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 811-5912
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MFS SPECIAL VALUE TRUST
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
James R. Bordewick, Jr.
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) SPECIAL VALUE TRUST 10/31/04
ANNUAL REPORT
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[logo] M F S(R)
INVESTMENT MANAGEMENT
ANNUAL REPORT
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 5
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MANAGEMENT REVIEW 6
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PERFORMANCE SUMMARY 8
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 10
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RESULTS OF SHAREHOLDER MEETING 11
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PORTFOLIO OF INVESTMENTS 12
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FINANCIAL STATEMENTS 23
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NOTES TO FINANCIAL STATEMENTS 28
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM 39
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TRUSTEES AND OFFICERS 40
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PROXY VOTING POLICIES AND INFORMATION 44
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QUARTERLY PORTFOLIO DISCLOSURE 44
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FEDERAL TAX INFORMATION 45
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CONTACT INFORMATION BACK COVER
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
For most investors, the main factor in determining long-term success is asset
allocation - how they spread their money among stocks, bonds, and cash. In
fact, the total returns of investors may be more influenced by their asset
allocation strategy than by their security selection within each asset class.
The principle behind asset allocation is simple: by diversifying across a
variety of types of securities, investors reduce the overall risk of their
portfolio because gains in one area are likely to offset losses in another.
One of the dangers of not having an asset allocation plan is the temptation to
simply chase performance, by moving money into whichever asset class appears to
be outperforming at the moment. The problem with this approach is that by the
time a particular area of the market comes into favor, investors may have
already missed some of the best performance. We would suggest that one way to
benefit from swings in the market is to acquire a diversified portfolio so that
investors hold a range of asset classes before the market swings in their
direction.
UNDERSTAND YOUR EMOTIONS
It usually takes a bear market for people to appreciate the benefits of
diversification. At MFS, we believe proper asset allocation is important in all
market environments. But we understand that there are emotional components of
investment decisions that sometimes keep investors from achieving their long
term goals. The three common behaviors that negatively impact investment
decisions are overconfidence, looking backwards, and loss aversion.
o Overconfidence. After experiencing gains in the market, particularly during
a bull market, investors have a natural tendency to overestimate their own
abilities. During the global bull market of the late 1990s, for example, a
large number of investors traded their own stocks and made significant
profits. However, most of these same investors later handed back those
profits - and then some - because they focused more on short-term blips in
the market and less on the fundamental factors that affect a company's
long-term prospects.
o Looking backwards. Although security prices are determined by expectations
about the future, many investors make choices based on the recent past.
Investors who have achieved momentary success in the market tend to take on
too much risk, believing that better- than-average returns can be easily
duplicated. On the other hand, those who have had negative experiences tend
to become overly cautious and take on too little risk. Recent historical
experience tends to dictate an investor's frame of reference and may lead
to irrational decisions.
o Loss aversion. Simply put, investors would rather avoid the immediate pain
of losses than enjoy the future pleasure of gains. As a result, some
investors tend to overreact to short-term downturns in the market by
seeking to mitigate their losses, rather than remaining invested to benefit
from the long-term growth potential of the stock and bond markets.
THINK LIKE A PROFESSIONAL INVESTOR
Asset allocation helps reduce the emotional factors that tend to affect the
long-term returns of investors. Professional investors - those who manage
assets for money management firms, pension funds, and endowments - have tended
to outperform the average retirement investor because they focus on asset
allocation. For example, the investment performance of the average 401(k)
participant has lagged these professional investors by more than two percentage
points a year, on average, over the past 10 years.(1)
We think asset allocation is one of the most important decisions for investors.
A study of the performance of 91 large U.S. corporate pension plans with assets
of more than $100 million over a 10-year period beginning in 1974 concluded
that asset allocation policies accounted for 93.6% of their returns, while
individual security selection and the timing of their investments accounted for
only 6.4% for their overall performance.(2)
Professional investors target a realistic level of return based on the amount
of risk they are willing to take, then set allocations to meet their goals. On
average, U.S. professional investors allocate 35% to 40% of their assets to
domestic equity stocks; 20% to 30% to fixed income issues; 10% to international
stocks; and between 10% and 20% to other investment classes such as real
estate.(3) And within those categories, they hold a broad range of styles and
asset classes.
In contrast, 401(k) participants who held company stock in their retirement
plans at the end of 2002 had roughly 42% of their retirement assets in company
stock while the rest was allocated to either growth or value stock funds.(4)
These participants virtually ignored the broad range of equity, fixed-income,
and international offerings provided by their retirement plans.
ALLOCATE, DIVERSIFY, REBALANCE
We recommend working with a professional adviser to find an optimal mix of
investments based on your individual goals. In our view, a disciplined asset
allocation strategy is composed of three simple steps: allocate, diversify and
rebalance.
o Allocate. Investors should work with their financial adviser to specify
their long-term goals and tolerance for risk. Then investors should
allocate their assets across the major asset classes - stocks, bonds, and
cash - to help them pursue an investment return that is consistent with
their risk tolerance level.
o Diversify. By diversifying their assets, investors trade some performance
in the top performing categories for a more predictable and stable
portfolio. At the same time, investors should include different investment
styles and market capitalizations of stocks and a range of fixed-income
investments, as well as U.S. and non-U.S. securities. Because security
subclasses tend to move in and out of favor during various market and
economic environments, a broad portfolio increases the benefits of
diversification.
o Rebalance. We suggest that investors consult with their professional
advisers periodically to rebalance their portfolios to maintain the
percentages that they have dedicated to each asset class. Allocations can
shift as markets rise and fall, making for a riskier or more conservative
portfolio than an investor originally intended. For example, a portfolio of
50% stocks and 50% bonds at the start of 2000 would have shifted to 32%
stocks and 68% bonds at the end of 2002 because of the weak stock
market.(5)
In short, these three simple concepts - allocate, diversify and rebalance -
help take emotion out of the investment process and help prevent investors
from trying to outguess the market. An asset allocation strategy cannot turn a
down market cycle into a good one, but it is an invaluable tool to manage risk
and keep investors on track toward reaching their long-term investment goals.
A DISCIPLINED INVESTMENT PROCESS IS PARAMOUNT
Disciplined diversification has helped investors pursue long-term, above-
average results through the years. Since 1924, when we invented the mutual
fund, MFS(R) has strived to give investors the products and tools they need to
maintain well-diversified portfolios. MFS provides a variety of products in
each asset class as well as a family of asset allocation funds. These asset
allocation portfolios cover a range from conservative to moderate, growth, and
aggressive growth allocations, each with a strategy based on a distinct level
of risk. We recommend developing a comprehensive financial plan with an
investment advisor who is familiar with your risk tolerance, your individual
goals, and your financial situation.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
November 15, 2004
Asset allocation and diversification can not guarantee a profit or protect
against a loss.
The opinions expressed in this letter are those of MFS, and no forecasts can be
guaranteed.
(1) Source: Watson Wyatt
(2) "Determinants of Portfolio Performance," in Financial Analysts Journal,
January/February 1995, by Gary P. Brinson, L. Randolph Hood, and Gilbert L.
Beebower
(3) Source: Greenwich Associates
(4) Source: Hewitt Associates
(5) Source: Lipper Inc.
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PORTFOLIO COMPOSITION
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Stocks 25.6%
Cash & Other Net Assets 1.8%
Bonds 66.8%
Convertible Bonds 2.1%
Convertible Preferred Stocks 1.5%
Preferred Stocks 2.2%
MARKET SECTORS*
High Yield Corporates 56.3%
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Domestic Equity 26.7%
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Emerging Market Debt 6.7%
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International Equity 2.3%
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Commercial Mortgage Backed 2.2%
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International Convertibles 2.1%
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Cash & Other Net Assets 1.8%
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High Grade Corporates 1.6%
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Domestic Convertibles 0.3%
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CREDIT QUALITY**
AAA 0.2%
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A 0.1%
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BBB 0.9%
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BB 6.8%
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B 31.5%
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CCC 19.2%
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CC 2.8%
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D 1.3%
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Not Rated 4.0%
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Equity 31.4%
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Other 1.8%
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PORTFOLIO FACTS
Average Duration 4.1
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Average Life 7.4 Yrs
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Average Maturity 7.7 Yrs
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Average Quality B-
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Average Quality Short Term Bonds A-1
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Percentages are based on net assets as of 10/31/04.
* For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
** Credit quality ratings are based on a weighted average of each security's
rating from Moody's Investors Service. If not rated by Moody's, the rating
will be that assigned by Standard & Poor's. Likewise, if not assigned a
rating by Standard & Poor's, it will be based on the ratings assigned by
Fitch, Inc. If not rated by any of the three agencies, the security is
considered not rated, except for U.S. Treasuries and mortgage-backed
securities, which are included in the "AAA"-rating category.
The portfolio is actively managed, and current holdings may be different.
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MANAGEMENT REVIEW
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SUMMARY OF RESULTS
For the year ended October 31, 2004, MFS Special Value Trust was up 13.47% at
net asset value, outperforming the 12.32% return for the Lehman Brothers High
Yield Index as well as the 15.45% return for the Russell 1000 Value Index.
MARKET ENVIRONMENT
In 2004, many measures of global economic growth, including employment,
corporate spending, and earnings growth continued to improve, though we feel
that near-record-high oil prices, concerns about rising interests rates, and an
unsettled geopolitical environment adversely affected global markets. The U.S.
Federal Reserve Board raised interest rates three times during the period, and
this appears to have set expectations for an ongoing series of modest rate
hikes.
CONTRIBUTORS TO PERFORMANCE:
For the fixed-income portion of the portfolio, yield was the principal
contributor to relative performance. A number of individual fixed income
securities also delivered strong results, including metals manufacturer Doe Run
Resources, commodity chemical firm IMC Global, and a collateralized mortgage
obligation issued by Morgan Stanley.
On the equity side, the top-contributing sectors included utilities and
communications, basic materials, and industrial goods and services. In
utilities and communications, a combination of allocation and stock selection
contributed to the trust's relative performance. Top relative contributors at
the security level included AT&T Wireless* and Sprint.
Stock selection in the basic materials sector also boosted relative
performance. Glass and plastic container company Owens-Illinois was the
strongest contributor in the sector.
Strong stock selection in the industrial goods and services sector also aided
relative results. Our heavily weighted position in industrial conglomerate Tyco
helped lift the trust's returns. Two strong-performing energy stocks, BJ
Services and GlobalSantaFe, were also among the top contributors for the
period.
DETRACTORS FROM PERFORMANCE:
While the trust outperformed its benchmark, there were some negative factors
which held back relative performance. In the fixed income area, duration - a
measure of interest rate sensitivity - and other components related to the
yield curve hurt results. The trust's credit exposure to "BB"- and "B"-rated
securities also detracted from relative performance, although this was
partially offset by a positive contribution from lower-rated "CCC" bonds.
Relative detractors, at the issue level, included Parmalat,* Paxson,* and
Dobson Communications.
In the equity portion of the portfolio, stock selection in the retailing,
technology, and leisure sectors detracted from the trust's relative
performance. Retailing giant Sears, Roebuck & Co.* underperformed the overall
index, and was weighted heavily in the portfolio compared to its benchmark, the
Russell 1000 Value Index. Our overweighted position in cable company Comcast
also hampered relative results. Stocks in other sectors that detracted from
relative performance were electric utility firm Calpine Corp. and
telecommunications equipment provider Nortel Networks.
* Stock no longer held in portfolio as of period-end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report as stated on the cover and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS fund. References to specific securities are
not recommendations of such securities and may not be representative of any MFS
fund's current or future investments.
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PERFORMANCE SUMMARY THROUGH 10/31/04
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All results are historical. Investment return and principal value will
fluctuate, and shares, when sold, may be worth more or less than their
original cost. More recent returns may be more or less than those shown. Past
performance is no guarantee of future results.
PRICE SUMMARY
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Year ended 10/31/04
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Date Price
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Net asset value 10/31/2003 $9.80
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10/31/2004 $10.12
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New York Stock Exchange price 10/31/2003 $10.40
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4/8/2004 (high)* $12.40
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11/03/2003 (low)* $10.32
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10/31/2004 $11.60
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* For the period November 1, 2003 through October 31, 2004.
TOTAL RETURN VS BENCHMARKS
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Year ended 10/31/04
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New York Stock Exchange price** 22.56%
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Net asset value** 13.47%
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Lehman Brothers High Yield Index# 12.32%
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Russell 1000 Value Index# 15.45%
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** Includes reinvestment of dividends and capital gains distributions.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITIONS
Lehman Brothers High Yield Index - measures the performance of the high-yield
bond market.
Russell 1000 Value Index - measures large-cap U.S. value stocks.
Note to Shareholders: Effective October 31, 2004, the Russell 1000 Value Index
was added to the trust as a secondary benchmark.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
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. As a
result, the total return that is calculated based on the net asset value and
New York Stock Exchange price can be different.
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.
KEY RISK CONSIDERATIONS
The portfolio may invest in derivative securities, which may include futures,
options and swaps. These types of instruments can increase price fluctuation.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
Investments in high yield or lower-rated securities may provide greater returns
but are subject to greater-than-average risk.
Because the portfolio invests in a limited number of companies a change in one
security's value may have a more significant effect on the portfolio's value.
The trust limits investment in securities of foreign issuers which are not
traded on a U.S. exchange (excluding American Depository Receipts) to 10% of
its total assets. For purposes of determining this investment limitation,
foreign securities traded in U.S. markets which are well established and liquid
(such as Rule 144A and Yankee Bond markets) are considered as being equivalent
to U.S. exchange-traded securities, and therefore are not subject to this 10%
limitation.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
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.
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
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The trust 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 may be made in any amount
over $100 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 from the plan, you can receive the value of the reinvested shares in
one of two ways: a check for the value of the full and fractional shares, or a
certificate for the full shares and a check for the fractional shares.
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RESULTS OF SHAREHOLDER MEETING (unaudited) - 10/31/04
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At the annual meeting of shareholders of MFS Special Value Trust, which was
held on October 7, 2004, the following actions were taken:
ITEM 1. To elect the following as, Trustees of the trust.
NUMBER OF SHARES
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NOMINEE FOR WITHHOLD AUTHORITY
Lawrence H. Cohn, M.D. 6,200,118.691 100,036.811
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Robert J. Manning 6,213,913.691 86,241.811
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Lawrence T. Perera 6,201,716.691 98,438.811
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Elaine R. Smith 6,201,304.691 98,850.811
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ITEM 2. To ratify the selection of Ernst & Young LLP as the Independent
Registered Public Accounting Firm for the current fiscal year.
NUMBER OF SHARES
Affirmative 6,221,164.939
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Against 35,229.343
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Abstain 43,761.220
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PORTFOLIO OF INVESTMENTS - 10/31/04
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The Portfolio of Investments is a complete list of all securities owned by your trust. It is
categorized by broad-based asset classes.
Bonds - 65.3%
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ISSUER PAR AMOUNT $ VALUE
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Advertising & Broadcasting - 3.0%
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Allbritton Communications Co., 7.75%, 2012 $350,000 $364,875
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Granite Broadcasting Corp., 9.75%, 2010 655,000 604,237
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LBI Media Holdings, Inc., 0% to 2008, 11% to 2013 875,000 635,469
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XM Satellite Radio Holdings, Inc., 0% to 2005, 14% to 2009 212,267 213,594
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XM Satellite Radio, Inc., 12%, 2010 174,000 204,885
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$2,023,060
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Aerospace - 2.1%
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Argo-Tech Corp., 9.25%, 2011## $130,000 $141,700
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BE Aerospace, Inc., 8.875%, 2011 475,000 499,700
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Hexcel Corp., 9.75%, 2009 650,000 684,125
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K&F Industries, Inc., 9.625%, 2010 80,000 92,800
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$1,418,325
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Airlines - 1.5%
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Continental Airlines, Inc., 7.568%, 2006 $500,000 $357,370
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Continental Airlines, Inc., 6.795%, 2018 486,616 384,404
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Continental Airlines, Inc., 8.307%, 2018 263,941 207,189
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Continental Airlines, Inc., 7.566%, 2020 58,124 45,066
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$994,029
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Apparel Manufacturers - 0.4%
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Levi Strauss & Co., 7%, 2006 $255,000 $249,581
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Asset Backed & Securitized - 2.2%
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Anthracite CDO Ltd., 6%, 2037## $450,000 $379,440
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DLJ Mortgage Acceptance Corp., 8%, 2004+ 689,537 668,148
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Falcon Auto Dealership LLC, 4.1575%, 2025^^ 682,798 124,390
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GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 250,000 242,520
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Morgan Stanley Capital I, Inc., 1.5914%, 2014^^## 697,506 53,701
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$1,468,199
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Automotive - 0.8%
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Advanced Accessory Systems LLC, 10.75%, 2011 $60,000 $54,600
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Metaldyne Corp., 11%, 2012 145,000 121,800
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Oxford Automotive, Inc., 12%, 2010*## 120,000 44,400
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TRW Automotive, Inc., 11%, 2013 13,000 15,470
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TRW Automotive, Inc., 11.75%, 2013 EUR 163,000 246,051
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Visteon Corp., 7%, 2014 $90,000 84,600
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$566,921
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Basic Industry - 0.2%
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Thermadyne Holdings Corp., 9.25%, 2014 $110,000 $104,500
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Broadcast & Cable TV - 7.4%
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Adelphia Communications Corp., 10.25%, 2011* $750,000 $669,375
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CSC Holdings, Inc., 8.125%, 2009 155,000 170,500
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CSC Holdings, Inc., 6.75%, 2012## 110,000 113,850
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Cablevision Systems Corp., 8%, 2012## 180,000 193,050
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Charter Communications, Inc., 8.625%, 2009 365,000 293,825
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Charter Communications, Inc., 9.92%, 2011 1,150,000 922,875
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Charter Communications, Inc., 8.375%, 2014## 50,000 50,437
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FrontierVision Holdings LP, 11.875%, 2007* 300,000 382,500
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Frontiervision Operating Partners LP, 11%, 2006* 115,000 144,325
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Grande Communications, 14%, 2011 305,000 297,375
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Insight Midwest LP, 9.75%, 2009 130,000 136,662
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Kabel Deutschland, 10.625%, 2014## 230,000 257,600
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Mediacom Broadband LLC, 9.5%, 2013 285,000 279,300
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Mediacom Broadband LLC, 11%, 2013 265,000 284,875
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TV Azteca S.A. de C.V., 10.5%, 2007 250,000 255,000
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Telenet Group Holdings N.V., 0% to 2008, 11.5% to 2014## 780,000 588,900
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$5,040,449
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Brokerage & Asset Managers - 0.1%
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Refco Finance Holdings LLC, 9%, 2012## $90,000 $97,200
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Building - 0.9%
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Building Materials Corp. of America, 7.75%, 2014## $150,000 $148,875
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Interface, Inc., 10.375%, 2010 180,000 207,000
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Interface, Inc., 9.5%, 2014 150,000 162,375
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Nortek, Inc., 8.5%, 2014## 75,000 79,500
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$597,750
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Business Services - 0.4%
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Nortel Networks Ltd., 6.125%, 2006 $250,000 $255,625
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Chemicals - 6.9%
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ARCO Chemical Co., 9.8%, 2020 $80,000 $88,800
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BCP Caylux Holdings Luxembourg S.A., 9.625%, 2014## 335,000 375,200
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Crystal U.S. Holdings LLC, 0% to 2009, 10.5% to 2014## 190,000 119,700
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Equistar Chemicals LP, 10.625%, 2011 210,000 242,550
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Huntsman International LLC, 10.125%, 2009 750,000 787,500
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IMC Global, Inc., 10.875%, 2013 140,000 176,750
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JohnsonDiversey Holding, Inc., 0% to 2007, 10.67% to 2013 335,000 286,425
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Lyondell Chemical Co., 11.125%, 2012 340,000 400,775
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Nalco Finance Holdings, Inc., 0% to 2009, 9% to 2014## 390,000 289,575
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Resolution Performance Products LLC, 13.5%, 2010 340,000 336,600
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Rhodia S.A., 6%, 2006 EUR 105,000 136,000
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Rhodia S.A., 8.875%, 2011 $825,000 771,375
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Rockwood Specialties Group, Inc., 10.625%, 2011 300,000 333,000
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Sovereign Specialty Chemicals, Inc., 11.875%, 2010 320,000 344,000
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$4,688,250
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Conglomerates - 1.0%
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Invensys PLC, 9.875%, 2011## $310,000 $330,150
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Polypore International, Inc., 8.75%, 2012## 195,000 203,775
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SPX Corp., 7.5%, 2013 110,000 117,700
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$651,625
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Consumer Goods & Services - 1.9%
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K2, Inc., 7.375%, 2014## $20,000 $21,800
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Leiner Health Products, Inc., 11%, 2012## 75,000 81,281
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Revlon Consumer Products Corp., 8.625%, 2008 531,000 438,075
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Safilo Capital International S.A., 9.625%, 2013## EUR 500,000 625,233
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Werner Holding Co., Inc., 10%, 2007 $170,000 157,250
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$1,323,639
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Containers - 1.4%
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Crown European Holdings S.A., 10.875%, 2013 $305,000 $362,187
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Pliant Corp., 13%, 2010 510,000 475,575
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Portola Packaging, Inc., 8.25%, 2012 130,000 101,400
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$939,162
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Defense Electronics - 0.2%
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L-3 Communications Holdings, Inc., 6.125%, 2014 $130,000 $134,550
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Emerging Market Agencies - 0.2%
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Pemex Project Funding Master Trust, 8.625%, 2022 $143,000 $165,165
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Emerging Market Sovereign - 2.2%
-----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 3.125%, 2012 $510,886 $468,738
-----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 170,462 169,290
-----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 3.0625%, 2024 54,000 47,520
-----------------------------------------------------------------------------------------------
Federal Republic of Brazil, 11%, 2040 430,000 485,040
-----------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2023 - 2029 206,000 230,675
-----------------------------------------------------------------------------------------------
Republic of Panama, 8.875%, 2027 66,000 68,640
-----------------------------------------------------------------------------------------------
United Mexican States, 8%, 2022 13,000 14,918
-----------------------------------------------------------------------------------------------
$1,484,821
-----------------------------------------------------------------------------------------------
Energy - Independent - 0.4%
-----------------------------------------------------------------------------------------------
Belden Blake Corp., 8.75%, 2012## $90,000 $97,200
-----------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 7%, 2014 52,000 56,420
-----------------------------------------------------------------------------------------------
Chesapeake Energy Corp., 6.875%, 2016 130,000 139,100
-----------------------------------------------------------------------------------------------
$292,720
-----------------------------------------------------------------------------------------------
Energy - Integrated - 0.6%
-----------------------------------------------------------------------------------------------
Siberian Oil Co., 10.75%, 2009 $185,000 $203,963
-----------------------------------------------------------------------------------------------
Tyumen Oil Co., 11%, 2007 200,000 227,500
-----------------------------------------------------------------------------------------------
$431,463
-----------------------------------------------------------------------------------------------
Entertainment - 1.6%
-----------------------------------------------------------------------------------------------
AMF Bowling Worldwide, Inc., 10%, 2010## $235,000 $251,450
-----------------------------------------------------------------------------------------------
Loews Cineplex Entertainment Corp., 9%, 2014## 130,000 136,175
-----------------------------------------------------------------------------------------------
Marquee Holdings, Inc., 0% to 2009, 12% to 2014## 415,000 251,075
-----------------------------------------------------------------------------------------------
Six Flags, Inc., 9.75%, 2013 485,000 467,419
-----------------------------------------------------------------------------------------------
$1,106,119
-----------------------------------------------------------------------------------------------
Food & Non-Alcoholic Beverages - 0.4%
-----------------------------------------------------------------------------------------------
Burns, Philp & Co. Ltd., 9.75%, 2012 $245,000 $269,500
-----------------------------------------------------------------------------------------------
Forest & Paper Products - 1.2%
-----------------------------------------------------------------------------------------------
Corporacion Durango S.A. de C.V., 13.75%, 2009*## $258,000 $154,800
-----------------------------------------------------------------------------------------------
Kappa Beheer B.V., 10.625%, 2009 110,000 116,600
-----------------------------------------------------------------------------------------------
Newark Group, Inc., 9.75%, 2014## 390,000 405,600
-----------------------------------------------------------------------------------------------
Norske Skog Canada Ltd., 7.375%, 2014 125,000 130,000
-----------------------------------------------------------------------------------------------
Sino Forest Corp., 9.125%, 2011## 23,000 23,863
-----------------------------------------------------------------------------------------------
$830,863
-----------------------------------------------------------------------------------------------
Gaming & Lodging - 1.2%
-----------------------------------------------------------------------------------------------
NCL Corp., 10.625%, 2014## $360,000 $374,400
-----------------------------------------------------------------------------------------------
Resorts International Hotel & Casino, Inc., 11.5%, 2009 400,000 461,000
-----------------------------------------------------------------------------------------------
$835,400
-----------------------------------------------------------------------------------------------
Health Maintenance Organizations - 0.4%
-----------------------------------------------------------------------------------------------
MedCath Holdings Corp., 9.875%, 2012## $260,000 $278,850
-----------------------------------------------------------------------------------------------
Industrial - 2.4%
-----------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011## $195,000 $214,500
-----------------------------------------------------------------------------------------------
Da Lite Screen Co., Inc., 9.5%, 2011 125,000 132,500
-----------------------------------------------------------------------------------------------
Eagle-Picher Industries, Inc., 9.75%, 2013 115,000 116,725
-----------------------------------------------------------------------------------------------
Milacron Escrow Corp., 11.5%, 2011## 390,000 405,600
-----------------------------------------------------------------------------------------------
Rexnord Industries, Inc., 10.125%, 2012 105,000 118,650
-----------------------------------------------------------------------------------------------
Williams Scotsman, Inc., 9.875%, 2007 675,000 648,000
-----------------------------------------------------------------------------------------------
$1,635,975
-----------------------------------------------------------------------------------------------
Machinery & Tools - 2.0%
-----------------------------------------------------------------------------------------------
Case New Holland, Inc., 9.25%, 2011## $205,000 $233,700
-----------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 8.5%, 2008 225,000 221,625
-----------------------------------------------------------------------------------------------
Manitowoc Co., Inc., 10.375%, 2011 EUR 160,000 228,218
-----------------------------------------------------------------------------------------------
United Rentals, Inc., 7.75%, 2013 $700,000 677,250
-----------------------------------------------------------------------------------------------
$1,360,793
-----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.2%
-----------------------------------------------------------------------------------------------
Alliance Imaging, Inc., 10.375%, 2011 $200,000 $221,000
-----------------------------------------------------------------------------------------------
Healthsouth Corp., 8.5%, 2008 150,000 153,000
-----------------------------------------------------------------------------------------------
U.S. Oncology, Inc., 10.75%, 2014## 275,000 299,750
-----------------------------------------------------------------------------------------------
Universal Hospital Services, Inc., 10.125%, 2011 140,000 142,800
-----------------------------------------------------------------------------------------------
$816,550
-----------------------------------------------------------------------------------------------
Metals & Mining - 1.8%
-----------------------------------------------------------------------------------------------
Doe Run Resources Corp., 8.5%, 2008# $512,259 $440,543
-----------------------------------------------------------------------------------------------
Foundation PA Coal Co., 7.25%, 2014## 120,000 128,250
-----------------------------------------------------------------------------------------------
IMCO Recycling, Inc., 9%, 2014## 25,000 25,000
-----------------------------------------------------------------------------------------------
Ispat Inland ULC, 9.75%, 2014 390,000 473,850
-----------------------------------------------------------------------------------------------
Oregon Steel Mills, Inc., 10%, 2009 105,000 116,550
-----------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75%, 2010 42,000 48,090
-----------------------------------------------------------------------------------------------
$1,232,283
-----------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.6%
-----------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625%, 2021 $175,000 $215,250
-----------------------------------------------------------------------------------------------
El Paso Energy Corp., 7%, 2011 535,000 537,675
-----------------------------------------------------------------------------------------------
El Paso Energy Corp., 7.75%, 2013 235,000 244,987
-----------------------------------------------------------------------------------------------
Markwest Energy Partners LP, 6.875%, 2014## 90,000 91,800
-----------------------------------------------------------------------------------------------
$1,089,712
-----------------------------------------------------------------------------------------------
Oil Services - 1.0%
-----------------------------------------------------------------------------------------------
Dresser, Inc., 9.375%, 2011 $80,000 $88,800
-----------------------------------------------------------------------------------------------
Hanover Compressor Co., 9%, 2014 150,000 167,250
-----------------------------------------------------------------------------------------------
Ocean Rig Norway S.A., 10.25%, 2008 440,000 453,200
-----------------------------------------------------------------------------------------------
$709,250
-----------------------------------------------------------------------------------------------
Oils - 0.3%
-----------------------------------------------------------------------------------------------
Gazprom OAO, 9.625%, 2013## $150,000 $172,875
-----------------------------------------------------------------------------------------------
Printing & Publishing - 2.4%
-----------------------------------------------------------------------------------------------
CBD Media LLC, 9.25%, 2012## $90,000 $90,450
-----------------------------------------------------------------------------------------------
Dex Media, Inc., 0% to 2008, 9% to 2013 975,000 741,000
-----------------------------------------------------------------------------------------------
Hollinger, Inc., 12.875%, 2011## 55,000 60,500
-----------------------------------------------------------------------------------------------
Houghton Mifflin Co., 9.875%, 2013 130,000 141,050
-----------------------------------------------------------------------------------------------
Houghton Mifflin Co., 0% to 2008, 11.5% to 2013 385,000 251,694
-----------------------------------------------------------------------------------------------
Lighthouse International Co. S.A., 8%, 2014## EUR 275,000 344,758
-----------------------------------------------------------------------------------------------
$1,629,452
-----------------------------------------------------------------------------------------------
Retailers - 1.9%
-----------------------------------------------------------------------------------------------
Couche-Tard, Inc., 7.5%, 2013 $335,000 $360,962
-----------------------------------------------------------------------------------------------
Duane Reade, Inc., 9.75%, 2011## 220,000 211,200
-----------------------------------------------------------------------------------------------
J. Crew Operating Corp., 10.375%, 2007 150,000 154,125
-----------------------------------------------------------------------------------------------
PCA LLC, 11.875%, 2009 180,000 171,000
-----------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25%, 2013 130,000 135,525
-----------------------------------------------------------------------------------------------
Rite Aid Corp., 6.875%, 2013 270,000 241,650
-----------------------------------------------------------------------------------------------
$1,274,462
-----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 4.1%
-----------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 0% to 2005, 12% to 2009 $129,000 $137,385
-----------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 370,000 401,450
-----------------------------------------------------------------------------------------------
Dobson Cellular Systems, Inc., 8.375%, 2011## 35,000 36,094
-----------------------------------------------------------------------------------------------
Dobson Communications Corp., 8.875%, 2013 235,000 158,038
-----------------------------------------------------------------------------------------------
MetroPCS, Inc., 10.75%, 2011 335,000 348,400
-----------------------------------------------------------------------------------------------
PTC International Finance II S.A., 11.25%, 2009 500,000 530,000
-----------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75%, 2010 531,000 456,660
-----------------------------------------------------------------------------------------------
U.S. Unwired, Inc., 10%, 2012 200,000 216,500
-----------------------------------------------------------------------------------------------
Ubiquitel Operating Co., 9.875%, 2011 125,000 135,313
-----------------------------------------------------------------------------------------------
Vimpel-Communications, 10%, 2009## 350,000 380,625
-----------------------------------------------------------------------------------------------
$2,800,465
-----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 4.0%
-----------------------------------------------------------------------------------------------
Axtel S.A. de C.V., 11%, 2013 $565,000 $587,600
-----------------------------------------------------------------------------------------------
Citizens Communications Co., 9.25%, 2011 130,000 149,500
-----------------------------------------------------------------------------------------------
Citizens Communications Co., 9%, 2031 9,000 9,607
-----------------------------------------------------------------------------------------------
MCI, Inc., 5.908%, 2007 100,000 99,750
-----------------------------------------------------------------------------------------------
MCI, Inc., 6.688%, 2009 110,000 108,487
-----------------------------------------------------------------------------------------------
Qwest Capital Funding, Inc., 7.25%, 2011 140,000 130,550
-----------------------------------------------------------------------------------------------
Qwest Corp., 7.875%, 2011## 180,000 191,700
-----------------------------------------------------------------------------------------------
Qwest Corp., 9.125%, 2012## 175,000 197,313
-----------------------------------------------------------------------------------------------
Qwest Services Corp., 13.5%, 2010## 540,000 641,250
-----------------------------------------------------------------------------------------------
Time Warner Telecom Holdings, Inc., 10.125%, 2011 380,000 368,600
-----------------------------------------------------------------------------------------------
Time Warner Telecom Holdings, Inc., 9.25%, 2014 210,000 211,050
-----------------------------------------------------------------------------------------------
$2,695,407
-----------------------------------------------------------------------------------------------
Transportation - Services - 0.4%
-----------------------------------------------------------------------------------------------
TFM S.A. de C.V., 11.75%, 2009 $250,000 $254,375
-----------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.2%
-----------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 6.875%, 2011 $155,000 $149,962
-----------------------------------------------------------------------------------------------
FirstEnergy Corp., 6.45%, 2011 199,000 218,040
-----------------------------------------------------------------------------------------------
Midwest Generation LLC, 8.75%, 2034 145,000 164,213
-----------------------------------------------------------------------------------------------
Mission Energy Holding Co., 13.5%, 2008 250,000 316,875
-----------------------------------------------------------------------------------------------
NGC Corp. Capital Trust, 8.316%, 2027 275,000 231,000
-----------------------------------------------------------------------------------------------
NorthWestern Corp., 7.875%, 2007 103,000 90,640
-----------------------------------------------------------------------------------------------
NorthWestern Corp., 8.75%, 2012* 202,000 177,760
-----------------------------------------------------------------------------------------------
PSEG Power LLC, 7.75%, 2011 185,000 215,976
-----------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25%, 2010 200,000 222,000
-----------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5%, 2013 125,000 140,625
-----------------------------------------------------------------------------------------------
Sierra Pacific Resources, 8.625%, 2014 215,000 244,025
-----------------------------------------------------------------------------------------------
$2,171,116
-----------------------------------------------------------------------------------------------
Utilities - Telephone - 0.4%
-----------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $260,000 $248,300
-----------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $42,469,108) $44,338,781
-----------------------------------------------------------------------------------------------
Stocks - 25.6%
-----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
-----------------------------------------------------------------------------------------------
Airlines - 1.4%
-----------------------------------------------------------------------------------------------
Southwest Airlines Co.^ 60,500 $954,085
-----------------------------------------------------------------------------------------------
Automotive - 0.4%
-----------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc.^* 19,876 $165,368
-----------------------------------------------------------------------------------------------
Magna International, Inc., "A" 1,800 131,310
-----------------------------------------------------------------------------------------------
$296,678
-----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 3.8%
-----------------------------------------------------------------------------------------------
Comcast Corp., "Special A"^* 59,100 $1,716,264
-----------------------------------------------------------------------------------------------
NTL, Inc.^* 9,572 636,634
-----------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., "A"^ 30,000 210,000
-----------------------------------------------------------------------------------------------
$2,562,898
-----------------------------------------------------------------------------------------------
Business Services - 0.0%
-----------------------------------------------------------------------------------------------
Anacomp, Inc.^ 30 $255
-----------------------------------------------------------------------------------------------
Containers - 2.6%
-----------------------------------------------------------------------------------------------
Owens-Illinois, Inc.^ 97,000 $1,797,410
-----------------------------------------------------------------------------------------------
Energy - Independent - 0.3%
-----------------------------------------------------------------------------------------------
NRG Energy, Inc.^ 6,073 $168,465
-----------------------------------------------------------------------------------------------
Food & Drug Stores - 0.1%
-----------------------------------------------------------------------------------------------
Rite Aid Corp.^* 19,300 $71,796
-----------------------------------------------------------------------------------------------
Gaming & Lodging - 0.4%
-----------------------------------------------------------------------------------------------
Ameristar Casinos, Inc.^ 7,750 $269,119
-----------------------------------------------------------------------------------------------
Machinery & Tools - 0.1%
-----------------------------------------------------------------------------------------------
Thermadyne Holdings Corp.^* 3,237 $33,989
-----------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.7%
-----------------------------------------------------------------------------------------------
Tenet Healthcare Corp.^* 110,500 $1,184,560
-----------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
-----------------------------------------------------------------------------------------------
Ferrell Gas Partners LP 6,088 $128,335
-----------------------------------------------------------------------------------------------
Oil Services - 4.8%
-----------------------------------------------------------------------------------------------
BJ Services Co.^ 14,500 $739,500
-----------------------------------------------------------------------------------------------
Cooper Cameron Corp.^ 16,530 799,225
-----------------------------------------------------------------------------------------------
GlobalSantaFe Corp.^ 36,830 1,086,485
-----------------------------------------------------------------------------------------------
Noble Corp.^* 13,390 611,655
-----------------------------------------------------------------------------------------------
$3,236,865
-----------------------------------------------------------------------------------------------
Pharmaceuticals - 1.4%
-----------------------------------------------------------------------------------------------
Wyeth 24,600 $975,390
-----------------------------------------------------------------------------------------------
Specialty Chemicals - 0.0%
-----------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 55 $1,353
-----------------------------------------------------------------------------------------------
Telecommunications - Wireless - 2.3%
-----------------------------------------------------------------------------------------------
Nokia Corp., ADR^ 100,200 $1,545,084
-----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.2%
-----------------------------------------------------------------------------------------------
Nortel Networks Corp.* 439,300 $1,489,227
-----------------------------------------------------------------------------------------------
Telephone Services - 2.4%
-----------------------------------------------------------------------------------------------
MCI, Inc.* 18,683 $322,282
-----------------------------------------------------------------------------------------------
Sprint Corp. 62,300 1,305,185
-----------------------------------------------------------------------------------------------
$1,627,467
-----------------------------------------------------------------------------------------------
Utilities - Electric Power - 1.5%
-----------------------------------------------------------------------------------------------
Calpine Corp. 331,670 $825,858
-----------------------------------------------------------------------------------------------
DPL, Inc.^ 10,154 219,326
-----------------------------------------------------------------------------------------------
$1,045,184
-----------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $19,962,554) $17,388,160
-----------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.5%
-----------------------------------------------------------------------------------------------
Automotive - 0.3%
-----------------------------------------------------------------------------------------------
Ford Motor Co. Capital Trust II, 6.5% 3,869 $193,411
-----------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc., "A", 8%* 114 8,778
-----------------------------------------------------------------------------------------------
$202,189
-----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.2%
-----------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc., "B", 10.75%* 717 $781,530
-----------------------------------------------------------------------------------------------
Total Convertible Preferred Stocks (Identified Cost,
$938,289) $983,719
-----------------------------------------------------------------------------------------------
Preferred Stocks - 2.2%
-----------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.2%
-----------------------------------------------------------------------------------------------
Paxson Communications Corp., 14.25%^* 200 $1,520,000
-----------------------------------------------------------------------------------------------
Real Estate - 0.0%
-----------------------------------------------------------------------------------------------
HRPT Properties Trust, 8.75%^ 100 $2,745
-----------------------------------------------------------------------------------------------
Telephone Services - 0.0%
-----------------------------------------------------------------------------------------------
PTV, Inc., "A", 10%^ 9 $54
-----------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $1,542,138) $1,522,799
-----------------------------------------------------------------------------------------------
Warrants - 0.0%
-----------------------------------------------------------------------------------------------
Anacomp, Inc. (Business Services)* 5,841 $350
-----------------------------------------------------------------------------------------------
Grande Communications Holdings (Broadcast & Cable TV)* 305 30
-----------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (Specialty Chemicals)* 90 113
-----------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Machinery & Tools)* 3,330 666
-----------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $38,821) $1,159
-----------------------------------------------------------------------------------------------
Convertible Bond - 2.1%
-----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
-----------------------------------------------------------------------------------------------
Telecommunications - Wireline - 2.1%
-----------------------------------------------------------------------------------------------
COLT Telecom Group PLC, 2%, 2006 EUR 1,000,000 $1,445,553
-----------------------------------------------------------------------------------------------
Total Convertible Bond (Identified Cost, $827,371) $1,445,553
-----------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 15.9%
-----------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
-----------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value 10,784,898 $10,784,898
-----------------------------------------------------------------------------------------------
Repurchase Agreement - 2.3%
-----------------------------------------------------------------------------------------------
ISSUER PAR AMOUNT $ VALUE
-----------------------------------------------------------------------------------------------
Goldman Sachs, 1.86%, dated 10/29/04, due 11/01/04, total to
be received $1,579,245 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account),
at Cost $1,579,000 $1,579,000
-----------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $78,142,179) $78,044,069
-----------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (14.9)% (10,104,619)
-----------------------------------------------------------------------------------------------
Net Assets - 100.0% $67,939,450
-----------------------------------------------------------------------------------------------
* Non-income producing security.
^ All or a portion of this security is on loan.
^^ Interest-only security.
# Payment-in-kind security.
## SEC Rule 144A restriction.
+ Restricted security.
ADR= American Depository Receipt.
Abbreviations have been used throughout this report to indicate amounts shown
in currencies other than the U.S. dollar. A list of abbreviations is shown
below.
EUR= Euro
SEK= Swedish Krone
SEE NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------------------------
This statement represents your trust's balance sheet, which details the assets
and liabilities composing the total value of your trust.
AT 10/31/04
ASSETS
Investments, at value, including $10,526,163 of securities
on loan (identified cost, $78,142,179) $78,044,069
--------------------------------------------------------------------------------------------------
Cash 1,263
--------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 24,293
--------------------------------------------------------------------------------------------------
Receivable for investments sold 251,320
--------------------------------------------------------------------------------------------------
Interest and dividends receivable 1,066,358
--------------------------------------------------------------------------------------------------
Receivable from administrative proceeding settlement 441
--------------------------------------------------------------------------------------------------
Other assets 584
--------------------------------------------------------------------------------------------------
Total assets $79,388,328
--------------------------------------------------------------------------------------------------
LIABILITIES
Payable to dividend disbursing agent $53,015
--------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 209,937
--------------------------------------------------------------------------------------------------
Payable for investments purchased 192,130
--------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 10,784,898
--------------------------------------------------------------------------------------------------
Payable to affiliates
--------------------------------------------------------------------------------------------------
Management fee 5,024
--------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing costs 1,900
--------------------------------------------------------------------------------------------------
Administrative fee 32
--------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 201,942
--------------------------------------------------------------------------------------------------
Total liabilities $11,448,878
--------------------------------------------------------------------------------------------------
Net assets $67,939,450
--------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $73,247,101
--------------------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies (280,663)
--------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and
foreign currency transactions (4,703,496)
--------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment
income (323,492)
--------------------------------------------------------------------------------------------------
Net assets $67,939,450
--------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (6,973,083
issued, less 256,600 treasury shares) 6,716,483
--------------------------------------------------------------------------------------------------
Net asset value per share (net assets of $67,939,450/
6,716,483 shares of beneficial interest outstanding) $10.12
--------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------------------------
This statement describes how much your trust received in investment income and
paid in expenses. It also describes any gains and/or losses generated by trust
operations.
FOR YEAR ENDED 10/31/04
NET INVESTMENT INCOME
Income
--------------------------------------------------------------------------------------------------
Interest $4,371,619
--------------------------------------------------------------------------------------------------
Dividends 406,603
--------------------------------------------------------------------------------------------------
Other# 441
--------------------------------------------------------------------------------------------------
Total investment income $4,778,663
--------------------------------------------------------------------------------------------------
Expenses
--------------------------------------------------------------------------------------------------
Management fee $629,950
--------------------------------------------------------------------------------------------------
Trustees' compensation 21,775
--------------------------------------------------------------------------------------------------
Transfer agent and dividend disbursing costs 17,223
--------------------------------------------------------------------------------------------------
Administrative fee 6,253
--------------------------------------------------------------------------------------------------
Custodian fee 31,175
--------------------------------------------------------------------------------------------------
Printing 35,540
--------------------------------------------------------------------------------------------------
Postage 55,545
--------------------------------------------------------------------------------------------------
Auditing fees 35,805
--------------------------------------------------------------------------------------------------
Legal fees 1,632
--------------------------------------------------------------------------------------------------
Miscellaneous 29,952
--------------------------------------------------------------------------------------------------
Total expenses $864,850
--------------------------------------------------------------------------------------------------
Fees paid indirectly (23,575)
--------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (219)
--------------------------------------------------------------------------------------------------
Net expenses $841,056
--------------------------------------------------------------------------------------------------
Net investment income $3,937,607
--------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
--------------------------------------------------------------------------------------------------
Investment transactions $(738,588)
--------------------------------------------------------------------------------------------------
Foreign currency transactions (135,569)
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions $(874,157)
--------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
--------------------------------------------------------------------------------------------------
Investments $5,970,512
--------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies (187,599)
--------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $5,782,913
--------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency $4,908,756
--------------------------------------------------------------------------------------------------
Change in net assets from operations $8,846,363
--------------------------------------------------------------------------------------------------
# A non-recurring accrual recorded as a result of an administrative proceeding regarding
disclosure of brokerage allocation practices in connection with trust sales, as described in the
Legal Proceedings and Transactions with Affiliates footnote.
SEE NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets
resulting from operations, any distributions, and any shareholder
transactions.
FOR YEARS ENDED 10/31 2004 2003
CHANGE IN NET ASSETS
OPERATIONS
Net investment income $3,937,607 $3,875,102
---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions (874,157) 329,387
---------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 5,782,913 16,659,306
--------------------------------------------------------- ------------ ------------
Change in net assets from operations $8,846,363 $20,863,795
--------------------------------------------------------- ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(3,870,737) $(3,749,309)
---------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions -- (1,860,373)
---------------------------------------------------------------------------------------------------
From paid-in capital (2,877,470) --
--------------------------------------------------------- ------------ ------------
Total distributions declared to shareholders $(6,748,207) $(5,609,682)
--------------------------------------------------------- ------------ ------------
Change in net assets from trust share transactions $645,801 $319,029
--------------------------------------------------------- ------------ ------------
Total change in net assets $2,743,957 $(15,573,142)
--------------------------------------------------------- ------------ ------------
NET ASSETS
At beginning of period $65,195,493 $49,622,351
---------------------------------------------------------------------------------------------------
At end of period (including accumulated distributions in
excess of net investment income of $323,492 and $706,120,
respectively) $67,939,450 $65,195,493
---------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the trust's financial performance for the past 5 years
(or, if shorter, the period of the trust's operation). Certain information reflects financial results for a single fund
share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment
in the trust (assuming reinvestment of all distributions) held for the entire period. This information has been audited by
the trust's independent registered public accounting firm, whose report, together with the trust's financial statements, are
included in this report.
YEARS ENDED 10/31
-------------------------------------------------------------------------------
2004 2003 2002 2001 2000
Net asset value, beginning of period $9.80 $7.50 $8.63 $11.67 $14.34
-----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#(S)(S)
Net investment income(S) $0.59 $0.59 $0.71 $0.77 $1.01
-----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.74 2.56 (0.86) (2.16) (1.53)
------------------------------------------- ------ ------ ------ ------ ------
Total from investment operations $1.33 $3.15 $(0.15) $(1.39) $(0.52)
------------------------------------------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.58) $(0.57) $(0.74) $(0.77) $(1.01)
-----------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- (0.28) -- -- (0.95)
-----------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.24) (0.06) (0.01)
-----------------------------------------------------------------------------------------------------------------------------
From paid-in capital (0.43) -- -- (0.82) (0.18)
------------------------------------------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(1.01) $(0.85) $(0.98) $(1.65) $(2.15)
------------------------------------------- ------ ------ ------ ------ ------
Net asset value, end of period $10.12 $9.80 $7.50 $8.63 $11.67
------------------------------------------- ------ ------ ------ ------ ------
Per share market value, end of period $11.60 $10.40 $7.25 $14.30 $13.75
------------------------------------------- ------ ------ ------ ------ ------
Total return at market value(%) 22.56^^ 58.07 (43.54) 16.99 (4.33)
-----------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
YEARS ENDED 10/31
-------------------------------------------------------------------------------
2004 2003 2002 2001 2000
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.28 1.34 1.56 1.53 1.35
-----------------------------------------------------------------------------------------------------------------------------
Net investment income(S)(S) 5.82 6.75 8.39 7.49 7.46
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 72 94 137 49 32
-----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $67,939 $65,195 $49,622 $56,598 $75,545
-----------------------------------------------------------------------------------------------------------------------------
(S) Effective June 7, 2004, the investment adviser has voluntarily agreed to reimburse the trust for its proportional share
of Independent Chief Compliance Officer service fees paid to Tarantino LLC. If this fee had been incurred by the trust,
the net investment income per share and the ratios would have been:
Net investment income $0.59^ $-- $-- $-- $--
-----------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS):
Expenses## 1.28^ -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Net investment income 5.82^ -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
^ The reimbursement impact per share amount and ratios were less than $0.01 and 0.01%, respectively.
^^ The trust's net asset value and total return calculation include a non- recurring accrual recorded as a result of an
administrative proceeding regarding disclosure of brokerage allocation practices in connection with trust sales, as
described in the Legal Proceedings and Transactions with Affiliates footnote. The non-recurring accrual did not have
a material impact on the net asset value per share based on shares outstanding on the day the proceeds were recorded.
(S)(S) As required, effective November 1, 2001, the trust adopted the provisions of the AICPA Audit and Accounting Guide for
Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this
change for the year ended October 31, 2002 was to increase net investment income per share by $0.02, decrease net
realized and unrealized gains and losses per share by $0.02, and increase the ratio of net investment income to
average net assets by 0.49%. Per share, ratios, and supplemental data for periods prior to November 1, 2001 have not
been restated to reflect this change in presentation.
SEE NOTES TO FINANCIAL STATEMENTS
Notes to Financial Statements - continued
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Special Value Trust (the trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a non-diversified, closed-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates. 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 - Bonds and other fixed income securities (other than
short-term obligations) in the trust's portfolio are valued at an evaluated bid
price as reported by an independent pricing service, or to the extent a
valuation is not reported by a pricing service, such securities are valued on
the basis of quotes from brokers and dealers. Prices obtained from pricing
services utilize both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate 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 quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Equity securities in the trust's portfolio
for which market quotations are available are valued at the last sale or
official closing price as reported by an independent pricing service on the
primary market or exchange on which they are primarily traded, or at the last
quoted bid price for securities in which there were no sales during the day.
Equity securities traded over the counter are valued at the last sales price
traded each day as reported by an independent pricing service, or to the extent
there are no sales reported, such securities are valued on the basis of
quotations obtained from brokers and dealers. Forward foreign currency
contracts are valued using spot rates and forward points as reported by an
independent pricing source. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. All other
short-term obligations in the trust's portfolio are valued at amortized cost,
which constitutes market value as determined by the Board of Trustees.
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. When pricing service information or market quotations
are not readily available, securities are priced at fair value as determined
under the direction of the Board of Trustees. For example, significant events
(such as movement in the U.S. securities market, or other regional and local
developments) may occur between the time that foreign markets close (where the
security is principally traded) and the time that the trust calculates its net
asset value (generally, the close of the NYSE) that may impact the value of
securities traded in these foreign markets. In these cases, the trust may
utilize information from an external vendor or other sources to adjust closing
market quotations of foreign equity securities to reflect what it believes to
be the fair value of the securities as of the trust's valuation time. Because
the frequency of significant events is not predictable, fair valuation of
foreign equity securities may occur on a frequent basis.
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 - 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 funds selected by
the Trustee. Deferred amounts represent an unsecured obligation of the trust
until distributed in accordance with the Plan. Included in other assets, and
accrued expenses and other liabilities, is $10,074 of Deferred Trustees'
Compensation.
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 and/or U.S. Treasury securities 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.
On loans collateralized by cash, the cash collateral is invested in a money
market fund or 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. On loans collateralized by
U.S. Treasury securities, a fee is received from the Borrower, and 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.
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 U.S. 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 year ended October 31, 2004, the trust's custodian fees were
reduced by $17,782 under this arrangement. The trust has entered into a
commission recapture agreement, under which certain brokers will credit the
trust a portion of the commissions generated, to offset certain expenses of the
trust. For the year ended October 31, 2004, the trust's miscellaneous expenses
were reduced by $5,793 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 foreign currency transactions, defaulted bonds and amortization
and accretion on debt securities.
The tax character of distributions declared for the years ended October 31,
2004 and October 31, 2003 was as follows:
10/31/04 10/31/03
Distributions declared from:
------------------------------------------------------------------------------
Ordinary income $3,870,737 $5,543,609
------------------------------------------------------------------------------
Long-term capital gain -- 66,073
------------------------------------------------------------------------------
Tax return of capital $2,877,470 --
------------------------------------------------------------------------------
Total distributions declared $6,748,207 $5,609,682
------------------------------------------------------------------------------
During the year ended October 31, 2004, accumulated distributions in excess of
net investment income decreased by $3,193,228, accumulated net realized loss on
investments and foreign currency transactions increased by $669,008, and
paid-in capital decreased by $2,524,220 due to differences between book and tax
accounting for foreign currency transactions, amortization and accretion on
debt securities and defaulted bonds. In addition, $2,877,470 was designated a
tax return of capital distribution. This change had no effect on the net assets
or net asset value per share.
As of October 31, 2004, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(322,473)
----------------------------------------------------------
Unrealized appreciation (depreciation) (4,476,050)
----------------------------------------------------------
Other temporary differences (509,128)
----------------------------------------------------------
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, 2012, ($322,473).
(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.
Management fees incurred for the year ended October 31, 2004 were an effective
rate of 0.93% of average daily net assets on an annualized basis.
The trust pays compensation to its Independent Trustees in the form of a
retainer, attendance fees, and additional compensation to Board and Committee
chairpersons, and pays no compensation directly to its Trustees who are
officers of the investment adviser, or to officers of the trust, all of whom
receive remuneration for their services to the trust from MFS. Certain
officers and Trustees of the trust are officers or directors of MFS and MFS
Service Center, Inc. (MFSC). The trust has an unfunded, defined benefit plan
for retired Independent Trustees and an unfunded retirement benefit deferral
plan for current Independent Trustees. Included in Trustees' compensation is a
net decrease of $98,313 as a result of the change in the trust's unfunded
retirement benefit deferral plan for certain current Independent Trustees and
a pension expense of $6,828 for retired Independent Trustees for the year
ended October 31, 2004.
This trust and certain other MFS funds (the "funds") have entered into a
services agreement (the "Agreement") which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an
Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an
officer of the funds and the sole member of Tarantino LLC. MFS has agreed to
reimburse each of the funds for a proportional share of substantially all of
the payments made by the funds to Tarantino LLC and also to provide office
space and other administrative support and supplies to the ICCO. The funds can
terminate the Agreement with Tarantino LLC at any time under the terms of the
Agreement.
The trust's investment adviser, MFS, has been the subject of an administrative
proceeding regarding disclosure of brokerage allocation practices in connection
with fund sales, as described in the Legal Proceedings Footnote. Pursuant to
the SEC Order, on July 28, 2004, MFS transferred $1.00 in disgorgement and $50
million in penalty to the SEC (the "Payments"). A plan for distribution of
these Payments has been submitted to the SEC. Contemporaneous with the
transfer, the trust accrued an estimate of the amount to be received upon final
approval of the plan of distribution. The non- recurring accrual in the amount
of $441 did not have a material impact on the net asset value per share based
on the shares outstanding on the day the proceeds were recorded.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment advisor. Under an administrative services
agreement between the funds and MFS, MFS is entitled to partial reimbursement
of the costs MFS incurs to provide these services, subject to review and
approval by the Board of Trustees. Each fund is allocated a portion of these
administrative costs based on its size and relative average net assets. Prior
to April 1, 2004, the trust paid MFS an administrative fee up to the following
annual percentage rates 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%
----------------------------------------------------------
Effective April 1, 2004, the trust paid MFS an administrative fee up to the
following annual percentage rates of the trust's average daily net assets:
First $2 billion 0.01120%
----------------------------------------------------------
Next $2.5 billion 0.00832%
----------------------------------------------------------
Next $2.5 billion 0.00032%
----------------------------------------------------------
In excess of $7 billion 0.00000%
----------------------------------------------------------
For the year ended October 31, 2004, the trust paid MFS $6,253, equivalent to
0.0092% of average daily net assets, to partially reimburse MFS for the costs
of providing administrative services.
TRANSFER AGENT - Included in transfer agent and dividend disbursing costs is a
fee paid to MFSC, a wholly owned subsidiary of MFS, for its services 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. These fees amounted to
$14,742 for the year ended October 31, 2004. Also included in transfer agent
and dividend disbursing costs are out-of-pocket expenses, paid to MFSC, which
amounted to $2,481 for the year ended October 31, 2004, as well as other
expenses paid to unaffiliated vendors.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$46,836,049 and $48,968,985, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the trust, as computed on a federal income tax basis, are
as follows:
Aggregate cost $82,523,210
----------------------------------------------------------
Gross unrealized depreciation (6,115,647)
----------------------------------------------------------
Gross unrealized appreciation 1,636,506
----------------------------------------------------------
Net unrealized appreciation (depreciation) $(4,479,141)
----------------------------------------------------------
(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 the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. During the year ended October 31, 2004, the trust did
not repurchase any shares. Transactions in trust shares were as follows:
Year ended 10/31/04 Year ended 10/31/03
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders in
reinvestment of distributions 61,069 $645,801 35,268 $319,029
------------------------------------------------------------------------------
(6) LINE OF CREDIT
The trust and other affiliated funds participate in an $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 Federal
Reserve funds rate plus 0.50%. 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 calendar quarter. The commitment fee
allocated to the trust for the year ended October 31, 2004 was $336, and is
included in miscellaneous expense. The trust had no significant borrowings
during the year ended October 31, 2004.
(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 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
SALES
CONTRACTS TO NET UNREALIZED
DELIVER/ IN EXCHANGE CONTRACTS APPRECIATION
SETTLEMENT DATE RECEIVE FOR AT VALUE (DEPRECIATION)
11/15/04 - 11/22/04 EUR 3,219,793 $3,933,786 $4,118,690 $(184,904)
11/16/04 SEK 2,898,285 384,781 409,814 (25,033)
---------- ---------- ---------
$4,318,567 $4,528,504 $(209,937)
========== ========== =========
PURCHASES
11/22/04 EUR 231,715 $287,588 $296,399 $8,811
11/16/04 SEK 2,399,716 323,835 339,317 15,482
-------- -------- -------
$611,423 $635,716 $24,293
======== ======== =======
At October 31, 2004, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) RESTRICTED SECURITIES
At October 31, 2004, the trust owned the following security, which is subject
to legal or contractual restrictions on resale, excluding securities issued
under Rule 144A, constituting 0.98% 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 security be registered. The value of the
security 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.
DATE OF
DESCRIPTION ACQUISITION PAR COST VALUE
DLJ Mortgage Acceptance
Corp., 8%, 2004 5/31/04 689,537 $689,537 $668,148
-----------------------------------------------------------------------------
(9) LEGAL PROCEEDINGS
On March 31, 2004, MFS settled an administrative proceeding with the Securities
and Exchange Commission ("SEC") regarding disclosure of brokerage allocation
practices in connection with MFS fund sales (the term "MFS funds" means the
open-end registered management investment companies sponsored by MFS). Under
the terms of the settlement, in which MFS neither admitted nor denied any
wrongdoing, MFS agreed to pay (one dollar) $1.00 in disgorgement and $50
million in penalty to certain MFS funds, pursuant to a plan developed by an
independent distribution consultant. The brokerage allocation practices which
were the subject of this proceeding were discontinued by MFS in November 2003.
The agreement with the SEC is reflected in an order of the SEC. Pursuant to the
SEC order, on July 28, 2004, MFS transferred these settlement amounts to the
SEC, and those MFS funds entitled to these settlement amounts accrued an
estimate of their pro rata portion of these amounts. Once the final
distribution plan is approved by the SEC, these amounts will be distributed by
the SEC to the affected MFS funds. The SEC settlement order states that MFS
failed to adequately disclose to the Boards of Trustees and to shareholders of
the MFS funds the specifics of its preferred arrangements with certain
brokerage firms selling MFS fund shares. The SEC settlement order states that
MFS had in place policies designed to obtain best execution of all MFS fund
trades. As part of the settlement, MFS retained an independent compliance
consultant to review the completeness of its current policies and practices
regarding disclosure to MFS fund trustees and to MFS fund shareholders of
strategic alliances between MFS or its affiliates and broker-dealers and other
financial advisers who support the sale of MFS fund shares.
In addition, in February, 2004, MFS reached agreement with the SEC, the New
York Attorney General ("NYAG") and the Bureau of Securities Regulation of the
State of New Hampshire ("NH") to settle administrative proceedings alleging
false and misleading information in certain MFS open-end retail fund ("MFS
retail funds") prospectuses regarding market timing and related matters (the
"February Settlements"). These regulators alleged that prospectus language for
certain MFS retail funds was false and misleading because, although the
prospectuses for those funds in the regulators' view indicated that they
prohibited market timing, MFS did not limit trading activity in 11 domestic
large cap stock, high grade bond and money market retail funds. MFS' former
Chief Executive Officer, John W. Ballen, and former President, Kevin R. Parke,
also reached agreement with the SEC in which they agreed to, among other terms,
monetary fines and temporary suspensions from association with any investment
adviser or registered investment company. Messrs. Ballen and Parke have
resigned their positions with, and will not be returning to, MFS and the MFS
funds. Under the terms of the February Settlements, MFS and the executives
neither admit nor deny wrongdoing.
Under the terms of the February Settlements, a $225 million pool has been
established for distribution to shareholders in certain MFS retail funds, which
has been funded by MFS and of which $50 million is characterized as a penalty.
This pool will be distributed in accordance with a methodology developed by an
independent distribution consultant in consultation with MFS and the Board of
Trustees of the MFS retail funds, and acceptable to the SEC. MFS has further
agreed with NYAG to reduce its management fees in the aggregate amount of
approximately $25 million annually over the next five years, and not to
increase certain management fees during this period. MFS has also paid an
administrative fine to NH in the amount of $1 million, which will be used for
investor education purposes (NH retained $250,000 and $750,000 was contributed
to the North American Securities Administrators Association's Investor
Protection Trust). In addition, under the terms of the February Settlements,
MFS is in the process of adopting certain governance changes and reviewing its
policies and procedures.
Since December 2003, MFS, MFS Fund Distributors, Inc., MFS Service Center,
Inc., MFS Corporation Retirement Committee, Sun Life Financial Inc., various
MFS funds, certain current and/or former Trustees of these MFS funds, and
certain officers of MFS have been named as defendants in multiple lawsuits
filed in federal and state courts. The lawsuits variously have been commenced
as class actions or individual actions on behalf of investors who purchased,
held or redeemed shares of the MFS funds during specified periods, as class
actions on behalf of participants in certain retirement plan accounts, or as
derivative actions on behalf of the MFS funds. The lawsuits relating to market
timing and related matters have been transferred to, and consolidated before,
the United States District Court for the District of Maryland, as part of a
multi-district litigation of market timing and related claims involving several
other fund complexes (In re Mutual Funds Investment Litigation (Alger,
Columbia, Janus, MFS, One Group, Putnam, Allianz Dresdner), No. 1:04-md-15863
(transfer began March 19, 2004)). The plaintiffs in these consolidated lawsuits
generally seek injunctive relief including removal of the named Trustees,
adviser and distributor, rescission of contracts and 12b-1 Plans, disgorgement
of fees and profits, monetary damages, punitive damages, attorney's fees and
costs and other equitable and declaratory relief. Four lawsuits alleging
improper brokerage allocation practices and excessive compensation are pending
in the United States District Court for the District of Massachusetts (Forsythe
v. Sun Life Financial Inc., et al., No. 04cv10584 (GAO) (March 25, 2004);
Eddings v. Sun Life Financial Inc., et al., No. 04cv10764 (GAO) (April 15,
2004); Marcus Dumond, et al. v. Massachusetts Financial Servs. Co., et al., No.
04cv11458 (GAO) (May 4, 2004); and Koslow v. Sun Life Financial Inc., et al.,
No. 04cv11019 (GAO) (May 20, 2004)). The plaintiffs in these lawsuits generally
seek compensatory damages, punitive damages, recovery of fees, rescission of
contracts, an accounting, restitution, declaratory relief, equitable and/or
injunctive relief and attorney's fees and costs. The various lawsuits generally
allege that some or all of the defendants (i) permitted or acquiesced in market
timing and/or late trading in some of the MFS funds, inadequately disclosed
MFS' internal policies concerning market timing and such matters, and received
excessive compensation as fiduciaries to the MFS funds, or (ii) permitted or
acquiesced in the improper use of fund assets by MFS to support the
distribution of MFS fund shares and inadequately disclosed MFS' use of fund
assets in this manner. The actions assert that some or all of the defendants
violated the federal securities laws, including the Securities Act of 1933 and
the Securities Exchange Act of 1934, the Investment Company Act of 1940 and the
Investment Advisers Act of 1940, the Employee Retirement Income Security Act of
1974, as well as fiduciary duties and other violations of common law. Insofar
as any of the actions is appropriately brought derivatively on behalf of any of
the MFS funds, any recovery will inure to the benefit of the MFS funds. The
defendants are reviewing the allegations of the multiple complaints and will
respond appropriately. Additional lawsuits based on similar allegations may be
filed in the future.
Any potential resolution of these matters may include, but not be limited to,
judgments or settlements for damages against MFS, the MFS funds, or any other
named defendant. As noted above, as part of the regulatory settlements, MFS has
established a restitution pool in the amount of $225 million to compensate
certain shareholders of certain MFS retail funds for damages that they
allegedly sustained as a result of market timing or late trading in certain of
the MFS retail funds, and transferred $50 million for distribution to affected
MFS funds to compensate those funds based upon the amount of brokerage
commissions allocated in recognition of MFS fund sales. It is not clear whether
these amounts will be sufficient to compensate shareholders for all of the
damage they allegedly sustained, whether certain shareholders or putative class
members may have additional claims to compensation, or whether the damages that
may be awarded in any of the actions will exceed these amounts. In the event
the MFS funds incur any losses, costs or expenses in connection with such
lawsuits, the Boards of Trustees of the affected MFS funds may pursue claims on
behalf of such funds against any party that may have liability to the funds in
respect thereof.
Review of these matters by the independent Trustees of the MFS funds and their
counsel is continuing. There can be no assurance that these regulatory actions
and lawsuits, or the adverse publicity associated with these developments, will
not result in increased fund redemptions, reduced sales of fund shares, or
other adverse consequences to the MFS funds.
While these developments relate to MFS and the MFS' open-end funds, there can
be no assurance that these developments, or the adverse publicity associated
with these developments, will not result in an increase to the market discount
of the MFS closed-end fund shares or other adverse consequences.
-------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------------------------------
To the Trustees and Shareholders of MFS Special Value Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Special Value Trust (the Fund), including the portfolio of investments, as of
October 31, 2004, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned at October
31, 2004, by correspondence with the custodian and brokers or by other
appropriate auditing procedures where replies from brokers were not received.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Special Value Trust at October 31, 2004, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 10, 2004
---------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS -- IDENTIFICATION AND BACKGROUND
---------------------------------------------------------------------------------------------------------
The Trustees and officers of the trust, as of December 10, 2004, are listed below, together with their
principal occupations during the past five years. (Their titles may have varied during that period.) The
address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS & OTHER
POSITION(s) HELD TRUSTEE/OFFICER DIRECTORSHIPS(2) DURING
NAME, DATE OF BIRTH WITH FUND SINCE(1) THE PAST FIVE YEARS
------------------- ---------------- --------------- ----------------------------------
INTERESTED TRUSTEES
Robert J. Manning(3) Trustee and February 2004 Massachusetts Financial Services
(born 10/20/63) President Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services
(born 08/08/46) Company, Chairman (since February
2004); Harvard Law School
(education), John Olin Visiting
Professor (since July 2002);
Secretary of Economic Affairs, The
Commonwealth of Massachusetts
(January 2002 to December 2002);
Fidelity Investments, Vice
Chairman (June 2000 to December
2001); Fidelity Management &
Research Company (investment
adviser), President (March 1997 to
July 2001); The Bank of New York
(financial services), Director;
Bell Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 05/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 03/11/37) Chief of Cardiac Surgery; Harvard
Medical School, Professor of
Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 05/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director; Southwest Gas
Corporation (natural gas
distribution company), Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 09/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co.,
(born 02/08/53) Inc., Managing Director,
Investment Banking Group (1997 to
February 2001); Borders Group,
Inc. (book and music retailer),
Director; Federal Realty
Investment Trust (real estate
investment trust), Trustee
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 06/23/35) Partner
William J. Poorvu Trustee August 1982 Private investor; Harvard
(born 04/10/35) University Graduate School of
Business Administration, Class of
1961 Adjunct Professor in
Entrepreneurship Emeritus
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 09/23/38) (acquisition planning
specialists), President; Wellfleet
Investments (investor in health
care companies), Managing General
Partner (since 1993); Cambridge
Nutraceuticals (professional
nutritional products), Chief
Executive Officer (until May 2001)
Elaine R. Smith Trustee February 1992 Independent health care industry
(born 04/25/46) consultant
OFFICERS
Robert J. Manning(3) President and February 2004 Massachusetts Financial Services
(born 10/20/63) Trustee Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
James R. Bordewick, Jr.(3) Assistant September 1990 Massachusetts Financial Services
(born 03/06/59) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel
Jeffrey N. Carp(3) Secretary and September 2004 Massachusetts Financial Services
(born 12/01/56) Clerk Company, Senior Vice President,
General Counsel and Secretary
(since April 2004); Hale and Door
LLP (law firm) (prior to April
2004)
Stephanie A. DeSisto(3) Assistant May 2003 Massachusetts Financial Services
(born 10/01/53) Treasurer Company, Vice President (since
April 2003); Brown Brothers
Harriman & Co., Senior Vice
President (November 2002 to April
2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice
President (prior to November 2002)
James F. DesMarais(3) Assistant September 2004 Massachusetts Financial Services
(born 03/09/61) Secretary and Company, Assistant General Counsel
Assistant Clerk
Robert R. Flaherty(3) Assistant August 2000 Massachusetts Financial Services
(born 09/18/63) Treasurer Company, Vice President (since
August 2000); UAM Fund Services,
Senior Vice President (prior to
August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services
(born 08/29/58) Company, Senior Vice President
(since July 2002); The Bank of New
York, Senior Vice President
(September 2000 to July 2002);
Lexington Global Asset Managers,
Inc., Executive Vice President and
Chief Financial Officer (prior to
September 2000); Lexington Funds,
Chief Financial Officer (prior to
September 2000)
Brian T. Hourihan(3) Assistant September 2004 Massachusetts Financial Services
(born 11/11/64) Secretary and Company, Vice President, Senior
Assistant Clerk Counsel and Assistant Secretary
(since June 2004); Affiliated
Managers Group, Inc., Chief Legal
Officer/Centralized Compliance
Program (January to April 2004);
Fidelity Research & Management
Company, Assistant General Counsel
(prior to January 2004)
Ellen Moynihan(3) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Vice President
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 03/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (February
1997 to March 2003)
James O. Yost(3) Assistant September 1990 Massachusetts Financial Services
(born 06/12/60) Treasurer Company, Senior Vice President
------------------
(1) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(3) "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 fund. The
address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
The trust holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are
elected for fixed terms. The Board of Trustees is currently divided into three classes, each having a
term of three years. Each year the term of one class expires. Each Trustee's term of office expires on
the date of the third annual meeting following the election to office of the Trustee's class. Each
Trustee will serve until next elected or his or her earlier death, resignation, retirement or removal.
Messrs. Ives, Poorvu and Sherratt and Ms. Lane are members of the trust's Audit Committee.
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 99 funds within the MFS Family of
Funds.
On October 29, 2004, Robert J. Manning, as Chief Executive Officer of the trust, certified to the New
York Stock Exchange that as of the date of his certification he was not aware of any violation by the
trust of the corporate governance listing standards of the New York Stock Exchange.
The trust filed with the Securities and Exchange Commission the certifications of its principal
executive officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2002 as
an exhibit to the trust's Form N-CSR for the period covered by this report.
---------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA 02110
02116-3741
JP Morgan Chase Bank
DISTRIBUTOR One Chase Manhattan Plaza
MFS Fund Distributors, Inc. New York, NY 10081
500 Boylston Street, Boston, MA
02116-3741 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
PORTFOLIO MANAGERS 200 Clarendon Street, Boston, MA 02116
John Addeo
Scott Richards
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PROXY VOTING POLICIES AND INFORMATION
-------------------------------------------------------------------------------
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the About MFS section of mfs.com or by visiting the SEC's Web site at
http://www.sec. gov.
Information regarding how the trust voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
-------------------------------------------------------------------------------
QUARTERLY PORTFOLIO DISCLOSURE
-------------------------------------------------------------------------------
The trust 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. The trust's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
Washington, D.C. 20549-0102
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-800-SEC-0330. The trust's Form N-Q is available on
the EDGAR database on the Commission's Internet website at http://www.sec.gov,
and copies of this information 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.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
-------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2005, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2004.
For the year ended October 31, 2004, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 7.78%.
The trust hereby designates the maximum amount allowable as qualified dividend
income eligible for a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. Complete information will be
reported in conjunction with your 2004 Form 1099-DIV.
-------------------------------------------------------------------------------
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 8 a.m. to 8 p.m. Eastern time
Write to: State Street Bank and Trust Company
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
NUMBER OF SHAREHOLDERS
As of October 31, 2004, our records indicate that there are 631 registered
shareholders and approximately 5,433 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
c/o MFS Service Center, Inc.
P.O. Box 55024
Boston, MA 02205-5024
1-800-637-2304
[logo] M F S(R)
INVESTMENT MANAGEMENT
(C) 2004 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116
MFV-ANN-12/04 11M
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant's
principal executive officer and principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Mr. J. Atwood Ives and Ms. Amy B. Lane, members of the Audit Committee, have
been determined by the Board of Trustees in their reasonable business judgment
to meet the definition of "audit committee financial expert" as such term is
defined in Form N-CSR. In addition, Mr. Ives and Ms. Lane are both "independent"
members of the Audit Committee as defined in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(A) THROUGH 4(D) AND 4(G):
The Board of Trustees has appointed Ernst & Young LLP ("E&Y") to serve as
independent accountants to the Registrant. The tables below set forth the audit
fees billed to the Registrant as well as fees for non-audit services provided to
the Registrant and/or to the Registrant's investment adviser, Massachusetts
Financial Services Company ("MFS") and to various entities either controlling,
controlled by, or under common control with MFS that provide ongoing services to
the Registrant ("MFS Related Entities").
For the fiscal years ended October 31, 2004 and 2003, audit fees billed to the
Registrant by E&Y were as follows:
Audit Fees
FEES BILLED BY E&Y: 2004 2003
------ ------
MFS Special Value Trust 34,050 32,590
------ ------
TOTAL 34,050 32,590
For the fiscal years ended October 31, 2004 and 2003, fees billed by E&Y for
audit-related, tax and other services provided to the Registrant and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
AUDIT-RELATED FEES(1) TAX FEES(2) ALL OTHER FEES(3)
FEES BILLED BY E&Y: 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
To MFS Special Value 0 0 11,140 6,405 0 0
Trust
To MFS and MFS Related 0 0 0 0 40,000 14,607
Entities relating directly to the
operations and financial
reporting of the above
Registrant*
To Registrant, MFS and MFS 0 0 18,140 6,405 40,000 24,607
Related Entities#
* This amount reflects the fees billed to MFS and MFS Related Entities for
non-audit services relating directly to the operations and financial
reporting of the Registrant (which services also related to the operations
and financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by E&Y for non-audit services
rendered to the Registrant and for non-audit services rendered to MFS and
the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance
and related services that are reasonably related to the performance of the
audit or review of financial statements, but not reported under "Audit
Fees," including accounting consultations, agreed-upon procedure reports,
attestation reports and comfort letters.
(2) The fees included under "Tax Fees" are fees associated with tax compliance,
tax advice and tax planning, including services relating to the filing or
amendment of federal, state or local income tax returns, regulated
investment company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services
provided by E&Y other than those reported under "Audit Fees", "Audit-Related
Fees" and "Tax Fees."
For periods prior to May 6, 2003, the amounts shown above under "Audit-Related
Fees," "Tax Fees" and "All Other Fees" relate to permitted non-audit services
that would have been subject to pre-approval if the Securities and Exchange
Commission's rules relating to pre-approval of non-audit services had been in
effect.
ITEM 4(E)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Funds and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the Audit
Committee and it is not practical to wait to seek pre-approval at the next
regular meeting of the Audit Committee, such pre-approval of services may be
referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(E)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Funds and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after the
start of the engagement with respect to services other than audit review or
attest services, if certain conditions are satisfied).
ITEM 4(F): Not applicable.
ITEM 4(H): The Registrant's Audit Committee has considered whether the provision
by a Registrant's independent registered public accounting firm of non-audit
services to MFS and MFS Related Entities that were not pre-approved by the
Committee (because such services were provided prior to the effectiveness of SEC
rules requiring pre-approval or because such services did not relate directly to
the operations and financial reporting of the Registrant) was compatible with
maintaining the independence of the independent registered public accounting
firm as the Registrant's principal auditors.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit
Committee are Messrs. J. Atwood Ives, William J. Poorvu and J. Dale Sherratt and
Ms. Amy B. Lane.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report to
shareholders of the Registrant under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Trustees and the Board of Managers of the investment companies (the
"MFS Funds") advised by Massachusetts Financial Services Company ("MFS") have
delegated to MFS the right and obligation to vote proxies for shares that are
owned by the MFS Funds, in accordance with MFS' proxy voting policies and
procedures (the "MFS Proxy Policies"). The MFS Proxy Policies are set forth
below:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
SEPTEMBER 17, 2003, AS REVISED ON SEPTEMBER 20, 2004
Massachusetts Financial Services Company, MFS Institutional
Advisors, Inc. and MFS' other investment adviser subsidiaries
(collectively, "MFS") have adopted proxy voting policies and
procedures, as set forth below, with respect to securities owned by the
clients for which MFS serves as investment adviser and has the power to
vote proxies, including the registered investment companies sponsored
by MFS, other than the MFS Union Standard Equity Fund (the "MFS
Funds").
These policies and procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.
A. VOTING GUIDELINES
1. GENERAL POLICY; POTENTIAL CONFLICTS OF INTEREST
MFS' policy is that proxy voting decisions are made in what MFS
believes to be the best long-term economic interests of MFS' clients, and not in
the interests of any other party or in MFS' corporate interests, including
interests such as the distribution of MFS Fund shares, administration of 401(k)
plans, and institutional relationships.
MFS has carefully reviewed matters that in recent years have been
presented for shareholder vote by either management or shareholders of public
companies. Based on the guiding principle that all votes made by MFS on behalf
of its clients must be in what MFS believes to be the best long-term economic
interests of such clients, MFS has adopted proxy voting guidelines, which are
set forth below, that govern how MFS generally plans to vote on specific matters
presented for shareholder vote. In all cases, MFS will exercise its discretion
to vote these items in accordance with this guiding principle. These underlying
guidelines are simply that - guidelines. Each proxy item is considered on a
case-by-case basis, in light of all relevant facts and circumstances, and there
may be instances in which MFS may vote proxies in a manner different from these
guidelines.
As a general matter, MFS maintains a consistent voting position with
respect to similar proxy proposals made by various issuers. In addition, MFS
generally votes consistently on the same matter when securities of an issuer are
held by multiple client accounts. However, MFS recognizes that there are
gradations in certain types of proposals that might result in different voting
positions being taken with respect to the different proxy statements. There also
may be situations involving matters presented for shareholder vote that are not
clearly governed by the guidelines, such as proposed mergers and acquisitions.
Some items that otherwise would be acceptable will be voted against the
proponent when it is seeking extremely broad flexibility without offering a
valid explanation. MFS reserves the right to override the guidelines with
respect to a particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the guiding principle of voting proxies in the best
long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines and
regarding particular voting issues from its clients. Those comments are reviewed
and considered periodically, and these guidelines are reviewed each year with
MFS Equity Research Department management, the MFS Proxy Review Group and the
MFS Proxy Consultant and are revised as appropriate.
These policies and procedures are intended to address any potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. MFS
shall be mindful of any and all potential material conflicts of interest that
could arise in the voting of these proxies, shall identify, analyze, document
and report on any such potential conflicts, and shall ultimately vote these
proxies in what MFS believes to be the best long-term economic interests of its
clients. The MFS Proxy Review Group is responsible for monitoring and reporting
on all potential conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
NON-SALARY COMPENSATION PROGRAMS
Managements have become increasingly creative and generous with
compensation programs involving common stock. The original stock option plans,
which called for the optionee to pay the money to exercise the option, are now
embellished with no risk benefits such as stock appreciation rights, the use of
unexercised options to "buy" stock, and restricted stock at bargain prices.
Stock option plans are supposed to reward results rather than tenure,
so the use of restricted stock at bargain prices is not favored. In some cases,
restricted stock is granted to the recipient at deep discounts to fair market
value, sometimes at par value. The holder cannot sell for a period of years, but
in the meantime is able to vote and receive dividends. Eventually the
restrictions lapse and the stock can be sold.
MFS votes against option programs for officers, employees or
non-employee directors that do not require an investment by the optionee, that
give "free rides" on the stock price, or that permit grants of restricted stock
at deep discounts to fair market value. MFS generally votes against stock option
plans that involve stock appreciation rights or the use of unexercised options
to "buy" stock.
MFS opposes plans that provide unduly generous compensation for
officers, directors or employees, or could result in excessive dilution to other
shareholders. As a general guideline, MFS votes against stock option plans if
all such plans for a particular company involve potential dilution, in the
aggregate, of more than 15%.
MFS votes in favor of stock option plans for non-employee directors as
long as they satisfy the requirements set forth above with respect to stock
option plans for employees. Stock option plans that include options for
consultants and other third parties not involved in the management of the
company generally are opposed by MFS.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted proxy
proposals that would require shareholder approval of any severance packages for
executive officers that exceed certain predetermined thresholds. MFS votes in
favor of such shareholder proposals when they would require shareholder approval
of any severance package for an executive officer that exceeds a certain
percentage of such officer's annual compensation. When put to a vote, MFS votes
against very large golden parachutes.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits capital
appreciation in a stock, including a possible takeover and any proposal that
protects management from action by shareholders. These types of proposals take
many forms, ranging from "poison pills" and "shark repellents" to board
classification and super-majority requirements.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company under the
laws of a different state, or to effect some other type of corporate
reorganization, MFS considers the underlying purpose and ultimate effect of such
a proposal in determining whether or not to support such a measure. While MFS
generally votes in favor of management proposals that it believes are in the
best long-term economic interests of its clients, MFS may oppose such a measure
if, for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
DILUTION
There are many reasons for issuance of stock and most are legitimate.
As noted above under "Non-Salary Compensation Programs", when a stock option
plan (either individually or when aggregated with other plans of the same
company) would substantially dilute the existing equity (e.g., by approximately
15% or more), MFS generally votes against the plan. In addition, MFS votes
against proposals where management is asking for authorization to issue common
or preferred stock with no reason stated (a "blank check") because the
unexplained authorization could work as a potential anti-takeover device.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder voting
results are kept confidential. For example, MFS supports proposals that would
prevent management from having access to shareholder voting information that is
compiled by an independent proxy tabulation firm.
INDEPENDENCE OF BOARDS OF DIRECTORS AND COMMITTEES THEREOF
While MFS acknowledges the potential benefits of a company's inclusion
of directors who are "independent" from management, MFS generally opposes
shareholder proposals that would require that a majority (or a "super-majority")
of a company's board be comprised of "independent" directors. Such proposals
could inappropriately reduce a company's ability to engage in certain types of
transactions, could result in the exclusion of talented directors who are not
deemed "independent", or could result in the unnecessary addition of additional
"independent" directors to a company's board. However, in view of the special
role and responsibilities of various committees of a board of directors, MFS
supports proposals that would require that the Audit, Nominating and
Compensation Committees be comprised entirely of directors who are deemed
"independent" of the company.
INDEPENDENT AUDITORS
Recently, some shareholder groups have submitted proposals to limit the
non-audit activities of a company's audit firm. Some proposals would prohibit
the provision of any non-audit services (unless approved in advance by the full
board) whereas other proposals would cap non-audit fees so that such fees do not
exceed a certain percentage of the audit fees. MFS supports such shareholder
proposals that would cap non-audit fees at an amount deemed to be not excessive.
BEST PRACTICES STANDARDS
Best practices standards are rapidly evolving in the corporate
governance areas as a result of recent corporate failures, the Sarbanes-Oxley
Act of 2002 and revised listing standards on major stock exchanges. MFS
generally support these changes. However, many issuers are not publicly
registered, are not subject to these enhanced listing standards or are not
operating in an environment that is comparable to that in the United States. In
reviewing proxy proposals under these circumstances, MFS votes for proposals
that enhance standards of corporate governance so long as we believe that --
within the circumstances of the environment within which the issuers operate -
the proposal is consistent with the best long-term economic interests of our
clients.
FOREIGN ISSUERS - SHARE BLOCKING
In accordance with local law or business practices, many foreign
companies prevent the sales of shares that have been voted for a certain period
beginning prior to the shareholder meeting and ending on the day following the
meeting ("share blocking"). Depending on the country in which a company is
domiciled, the blocking period may begin a stated number of days prior to the
meeting (e.g., one, three or five days) or on a date established by the company.
While practices vary, in many countries the block period can be continued for a
longer period if the shareholder meeting is adjourned and postponed to a later
date. Similarly, practices vary widely as to the ability of a shareholder to
have the "block" restriction lifted early (e.g., in some countries shares
generally can be "unblocked" up to two days prior to the meeting whereas in
other countries the removal of the block appears to be discretionary with the
issuer's transfer agent). Due to these restrictions, MFS must balance the
benefits to its clients of voting proxies against the potentially serious
portfolio management consequences of a reduced flexibility to sell the
underlying shares at the most advantageous time. For companies in countries with
potentially long block periods, the disadvantage of being unable to sell the
stock regardless of changing conditions generally outweighs the advantages of
voting at the shareholder meeting for routine items. Accordingly, MFS generally
will not vote those proxies in the absence of an unusual, significant vote.
Conversely, for companies domiciled in countries with very short block periods,
MFS generally will continue to cast votes in accordance with these policies and
procedures.
SOCIAL ISSUES
There are many groups advocating social change, and many have chosen
the publicly-held corporation as a vehicle for their agenda. Common among these
are resolutions requiring the corporation to refrain from investing or
conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to report on various activities.
MFS votes against such proposals unless their shareholder-oriented benefits will
outweigh any costs or disruptions to the business, including those that use
corporate resources to further a particular social objective outside the
business of the company or when no discernible shareholder economic advantage is
evident.
The laws of various states may regulate how the interests of certain
clients subject to those laws are voted. For example, the General Laws of The
Commonwealth of Massachusetts prohibit the investment of state funds, including
retirement system assets, in the following types of investments: (i) financial
institutions which directly or through any subsidiary have outstanding loans to
any individual or corporation engaged in manufacturing, distribution or sale of
firearms, munitions, rubber or plastic bullets, tear gas, armored vehicles or
military aircraft for use or deployment in any activity in Northern Ireland; or
(ii) any stocks, securities or obligations of any company so engaged.
Because of these statutory restrictions, it is necessary when voting
proxies for securities held in Massachusetts public pension accounts to support
the purpose of this legislation. Thus, on issues relating to these or similar
state law questions, it may be necessary to cast ballots differently for these
portfolios than MFS might normally do for other accounts.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY REVIEW GROUP
The administration of these policies and procedures is overseen by the
MFS Proxy Review Group, which includes senior MFS Legal Department officers and
MFS' Proxy Consultant. The MFS Proxy Review Group:
a. Reviews these policies and procedures at least annually and
recommends any amendments considered to be necessary or
advisable;
b. Determines whether any material conflicts of interest exist with
respect to instances in which (i) MFS seeks to override these
guidelines and (ii) votes not clearly governed by these
guidelines; and
c. Considers special proxy issues as they may arise from time to
time.
The current MFS Proxy Consultant is an independent proxy consultant who
performs these services exclusively for MFS.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Review Group is responsible for monitoring potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. Any
attempt to influence MFS' voting on a particular proxy matter should be reported
to the MFS Proxy Review Group. The MFS Proxy Consultant will assist the MFS
Proxy Review Group in carrying out these responsibilities.
In cases where proxies are voted in accordance with these policies and
guidelines, no conflict of interest will be deemed to exist. In cases where (i)
MFS is considering overriding these policies and guidelines, or (ii) matters
presented for vote are not clearly governed by these policies and guidelines,
the MFS Proxy Review Group and the MFS Proxy Consultant will follow these
procedures:
a. Compare the name of the issuer of such proxy against a list of
significant current and potential (i) distributors of MFS Fund
shares, (ii) retirement plans administered by MFS, and (iii) MFS
institutional clients (the "MFS Significant Client List");
b. If the name of the issuer does not appear on the MFS Significant
Client List, then no material conflict of interest will be deemed
to exist, and the proxy will be voted as otherwise determined by
the MFS Proxy Review Group;
c. If the name of the issuer appears on the MFS Significant Client
List, then the MFS Proxy Review Group will carefully evaluate the
proposed votes in order to ensure that the proxy ultimately is
voted in what MFS believes to be the best long-term economic
interests of MFS' clients, and not in MFS' corporate interests;
and
d. For all potential material conflicts of interest identified under
clause (c) above, the MFS Proxy Review Group will document: the
name of the issuer, the issuer's relationship to MFS, the
analysis of the matters submitted for proxy vote, and the basis
for the determination that the votes ultimately were cast in what
MFS believes to be the best long-term economic interests of MFS'
clients, and not in MFS' corporate interests.
The MFS Proxy Review Group is responsible for creating and maintaining
the MFS Significant Client List, in consultation with MFS' distribution,
retirement plan administration and institutional business units. The MFS
Significant Client List will be reviewed and updated as necessary, but no less
frequently than quarterly.
3. GATHERING PROXIES
Nearly all proxies received by MFS originate at Automatic Data
Processing Corp. ("ADP"). ADP and issuers send proxies and related material
directly to the record holders of the shares beneficially owned by MFS' clients,
usually to the client's custodian or, less commonly, to the client itself. Each
client's custodian is responsible for forwarding all proxy solicitation
materials to MFS (except in the case of certain institutional clients for which
MFS does not vote proxies). This material will include proxy cards, reflecting
the proper shareholdings of Funds and of clients on the record dates for such
shareholder meetings, and proxy statements, the issuer's explanation of the
items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an agreement
with an independent proxy administration firm, Institutional Shareholder
Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy
Administrator performs various proxy vote processing and recordkeeping functions
for MFS' Fund and institutional client accounts. The Proxy Administrator does
not make recommendations to MFS as to how to vote any particular item. The Proxy
Administrator receives proxy statements and proxy cards directly from various
custodians, logs these materials into its database and matches upcoming meetings
with MFS Fund and client portfolio holdings, which are input into the Proxy
Administrator's system by an MFS holdings datafeed. Through the use of the Proxy
Administrator system, ballots and proxy material summaries for the upcoming
shareholders' meetings of over 10,000 corporations are available on-line to
certain MFS employees, the MFS Proxy Consultant and the MFS Proxy Review Group
and most proxies can be voted electronically. In addition to receiving the hard
copies of materials relating to meetings of shareholders of issuers whose
securities are held by the Funds and/or clients, the ballots and proxy
statements can be printed from the Proxy Administrator's system and forwarded
for review.
4. ANALYZING PROXIES
After input into the Proxy Administrator system, proxies which are
deemed to be completely routine (e.g., those involving only uncontested
elections of directors, appointments of auditors, and/or employee stock purchase
plans)(1) are automatically voted in favor by the Proxy Administrator without
being sent to either the MFS Proxy Consultant or the MFS Proxy Review Group for
further review. Proxies that pertain only to merger and acquisition proposals
are forwarded initially to an appropriate MFS portfolio manager or research
analyst for his or her recommendation. All proxies that are reviewed by either
the MFS Proxy Consultant or a portfolio manager or analyst are then forwarded
with the corresponding recommendation to the MFS Proxy Review Group.(2)
---------------
(1) Proxies for foreign companies often contain significantly more voting items
than those of U.S. companies. Many of these items on foreign proxies involve
repetitive, non-controversial matters that are mandated by local law.
Accordingly, there is an expanded list of items that are deemed routine (and
therefore automatically voted in favor) for foreign issuers, including the
following: (i) receiving financial statements or other reports from the
board; (ii) approval of declarations of dividends; (iii) appointment of
shareholders to sign board meeting minutes; (iv) the discharge of management
and supervisory boards; and (v) approval of share repurchase programs.
(2) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group will determine the vote in
what MFS believes to be the best long-term economic interests of its
clients.
Recommendations with respect to voting on non-routine issues are
generally made by the MFS Proxy Consultant in accordance with the policies
summarized under "Voting Guidelines," and all other relevant materials. His or
her recommendation as to how each proxy proposal should be voted is indicated on
copies of proxy cards, including his or her rationale on significant items.
These cards are then forwarded to the MFS Proxy Review Group.
As a general matter, portfolio managers and investment analysts are
consulted and involved in developing MFS' substantive proxy voting guidelines,
but have little or no involvement in or knowledge of proxy proposals or voting
positions taken by MFS. This is designed to promote consistency in the
application of MFS' voting guidelines, to promote consistency in voting on the
same or similar issues (for the same or for multiple issuers) across all client
accounts, and to minimize or remove the potential that proxy solicitors,
issuers, and third parties might attempt to exert influence on the vote or might
create a conflict of interest that is not in what MFS believes to be the best
long-term economic interests of our clients. In limited, specific instances
(e.g., mergers), the MFS Proxy Consultant or the MFS Proxy Review Group may
consult with or seek recommendations from portfolio managers or analysts. The
MFS Proxy Review Group would ultimately determine the manner in which all
proxies are voted.
As noted above, MFS reserves the right to override the guidelines when
such an override is, in MFS' best judgment, consistent with the guiding
principle of voting proxies in the best long-term economic interests of MFS'
clients. Any such override of the guidelines shall be examined, explained and
reported in accordance with the procedures set forth in these policies.
5. VOTING PROXIES
After the proxy card copies are reviewed, they are voted electronically
through the Proxy Administrator's system. In accordance with its contract with
MFS, the Proxy Administrator also generates a variety of reports for the MFS
Proxy Consultant and the MFS Proxy Review Group, and makes available on-line
various other types of information so that the MFS Proxy Review Group and the
MFS Proxy Consultant may monitor the votes cast by the Proxy Administrator on
behalf of MFS' clients.
C. MONITORING SYSTEM
It is the responsibility of the Proxy Administrator and MFS' Proxy
Consultant to monitor the proxy voting process. As noted above, when proxy
materials for clients are received, they are forwarded to the Proxy
Administrator and are input into the Proxy Administrator's system. Additionally,
through an interface with the portfolio holdings database of MFS, the Proxy
Administrator matches a list of all MFS Funds and clients who hold shares of a
company's stock and the number of shares held on the record date with the Proxy
Administrator's listing of any upcoming shareholder's meeting of that company.
When the Proxy Administrator's system "tickler" shows that the date of
a shareholders' meeting is approaching, a Proxy Administrator representative
checks that the vote for MFS Funds and clients holding that security has been
recorded in the computer system. If a proxy card has not been received from the
client's custodian, the Proxy Administrator calls the custodian requesting that
the materials be forward immediately. If it is not possible to receive the proxy
card from the custodian in time to be voted at the meeting, MFS may instruct the
custodian to cast the vote in the manner specified and to mail the proxy
directly to the issuer.
D. RECORDS RETENTION
MFS will retain copies of these policies and procedures in effect from
time to time and will retain all proxy voting reports submitted to the Board of
Trustees and Board of Managers of the MFS Funds for a period of six years. Proxy
solicitation materials, including electronic versions of the proxy cards
completed by the MFS Proxy Consultant and the MFS Proxy Review Group, together
with their respective notes and comments, are maintained in an electronic format
by the Proxy Administrator and are accessible on-line by the MFS Proxy
Consultant and the MFS Proxy Review Group. All proxy voting materials and
supporting documentation, including records generated by the Proxy
Administrator's system as to proxies processed, the dates when proxies were
received and returned, and the votes on each company's proxy issues, are
retained for six years.
E. REPORTS
MFS FUNDS
Periodically, MFS will report the results of its voting to the Board of
Trustees and Board of Managers of the MFS Funds. These reports will include: (i)
a listing of how votes were cast; (ii) a review of situations where MFS did not
vote in accordance with the guidelines and the rationale therefor; (iii) a
review of the procedures used by MFS to identify material conflicts of interest;
and (iv) a review of these policies and the guidelines and, as necessary or
appropriate, any proposed modifications thereto to reflect new developments in
corporate governance and other issues. Based on these reviews, the Trustees and
Managers of the MFS Funds will consider possible modifications to these policies
to the extent necessary or advisable.
ALL MFS ADVISORY CLIENTS
At any time, a report can be printed by MFS for each client who has
requested that MFS furnish a record of votes cast. The report specifies the
proxy issues which have been voted for the client during the year and the
position taken with respect to each issue.
Generally, MFS will not divulge actual voting practices to any party
other than the client or its representatives (unless required by applicable law)
because we consider that information to be confidential and proprietary to the
client.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
======================================================================================================================
MFS SPECIAL VALUE TRUST
----------------------------------------------------------------------------------------------------------------------
(D) MAXIMUM NUMBER (OR
(A) TOTAL (C) TOTAL NUMBER OF SHARES APPROXIMATE DOLLAR VALUE)
NUMBER OF (B) AVERAGE PURCHASED AS PART OF OF SHARES THAT MAY YET BE
SHARES PRICE PAID PER PUBLICLY ANNOUNCED PURCHASED UNDER THE PLANS
PRIOR PURCHASED PER SHARE PLANS OR PROGRAMS OR PROGRAMS
======================================================================================================================
11/01/03 - 11/30/03 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
12/01/03 - 12/31/03 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
01/01/04 - 01/31/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
02/01/04 - 02/28/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
03/01/04 - 03/31/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
04/01/04 - 04/30/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
05/01/04 - 05/31/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
06/01/04 - 06/30/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
07/01/04 - 07/31/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
08/01/04 - 08/31/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
09/01/04 - 09/30/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
10/01/04 - 10/31/04 0 0 0 662,015
----------------------------------------------------------------------------------------------------------------------
Totals/Year 0 0 0
======================================================================================================================
Note: The Board of Trustees approves procedures to repurchase shares annually.
The notification to shareholders of the program is part of the semi-annual and
annual reports sent to shareholders. These annual programs begin on March 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 (March 1 through the following February
28) to 10% of the Registrant's outstanding shares as of the first day of the
plan year (March 1). The aggregate number of shares available for purchase for
the March 1, 2004 plan year are 662,015.
For the year ended October 31, 2004, no shares of the Registrant have been
repurchased pursuant to the plans described above.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Trustees of the Registrant has adopted procedures by which
shareholders may send communications, including recommendations to the Board for
nominees to the Registrant's Board. Shareholders may mail written
recommendations to the Board to the attention of the Board of Trustees, MFS
Special Value Trust, Massachusetts Financial Services Company, 500 Boylston
Street, Boston, MA 02116, c/o , Jeffrey N. Carp, Secretary of the Trust.
Shareholder communications must be in writing and be signed by the shareholder
and identify the series of the Registrant to which they relate. Such
recommendations must be accompanied by the candidate's biographical and
occupational data (including whether the candidate would be an "interested
person" of the Registrant), a written consent of the candidate to be named as a
nominee and to serve as Trustee if elected, record and ownership information for
the recommending shareholder with respect to the series of the Registrant to
which the recommendation relates and a description of any arrangements or
understandings regarding recommendation of the candidate for consideration.
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 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. 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: Code of
Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(3)Any written solicitation to purchase securities under Rule 23c-1 under
the Act sent or given during the period covered by the report by or on
behalf of the Registrant to 10 or more persons. Not applicable.
(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.
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)* ROBERT J. MANNING
----------------------------------------------------
Robert J. Manning, President
Date: December 21, 2004
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)* ROBERT J. MANNING
-----------------------------------------------------
Robert J. Manning, President
(Principal Executive Officer)
Date: December 21, 2004
By (Signature and Title)* RICHARD M. HISEY
----------------------------------------------------
Richard M. Hisey, Treasurer (Principal
Financial Officer and Accounting Officer)
Date: December 21, 2004
-----------------
* Print name and title of each signing officer under his or her signature.