<PAGE>
ANNUAL REPORT
SEPTEMBER 30, 1999
[Graphic Omitted]
VERTEX ALL CAP FUND(SM)
VERTEX U.S. ALL CAP FUND(SM)
VERTEX CONTRARIAN FUND(SM)
<PAGE>
<TABLE>
VERTEX ALL CAP FUND(SM)
VERTEX U.S. ALL CAP FUND(SM)
VERTEX CONTRARIAN FUND(SM)
<S> <C>
TRUSTEES CUSTODIAN
Jeffrey L. Shames* - Chairman, Chief Executive Officer, and State Street Bank and Trust Company
Director, Vertex Investment Management, Inc.
AUDITORS
Nelson J. Darling, Jr. - Professional Trustee Ernst & Young LLP
William R. Gutow - Vice Chairman, Capitol Entertainment INVESTOR SERVICE
Management Company; Real Estate Consultant MFS Service Center, Inc.
P.O. Box 2281
INVESTMENT ADVISER Boston, MA 02107-9906
Vertex Investment Management, Inc.
a wholly owned subsidiary of For additional information, contact your financial consultant.
Massachusetts Financial Services Company
500 Boylston Street WORLD WIDE WEB
Boston, MA 02116-3741 www.mfs.com
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
CHAIRMAN AND PRESIDENT
Jeffrey L. Shames*
PORTFOLIO MANAGERS
John W. Ballen*
Paul M. McMahon*
Brian E. Stack*
TREASURER
W. Thomas London*
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
</TABLE>
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
The current investment and economic environment bears little resemblance to
last year's. One year ago, global economies were floundering, and the crisis
in Asia threatened an already weak U.S. economy. Corporate earnings were flat,
and economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve Board
(the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low.
Many corporations are focused on improving their profitability, and investors
have been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999 will average
12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis has
passed. In fact, Japan's economic woes seem to have reached bottom. Although
the process is in its infancy, some Japanese corporations not only are talking
about restructuring and cost cutting, they also are beginning to take action,
looking within to become more competitive and improve returns on equity. While
still lagging the United States, Europe is beginning to restructure and
consolidate. These signs of international growth have contributed to concerns
that the U.S. economy now may be too strong. In June, and
again in August, the Fed raised rates by one-quarter of a percentage point to
help ward off the specter of inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current
market many investors are taking on additional risk - whether through day
trading or investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago. We
believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top
25 stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total return performance, are still the most overvalued.
Such extreme overvaluation makes the stock market sensitive to interest-rate
news and any negative earnings surprises. The Year 2000 (Y2K) computer problem
is another factor causing investor concern. While we believe corporate America
is well prepared to address any Y2K situations that may arise at year-end, no
one can predict investor behavior. In our opinion, it is investor behavior
that has the greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is through our
continuing commitment to MFS Original Research(R) and our fundamental
investment tenet of long-term investing. Whether markets are up or down, MFS
analysts focus on analyzing industries and visiting companies to determine the
long-term winners and the prices that will make them attractive opportunities.
Because all companies will not benefit equally from the improving
international environment, bottom-up research remains critical to identifying
those that we believe are successfully restructuring, consolidating, and
gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at
attractive prices. For this reason, we are continuing to expand our domestic
and international capabilities to ensure that MFS has primary, in-house
research on companies worldwide.
We believe that we have built the right investment team, backed by MFS
Original Research, to take advantage of those opportunities for our
shareholders.
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, Inc.
October 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Vertex All Cap Fund
Dear Shareholders,
For the 12 months ended September 30, 1999, the Fund provided a total return
of 125.33%. This return includes the reinvestment of any distributions and
compares to a 27.81% return over the same period for the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock
total return performance.
The Fund seeks capital appreciation by investing at least 65% of its assets in
equity securities. The Fund can pursue either growth- or value-style
investments in domestic and foreign securities and in companies of all market
capitalizations and is nondiversified. The Fund may engage in short sales or
investments in a variety of derivatives including options, futures contracts,
and options on futures and may borrow from banks 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 to pursue liquidity. 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.
The Fund's large weighting in the high-growth telecommunications sector
contributed to its positive performance. The share price of Network Solutions,
Inc. clearly benefited from the rapid growth of the Internet and showed a
significant price increase. The company supplies Internet domain-name
registration worldwide and provides network consulting services.
Respectfully,
/s/ John W. Ballen
John W. Ballen
Portfolio Manager
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK -- continued
Vertex U.S. All Cap Fund
Dear Shareholders,
For the 12 months ended September 30, 1999, the Fund provided a total return
of 59.51%, including the reinvestment of any distributions. For the same
period, the S&P 500 returned 27.81%.
The Fund seeks capital appreciation through the investment of at least 65% of
its assets in equity securities issued by U.S. companies. The Fund is flexibly
managed and can invest in companies regardless of their market capitalization.
The Fund may engage in short sales or investments in a variety of derivatives
including options, futures contracts, and options on futures. The Fund also
may borrow from banks up to 50% of the value of its net assets to leverage its
investments in portfolio securities or to maintain liquidity. In addition, the
Fund may engage in reverse repurchase agreements and lending of portfolio
securities. The Fund's nondiversifed nature, its ability to borrow money for
investment purposes, and its potential to engage in short sales all entail
significant risks.
Over the course of the past 12 months, the Fund's performance was helped by
three main factors: leveraging of long positions, the success of its short
positions, and the use of arbitrage. Of these three, successful leveraging of
positions provided the vast majority of the Fund's strong performance. As of
September 30, 1999, about 20% of the portfolio's assets were leveraged.
Looking more closely at the portfolio, its investments from the technology and
leisure sectors were especially helpful to the performance of the Fund.
On the downside, there were a few positions that hurt performance, but none to
a significant degree. One example was Galileo International, which, at its
peak, comprised about 2% of assets. As far as sectors, health care, and --
toward the end of the third quarter -- business services stocks were poor
performers, but not to an extent to markedly detract from performance.
Respectfully,
/s/ Paul M. McMahon
Paul M. McMahon
Portfolio Manager
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK -- continued
Vertex Contrarian Fund
Dear Shareholders,
For the 12 months ended September 30, 1999, the Fund provided a total return
of 155.74%. This return includes the reinvestment of any distributions and
compares to a 27.81% return over the same period for the S&P 500.
The Fund seeks capital appreciation by investing at least 65% of its assets in
equity securities. The Fund will seek investments in companies that we
consider 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 engage in short sales, or investments in a variety of derivatives,
including options, futures contracts, and options on futures and may borrow
from banks 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 and lend securities as a means of receiving other assets
to invest in portfolio securities or to pursue liquidity. 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.
The Fund has benefited from an extensive overweighting in technology and
energy stocks, relative to the S&P 500. Stocks posting strong performance
during the period were Lam Research Corp., which benefited from improved
demand for semiconductor capital equipment, and Technology Solutions Company,
which announced the upcoming spin-off of its "e-commerce" unit. The Fund also
benefited from strong performance from Caremark, which, after divestitures, we
think may emerge as a profitable and fast-growing pharmaceutical benefits
manager.
In addition, the Fund has benefited from the successful short sale of a
variety of securities of technology and health care providers, including
Integrated Health Services, which fell 92% since we initiated a position.
Finally, the use of leveraging (which has averaged 30% to 40% of net assets)
further enhanced returns over the period.
Respectfully,
/s/ Brian E. Stack
Brian E. Stack
Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current 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>
PERFORMANCE SUMMARY
Currently each Fund offers only Class A shares, which are available for
purchase at net asset value
only by residents of the Commonwealth of Massachusetts who are employees (or
certain relatives of employees) of MFS and its affiliates or members of the
governing boards of the various funds sponsored by MFS.
The following information illustrates the historical performance of each
Fund's Class A shares in comparison to various market indicators. Performance
results reflect the percentage change in net asset value, including
reinvestment of dividends. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. (See Notes to Performance Summary for more
information.) It is not possible to invest directly in an index.
VERTEX ALL CAP FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment operations,
May 1, 1998, through September 30, 1999. Index information is from May 1, 1998.)
Vertex All Cap S&P 500
Fund - Class A Composite Index
-------------- ---------------
5/98 $ 9,425 $10,000
9/98 9,463 9,210
9/99 21,450 11,771
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH SEPTEMBER 30, 1999
CLASS A
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +125.33% +127.58%
- --------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +125.33% + 78.71%
- --------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +112.37% + 71.39%
- --------------------------------------------------------------------------------
COMPARATIVE INDEX
1 Year Life*
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index+ + 27.81% + 12.20%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
May 1, 1998, through September 30, 1999. Index information is from
May 1, 1998.
+ Source: Standard & Poor's Micropal, Inc.
<PAGE>
PERFORMANCE SUMMARY -- continued
VERTEX U.S. ALL CAP FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment operations,
May 1, 1998, through September 30, 1999.
Index information is from May 1, 1998.)
Vertex U.S. All Cap S&P 500
Fund - Class A Composite Index
------------------- ---------------
5/98 $ 9,425 $10,000
9/98 8,077 9,210
9/99 12,884 11,771
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH SEPTEMBER 30, 1999
CLASS A
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +59.51% +36.70%
- --------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +59.51% +24.70%
- --------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +50.34% +19.59%
- --------------------------------------------------------------------------------
COMPARATIVE INDEX
1 Year Life*
- --------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index+ +27.81% +12.20%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations,
May 1, 1998, through September 30, 1999. Index information is from
May 1, 1998.
+ Source: Standard & Poor's Micropal, Inc.
<PAGE>
PERFORMANCE SUMMARY -- continued
VERTEX CONTRARIAN FUND
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the Fund's investment operations,
May 1, 1998, through September 30, 1999.
Index information is from May 1, 1998.)
Vertex Contrarian S&P 500
Fund - Class A Composite Index
----------------- ---------------
5/98 $10,000 $10,000
9/98 9,020 9,210
9/99 23,067 11,771
AVERAGE ANNUAL AND CUMULATIVE TOTAL RATES OF RETURN THROUGH SEPTEMBER 30, 1999
CLASS A
1 Year Life*
- --------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +155.74% +144.75%
- --------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +155.74% + 88.12%
- --------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +141.04% + 80.42%
- --------------------------------------------------------------------------------
COMPARATIVE INDEX
1 Year Life*
- --------------------------------------------------------------------------------
Standard & Poor's 500 Index+ +27.81% +12.20%
- --------------------------------------------------------------------------------
* For the period from the commencement of the Fund's investment operations, May
1, 1998, through September 30, 1999. Index Information is from May 1, 1998.
+ Source: Standard & Poor's Micropal, Inc.
NOTES TO PERFORMANCE SUMMARY
Performance results reflect any applicable subsidies and waivers, without
which the results would have been less favorable. Subsidies and waivers may be
rescinded at any time. See the prospectus for details. All results are
historical and include the reinvestment of dividends and capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS.
Each Fund may purchase lower-rated securities that may provide greater
returns, but are also associated
with greater-than-average risks. These risks may increase share price
volatility. See the prospectus for details.
Each Fund may focus its investments in certain sectors, thereby increasing its
vulnerability to any single economic, political, or regulatory development.
See the prospectus for details.
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. See the prospectus for details.
Each Fund has the flexibility to invest in derivative securities which may be
associated with special risks. These risks may increase share price
volatility. See the prospectus for details.
Each Fund may purchase securities with proceeds from bank borrowings or
reverse repurchase agreements, and may engage in other forms of leveraged
investments. These types of investments are speculative, involve greater
risks, and can substantially increase share price volatility. See the
prospectus for details.
RESULTS OF SHAREHOLDER MEETING
At the special meeting of shareholders of each of the Vertex All Cap Fund,
Vertex U.S. All Cap Fund, and Vertex Contrarian Fund, which was held on August
25, 1999, the following actions were taken:
ITEM 1
To approve or disapprove new investment advisory agreements between Vertex
Investment Management, Inc. and the Trust on behalf of each Fund.
VERTEX ALL CAP FUND
SHARES VOTED % OF VOTED
----------- --------
For 160,762.140 99.692%
Against 134.982 0.083%
Abstain 362.107 0.225%
TOTAL 161,259.229 100.000%
----------- --------
VERTEX U.S. ALL CAP FUND
SHARES VOTED % OF VOTED
----------- --------
For 108,518.723 100.000%
Against 0.000 0.000%
Abstain 0.000 0.000%
----------- --------
TOTAL 108,518.723 100.000%
VERTEX CONTRARIAN FUND
SHARES VOTED % OF VOTED
----------- --------
For 128,865.423 99.884%
Against 149.856 0.116%
Abstain 0.000 0.000%
----------- --------
TOTAL 129,015.279 100.000%
ITEM 2
To ratify the selection of Ernst & Young LLP as the independent public
accountants to be employed by the Trust on behalf of each Fund for the fiscal
year ended September 30, 1999.
VERTEX ALL CAP FUND
SHARES VOTED % OF VOTED
----------- --------
For 161,147.247 99.930%
Against 0.000 0.000%
Abstain 111.982 0.070%
----------- --------
TOTAL 161,259.229 100.000%
VERTEX U.S. ALL CAP FUND
SHARES VOTED % OF VOTED
----------- --------
For 108,518.723 100.000%
Against 0.000 0.000%
Abstain 0.000 0.000%
----------- --------
TOTAL 108,518.723 100.000%
VERTEX CONTRARIAN FUND
SHARES VOTED % OF VOTED
----------- --------
For 129,015.279 100.000%
Against 0.000 0.000%
Abstain 0.000 0.000%
----------- --------
TOTAL 129,015.279 100.000%
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- September 30, 1999
VERTEX ALL CAP FUND
Stocks - 122.8%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 117.4%
Advertising - 4.5%
Outdoor Systems, Inc.*# 6,200 $ 221,650
- -----------------------------------------------------------------------------------------------------
Business Services - 5.8%
Building One Services Corp.*# 6,000 $ 73,125
Complete Business Solutions, Inc.* 2,000 27,375
Concord EFS, Inc.* 300 6,187
DST Systems, Inc.* 200 11,375
Dycom Industries, Inc.*# 3,100 130,781
IMRglobal Corp.*# 4,500 37,125
Luminant Worldwide Corp.* 25 769
-----------
$ 286,737
- -----------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 2.4%
Microsoft Corp.*# 1,300 $ 117,731
- -----------------------------------------------------------------------------------------------------
Computer Software - Services - 0.1%
Broadbase Software, Inc.* 25 $ 398
Kana Communications, Inc.* 25 1,247
TIBCO Software, Inc.* 50 1,505
-----------
$ 3,150
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 18.7%
Active Software, Inc.* 25 $ 598
Agile Software Corp.* 25 1,600
Alteon Websystems, Inc.* 25 2,350
Bluestone Software, Inc.* 25 578
BMC Software, Inc.* 1,600 114,500
Cadence Design Systems, Inc.*# 2,200 29,150
Computer Associates International, Inc.# 3,900 238,875
Compuware Corp.*# 10,000 260,625
Digex, Inc.* 25 592
E.piphany, Inc.* 25 1,219
Foundry Networks, Inc.* 25 3,150
Gadzoox Networks, Inc.*# 50 2,694
Liberate Technologies* 25 1,053
NetIQ Corp.* 25 741
NetSolve, Inc.* 25 444
Network Associates, Inc.*# 660 12,622
Oracle Corp.*# 2,500 113,750
Packeteer, Inc.* 25 852
Paradyne Networks, Inc.* 100 2,800
Quest Software, Inc.* 25 1,162
RAVISENT Technologies, Inc.* 50 719
Silverstream Software, Inc.* 25 778
SunGard Data Systems, Inc.*# 5,100 134,194
Vitria Technology, Inc.* 25 919
-----------
$ 925,965
- -----------------------------------------------------------------------------------------------------
Conglomerates - 3.4%
Tyco International Ltd.# 1,650 $ 170,362
- -----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 1.4%
Galileo International, Inc. 200 $ 8,050
Sportsline USA, Inc.*# 2,000 59,125
-----------
$ 67,175
- -----------------------------------------------------------------------------------------------------
Container, Forest and Paper Products - 1.0%
Gaylord Container Corp.* 6,800 $ 48,450
- -----------------------------------------------------------------------------------------------------
Electronics - 4.0%
Altera Corp.* 2,000 $ 86,750
Lattice Semiconductor Corp.*# 2,000 59,375
LSI Logic Corp.*# 1,000 51,500
-----------
$ 197,625
- -----------------------------------------------------------------------------------------------------
Entertainment - 11.4%
Acme Communications, Inc.* 25 $ 775
Clear Channel Communications, Inc.* 462 36,902
Gemstar International Group Ltd.*# 3,000 234,375
MediaOne Group, Inc.*# 1,400 95,638
Time Warner, Inc.# 3,200 194,400
-----------
$ 562,090
- -----------------------------------------------------------------------------------------------------
Financial Institutions - 2.3%
Associates First Capital Corp., "A" 800 $ 28,800
Merrill Lynch & Co., Inc. 1,300 87,344
-----------
$ 116,144
- -----------------------------------------------------------------------------------------------------
Insurance - 0.1%
Hartford Financial Services Group, Inc. 100 $ 4,088
- -----------------------------------------------------------------------------------------------------
Internet - 7.5%
Chemdex Corp.* 25 $ 770
Digital Insight Corp.* 25 375
Drugstore.com, Inc.* 25 906
Engage Technologies, Inc.* 50 1,884
InsWeb Corp.* 25 491
Internap Network Services Corp.* 25 1,116
Interspeed, Inc.* 25 441
ITXC Corp.* 25 795
Keynote Systems, Inc.* 25 625
Medscape, Inc.* 75 759
Radware Ltd.* 25 688
Talk.com, Inc.*# 20,000 258,125
VeriSign, Inc.* 1,000 106,500
-----------
$ 373,475
- -----------------------------------------------------------------------------------------------------
Medical and Health Products - 0.5%
Boston Scientific Corp.* 1,000 $ 24,687
- -----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 9.1%
Cytyc Corp.*# 4,400 $ 170,225
Genentech, Inc.*# 50 7,315
McKesson HBOC, Inc. 800 23,200
Mid Atlantic Medical Services, Inc.*# 4,300 38,431
Orthodontic Centers of America, Inc.*# 4,000 70,000
ProVantage Health Services, Inc.* 50 516
United Healthcare Corp.# 2,800 136,325
Wellpoint Health Networks, Inc.* 100 5,700
-----------
$ 451,712
- -----------------------------------------------------------------------------------------------------
Oils - 0.3%
Mobil Corp.# 130 $ 13,098
- -----------------------------------------------------------------------------------------------------
Pollution Control - 3.7%
Republic Services, Inc.* 16,900 $ 183,787
- -----------------------------------------------------------------------------------------------------
Printing and Publishing - 0.4%
Scripps (E.W.) Howard, Inc., "A" 400 $ 19,650
- -----------------------------------------------------------------------------------------------------
Restaurants and Lodging - 5.3%
Cendant Corp.*# 11,400 $ 202,350
Sonic Corp.*# 2,000 60,875
-----------
$ 263,225
- -----------------------------------------------------------------------------------------------------
Special Products and Services - 0.4%
Stewart Enterprises, Inc., "A" 3,000 $ 18,188
- -----------------------------------------------------------------------------------------------------
Stores - 2.9%
Linens 'n Things, Inc.* 2,000 $ 67,500
Rite Aid Corp.# 3,500 48,344
Wal-Mart Stores, Inc.# 600 28,537
-----------
$ 144,381
- -----------------------------------------------------------------------------------------------------
Supermarkets - 1.2%
Kroger Co.*# 2,700 $ 59,569
- -----------------------------------------------------------------------------------------------------
Telecommunications - 31.0%
AirGate PCS, Inc.* 25 $ 622
Alltel Corp. 150 10,556
Convergent Communications, Inc.* 50 519
Efficient Networks, Inc.* 50 1,819
Focal Communications Corp.* 25 641
General Instrument Corp.* 100 4,813
Global TeleSystems Group, Inc.* 3,200 63,100
Insight Communications, Inc.* 100 2,863
JDS Uniphase Corp.* 25 2,845
Lucent Technologies, Inc.# 3,100 201,112
MCI WorldCom, Inc.*# 1,200 86,250
Network Solutions, Inc.*# 8,300 762,562
Sprint Corp. (PCS Group) 2,600 193,862
Sprint Corp.# 3,700 200,725
Time Warner Telecom, Inc.* 50 1,044
Wink Communications, Inc.* 25 1,092
-----------
$ 1,534,425
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 5,807,364
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 5.4%
Finland - 0.2%
Nokia Corp., ADR (Telecommunications)# 100 $ 8,981
- -----------------------------------------------------------------------------------------------------
France - 0.4%
Sanofi - Synthelabo S.A. (Medical and Health Products)* 440 $ 18,723
- -----------------------------------------------------------------------------------------------------
Germany - 2.2%
Mannesmann AG (Machinery) 225 $ 35,903
SAP AG, ADR (Computer Software - Systems)## 2,000 75,500
-----------
$ 111,403
- -----------------------------------------------------------------------------------------------------
Ireland
Trintech Group PLC, ADR (Computer Software - Products)* 80 $ 1,050
- -----------------------------------------------------------------------------------------------------
Japan - 2.0%
NTT Mobile Communications Network, Inc.
(Telecommunications) 5 $ 98,370
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.1%
STMicroelectronics Co. (Electronics) 50 $ 3,894
- -----------------------------------------------------------------------------------------------------
United Kingdom - 0.5%
BP Amoco PLC, ADR (Oils) 164 $ 18,173
Reuters Group PLC, ADR (Business Services) 80 5,510
-----------
$ 23,683
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 266,104
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $5,228,700) $ 6,073,468
- -----------------------------------------------------------------------------------------------------
Preferred Stock - 2.3%
- -----------------------------------------------------------------------------------------------------
Supermarkets - 2.3%
Supermarkets General Holdings Corp.* (Identified
Cost, $80,500) 3,500 $ 114,188
- -----------------------------------------------------------------------------------------------------
Call Options Purchased - 1.0%
- -----------------------------------------------------------------------------------------------------
ISSUER/EXPIRATION MONTH/STRIKE PRICE CONTRACTS
- -----------------------------------------------------------------------------------------------------
Tyco International Ltd./January/47.5
(Premiums Paid, $12,402) 9 $ 50,625
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,321,602) $ 6,238,281
- -----------------------------------------------------------------------------------------------------
Securities Sold Short - (5.6)%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES
- -----------------------------------------------------------------------------------------------------
Broadcasting - (2.5)%
Worldgate Communications, Inc. (5,300) $ (121,238)
- -----------------------------------------------------------------------------------------------------
Business Machines - (3.1)%
Hewlett-Packard Co. (1,700) $ (156,400)
- -----------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $279,142) $ (277,638)
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (20.5)% (1,012,865)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 4,947,778
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
# Security or a portion of the security was pledged to cover collateral requirements. At September
30, 1999, the value of securities pledged amounted to $2,315,104.
## SEC Rule 144A restriction.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- September 30, 1999
VERTEX U.S. ALL CAP FUND
Stocks - 136.7%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 126.3%
Advertising - 5.1%
Outdoor Systems, Inc.*# 1,300 $ 46,475
Young & Rubicam, Inc. 700 30,800
-----------
$ 77,275
- -----------------------------------------------------------------------------------------------------
Agricultural Products - 3.0%
Case Corp.# 900 $ 44,831
- -----------------------------------------------------------------------------------------------------
Business Machines - 3.0%
Motorola, Inc. 200 $ 17,600
Sun Microsystems, Inc.* 300 27,900
-----------
$ 45,500
- -----------------------------------------------------------------------------------------------------
Business Services - 7.6%
Building One Services Corp.* 5,500 $ 67,031
First Data Corp.# 1,100 48,263
-----------
$ 115,294
- -----------------------------------------------------------------------------------------------------
Cellular Telephones
AirGate PCS, Inc.* 25 $ 622
- -----------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 2.2%
Dell Computer Corp.* 800 $ 33,450
- -----------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 4.8%
Microsoft Corp.* 800 $ 72,450
- -----------------------------------------------------------------------------------------------------
Computer Software - Services - 2.4%
EMC Corp.* 500 $ 35,719
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 16.3%
Compuware Corp.*# 8,300 $ 216,319
VERITAS Software Corp.* 400 30,375
-----------
$ 246,694
- -----------------------------------------------------------------------------------------------------
Conglomerates - 5.6%
Sodexho Marriott Services, Inc. 1,300 $ 22,100
Tyco International Ltd. 600 61,950
-----------
$ 84,050
- -----------------------------------------------------------------------------------------------------
Construction Services - 4.5%
Dycom Industries, Inc.* 1,600 $ 67,500
- -----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 4.4%
Galileo International, Inc. 900 $ 36,225
LoJack Corp.*# 3,600 29,812
-----------
$ 66,037
- -----------------------------------------------------------------------------------------------------
Electronics - 9.2%
Atmel Corp.* 900 $ 30,431
Flextronics International Ltd.* 400 23,275
Intel Corp. 700 52,019
Micron Technology, Inc.* 500 33,281
-----------
$ 139,006
- -----------------------------------------------------------------------------------------------------
Entertainment - 8.3%
Acme Communications, Inc.* 25 $ 775
Infinity Broadcasting Corp.*# 3,000 87,937
Time Warner, Inc. 600 36,450
-----------
$ 125,162
- -----------------------------------------------------------------------------------------------------
Financial Institutions - 10.8%
Associates First Capital Corp., "A"# 1,100 $ 39,600
Donaldson, Lufkin & Jenrette, Inc. 600 23,737
Financial Federal Corp.* 650 12,269
Merrill Lynch & Co., Inc. 1,300 87,344
-----------
$ 162,950
- -----------------------------------------------------------------------------------------------------
Insurance - 1.4%
American International Group, Inc.# 250 $ 21,734
- -----------------------------------------------------------------------------------------------------
Internet - 0.3%
Alteon Websystems, Inc.* 25 $ 2,350
Digital Insight Corp.* 25 375
Internap Network Services, Corp.* 25 1,116
Keynote Systems, Inc.* 25 625
-----------
$ 4,466
- -----------------------------------------------------------------------------------------------------
Medical and Health Products - 0.7%
Boston Scientific Corp.* 400 $ 9,875
- -----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 4.2%
Genentech, Inc.* 50 $ 7,316
PacifiCare Health Systems, Inc., "A"* 500 21,625
United Healthcare Corp. 700 34,081
-----------
$ 63,022
- -----------------------------------------------------------------------------------------------------
Oils - 2.1%
Conoco, Inc., "A" 600 $ 16,650
EOG Resources, Inc. 700 14,875
-----------
$ 31,525
- -----------------------------------------------------------------------------------------------------
Photographic Products - 3.8%
Polaroid Corp. 2,200 $ 57,200
- -----------------------------------------------------------------------------------------------------
Printing and Publishing - 2.0%
Tribune Co. 600 $ 29,850
- -----------------------------------------------------------------------------------------------------
Restaurants and Lodging - 2.1%
Cendant Corp.* 1,800 $ 31,950
- -----------------------------------------------------------------------------------------------------
Stores - 2.2%
Wal-Mart Stores, Inc. 700 $ 33,294
- -----------------------------------------------------------------------------------------------------
Telecommunications - 20.3%
AT&T Corp.* 200 $ 7,425
Cisco Systems, Inc.* 800 54,850
Corning, Inc. 200 13,713
Foundry Networks, Inc.* 25 3,150
Global TeleSystems Group, Inc.* 1,200 23,663
MCI WorldCom, Inc.* 400 28,750
Network Solutions, Inc.* 900 82,687
Nortel Networks Corp. 400 20,400
Rhythms NetConnections, Inc.* 100 3,450
Sprint Corp. (PCS Group) 500 37,281
Winstar Communications, Inc.* 800 31,250
-----------
$ 306,619
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 1,906,075
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 10.4%
Canada - 2.9%
Newbridge Networks, Corp. (Telecommunications)* 1,700 $ 44,306
- -----------------------------------------------------------------------------------------------------
Finland - 1.8%
Nokia Corp., ADR (Telecommunications) 300 $ 26,944
- -----------------------------------------------------------------------------------------------------
Germany - 3.2%
Mannesmann AG (Machinery) 300 $ 47,871
- -----------------------------------------------------------------------------------------------------
Netherlands - 0.2%
STMicroelectronics N.V. (Electronics) 50 $ 3,700
- -----------------------------------------------------------------------------------------------------
Sweden - 2.3%
Ericsson LM, ADR (Telecommunications) 1,100 $ 34,375
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 157,196
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $2,149,150) $ 2,063,271
- -----------------------------------------------------------------------------------------------------
Securities Sold Short - (12.1)%
- -----------------------------------------------------------------------------------------------------
Broadcasting - (4.9)%
Hispanic Broadcasting Corp.* (400) $ (30,450)
Worldgate Communications, Inc.* (1,900) (43,462)
-----------
$ (73,912)
- -----------------------------------------------------------------------------------------------------
Business Machines - (3.1)%
Hewlett-Packard Co. (500) $ (46,000)
- -----------------------------------------------------------------------------------------------------
Food and Beverage Products - (0.9)%
Wrigley, (WM) Junior Co. (200) $ (13,763)
- -----------------------------------------------------------------------------------------------------
Internet - (1.9)%
Drugstore.com, Inc.* (800) $ (29,000)
- -----------------------------------------------------------------------------------------------------
Medical and Health Products - (1.3)%
Warner-Lambert Co. (300) $ (19,912)
- -----------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $186,396) $ (182,587)
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (24.6)% (371,877)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 1,508,807
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
# Security or a portion of the security was pledged to cover collateral requirements. At September
30, 1999, the value of securities pledged amounted to $406,297.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- September 30, 1999
VERTEX CONTRARIAN FUND
Stocks - 137.3%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 131.8%
Advertising - 2.4%
Outdoor Systems, Inc.*# 2,900 $ 103,675
- -----------------------------------------------------------------------------------------------------
Broadcasting - 3.1%
Acme Communications, Inc.* 25 $ 775
Young Broadcasting, Inc., "A"*# 2,500 130,938
-----------
$ 131,713
- -----------------------------------------------------------------------------------------------------
Business Services - 8.4%
Building One Services Corp.*# 18,300 $ 223,031
Technology Solutions Co.*# 9,500 134,188
-----------
$ 357,219
- -----------------------------------------------------------------------------------------------------
Computer Software - Services - 2.2%
SunGard Data Systems, Inc.*# 3,531 $ 92,909
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 21.8%
BMC Software, Inc.*# 1,600 $ 114,500
Compuware Corp.* 4,900 127,706
Exchange Applications Software*# 1,800 52,313
Microsoft Corp.*# 900 81,506
Network Associates, Inc.*# 4,800 91,800
Real Networks, Inc.*# 1,000 104,562
RSA Security Inc.*# 5,450 144,766
Silverstream Software, Inc.*# 25 778
VeriSign, Inc.* 2,000 213,000
-----------
$ 930,931
- -----------------------------------------------------------------------------------------------------
Electronics - 20.8%
Analog Devices, Inc.*# 2,000 $ 102,500
Applied Micro Circuits Corp.*# 1,200 68,400
Conexant Systems, Inc.*# 900 65,391
Flextronics International Ltd.*# 1,500 87,281
Lam Research Corp.*# 2,400 146,400
National Semiconductor Corp.*# 2,900 88,450
PMC-Sierra, Inc.*# 1,400 129,500
SDL, Inc.*# 1,200 91,575
Triquint Semiconductor, Inc.*# 1,925 110,086
-----------
$ 889,583
- -----------------------------------------------------------------------------------------------------
Food Products - 0.1%
Del Monte Foods Co.*# 200 $ 2,825
- -----------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.3%
Bowater, Inc.# 1,900 $ 99,750
- -----------------------------------------------------------------------------------------------------
Health Care Revenue - 8.2%
Caremark Rx, Inc.*# 61,900 $ 348,187
- -----------------------------------------------------------------------------------------------------
Internet - 12.3%
Alteon Websystems, Inc.* 900 $ 84,600
Digital Insight Corp.* 25 375
eBay, Inc.* 650 91,690
Inktomi Corp.*# 700 84,022
Internet Capital Group, Inc.*# 100 8,787
Liberate Technologies*# 525 22,116
SportsLine USA, Inc.*# 4,900 144,856
Yahoo!, Inc.*# 500 89,750
-----------
$ 526,196
- -----------------------------------------------------------------------------------------------------
Machinery - 4.0%
Case Corp.# 3,400 $ 169,363
- -----------------------------------------------------------------------------------------------------
Medical and Health Products - 0.2%
Cyberonics, Inc.*# 400 $ 7,150
- -----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 8.2%
Cytyc Corp.*# 8,900 $ 344,319
Varian, Inc.* 300 5,325
-----------
$ 349,644
- -----------------------------------------------------------------------------------------------------
Metals and Minerals - 0.3%
Global Industries, Inc.* 1,700 $ 13,813
- -----------------------------------------------------------------------------------------------------
Oil Services - 2.2%
BJ Services Co.*# 1,600 $ 50,900
Cooper Cameron Corp.*# 1,100 41,525
-----------
$ 92,425
- -----------------------------------------------------------------------------------------------------
Oils - 11.1%
Apache Corp.# 1,900 $ 82,056
Diamond Offshore Drilling, Inc.# 1,800 60,075
Houston Exploration Co.*# 6,300 136,631
Newfield Exploration Co.*# 2,900 95,519
Noble Drilling Corp.*# 1,800 39,375
Transocean Offshore, Inc.# 1,900 58,188
-----------
$ 471,844
- -----------------------------------------------------------------------------------------------------
Telecommunications - 24.2%
Cisco Systems, Inc.*# 1,200 $ 82,275
Gemstar International Group Ltd.*# 4,000 312,500
Motorola, Inc.# 520 45,760
Network Solutions, Inc.*# 3,500 321,562
QUALCOMM, Inc. 400 75,675
RF Micro Devices, Inc.*# 1,400 64,050
Sprint Corp.# 2,400 130,200
-----------
$ 1,032,022
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 5,619,249
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 5.5%
Canada - 1.4%
Abitibi-Consolidated, Inc. (Forest and Paper Products)# 5,000 $ 60,312
- -----------------------------------------------------------------------------------------------------
Ireland - 4.1%
Trintech Group PLC, ADR (Computer Software - Products)* 13,125 $ 172,266
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 232,578
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $5,264,340) $ 5,851,827
- -----------------------------------------------------------------------------------------------------
Securities Sold Short - (9.3)%
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - (8.2)%
Computer Hardware - Systems - (3.2)%
Hewlett-Packard Co. (1,500) $ (138,000)
- -----------------------------------------------------------------------------------------------------
Health Care Revenue - (0.2)%
Integrated Health Services, Inc.* (5,000) $ (7,812)
- -----------------------------------------------------------------------------------------------------
Internet - (2.6)%
Worldgate Communications, Inc.* (4,900) $ (112,088)
- -----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - (2.2)%
Autocycte, Inc.* (15,000) $ (91,875)
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks Sold Short $ (349,775)
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - (1.1)%
United Kingdom - (1.1)%
Standard Chartered PLC (Banks and Credit Cos.)* (3,200) $ (46,082)
- -----------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $414,317) $ (395,857)
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (28.0)% (1,192,631)
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 4,263,339
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
# Security or a portion of the security was pledged to cover collateral requirements. At September 30,
1999, the value of securities pledged amounted to $4,329,246.
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 CONTRARIAN
SEPTEMBER 30, 1999 FUND FUND FUND
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments, at value (identified cost, $5,321,602,
$2,149,150, and $5,264,340, respectively) $6,238,281 $2,063,271 $5,851,827
Cash 282 573 5,163
Foreign currency, at value (identified cost, $36,
$0, and $9, respectively) 37 32 9
Deposits with brokers for securities sold short 279,142 186,396 760,177
Receivable for Fund shares sold -- --
100
Receivable for investments sold 231,660 159,604 1,097,510
Dividends receivable 447 1,010 871
Other assets 9,209 -- 13,409
---------- ---------- ----------
Total assets $6,759,058 $2,410,986 $7,728,966
---------- ---------- ----------
Liabilities:
Payable to custodian $ 863,024 $ 587,774 $1,842,483
Payable for dividends on securities sold short 962 104 8,692
Securities sold short, at value (proceeds
received, $279,142, $186,396, and $414,317,
respectively) 277,638 182,587 395,857
Payable for investments purchased 669,395 131,631 1,197,992
Payable for Fund shares reacquired -- -- 20,366
Accrued expenses and other liabilities 261 83 237
---------- ---------- ----------
Total liabilities $1,811,280 $ 902,179 $3,465,627
---------- ---------- ----------
Net Assets $4,947,778 $1,508,807 $4,263,339
========== ========== ==========
Net assets consist of:
Paid-in capital $3,024,630 $1,251,753 $2,730,332
Unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities in foreign currencies 918,184 (82,071) 605,947
Accumulated undistributed net realized gain on
investments and foreign currency transactions 1,004,964 339,125 927,060
---------- ---------- ----------
Net assets $4,947,778 $1,508,807 $4,263,339
========== ========== ==========
Shares of beneficial interest outstanding 230,118 110,345 181,872
======= ======= =======
Net asset value, offering price, and redemption
price per share (net assets / shares of
beneficial interest outstanding) $21.50 $13.67 $23.44
====== ====== ======
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statements of Operations
<CAPTION>
- ----------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP CONTRARIAN
YEAR ENDED SEPTEMBER 30, 1999 FUND FUND FUND
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment loss:
Income -
Interest $ 12,300 $ 4,779 $ 7,457
Dividends 11,568 5,012 2,648
Foreign taxes withheld (155) (75) --
---------- ---------- ----------
Total investment income $ 23,713 $ 9,716 $ 10,105
---------- ---------- ----------
Expenses -
Management fee $ 58,144 $ 21,079 $ 47,104
Trustees' compensation 5,300 5,300 5,300
Shareholder servicing agent fee 3,020 1,096 2,474
Distribution and service fee (Class A) 10,146 3,672 8,375
Administrative fee 451 162 336
Custodian fee 8,101 3,966 6,202
Interest expense 9,162 2,076 37,167
Printing 7,709 915 4,770
Postage 658 140 288
Auditing fees 14,361 17,161 14,620
Legal fees 2,993 4,335 1,824
Dividend expense on securities sold short 2,340 208 9,301
Miscellaneous 1,411 1,527 1,772
---------- ---------- ----------
Total expenses $ 123,796 $ 61,637 $ 139,533
Fees paid indirectly -- (366) (407)
Reduction of expenses by investment adviser and
distributor (63,483) (40,078) (81,976)
---------- ---------- ----------
Net expenses $ 60,313 $ 21,193 $ 57,150
---------- ---------- ----------
Net investment loss $ (36,600) $ (11,477) $ (47,045)
---------- ---------- ----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) -
Investment transactions $1,391,326 $ 394,511 $1,320,686
Securities sold short (201,571) (33,468) (344,725)
Foreign currency transactions (1,410) 270 (43)
---------- ---------- ----------
Net realized gain on investments and foreign
currency transactions $1,188,345 $ 361,313 $ 975,918
---------- ---------- ----------
Change in unrealized appreciation (depreciation) -
Investments $ 934,868 $ (47,963) $ 626,196
Securities sold short (47,809) (412) 18,460
Translation of assets and liabilities in
foreign currencies (4,429) 395 --
---------- ---------- ----------
Net unrealized gain (loss) on investments and
foreign currency translation $ 882,630 $ (47,980) $ 644,656
---------- ---------- ----------
Net realized and unrealized gain on
investments and foreign currency $2,070,975 $ 313,333 $1,620,574
---------- ---------- ----------
Increase in net assets from operations $2,034,375 $ 301,856 $1,573,529
========== ========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
VERTEX ALL CAP FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (36,600) $ (5,612)
Net realized gain (loss) on investments and foreign
currency transactions 1,188,345 (39,384)
Net unrealized gain on investments and foreign currency
translation 882,630 35,554
---------- ----------
Increase (decrease) in net assets from operations $2,034,375 $ (9,442)
---------- ----------
Distributions declared to shareholders from net realized gain
on investments and foreign currency transactions $ (106,531) $ --
---------- ----------
Net increase in net assets from Fund share transactions $1,988,747 $1,040,629
---------- ----------
Total increase in net assets $3,916,591 $1,031,187
Net assets:
At beginning of period 1,031,187 --
---------- ----------
At end of period (including accumulated net investment loss
of $0 and $0, respectively) $4,947,778 $1,031,187
========== ==========
* For the period from the commencement of the Fund's investment operations, May 1, 1998, through
September 30, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
VERTEX U.S. ALL CAP FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (11,477) $ (1,940)
Net realized gain (loss) on investments and foreign currency
transactions 361,313 (10,724)
Net unrealized loss on investments and foreign currency
translation (47,980) (34,091)
---------- ----------
Increase (decrease) in net assets from operations $ 301,856 $ (46,755)
---------- ----------
Net increase in net assets from Fund share transactions $ 901,098 $ 352,608
---------- ----------
Total increase in net assets $1,202,954 $ 305,853
Net assets:
At beginning of period 305,853 --
---------- ----------
At end of period (including accumulated net investment loss
of $0 and $0, respectively) $1,508,807 $ 305,853
========== ==========
* For the period from the commencement of the Fund's investment operations, May 1, 1998, through
September 30, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
VERTEX CONTRARIAN FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income (loss) $ (47,045) $ 1,409
Net realized gain on investments and foreign currency
transactions 975,918 13,783
Net unrealized gain (loss) on investments and foreign
currency translation 644,656 (38,709)
---------- ----------
Increase (decrease) in net assets from operations $1,573,529 $ (23,517)
---------- ----------
Distributions declared to shareholders -
From net investment income $ (1,392) $ --
From net realized gain on investments and foreign currency
transactions (15,613) --
---------- ----------
Total distributions declared to shareholders $ (17,005) $ --
---------- ----------
Net increase in net assets from Fund share transactions $2,317,329 $ 413,003
---------- ----------
Total increase in net assets $3,873,853 $ 389,486
Net assets:
At beginning of period 389,486 --
---------- ----------
At end of period (including accumulated undistributed net
investment income of $0 and $1,392, respectively) $4,263,339 $ 389,486
========== ==========
* For the period from the commencement of the Fund's investment operations, May 1, 1998, through
September 30, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Cash Flows
<CAPTION>
- ---------------------------------------------------------------------------------------------
VERTEX
CONTRARIAN
YEAR ENDED SEPTEMBER 30, 1999 FUND
- ---------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities -
Net increase in net assets from operations $ 1,573,529
Adjustments to reconcile net increase in net assets from operations to
net cash provided by (used in) operating activities:
Purchase of investment securities (63,793,852)
Proceeds from disposition of investment securities 60,346,482
Increase in deposits with brokers for securities sold short (760,177)
Decrease in dividends and interest receivable 148
Increase in receivable for securities sold (1,097,510)
Increase in other receivables (11,309)
Increase in payable for securities purchased 1,193,204
Increase in payable for Fund shares reacquired 20,366
Increase in payable for dividends on securities sold short 8,692
Increase in accrued expenses and other liabilities 216
Unrealized appreciation from investments and securities sold short (644,656)
Net realized gain from investments and securities sold short (975,961)
------------
Net cash used in operating activities $ (4,140,828)
------------
Cash flows from financing activities -
Increase in loan payable $ 1,842,483
Proceeds from Fund shares sold 2,741,669
Payment on Fund shares redeemed (441,345)
------------
Net cash provided by financing activities $ 4,142,807
------------
Net increase in cash $ 1,979
------------
Cash and foreign currency:
Beginning balance $ 3,193
Ending balance $ 5,172
============
Non-cash financing activities not included herein consist of reinvestment
of dividends and distributions of $17,005.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
VERTEX ALL CAP FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $10.10 $10.00
------ ------
Income from investment operations# -
Net investment loss(S) $(0.21) $(0.07)
Net realized and unrealized gain on
investments and foreign currency 12.30 0.17
------ ------
Total from investment operations $12.09 $ 0.10
------ ------
Less distributions declared to shareholders
from net realized gain on investments and
foreign currency transactions $(0.69) $ --
------ ------
Net asset value - end of period $21.50 $10.10
====== ======
Total return 125.33% 1.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##(+) 2.08% 2.39%+
Net investment loss (1.26)% (1.43)%+
Portfolio turnover 1,249% 446%
Net assets at end of period (000 omitted) $4,948 $1,031
(S) Subject to reimbursement by the Fund, Vertex has voluntarily agreed, under a temporary expense
reimbursement agreement, to pay all of the Fund's operating expenses exclusive of management and
distribution and service fees. In consideration, the Fund pays Vertex a fee not greater than 2.00%
of average daily net assets. In addition, the investment adviser and the distributor voluntarily
waived their fees for the periods indicated. To the extent actual expenses were over this
limitation and the waivers had not been in place, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.56) $(0.36)
Ratios (to average net assets):
Expenses## 4.26% 8.62%+
Net investment loss (3.44)% (7.66)%+
* 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.
## Ratios do not reflect expense reductions from certain expense offset arrangement.
(+) Excluding dividend expense on securities sold short, the ratio of expenses to average net assets
was 2.00% for the year ended September 30, 1999, and the period ended September 30, 1998.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
VERTEX U.S. ALL CAP FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $ 8.61 $10.00
------ ------
Income from investment operations# -
Net investment loss(S) $(0.14) $(0.06)
Net realized and unrealized gain (loss) on
investments and
foreign currency 5.20 (1.33)
------ ------
Total from investment operations $ 5.06 $(1.39)
------ ------
Net asset value - end of period $13.67 $ 8.61
====== ======
Total return 59.51% (13.90)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##(+) 2.05% 2.50%+
Net investment loss (1.09)% (1.51)%+
Portfolio turnover 751% 928%
Net assets at end of period (000 omitted) $1,509 $ 306
(S) Subject to reimbursement by the Fund, Vertex has voluntarily agreed, under a temporary expense
reimbursement agreement, to pay all of the Fund's operating expenses exclusive of management and
distribution and service fees. In consideration, the Fund pays Vertex a fee not greater than 2.00%
of average daily net assets. In addition, the investment adviser and the distributor voluntarily
waived their fees for the periods indicated. To the extent actual expenses were over this
limitation and the waivers had not been in place, the net investment loss per share and the ratios
would have been:
Net investment loss $(0.63) $(0.88)
Ratios (to average net assets):
Expenses## 5.87% 21.86%+
Net investment loss (4.91)% (20.87)%+
* 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) Excluding dividend expense on securities sold short, the ratio of expenses to average net assets
was 2.02% and 2.00% for the year ended September 30, 1999, and the period ended September 30,
1998, respectively.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED
VERTEX CONTRARIAN FUND SEPTEMBER 30, 1999 SEPTEMBER 30, 1998*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
Net asset value - beginning of period $ 9.58 $10.00
------ ------
Income from investment operations# -
Net investment income (loss)(S) $(0.37) $ 0.04
Net realized and unrealized gain (loss) on
investments and
foreign currency 14.45 (0.46)
------ ------
Total from investment operations $14.08 $(0.42)
------ ------
Less distributions declared to shareholders -
From net investment income $(0.02) $ --
From net realized gain on investments and
foreign currency transactions (0.20) --
------ ------
Total distributions declared to
shareholders $(0.22) $ --
------ ------
Net asset value - end of period $23.44 $ 9.58
====== ======
Total return 149.05%(++) (4.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##(+) 2.41% 2.03%+
Net investment income (loss) (1.97)% 0.91%+
Portfolio turnover 1,553% 243%
Net assets at end of period (000 omitted) $4,263 $ 389
(S) Subject to reimbursement by the Fund, Vertex has voluntarily agreed, under a temporary expense
reimbursement agreement, to pay all of the Fund's operating expenses exclusive of management and
distribution and service fees. In consideration, the Fund pays Vertex a fee not greater than 2.00%
of average daily net assets. In addition, the investment adviser and the distributor voluntarily
waived their fees for the periods indicated. To the extent actual expenses were over this
limitation and the waivers had not been in place, the net investment loss per share and the ratios
would have been:
Net investment loss $(1.01) $(0.64)
Ratios (to average net assets):
Expenses## 5.83% 15.69%+
Net investment loss (5.39)% (12.78)%+
* 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.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) Excluding dividend expense on securities sold short, the ratio of expenses to average net assets
was 2.02% and 2.03% for the year ended September 30, 1999, and the period ended September 30,
1998, respectively.
(++) On September 30, 1999, the Fund had certain "as of" securities transactions which were recorded
after year-end for book purposes but are presented as of year-end for financial statement
presentation. These transactions reduced the Fund's total return from 155.74% to 149.05%.
See notes to financial statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
Vertex All Cap Fund, Vertex U.S. All Cap Fund, and Vertex Contrarian Fund, (each
Fund) are nondiversified 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. Each Fund
can invest in foreign securities. 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 by 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.
Short Sales - Each Fund may enter into short sales. A short sale transaction
involves selling a security which the Fund does not own with the intent of
purchasing it later at a lower price. The 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 the 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 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 each 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.
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 be reported in the financial statements as distributions from paid-in
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 year ended September 30, 1999, the following amounts were reclassified
between accumulated net investment loss and accumulated undistributed net
realized gain 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
ALL CAP U.S. ALL CAP CONTRARIAN
INCREASE (DECREASE) FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated undistributed net realized gain on
investments and foreign currency transactions $(36,600) $(11,477) $(47,045)
Accumulated net investment loss $ 36,600 $ 11,477 $ 47,045
</TABLE>
(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 each Fund's average daily net assets. Commencing May 1, 1999, each Fund
pays the Adviser, at the end of each month, the fee of 1.50% of such Fund's
average daily net assets (computed over the course of that month), adjusted
upward or downward by 0.10% of such Fund's average daily net asssets (computed
over the course of the Performance Period, defined below) for each full
percentage point that the Fund's performance during the prior 12 months (the
"Performance Period") exceeds or lags the performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index"). The maximum adjustment
(up or down) for a Fund's fiscal year shall not exceed 1.50%, so that the
minimum and maximum management fee paid by a Fund during any fiscal year will
be 0.00% and 3.00%, respectively. The S&P 500 Index is a broad-based, popular,
unmanaged index commonly used to measure common stock total return
performance. It is composed of 500 widely held common stocks listed on the
NYSE, AMEX, and OTC Market. The investment adviser has voluntarily agreed to
waive its fee, which is shown 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. 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 a Fund's
actual expenses, the excess will be applied to amounts paid by Vertex in prior
years.
At September 30, 1999, the aggregate unreimbursed expenses were as follows:
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP CONTRARIAN
FUND FUND FUND
-------------------------------------------
$12,381 $37,790 $44,891
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 the 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 year
ended September 30, 1999.
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 year ended September 30, 1999.
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 annual rate of
0.10%. Prior to April 1, 1999, the fee was calculated as a percentage of each
Fund's average daily net assets at an annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP CONTRARIAN
FUND FUND FUND
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases
- ---------
Investments (non-U.S. government securities) $40,374,674 $9,060,055 $51,103,053
----------- ---------- -----------
Sales
- -----
Investments (non-U.S. government securities $37,756,985 $7,640,308 $47,480,188
----------- ---------- -----------
</TABLE>
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the Fund, as computed on a federal income tax basis, are
as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP CONTRARIAN
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate cost $ 5,357,097 $2,149,506 $ 5,368,300
----------- ---------- -----------
Gross unrealized appreciation $ 1,195,102 $ 112,964 $ 652,015
Gross unrealized depreciation (313,918) (199,199) (168,488)
----------- ---------- -----------
Net unrealized appreciation (depreciation) $ 881,184 $ (86,235) $ 483,527
=========== ========== ===========
</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. Transactions in
Fund shares were as follows:
<TABLE>
Class A Shares
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1999
-----------------------------------------------------------------------------------
VERTEX ALL CAP FUND VERTEX U.S. ALL CAP FUND VERTEX CONTRARIAN FUND
------------------------ ------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 182,815 $2,787,764 75,107 $904,333 163,296 $2,741,669
Shares issued to shareholders
in reinvestment of
distributions 9,053 106,915 -- -- 1,324 17,005
Shares reacquired (63,819) (905,932) (269) (3,235) (23,405) (441,345)
------- ---------- ------ -------- ------- ----------
Net increase 128,049 $1,988,747 74,838 $901,098 141,215 $2,317,329
======= ========== ====== ======== ======= ==========
</TABLE>
<TABLE>
Class A Shares
<CAPTION>
PERIOD ENDED SEPTEMBER 30, 1998*
-----------------------------------------------------------------------------------
VERTEX ALL CAP FUND VERTEX U.S. ALL CAP FUND VERTEX CONTRARIAN 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 70,657 $ 725,305
Shares reacquired (38) (382) -- -- (30,000) (312,302)
------- ---------- ------ -------- ------- ----------
Net increase 102,069 $1,040,629 35,507 $352,608 40,657 $ 413,003
======= ========== ====== ======== ======= ==========
* For the period from the commencement of each Fund's investment operations, May 1, 1998, through September 30,
1998.
</TABLE>
(6) Line of Credit
Each Fund participates in a $6 million committed secured line of credit,
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 year ended September
30, 1999, the maximum and average amounts outstanding and the amounts
outstanding at September 30, 1999, were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP CONTRARIAN
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum loan outstanding $1,155,797 $757,325 $2,113,887
Average loan outstanding 162,391 42,619 752,267
Loan outstanding at September 30, 1999 863,024 587,774 1,842,483
</TABLE>
Interest expense and weighted average interest rate incurred on the borrowings
for the year ended September 30, 1999, were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP U.S. ALL CAP CONTRARIAN
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $9,162 $2,426 $37,167
Weighted average interest rate 5.44% 5.46% 5.47%
Interest rate at September 30, 1999 6.1375% 6.1375% 6.1375%
</TABLE>
<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 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 and Vertex Contrarian Fund,
including the schedules of portfolio investments, as of September 30, 1999,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, the financial highlights for the periods indicated herein, and the
statement of cash flows for the Vertex Contrarian Fund for the year ended
September 30, 1999. 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 the securities owned at September 30, 1999, 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 position of
Vertex All Cap Fund, Vertex U.S. All Cap Fund and Vertex Contrarian Fund at
September 30, 1999, and the results of their operations, the changes in their
net assets for each of the two years in the period then ended, and the
financial highlights for the periods indicated herein, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
November 9, 1999
--------------------------------------------
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>
FEDERAL TAX INFORMATION
In January 2000, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 1999.
For the year ended September 30, 1999, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 16.84%
for the Vertex Contrarian Fund.
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
Vertex Investment Management(R) is a wholly owned subsidiary of MFS Investment
Management(R). The steps MFS is taking to address the Year 2000 problem are
being taken on behalf of Vertex Investment Management and the Vertex funds, as
well as on behalf of MFS' other subsidiaries and their clients.
MFS as an investment adviser and on behalf of the MFS funds, is committed to
the effective use of technology in managing our portfolio investments,
delivering high-quality service to MFS fund shareholders, retirement plan
participants, and MFS' institutional clients, and supporting the financial
advisers who sell our products. With that in mind, we created a separately
funded Year 2000 Program Management Office in 1996 comprised of a specialized
staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers
and software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking
steps to ascertain the Y2K readiness of MFS' internal systems and is working
with our external systems vendors to determine whether they expect their
systems to be ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS(R) Original
Research(SM) process of evaluating portfolio investments, one of the many
relevant factors that MFS' portfolio managers and research analysts may consider
is a company's Y2K readiness. Each year, MFS' research analysts and portfolio
managers conduct more than 1,000 on-site meetings with companies whose
securities are, or may be, held in fund and client portfolios, and host an
additional 1,500 meetings at MFS' headquarters. When assessing the Y2K readiness
of these companies, MFS' research analysts and portfolio managers may rely upon
discussions at these meetings as well as SEC disclosure documents and
third-party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While MFS
is taking significant steps to protect the integrity of its internal systems,
there can be no assurance that these steps will be sufficient to avoid any
adverse impact on MFS, shareholders of MFS funds, participants in retirement
plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program, please
visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston Street,
Boston, MA 02116-3741.
<PAGE>
VERTEX ALL CAP FUND(SM)
VERTEX U.S. ALL CAP FUND(SM)
VERTEX CONTRARIAN FUND(SM)
VERTEX INVESTMENT MANAGEMENT, INC.
500 BOYLSTON STREET
BOSTON, MA 02116-3741
(C)1999 Vertex Investment Management, Inc.
Vertex investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116. VER-2-XI 11/99 1M
