Beneficial Interest
Each Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value). Transactions in Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1998*
------------------------------------------------------------------------------------
VERTEX ALL CAP FUND VERTEX U.S. ALL CAP FUND VERTEX GROWTH FUND
------------------------ -------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 102,107 $1,041,011 35,507 $352,608 85,411 $853,902
Shares reacquired (38) (382) -- -- (3,171) (33,985)
------- ---------- ------ -------- ------ --------
Net increase 102,069 $1,040,629 35,507 $352,608 82,240 $819,917
======= ========== ====== ======== ====== ========
</TABLE>
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through September 30, 1998.
<TABLE>
Class A Shares
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1998*
-----------------------------------------------------
VERTEX DISCOVERY FUND VERTEX CONTRARIAN FUND
---------------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 63,005 $ 633,988 70,657 $725,305
Shares reacquired (237) (2,513) (30,000) (312,302)
------- ---------- ------ --------
Net increase 62,768 $ 631,475 40,657 $413,003
======= ========== ====== ========
</TABLE>
*For the period from the commencement of each Fund's investment operations,
May 1, 1998, through September 30, 1998.
(6) Line of Credit
Each Fund participates in a $500,000 secured line of credit, of which $250,000
is committed, provided by State Street Bank and Trust Company under a line of
credit agreement. Each Fund may borrow up to 50% of its net assets to invest
in portfolio securities or for liquidity or defensive purposes. Each loan is
secured by assets of the Fund. Interest is charged to each Fund, based on its
borrowings, at a rate equal to the Overnight Federal Funds Rate plus 0.45%. In
addition, a commitment fee of 0.07% per annum is charged based on the daily
unused portion of the committed line of credit and allocated among the
participating funds at the end of each quarter. During the period ended
September 30, 1998, the maximum amounts outstanding and the amounts
outstanding at September 30, 1998, were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX VERTEX VERTEX
ALL CAP FUND U.S. ALL CAP FUND GROWTH FUND DISCOVERY FUND CONTRARIAN FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum loan outstanding $273,010 $153,895 $345,469 $145,218 $31,654
Loan outstanding at
September 30, 1998 $241,133 $ 65,788 $118,935 $ 53,826 --
</TABLE>
Interest expense and the weighted average interest rate incurred on the
borrowings for the period ended September 30, 1998 were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX VERTEX VERTEX
ALL CAP FUND U.S. ALL CAP FUND GROWTH FUND DISCOVERY FUND CONTRARIAN FUND
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest expense $ 2,095 $ 693 $ 1,673 $ 118 $ 5
Weighted average interest rate 6.09% 6.02% 6.04% 5.97% 6.14%
</TABLE>
(7) Financial Instruments
Each Fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options. The notional or contractual
amounts of these instruments represent the investment the Fund has in
particular classes of financial instruments and does not necessarily represent
the amounts potentially subject to risk. The measurement of the
risks associated with these instruments is meaningful only when all related
and offsetting transactions are considered.
Written Option Transactions
VERTEX U.S. ALL CAP FUND CONTRACTS PREMIUM
- --------------------------------------------------------------------------------
Outstanding, beginning of period -- $ --
Options written 25 10,800
Options terminated in closing transactions (18) (5,433)
Options exercised (7) (5,367)
-------- --------
Outstanding, end of period -- $ --
======== ========
(8) Subsequent Event (Unaudited)
On October 28, 1998, the Trustees voted to terminate and liquidate Vertex
Growth Fund and Vertex Discovery Fund effective October 30, 1998 or as soon as
thereafter as is practicable. Each Fund was terminated and liquidated on
November 2, 1998.
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust XI and Shareholders of Vertex All Cap
Fund, Vertex U.S. All Cap Fund, Vertex Growth Fund, Vertex Discovery Fund and
Vertex Contrarian Fund:
We have audited the accompanying statements of assets and liabilities of
Vertex All Cap Fund, Vertex U.S. All Cap Fund, Vertex Growth Fund, Vertex
Discovery Fund and Vertex Contrarian Fund, including the schedules of
portfolio investments, as of September 30, 1998, and the related statements of
operations, and changes in net assets and the financial highlights for the
period from May 1, 1998 (commencement of operations) to September 30, 1998 and
the statements of cash flows for Vertex All Cap Fund, Vertex U.S. All Cap Fund
and Vertex Growth Fund, for the period indicated above. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of September 30, 1998, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Vertex All Cap Fund, Vertex U.S. All Cap Fund, Vertex Growth Fund, Vertex
Discovery Fund and Vertex Contrarian Fund at September 30, 1998, and the
results of their operations, the changes in their net assets and financial
highlights for the period from May 1, 1998 (commencement of operations) to
September 30, 1998, and the cash flows for Vertex All Cap Fund, Vertex U.S.
All Cap Fund and Vertex Growth Fund for the period indicated above, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 6, 1998
<PAGE>
FEDERAL TAX INFORMATION
In January 1999, shareholders will be mailed a Form 1099 reporting the federal
tax status of all distributions paid during the calendar year 1998.
--------------------------------------------
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
<PAGE>
VERTEX ALL CAP FUND
VERTEX U.S. ALL CAP FUND
(FORMERLY VERTEX RESEARCH ALL CAP FUND)
VERTEX GROWTH FUND
VERTEX DISCOVERY FUND
VERTEX CONTRARIAN FUND
VERTEX INVESTMENT MANAGEMENT, INC.
500 Boylston Street
Boston, MA 02116-3741
(c)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
VER-2 11/98 1.3M
