[MFS LOGO]
MFS(R) Special Value Trust
Annual Report
for Year Ended
October 31, 1996
<PAGE>
Dear Shareholders:
For the 12 months ended October 31, 1996, the Trust provided a total return
of 22.20% based on its beginning and ending stock market prices and assuming
the reinvestment of all distributions paid during the period. The Trust's
total return based on net asset value (NAV) was 21.06% for the same period.
During this period, the Trust continued to maintain a distribution rate of
11% based on its original New York Stock Exchange (NYSE) offering price of
$15 per share. These distributions were paid through a combination of income
earned from dividends, bond coupon payments, and both long-term and
short-term capital gains. During the past year, the market price of the Trust
on the NYSE has traded at a premium to its net asset value which has ranged
between 8% and 22%. On October 31, 1996, shares were trading at a 20% premium
based on the stock market price of $18.25 and the net asset value price of
$15.23.
Economic Outlook
As we enter the final months of 1996, the U.S. economy appears to have
settled into a pattern of moderate growth and inflation -- two factors that
we think can be important contributors to a favorable long-term investment
climate. During the first quarter of 1996, real (inflation-adjusted) economic
growth was 2.3% on an annualized basis, followed by a rate of 4.7% in the
second quarter. However, this unexpectedly high level was followed by a more
moderate 2.2% pace during the third quarter. Overall, real growth in gross
domestic product has surpassed our expectations this year, and we now expect
that growth for all of 1996 could exceed 2.5%. Although individual consumers
appear to be carrying an excessive debt load, the consumer sector itself,
which represents two-thirds of the economy, continues to support the
automobile and housing markets. Consumer spending has also been positively
impacted by widespread job growth and, more recently, rising wages. However,
recent statistics appear to show a slowdown in consumer spending. This is
particularly true when considering overall retail sales, which have been flat
for several months. Furthermore, the economies of Europe and Japan continue
to be in the doldrums, weakening U.S. export markets while subduing the
capital spending plans of American corporations. Thus, while economic growth
should continue, we expect some slackening toward the end of the year.
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 market this
year. Although we believe the equity market represents fair value at current
levels, the expected slowdown in corporate earnings growth and interest rate
increases earlier in the year have raised some near-term concerns, as was
seen in July's stock market correction. Further interest rate increases, and
an acceleration of inflation coupled with an additional slowdown in corporate
earnings growth, could have a negative effect on the stock market in the near
term. However, to the extent that some earnings disappointments are taken as
a sign that the economy is not overheating, this may prove beneficial for the
equity market's longer-term health. We believe 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, while we have some near-term concerns, we remain quite
constructive on the long-term viability of the equity market.
Bond Markets
In the bond markets, persistent signs of economic weakness led to decreases
in short-term interest rates by the Federal Reserve Board in late 1995 and
early 1996. Should signs of more rapid economic growth and, particularly, of
higher inflation resurface, we would expect the Fed to maintain its
anti-inflationary stance. In the beginning of the year, bond markets traded
in a narrow range as investors shifted between concern for the lack of a
budget resolution in Washington and hope that sluggish economic reports and
low inflation might lead to lower interest rates. Later, fixed-income markets
began reacting to conflicting signals regarding the
1
<PAGE>
economy's strength 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 equitably valued.
Portfolio Performance and Strategy
As of October 31, 1996, 83% of the Trust's assets were invested in equities,
7% in distressed and high-yield corporate bonds, and the balance in cash
equivalents. Although the high-yield bond market continues to offer selective
opportunities, most of our capital remains invested in equities. Until the
economy slows down and default rates, which are now at historic lows, begin
to rise, there will continue to be few distressed bond opportunities. The few
securities in this sector in which we have invested have been rewarding but,
unlike in the early 1990s, distressed bonds continue to represent a small
portion of our portfolio.
Over the past year, the Trust has benefited from consolidation trends as many
of our companies have become acquisition candidates for much larger companies
in their respective industries. Oftentimes our companies, including
Citicasters, Loral, and Spreckles Industries, have been tendered for
significant premiums to our cost.
Looking ahead, we will continue to focus on companies we believe are
turnaround candidates, as well as on companies emerging from bankruptcy or
operating with highly leveraged balance sheets. Many of these companies are
either mired in controversy or misunderstood by the market, which can create
opportunities for significant capital appreciation for the patient investor.
As always, we expect to continue our value-oriented style of investing while
patiently 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/ John F. Brennan, Jr.
John F. Brennan, Jr.
Portfolio Manager
/s/ Robert J. Manning
Robert J. Manning
Portfolio Manager
November 12, 1996
2
<PAGE>
Performance Summary
(For the year ended October 31, 1996)
Net Asset Value Per Share
October 31, 1995 $ 13.93
October 31, 1996 $ 15.23
New York Stock Exchange Price
October 31, 1995 $16.500
November 28, 1995 (low)* $16.250
October 7, 1996 (high)* $18.375
October 31, 1996 $18.250
*For the period November 1, 1995 through October 31, 1996.
Federal Income Tax Information
on Distributions
(For the year ended October 31, 1996)
The Trust has designated $3,708,516 as a long-term capital gain distribution
for tax purposes.
Distributions eligible for the 70% dividends-received deduction for
corporations 5.97%
Tax Form Summary
In January 1997, shareholders will be mailed a tax form summary reporting the
federal tax status of all distributions paid during the calendar year 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 Shareholders
As of October 31, 1996, our records indicate that there are 19,731 registered
shareholders and approximately 8,000 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
Results of Shareholder Meeting
At the annual meeting of shareholders of MFS Special Value Trust, which was
held on October 23, 1996, the following actions were taken:
Item 1. The election of Richard B. Bailey and
J. Dale Sherratt as Trustees of the Trust.
Number of Shares
Nominee For Withhold Authority
- ----------------------- --------------- -----------------------
Richard B. Bailey 5,635,871.474 62,236.435
J. Dale Sherratt 5,643,545.150 54,562.759
Trustees continuing in office who were not subject to re-election at this
meeting are A. Keith Brodkin, Marshall N. Cohan, Lawrence H. Cohn, M.D., The
Hon. Sir J. David Gibbons, Abby M. O'Neill, Walter E. Robb, III, Arnold D.
Scott, Jeffrey L. Shames, and Ward Smith.
Item 2. The ratification of the selection of Ernst & Young LLP as the
independent public accountants to be employed by the Trust for the
fiscal year ending October 31, 1997.
Number of Shares
----------------------
For 5,606,508.550
Against 29,897.881
Abstain 61,701.478
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.
3
<PAGE>
New York Stock Exchange Symbol
The New York Stock Exchange symbol is MFV.
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.
Dividend Reinvestment and
Cash Purchase Plan
MFS offers a Dividend Reinvestment and Cash Purchase Plan which allows you to
reinvest either all of the distributions paid by the Trust or only the long-
term capital gains.
Purchases are made at the market price unless that price exceeds the net
asset value (the shares are trading at a premium). If the shares are trading
at a premium, purchases will be made at a discounted price of either the net
asset value or 95% of the market price, whichever is greater.
Twice each year you can also buy shares. 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.
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, call 1-800-637-2304 any business day
from 8 a.m. to 8 p.m. Eastern time. 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. Please call for additional details.
When you withdraw, 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.
If you have any questions or would like a brochure providing a complete
description of the Plan, please call 1-800-637-2304 any business day from 8
a.m. to 8 p.m. Eastern time.
4
<PAGE>
Portfolio of Investments -- October 31, 1996
Common Stocks -- 79.8%
Issuer Shares Value
U.S. Stocks -- 76.1%
Advertising -- 0.5%
Outdoor Systems, Inc.* 11,300 $ 505,675
--------------
Aerospace -- 2.6%
B.E. Aerospace, Inc.* 91,000 $1,979,250
Raytheon Co. 9,200 453,100
--------------
$2,432,350
--------------
Agricultural Products -- 0.6%
Case Corp. 13,000 $ 604,500
--------------
Automotive -- 2.5%
Goodrich (B.F.) Co. 14,500 $ 614,437
Harvard Industries, Inc., "B"* 180,000 1,687,500
--------------
$2,301,937
--------------
Banks and Credit Companies -- 1.0%
Wells Fargo & Co. 3,333 $ 890,328
--------------
Building -- 2.7%
Atlantic Gulf Communities Corp.+* 250 $ 1,344
Eljer Industries, Inc.* 124,000 1,379,500
Walter Industries, Inc.* 79,600 1,104,450
--------------
$2,485,294
--------------
Business Services -- 2.3%
ADT Ltd.* 75,000 $1,481,250
Alco Standard Corp. 14,100 653,888
Sabre Group Holding, Inc.* 500 15,250
--------------
$2,150,388
--------------
Cellular Telephones -- 0.4%
Telephone & Data Systems, Inc. 10,500 $ 367,500
--------------
Chemicals -- 1.5%
Dexter Corp. 16,900 $ 523,900
NL Industries, Inc. 102,100 867,850
--------------
$1,391,750
--------------
Computer Software -- Systems -- 2.5%
Adobe Systems, Inc. 21,700 $ 751,362
Cerner Corp.* 33,100 401,338
Sybase, Inc.* 63,900 1,126,237
--------------
$2,278,937
--------------
Conglomerates -- 3.5%
Insilco Corp.* 70,030 $2,731,170
MAXXAM, Inc.* 13,300 558,600
--------------
$3,289,770
--------------
Consumer Goods and Services -- 6.5%
Darling International, Inc.* 36,800 $1,131,600
Philip Morris Cos., Inc. 5,700 527,962
Thermadyne Industries Holdings Corp.* 49,400 1,130,025
Tyco International Ltd. 30,000 1,488,750
UST, Inc. 16,300 470,662
Westpoint Stevens, Inc.* 50,000 1,331,250
--------------
$6,080,249
--------------
Containers -- 0.7%
Atlantis Plastics, Inc. 109,300 $ 669,463
--------------
U.S. Stocks -- continued
Defense Electronics -- 0.7%
Loral Space & Communications Corp.* 40,000 $ 635,000
--------------
Electronics -- 1.2%
Atmel Corp.* 13,700 $ 347,638
Intel Corp. 6,700 736,162
--------------
$1,083,800
--------------
Entertainment -- 9.1%
American Radio Systems Corp., "A"* 13,900 $ 423,950
Argosy Gaming Corp.* 62,400 390,000
Casino America, Inc.* 106,132 517,393
Central European Media Enterprises Ltd.* 18,000 504,000
Chancellor Broadcast Corp., "A"* 4,300 138,675
Cox Radio, Inc.* 7,700 139,563
EZ Communications, Inc., "A"* 15,200 585,200
Emmis Broadcasting Corp.* 1,900 68,875
Golden Bear Golf, Inc.* 300 5,400
Harrah's Entertainment, Inc.* 159,400 2,669,950
Jacor Communications, Inc.* 15,900 445,200
LIN Television Corp.* 13,600 515,100
New World Communications, "A"* 62,219 1,547,698
Sam Houston Race Park Group, Inc.* 63 315
Showboat, Inc. 29,300 556,700
Univision Communications, Inc.* 400 13,500
--------------
$8,521,519
--------------
Financial Institutions -- 4.0%
Beneficial Corp. 8,800 $ 514,800
Federal Home Loan Mortgage Corp. 26,300 2,656,300
Union Planters Corp. 15,100 524,725
--------------
$3,695,825
--------------
Food and Beverage Products -- 0.1%
Earthgrains Co. 2,600 $ 137,800
--------------
Forest and Paper Products -- 0.8%
Kimberly-Clark Corp. 7,900 $ 736,675
--------------
Insurance -- 1.0%
ITT Hartford Group, Inc. 6,500 $ 409,500
PennCorp Financial Group, Inc. 15,100 522,838
--------------
$ 932,338
--------------
Medical and Health Products -- 1.4%
Lilly (Eli) & Co. 3,600 $ 253,800
Pharmacia & Upjohn, Inc. 17,100 615,600
Uromed Corp.* 42,900 434,362
--------------
$1,303,762
--------------
Medical and Health Technology and Services -- 4.4%
OrNda Healthcorp., Inc.* 90,799 $2,474,273
Pacificare Health Systems, Inc., "B"* 6,200 435,550
Regency Health Services, Inc.* 31,200 351,000
St. Jude Medical, Inc. 12,800 505,600
United Healthcare Corp. 9,500 359,812
--------------
$4,126,235
--------------
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<PAGE>
Portfolio of Investments -- continued
Common Stocks -- continued
Issuer Shares Value
U.S. Stocks -- continued
Oil Services -- 0.7%
Mesa, Inc.* 78,500 $ 363,063
Tidewater, Inc. 5,900 258,125
--------------
$ 621,188
--------------
Oils -- 0.9%
Atlantic Richfield Co. 3,200 $ 424,000
Texaco, Inc. 4,100 416,663
--------------
$ 840,663
--------------
Photographic Products -- 1.6%
Anacomp, Inc.* 83,663 $ 732,051
Eastman Kodak Co. 10,000 797,500
--------------
$ 1,529,551
--------------
Printing and Publishing -- 2.2%
Pulitzer Publishing Co. 7,025 $ 446,088
Scripps (E.W.) Co., "A" 19,900 942,762
Tribune Co. 7,700 629,475
--------------
$ 2,018,325
--------------
Railroads -- 1.4%
Burlington Northern Santa Fe Railway Co. 5,100 $ 420,113
Wisconsin Central Transportation Corp.* 24,000 864,000
--------------
$ 1,284,113
--------------
Real Estate Investment Trusts -- 2.0%
FelCor Suite Hotels, Inc. 56,800 $ 1,860,200
--------------
Restaurants and Lodging -- 5.5%
Host Marriott Corp.* 30,800 $ 473,550
Prime Hospitality Corp.* 25,800 393,450
Promus Hotel Corp.* 126,100 4,003,675
ShowBiz Pizza Time, Inc.* 13,100 242,350
--------------
$ 5,113,025
--------------
Special Products and Services -- 2.5%
Gillett Holdings, Inc.+* 37,656 $ 1,430,928
IMO Industries, Inc.* 200,300 901,350
--------------
$ 2,332,278
--------------
Stores -- 4.3%
AnnTaylor Stores Corp.* 17,600 $ 319,000
Carson Pirie Scott & Co.* 55,000 1,368,125
Gantos, Inc.* 325,502 1,139,257
Penney (J.C.), Inc. 7,900 414,750
Sears, Roebuck & Co. 9,200 445,050
Talbots, Inc. 9,900 282,150
--------------
$ 3,968,332
--------------
Supermarkets -- 0.2%
Vons Cos., Inc.* 3,200 $ 177,200
--------------
U.S. Stocks -- continued
Telecommunications -- 2.5%
Cabletron Systems, Inc.* 16,900 $ 1,054,137
Cellular Communications International* 20,000 627,500
Silver King Communications, Inc.* 29,475 655,819
--------------
$ 2,337,456
--------------
Transportation -- 0.4%
Sea Containers Ltd., "A" 24,200 $ 393,250
--------------
Utilities -- Electric -- 1.9%
CMS Energy Corp. 11,500 $ 363,687
El Paso Electric Co.* 179,700 943,425
Illinova Corp. 17,400 474,150
--------------
$ 1,781,262
--------------
Total U.S. Stocks $70,877,938
--------------
Foreign Stocks -- 3.7%
France -- 0.9%
Rhone-Poulenc Rorer, Inc. (Medical and
Health Products) 12,400 $ 832,350
--------------
Hong Kong -- 1.4%
Semi-Tech (Global) Ltd. (Electronics) 721,916 $ 1,288,519
Wang Talon (Financial Institutions)* 400 0
--------------
$ 1,288,519
--------------
New Zealand -- 0.7%
Tranz Rail Holdings Ltd., ADR
(Railroads)* 40,100 $ 656,637
--------------
United Kingdom -- 0.7%
British Petroleum PLC, ADR (Oils) 3,500 $ 450,188
Central Transport Rental Group PLC, ADR
(Transportation)* 710,997 199,968
--------------
$ 650,156
--------------
Total Foreign Stocks $ 3,427,662
--------------
Total Common Stocks
(Identified Cost, $65,480,461) $74,305,600
--------------
Preferred Stocks -- 2.6%
Renaissance Cosmetics, Inc.+ (Consumer
Goods and Services) 780 $ 787,800
Signet Group PLC (Stores) 10 1,050,000
Supermarkets General Holdings Corp.
(Supermarkets) 22,900 641,200
--------------
Total Preferred Stocks
(Identified Cost, $2,001,650) $ 2,479,000
--------------
6
<PAGE>
Convertible Preferred Stocks -- 1.4%
Issuer Shares Value
Granite Broadcasting Corp.
(Entertainment) 15,000 $ 900,000
Mesa, Inc. (Oils)* 72,419 416,409
--------------
Total Convertible Preferred Stocks
(Identified Cost, $1,072,735) $1,316,409
--------------
Rights
Spectravision, Inc. (Entertainment)*
(Identified Cost, $86,875) 22,500 $ 5,625
--------------
Bonds -- 6.8%
Principal Amount
(000 Omitted)
Aerospace -- 1.1%
CHC Helicopter Corp., 11.5s, 2002 $1,000 $ 997,500
--------------
Entertainment -- 0.8%
Marvel Holdings, Inc., 0s, 1998 $1,700 $ 714,000
--------------
Medical and Health Technology and Services -- 0.4%
Unilab Corp., 11s, 2006 $ 450 $ 351,000
--------------
Restaurants and Lodging -- 2.0%
Harrah's Jazz Co., 14.25s, 2001 $1,935 $1,093,275
Sam Houston Race Park Limited, 11s,
2001** 226 90,393
Santa Fe Hotel, Inc, 11s, 2000 1,000 705,000
--------------
$1,888,668
--------------
Supermarkets -- 0.5%
Fleming Cos., Inc., 10.625s, 2001 $ 480 $ 474,000
--------------
Telecommunications -- 0.6%
Mobilemedia Communications, Inc.,
9.375s, 2007 $ 980 $ 539,000
--------------
Transportation -- 1.4%
Central Transport Rental Group PLC,
9.5s, 2003 $1,450 $1,344,710
Continental Airlines, Inc., Liquidating
Trust, 11.75s, 1995** 3,975 398
--------------
$1,345,108
--------------
Total Bonds
(Identified Cost, $6,783,432) $6,309,276
--------------
Index Options -- 1.0%
Issuer Shares Value
S & P 500 Index* 109 $468,700
S & P 500 Index* 122 471,225
--------------
Total Index Options
(Identified Cost, $998,204) $939,925
--------------
Repurchase Agreement -- 10.2%
Principal Amount
(000 Omitted)
Goldman Sachs, dated 10/31/96, due
11/01/96, total to be received
$9,504,465 (secured by various U.S.
Treasury and Federal Agency
obligations in a jointly traded
account), at Cost $9,503 $ 9,503,000
--------------
Total Investments
(Identified Cost, $85,926,357) $94,858,835
--------------
Other Assets, Less
Liabilities -- (1.8)% (1,697,919)
--------------
Net Assets -- 100.0% $93,160,916
==============
* Non-income producing security.
** Non-income producing security -- in default.
+ Restricted security.
See notes to financial statements
7
<PAGE>
Statement of Assets and Liabilities -- October 31, 1996
<TABLE>
<S> <C>
Assets:
Investments, at value (identified cost, $76,423,357) $85,355,835
Repurchase agreement, at value 9,503,000
--------------
Total Investments, at value (identified cost, $85,926,357) $94,858,835
Cash 51
Receivable for investments sold 2,675,755
Interest and dividends receivable 277,833
Other assets 6,896
--------------
Total assets $97,819,370
--------------
Liabilities:
Distributions payable $ 841,206
Payable for investments purchased 3,675,224
Payable to affiliate --
Management fee 1,827
Accrued expenses and other liabilities 140,197
--------------
Total liabilities $ 4,658,454
--------------
Net assets $93,160,916
==============
Net assets consist of:
Paid-in capital $76,014,254
Unrealized appreciation on investments 8,932,480
Accumulated undistributed net realized gain on
investments and foreign currency transactions 9,562,770
Accumulated distributions in excess of net investment income (1,348,588)
--------------
Total $93,160,916
==============
Shares of beneficial interest outstanding 6,117,864
==============
Net asset value per share (net assets / shares of beneficial interest
outstanding) $ 15.23
==============
</TABLE>
See notes to financial statements
8
<PAGE>
Statement of Operations -- Year Ended October 31, 1996
<TABLE>
<S> <C>
Net investment income:
Income --
Interest $ 1,198,758
Dividends 610,365
Foreign taxes withheld (977)
--------------
Total investment income $ 1,808,146
--------------
Expenses --
Management fee $ 679,027
Trustees' compensation 105,221
Transfer and dividend disbursing agent fee 24,494
Investor communications expense 63,042
Auditing fees 54,350
Custodian fee 40,739
Printing 18,358
Postage 7,435
Legal fees 7,132
Miscellaneous 43,309
--------------
Total expenses $ 1,043,107
Fees paid indirectly (15,037)
--------------
Net expenses $ 1,028,070
--------------
Net investment income $ 780,076
--------------
Realized and unrealized gain (loss) on investments:
Realized gain on investment transactions (identified cost basis) $19,538,278
Change in unrealized appreciation on investments (2,460,540)
--------------
Net realized and unrealized gain on investments $17,077,738
--------------
Increase in net assets from operations $17,857,814
==============
</TABLE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------
Increase (decrease) in net assets: 1996 1995
---------------- ----------------
<S> <C> <C>
From operations --
Net investment income $ 780,076 $ 1,201,561
Net realized gain on investments and foreign currency transactions 19,538,278 6,955,479
Net unrealized gain (loss) on investments and foreign currency
translation (2,460,540) 6,130,381
---------------- ----------------
Increase in net assets from operations $ 17,857,814 $ 14,287,421
---------------- ----------------
Distributions declared to shareholders --
From net investment income $ (766,158) $ (1,201,561)
From net realized gain on investments and foreign currency transactions (9,282,693) (6,885,011)
In excess of net investment income -- (64,628)
From paid-in capital -- (3,030,266)
---------------- ----------------
Total distributions declared to shareholders $(10,048,851) $(11,181,466)
---------------- ----------------
Trust share (principal) transactions --
Net asset value of shares issued to shareholders in reinvestment of
distributions $ 1,109,352 $ 1,157,752
---------------- ----------------
Increase in net assets from Trust share transactions $ 1,109,352 $ 1,157,752
---------------- ----------------
Total increase in net assets $ 8,918,315 $ 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 $1,348,588 and $1,213,852, respectively) $ 93,160,916 $ 84,242,601
================ ================
</TABLE>
See notes to financial statements
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Per share data (for a share outstanding
throughout each period): Year Ended October 31,
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990*
------- ------- ------- ------- ------- ------- -------
Net asset value -- beginning of period $ 13.93 $ 13.40 $ 16.49 $ 14.82 $ 14.90 $ 11.66 $ 13.95
------- ------- ------- ------- ------- ------- -------
Income from investment operations# --
Net investment income $ 0.13 $ 0.20 $ 0.18 $ 0.67 $ 0.77 $ 0.90 $ 1.04
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 2.82 2.18 0.35 3.13 1.09 3.99 (1.95)
------- ------- ------- ------- ------- ------- -------
Total from investment operations $ 2.95 $ 2.38 $ 0.53 $ 3.80 $ 1.86 $ 4.89 $ (0.91)
------- ------- ------- ------- ------- ------- -------
Less distributions declared to shareholders --
From net investment income $ (0.13) $ (0.20) $ (0.18) $ (0.67) $ (0.77) $ (0.90) $ (1.04)
From net realized gain on investments and foreign
currency transactions (1.52) (1.14) (2.31) (1.44) (1.17) (0.75) --
In excess of net investment income -- (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 $ (1.65) $ (1.85) $ (3.62) $ (2.13) $ (1.94) $ (1.65) $ (1.38)
======= ======= ======= ======= ======= ======= =======
Net asset value -- end of period $ 15.23 $ 13.93 $ 13.40 $ 16.49 $ 14.82 $ 14.90 $ 11.66
======= ======= ======= ======= ======= ======= =======
Per share market value -- end of period $18.250 $16.500 $14.875 $17.500 $14.750 $14.250 $10.125
======= ======= ======= ======= ======= ======= =======
Total return 22.20% 26.06% 6.75% 35.98% 17.66% 59.90% (25.53)%+
Ratios (to average net assets)/Supplemental data:
Expenses## 1.14% 1.26% 1.20% 1.22% 1.35% 1.37% 1.40%+
Net investment income 0.85% 1.52% 1.20% 4.32% 5.16% 7.97% 8.65%+
Portfolio turnover 96% 92% 75% 151% 175% 327% 237%
Average commission rate### $0.0576 -- -- -- -- -- --
Net assets at end of period (000 omitted) $93,161 $84,243 $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.
+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
10
<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. 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 Fund'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. The Trust, along with other
affiliated entities of Massachusetts Financial Services Company (MFS), may
utilize a joint trading account for the purpose of entering into one or more
repurchase agreements.
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 result from fluctuations in foreign currency
exchange rates is not separately disclosed.
Short Sales -- The Trust may enter into short sales. A short sale transaction
involves selling a security which the Trust does not own with the intent of
purchasing it later at a lower price. The Trust will realize a gain if the
11
<PAGE>
Notes to Financial Statements -- continued
security price decreases and a loss if the security price increases between
the date of the short sale and the date on which the Trust must replace the
borrowed security. Possible losses from short sales can be greater than
losses from the actual purchase of a security. The amount of any gain will be
decreased, and the amount of any loss increased, by the amount of the
premium, dividends or interest the Trust may be required to pay in connection
with a short sale. Whenever the Trust engages in short sales, its custodian
segregates cash or U.S. Government securities in an amount that, when
combined with the amount of collateral deposited with the broker in
connection with the short sale, at least equals the current market value of
the security sold short.
Investment Transactions and Income -- Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and original issue discount are amortized or accreted for 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 Fund's custodian bank calculates its fee based on
the Fund'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 Fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
The 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
gain reported on these financial statements may differ from that reported on
the Fund's tax return and, consequently, the character of distributions to
shareholders reported in the financial highlights may differ from that
reported to shareholders on Form 1099-DIV. 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
12
<PAGE>
classified as distributions in excess of net investment income or accumulated
net realized gains. During the year ended October 31, 1996, accumulated
distributions in excess of net investment income were increased by $148,654,
accumulated undistributed net realized gain on investments and foreign
currency transactions was decreased by $333,247, and paid-in capital was
increased by $481,901. This change had no effect on the net assets or net
asset value per share.
(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 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 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
of its independent Trustees and Mr. Bailey. Included in Trustees'
compensation is a net periodic pension expense of $19,721 for the year ended
October 31, 1996.
Transfer Agent -- MFSC acts 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
The dividend services 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
$76,503,915 and $88,523,569, 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 $85,926,357
--------------
Gross unrealized appreciation $17,111,441
Gross unrealized depreciation (8,178,963)
--------------
Net unrealized appreciation (depreciation) $ 8,932,478
--------------
(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>
Year Ended October 31,
----------------------------------------------
1996 1995
---------------------- -----------------------
Shares Amount Shares Amount
------------------------------------------------------------------------ -------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Shares issued to shareholders in reinvestment of distributions 68,526 $1,109,352 81,593 $1,157,752
-------- ------------- -------- -------------
Net increase 68,526 $1,109,352 81,593 $1,157,752
======== ============= ======== =============
</TABLE>
13
<PAGE>
Notes to Financial Statements -- continued
(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 1996 Amount Share Amount Share Amount Share Amount Share
- ----------- ---------- ----- ---------- ----- ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 31 $ 546,431 $0.09 $ 286,440 $0.05 $ 7,195,033 $ 1.19 $ 7,481,473 $ 1.24
April 30 432,969 0.07 174,534 0.03 8,701,400 1.43 8,875,934 1.46
July 31 459,665 0.08 188,820 0.03 (5,220,135) (0.86) (5,031,315) (0.83)
October 31 369,081 0.06 132,282 0.02 6,401,440 1.06 6,531,722 1.08
---------- ----- ---------- ----- ----------- ------ ----------- ------
$1,808,146 $0.30 $ 780,076 $0.13 $17,077,738 $ 2.82 $17,857,814 $ 2.95
========== ===== ========== ===== =========== ====== =========== ======
Fiscal 1995
- -----------
January 31 $ 615,546 $0.10 $ 381,915 $0.06 $(5,292,400) $(0.87) $(4,910,485) $(0.81)
April 30 512,511 0.09 274,710 0.05 5,876,288 0.98 6,150,998 1.03
July 31 577,488 0.10 338,367 0.06 8,556,251 1.42 8,894,619 1.48
October 31 481,868 0.08 206,569 0.03 3,945,721 0.65 4,152,289 0.68
---------- ----- ---------- ----- ----------- ------ ----------- ------
$2,187,413 $0.37 $1,201,561 $0.20 $13,085,860 $ 2.18 $14,287,421 $ 2.38
========== ===== ========== ===== =========== ====== =========== ======
</TABLE>
(7) Line of Credit
The Trust entered into an agreement which enables it to participate with
other trusts managed by 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
year ended October 31, 1996 was $1,002.
(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 October 31,
1996, the Trust owned the following restricted securities (constituting 2.38%
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.
<TABLE>
<CAPTION>
Date of
Description Acquisition Shares Cost Value
- ----------- ----------- ------ ---- -----
<S> <C> <C> <C> <C>
Atlantic Gulf Communities Corp. 3/20/92-9/25/95 250 $ -- $ 1,344
Gillett Holdings, Inc. 10/08/92 37,656 358,400 1,430,928
Renaissance Cosmetics, Inc. 8/08/96 780 780,000 787,800
----------
$2,220,072
==========
</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
October 31, 1996 and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in
the period then ended, and financial highlights for each of the three years
in the period then ended. 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 October 31, 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 October 31, 1996, the results of its operations for
the year then ended, and the changes in its net assets for each of the two
years in the period then ended, and its financial highlights for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 12, 1996
15
<PAGE>
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);
President, Benchmark Consulting
Group, Inc. (office services);
Trustee, Landmark Funds
(mutual funds)
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 Managers
John F. Brennan, Jr.*
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-2 12/96 16.5M
