<PAGE>
[Logo] MFS(R)
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
MFS(R) CASH
RESERVE FUND
ANNUAL REPORT o AUGUST 31, 1998
[Graphic Omitted]
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Portfolio of Investments .................................................. 7
Financial Statements ...................................................... 8
Notes to Financial Statements ............................................. 14
Independent Auditor's Report .............................................. 19
Trustees and Officers ..................................................... 21
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
o THE ANNUALIZED COMPOUNDED YIELD ON AN INVESTMENT IN CLASS A SHARES OF THE
FUND FOR THE SEVEN-DAY PERIOD ENDED AUGUST 31, 1998, ROSE TO 4.96% FROM
4.75% OVER THE SAME PERIOD ENDED AUGUST 31, 1997. THE ANNUALIZED
COMPOUNDED YIELD ON INVESTMENTS IN BOTH CLASS B AND CLASS C SHARES ROSE
FROM 3.73% TO 3.94%. (PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.)
o AT PRESENT, WE BELIEVE THE FUND LOOKS ESPECIALLY ATTRACTIVE CONSIDERING
THE VOLATILITY IN THE DOMESTIC AND OVERSEAS MARKETS. AS A COMPARISON,
TWO-YEAR AND FIVE-YEAR U.S. TREASURIES ARE YIELDING 4.90%.
o THE AVERAGE MATURITY OF THE FUND ON AUGUST 31, 1998, WAS 42 DAYS, VERSUS
39 DAYS ON AUGUST 31, 1997. GOING FORWARD, WE WILL TARGET THE 45- TO
50-DAY AVERAGE MATURITY RANGE GIVEN OUR EXPECTATION OF LOWER INTEREST
RATES.
---------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
---------------------------------------------------------
<PAGE>
LETTER FROM THE CHAIRMAN
- ----------------------------
[Photo of Jeffrey L. Shames]
- ----------------------------
Jeffrey L. Shames
Dear Shareholders,
In the coming year, MFS will celebrate its 75th anniversary. In 1924, our
Massachusetts Investors Trust, the nation's first mutual fund, opened to the
public and helped launch a revolution in investing that continues today. In
the 75 years since, MFS has grown with its investors not only through bear
markets, economic and political turmoil, wars, and oil shortages, but also
through long periods of growth and prosperity. We are very proud of our record
of investment management and service to shareholders throughout our history.
One of the best ways for us to serve our shareholders is to help them understand
some of the reasons behind developments in the investment markets and, when
necessary, to take a more cautious outlook. This is particularly important
during periods of market volatility such as we are experiencing this year, when
equity prices do not follow a straight course. In light of this summer's
volatility, it is clear that equity valuations have risen to a point at which
stock prices have become vulnerable to changes in the investment environment
such as a slowing economy, earnings disappointments, and global economic and
political turmoil. While we continue to hold a favorable long-term outlook for
the equity markets, we also believe that this market correction is overdue and
could continue for several months. However, in our view, this is a healthy
near-term event that should rid the financial system of excesses that have
developed.
Currently, equity investors seem to be focused on the slowdown in corporate
earnings and, more recently, on the continuing uncertainty overseas,
particularly in Russia and some of the emerging markets. In the second quarter,
for example, average earnings growth for companies in the Standard & Poor's 500
Composite Index (the S&P 500), a popular, unmanaged index of common stock total
return performance, was about 3%, well below what people were expecting a year
ago. As a result of this and continuing concerns about Asia and emerging
markets, the stock markets pulled back from the record-high levels set in
mid-July. This retreat has helped correct some -- but not all -- of the
overvaluations that have been building in the markets for some time. Prior to
July, equity prices had been rising without a corresponding increase in
corporate earnings. As a result, price-to-earnings (P/E) ratios, or the amount
investors paid for stocks in relation to companies' earnings per share, also
went up. A year ago this July, the average P/E ratio for stocks in the S&P 500
stood at approximately 23; this July, it was at about 28, and it declined to
approximately 25 by early September. If this summer's downturn helps create more
reasonable valuations, we believe it could provide a sounder long-term
foundation for the equity markets. On another positive note, interest rates have
been relatively stable for several months as inflation has remained low. In an
environment of low interest rates, stocks become more attractive than most
fixed-income investments, while low inflation helps control companies' costs.
Internationally, the economic turmoil in Asia continues to be a concern to us,
while Russia is facing political gridlock and economic uncertainty and Latin
American economies are feeling substantial pressure. We believe the United
States has yet to see the full impact of this crisis. There have been brief
periods of improvement in a few countries but, for the most part, most of
these economies are still very weak and the situation could turn worse before
getting better. At the same time, the Asian turmoil has had the beneficial
effect of moderating U.S. growth and keeping inflation in check, which has
helped establish a favorable interest-rate environment.
Countering the situation in Asia has been the growing strength of European
economies, although European equity markets have also seen some volatility
this summer. But as these countries move toward economic union, they are
benefiting from a convergence of interest rates to lower levels, a rapid
expansion of manufacturing and service businesses, and an increasingly strong
consumer sector. This has helped American exporters offset some of their Asian
losses while providing investment opportunities in developed
and emerging European markets.
Given the uncertainty arising from these conflicting developments, we believe
that it is prudent to remind investors of the need to take a long-term view and
to diversify their investments across a range of asset classes. This includes
portfolios that focus on bond and international investments as well as on the
U.S. stock market. At MFS, we also believe our decades-long commitment to
original, company-by-company research gives us an advantage by helping us find
companies that we think can keep growing or gain market share during periods of
turmoil. To help fulfill this commitment and to provide the broadest possible
coverage of industry sectors and individual companies, MFS continues to increase
its number of full-time research analysts, who thoroughly investigate each
company's earnings potential and position in its industry as well as the overall
prospects for that industry.
We also use active portfolio management on the fixed-income side, using our
extensive research and credit analysis to help reduce the potential for price
declines and enhance the opportunity for appreciation. Every year, both fixed-
income and equity managers meet with thousands of credit issuers and
companies. They also attend many presentations, closely follow sources of
industry research, and keep track of competitors.
As we have for 75 years, we will continue to apply this discipline of
thorough, bottom-up research to both the equity and fixed-income markets
because we believe it offers the best potential for providing favorable long-
term performance for our shareholders -- regardless of changes in the overall
market environment.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 14, 1998
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
- -----------------------------
[Photo of Jean O. Alessandro]
- -----------------------------
Jean O. Alessandro
Dear Shareholders,
Except for typical year-end pressures, short-term interest rates have remained
flat over the past year. As a result, the annualized compounded yield on an
investment in Class A shares of the Fund for the seven-day period ended August
31, 1998, rose to 4.96% from 4.75% for the same period ended August 31, 1997.
The annualized compounded yield on investments in both Class B and Class C
shares rose from 3.73% to 3.94%. At present, we believe the Fund looks
especially attractive considering the volatility in the domestic and overseas
markets. As a comparison, two-year and five-year U.S. Treasuries are yielding
4.90%. (Principal value and interest on Treasury securities are guaranteed by
the U.S. government if held to maturity.)
During the past year, the Federal Reserve Board (the Fed) did not adjust
monetary policy, due to strong economic growth and low inflation offset by
worldwide economic woes. The federal funds rate, the interest rate charged by
banks to other banks in need of overnight loans, remained at 5.50% for the
entire period, and yields on 90-day commercial paper have stayed relatively
unchanged. With continued turmoil in world financial markets, we look for the
Fed to adopt a neutral to easing bias. Thus, we expect short- term interest
rates to remain flat or slightly lower. The average maturity of the Fund on
August 31, 1998, was 42 days, versus 39 days on August 31, 1997. Going forward,
we will target the 45- to 50-day average maturity range given our expectation of
lower interest rates.
The portfolio continues to include only the highest-quality corporate, bank, and
government securities in order to provide investors with maximum security
against credit risk. The Fund has no direct exposure to Russia, Asia, or Latin
America. In fact, on August 31, 1998, approximately 53% of the Fund's net assets
were invested in securities issued or guaranteed by the U.S. Treasury or
agencies or instrumentalities of the U.S. government. With such conservative
guidelines and restrictions, the Fund should be well positioned to meet its
objectives of current income with preservation of capital and liquidity.
Respectfully,
/s/ Jean O. Alessandro
Jean O. Alessandro
Portfolio Manager
<PAGE>
The opinions expressed in this report are those of the portfolio manager and
are only through the end of the period of the report as stated on the cover.
The manager's views are subject to change at any time based on market and
other conditions, and no forecasts can be guaranteed.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
- --------------------------------------------------------------------------------
JEAN O. ALESSANDRO IS A PORTFOLIO MANAGER AT MFS INVESTMENT
MANAGEMENT(R). SHE MANAGES MFS(R) CASH RESERVE FUND, MFS(R) GOVERNMENT
MONEY MARKET FUND, MFS(R) MONEY MARKET FUND, MFS(R) MERIDIAN(SM) MONEY
MARKET FUND, THE MONEY MARKET SERIES OFFERED THROUGH MFS(R)/SUN LIFE
ANNUITY PRODUCTS, AND MFS(R) VARIABLE INSURANCE TRUST.
MS. ALESSANDRO JOINED MFS IN 1986 AS A FIXED-INCOME TRADING ASSISTANT.
FROM 1986 TO 1990, SHE WAS A MONEY MARKET TRADER AND, FROM 1990 TO 1993,
A SENIOR MONEY MARKET SPECIALIST. SHE HAS BEEN AN INVESTMENT OFFICER
SINCE 1993.
MS. ALESSANDRO EARNED A BACHELOR'S DEGREE FROM THE UNIVERSITY OF
CONNECTICUT.
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. A prospectus containing more information,
including the exchange privilege and all charges and expenses, for any other MFS
product is available from your financial adviser, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
- --------------------------------------------------------------------------------
FUND FACTS
- --------------------------------------------------------------------------------
OBJECTIVE: SEEKS TO PROVIDE AS HIGH A LEVEL OF CURRENT INCOME
AS IS CONSIDERED CONSISTENT WITH THE PRESERVATION OF
CAPITAL AND LIQUIDITY.
COMMENCEMENT OF
INVESTMENT OPERATIONS: DECEMBER 29, 1986
CLASS INCEPTION: CLASS A SEPTEMBER 7, 1993
CLASS B DECEMBER 29, 1986
CLASS C APRIL 1, 1996
SIZE: $589.7 MILLION NET ASSETS AS OF AUGUST 31, 1998
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT, AND THERE IS NO ASSURANCE THAT THE FUND WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE.
<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- August 31, 1998
Commercial Paper - 28.3%
<CAPTION>
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Archer Daniels Midland Co., due 10/14/98 $ 9,135 $ 9,074,988
Associates Corp. of North America, due 9/01/98 20,000 20,000,000
Carolina Power & Light Co., due 10/09/98 5,000 4,970,867
Coca-Cola Co., due 10/19/98 7,000 6,948,947
du Pont (E. I.) de Nemours & Co., due 9/04/98 6,000 5,997,255
Duke Power Co., due 11/13/98 - 11/24/98 10,500 10,377,624
Ford Motor Credit Corp., due 2/16/99 7,000 6,821,967
General Electric Capital Corp., due 9/01/98 - 10/06/98 20,000 19,973,118
General Motors Acceptance Corp., due 9/14/98 8,000 7,983,967
General Re Corp., due 10/14/98 7,000 6,954,014
Hershey Foods Corp., due 9/17/98 7,000 6,982,982
IBM Credit Corp., due 10/05/98 6,000 5,968,777
Lucent Technology, Inc., due 10/28/98 7,000 6,939,042
Morgan (J.P.) & Co., Inc., due 10/15/98 8,000 7,946,124
Motorola, Inc., due 9/24/98 5,500 5,480,673
Nationsbank Corp., due 9/09/98 - 11/09/98 9,000 8,951,657
Pitney Bowes Credit Corp., due 9/11/98 7,000 6,989,267
Sheffield Receivables Corp., due 9/21/98 7,000 6,978,455
Toys-R-Us, Inc., due 9/01/98 5,000 5,000,000
Wachovia Corp., due 9/23/98 6,200 6,179,123
- -----------------------------------------------------------------------------------------------------
Total Commercial Paper, at Amortized Cost and Value $166,518,847
- -----------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations - 52.8%
- -----------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/01/98 - 2/25/99 $185,270 $184,219,938
Federal Home Loan Mortgage Corp., due 9/10/98 - 12/09/98 52,700 52,308,240
Federal National Mortgage Assn., due 10/21/98 - 2/11/99 76,100 74,873,514
- -----------------------------------------------------------------------------------------------------
Total U.S. Government and Agency Obligations,
at Amortized Cost and Value $311,401,692
- -----------------------------------------------------------------------------------------------------
Repurchase Agreement - 14.4%
- -----------------------------------------------------------------------------------------------------
Goldman Sachs, dated 8/31/98, due 9/01/98, total to
be received $85,013,624 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at Cost $ 85,000 $ 85,000,000
- -----------------------------------------------------------------------------------------------------
Total Investments, at Amortized Cost and Value $562,920,539
Other Assets, Less Liabilities - 4.5% 26,777,083
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $589,697,622
- -----------------------------------------------------------------------------------------------------
See notes to financial statements
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------
AUGUST 31, 1998
- --------------------------------------------------------------------------
Assets:
Investments, at amortized cost and value $477,920,539
Repurchase agreement, at cost and value 85,000,000
------------
Total investments, at amortized cost and value $562,920,539
Cash 27,876
Receivable for Fund shares sold 31,373,480
Interest receivable 13,624
Other assets 2,756
------------
Total assets $594,338,275
------------
Liabilities:
Distributions payable $ 96,710
Payable for Fund shares reacquired 4,128,785
Payable to affiliates -
Management fee 20,361
Shareholder servicing agent fee 5,090
Distribution and service fee 238,355
Administrative fee 679
Accrued expenses and other liabilities 150,673
------------
Total liabilities $ 4,640,653
------------
Net assets (represented by paid-in capital) $589,697,622
============
Shares of beneficial interest outstanding 589,697,622
===========
Class A shares:
Net asset value and offering price per share
(net assets of $80,374,180 / 80,374,180 shares of
beneficial interest outstanding) $1.00
=====
Class B shares:
Net asset value and offering price per share
(net assets of $438,577,411 / 438,577,411 shares of
beneficial interest outstanding) $1.00
=====
Class C shares:
Net asset value and offering price per share
(net assets of $70,746,031 / 70,746,031 shares of
beneficial interest outstanding) $1.00
=====
A contingent deferred sales charge may be imposed on redemptions of Class A,
Class B, and Class C shares.
See notes to financial statements
<PAGE>
FINANCIAL STATEMENTS -- continued
Statement of Operations
- -------------------------------------------------------------------------------
YEAR ENDED ENDED AUGUST 31, 1998
- -------------------------------------------------------------------------------
Net investment income:
Interest income $17,523,752
-----------
Expenses -
Management fee $ 1,721,754
Trustees' compensation 43,165
Shareholder servicing agent fee 368,669
Distribution and service fee (Class B) 2,393,197
Distribution and service fee (Class C) 275,014
Administrative fee 44,495
Custodian fee 101,635
Printing 43,649
Postage 136,974
Auditing fees 22,215
Legal fees 2,220
Miscellaneous 430,226
-----------
Total expenses $ 5,583,213
Fees paid indirectly (35,639)
Reduction of expenses by investment adviser (311,232)
-----------
Net expenses $ 5,236,342
-----------
Net investment income $12,287,410
===========
See notes to financial statements
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statements of Changes in Net Assets
<CAPTION>
- ------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 12,287,410 $ 10,029,166
--------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (2,201,910) $ (1,559,182)
From net investment income (Class B) (9,040,559) (8,040,982)
From net investment income (Class C) (1,044,941) (429,002)
--------------- ---------------
Total distributions declared to shareholders $ (12,287,410) $ (10,029,166)
--------------- ---------------
Fund share (principal) transactions at net asset
value
of $1.00 per share -
Net proceeds from sale of shares $ 4,197,280,427 $ 2,376,194,909
Net asset value of shares issued to shareholders in
reinvestment of distributions 9,322,273 7,800,528
Cost of shares reacquired (3,922,701,430) (2,373,905,725)
--------------- ---------------
Total increase in net assets $ 283,901,270 $ 10,089,712
Net assets:
At beginning of period 305,796,352 295,706,640
--------------- ---------------
At end of period $ 589,697,622 $ 305,796,352
=============== ===============
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS
YEAR ENDED AUGUST 31, ENDED PERIOD ENDED
----------------------------------------------------------- AUGUST 31, NOVEMBER 30,
1998 1997 1996 1995 1994 1993*
- ------------------------------------------------------------------------------------------------------------------------------
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
Net investment income(S) $ 0.05 $ 0.05 $ 0.04 $ 0.05 $ 0.02 $ 0.01
Less distributions declared
to shareholders from net
investment income (0.05) (0.05) (0.04) (0.05) (0.02) (0.01)
------ ------ ------ ------ ------ ------
Net asset value -
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
Total return 4.87% 4.64% 4.75% 4.91% 2.89%+ 2.28%+
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 0.82% 0.93% 0.84% 0.90% 0.86%+ 0.92%+
Net investment income 4.72% 4.54% 4.62% 4.94% 3.11%+ 2.26%+
Net assets at end of period
(000 omitted) $80,374 $45,007 $37,872 $10,852 $2,156 $49
*For the period from the inception of Class A, September 7, 1993, through November 30,
1993.
+Annualized.
##For fiscal years ending after September 1, 1995, the Fund's expenses are calculated
without reduction for fees paid indirectly.
(S)The investment adviser voluntarily waived a portion of its management fee for the periods
indicated. If this fee had been incurred by the Fund, the net investment income per share
and the ratios would have been:
Net investment income $ 0.05 $ 0.04 $ 0.04 $ 0.05 $ 0.02 $ 0.01
Ratios (to average net assets):
Expenses## 0.92% 1.03% 0.94% 1.00% 0.96%+ 1.02%+
Net investment income 4.62% 4.44% 4.52% 4.84% 3.01%+ 2.16%+
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NINE MONTHS YEAR ENDED
YEAR ENDED AUGUST 31, ENDED NOVEMBER 30,
----------------------------------------------------------- AUGUST 31, -----------------------
1998 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------
Net investment
income(S) $ 0.04 $ 0.03 $ 0.04 $ 0.04 $ 0.01 $ 0.01 $ 0.02
Less distributions
declared to
shareholders from
net investment
income (0.04) (0.03) (0.04) (0.04) (0.01) (0.01) (0.02)
------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ======
Total return 3.83% 3.58% 3.64% 3.81% 1.79%+ 1.16% 1.79%
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 1.82% 1.95% 1.92% 1.93% 1.94%+ 2.00% 2.22%
Net investment
income 3.78% 3.53% 3.58% 3.69% 1.88%+ 1.19% 1.83%
Net assets at end of
period (000 omitted) $438,577 $244,416 $251,192 $166,519 $213,635 $155,274 $125,439
+ Annualized.
## For fiscal years ending after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser voluntarily waived a portion of its management fee for the periods indicated. If this fee had been
incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment
income $ 0.04 $ 0.03 $ 0.04 $ 0.04 $ 0.01 $ 0.01 $ 0.02
Ratios (to average net assets):
Expenses## 1.92% 2.05% 2.02% 2.03% 2.04%+ 2.10% 2.32%
Net investment
income 3.68% 3.43% 3.48% 3.59% 1.78%+ 1.09% 1.73%
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30, YEAR ENDED AUGUST 31,
---------------------------------------------------------- --------------------------------------
1991 1990 1989 1988 1998 1997 1996***
- ------------------------------------------------------------------------------------------------------------------------------
CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value -
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------
Net investment
income(S) $ 0.04 $ 0.06 $ 0.07 $ 0.06 $ 0.04 $ 0.03 $ 0.01
Less distributions
declared to
shareholders from
net investment
income (0.04) (0.06) (0.07) (0.06) (0.04) (0.03) (0.01)
------ ------ ------ ------ ------ ------ ------
Net asset value -
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ======
Total return 4.56% 6.12% 7.34% 5.85% 3.76% 3.60% 3.67%+
Ratios (to average net assets)/
Supplemental data(S):
Expenses## 2.04% 2.23% 2.24% 2.06% 1.82% 1.95% 1.79%+
Net investment
income 4.53% 6.06% 7.10% 5.59% 3.80% 3.57% 3.60%+
Net assets at end of
period (000 omitted) $161,040 $203,314 $146,885 $139,518 $70,746 $16,373 $6,642
*** For the period from the inception of Class C, April 1, 1996, through August 31, 1996.
+ Annualized.
## For fiscal years ended after September 1, 1995, the Fund's expenses are calculated without reduction for fees paid
indirectly.
(S) The investment adviser voluntarily waived a portion of its management fee for certain of the periods indicated. If this fee
had been incurred by the Fund, the net investment income per share and the ratios would have been:
Net investment
income $ 0.04 -- -- -- $ 0.04 $ 0.03 $ 0.01
Ratios (to average net assets):
Expenses## 2.13% -- -- -- 1.92% 2.05% 1.89%+
Net investment
income 4.44% -- -- -- 3.70% 3.47% 3.50%+
See notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(1) Business and Organization
MFS Cash Reserve Fund (the Fund) is a diversified series of MFS Series Trust I
(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.
Investment Valuations - Money market instruments are valued at amortized cost,
which the Trustees have determined in good faith approximates market value.
The Trust's use of amortized cost is subject to the Trust's compliance with
certain conditions as specified under Rule 2a-7 of the Investment Company Act
of 1940.
Repurchase Agreements - The Fund may enter into repurchase agreements with
institutions that the Fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Fund requires
that the securities collateral in a repurchase transaction be transferred to
the custodian in a manner sufficient to enable the Fund to obtain those
securities in the event of a default under the repurchase agreement. The Fund
monitors, on a daily basis, the value of the collateral to ensure that its
value, including accrued interest, is greater than amounts owed to the Fund
under each such repurchase agreement. The Fund, along with other affiliated
entities of Massachusetts Financial Services Company (MFS), may utilize a
joint trading account for the purpose of entering into one or more repurchase
agreements.
Investment Transactions and Income - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement and tax
reporting purposes as required by federal income tax regulations.
Fees Paid Indirectly - The Fund's custody fee is calculated as a percentage of
the Fund's month end net assets. The fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the Fund. This amount is shown as a reduction of expenses on the Statement of
Operations.
Tax Matters and Distributions - The 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. The Fund files a tax
return annually using tax accounting methods required under provisions of the
Code, which may differ from generally accepted accounting principles, the
basis on which these financial statements are prepared. Accordingly, the
amount of net investment income and net realized gain reported on these
financial statements may differ from that reported on the Fund's tax return
and, consequently, the character of distributions to shareholders reported in
the financial highlights may differ from that reported to shareholders on Form
1099-DIV.
Distributions to shareholders are recorded on the ex-dividend date. The Fund
distinguishes between distributions on a tax basis and a financial reporting
basis and requires that only distributions in excess of tax basis earnings and
profits are reported in the financial statements as a tax return of capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains.
At August 31, 1998, the Fund, for federal income tax purposes, had a capital
loss carryforward of $2,143 which may be applied against any net taxable
realized gains of each succeeding year until the earlier of its utilization or
expiration on August 31, 1999, ($753), August 31, 2003, ($908), August 31, 2004,
($480) and August 31, 2006, ($2).
Multiple Classes of Shares of Beneficial Interest - The Fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the Fund based on the value
of settled shares outstanding of each class, without distinction between share
classes. Dividends are declared separately for each class. No class has
preferential dividend rights; differences in per share dividend rates are
generally due to differences in separate class expenses. Class B shares will
convert to Class A shares approximately eight years after purchase.
(3) Transactions with Affiliates
Investment Adviser - The Fund has an investment advisory agreement with MFS to
provide overall investment advisory and administrative services, and general
office facilities. The management fee is computed daily and paid monthly at an
annual rate of 0.55% of average daily net assets. The investment adviser has
voluntarily agreed to waive a portion of its fee, which is reflected as a
reduction of expenses in the Statement of Operations.
The Fund pays no compensation directly to its Trustees who are officers of the
investment adviser, or to officers of the Fund, all of whom receive
remuneration for their services to the Fund from MFS. Certain officers and
Trustees of the Fund are officers or directors of MFS, MFS Fund Distributors,
Inc. (MFD), and MFS Service Center, Inc. (MFSC). The Fund has an unfunded
defined benefit plan for all of its independent Trustees and Mr. Bailey.
Included in Trustees' compensation is a net periodic pension expense of
$11,095 for the year ended August 31, 1998.
Administrator - The Fund has an administrative services agreement with MFS to
provide the Fund with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the Fund pays MFS an administrative fee at
the following annual percentages of the Fund's average daily net assets.
First $1 billion 0.0150%
Next $1 billion 0.0125%
Next $1 billion 0.0100%
In excess of $3 billion 0.0000%
Distributor - The Trustees have adopted a distribution plan for Class A, Class
B, and Class C shares pursuant to Rule 12b-1 of the Investment Company Act of
1940 as follows:
The Fund's distribution plan provides that the 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 the 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 the 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 the Fund's average daily net assets attributable to
Class A shares. Payment of the 0.10% per annum Class A distribution fee and
payment of 0.25% per annum service fee will commence on such date as the
Trustees of the Fund may determine.
The Fund's distribution plan provides that the Fund will pay MFD a distribution
fee of 0.75% per annum, and a service fee of up to 0.25% per annum, of the
Fund's average daily net assets attributable to Class B and Class C shares. MFD
will pay to securities dealers that enter into a sales agreement with MFD all or
a portion of the service fee attributable to Class B and Class C shares, and
will pay to such securities dealers all of the distribution fee attributable to
Class C shares. The service fee is intended to be consideration for services
rendered by the dealer with respect to Class B and Class C shares. MFD retains
the service fee for accounts not attributable to a securities dealer, which
amounted to $31,578 and $226 for Class B and Class C shares, respectively, for
the year ended August 31, 1998. Fees incurred under the distribution plan during
the year ended August 31, 1998, were 1.00% of average daily net assets
attributable to both Class B and Class C shares on an annualized basis.
Certain Class A shares and Class C shares are subject to a contingent deferred
sales charge in the event of a shareholder redemption within 12 months
following purchase. A contingent deferred sales charge is imposed on
shareholder redemptions of Class B shares in the event of a shareholder
redemption within six years of purchase. MFD receives all contingent deferred
sales charges. Contingent deferred sales charges imposed during the year ended
August 31, 1998, were $ 0, $968,864, and $50,683 for Class A, Class B, and
Class C shares, respectively
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 effective annual rate of
0.1125%. Prior to January 1, 1998, the fee was calculated as a percentage of the
average daily net assets at an effective annual rate of 0.13%.
(4) Portfolio Securities
Purchases and sales of money market investments, exclusive of securities
subject to repurchase agreements, aggregated $10,880,028,299 and
$10,572,488,009, respectively.
(5) Shares of Beneficial Interest
The Fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value,
$1.00 per share). Transactions in Fund shares were as follows:
Class A Shares
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
- -------------------------------------------------------------------------------
Shares sold 967,380,915 464,216,561
Shares issued to shareholders in
reinvestment of distributions 1,645,697 1,204,025
Shares reacquired (933,659,907) (458,285,289)
------------ ------------
Net increase 35,366,705 7,135,297
============ ============
Class B Shares
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
- -------------------------------------------------------------------------------
Shares sold 2,244,025,425 1,779,272,175
Shares issued to shareholders in
reinvestment of distributions 7,046,348 6,235,121
Shares reacquired (2,056,910,279) (1,792,283,819)
-------------- --------------
Net increase (decrease) 194,161,494 (6,776,523)
============== ==============
Class C Shares
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
- -------------------------------------------------------------------------------
Shares sold 985,874,087 132,706,173
Shares issued to shareholders in
reinvestment of distributions 630,228 361,382
Shares reacquired (932,131,244) (123,336,617)
------------ ------------
Net increase 54,373,071 9,730,938
============ ============
(6) Line of Credit
The Fund and other affiliated funds participate in a $805 million unsecured line
of credit provided by a syndication of banks under a line of credit agreement.
Borrowings may be made to temporarily finance the repurchase of Fund shares.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the bank's base rate. In addition, a commitment fee, based on the average daily
unused portion of the line of credit, is allocated among the participating funds
at the end of each quarter. The commitment fee allocated to the Fund for the
year ended August 31, 1998, was $2,168.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of MFS Series Trust I and Shareholders of
MFS Cash Reserve Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of MFS Cash Reserve Fund (one of the
series constituting MFS Series Trust I) as of August 31, 1998, the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended August 31, 1998 and 1997, and the financial
highlights for each of the years in the four-year period ended August 31,
1998, the nine months ended August 31, 1994, and for each of the years in the
six-year period ended November 30, 1993. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
August 31, 1998 by correspondence with the custodian. 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, such financial statements and financial highlights present
fairly, in all material respects, the financial position of MFS Cash Reserve
Fund at August 31, 1998, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 9, 1998
<PAGE>
FEDERAL INCOME TAX INFORMATION
IN JANUARY 1999, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR
1998.
<PAGE>
<TABLE>
MFS(R) CASH RESERVE FUND
<S> <C>
TRUSTEES SECRETARY
Richard B. Bailey* - Private Investor; Stephen E. Cavan*
Former Chairman and Director (until 1991),
MFS Investment Management ASSISTANT SECRETARY
James R. Bordewick, Jr.*
Marshall N. Cohan - Private Investor
CUSTODIAN
Lawrence H. Cohn, M.D. - Chief of Cardiac State Street Bank and Trust Company
Surgery, Brigham and Women's Hospital; Professor
of Surgery, Harvard Medical School AUDITORS
Deloitte & Touche LLP
The Hon. Sir J. David Gibbons, KBE - Chief
Executive Officer, Edmund Gibbons Ltd.; Investor Information For MFS stock and bond
Chairman, Colonial Insurance Company, Ltd. market outlooks, call toll free: 1-800-637-4458
anytime from a touch-tone telephone.
Abby M. O'Neill - Private Investor
For information on MFS mutual funds, call your
Walter E. Robb, III - President and Treasurer, financial adviser or, for an information kit,
Benchmark Advisors, Inc. (corporate financial call toll free: 1-800-637-2929 any business day
consultants); President, Benchmark Consulting from 9 a.m. to 5 p.m. Eastern time (or leave a
Group, Inc. (office services) message anytime).
Arnold D. Scott* - Senior Executive INVESTOR SERVICE
Vice President, Director, and Secretary, MFS Service Center, Inc.
MFS Investment Management P.O. Box 2281
Boston, MA 02107-9906
Jeffrey L. Shames* - Chairman, Chief
Executive Officer, and Director, For general information, call toll free:
MFS Investment Management 1-800-225-2606 any business day from 8 a.m. to 8
p.m. Eastern time.
J. Dale Sherratt - President, Insight Resources,
Inc. (acquisition planning specialists) For service to speech- or hearing-impaired, call
toll free: 1-800-637-6576 any business day from
Ward Smith - Former Chairman (until 1994), NACCO 9 a.m. to 5 p.m. Eastern time. (To use this
Industries (holding company) service, your phone must be equipped with a
Telecommunications Device for the Deaf.)
INVESTMENT ADVISER
Massachusetts Financial Services Company For share prices, account balances, and
500 Boylston Street exchanges, call toll free: 1-800-MFS-TALK
Boston, MA 02116-3741 (1-800-637-8255) anytime from a touch-tone
telephone.
DISTRIBUTOR
MFS Fund Distributors, Inc. WORLD WIDE WEB
500 Boylston Street www.mfs.com
Boston, MA 02116-3741
PORTFOLIO MANAGER
Jean O. Alessandro*
Treasurer
W. Thomas London*
ASSISTANT TREASURERS
Mark E. Bradley*
Ellen Moynihan*
James O. Yost*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
----------------
MFS(R) CASH RESERVE FUND Bulk Rate
U.S. Postage
Paid
MFS
[Logo MFS(R) ----------------
INVESTMENT MANAGEMENT
We invented the mutual fund(R)
500 Boylston Street
Boston, MA 02116-3741
(C)1998 MFS Fund Distributors, Inc., 500 Boylston Street, Boston, MA 02116-3741
MCR-2 10/98 44M 01/201/301
