[logo] M F S(R)
INVESTMENT MANAGEMENT
MFS(R) SPECIAL
VALUE TRUST
SEMIANNUAL REPORT o APRIL 30, 2002
TABLE OF CONTENTS
Letter from the Chairman .................................................. 1
Management Review and Outlook ............................................. 4
Performance Summary ....................................................... 8
Portfolio of Investments .................................................. 11
Financial Statements ...................................................... 19
Notes to Financial Statements ............................................. 23
Trustees and Officers ..................................................... 30
-------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY
At MFS(R), we are committed to protecting your privacy.
On behalf of the MFS Family of Funds(R), the MFS(R) Institutional Trusts, the
Vertex(SM) Funds, Massachusetts Financial Services Company, and certain
affiliates(1) (collectively, "MFS," "we," "us" or "our"), this privacy policy
outlines certain of our policies designed to maintain the privacy of your
nonpublic personal information.
Nonpublic personal information includes much of the information you provide to
us and the related information about you and your transactions involving your
MFS investment product or service. Examples of nonpublic personal information
include the information you provide on new account applications for MFS
investment products or services, your share balance or transactional history,
and the fact that you are a customer of MFS.
We may collect nonpublic personal information about you from the following
sources:
o information we receive from you on applications or other forms
o information about your transactions with us, our affiliates, or others, and
o information we receive from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may disclose all of
the information we collect, as described above, to companies that perform
marketing services on our behalf or to other financial institutions with whom
we have joint marketing arrangements.
We restrict access to nonpublic personal information about you to personnel
who are necessary or appropriate to provide products or services to you. We
maintain physical, electronic, and procedural safeguards that comply with
federal regulations to guard your nonpublic personal information.
Our privacy policy applies only to individual MFS investors who have a direct
relationship with us. If you own MFS products or receive MFS investment
services in the name of a third-party broker-dealer, bank, investment adviser
or other financial service provider, that third-party's privacy policies may
apply to you and our privacy policy may not.
If you have any questions with respect to MFS' privacy policy, please call
1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
(1) MFS Institutional Advisors, Inc., Vertex Investment Management, Inc., MFS
Original Research Advisors, LLC, MFS Original Research Partners, LLC, and
MFS(R) Heritage Trust Company(SM).
-------------------------------------------------------------------------------
--------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
--------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
[Photo of Jeffrey L. Shames]
Jeffrey L. Shames
Dear Shareholders,
Despite a fourth-quarter rally in 2001, the market volatility we witnessed
over the past two years has continued into 2002. As I write this in mid-May,
many U.S. equity indices have retreated since December; bond performance has
been decidedly mixed year to date; and many international equity indices have
outperformed the U.S. market this year. Federal Reserve Board (Fed) Chairman
Alan Greenspan has declared that, in fact, the recession is over, and many
financial experts have agreed with him. We think the questions on many
investors' minds are:
o Is the recession genuinely over?
o If it is, should I change my portfolio to prepare for a recovery?
THE WORST SEEMS TO BE OVER
According to many economists, the recession is technically over. We are
beginning to see growth again in the U.S. economy and in economies around the
globe. But we would qualify that with a caution that the exciting growth rates
of the 1990s are not coming back any time soon.
Our view of the situation is that corporate profits still look weak, despite
the recession being over. We think the markets may be bumping along the bottom
for a bit longer before a recovery gathers steam. Firms in many industries are
still dogged by excess capacity built up in the 1990s, and we think that may
slow the growth of corporate profits for a while longer. Our analysts and fund
managers talk frequently with corporate managements; a common theme they have
seen lately is a wait-and-see attitude. Corporations are postponing spending
decisions until their own business improves.
SHOULD I CHANGE MY PORTFOLIO?
Should you be adjusting your portfolio to anticipate an eventual recovery?
This is a question best discussed with your investment professional. However,
we would contend that changing one's portfolio in response to short-term
events, known as market timing, is a strategy that few investors have been
able to execute successfully over the long term. Our experience has been that
a long-term financial plan, developed with the help of an investment
professional, may offer a better chance of riding out economic cycles and
working toward your long-term investment goals.
Recent events, we think, offer evidence to support that view. For example, two
traditional elements of a long-term financial plan are setting reasonable
expectations and diversifying among asset classes -- such as growth stocks,
value stocks, and bonds.
In the late 1990s, it was tempting to raise our long-term expectations as we
experienced several years of over-20% growth in equity markets. News stories
often suggested this was the new norm, declaring that a "new economy" had
vanquished the "old economy" -- and its historical average annual returns that
had been closer to 10% for stocks.
Adjusting one's financial plan to agree with that view, however, could have
proven disastrous over the past few years. Yes, the Standard & Poor's 500 Stock
Index (the S&P 500), a commonly used measure of the broad stock market, returned
an average of 28.6% per year for the years 1995 through 1999. But the same index
returned -10.5% annually for the years 2000 through 2001.(1) A look at history
might have prepared an investor for more realistic long-term returns. For
example, for the 50-year period ended March 31, 2002, which includes the up and
down periods just mentioned, the average annual return for the S&P 500 was
11.9%.(2)
In addition to unrealistic expectations, another investment trap of the 1990s
was believing that growth stocks would always reign supreme. A financial plan
that included a range of asset classes, however -- recognizing that individual
asset classes frequently go in and out of favor -- could have helped an
investor over the past two difficult years, when both bonds and value stocks
significantly outperformed growth stocks.(3)
We should, however, note that if your personal situation or financial goals
change, your financial plan may need to change as well. For that reason, we
suggest that you and your investment professional revisit your long-term plan
regularly to assess your progress and make course corrections as necessary.
DEJA VU
The points we've just made, of course, are familiar to most investors.
As baseball great Yogi Berra said, "This is like deja vu all over again."
What's new, however, is the historical context that validates the old
familiar strategies.
This spring marks the second anniversary of the start of a severe market
downturn that generally is recognized as the worst time for investors since
the 1970s. But the downturn also demonstrated, in our opinion, that short-term
events are significantly less important for investors than tried-and-true
strategies, including sticking to a long-term plan, setting realistic
expectations, and diversifying among asset classes.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman and Chief Executive Officer
MFS Investment Management(R)
May 15, 2002
(1) Source: Lipper Inc.
(2) Source: Weisenberger.
(3) For the two-year period ended March 31, 2002, bonds, as represented by the
Lehman Brothers Aggregate Bond Index, delivered an average annual return of
8.88%; value stocks, as represented by the Russell 1000 Value Index,
delivered an average annual return of 2.31%; and growth stocks, as
represented by the Russell 1000 Growth Index, delivered an average annual
return of -25.08%. Source: Lipper Inc.
The Lehman Brothers Aggregate Bond Index is unmanaged and is composed of
all publicly issued obligations of the U.S. Treasury and government
agencies, all corporate debt guaranteed by the U.S. government, all fixed-
rate nonconvertible investment-grade domestic corporate debt, and all
fixed-rate securities backed by mortgage pools of the Government National
Mortgage Association (GNMA), the Federal Home Loan Mortgage Corporation
(FHLMC), and the Federal National Mortgage Association (FNMA). The Russell
1000 Value Index measures the performance of large-cap U.S. value stocks.
The Russell 1000 Growth Index measures the performance of large-cap U.S.
growth stocks.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
It is not possible to invest directly in an index.
MANAGEMENT REVIEW AND OUTLOOK
[Photo of John F. Addeo]
John F. Addeo
Dear Shareholders,
For the six months ended April 30, 2002, the trust provided a total return of
-31.78% based on its beginning and ending stock market prices and assuming the
reinvestment of any dividend and capital gain distributions paid during the
period. The trust's total return based on its net asset value (NAV) was 9.50%.
During the same period, the trust's benchmark, the Lehman Brothers High Yield
Bond Index, which includes all fixed-income securities having a maximum
quality rating from Moody's Investors Service of "Ba1", a minimum amount
outstanding of $150 million, and at least one year to maturity, returned
6.64%. Defaulted bonds are excluded from
the index.
In response to dramatically lower interest rates and the significant decline
in the number of companies that pay dividends, the trust lowered its annual
distribution rate during the period from 11% based on its initial New York
Stock Exchange offering price of $15 per share to 10% based on its average
daily net asset value (NAV). These distributions were paid through a
combination of income earned from dividends, bond coupon payments, and both
short- and long-term capital gains.
As of April 30, 2002, approximately 38% of the portfolio was invested in
high-yield securities, 38% in common stocks, 10% in emerging market debt, and 6%
in cash. The remainder was held in a variety of "BB"-rated commercial
mortgage-backed securities, convertible securities, and asset-backed securities.
Within the fixed-income segment of the portfolio, the market strongly favored
the more defensive sectors, such as gaming, chemicals, energy, cable TV, and
health care, especially during the first quarter of 2002. Security selection
within these groups contributed to performance during the period.
Overweighted positions within cyclical industries such as metals and mining
and paper also bolstered performance, as did our holdings in the capital goods
sectors. Primary detractors from performance were our telecommunications
holdings, which continued to perform poorly amid concerns about future
earnings and cash flow.
On the equity side, our conservative approach to stockpicking resulted in a
diversified portfolio that we believe was composed of some of the strongest
companies within their respective industries. With the exception of the fourth
quarter of 2001, when we witnessed a sharp rebound in growth stocks, the
fund's favorable equity performance was largely due to our focus on stocks
that we believed were inexpensive and possessed a catalyst for future growth.
More specifically, much of the trust's strong stock performance over the
period can be attributed to favorable stock selection and significant exposure
to basic materials and consumer staples stocks.
The overall strategy for the portfolio has continued to be based upon our
extensive bottom-up fundamental research and value-oriented investment style. We
believe recent market downturns have provided our analysts with more
opportunities to buy securities at what we believed were attractive prices.
While the recent market environment has been difficult, we believe our approach
will lead us to compelling opportunities in both the equity and high-yield
marketplaces over the long run.
Respectfully,
/s/ John F. Addeo
John F. Addeo
Portfolio Manager
Note to Shareholders: Effective September 10, 2001, John F. Addeo took over as
portfolio manager of the fund.
IMPORTANT NOTE FOR SHAREHOLDERS -- On December 12, 2001, the trust's Board of
Trustees directed the trust's management to consider and report to the Board
of Trustees on a number of possible changes, including changes to the annual
distribution rate aspect of the trust's investment objective. This review
considered many factors, including whether the current distribution rate
continued to be prudent and sustainable without substantial returns of
shareholder capital, given current returns in the equity and fixed-income
markets and the historically low interest rate environment. Returns of
shareholder capital have the effect of reducing the trust's assets and
increasing per share expenses.
On December 18, 2001, the trust announced changes to its investment objective
and target annual distribution rate, which became effective on January 1, 2002.
The trust's new investment objective is to maintain an annual distribution rate
of 10%, based on the trust's average daily net asset value, while seeking
opportunities for capital appreciation. The trust continues to invest in equity
and fixed-income securities in pursuing its investment objective. There is no
assurance that the trust will achieve its investment objective. The new annual
distribution rate is calculated based on the trust's net asset value, not a
fixed share price, and the dividend amount will fluctuate with changes in the
trust's net asset value. The trust will continue to evaluate its degree of
success in achieving its investment objective by measuring whether it can, over
time, maintain its annual distribution rate while paying expenses, without a
substantial portion of such distributons being a return of shareholder capital.
To implement its objective, the trust intends to make monthly distributions
approximately equal to 1/12 of the annual rate of 10%, based on the previous
month's average net asset value. If, for any monthly distribution, net
investment income and net realized short and long term capital gains are less
than the amount of the distribution, the difference will be distributed from
other trust assets. The trust expects that its final distribution for each
calendar year will include any net investment income and net realized short or
long term capital gains required, for federal income tax purposes, to be
distributed during the year.
The opinions expressed in this report are those of MFS and are current only
through the end of the period of the report as stated on the cover. These
views are subject to change at any time based on market and other conditions,
and no forecast can be guaranteed.
It is not possible to invest directly in an index.
The portfolio is actively managed, and current holdings may be different.
ADDRESS CHANGE
Please use our new mailing address, effective immediately.
State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
-------------------------------------------------------------------------------
PORTFOLIO MANAGER'S PROFILE
-------------------------------------------------------------------------------
JOHN F. ADDEO, CFA, IS VICE PRESIDENT OF MFS INVESTMENT MANAGEMENT(R)
(MFS(R)) AND PORTFOLIO MANAGER OF THE HIGH-YIELD BOND PORTFOLIOS OF OUR
MUTUAL FUNDS AND CLOSED-END FUNDS.
JOHN JOINED MFS AS A RESEARCH ANALYST IN 1998. HE BECAME VICE PRESIDENT
IN 1999, ASSOCIATE PORTFOLIO MANAGER IN 2000, AND PORTFOLIO MANAGER IN
2001. PREVIOUSLY, HE WAS A QUANTITATIVE ANALYST AND A VICE PRESIDENT IN
THE HIGH-YIELD GROUPS OF SEVERAL MAJOR INVESTMENT COMPANIES.
HE RECEIVED A BACHELOR OF SCIENCE DEGREE FROM SIENA COLLEGE IN 1984. HE
HOLDS THE CHARTERED FINANCIAL ANALYST (CFA) DESIGNATION.
ALL PORTFOLIO MANAGERS AT MFS ARE SUPPORTED BY AN INVESTMENT STAFF OF
OVER 160 PROFESSIONALS UTILIZING MFS ORIGINAL RESEARCH(R), A GLOBAL,
ISSUER-ORIENTED, BOTTOM-UP PROCESS OF SELECTING SECURITIES.
-------------------------------------------------------------------------------
In accordance with Section 23(c) of the Investment Company Act of 1940, the
trust hereby gives notice that it may from time to time repurchase shares of the
trust in the open market at the option of the Board of Trustees and on such
terms as the Trustees shall determine.
OBJECTIVE: To maintain an annual distribution rate of 10% based
on its average daily net asset value (NAV), while seeking opportunities for
capital appreciation.
NEW YORK STOCK EXCHANGE SYMBOL: MFV
-------------------------------------------------------------------------------
PERFORMANCE SUMMARY
-------------------------------------------------------------------------------
(For the six months ended April 30, 2002)
NET ASSET VALUE PER SHARE
October 31, 2001 $ 8.63
April 30, 2002 $ 8.91
NEW YORK STOCK EXCHANGE PRICE
October 31, 2001 $14.30
November 26, 2001 (high)* $15.80
February 19, 2001 (low)* $ 8.30
April 30, 2002 $ 9.23
* For the period November 1, 2001, through April 30, 2002
-------------------------------------------------------------------------------
RISK CONSIDERATIONS
The portfolio may invest in derivative securities which may include futures
and options. These types of instruments can increase price fluctuation.
Investments in lower-rated securities may provide greater returns but may have
greater-than-average risk.
As a nondiversified portfolio, the portfolio invests in a limited number of
companies and may have more risk because a change in one security's value may
have a more significant effect on the portfolio's net asset value. An
investment in the portfolio is not a complete investment program.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
The trust's shares may trade at a discount to net asset value. Shareholders do
not have the right to cause the trust to repurchase their shares at net asset
value. The trust's shares also may trade at a premium to their net asset
value. When trust shares trade at a premium, buyers pay more than the asset
value underlying trust shares, and shares purchased at a premium would receive
less than the amount paid for them in the event of the trust's liquidation.
The trust's monthly distributions may include a return of capital to
shareholders. 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. Returns of
shareholder capital have the effect of reducing the trust's assets and
increasing the trust's expense ratio.
The trust's target annual distribution rate is calculated based on the trust's
average daily net asset value, not a fixed share price, and the trust's
dividend amount will fluctuate with changes in the trust's average daily net
asset value.
These risks may increase share price volatility. Please see the prospectus
for details.
NUMBER OF SHAREHOLDERS
April 30, 2002, our records indicate that there are 774 registered shareholders
and approximately 6,500 shareholders owning trust shares in "street" name, such
as through brokers, banks, and other financial intermediaries.
If you are a "street" name shareholder and wish to directly receive our reports,
which contain important information about the trust, please write or call:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-637-2304
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
MFS offers a Dividend Reinvestment and Cash Purchase Plan that allows you to
reinvest either all of the distributions paid by the trust or only the long-
term capital gains. Purchases are made at the market price unless that price
exceeds the net asset value (the shares are trading at a premium). If the shares
are trading at a premium, purchases will be made at a discounted price of either
the net asset value or 95% of the market price, whichever is greater. Twice each
year you can also buy shares. Investments from $100 to $2,500 can be made in
January and July on the 15th of the month or shortly thereafter.
If your shares are in the name of a brokerage firm, bank, or other nominee,
you can ask the firm or nominee to participate in the plan on your behalf.
If the nominee does not offer the plan, you may wish to request that your
shares be re-registered in your own name so that you can participate.
There is no service charge to reinvest distributions, nor are there brokerage
charges for shares issued directly by the trust. However, when shares are
bought on the New York Stock Exchange or otherwise on the open market, each
participant pays a pro rata share of the commissions. The automatic
reinvestment of distributions does not relieve you of any income tax that may
be payable (or required to be withheld) on the distributions.
To enroll in or withdraw from the plan, or if you have any questions, call
1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time. Please
have available the name of the trust and your account and Social Security
numbers. For certain types of registrations, such as corporate accounts,
instructions must be submitted in writing. Please call for additional details.
When you withdraw, you can receive the value of the reinvested shares in one
of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
PORTFOLIO OF INVESTMENTS (Unaudited) -- April 30, 2002
Bonds - 51.3%
--------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
--------------------------------------------------------------------------------------------------------
U.S. Bonds - 37.7%
Advertising & Broadcasting - 3.0%
CD Radio, Inc., 14.5s, 2009 $ 900 $ 452,250
Emmis Communications, 0s to 2006, 12.5s to 2011 120 90,150
LIN Holdings Corp., 0s to 2003, 10s to 2008 1,000 925,000
Primedia, Inc., 8.875s, 2011 325 289,250
-----------
$ 1,756,650
--------------------------------------------------------------------------------------------------------
Apparel & Textiles - 0.4%
Westpoint Stevens, Inc., 7.875s, 2008 $ 350 $ 213,500
--------------------------------------------------------------------------------------------------------
Automotive - 3.5%
Advanced Accessory Systems LLC, 9.75s, 2007 $ 440 $ 426,800
Collins & Aikman Products Co., 10.75s, 2011## 350 365,750
Delco Remy International, Inc., 11s, 2009 225 209,813
Hayes Lemmerz International, Inc., 11.875s, 2006##** 780 526,500
Venture Holdings Trust, 11s, 2007 375 368,437
Venture Holdings Trust, 12s, 2009 150 135,000
-----------
$ 2,032,300
--------------------------------------------------------------------------------------------------------
Building - 2.0%
Formica Corp., 10.875s, 2009** $ 850 $ 174,250
MMI Products, Inc., 11.25s, 2007 1,000 1,012,500
-----------
$ 1,186,750
--------------------------------------------------------------------------------------------------------
Business Services - 1.5%
General Binding Corp., 9.375s, 2008 $ 1,000 $ 862,500
--------------------------------------------------------------------------------------------------------
Chemicals - 1.1%
Lyondell Chemical Co., 10.875s, 2009 $ 500 $ 472,500
Pioneer Americas LLC, 5.538s, 2006 56 37,344
Sterling Chemicals, Inc., 11.25s, 2007** 1,000 140,000
Sterling Chemicals, Inc., 13.5s, 2008** 1,100 2,750
-----------
$ 652,594
--------------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.5%
American Safety Razor Co., 9.875s, 2005 $ 500 $ 425,625
Samsonite Corp., 10.75s, 2008 550 440,000
-----------
$ 865,625
--------------------------------------------------------------------------------------------------------
Containers - 0.9%
Pliant Corp., 13s, 2010 $ 525 $ 543,375
--------------------------------------------------------------------------------------------------------
Corporate Asset-Backed - 2.7%
DLJ Mortgage Acceptance Corp., 0.65s, 2003 (Interest only)+ $ 966 $ 6,764
DLJ Mortgage Acceptance Corp., 8s, 2003+ 803 682,550
GMAC Commercial Mortgage Security, Inc., 6.02s, 2033 250 191,172
Nationslink Funding Corp., 5s, 2009 1,000 732,500
-----------
$ 1,612,986
--------------------------------------------------------------------------------------------------------
Energy - Independent - 2.3%
Belden & Blake Corp., 9.875s, 2007 $ 740 $ 662,300
Continental Resources, Inc., 10.25s, 2008 750 675,000
-----------
$ 1,337,300
--------------------------------------------------------------------------------------------------------
Entertainment
Marvel Holdings, Inc., 0s, 2049(+)** $ 2,885 $ 0
--------------------------------------------------------------------------------------------------------
Financial Institutions - 1.6%
Morgan Stanley Capital, Inc., 7.666s, 2039 $ 1,070 $ 928,275
--------------------------------------------------------------------------------------------------------
Forest & Paper Products - 3.9%
Buckeye Technologies, Inc., 8s, 2010 $ 350 $ 299,250
Riverwood International Corp., 10.875s, 2008 1,000 1,042,500
Silgan Holdings, Inc., 9s, 2009## 275 285,656
U.S. Timberlands, 9.625s, 2007 1,000 690,000
-----------
$ 2,317,406
--------------------------------------------------------------------------------------------------------
Gaming - 1.5%
Host Marriott LP, 9.5s, 2007## $ 500 $ 528,125
Resorts International Hotel & Casino, 11.5s, 2009## 350 340,375
-----------
$ 868,500
--------------------------------------------------------------------------------------------------------
Industrial - 0.6%
Thermadyne Manufacturing/Capital Corp., 9.875s, 2008** $ 985 $ 369,375
--------------------------------------------------------------------------------------------------------
Machinery - 0.5%
Numatics, Inc., 9.625s, 2008 $ 500 $ 280,000
--------------------------------------------------------------------------------------------------------
Media - Cable - 4.1%
Adelphia Communications Corp., 10.25s, 2011 $ 750 $ 630,000
Charter Communications Holdings, 8.625s, 2009 365 325,762
Charter Communications Holdings, 0s to 2004, 9.92s to 2011 1,000 697,500
FrontierVision Holding LP, 11.875s, 2007 300 287,250
NTL Communications Corp., 0s to 2003, 12.375s to 2008 1,400 448,000
-----------
$ 2,388,512
--------------------------------------------------------------------------------------------------------
Metals & Minerals - 0.5%
Doe Run Resources Corp., 11.25s, 2005 $ 750 $ 151,875
Kaiser Aluminum & Chemical Corp., 12.75s, 2003** 500 115,000
-----------
$ 266,875
--------------------------------------------------------------------------------------------------------
Oil Services - 0.5%
Dresser, Inc., 9.375s, 2011## $ 285 $ 295,688
--------------------------------------------------------------------------------------------------------
Oils - 0.6%
Hurricane Hydrocarbons Ltd., 12s, 2006 $ 370 $ 375,550
--------------------------------------------------------------------------------------------------------
Retail - 0.8%
Gap, Inc., 8.8s, 2008## $ 500 $ 496,068
--------------------------------------------------------------------------------------------------------
Special Products & Services - 0.5%
Haynes International, Inc., 11.625s, 2004 $ 400 $ 280,000
--------------------------------------------------------------------------------------------------------
Steel - 1.5%
Kaiser Aluminum & Chemical Corp., 9.875s, 2049** $ 200 $ 156,000
National Steel Corp., 9.875s, 2009** 1,000 340,000
Northwestern Steel & Wire Co., 9.5s, 2049** 300 0
Renco Steel Holdings, Inc., 10.875s, 2005 925 60,125
United States Steel LLC, 10.75s, 2008## 300 309,750
-----------
$ 865,875
--------------------------------------------------------------------------------------------------------
Supermarket - 0.5%
Fleming Cos, Inc., 10.625s, 2007 $ 300 $ 308,250
Jitney-Jungle Stores of America, Inc., 12s, 2006** 1,500 1,800
-----------
$ 310,050
--------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.4%
McCaw International Ltd., 13s, 2007** $ 725 $ 39,875
Nextel Communications, Inc., 9.5s, 2011 650 445,250
Spectrasite Holdings, Inc., 0s to 2004, 11.25s to 2009 1,000 335,000
-----------
$ 820,125
--------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.3%
Allegiance Telecommunications, Inc., 11.75s, 2008 $ 1,000 $ 187,500
--------------------------------------------------------------------------------------------------------
Total U.S. Bonds $22,113,379
--------------------------------------------------------------------------------------------------------
Foreign Bonds - 13.6%
Belgium - 0.3%
Tele1 Europe B.V., 13s, 2009 (Telecom - Wireline) $ 1,000 $ 150,000
--------------------------------------------------------------------------------------------------------
Brazil - 2.2%
Banco Nacional de Desenvolvi, 12.262s, 2008 (Banks and
Credit Cos.)## $ 236 $ 224,635
Federal Republic of Brazil, 8.875s, 2024 1,650 1,089,000
-----------
$ 1,313,635
--------------------------------------------------------------------------------------------------------
Canada - 0.2%
PCI Chemicals Canada, 10s, 2008 (Chemicals) $ 167 $ 117,039
--------------------------------------------------------------------------------------------------------
Chile - 0.4%
Empresa Electric Guacolda S.A., 7.95s, 2003 (Utilities
- Electric) $ 250 $ 249,375
--------------------------------------------------------------------------------------------------------
Ecuador - 0.5%
Republic of Ecuador, 12s, 2012## $ 200 $ 167,200
Republic of Ecuador, 5s, 2030 186 107,694
-----------
$ 274,894
--------------------------------------------------------------------------------------------------------
Germany - 0.1%
Callahan Nordrhein Westfallen, 14s, 2010 (Media - Cable) $ 500 $ 90,000
--------------------------------------------------------------------------------------------------------
Greece - 0.6%
Fage Dairy Industries S.A., 9s, 2007 (Food and
Beverage Products) $ 400 $ 380,000
--------------------------------------------------------------------------------------------------------
Luxembourg - 1.1%
Millicom International Cellular, 13.5s, 2006 (Telecom
- Wireless) $ 237 $ 137,460
PTC International Finance II S.A., 11.25s, 2009
(Financial Institutions) 500 525,000
-----------
$ 662,460
--------------------------------------------------------------------------------------------------------
Mexico - 0.5%
Vicap S.A. de C.V., 11.375s, 2007 (Containers) $ 298 $ 275,650
--------------------------------------------------------------------------------------------------------
Netherlands - 0.2%
Completel Europe N.V., 0s to 2004, 14s to 2009
(Telecom - Wireline) $ 2,000 $ 142,500
--------------------------------------------------------------------------------------------------------
Norway - 0.7%
Ocean Rig Norway As, 10.25s, 2008 (Oil Services) $ 440 $ 391,600
--------------------------------------------------------------------------------------------------------
Russia - 4.3%
Kaztransoil Co., 8.5s, 2006 (Oils)## $ 70 $ 68,775
Ministry of Finance Russia, 3s, 2006 40 32,200
Ministry of Finance Russia, 12.75s, 2028 945 1,152,900
Russian Federation, 3s, 2008 834 580,047
Russian Federation, 5s, 2030## 954 664,461
-----------
$ 2,498,383
--------------------------------------------------------------------------------------------------------
South Korea - 0.5%
Hanvit Bank, 12.75s, 2010 (Banks and Credit Cos.)## $ 236 $ 277,890
--------------------------------------------------------------------------------------------------------
United Kingdom - 1.8%
Dolphin Telecom PLC, 11.5s, 2008 (Telecom - Wireless)** $ 750 $ 75
Euramax International PLC, 11.25s, 2006 (Metals and Minerals) 450 443,250
Jazztel PLC, 14s, 2009 (Telecom - Wireline) 1,000 185,000
Ono Finance PLC, 13s, 2009 (Media - Cable) 1,000 420,000
-----------
$ 1,048,325
--------------------------------------------------------------------------------------------------------
Uruguay - 0.2%
Republic of Uruguay, 7.625s, 2012 $ 205 $ 141,450
--------------------------------------------------------------------------------------------------------
Total Foreign Bonds $ 8,013,201
--------------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $44,505,054) $30,126,580
--------------------------------------------------------------------------------------------------------
Stocks - 33.1%
--------------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------------
U.S. Stocks - 28.2%
Aerospace - 1.1%
Moog, Inc., "A"* 19,625 $ 671,175
--------------------------------------------------------------------------------------------------------
Automotive - 1.5%
Visteon Corp. 56,900 $ 878,536
--------------------------------------------------------------------------------------------------------
Business Machines - 1.3%
Motorola, Inc. 49,400 $ 760,760
--------------------------------------------------------------------------------------------------------
Chemicals
Pioneer Cos, Inc.* 10,793 $ 17,539
--------------------------------------------------------------------------------------------------------
Computer Software - 0.6%
VeriSign, Inc.* 39,400 $ 364,450
--------------------------------------------------------------------------------------------------------
Containers - 2.9%
Atlantis Plastics, Inc.* 116,550 $ 454,545
Owens Illinois, Inc.* 76,500 1,225,530
-----------
$ 1,680,075
--------------------------------------------------------------------------------------------------------
Entertainment - 0.7%
Cumulus Media, Inc.* 21,000 $ 393,330
--------------------------------------------------------------------------------------------------------
Insurance - 1.4%
Hartford Financial Services Group, Inc. 11,600 $ 803,880
--------------------------------------------------------------------------------------------------------
Internet
Anacomp Inc.* 30 $ 690
--------------------------------------------------------------------------------------------------------
Machinery - 0.9%
Deere & Co. 12,500 $ 559,500
Thermadyne Holdings Corp.* 7,554 1,587
-----------
$ 561,087
--------------------------------------------------------------------------------------------------------
Metals & Minerals - 1.9%
Alcoa, Inc. 19,100 $ 649,973
Commonwealth Industries, Inc. 39,700 298,544
Metal Management, Inc.** 46,753 151,947
-----------
$ 1,100,464
--------------------------------------------------------------------------------------------------------
Oil Services - 3.1%
BJ Services Co.* 11,600 $ 426,184
Cooper Cameron Corp.* 7,500 411,300
Noble Drilling Corp.* 7,100 307,785
Oil States International, Inc.* 62,700 674,025
-----------
$ 1,819,294
--------------------------------------------------------------------------------------------------------
Oils - 3.7%
Chesapeake Energy Corp.* 100,500 $ 859,275
Devon Energy Corp. 26,200 1,291,922
-----------
$ 2,151,197
--------------------------------------------------------------------------------------------------------
Printing & Publishing
Golden Books Family Entertainment, Inc.* 53,266 $ 1,065
--------------------------------------------------------------------------------------------------------
Real Estate
Atlantic Gulf Communities Corp.+* 250 $ 1
--------------------------------------------------------------------------------------------------------
Supermarket - 3.6%
Ingles Markets, Inc., "A" 73,600 $ 886,880
Kroger Co.* 28,300 644,391
Marsh Supermarkets 42,700 587,125
-----------
$ 2,118,396
--------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.9%
Adelphia Business Solutions * 40,000 $ 760
AT&T Wireless Services, Inc. 103,100 922,745
Crown Castle International Corp.* 26,000 189,800
-----------
$ 1,113,305
--------------------------------------------------------------------------------------------------------
Utilities - Electric - 2.2%
Calpine Corp.* 117,900 $ 1,296,900
El Paso Electric Co.* 800 12,480
-----------
$ 1,309,380
--------------------------------------------------------------------------------------------------------
Utilities - Telephone - 1.4%
Commonwealth Telephone Enterprises, Inc.* 19,233 $ 727,969
Nextel Communications, Inc.* 15,000 82,650
-----------
$ 810,619
--------------------------------------------------------------------------------------------------------
Total U.S. Stocks $16,555,243
--------------------------------------------------------------------------------------------------------
Foreign Stocks - 4.9%
Bermuda - 1.0%
Tyco International Ltd. (Conglomerates) 32,000 $ 590,400
--------------------------------------------------------------------------------------------------------
Brazil - 2.4%
Aracruz Celulose S.A. (Forest and Paper Products)* 63,800 $ 1,387,650
--------------------------------------------------------------------------------------------------------
Canada - 0.4%
International Utility Structures, Inc. (Utilities - Electric)* 254,700 $ 259,997
--------------------------------------------------------------------------------------------------------
Ireland - 1.1%
Jefferson Smurfit Group PLC, ADR (Special Products and
Services) 26,600 $ 636,538
--------------------------------------------------------------------------------------------------------
Netherlands
Completel Europe N.V. (Telecom - Wireline)##* 52,000 $ 32,240
--------------------------------------------------------------------------------------------------------
Sweden
Song Networks Holdings AB, ADR (Telecom - Wireline)* 17,612 $ 2,466
--------------------------------------------------------------------------------------------------------
Total Foreign Stocks $ 2,909,291
--------------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $22,073,352) $19,464,534
--------------------------------------------------------------------------------------------------------
Preferred Stocks - 4.4%
--------------------------------------------------------------------------------------------------------
Advertising & Broadcasting - 2.3%
Paxon Communications Corp., 13.25s 146 $ 1,350,500
--------------------------------------------------------------------------------------------------------
Consumer Goods & Services
Renaissance Cosmetics, Inc., 14s* 1,266 $ --
--------------------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.3%
Crown Castle International Corp., 12.75s 1,406 $ 759,240
--------------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.8%
Global Crossings Holdings Ltd., 10.5s 10,525 $ 5,262
Nextel Communications, Inc., 11.125s 1,279 479,625
-----------
$ 484,887
--------------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $5,202,625) $ 2,594,627
--------------------------------------------------------------------------------------------------------
Convertible Bonds - 1.9%
--------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
(000 OMITTED)
--------------------------------------------------------------------------------------------------------
United Kingdom - 1.2%
Business Services - 1.2%
Colt Telecom Group PLC, 2s, 2006 $ 2,000 $ 702,156
--------------------------------------------------------------------------------------------------------
United States - 0.7%
Media - Cable - 0.7%
Telewest Finance Jersey Ltd., 6s, 2005## $ 710 $ 390,500
--------------------------------------------------------------------------------------------------------
Total Convertible Bonds (Identified Cost, $1,909,731) $ 1,092,656
--------------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.4%
--------------------------------------------------------------------------------------------------------
SHARES
--------------------------------------------------------------------------------------------------------
Energy - 0.4%
NRG Energy, Inc., 6.5s* (Identified Cost, $439,848) 14 $ 211,601
--------------------------------------------------------------------------------------------------------
Warrants - 0.1%
--------------------------------------------------------------------------------------------------------
U.S. Warrants - 0.1%
Anacomp, Inc. (Internet)* 5,841 $ 584
Metricom, Inc. (Telecom - Wireline)* 775 0
Renaissance Cosmetics, Inc. (Consumer Goods &
Services)* 1,024 0
Sirius Satellite Radio, Inc. (Entertainment)##* 2,700 27,000
--------------------------------------------------------------------------------------------------------
Total U.S. Warrants $ 27,584
--------------------------------------------------------------------------------------------------------
Foreign Warrant
Ono Finance PLC (Media - Cable)* 1,000 $ 125
--------------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $408,696) $ 27,709
--------------------------------------------------------------------------------------------------------
Repurchase Agreements - 6.4%
--------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 OMITTED) VALUE
--------------------------------------------------------------------------------------------------------
Morgan Stanley, dated 4/30/02, due 5/01/02, total to
be received $30,002 (secured by various U.S.
Treasury and Federal Agency obligations in a jointly
traded account) $ 30 $ 30,000
Goldman Sachs, dated 4/30/02, due 5/01/02, total to be
received $3,744,201 (secured by various U.S.
Treasury and Federal Agency obligations in a jointly
traded account) 3,744 3,744,000
--------------------------------------------------------------------------------------------------------
Total Repurchase Agreements, at Cost $ 3,774,000
--------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $78,313,306) $57,291,707
Other Assets, Less Liabilities - 2.4% 1,445,296
--------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $58,737,003
--------------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
+ Restricted security.
(+) Security valued by or at the direction of the Trustees.
See notes to financial statements.
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
--------------------------------------------------------------------------------
APRIL 30, 2002
--------------------------------------------------------------------------------
Assets:
Investments, at value (identified cost, $78,313,306) $ 57,291,707
Investment of cash collateral for securities loaned, at
identified cost and value 3,829,033
Cash 1,991
Receivable for investments sold 1,207,802
Interest and dividends receivable 964,005
Other assets 1,110
-------------
Total assets $ 63,295,648
-------------
Liabilities:
Payable to dividend disbursing agent $ 45,193
Payable for investments purchased 364,495
Collateral for securities loaned, at value 3,829,033
Net payable for forward currency exchange contracts
subject to master netting agreements 42,802
Payable to affiliates -
Management fee 1,593
Administrative fee 28
Accrued expenses and other liabilities 275,501
-------------
Total liabilities $ 4,558,645
-------------
Net assets $ 58,737,003
=============
Net assets consist of:
Paid-in capital $ 76,140,220
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (21,064,348)
Accumulated net realized gain on investments and foreign
currency transactions 5,255,374
Accumulated distributions in excess of net investment
income (1,594,243)
-------------
Total $ 58,737,003
=============
Shares of beneficial interest outstanding 6,594,124
=========
Net asset value per share (net assets / shares of
beneficial interest outstanding) $8.91
=====
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
SIX MONTHS ENDED APRIL 30, 2002
--------------------------------------------------------------------------------
Net investment income (loss):
Income -
Interest $ 2,819,909
Dividends 250,078
-----------
Total investment income $ 3,069,987
-----------
Expenses -
Management fee $ 296,217
Trustees' compensation 44,383
Administrative fee 3,352
Transfer and dividend disbursing agent fee 8,600
Custodian fee 15,867
Printing 10,796
Postage 2,668
Auditing fees 17,585
Legal fees 8,055
Miscellaneous 33,968
-----------
Total expenses $ 441,491
Fees paid indirectly (14,136)
-----------
Net expenses $ 427,355
-----------
Net investment income $ 2,642,632
-----------
Realized and unrealized gain on investments:
Realized gain (identified cost basis) -
Investment transactions $ 6,768,905
Written option transactions 3,244
Foreign currency transactions 56,653
-----------
Net realized gain on investments and foreign currency
transactions $ 6,828,802
-----------
Change in unrealized depreciation -
Investments $(3,939,779)
Translation of assets and liabilities in foreign
currencies (69,443)
-----------
Net unrealized loss on investments and foreign
currency translation $(4,009,222)
-----------
Net realized and unrealized gain on investments
and foreign currency $ 2,819,580
-----------
Increase in net assets from operations $ 5,462,212
===========
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
APRIL 30, 2002 YEAR ENDED
(UNAUDITED) OCTOBER 31, 2001
----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
From operations -
Net investment income $ 2,642,632 $ 5,008,656
Net realized gain (loss) on investments and foreign
currency transactions 6,828,802 (1,415,632)
Net unrealized loss on investments and foreign currency
translation (4,009,222) (12,932,523)
----------- ------------
Increase (decrease) in net assets from operations $ 5,462,212 $ (9,339,499)
----------- ------------
Distributions declared to shareholders -
From net investment income $(3,742,599) $ (5,008,656)
In excess of net investment income
-- (418,575)
From paid-in capital
-- (5,328,929)
----------- ------------
Total distributions declared to shareholders $(3,742,599) $(10,756,160)
----------- ------------
Net increase in net assets from trust share transactions $ 418,922 $ 1,148,652
----------- ------------
Total increase (decrease) in net assets $ 2,138,535 $(18,947,007)
Net assets:
At beginning of period 56,598,468 75,545,475
----------- ------------
At end of period (including accumulated distributions in
excess of net investment income of $1,594,243 and
$494,276, respectively) $58,737,003 $ 56,598,468
=========== ============
See notes to financial statements.
FINANCIAL STATEMENTS -- continued
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
SIX MONTHS ENDED -------------------------------------------------------------------------
APRIL 30, 2002 2001 2000 1999 1998 1997
(UNAUDITED)
------------------------------------------------------------------------------------------------------------------------------------
Per share data (for a share outstanding
throughout each period):
Net asset value - beginning of
period $ 8.63 $ 11.67 $ 14.34 $ 13.76 $ 15.03 $ 15.23
------- ------- ------- ------- ------- -------
Income from investment operations#(S) -
Net investment income $ 0.40 $ 0.77 $ 1.01 $ 0.57 $ 0.04 $ 0.11
Net realized and unrealized
gain (loss) on investments
and foreign currency 0.45 (2.16) (1.53) 1.66 1.01 2.66
------- ------- ------- ------- ------- -------
Total from investment operations $ 0.85 $ (1.39) $ (0.52) $ 2.23 $ 1.05 $ 2.77
------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders -
From net investment income $ (0.57) $ (0.77) $ (1.01) $ (0.57) $ (0.04) $ (0.10)
From net realized gain on
investments and foreign
currency transactions -- -- (0.95) (1.00) (2.28) (2.87)
In excess of net investment income -- (0.06) (0.01) (0.08) -- --
From paid-in capital -- (0.82) (0.18) -- -- --
------- ------- ------- ------- ------- -------
Total distributions
declared to
shareholders $ (0.57) $ (1.65) $ (2.15) $ (1.65) $ (2.32) $ (2.97)
------- ------- ------- ------- ------- -------
Net asset value - end of period $ 8.91 $ 8.63 $ 11.67 $ 14.34 $ 13.76 $ 15.03
------- ------- ------- ------- ------- -------
Per share market value - end of period $ 9.230 $14.300 $13.750 $16.750 $16.750 $19.000
======= ======= ======= ======= ======= =======
Total return (31.78)%++ 16.99% (4.33)% 11.08% 0.26% 23.29%
Ratios (to average net assets)/
Supplemental data:
Expenses## 1.53%+ 1.53% 1.35% 1.23% 1.10% 1.12%
Net investment income(S) 9.15%+ 7.49% 7.46% 3.79% 0.26% 0.72%
Portfolio turnover 70% 49% 32% 137% 85% 119%
Net assets at end of period
(000 Omitted) $58,737 $56,598 $75,545 $91,603 $86,937 $93,665
(S) As required, effective Novemer 1, 2001, the trust has adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing premium on debt
securities. The effect of this change for the six months ended April 30, 2002 was to
increase net investment income per share by $0.01, decrease net realized and unrealized
gains and losses per share by $0.01, and increase the ratio of net investment income to
average net assets by 0.28%. Per share, ratios, and supplemental data for periods prior to
November 1, 2001 have not been restated to reflect this change in presentation.
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from certain expense offset arrangements.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
(1) BUSINESS AND ORGANIZATION
MFS Special Value Trust (the trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, closed-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
General - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest in high-yield securities rated below investment grade. Investments
in high-yield securities involve greater degrees of credit and market risk
than investments in higher-rated securities and tend to be more sensitive to
economic conditions. The trust can invest 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 legal, political, and economic environment.
Investment Valuations - Debt securities (other than short-term obligations
which mature in 60 days or less), including listed issues and forward foreign
currency exchange contracts, are valued on the basis of valuations furnished
by dealers or by a pricing service with consideration to factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other
market data, without exclusive reliance upon exchange or over-the-counter
prices. Equity securities listed on securities exchanges or reported through
the NASDAQ system are reported at market value using last sale prices.
Unlisted equity securities or listed equity securities for which last sale
prices are not available are reported at market value using last quoted bid
prices. Short-term obligations, which mature in 60 days or less, are valued at
amortized cost, which approximates market value. Options listed on commodities
exchanges are reported at market value using closing settlement prices. Over-
the-counter options on securities are valued by brokers. Over-the-counter
currency options are valued through the use of a pricing model which takes
into account foreign currency exchange spot and forward rates, implied
volatility, and short-term repurchase rates. Securities for which there are no
such quotations or valuations are valued in good faith at the direction of the
Trustees.
Repurchase Agreements - The trust may enter into repurchase agreements with
institutions that the trust's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The trust
requires that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the trust to
obtain those securities in the event of a default under the repurchase
agreement. The trust monitors, on a daily basis, the value of the collateral
to ensure that its value, including accrued interest, is greater than amounts
owed to the trust under each such repurchase agreement. The trust, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
Foreign Currency Translation - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
Deferred Trustee Compensation - Under a Deferred Compensation Plan (the Plan)
independent Trustees may elect to defer receipt of all or a portion of their
annual compensation. Deferred amounts are treated as though equivalent dollar
amounts had been invested in shares of the trust or other MFS trusts selected
by the Trustee. Deferred amounts represent an unsecured obligation of the
trust until distributed in accordance with the Plan.
Written Options - The trust may write call or put options in exchange for a
premium. The premium is initially recorded as a liability, which is
subsequently adjusted to the current value of the option contract. When a
written option expires, the trust realizes a gain equal to the amount of the
premium received. When a written call option is exercised or closed, the
premium received is offset against the proceeds to determine the realized gain
or loss. When a written put option is exercised, the premium reduces the cost
basis of the security purchased by the trust. The trust, as writer of an
option, may have no control over whether the underlying securities may be sold
(call) or purchased (put) and, as a result, bears the market risk of an
unfavorable change in the price of the securities underlying the written
option. In general, written call options may serve as a partial hedge against
decreases in value in the underlying securities to the extent of the premium
received. Written options may also be used as part of an income producing
strategy reflecting the view of the trust's management on the direction of
interest rates.
Security Loans - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the trust to certain qualified
institutions (the "Borrowers") approved by the trust. The loans are
collateralized at all times by cash in an amount at least equal to the market
value of the securities loaned. State Street provides the trust with
indemnification against Borrower default. The trust bears the risk of loss
with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the trust and the lending agent. Income
from securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
At April 30, 2002, the value of securities loaned was $3,628,377. These loans
were collateralized by cash of $3,829,033 which was invested in the following
short-term obligation:
IDENTIFIED COST
SHARES AND VALUE
--------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio 3,829,033 $3,829,033
Forward Foreign Currency Exchange Contracts - The trust may enter into forward
foreign currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise upon
entering into these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. The trust may enter
into forward foreign currency exchange contracts for hedging purposes as well
as for non-hedging purposes. For hedging purposes, the trust may enter into
contracts to deliver or receive foreign currency it will receive from or
require for its normal investment activities. The trust may also use contracts
in a manner intended to protect foreign currency-denominated securities from
declines in value due to unfavorable exchange rate movements. For non-hedging
purposes, the trust may enter into contracts with the intent of changing the
relative exposure of the trust's portfolio of securities to different
currencies to take advantage of anticipated changes. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any gains or losses are recorded as unrealized until
the contract settlement date. On contract settlement date, the gains or losses
are recorded as realized gains or losses on foreign currency transactions.
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 generally accepted accounting principles. All discount is
accreted for tax reporting purposes as required by federal income tax
regulations. Dividends received in cash are recorded on 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. Legal fees and other related expenses incurred to
preserve and protect the value of a security owned are added to the cost of
the security; other legal fees are expensed. Capital infusions made directly
to the security issuer, which are generally non-recurring, incurred to protect
or enhance the value of high-yield debt securities, are reported as additions
to the cost basis of the security. Costs that are incurred to negotiate the
terms or conditions of capital infusions or that are expected to result in a
plan of reorganization are reported as realized losses. Ongoing costs incurred
to protect or enhance an investment, or costs incurred to pursue other claims
or legal actions, are expensed.
Fees Paid Indirectly - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the trust. During the period, the trust's custodian fees were reduced by
$11,058 under this arrangement. The trust has entered into a directed
brokerage agreement, under which the broker will credit the trust a portion of
the commissions generated, to offset certain expenses of the trust. For the
period, the trust's custodian fees were reduced by $3,078 under this
agreement. These amounts are shown as a reduction of total expenses on the
Statement of Operations.
Tax Matters and Distributions - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, derivatives, defaulted bonds, capital
losses, and amortization and accretion on debt securities.
The tax character of distributions paid for the years ended October 31, 2001
and October 31, 2000 were as follows:
OCTOBER 31, 2001 OCTOBER 31, 2000
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 5,427,231 $ 9,462,515
Long-term capital gain -- 3,186,424
----------- -----------
$ 5,427,231 $12,648,939
Tax return of capital 5,328,929 1,179,812
----------- -----------
Total distributions declared $10,756,160 $13,828,751
=========== ===========
As of October 31, 2001, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $ (1,703,625)
Unrealized loss (16,951,953)
Other temporary differences (467,252)
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on October 31, 2009 $(1,703,625).
(3) Transactions with Affiliates
Investment Adviser - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities.
The management fee is computed daily and paid monthly at an annual rate of
0.68% of the trust's average daily net assets and 3.40% of investment income.
The trust pays no compensation directly to its Trustees who are officers of
the investment adviser, or to officers of the trust, all of whom receive
remuneration for their services to the trust from MFS. Certain officers and
Trustees of the trust are officers or directors of MFS, and MFS Service
Center, Inc. (MFSC). Included in Trustees' compensation is a net periodic
pension expense of $10,096 for the six months ended April 30, 2002.
Administrator - The trust has an administrative services agreement with MFS to
provide the trust with certain financial, legal, shareholder servicing,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the trust pays MFS an administrative fee
at the following annual percentages of the trust's average daily net assets:
First $2 billion 0.0175%
Next $2.5 billion 0.0130%
Next $2.5 billion 0.0005%
In excess of $7 billion 0.0000%
Transfer Agent - MFSC acts as registrar and dividend disbursing agent for the
Trust. The agreement provides that the Trust will pay MFSC an account
maintenance fee of no more than $9.00 and a dividend services fee of $0.75 per
reinvestment and will reimburse MFSC for reasonable out-of-pocket expenses.
(4) Portfolio Securities
Purchases and sales of investments, other than purchased option transactions
and short-term obligations, were as follows:
PURCHASES SALES
--------------------------------------------------------------------------------
U.S. government securities $ -- $ 6,126,438
----------- -----------
Investments (non-U.S. government
securities) $38,058,922 $37,449,539
----------- -----------
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $ 78,100,142
------------
Gross unrealized depreciation $(25,676,191)
Gross unrealized appreciation 4,867,756
------------
Net unrealized depreciation $(20,808,435)
============
(5) Shares of Beneficial Interest
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized 6,594,124.100 full and fractional shares of beneficial interest.
Transactions in trust shares were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2002 OCTOBER 31, 2001
-------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 37,667 $418,922 82,629 $1,148,652
------ -------- ------ ----------
(6) Line of Credit
The trust and other affiliated funds participate in a $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the trust for the six
months ended April 30, 2002, was $388. The trust had no borrowings during the
period.
(7) Financial Instruments
The trust trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options and forward foreign currency
exchange contracts. The notional or contractual amounts of these instruments
represent the investment the trust has in particular classes of financial
instruments and does not necessarily represent the amounts potentially subject
to risk. The measurement of the risks associated with these instruments is
meaningful only when all related and offsetting transactions are considered.
Forward Foreign Currency Exchange Contracts
At April 30, 2002, forward foreign currency purchases and sales under master
netting agreements amounted to a net payable of $42,802 with DB
Clearing Services.
At April 30, 2002, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) Restricted Securities
The trust may invest not more than 20% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 2002,
the trust owned the following restricted securities, excluding securities
issued under Rule 144A, constituting 1.17% of net assets which may not be
publicly sold without registration under the Securities Act of 1933. The trust
does not have the right to demand that such securities be registered. The
value of these securities is determined by valuations furnished by dealers or
by a pricing service, or if not available, in good faith at the direction of
the Trustees.
DESCRIPTION ACQUISITION AMOUNT COST VALUE
-----------------------------------------------------------------------------------------------------------
Atlantic Gulf Communities Corp. 9/25/95 250 $ -- $ 1
DLJ Mortgage Acceptance Corp., 0.65s, 2003 4/6/01 966,277 484,738 6,764
DLJ Mortgage Acceptance Corp., 8s, 2003 4/6/01 803,000 484,739 682,550
--------
$689,315
========
9) Change in Accounting Principle
As required, effective November 1, 2001 the fund adopted the provision of the
AICPA Audit and Accounting Guide for Investment Companies and began amortizing
premium on debt securities. Prior to November 1, 2001, the fund did not
amortize premium on debt securities. The cumulative effect of this accounting
change had no impact on total net assets of the fund, but resulted in a
$130,197 increase in cost of securities and a corresponding $130,197 increase
in net unrealized depreciation, based on securities held by the fund on
November 1, 2001.
The effect of this change for the six months ended April 30, 2002, was to
increase net investment income by $82,073, increase net unrealized
depreciation by $82,967, and increase net realized gains by $894. The
Statement of Changes in Net Assets and Financial Highlights for prior periods
have not been restated to reflect this change in presentation.
MFS(R) SPECIAL VALUE TRUST
The following tables present certain information regarding the Trustees and
officers of the Trust, including their principal occupations, which, unless
specific dates are shown, are of more than five years duration, although the
titles may not have been the same throughout.
NAME, POSITION WITH THE TRUST, AGE, PRINCIPAL OCCUPATION, AND OTHER DIRECTORSHIPS(1)
TRUSTEES
JEFFREY L. SHAMES* (born 06/02/55) Trustee, ABBY M. O'NEILL (born 04/27/28) Trustee
Chairman and President Private investor; Rockefeller Financial Services,
Massachusetts Financial Services Company, Chairman Inc. (investment advisers), Chairman and Chief
and Chief Executive Officer Executive Officer
JOHN W. BALLEN* (born 09/12/59) Trustee LAWRENCE T. PERERA (born 06/23/35) Trustee
Massachusetts Financial Services Company, Hemenway & Barnes (attorneys), Partner
President and Director
WILLIAM J. POORVU (born 04/10/35) Trustee
KEVIN J. PARKE* (born 12/14/59) Trustee Harvard University Graduate School of Business
Massachusetts Financial Services Company, Chief Administration, Adjunct Professor; CBL &
Investment Officer, Executive Vice President and Associates Properties, Inc. (real estate
Director investment trust), Director; The Baupost Fund (a
mutual fund), Vice Chairman and Trustee
LAWRENCE H. COHN, M.D. (born 03/11/37) Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38) Trustee
Surgery; Harvard Medical School, Professor of Insight Resources, Inc. (acquisition planning
Surgery specialists), President; Wellfleet Investments
(investor in health care companies), Managing
THE HON. SIR J. DAVID GIBBONS, KBE (born 06/15/27) General Partner (since 1993); Paragon Trade
Trustee Brands, Inc. (disposable consumer products),
Edmund Gibbons Limited (diversified holding Director; Cambridge Nutraceuticals (professional
company), Chief Executive Officer; Colonial nutritional products), Chief Executive Officer
Insurance Company Ltd., Director and Chairman; (until May 2001)
Bank of Butterfield, Chairman (until 1997)
ELAINE R. SMITH (born 04/25/46) Trustee
WILLIAM R. GUTOW (born 09/27/41) Trustee Independent health care industry consultant
Private investor and real estate consultant;
Capitol Entertainment Management Company (video WARD SMITH (born 09/13/30) Trustee
franchise), Vice Chairman Private investor; Sundstrand Corporation
(manufacturer of highly engineered products for
J. ATWOOD IVES (born 05/01/36) Trustee industrial and aerospace applications), Director
Private investor; KeySpan Corporation (energy (until June 1999)
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee
and Chief Executive Officer (until November 2000)
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
* "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the 1940
Act) which is the principal federal law governing investment companies like the Trust. The address of MFS is
500 Boylston Street, Boston, Massachusetts 02116.
OFFICERS
JEFFREY L. SHAMES (born 06/02/55) Trustee, ROBERT R. FLAHERTY (born 09/18/63) Assistant
Chairman and President Treasurer
Massachusetts Financial Services Company, Chairman Massachusetts Financial Services Company, Vice
and Chief Executive Officer President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
JAMES R. BORDEWICK, JR. (born 03/06/59) Assistant
Secretary and Assistant Clerk ELLEN MOYNIHAN (born 11/13/57) Assistant Treasurer
Massachusetts Financial Services Company, Senior Massachusetts Financial Services Company, Vice
Vice President and Associate General Counsel President (since September 1996)
MARK E. BRADLEY (born 11/23/59) Assistant JAMES O. YOST (born 06/12/60) Assistant Treasurer
Treasurer Massachusetts Financial Services Company, Senior
Massachusetts Financial Services Company, Vice Vice President
President (since March 1997)
STEPHEN E. CAVAN (born 11/06/53) Secretary and
Clerk
Massachusetts Financial Services Company, Senior
Vice President, General Counsel and Secretary
The trust does hold annual shareholder meetings for the purpose of electing Trustees. Trustees are not elected
for fixed terms. This means that each Trustee will be elected to hold office until his or her successor is
chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each officer will
hold office until his or her successor is chosen and qualified, or until he or she retires, resigns or is
removed from office.
Messrs. Shames, Cohn, Gibbons, Sherratt and Smith, and Ms. O'Neill have served in their capacity as Trustee of
the trust continuously since originally elected or appointed. Messrs. Ballen, Gutow, Ives, Perera and Poorvu,
and Ms. Smith were elected by shareholders and have served as Trustees of the trust since January 1, 2002. Mr.
Parke has served as a Trustee of the trust since January 1, 2002.
Each of the trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 117 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
INVESTMENT ADVISER TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING
Massachusetts Financial Services Company AGENT
500 Boylston Street State Street Bank and Trust Company c/o MFS
Boston, MA 02116-3741 Service Center, Inc. P.O. Box 55024 Boston, MA
02205-5024 1-800-637-2304
PORTFOLIO MANAGER
John F. Addeo+
CUSTODIAN
State Street Bank and Trust Company
+ MFS Investment Management
MFS(R) SPECIAL VALUE TRUST ------------
PRSRT STD
[logo] M F S(R) U.S. POSTAGE
INVESTMENT MANAGEMENT PAID
MFS
500 BOYLSTON STREET ------------
BOSTON, MA 02116-3741
(C)2002 MFS Investment Management(R).
500 Boylston Street, Boston, MA 02116.
MSVCE-3 06/02 13.5M