MFS SPECIAL VALUE TRUST N-CSRS
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF

REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-05912

MFS SPECIAL VALUE TRUST

(Exact name of registrant as specified in charter)

111 Huntington Avenue, Boston, Massachusetts 02199

(Address of principal executive offices) (Zip code)

Christopher R. Bohane

Massachusetts Financial Services Company

111 Huntington Avenue

Boston, Massachusetts 02199

(Name and address of agents for service)

Registrant’s telephone number, including area code: (617) 954-5000

Date of fiscal year end: October 31

Date of reporting period: April 30, 2018


Table of Contents
ITEM 1. REPORTS TO STOCKHOLDERS.


Table of Contents

Semiannual Report

April 30, 2018

 

LOGO

 

MFS® Special Value Trust

 

LOGO

 

MFV-SEM

 


Table of Contents

MANAGED DISTRIBUTION POLICY DISCLOSURE

The MFS Special Value Trust’s (the fund) Board of Trustees adopted a managed distribution policy. The fund seeks to pay monthly distributions based on an annual rate of 10.00% of the fund’s average monthly net asset value. The primary purpose of the managed distribution policy is to provide shareholders with a constant, but not guaranteed, fixed minimum rate of distribution each month. You should not draw any conclusions about the fund’s investment performance from the amount of the current distribution or from the terms of the fund’s managed distribution policy. The Board may amend or terminate the managed distribution policy at any time without prior notice to fund shareholders. The amendment or termination of the managed distribution policy could have an adverse effect on the market price of the fund’s shares.

With each distribution, the fund will issue a notice to shareholders and an accompanying press release which will provide detailed information regarding the amount and composition of the distribution and other related information. The amounts and sources of distributions reported in the notice to shareholders are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes. Please refer to “Tax Matters and Distributions” under Note 2 of the Notes to Financial Statements for information regarding the tax character of the fund’s distributions.

Under a managed distribution policy the fund may at times distribute more than its net investment income and net realized capital gains; therefore, a portion of your distribution may result in a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the fund is paid back to you. Any such returns of capital will decrease the fund’s total assets and, therefore, could have the effect of increasing the fund’s expense ratio. In addition, in order to make the level of distributions called for under its managed distribution policy, the fund may have to sell portfolio securities at a less than opportune time. A return of capital does not necessarily reflect the fund’s investment performance and should not be confused with ‘yield’ or ‘income’. The fund’s total return in relation to changes in net asset value is presented in the Financial Highlights.


Table of Contents

MFS® Special Value Trust

New York Stock Exchange Symbol: MFV

 

Letter from the Executive Chairman     1  
Portfolio composition     2  
Portfolio managers’ profiles     4  
Other notes     5  
Portfolio of investments     6  
Statement of assets and liabilities     19  
Statement of operations     20  
Statements of changes in net assets     21  
Financial highlights     22  
Notes to financial statements     24  
Report of independent registered public accounting firm     33  
Proxy voting policies and information     34  
Quarterly portfolio disclosure     34  
Further information     34  
Information about fund contracts and legal claims     35  
Contact information    back cover  

 

 

NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE



Table of Contents

LOGO

 

LETTER FROM THE EXECUTIVE CHAIRMAN

 

Dear Shareholders:

Rising bond yields have led to a measurable uptick in market volatility — a departure from the low-volatility environment that prevailed for much of 2017. In recent months,

against this backdrop, global markets have given back some of the strong gains recorded during 2017 and early 2018. Global economic growth remains robust, notwithstanding signs of a modest slowdown over the past few months, particularly in Europe.

Although the U.S. Federal Reserve continues to gradually raise interest rates and shrink its balance sheet, monetary policy remains accommodative around the world, with many central banks taking only tentative steps toward tighter policies. Newly enacted U.S. tax reforms have been welcomed by equity markets, while emerging market economies have benefited from a weaker U.S. dollar.

Around the world, inflation remains largely subdued, but tight labor markets and solid global demand have investors on the lookout for its potential resurgence. Increased U.S. protectionism is also a growing concern, as investors fear that trade friction could disrupt the synchronized rise in global growth.

As a global investment manager, MFS® strives to create long-term value and protect capital for clients through an active approach and an investment platform built on nearly a century of expertise. To make that long-term value meaningful for clients, we work to align with you on our beliefs, your needs and the time it takes to deliver on your desired outcomes.

Respectfully,

 

LOGO

Robert J. Manning

Executive Chairman

MFS Investment Management

June 18, 2018

The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.

 

1


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PORTFOLIO COMPOSITION

 

Portfolio structure (i)

LOGO

 

Top ten holdings (i)  
Citigroup, Inc.     2.5%  
JPMorgan Chase & Co.     2.2%  
NASDAQ, Inc.     1.9%  
Moody’s Corp.     1.9%  
U.S. Bancorp     1.7%  
Sherwin-Williams Co.     1.7%  
Thermo Fisher Scientific, Inc.     1.7%  
Aon PLC     1.7%  
Texas Instruments, Inc.     1.7%  
Travelers Cos., Inc     1.6%  
Equity sectors  
Financial Services     14.2%  
Health Care     6.0%  
Leisure     3.4%  
Utilities & Communications     2.7%  
Special Products & Services     2.5%  
Consumer Staples     2.5%  
Autos & Housing     1.7%  
Technology     1.6%  
Basic Materials     1.6%  
Energy     1.2%  
Industrial Goods & Services     1.2%  
Fixed income sectors (i)  
High Yield Corporates     52.2%  
Emerging Markets Bonds     3.2%  
Floating Rate Loans     0.3%  
Investment Grade Corporates     0.2%  
Commercial Mortgage-Backed Securities (o)     0.0%  
Composition including fixed income credit quality (a)(i)  
BBB     0.4%  
BB     22.1%  
B     27.2%  
CCC     5.5%  
D     0.2%  
Not Rated     0.5%  
Non-Fixed Income     38.6%  
Cash & Cash Equivalents     5.5%  
 

 

2


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Portfolio Composition – continued

 

(a) For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities and fixed income futures contracts, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and commodities. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies.
(i) For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts.
(o) Less than 0.1%.

Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.

Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.

Percentages are based on net assets as of April 30, 2018.

The portfolio is actively managed and current holdings may be different.

 

3


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PORTFOLIO MANAGERS’ PROFILES

 

Portfolio Manager   Primary Role   Since   Title and Five Year History
William Adams   Below Investment
Grade Debt
Instruments
Portfolio Manager
  2011  

Investment Officer of MFS; employed in the investment management area of MFS since 2009.

Ward Brown   Emerging Markets
Debt Instruments
Portfolio Manager
  2012   Investment Officer of MFS; employed in the investment management area of MFS since 2005.
Nevin Chitkara   Equity Securities
Portfolio Manager
  2012   Investment Officer of MFS; employed in the investment management area of MFS since 1997.
David Cole   Below Investment
Grade Debt
Instruments
Portfolio Manager
  2006  

Investment Officer of MFS; employed in the investment management area of MFS since 2004.

Matt Ryan   Emerging Markets
Debt Instruments
Portfolio Manager
  2012   Investment Officer of MFS; employed in the investment management area of MFS since 1997.
Michael Skatrud   Below Investment
Grade Debt
Instruments
Portfolio Manager
  2018
  Investment Officer of MFS; employed in the investment management area of MFS since 2013.

Note to Shareholders: Effective March 1, 2018, Michael Skatrud became a Portfolio Manager of the Fund. Effective September 1, 2018, William Adams will no longer be a Portfolio Manager of the Fund.

 

4


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OTHER NOTES

The fund’s shares may trade at a discount or premium to net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the fund’s concurrent liquidation.

The fund’s monthly distributions may include a return of capital to shareholders to the extent that the fund’s net investment income and net capital gains, determined in accordance with federal income tax regulations, are insufficient to meet the fund’s target annual distribution rate. Distributions that are treated for federal income tax purposes as a return of capital will reduce each shareholder’s basis in his or her shares and, to the extent the return of capital exceeds such basis, will be treated as gain to the shareholder from a sale of shares. It may also result in a recharacterization of what economically represents a return of capital to ordinary income in those situations where a fund has long term capital gains and a capital loss carryforward. Returns of shareholder capital may have the effect of reducing the fund’s assets and increasing the fund’s expense ratio.

The fund’s target annual distribution rate is calculated based on an annual rate of 10.00% of the fund’s average monthly net asset value, not a fixed share price, and the fund’s dividend amount will fluctuate with changes in the fund’s average monthly net assets.

 

 

In accordance with Section 23(c) of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.

 

5


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PORTFOLIO OF INVESTMENTS

4/30/18 (unaudited)

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Bonds - 54.8%                 
Issuer    Shares/Par     Value ($)  
Aerospace - 1.1%                 
Dae Funding LLC, 5%, 8/01/2024 (n)    $ 135,000     $ 130,113  
KLX, Inc., 5.875%, 12/01/2022 (n)      120,000       125,250  
TransDigm, Inc., 6.5%, 7/15/2024      125,000       127,109  
TransDigm, Inc., 6.375%, 6/15/2026      65,000       65,325  
    

 

 

 
      $ 447,797  
Asset-Backed & Securitized - 0.0%                 
Morgan Stanley Capital I, Inc., 1.493%, 4/28/2039 (i)(z)    $ 40,778     $ 61  
Broadcasting - 2.1%                 
Liberty Media Corp. - Liberty Formula One, 8.5%, 7/15/2029    $ 110,000     $ 118,525  
Liberty Media Corp. - Liberty Formula One, 8.25%, 2/01/2030      50,000       53,750  
Match Group, Inc., 6.375%, 6/01/2024      105,000       110,775  
Meredith Corp., 6.875%, 2/01/2026 (n)      95,000       96,064  
Netflix, Inc., 5.875%, 2/15/2025      60,000       61,632  
Netflix, Inc., 4.375%, 11/15/2026      40,000       37,388  
Netflix, Inc., 4.875%, 4/15/2028 (n)      25,000       23,594  
Netflix, Inc., 5.875%, 11/15/2028 (n)      100,000       99,750  
Sinclair Broadcast Group, Inc., 5.125%, 2/15/2027 (n)      125,000       115,937  
WMG Acquisition Corp., 5%, 8/01/2023 (n)      30,000       29,812  
WMG Acquisition Corp., 4.875%, 11/01/2024 (n)      95,000       93,100  
WMG Acquisition Corp., 5.5%, 4/15/2026 (n)      15,000       15,075  
    

 

 

 
      $ 855,402  
Building - 2.1%                 
ABC Supply Co., Inc., 5.75%, 12/15/2023 (n)    $ 105,000     $ 108,250  
Beacon Escrow Corp., 4.875%, 11/01/2025 (n)      60,000       56,700  
Beacon Roofing Supply, Inc., 6.375%, 10/01/2023      95,000       99,512  
Gibraltar Industries, Inc., 6.25%, 2/01/2021      95,000       96,510  
New Enterprise Stone & Lime Co, Inc., 10.125%, 4/01/2022 (n)      90,000       95,850  
New Enterprise Stone & Lime Co., Inc., 6.25%, 3/15/2026 (n)      50,000       50,625  
PriSo Acquisition Corp., 9%, 5/15/2023 (n)      80,000       83,600  
Standard Industries, Inc., 5.375%, 11/15/2024 (n)      95,000       96,247  
Standard Industries, Inc., 6%, 10/15/2025 (n)      65,000       67,438  
Summit Materials LLC/Summit Materials Finance Co., 6.125%, 7/15/2023      105,000       107,331  
    

 

 

 
             $ 862,063  

 

6


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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Business Services - 2.2%                 
Alliance Data Systems Corp., 5.875%, 11/01/2021 (n)    $ 100,000     $ 101,750  
Alliance Data Systems Corp., 5.375%, 8/01/2022 (n)      55,000       55,275  
Ascend Learning LLC, 6.875%, 8/01/2025 (n)      70,000       71,225  
CDK Global, Inc., 4.875%, 6/01/2027      155,000       149,962  
Equinix, Inc., 5.375%, 1/01/2022      25,000       25,781  
Equinix, Inc., 5.375%, 4/01/2023      35,000       35,963  
Equinix, Inc., 5.875%, 1/15/2026      60,000       62,100  
First Data Corp., 5%, 1/15/2024 (n)      190,000       191,425  
MSCI, Inc., 4.75%, 8/01/2026 (n)      90,000       89,177  
Travelport Worldwide Ltd., 6%, 3/15/2026 (n)      90,000       92,025  
    

 

 

 
      $ 874,683  
Cable TV - 3.5%                 
Altice Financing S.A., 6.625%, 2/15/2023 (n)    $ 200,000     $ 200,000  
CCO Holdings LLC/CCO Holdings Capital Corp., 5.125%, 5/01/2023 (n)      155,000       155,728  
CCO Holdings LLC/CCO Holdings Capital Corp., 5.75%, 1/15/2024      160,000       161,504  
CCO Holdings LLC/CCO Holdings Capital Corp., 5.375%, 5/01/2025 (n)      25,000       24,578  
CCO Holdings LLC/CCO Holdings Capital Corp., 5.75%, 2/15/2026 (n)      80,000       79,400  
CCO Holdings LLC/CCO Holdings Capital Corp., 5.875%, 5/01/2027 (n)      45,000       43,988  
DISH DBS Corp., 5%, 3/15/2023      60,000       51,975  
DISH DBS Corp., 5.875%, 11/15/2024      45,000       38,306  
Intelsat Jackson Holdings S.A., 5.5%, 8/01/2023      70,000       58,800  
Intelsat Jackson Holdings S.A., 8%, 2/15/2024 (n)      20,000       21,125  
Sirius XM Radio, Inc., 4.625%, 5/15/2023 (n)      85,000       83,937  
Sirius XM Radio, Inc., 6%, 7/15/2024 (n)      60,000       61,662  
Sirius XM Radio, Inc., 5.375%, 4/15/2025 (n)      45,000       44,775  
Unitymedia KabelBW GmbH, 6.125%, 1/15/2025 (n)      200,000       210,000  
Videotron Ltd., 5.375%, 6/15/2024 (n)      25,000       25,688  
Videotron Ltd., 5.125%, 4/15/2027 (n)      155,000       151,900  
    

 

 

 
      $ 1,413,366  
Chemicals - 0.7%                 
OCI N.V., 6.625%, 4/15/2023 (n)    $ 200,000     $ 202,800  
PolyOne Corp., 5.25%, 3/15/2023      90,000       92,137  
    

 

 

 
      $ 294,937  
Computer Software - 0.7%                 
Diamond 1 Finance Corp./Diamond 2 Finance Corp., 5.875%, 6/15/2021 (n)    $ 85,000     $ 87,451  
Diamond 1 Finance Corp./Diamond 2 Finance Corp., 6.02%, 6/15/2026 (n)      45,000       47,725  
VeriSign, Inc., 4.625%, 5/01/2023      30,000       30,075  
VeriSign, Inc., 5.25%, 4/01/2025      85,000       87,231  

 

7


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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Computer Software - continued                 
VeriSign, Inc., 4.75%, 7/15/2027    $ 27,000     $ 25,886  
    

 

 

 
      $ 278,368  
Computer Software - Systems - 0.6%                 
CDW LLC/CDW Finance Corp., 5%, 9/01/2025    $ 25,000     $ 24,905  
JDA Software Group, Inc., 7.375%, 10/15/2024 (n)      85,000       88,188  
Sabre GLBL, Inc., 5.375%, 4/15/2023 (n)      115,000       116,115  
    

 

 

 
      $ 229,208  
Conglomerates - 2.3%                 
Amsted Industries Co., 5%, 3/15/2022 (n)    $ 135,000     $ 134,748  
Apergy Corp, 6.375%, 5/01/2026 (n)      40,000       40,600  
Apex Tool Group LLC, 9%, 2/15/2023 (n)      95,000       92,625  
EnerSys, 5%, 4/30/2023 (n)      155,000       155,775  
Enpro Industries, Inc., 5.875%, 9/15/2022      130,000       133,900  
Entegris, Inc., 4.625%, 2/10/2026 (n)      100,000       96,500  
Gates Global LLC, 6%, 7/15/2022 (n)      48,000       48,600  
SPX FLOW, Inc., 5.625%, 8/15/2024 (n)      105,000       106,312  
TriMas Corp., 4.875%, 10/15/2025 (n)      110,000       105,875  
    

 

 

 
      $ 914,935  
Construction - 0.5%                 
Empresas ICA S.A.B. de C.V., 8.9%, 2/04/2021 (a)(d)    $ 125,000     $ 19,438  
Mattamy Group Corp., 6.5%, 10/01/2025 (n)      85,000       84,787  
Toll Brothers Finance Corp., 4.875%, 11/15/2025      30,000       29,775  
Toll Brothers Finance Corp., 4.35%, 2/15/2028      95,000       87,875  
    

 

 

 
      $ 221,875  
Consumer Products - 0.8%                 
Coty, Inc., 6.5%, 4/15/2026 (n)    $ 115,000     $ 111,838  
Prestige Brands, Inc., 6.375%, 3/01/2024 (n)      110,000       110,550  
Spectrum Brands, Inc., 6.125%, 12/15/2024      10,000       10,150  
Spectrum Brands, Inc., 5.75%, 7/15/2025      105,000       104,900  
    

 

 

 
      $ 337,438  
Consumer Services - 1.2%                 
Interval Acquisition Corp., 5.625%, 4/15/2023    $ 130,000     $ 135,525  
Matthews International Corp., 5.25%, 12/01/2025 (n)      80,000       78,400  
Service Corp. International, 4.625%, 12/15/2027      75,000       73,335  
ServiceMaster Co. LLC, 5.125%, 11/15/2024 (n)      105,000       102,270  
West Corp., 8.5%, 10/15/2025 (n)      110,000       106,150  
    

 

 

 
      $ 495,680  
Containers - 2.5%                 
Berry Global Group, Inc., 5.5%, 5/15/2022    $ 125,000     $ 128,204  
Berry Global Group, Inc., 6%, 10/15/2022      30,000       31,238  

 

8


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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Containers - continued                 
Berry Global Group, Inc., 5.125%, 7/15/2023    $ 50,000     $ 50,312  
Crown Americas LLC/Crown Americas Capital Corp., 4.75%, 2/01/2026 (n)      25,000       24,125  
Crown Americas LLC/Crown Americas Capital Corp. V, 4.25%, 9/30/2026      55,000       50,944  
Flex Acquisition Co., Inc., 6.875%, 1/15/2025 (n)      70,000       70,350  
Multi-Color Corp., 6.125%, 12/01/2022 (n)      123,000       126,690  
Reynolds Group, 5.75%, 10/15/2020      48,456       48,819  
Reynolds Group, 5.125%, 7/15/2023 (n)      70,000       70,437  
Reynolds Group, 7%, 7/15/2024 (n)      70,000       72,887  
Sealed Air Corp., 4.875%, 12/01/2022 (n)      115,000       116,725  
Sealed Air Corp., 5.125%, 12/01/2024 (n)      25,000       25,375  
Sealed Air Corp., 5.5%, 9/15/2025 (n)      25,000       25,844  
Silgan Holdings, Inc., 5.5%, 2/01/2022      10,000       10,150  
Silgan Holdings, Inc., 4.75%, 3/15/2025      85,000       82,246  
W/S Packaging Group, Inc., 9%, 4/15/2023 (n)      70,000       71,575  
    

 

 

 
      $ 1,005,921  
Electrical Equipment - 0.4%                 
CommScope Tech LLC, 5%, 3/15/2027 (n)    $ 175,000     $ 167,562  
Electronics - 0.4%                 
Sensata Technologies B.V., 5.625%, 11/01/2024 (n)    $ 40,000     $ 41,500  
Sensata Technologies B.V., 5%, 10/01/2025 (n)      130,000       129,675  
    

 

 

 
      $ 171,175  
Emerging Market Sovereign - 0.7%                 
Republic of Ecuador, 10.5%, 3/24/2020 (n)    $ 200,000     $ 206,000  
Republic of Venezuela, 7%, 3/31/2038 (d)      203,000       59,885  
    

 

 

 
      $ 265,885  
Energy - Independent - 4.1%          
Afren PLC, 11.5%, 2/01/2016 (a)(d)(z)    $ 195,167     $ 488  
Alta Mesa Holdings LP/Alta Mesa Finance Services Corp., 7.875%, 12/15/2024      145,000       150,075  
CrownRock LP/CrownRock Finance, Inc., 5.625%, 10/15/2025 (n)      110,000       108,625  
Diamondback Energy, Inc., 5.375%, 5/31/2025      145,000       146,812  
Diamondback Energy, Inc., 5.375%, 5/31/2025 (n)      40,000       40,550  
Gulfport Energy Corp., 6%, 10/15/2024      125,000       118,750  
Gulfport Energy Corp., 6.375%, 5/15/2025      35,000       33,589  
Indigo Natural Resources LLC, 6.875%, 2/15/2026 (n)      110,000       105,600  
Parsley Energy LLC/Parsley Finance Corp., 5.625%, 10/15/2027 (n)      145,000       146,812  
PDC Energy, Inc., 6.125%, 9/15/2024      130,000       133,250  

 

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Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Energy - Independent - continued          
QEP Resources, Inc., 5.25%, 5/01/2023    $ 120,000     $ 117,000  
QEP Resources, Inc., 5.625%, 3/01/2026      85,000       81,388  
Sanchez Energy Corp., 6.125%, 1/15/2023      45,000       32,499  
Seven Generations Energy, 6.75%, 5/01/2023 (n)      105,000       108,938  
Seven Generations Energy, 5.375%, 9/30/2025 (n)      55,000       53,488  
SM Energy Co., 6.75%, 9/15/2026      120,000       122,100  
SRC Energy, Inc., 6.25%, 12/01/2025 (n)      90,000       90,900  
WPX Energy, Inc., 6%, 1/15/2022      66,000       68,805  
    

 

 

 
      $ 1,659,669  
Entertainment - 1.0%                 
Cedar Fair LP, 5.375%, 6/01/2024    $ 35,000     $ 35,438  
Cedar Fair LP, 5.375%, 4/15/2027 (n)      70,000       69,650  
Cinemark USA, Inc., 5.125%, 12/15/2022      50,000       50,812  
Cinemark USA, Inc., 4.875%, 6/01/2023      35,000       34,563  
Live Nation Entertainment, Inc., 5.625%, 3/15/2026 (n)      70,000       69,825  
Six Flags Entertainment Corp., 4.875%, 7/31/2024 (n)      165,000       161,238  
    

 

 

 
      $ 421,526  
Financial Institutions - 1.1%                 
Aircastle Ltd., 5.125%, 3/15/2021    $ 40,000     $ 41,050  
Aircastle Ltd., 5.5%, 2/15/2022      40,000       41,800  
Navient Corp., 7.25%, 1/25/2022      100,000       105,750  
Navient Corp., 7.25%, 9/25/2023      75,000       78,375  
Park Aerospace Holdings Ltd., 5.5%, 2/15/2024 (n)      175,000       169,969  
    

 

 

 
      $ 436,944  
Food & Beverages - 2.0%                 
Aramark Services, Inc., 4.75%, 6/01/2026    $ 80,000     $ 77,600  
Aramark Services, Inc., 5%, 2/01/2028 (n)      60,000       58,425  
Cott Holdings, Inc., 5.5%, 4/01/2025 (n)      110,000       109,175  
JBS USA LLC/JBS USA Finance, Inc., 6.75%, 2/15/2028 (n)      30,000       28,800  
JBS USA Lux S.A./JBS USA Finance, Inc., 5.875%, 7/15/2024 (n)      95,000       92,150  
Lamb Weston Holdings, Inc., 4.625%, 11/01/2024 (n)      65,000       64,431  
Lamb Weston Holdings, Inc., 4.875%, 11/01/2026 (n)      40,000       39,650  
Pilgrim’s Pride Corp., 5.875%, 9/30/2027 (n)      120,000       114,600  
Pinnacle Foods Finance LLC/Pinnacle Foods Finance Corp., 5.875%, 1/15/2024      105,000       108,150  
U.S. Foods Holding Corp., 5.875%, 6/15/2024 (n)      110,000       111,925  
    

 

 

 
      $ 804,906  
Forest & Paper Products - 0.0%                 
Appvion, Inc., 9%, 6/01/2020 (d)(n)    $ 41,000     $ 4  

 

10


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Gaming & Lodging - 2.3%                 
CCM Merger, Inc., 6%, 3/15/2022 (n)    $ 85,000     $ 86,488  
GLP Capital LP/GLP Financing II, Inc., 5.375%, 11/01/2023      95,000       98,206  
GLP Capital LP/GLP Financing II, Inc., 5.375%, 4/15/2026      10,000       10,075  
Hilton Domestic Operating Co., Inc., 5.125%, 5/01/2026 (n)      90,000       90,000  
Hilton Worldwide Finance LLC, 4.625%, 4/01/2025      105,000       101,829  
MGM Resorts International, 6.625%, 12/15/2021      90,000       96,300  
Ryman Hospitality Properties, Inc., REIT, 5%, 4/15/2021      105,000       105,656  
Ryman Hospitality Properties, Inc., REIT, 5%, 4/15/2023      50,000       50,125  
Wyndham Hotels Group, LLC, 5.375%, 4/15/2026 (n)      80,000       80,600  
Wynn Macau Ltd., 5.5%, 10/01/2027 (n)      200,000       194,002  
    

 

 

 
      $ 913,281  
Industrial - 0.6%                 
Cleaver Brooks, Inc., 7.875%, 3/01/2023 (n)    $ 120,000     $ 123,900  
KAR Auction Services, Inc., 5.125%, 6/01/2025 (n)      120,000       116,400  
    

 

 

 
      $ 240,300  
Insurance - 0.2%                 
AssuredPartners Inc., 7%, 8/15/2025 (n)    $ 75,000     $ 74,063  
Insurance - Health - 0.2%                 
Centene Corp., 5.625%, 2/15/2021    $ 35,000     $ 35,919  
Centene Corp., 6.125%, 2/15/2024      60,000       62,850  
    

 

 

 
      $ 98,769  
Insurance - Property & Casualty - 0.3%                 
Hub International Holdings, Inc., 7.875%, 10/01/2021 (n)    $ 60,000     $ 62,532  
Hub International Ltd., 7%, 5/01/2026 (n)      40,000       40,050  
    

 

 

 
      $ 102,582  
Major Banks - 0.2%                 
Bank of America Corp., 5.875% to 3/15/2028, FLR to 12/31/2059    $ 90,000     $ 89,820  
Medical & Health Technology & Services - 3.2%                 
DaVita, Inc., 5.125%, 7/15/2024    $ 30,000     $ 29,063  
DaVita, Inc., 5%, 5/01/2025      80,000       75,816  
HCA, Inc., 7.5%, 2/15/2022      135,000       148,500  
HCA, Inc., 5%, 3/15/2024      90,000       91,012  
HCA, Inc., 5.375%, 2/01/2025      60,000       59,700  
HealthSouth Corp., 5.125%, 3/15/2023      105,000       106,575  
Heartland Dental, LLC, 8.5%, 5/01/2026 (n)      75,000       75,169  
NVA Holdings, Inc., 6.875%, 4/01/2026 (n)      35,000       35,263  
Polaris, 8.5%, 12/01/2022 (n)      85,000       86,275  
Quorum Health Corp., 11.625%, 4/15/2023      65,000       69,062  

 

11


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Medical & Health Technology & Services - continued                 
Tenet Healthcare Corp., 8.125%, 4/01/2022    $ 140,000     $ 145,775  
Tenet Healthcare Corp., 6.75%, 6/15/2023      60,000       58,988  
THC Escrow Corp. III, 5.125%, 5/01/2025 (n)      85,000       82,662  
Universal Health Services, Inc., 7.625%, 8/15/2020      155,000       156,162  
West Street Merger Sub, Inc., 6.375%, 9/01/2025 (n)      70,000       68,775  
    

 

 

 
      $ 1,288,797  
Medical Equipment - 0.4%                 
Teleflex, Inc., 5.25%, 6/15/2024    $ 80,000     $ 81,200  
Teleflex, Inc., 4.875%, 6/01/2026      30,000       29,580  
Teleflex, Inc. , 4.625%, 11/15/2027      45,000       42,975  
    

 

 

 
      $ 153,755  
Metals & Mining - 3.7%                 
First Quantum Minerals Ltd., 7%, 2/15/2021 (n)    $ 50,000     $ 50,112  
First Quantum Minerals Ltd., 7.25%, 4/01/2023 (n)      200,000       199,460  
Freeport-McMoRan Copper & Gold, Inc., 3.875%, 3/15/2023      45,000       43,144  
Freeport-McMoRan Copper & Gold, Inc., 5.4%, 11/14/2034      40,000       36,900  
Freeport-McMoRan, Inc., 6.875%, 2/15/2023      198,000       212,355  
Kaiser Aluminum Corp., 5.875%, 5/15/2024      155,000       159,650  
Kinross Gold Corp., 5.95%, 3/15/2024      26,000       27,105  
Kinross Gold Corp., 4.5%, 7/15/2027 (n)      13,000       12,220  
Lundin Mining Corp., 7.875%, 11/01/2022 (n)      85,000       89,223  
Northwest Acquisitions ULC/Dominion Finco, Inc., 7.125%, 11/01/2022 (n)      115,000       117,104  
Novelis Corp., 5.875%, 9/30/2026 (n)      140,000       138,950  
Petra Diamonds U.S. Treasury PLC, 7.25%, 5/01/2022 (n)      200,000       199,900  
Steel Dynamics, Inc., 5.125%, 10/01/2021      45,000       45,801  
Steel Dynamics, Inc., 5.5%, 10/01/2024      80,000       82,200  
TMS International Corp., 7.25%, 8/15/2025 (n)      75,000       77,625  
    

 

 

 
      $ 1,491,749  
Midstream - 2.4%                 
Blue Racer Midstream LLC/Blue Racer Finance Corp., 6.125%, 11/15/2022 (n)    $ 140,000     $ 143,500  
DCP Midstream LLC, 3.875%, 3/15/2023      85,000       82,025  
DCP Midstream LP, 4.95%, 4/01/2022      43,000       43,645  
DCP Midstream LP, 5.6%, 4/01/2044      45,000       44,100  
Energy Transfer Equity LP, 5.875%, 1/15/2024      115,000       117,444  
Energy Transfer Equity LP, 5.5%, 6/01/2027      30,000       30,000  
Tallgrass Energy GP, LP, 5.5%, 1/15/2028 (n)      195,000       194,512  
Targa Resources Partners LP/Targa Resources Finance Corp, 5.375%, 2/01/2027      200,000       191,500  
Targa Resources Partners LP/Targa Resources Finance Corp., 5.25%, 5/01/2023      75,000       74,813  

 

12


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Midstream - continued                 
Targa Resources Partners LP/Targa Resources Finance Corp., 5.125%, 2/01/2025 (n)    $ 40,000     $ 38,800  
    

 

 

 
      $ 960,339  
Network & Telecom - 0.4%                 
Zayo Group LLC/Zayo Capital, Inc., 6.375%, 5/15/2025    $ 60,000     $ 62,112  
Zayo Group LLC/Zayo Capital, Inc., 5.75%, 1/15/2027 (n)      110,000       109,217  
    

 

 

 
      $ 171,329  
Oil Services - 1.2%                 
Bristow Group, Inc., 6.25%, 10/15/2022    $ 165,000     $ 136,125  
Diamond Offshore Drill Co., 7.875%, 8/15/2025      45,000       46,181  
Diamond Offshore Drill Co., 5.7%, 10/15/2039      140,000       109,200  
Ensco PLC, 7.75%, 2/01/2026      90,000       84,825  
Trinidad Drilling Ltd., 6.625%, 2/15/2025 (n)      120,000       115,050  
    

 

 

 
      $ 491,381  
Oils - 0.3%                 
Parkland Fuel Corp., 6%, 4/01/2026 (n)    $ 115,000     $ 115,000  
Pharmaceuticals - 0.7%                 
Mallinckrodt International Finance S.A., 5.75%, 8/01/2022 (n)    $ 85,000     $ 70,762  
Mallinckrodt International Finance S.A., 5.625%, 10/15/2023 (n)      30,000       23,475  
Valeant Pharmaceuticals International, Inc., 5.5%, 3/01/2023 (n)      90,000       81,225  
Valeant Pharmaceuticals International, Inc., 6.125%, 4/15/2025 (n)      105,000       94,707  
    

 

 

 
      $ 270,169  
Precious Metals & Minerals - 0.2%                 
Teck Resources Ltd., 6%, 8/15/2040    $ 15,000     $ 15,637  
Teck Resources Ltd., 6.25%, 7/15/2041      80,000       84,800  
    

 

 

 
      $ 100,437  
Printing & Publishing - 0.2%  
Nielsen Finance LLC, 5%, 4/15/2022 (n)    $ 71,000     $ 71,540  
Real Estate - Healthcare - 0.5%                 
MPT Operating Partnership LP/MPT Financial Co., REIT, 5.25%, 8/01/2026    $ 100,000     $ 97,000  
MPT Operating Partnership LP/MPT Financial Co., REIT, 5%, 10/15/2027      120,000       113,700  
    

 

 

 
      $ 210,700  

 

13


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Real Estate - Other - 0.5%                 
CyrusOne LP/CyrusOne Finance Corp., REIT, 5%, 3/15/2024    $ 120,000     $ 120,300  
CyrusOne LP/CyrusOne Finance Corp., REIT, 5.375%, 3/15/2027      60,000       60,000  
Starwood Property Trust, Inc., 5%, 12/15/2021      10,000       10,120  
Starwood Property Trust, Inc., 4.75%, 3/15/2025 (n)      10,000       9,625  
    

 

 

 
      $ 200,045  
Restaurants - 0.7%                 
Golden Nugget, Inc., 6.75%, 10/15/2024 (n)    $ 85,000     $ 86,275  
IRB Holding Corp. , 6.75%, 2/15/2026 (n)      75,000       72,375  
KFC Holding Co./Pizza Hut Holdings LLC/Taco Bell of America LLC, 5.25%, 6/01/2026 (n)      115,000       115,575  
    

 

 

 
      $ 274,225  
Retailers - 0.3%                 
Hanesbrands, Inc., 4.625%, 5/15/2024 (n)    $ 25,000     $ 24,125  
Hanesbrands, Inc., 4.875%, 5/15/2026 (n)      105,000       100,800  
    

 

 

 
      $ 124,925  
Specialty Chemicals - 0.7%                 
A Schulman, Inc., 6.875%, 6/01/2023    $ 95,000     $ 99,750  
Univar USA, Inc., 6.75%, 7/15/2023 (n)      180,000       185,400  
    

 

 

 
      $ 285,150  
Specialty Stores - 0.2%                 
Group 1 Automotive, Inc., 5%, 6/01/2022    $ 85,000     $ 85,238  
Supermarkets - 0.2%                 
Albertsons Cos. LLC/Safeway Co., 6.625%, 6/15/2024    $ 90,000     $ 83,813  
Telecommunications - Wireless - 3.1%                 
Altice Luxembourg S.A., 7.625%, 2/15/2025 (n)    $ 200,000     $ 180,250  
Digicel Group Ltd., 7.125%, 4/01/2022 (n)      200,000       162,644  
SBA Communications Corp., REIT, 4%, 10/01/2022 (n)      120,000       114,300  
SBA Communications Corp., REIT, 4.875%, 9/01/2024      30,000       28,838  
Sprint Corp., 7.875%, 9/15/2023      140,000       150,150  
Sprint Corp., 7.125%, 6/15/2024      125,000       129,531  
Sprint Corp., 7.625%, 3/01/2026      25,000       26,344  
Sprint Nextel Corp., 6%, 11/15/2022      185,000       188,931  
T-Mobile USA, Inc., 6.5%, 1/15/2024      75,000       78,562  
T-Mobile USA, Inc., 5.125%, 4/15/2025      60,000       60,450  
T-Mobile USA, Inc., 6.5%, 1/15/2026      70,000       74,397  
T-Mobile USA, Inc., 5.375%, 4/15/2027      50,000       50,563  
    

 

 

 
      $ 1,244,960  

 

14


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Bonds - continued                 
Telephone Services - 0.4%                 
Level 3 Financing, Inc., 5.375%, 1/15/2024    $ 50,000     $ 49,500  
Level 3 Financing, Inc., 5.375%, 5/01/2025      100,000       98,470  
    

 

 

 
      $ 147,970  
Transportation - Services - 0.2%                 
Navios Maritime Holding, Inc., 7.375%, 1/15/2022 (n)    $ 60,000     $ 45,375  
Navios South American Logistics, Inc./Navios Logistics Finance (U.S.), Inc., 7.25%, 5/01/2022      50,000       48,000  
    

 

 

 
      $ 93,375  
Utilities - Electric Power - 1.5%                 
Calpine Corp., 5.5%, 2/01/2024    $ 120,000     $ 110,100  
Calpine Corp., 5.75%, 1/15/2025      90,000       82,584  
Calpine Corp., 5.25%, 6/01/2026 (n)      55,000       52,628  
Covanta Holding Corp., 6.375%, 10/01/2022      35,000       35,744  
Covanta Holding Corp., 5.875%, 3/01/2024      65,000       64,025  
Covanta Holding Corp., 5.875%, 7/01/2025      50,000       48,625  
NextEra Energy Operating Co., 4.25%, 9/15/2024 (n)      105,000       101,325  
Pattern Energy Group, Inc., 5.875%, 2/01/2024 (n)      115,000       117,300  
    

 

 

 
      $ 612,331  
Total Bonds (Identified Cost, $22,830,559)     $ 22,155,448  
Common Stocks - 38.6%                 
Brokerage & Asset Managers - 3.3%                 
BlackRock, Inc.      1,058     $ 551,747  
NASDAQ, Inc.      8,870       783,399  
    

 

 

 
      $ 1,335,146  
Business Services - 2.5%                 
Accenture PLC, “A”      4,235     $ 640,332  
Equifax, Inc.      3,342       374,471  
    

 

 

 
      $ 1,014,803  
Cable TV - 1.5%                 
Comcast Corp., “A”      19,221     $ 603,347  
Chemicals - 1.6%                 
PPG Industries, Inc.      5,980     $ 633,162  
Construction - 1.7%                 
Sherwin-Williams Co.      1,895     $ 696,716  

 

15


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Common Stocks - continued                 
Electrical Equipment - 1.2%                 
Johnson Controls International PLC      14,173     $ 480,040  
Electronics - 1.6%                 
Texas Instruments, Inc.      6,597     $ 669,134  
Food & Beverages - 1.3%                 
Nestle S.A., ADR      6,895     $ 533,397  
Insurance - 3.3%                 
Aon PLC      4,808     $ 684,996  
Travelers Cos., Inc.      5,017       660,237  
    

 

 

 
      $ 1,345,233  
Major Banks - 3.3%                 
JPMorgan Chase & Co.      8,010     $ 871,328  
Wells Fargo & Co.      9,146       475,226  
    

 

 

 
      $ 1,346,554  
Medical Equipment - 4.5%                 
Danaher Corp.      5,447     $ 546,443  
Medtronic PLC      7,068       566,359  
Thermo Fisher Scientific, Inc.      3,274       688,686  
    

 

 

 
      $ 1,801,488  
Oil Services - 1.2%                 
LTRI Holdings LP (a)(u)      60     $ 53,365  
Schlumberger Ltd.      6,286       430,968  
    

 

 

 
      $ 484,333  
Other Banks & Diversified Financials - 4.2%                 
Citigroup, Inc.      14,894     $ 1,016,813  
U.S. Bancorp      13,859       699,187  
    

 

 

 
      $ 1,716,000  
Pharmaceuticals - 1.6%                 
Johnson & Johnson      5,084     $ 643,075  
Printing & Publishing - 1.9%                 
Moody’s Corp.      4,692     $ 761,042  
Tobacco - 1.2%                 
Philip Morris International, Inc.      5,781     $ 474,042  

 

16


Table of Contents

Portfolio of Investments (unaudited) – continued

 

Issuer    Shares/Par     Value ($)  
Common Stocks - continued                 
Utilities - Electric Power - 2.7%                 
Duke Energy Corp.      8,187     $ 656,270  
Southern Co.      9,144       421,721  
    

 

 

 
      $ 1,077,991  
Total Common Stocks (Identified Cost, $10,543,539)     $ 15,615,503  
Floating Rate Loans (g)(r) - 0.3%          
Consumer Products - 0.1%                 
Spectrum Brands, Inc., Term Loan B, 3.96%, 6/23/2022    $ 30,281     $ 30,243  
Medical & Health Technology & Services - 0.2%                 
DaVita HealthCare Partners, Inc., Term Loan B, 4.65%, 6/24/2021    $ 74,836     $ 75,397  
Total Floating Rate Loans (Identified Cost, $104,966)     $ 105,640  
Investment Companies (h) - 5.8%                 
Money Market Funds - 5.8%                 
MFS Institutional Money Market Portfolio, 1.78% (v)
(Identified Cost, $2,359,302)
     2,359,627     $ 2,359,392  
Other Assets, Less Liabilities - 0.5%              194,292  
Net Assets - 100.0%     $ 40,430,275  

 

(a) Non-income producing security.
(d) In default.
(g) The rate shown represents a weighted average coupon rate on settled positions at period end, unless otherwise indicated.
(h) An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $2,359,392 and $37,876,591, respectively.
(i) Interest only security for which the fund receives interest on notional principal (Par amount). Par amount shown is the notional principal and does not reflect the cost of the security.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be sold in the ordinary course of business in transactions exempt from registration, normally to qualified institutional buyers. At period end, the aggregate value of these securities was $12,328,430, representing 30.5% of net assets.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as a result of contractual or optional prepayments by the borrower. Such prepayments cannot be predicted with certainty. These loans may be subject to restrictions on resale. Floating rate loans generally have rates of interest which are determined periodically by reference to a base lending rate plus a premium.
(u) The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements.

 

17


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Portfolio of Investments (unaudited) – continued

 

(v) Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end.
(z) Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities:

 

Restricted Securities    Acquisition
Date
   Cost      Value  
Afren PLC, 11.5%, 2/01/2016    1/27/11      $191,339        $488  
Morgan Stanley Capital I, Inc., 1.493%, 4/28/2039    7/20/04      61        61  
Total Restricted Securities        $549  
% of Net assets            0.0%  

The following abbreviations are used in this report and are defined:

 

ADR   American Depositary Receipt
FLR   Floating Rate. Interest rate resets periodically based on the parenthetically disclosed reference rate plus a spread (if any). The period-end rate reported may not be the current rate.
PLC   Public Limited Company
REIT   Real Estate Investment Trust

See Notes to Financial Statements

 

18


Table of Contents

Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 4/30/18 (unaudited)

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets         

Investments in unaffiliated issuers, at value (identified cost, $33,479,064)

     $37,876,591  

Investments in affiliated issuers, at value (identified cost, $2,359,302)

     2,359,392  

Cash

     80,381  

Receivables for

  

Investments sold

     201,024  

Interest and dividends

     341,120  

Other assets

     16,269  

Total assets

     $40,874,777  
Liabilities         

Payables for

  

Investments purchased

     $365,752  

Payable to affiliates

  

Investment adviser

     3,813  

Transfer agent and dividend disbursing costs

     358  

Payable for independent Trustees’ compensation

     9,716  

Accrued expenses and other liabilities

     64,863  

Total liabilities

     $444,502  

Net assets

     $40,430,275  
Net assets consist of         

Paid-in capital

     $37,226,860  

Unrealized appreciation (depreciation)

     4,397,617  

Accumulated net realized gain (loss)

     443,952  

Accumulated distributions in excess of net investment income

     (1,638,154

Net assets

     $40,430,275  

Shares of beneficial interest outstanding

     7,131,782  

Net asset value per share (net assets of $40,430,275 / 7,131,782 shares of beneficial interest outstanding)

     $5.67  

See Notes to Financial Statements

 

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Financial Statements

 

STATEMENT OF OPERATIONS

Six months ended 4/30/18 (unaudited)

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment income (loss)  

Income

  

Interest

     $659,266  

Dividends

     172,813  

Dividends from affiliated issuers

     18,686  

Foreign taxes withheld

     (2,615

Total investment income

     $848,150  

Expenses

  

Management fee

     $171,710  

Transfer agent and dividend disbursing costs

     7,739  

Administrative services fee

     8,679  

Independent Trustees’ compensation

     5,622  

Stock exchange fee

     11,797  

Custodian fee

     2,947  

Shareholder communications

     25,642  

Audit and tax fees

     36,916  

Legal fees

     1,090  

Miscellaneous

     14,328  

Total expenses

     $286,470  

Net investment income (loss)

     $561,680  
Realized and unrealized gain (loss)  

Realized gain (loss) (identified cost basis)

  

Unaffiliated issuers

     $604,680  

Affiliated issuers

     (144

Net realized gain (loss)

     $604,536  

Change in unrealized appreciation or depreciation

  

Unaffiliated issuers

     $(1,594,659

Affiliated issuers

     (100

Net unrealized gain (loss)

     $(1,594,759

Net realized and unrealized gain (loss)

     $(990,223

Change in net assets from operations

     $(428,543

See Notes to Financial Statements

 

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Financial Statements

 

STATEMENTS OF CHANGES IN NET ASSETS

These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.

 

Change in net assets    Six months ended
4/30/18
(unaudited)
   

Year ended
10/31/17

 
From operations                 

Net investment income (loss)

     $561,680       $1,427,526  

Net realized gain (loss)

     604,536       1,095,303  

Net unrealized gain (loss)

     (1,594,759     2,578,328  

Change in net assets from operations

     $(428,543     $5,101,157  
Distributions declared to shareholders                 

From net investment income

     $(1,083,860     $(1,520,530

From tax return of capital

           (2,735,959

From other sources

     (1,038,752      

Total distributions declared to shareholders

     $(2,122,612     $(4,256,489

Change in net assets from fund share transactions

     $139,441       $147,832  

Total change in net assets

     $(2,411,714     $992,500  
Net assets                 

At beginning of period

     42,841,989       41,849,489  

At end of period (including accumulated distributions in excess of net investment income of $1,638,154 and $77,222, respectively)

     $40,430,275       $42,841,989  

See Notes to Financial Statements

 

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Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the semiannual period and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

   

Six months
ended

4/30/18

    Year ended  
      10/31/17     10/31/16     10/31/15     10/31/14     10/31/13  
    (unaudited)                                

Net asset value, beginning of
period

    $6.03       $5.91       $6.09       $6.78       $7.05       $6.84  
Income (loss) from investment operations                  

Net investment income (loss) (d)

    $0.08       $0.20 (c)      $0.23       $0.25       $0.28       $0.33  

Net realized and unrealized
gain (loss)

    (0.14     0.52       0.18       (0.29     0.15       0.58  

Total from investment operations

    $(0.06     $0.72       $0.41       $(0.04     $0.43       $0.91  
Less distributions declared to shareholders                  

From net investment income

    $(0.15     $(0.21     $(0.24     $(0.32     $(0.42     $(0.39

From tax return of capital

          (0.39     (0.35     (0.33     (0.28     (0.31

From other sources

    (0.15                              

Total distributions declared to
shareholders

    $(0.30     $(0.60     $(0.59     $(0.65     $(0.70     $(0.70

Net increase from repurchase of
capital shares

    $—       $0.00 (w)      $—       $—       $—       $—  

Net asset value, end of period (x)

    $5.67       $6.03       $5.91       $6.09       $6.78       $7.05  

Market value, end of period

    $6.02       $6.66       $5.50       $5.53       $7.59       $7.29  

Total return at market value (%)

    (5.00 )(n)      33.86       10.75       (19.11     14.73       7.94  

Total return at net asset
value (%) (j)(r)(s)(x)

    (1.17 )(n)      12.79 (c)      8.07       (0.28     5.97       13.85  
Ratios (%) (to average net assets)
and Supplemental data:
                 

Expenses before expense reductions (f)

    1.37 (a)      1.23 (c)      1.42       1.41       1.35       1.39  

Expenses after expense reductions (f)

    N/A       N/A       N/A       N/A       1.35       1.39  

Net investment income (loss)

    2.69 (a)      3.35 (c)      3.88       3.80       4.05       4.73  

Portfolio turnover

    17 (n)      35       26       29       39       40  

Net assets at end of period
(000 omitted)

    $40,430       $42,842       $41,849       $43,126       $47,904       $49,402  

See Notes to Financial Statements

 

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Financial Highlights – continued

 

 

(a) Annualized.
(c) Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher.
(d) Per share data is based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly, if applicable.
(j) Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value.
(n) Not annualized.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
(w) Per share amount was less than $0.01.
(x) The net asset values and total returns at net asset value have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes.

See Notes to Financial Statements

 

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NOTES TO FINANCIAL STATEMENTS

(unaudited)

(1) Business and Organization

MFS Special Value Trust (the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a diversified closed-end management investment company.

The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.

(2) Significant Accounting Policies

General – The preparation of financial statements in conformity with U.S. 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 increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industry, political, regulatory, geopolitical, and other conditions.

In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables –Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). For entities that hold callable debt securities at a premium, ASU 2017-08 requires that the premium be amortized to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Management has evaluated the potential impacts of ASU 2017-08 and believes that adoption of ASU 2017-08 will not have a material effect on the fund’s overall financial position or its overall results of operations.

Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have

 

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Notes to Financial Statements (unaudited) – continued

 

been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.

Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. Events that occur on a frequent basis after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the

 

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Notes to Financial Statements (unaudited) – continued

 

value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.

Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. The following is a summary of the levels used as of April 30, 2018 in valuing the fund’s assets or liabilities:

 

Financial Instruments    Level 1      Level 2      Level 3      Total  
Equity Securities:            

United States

     $15,028,741        $—        $53,365        $15,082,106  

Switzerland

     533,397                      533,397  
Non-U.S. Sovereign Debt             265,885               265,885  
U.S. Corporate Bonds             18,430,746               18,430,746  
Commercial Mortgage-Backed Securities             61               61  
Foreign Bonds             3,458,756               3,458,756  
Floating Rate Loans             105,640               105,640  
Mutual Funds      2,359,392                      2,359,392  
Total      $17,921,530        $22,261,088        $53,365        $40,235,983  

For further information regarding security characteristics, see the Portfolio of Investments.

The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The fund’s policy is to recognize transfers between the levels as of the end of the period. The table presents the activity of level 3 securities held at the beginning and the end of the period.

 

     Equity Securities  
Balance as of 10/31/17      $53,365  

Change in unrealized appreciation or depreciation

     0  
Balance as of 4/30/18      $53,365  

The net change in unrealized appreciation or depreciation from investments held as level 3 at April 30, 2018 is $0. At April 30, 2018, the fund held one level 3 security.

Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for

 

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Notes to Financial Statements (unaudited) – continued

 

foreign denominated receivables and payables. 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 receivables, payables, 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.

Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which contractually obligate the fund to supply additional cash to the borrower on demand. The fund generally provides this financial support in order to preserve its existing investment or to obtain a more senior secured interest in the assets of the borrower. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.

Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. 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. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.

The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

 

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Notes to Financial Statements (unaudited) – continued

 

Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.

Distributions to shareholders are recorded on the ex-dividend date. The fund seeks to pay monthly distributions based on an annual rate of 10.00% of the fund’s average monthly net asset value. As a result, distributions may exceed actual earnings which may result in a tax return of capital or, to the extent the fund has long-term gains and a capital loss carryforward, distributions of current year long-term gains may be recharacterized as ordinary income. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.

Book/tax differences primarily relate to defaulted bonds, expiration of capital loss carryforwards, and amortization and accretion of debt securities.

For the six months ended April 30, 2018, the amount of distributions estimated to be a tax return of capital was approximately $1,038,752 which is reported as distributions from other sources in the Statements of Changes in Net Assets.

The tax character of distributions made during the current period will be determined at fiscal year end. The tax character of distributions declared to shareholders for the last fiscal year is as follows:

 

     Year ended
10/31/17
 
Ordinary income (including any
short-term capital gains) (a)
     $1,520,530  
Tax return of capital (b)      2,735,959  
Total distributions      $4,256,489  

 

(a) Included in the fund’s distributions from ordinary income for the year ended October 31, 2017 is $50,216 in excess of investment company taxable income which, in accordance with applicable U.S. tax law, is taxable to shareholders as ordinary income distributions.
(b) Distributions in excess of tax basis earnings and profits are reported in the financial statements as a tax return of capital.

 

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Notes to Financial Statements (unaudited) – continued

 

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 4/30/18       
Cost of investments      $35,903,313  
Gross appreciation      5,441,679  
Gross depreciation      (1,109,009
Net unrealized appreciation (depreciation)      $4,332,670  
As of 10/31/17       
Capital loss carryforwards      (89,992
Other temporary differences      (35,124
Net unrealized appreciation (depreciation)      5,879,686  

The aggregate cost above includes prior fiscal year end tax adjustments, if applicable.

Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses recognized for fund fiscal years beginning after October 31, 2011 may be carried forward indefinitely, and their character is retained as short-term and/or long-term losses (“post-enactment losses”). Previously, net capital losses were carried forward for eight years and treated as short-term losses (“pre-enactment losses”). As a transition rule, the Act requires that all post-enactment net capital losses be used before pre-enactment net capital losses.

As of October 31, 2017, the fund had capital loss carryforwards available to offset future realized gains. Such pre-enactment losses expire as follows:

 

10/31/18      $(89,992

(3) Transactions with Affiliates

Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.68% of the fund’s average daily net assets and 3.40% of gross income. Gross income is calculated based on tax elections that generally include the accretion of discount and exclude the amortization of premium, which may differ from investment income reported in the Statement of Operations. MFS has agreed to reduce its management fee to the lesser of the contractual management fee as set forth above or 0.90% of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until October 31, 2018. For the six months ended April 30, 2018, the fund’s average daily net assets and gross income fees did not meet the thresholds required to waive the management fee under this agreement. The management fee, from net assets and gross income, incurred for the six months ended April 30, 2018 was equivalent to an annual effective rate of 0.82% of the fund’s average daily net assets.

Transfer Agent – The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the six months ended April 30, 2018, these fees paid to MFSC amounted to $1,167.

 

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Notes to Financial Statements (unaudited) – continued

 

Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the six months ended April 30, 2018 was equivalent to an annual effective rate of 0.0416% of the fund’s average daily net assets.

Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.

Prior to December 31, 2001, the fund had an unfunded defined benefit plan (“DB plan”) for independent Trustees. As of December 31, 2001, the Board took action to terminate the DB plan with respect to then-current and any future independent Trustees, such that the DB plan covers only certain of those former independent Trustees who retired on or before December 31, 2001. The DB plan resulted in a pension expense of $1,334 and is included in “Independent Trustees’ compensation” in the Statement of Operations for the six months ended April 30, 2018. The liability for deferred retirement benefits payable to those former independent Trustees under the DB plan amounted to $8,904 at April 30, 2018, and is included in “Payable for independent Trustees’ compensation” in the Statement of Assets and Liabilities.

Other – This fund and certain other funds managed by MFS (the funds) have entered into a service agreement (the ISO Agreement) which provides for payment of fees solely by the funds to Tarantino LLC in return for the provision of services of an Independent Senior Officer (ISO) for the funds. Frank L. Tarantino serves as the ISO and is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the ISO Agreement with Tarantino LLC at any time under the terms of the ISO Agreement. For the six months ended April 30, 2018, the fee paid by the fund under this agreement was $35 and is included in “Miscellaneous” expense in the Statement of Operations. MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ISO.

The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS.

Effective January 3, 2018, the adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. This reimbursement, if any, will be determined in arrears on a quarterly basis beginning with the quarter ending March 31, 2018.

(4) Portfolio Securities

For the six months ended April 30, 2018, purchases and sales of investments, other than short-term obligations, aggregated $6,510,411 and $7,735,681, respectively.

 

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(5) Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The Trustees have authorized the repurchase by the fund of up to 10% annually of its own shares of beneficial interest. The fund repurchased 249 shares of beneficial interest during the year ended October 31, 2017 at an average price per share of $5.43 and a weighted average discount of 7.65% per share. Transactions in fund shares were as follows:

 

     Six months ended
4/30/18
     Year ended
10/31/17
 
     Shares      Amount      Shares      Amount  
Shares issued to shareholders in
reinvestment of distributions
     23,362        $139,441        24,202        $149,184  
Capital shares reacquired                    (249      (1,352
Net change      23,362        $139,441        23,953        $147,832  

(6) Line of Credit

The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndication of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the higher of the Overnight Federal Reserve funds rate or daily one month LIBOR plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at a rate equal to the Overnight Federal Reserve funds rate plus an agreed upon spread. For the six months ended April 30, 2018, the fund’s commitment fee and interest expense were $139 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.

(7) Investments in Affiliated Issuers

An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the fund assumes the following to be affiliated issuers:

 

Affiliated Issuers          Beginning
Shares/Par
Amount
    Acquisitions
Shares/Par
Amount
    Dispositions
Shares/Par
Amount
    Ending
Shares/Par
Amount
 
MFS Institutional Money
Market Portfolio
      2,545,079       4,498,031       (4,683,483     2,359,627  
Affiliated Issuers  

Realized

Gain (Loss)

    Change in
Unrealized
Appreciation/
Depreciation
    Capital Gain
Distributions
    Dividend
Income
   

Ending

Value

 
MFS Institutional Money
Market Portfolio
    $(144     $(100     $—       $18,686       $2,359,392  

 

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Notes to Financial Statements (unaudited) – continued

 

(8) Legal Proceedings

In May 2015, the Motors Liquidation Company Avoidance Action Trust (hereafter, “AAT”) served upon the fund a complaint in an adversary proceeding in the U.S. Bankruptcy Court for the Southern District of New York, captioned Motors Liquidation Company Avoidance Action Trust v. JPMorgan Chase Bank, N.A., et al. (No. 09-00504 (REG)). The complaint, which was originally filed in 2009 but not served on the fund until 2015, names as defendants over 500 entities (including the fund) that held an interest in a $1.5 billion General Motors (GM) term loan in 2009, when GM filed for bankruptcy. The AAT alleges that the fund and the other term loan lenders were improperly treated as secured lenders with respect to the term loan shortly before and immediately after GM’s bankruptcy, receiving full principal and interest payments under the loan. The AAT alleges that the fund and other term loan lenders should have been treated as unsecured (or partially unsecured) creditors because the main lien securing the collateral was allegedly not perfected at the time of GM’s bankruptcy due to an erroneous filing in October 2008 that terminated the financing statement perfecting the lien. The AAT seeks to claw back payments made to the fund and the other term loan lenders after, and during the 90 days before, GM’s June 2009 bankruptcy petition. During that time period, the fund received term loan payments of approximately $280,000. The fund cannot predict the outcome of this proceeding. Among other things, it is unclear whether the AAT’s claims will succeed; what the fund would be entitled to as an unsecured (or partially unsecured) creditor, given the existence of other collateral not impacted by the erroneous October 2008 filing; whether third parties responsible for the erroneous October 2008 filing would bear some or all of any liability; and the degree to which the fund may be entitled to indemnification from a third party for any amount required to be disgorged. The fund has and will continue to incur legal expenses associated with the defense of this action and in related claims against third parties.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Trustees and Shareholders of MFS Special Value Trust:

We have reviewed the accompanying statement of assets and liabilities of MFS Special Value Trust (the Fund), including the portfolio of investments, as of April 30, 2018, and the related statements of operations, changes in net assets and financial highlights for the six-month period ended April 30, 2018. These interim financial statements and financial highlights are the responsibility of the Fund’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements and financial highlights for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of changes in net assets for the year ended October 31, 2017 and the financial highlights for each of the five years in the period ended October 31, 2017, and in our report dated December 15, 2017, we expressed an unqualified opinion on such statement of changes in net assets and financial highlights.

 

LOGO

Boston, Massachusetts

June 18, 2018

 

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PROXY VOTING POLICIES AND INFORMATION

MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. A shareholder can obtain the quarterly portfolio holdings report at mfs.com. The fund’s Form N-Q is also available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and may be reviewed and copied at the:

Public Reference Room

Securities and Exchange Commission

100 F Street, NE, Room 1580

Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. Copies of the fund’s Form N-Q also may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

FURTHER INFORMATION

From time to time, MFS may post important information about the fund or the MFS funds on the MFS web site (mfs.com). This information is available at https://www.mfs.com/en-us/what-we-do/announcements.html or at mfs.com/closedendfunds by choosing the fund’s name.

Additional information about the fund (e.g., performance, dividends and the fund’s price history) is also available by clicking on the fund’s name under “Closed-End Funds” in the “Products” section of mfs.com.

 

34


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INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS

The fund has entered into contractual arrangements with an investment adviser, administrator, transfer agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.

Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.

 

35


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LOGO

 

CONTACT US

TRANSFER AGENT, REGISTRAR, AND

DIVIDEND DISBURSING AGENT

CALL

1-800-637-2304

9 a.m. to 5 p.m. Eastern time

WRITE

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

 

New York Stock Exchange Symbol: MFV


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ITEM 2. CODE OF ETHICS.

During the period covered by this report, the Registrant has not amended any provision in its Code of Ethics (the “Code”) that relates to an element of the Code’s definitions enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable for semi-annual reports.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable for semi-annual reports.

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable for semi-annual reports.

 

ITEM 6. SCHEDULE OF INVESTMENTS

A schedule of investments for MFS Special Value Trust is included as part of the report to shareholders under Item 1 of this Form N-CSR.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable for semi-annual reports.


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ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Portfolio Manager(s)

Information regarding the portfolio manager(s) of the MFS Special Value Trust (the “Fund”) is set forth below. Each portfolio manager is primarily responsible for the day-to-day management of the Fund.

Michael Skatrud became a portfolio manager of the Fund on March 1, 2018. Effective September 1, 2018, William Adams will no longer be a portfolio manager of the Fund.

 

    

Primary Role

   Since   

Title and Five Year History

William Adams    Below Investment Grade Debt Instruments Portfolio Manager    2011    Investment Officer of MFS; employed in the investment area of MFS since 2009
Ward Brown    Emerging Markets Debt Instruments Portfolio Manager    2012    Investment Officer of MFS; employed in the investment area of MFS since 2005
Nevin Chitkara    Equity Securities Portfolio Manager    2012    Investment Officer of MFS; employed in the investment area of MFS since 1997
David Cole    Below Investment Grade Debt Instruments Portfolio Manager    2006    Investment Officer of MFS; employed in the investment area of MFS since 2004
Matt Ryan    Emerging Markets Debt Instruments Portfolio Manager    2012    Investment Officer of MFS; employed in the investment area of MFS since 1997
Michael Skatrud    Below Investment Grade Debt Instruments Portfolio Manager    March 2018    Investment Officer of MFS; employed in the investment area of MFS since 2013

Compensation

Portfolio manager compensation is reviewed annually. As of December 31, 2017, portfolio manager total cash compensation is a combination of base salary and performance bonus:

Base Salary – Base salary represents a smaller percentage of portfolio manager total cash compensation than performance bonus.

Performance Bonus – Generally, the performance bonus represents more than a majority of portfolio manager total cash compensation.

The performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to the former and less weight given to the latter.

The quantitative portion is primarily based on the pre-tax performance of assets managed by the portfolio manager over three- and five-year periods relative to peer group universes and/or indices (“benchmarks”). As of December 31, 2017, the following benchmarks were used to measure the following portfolio manager’s performance for the Fund:

 

Fund

  

Portfolio Manager

  

Benchmark(s)

MFS Special Value Trust    Ward Brown    JPMorgan Emerging Markets Bond Index Global
   Nevin Chitkara    Russell 1000® Value Index
   David Cole   

Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index

 

JPMorgan Emerging Markets Bond Index Global Russell 1000® Value Index

   Matt Ryan    JPMorgan Emerging Markets Bond Index Global
   Michael Skatrud1   

Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index

 

JPMorgan Emerging Markets Bond Index Global Russell 1000® Value Index

 

1 

Information is as of March 1, 2018.


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The Russell 1000® Value Index is a trademark/service mark of the Frank Russell Company. Russell® is a trademark of the Frank Russell Company.

Additional or different benchmarks, including versions and components of indices, custom indices, and linked indices that combine performance of different indices for different portions of the time period, may also be used. Consideration is primarily given to portfolio performance over three and five years with consideration given to other periods, if available. For portfolio managers who have served for more than five years, additional, longer-term performance periods, including the ten-year and since inception periods, are also considered. For portfolio managers who have served for less than three years, additional, shorter-term performance periods, including the one-year period, may also be considered. Emphasis is generally placed on longer performance periods when multiple performance periods are available.

The qualitative portion is based on the results of an annual internal peer review process (conducted by other portfolio managers, analysts, and traders) and management’s assessment of overall portfolio manager contributions to investor relations and the investment process (distinct from fund and other account performance). This performance bonus may be in the form of cash and/or a deferred cash award, at the discretion of management. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates. During the vesting period, the value of the unfunded deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS Fund(s) selected by the portfolio manager. A selected fund may be, but is not required to be, a fund that is managed by the portfolio manager.

With respect to Mr. Adams, his compensation reflects his broader role within MFS as Chief Investment Officer-Global Fixed Income in addition to being a portfolio manager. His performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to the former and less weight given to the latter. The quantitative portion is based on overall group investment performance and business performance metrics. The qualitative portion is based on the results of an annual internal review process conducted by the Chief Executive Officer which takes into account his broad leadership responsibilities. This performance bonus may be in the form of cash and/or a deferred cash award, at the discretion of management. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates. During the vesting period, the value of the unfunded deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS Fund(s) selected by the portfolio manager. A selected fund may be, but is not required to be, a fund that is managed by the portfolio manager.

Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests are awarded by management, on a discretionary basis, taking into account tenure at MFS, contribution to the investment process, and other factors.


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Finally, portfolio managers also participate in benefit plans (including a defined contribution plan and health and other insurance plans) and programs available generally to other employees of MFS. The percentage such benefits represent of any portfolio manager’s compensation depends upon the length of the individual’s tenure at MFS and salary level, as well as other factors.

Ownership of Fund Shares

The following table shows the dollar range of equity securities of the Fund beneficially owned by the Fund’s portfolio manager(s) as of the Fund’s fiscal year ended October 31, 2017. The following dollar ranges apply:

N. None

A. $1 – $10,000

B. $10,001 – $50,000

C. $50,001 – $100,000

D. $100,001 – $500,000

E. $500,001 – $1,000,000

F. Over $1,000,000

 

Name of Portfolio Manager

   Dollar Range of Equity Securities in Fund

William Adams

   N

Ward Brown

   N

Nevin Chitkara

   N

David Cole

   N

Matt Ryan

   N

Michael Skatrud1

   N

 

1 

Mr. Skatrud became a Portfolio Manager of the Fund on March 1, 2018. Information is as of March 1, 2018.

Other Accounts

In addition to the Fund, each portfolio manager of the Fund is named as a portfolio manager of certain other accounts managed or subadvised by MFS or an affiliate. The number and assets of these accounts were as follows as of the Fund’s fiscal year ended October 31, 2017:

 

     Registered Investment
Companies*
     Other Pooled Investment
Vehicles
     Other Accounts  

Name

   Number of
Accounts
     Total
Assets
     Number of
Accounts
     Total Assets      Number of
Accounts
     Total Assets  

William Adams

     12      $ 9.2 billion        6      $ 1.1 billion        1      $ 108.4 million  

Ward Brown

     9      $ 12.3 billion        6      $ 3.7 billion        3      $ 1.2 billion  

Nevin Chitkara

     18      $ 75.2 billion        8      $ 7.5 billion        40      $ 23.0 billion  

David Cole

     11      $ 9.2 billion        4      $ 1.2 billion        1      $ 108.4 million  

Matt Ryan

     11      $ 12.9 billion        7      $ 4.4 billion        3      $ 1.2 billion  

Michael Skatrud1

(Became a Portfolio Manager of the Fund on March 1, 2018)

     11      $ 8.8 billion        5      $ 910.1 million        1      $ 57.2 million  

 

* Includes the Fund.
1 

Account information is as of March 1, 2018.


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Advisory fees are not based upon performance of any of the accounts identified in the table above.

Potential Conflicts of Interest

MFS seeks to identify potential conflicts of interest resulting from a portfolio manager’s management of both the Fund and other accounts, and has adopted policies and procedures designed to address such potential conflicts.

The management of multiple funds and accounts (including proprietary accounts) gives rise to conflicts of interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons and fees as a portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. In certain instances, there are securities which are suitable for the Fund’s portfolio as well as for accounts of MFS or its subsidiaries with similar investment objectives. The Fund’s trade allocation policies may give rise to conflicts of interest if the Fund’s orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts of MFS or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely affect the value of the Fund’s investments. Investments selected for funds or accounts other than the Fund may outperform investments selected for the Fund.

When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by MFS to be fair and equitable to each. Allocations may be based on many factors and may not always be pro rata based on assets managed. The allocation methodology could have a detrimental effect on the price or volume of the security as far as the Fund is concerned.

MFS and/or a portfolio manager may have a financial incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Fund, for instance, those that pay a higher advisory fee and/or have a performance adjustment and/or include an investment by the portfolio manager.


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ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

MFS Special Value Trust

 

Period

   (a) Total number
of Shares
Purchased
     (b)
Average
Price Paid
per Share
     (c) Total
Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
     (d) Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
under the Plans
or Programs
 

11/01/17-11/30/17

     0        N/A        0        710,046  

12/01/17-12/31/17

     0        N/A        0        710,046  

1/01/18-1/31/18

     0        N/A        0        710,046  

2/01/18-2/28/18

     0        N/A        0        710,046  

3/01/18-3/31/18

     0        N/A        0        710,046  

4/01/18-4/30/18

     0        N/A        0        710,046  

Total

           

Note: The Board approved procedures to repurchase shares and reviews the results periodically. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on October 1st of each year. The programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (October 1 through the following September 30) to 10% of the Registrant’s outstanding shares as of the first day of the plan year (October 1). The aggregate number of shares available for purchase for the October 1, 2017 plan year is 710,046.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.


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ITEM 11. CONTROLS AND PROCEDURES.

 

(a) Based upon their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b) There were no changes in the registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable for semi-annual reports.

 

ITEM 13. EXHIBITS.

 

(a) File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated.

 

  (1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit.

 

  (2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto.

 

  (3) Notices to Trust’s common shareholders in accordance with Investment Company Act Section 19(a) and Rule 19a-1. Attached hereto.

 

(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto.


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Notice

A copy of the Amended and Restated Declaration of Trust of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Registrant MFS SPECIAL VALUE TRUST

 

By (Signature and Title)*    DAVID L. DILORENZO
  David L. DiLorenzo, President

Date: June 18, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*    DAVID L. DILORENZO
  David L. DiLorenzo, President (Principal Executive Officer)

Date: June 18, 2018

 

By (Signature and Title)*    JAMES O. YOST
 

James O. Yost, Treasurer (Principal Financial Officer

and Accounting Officer)

Date: June 18, 2018

 

* Print name and title of each signing officer under his or her signature.