<PAGE>
ANNUAL REPORT
SEPTEMBER 30, 2000
[Graphic Omitted]
VERTEX(SM) ALL CAP FUND
VERTEX(SM) CONTRARIAN FUND
VERTEX(SM) INCOME FUND
<PAGE>
VERTEX(SM) ALL CAP FUND
VERTEX(SM) CONTRARIAN FUND
VERTEX(SM) INCOME FUND
TRUSTEES CUSTODIAN
Jeffrey L. Shames* -- Chairman, Chief Executive State Street Bank and Trust
Officer, and Director, Vertex Investment Company
Management, Inc.
AUDITORS
Nelson J. Darling, Jr.+ -- Professional Trustee Ernst & Young LLP
William R. Gutow+ -- Vice Chairman, INVESTOR SERVICE
Capitol Entertainment Management Company; MFS Service Center, Inc.
Real Estate Consultant P.O. Box 2281
Boston, MA 02107-9906
INVESTMENT ADVISER
Vertex Investment Management, Inc., For additional information,
a wholly owned subsidiary of contact your investment
Massachusetts Financial Services Company professional.
500 Boylston Street
Boston, MA 02116-3741 WORLD WIDE WEB
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*
Robert J. Manning*
Mark Regan*
Matthew W. Ryan*
Toni Y. Shimura*
TREASURER
James O. Yost*
ASSISTANT TREASURERS
Mark E. Bradley*
Robert R. Flaherty*
Laura F. Healy*
Ellen Moynihan*
SECRETARY
Stephen E. Cavan*
ASSISTANT SECRETARY
James R. Bordewick, Jr.*
* Vertex Investment management, Inc.
+ Independent Trustee
<PAGE>
LETTER FROM THE CHAIRMAN
Dear Shareholders,
If you've been reading our fund reports for any length of time, you've probably
sensed the pride we have in our research process. More than anything else, we
think MFS Original Research(R) -- and the performance results it has yielded for
shareholders -- makes us unique among investment management companies. We think
that uniqueness stems from three factors: philosophy, process, and people.
PHILOSOPHY
In over 75 years of managing mutual funds, we've developed a number of beliefs
about the best ways to invest over a variety of market conditions. First, we
believe in bottom-up research, which means we use a company-by-company,
one-security-at-a-time approach to building a portfolio. What we look for is the
truth about the fundamentals of a company's business -- things such as the
ability of management to execute its business plan, the ability of that plan to
be scaled up as the company grows, actual demand for the company's products and
services, cash flow, profits, and earnings.
Second, we believe that, over the long term, stock prices follow earnings. In
our view, stock prices are basically a multiple of projected earnings, with the
multiple increasing as the market perceives that a company has something
customers want and will continue to want. One of the major elements of Original
Research(SM) is doing our best to project a company's future earnings and
determine how much the market will pay for those earnings.
Third, we believe there are at least three ways to potentially achieve
competitive long-term performance: be early, uncover second chances, and avoid
mistakes. All of these are based on bottom-up research. In both domestic and
international markets, early discovery has historically been a hallmark of our
investment style. Some of the stocks with which MFS has been most successful are
those in which we've taken large positions before the market discovered or
believed in them. Similarly, some of our best fixed-income investments have been
early positions in companies or governments that our research revealed were
potential candidates for credit upgrades. (A credit upgrade causes the value of
a bond to rise because it indicates the market has increased confidence that
principal and interest on the bond will be repaid.)
"Second-chance" opportunities are companies whose stock prices have stumbled but
that we believe still have the potential to be market leaders. For example, a
quarterly earnings shortfall of a few cents may cause the market to temporarily
lose confidence in a company. If we believe the business remains fundamentally
strong, we may use the price decline as a buying opportunity.
Avoiding mistakes is another way we feel Original Research may help performance.
In fixed-income investing this means, among other things, trying to be better
than our peers at avoiding bond issuers that may default. In equity investing,
avoiding mistakes means we strive to know a company and its industry well enough
to distinguish truth from hype.
PROCESS
We acquire our information firsthand, by researching thousands of companies to
determine which firms may make good investments. Our analysis of an individual
company may include
o face-to-face contact with senior management as well as frontline workers
o analysis of the company's financial statements and balance sheets
o contact with the company's current and potential customers
o contact with the company's competitors
o our own forecasts of the company's future market share, cash flow, and
earnings
Our analysts and portfolio managers disseminate this information in the form of
daily notes e-mailed worldwide to all members of our investment team. This
ensures that our best ideas are shared throughout the company, without barriers
between equity and fixed-income, international and domestic, or value and growth
investment areas. We believe this allows each of our portfolio managers -- and
thus each of our investors -- to potentially benefit from any relevant item of
Original Research.
John Ballen, our President and Chief Investment Officer, has often said that the
thought he hopes managers will have when they read the daily notes is, "I could
never perform as well at any other investment company, because nowhere else
could the quality of the research be this good."
PEOPLE
Our team of research analysts and portfolio managers traces its roots back to
1932, when we created one of the first in-house research departments in the
industry. Today, we believe we have an investment team distinguished for its
unique blend of talent, continuity, and cohesiveness.
MFS' team culture and commitment to quality research have proven to be of
tremendous value in attracting some of the best and brightest talent from
leading business schools and from other investment management companies. Our
company culture was a key factor in our recognition by Fortune magazine in its
January 10, 2000, issue as one of the "100 Best Companies to Work For" in
America. As befits a great team, our people have tended to stick around -- the
average MFS tenure of our portfolio managers is 11 years, with over 16 years in
the investment industry. Contributing to this continuity is our policy that all
equity portfolio managers are promoted from within, after distinguishing
themselves first as research analysts. And because many of us who are now
managing funds or managing the company itself have been working together for
well over a decade, we have a cohesiveness, a shared philosophy of investing,
and a unity of purpose that we believe bodes well for the future of the company.
We also have scale. Our research analyst team is over 55 members strong and
growing. Each analyst is our in-house expert on a specific industry or group of
industries in a specific region of the globe. In pursuing their research, our
analysts and portfolio managers each year will visit more than 2,000 companies
throughout the world, meet with representatives from more than 3,000 companies
at one of our four worldwide offices, attend roughly 5,000 company presentations
sponsored by major Wall Street firms, and consult with over 1,000 analysts from
hundreds of U.S. and foreign brokerage houses.
All of this culminates in our analysts making buy and sell recommendations on a
wide range of potential investments for all of our portfolios. In the end, the
goal of Original Research is to try to give our portfolio managers an advantage
over their peers -- to enable our managers to deliver competitive performance by
finding opportunities before they are generally recognized by the market, and by
avoiding mistakes whenever possible. Original Research does, we believe, make a
difference.
As always, we appreciate your confidence in MFS 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 16, 2000
A prospectus containing more complete information on any MFS product, including
all charges and expenses, can be obtained from your investment professional.
Please read it carefully before you invest or send money. Investments in mutual
funds will fluctuate and may be worth more or less upon redemption.
The opinions expressed in this letter are those of Jeffrey L. Shames, and no
forecasts can be guaranteed.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
Vertex All Cap Fund
Dear Shareholders,
For the 12 months ended September 30, 2000, Class A shares of the fund provided
a total return of 94.97%, and Class I shares 95.04%. These returns include the
reinvestment of any distributions but exclude the effect of any sales charges
and compare to a 13.28% return over the same period for the fund's benchmark,
the Standard & Poor's 500 Composite Index (the S&P 500), a popular, unmanaged
index of common stock total return performance.
Several factors were positive contributors to fund performance during the first
half of the period. The most significant of these was a recovery in many leading
technology stocks, with the best performance in software, networking and
telecommunications, and electronics. Another positive factor was the merger and
consolidation activity in the financial services sector, which helped the
valuations of many of our brokerage stocks, such as Merrill Lynch. During the
latter half of the period, some of these positives were offset by the market's
unforgiving treatment of stocks that showed disappointing fundamentals. Among
these were many telecommunications services stocks, where results came in below
expectations due to the higher cost of doing business, as well as broadcasting
and media companies, which suffered from slower than expected sales.
We have been focusing more on mid-cap and smaller large-cap companies because we
believe they offer a better combination of upside earnings potential and
attractive valuations than some of their larger counterparts. We have also
targeted companies that we believe can grow at a good pace for the long term
such as Juniper Networks and Check Point Software, which specialize in high-end
networking and Internet infrastructure software.
Our focus has continued to be in technology, telecommunications, and health
care, although the leadership in technology has narrowed significantly. In
technology, we believe that many companies enabling business to business (B2B)
e-commerce will be long-term winners, given the general pressure on corporate
America to become more efficient by using the Internet. We have also seen good
performance in some of the telecommunications equipment companies like Corning
and CIENA, which we believe will continue to benefit from increased spending on
optical networking equipment. Among health care stocks, we have found good
opportunities in the genetics research and pharmaceutical markets, in companies
such as Abgenix, one of only two companies that has patented a mouse with human
genes, and Genentech, an emerging pharmaceutical company that we feel has the
best pipeline of potential "blockbuster" drugs. We have also found some good
opportunities among the independent power producers. One of our holdings,
Calpine, has proven to be a strong and dynamic company that we feel is capable
of strong future growth.
Going forward we do expect further market volatility, with continued
consolidation and narrowing in market leadership. This has become a more
discriminating market, where the best technology and the best fundamentals don't
always win. We believe stocks need attractive valuations as well. Our goal is to
find companies that have a good balance of potential for upside earnings and
attractive valuations. As opportunities arise, we will continue to take
advantage of our ability to engage in short sales and use leverage to help fund
performance. Recently, the fund has been leveraged about 15%.
We have seen signs that the economy is slowing, and we anticipate few if any
additional interest rate increases. Once interest rates do peak, we feel this
will be very favorable for aggressive growth stock investing.
Respectfully,
/s/ John W. Ballen /s/ Toni Y. Shimura
John W. Ballen Toni Y. Shimura
Portfolio Manager Portfolio Manager
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK -- continued
Vertex Contrarian Fund
Dear Shareholders,
For the 12 months ended September 30, 2000, Class A shares of the fund provided
a total return of 297.36%, and Class I shares 296.87%. These returns include the
reinvestment of any distributions but excludes the effects of any sales charges
and compare to a 13.28% 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's strategy makes aggressive use of three basic components: long
positions in stocks, short positions in stocks, and trading opportunities. Our
long positions were generally in companies that we have researched intensively
and that we believe have very high growth potential. These holdings have tended
to be largely, but not exclusively, in the mid-cap area. Our intent is to have
at least half of the fund's returns come from profits in long positions.
We intend that roughly one quarter of the fund's returns will come from
investments in short positions. We have tended to do shorts in two ways. We may
short what our research indicates are bad businesses or businesses for which we
think bad news is coming out -- the same way we'd invest in a long company when
we think good news is coming out. Or, we may short companies whose stocks we
think are grossly overvalued, even though they may have good current
fundamentals.
Finally, we intend about one quarter of our returns to come from trading
opportunities presented by short-term inefficiencies in the market. In the same
way that research is critical for our long and short positions, we use our
resources to uncover what we feel are attractive trading opportunities.
Over the past 12 months, long positions that strongly contributed to returns
included health care company Caremark, which we have since sold; energy
companies in the oil drilling and natural gas businesses such as EOG Resources,
Newfield Exploration, and Noble Drilling; and technology firms VeriSign,
Internet Security Systems, and Emulex.
Short positions worked particularly well for the fund in the April to July
market downturn, especially in the technology and health care areas; Ventana
Medical and Integrated Health Services were two very successful health care
shorts. Our longer-term short positions include Ariba and Amazon.com. Trading
opportunities also contributed significantly to returns.
Respectfully,
/s/ Mark Regan
Mark Regan
Portfolio Manager
Note to shareholders: Mark Regan became portfolio manager of the fund
effective July 10, 2000, replacing Brian E. Stack.
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK -- continued
Vertex Income Fund
Dear Shareholders,
The fund commenced investment operations on June 30, 2000. We believe that an
active, research-oriented, fundamental approach to investing in emerging markets
debt and high-yield bonds may enhance total return by seeking to identify
discrepancies between business fundamentals and valuations.
Credit analysis is therefore the foundation of the emerging market and
high-yield security-selection process. For a security to be included in the
portfolio, we carefully evaluate a number of considerations, including a
company's senior management strength and depth, historical as well as projected
financial performance, asset protection available to bond holders, capital
structure or debt leverage, and industry fundamentals.
The recent market environment has remained difficult for emerging market
corporate bonds and domestic high-yield securities given the ongoing volatility
and weakness in global equity markets, concerns about global economic growth,
weakness in the euro, high oil prices, and uncertainty about interest rates.
Accordingly, we have focused on governments that we believe possess
above-average potential for credit upgrades and on oil exporters' bonds whose
earnings outlooks remain positive.
We've maintained very limited exposure to emerging market equities and utilized
derivatives in an effort to limit risks and exposure to potentially volatile
market environments.
While we are concerned about political and economic developments in certain
regions, our research-intensive approach to emerging markets debt and high-yield
fixed-income securities continues to benefit from a market environment in which
changes in credit fundamentals of sovereign and corporate bonds are reflected in
quick and severe price movements. More so than in the past, such an environment
rewards investors who correctly anticipate negative as well as positive credit
events. By the same token, it can be unforgiving for momentum traders or those
who simply reach for yield.
Despite the recent difficulties, we remain positive about emerging markets debt
and high-yield fixed-income and expect these bonds to deliver attractive returns
over the long run. We are encouraged by a couple of factors. First, default
rates over the past year in high-yield debt -- the usual comparison to emerging
markets debt -- have been considerably higher than their long-term average, but
we expect default rates to trend lower. Second, much of the rally that occurred
in emerging markets debt yields earlier in the year was due to an improvement in
underlying fundamentals, and these favorable themes remain in place. We think
the global environment is generally supportive, and economic and political
developments in a number of countries have continued to progress favorably. We
feel emerging markets and high-yield debt remains an improving story. That said,
vulnerabilities remain in various countries, and we continue to proactively
position the fund to try to limit perceived downside risks.
Respectfully,
/s/ Robert J. Manning /s/ Matthew W. Ryan
Robert J. Manning Matthew W. Ryan
Portfolio Manager 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.
The portfolios are actively managed, and current holdings may be different.
<PAGE>
PERFORMANCE SUMMARY
Currently, each fund offers only Class A shares and Class I 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 in
comparison to various market indicators. Performance results include the maximum
applicable sales charge and 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.) 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, 2000. 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 9,519 9,200
9/99 21,450 11,771
9/00 41,821 13,334
TOTAL RATES OF RETURN THROUGH SEPTEMBER 30, 2000
CLASS A
1 Year Life*
-------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +94.97% +343.72%
-------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +94.97% + 85.27%
-------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +83.76% + 80.78%
-------------------------------------------------------------------------------
CLASS I
1 Year Life*
-------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +95.04% +343.88%
-------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +95.04% + 85.29%
-------------------------------------------------------------------------------
COMPARATIVE INDEX(+)
1 Year Life*
-------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# +13.28% + 12.65%
-------------------------------------------------------------------------------
(+) Average annual rate of return.
* For the period from the commencement of the fund's investment operations,
May 1, 1998, through September 30, 2000. Index information is from
May 1, 1998.
# Source: Standard & Poor's Micropal, Inc.
<PAGE>
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, 2000. Index information is from May 1, 1998.)
Vertex Contrarian S&P 500
Fund - Class A Composite Index
---------------------------------------------------
5/98 $ 9,425 $10,000
9/98 9,020 9,210
9/99 23,067 11,771
9/00 89,261 13,334
TOTAL RATES OF RETURN THROUGH SEPTEMBER 30, 2000
CLASS A
1 Year Life*
-------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +297.36% +847.07%
-------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +297.36% +153.55%
-------------------------------------------------------------------------------
Average Annual Total Return Including Sales Charge +274.51% +147.41%
-------------------------------------------------------------------------------
CLASS I
1 Year Life*
-------------------------------------------------------------------------------
Cumulative Total Return Excluding Sales Charge +296.87% +845.89%
-------------------------------------------------------------------------------
Average Annual Total Return Excluding Sales Charge +296.87% +153.42%
-------------------------------------------------------------------------------
COMPARATIVE INDEX(+)
1 Year Life*
-------------------------------------------------------------------------------
Standard & Poor's 500 Composite Index# + 13.28% + 12.65%
-------------------------------------------------------------------------------
(+) Average annual rates of return.
* For the period from the commencement of the fund's investment operations,
May 1, 1998, through September 30, 2000. Index information is from
May 1, 1998.
# Source: Standard & Poor's Micropal, Inc.
<PAGE>
NOTES TO PERFORMANCE SUMMARY
Performance results reflect any applicable subsidies and waivers in effect
during the periods shown; without these the results would have been less
favorable. 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. RECENT RETURNS WERE
PRIMARILY ACHIEVED DURING FAVORABLE MARKET CONDITIONS, WHICH MAY NOT BE
REPEATED. MORE RECENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. PAST
PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
Each fund may invest in lower-rated securities which may provide greater
returns, but are also associated with greater-than-average risk. These risks may
increase share price volatility. See the prospectus for details.
Each fund may enter into short sales. A short sale transaction involves selling
a security that a fund does not own with the intent of purchasing it later at a
lower price.
Each fund may purchase securities with proceeds with bank borrowings or with
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.
Investments in foreign and emerging market securities may be affected by
interest-rate and currency-exchange rate changes, as well as market, economic,
and political conditions of the countries where investments are made. There may
be greater returns but also greater risk than with U.S. investments.
The portfolios may invest in derivative securities which may include futures and
options. These types of hedging instruments can increase price fluctuation.
The portfolios are nondiversified and have more risk than one that is
diversified. The portfolios invest in a limited number of companies and may have
more risk because a change in one security's value may have a more significant
effect on the portfolios' net asset value. Investments in the portfolios are not
a complete investment program.
The portfolios' geographic concentration makes it more volatile than a portfolio
that is more geographically diversified.
<PAGE>
PORTFOLIO OF INVESTMENTS -- September 30, 2000
VERTEX ALL CAP FUND
<TABLE>
<CAPTION>
Stocks - 114.9%
-------------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Stocks - 104.2%
Aerospace - 1.4%
United Technologies Corp. 2,525 $ 174,856
-------------------------------------------------------------------------------------------------------
Banks and Credit Companies - 4.0%
Capital One Financial Corp. 1,350 $ 94,584
Comerica, Inc. 1,000 58,438
Northern Trust Corp. 825 73,322
PNC Bank Corp. 1,000 65,000
Providian Financial Corp. 1,200 152,400
Washington Mutual, Inc. 1,450 57,728
-----------
$ 501,472
-------------------------------------------------------------------------------------------------------
Biotechnology - 4.3%
Abgenix, Inc.* 1,310 $ 105,864
Applied Molecular Evolution* 60 2,408
Genentech, Inc.* 1,090 202,399
Waters Corp.*# 2,650 235,850
-----------
$ 546,521
-------------------------------------------------------------------------------------------------------
Business Machines - 1.9%
Sun Microsystems, Inc.* 2,025 $ 236,419
-------------------------------------------------------------------------------------------------------
Business Services - 3.1%
Amgen, Inc.* 470 $ 32,819
Automatic Data Processing, Inc. 200 13,375
BEA Systems, Inc.* 2,270 176,776
Fiserv, Inc.* 100 5,988
Thermo Electron Corp.* 2,125 55,250
Vastera, Inc.* 120 2,640
VeriSign, Inc.* 546 110,599
-----------
$ 397,447
-------------------------------------------------------------------------------------------------------
Cellular Telephones - 0.2%
QUALCOMM, Inc.* 400 $ 28,500
-------------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 1.3%
Mercury Interactive Corp.* 1,040 $ 163,020
-------------------------------------------------------------------------------------------------------
Computer Software - Services - 3.7%
EMC Corp.* 2,970 $ 294,401
Informatica Corp.* 260 24,245
Interwoven, Inc.* 1,125 127,195
Netegrity, Inc.* 150 10,500
Resonate Inc.* 20 790
Talarian Corp.* 50 960
TIBCO Software, Inc.* 150 12,666
-----------
$ 470,757
-------------------------------------------------------------------------------------------------------
Computer Software - Systems - 12.1%
Ariba, Inc.* 1,250 $ 179,082
Brocade Communications Systems, Inc.* 920 217,120
Cerner Corp.* 550 25,541
Computer Network Technology Corp.* 2,200 75,625
Extreme Networks, Inc.* 1,650 188,925
I2 Technologies, Inc.* 865 161,809
JNI Corp.* 725 64,525
Oracle Corp.* 1,910 150,412
Rational Software Corp.* 1,330 92,269
Redback Networks, Inc.* 125 20,492
Siebel Systems, Inc.* 2,410 268,263
VERITAS Software Corp.* 650 92,300
-----------
$ 1,536,363
-------------------------------------------------------------------------------------------------------
Conglomerates - 0.4%
Tyco International Ltd. 900 $ 46,687
-------------------------------------------------------------------------------------------------------
Drugs & Health Care - 1.2%
Gilead Sciences, Inc.* 750 $ 82,266
Protein Design Labs, Inc.* 625 75,312
-----------
$ 157,578
-------------------------------------------------------------------------------------------------------
Electrical Equipment - 1.0%
Capstone Turbine Corp.* 100 $ 6,925
General Electric Co. 1,750 100,953
QLogic Corp.* 225 19,800
-----------
$ 127,678
-------------------------------------------------------------------------------------------------------
Electronics - 1.6%
Applied Micro Circuits Corp.* 250 $ 51,766
Broadcom Corp.* 50 12,188
Conductus, Inc.* 300 4,425
Flextronics International Ltd.* 1,250 102,656
Microtune, Inc.* 30 1,607
PMC-Sierra, Inc.* 70 15,067
Sanmina Corp.* 115 10,767
-----------
$ 198,476
-------------------------------------------------------------------------------------------------------
Energy - 0.9%
Dynegy, Inc. 800 $ 45,600
Southern Energy, Inc.* 2,100 65,887
-----------
$ 111,487
-------------------------------------------------------------------------------------------------------
Financial Institutions - 8.3%
Bear Stearns Cos., Inc. 1,390 $ 87,570
Citigroup, Inc. 3,133 169,378
Golden West Financial Corp. 1,775 95,184
Goldman Sachs Group, Inc. 825 93,998
Household International, Inc. 960 54,360
Lehman Brothers Holdings, Inc. 870 128,543
MBNA Corp. 1,300 50,050
Merrill Lynch & Co., Inc. 2,320 153,120
MGIC Investment Corp. 300 18,338
Morgan Stanley Dean Witter & Co. 1,100 100,581
Schwab (Charles) Corp. 830 29,465
State Street Corp. 600 78,000
-----------
$ 1,058,587
-------------------------------------------------------------------------------------------------------
Financial Services - 1.0%
AXA Financial, Inc. 1,350 $ 68,766
Mellon Financial Corp. 1,150 53,331
-----------
$ 122,097
-------------------------------------------------------------------------------------------------------
Healthcare - 0.4%
HCA Healthcare Co.* 1,400 $ 51,975
-------------------------------------------------------------------------------------------------------
Insurance - 6.8%
American International Group, Inc.# 2,155 $ 206,206
Chubb Corp. 525 41,541
Gallagher (Arthur J.) & Co. 1,200 70,950
Marsh & McLennan Cos., Inc. 875 116,156
Nationwide Financial Services, Inc., "A" 2,200 82,225
Old Republic International Corp. 10,000 240,625
PMI Group, Inc. 525 35,569
St. Paul Cos., Inc. 1,250 61,641
UnumProvident Corp. 200 5,450
-----------
$ 860,363
-------------------------------------------------------------------------------------------------------
Internet
Cybear Group* 428 $ 562
Docent, Inc.* 10 183
-----------
$ 745
-------------------------------------------------------------------------------------------------------
Medical and Health Products - 4.4%
Allergan, Inc. 825 $ 69,661
Alza Corp.* 2,325 201,112
AmeriSource Health Corp., "A"* 1,050 49,350
Forest Laboratories, Inc.* 125 14,336
IDEC Pharmaceuticals Corp.* 150 26,304
Immunex Corp.* 1,640 71,340
Medarex, Inc.* 1,100 129,044
-----------
$ 561,147
-------------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 10.5%
Alpharma, Inc. 210 $ 12,836
Arthrocare Corp.* 100 1,944
Beckman Coulter, Inc. 125 9,641
Cardinal Health, Inc. 1,250 110,234
Ciphergen Biosystems, Inc.* 1,035 33,120
Discovery Partners International* 20 406
Genomica Corp.* 100 1,944
Human Genome Sciences, Inc.* 475 82,234
Illumina Inc.* 3,860 175,147
ImClone Systems, Inc.* 1,000 117,063
Impath, Inc.* 2,600 164,125
Invitrogen Corp.* 400 28,450
Laboratory Corporation of America Holdings* 375 44,906
Large Scale Biology Corp.* 130 4,258
McKesson HBOC, Inc. 2,400 73,350
Medimmune, Inc.* 1,505 116,261
PE Corp.- PE Biosystems Group# 1,530 178,245
Quest Diagnostics, Inc.* 1,350 154,912
Tenet Healthcare Corp.* 700 25,463
-----------
$ 1,334,539
-------------------------------------------------------------------------------------------------------
Oil Services - 0.8%
Global Marine, Inc.* 1,550 $ 47,856
Noble Drilling Corp.* 1,175 59,044
-----------
$ 106,900
-------------------------------------------------------------------------------------------------------
Oils - 2.4%
Anadarko Petroleum Corp. 1,200 $ 79,752
Apache Corp. 1,200 70,950
Coastal Corp. 925 68,566
EOG Resources, Inc. 300 11,663
R & B Falcon Corp.* 500 13,937
Transocean Sedco Forex, Inc. 1,100 64,487
-----------
$ 309,355
-------------------------------------------------------------------------------------------------------
Pharmaceuticals - 7.2%
3 Dimensional Pharmaceuticals, Inc.* 520 $ 18,720
Alexion Pharmaceuticals, Inc.* 400 45,600
Andrx Group* 2,875 268,453
Barr Laboratories, Inc.* 400 26,525
Celgene Corp.* 1,150 68,425
COR Therapeutics, Inc.* 500 31,156
IVAX Corp.* 625 28,750
Millennium Pharmaceuticals, Inc.* 655 95,671
Mylan Laboratories, Inc. 2,100 56,569
Pain Therapeutics, Inc.* 690 13,671
PRAECIS Pharmaceuticals Inc.* 700 29,750
Sepracor, Inc.* 980 120,234
Watson Pharmaceuticals, Inc.* 1,675 108,665
-----------
$ 912,189
-------------------------------------------------------------------------------------------------------
Retail - 0.4%
RadioShack Corp. 750 $ 48,469
-------------------------------------------------------------------------------------------------------
Supermarkets
Safeway, Inc.* 100 $ 4,669
-------------------------------------------------------------------------------------------------------
Technology - 0.5%
Inrange Technologies Corp.* 60 $ 3,180
Network Engines, Inc.* 60 2,456
Palm, Inc.* 1,000 52,938
Triton Networks Systems, Inc.* 40 525
-----------
$ 59,099
-------------------------------------------------------------------------------------------------------
Telecommunications - 10.4%
CIENA Corp.* 3,370 $ 413,878
Corning, Inc. 1,385 411,345
Cosine Communications, Inc.* 10 556
EchoStar Communications Corp.* 700 36,925
Emulex Corp.* 500 61,250
Intergrated Telecom Express, Inc.* 100 2,075
Juniper Networks, Inc.* 1,190 260,536
Natural Microsystems Corp.* 1,150 61,866
Network Appliance, Inc.* 600 76,425
Peco II, Inc.* 30 $ 1,404
Telaxis Communications Corp.* 10 61
-----------
$ 1,326,321
-------------------------------------------------------------------------------------------------------
Utilities - Electric - 12.7%
AES Corp.* 3,250 $ 222,625
American Electric Power Company, Inc. 2,400 93,900
Calpine Corp.* 2,950 307,906
Constellation Energy Group, Inc. 2,650 131,837
Dominion Resources, Inc. 1,500 87,094
DTE Energy Co. 1,600 61,200
Duke Energy Corp. 1,520 130,340
FPL Group, Inc. 400 26,300
Peco Energy Co. 2,400 145,350
Power One, Inc.* 1,130 68,383
PPL Corp. 800 33,400
Public Service Enterprise Group 1,450 64,797
Reliant Energy, Inc. 3,750 174,375
Southern Co. 1,800 58,387
-----------
$ 1,605,894
-------------------------------------------------------------------------------------------------------
Utilities - Gas - 1.3%
El Paso Energy Corp. 1,400 $ 86,275
Enron Corp. 875 76,672
-----------
$ 162,947
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks $13,222,557
-------------------------------------------------------------------------------------------------------
Foreign Stocks - 10.7%
Bermuda - 0.9%
Ace Ltd. (Insurance) 1,250 $ 49,063
Xl Capital Ltd (Insurance) 975 71,662
-----------
$ 120,725
-------------------------------------------------------------------------------------------------------
Brazil - 0.1%
Empresa Brasileira de Aeronautica S.A., ADR (Aerospace and
Defense)* 400 $ 12,400
-------------------------------------------------------------------------------------------------------
Canada - 2.8%
Biovail Corp. (Pharmaceuticals)* 1,450 $ 118,084
Centrinity, Inc. (Telecommunications)* 7,700 140,530
Research in Motion Ltd. (Telecommunications)* 925 91,170
-----------
$ 349,784
-------------------------------------------------------------------------------------------------------
France - 0.1%
Business Objects S.A., ADR (Computer Software - Systems)* 70 $ 7,914
-------------------------------------------------------------------------------------------------------
Israel - 4.0%
Teva Pharmaceutical Industries Ltd. (Pharmaceuticals) 2,400 $ 175,650
Check Point Software Technologies Ltd. (Computer Software -
Services)* 2,140 337,050
-----------
$ 512,700
-------------------------------------------------------------------------------------------------------
Italy
Luxottica Group S.p.A., ADR (Consumer Goods and Services) 100 $ 1,613
-------------------------------------------------------------------------------------------------------
Japan - 1.4%
AFLAC, Inc. (Insurance) 2,700 $ 172,969
-------------------------------------------------------------------------------------------------------
Mexico - 0.1%
Grupo Aeroportuario del Sureste S.A. de C.V., ADR
(Transportation)* 590 $ 8,961
-------------------------------------------------------------------------------------------------------
Switzerland - 1.1%
Leica Geosystems AG (Technology) * 10 $ 3,136
Serono S.A., ADR (Biotechnology)* 4,470 135,217
-----------
$ 138,353
-------------------------------------------------------------------------------------------------------
United Kingdom - 0.2%
ARM Holdings PLC, ADR (Electronics)* 350 $ 11,528
NDS Group PLC, ADR (Internet)* 10 770
Shire Pharmaceuticals Group PLC (Medical and Health
Technology and Services)* 290 14,971
-----------
$ 27,269
-------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 1,352,688
-------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $11,936,503) $14,575,245
-------------------------------------------------------------------------------------------------------
Securities Sold Short (Equity) - (4.1)%
-------------------------------------------------------------------------------------------------------
U.S. Stocks - (3.6)%
Healthcare - (2.5)%
Community Health Care* (10,000) $ (321,250)
-------------------------------------------------------------------------------------------------------
Telecommunications - (1.1)%
Adaptive Broadband Corp.* (7,100) $ (138,450)
-------------------------------------------------------------------------------------------------------
Total U.S. Stocks Sold Short $ (459,700)
-------------------------------------------------------------------------------------------------------
Foreign Stocks - (0.5)%
Switzerland - %
Ericsson LM, ADR (Telecommunications) (3,950) $ (58,509)
-------------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $(573,971)) $ (518,209)
-------------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (10.8)% (1,366,563)
-------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $12,690,473
-------------------------------------------------------------------------------------------------------
</TABLE>
See portfolio footnotes and notes to financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS -- September 30, 2000
VERTEX CONTRARIAN FUND
<TABLE>
<CAPTION>
Stocks - 125.3%
-------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Business Services - 11.8%
Dendrite International, Inc.*# 30,000 $ 804,375
eLoyalty Corp.* 26,800 341,700
NOVA Corp.*# 31,700 542,862
Radiant Systems, Inc.* 800 17,100
S1 Corp.* 29,000 346,188
Tech Data Corp. 15,000 641,250
VeriSign, Inc.*# 8,265 1,674,179
------------
$ 4,367,654
-------------------------------------------------------------------------------------------------
Computer Hardware - Systems - 4.2%
Dell Computer Corp.* 50,000 $ 1,540,625
-------------------------------------------------------------------------------------------------
Computer Software - Personal Computers - 3.6%
Microsoft Corp.*# 21,900 $ 1,320,844
-------------------------------------------------------------------------------------------------
Computer Software - Services - 12.2%
Bottomline Technologies, Inc.* 10,900 $ 406,706
CheckFree Corp.*# 44,700 1,872,511
Genomica Corp. 320 6,220
Internet Security Systems, Inc.*# 21,700 1,630,212
RSA Security, Inc.*# 13,500 582,188
------------
$ 4,497,837
-------------------------------------------------------------------------------------------------
Computer Software - Systems - 10.4%
Citrix Systems, Inc.*# 52,300 $ 1,049,269
Computer Network Technology Corp.* 6,500 223,438
CSG Systems International, Inc.*# 26,400 765,600
Digex, Inc.* 8,100 379,687
JNI Corp.* 3,900 347,100
Pinnacle Systems, Inc.* 22,800 256,500
Synopsys, Inc.*# 21,500 814,312
------------
$ 3,835,906
-------------------------------------------------------------------------------------------------
Consumer Goods and Services - 0.4%
Sportsline USA, Inc.* 11,500 $ 158,844
-------------------------------------------------------------------------------------------------
Containers - 3.0%
Ivex Packaging Corp.*# 111,600 $ 1,095,075
-------------------------------------------------------------------------------------------------
Electrical Equipment - 2.3%
QLogic Corp.*# 9,706 $ 854,128
-------------------------------------------------------------------------------------------------
Electronics - 3.1%
Anadigics, Inc.* 17,200 $ 380,550
Teradyne, Inc.*# 21,900 766,500
------------
$ 1,147,050
-------------------------------------------------------------------------------------------------
Energy - 1.9%
Devon Energy Corp. 11,594 $ 697,379
-------------------------------------------------------------------------------------------------
Finance - 1.2%
AmeriCredit Corp.* 15,000 $ 432,188
-------------------------------------------------------------------------------------------------
Food and Beverage Products - 1.3%
Keebler Foods Co.# 11,700 $ 491,400
-------------------------------------------------------------------------------------------------
Healthcare - 0.4%
First Health Group Corp.* 5,000 $ 161,250
-------------------------------------------------------------------------------------------------
Insurance - 0.7%
Old Republic International Corp. 10,000 $ 240,625
-------------------------------------------------------------------------------------------------
Internet - 4.2%
Digital Insight Corp.* 14,100 $ 505,838
Internap Network Services Corp.* 4,000 129,250
Watchguard Technologies, Inc.*# 15,400 924,000
------------
$ 1,559,088
-------------------------------------------------------------------------------------------------
Machinery - 4.4%
Deere & Co., Inc.# 19,800 $ 658,350
W.W. Grainger, Inc. 36,200 952,512
------------
$ 1,610,862
-------------------------------------------------------------------------------------------------
Medical and Health Products
Ciphergen Biosystems, Inc. 370 $ 11,840
-------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 3.9%
Arthrocare Corp.* 800 $ 15,55
Cytyc Corp.*# 22,300 961,687
Total Renal Care Holdings, Inc.*# 60,000 450,000
------------
$ 1,427,237
-------------------------------------------------------------------------------------------------
Metals - 1.0%
Precision Castparts Corp. 10,000 $ 383,750
-------------------------------------------------------------------------------------------------
Oil Services - 12.3%
Cooper Cameron Corp.*# 5,300 $ 390,544
Global Industries, Inc.*# 51,800 647,500
Global Marine, Inc.* 20,400 629,850
National Oilwell, Inc.*# 19,100 596,875
Noble Drilling Corp.*# 21,500 1,080,375
Trico Marine Services, Inc.*# 75,700 1,201,737
------------
$ 4,546,881
-------------------------------------------------------------------------------------------------
Oils - 14.5%
EOG Resources, Inc.# 45,300 $ 1,761,037
Newfield Exploration Co.*# 26,100 1,218,544
Santa Fe International Corp.# 29,400 1,324,837
Transocean Sedco Forex, Inc.# 17,900 1,049,388
------------
$ 5,353,806
-------------------------------------------------------------------------------------------------
Pharmaceuticals - 4.5%
United Therapeutics Corp.*# 18,800 $ 1,642,650
-------------------------------------------------------------------------------------------------
Printing and Publishing - 2.9%
Scholastic Corp.* 5,900 $ 469,419
Ziff-Davis, Inc. - ZDNet*# 41,300 580,781
------------
$ 1,050,200
-------------------------------------------------------------------------------------------------
Restaurants and Lodging - 1.6%
Brinker International, Inc.* 20,000 $ 602,500
-------------------------------------------------------------------------------------------------
Retail - 2.1%
BJ's Wholesale Club, Inc.*# 22,900 $ 781,463
-------------------------------------------------------------------------------------------------
Technology - 1.6%
Pri Automation, Inc.*# 32,600 $ 594,950
-------------------------------------------------------------------------------------------------
Telecommunications - 15.8%
ADC Telecommunications, Inc.* 34,000 $ 914,281
Allegiance Telecom, Inc.* 200 7,450
American Tower Corp., "A"* 1,000 37,688
Cabletron Systems, Inc.*# 23,000 675,625
Cosine Communications, Inc.* 50 2,778
Covad Communications Group, Inc.* 10,500 140,437
EchoStar Communications Corp.*# 20,700 1,091,925
Emulex Corp.*# 14,400 1,764,000
Inrange Technologies Corp.* 220 11,660
Metromedia Fiber Network, Inc., "A"* 45,600 1,108,650
Pinnacle Holdings, Inc.* 3,500 93,188
------------
$ 5,847,682
-------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $41,908,177) $ 46,253,714
-------------------------------------------------------------------------------------------------
Securities Sold Short - (27.3)%
-------------------------------------------------------------------------------------------------
Auto Parts - (1.5)%
Bandag, Inc. (15,000) $ (539,063)
-------------------------------------------------------------------------------------------------
Business Machines - (1.3)%
Sun Microsystems, Inc.* (4,100) $ (478,675)
-------------------------------------------------------------------------------------------------
Business Services - (1.2)%
Learning Tree International, Inc.* (6,000) $ (285,750)
Razorfish, Inc. (14,600) (150,791)
------------
$ (436,541)
-------------------------------------------------------------------------------------------------
Computer Software - Services - (1.9)%
Entrust Technologies, Inc.* (17,100) $ (472,387)
Safeguard Scientifics, Inc.* (11,200) (223,300)
------------
$ (695,687)
-------------------------------------------------------------------------------------------------
Computer Software - Systems - (8.5)%
Ariba, Inc.* (4,300) $ (616,042)
Brocade Communications Systems, Inc.* (2,200) (519,200)
Oracle Corp.* (20,300) (1,598,625)
Sycamore Networks, Inc.* (3,600) (388,800)
------------
$ (3,122,667)
-------------------------------------------------------------------------------------------------
Drugs & Health Care - (2.9)%
Minimed, Inc.* (12,000) $ (1,072,500)
-------------------------------------------------------------------------------------------------
Electronics - (1.9)%
PMC-Sierra, Inc.* (1,600) $ (344,400)
Vitesse Semiconductor Corp.* (4,100) (364,644)
------------
$ (709,044)
-------------------------------------------------------------------------------------------------
Industrial - (0.1)%
Acceptance Insurance Co. (10,000) $ (66,250)
-------------------------------------------------------------------------------------------------
Internet - (2.6)%
Amazon.com, Inc.* (21,700) $ (834,094)
Internet Capital Group, Inc.* (8,200) (142,987)
------------
$ (977,081)
-------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - (5.4)%
Integrated Health Services, Inc. (5,000) $ (587)
PE Corp.-PE Biosystems Group (3,700) (431,050)
Tripath Imaging, Inc.* (179,700) (1,257,900)
Ventana Medical Systems, Inc.* (12,400) (314,650)
------------
$ (2,004,187)
-------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $10,795,812) $(10,101,695)
-------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 2.0% 757,531
-------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 36,909,550
-------------------------------------------------------------------------------------------------
</TABLE>
See portfolio footnotes and notes to financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS -- September 30, 2000
VERTEX INCOME FUND
<TABLE>
<CAPTION>
Bonds - 104.5%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign Bonds - 66.2%
Algeria - 2.2%
Algerian Tranche Loan 3, 1.063s, 2010 JPY 4,600 $ 29,009
-----------------------------------------------------------------------------------------------------
Argentina - 6.2%
Republic of Argentina, 12s, 2020 $ 20 $ 18,620
Republic of Argentina, 6s, 2023 20 13,500
Republic of Argentina, 10.25s, 2030 60 48,840
--------------
$ 80,960
-----------------------------------------------------------------------------------------------------
Brazil - 17.6%
Federal Republic of Brazil, 7.438s, 2000 $ 40 $ 34,911
Federal Republic of Brazil, 14.5s, 2009 20 22,100
Federal Republic of Brazil, 8s, 2014 80 61,220
Federal Republic of Brazil, 6s, 2024 20 13,400
Federal Republic of Brazil, 11s, 2040 125 99,531
--------------
$ 231,162
-----------------------------------------------------------------------------------------------------
Bulgaria - 4.1%
National Republic of Bulgaria, 7.75s, 2011 $ 50 $ 37,875
National Republic of Bulgaria, 7.75s, 2024 20 15,350
--------------
$ 53,225
-----------------------------------------------------------------------------------------------------
Colombia - 1.6%
Republic of Colombia, 11.75s, 2020 $ 25 $ 21,156
-----------------------------------------------------------------------------------------------------
Ecuador - 1.4%
Republic of Ecuadar, 12s, 2012 $ 15 $ 10,500
Republic of Ecuadar, 4s, 2030 20 7,900
--------------
$ 18,400
-----------------------------------------------------------------------------------------------------
Germany - 2.3%
Ekabel Hessen, 14.5s, 2010 (Cable Television)## $ 30 $ 30,000
-----------------------------------------------------------------------------------------------------
Mexico - 2.8%
Bepensa S.A., 9.75s, 2004 (Beverages)## $ 15 $ 13,987
United Mexican States, 11.5s, 2026 10 12,125
Maxcom Telecomunicaciones S.A., 13.75s, 2007
(Telecommunications) 20 11,120
--------------
$ 37,232
-----------------------------------------------------------------------------------------------------
Netherlands - 2.3%
United Pan Europe, 0s to 2005, 13.75s, 2010 (Cable
Television) $ 65 $ 29,900
-----------------------------------------------------------------------------------------------------
Panama - 2.5%
Republic of Panama, 4.5s, 2001 $ 20 $ 16,000
Republic of Panama, 8.875s, 2027 20 16,800
--------------
$ 32,800
-----------------------------------------------------------------------------------------------------
Qatar - 1.9%
State of Qatar, 9.75s, 2030## $ 25 $ 25,625
-----------------------------------------------------------------------------------------------------
Russia - 14.2%
Russian Federation, 2.25s to 2000, 2.5s, 2030## $ 466 $ 179,410
Russian Federation, 8.25s, 2010## 10 6,441
--------------
$ 185,851
-----------------------------------------------------------------------------------------------------
South Korea - 3.0%
Chohung Bank, 11.5s, 2005 (Banks and Credit Cos.)## $ 40 $ 39,700
-----------------------------------------------------------------------------------------------------
United Kingdom - 2.0%
Jazztel PLC, 14s, 2009 (Telecommunications) $ 30 $ 26,400
-----------------------------------------------------------------------------------------------------
Venezuela - 2.1%
Republic of Venezuela, 9.25s, 2027 $ 40 $ 27,080
-----------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 868,500
-----------------------------------------------------------------------------------------------------
U.S. Bonds - 38.3%
Aerospace - 2.8%
Argo Tech Corp., 8.625s, 2007 $ 45 $ 37,125
-----------------------------------------------------------------------------------------------------
Building - 1.7%
Formica Corp., 10.875s, 2009 $ 45 $ 22,500
-----------------------------------------------------------------------------------------------------
Chemicals - 2.1%
Sterling Chemicals, Inc., 0s to 2001, 13.5s, 2008 $ 70 $ 28,000
-----------------------------------------------------------------------------------------------------
Computer Services - 1.9%
Globix Corp., 12.5s, 2010 $ 35 $ 25,200
-----------------------------------------------------------------------------------------------------
Consumer Goods and Services - 2.1%
Samsonite Corp., 10.75s, 2008 $ 35 $ 27,650
-----------------------------------------------------------------------------------------------------
Container, Forest and Paper Products - 1.6%
Gaylord Container Corp., 9.875s, 2008 $ 45 $ 20,250
-----------------------------------------------------------------------------------------------------
Finance - 1.8%
Madison River Corp., 13.25s, 2010 $ 30 $ 24,000
-----------------------------------------------------------------------------------------------------
Financial Institutions - 5.9%
Morgan Stanley Capital, Inc., 7.768s, 2000 $ 100 $ 76,536
-----------------------------------------------------------------------------------------------------
Machinery - 2.4%
Flowserve Corp., 12.25s, 2010## $ 30 $ 30,900
-----------------------------------------------------------------------------------------------------
Medical and Health Technology and Services - 2.5%
Alaris Medical Systems, Inc., 9.75s, 2006 $ 45 $ 32,850
-----------------------------------------------------------------------------------------------------
Metals - 1.5%
Matallurg, Inc., 11s, 2007 $ 25 $ 20,000
-----------------------------------------------------------------------------------------------------
Printing and Publishing - 1.8%
American Lawer Media Holdings Inc., 0s to 2002,
12.25s, 2008 $ 35 $ 23,275
-----------------------------------------------------------------------------------------------------
Retail - 2.8%
J Crew Group, Inc., 0s to 2002, 13.125s, 2008 $ 60 $ 36,900
-----------------------------------------------------------------------------------------------------
Telecommunications - 7.4%
Leap Wireless International, Inc., 0s to 2010, 14.5s,
2010 $ 30 $ 10,500
Focal Communications Corp., 0s to 2003, 12.125s, 2008 45 22,500
Mgc Communications Inc., 13s, 2010## 30 19,500
Viatel, Inc., 0s to 2003, 12.5s, 2008 65 23,400
Xm Satellite Radio Inc., 14s, 2010## 30 21,000
--------------
$ 96,900
-----------------------------------------------------------------------------------------------------
Total U.S. Bonds $ 502,086
-----------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $1,451,655) $ 1,370,586
-----------------------------------------------------------------------------------------------------
Stocks - 12.9%
-----------------------------------------------------------------------------------------------------
ISSUER SHARES VALUE
-----------------------------------------------------------------------------------------------------
U.S. Stocks - 6.9%
Business Services - 1.1%
Adelphia Business Solutions 1,200 $ 14,175
-----------------------------------------------------------------------------------------------------
Forest and Paper Products - 2.4%
US Timberlands Co. 3,000 $ 31,125
-----------------------------------------------------------------------------------------------------
Telecommunications - 3.4%
Crown Castle International Corp.* 800 $ 24,850
PSINet, Inc.* 2,100 20,213
--------------
$ 45,063
-----------------------------------------------------------------------------------------------------
Total U.S. Stocks $ 90,363
-----------------------------------------------------------------------------------------------------
Foreign Stocks - 6.0%
Mexico - 2.2%
Grupo Iusacell S.A. de C.V., ADR (Telecommunications)* 2,500 $ 29,687
-----------------------------------------------------------------------------------------------------
Netherlands - 1.7%
Completel Europe N.V. (Telecommunications)* 3,100 $ 22,088
-----------------------------------------------------------------------------------------------------
Russia - 2.1%
Unified Energy SYS (Utility) 2,050 $ 27,470
-----------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 79,245
-----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $228,073) $ 169,608
-----------------------------------------------------------------------------------------------------
Convertible Bond - 2.3%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
-----------------------------------------------------------------------------------------------------
U.S. Bonds - 2.3%
Oils - 2.3%
Lomak Petroleum, Inc., 6s, 2007 (Identified Cost $
29,138) $ 45 $ 30,600
-----------------------------------------------------------------------------------------------------
Warrants - 0.3%
-----------------------------------------------------------------------------------------------------
SHARES
-----------------------------------------------------------------------------------------------------
Leap Wireless International, Inc.* 30 $ 150
Maxcom Telecomunicationes* 20 5
Xm Satellite Radio Inc.* 30 4,200
-----------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $4,248) $ 4,355
-----------------------------------------------------------------------------------------------------
Call Options Purchased - 0.3%
-----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
OF CONTRACTS
ISSUER/EXPIRATION MONTH/STRIKE PRICE (000 OMITTED) VALUE
-----------------------------------------------------------------------------------------------------
Argentina Federal Republic Bonds/November/79.1
(Premiums Paid, $2,700) $ 90 $ 3,084
-----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,715,814) $ 1,578,233
Other Assets, Less Liabilities - (20.3%) (266,737)
-----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $ 1,311,496
-----------------------------------------------------------------------------------------------------
See portfolio footnotes and notes to financial statements.
Portfolio footnotes:
* Non-income producing security.
# Security or a portion of the security was pledged to cover collateral requirements. At September 30, 2000, the
value of securities pledged for Vertex All Cap and Vertex Contrarian Fund amounted to $523,098 and $32,429,859,
respectively.
## SEC Rule 144A restriction.
An abbreviation was used throughout this report to indicate amounts shown in another currency other than the U.S. dollar.
This abbreviation is shown below.
JPY = Japanese Yen
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
---------------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX
ALL CAP CONTRARIAN INCOME
SEPTEMBER 30, 2000 FUND FUND FUND
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Investments, at value (identified cost, $11,936,503,
$41,908,177, and $1,715,814, respectively) $14,575,245 $46,253,714 $ 1,578,233
Cash --
212,145 6,233
Foreign currency, at value (identified cost,
$366, $9, and $24,195, respectively) 354 9 24,484
Deposits with brokers for securities sold short 573,971 10,795,812 --
Net receivable for forward foreign currency
exchange contracts to sell -- -- 343
Net receivable for forward foreign currency
exchange contracts to subject to master
netting agreements -- -- 777
Receivable for investments sold 702,258 6,777,518 28,739
Receivable for fund shares sold 7,329 57,566 --
Dividends and interest receivable 5,577 40,281 38,011
Receivable from investment adviser -- 26,143 --
Other assets 34,515 414 --
----------- ----------- -----------
Total assets $16,111,394 $63,951,457 $ 1,676,820
----------- ----------- -----------
Liabilities:
Notes payable $ 1,572,803 $ 9,676,755 $ 342,124
Payable for dividends on securities sold short 765 8,687 --
Securities sold short, at value (proceeds received,
$573,971, $10,795,812, and $0, respectively) 518,209 10,101,695 --
Payable for investments purchased 1,281,200 7,095,771 19,652
Payable for fund shares reacquired 3,353 31,798 --
Payable to affiliates -
Management fee 39,346 97,024 --
Shareholder servicing agent fee 70 202 --
Administrative fee 12 35 --
Accrued expenses and other liabilities -- 8,471 --
Accrued interest expense 5,163 21,469 3,548
----------- ----------- -----------
Total liabilities $ 3,420,921 $27,041,907 $ 365,324
----------- ----------- -----------
Net assets $12,690,473 $36,909,550 $ 1,311,496
=========== =========== ===========
Net assets consist of:
Paid-in capital $ 9,738,604 $27,311,512 $ 1,385,700
Unrealized appreciation (depreciation) on
investments and translation of assets and
liabilities in foreign currencies 2,694,492 5,039,653 (136,173)
Accumulated undistributed net realized gain on
investments and foreign currency
transactions 257,377 4,558,385 14,423
Accumulated undistributed net investment income -- -- 47,546
----------- ----------- -----------
Net assets $12,690,473 $36,909,550 $ 1,311,496
=========== =========== ===========
Shares of beneficial interest outstanding
Class A 403,849 695,419 138,668
Class I 52,839 70,126 --
----------- ----------- -----------
Total shares of beneficial interest outstanding 456,688 765,545 138,668
----------- ----------- -----------
Net assets:
Class A 11,221,335 33,532,072 1,311,496
Class I 1,469,138 3,377,478 --
----------- ----------- -----------
Total net assets $12,690,473 $36,909,550 $ 1,311,496
=========== =========== ===========
Class A shares:
Net asset value, offering price, and redemption price per share
(net assets / shares of beneficial interest outstanding) $ 27.79 $ 48.22 $ 9.46
=========== =========== ===========
Offering price per share (100/94.25, 100/94.25
and 100/95.25, respectively, of net asset value per share) $ 29.49 $ 51.16 $ 9.93
=========== =========== ===========
Class I shares:
Net asset value per share
(net assets / shares of beneficial interest outstanding) $ 27.80 $ 48.16 --
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statements of Operations
---------------------------------------------------------------------------------------------------------
VERTEX VERTEX VERTEX*
ALL CAP CONTRARIAN INCOME
YEAR ENDED SEPTEMBER 30, 2000 FUND FUND FUND
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net investment income (loss):
Income -
Interest $ 29,127 $ 179,142 $ 49,804
Dividends 29,263 47,649 1,539
Foreign taxes withheld (557) (1,104) --
----------- ----------- -----------
Total investment income $ 57,833 $ 225,687 $ 51,343
----------- ----------- -----------
Expenses -
Management fee $ 335,312 $ 662,420 $ 6,736
Trustees' compensation 3,415 3,415 --
Shareholder servicing agent fee 11,570 23,052 336
Distribution and service fee (Class A) 40,446 78,998 1,178
Administrative fee 1,734 3,678 59
Custodian fee 12,663 15,274 591
Interest expense 148,641 303,820 4,081
Printing 9,027 12,655 1,501
Postage 6,335 8,477 242
Auditing fees 20,751 22,207 8,100
Legal fees 2,587 4,356 2,993
Registration fees 4,525 3,612 4,212
Dividend expense on securities sold short 765 8,687 --
Miscellaneous -- 17,260 444
----------- ----------- -----------
Total expenses $ 597,771 $ 1,167,911 $ 30,473
Fees paid indirectly (3,161) (1,668) --
Reduction of expenses by investment adviser and distributor (100,966) (157,462) (26,392)
----------- ----------- -----------
Net expenses $ 493,644 $ 1,008,781 $ 4,081
----------- ----------- -----------
Net investment income (loss) $ (435,811) $ (783,094) $ 47,262
----------- ----------- -----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 3,176,695 $15,268,464 $ 14,424
Securities sold short 358,295 2,236,691 --
Foreign currency transactions 183 (1,523) 283
----------- ----------- -----------
Net realized gain on investments and
foreign currency transactions $ 3,535,173 $17,503,632 $ 14,707
----------- ----------- -----------
Change in unrealized appreciation (depreciation) -
Investments $ 1,722,063 $ 3,758,050 $ (137,581)
Securities sold short 54,258 675,657 --
Translation of assets and liabilities in foreign currencies (13) (1) 1,408
----------- ----------- -----------
Net unrealized gain (loss) on investments
and foreign currency translation $ 1,776,308 $ 4,433,706 $ (136,173)
----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments and foreign currency $ 5,311,481 $21,937,338 $ (121,466)
----------- ----------- -----------
Increase (decrease) in net assets from operations $ 4,875,670 $21,154,244 $ (74,204)
=========== =========== ===========
* For the period from the commencement of the fund's investment operations, June 30, 2000, through September 30, 2000.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
-------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------
VERTEX ALL CAP FUND 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (435,811) $ (36,600)
Net realized gain on investments and foreign currency
transactions 3,535,173 1,188,345
Net unrealized gain on investments and foreign currency
translation 1,776,308 882,630
------------ ------------
Increase in net assets from operations $ 4,875,670 $ 2,034,375
------------ ------------
Distributions declared to shareholders -
From net realized gain on investments and foreign currency
transactions (Class A) $ (3,574,191) $ (106,531)
From net realized gain on investments and foreign currency
transactions (Class I) (272,758) --
------------ ------------
Total distributions declared to shareholders $ (3,846,949) $ (106,531)
------------ ------------
Net increase in net assets from fund share transactions $ 6,713,974 $ 1,988,747
------------ ------------
Total increase in net assets $ 7,742,695 $ 3,916,591
Net assets:
At beginning of period 4,947,778 1,031,187
------------ ------------
At end of period (including accumulated net investment
loss of $0 and $0, respectively) $ 12,690,473 $ 4,947,778
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets - continued
-------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------
VERTEX CONTRARIAN FUND 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment loss $ (783,094) $ (47,045)
Net realized gain on investments and foreign currency
transactions 17,503,632 975,918
Net unrealized gain on investments and foreign currency
translation 4,433,706 644,656
------------ ------------
Increase in net assets from operations $ 21,154,244 $ 1,573,529
------------ ------------
Distributions declared to shareholders -
From net investment income (Class A) $ -- $ (1,392)
From net realized gain on investments and foreign
currency transactions (Class A) (13,089,213) (15,613)
------------ ------------
Total distributions declared to shareholders $(13,089,213) $ (17,005)
------------ ------------
Net increase in net assets from fund share transactions $ 24,581,180 $ 2,317,329
------------ ------------
Total increase in net assets $ 32,646,211 $ 3,873,853
Net assets:
At beginning of period 4,263,339 389,486
------------ ------------
At end of period (including accumulated net investment
loss of $0 and $0, respectively) $ 36,909,550 $ 4,263,339
============ ============
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Changes in Net Assets - continued
---------------------------------------------------------------------------------------
PERIOD ENDED
VERTEX INCOME FUND SEPTEMBER 30, 2000*
---------------------------------------------------------------------------------------
<S> <C>
Increase in net assets:
From operations -
Net investment income $ 47,262
Net realized gain on investments and foreign currency transactions 14,707
Net unrealized loss on investments and foreign currency translation (136,173)
----------
Decrease in net assets from operations $ (74,204)
----------
Net increase in net assets from fund share transactions $1,385,700
----------
Total increase in net assets $1,311,496
Net assets:
At beginning of period --
----------
At end of period (including accumulated net investment income of $47,546) $1,311,496
==========
* For the period from the commencement of the fund's investment operations, June 30, 2000,
through September 30, 2000.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Cash Flows
-------------------------------------------------------------------------------------------
VERTEX
ALL CAP
YEAR ENDED SEPTEMBER 30, 2000 FUND
-------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities -
Net increase in net assets from operations $ 4,875,670
Adjustments to reconcile net increase in net assets from operations to
net cash provided by (used in) operating activities:
Purchase of investment securities (292,134,725)
Accretion (17,507)
Proceeds from disposition of investment securities 289,367,150
Increase in deposits with brokers for securities sold short (231,385)
Increase in fund shares sold (7,329)
Increase in dividends and interest receivable (5,130)
Increase in receivable for securities sold (470,598)
Increase in other receivables (25,306)
Increase in payable for securities purchased 548,361
Increase in payable for fund shares reacquired 3,353
Decrease in payable for dividends on securities sold short (197)
Increase in accrued expenses and other liabilities 44,330
Unrealized appreciation from investments and securities sold short (1,776,321)
Net realized gain from investments and securities sold short (3,534,990)
-------------
Net cash used in operating activities $ (3,364,624)
-------------
Cash flows from financing activities -
Increase in loan payable $ 709,779
Proceeds from fund shares sold 11,183,944
Payment on fund shares redeemed (8,309,364)
Cash payment of distributions from net realized gain on investments
and foreign currency transactions (7,555)
-------------
Net cash provided by financing activities $ 3,576,804
-------------
Net increase in cash $ 212,180
-------------
Cash and foreign currency:
Beginning balance $ 319
Ending balance $ 212,499
=============
Non cash financing activities not included herein consist of reinvestment of dividends and
distributions of $1,042,852.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Cash Flows - continued
-------------------------------------------------------------------------------------------
VERTEX
CONTRARIAN
YEAR ENDED SEPTEMBER 30, 2000 FUND
-------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities -
Net increase in net assets from operations $ 21,154,244
Adjustments to reconcile net increase in net assets from operations to
net cash provided by (used in) operating activities:
Purchase of investment securities (522,634,661)
Accretion of discount (10,227)
Proceeds from disposition of investment securities 513,887,701
Increase in deposits with brokers for securities sold short (10,035,635)
Increase in dividends and interest receivable (39,410)
Increase in receivable for securities sold (5,897,779)
Increase in receivable for fund shares sold (57,566)
Increase in other receivables (13,148)
Increase in payable for securities purchased 5,898,839
Increase in payable for fund shares reacquired 11,432
Decrease in payable for dividends on securities sold short (5)
Increase in accrued expenses and other liabilities 126,964
Unrealized appreciation from investments and securities sold short (4,433,707)
Net realized gain from investments and securities sold short (17,505,155)
-------------
Net cash used in operating activities $ (19,331,402)
-------------
Cash flows from financing activities -
Increase in loan payable $ 7,834,272
Proceeds from fund shares sold 20,642,969
Payment on fund shares redeemed (9,107,023)
Cash payment of distributions from net realized gain on investments
and foreign currency transactions (43,979)
-------------
Net cash provided by financing activities $ 19,326,239
-------------
Net decrease in cash $ (5,163)
-------------
Cash and foreign currency:
Beginning balance $ 5,172
Ending balance $ 9
=============
Non cash financing activities not included herein consist of reinvestment of dividends and
distributions of $13,045,234.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Statement of Cash Flows - continued
-------------------------------------------------------------------------------------------
VERTEX
INCOME
PERIOD ENDED SEPTEMBER 30, 2000* FUND
-------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in cash:
Cash flows from operating activities -
Net decrease in net assets from operations $ (74,204)
Adjustments to reconcile net increase in net assets from operations to
net cash provided by
(used in) operating activities:
Purchase of investment securities (2,927,633)
Accretion of discount (12,300)
Proceeds from disposition of investment securities 1,238,543
Increase in dividends and interest receivable (38,011)
Increase in receivable for securities sold (28,739)
Increase in other receivables (1,120)
Increase in value of foreign currency 289
Decrease in payable for securities purchased 19,652
Decrease in accrued expenses and other liabilities 3,547
Unrealized appreciation from investments and securities sold short 137,293
Net realized loss from investments and securities sold short (14,424)
-----------
Net cash used in operating activities $(1,697,107)
-----------
Cash flows from financing activities -
Increase in loan payable $ 342,124
Proceeds from fund shares sold 1,385,700
-----------
Net cash provided by financing activities $ 1,727,824
-----------
Net increase in cash $ 30,717
-----------
Cash and foreign currency:
Beginning balance $ --
Ending balance $ 30,717
===========
* For the period from the commencement of the fund's investment operations, June 30, 2000,
through September 30, 2000.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights
--------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------- PERIOD ENDED
VERTEX ALL CAP FUND 2000 1999 SEPTEMBER 30, 1998*
--------------------------------------------------------------------------------------------------------------
CLASS A
--------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 21.50 $10.10 $10.00
------- ------ ------
Income from investment operations# -
Net investment loss(S) $ (1.19) $(0.21) $(0.07)
Net realized and unrealized gain on
investments and foreign currency 19.83 12.30 0.17
------- ------ ------
Total from investment operations $ 18.64 $12.09 $ 0.10
------- ------ ------
Less distributions declared to shareholders from
net realized gain on investments and foreign
currency transactions $(12.35) $(0.69) $ --
------- ------ ------
Net asset value - end of period $ 27.79 $21.50 $10.10
======= ====== ======
Total return 94.97% 125.33% 1.00%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##(+) 4.15% 2.08% 2.39%+
Net investment loss (3.73)% (1.26)% (1.43)%+
Portfolio turnover 1,609% 1,249% 446%
Net assets at end of period (000 Omitted) $11,221 $4,948 $1,031
(S) Subject to reimbursement by the fund, the investment adviser 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 excess of 2.00% through the year ended September 30, 2000. Prior to May 31, 2000, the fund
paid the investment adviser a fee not greater than 2.00% of average daily net assets. Prior to March 1, 2000,
the investment advisor voluntarily waived its fee. In addition, the distributor voluntarily waived its fee for
the periods indicated. To the extent actual expenses were over/ under 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 $ (1.46) $(0.56) $(0.36)
Ratios (to average net assets):
Expenses## 5.01% 4.26% 8.62%+
Net investment loss (4.59)% (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 4.14%,
2.00%, and 2.00% for the year ended September 30, 2000, the year ended September 30, 1999, and the period ended
September 30, 1998, respectively.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
------------------------------------------------------------------------------------------------
PERIOD ENDED
VERTEX ALL CAP FUND SEPTEMBER 30, 2000*
------------------------------------------------------------------------------------------------
CLASS I
------------------------------------------------------------------------------------------------
<S> <C>
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $34.59
------
Income from investment operations# -
Net investment loss(S) $(0.58)
Net realized and unrealized gain on investments and foreign currency 1.79
------
Total from investment operations $ 1.21
------
Less distributions declared to shareholders from net realized gain on investments and
foreign currency transactions $(8.00)
------
Net asset value - end of period $27.80
======
Total return 4.99%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 2.17%+
Net investment loss (2.01)%+
Portfolio turnover 1,609%
Net assets at end of period (000 Omitted) $1,469
(S) Subject to reimbursement by the fund, the investment adviser 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 excess of 2.00% through the year
ended September 30, 2000. Prior to May 31, 2000, the fund paid a fee not greater than 2.00% of
average daily net assets. To the extent actual expenses were over/under 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 $(0.72)
Ratios (to average net assets):
Expenses## 2.67%+
Net investment loss (2.51)%+
* For the period from the inception of Class I shares, May 1, 2000, through September 30, 2000.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
-----------------------------------------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
---------------------------------- PERIOD ENDED
VERTEX CONTRARIAN FUND 2000 1999 SEPTEMBER 30, 1998*
-----------------------------------------------------------------------------------------------------------------
CLASS A
-----------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C> <C> <C>
Net asset value - beginning of period $ 23.44 $ 9.58 $10.00
------- ------ ------
Income (loss) from investment operations# -
Net investment income (loss)(S) $ (1.76) $(0.37) $ 0.04
Net realized and unrealized gain (loss) on
investments and
foreign currency 59.88 14.45 (0.46)
------- ------ ------
Total from investment operations $ 58.12 $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 (33.34) (0.20) --
------- ------ ------
Total distributions declared to shareholders $(33.34) $(0.22) $ --
------- ------ ------
Net asset value - end of period $ 48.22 $23.44 $ 9.58
======= ====== ======
Total return 297.36% 149.05%(++) (4.20)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##(+) 4.38% 2.41% 2.03%+
Net investment income (loss) (3.42)% (1.97)% 0.91%+
Portfolio turnover 1,508% 1,553% 243%
Net assets at end of period (000 Omitted) $33,532 $4,263 $389
(S) Subject to reimbursement by the fund, the investment adviser 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 excess of 2.00%. Prior to September 30, 2000, the fund paid the investment adviser a reimbursement
fee not greater than 2.00% of average daily net assets. Prior to March 1, 2000, the investment adviser voluntarily
waived its fee. In addition, the distributor voluntarily waived its fee 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 $ (2.12) $(1.01) $(0.64)
Ratios (to average net assets):
Expenses## 5.08% 5.83% 15.69%+
Net investment loss (4.12)% (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 4.33%, 2.02%,
and 2.03% for the years ended September 30, 2000, and 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%.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
<TABLE>
<CAPTION>
Financial Highlights - continued
---------------------------------------------------------------------------------------------------
PERIOD ENDED
VERTEX CONTRARIAN FUND SEPTEMBER 30, 2000*
---------------------------------------------------------------------------------------------------
CLASS I
---------------------------------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
<S> <C>
Net asset value - beginning of period $ 42.80
---------
Income (loss) from investment operations# -
Net investment loss(S) $ (0.80)
Net realized and unrealized gain on investments and foreign currency 6.16
---------
Total from investment operations $ 5.36
---------
Net asset value - end of period $ 48.16
=========
Total return 12.66%++
Ratios (to average net assets)/Supplemental data(S):
Expenses##(+) 5.38%+
Net investment loss (2.00)%+
Portfolio turnover 1,508%
Net assets at end of period (000 Omitted) $ 3,377
(S) Subject to reimbursement by the fund, the investment adviser has voluntarily agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses,
exclusive of management fees. Prior to September 30, 2000, the fund paid the investment adviser
a reimbursement fee not greater than 2.00% of average daily net assets. To the extent actual
expenses were over this limitation, the net investment loss per share and the ratios would have
been:
Net investment loss $ (1.66)
Ratios (to average net assets):
Expenses## 5.73%+
Net investment loss (2.35)%+
* For the period from the inception of Class I shares, August 1, 2000, through September 30, 2000.
+ 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 5.37% for the period ended September 30, 2000.
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
---------------------------------------------------------------------------
YEAR ENDED
VERTEX INCOME FUND SEPTEMBER 30, 2000*
---------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------
Per share data (for a share outstanding throughout each period):
Net asset value - beginning of period $ 10.00
---------
Income from investment operations# -
Net investment income(S) $ 0.36
Net realized and unrealized loss on investments and foreign
currency (0.90)
---------
Total from investment operations $ (0.54)
---------
Net asset value - end of period $ 9.46
=========
Total return(+) (5.40)%++
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.21%+
Net investment income 14.05%+
Portfolio turnover 92%
Net assets at end of period (000 Omitted) $ 1,311
(S) Subject to reimbursement by the fund, the investment adviser voluntarily
agreed under a temporary expense reimbursement agreement to pay all of the
fund's operating expenses, exclusive of management, distribution, and
service fees. In consideration, the fund pays the investment adviser a
reimbursement fee not greater than 2.00% of average daily net assets. The
investment adviser has agreed to waive the reimbursement fee for an
indefinite period of time. In addition, the investment adviser and the
distributor voluntarily waived their fees for certain of the periods
indicated. To the extent actual expenses were over this limitation and the
waivers had not been in place, the net investment income per share and the
ratios would have been:
Net investment income $ 0.16
Ratios (to average net assets):
Expenses## 9.06%+
Net investment income 6.20%+
* For the period from the commencement of the fund's investment operations,
June 30, 2000, through September 30, 2000.
+ Annualized.
++ Not annualized.
(+) Total returns for Class A shares do not include the applicable sales charge.
If the charge had been included, the results would have been lower.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset
arrangements.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
Vertex All Cap Fund, Vertex Contrarian Fund, and Vertex Income Fund (each
fund) are non-diversified series of MFS Series Trust IX (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. Vertex All
Cap Fund and Vertex Contrarian fund can invest up to 35% of its portfolio in
high-yield securities rated below investment grade. Vertex Income fund can
invest 100% of its portfolio in high-yield securities rated below investment
grade. Investments in high-yield securities involve greater degrees of credit
and market risk than investments in higher-rated securities and tend to be
more sensitive to economic conditions. 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 - Debt securities (other than short-term obligations which
mature in 60 days or less), including listed issues and forward contracts are
valued on the basis of valuations furnished by dealers or by a pricing service
with consideration to factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics, and other market data, without exclusive reliance upon
exchange or over-the-counter prices. 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 in good faith, at
fair value, 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.
Forward Foreign Currency Exchange Contracts - Each fund may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. Each fund may enter
into forward contracts for hedging purposes as well as for non-hedging
purposes. For hedging purposes, the fund may enter into contracts to deliver
or receive foreign currency it will receive from or require for its normal
investment activities. The fund may also use contracts in a manner intended to
protect foreign currency-denominated securities from declines in value due to
unfavorable exchange rate movements. For non-hedging purposes, the fund may
enter into contracts with the intent of changing the relative exposure of the
fund's portfolio of securities to different currencies to take advantage of
anticipated changes. The forward foreign currency exchange contracts are
adjusted by the daily exchange rate of the underlying currency and any gains
or losses are recorded as unrealized until the contract settlement date. On
contract settlement date, the gains or losses are recorded as realized gains
or losses on foreign currency transactions.
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 and interest payments received in additional
securities are recorded on the ex-dividend or ex-interest date in an amount
equal to the value of the security on such date. Legal fees and other related
expenses incurred to preserve and protect the value of a security owned are
added to the cost of the security; other legal fees are expensed. Capital
infusions made directly to the security issuer, which are generally
non-recurring, incurred to protect or enhance the value of high-yield debt
securities, are reported as additions to the cost basis of the security. Costs
that are incurred to negotiate the terms or conditions of capital infusions or
that are expected to result in a plan of reorganization are reported as realized
losses. Ongoing costs incurred to protect or enhance an investment, or costs
incurred to pursue other claims or legal actions, are expensed.
Fees Paid Indirectly - Each fund's custody 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 total expenses on the
Statement 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 only distributions in excess of tax basis earnings and profits are
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, results 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, 2000, the following amounts were reclassified
between accumulated undistributed net investment income and accumulated
undistributed net realized gain on investments and foreign currency
transactions due to differences between book and tax accounting for net
investment losses and foreign currency transactions. These changes had no
effect on the net assets or net asset value per share.
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP CONTRARIAN INCOME
INCREASE (DECREASE) FUND FUND FUND
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated undistributed net realized gain on
investments and foreign currency transactions (435,811) (783,094) (284)
Accumulated net investment income 435,811 783,094 284
</TABLE>
Multiple Classes of Shares of Beneficial Interest - The Vertex All Cap Fund
and the Vertex Contrarian Fund offer multiple classes of shares that differ in
their respective distribution and service fees. All shareholders bear the
common expenses of each fund based on daily net assets of each class, without
distinction between share classes. Dividends are declared separately for each
class. Differences in per share dividend rates are generally due to
differences in separate class expenses.
(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. Each fund pays Vertex,
at the end of each month, the fee of 2.00% of such fund's average daily net
assets (computed over the course of that month), adjusted upward or downward by
0.20% of such fund's average daily net assets (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") for Vertex All Cap Fund and Vertex Contrarian Fund, or the
Lehman High Yield Composite Bond Index for Vertex Income Fund. The maximum
adjustment (up or down) for each fund's fiscal year shall not exceed 2.00%, so
that the minimum and maximum management fee paid by each fund during any fiscal
year will be 0.00% and 4.00%, respectively. The S&P 500 Index is a broad-based,
popular, unmanaged index commonly used to measure common stock total return
performance. It is comprised of 500 widely held common stocks listed on the
NYSE, AMEX, and OTC Market. The Lehman Brothers High Yield Composite Bond Index
is a market value-weighted index that tracks the total return performance of
non-investment grade fixed-rate, publicly placed, dollar-denominated and
non-convertible debt registered with the U. S. Securities and Exchange
Commission (SEC). Prior to March 1, 2000, the investment adviser had voluntarily
agreed to waive its fee for Vertex Contrarian Fund and Vertex All Cap Fund and
is currently waiving its fee for Vertex Income Fund, which is shown as a
reduction of expenses on the Statements of Operations.
The Vertex Income Fund has a temporary expense reimbursement agreement whereby
Vertex has voluntarily agreed to pay all of the fund's operating expenses,
exclusive of management, distribution, and service fees. The fund in turn will
pay Vertex an expense reimbursement fee not greater than 2.00% of average
daily net assets. Vertex has voluntarily agreed to waive its right to receive
the reimbursement fee for Vertex Income Fund and for the period from June 30,
2000, through September 30, 2000, Vertex did not impose the reimbursement fee
of $6,730. To the extent that the expense reimbursement fee exceeds the fund's
actual expenses, the excess will be applied to amounts paid by Vertex in prior
years. At September 30, 2000, aggregate unreimbursed expenses amounted to:
VERTEX INCOME FUND
------------------
$11,748
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 fund 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 incurs an administrative fee
at the following annual percentages of the fund's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Distributor - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges on sales for the year ended September 30, 2000, as
its portion of the sales charge on sales of Class A shares of each fund.
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, 2000.
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 the fund's average daily net assets
at an annual rate of 0.10%.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations were as follows:
VERTEX VERTEX VERTEX
ALL CAP CONTRARIAN INCOME
FUND FUND FUND
-------------------------------------------------------------------------------
Purchases
Investments $208,002,651 $410,164,212 $2,924,933
------------ ------------ ----------
Sales
Investments $204,676,929 $388,811,454 $1,238,543
------------ ------------ ----------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by each fund, as computed on a federal income tax basis, were
as follows:
VERTEX VERTEX VERTEX
ALL CAP CONTRARIAN INCOME
FUND FUND FUND
-------------------------------------------------------------------------------
Aggregate cost $12,302,539 $42,397,270 $1,718,866
------------ ------------ ----------
Gross unrealized appreciation $ 2,314,692 $ 6,599,539 $ 22,230
Gross unrealized depreciation (41,986) (2,743,095) (162,863)
------------ ------------ ----------
Net unrealized appreciation
(depreciation) $ 2,272,706 $ 3,856,444 $ (140,633)
=========== =========== ==========
(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>
<CAPTION>
Class A shares
YEAR ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------------------------
VERTEX ALL CAP FUND VERTEX CONTRARIAN FUND VERTEX INCOME FUND*
------------------------------ ------------------------------ -----------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold 274,236 $ 9,389,894 369,495 $ 17,459,070 138,688 $ 1,385,700
Shares issued to
shareholders in
reinvestment of
distributions 134,128 3,566,682 306,108 13,045,234 -- --
Shares reacquired (234,633) (7,871,114) (162,056) (9,057,070) -- --
-------- ------------ -------- ------------- ------- ------------
Net increase 173,731 $ 5,085,462 513,547 $ 21,447,234 138,688 $ 1,385,700
======== ============ ======== ============= ======= ============
* For the period of commencement of the funds investment operations, June 30, 2000, through September 30, 2000.
</TABLE>
Class A shares
YEAR ENDED SEPTEMBER 30, 1999
-------------------------------------------------------
VERTEX ALL CAP FUND VERTEX CONTRARIAN FUND
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
Shares sold 182,815 $ 2,787,764 163,296 $ 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) (23,405) (441,345)
----------- ----------- ----------- -----------
Net increase 128,049 $ 1,988,747 141,215 $ 2,317,329
=========== =========== =========== ===========
Class I shares
PERIOD ENDED SEPTEMBER 30, 2000
-------------------------------------------------------
VERTEX ALL CAP FUND* VERTEX CONTRARIAN FUND**
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------------------
Shares sold 59,065 $ 1,794,050 71,208 $ 3,183,899
Shares issued to
shareholders in
reinvestment of
distributions 10,521 272,712 -- --
Shares reacquired (16,747) (438,250) (1,082) (49,953)
----------- ----------- ----------- -----------
Net increase 52,839 $ 1,628,512 70,126 $ 3,133,946
=========== =========== =========== ===========
* For the period from the inception of Class I shares, May 1, 2000, through
September 30, 2000.
** For the period from the inception of Class I shares, August 1, 2000, through
September 30, 2000.
(6) Line of Credit
Each fund participates in a $35 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 0.50%. In
addition, a commitment fee of 0.09% 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, 2000, the maximum amounts outstanding and the amounts at
September 30, 2000, were as follows:
<TABLE>
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP CONTRARIAN INCOME
FUND FUND FUND*
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum loan outstanding $7,990,491 $13,547,918 $370,378
Average loan outstanding $2,208,943 $4,582,418 $277,130
Loan outstanding at September 30, 2000 $1,572,803 $9,676,755 $342,124
Interest expense and weighted average interest rate incurred on the borrowings for the year ended September 30,
2000, were as follows:
<CAPTION>
VERTEX VERTEX VERTEX
ALL CAP CONTRARIAN INCOME
FUND FUND FUND*
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest expense $153,166 $303,820 $4,081
Weighted average interest rate 6.47% 6.52% 7.03%
Interest rate at September 30, 2000 7.25% 7.25% 7.25%
* For the period of commencement of the fund's investment operations, June 30, 2000, through September 30, 2000.
</TABLE>
(7) Financial Instruments
The Vertex Income 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 forward foreign currency exchange contracts. 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.
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
NET
SETTLEMENT CONTRACTS TO IN EXCHANGE CONTRACTS UNREALIZED
DATE DELIVER/RECEIVE FOR AT VALUE APPRECIATION
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales 8/10/01 JPY 3,162,500 $31,238 $30,895 $343
</TABLE>
At September 30, 2000, forward foreign currency purchases and sales under
master netting agreements excluded above amounted to a net receivable of $109
with Chase Manhattan Bank and $668 with Deutsche Bank.
At September 30, 2000, the fund had sufficient cash and/or securities to cover
any commitments under these contracts.
--------------------------------------------
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>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees of MFS Series Trust XI and Shareholders of Vertex All Cap
Fund, Vertex Contrarian Fund and Vertex Income Fund:
We have audited the accompanying statements of assets and liabilities of
Vertex All Cap Fund, Vertex Contrarian Fund and Vertex Income Fund (the
Funds), including the schedules of portfolio investments, as of September 30,
2000, and the related statements of operations, changes in net assets, cash
flows and financial highlights for the periods indicated herein. 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 auditing standards generally
accepted in the United States. 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, 2000,
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 Contrarian Fund and Vertex Income Fund at
September 30, 2000, and the results of their operations, the changes in their
net assets, their cash flows and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
Boston, Massachusetts
November 9, 2000
<PAGE>
FEDERAL TAX INFORMATION
In January 2001, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2000.
For the year ended September 30, 2000, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 0.61%
and 0.22% for the Vertex All Cap Fund and Vertex Contrarian Fund,
respectively.
<PAGE>
VERTEX(SM) ALL CAP FUND
VERTEX(SM) CONTRARIAN FUND
VERTEX(SM) INCOME FUND
Vertex Investment Management, Inc.
500 Boylston Street
Boston, MA 02116-3741
(C)2000 Vertex Investment Management, Inc.
Vertex investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116.
VER-2-XI 11/00 1M
