<PAGE>
[Logo] M F S (R)
INVESTMENT MANAGEMENT
75 YEARS
WE INVENTED THE MUTUAL FUND(R)
[Graphic Omitted]
MFS(R) CASH
RESERVE FUND
ANNUAL REPORT o AUGUST 31, 1999
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DIVERSIFYING YOUR INVESTMENT PORTFOLIO (see page 22)
----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 3
Portfolio of Investments .................................................. 7
Financial Statements ...................................................... 9
Notes to Financial Statements ............................................. 15
Independent Auditors' Report .............................................. 19
MFS' Year 2000 Readiness Disclosure ....................................... 21
Trustees and Officers ..................................................... 25
MFS ORIGINAL RESEARCH(R)
RESEARCH HAS BEEN CENTRAL TO INVESTMENT MANAGEMENT AT MFS
SINCE 1932, WHEN WE CREATED ONE OF THE FIRST IN-HOUSE
RESEARCH DEPARTMENTS IN THE MUTUAL FUND (SM)
INDUSTRY. ORIGINAL RESEARCH(SM) AT MFS IS MORE ORIGINAL RESEARCH
THAN JUST CRUNCHING NUMBERS AND CREATING
ECONOMIC MODELS: IT'S GETTING TO KNOW MFS
EACH SECURITY AND EACH COMPANY PERSONALLY.
MAKES A DIFFERENCE
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
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<PAGE>
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
The current investment and economic environment bears little resemblance to
last year's. One year ago, global economies were floundering, and the crisis
in Asia threatened an already weak U.S. economy. Corporate earnings were flat,
and economists used the word "deflation" for the first time in recent memory.
Entering 1999, expectations for corporate earnings growth were lowered
dramatically. In an attempt to foster U.S. growth, the Federal Reserve
Board (the Fed) lowered interest rates.
As a result, this year the U.S. economy is booming and unemployment is low.
Many corporations are focused on improving their profitability, and investors
have been rewarded with positive surprises across a variety of industries. Our
analysts predict that corporate earnings growth for 1999 will average 12% - 15%.
Global economies also are showing signs of strength, and the Asian crisis
has passed. In fact, Japan's economic woes seem to have reached bottom.
Although the process is in its infancy, some Japanese corporations not only
are talking about restructuring and cost cutting, they also are beginning to
take action, looking within to become more competitive and improve returns on
equity. While still lagging the United States, Europe is beginning to
restructure and consolidate. These signs of international growth have
contributed to concerns that the U.S. economy now may be too strong.
In June, and again in August, the Fed raised rates by one-quarter of a
percentage point to help ward off the specter of inflation.
After an unprecedented four years of 20% annual returns in the U.S. equity
market, we fear that many investors have become accustomed to high returns and
have lost sight of the risks they take on to achieve them. In the current
market many investors are taking on additional risk - whether through day
trading or investing in speculative Internet stocks.
Risks are as much a part of the market today as they were one year ago.
We believe the market remains overvalued, with stocks priced 30% above our
analysts' earnings projections. And market narrowness has not abated; the top
25 stocks in the Standard & Poor's 500 Composite Index, a popular, unmanaged
index of common stock total return performance, are still the most overvalued.
Such extreme overvaluation makes the stock market sensitive to interest-rate
news and any negative earnings surprises. The Year 2000 (Y2K) computer problem
is another factor causing investor concern. While we believe corporate America
is well prepared to address any Y2K situations that may arise at year-end, no
one can predict investor behavior. In our opinion, it is investor behavior
that has the greatest potential to create market volatility.
We believe the best way to address Y2K and other market risks is
through our continuing commitment to MFS Original Research(R) and our
fundamental investment tenet of long-term investing. Whether markets
are up or down, MFS analysts focus on analyzing industries and visiting
companies to determine the long-term winners and the prices that will make
them attractive opportunities. Because all companies will not benefit equally
from the improving international environment, bottom-up research remains
critical to identifying those that we believe are successfully restructuring,
consolidating, and gaining market share.
Changes in market and economic conditions can't be predicted but should always
be expected. The changes we have seen over the past year only reinforce our
commitment to long-term planning and investing. We believe volatility helps to
create opportunity for long-term investors to buy solid companies at
attractive prices. For this reason, we are continuing to expand our domestic
and international capabilities to ensure that MFS has primary, in-house
research on companies worldwide. We believe that we have built the right
investment team, backed by MFS Original Research, to take advantage of those
opportunities for our shareholders.
We appreciate your confidence and welcome any questions or comments you may
have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
September 15, 1999
<PAGE>
MANAGEMENT REVIEW AND OUTLOOK
[Photo of Jean O. Alessandro]
Jean O. Alessandro
Dear Shareholders,
During the past year, short-term interest rates have been quite volatile. The
annualized compounded yield on an investment in Class A shares of the Fund for
the seven-day period ended August 31, 1999, was 4.62%, versus 4.96% for the same
period ended August 31, 1998. The annualized compounded yield on an investment
in Class B shares fell from 3.94% to 3.60%, and that of Class C shares fell from
3.94% to 3.64%. For the 12 months ended August 31, 1999, Class A, B, and C
shares of the Fund provided total returns of 4.33%, 3.29%, and 3.25%,
respectively, compared to 4.43% for the average money market fund tracked by
Lipper Analytical Services, Inc., an independent firm that reports mutual fund
performance.
In response to global financial and economic crises, the Federal Reserve Board
(the Fed) dramatically lowered the overnight interbank lending rate -- the
federal funds rate -- from 5.50% to 4.75% from late September through mid-
November 1998. The Fed remained on hold until the summer of 1999, when it
raised that rate by 25 basis points (0.25%) on June 30th and again by 25 basis
points on August 24th to slow growth and head off inflation. These last two
interest rate moves may be seen as reversing the effect of two of the three
reductions in the federal funds target rate last fall, as the Fed became
nervous about inflationary forces picking up steam and the global economy
strengthening. As a result of the rate decline last fall, the yields on 90-day
commercial paper and government agencies fell approximately 70 basis points
(0.70%) by January 1999. These yields remained stable until June 1999 and then
went up approximately 50 basis points (0.50%), coinciding with the Fed's rate
increases over the summer.
In September 1998, in expectation of lower rates, we extended the average
maturity of the Fund to the 60- to 65-day range, then allowed the average
maturity to return to approximately 45 days starting in December 1998 and
continuing through August of this year. The average maturity for the Fund on
August 31, 1999, was 45 days, versus 42 days on August 31, 1998. Given our
expectation of stable to slightly higher short-term rates, we are comfortable
continuing to target neutral average maturity in the 40- to 45-day range over
the next few months.
The portfolio is limited to only the highest-quality commercial paper,
repurchase agreements, and U.S. Treasury and government-agency securities to
provide investors with maximum security against credit risk. On
August 31, 1999, approximately 54% 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 the balance invested in top-
tier commercial paper. The large position in government-guaranteed paper was
due to the narrow yield differentials between government-agency securities and
high-quality commercial paper and to our conservative investment guidelines,
which are among the strictest in the industry. With this emphasis on quality,
we believe we will be well positioned to provide current income, liquidity,
and preservation of capital.
Respectfully,
/s/ Jean O. Alessandro
Jean O. Alessandro
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
<PAGE>
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PORTFOLIO MANAGER'S PROFILE
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JEAN O. ALESSANDRO IS ASSISTANT VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
AND PORTFOLIO MANAGER OF MFS(R) CASH RESERVE FUND, MFS(R) GOVERNMENT MONEY
MARKET FUND, MFS(R) MONEY MARKET FUND, THE MONEY MARKET SERIES OFFERED THROUGH
MFS(R)/SUN LIFE ANNUITY PRODUCTS, AND MFS(R) MONEY MARKET SERIES (PART OF MFS(R)
VARIABLE INSURANCE TRUST(SM)).
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 WAS NAMED INVESTMENT OFFICER IN
1993, PORTFOLIO MANAGER IN 1998, AND ASSISTANT VICE PRESIDENT IN 1999.
MS. ALESSANDRO EARNED A BACHELOR'S DEGREE FROM THE UNIVERSITY OF
CONNECTICUT.
ALL PORTFOLIO MANAGERS AT MFS INVESTMENT MANAGEMENT(R) ARE SUPPORTED BY
AN INVESTMENT STAFF OF OVER 100 PROFESSIONALS UTILIZING MFS ORIGINAL
RESEARCH(R), A COMPANY-ORIENTED, BOTTOM-UP PROCESS OF SELECTING
SECURITIES.
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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 consultant, or by calling MFS at
1-800-225-2606. Please read it carefully before investing or sending money.
<PAGE>
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FUND FACTS
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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: $745.4 MILLION NET ASSETS AS OF AUGUST 31, 1999
INVESTMENTS IN THE FUND ARE NEITHER INSURED NOR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT
$1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
SEE THE PROSPECTUS FOR DETAILS.
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<PAGE>
<TABLE>
PORTFOLIO OF INVESTMENTS -- August 31, 1999
Commercial Paper - 53.5%
<CAPTION>
- ------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
American General Corp., due 9/10/99 - 9/29/99 $ 20,000 $ 19,947,428
Ameritech Corp., due 9/23/99 12,000 11,962,307
Archer Daniels Midland Co., due 1/28/00 7,000 6,845,868
Associates Corp. of North America, due 9/01/99 25,000 25,000,000
Banc One Corp., due 9/13/99 - 9/28/99 25,000 24,945,011
Bank of America, FSB, due 9/20/99 - 10/01/99 13,000 12,955,047
Bellsouth Telecommunications, Inc., due 1/25/00 - 1/26/00 13,970 13,664,194
Cargill, Inc., due 1/14/00 - 1/20/00 13,000 12,727,645
Carolina Power & Light Co., due 9/13/99 - 11/01/99 19,000 18,905,392
CIT Group Holdings, Inc., due 9/01/99 25,000 25,000,000
CSN Overseas (Barclays BK), due 9/01/99 8,000 8,000,000
Deutsche Bank, due 10/05/99 8,000 7,961,089
Dow Chemical Co., due 9/01/99 25,000 25,000,000
Duke Power Co., due 10/12/99 10,000 9,940,778
Ford Motor Credit Corp., due 10/07/99 - 12/16/99 18,000 17,825,304
Formosa Plastics, Series A (ABN, Amro), due 10/08/99 7,800 7,757,912
General Electric Capital Corp., due 9/22/99 - 10/14/99 18,000 17,913,794
General Mills, Inc., due 9/07/99 8,000 7,993,133
General Motors Acceptance Corp., due 9/01/99 6,000 6,000,000
Glaxo Wellcome, Inc., due 9/07/99 8,800 8,792,755
Goldman Sachs Group LP, due 9/17/99 - 10/18/99 12,000 11,951,197
Heinz (H.J.) Co., due 1/19/00 5,000 4,896,555
ING America Insurance, due 9/27/99 5,000 4,981,114
Lucent Technologies, Inc., due 9/16/99 10,000 9,978,917
Merck & Co., Inc., due 9/03/99 2,500 2,499,264
Morgan (J.P.) & Co., Inc., due 9/15/99 - 1/18/00 15,750 15,626,125
National Rural Utilities Cooperative Finance Corp.,
due 12/06/99 - 1/24/00 14,200 13,962,580
Salomon Smith Barney Holdings, Inc., due 9/02/99 - 10/19/99 21,100 20,988,733
UBS Finance Delaware, Inc., due 12/13/99 9,750 9,602,989
Wal-Mart Stores, Inc., due 9/09/99 - 9/15/99 15,000 14,978,728
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Total Commercial Paper, at Amortized Cost and Value $398,603,859
- ------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations - 44.0%
- ------------------------------------------------------------------------------------------------------
Federal Home Loan Bank, due 9/01/99 - 11/19/99 $102,010 $101,829,136
Federal Home Loan Mortgage Corp., due 9/03/99 - 2/29/00 166,900 164,201,548
Federal National Mortgage Assn., due 9/03/99 - 12/10/99 53,000 52,502,714
Tennessee Valley Authority, due 9/21/99 10,000 9,971,889
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Total U.S. Government and Agency Obligations,
at Amortized Cost and Value $328,505,287
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Repurchase Agreement - 18.8%
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Goldman Sachs, dated 8/31/99, due 9/01/99, total to
be received $140,021,000 (secured by various U.S.
Treasury and Federal Agency obligations in a
jointly traded account), at Cost $140,000 $140,000,000
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Total Investments, at Amortized Cost and Value $867,109,146
Other Assets, Less Liabilities - (16.3)% (121,704,381)
- ------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $745,404,765
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See notes to financial statements.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
AUGUST 31, 1999
- --------------------------------------------------------------------------------
Assets:
Investments, at amortized cost and value $727,109,146
Repurchase agreement, at cost and value 140,000,000
------------
Total investments, at amortized cost and value $867,109,146
Cash 27,450
Receivable for Fund shares sold 4,966,048
Interest receivable 21,000
Prepaid insurance 24,040
Other assets 4,861
------------
Total assets $872,152,545
------------
Liabilities:
Distributions payable $ 200,756
Payable for Fund shares reacquired 125,866,761
Payable to affiliates -
Management fee 31,001
Shareholder servicing agent fee 6,889
Distribution and service fee 409,210
Administrative fee 1,033
Accrued expenses and other liabilities 232,130
------------
Total liabilities $126,747,780
------------
Net assets (represented by paid-in capital) $745,404,765
============
Shares of beneficial interest outstanding 745,404,765
============
Class A shares:
Net asset value and offering price per share
(net assets of $98,719,451 / 98,719,451 shares of
beneficial interest outstanding) $1.00
=====
Class B shares:
Net asset value and offering price per share
(net assets of $541,126,403 / 541,126,403 shares
of beneficial interest outstanding) $1.00
=====
Class C shares:
Net asset value and offering price per share
(net assets of $105,558,911 / 105,558,911 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 AUGUST 31, 1999
- --------------------------------------------------------------------------------
Net investment income:
Interest income $28,694,081
-----------
Expenses -
Management fee $ 3,124,475
Trustees' compensation 41,906
Shareholder servicing agent fee 606,516
Distribution and service fee (Class B) 4,140,626
Distribution and service fee (Class C) 740,309
Administrative fee 74,673
Custodian fee 185,914
Printing 53,919
Postage 184,631
Auditing fees 21,210
Legal fees 5,242
Amortization of prepaid insurance 4,156
Miscellaneous 936,664
-----------
Total expenses $10,120,241
Fees paid indirectly (88,920)
Reduction of expenses by investment adviser (566,152)
-----------
Net expenses $ 9,465,169
-----------
Net investment income $19,228,912
===========
See notes to financial statements.
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Statement of Changes in Net Assets
<CAPTION>
- --------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
From operations -
Net investment income $ 19,228,912 $ 12,287,410
--------------- ---------------
Distributions declared to shareholders -
From net investment income (Class A) $ (3,392,925) $ (2,201,910)
From net investment income (Class B) (13,457,718) (9,040,559)
From net investment income (Class C) (2,378,269) (1,044,941)
--------------- ---------------
Total distributions declared to shareholders $ (19,228,912) $ (12,287,410)
--------------- ---------------
Fund share (principal) transactions at net asset
value of $1.00 per share -
Net proceeds from sale of shares $ 7,092,954,026 $ 4,197,280,427
Shares issued in reinvestment of distributions 14,927,681 9,322,273
Shares reacquired (6,952,174,564) (3,922,701,430)
--------------- ---------------
Total increase in net assets $ 155,707,143 $ 283,901,270
Net assets:
At beginning of period 589,697,622 305,796,352
--------------- ---------------
At end of period $ 745,404,765 $ 589,697,622
=============== ===============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
CLASS A
- -----------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Net investment income(S) $ 0.04 $ 0.05 $ 0.05 $ 0.04 $ 0.05
Less distributions declared to shareholders
from net investment income (0.04) (0.05) (0.05) (0.04) (0.05)
------ ------ ------ ------ ------
Net asset value - end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return 4.33% 4.87% 4.64% 4.75% 4.91%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 0.82% 0.82% 0.93% 0.84% 0.90%
Net investment income 4.22% 4.72% 4.54% 4.62% 4.94%
Net assets at end of period (000 omitted) $98,719 $80,374 $45,007 $37,872 $10,852
(S) The investment adviser voluntarily waived a portion of its 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 $ 0.05 $ 0.04 $ 0.04 $ 0.05
Ratios (to average net assets):
Expenses## 0.92% 0.92% 1.03% 0.94% 1.00%
Net investment income 4.12% 4.62% 4.44% 4.52% 4.84%
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1,
1995, the Fund's expenses are calculated without reduction for this expense offset arrangement.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------ ------
Net investment income(S) $ 0.03 $ 0.04 $ 0.03 $ 0.04 $ 0.04
Less distributions declared to
shareholders from net investment income (0.03) (0.04) (0.03) (0.04) (0.04)
------ ------ ------ ------ ------
Net asset value - end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return 3.29% 3.83% 3.58% 3.64% 3.81%
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.82% 1.82% 1.95% 1.92% 1.93%
Net investment income 3.22% 3.78% 3.53% 3.58% 3.69%
Net assets at end of period (000 omitted) $541,126 $438,577 $244,416 $251,192 $166,519
(S) The investment adviser voluntarily waived a portion of its 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 $ 0.03 $ 0.04 $ 0.03 $ 0.04 $ 0.04
Ratios (to average net assets):
Expenses## 1.92% 1.92% 2.05% 2.02% 2.03%
Net investment income 3.12% 3.68% 3.43% 3.48% 3.59%
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. For fiscal years ending after September 1,
1995, the Fund's expenses are calculated without reduction for this expense offset arrangement.
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL STATEMENTS -- continued
Financial Highlights - continued
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1999 1998 1997 1996*
- --------------------------------------------------------------------------------------------------------------------------
CLASS C
- --------------------------------------------------------------------------------------------------------------------------
<S> <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
------ ------ ------ ------
Net investment income(S) $ 0.03 $ 0.04 $ 0.03 $ 0.01
Less distributions declared to shareholders from net
investment income (0.03) (0.04) (0.03) (0.01)
------ ------ ------ ------
Net asset value - end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======
Total return 3.25% 3.76% 3.60% 3.67%+
Ratios (to average net assets)/Supplemental data(S):
Expenses## 1.82% 1.82% 1.95% 1.79%+
Net investment income 3.22% 3.80% 3.57% 3.60%+
Net assets at end of period (000 omitted) $105,559 $70,746 $16,373 $6,642
(S) The investment adviser voluntarily waived a portion of its 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 $ 0.03 $ 0.04 $ 0.03 $ 0.01
Ratios (to average net assets):
Expenses## 1.92% 1.92% 2.05% 1.89%+
Net investment income 3.12% 3.70% 3.47% 3.50%+
* For the period from the inception of Class C, April 1, 1996, through August 31, 1996.
+ Annualized.
## The Fund has an expense offset arrangement which reduces the Fund's custodian fee based upon the amount of cash
maintained by the Fund with its custodian and dividend disbursing agent. The Fund's expenses are calculated without
reduction for this expense offset arrangement.
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 discount is
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.
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 distributions from paid-in
capital. Differences in the recognition or classification of income between
the financial statements and tax earnings and profits, which result in
temporary over-distributions for financial statement purposes, are classified
as distributions in excess of net investment income or net realized gains.
At August 31, 1999, the Fund, for federal income tax purposes, had a capital
loss carryforward of $1,426 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, 2003, ($908), August 31, 2004, ($480), August 31, 2006,
($2), and August 31, 2007, ($36).
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. 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 the Fund's 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
$12,027 for the year ended August 31, 1999.
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 $38,264 and $991 for
Class B and Class C shares, respectively, for the year ended August 31, 1999.
Fees incurred under the distribution plan during the year ended August 31,
1999, were 1.00% of average daily net assets attributable to Class B and Class
C shares, on an annualized basis.
Certain Class A 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,
1999, were $6,975, $2,292,497, and $172,689 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 0.10%. Prior to April 1, 1999, the fee was calculated as a percentage
of the Fund's average daily net assets at an effective annual rate of 0.1125%.
(4) Portfolio Securities
Purchases and sales of money market investments, exclusive of securities subject
to repurchase agreements, aggregated $25,665,725,063 and $25,410,549,000,
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,
1999 1998
- -------------------------------------------------------------------------------
Shares sold 1,911,002,475 967,380,915
Shares issued to shareholders in
reinvestment of distributions 2,554,337 1,645,697
Shares reacquired (1,895,211,541) (933,659,907)
-------------- --------------
Net increase 18,345,271 35,366,705
============== ==============
Class B Shares
YEAR ENDED YEAR ENDED
AUGUST 31, 1999 AUGUST 31, 1999
- -------------------------------------------------------------------------------
Shares sold 3,254,509,295 2,244,025,425
Shares issued to shareholders in
reinvestment of distributions 10,788,781 7,046,348
Shares reacquired (3,162,749,084) (2,056,910,279)
-------------- --------------
Net increase 102,548,992 194,161,494
============== ==============
Class C Shares
YEAR ENDED YEAR ENDED
AUGUST 31, 1999 AUGUST 31, 1999
- -------------------------------------------------------------------------------
Shares sold 1,927,442,256 985,874,087
Shares issued to shareholders in
reinvestment of distributions 1,584,563 630,228
Shares reacquired (1,894,213,939) (932,131,244)
-------------- --------------
Net increase 34,812,880 54,373,071
============== ==============
(6) Line of Credit
The Fund and other affiliated funds participate in a $820 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, 1999, was $4,040.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Trustees 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, 1999, the related
statement of operations for the year then ended, the statement of changes in
net assets for the years ended August 31, 1999 and 1998, and the financial
highlights for each of the years in the five-year period ended August 31,
1999. 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, 1999 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. 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, 1999, 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 7, 1999
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL TAX INFORMATION
- --------------------------------------------------------------------------------
IN JANUARY 2000, SHAREHOLDERS WILL BE MAILED A FORM 1099 REPORTING THE
FEDERAL TAX STATUS OF ALL DISTRIBUTIONS PAID DURING THE CALENDAR YEAR 1999.
- --------------------------------------------------------------------------------
<PAGE>
MFS' YEAR 2000 READINESS DISCLOSURE
MFS Investment Management(R), as an investment adviser and on behalf of the MFS
funds, is committed to the effective use of technology in managing our portfolio
investments, delivering high-quality service to MFS fund shareholders,
retirement plan participants, and MFS' institutional clients, and supporting the
financial consultants who sell our products. With that in mind, we created a
separately funded Year 2000 Program Management Office in 1996 comprised of a
specialized staff reporting directly to MFS senior management.
The Year 2000 (Y2K) problem arises because calendar-year fields in computers
and software applications traditionally have used two-digit codes so that, for
example, the year 1998 is coded as "98," with the "19" being implied. In the
year 2000, unless necessary corrections have been made, computer applications
may assume "00" refers to 1900 rather than 2000, thus resulting in systems
failures or miscalculations. To address this issue, our team of dedicated
business and technology managers, working with outside experts, is taking
steps to ascertain the Y2K readiness of MFS' internal systems and is working
with our external systems vendors to determine whether they expect their
systems to be ready.
MFS recognizes that fund shareholders and institutional clients also are
concerned about whether the companies whose securities are held in their
portfolios are addressing Y2K issues. As part of the MFS Original Research(R)
process of evaluating portfolio investments, one of the many relevant factors
that MFS' portfolio managers and research analysts may consider is a company's
Y2K readiness. Each year, MFS' research analysts and portfolio managers
conduct more than 1,000 on-site meetings with companies whose securities are,
or may be, held in fund and client portfolios, and host an additional 1,500
meetings at MFS' headquarters. When assessing the Y2K readiness of these
companies, MFS' research analysts and portfolio managers may rely upon
discussions at these meetings as well as SEC disclosure documents and third-
party reports.
Y2K readiness is an enormously complex, worldwide issue. No company or
institution can guarantee that it will be unaffected by the Y2K issue. While
MFS is taking significant steps to protect the integrity of its internal
systems, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on MFS, shareholders of MFS funds, participants in
retirement plans administered by MFS, or MFS' institutional clients.
If you have further questions regarding MFS' Year 2000 Readiness Program,
please visit our Web site at www.mfs.com or contact the MFS Year 2000 Program
Management Office by e-mail at [email protected] or by letter at 500 Boylston
Street, Boston, MA 02116-3741.
<PAGE>
<TABLE>
MFS(R) CASH RESERVE FUND
<S> <C>
TRUSTEES ASSISTANT TREASURERS
Richard B. Bailey* - Private Investor; Mark E. Bradley*
Former Chairman and Director (until 1991), Ellen Moynihan*
MFS Investment Management James O. Yost*
Marshall N. Cohan - Private Investor SECRETARY
Stephen E. Cavan*
Lawrence H. Cohn, M.D. - Chief of Cardiac
Surgery, Brigham and Women's Hospital; ASSISTANT SECRETARY
Professor of Surgery, Harvard Medical School James R. Bordewick, Jr.*
The Hon. Sir J. David Gibbons, KBE - Chief CUSTODIAN
Executive Officer, Edmund Gibbons Ltd.; State Street Bank and Trust Company
Chairman, Colonial Insurance Company, Ltd.
AUDITORS
Abby M. O'Neill - Private Investor Deloitte & Touche LLP
Walter E. Robb, III - President and Treasurer, INVESTOR INFORMATION
Benchmark Advisors, Inc.; President, Benchmark For MFS stock and bond market outlooks, call toll
Consulting Group, Inc. free: 1-800-637-4458 anytime from a touch-tone
telephone.
Arnold D. Scott* - Senior Executive
Vice President, Director, and Secretary, For information on MFS mutual funds, call your
MFS Investment Management financial consultant or, for an information
kit, call toll free: 1-800-637-2929 any
Jeffrey L. Shames* - Chairman, Chief business day from 9 a.m. to 5 p.m. Eastern time
Executive Officer, and Director, (or leave a message anytime).
MFS Investment Management
INVESTOR SERVICE
J. Dale Sherratt - President, Insight MFS Service Center, Inc.
Resources, Inc. Managing General Partner, P.O. Box 2281
Wellfleet Investments; Chief Executive Boston, MA 02107-9906
Officer, Cambridge Nutraceuticals
For general information, call toll free:
Ward Smith - Former Chairman (until 1994), 1-800-225-2606 any business day from 8 a.m. to
NACCO Industries 8 p.m. Eastern time.
INVESTMENT ADVISER For service to speech- or hearing-impaired,
Massachusetts Financial Services Company call toll free: 1-800-637-6576 any business day
500 Boylston Street from 9 a.m. to 5 p.m. Eastern time. (To use
Boston, MA 02116-3741 this service, your phone must be equipped with
a Telecommunications Device for the Deaf.) For
DISTRIBUTOR share prices, account balances, and exchanges,
MFS Fund Distributors, Inc. call toll free: 1-800-MFS-TALK (1-800-637-8255)
500 Boylston Street anytime from a touch-tone telephone.
Boston, MA 02116-3741
WORLD WIDE WEB
CHAIRMAN AND PRESIDENT www.mfs.com
Jeffrey L. Shames*
PORTFOLIO MANAGER
Jean O. Alessandro*
TREASURER
W. Thomas London*
*Affiliated with the Investment Adviser
</TABLE>
<PAGE>
MFS(R) CASH RESERVE FUND ------------
BULK RATE
U.S. POSTAGE
[Logo] M F S(R) PAID
INVESTMENT MANAGEMENT MFS
We invented the mutual fund(R) ------------
500 Boylston Street
Boston, MA 02116-3741
(c)1999 MFS Investment Management.(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.,
500 Boylston Street, Boston, MA 02116
MCR-2 10/99 46M 01/201/301
