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, 2003
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Date of reporting period: April 30, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
SEMIANNUAL REPORT 4/30/04
MFS(R) SPECIAL VALUE TRUST
A path for pursuing opportunity
[graphic omitted]
[logo] M F S(R)
INVESTMENT MANAGEMENT
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MFS(R) SPECIAL VALUE TRUST
The trust seeks to maintain an annual distribution rate of 10% based on its
average daily net asset value (NAV), while seeking opportunities for capital
appreciation.
New York Stock Exchange Symbol: MFV
TABLE OF CONTENTS
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MFS PRIVACY POLICY
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LETTER FROM THE CEO 1
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MFS ORIGINAL RESEARCH(R) 5
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MANAGEMENT REVIEW 6
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PORTFOLIO MANAGER'S PROFILE 9
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PERFORMANCE SUMMARY 10
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 12
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PORTFOLIO OF INVESTMENTS 13
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FINANCIAL STATEMENTS 24
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NOTES TO FINANCIAL STATEMENTS 29
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TRUSTEES AND OFFICERS 39
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CONTACT INFORMATION 43
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LETTER FROM THE CEO
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Dear Shareholders,
[Photo of Robert J. Manning]
Our firm was built on the strength of MFS Original Research(R), our in-depth
analysis of every security we consider for our portfolios. We've been honing
this process since 1932, when we created one of the mutual fund industry's
first research departments. And we continue to fine-tune this process so that
we can provide strong and consistent long-term investment performance to help
you achieve your financial goals.
While we have achieved strong investment performance in many of our
portfolios, our goal is to achieve the same strong results across all asset
classes. To ensure that our portfolio teams are doing the best possible job
for our firm's clients and shareholders, I am focusing the vast majority of my
time on the three key elements that I believe truly differentiate MFS from its
competitors: people, process, and culture.
PEOPLE
Our people have always been our most valuable resource. Our philosophy is to
deliver consistent, repeatable investment results by hiring the most talented
investors in our industry. We recruit from the nation's top business schools
and hire experienced analysts, both domestically and around the globe.
Our analysts are the engine that powers our entire investment team because
their recommendations have a direct impact on the investment performance of
our portfolios. To demonstrate our ongoing commitment in this area, we
increased the number of equity analysts at MFS from less than 40 at the end of
2000 to over 50 in April 2004. During that same period, we doubled the average
investment experience of our new domestic equity analysts, from
2.6 years to 5.3 years, by recruiting more seasoned analysts to the firm.
Moreover, our international network of investment personnel now spans key
regions of the world with offices in London, Mexico City, Singapore, and
Tokyo, as well as Boston.
One of the major advantages that MFS has over many of its competitors is that
the position of research analyst is a long-term career for many members of our
team, not simply a steppingstone toward becoming a portfolio manager. We have
worked to elevate the stature of the analyst position to be on par with that
of a portfolio manager. In fact, an exceptional research analyst has the
opportunity to earn more at MFS than some portfolio managers.
At the same time, we look within the firm to promote talented analysts who
choose a path toward becoming a portfolio manager. We rarely hire portfolio
managers from our competitors because we believe the best investors are those
steeped in the MFS process and culture. In the past few months, we have
identified four senior research analysts who will assume roles on the
management teams of several of our larger portfolios. MFS is fortunate to have
a deep bench of talented investment personnel, and we welcome the opportunity
to put their skills to work for our clients.
PROCESS
MFS was built on the strength of its bottom-up approach to researching
securities. We have enhanced the mentoring process for our research analysts
by calling on several of our most seasoned portfolio managers to supplement
the work of Director of Global Equity Research David A. Antonelli. These
portfolio managers will be taking a special interest in developing the careers
of our research analysts and strengthening our investment process. Kenneth J.
Enright of our value equity group will work with a team of domestic analysts;
David E. Sette-Ducati of our small- and mid-cap equity team will work with
analysts concentrating on small- and mid-cap companies; and Barnaby Wiener of
our international equity team in London heads the European equity research
team.
We have combined the bottom-up approach of our research process with a top-
down approach to risk controls on portfolio composition. We have a very strong
quantitative team under the leadership of industry veteran Deborah H. Miller,
who represents the equity management department on the Management Committee of
the firm. Quantitative analysis helps us generate investment ideas and, more
importantly, assess the appropriate level of risk for each portfolio. The risk
assessment is designed to assure that each portfolio operates within its
investment objectives.
Additionally, we have increased the peripheral vision of our investment
personnel across asset classes through the collaboration of our Equity, Fixed
Income, Quantitative Analysis, and Risk Management teams. We recently codified
this key aspect of our culture by forming an Investment Management Committee,
composed of key members of these teams. This Committee will work to ensure
that all teams are sharing information, actively debating investment ideas,
and creating a unified investment team.
CULTURE
Teamwork is at the heart of our ability to deliver consistent and competitive
investment performance over time. At MFS, each member of our team is involved
in our success; we have no superstars. The collaborative nature of our process
works to assure a consistent investment approach across all of our products
and provides a high level of continuity in portfolio management because our
investment performance never depends on the contributions of just a single
individual. Our culture is based on an environment of teamwork that allows our
investment personnel to be successful. In turn, we demand superior investment
results from every member of our team.
We have created a meritocracy at our firm based on investment results. We hold
all of our portfolio managers accountable for the performance of their
portfolios and their contributions to the team. We also track the equity and
fixed-income ratings of our analysts so we can evaluate them based on the
performance of their recommendations. We align bonus compensation to
investment performance by weighting rewards to those who have created the
greatest long-term benefit for our shareholders and who contribute most
successfully to the Original Research(SM) process.
The strength of our culture has resulted in a tremendous amount of stability,
both in terms of people and assets under management. Although we have dismissed
members of our team whose performance did not meet MFS" high standards, only
one member of our investment team has voluntarily left the firm over the past
six months, based on a decision to retire from the industry. Similarly, our
firm's assets under management have remained quite steady in the midst of a
challenging enveronment.
In short, we can help you achieve your financial goals by hiring talented
people, following a disciplined process, and maintaining our firm's unique
culture. The recent enhancements described in this letter reflect the
collaborative spirit and the depth of resources in our investment teams.
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
MFS Investment Management(R)
May 19, 2004
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
The opinions expressed in this letter are those of MFS, and no forecasts can
be guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE MFS(R) DIFFERENCE
For 80 years MFS has been offering investors clear paths to pursuing specific
investment objectives. Today, millions of individuals and thousands of
institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers" ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies" customers and competitors
o developing our own proprietary estimates of companies" earnings
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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
During the six-month period that ended April 30, 2004, the bond market was
highlighted by a continuation of low interest rates, high bond prices, and
solid returns for bond investors. However, the market began to change rapidly
toward the end of the period, following a string of strong economic numbers
and reports in March and April of rapid improvement in the U.S. employment
market. Improving economic indicators and better employment numbers set the
stage for rising interest rates and declining prices for bonds. These
conditions were exacerbated by the expectation that the U.S. Federal Reserve
Board (the Fed) would raise interest rates sometime in the near future.
Together, the improving economic and employment outlook and the expectation of
rising interest rates led to declining bond prices and lower returns for bond
investors late in the period.
The turnaround in global stock markets that began in the spring of 2003
continued for much of the reporting period. This rally was driven by
increasingly positive global economic numbers as the period progressed,
particularly with regard to business confidence and corporate earnings. By late
2003, corporate capital spending, which had been weak for several years, had
also begun to accelerate. Another driver of the equity rally, in our view, was
the decision by most central banks worldwide to leave interest rates at
near-historic lows throughout the period. Toward the end of the period, however,
a combination of several factors, in our view, including the expectation of Fed
rate increase, started to dampen stock returns. The March train bombings in
Spain brought geopolitical concerns back to the forefront of investors" minds.
In addition, oil prices that approached $40 per barrel in late April raised
concerns that high energy costs could become a significant drag on the global
recovery.
CONTRIBUTORS TO PERFORMANCE
Exposure to debt issued by cable companies was a leading contributor to
performance during the reporting period. Many companies in this sector had
performed poorly in 2002. However, the sector proved to be remarkably
resilient: starting in 2003, and continuing into the reporting period, we saw
a dramatic rise in value of the underlying assets of many of these companies.
In particular, we saw a rebound in the market value per subscriber of many
cable companies. In previous periods, the market had depressed these values
because of fears over competition from areas such as satellite television
services. However, cable companies benefited during the period from the
growing popularity of cable-based, high-speed internet services. In addition,
many of these companies gained more access to the capital markets during the
period and were able to refinance their debt. This in turn attracted new
investors and drove up the value of cable industry bonds. In particular, the
trust benefited from exposure to Adelphia Communications and Charter
Communications. Adelphia was emerging from bankruptcy and returned a full par
claim on its bonds. Charter's bond prices have improved as the company has
accessed capital markets to extend maturities and improve liquidity.
We also held the bonds of a number of commodity chemicals firms which
contributed significantly to performance. Among these were Huntsman and IMC
Global. The industry benefited from generally improving fundamentals and from
increased mergers and acquisition activity. IMC Global, for example, was
acquired by a subsidiary of Cargill, and that acquisition drove up the price
of its bonds.
Among the equity assets in the portfolio, an overweight position in utilities
& communications firms provided the biggest contribution to performance. AT&T
Wireless, for example, was the largest individual contributor to positive
performance in the portfolio, as it was purchased during the period by
Cingular Wireless at a hefty premium. Cingular is a joint venture of SBC
Communications and Bell South. As of period end, its acquisition of AT&T
Wireless had been announced but not yet completed. AT&T stock has since been
sold from the portfolio.
DETRACTORS FROM PERFORMANCE
A combination of security selection and an underweighted position in European
bonds was a primary detractor from relative returns compared to our benchmark,
the Lehman Brothers High Yield Bond Index. A bond rally in Europe continued
throughout the period as investors looked at the slow pace of economic growth
in European countries and surmised that interest rates would remain low for
the foreseeable future. Our position in Parmalat, an Italian dairy firm, was
the single largest detractor from relative performance. This bond is no longer
held in the portfolio.
Two significant individual detractors from relative performance were our
positions in Dobson Communications and WorldCom. The wireline segment of the
telecommunications industry generally performed poorly during the period, and
WorldCom suffered additional problems. Namely, the company did not emerge from
bankruptcy as quickly as many investors had hoped. The stock has since been
sold out of the portfolio.
Among equities held by the trust, our selection of stocks in the retailing
sector was the biggest detractor from performance, and retailer Sears, Roebuck
& Co. was the biggest individual detractor among all the stocks held in the
portfolio. Sears struggled during the holiday shopping season and then faced
further disappointment in the sales of its Land's End line of products. The
stock was sold out of the portfolio by the end of the period.
Respectfully,
/s/ John F. Addeo
John F. Addeo
Portfolio Manager
The views expressed in this report are those of the portfolio manager 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 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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Visit mfs.com for our latest economic and investment outlook.
o Under Updates & Announcements, click Week in Review for a summary of recent
investment-related news.
o From Week in Review, link to MFS Global Investment Perspective for our current
view of the world.
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PORTFOLIO MANAGER'S PROFILE
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John F. Addeo, CFA, is Vice President and Associate Director of Fixed Income
Research of MFS Investment Management(R) (MFS(R)) and portfolio manager of the
high-yield bond portfolios of our mutual funds, variable annuities, offshore
accounts and closed-end funds. John joined MFS as a research analyst in 1998.
He became Vice President in 1999, associate portfolio manager in 2000, and
portfolio manager in 2001. He was named Associate Director of Fixed Income
Research in 2004. Previously, he was a quantitative analyst and a vice
president in the high-yield groups of several major investment companies.
He received a Bachelor of Science degree from Siena College in 1984. He holds
the Chartered Financial Analyst (CFA) designation.
All portfolio managers at MFS are supported by an investment staff of over 160
professionals utilizing MFS Original Research(R), a global, issuer-oriented,
bottom-up process of selecting securities.
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PERFORMANCE SUMMARY THROUGH 4/30/04
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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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Six months ended 4/30/04
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Date Price
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Net asset value 10/31/2003 $9.80
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4/30/2004 $10.15
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New York Stock Exchange price 10/31/2003 $10.40
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4/08/2004 (high)* $12.40
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11/03/2003 (low)* $10.32
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4/30/2004 $11.08
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* For the period November 1, 2003, through April 30, 2004.
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Six months ended 4/30/04
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TOTAL RETURNS VS BENCHMARK
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New York Stock Exchange price** 11.70%
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Net asset value** 8.59%
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Lehman Brothers High Yield Index# 5.52%
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** Includes reinvestment of dividends and capital gains distributions.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
LEHMAN BROTHERS HIGH YIELD INDEX - measures the performance of the high-yield
bond market.
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.
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
and options. These types of instruments can increase price flutuation.
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.
Government guarantees apply to the underlying securities only and not to the
prices and yields of the portfolio.
These risks may increase share price volatility. Please see the prospectus for
further information on these and other risk considerations.
INVESTMENT POLICY (FOREIGN SECURITIES)
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.
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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PORTFOLIO OF INVESTMENTS (unaudited) - 4/30/04
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The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Bonds - 60.0%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
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U.S. Bonds - 48.5%
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Advertising & Broadcasting - 3.1%
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Allbritton Communications Co., 7.75%, 2012 $350 $357,000
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Granite Broadcasting Corp., 9.75%, 2010## 655 641,900
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LBI Media Holdings, Inc., 0% to 2008, 11% to 2013 875 616,875
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XM Satellite Radio Holdings, Inc., 0% to 2005, 14% to 2009 225 216,562
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XM Satellite Radio Holdings, Inc., 12%, 2010 204 235,875
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$2,068,212
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Aerospace - 1.8%
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BE Aerospace, Inc., 8.875%, 2011 $475 $458,375
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Hexcel Corp., 9.75%, 2009 650 682,500
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K&F Industries, Inc., 9.625%, 2010 80 89,600
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$1,230,475
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Airlines - 1.7%
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Continental Airlines, Inc., 7.568%, 2006 $500 $420,648
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Continental Airlines, Inc., 8.307%, 2018 292 259,340
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Continental Airlines, Inc., 6.795%, 2020 495 419,648
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Continental Airlines, Inc., 7.566%, 2020 58 48,792
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$1,148,428
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Apparel Manufacturers - 0%
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WestPoint Stevens, Inc., 7.875%, 2005 - 2008** $810 $26,325
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Asset Backed & Securitized - 3.6%
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Anthracite CDO Ltd., 6%, 2037 $450 $353,021
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DLJ Mortgage Acceptance Corp., 8%, 2004+ 699 635,900
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Falcon Auto Dealership LLC, 4.1743%, 2023^^ 695 128,831
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GMAC Commercial Mortgage Securities, Inc., 6.02%, 2033 250 224,910
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Morgan Stanley Capital I, Inc., 7.7384%, 2010 1,070 1,125,286
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$2,467,948
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Automotive - 2.9%
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Advanced Accessory Systems LLC, 10.75%, 2011 $115 $119,887
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Collins & Aikman Products Co., 10.75%, 2011 650 672,750
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Delco Remy International, Inc., 9.375%, 2012## 40 39,500
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Intermet Corp., 9.75%, 2009 325 307,125
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Metaldyne Corp., 11%, 2012 365 310,250
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Oxford Automotive, Inc., 12%, 2010## 305 230,275
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TRW Automotive, Inc., 11%, 2013 13 15,470
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TRW Automotive, Inc., 11.75%, 2013 EUR 163 232,308
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Venture Holdings Trust, 11%, 2007** $375 15,937
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Venture Holdings Trust, 12%, 2009** 150 15
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$1,943,517
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Basic Industry - 0.8%
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Foamex LP/Capital Corp., 10.75%, 2009 $425 $397,375
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Thermadyne Holdings Corp., 9.25%, 2014## 110 111,650
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$509,025
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Broadcast & Cable TV - 5.9%
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Adelphia Communications Corp., 10.25%, 2011** $750 $832,500
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CSC Holdings, Inc., 8.125%, 2009 155 165,850
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CSC Holdings, Inc., 6.75%, 2012 110 109,725
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Cablevision Systems Corp., 8%, 2012 180 180,000
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Charter Communications, Inc., 8.625%, 2009 365 302,950
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Charter Communications, Inc., 9.92%, 2011 1,150 960,250
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Charter Communciations, Inc., 8.375%, 2014 50 49,250
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FrontierVision Holdings LP, 11.875%, 2007** 300 369,000
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Grande Communication Holdings, Inc., 14%, 2011## 305 293,562
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Insight Midwest LP, 9.75%, 2009 130 137,150
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Mediacom Broadband LLC, 11%, 2013 575 615,250
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$4,015,487
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Building - 1.9%
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Dayton Superior Corp., 10.75%, 2008 $195 $195,000
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Formica Corp., 10.875%, 2009** 850 137,062
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Interface, Inc., 10.375%, 2010 180 201,375
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Interface, Inc., 9.5%, 2014## 150 150,750
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Williams Scotsman, Inc., 9.875%, 2007 600 597,000
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$1,281,187
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Chemicals - 4.0%
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Equistar Chemicals LP, 10.625%, 2011 $210 $234,150
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Huntsman International LLC, 10.125%, 2009 750 785,625
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IMC Global, Inc., 10.875%, 2013 140 171,850
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INVISTA, 9.25%, 2012## 40 40,286
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JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 250 190,000
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Lyondell Chemical Co., 11.125%, 2012 340 377,400
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Nalco Finance Holdings, Inc., 0% to 2009, 9% to 2014## 390 245,700
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Rockwood Specialties Group, Inc., 10.625%, 2011 300 319,500
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Sovereign Specialty Chemicals, Inc., 11.875%, 2010 320 329,600
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$2,694,111
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Consumer Goods & Services - 2.1%
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American Safety Razor Co., 9.875%, 2005 $500 $495,000
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Revlon Consumer Products Corp., 8.625%, 2008 386 360,910
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Samsonite Corp., 10.75%, 2008 400 416,000
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Werner Holding Co., Inc., 10%, 2007 170 131,750
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$1,403,660
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Containers - 0.8%
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Pliant Corp., 13%, 2010 $510 $461,550
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Portola Packaging, Inc., 8.25%, 2012## 130 111,800
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$573,350
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Energy - Independent - 0.2%
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Belden & Blake Corp., 9.875%, 2007 $135 $134,663
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Entertainment - 0.7%
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AMF Bowling Worldwide, Inc., 10%, 2010 $235 $243,813
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Six Flags, Inc., 9.75%, 2013 235 247,631
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$491,444
-------------------------------------------------------------------------------------------------
Forest & Paper Products - 0.8%
-------------------------------------------------------------------------------------------------
FiberMark, Inc., 10.75%, 2011** $305 $161,650
-------------------------------------------------------------------------------------------------
Newark Group, Inc., 9.75%, 2014## 390 382,200
-------------------------------------------------------------------------------------------------
$543,850
-------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.7%
-------------------------------------------------------------------------------------------------
Resorts International Hotel & Casino, Inc., 11.5%, 2009 $400 $446,000
-------------------------------------------------------------------------------------------------
Industrial - 1.0%
-------------------------------------------------------------------------------------------------
Blount, Inc., 13%, 2009 $480 $518,400
-------------------------------------------------------------------------------------------------
Motors & Gears, Inc., 10.75%, 2006 180 159,300
-------------------------------------------------------------------------------------------------
$677,700
-------------------------------------------------------------------------------------------------
Machinery & Tools - 0.3%
-------------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 8.5%, 2008 $225 $208,125
-------------------------------------------------------------------------------------------------
Columbus McKinnon Corp., 10%, 2010 20 21,200
-------------------------------------------------------------------------------------------------
$229,325
-------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.3%
-------------------------------------------------------------------------------------------------
Alliance Imaging, Inc., 10.375%, 2011 $200 $200,000
-------------------------------------------------------------------------------------------------
Beverly Enterprises, Inc., 9.625%, 2009 245 285,731
-------------------------------------------------------------------------------------------------
Healthsouth Corp., 8.5%, 2008 260 263,900
-------------------------------------------------------------------------------------------------
Universal Hospital Services, Inc., 10.125%, 2011## 140 149,100
-------------------------------------------------------------------------------------------------
$898,731
-------------------------------------------------------------------------------------------------
Metals & Mining - 1.4%
-------------------------------------------------------------------------------------------------
Doe Run Resources Corp., 8.5%, 2008 $512 $281,743
-------------------------------------------------------------------------------------------------
Ispat Inland ULC, 9.75%, 2014## 260 266,500
-------------------------------------------------------------------------------------------------
Kaiser Aluminum & Chemical Corp., 9.875%, 2049** 290 281,300
-------------------------------------------------------------------------------------------------
Oregon Steel Mills, Inc., 10%, 2009 95 98,325
-------------------------------------------------------------------------------------------------
U.S. Steel Corp., 9.75%, 2010 42 47,565
-------------------------------------------------------------------------------------------------
$975,433
-------------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.6%
-------------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625%, 2021 $55 $62,425
-------------------------------------------------------------------------------------------------
El Paso Energy Corp., 7%, 2011 505 429,250
-------------------------------------------------------------------------------------------------
El Paso Production Holding Co., 7.75%, 2013 620 589,000
-------------------------------------------------------------------------------------------------
$1,080,675
-------------------------------------------------------------------------------------------------
Oil Services - 0.3%
-------------------------------------------------------------------------------------------------
Dresser, Inc., 9.375%, 2011 $185 $199,800
-------------------------------------------------------------------------------------------------
Oils - 0.3%
-------------------------------------------------------------------------------------------------
Citgo Petroleum Corp., 11.375%, 2011 $150 $173,250
-------------------------------------------------------------------------------------------------
Printing & Publishing - 1.4%
-------------------------------------------------------------------------------------------------
Dex Media, Inc., 0% to 2008, 9% to 2013## $975 $594,750
-------------------------------------------------------------------------------------------------
Houghton Mifflin Co., 9.875%, 2013 130 128,375
-------------------------------------------------------------------------------------------------
R.H. Donnelley Finance Corp., 10.875%, 2012 150 178,500
-------------------------------------------------------------------------------------------------
Warner Music Group, 7.375%, 2014## 25 25,781
-------------------------------------------------------------------------------------------------
$927,406
-------------------------------------------------------------------------------------------------
Retailers - 2.5%
-------------------------------------------------------------------------------------------------
Couche Tard U.S. LP, 7.5%, 2013 $335 $351,750
-------------------------------------------------------------------------------------------------
Finlay Enterprises, Inc., 9%, 2008 495 507,994
-------------------------------------------------------------------------------------------------
J. Crew Intermediate LLC, 0% to 2005, 16% to 2008 387 317,406
-------------------------------------------------------------------------------------------------
J. Crew Operating Corp., 10.375%, 2007 150 150,188
-------------------------------------------------------------------------------------------------
PCA LLC, 11.875%, 2009 180 201,600
-------------------------------------------------------------------------------------------------
Rite Aid Corp., 9.25%, 2013 130 137,800
-------------------------------------------------------------------------------------------------
$1,666,738
-------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.7%
-------------------------------------------------------------------------------------------------
Qwest Corp., 13.5%, 2010 $600 $696,000
-------------------------------------------------------------------------------------------------
Qwest Corp., 9.125%, 2012## 110 116,875
-------------------------------------------------------------------------------------------------
Time Warner Telecom Holdings, Inc., 10.125%, 2011 230 192,050
-------------------------------------------------------------------------------------------------
Time Warner Telecom Holdings, Inc., 9.25%, 2014## 170 158,100
-------------------------------------------------------------------------------------------------
$1,163,025
-------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.1%
-------------------------------------------------------------------------------------------------
Dynegy Holdings, Inc., 6.875%, 2011 $155 $132,525
-------------------------------------------------------------------------------------------------
FirstEnergy Corp., 6.45%, 2011 199 209,507
-------------------------------------------------------------------------------------------------
Midwest Generation LLC, 8.75%, 2034## 145 145,000
-------------------------------------------------------------------------------------------------
Mirant Americas Generation, Inc., 8.3%, 2011** 400 290,000
-------------------------------------------------------------------------------------------------
Mission Energy Holding Co., 13.5%, 2008 250 274,375
-------------------------------------------------------------------------------------------------
PSE&G Energy Holdings LLC, 7.75%, 2007 50 52,250
-------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.25%, 2010 200 214,000
-------------------------------------------------------------------------------------------------
Reliant Resources, Inc., 9.5%, 2013 125 135,625
-------------------------------------------------------------------------------------------------
$1,453,282
-------------------------------------------------------------------------------------------------
Wireless Communications - 3.6%
-------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 8.5%, 2012 $70 $67,725
-------------------------------------------------------------------------------------------------
Alamosa Holdings, Inc., 0% to 2005, 12% to 2009 509 478,460
-------------------------------------------------------------------------------------------------
Centennial Communications Corp., 10.125%, 2013 350 360,500
-------------------------------------------------------------------------------------------------
Dobson Communications Corp., 8.875%, 2013 450 352,125
-------------------------------------------------------------------------------------------------
MetroPCS, Inc., 10.75%, 2011 335 353,425
-------------------------------------------------------------------------------------------------
Rural Cellular Corp., 9.75%, 2010 559 522,665
-------------------------------------------------------------------------------------------------
Ubiquitel Operating, Co., 9.875%, 2011## 310 310,000
-------------------------------------------------------------------------------------------------
$2,444,900
-------------------------------------------------------------------------------------------------
Total U.S. Bonds $32,867,947
-------------------------------------------------------------------------------------------------
Foreign Bonds - 11.5%
-------------------------------------------------------------------------------------------------
Australia - 0.7%
-------------------------------------------------------------------------------------------------
Burns Philp Capital Property Ltd., 9.75%, 2012 (Food &
Non-Alcoholic Beverages) $425 $448,375
-------------------------------------------------------------------------------------------------
Belgium - 0.7%
-------------------------------------------------------------------------------------------------
Telenet Group Holdings N.V., 0% to 2008, 11% to 2014
(Broadcast & Cable TV)## $780 $487,500
-------------------------------------------------------------------------------------------------
Brazil - 1.6%
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.125%, 2012 (Sovereign) $545 $452,301
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 8%, 2014 (Sovereign) 179 164,720
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 2.0625%, 2024 (Sovereign) 54 41,310
-------------------------------------------------------------------------------------------------
Federal Republic of Brazil, 11%, 2040 (Sovereign) 430 399,900
-------------------------------------------------------------------------------------------------
$1,058,231
-------------------------------------------------------------------------------------------------
Bulgaria - 0.1%
-------------------------------------------------------------------------------------------------
Republic of Bulgaria, 8.25%, 2015 (Sovereign) $44 $50,380
-------------------------------------------------------------------------------------------------
Canada - 0.3%
-------------------------------------------------------------------------------------------------
Hollinger, Inc., 12.875%, 2011 (Printing & Publishing)## $85 $99,450
-------------------------------------------------------------------------------------------------
Norske Skog Canada, 7.375%, 2014 (Forest & Paper
Products)## 125 128,125
-------------------------------------------------------------------------------------------------
$227,575
-------------------------------------------------------------------------------------------------
Dominican Republic - 1.0%
-------------------------------------------------------------------------------------------------
Dominican Republic, 9.04%, 2013 (Sovereign) $964 $694,080
-------------------------------------------------------------------------------------------------
France - 1.7%
-------------------------------------------------------------------------------------------------
Crown European Holdings S.A., 10.875%, 2013 (Containers) $305 $355,325
-------------------------------------------------------------------------------------------------
Rhodia S.A., 6%, 2006 (Chemicals) EUR 105 123,238
-------------------------------------------------------------------------------------------------
Rhodia S.A., 8.875%, 2011 (Chemicals)## $825 680,625
-------------------------------------------------------------------------------------------------
$1,159,188
-------------------------------------------------------------------------------------------------
Luxembourg - 1.3%
-------------------------------------------------------------------------------------------------
Lighthouse International Co. S.A., 8%, 2014 (Printing &
Publishing)## EUR 150 $180,546
-------------------------------------------------------------------------------------------------
Millicom International Cellular S.A., 10%, 2013 (Wireless
Communications)## $330 338,250
-------------------------------------------------------------------------------------------------
Safilo Capital International S.A., 9.625%, 2013 (Consumer
Goods & Services)## EUR 330 367,559
-------------------------------------------------------------------------------------------------
$886,355
-------------------------------------------------------------------------------------------------
Mexico - 1.3%
-------------------------------------------------------------------------------------------------
Axtel S.A. de C.V., 11%, 2013 (Telecommunications -
Wireline) $565 $562,175
-------------------------------------------------------------------------------------------------
Corporacion Durango S.A. de C.V., 13.75%, 2009 (Forest &
Paper Products)** 258 170,280
-------------------------------------------------------------------------------------------------
Pemex Project Funding Master Trust, 8.625%, 2022 (Oil
Services) 143 153,010
-------------------------------------------------------------------------------------------------
United Mexican States, 8%, 2022 (Sovereign) 13 13,715
-------------------------------------------------------------------------------------------------
$899,180
-------------------------------------------------------------------------------------------------
Norway - 0.6%
-------------------------------------------------------------------------------------------------
Ocean Rig Norway S.A., 10.25%, 2008 (Oil Services) $440 $435,600
-------------------------------------------------------------------------------------------------
Panama - 0.4%
-------------------------------------------------------------------------------------------------
Republic of Panama, 9.375%, 2029 (Sovereign) $261 $287,100
-------------------------------------------------------------------------------------------------
Philippines - 0.1%
-------------------------------------------------------------------------------------------------
Republic of Philippines, 9.375%, 2017 (Sovereign) $57 $59,138
-------------------------------------------------------------------------------------------------
Poland - 0.8%
-------------------------------------------------------------------------------------------------
PTC International Finance II S.A., 11.25%, 2009 (Wireless
Communications) $500 $537,500
-------------------------------------------------------------------------------------------------
Russia - 0.7%
-------------------------------------------------------------------------------------------------
Gazprom, 9.625%, 2013 (Utilities - Gas) $150 $154,875
-------------------------------------------------------------------------------------------------
Salomon Brothers (SIBNEFT), 10.75%, 2009 (Energy -
Integrated) 84 88,956
-------------------------------------------------------------------------------------------------
Tyumen Oil Co., 11%, 2007 (Energy - Integrated) 200 225,000
-------------------------------------------------------------------------------------------------
$468,831
-------------------------------------------------------------------------------------------------
United Kingdom - 0.2%
-------------------------------------------------------------------------------------------------
Dunlop Stand Aerospace Holdings PLC, 11.875%, 2009
(Aerospace)## $110 $116,325
-------------------------------------------------------------------------------------------------
Total Foreign Bonds $7,815,358
-------------------------------------------------------------------------------------------------
Total Bonds (Identified Cost, $40,706,166) $40,683,305
-------------------------------------------------------------------------------------------------
Stocks - 30.2%
-------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
-------------------------------------------------------------------------------------------------
U.S. Stocks - 27.5%
-------------------------------------------------------------------------------------------------
Airlines - 1.3%
-------------------------------------------------------------------------------------------------
Southwest Airlines Co.^ 60,500 $863,940
-------------------------------------------------------------------------------------------------
Automotive - 0.7%
-------------------------------------------------------------------------------------------------
Hayes Lemmerz International, Inc.* 34,476 $497,489
-------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 4.9%
-------------------------------------------------------------------------------------------------
Comcast Corp., "Special A" 59,100 $1,713,309
-------------------------------------------------------------------------------------------------
Cumulus Media, Inc.^* 21,206 445,750
-------------------------------------------------------------------------------------------------
NTL, Inc.^* 9,915 562,875
-------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., "A"^ 30,000 370,800
-------------------------------------------------------------------------------------------------
Sirius Satellite Radio, Inc.^* 64,555 213,032
-------------------------------------------------------------------------------------------------
$3,305,766
-------------------------------------------------------------------------------------------------
Business Services - 0%
-------------------------------------------------------------------------------------------------
Anacomp, Inc.^* 30 $308
-------------------------------------------------------------------------------------------------
Containers - 2.0%
-------------------------------------------------------------------------------------------------
Owens-Illinois, Inc.^* 97,000 $1,354,120
-------------------------------------------------------------------------------------------------
Electrical Equipment - 2.1%
-------------------------------------------------------------------------------------------------
Tyco International Ltd.^ 51,500 $1,413,675
-------------------------------------------------------------------------------------------------
Energy - Independent - 0.2%
-------------------------------------------------------------------------------------------------
NRG Energy, Inc.* 6,073 $131,784
-------------------------------------------------------------------------------------------------
Gaming & Lodging - 0.8%
-------------------------------------------------------------------------------------------------
Ameristar Casinos, Inc.^ 7,750 $245,830
-------------------------------------------------------------------------------------------------
Pinnacle Entertainment, Inc.^* 28,575 326,327
-------------------------------------------------------------------------------------------------
$572,157
-------------------------------------------------------------------------------------------------
Machinery & Tools - 0.1%
-------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp.^* 3,590 $53,491
-------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.9%
-------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.^* 110,500 $1,299,480
-------------------------------------------------------------------------------------------------
Metals & Mining - 0.4%
-------------------------------------------------------------------------------------------------
Commonwealth Industries, Inc.^* 39,700 $313,630
-------------------------------------------------------------------------------------------------
Oil Services - 5.9%
-------------------------------------------------------------------------------------------------
BJ Services Co.^* 22,800 $1,014,600
-------------------------------------------------------------------------------------------------
Cooper Cameron Corp.^* 16,530 799,226
-------------------------------------------------------------------------------------------------
GlobalSantaFe Corp.^ 54,430 1,435,319
-------------------------------------------------------------------------------------------------
Noble Corp.^* 20,890 776,272
-------------------------------------------------------------------------------------------------
$4,025,417
-------------------------------------------------------------------------------------------------
Pharmaceuticals - 1.9%
-------------------------------------------------------------------------------------------------
Schering-Plough Corp.^ 75,800 $1,268,134
-------------------------------------------------------------------------------------------------
Specialty Chemicals - 0%
-------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc.* 605 $15,428
-------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 0.5%
-------------------------------------------------------------------------------------------------
MCI, Inc.* 22,872 $324,325
-------------------------------------------------------------------------------------------------
Telephone Services - 2.3%
-------------------------------------------------------------------------------------------------
Verizon Communications, Inc.^ 41,400 $1,562,436
-------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.3%
-------------------------------------------------------------------------------------------------
Calpine Corp.* 315,260 $1,368,228
-------------------------------------------------------------------------------------------------
DPL, Inc.^ 10,154 178,913
-------------------------------------------------------------------------------------------------
El Paso Electric Co.* 800 11,320
-------------------------------------------------------------------------------------------------
$1,558,461
-------------------------------------------------------------------------------------------------
Utilities - Gas - 0.2%
-------------------------------------------------------------------------------------------------
Ferrell Gas Partners LP 6,088 $133,205
-------------------------------------------------------------------------------------------------
Total U.S. Stocks $18,693,246
-------------------------------------------------------------------------------------------------
Foreign Stocks - 2.7%
-------------------------------------------------------------------------------------------------
Canada - 1.0%
-------------------------------------------------------------------------------------------------
International Utility Structures, Inc. (Metals & Mining)* 254,700 $20,435
-------------------------------------------------------------------------------------------------
Nortel Networks Corp. (Telecommunications - Wireline)* 174,800 653,752
-------------------------------------------------------------------------------------------------
$674,187
-------------------------------------------------------------------------------------------------
Netherlands - 0.9%
-------------------------------------------------------------------------------------------------
Completel Europe N.V. (Telephone Services)* 14,941 $572,253
-------------------------------------------------------------------------------------------------
Sweden - 0.6%
-------------------------------------------------------------------------------------------------
Song Networks Holding AB (Telephone Services) 66,675 $427,627
-------------------------------------------------------------------------------------------------
United Kingdom - 0.2%
-------------------------------------------------------------------------------------------------
Jazztel PLC (Telephone Services)* 337,125 $133,240
-------------------------------------------------------------------------------------------------
Total Foreign Stocks $1,807,307
-------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $25,914,578) $20,500,553
-------------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 1.1%
-------------------------------------------------------------------------------------------------
Automotive - 0%
-------------------------------------------------------------------------------------------------
HLI Operating Co., Inc., "A", 8%* 114 $9,576
-------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 1.0%
-------------------------------------------------------------------------------------------------
Spanish Broadcasting Systems, Inc., "B", 10.75% 681 $686,108
-------------------------------------------------------------------------------------------------
Telephone Services - 0.1%
-------------------------------------------------------------------------------------------------
Song Networks Holding AB, 0%* 7,200 $46,194
-------------------------------------------------------------------------------------------------
Total Convertible Preferred Stock (Identified Cost,
$718,097) $741,878
-------------------------------------------------------------------------------------------------
Preferred Stocks - 2.6%
-------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.6%
-------------------------------------------------------------------------------------------------
Paxson Communications Corp., 14.25% 187 $1,748,450
-------------------------------------------------------------------------------------------------
Telephone Services - 0%
-------------------------------------------------------------------------------------------------
PTV, Inc., "A", 10%^* 9 $68
-------------------------------------------------------------------------------------------------
Total Preferred Stocks (Identified Cost, $1,442,600) $1,748,518
-------------------------------------------------------------------------------------------------
Warrants - 0%
-------------------------------------------------------------------------------------------------
Anacomp, Inc. (Business Services)* 5,841 $409
-------------------------------------------------------------------------------------------------
ONO Finance PLC (Broadcast & Cable TV)* 1,000 10
-------------------------------------------------------------------------------------------------
Sterling Chemicals, Inc. (Chemicals)* 30 44
-------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Basic Industry)* 5,505 7,432
-------------------------------------------------------------------------------------------------
Thermadyne Holdings Corp. (Basic Industry)* 3,330 5,994
-------------------------------------------------------------------------------------------------
Total Warrants (Identified Cost, $123,377) $13,889
-------------------------------------------------------------------------------------------------
Convertible Bond - 1.9%
-------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted)
-------------------------------------------------------------------------------------------------
United Kingdom - 1.9%
-------------------------------------------------------------------------------------------------
COLT Telecom Group PLC, 2%, 2006 (Wireless Communications)
(Identified Cost, $807,524) EUR 1,000 $1,317,416
-------------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 16.2%
-------------------------------------------------------------------------------------------------
ISSUER SHARES
-------------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at
Identified Cost 11,008,650 $11,008,650
-------------------------------------------------------------------------------------------------
Repurchase Agreement - 2.3%
-------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted)
-------------------------------------------------------------------------------------------------
Goldman Sachs, dated 4/30/04, due 5/03/04, total to be
received $1,577,137 (secured by various U.S. Treasury and
Federal Agency obligations in a jointly traded account),
at Cost $1,577 $1,577,000
-------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $82,297,992) $77,591,209
-------------------------------------------------------------------------------------------------
Securities Sold Short - (0.1)%
-------------------------------------------------------------------------------------------------
ISSUER SHARES
-------------------------------------------------------------------------------------------------
Specialty Chemicals - (0.1)%
-------------------------------------------------------------------------------------------------
Applied Extrusion Technologies, Inc. (Proceeds Received, $
(74,301)) (25,000) $(64,000)
-------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (14.2)% (9,635,983)
-------------------------------------------------------------------------------------------------
Net Assets - 100.0% $67,891,226
-------------------------------------------------------------------------------------------------
* Non-income producing security.
** Non-income producing security - in default.
## SEC Rule 144A restriction.
^ All or a portion of this security is on loan.
^^ Interest only security.
+ Restricted security.
As of April 30, 2004, one security representing $427,627 and 0.6% of net assets was fair valued in
accordance with the policies adopted by the Board of Trustees.
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
SEE NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES (unaudited)
-----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 4/30/04
ASSETS
Investments, at value, including $10,736,045 of securities on
loan (identified cost, $82,297,992) $77,591,209
-----------------------------------------------------------------------------------------------------
Cash 10,852
-----------------------------------------------------------------------------------------------------
Deposits with brokers for securities sold short 75,000
-----------------------------------------------------------------------------------------------------
Receivable for forward foreign currency exchange contracts 51,633
-----------------------------------------------------------------------------------------------------
Receivable for investments sold 684,567
-----------------------------------------------------------------------------------------------------
Interest and dividends receivable 936,177
-----------------------------------------------------------------------------------------------------
Other assets 10,850
-----------------------------------------------------------------------------------------------------
Total assets $79,360,288
-----------------------------------------------------------------------------------------------------
LIABILITIES
Payable to dividend disbursing agent $55,605
-----------------------------------------------------------------------------------------------------
Securities sold short, at value (proceeds received, $74,301) 64,000
-----------------------------------------------------------------------------------------------------
Payable for forward foreign currency exchange contracts 9,690
-----------------------------------------------------------------------------------------------------
Payable for investments purchased 91,291
-----------------------------------------------------------------------------------------------------
Collateral for securities loaned, at value 11,008,650
-----------------------------------------------------------------------------------------------------
Payable to affiliates
-----------------------------------------------------------------------------------------------------
Management fee 1,723
-----------------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent costs 1,434
-----------------------------------------------------------------------------------------------------
Administrative fee 21
-----------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 236,648
-----------------------------------------------------------------------------------------------------
Total liabilities $11,469,062
-----------------------------------------------------------------------------------------------------
Net assets $67,891,226
-----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $75,449,424
-----------------------------------------------------------------------------------------------------
Unrealized depreciation on investments and translation of
assets and liabilities in foreign currencies (4,654,893)
-----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (774,184)
-----------------------------------------------------------------------------------------------------
Accumulated distributions in excess of net investment income (2,129,121)
-----------------------------------------------------------------------------------------------------
Net assets $67,891,226
-----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding
(6,942,670 issued, less 256,600 treasury shares) 6,686,070
-----------------------------------------------------------------------------------------------------
Net asset value per share
(net assets / shares of beneficial interest outstanding) $10.15
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS (unaudited)
-----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses.
It also describes any gains and/or losses generated by fund operations.
FOR SIX MONTHS ENDED 4/30/04
NET INVESTMENT INCOME
NET INVESTMENT INCOME
Income
-----------------------------------------------------------------------------------------------------
Interest $2,177,063
-----------------------------------------------------------------------------------------------------
Dividends 211,223
-----------------------------------------------------------------------------------------------------
Total investment income $2,388,286
-----------------------------------------------------------------------------------------------------
Expenses
-----------------------------------------------------------------------------------------------------
Management fee $312,593
-----------------------------------------------------------------------------------------------------
Trustees" compensation 14,288
-----------------------------------------------------------------------------------------------------
Transfer and dividend disbursing agent costs 9,162
-----------------------------------------------------------------------------------------------------
Administrative fee 3,686
-----------------------------------------------------------------------------------------------------
Investor communication expense 28,862
-----------------------------------------------------------------------------------------------------
Custodian fee 10,917
-----------------------------------------------------------------------------------------------------
Printing 16,381
-----------------------------------------------------------------------------------------------------
Postage 3,108
-----------------------------------------------------------------------------------------------------
Auditing fees 15,560
-----------------------------------------------------------------------------------------------------
Legal fees 133
-----------------------------------------------------------------------------------------------------
Miscellaneous 18,629
-----------------------------------------------------------------------------------------------------
Total expenses $433,319
-----------------------------------------------------------------------------------------------------
Fees paid indirectly (6,983)
-----------------------------------------------------------------------------------------------------
Net expenses $426,336
-----------------------------------------------------------------------------------------------------
Net investment income $1,961,950
-----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (loss) (identified cost basis)
-----------------------------------------------------------------------------------------------------
Investment transactions $2,503,616
-----------------------------------------------------------------------------------------------------
Foreign currency transactions (117,469)
-----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions $2,386,147
-----------------------------------------------------------------------------------------------------
Change in unrealized appreciation
-----------------------------------------------------------------------------------------------------
Investments $1,361,839
-----------------------------------------------------------------------------------------------------
Securities sold short 10,301
-----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 36,543
-----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation $1,408,683
-----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign
currency $3,794,830
-----------------------------------------------------------------------------------------------------
Increase in net assets from operations $5,756,780
-----------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT 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.
SIX MONTHS ENDED YEAR ENDED
4/30/04 10/31/03
(UNAUDITED)
INCREASE IN NET ASSETS
FROM OPERATIONS
Net investment income $1,961,950 $3,875,102
-------------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency
transactions 2,386,147 329,387
-------------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency
translation 1,408,683 16,659,306
--------------------------------------------------------------- ------------ -----------
Increase in net assets from operations $5,756,780 $20,863,795
--------------------------------------------------------------- ------------ -----------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(3,384,951) $(3,749,309)
-------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign currency
transactions -- (1,860,373)
--------------------------------------------------------------- ------------ -----------
Total distributions declared to shareholders $(3,384,951) $(5,609,682)
--------------------------------------------------------------- ------------ -----------
Net increase in net assets from trust share transactions $323,904 $319,029
--------------------------------------------------------------- ------------ -----------
Total increase in net assets $2,695,733 $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 $2,129,121 and $706,120,
respectively) $67,891,226 $65,195,493
-------------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the semiannual period
and the past 5 fiscal years. Certain information reflects financial results for a single fund share. The total returns in the
table represent the rate by which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment
of all distributions) held for the entire period.
SIX MONTHS YEAR ENDED 10/31
ENDED ------------------------------------------------------------------
4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
Net asset value, beginning of period $9.80 $7.50 $8.63 $11.67 $14.34 $13.76
------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS#(S)
Net investment income $0.29 $0.59 $0.71 $0.77 $1.01 $0.57
------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments and foreign
currency 0.57 2.56 (0.86) (2.16) (1.53) 1.66
----------------------------------------- ------- ------ ------ ------ ------ ------
Total from investment operations $0.86 $3.15 $(0.15) $(1.39) $(0.52) $2.23
----------------------------------------- ------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS
From net investment income $(0.51) $(0.57) $(0.74) $(0.77) $(1.01) $(0.57)
------------------------------------------------------------------------------------------------------------------------------
From net realized gain on
investments and foreign currency
transactions -- (0.28) -- -- (0.95) (1.00)
------------------------------------------------------------------------------------------------------------------------------
In excess of net investment income -- -- (0.24) (0.06) (0.01) (0.08)
------------------------------------------------------------------------------------------------------------------------------
From paid-in capital -- -- -- (0.82) (0.18) --
----------------------------------------- ------- ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.51) $(0.85) $(0.98) $(1.65) $(2.15) $(1.65)
----------------------------------------- ------- ------ ------ ------ ------ ------
Net asset value, end of period $10.15 $9.80 $7.50 $8.63 $11.67 $14.34
----------------------------------------- ------- ------ ------ ------ ------ ------
Per share market value, end of period $11.080 $10.400 $7.250 $14.300 $13.750 $16.750
------------------------------------------------------------------------------------------------------------------------------
Total return (%) 11.70++ 58.07 (43.54) 16.99 (4.33) 11.08
------------------------------------------------------------------------------------------------------------------------------
Financial Highlights - continued
SIX MONTHS YEAR ENDED 10/31
ENDED -------------------------------------------------------------------
4/30/04 2003 2002 2001 2000 1999
(UNAUDITED)
RATIOS (%) TO AVERAGE
NET ASSETS AND
SUPPLEMENTAL DATA:
Expenses## 1.27+ 1.34 1.56 1.53 1.35 1.23
------------------------------------------------------------------------------------------------------------------------------
Net investment income(S) 5.77+ 6.75 8.39 7.49 7.46 3.79
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 40 94 137 49 32 137
------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period
(000 Omitted) $67,891 $65,195 $49,622 $56,598 $75,545 $91,603
------------------------------------------------------------------------------------------------------------------------------
+ Annualized.
++ Not annualized.
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(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 (unaudited)
------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Special Value Trust (the trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended,
as a non-diversifed closed-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The trust can invest in high-yield securities
rated below investment grade. Investments in high-yield securities involve
greater degrees of credit and market risk than investments in higher-rated
securities and tend to be more sensitive to economic conditions. The trust can
invest in foreign securities. Investments in foreign securities are vulnerable
to the effects of changes in the relative value 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 - The trust uses independent pricing services approved by
the Board of Trustees wherever possible to value its portfolio securities.
Portfolio securities are valued at current market quotations where current
market quotations are readily available, or the fund may fair value portfolio
securities under the direction of the Board of Trustees when a determination is
made that current market quotations are not readily available. 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. Bonds and
other fixed income securities for which it is determined that current market
quotations are not readily available will be fair valued under the direction of
the Board of Trustees. 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. Equity securities for which it is determined that current market
quotations are not readily available will be fair valued under the direction of
the Board of Trustees. The trust may also fair value foreign equity securities
in cases where closing market quotations are not readily available or are deemed
not reflective of readily available market quotations. 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. 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. Money
market mutual funds are valued at net asset value. 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.
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 $9,740 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.
SHORT SALES - The trust may enter into short sales. A short sale transaction
involves selling a security which the trust does not own with the intent of
purchasing it later at a lower price. The trust will realize a gain if the
security price decreases and a loss if the security price increases between
the date of the short sale and the date on which the trust must replace the
borrowed security. Losses from short sales can exceed the proceeds of the
security sold; and they can also exceed the potential loss from an ordinary
buy and sell transaction. The amount of any gain will be decreased, and the
amount of any loss increased, by the amount of the premium, dividends, or
interest the trust may be required to pay in connection with a short sale.
Whenever the trust engages in short sales, its custodian segregates cash or
marketable securities in an amount that, when combined with the amount of
proceeds from the short sale deposited with the broker, at least equals the
current market value of the security sold short.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with accounting principles generally accepted in the United States
of America. 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. This amount, for the six months ended April 30, 2004, is shown as a
reduction of total expenses on the Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The trust's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The trust
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, derivatives, defaulted bonds, and
amortization and accretion on debt securities.
The tax character of distributions declared for the years ended October 31,
2003 and October 31, 2002 was as follows:
10/31/03 10/31/02
Distributions declared from:
------------------------------------------------------------------------------
Ordinary income $5,543,609 $6,461,758
------------------------------------------------------------------------------
Long-term capital gain 66,073 --
------------------------------------------------------------------------------
Total distributions declared $5,609,682 $6,461,758
------------------------------------------------------------------------------
As of October 31, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $17,372
------------------------------------------------------------------------------
Unrealized depreciation (9,228,515)
------------------------------------------------------------------------------
Other temporary differences (718,884)
------------------------------------------------------------------------------
(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 six months ended April 30, 2004 were 0.92% of
average daily net assets on an annualized basis.
The trust pays compensation to its Independent Trustees in the form of both a
retainer and 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 certain current Independent Trustees. Included in Trustees"
compensation is $6,293 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 $3,617 for retired Independent Trustees for the six
months ended April 30, 2004.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to certain funds
for which MFS acts as investment adviser. 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. The trust 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 percentages of the trust's average daily net assets:
First $2 billion 0.0175%
----------------------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------
Effective April 1, 2004, the trust paid MFS an administrative fee up to the
following annual percentages 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 six months ended April 30, 2004, the trust paid MFS $3,686, equivalent
to 0.0108% 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
$7,335 for the six months ended April 30, 2004. Also included in transfer
agent and dividend disbursing costs are out-of-pocket expenses, paid to MFSC,
which amounted to $256 for the six months ended April 30, 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
$26,085,071 and $27,249,792, 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 $82,227,569
------------------------------------------------------------------------------
Gross unrealized depreciation $(10,902,753)
------------------------------------------------------------------------------
Gross unrealized appreciation 6,266,393
------------------------------------------------------------------------------
Net unrealized depreciation $(4,636,360)
------------------------------------------------------------------------------
(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 repurchases by the trust of up to 10% annually of its own
shares of beneficial interest. During the six months ended April 30, 2004, the
trust did not repurchase any shares. Transactions in trust shares were
as follows:
Six months ended Year ended
4/30/04 10/31/03
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders in
reinvestment of distributions 30,656 $323,904 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 bank's
base 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 six months ended April 30, 2004, was $122, and
is included in miscellaneous expense. The trust had no significant borrowings
during the six months ended April 30, 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
--------------
NET
UNREALIZED
CONTRACTS TO CONTRACTS APPRECIATION
SETTLEMENT DATE DELIVER/RECEIVE IN EXCHANGE FOR AT VALUE (DEPRECIATION)
6/16/04 EUR 2,853,956 $3,465,244 $3,413,611 $51,633
--------------
PURCHASES
--------------
6/16/04 EUR 335,658 $411,170 $401,480 $(9,690)
At April 30, 2004, the trust had sufficient cash and/or securities to cover
any commitments under these contracts.
(8) RESTRICTED SECURITIES
The trust may invest not more than 20% of its total assets in securities which
are subject to legal or contractual restrictions on resale. At April 30, 2004,
the trust owned the following restricted security, excluding securities issued
under Rule 144A, constituting 0.94% 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 this
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 SHARE/PRINCIPAL
DESCRIPTION ACQUISITION AMOUNT COST VALUE
DLJ Mortgage Acceptance Corp.,
8%, 2004 4/06/01 698,759 $421,813 $635,900
------------------------------------------------------------------------------------------------------------
(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 fund sales. 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 administered by an independent
distribution consultant. The agreement with the SEC is reflected in an order
of the SEC. The settlement order states that MFS failed to adequately disclose
to the Boards and Trustees and to shareholders of the MFS funds the specifics
of its preferred arrangements with certain brokerage firms selling MFS fund
shares. The settlement order states that MFS had in place policies designed to
obtain best execution of all fund trades. As part of the settlement, MFS has
retained an independent compliance consultant to review the completeness of
its disclosure to fund trustees and to fund shareholders of strategic
alliances between MFS or its affiliates and broker-dealers and other financial
advisers who support the sale of fund shares. The brokerage allocation
practices which were the subject of this proceeding were discontinued by MFS
in November 2003.
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 fund prospectuses regarding
market timing and related matters (the "February Settlements"). These
regulators alleged that prospectus language for certain MFS funds was false
and misleading because, although the prospectuses for those funds in the
regulators" view indicated that the funds prohibited market timing, MFS did
not limit trading activity in 11 domestic large cap stock, high grade bond and
money market 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 of the MFS funds
offered to retail investors ("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 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, Sun Life Financial Inc., various MFS funds, the
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 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 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 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. The lawsuits seek unspecified compensatory damages.
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 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 the Retail Funds for damages that they allegedly
sustained as a result of market timing or late trading in certain of the
funds, and will pay $50 million to compensate certain MFS funds based upon the
amount of brokerage commissions allocated in recognition of 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 funds
may pursue claims on behalf of such funds against any party that may have
liability to the funds in respect thereof.
While these developments primarily relate to 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 Trust's shares or other adverse consequences.
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TRUSTEES AND OFFICERS
----------------------------------------------------------------------------------------------------------------------------------
The Trustees and officers of the Trust are listed below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The business 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
John W. Ballen(3) Trustee and President August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February 2004)
Robert J. Manning(3) Trustee and President February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director
Kevin R. Parke(3) Trustee January 2002 until Massachusetts Financial Services Company,
(born 12/14/59) February 2004 President, Chief Investment Officer and Director
(until February 2004)
Robert C. Pozen(3) Trustee February 2004 Massachusetts Financial Services Company, Chairman
(born 08/08/46) (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; Telesat (satellite communications),
Director
Jeffrey L. Shames(3) Trustee October 1993 until Massachusetts Financial Services Company, Chairman
(born 06/02/55) February 2004 (until February 2004)
INDEPENDENT TRUSTEES
J. Atwood Ives Chairman February 1992 Private investor; KeySpan Corporation (energy
(born 05/01/36) related services), Director; Eastern 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, Chief of Cardiac
(born 03/11/37) Surgery; Harvard Medical School, Professor of Surgery
David H. Gunning Trustee January 2004 Cleveland-Cliffs, Inc. (mining products and
(born 05/30/42) 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 consultant;
(born 09/27/41) Capitol Entertainment Management Company (video
franchise), Vice Chairman
Amy B. Lane Trustee January 2004 Retired; Merrill Lynch & Co., Inc., Managing
(born 02/08/53) 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), Partner
William J. Poorvu Trustee August 1982 Private investor; Harvard University Graduate
(born 04/10/35) School of Business Administration, Class of 1961
Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
investment trust), Director
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc. (acquisition planning
(born 09/23/38) 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 consultant
(born 04/25/46)
Ward Smith Trustee October 1992 Private investor
(born 09/13/30)
OFFICERS
Robert J.Manning(3) President and Trustee February 2004 Massachusetts Financial Services Company, Chief
(born 10/20/63) Executive Officer, President, Chief Investment
Officer and Director.
John W. Ballen(3) President and Trustee August 2001 until Massachusetts Financial Services Company, Chief
(born 09/12/59) February 2004 Executive Officer and Director (until February 2004)
James R. Bordewick, Jr.(3) Assistant Secretary September 1990 Massachusetts Financial Services Company, Senior
(born 03/06/59) and Assistant Clerk Vice President and Associate General Counsel
Stephen E. Cavan(3) Secretary and Clerk December 1989 until Massachusetts Financial Services Company, Senior
(born 11/06/53) March 2004 Vice President, General Counsel and Secretary
(until March 2004)
Stephanie A. DeSisto(3) Assistant Treasurer May 2003 Massachusetts Financial Services Company, Vice
(born 10/01/53) 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)
Robert R. Flaherty(3) Assistant Treasurer August 2000 Massachusetts Financial Services Company, Vice
(born 09/18/63) President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
Richard M. Hisey(3) Treasurer August 2002 Massachusetts Financial Services Company, Senior
(born 08/29/58) 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)
Ellen Moynihan(3) Assistant Treasurer April 1997 Massachusetts Financial Services Company, Vice
(born 11/13/57) President
James O. Yost(3) Assistant Treasurer September 1990 Massachusetts Financial Services Company, Senior
(born 06/12/60) 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 series/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.
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 109 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available without charge upon
request by calling 1-800-225-2606.
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INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
JP Morgan Chase Bank
One Chase Manhattan Plaza
PORTFOLIO MANAGER New York, NY 10081
John F. Addeo
-------------------------------------------------------------------------------
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
A general description of the MFS Funds proxy voting policies 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 website at http://www.sec.gov.
NUMBER OF SHAREHOLDERS
As of April 30, 2004, our records indicate that there are 658 registered
shareholders and approximately 5,455 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
500 Boylston Street
Boston, MA 02116-3741
(C) 2004 MFS Investment Management(R)
500 Boylston Street, Boston, MA 02116
MFV-SEM-6/04 18M
ITEM 2. CODE OF ETHICS.
Applicable for semi-annual reports if the registrant has amended the code of
ethics during the period covered by the report or has granted a waiver,
including an implicit waiver, from a provision of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable for semi-annual reports.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time. [Applicable for periods ending on or after July 9,
2004 (beginning with Form N-CSRs filed at the end of September, 2004 for July
31, 2004 reporting period.)]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable for semi-annual reports.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable at this time. [Required for closed-end funds for periods ending
on or after June 15, 2004 (beginning with N-CSR's filed at the end of August,
2004 for June 30, 2004 reporting period.)]
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures 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 registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 11. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) [**An amendment to the code of ethics, 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: The amendment is attached hereto.**][**APPLICABLE IF THE
REGISTRANT HAS AMENDED ITS CODE OF ETHICS DURING THE PERIOD COVERED BY
REPORT**]
(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 23c-1 under the
Act (17 C.F.R. 270.23c-1) sent or given during the period covered by
the report by or on behalf of the registrant to 10 or more persons. Not
applicable at this time. [For closed-end funds for periods ending on or
after June 15, 2004 (beginning with N-CSR's filed at the end of August
2004 for June 30, 2004 reporting period.)]
(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: June 23, 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: June 23, 2004
-------------
By (Signature and Title)* RICHARD M. HISEY
--------------------------------------------------
Richard M. Hisey, Treasurer (Principal Financial
Officer and Accounting Officer)
Date: June 23, 2004
-------------
* Print name and title of each signing officer under his or her signature.