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[MFS LOGO]
THE FIRST NAME IN MUTUAL FUNDS
MFS(R) Special Value Trust
Semiannual Report
April 30, 1995
[graphic] (silhouette of people and window)
<PAGE>
Dear Shareholders:
During the six months ended April 30, 1995, the Trust continued to maintain an
annual distribution rate of 11% based on its original New York Stock Exchange
offering price of $15.00 per share. These distributions were paid through a
combination of income earned from dividends, bond coupon payments, paid-in
capital and short-term capital gains. (Thus far this fiscal year, approximately
48% of the Trust's total distributions has been a return of capital.) During the
past six months, the market price of the Trust on the New York Stock Exchange
has traded at a premium to its net asset value, which has ranged between 11.0%
and 16.9%. On April 30, 1995, shares were trading at a 15.3% premium based on
the stock market price of $14.75 and the net asset value of $12.79.
Economic Outlook
As the economy enters its fifth year of expansion, it is evidencing a decidedly
decelerating trend from its robust pace of 1994, when gross domestic product
expanded by 4.1%. Estimated growth in this year's first quarter diminished to an
annual rate of 2.8%. Consumer spending slowed considerably during the quarter
and was accompanied by a correspondingly large increase in inventories. As we
begin the year's second quarter, the evidence suggests that the economy has
entered a phase of less-than-full-potential growth, as the April unemployment
rate showed a second consecutive monthly increase. We expect the economy to
continue to grow at this more subdued pace. We do not anticipate that the
slowdown will deteriorate into a recession and, conversely, we remain mindful of
the potential for a reliquified consumer sector to reassert itself as the year
progresses.
Interest Rates
As evidence of a slowdown has continued to mount, the fixed-income markets have
become increasingly convinced that the Federal Reserve Board has concluded its
monetary-tightening initiatives. Furthermore, as the economy has diminished in
its ability to create jobs and in its usage of available productive capacity,
apprehension concerning a cyclical upturn in inflation has receded. As a result,
long-term U.S. Treasury bond yields have declined to near 7.00% as of April 30,
1995, down from 7.87% at the beginning of the year and from their cyclical peak
of 8.15% in November 1994. Despite higher costs at the crude and intermediate
stages of production, prices have not increased appreciably at the consumer
level. For the 12 months ended in April of this year, the Consumer Price Index,
a popular measure of change in prices, increased by a still moderate 3.1%.
Continued benign growth in labor costs and the inability of many businesses to
effectively raise prices have combined to extend the favorable price
environment. Nevertheless, we do anticipate a minor cyclical pickup in
inflationary pressure this year to the 3% - 3-1/2% range.
The decline in interest rates has been particularly precipitous during the past
month, leaving the market potentially vulnerable to a near-term correction.
However, we believe continuing moderate growth will result in interest rates
trending near to, and possibly somewhat lower than, present levels during the
balance of this year.
Stock Market
The stock market has rebounded from its uninspiring performance during 1994,
posting its strongest quarterly results in four years. Recently, stock prices
have responded to growing confidence that the Federal Reserve is nearing the end
of its tightening initiatives and that gains in corporate earnings may remain
substantial. Although we expect the economy to slow in 1995, our outlook for
corporate earnings growth remains favorable. We have been de-emphasizing many
cyclical areas such as autos and basic materials because of their less
attractive earnings outlook, and we have been emphasizing growth areas such as
consumer and household products. Despite the potential impact on corporate
profits of a slowing economy, we believe stock prices will respond to continued
growth in profitability.
1
<PAGE>
Portfolio Performance and Strategy
As of April 30, 1995, approximately 75% of the Trust's total net assets was
invested in common and preferred stocks, 17% in high-yield and distressed
corporate bonds, and 8% in cash equivalents. The Trust's investment mandate is
still focused on opportunistic investing in any market or security which we
believe presents attractive risk-adjusted returns. We invest in the high-yield
or "junk" corporate bond market when we are able to buy senior bonds in a
company's capital structure which yield double digit returns, and when we
believe we have significant asset protection to limit our risk. An example of
this type of investment would be GPA, the world's largest aircraft lessor. In
the equity market, our strategy is to buy companies at below-market multiples
that we believe will grow earnings and cash flow faster than market
expectations. Oftentimes, companies like these either are undergoing a financial
or operational restructuring and are not widely followed by Wall Street analysts
or, in our opinion, are not understood well by other investors. Examples of
these opportunities would be IMO Industries, a diversified industrial
manufacturing company, and National Convenience Stores, a Texas-based gas
station operator. We plan to continue our disciplined strategy of value
investing and to wait for market opportunities to present themselves over the
remainder of the year.
We appreciate your support and welcome any questions or comments you may have.
Respectfully,
/S/ A. KEITH BRODKIN
A. Keith Brodkin
Chairman and President
/S/ ROBERT J. MANNING
Robert J. Manning
Portfolio Manager
May 17, 1995
Dividend Reinvestment and
Cash Purchase Plan
The Trust offers a Dividend Reinvestment and Cash Purchase Plan which allows you
to reinvest either all of the distributions or only the long-term capital gains
paid by the Trust. Unless the shares are trading at a premium (exceeding net
asset value), purchases are made at the market price. Otherwise, purchases will
be made at a discounted price of either the net asset value or 95% of the market
price, whichever is greater. You can also buy shares of the Trust. Investments
from $100 to $500 can be made in January and July on the 15th of the month or
shortly thereafter.
If your shares are in the name of a brokerage firm, bank or other nominee, you
can ask the firm or nominee to participate in the Plan on your behalf. If the
nominee does not offer the Plan, you may wish to request that your shares be
re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the Trust. However, when shares are bought
on the New York Stock Exchange or otherwise on the open market, each participant
pays a pro rata share of the commissions. A service fee of $0.75 is charged for
each cash purchase as well as a pro rata share of the brokerage commissions, if
any. The automatic reinvestment of distributions does not relieve you of any
income tax that may be payable (or required to be withheld) on the
distributions.
To enroll in or withdraw from the Plan or to receive a brochure providing a
complete description of the Plan, please contact the Plan agent at the address
and telephone number located on the back cover of this report. Please have
available the name of the Trust and your account and Social Security numbers.
For certain types of registrations, such as corporate accounts, instructions
must be submitted in writing. When you withdraw from the Plan, you can receive
the value of the reinvested shares in one of two ways: a check for the value of
the full and fractional shares, or a certificate for the full shares and a check
for the fractional shares.
2
<PAGE>
In accordance with Section 23(c) of the Investment Company Act of 1940, the
Trust hereby gives notice that it may from time to time repurchase shares of the
Trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
Number of Employees
The Trust is organized as a Massachusetts business trust and is registered under
the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified, management investment company and has no employees.
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MFV.
Number of Shareholders
As of April 30, 1995, our records indicate that there are 1,404 registered
shareholders and approximately 7,000 shareholders owning Trust shares in
"street" name, such as through brokers, banks and other financial
intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the Trust, please write or call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
Performance Summary
(For the six months ended April 30, 1995)
Net Asset Value Per Share
October 31, 1994 $ 13.40
April 30, 1995 $ 12.79
New York Stock Exchange Price
October 31, 1994 $14.875
December 15, 1994 (low)* $13.125
March 29, 1995 (high)* $14.875
April 30, 1995 $14.750
*For the period November 1, 1994 through April 30, 1995.
Investment Objective and Policy
MFS(R) Special Value Trust's investment objective is to maintain an annual
distribution rate of 11%, based on the original offering price, while seeking
opportunities for capital appreciation.
As opportunities arise in the marketplace, the Trust may invest in securities
that the Trust believes represent uncommon value by having the potential for
significant capital appreciation over a period of 12 months or longer. The
issuers of these securities may include companies out-of-favor in the
marketplace, or in out-of-favor industries, and over- leveraged companies with
promising longer-term prospects. Some of these companies may also be
experiencing financial or operating difficulties.
3
<PAGE>
Portfolio of Investments -- April 30, 1995
Common Stock and Warrants -- 73.0%
Issuer Shares Value
Agricultural Products -- 1.2%
AGCO Corp. 25,000 $ 890,625
Airlines -- 0.7% ----------
Southwest Airlines Co. 25,000 $ 578,125
Apparel and Textiles -- 0.4% ----------
Team Rental Group, Inc.* 34,000 $ 276,250
Automotive -- 5.5% ----------
General Motors Corp. 15,000 $ 676,875
Harvard Industries, Inc., "B"* 180,000 3,532,500
----------
$4,209,375
----------
Banks and Credit Companies -- 1.0%
First Interstate Bancorp 10,000 $ 768,750
Building -- 0.2% ----------
Atlantic Gulf Communities Corp.* 16,480 $ 131,840
Atlantic Gulf Communities Corp.,
Warrants* 2,824 2,824
----------
$ 134,664
----------
Business Machines -- 0.2%
Affiliated Computer Services, Inc.,
"A"* 4,300 $ 117,175
Cellular Telephones -- 0.6% ----------
AirTouch Communications, Inc.* 16,000 $ 430,000
Chemicals -- 3.2% ----------
Methanex Corp.* 63,800 $ 677,875
Sterling Chemicals, Inc.* 91,300 1,141,250
Uniroyal Chemical Corp.* 60,000 660,000
----------
$2,479,125
----------
Computer Software -- Systems -- 2.5%
BMC Software, Inc.* 7,100 $ 441,975
Compuware Corp.* 26,900 706,125
Sybase, Inc.* 31,900 773,575
----------
$1,921,675
----------
Conglomerates -- 2.4%
Insilco Corp.* 70,030 $1,873,302
Consumer Goods and Services -- 5.6% ----------
Philip Morris Cos., Inc. 25,000 $1,693,750
RJR Nabisco Holdings Corp. 35,000 958,125
Thermadyne Holdings Corp.* 22,811 299,394
Tyco International Ltd. 9,000 472,500
Westpoint Stevens, Inc.* 50,000 906,250
----------
$4,330,019
----------
Defense Electronics -- 1.2%
Loral Corp. 20,000 $ 940,000
Electrical Equipment -- 1.0% ----------
Honeywell, Inc. 20,000 $ 772,500
Electronics -- 3.9% ----------
Cypress Semiconductor Corp.* 20,000 $ 605,000
Intel Corp. 10,000 1,023,750
Kulicke & Soffa Industries, Inc.* 25,000 1,059,375
LTX Corp.* 50,000 306,250
----------
$2,994,375
----------
Entertainment -- 6.7%
Argosy Gaming Co.* 9,400 $ 109,275
Bally Gaming International, Inc.* 108,300 1,055,925
Casino America, Inc.* 37,600 573,400
Citicasters, Inc.* 30,000 1,050,000
New World Communications Group, Inc.,
"A"* 62,219 1,049,946
Rio Hotel & Casino, Inc.* 28,000 427,000
Sam Houston Race Park, Inc., Warrants* 1,700 0
Showboat, Inc. 60,000 915,000
Spectra Vision, Inc.* 22,500 1,406
----------
$5,181,952
----------
Financial Institutions -- 5.8%
Federal Home Loan Mortgage Corp. 45,000 $2,936,250
Student Loan Corp. 30,000 746,250
Student Loan Marketing Assn. 20,000 810,000
----------
$4,492,500
----------
Food and Beverage Products -- 1.6%
PepsiCo, Inc. 20,000 $ 832,500
Inc.*+ 11,350 385,900
----------
$1,218,400
----------
Forest and Paper Products -- 1.2%
Boise Cascade Corp. 13,600 $ 445,400
Willamette Industries, Inc. 10,000 512,500
----------
$ 957,900
----------
Medical and Health Products -- 1.3%
Sofamor/Danek Group, Inc.* 22,300 $ 540,775
Ventritex, Inc.* 30,000 450,000
----------
$ 990,775
----------
Medical and Health Technology and Services -- 7.3%
Living Centers of America, Inc.* 50,000 $1,418,750
Maxicare Health Plans* 1,734 26,877
Mid Atlantic Medical Services, Inc.* 47,400 817,650
OrNda HealthCorp., Inc.* 121,000 2,117,500
Pacificare Health Systems, Inc., "B"* 20,000 1,240,000
----------
$5,620,777
----------
Metals and Minerals -- 1.4%
Geneva Steel Co., "A"* 98,100 $1,066,838
Oils -- 0.3% ----------
Newfield Exploration Corp.* 9,200 $ 211,600
Photographic Products -- 1.1% ----------
Eastman Kodak Co. 15,000 $ 862,500
Printing and Publishing -- 1.3% ----------
Pulitzer Publishing Co. 24,625 $ 994,234
Railroads -- 1.4% ----------
Wisconsin Central Transportation
Corp.* 19,400 $1,107,012
----------
4
<PAGE>
Issuer Shares Value
Restaurants and Lodging -- 1.8%
Brinker International, Inc.* 35,000 $ 599,375
Showbiz Pizza Time, Inc.* 84,900 753,488
-----------
$ 1,352,863
-----------
Special Products and Services -- 4.3%
Coltec Industries, Inc.* 23,400 $ 427,050
Gillett Holdings, Inc.* 37,656 828,432
IMO Industries, Inc.* 75,000 553,125
Memorex Telex N.V., ADR* 82,390 113,286
Spreckles Industries, Inc.* 95,000 914,375
Stanley Works 11,000 435,875
-----------
$ 3,272,143
-----------
Stores -- 4.6%
Carson Pirie Scott* 55,000 $ 886,875
Dayton Hudson Corp. 10,000 671,250
Federated Department Stores, Inc.* 40,000 845,000
Finlay Enterprises, Inc.* 1,333 18,662
National Convenience Stores, Inc.* 106,900 1,109,088
-----------
$ 3,530,875
-----------
Telecommunications
American Telecasting, Inc., Warrants* 4,750 $ 14,250
Foreign -- 3.3% -----------
Canada -- 1.9%
Cominco Fertilizers Ltd. (Chemicals) 10,000 $ 306,630
Rogers Communications, Inc., "B"
(Telecommunications)* 100,000 1,197,053
-----------
$ 1,503,683
-----------
Hong Kong -- 1.4%
Semi-Tech (Global) Ltd. (Electronics) 686,000 $ 1,058,998
Wang-Talon (Financial Institutions)* 400 5,300
-----------
$ 1,064,298
-----------
Total Foreign $ 2,567,981
Total Common Stocks and Warrants -----------
(Identified Cost, $51,593,602) $56,158,560
Preferred Stocks -- 1.8% -----------
Canada -- 1.1%
Gulf Canada Resources Ltd. (Chemicals)* 300,000 $ 843,750
United Kingdom -- 0.7% -----------
Signet Group PLC (Stores)* 10 $ 540,000
Total Preferred Stocks -----------
(Identified Cost, $1,409,000) $ 1,383,750
-----------
Bonds -- 16.9%
Issuer Principal Amount
(000 Omitted) Value
Aerospace -- 1.2%
Haynes International, Inc., 11.25s,
1998 $1,000 $930,000
Airlines -- 0.4% ---------
Continental Airlines, Inc., 11.75s,
1995** $3,975 $308,062
Building -- 0.7% ---------
Atlantic Gulf Communities Corp., 12s,
1996 $ 391 $332,860
Atlantic Gulf Communities Corp.,
13s, 1998 391 215,380
---------
$548,240
Consumer Goods and Services -- 2.1% ----------
Revlon Worldwide Corp., 0s, 1998* $2,500 $1,593,750
Containers -- 1.8% ----------
Calmar Spraying Systems, Inc., 14s,
1999 $1,000 $1,020,000
Envirodyne Industries, Inc., 10.25s,
2001 438 359,160
----------
$1,379,160
----------
Entertainment -- 0.6%
Sam Houston Race Park, Inc., 11.75s,
1999**+ $ 425 $ 85,000
Spectra Vision, Inc., 0s, 2001* 1,000 360,000
----------
$ 445,000
Financial Institutions -- 2.4% ----------
GPA Holland B.V., 9.875s, 2001 $1,000 $ 684,830
Tiphook Finance Corp., 8s, 2000 1,542 1,171,920
----------
$1,856,750
----------
Oils -- 1.2%
Mesa Capital Corp., 0s, 1998* $1,000 $ 960,000
Printing and Publishing -- 0.1% ----------
Western Publishing Group, 7.65s, 2002 $ 150 $ 118,875
Restaurants and Lodging -- 1.3% ----------
Kloster, Inc., 13s, 2003 $ 500 $ 428,750
Maritime Group Ltd., 13.5s, 1997**## 1,106 542,091
----------
$ 970,841
----------
Special Products and Services -- 1.0%
K & F Industries, Inc., 11.875s, 2003 $ 750 $ 759,375
----------
5
<PAGE>
Portfolio of Investments -- continued
Bonds -- continued
Issuer Principal Amount
(000 Omitted) Value
Stores -- 3.1%
Finlay Enterprises, Inc., 0s, 2005* $1,000 $ 655,000
Woodward & Lothrop, Inc., 12s, 1995** 1,001 841,043
Woodward & Lothrop, Inc., 14.75s, 1995** 6,250 937,500
-----------
$ 2,433,543
-----------
Supermarkets -- 0.3%
Eagle Food Centers, Inc., 8.625s, 2000 $ 400 $ 216,000
Telecommunications -- 0.7% -----------
American Telecasting, Inc., 12.5s, 2004* $ 950 $ 522,500
Total Bonds -----------
(Identified Cost, $14,591,796) $13,042,096
Repurchase Agreement -- 4.9% -----------
Lehman Brothers, dated 4/28/95,
due 5/01/95, total to be received
$3,753,845 (secured by
$4,390,000 U.S. Treasury Bonds,
6.25s, due 8/15/23, market value
$3,829,286), at Cost $3,752 $ 3,752,000
Total Investments -----------
(Identified Cost, $71,346,398) $74,336,406
Other Assets, Less Liabilities -- 3.4% 2,611,090
-----------
Net Assets -- 100.0% $76,947,496
===========
* Non-income producing security.
** Non-income producing security -- in default.
+ Restricted security.
## SEC Rule 144A restriction.
Statement of Assets and Liabilities -- April 30, 1995
Assets:
Investments, at value (identified cost, $71,346,398) $ 74,336,406
Cash ............................................... 156
Receivable for investments sold .................... 2,800,661
Interest and dividends receivable .................. 245,485
Other assets ....................................... 1,163
------------
Total assets ................................... $ 77,383,871
------------
Liabilities:
Payable for investments purchased .................. $ 243,333
Distributions payable .............................. 76,398
Payable to affiliates --
Management fee ................................... 4,594
Transfer and dividend disbursing agent fee ....... 2,500
Accrued expenses and other liabilities ............. 109,550
------------
Total liabilities .............................. $ 436,375
------------
Net assets ........................................... $ 76,947,496
============
Net assets consist of:
Paid-in capital .................................... $ 76,976,412
Unrealized appreciation on investments ............. 2,990,008
Accumulated undistributed net realized gain on
investments and foreign
currency transactions ............................ 2,821,018
Accumulated distributions in excess of net
investment income ................................ (5,839,942)
------------
Total .......................................... $ 76,947,496
============
Shares of beneficial interest outstanding ............ 6,017,214
============
Net asset value per share (net assets / shares of
beneficial interest outstanding) ................... $ 12.79
============
See notes to financial statements
6
<PAGE>
Statement of Operations -- Six Months Ended April 30, 1995
Net investment income:
Income --
Interest ......................................... $ 871,782
Dividends ........................................ 256,275
-----------
Total investment income ........................ $ 1,128,057
-----------
Expenses --
Management fee ................................... $ 285,387
Trustees' compensation ........................... 47,315
Transfer and dividend disbursing agent fee ....... 14,531
Auditing fees .................................... 26,813
Legal fees ....................................... 13,794
Printing ......................................... 12,828
Postage .......................................... 3,932
Amortization of organization expenses ............ 1,832
Custodian fee .................................... 1,042
Miscellaneous .................................... 63,958
-----------
Total expenses ................................. $ 471,432
-----------
Net investment income ........................ $ 656,625
-----------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) (identified cost basis) --
Investment transactions .......................... $ 2,857,702
Foreign currency transactions .................... (1,183)
Net realized gain on investments and foreign ...
currency transactions ........................ $ 2,856,519
-----------
Change in unrealized appreciation (depreciation) --
Net unrealized loss on investments ............... $(2,272,631)
-----------
Net realized and unrealized gain on investments $ 583,888
-----------
Increase in net assets from operations ....... $ 1,240,513
===========
See notes to financial statements
7
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
April 30, October 31,
Increase (decrease) in net assets: 1995 1994
------------ ------------
<S> <C> <C>
From operations --
Net investment income ........................................................... $ 656,625 $ 1,042,578
Net realized gain on investments and foreign currency transactions .............. 2,856,519 3,740,071
Net unrealized loss on investments and foreign currency transactions ............ (2,272,631) (1,741,963)
------------ ------------
Increase in net assets from operations ........................................ $ 1,240,513 $ 3,040,686
------------ ------------
Distributions declared to shareholders --
From net investment income ...................................................... $ (656,625) $ (1,042,578)
From net realized gain on investments and foreign currency transactions ......... -- (13,706,194)
In excess of net investment income .............................................. (4,296,183) (938,503)
In excess of net realized gain on investments and foreign currency transactions . -- (562,127)
From paid-in capital ............................................................ -- (5,186,565)
------------ ------------
Total distributions declared to shareholders .................................. $ (4,952,808) $(21,435,967)
------------ ------------
Trust share (principal) transactions --
Net asset value of shares issued to shareholders in reinvestment of distributions $ 680,897 $ 1,442,636
------------ ------------
Increase in net assets from Trust share transactions .......................... $ 680,897 $ 1,442,636
------------ ------------
Total decrease in net assets ................................................ $ (3,031,398) $(16,952,645)
Net assets:
At beginning of period .......................................................... 79,978,894 96,931,539
------------ ------------
At end of period (including accumulated distributions in excess of net investment
income of $(5,839,942) and $(1,543,759), respectively) ........................ $ 76,947,496 $ 79,978,894
============ ============
</TABLE>
See notes to financial statements
8
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Six
Months
Ended Year Ended October 31,
Per share data (for a share outstanding throughout each April 30, ----------------------
period): 1995** 1994** 1993 1992 1991 1990+
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period ................. $ 13.40 $ 16.49 $ 14.82 $ 14.90 $ 11.66 $ 13.95
Income from investment operations -- -------- -------- -------- -------- -------- --------
Net investment income ................................ $ 0.11 $ 0.18 $ 0.67 $ 0.77 $ 0.90 $ 1.04
Net realized and unrealized gain (loss) on investments
and foreign currency transactions .................. 0.11 0.35 3.13 1.09 3.99 (1.95)
-------- -------- -------- -------- -------- --------
Total from investment operations ................... $ 0.22 $ 0.53 $ 3.80 $ 1.86 $ 4.89 $ (0.91)
Less distributions declared to shareholders -- -------- -------- -------- -------- -------- --------
From net investment income ........................... $ (0.11) $ (0.18) $ (0.67) $ (0.77) $ (0.90) $ (1.04)
From net realized gain on investments and foreign
currency transactions .............................. -- (2.31) (1.44) (1.17) (0.75) --
In excess of net investment income ................... (0.72) (0.16) (0.02) -- -- --
In excess of net realized gains and foreign currency
transactions ....................................... -- (0.09) -- -- -- --
From paid-in capital ................................. -- (0.88) -- -- -- (0.34)
-------- -------- -------- -------- -------- --------
Total distributions declared to shareholders ....... $ (0.83) $ (3.62) $ (2.13) $ (1.94) $ (1.65) $ (1.38)
======== ======== ======== ======== ======== ========
Net asset value -- end of period ....................... $ 12.79 $ 13.40 $ 16.49 $ 14.82 $ 14.90 $ 11.66
======== ======== ======== ======== ======== ========
Per share market value -- end of period ................ $ 14.750 $ 14.875 $ 17.500 $ 14.750 $ 14.250 $ 10.125
======== ======== ======== ======== ======== ========
Total return ........................................... 5.36% 6.75% 35.98% 17.66% 59.90% (25.53)%*
Ratios (to average net assets)/Supplemental data:
Expenses ............................................. 1.27%* 1.20% 1.22% 1.35% 1.37% 1.40%*
Net investment income ................................ 1.77%* 1.20% 4.32% 5.16% 7.97% 8.65%*
Portfolio turnover ..................................... 45% 75% 151% 175% 327% 237%
Net assets at end of period (000 omitted) .............. $76,947 $79,979 $96,932 $86,276 $85,978 $69,393
</TABLE>
+ For the period from the commencement of investment operations, November 24,
1989 to October 31, 1990.
** Per share data for the period were calculated using the average share method.
* Annualized.
See notes to financial statements
9
<PAGE>
Notes to Financial Statements
(1) Business and Organization
MFS Special Value Trust (the Trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
a non-diversified, closed-end management investment company.
(2) Significant Accounting Policies
Investment Valuations -- Equity securities listed on securities exchanges or
reported through the NASDAQ system are valued at last sale prices. Unlisted
equity securities or listed equity securities for which last sale prices are not
available are valued at last quoted bid prices. 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.
Short-term obligations, which mature in 60 days or less, are valued at amortized
cost, which approximates value. Non-U.S. dollar denominated short-term
obligations are valued at amortized cost as calculated in the base currency and
translated into U.S. dollars at the closing daily exchange rate. Futures
contracts, options and options on futures contracts listed on commodities
exchanges are valued at closing settlement prices. Over-the-counter options are
valued by brokers through the use of a pricing model which takes into account
closing bond valuations, implied volatility and short-term repurchase rates.
Securities for which there are no such quotations or valuations are valued at
fair value as determined in good faith by or at the direction of the Trustees.
Repurchase Agreements -- The Trust may enter into repurchase agreements with
institutions that the Trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The Trust requires
that the securities purchased in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the Trust to obtain those securities
in the event of a default under the repurchase agreement. The Trust monitors, on
a daily basis, the value of the securities transferred to ensure that the value,
including accrued interest, of the securities under each repurchase agreement is
greater than amounts owed to the Trust under each such repurchase agreement.
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 and 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.
Deferred Organization Expenses -- Costs incurred by the Trust in connection with
its organization have been deferred and are being amortized on a straight-line
basis over a five-year period beginning on the date of commencement of
operations of the Trust.
Written Options -- The Trust may write covered call or put options for which
premiums are received and are recorded as liabilities, and are subsequently
adjusted to the current value of the options written. Premiums received from
writing options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are offset against the
proceeds or amount paid on the transaction to determine the realized gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
securities pur-
10
<PAGE>
chased by the Trust. The Trust, as writer of an option, may have no control over
whether the underlying securities may be sold (call) or purchased (put) and, as
a result, bears the market risk of an unfavorable change in the price of the
security underlying the written option. In general, written call options may
serve as a partial hedge against decreases in value in the underlying securities
to the extent of the premium received. Written options may also be used as a
part of an income producing strategy reflecting the view of the Trust's
management on the direction of interest rates.
Futures Contracts -- The Trust may enter into financial futures contracts for
the delayed delivery of securities, currency or contracts based on financial
indices at a fixed price on a future date. In entering such contracts, the Trust
is required to deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received by
the Trust each day, depending on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes as
unrealized gains or losses by the Trust. The Trust's investment in financial
futures contracts is designed to hedge against anticipated future changes in
interest or exchange rates or securities prices. For example, interest rate
futures may be used in modifying the duration of the portfolio without incurring
the additional transaction costs involved in buying and selling the underlying
securities. Should interest or exchange rates or securities prices move
unexpectedly, the Trust may not achieve the anticipated benefits of the
financial futures contracts and may realize a loss.
Security Loans -- The Trust may lend its securities to member banks of the
Federal Reserve System and to member firms of the New York Stock Exchange or
subsidiaries thereof. The loans are collateralized at all times by cash or
securities with a market value at least equal to the market value of securities
loaned. As with other extensions of credit, the Trust may bear the risk of delay
in recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. The Trust receives compensation for lending its
securities in the form of fees or from all or a portion of the income from
investment of the collateral. The Trust would also continue to earn income on
the securities loaned. At April 30, 1995, the Trust had no securities on loan.
Forward Foreign Currency Exchange Contracts -- The Trust 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 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. The Trust will enter into forward
contracts for hedging purposes as well as for non-hedging purposes. For hedging
purposes, the Trust may enter into contracts to deliver or receive foreign
currency it will receive from or require for its normal investment activities.
It 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 Trust may enter into
contracts with the intent of changing the relative exposure of the Trust'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 for financial statement purposes as unrealized until the contract
settlement date.
Investment Transactions and Income -- Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for both financial
statement and tax reporting purposes as required by federal income tax
regulations. Dividend income is recorded on the ex-dividend date for dividends
received in cash. 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.
The Trust uses the effective interest method for reporting interest income on
payment-in-kind (PIK) bonds, whereby interest income on PIK bonds is recorded
ratably by the Trust at a constant yield to maturity. Legal
11
<PAGE>
Notes to Financial Statements -- continued
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, which are generally non-recurring, incurred to
protect or enhance the value of high-yield debt securities, are reported as an
addition 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 considered workout expenses and 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 reported as
operating expenses.
Tax Matters and Distributions -- The Trust'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 net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The Trust 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 gains reported
on these financial statements may differ from that reported on the Trust'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 Trust 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 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 accumulated net realized
gains. It is anticipated that some portion of the Trust's distributions will be
a non-taxable return of capital, but the amount of this return of capital cannot
yet be determined.
(3) Transactions with Affiliates
Investment Adviser -- The Trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee, computed daily and paid monthly at an effective annual rate of
0.68% of average daily net assets and 3.4% of investment income, amounted to
$285,387 for the six months ended April 30, 1995.
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 MFS. Certain of the officers
and Trustees of the Trust are officers or directors of MFS, MFS Fund
Distributors, Inc. (MFD) and MFS Service Center, Inc. (MFSC). The Trust has an
unfunded defined benefit plan for all its independent Trustees. Included in
Trustees' compensation is a net periodic pension expense of $7,315 for the six
months ended April 30, 1995.
Transfer Agent -- Commencing August 15, 1994, the Trust entered into an
agreement with MFSC to act as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee and a dividend services fee and will reimburse MFSC for
reasonable out-of-pocket expenses. The account maintenance fee is computed as
follows:
Total Number of Accounts Annual Account Fee
- ------------------------ ------------------
Less than 75,000 $9.00
75,000 and over $8.00
12
<PAGE>
The dividend services fee is $0.75 per dividend reinvestment and $0.75 per cash
infusion. Fees incurred under the agreement for the six months ended April 30,
1995 amounted to $14,531.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
Investments (non-U.S. government securities) $31,024,700 $36,238,791
----------- -----------
The cost and unrealized appreciation or depreciation in value of the investments
owned by the Trust, as computed on a federal income tax basis, are as follows:
Aggregate cost $71,511,512
===========
Gross unrealized appreciation $10,715,200
Gross unrealized depreciation (7,890,306)
-----------
Net unrealized appreciation $ 2,824,894
===========
(5) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of
beneficial interest (without par value). Transactions in Trust shares were as
follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
April 30, 1995 October 31, 1994
-------------------------------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares issued to shareholders in reinvestment of distributions 49,468 $680,897 91,128 $1,442,636
------ ======== ====== ==========
Net increase 49,468 $680,897 91,128 $1,442,636
====== ======== ====== ==========
</TABLE>
(6) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Realized and Net Increase (Decrease)
Unrealized Gain (Loss) in Net Assets Resulting
Quarterly Period Investment Income Net Investment Income on Investments from Operations
- ---------------- ---------------------------------------------------------------------------------------------------------
Per Per Per Per
Fiscal 1995 Amount Share Amount Share Amount Share Amount Share
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31, 1995 $ 615,546 $0.10 $ 381,915 $0.06 $(5,292,400) $(0.87) $(4,910,485) $(0.81)
April 30, 1995 512,511 0.09 274,710 0.05 5,876,288 0.98 6,150,998 1.03
---------- ----- ---------- ----- ----------- ------ ----------- ------
$1,128,057 $0.19 $ 656,625 $0.11 $ 583,888 $ 0.11 $ 1,240,513 $ 0.22
========== ===== ========== ===== =========== ====== =========== ======
Fiscal 1994
January 31, 1994 $ 418,295 $0.07 $ 157,926 $0.03 $ 6,037,299 $ 1.03 $ 6,195,225 $ 1.05
April 30, 1994 538,776 0.09 261,617 0.04 (6,860,849) (1.15) (6,599,232) (1.10)
July 31, 1994 719,003 0.12 463,894 0.08 71,324 0.01 535,218 0.09
October 31, 1994 407,170 0.07 159,141 0.03 2,750,334 0.46 2,909,475 0.49
---------- ----- ---------- ----- ----------- ------ ----------- ------
$2,083,244 $0.35 $1,042,578 $0.18 $ 1,998,108 $ 0.35 $ 3,040,686 $ 0.53
========== ===== ========== ===== =========== ====== =========== ======
Fiscal 1993
January 31, 1993 $1,408,501 $0.24 $1,105,548 $0.19 $ 4,937,131 $ 0.86 $ 6,042,679 $ 1.05
April 30, 1993 1,248,948 0.21 1,008,300 0.17 4,392,462 0.75 5,400,762 0.92
July 31, 1993 1,255,556 0.21 958,489 0.16 4,730,164 0.80 5,688,653 0.97
October 31, 1993 1,111,155 0.19 847,122 0.15 4,276,304 0.72 5,123,426 0.86
---------- ----- ---------- ----- ----------- ------ ----------- ------
$5,024,160 $0.85 $3,919,459 $0.67 $18,336,061 $ 3.13 $22,255,520 $ 3.80
========== ===== ========== ===== =========== ====== =========== ======
</TABLE>
13
<PAGE>
Notes to Financial Statements -- continued
(7) Line of Credit
The Trust entered into an agreement which enables it to participate with other
funds managed by MFS, or an affiliate of MFS, in an unsecured line of credit
with a bank which permits borrowings up to $350 million, collectively.
Borrowings may be made to temporarily finance the acquisition of Treasury
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 Trust for the six months ended April 30, 1995 was $583.
(8) Restricted Securities
The Trust may invest not more than 20% of its net assets in securities which are
subject to legal or contractual restrictions on resale. At April 30, 1995, the
Trust owned the following restricted securities (constituting 1.32% of net
assets) which may not be publicly sold without registration under the Securities
Act of 1933. The Trust does not have the right to demand that such securities be
registered. The value of these securities is determined by valuations supplied
by a pricing service or brokers or, if not available, in good faith by or at the
direction of the Trustees. Certain of these securities may be offered and sold
to "qualified institutional buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
Date of Share/Par
Description Acquisition Amount Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maritime Group Ltd., 13.5s, 1997 2/09/94 1,106,308 $1,000,000 $ 542,091
Sam Houston Race Park, Inc., 11.75s, 1999 6/20/93 - 6/08/94 425,000 390,600 85,000
TLC Beatrice International Holdings, Inc. 1/27/93 11,350 694,050 385,900
----------
$1,012,991
==========
</TABLE>
14
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Trustees and Shareholders of MFS Special Value Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Special Value Trust, including the schedule of portfolio investments, as of
April 30, 1995, the related statement of operations for the six- month period
then ended, and the statement of changes in net assets and financial highlights
for the six- month period then ended and for the year ended October 31, 1994.
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. The financial
highlights for each of the three years in the period ended October 31, 1993 and
for the period from November 24, 1989 (commencement of investment operations) to
October 31, 1990 were audited by other auditors whose report dated December 16,
1993 expressed an unqualified opinion on those statements and financial
highlights.
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 securities owned as of April
30, 1995, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Special Value Trust as of April 30, 1995, the results of its operations for the
six-month period then ended, and the changes in its net assets and the financial
highlights for the six- month period then ended and for the year ended October
31, 1994, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
June 2, 1995
15
<PAGE>
Default Page Layout
MFS(R) Special Value Trust
Trustees
A. Keith Brodkin*,
Chairman and President
Richard B. Bailey*,(2)
Private Investor; Former Chairman and
Director (until 1991), Massachusetts
Financial Services Company
Marshall N. Cohan,(1)
Private Investor
Lawrence H. Cohn, M.D.(2)
Chief of Cardiac Surgery,
Brigham and Women's Hospital;
Professor of Surgery,
Harvard Medical School
The Hon. Sir J. David Gibbons, KBE(2)
Chief Executive Officer,
Edmund Gibbons Ltd.;
Chairman, Bank of N.T. Butterfield
& Son Ltd.
Abby M. O'Neill,(2)
Private Investor;
Director, Rockefeller Financial
Services, Inc. (Investment Advisers)
Walter E. Robb, III,(1)
President and Treasurer,
Benchmark Advisors, Inc.
(Corporate Financial Consultants)
Arnold D. Scott*
Senior Executive Vice President
and Secretary,
Massachusetts Financial
Services Company
Jeffrey L. Shames*
President,
Massachusetts Financial
Services Company
J. Dale Sherratt(1)
President, Insight Resources, Inc.
(Acquisition Planning Specialists)
Ward Smith(1)
Former Chairman (until 1994),
NACCO Industries;
Director, Sundstrand Corporation
*Affiliated with the Investment Adviser
Default Page Layout
(1)Member of Audit Committee
(2)Member of Portfolio Trading Committee
Portfolio Manager
Robert J. Manning*
Treasurer
W. Thomas London*
Assistant Treasurer
James O. Yost*
Secretary
Stephen E. Cavan*
Assistant Secretary
James R. Bordewick, Jr.*
Transfer Agent,
Registrar and Dividend
Disbursing Agent
State Street Bank and
Trust Company
c/o MFS Service Center, Inc.
P.O.Box 9024,
Boston, MA 02205-9824
1-800-637-2304
Custodian
State Street Bank and
Trust Company
Independent Auditors
Ernst & Young llp
Investment Adviser
Massachusetts Financial
Services Company
500 Boylston Street,
Boston, MA 02116-3741
MSVCE-3 6/95 14M
