Dear Shareholders:
During the six months ended April 30, 1996, the Trust continued to maintain a
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. (Approximately 52% of the Trust's
total distribution for the six-month period ended April 30, 1996 represented
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 7.5% and 17.5%. On April 30, 1996, shares of
the Trust were trading at a 7.5% premium, based on the stock market price of
$17.00 and the net asset value of $15.80.
Economic Outlook
We believe the U.S. economy will continue to show moderate growth in 1996,
although this growth may be somewhat uneven as we move from quarter to
quarter. Thus, while one quarter may experience an annualized rate of growth
in gross domestic product of less than 1%, another quarter may see annualized
growth in excess of 3% -- but, for the year, we believe growth could stay
within our expected range of 2% to 2-1/2%. While some increase in consumer
spending took place in the early months of this year, consumers, who
represent two-thirds of the economy, remain in a somewhat weakened position,
due in part to an increase in consumer installment debt in excess of 30% over
the past two years. Meanwhile, growth is also being constrained by ongoing
economic doldrums in Europe and Japan, important markets for U.S. exports.
Here again, we are seeing a few tentative signs, particularly in Japan, of
modest recoveries that could lead to improved prospects for U.S. exporters.
Also, the "lag effect" of increases in short-term interest rates by the
Federal Reserve Board in 1994 and into 1995 is helping to keep growth in
check. This lag effect could last up to two years, and although the Fed did
reduce short-term rates late last year and earlier this year, we expect it to
continue its diligent anti-inflationary policies. Finally, it appears that
inflation is likely to remain under control this year, due in part to a
continued moderation in wage pressures and the subdued level of economic
growth. At the same time, we believe the current upward pressure on energy
prices bears close scrutiny, as energy is an important component of the
inflation outlook.
Interest Rates
Persistent signs of economic weakness led to decreases in short-term interest
rates by the Federal Reserve in late 1995 and early 1996. However, should signs
of economic growth and, particularly, of higher inflation continue, we would
expect the Fed to maintain its anti-inflationary stance. This would likely mean
no further reductions in short-term interest rates and could lead to some modest
increases. In the beginning of the year, bond markets were trading in a narrow
range, as investors shifted between concern about the lack of a budget
resolution in Washington and hopes that sluggish economic reports and low
inflation might lead to lower interest rates. Later, fixed-income markets began
reacting to conflicting signals regarding the strength of the economy with
more-volatile trading patterns marked by an upward bias in interest rates.
Interest rates may move even higher over the coming months, but we believe the
current rise in bond yields is reaching a point where fixed-income markets are
becoming attractively valued.
Stock Market
While we do not expect the U.S. stock market to match the extraordinary
performance of 1995, we continue to be positive about the equity markets this
year. Although we believe the equity markets represent fair value at current
levels, the expected slowdown in the growth of corporate earnings and the
increases in interest rates experienced so far this year raise near-term
concerns. Further increases in interest rates and an acceleration of
inflation, coupled with an additional slowdown in corporate earnings growth,
could have a negative effect on the stock markets. However, to the extent
that some earnings disappointments are taken as a sign
1
<PAGE>
that the economy is not overheating, this may prove beneficial for the
longer-term health of the equity markets. We continue to believe that many of
the technology-driven productivity gains that U.S. companies have made in
recent years will continue to enhance corporate America's competitiveness and
profitability. Therefore, we remain quite constructive on the long-term
viability of the equity markets.
Portfolio Performance and Strategy
As of April 30, 1996, 87% of the Trust's assets were invested in equities, 8%
in distressed and high-yield corporate bonds, and the balance in cash and
cash equivalents. We intend to maintain an opportunistic style of investing
and will seek out investments in any market or security which we believe
offers unusually attractive risk-adjusted returns. Although our focus over
the past year has been on equities, we believe that as the credit cycle peaks
there will be a growing number of opportunities in the high-yield and
distressed bond market.
We currently have positions in both defaulted and current-paying distressed
corporate bonds. Two examples are Harrah's Jazz first-mortgage bonds and
Central Transport Rental Group. Both debt instruments are secured by the
companies' assets and we believe we are creating asset values at significant
discounts to their market value. In the equity section of the portfolio,
one-third would be considered candidates for earnings turnarounds, one-third
leveraged company equities, and one-third companies which have recently
emerged from bankruptcy reorganization examples of each are BMC Software, BE
Aerospace, and Walter Industries. We expect to continue our value-oriented
style of investing while waiting for opportunities to unfold.
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 10, 1996
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.
2
<PAGE>
******************************* [BOXED TEXT] *******************************
Performance Summary
(For the six months ended April 30, 1996)
Net Asset Value Per Share
October 31, 1995 $13.93
April 30, 1996 $15.80
New York Stock Exchange
Price
October 31, 1995 $16.500
November 28, 1995 (low)* $16.250
April 19, 1996 (high)* $17.125
April 30, 1996 $17.000
*For the period November 1, 1995 through April 30, 1996.
*****************************************************************************
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.
Number of Shareholders
As of April 30, 1996, our records indicate that there are 1,291 registered
shareholders and approximately 6,900 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
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.
3
<PAGE>
Portfolio of Investments -- April 30, 1996
Common Stocks and Warrants -- 84.5%
Issuer Shares Value
Aerospace -- 2.2%
Be Aerospace, Inc.* 46,000 $ 707,250
General Dynamics Corp. 14,700 927,937
Raytheon Co. 9,200 465,750
-------------
$ 2,100,937
-------------
Agricultural Products -- 2.0%
AGCO Corp. 50,000 $ 1,262,500
Case Corp. 13,000 656,500
-------------
$ 1,919,000
-------------
Airlines -- 0.6%
Midwest Express Holdings* 18,400 $ 604,900
-------------
Automotive -- 4.9%
General Motors Corp. 14,900 $ 808,325
Harvard Industries, Inc. 180,000 3,937,500
-------------
$ 4,745,825
-------------
Banks and Credit Companies -- 0.8%
Wells Fargo & Co. 3,333 $ 808,669
-------------
Building -- 2.1%
Atlantic Gulf Communities Corp.+* 250 $ 1,500
Eljer Industries, Inc.* 75,000 946,875
Walter Industries, Inc.* 79,600 1,084,550
-------------
$ 2,032,925
-------------
Business Services -- 3.2%
ADT Ltd.* 75,000 $ 1,275,000
Alco Standard Corp. 31,500 1,823,063
-------------
$ 3,098,063
-------------
Chemicals -- 0.7%
NL Industries, Inc. 600 $ 8,625
Uniroyal Chemical Corp.* 60,000 705,000
-------------
$ 713,625
-------------
Computer Software -- Systems -- 3.3%
Adobe Systems, Inc. 25,200 $ 1,083,600
BMC Software, Inc.* 13,200 803,550
Cerner Corp.* 22,000 453,750
Sybase, Inc.* 31,900 873,262
-------------
$ 3,214,162
-------------
Conglomerates -- 2.5%
Insilco Corp.* 70,030 $ 2,433,543
-------------
Consumer Goods and Services -- 4.9%
Darling International, Inc.* 17,300 $ 397,900
Philip Morris Companies, Inc. 10,000 901,250
Thermadyne Holdings Corp.* 49,400 1,185,600
Tyco International Ltd. 30,000 1,158,750
Westpoint Stevens, Inc.* 50,000 1,050,000
-------------
$ 4,693,500
-------------
Containers -- 0.5%
Atlantis Plastics, Inc., "A" 83,200 $ 468,000
-------------
Defense Electronics -- 0.6%
Loral Space & Communications Ltd. 40,000 $ 575,000
-------------
Electrical Equipment -- 1.1%
Honeywell, Inc. 20,000 $ 1,052,500
-------------
Electronics -- 1.1%
Analog Devices, Inc.* 21,200 $ 545,900
LSI Logic Corp.* 14,000 504,000
-------------
$ 1,049,900
-------------
Entertainment -- 14.5%
American Radio System, Inc., "A"* 2,200 $ 74,250
Ameristar Casinos, Inc.* 50,000 462,500
Argosy Gaming Corp.* 62,400 530,400
Casino America, Inc.* 44,800 350,000
Chancellor Broadcast, Inc., "A"* 3,500 89,250
Citicasters, Inc. 67,500 2,016,562
Emmis Broadcasting, Inc., "A"* 12,700 546,100
Harrah's Entertainment, Inc.* 159,400 5,499,300
Hasbro, Inc. 21,700 797,475
LIN Television Corp.* 13,500 448,875
Palace Casinos, Inc., Warrants 12,000 120
New World Communications Group,
Inc., "A"* 62,219 1,158,829
Sam Houston Race Park, Inc.* 63 315
Showboat, Inc. 60,000 1,920,000
Spectra Vision, Inc., Rights* 22,500 2,812
-------------
$13,896,789
-------------
Financial Institutions -- 3.7%
Federal Home Loan Mortgage Corp. 26,300 $ 2,192,762
Student Loan Marketing Assn. 11,500 842,375
Union Planters Corp. 15,100 454,888
-------------
$ 3,490,025
-------------
Food and Beverage Products -- 0.5%
Nabisco Holding Corp.,"A" 14,700 $ 450,187
-------------
Foreign -- 1.1%
Hong Kong
Semi Tech Global Ltd. 721,916 $ 1,068,669
Wang-Talon* 400 0
-------------
$ 1,068,669
-------------
Forest and Paper Products -- 0.9%
Fort Howard Corp.* 20,500 $ 451,000
Kimberly Clark Corp. 6,200 450,275
-------------
$ 901,275
-------------
Insurance -- 0.6%
Chartwell Re Corp. 4,700 $ 102,519
Penncorp Financial Group, Inc. 14,300 437,938
-------------
$ 540,457
-------------
Machinery -- 1.2%
Ingersoll-Rand Co. 25,000 $ 968,750
York International Corp. 4,500 216,000
-------------
$ 1,184,750
-------------
4
<PAGE>
Medical and Health Products -- 0.5%
Uromed Corp.* 42,900 $ 450,450
-------------
Medical and Health Technology and Services -- 5.7%
Beverly Enterprises* 56,800 $ 688,700
OrNda Healthcorp., Inc.* 121,000 3,327,500
Pacificare Health Systems, Inc.,
"B"* 5,000 419,375
Regency Health Services, Inc.* 65,000 609,375
St. Jude Medical Center, Inc. 12,800 467,200
-------------
$ 5,512,150
-------------
Oil Services -- 0.3%
Mesa, Inc.* 78,500 $ 304,187
-------------
Oils -- 2.1%
Belco Oil & Gas Corp.* 28,400 $ 820,050
Union Pacific Resources Group, Inc.* 27,400 753,500
USX-Marathon Group 22,000 484,000
-------------
$ 2,057,550
-------------
Photographic Products -- 0.8%
Eastman Kodak Co. 10,000 $ 765,000
-------------
Printing and Publishing -- 2.5%
Pulitzer Publishing Co. 18,425 $ 1,050,225
Scripps (E.W.) Co., "A" 19,900 845,750
Tribune Co., Inc. 7,700 537,075
-------------
$ 2,433,050
-------------
Railroads -- 2.8%
Burlington Northern, Inc., "A" 5,100 $ 446,250
Illinois Central Corp. 17,700 531,000
Wisconsin Central Transportation
Corp.* 20,000 1,690,000
-------------
$ 2,667,250
-------------
Restaurants and Lodging -- 7.0%
Aztar Corp.* 72,800 $ 709,800
Felcor Suite Hotels, Inc. 56,800 1,654,300
Promus Hotel Corp.* 125,900 3,572,413
Showbiz Pizza Time, Inc.* 38,400 835,200
-------------
$ 6,771,713
-------------
Special Products and Services -- 4.9%
Gillett Holdings, Inc.+ 37,656 $ 903,744
IMO Industries, Inc.* 160,400 1,082,700
Pullman Co.* 125,750 754,500
Spreckels Industries, Inc. "A"* 125,000 2,015,625
-------------
$ 4,756,569
-------------
Stores -- 2.1%
Carson Pirie Scott & Co.* 55,000 $ 1,333,750
Office Depot, Inc.* 29,800 666,775
-------------
$ 2,000,525
-------------
Telecommunications -- 2.8%
Cabletron Systems, Inc.* 19,100 $ 1,439,662
Cellular Communications Int'l* 20,000 730,000
Telecommunications -- continued
Metrocall, Inc.* 25,000 $ 531,250
-------------
$ 2,700,912
-------------
Total Common Stocks and Warrants
(Identified Cost $61,187,073) $81,462,057
-------------
Preferred Stocks -- 2.6%
Entertainment -- 1.0%
Granite Broadcasting, Pfd. $1.938 15,000 $ 1,005,000
-------------
Stores -- 1.0%
Signet Group PLC 10 $ 980,000
-------------
Supermarkets -- 0.6%
Supermarkets General Holdings Corp.,
$3.52 Exch. 22,900 $ 578,225
-------------
Total Preferred Stocks
(Identified Cost $2,132,588) $ 2,563,225
-------------
Convertible Bonds -- 2.5%
Principal
Amount
(000 Omitted) Value
Railroads -- 2.0%
Tiphook Finance Corp., 8s, 2000 $2,542 $1,906,500
---------
Stores -- 0.5%
Parisian, Inc. 9.875s, 2003 $ 545 $ 500,037
---------
Total Convertible Bonds
(Identified Cost $2,877,279) $2,406,537
---------
Bonds -- 5.0%
Aerospace -- 1.0%
CHC Helicopter, 11.5s, 2002 $1,000 $ 947,500
---------
Airlines
Continental Airlines, Inc.,
11.75s, 1995** $3,975 $ 398
---------
Restaurants and Lodging -- 1.8%
Boomtown, Inc., 11.5s, 2003 $ 775 $ 755,625
Harrah's Jazz Co.,14.25s, 2001 1,935 851,400
Sam Houston Race Park, 11s,
2001** 225 90,394
---------
$ 1,697,419
---------
Stores -- 1.7%
Woodward & Lothrop, Inc., 12s,
1995** $6,750 $ 1,687,500
---------
Utilities -- Electric -- 0.5%
Kenetech Corp., 12.75s, 2002 $1,000 $ 450,000
---------
Total Bonds (Identified Cost $4,427,150) $ 4,782,817
---------
5
<PAGE>
Principal
Amount
Repurchase Agreement -- 6.1% (000
Issuer Omitted) Value
Goldman, Sachs & Co., dated
4/30/ 96, due 5/01/96, total
to be received $5,905,874
(secured by $1,314,164 par,
FNMA at 7.58s due 4/19/06,
market value $1,313,664;
$793,030 par, FNMA at 6.17s,
due 12/30/03, market value
$750,783; $586,250 par, FNMA
at 5.3s, due 12/10/98, market
value $570,858; $2,843,293
par, FHLMC at 0s, due 5/23/96,
market value $2,833,418; and
$510,315 par, FHLB at 7.65s,
due 3/25/97, market value
$519,218),
Cost $5,905 $ 5,905,000
---------
Total Investments
(Identified Cost $76,529,090) $97,119,635
---------
Value
Other Assets, Less
Liabilities -- (0.9)% $ (915,285)
---------
Net Assets -- 100.0% $96,204,350
=========
* Non-income producing security.
** Non-income producing security -- in default.
+ Restricted security.
Statement of Assets and Liabilities -- April 30, 1996
Assets:
Investments, at value (identified cost, $76,529,090) $97,119,635
Cash 958
Receivable for investments sold 1,416,742
Interest and dividends receivable 187,640
Other assets 1,018
-----------
Total assets $98,725,993
-----------
Liabilities:
Payable to dividend disbursing agent $ 82,795
Payable for investments purchased 2,308,634
Payable to affiliates --
Management fee 5,656
Transfer agent fee 4,000
Accrued expenses and other liabilities 120,558
-----------
Total liabilities $ 2,521,643
-----------
Net assets $96,204,350
===========
Net assets consist of:
Paid-in capital $75,039,246
Unrealized appreciation on investments 20,590,545
Accumulated undistributed net realized gain on
investments 6,339,340
Accumulated distributions in excess of net investment
income (5,764,781)
-----------
Total $96,204,350
===========
Shares of beneficial interest outstanding 6,088,263
===========
Net asset value per share (net assets / shares of
beneficial interest outstanding) $ 15.80
===========
See notes to financial statements
6
<PAGE>
Statement of Operations -- Six Months Ended April 30, 1996
Net investment income:
Income --
Interest $ 741,154
Dividends 239,223
Foreign taxes withheld (977)
----------
Total investment income $ 979,400
----------
Expenses --
Management fee $ 333,494
Trustees' compensation 48,875
Transfer and dividend disbursing agent fee 12,542
Auditing fees 26,350
Registration fees 24,423
Investor communications 23,150
Custodian fee 22,576
Printing 6,861
Postage 4,506
Legal fees 2,596
Miscellaneous 18,741
----------
Total expenses $ 524,114
Fees paid indirectly (5,688)
----------
Net expenses $ 518,426
----------
Net investment income $ 460,974
----------
Realized and unrealized gain on investments:
Realized gain on investment transactions (identified cost
basis) $ 6,698,908
Change in unrealized appreciation on investments 9,197,525
----------
Net realized and unrealized gain on investments $15,896,433
----------
Increase in net assets from operations $16,357,407
==========
7
<PAGE>
Statement of Changes in Net Assets
Increase (decrease) in net assets: Six Months
Ended Year Ended
April 30, October 31,
1996 1995
--------- ------------
From operations --
Net investment income $ 460,974 $ 1,201,561
Net realized gain on investments 6,698,908 6,955,479
Net unrealized gain on investments 9,197,525 6,130,381
--------- ------------
Increase in net assets from operations $16,357,407 $ 14,287,421
--------- ------------
Distributions declared to shareholders --
From net investment income $ (460,974) $ (1,201,561)
From net realized gain on investments -- (6,885,011)
In excess of net investment income (4,550,929) (64,628)
From paid-in capital -- (3,030,266)
--------- ------------
Total distributions declared to
shareholders $(5,011,903) $(11,181,466)
--------- ------------
Trust share (principal) transactions --
Net asset value of shares issued to
shareholders in reinvestment of
distributions $ 616,245 $ 1,157,752
--------- ------------
Increase in net assets from Trust share
transactions $ 616,245 $ 1,157,752
--------- ------------
Total increase in net assets $11,961,749 $ 4,263,707
Net assets:
At beginning of period 84,242,601 79,978,894
--------- ------------
At end of period (including accumulated
distributions in excess of net investment
income of $5,764,781 and $1,213,852,
respectively) $96,204,350 $ 84,242,601
========= ============
8
<PAGE>
Financial Highlights
Six
Months Year Ended October 31,
Ended ----------------------------
April 30,
1996 1995 1994 1993
--------- ------ ------ --------
Per share data (for a share
outstanding throughout each
period)
Net asset value -- beginning of
period $ 13.93 $ 13.40 $ 16.49 $ 14.82
-------- ----- ----- -------
Income from investment
operations# --
Net investment income $ 0.08 $ 0.20 $ 0.18 $ 0.67
Net realized and unrealized
gain (loss) on investments and
foreign currency transactions 2.62 2.18 0.35 3.13
-------- ----- ----- -------
Total from investment
operations $ 2.70 $ 2.38 $ 0.53 $ 3.80
-------- ----- ----- -------
Less distributions declared to
shareholders --
From net investment income $ (0.08) $ (0.20) $ (0.18) $ (0.67)
From net realized gain on
investments and foreign
currency transactions -- (1.14) (2.31) (1.44)
In excess of net investment
income (0.75) (0.01) (0.16) (0.02)
In excess of net realized gain
on investments and foreign
currency transactions -- -- (0.09) --
From paid-in capital -- (0.50) (0.88) --
-------- ----- ----- -------
Total distributions declared
to shareholders $ (0.83) $ (1.85) $ (3.62) $ (2.13)
======== ===== ===== =======
Net asset value -- end of
period $ 15.80 $ 13.93 $ 13.40 $ 16.49
======== ===== ===== =======
Per share market value -- end
of period $17.000 $16.500 $14.875 $17.500
======== ===== ===== =======
Total return 8.48%++ 26.06% 6.75% 35.98%
Ratios (to average net
assets)/Supplemental data:
Expenses### 1.18%+ 1.26% 1.20% 1.22%
Net investment income 1.03%+ 1.52% 1.20% 4.32%
Portfolio turnover 42% 92% 75% 151%
Average commission rate#### $0.0572 -- -- --
Net assets at end of period
(000 omitted) $96,204 $84,243 $79,979 $96,932
1992 1991 1990*
------ ------ ----------
Per share data (for a share
outstanding throughout each period)
Net asset value -- beginning of
period $ 14.90 $ 11.66 $ 13.95
---- ---- --------
Income from investment
operations# --
Net investment income $ 0.77 $ 0.90 $ 1.04
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 1.09 3.99 (1.95)
---- ---- --------
Total from investment operations $ 1.86 $ 4.89 $ (0.91)
---- ---- --------
Less distributions declared to
shareholders --
From net investment income $ (0.77) $ (0.90) $ (1.04)
From net realized gain on
investments and foreign currency
transactions (1.17) (0.75) --
In excess of net investment income -- -- --
In excess of net realized gain on
investments and foreign currency
transactions -- -- --
From paid-in capital -- -- (0.34)
---- ---- --------
Total distributions declared to
shareholders $ (1.94) $ (1.65) $ (1.38)
==== ==== ========
Net asset value -- end of period $ 14.82 $ 14.90 $ 11.66
==== ==== ========
Per share market value -- end of
period $14.750 $14.250 $10.125
==== ==== ========
Total return 17.66% 59.90% (25.53)%+
Ratios (to average net
assets)/Supplemental data:
Expenses## 1.35% 1.37% 1.40%+
Net investment income 5.16% 7.97% 8.65%+
Portfolio turnover 175% 327% 237%
Average commission rate### -- -- --
Net assets at end of period (000
omitted) $86,276 $85,978 $69,393
* For the period from the commencement of investment operations, November
24, 1989 to October 31, 1990.
+ Annualized.
++ Not annualized.
# Per share data for the periods subsequent to October 31, 1993 is based on
average shares outstanding.
## For fiscal years ending after September 1, 1995, the Trust's expenses are
calculated without reduction for fees paid indirectly.
### Average commission rate is calculated for funds with fiscal years
beginning on or after September 1, 1995.
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
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 -- 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 market 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.
10
<PAGE>
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 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 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.
Fees Paid Indirectly -- The Trust's custodian bank calculates its fee based
on the Trust's average daily net assets. The fee is reduced according to a
fee arrangement, which provides for custody fees to be reduced based on a
formula developed to measure the value of cash deposited with the custodian
by the Trust. This amount is shown as a reduction of expenses on the
Statement of Operations.
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. Foreign taxes have been provided
for on interest and dividend income earned on foreign investments in
accordance with the applicable country's tax rates and to the extent
unrecoverable are recorded as a reduction of investment income. 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 tax return
of capital. Differences in the recognition or classification of income
between the financial statements and tax earnings and profits which result in
temporary over-distributions for financial statement purposes are classified
as distributions in excess of net investment income or 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
11
<PAGE>
Notes to Financial Statements -- continued
facilities. The management fee is computed daily and paid monthly at an
effective annual rate of 0.68% of average daily net assets and 3.40% of
investment income.
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 and MFS Service
Center, Inc. (MFSC). The Trust has an unfunded defined benefit plan for all its
independent Trustees and Mr. Bailey. Included in Trustees' compensation is a net
periodic pension expense of $8,875 for the period ended April 30, 1996.
Transfer Agent -- MFSC acts as registrar and dividend disbursing agent for
the Trust under an agreement which provides that the Trust will pay MFSC an
account maintenance fee and a dividend service fee and will reimburse MFSC
for reasonable out-of-pocket expenses. The account maintenance fee is
computed as follows:
Annual Account
Total Number of Accounts Fee
- ----------------------------------- -----------------
Less than 75,000 $9.00
75,000 and over $8.00
The dividend service fee is $0.75 per dividend reinvestment and $0.75 per
cash infusion.
(4) Portfolio Securities
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions and short-term obligations, aggregated
$36,341,635 and $42,314,757, respectively.
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 $76,554,666
==========
Gross unrealized appreciation $23,250,730
Gross unrealized depreciation (2,685,761)
----------
Net unrealized appreciation $20,564,969
==========
(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:
Six Months Ended Year Ended
April 30, 1996 October 31, 1995
Shares Amount Shares Amount
- ----------------------------------- ----- ------- ----- -----------
Shares issued to shareholders in
reinvestment of distributions 38,925 $616,245 81,593 $1,157,752
--- ----- --- ---------
Net increase 38,925 $616,245 81,593 $1,157,752
=== ===== === =========
(6) Quarterly Financial Information (Unaudited)
Net Realized and
Unrealized Gain
Quarterly Net Investment (Loss)
Period Investment Income Income on Investments
- ------------- ----------------- ----------------- ---------------------
Per Per Per
Fiscal 1996 Amount Share Amount Share Amount Share
- ------------- -------- ----- -------- ----- ---------- -------
January 31 $546,431 $0.09 $286,440 $0.05 $ 7,195,033 $1.19
April 30 432,969 0.07 174,534 0.03 8,701,400 1.43
------ --- ------ --- -------- -----
$979,400 $0.16 $460,974 $0.08 $15,896,433 $2.62
====== === ====== === ======== =====
Increase (Decrease)
in Net Assets
Quarterly Resulting
Period from Operations
- --------------- ---------------------
Per
Fiscal 1996 Amount Share
- --------------- ---------- -------
January 31 $ 7,481,473 $1.24
April 30 8,875,934 1.46
-------- -----
$16,357,407 $2.70
======== =====
12
<PAGE>
Net Realized and
Quarterly Net Investment Unrealized Gain (Loss)
Period Investment Income Income on Investments
- ---------- ----------------- ----------------- -----------------------
Fiscal Per Per Per
1995 Amount Share Amount Share Amount Share
- ---------- --------- ---- --------- ---- ----------- --------
January 31 $ 615,546 $0.10 $ 381,915 $0.06 $(5,292,400) $(0.87)
April 30 512,511 0.09 274,710 0.05 5,876,288 0.98
July 31 577,488 0.10 338,368 0.06 8,556,251 1.42
October 31 481,869 0.08 206,569 0.03 3,945,721 0.65
------- -- ------- -- --------- ------
$2,187,413 $0.37 $1,201,562 $0.20 $13,085,860 $ 2.18
======= == ======= == ========= ======
Increase (Decrease)
Quarterly in Net Assets Resulting
Period from Operations
- --------------- -----------------------
Per
Fiscal 1995 Amount Share
- --------------- ----------- --------
January 31 $(4,910,485) $(0.81)
April 30 6,150,998 1.03
July 31 8,894,619 1.48
October 31 4,152,289 0.68
--------- ------
$14,287,421 $ 2.38
========= ======
Fiscal
1994
- ----------
January 31 $ 418,295 $0.07 $ 157,926 $0.03 $ 6,037,299 $ 1.03
April 30 538,776 0.09 261,617 0.04 (6,860,849) (1.15)
July 31 719,003 0.12 463,894 0.08 71,324 0.01
October 31 407,170 0.07 159,141 0.03 2,750,334 0.46
------- -- ------- -- --------- ------
$2,083,244 $0.35 $1,042,578 $0.18 $ 1,998,108 $ 0.35
======= == ======= == ========= ======
Fiscal 1994
- ---------------
January 31 $ 6,195,225 $ 1.05
April 30 (6,599,232) (1.10)
July 31 535,218 0.09
October 31 2,909,475 0.49
--------- ------
$ 3,040,686 $ 0.53
========= ======
(7) Line of Credit
The Trust entered into an agreement which enables it to participate with
other trusts 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 trust, 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 trusts at the end of each quarter. The commitment fee allocated
to the Trust for the period ended April 30, 1996 was $496.
(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,
1996, the Trust owned the following restricted securities (constituting 0.94%
of net assets) which may not be publicly sold without registration under the
Securities Act of 1933 (the 1933 Act). 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 direction of the Trustees. These securities
may not be offered and sold to "qualified institutional buyers" under Rule
144A of the 1933 Act.
Date of Share
Description Acquisition Amount Cost Value
- ------------------------ ------------------ ----- ------ --------
Atlantic Gulf
Communities Corp. 3/20/92 - 9/25/95 250 $ 0 $ 1,500
Gillett Holdings, Inc. 10/08/92 37,656 358,400 903,744
------
$905,244
======
13
<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, 1996, and the related statement of operations for the six month
period ended April 30, 1996, and the statement of changes in net assets for
the six month period ended April 30, 1996, and for each of the year ended
October 31, 1995, and the financial highlight for the six month period ended
April 30, 1996 and for the two years in the period ended October 31, 1995.
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 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, 1996, 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 at April 30, 1996, the results of its operations for the
six month period ended April 30, 1996, and the changes in its net assets for
the six month period ended April 30, 1996 and for the year ended October 31,
1995, and the financial highlight for the six month period ended April 30,
1996 and for each of the two years in the period ended October 31, 1995, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
May 31, 1996
14
<PAGE>
[Back Cover]
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;
Director, Cambridge Bancorp;
Director, Cambridge Trust 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, Director and Secretary,
Massachusetts Financial
Services Company
Jeffrey L. Shames*
President and Director,
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
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
*Affiliated with the Investment Adviser
(1) Member of Audit Committee
(2) Member of Portfolio Trading Committee MSVCE-3 6/96 15.7M
<PAGE>
[Front Cover]
[MFS logo]
MFS(R) Special Value Trust
Semiannual Report
April 30, 1996
