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)
Susan S. Newton
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: October 31
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Date of reporting period: October 31, 2006
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) SPECIAL VALUE TRUST
M F S(R)
INVESTMENT MANAGEMENT
[graphic omitted]
ANNUAL REPORT
10/31/06
MFV-ANN
MFS(R) SPECIAL VALUE TRUST
LETTER FROM THE CEO 1
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PORTFOLIO COMPOSITION 2
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MANAGEMENT REVIEW 3
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PORTFOLIO MANAGERS' PROFILES 5
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PERFORMANCE SUMMARY 6
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DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN 9
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PORTFOLIO OF INVESTMENTS 10
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STATEMENT OF ASSETS AND LIABILITIES 22
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STATEMENT OF OPERATIONS 23
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STATEMENTS OF CHANGES IN NET ASSETS 24
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FINANCIAL HIGHLIGHTS 25
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NOTES TO FINANCIAL STATEMENTS 26
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 35
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RESULTS OF SHAREHOLDER MEETING 36
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TRUSTEES AND OFFICERS 37
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT 43
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PROXY VOTING POLICIES AND INFORMATION 47
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QUARTERLY PORTFOLIO DISCLOSURE 47
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FEDERAL TAX INFORMATION 47
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MFS(R) PRIVACY NOTICE 48
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CONTACT INFORMATION BACK COVER
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TRUST OBJECTIVE: The Trust seeks to maintain an annual distribution
rate of 10% based on its average daily net asset value, while
seeking opportunities for capital appreciation.
New York Stock Exchange Symbol: MFV
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NOT FDIC INSURED o MAY LOSE VALUE o
NO BANK OR CREDIT UNION GUARANTEE o NOT A DEPOSIT o
NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR
NCUA/NCUSIF
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LETTER FROM THE CEO
[Photo of Robert J. Manning]
Dear Shareholders:
What a difference a year can make. By the end of 2005, the Dow Jones
Industrial Average had lost value over the course of the year, as stocks were
beaten back by a myriad of investor worries, including a spike in oil prices, a
rise in interest rates, and political uncertainty in the Middle East.
Fast forward to 2006, and we have seen a dramatically different picture.
While there were some fluctuations in the global markets in the first half of
the year, the second half of 2006 has, so far, been good to many investors. Oil
prices retreated, boosting consumer confidence, and interest rates have held
steady. U.S. stock markets responded favorably to this news, as the Dow reached
a record high in October, passing the 12,000 mark.
What does all of this mean for you? If you're focused on a long-term
investment strategy, the high points in the road -- and the bumps -- should not
necessarily dictate portfolio action on your part. Markets are inherently
cyclical, and we firmly believe that investors who remain committed to a long-
term investment strategy are more likely to achieve their goals than those who
consistently chase short-term performance.
At MFS(R), our unique teamwork approach to managing money and our global
research platform support an unwavering focus on helping you realize your
long-term financial goals. We believe in a three-pronged investment strategy of
allocating your holdings across major asset classes, diversifying within each
class, and rebalancing regularly. Of course, these strategies cannot guarantee a
profit or protect against a loss. Investing and planning for the long term
require diligence and patience -- two traits that are essential to capitalizing
on the many opportunities the financial markets can offer.
Respectfully,
/s/ Robert J. Manning
Robert J. Manning
Chief Executive Officer and Chief Investment Officer
MFS Investment Management(R)
December 15, 2006
The opinions expressed in this letter are subject to change, may not be relied
upon for investment advice, and no forecasts can be guaranteed.
PORTFOLIO COMPOSITION
PORTFOLIO STRUCTURE (i)
Bonds 70.7%
Common Stocks 22.2%
Preferred Stocks 3.3%
Floating Rate Loans 1.5%
Convertible Preferred Stocks 0.1%
Cash & Other Net Assets 2.2%
TOP TEN HOLDINGS (i)
Owens-Illinois, Inc. 2.5%
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Apache Corp. 2.1%
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ION Media Networks, Inc., 14.25% 1.9%
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Tyco International Ltd. 1.9%
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Symantec Corp. 1.9%
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Warner Chilcott Ltd., "A" 1.9%
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Tenet Healthcare Corp. 1.8%
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Pall Corp. 1.7%
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Nortel Networks Corp. 1.5%
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General Motors Acceptance Corp.,
6.75%, 2014 1.5%
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CREDIT QUALITY OF BONDS (r)
AAA 0.2%
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AA 0.1%
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BBB 1.9%
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BB 19.0%
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B 48.1%
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CCC 26.8%
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C 0.5%
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Not Rated 3.4%
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PORTFOLIO FACTS
Average Duration (d) 4.2
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Average Life (m) 7.9 yrs.
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Average Maturity (m) 8.6 yrs.
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Average Credit Quality of Rated
Securities (long-term) (a) B
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Average Credit Quality of Rated
Securities (short-term) (a) A-1
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(a) The average credit quality of rated securities is based upon a market
weighted average of portfolio holdings that are rated by public rating
agencies.
(d) Duration is a measure of how much a bond's price is likely to fluctuate with
general changes in interest rates, e.g., if rates rise 1.00%, a bond with a
5-year duration is likely to lose about 5.00% of its value.
(i) For purposes of this graphical presentation, the bond component includes
both accrued interest amounts and the equivalent exposure from any
derivative holdings, if applicable.
(m) The average maturity shown is calculated using the final stated maturity on
the portfolio's holdings without taking into account any holdings which have
been pre- refunded or pre-paid to an earlier date or which have a mandatory
put date prior to the stated maturity. The average life shown takes into
account these earlier dates.
(r) Each security is assigned a rating from Moody's Investors Service. If not
rated by Moody's, the rating will be that assigned by Standard & Poor's.
Likewise, if not assigned a rating by Standard & Poor's, it will be based on
the rating assigned by Fitch, Inc. For those portfolios that hold a security
which is not rated by any of the three agencies, the security is considered
Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed
securities, if any, are included in the "AAA"-rating category. Percentages
are based on the total market value of investments as of 10/31/06.
Percentages are based on net assets as of 10/31/06, unless otherwise noted.
The portfolio is actively managed and current holdings may be different.
MANAGEMENT REVIEW
SUMMARY OF RESULTS
MFS Special Value Trust is a closed-end fund and maintains a portfolio that
includes investments in fixed income and equity securities.
For the twelve months ended October 31, 2006, the MFS Special Value Trust
provided a total return of 8.66%, at net asset value. This compares with a
return of 10.33% for the trust's fixed income benchmark, the Lehman Brothers
U.S. High-Yield Corporate Bond Index (the Lehman index), and a return of 21.46%
for the trust's equity benchmark, the Russell 1000 Value Index (the Russell
index).
DETRACTORS FROM PERFORMANCE
Within the fixed income portion of the trust, our holdings in the sovereign debt
of the Republic of Argentina held back performance relative to the Lehman index.
In the equity portion of the trust, stock selection in the utilities and
communications, basic materials, technology, health care, and energy sectors was
the primary factor that detracted from performance relative to the Russell
Index.
In the utilities and communications sector, power producer and marketer
Calpine(c)(g) and global communications company Sprint Nextel(g) hurt relative
performance. Calpine filed for Chapter 11 bankruptcy protection in December 2005
due to the company's inability to repay its debt. Sprint Nextel's stock decline
appears to have been caused by weaker-than-expected net new subscribers and
worries regarding the quality of their subscriber base.
In basic materials, package manufacturer Owens-Illinois was among the top
detractors. In technology, global telecommunications equipment company Nortel
Networks(c) dampened results. We believe Nortel's delay in filing the 2005
annual reports and restatement of certain prior period results, along with
skepticism about the stock, contributed to the decline of the company's stock
price.
In the health care sector, health services provider Tenet Healthcare held back
relative performance. In energy, drilling rig operator GlobalSantaFe(c), oil and
gas exploration and production company Apache, and oilfield services provider BJ
Services(c)(g) had a negative impact on relative returns.
Stocks in other sectors that hurt results included home improvement products
maker Masco and cable services provider Comcast(c)(g).
CONTRIBUTORS TO PERFORMANCE
Security selection in the fixed income portion of the trust was the principal
contributor to performance relative to the Lehman index. Paxson
Communications(g) and Smurfit Kappa Group(g) were among the top contributors.
Our holdings in a bond issued by Asset Securitization Corp. and our exposure to
securities with higher yields, relative to those in the index, also helped.
Respectfully,
John F. Addeo David P. Cole Kenneth J. Enright
Portfolio Manager Portfolio Manager Portfolio Manager
Note to Shareholders: On October 9, 2006, David P. Cole became a co-manager of
the Trust. Previously, the Trust was co-managed by John F. Addeo, Kenneth J.
Enright, and Scott B. Richards.
(c) Security is not a benchmark constituent.
(g) Security was not held in the portfolio at period end.
The views expressed in this report are those of the portfolio managers only
through the end of the period of the report, as stated on the cover, and do not
necessarily reflect the views of MFS or any other person in the MFS
organization. These views are subject to change at any time based on market and
other conditions, and MFS disclaims any responsibility to update such views.
These views may not be relied upon as investment advice or as an indication of
trading intent on behalf of any MFS fund. References to specific securities are
not recommendations of such securities and may not be representative of any MFS
fund's future or current investments.
PORTFOLIO MANAGERS' PROFILES
John F. Addeo, CFA, is Vice President of MFS Investment Management(R) (MFS(R))
and a portfolio manager of the high-yield bond portfolios for our mutual funds,
variable annuities, offshore accounts and closed-end funds. John joined MFS as a
research analyst in 1998 and became portfolio manager in 2001. He was named
Associate Director of Fixed Income Research in 2004. He received a Bachelor of
Science degree from Siena College in 1984. He holds the Chartered Financial
Analyst (CFA) designation.
David P. Cole, CFA, is Vice President of MFS Investment Management(R) (MFS(R)).
He is also a co-portfolio manager on the firm's high-yield portfolios and the
high-yield segment of the MFS Diversified Income Fund. David joined MFS in 2004
after working for five years as a High Yield Analyst for Franklin Templeton
Investments. Prior to this, he served as a Financial Economist/Treasury Market
Analyst for Thomson Financial Services and three years as an Economist for
Standard and Poor's. David has a bachelor's degree from Cornell University and
an M.B.A from University of California, Berkeley. He holds the Chartered
Financial Analyst (CFA) designation.
Kenneth J. Enright, CFA, is Senior Vice President and Director of Value
Portfolio Management of MFS Investment Management(R) (MFS(R)) and a portfolio
manager of the value and total return, or balanced, portfolios of our mutual
funds, variable annuities, and offshore reinvestment products. Ken joined MFS in
1986 as a research analyst. He was named Assistant Vice President in 1987 and
Vice President in 1988. He followed business services, coal, natural gas, oil,
retail store, and supermarket stocks as an analyst prior to being named
portfolio manager in 1993. He was named Senior Vice President in 1999 and
Director of Value Portfolio Management. Ken is a graduate of Boston State
College and received an M.B.A. degree from Babson College. He is a member of The
Boston Security Analysts Society, Inc., and holds the Chartered Financial
Analyst (CFA) designation.
PERFORMANCE SUMMARY THROUGH 10/31/06
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
Year ended 10/31/06
Date Price
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Net Asset Value 10/31/06 $9.52
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10/31/05 $9.66
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New York Stock Exchange Price 10/31/06 $10.91
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9/06/06 (high) (t) $11.11
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12/29/05 (low) (t) $9.17
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10/31/05 $10.85
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TOTAL RETURNS VS BENCHMARK
Year ended 10/31/06
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New York Stock Exchange Price (r) 10.88%
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Net Asset Value (r) 8.66%
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Lehman Brothers U.S. High-Yield Corporate Bond Index (f) 10.33%
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Russell 1000 Value Index (f) 21.46%
(f) Source: FactSet Research Systems Inc.
(r) Includes reinvestment of dividends and capital gain distributions.
(t) For the period November 1, 2005 through October 31, 2006.
INDEX DEFINITIONS
Lehman Brothers U.S. High-Yield Corporate Bond Index - measures the universe
of non-investment grade, fixed rate debt. Eurobonds and debt issues from
countries designated as emerging markets (e.g., Argentina, Brazil, Venezuela,
etc.) are excluded.
Russell 1000 Value Index - constructed to provide a comprehensive barometer for
the value securities in the large-cap segment of the U.S. equity universe.
Companies in this index generally have lower price-to-book ratios and lower
forecasted growth values.
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. When trust shares trade at a premium, buyers pay more than the net asset
value underlying trust shares, and shares purchased at a premium would receive
less than the amount paid for them in the event of the trust's liquidation. As a
result, the total returns that are calculated based on the net asset value and
New York Stock Exchange prices can be different.
The trust's monthly distributions may include a return of capital to
shareholders. Distributions that are treated for federal income tax purposes as
a return of capital will reduce each shareholder's basis in his or her shares
and, to the extent the return of capital exceeds such basis, will be treated as
gain to the shareholder from a sale of shares. Returns of shareholder capital
have the effect of reducing the trust's assets and may increase 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 assets.
From time to time the trust may receive proceeds from litigation settlements,
without which performance would be lower.
KEY RISK CONSIDERATIONS
Stock markets are volatile and can decline due to adverse issuer, political,
regulatory or economic conditions. The value of the portfolio's equity
investments will fluctuate in response to many factors including company
specific factors as well as general market conditions. Foreign investments can
be more volatile than U.S. investments. Changes in currency exchange rates may
affect the portfolio's net asset value, the value of dividends and interest
earned and gains and losses realized on the sale of securities. Investing in
emerging markets can involve risks in addition to those generally associated
with investing in more developed foreign markets. The portfolio's yield and
share prices change daily based on the credit quality of its investments and
changes in interest rates. In general, the value of debt securities will decline
when interest rates rise and will increase when interest rates fall. Debt
securities with longer maturity dates will be subject to greater price
fluctuations than those with shorter maturities. Derivatives involve risks
different from, and greater than, those of the underlying indicator's in whose
value the derivative is based. The value of the derivative can move in
unexpected ways and result in unanticipated losses and increased volatility if
the value of the underlying indicator(s) does not move in the direction or the
extent anticipated. Lower quality debt securities involve substantially greater
risk of default and their value can decline significantly over time. When you
sell shares, they may be worth more or less than the amount you paid for them.
Please see the prospectus for further information regarding these and other
risks considerations.
These risks may increase share price volatility.
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.
DIVIDEND REINVESTMENT AND
CASH PURCHASE PLAN
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.
The trust has amended the plan to appoint Computershare Trust Company, N.A. (the
Transfer Agent for the trust as of December 18, 2006) as agent for the plan. The
effective date for the amendment is May 1, 2007. Under the terms of the plan, if
you do not withdraw from the plan prior to May 1, 2007, you will be deemed to
accept the appointment of Computershare Trust Company, N.A. as your agent under
the plan.
PORTFOLIO OF INVESTMENTS
10/31/06
The Portfolio of Investments is a complete list of all securities owned by your
trust. It is categorized by broad-based asset classes.
Bonds - 68.8%
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ISSUER SHARES/PAR VALUE ($)
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Aerospace - 0.1%
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Vought Aircraft Industry, Inc., 8%, 2011 $ 60,000 $ 56,700
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Airlines - 0.9%
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Continental Airlines, Inc., 8.307%, 2018 $ 207,668 $ 210,783
Continental Airlines, Inc., 6.795%, 2018 307,829 299,830
Continental Airlines, Inc., 7.566%, 2020 54,784 54,852
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$ 565,465
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Apparel Manufacturers - 1.1%
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Levi Strauss & Co., 9.75%, 2015 $ 345,000 $ 365,700
Propex Fabrics, Inc., 10%, 2012 395,000 355,500
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$ 721,200
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Asset Backed & Securitized - 2.9%
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Anthracite CDO Ltd., 6%, 2037 (z) $ 450,000 $ 392,396
Asset Securitization Corp., FRN, 8.4999%, 2029 (z) 700,000 759,931
Falcon Franchise Loan LLC, FRN, 3.8455%, 2025 (i)(z) 552,834 86,773
Morgan Stanley Capital I, Inc., FRN, 1.4471%, 2039 (i)(n) 697,506 43,272
Preferred Term Securities XII Ltd., 9.8%, 2033 (e)(z) 225,000 195,750
Preferred Term Securities XVI Ltd., 14%, 2035 (e)(z) 300,000 264,375
Preferred Term Securities XVII Ltd., 9.3%, 2035 (e)(z) 187,000 152,873
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$ 1,895,370
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Automotive - 6.8%
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Cooper Standard Automotive, Inc., 8.375%, 2014 $ 340,000 $ 250,750
Ford Motor Co., 7.45%, 2031 293,000 229,639
Ford Motor Credit Co., 6.625%, 2008 94,000 92,225
Ford Motor Credit Co., 5.8%, 2009 475,000 453,701
Ford Motor Credit Co., 9.75%, 2010 (n) 440,000 453,732
Ford Motor Credit Co., 8.625%, 2010 125,000 124,441
Ford Motor Credit Co., 7%, 2013 480,000 446,219
General Motors Acceptance Corp., 6.875%, 2011 414,000 416,842
General Motors Acceptance Corp., 6.75%, 2014 937,000 928,976
General Motors Corp., 7.2%, 2011 145,000 135,212
General Motors Corp., 8.375%, 2033 526,000 468,140
Goodyear Tire & Rubber Co., 9%, 2015 420,000 424,725
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$ 4,424,602
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Broadcasting - 5.2%
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Allbritton Communications Co., 7.75%, 2012 $ 350,000 $ 351,750
Barrington Broadcasting Group, 10.5%, 2014 (n) 175,000 172,812
EchoStar DBS Corp., 6.375%, 2011 150,000 148,500
Granite Broadcasting Corp., 9.75%, 2010 340,000 317,050
Hughes Network Systems LLC, 9.5%, 2014 (n) 145,000 150,075
Inmarsat Finance II PLC, 0% to 2008, 10.375% to 2012 360,000 322,200
Intelsat Ltd., 7.625%, 2012 230,000 207,575
Intelsat Ltd., 9.25%, 2016 (n) 125,000 133,437
Intelsat Ltd., 11.25%, 2016 (n) 205,000 223,194
Intelsat Ltd., 0% to 2010, 9.25% to 2015 180,000 136,350
Intelsat Subsidiary Holding Co. Ltd., 8.625%, 2015 135,000 140,062
LBI Media Holdings, Inc., 0% to 2008, 11% to 2013 875,000 740,469
XM Satellite Radio, Inc., 9.75%, 2014 250,000 237,500
Young Broadcasting, Inc., 10%, 2011 110,000 103,950
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$ 3,384,924
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Building - 2.1%
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Associated Materials, Inc., 0% to 2009, 11.25% to 2014 $ 110,000 $ 64,625
Goodman Global Holdings, Inc., 7.875%, 2012 225,000 216,000
Interface, Inc., 10.375%, 2010 180,000 197,100
Interface, Inc., 9.5%, 2014 170,000 176,375
Nortek Holdings, Inc., 8.5%, 2014 150,000 143,250
Nortek Holdings, Inc., 0% to 2009, 10.75% to 2014 807,000 552,795
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$ 1,350,145
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Business Services - 1.0%
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Nortel Networks Ltd., 10.75%, 2016 (n) $ 105,000 $ 112,350
Northern Telecom Corp., 6.875%, 2023 75,000 61,875
SunGard Data Systems, Inc., 10.25%, 2015 470,000 492,325
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$ 666,550
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Cable TV - 3.8%
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CCH I Holdings LLC, 11%, 2015 $ 533,000 $ 513,679
CCH II Holdings LLC, 10.25%, 2010 395,000 407,837
CSC Holdings, Inc., 6.75%, 2012 (n) 215,000 212,044
Kabel Deutschland, 10.625%, 2014 (n) 230,000 248,687
Mediacom LLC, 9.5%, 2013 440,000 451,550
NTL Cable PLC, 9.125%, 2016 173,000 181,866
Telenet Group Holdings N.V., 0% to 2008, 11.5% to 2014 (n) 510,000 458,363
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$ 2,474,026
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Chemicals - 3.1%
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Basell AF SCA, 8.375%, 2015 (n) $ 96,000 $ 97,440
Crystal U.S. Holdings LLC, "A", 0% to 2009, 10% to 2014 36,000 29,790
Crystal U.S. Holdings LLC, "B", 0% to 2009, 10.5% to 2014 520,000 436,800
Equistar Chemicals LP, 10.625%, 2011 40,000 42,800
Huntsman International LLC, 10.125%, 2009 1,000 1,015
Innophos, Inc., 8.875%, 2014 115,000 114,712
KI Holdings, Inc., 0% to 2009, 9.875% to 2014 547,000 415,720
Lyondell Chemical Co., 11.125%, 2012 340,000 368,050
Nalco Co., 8.875%, 2013 505,000 531,513
Rockwood Specialties Group, Inc., 10.625%, 2011 4,000 4,290
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$ 2,042,130
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Consumer Goods & Services - 1.6%
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AAC Group Holding Corp., 12.75%, 2012 (n)(p) $ 245,110 $ 257,978
Affinion Group, Inc., 11.5%, 2015 195,000 203,287
GEO Group, Inc., 8.25%, 2013 210,000 211,575
Jarden Corp., 9.75%, 2012 105,000 111,037
Playtex Products, Inc., 9.375%, 2011 65,000 67,600
Visant Holding Corp., 8.75%, 2013 175,000 179,375
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$ 1,030,852
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Containers - 1.2%
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Berry Plastics Holding Corp., 8.875%, 2014 (n) $ 145,000 $ 146,450
Graham Packaging Co. LP, 9.875%, 2014 450,000 451,125
Owens-Brockway Glass Container, Inc., 8.25%, 2013 160,000 164,800
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$ 762,375
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Defense Electronics - 0.2%
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L-3 Communications Holdings, Inc., 6.125%, 2014 $ 130,000 $ 128,050
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Electronics - 0.6%
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NXP B.V./NXP Funding LLC, 7.875%, 2014 (z) $ 85,000 $ 86,275
Sensata Technologies B.V., 8%, 2014 (n) 320,000 308,800
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$ 395,075
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Emerging Market Quasi-Sovereign - 0.9%
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Gazprom OAO, 9.625%, 2013 (n) $ 150,000 $ 178,125
Gazprom OAO, 9.625%, 2013 60,000 71,250
Nak Naftogaz Ukrainy, 8.125%, 2009 200,000 193,134
Pemex Project Funding Master Trust, 8.625%, 2022 143,000 174,460
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$ 616,969
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Emerging Market Sovereign - 1.3%
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Federative Republic of Brazil, 8.875%, 2019 $ 242,000 $ 292,578
Republic of Argentina, FRN, 0%, 2035 1,996,000 222,554
Republic of Ecuador, 10%, 2030 196,000 195,706
Republic of Panama, 9.375%, 2029 93,000 120,668
Republic of Panama, 6.7%, 2036 28,000 28,238
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$ 859,744
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Energy - Independent - 1.5%
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Chesapeake Energy Corp., 6.375%, 2015 $ 425,000 $ 410,125
Chesapeake Energy Corp., 6.875%, 2016 285,000 282,862
Hilcorp Energy I, 9%, 2016 (n) 130,000 134,550
Whiting Petroleum Corp., 7%, 2014 135,000 132,975
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$ 960,512
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Entertainment - 1.7%
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AMC Entertainment, Inc., 11%, 2016 $ 180,000 $ 199,125
HRP Myrtle Beach Operations, FRN, 10.12%, 2012 (z) 155,000 154,612
Marquee Holdings, Inc., 0% to 2009, 12% to 2014 415,000 324,738
Six Flags, Inc., 8.875%, 2010 180,000 174,600
Six Flags, Inc., 9.75%, 2013 266,000 246,050
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$ 1,099,125
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Food & Beverages - 0.3%
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Chaoda Modern Agriculture Holdings, 7.75%, 2010 (n) $ 224,000 $ 220,640
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Forest & Paper Products - 1.8%
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Jefferson Smurfit Corp., 8.25%, 2012 $ 507,000 $ 491,790
JSG Funding PLC, 7.75%, 2015 30,000 28,275
Millar Western Forest Products Ltd., 7.75%, 2013 260,000 214,500
Stone Container Corp., 7.375%, 2014 90,000 82,688
Verso Paper Holdings LLC, 9.125%, 2014 (n) 100,000 101,500
Verso Paper Holdings LLC, 11.375%, 2016 (n) 250,000 253,750
-----------
$ 1,172,503
-------------------------------------------------------------------------------------------
Gaming & Lodging - 4.7%
-------------------------------------------------------------------------------------------
Caesars Entertainment, Inc., 7%, 2013 $ 295,000 $ 298,580
Greektown Holdings, 10.75%, 2013 (n) 345,000 364,837
Harrah's Entertainment, Inc., 5.75%, 2017 205,000 168,960
Majestic Star Casino LLC, 9.75%, 2011 220,000 201,300
MTR Gaming Group, Inc., 9%, 2012 (n) 80,000 81,100
NCL Corp. Ltd., 10.625%, 2014 360,000 351,000
Pinnacle Entertainment, Inc., 8.25%, 2012 195,000 197,925
Pokagon Gaming Authority, 10.375%, 2014 (n) 180,000 193,050
Resorts International Hotel & Casino, Inc., 11.5%, 2009 400,000 401,000
Station Casinos, Inc., 6.5%, 2014 485,000 442,563
Trump Entertainment Resorts Holdings, Inc., 8.5%, 2015 140,000 137,025
Wynn Las Vegas LLC, 6.625%, 2014 230,000 225,400
-----------
$ 3,062,740
-------------------------------------------------------------------------------------------
Industrial - 2.9%
-------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011 (z) $ 195,000 $ 209,625
Blount, Inc., 8.875%, 2012 190,000 190,000
Da-Lite Screen Co., Inc., 9.5%, 2011 120,000 126,600
Education Management LLC, 10.25%, 2016 (n) 205,000 212,687
JohnsonDiversey Holdings, Inc., "B", 9.625%, 2012 380,000 388,075
JohnsonDiversey Holdings, Inc., 0% to 2007, 10.67% to 2013 169,000 152,522
Knowledge Learning Corp., 7.75%, 2015 (z) 85,000 80,538
Milacron Escrow Corp., 11.5%, 2011 330,000 318,038
RBS Global & Rexnord Corp., 9.5%, 2014 (n) 140,000 144,900
RBS Global & Rexnord Corp., 11.75%, 2016 (n) 80,000 83,200
-----------
$ 1,906,185
-------------------------------------------------------------------------------------------
Machinery & Tools - 0.7%
-------------------------------------------------------------------------------------------
Case Corp., 7.25%, 2016 $ 95,000 $ 95,594
Case New Holland, Inc., 9.25%, 2011 120,000 127,350
Case New Holland, Inc., 7.125%, 2014 215,000 216,612
-----------
$ 439,556
-------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 4.8%
-------------------------------------------------------------------------------------------
Accellent, Inc., 10.5%, 2013 $ 135,000 $ 141,075
CDRV Investors, Inc., 0% to 2010, 9.625% to 2015 445,000 344,875
DaVita, Inc., 6.625%, 2013 80,000 78,800
DaVita, Inc., 7.25%, 2015 150,000 149,250
Hanger Orthopedic Group, 10.25%, 2014 155,000 158,100
HCA, Inc., 8.75%, 2010 70,000 70,700
HCA, Inc., 6.375%, 2015 815,000 652,000
HealthSouth Corp., 10.75%, 2016 (n) 415,000 425,375
Psychiatric Solutions, Inc., 7.75%, 2015 125,000 123,750
Select Medical Corp., 7.625%, 2015 360,000 301,500
Triad Hospitals, Inc., 7%, 2013 45,000 43,763
US Oncology, Inc., 10.75%, 2014 350,000 385,000
Vanguard Health Holding II, 9%, 2014 225,000 217,688
-----------
$ 3,091,876
-------------------------------------------------------------------------------------------
Metals & Mining - 0.2%
-------------------------------------------------------------------------------------------
Arch Western Finance LLC, 6.75%, 2013 $ 130,000 $ 125,450
-------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.3%
-------------------------------------------------------------------------------------------
ANR Pipeline Co., 9.625%, 2021 $ 105,000 $ 130,678
Atlas Pipeline Partners, 8.125%, 2015 80,000 81,600
Colorado Interstate Gas Co., 5.95%, 2015 95,000 91,317
El Paso Energy Corp., 7%, 2011 250,000 253,750
El Paso Energy Corp., 7.75%, 2013 165,000 169,125
El Paso Performance-Linked, 7.75%, 2011 (n) 140,000 144,900
-----------
$ 871,370
-------------------------------------------------------------------------------------------
Network & Telecom - 2.4%
-------------------------------------------------------------------------------------------
Cincinnati Bell, Inc., 8.375%, 2014 $ 235,000 $ 239,700
Global Crossing UK Finance, 10.75%, 2014 180,000 193,500
Hawaiian Telecom Communications, Inc., 9.75%, 2013 130,000 134,550
Hawaiian Telecom Communications, Inc., 12.5%, 2015 195,000 208,162
Nordic Telephone Co. Holdings, 8.875%, 2016 (n) 105,000 109,988
Qwest Corp., 7.875%, 2011 145,000 153,519
Qwest Corp., 8.875%, 2012 175,000 192,500
Time Warner Telecom Holdings, Inc., 9.25%, 2014 210,000 221,550
Windstream Corp., 8.625%, 2016 (n) 95,000 102,481
-----------
$ 1,555,950
-------------------------------------------------------------------------------------------
Oil Services - 0.4%
-------------------------------------------------------------------------------------------
Basic Energy Services, Inc., 7.125%, 2016 $ 110,000 $ 104,775
Hanover Compressor Co., 9%, 2014 125,000 133,125
-----------
$ 237,900
-------------------------------------------------------------------------------------------
Other Banks & Diversified Financials - 0.7%
-------------------------------------------------------------------------------------------
ATF Bank, 9%, 2016 (n) $ 142,000 $ 139,291
ATF Bank JSC, 9.25%, 2012 (n) 219,000 222,285
Russian Standard Finance S.A., 8.625%, 2011 (n) 101,000 100,495
-----------
$ 462,071
-------------------------------------------------------------------------------------------
Pharmaceuticals - 0.4%
-------------------------------------------------------------------------------------------
Warner Chilcott Corp., 8.75%, 2015 $ 244,000 $ 251,930
-------------------------------------------------------------------------------------------
Printing & Publishing - 2.8%
-------------------------------------------------------------------------------------------
American Media Operations, Inc., 8.875%, 2011 $ 260,000 $ 230,750
Dex Media, Inc., 0% to 2008, FRN to 2013 545,000 474,831
Dex Media, Inc., 0% to 2008, FRN to 2013 210,000 182,962
Houghton Mifflin Co., 0% to 2008, 11.5% to 2013 385,000 347,462
PRIMEDIA, Inc., 8.875%, 2011 295,000 292,788
PRIMEDIA, Inc., 8%, 2013 25,000 23,313
R.H. Donnelley Corp., 8.875%, 2016 240,000 247,500
-----------
$ 1,799,606
-------------------------------------------------------------------------------------------
Railroad & Shipping - 0.2%
-------------------------------------------------------------------------------------------
TFM S.A. de C.V., 9.375%, 2012 $ 121,000 $ 129,168
-------------------------------------------------------------------------------------------
Restaurants - 0.4%
-------------------------------------------------------------------------------------------
Denny's Corp. Holdings, Inc., 10%, 2012 $ 100,000 $ 104,000
El Pollo Loco, Inc., 11.75%, 2013 (n) 135,000 143,775
-----------
$ 247,775
-------------------------------------------------------------------------------------------
Retailers - 2.6%
-------------------------------------------------------------------------------------------
Buhrmann U.S., Inc., 7.875%, 2015 $ 180,000 $ 171,000
Burlington Coat Factory Warehouse Corp., 11.125%, 2014 (n) 235,000 231,181
Burlington Coat Factory Warehouse Corp., 0% to 2008,
14.5% to 2014 (n) 385,000 327,250
Couche-Tard, Inc., 7.5%, 2013 170,000 174,250
Eye Care Centers of America, 10.75%, 2015 145,000 158,413
Jean Coutu Group (PJC), Inc., 7.625%, 2012 115,000 120,750
Mothers Work, Inc., 11.25%, 2010 140,000 147,875
Neiman Marcus Group, Inc., 9%, 2015 165,000 176,963
Neiman Marcus Group, Inc., 10.375%, 2015 140,000 153,125
-----------
$ 1,660,807
-------------------------------------------------------------------------------------------
Specialty Stores - 0.9%
-------------------------------------------------------------------------------------------
GSC Holdings Corp., 8%, 2012 $ 235,000 $ 243,812
Michaels Stores, Inc., 11.375%, 2016 (z) 225,000 225,281
Payless ShoeSource, Inc., 8.25%, 2013 125,000 127,500
-----------
$ 596,593
-------------------------------------------------------------------------------------------
Steel - 1.1%
-------------------------------------------------------------------------------------------
Chaparral Steel Co., 10%, 2013 $ 155,000 $ 173,600
FMG Finance Ltd., 10.625%, 2016 (n) 325,000 320,125
PNA Group, Inc., 10.75%, 2016 (n) 210,000 216,300
-----------
$ 710,025
-------------------------------------------------------------------------------------------
Telecommunications - Wireless - 1.1%
-------------------------------------------------------------------------------------------
Centennial Communications Corp., 10%, 2013 $ 30,000 $ 31,125
Centennial Communications Corp., 10.125%, 2013 140,000 150,150
Rogers Wireless, Inc., 7.5%, 2015 65,000 69,388
Rural Cellular Corp., 9.75%, 2010 213,000 215,663
Wind Acquisition Finance S.A., 10.75%, 2015 (n) 225,000 250,031
-----------
$ 716,357
-------------------------------------------------------------------------------------------
Tobacco - 0.5%
-------------------------------------------------------------------------------------------
Reynolds American, Inc., 7.3%, 2015 (n) $ 340,000 $ 353,282
-------------------------------------------------------------------------------------------
Transportation - 0.4%
-------------------------------------------------------------------------------------------
PT Arpeni Pratama Ocean Line Tbk, 8.75%, 2013 (n) $ 275,000 $ 275,636
-------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.2%
-------------------------------------------------------------------------------------------
Edison Mission Energy, 7.75%, 2016 (n) $ 160,000 $ 165,200
Midwest Generation LLC, 8.75%, 2034 145,000 156,781
Mission Energy Holding Co., 13.5%, 2008 130,000 144,950
NGC Corp. Capital Trust, 8.316%, 2027 275,000 253,688
NRG Energy, Inc., 7.375%, 2016 430,000 434,838
Reliant Energy, Inc., 6.75%, 2014 100,000 95,375
Reliant Resources, Inc., 9.25%, 2010 200,000 207,000
-----------
$ 1,457,832
-------------------------------------------------------------------------------------------
TOTAL BONDS (IDENTIFIED COST, $43,355,607) $44,779,066
-------------------------------------------------------------------------------------------
Common Stocks - 22.2%
-------------------------------------------------------------------------------------------
Chemicals - 0.8%
-------------------------------------------------------------------------------------------
Huntsman Corp. (a)(l) 20,800 $ 359,216
Nalco Holding Co. (a)(l) 6,600 133,518
-----------
$ 492,734
-------------------------------------------------------------------------------------------
Computer Software - 1.9%
-------------------------------------------------------------------------------------------
Symantec Corp. (a)(l) 61,100 $ 1,212,224
-------------------------------------------------------------------------------------------
Construction - 1.4%
-------------------------------------------------------------------------------------------
Masco Corp. (l) 33,700 $ 931,805
-------------------------------------------------------------------------------------------
Consumer Goods & Services - 0.3%
-------------------------------------------------------------------------------------------
Brink's Co. (l) 3,700 $ 194,213
-------------------------------------------------------------------------------------------
Containers - 2.6%
-------------------------------------------------------------------------------------------
Crown Holdings, Inc. (a)(l) 5,600 $ 108,864
Owens-Illinois, Inc. (a)(l) 97,000 1,610,200
-----------
$ 1,719,064
-------------------------------------------------------------------------------------------
Electrical Equipment - 1.9%
-------------------------------------------------------------------------------------------
Tyco International Ltd. 41,200 $ 1,212,516
-------------------------------------------------------------------------------------------
Energy - Independent - 2.4%
-------------------------------------------------------------------------------------------
Apache Corp. (l) 21,100 $ 1,378,252
Foundation Coal Holdings, Inc. (l) 5,120 187,955
-----------
$ 1,566,207
-------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 1.8%
-------------------------------------------------------------------------------------------
Tenet Healthcare Corp. (a)(l) 164,600 $ 1,162,076
-------------------------------------------------------------------------------------------
Medical Equipment - 1.7%
-------------------------------------------------------------------------------------------
Pall Corp. (l) 35,400 $ 1,129,260
-------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.2%
-------------------------------------------------------------------------------------------
Ferrell Gas Partners LP 6,088 $ 137,102
-------------------------------------------------------------------------------------------
Natural Gas - Pipeline - 1.1%
-------------------------------------------------------------------------------------------
Williams Cos., Inc. (l) 30,000 $ 732,900
-------------------------------------------------------------------------------------------
Network & Telecom - 1.5%
-------------------------------------------------------------------------------------------
Nortel Networks Corp. (a)(l) 439,300 $ 979,639
-------------------------------------------------------------------------------------------
Oil Services - 1.1%
-------------------------------------------------------------------------------------------
GlobalSantaFe Corp. (l) 13,630 $ 707,397
-------------------------------------------------------------------------------------------
Pharmaceuticals - 2.7%
-------------------------------------------------------------------------------------------
Warner Chilcott Ltd., "A" (a) 91,400 $ 1,206,480
Wyeth 10,600 540,918
-----------
$ 1,747,398
-------------------------------------------------------------------------------------------
Printing & Publishing - 0.0%
-------------------------------------------------------------------------------------------
Golden Books Family Entertainment, Inc. (a) 53,266 $ 0
-------------------------------------------------------------------------------------------
Telephone Services - 0.3%
-------------------------------------------------------------------------------------------
Adelphia Business Solutions, Inc. (a) 40,000 $ 0
Windstream Corp. 13,500 185,220
-----------
$ 185,220
-------------------------------------------------------------------------------------------
Utilities - Electric Power - 0.5%
-------------------------------------------------------------------------------------------
NRG Energy, Inc. (a)(l) 6,227 $ 299,830
-------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $14,481,389) $14,409,585
-------------------------------------------------------------------------------------------
Floating Rate Loans - 1.5% (g)(r)
-------------------------------------------------------------------------------------------
Broadcasting - 0.0%
-------------------------------------------------------------------------------------------
Emmis Communications Corp., Term Loan, 2013 (o) $ 1,964 $ 1,973
-------------------------------------------------------------------------------------------
Containers - 0.6%
-------------------------------------------------------------------------------------------
Altivity Packaging LLC, Second Lien Term Loan, 10.3225%, 2013 $ 284,091 $ 287,109
Altivity Packaging LLC, Second Lien Term Loan, 10.32%, 2013 90,909 91,875
-----------
$ 378,984
-------------------------------------------------------------------------------------------
Gaming & Lodging - 0.4%
-------------------------------------------------------------------------------------------
Gulfside Casino, Term Loan B, 10.3508%, 2012 $ 230,973 $ 232,706
-------------------------------------------------------------------------------------------
Oil Services - 0.4%
-------------------------------------------------------------------------------------------
MEG Energy Corp., Bridge Term Loan, 10.12%, 2013 $ 288,431 $ 286,989
-------------------------------------------------------------------------------------------
Specialty Stores - 0.1%
-------------------------------------------------------------------------------------------
Michaels Stores, Inc., Term Loan, 2013 (o) $ 80,637 $ 80,939
-------------------------------------------------------------------------------------------
TOTAL FLOATING RATE LOANS (IDENTIFIED COST, $975,560) $ 981,591
-------------------------------------------------------------------------------------------
Convertible Preferred Stocks - 0.1%
-------------------------------------------------------------------------------------------
Real Estate - 0.1%
-------------------------------------------------------------------------------------------
Mills Corp., 6.75% (n) (Identified Cost, $78,750) 100 $ 86,125
-------------------------------------------------------------------------------------------
Preferred Stocks - 3.3%
-------------------------------------------------------------------------------------------
Broadcasting - 3.3%
-------------------------------------------------------------------------------------------
ION Media Networks, Inc., 14.25% (p) 158 $ 1,267,950
Spanish Broadcasting Systems, Inc., "B", 10.75% 775 852,500
-----------
$ 2,120,450
-------------------------------------------------------------------------------------------
Real Estate - 0.0%
-------------------------------------------------------------------------------------------
HRPT Properties Trust, REIT, "B", 8.75% (l) 200 $ 5,110
-------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST, $2,064,332) $ 2,125,560
-------------------------------------------------------------------------------------------
Warrants - 0.5%
-------------------------------------------------------------------------------------------
STRIKE FIRST
ISSUER PRICE EXERCISE SHARES/PAR VALUE ($)
-------------------------------------------------------------------------------------------
Emerging Market Sovereign - 0.5%
-------------------------------------------------------------------------------------------
Republic of Venezuela, Oil-Indexed Payment
Obligation, expires 2020 (Identified Cost,
$342,671) N/A N/A 9,315 $300,409
-------------------------------------------------------------------------------------------
Short-Term Obligations - 2.3%
-------------------------------------------------------------------------------------------
General Electric Co., 5.3%, due 11/01/06, at Amortized Cost
and Value (y) $1,522,000 $ 1,522,000
-------------------------------------------------------------------------------------------
Collateral for Securities Loaned - 14.8%
-------------------------------------------------------------------------------------------
Navigator Securities Lending Prime Portfolio, at Cost and
Net Asset Value $9,635,396 $ 9,635,396
-------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (IDENTIFIED COST, $72,455,705) (k) $73,839,732
-------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - (13.5)% (8,795,317)
-------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $65,044,415
-------------------------------------------------------------------------------------------
(a) Non-income producing security.
(e) The rate shown represents a current effective yield.
(g) The rate shown represents a weighted average coupon rate on settled positions at period
end.
(i) Interest only security for which the trust receives interest on notional principal (Par
amount). Par amount shown is the notional principal and does not reflect the cost of the
security.
(k) As of October 31, 2006, the trust held securities fair valued in accordance with the
policies adopted by the Board of Trustees, aggregating $43,736,196 and 59.23% of market
value. An independent pricing service provided an evaluated bid for 58.20% of the market
value.
(l) All or a portion of this security is on loan.
(n) Securities exempt from registration under Rule 144A of the Securities Act of 1933. These
securities may be sold in the ordinary course of business in transactions exempt from
registration, normally to qualified institutional buyers. At period end, the aggregate
value of these securities was $8,600,693, representing 13.2% of net assets.
(o) All or a portion of this position has not settled. Upon settlement date, interest rates
will be determined.
(p) Payment-in-kind security.
(r) Remaining maturities of floating rate loans may be less than stated maturities shown as
a result of contractual or optional prepayments by the borrower. Such prepayments cannot
be predicted with certainty. These loans may be subject to restrictions on resale.
Floating rate loans generally have rates of interest which are determined periodically
by reference to a base lending rate plus a premium.
(y) The rate shown represents an annualized yield at time of purchase.
(z) Restricted securities are not registered under the Securities Act of 1933 and are
subject to legal restrictions on resale. These securities generally may be resold in
transactions exempt from registration or to the public if the securities are
subsequently registered. Disposal of these securities may involve time-consuming
negotiations and prompt sale at an acceptable price may be difficult. The trust holds
the following restricted securities:
CURRENT
ACQUISITION ACQUISITION MARKET TOTAL % OF
RESTRICTED SECURITIES DATE COST VALUE NET ASSETS
----------------------------------------------------------------------------------------------------------
Amsted Industries, Inc., 10.25%, 2011 7/19/04 - 7/20/04 $213,663 $209,625
Anthracite CDO Ltd., 6%, 2037 5/14/02 290,438 392,396
Asset Securitization Corp., FRN, 8.4999%, 2029 1/25/05 604,160 759,931
Falcon Franchise Loan LLC, FRN, 3.8455%, 2023 1/29/03 137,153 86,773
HRP Myrtle Beach Operations, FRN, 10.12%, 2012 3/23/06 155,000 154,612
Knowledge Learning Corp., 7.75%, 2015 1/28/05 85,000 80,538
Michaels Stores, Inc., 11.375%, 2016 10/25/06 225,238 225,281
NXP B.V./NXP Funding LLC, 7.875%, 2014 10/05/06 85,000 86,275
Preferred Term Securities XII Ltd., 9.8%, 2033 1/07/05 236,250 195,750
Preferred Term Securities XVI Ltd., 14%, 2035 12/08/04 300,000 264,375
Preferred Term Securities XVII Ltd., 9.3%, 2035 3/09/05 187,000 152,873
----------------------------------------------------------------------------------------------------------
Total Restricted Securities $2,608,429 4.0%
----------------------------------------------------------------------------------------------------------
The following abbreviations are used in this report and are defined:
FRN Floating Rate Note. Interest rate resets periodically and may not be the rate reported at period end.
REIT Real Estate Investment Trust
Abbreviations indicate amounts shown in currencies other than the U.S. dollar. All amounts are stated in
U.S. dollars unless otherwise indicated. A list of abbreviations is shown below:
EUR Euro
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Sales and Purchases in the table below are reported by currency.
NET
UNREALIZED
CONTRACTS TO IN EXCHANGE CONTRACTS APPRECIATION
DELIVER/RECEIVE SETTLEMENT DATE FOR AT VALUE (DEPRECIATION)
--------------------------------------------------------------------------------
SALES
EUR596,432 12/18/06 $750,926 $763,369 $(12,443)
--------------------------------------------------------------------------------
PURCHASES
EUR260,162 12/18/06 $327,571 $332,979 $ 5,408
--------------------------------------------------------------------------------
At October 31, 2006, the trust had sufficient cash and/or securities to cover
any commitments under these derivative contracts.
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/06
This statement represents your trust's balance sheet, which details the assets
and liabilities comprising the total value of the trust.
ASSETS
-----------------------------------------------------------------------------------------------
Investments, at value, including $9,324,557 of securities
on loan (identified cost, $72,455,705) $73,839,732
Cash 14,526
Receivable for forward foreign currency exchange contracts 5,408
Receivable for investments sold 408,282
Interest and dividends receivable 944,599
Other assets 14,602
-----------------------------------------------------------------------------------------------
Total assets $75,227,149
-----------------------------------------------------------------------------------------------
LIABILITIES
-----------------------------------------------------------------------------------------------
Distributions payable $48,542
Payable for forward foreign currency exchange contracts 12,443
Payable for investments purchased 252,312
Collateral for securities loaned, at value 9,635,396
Payable to affiliates
Management fee 4,116
Transfer agent and dividend disbursing costs 6,500
Administrative services fee 110
Payable for independent trustees' compensation 132,416
Accrued expenses and other liabilities 90,899
-----------------------------------------------------------------------------------------------
Total liabilities $10,182,734
-----------------------------------------------------------------------------------------------
Net assets $65,044,415
-----------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
-----------------------------------------------------------------------------------------------
Paid-in capital $69,669,432
Unrealized appreciation (depreciation) on investments and
translation of assets and liabilities in foreign currencies 1,376,992
Accumulated net realized gain (loss) on investments and
foreign currency transactions (5,839,232)
Accumulated distributions in excess of net investment income (162,777)
-----------------------------------------------------------------------------------------------
Net assets $65,044,415
-----------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding (7,086,788 issued,
less 256,600 treasury shares) 6,830,188
-----------------------------------------------------------------------------------------------
Net asset value per share (net assets of $65,044,415 / 6,830,188
shares of beneficial interest outstanding) $9.52
-----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENT OF OPERATIONS
Year ended 10/31/06
This statement describes how much your trust earned in investment income and
accrued in expenses. It also describes any gains and/or losses generated by
trust operations.
NET INVESTMENT INCOME
------------------------------------------------------------------------------------------------
Income
Interest $4,145,681
Dividends 503,829
Foreign taxes withheld (2,054)
------------------------------------------------------------------------------------------------
Total investment income $4,647,456
------------------------------------------------------------------------------------------------
Expenses
Management fee $606,357
Transfer agent and dividend disbursing costs 23,222
Administrative services fee 18,411
Independent trustees' compensation 16,540
Custodian fee 60,138
Shareholder communications 55,436
Auditing fees 71,367
Legal fees 3,926
Miscellaneous 38,024
------------------------------------------------------------------------------------------------
Total expenses $893,421
------------------------------------------------------------------------------------------------
Fees paid indirectly (46,531)
Reduction of expenses by investment adviser (364)
------------------------------------------------------------------------------------------------
Net expenses $846,526
------------------------------------------------------------------------------------------------
Net investment income $3,800,930
------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
------------------------------------------------------------------------------------------------
Realized gain (loss) (identified cost basis)
Investment transactions $(849,686)
Swap transactions (15,452)
Foreign currency transactions (30,746)
------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions $(895,884)
------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
Investments $2,678,298
Translation of assets and liabilities in foreign currencies (15,889)
------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation $2,662,409
------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency $1,766,525
------------------------------------------------------------------------------------------------
Change in net assets from operations $5,567,455
------------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
STATEMENTS OF CHANGES IN NET ASSETS
These statements describe the increases and/or decreases in net assets resulting
from operations, any distributions, and any shareholder transactions.
YEARS ENDED 10/31
-------------------------------
2006 2005
CHANGE IN NET ASSETS
FROM OPERATIONS
----------------------------------------------------------------------------------------------
Net investment income $3,800,930 $4,064,833
Net realized gain (loss) on investments and foreign
currency transactions (895,884) 700,237
Net unrealized gain (loss) on investments and foreign
currency translation 2,662,409 (1,004,754)
----------------------------------------------------------------------------------------------
Change in net assets from operations $5,567,455 $3,760,316
----------------------------------------------------------------------------------------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
----------------------------------------------------------------------------------------------
From net investment income $(4,028,876) $(4,852,320)
From paid-in capital (2,511,845) (2,004,062)
----------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(6,540,721) $(6,856,382)
----------------------------------------------------------------------------------------------
Change in net assets from trust share transactions $540,115 $634,182
----------------------------------------------------------------------------------------------
Total change in net assets $(433,151) $(2,461,884)
----------------------------------------------------------------------------------------------
NET ASSETS
----------------------------------------------------------------------------------------------
At beginning of period 65,477,566 67,939,450
At end of period (including accumulated distributions in
excess of net investment income of $162,777 and $349,833,
respectively) $65,044,415 $65,477,566
----------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS
Financial Statements
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the trust's
financial performance for the past 5 years. Certain information reflects
financial results for a single trust share. The total returns in the table
represent the rate by which an investor would have earned (or lost) on an
investment in the trust share class (assuming reinvestment of all distributions)
held for the entire period. This information has been audited by the trust's
independent registered public accounting firm, whose report, together with the
trust's financial statements, are included in this report.
YEARS ENDED 10/31
---------------------------------------------------------------
2006 2005 2004 2003 2002
Net asset value, beginning of period $9.66 $10.12 $9.80 $7.50 $8.63
---------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
---------------------------------------------------------------------------------------------------------------------
Net investment income (d) $0.56 $0.60 $0.59 $0.59 $0.71
Net realized and unrealized gain (loss) on
investments and foreign currency 0.26 (0.04) 0.74 2.56 (0.86)
---------------------------------------------------------------------------------------------------------------------
Total from investment operations $0.82 $0.56 $1.33 $3.15 $(0.15)
---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
---------------------------------------------------------------------------------------------------------------------
From net investment income $(0.59) $(0.72) $(0.58) $(0.57) $(0.98)
From net realized gain on investments and
foreign currency transactions -- -- -- (0.28) --
From paid-in capital (0.37) (0.30) (0.43) -- --
---------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders $(0.96) $(1.02) $(1.01) $(0.85) $(0.98)
---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $9.52 $9.66 $10.12 $9.80 $7.50
---------------------------------------------------------------------------------------------------------------------
Per share market value, end of period $10.91 $10.85 $11.60 $10.40 $7.25
---------------------------------------------------------------------------------------------------------------------
Total return at market value (%) (r)(s) 10.88 2.77 22.56(b) 58.07 (43.54)
---------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
AND SUPPLEMENTAL DATA:
---------------------------------------------------------------------------------------------------------------------
Expenses before expense reductions (f) 1.37 1.37 1.28 1.34 1.56
Expenses after expense reductions (f) 1.37 1.37 1.28 N/A N/A
Net investment income 5.82 5.95 5.82 6.75 8.39
Portfolio turnover 72 47 72 94 137
Net assets at end of period (000 Omitted) $65,044 $65,478 $67,939 $65,195 $49,622
---------------------------------------------------------------------------------------------------------------------
(b) The trust's net asset value and total return calculation include a non-recurring accrual recorded as a result of
an administrative proceeding regarding disclosure of brokerage allocation practices in connection with fund sales.
The non-recurring accrual did not have a material impact on the net asset value per share based on the shares
outstanding on the day the proceeds were recorded.
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(r) Certain expenses have been reduced without which performance would have been lower.
(s) From time to time the trust may receive proceeds from litigation settlements, without which performance would be
lower.
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS AND ORGANIZATION
MFS Special Value Trust (the trust) is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
a closed-end diversified management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The trust
can invest in 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, including securities of
emerging market issuers. Investments in foreign securities are vulnerable to the
effects of changes in the relative values of the local currency and the U.S.
dollar and to the effects of changes in each country's legal, political, and
economic environment. The markets of emerging markets countries are generally
more volatile than the markets of developed countries with more mature
economies. All of the risks of investing in foreign securities previously
described are heightened when investing in emerging markets countries.
INVESTMENT VALUATIONS - Equity securities, including restricted equity
securities, are generally valued at the last sale or official closing price as
reported by an independent pricing service on the market or exchange on which
they are primarily traded. For securities for which there were no sales reported
that day, equity securities are generally valued at the last quoted daily bid
quotation as reported by an independent pricing service on the market or
exchange on which they are primarily traded. Debt instruments (other than
short-term instruments), including restricted debt instruments, are generally
valued at an evaluated or composite bid as reported by an independent pricing
service. Values of debt instruments obtained from pricing services can utilize
both dealer-supplied valuations and electronic data processing techniques, which
take into account 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. Short- term instruments with a maturity
at issuance of 60 days or less may be valued at amortized cost, which
approximates market value. Forward foreign currency contracts are generally
valued at the mean of bid and asked prices for the time period interpolated from
rates reported by an independent pricing service for proximate time periods.
Swaps are generally valued at a broker-dealer bid quotation. Open-end investment
companies are generally valued at their net asset value per share. Securities
and other assets generally valued on the basis of information from an
independent pricing service may also be valued at a broker-dealer bid quotation.
The values of foreign securities and other assets and liabilities expressed in
foreign currencies are converted to U.S. dollars using the mean of bid and asked
prices for rates reported by an independent pricing service. The Board of
Trustees has delegated primary responsibility for determining or causing to be
determined the value of the trust's investments (including any fair valuation)
to the adviser pursuant to valuation policies and procedures approved by the
Board. If the adviser determines that reliable market quotations are not readily
available, investments are valued at fair value as determined in good faith by
the adviser in accordance with such procedures under the oversight of the Board
of Trustees. Under the trust's valuation policies and procedures, market
quotations are not considered to be readily available for many types of debt
instruments. These investments are generally valued at fair value based on
information from independent pricing services. The adviser may rely on
independent pricing services or other information (such as the correlation with
price movements of similar securities in the same or other markets; the type,
cost and investment characteristics of the security; the business and financial
condition of the issuer; and trading and other market data) to assist in
determining whether to fair value and at what value to fair value an investment.
The value of an investment for purposes of calculating the trust's net asset
value can differ depending on the source and method used to determine value.
When fair valuation is used, the value of investments used to determine the
trust's net asset value may differ from quoted or published prices for the same
investments. In addition, investments may be valued at fair value if the adviser
determines that an investment's value has been materially affected by events
occurring after the close of the exchange or market on which the investment is
principally traded (such as foreign exchange or market) and prior to the
determination of the trust's net asset value, or after the halting of trading of
a specific security where trading does not resume prior to the close of the
exchange or market on which the security is principally traded. Events that
occur on a frequent basis after foreign markets close (such as developments in
foreign markets and significant movements in the U.S. markets) and prior to the
determination of the trust's net asset value may be deemed to have a material
affect on the value of securities traded in foreign markets. Accordingly, the
trust's foreign equity securities may often be valued at fair value. In
September 2006, FASB Statement No. 157, Fair Value Measurements (the
"Statement") was issued, and is effective for fiscal years beginning after
November 15, 2007 and for all interim periods within those fiscal years. This
Statement provides a single definition of fair value, a hierarchy for measuring
fair value and expanded disclosures about fair value measurements. Management is
evaluating the application of the Statement to the trust, and believes the
impact will be limited to expanded disclosures resulting from the adoption of
this Statement in the trust's financial statements.
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.
DERIVATIVE RISK - The trust may invest in derivatives for hedging or non-
hedging purposes. While hedging can reduce or eliminate losses, it can also
reduce or eliminate gains. When the trust uses derivatives as an investment to
gain market exposure, or for hedging purposes, gains and losses from derivative
instruments may be substantially greater than the derivative's original cost.
Derivative instruments include forward foreign currency exchange contracts and
swap agreements.
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 the contract. 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.
SWAP AGREEMENTS - The trust may enter into swap agreements. A swap is an
exchange of cash payments between the trust and another party. Net cash payments
are exchanged at specified intervals and are recorded as a realized gain or loss
in the Statement of Operations. The value of the swap is adjusted daily and the
change in value, including accruals of periodic amounts of interest to be paid
or received, is recorded as unrealized appreciation or depreciation in the
Statement of Operations. A liquidation payment received or made upon early
termination is recorded as a realized gain or loss in the Statement of
Operations. Collateral, in the form of cash or securities, may be required to be
held in segregated accounts with the trust's custodian in connection with these
agreements. Risk of loss may exceed amounts recognized on the Statement of
Assets and Liabilities. These risks include the possible lack of a liquid
market, failure of the counterparty to perform under the terms of the
agreements, and unfavorable market movement of the underlying instrument. All
swap agreements entered into by the trust with the same counterparty are
generally governed by a single master agreement, which provides for the netting
of all amounts owed by the parties under the agreement upon the occurrence of an
event of default, thereby reducing the credit risk to which such party is
exposed.
CREDIT DEFAULT SWAPS - In a credit default swap, one party makes a stream of
payments based on a fixed percentage applied to the notional amount to another
party in exchange for the right to receive a specified return in the event of a
default by a third party, such as a corporate issuer or foreign issuer, on its
obligation. The trust may enter into credit default swaps to limit or to reduce
its risk exposure to defaults of corporate and sovereign issuers or to create
direct or synthetic short or long exposure to corporate debt securities or
certain sovereign debt securities to which it is not otherwise exposed.
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.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS - The trust may invest in loans and loan
participations or other receivables. These investments may include standby
financing commitments, including revolving credit facilities, which obligate the
trust to supply additional cash to the borrower on demand. Loan participations
involve a risk of insolvency of the lending bank or other financial
intermediary.
INDEMNIFICATIONS - Under the trust's organizational documents, its officers and
trustees may be indemnified against certain liabilities and expenses arising out
of the performance of their duties to the trust. Additionally, in the normal
course of business, the trust enters into agreements with service providers that
may contain indemnification clauses. The trust's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the trust that have not yet occurred.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with U.S. generally accepted accounting principles. All discount is accreted for
tax reporting purposes as required by federal income tax regulations. The trust
earns certain fees in connection with its floating rate loan purchasing
activities. These fees are in addition to interest payments earned and may
include amendment fees, commitment fees, facility fees, consent fees, and
prepayment fees. These fees are recorded on an accrual basis as income in the
accompanying financial statements. Dividends received in cash are recorded on
the ex-dividend date. Certain dividends from foreign securities will be recorded
when the trust is informed of the dividend if such information is obtained
subsequent to the ex-dividend date. Dividend and interest payments received in
additional securities are recorded on the ex- dividend or ex-interest date in an
amount equal to the value of the security on such date. The trust may receive
proceeds from litigation settlements involving its portfolio holdings. Any
proceeds received are reflected in realized gain/loss in the Statement of
Operations, or in unrealized gain/loss if the security is still held by the
trust.
FEES PAID INDIRECTLY - The trust's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
trust. During the year ended October 31, 2006, the trust's custodian fees were
reduced by $46,531 under this arrangement. This amount is shown as a reduction
of total expenses on the Statement of Operations. The trust has entered into a
commission recapture agreement, under which certain brokers will credit the
trust a portion of the commissions generated, to offset certain expenses of the
trust. For the year ended October 31, 2006, the trust did not receive any
credits under this agreement. Effective January 1, 2006, the commission
recapture agreement was terminated.
TAX MATTERS AND DISTRIBUTIONS - The trust intends to qualify as a regulated
investment company, as defined under Subchapter M of the Internal Revenue Code,
and to distribute all of its taxable income, including realized capital gains.
Accordingly, no provision for federal income tax is required in the financial
statements. Foreign taxes, if any, have been accrued by the trust in the
accompanying financial statements.
Distributions to shareholders are recorded on the ex-dividend date. The trust
pays monthly distributions based on an annual rate of 10% of the trust's average
daily net asset value. As a result, distributions may exceed actual earnings
which may result in a tax return of capital. Income and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from U.S. generally accepted accounting principles. Certain capital
accounts in the financial statements are periodically adjusted for permanent
differences in order to reflect their tax character. These adjustments have no
impact on net assets or net asset value per share. Temporary differences which
arise from recognizing certain items of income, expense, gain or loss in
different periods for financial statement and tax purposes will reverse at some
time in the future. Distributions in excess of net investment income or net
realized gains are temporary overdistributions for financial statement purposes
resulting from differences in the recognition or classification of income or
distributions for financial statement and tax purposes.
Book/tax differences primarily relate to amortization and accretion of debt
securities, defaulted bonds, wash sale loss deferrals, deferred trustee
compensation and foreign currency transactions.
The tax character of distributions declared to shareholders is as follows:
10/31/06 10/31/05
Ordinary income (including any short-term
capital gains) $4,028,876 $4,852,320
Tax return of capital (b) 2,511,845 2,004,062
------------------------------------------------------------------------------
Total distributions $6,540,721 $6,856,382
(b) Distributions in excess of tax basis earnings and profits are reported in
the financial statements as a tax return of capital.
The federal tax cost and the tax basis components of distributable earnings were
as follows:
AS OF 10/31/06
Cost of investments $73,111,525
-----------------------------------------------------------
Gross appreciation $2,893,442
Gross depreciation (2,165,235)
-----------------------------------------------------------
Net unrealized appreciation (depreciation) $728,207
Capital loss carryforwards (5,183,412)
Other temporary differences (169,812)
As of October 31, 2006, the trust had capital loss carryforwards available to
offset future realized gains. Such losses expire as follows:
10/31/12 $(322,473)
10/31/13 (1,143,611)
10/31/14 (3,717,328)
----------------------------------------------
$(5,183,412)
In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (the "Interpretation") was issued, and is effective for fiscal years
beginning after December 15, 2006 and is to be applied to all open tax years as
of the effective date. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded disclosures.
Management is evaluating the application of the Interpretation to the trust, and
has not at this time determined the impact, if any, resulting from the adoption
of this Interpretation on the trust's financial statements.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The trust has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
management and related administrative services and facilities to the trust.
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 gross income. Gross income
is calculated based on tax elections that generally include the accretion of
discount and exclude the amortization of premium, which may differ from
investment income reported in the Statement of Operations. The management fee,
from net assets and gross income, incurred for the year ended October 31, 2006
was equivalent to an annual effective rate of 0.93% of the trust's average daily
net assets.
TRANSFER AGENT - MFS Service Center, Inc. (MFSC), a wholly-owned subsidiary of
MFS, receives a fee from the trust for its services as registrar and dividend-
disbursing agent. Pursuant to a written agreement, the trust pays MFSC an
account maintenance fee of no more than $9.00 and a dividend services fee of
$0.75 per reinvestment. For the year ended October 31, 2006, these fees amounted
to $12,324. MFSC also receives payment from the trust for out-of- pocket
expenses paid by MFSC on behalf of the trust. For the year ended October 31,
2006, these costs amounted to $6,469.
ADMINISTRATOR - MFS provides certain financial, legal, shareholder
communications, compliance, and other administrative services to the trust.
Under an administrative services agreement, the trust partially reimburses MFS
the costs incurred to provide these services. The trust is charged a fixed
amount plus a fee based on calendar year average net assets. From July 1, 2005
through March 31, 2006, the trust's annual fixed amount was $10,000. Effective
April 1, 2006, the trust's annual fixed amount is $17,500. The administrative
services fee incurred for the year ended October 31, 2006 was equivalent to an
annual effective rate of 0.0282% of the trust's average daily net assets.
TRUSTEES' AND OFFICERS' COMPENSATION - The trust pays compensation to
independent trustees in the form of a retainer, attendance fees, and additional
compensation to Board and Committee chairpersons. The trust does not pay
compensation directly to trustees or to officers of the trust who are also
officers of the investment adviser, 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 MFSC. The trust has an unfunded, defined
benefit plan for certain retired independent trustees which resulted in a
pension expense of $4,737. The trust also has an unfunded retirement benefit
deferral plan for certain independent trustees which resulted in an expense of
$1,289. Both amounts are included in independent trustees' compensation for the
year ended October 31, 2006. The deferred liability for retirement benefits
payable to certain independent trustees under both plans amounted to $120,476 at
October 31, 2006, and is included in payable for independent trustees'
compensation.
DEFERRED TRUSTEE COMPENSATION - Under a Deferred Compensation Plan (the Plan)
independent trustees previously were allowed to elect to defer receipt of all or
a portion of their annual compensation. Trustees are no longer allowed to defer
compensation under the Plan. Amounts previously deferred 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 payable for independent trustees' compensation is $10,598 of
deferred trustees' compensation.
OTHER - This trust and certain other MFS funds (the funds) have entered into a
services agreement (the Agreement) which provides for payment of fees by the
funds to Tarantino LLC in return for the provision of services of an Independent
Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the
funds and the sole member of Tarantino LLC. The funds can terminate the
Agreement with Tarantino LLC at any time under the terms of the Agreement. For
the year ended October 31, 2006, the fee paid to Tarantino LLC was $384. MFS has
agreed to reimburse the trust for a portion of the payments made by the funds to
Tarantino LLC in the amount of $364, which is shown as a reduction of total
expenses in the Statement of Operations. Additionally, MFS has agreed to bear
all expenses associated with office space, other administrative support, and
supplies provided to the ICCO.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$45,597,251 and $48,102,920, respectively.
(5) SHARES OF BENEFICIAL INTEREST
The trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. The Trustees have
authorized the repurchase by the trust of up to 10% annually of its own shares
of beneficial interest. During the year ended October 31, 2006, the trust did
not repurchase any shares.
YEAR ENDED YEAR ENDED
10/31/06 10/31/05
SHARES AMOUNT SHARES AMOUNT
Shares issued to shareholders in
reinvestment of distributions 55,000 $540,115 58,705 $634,182
(6) LINE OF CREDIT
The trust and other affiliated funds participate in a $1 billion unsecured
committed line of credit provided by a syndication of banks under a credit
agreement. In addition, the trust and other affiliated funds have established
uncommitted borrowing arrangements with certain banks. Borrowings may be made
for temporary financing needs. Interest is charged to each fund, based on its
borrowings, generally at a rate equal to the Federal Reserve funds rate plus
0.35%. In addition, a commitment fee, based on the average daily, unused portion
of the committed line of credit, is allocated among the participating funds at
the end of each calendar quarter. For the year ended October 31, 2006, the
trust's commitment fee and interest expense were $368 and $0, respectively, and
are included in miscellaneous expense on the Statement of Operations.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees and Shareholders of MFS Special Value Trust:
We have audited the accompanying statement of assets and liabilities of MFS
Special Value Trust (the Fund), including the portfolio of investments, as of
October 31, 2006, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of October 31, 2006, by correspondence with the Fund's
custodian and brokers or by other appropriate auditing procedures where replies
from brokers were not received. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Special Value Trust at October 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and its financial highlights for each of the five years in
the period then ended, in conformity with U.S. generally accepted accounting
principles.
ERNST & YOUNG LLP
Boston, Massachusetts
December 21, 2006
RESULTS OF SHAREHOLDER MEETING
10/31/06 (unaudited)
At the annual meeting of shareholders of MFS Special Value Trust, which was held
on October 6, 2006, the following action was taken:
ITEM 1. To elect the following individuals as Trustees:
NUMBER OF SHARES
NOMINEE AFFIRMATIVE WITHHOLD AUTHORITY
Robert E. Butler 6,037,716.29 168,134.81
David H. Gunning 6,053,752.29 152,098.81
Robert C. Pozen 6,035,842.29 170,008.81
J. Dale Sherratt 6,040,111.90 165,739.20
TRUSTEES AND OFFICERS --
IDENTIFICATION AND BACKGROUND
The Trustees and officers of the Trust, as of December 1, 2006, are listed
below, together with their principal occupations during the past five years.
(Their titles may have varied during that period.) The address of each Trustee
and officer is 500 Boylston Street, Boston, Massachusetts 02116.
PRINCIPAL OCCUPATIONS DURING
POSITION(S) HELD TRUSTEE/OFFICER THE PAST FIVE YEARS &
NAME, DATE OF BIRTH WITH FUND SINCE(h) OTHER DIRECTORSHIPS(j)
------------------- ---------------- --------------- ------------------------------------
INTERESTED TRUSTEES
Robert J. Manning(k) Trustee February 2004 Massachusetts Financial Services
(born 10/20/63) Company, Chief Executive Officer,
President, Chief Investment
Officer and Director
Robert C. Pozen(k) Trustee February 2004 Massachusetts Financial Services
(born 8/08/46) Company, Chairman (since February
2004); 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); Bell
Canada Enterprises
(telecommunications), Director;
Medtronic, Inc. (medical
technology), Director; Telesat
(satellite communications),
Director
INDEPENDENT TRUSTEES
J. Atwood Ives Trustee and Chair February 1992 Private investor; Eastern
(born 5/01/36) of Trustees Enterprises (diversified services
company), Chairman, Trustee and
Chief Executive Officer (until
November 2000)
Robert E. Butler(n) Trustee January 2006 Consultant - regulatory and
(born 11/29/41) compliance matters (since July
2002); PricewaterhouseCoopers LLP
(professional services firm),
Partner (November 2000 until June
2002)
Lawrence H. Cohn, M.D. Trustee August 1993 Brigham and Women's Hospital,
(born 3/11/37) Senior Cardiac Surgeon, Chief of
Cardiac Surgery (until 2005);
Harvard Medical School, Professor
of Surgery; Brigham and Women's
Hospital Physicians' Organization,
Chair (2000 to 2004)
David H. Gunning Trustee January 2004 Cleveland-Cliffs Inc. (mining
(born 5/30/42) products and service provider),
Vice Chairman/Director (since
April 2001); Encinitos Ventures
(private investment company),
Principal (1997 to April 2001);
Lincoln Electric Holdings, Inc.
(welding equipment manufacturer),
Director
William R. Gutow Trustee December 1993 Private investor and real estate
(born 9/27/41) consultant; Capitol Entertainment
Management Company (video
franchise), Vice Chairman
Michael Hegarty Trustee December 2004 Retired; AXA Financial (financial
(born 12/21/44) services and insurance), Vice
Chairman and Chief Operating
Officer (until May 2001); The
Equitable Life Assurance Society
(insurance), President and Chief
Operating Officer (until May 2001)
Lawrence T. Perera Trustee July 1981 Hemenway & Barnes (attorneys),
(born 6/23/35) Partner
J. Dale Sherratt Trustee August 1993 Insight Resources, Inc.
(born 9/23/38) (acquisition planning specialists),
President; Wellfleet Investments
(investor in health care companies),
Managing General Partner (since
1993); Cambridge Nutraceuticals
(professional nutritional products),
Chief Executive Officer (until
May 2001)
Laurie J. Thomsen Trustee March 2005 Private investor; Prism Venture
(born 8/05/57) Partners (venture capital), Co-
founder and General Partner (until
June 2004); St. Paul Travelers
Companies (commercial property
liability insurance), Director
Robert W. Uek Trustee January 2006 Retired (since 1999);
(born 5/18/41) PricewaterhouseCoopers LLP
(professional services firm),
Partner (until 1999); Consultant
to investment company industry
(since 2000); TT International Funds
(mutual fund complex), Trustee (2000
until 2005); Hillview Investment
Trust II Funds (mutual fund complex),
Trustee (2000 until 2005)
OFFICERS
Maria F. Dwyer(k) President November 2005 Massachusetts Financial Services
(born 12/01/58) Company, Executive Vice President
and Chief Regulatory Officer
(since March 2004); Fidelity
Management & Research Company,
Vice President (prior to March
2004); Fidelity Group of Funds,
President and Treasurer (prior to
March 2004)
Tracy Atkinson(k) Treasurer September 2005 Massachusetts Financial Services
(born 12/30/64) Company, Senior Vice President
(since September 2004);
PricewaterhouseCoopers LLP,
Partner (prior to September 2004)
Christopher R. Bohane(k) Assistant July 2005 Massachusetts Financial Services
(born 1/18/74) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since April 2003);
Kirkpatrick & Lockhart LLP (law
firm), Associate (prior to April
2003)
Ethan D. Corey(k) Assistant July 2005 Massachusetts Financial Services
(born 11/21/63) Secretary and Company, Special Counsel (since
Assistant Clerk December 2004); Dechert LLP (law
firm), Counsel (prior to December
2004)
David L. DiLorenzo(k) Assistant July 2005 Massachusetts Financial Services
(born 8/10/68) Treasurer Company, Vice President (since
June 2005); JP Morgan Investor
Services, Vice President (prior to
June 2005)
Timothy M. Fagan(k) Assistant September 2005 Massachusetts Financial Services
(born 7/10/68) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since September 2005);
John Hancock Advisers, LLC, Vice
President and Chief Compliance
Officer (September 2004 to August
2005), Senior Attorney (prior to
September 2004); John Hancock Group
of Funds, Vice President and Chief
Compliance Officer (September 2004
to December 2004)
Mark D. Fischer(k) Assistant July 2005 Massachusetts Financial Services
(born 10/27/70) Treasurer Company, Vice President (since May
2005); JP Morgan Investment
Management Company, Vice President
(prior to May 2005)
Brian E. Langenfeld(k) Assistant June 2006 Massachusetts Financial Services
(born 3/07/73) Secretary and Company, Assistant Vice President
Assistant Clerk and Counsel (since May 2006); John
Hancock Advisers, LLC, Assistant
Vice President and Counsel (May
2005 to April 2006); John Hancock
Advisers, LLC, Attorney and
Assistant Secretary (prior
to May 2005)
Ellen Moynihan(k) Assistant April 1997 Massachusetts Financial Services
(born 11/13/57) Treasurer Company, Senior Vice President
Susan S. Newton(k) Assistant May 2005 Massachusetts Financial Services
(born 3/07/50) Secretary and Company, Senior Vice President and
Assistant Clerk Associate General Counsel (since
April 2005); John Hancock Advisers,
LLC, Senior Vice President,
Secretary and Chief Legal Officer
(prior to April 2005); John Hancock
Group of Funds, Senior Vice
President, Secretary and Chief Legal
Officer (prior to April 2005)
Susan A. Pereira(k) Assistant July 2005 Massachusetts Financial Services
(born 11/05/70) Secretary and Company, Vice President and Senior
Assistant Clerk Counsel (since June 2004); Bingham
McCutchen LLP (law firm), Associate
(prior to June 2004)
Mark N. Polebaum(k) Secretary and January 2006 Massachusetts Financial Services
(born 5/01/52) Clerk Company, Executive Vice President,
General Counsel and Secretary
(since January 2006); Wilmer
Cutler Pickering Hale and Dorr LLP
(law firm), Partner (prior to
January 2006)
Frank L. Tarantino Independent Chief June 2004 Tarantino LLC (provider of
(born 3/07/44) Compliance compliance services), Principal
Officer (since June 2004); CRA Business
Strategies Group (consulting
services), Executive Vice
President (April 2003 to June
2004); David L. Babson & Co.
(investment adviser), Managing
Director, Chief Administrative
Officer and Director (prior to
March 2003)
James O. Yost(k) Assistant September 1990 Massachusetts Financial Services
(born 6/12/60) Company, Senior Vice President
------------
(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served
continuously since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange
Commission (i.e., "public companies").
(k) "Interested person" of the Trust within the meaning of the Investment Company Act of 1940 (referred
to as the 1940 Act), which is the principal federal law governing investment companies like the
fund, as a result of position with MFS. The address of MFS is 500 Boylston Street, Boston,
Massachusetts 02116.
(n) In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant
retained by MFS pursuant to its settlement with the SEC concerning market timing and related
matters. The terms of that settlement required that compensation and expenses related to the
independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler
for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid
Mr. Butler a total of $351,119.29.
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 and officer will
serve until next elected or his or her earlier death, resignation, retirement or removal.
Messrs. Butler, Sherratt and Uek and Ms. Thomsen are members of the Trust's Audit Committee.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which
MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with
certain affiliates of MFS. As of January 1, 2006, the Trustees served as board members of 98 funds
within the MFS Family of Funds.
The Statement of Additional Information for the Trust and further information about the Trustees are
available without charge upon request by calling 1-800-225-2606.
On October 9, 2006, Maria F. Dwyer, as Chief Executive Officer of the Trust, certified to the New York
Stock Exchange that as of the date of her certification she was not aware of any violation by the Trust
of the corporate governance listing standards of the New York Stock Exchange.
The Trust filed with the Securities and Exchange Commission the certifications of its principal
executive officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2003 as
an exhibit to the Trust's Form N-CSR for the period covered by this report.
-------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741 225 Franklin Street, Boston, MA 02110
INDEPENDENT REGISTERED PUBLIC
PORTFOLIO MANAGERS ACCOUNTING FIRM
John F. Addeo Ernst & Young LLP
David P. Cole 200 Clarendon Street, Boston, MA 02116
Kenneth J. Enright
BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 requires that both the full Board of
Trustees and a majority of the non-interested ("independent") Trustees, voting
separately, annually approve the continuation of the Fund's investment advisory
agreement with MFS. The Trustees consider matters bearing on the Fund and its
advisory arrangements at their meetings throughout the year, including a review
of performance data at each regular meeting. In addition, the independent
Trustees met several times over the course of three months beginning in May and
ending in July, 2006 ("contract review meetings") for the specific purpose of
considering whether to approve the continuation of the investment advisory
agreement for the Fund and the other investment companies that the Board
oversees (the "MFS Funds"). The independent Trustees were assisted in their
evaluation of the Fund's investment advisory agreement by independent legal
counsel, from whom they received separate legal advice and with whom they met
separately from MFS during various contract review meetings. The independent
Trustees were also assisted in this process by the MFS Funds' Independent Chief
Compliance Officer, a full-time senior officer appointed by and reporting to
the independent Trustees.
In connection with their deliberations regarding the continuation of the
investment advisory agreement, the Trustees, including the independent
Trustees, considered such information and factors as they believed, in light of
the legal advice furnished to them and their own business judgment, to be
relevant. The investment advisory agreement for the Fund was considered
separately, although the Trustees also took into account the common interests
of all MFS Funds in their review. As described below, the Trustees considered
the nature, quality, and extent of the various investment advisory,
administrative, and shareholder services performed by MFS under the existing
investment advisory agreement and other arrangements with the Fund.
In connection with their contract review meetings, the Trustees received and
relied upon materials which included, among other items: (i) information
provided by Lipper Inc. on the investment performance (based on net asset
value) of the Fund for various time periods ended December 31, 2005 and the
investment performance (based on net asset value) of a group of funds with
substantially similar investment classifications/objectives (the "Lipper
performance universe"), as well as the investment performance (based on net
asset value) of a group of funds identified by objective criteria suggested by
MFS ("MFS peer funds"), (ii) information provided by Lipper Inc. on the Fund's
advisory fees and other expenses and the advisory fees and other expenses of
comparable funds identified by Lipper (the "Lipper expense group"), as well as
the advisory fees and other expenses of MFS peer funds, (iii) information
provided by MFS on the advisory fees of comparable portfolios of other clients
of MFS, including institutional separate accounts and other clients, (iv)
information as to whether and to what extent applicable expense waivers,
reimbursements or fee "breakpoints" are observed for the Fund, (v) information
regarding MFS' financial results and financial condition, including MFS' and
certain of its affiliates' estimated profitability from services performed for
the Fund and the MFS Funds as a whole, (vi) MFS' views regarding the outlook
for the mutual fund industry and the strategic business plans of MFS, (vii)
descriptions of various functions performed by MFS for the Funds, such as
compliance monitoring and portfolio trading practices, and (viii) information
regarding the overall organization of MFS, including information about MFS'
senior management and other personnel providing investment advisory,
administrative and other services to the Fund and the other MFS Funds. The
comparative performance, fee and expense information prepared and provided by
Lipper Inc. was not independently verified and the independent Trustees did not
independently verify any information provided to them by MFS.
The Trustees' conclusion as to the continuation of the investment advisory
agreement was based on a comprehensive consideration of all information
provided to the Trustees and not the result of any single factor. Some of the
factors that figured particularly in the Trustees' deliberations are described
below, although individual Trustees may have evaluated the information
presented differently from one another, giving different weights to various
factors. It is also important to recognize that the fee arrangements for the
Fund and other MFS Funds are the result of years of review and discussion
between the independent Trustees and MFS, that certain aspects of such
arrangements may receive greater scrutiny in some years than others, and that
the Trustees' conclusions may be based, in part, on their consideration of
these same arrangements during the course of the year and in prior years.
Based on information provided by Lipper Inc. and MFS, the Trustees reviewed the
Fund's total return investment performance as well as the performance of peer
groups of funds over various time periods. The Trustees placed particular
emphasis on the total return performance of the Fund's common shares in
comparison to the performance of funds in its Lipper performance universe over
the three-year period ended December 31, 2005, which the Trustees believed was
a long enough period to reflect differing market conditions. The Fund ranked
1st out of a total of 3 funds in the Lipper performance universe for this
three-year period (a ranking of first place out of the total number of funds in
the performance universe indicating the best performer and a ranking of last
place out of the total number of funds in the performance universe indicating
the worst performer). The total return performance of the Fund's common shares
ranked 3rd out of a total of 5 funds for the one-year period and 1st out of a
total of 2 funds for the five-year period ended December 31, 2005. Given the
size of the Lipper performance universe and information previously provided by
MFS regarding differences between the Fund and other funds in its Lipper
performance universe, the Trustees also reviewed the Fund's performance in
comparison to a custom benchmark developed by MFS. The Fund underperformed its
custom benchmark for the one-year period ended December 31, 2005 and
outperformed its custom benchmark for each of the three- and five-year periods
ended December 31, 2005. Because of the passage of time, these performance
results are likely to differ from the performance results for more recent
periods, including those shown elsewhere in this report.
In the course of their deliberations, the Trustees took into account
information provided by MFS in connection with the contract review meetings, as
well as during investment review meetings conducted with portfolio management
personnel during the course of the year regarding the Fund's performance. After
reviewing these and related factors, the Trustees concluded, within the context
of their overall conclusions regarding the investment advisory agreement, that
they were satisfied with MFS' responses and efforts relating to investment
performance.
In assessing the reasonableness of the Fund's advisory fee, the Trustees
considered, among other information, the Fund's advisory fee and the total
expense ratio of the Fund's common shares as a percentage of average net assets
and the advisory fee and total expense ratios of peer groups of funds based on
information provided by Lipper Inc. and MFS. The Trustees considered that,
according to the Lipper data, the Fund's effective advisory fee rate and total
expense ratio were each at the Lipper expense group median.
The Trustees also considered the advisory fees charged by MFS to institutional
accounts. In comparing these fees, the Trustees considered information provided
by MFS as to the generally broader scope of services provided by MFS to the
Fund in comparison to institutional accounts and the impact on MFS and expenses
associated with the more extensive regulatory regime to which the Fund is
subject in comparison to institutional accounts.
The Trustees considered that, as a closed-end fund, the Fund is unlikely to
experience meaningful asset growth. As a result, the Trustees did not view the
potential for realization of economies of scale as the Fund's assets grow to be
a material factor in their deliberations. The Trustees noted that they would
consider economies of scale in the future in the event the Fund experiences
significant asset growth, such as through an offering of preferred shares
(which is not currently contemplated) or a material increase in the market
value of the Fund's portfolio securities.
The Trustees also considered information prepared by MFS relating to MFS' costs
and profits with respect to the Fund, the MFS Funds considered as a group, and
other investment companies and accounts advised by MFS, as well as MFS'
methodologies used to determine and allocate its costs to the MFS Funds, the
Fund and other accounts and products for purposes of estimating profitability.
After reviewing these and other factors described herein, the Trustees
concluded, within the context of their overall conclusions regarding the
investment advisory agreement, that the advisory fees charged to the Fund
represent reasonable compensation in light of the services being provided by
MFS to the Fund.
In addition, the Trustees considered MFS' resources and related efforts to
continue to retain, attract and motivate capable personnel to serve the Fund.
The Trustees also considered current and developing conditions in the financial
services industry, including the entry into the industry of large and
well-capitalized companies which are spending, and appear to be prepared to
continue to spend, substantial sums to engage personnel and to provide services
to competing investment companies. In this regard, the Trustees also considered
the financial resources of MFS and its ultimate parent, Sun Life Financial Inc.
The Trustees also considered the advantages and possible disadvantages to the
Fund of having an adviser which also serves other investment companies as well
as other accounts.
The Trustees also considered the nature, quality, cost, and extent of
administrative services provided to the Fund by MFS under agreements other than
the investment advisory agreement. The Trustees also considered the nature,
extent and quality of certain other services MFS performs or arranges for on
the Fund's behalf, which may include securities lending programs, directed
expense payment programs, class action recovery programs, and MFS' interaction
with third-party service providers, principally custodians and sub-custodians.
The Trustees concluded that the various non-advisory services provided by MFS
and its affiliates on behalf of the Funds were satisfactory.
The Trustees also considered benefits to MFS from the use of the Fund's
portfolio brokerage commissions, if applicable, to pay for investment research
(excluding third-party research, for which MFS pays directly) and various other
factors. Additionally, the Trustees considered so-called "fall-out benefits" to
MFS such as reputational value derived from serving as investment manager to
the Fund.
Based on their evaluation of factors that they deemed to be material, including
those factors described above, the Board of Trustees, including a majority of
the independent Trustees, concluded that the Fund's investment advisory
agreement with MFS should be continued for an additional one-year period,
commencing August 1, 2006.
A discussion regarding the Board's most recent review and renewal of the Fund's
investment advisory agreement is available by visiting the Closed-End section
of the MFS Web site (mfs.com).
PROXY VOTING POLICIES AND INFORMATION
A general description of the MFS funds' proxy voting policies and procedures is
available without charge, upon request, by calling 1-800-225-2606, by visiting
the Proxy Voting section of mfs.com or by visiting the SEC's Web site at
http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available without charge by visiting the Proxy Voting section of mfs.com or by
visiting the SEC's Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The trust will file a complete schedule of portfolio holdings with the
Securities and Exchange Commission (the Commission) for the first and third
quarters of each fiscal year on Form N-Q. The trust's Form N-Q may be reviewed
and copied at the:
Public Reference Room
Securities and Exchange Commission
100 F Street, NE, Room 1580
Washington, D.C. 20549
Information on the operation of the Public Reference Room may be obtained by
calling the Commission at 1-202-551-5850. The trust's Form N-Q is available on
the EDGAR database on the Commission's Internet Web site at http://www.sec.gov,
and copies of this information may be obtained, upon payment of a duplicating
fee, by electronic request at the following e-mail address: publicinfo@sec.gov
or by writing the Public Reference Section at the above address.
A shareholder can also obtain the quarterly portfolio holdings report at
mfs.com.
FEDERAL TAX INFORMATION (unaudited)
The trust will notify shareholders of amounts for use in preparing 2006 income
tax forms in January 2007.
The trust designates the maximum amount allowable as qualified dividend income
eligible for the 15% tax rate.
For corporate shareholders, 8.51% of the ordinary income dividends paid during
the fiscal year qualify for the corporate dividends received deduction.
MFS(R) PRIVACY NOTICE
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 the investment products and services 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 nonpublic
personal information with third parties or certain of our affiliates in
connection with servicing your account or processing your transactions. We may
share information with companies or financial institutions that perform
marketing services on our behalf or with other financial institutions with
which we have joint marketing arrangements, subject to any legal requirements.
Authorization to access your nonpublic personal information is limited to
appropriate personnel who provide products, services, or information to you. We
maintain physical, electronic, and procedural safeguards to help protect the
personal information we collect about you.
If you have any questions about the 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.
CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS
INVESTOR INFORMATION
Transfer Agent, Registrar and Dividend Disbursing Agent
Call 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time
Write to: Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
Effective December 18, 2006, Computershare Trust Company, N.A. became the
Transfer Agent and Registrar and Computershare Shareholder Services, Inc.
became the Dividend Disbursing Agent, succeeding MFS Service Center, Inc.
NUMBER OF SHAREHOLDERS
As of October 31, 2006, our records indicate that there
are 533 registered shareholders and approximately 4,982 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:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078
1-800-637-2304
M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street, Boston, MA 02116
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the
Registrant's principal executive officer and principal financial and accounting
officer. The Registrant has not amended any provision in its Code of Ethics
(the "Code") that relates to an element of the Code's definitions enumerated in
paragraph (b) of Item 2 of this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. Robert E. Butler and Robert W. Uek and Ms. Laurie J. Thomsen, members
of the Audit Committee, have been determined by the Board of Trustees in their
reasonable business judgment to meet the definition of "audit committee
financial expert" as such term is defined in Form N-CSR. In addition, Messrs.
Butler, and Uek and Ms. Thomsen are "independent" members of the Audit
Committee (as such term has been defined by the Securities and Exchange
Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of
2002). The Securities and Exchange Commission has stated that the designation
of a person as an audit committee financial expert pursuant to this Item 3 on
the Form N-CSR does not impose on such a person any duties, obligations or
liability that are greater than the duties, obligations or liability imposed on
such person as a member of the Audit Committee and the Board of Trustees in the
absence of such designation or identification.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEMS 4(a) THROUGH 4(d) AND 4(g):
The Board of Trustees has appointed Ernst & Young LLP ("E&Y") to serve as
independent accountants to the Registrant (hereinafter the "Registrant" or the
"Fund"). The tables below set forth the audit fees billed to the Fund as well
as fees for non-audit services provided to the Fund and/or to the Fund's
investment adviser, Massachusetts Financial Services Company ("MFS") and to
various entities either controlling, controlled by, or under common control
with MFS that provide ongoing services to the Fund ("MFS Related Entities").
For the fiscal years ended October 31, 2006 and 2005, audit fees billed to the
Fund by E&Y were as follows:
Audit Fees
FEES BILLED BY E&Y: 2006 2005
---- ----
MFS Special Value Trust 37,375 37,375
For the fiscal years ended October 31, 2006 and 2005, fees billed by E&Y for
audit-related, tax and other services provided to the Fund and for
audit-related, tax and other services provided to MFS and MFS Related Entities
were as follows:
Audit-Related Fees(1) Tax Fees(2) All Other Fees(3)
FEES BILLED BY E&Y: 2006 2005 2006 2005 2006 2005
---- ---- ---- ---- ---- ----
To MFS Special Value 15,000 20,000 8,807 9,795 144 1,233
Trust
To MFS and MFS Related 0 0 15,500 0 0 685,399
Entities of MFS
Special Value
Trust*
AGGREGATE FEES FOR NON-AUDIT
SERVICES:
2006 2005
---- ----
To MFS Special Value Trust,
MFS and MFS Related Entities# 113,820 748,427
* This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating
directly to the operations and financial reporting of the Fund (portions of which services also related to
the operations and financial reporting of other funds within the MFS Funds complex).
# This amount reflects the aggregate fees billed by E&Y for non-audit services rendered to the Fund and for
non-audit services rendered to MFS and the MFS Related Entities.
(1) The fees included under "Audit-Related Fees" are fees related to assurance and related services that are
reasonably related to the performance of the audit or review of financial statements, but not reported
under "Audit Fees," including accounting consultations, agreed-upon procedure reports, attestation reports,
comfort letters and internal control reviews.
(2) The fees included under "Tax Fees" are fees associated with tax compliance, tax advice and tax planning,
including services relating to the filing or amendment of federal, state or local income tax returns,
regulated investment company qualification reviews and tax distribution and analysis.
(3) The fees included under "All Other Fees" are fees for products and services provided by E&Y other than
those reported under "Audit Fees," "Audit-Related Fees" and "Tax Fees," including fees for the subscription
to tax treatise and for services related to analysis of fund administrative expenses, compliance program
and records management projects.
ITEM 4(e)(1):
Set forth below are the policies and procedures established by the Audit
Committee of the Board of Trustees relating to the pre-approval of audit and
non-audit related services: To the extent required by applicable law,
pre-approval by the Audit Committee of the Board is needed for all audit and
permissible non-audit services rendered to the Fund and all permissible
non-audit services rendered to MFS or MFS Related Entities if the services
relate directly to the operations and financial reporting of the Registrant.
Pre-approval is currently on an engagement-by-engagement basis. In the event
pre-approval of such services is necessary between regular meetings of the
Audit Committee and it is not practical to wait to seek pre-approval at the
next regular meeting of the Audit Committee, pre-approval of such services may
be referred to the Chair of the Audit Committee for approval; provided that the
Chair may not pre-approve any individual engagement for such services exceeding
$50,000 or multiple engagements for such services in the aggregate exceeding
$100,000 between such regular meetings of the Audit Committee. Any engagement
pre-approved by the Chair between regular meetings of the Audit Committee shall
be presented for ratification by the entire Audit Committee at its next
regularly scheduled meeting.
ITEM 4(e)(2):
None, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and
All Other Fees paid by the Fund and MFS and MFS Related Entities relating
directly to the operations and financial reporting of the Registrant disclosed
above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C)
of Rule 2-01 of Regulation S-X (which permits audit committee approval after
the start of the engagement with respect to services other than audit, review
or attest services, if certain conditions are satisfied).
ITEM 4(f): Not applicable.
ITEM 4(H): The Registrant's Audit Committee has considered whether the
provision by a Registrant's independent registered public accounting firm of
non-audit services to MFS and MFS Related Entities that were not pre-approved
by the Committee (because such services were provided prior to the
effectiveness of SEC rules requiring pre-approval or because such services did
not relate directly to the operations and financial reporting of the
Registrant) was compatible with maintaining the independence of the independent
registered public accounting firm as the Registrant's principal auditors
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Registrant has an Audit Committee established in accordance with Section
3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit
Committee are Messrs. Robert E. Butler, J. Dale Sherratt and Robert W. Uek and
Ms. Laurie J. Thomsen.
ITEM 6. SCHEDULE OF INVESTMENTS
A schedule of investments of the Registrant is included as part of the report
to shareholders of the Registrant under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Board of Trustees and the Board of Managers of the investment
companies (the "MFS Funds") advised by Massachusetts Financial Services Company
("MFS") have delegated to MFS the right and obligation to vote proxies for
shares that are owned by the MFS Funds, in accordance with MFS' proxy voting
policies and procedures (the "MFS Proxy Policies"). The MFS Proxy Policies are
set forth below:
MASSACHUSETTS FINANCIAL SERVICES COMPANY
PROXY VOTING POLICIES AND PROCEDURES
SEPTEMBER 17, 2003, AS REVISED ON SEPTEMBER 20, 2004,
MARCH 15, 2005 AND MARCH 1, 2006
Massachusetts Financial Services Company, MFS Institutional Advisors,
Inc. and MFS' other investment adviser subsidiaries (collectively, "MFS") have
adopted proxy voting policies and procedures, as set forth below ("MFS Proxy
Voting Policies and Procedures"), with respect to securities owned by the
clients for which MFS serves as investment adviser and has the power to vote
proxies, including the registered investment companies sponsored by MFS, other
than the MFS Union Standard Equity Fund (the "MFS Funds"). References to
"clients" in these policies and procedures include the MFS Funds and other
clients of MFS, such as funds organized offshore, sub-advised funds and
separate account clients, to the extent these clients have delegated to MFS the
responsibility to vote proxies on their behalf under the MFS Proxy Voting
Policies and Procedures.
The MFS Proxy Voting Policies and Procedures include:
A. Voting Guidelines;
B. Administrative Procedures;
C. Monitoring System;
D. Records Retention; and
E. Reports.
A. VOTING GUIDELINES
1. GENERAL POLICY; POTENTIAL CONFLICTS OF INTEREST
MFS' policy is that proxy voting decisions are made in what MFS
believes to be the best long-term economic interests of MFS' clients, and not
in the interests of any other party or in MFS' corporate interests, including
interests such as the distribution of MFS Fund shares, administration of 401(k)
plans, and institutional relationships.
MFS has carefully reviewed matters that in recent years have been
presented for shareholder vote by either management or shareholders of public
companies. Based on the overall principle that all votes cast by MFS on behalf
of its clients must be in what MFS believes to be the best long-term economic
interests of such clients, MFS has adopted proxy voting guidelines, set forth
below, that govern how MFS generally will vote on specific matters presented
for shareholder vote. In all cases, MFS will exercise its discretion in voting
on these matters in accordance with this overall principle. In other words, the
underlying guidelines are simply that - guidelines. Proxy items of significance
are often considered on a case-by-case basis, in light of all relevant facts
and circumstances, and in certain cases MFS may vote proxies in a manner
different from these guidelines.
As a general matter, MFS maintains a consistent voting position on
similar proxy proposals with respect to various issuers. In addition, MFS
generally votes consistently on the same matter when securities of an issuer
are held by multiple client accounts. However, MFS recognizes that there are
gradations in certain types of proposals that might result in different voting
positions being taken with respect to different proxy statements. There also
may be situations involving matters presented for shareholder vote that are not
clearly governed by the guidelines, such as proposed mergers and acquisitions.
Some items that otherwise would be acceptable will be voted against the
proponent when it is seeking extremely broad flexibility without offering a
valid explanation. MFS reserves the right to override the guidelines with
respect to a particular shareholder vote when such an override is, in MFS' best
judgment, consistent with the overall principle of voting proxies in the best
long-term economic interests of MFS' clients.
From time to time, MFS receives comments on these guidelines as well
as regarding particular voting issues from its clients and corporate issuers.
These comments are carefully considered by MFS, when it reviews these
guidelines each year and revises them as appropriate.
These policies and procedures are intended to address any potential
material conflicts of interest on the part of MFS or its affiliates that are
likely to arise in connection with the voting of proxies on behalf of MFS'
clients. If such potential material conflicts of interest do arise, MFS will
analyze, document and report on such potential material conflicts of interest
(see Sections B.2 and E below), and shall ultimately vote the relevant proxies
in what MFS believes to be the best long-term economic interests of its
clients. The MFS Proxy Review Group is responsible for monitoring and reporting
with respect to such potential material conflicts of interest.
2. MFS' POLICY ON SPECIFIC ISSUES
ELECTION OF DIRECTORS
MFS believes that good governance should be based on a board with a
majority of directors who are "independent" of management, and whose key
committees (e.g., compensation, nominating, and audit committees) are comprised
entirely of "independent" directors. While MFS generally supports the board's
nominees in uncontested elections, we will withhold our vote for a nominee for
a board of a U.S. issuer if, as a result of such nominee being elected to the
board, the board would be comprised of a majority of members who are not
"independent" or, alternatively, the compensation, nominating or audit
committees would include members who are not "independent." MFS will also
withhold its vote for a nominee to the board if we can determine that he or she
failed to attend at least 75% of the board and/or relevant committee meetings
in the previous year without a valid reason. In addition, MFS will withhold its
vote for all nominees standing for election to a board of a U.S. issuer if we
can determine: (1) if, since the last annual meeting of shareholders and
without shareholder approval, the board or its compensation committee has
repriced underwater options; or (2) if, within the last year, shareholders
approved by majority vote a resolution recommending that the board rescind a
"poison pill" and the board has failed to take responsive action to that
resolution. Responsive action would include the rescission of the "poison
pill"(without a broad reservation to reinstate the "poison pill" in the event
of a hostile tender offer), or public assurances that the terms of the "poison
pill" would be put to a binding shareholder vote within the next five to seven
years.
MFS evaluates a contested election of directors on a case-by-case
basis considering the long-term financial performance of the company relative
to its industry, management's track record, the qualifications of the nominees
for both slates and an evaluation of what each side is offering shareholders.
MFS votes for reasonably crafted proposals calling for directors to be
elected with an affirmative majority of votes cast and/or the elimination of
the plurality standard for electing directors (including binding resolutions
requesting that the board amend the company's bylaws), provided the proposal
includes a carve-out for a plurality voting standard when there are more
director nominees than board seats (e.g., contested elections) ("Majority Vote
Proposals").
MFS considers voting against Majority Vote Proposals if the company
has adopted, or has proposed to adopt in the proxy statement, formal corporate
governance principles that present a meaningful alternative to the majority
voting standard and provide an adequate response to both new nominees as well
as incumbent nominees who fail to receive a majority of votes cast.
MFS believes that a company's election policy should address the
specific circumstances at that company. MFS considers whether a company's
election policy articulates the following elements to address each director
nominee who fails to receive an affirmative majority of votes cast in an
election:
o Establish guidelines for the process by which the company determines the
status of nominees who fail to receive an affirmative majority of votes cast
and disclose the guidelines in the annual proxy statement;
o Guidelines should include a reasonable timetable for resolution of the
nominee's status and a requirement that the resolution be disclosed together
with the reasons for the resolution;
o Vest management of the process in the company's independent directors, other
than the nominee in question; and
o Outline the range of remedies that the independent directors may consider
concerning the nominee.
CLASSIFIED BOARDS
MFS opposes proposals to classify a board (e.g., a board in which only
one-third of board members are elected each year). MFS supports proposals to
declassify a board.
NON-SALARY COMPENSATION PROGRAMS
Restricted stock plans should reward results rather than tenure. In
some cases, restricted stock is granted to the recipient at deep discounts to
fair market value, sometimes at par value. The holder cannot sell for a period
of years, but in the meantime the holder is able to vote and receive dividends.
Eventually the restrictions lapse and the stock can be sold by the holder.
MFS votes against stock option programs for officers, employees or
non-employee directors that do not require an investment by the optionee, that
give "free rides" on the stock price, or that permit grants of stock options
with an exercise price below fair market value on the date the options are
granted.
MFS opposes stock option programs that allow the board or the
compensation committee, without shareholder approval, to reprice underwater
options or to automatically replenish shares (i.e., evergreen plans). MFS will
consider on a case-by-case basis proposals to exchange existing options for
newly issued options (taking into account such factors as whether there is a
reasonable value-for-value exchange).
MFS opposes stock option and restricted stock plans that provide
unduly generous compensation for officers, directors or employees, or could
result in excessive dilution to other shareholders. As a general guideline, MFS
votes against stock option and restricted stock plans if all such plans for a
particular company involve potential dilution, in the aggregate, of more than
15%. However, MFS may accept a higher percentage (up to 20%) in the case of
startup or small companies which cannot afford to pay large salaries to
executives, or in the case where MFS, based upon the issuer's public
disclosures, believes that the issuer has been responsible with respect to its
recent compensation practices, including the mix of the issuance of restricted
stock and options.
MFS votes in favor of stock option or restricted stock plans for
non-employee directors as long as they satisfy the requirements set forth above
with respect to stock option and restricted stock plans for company executives.
EXPENSING OF STOCK OPTIONS
While we acknowledge that there is no agreement on a uniform
methodology for expensing stock options, MFS supports shareholder proposals to
expense stock options because we believe that the expensing of options presents
a more accurate picture of the company's financial results to investors. We
also believe that companies are likely to be more disciplined when granting
options if the value of stock options were treated as an expense item on the
company's income statements.
EXECUTIVE COMPENSATION
MFS believes that competitive compensation packages are necessary to
attract, motivate and retain executives. Therefore, MFS opposes shareholder
proposals that seek to set limits on executive compensation. Shareholder
proposals seeking to set limits on executive compensation tend to specify
arbitrary compensation criteria. MFS also opposes shareholder requests for
disclosure on executive compensation beyond regulatory requirements because we
believe that current regulatory requirements for disclosure of executive
compensation are appropriate and that additional disclosure is often
unwarranted and costly. Although we support linking executive stock option
grants to a company's stock performance, MFS opposes shareholder proposals that
mandate a link of performance-based options to a specific industry or peer
group index. MFS believes that compensation committees should retain the
flexibility to propose the appropriate index or other criteria by which
performance-based options should be measured. MFS evaluates other executive
compensation restrictions (e.g., terminating the company's stock option or
restricted stock programs, freezing executive pay during periods of large
layoffs, and establishing a maximum ratio between the highest paid executive
and lowest paid employee) based on whether such proposals are in the best
long-term economic interests of our clients.
EMPLOYEE STOCK PURCHASE PLANS
MFS supports the use of a broad-based employee stock purchase plans to
increase company stock ownership by employees, provided that shares purchased
under the plan are acquired for no less than 85% of their market value and do
not result in excessive dilution.
"GOLDEN PARACHUTES"
From time to time, shareholders of companies have submitted proxy
proposals that would require shareholder approval of severance packages for
executive officers that exceed certain predetermined thresholds. MFS votes in
favor of such shareholder proposals when they would require shareholder
approval of any severance package for an executive officer that exceeds a
certain multiple of such officer's annual compensation that is not determined
in MFS' judgment to be excessive.
ANTI-TAKEOVER MEASURES
In general, MFS votes against any measure that inhibits capital
appreciation in a stock, including proposals that protect management from
action by shareholders. These types of proposals take many forms, ranging from
"poison pills" and "shark repellents" to super-majority requirements.
MFS will vote for proposals to rescind existing "poison pills" and
proposals that would require shareholder approval to adopt prospective "poison
pills." Nevertheless, MFS will consider supporting the adoption of a
prospective "poison pill" or the continuation of an existing "poison pill" if
the following two conditions are met: (1) the "poison pill" allows MFS clients
to hold an aggregate position of up to 15% of a company's total voting
securities (and of any class of voting securities); and (2) either (a) the
"poison pill" has a term of not longer than five years, provided that MFS will
consider voting in favor of the "poison pill" if the term does not exceed seven
years and the "poison pill" is linked to a business strategy or purpose that
MFS believes is likely to result in greater value for shareholders; or (b) the
terms of the "poison pill" allow MFS clients the opportunity to accept a fairly
structured and attractively priced tender offer (e.g., a "chewable poison pill"
that automatically dissolves in the event of an all cash, all shares tender
offer at a premium price).
MFS will consider on a case-by-case basis proposals designed to
prevent tenders which are disadvantageous to shareholders such as tenders at
below market prices and tenders for substantially less than all shares of an
issuer.
REINCORPORATION AND REORGANIZATION PROPOSALS
When presented with a proposal to reincorporate a company under the
laws of a different state, or to effect some other type of corporate
reorganization, MFS considers the underlying purpose and ultimate effect of
such a proposal in determining whether or not to support such a measure. While
MFS generally votes in favor of management proposals that it believes are in
the best long-term economic interests of its clients, MFS may oppose such a
measure if, for example, the intent or effect would be to create additional
inappropriate impediments to possible acquisitions or takeovers.
ISSUANCE OF STOCK
There are many legitimate reasons for issuance of stock. Nevertheless,
as noted above under "Non-Salary Compensation Programs", when a stock option
plan (either individually or when aggregated with other plans of the same
company) would substantially dilute the existing equity (e.g., by approximately
15% or more), MFS generally votes against the plan. In addition, MFS votes
against proposals where management is asking for authorization to issue common
or preferred stock with no reason stated (a "blank check") because the
unexplained authorization could work as a potential anti-takeover device.
REPURCHASE PROGRAMS
MFS supports proposals to institute share repurchase plans in which
all shareholders have the opportunity to participate on an equal basis. Such
plans may include a company acquiring its own shares on the open market, or a
company making a tender offer to its own shareholders.
CONFIDENTIAL VOTING
MFS votes in favor of proposals to ensure that shareholder voting
results are kept confidential. For example, MFS supports proposals that would
prevent management from having access to shareholder voting information that is
compiled by an independent proxy tabulation firm.
CUMULATIVE VOTING
MFS opposes proposals that seek to introduce cumulative voting and for
proposals that seek to eliminate cumulative voting. In either case, MFS will
consider whether cumulative voting is likely to enhance the interests of MFS'
clients as minority shareholders. In our view, shareholders should provide
names of qualified candidates to a company's nominating committee, which now
for the first time (for U.S. listed companies) must be comprised solely of
"independent" directors.
WRITTEN CONSENT AND SPECIAL MEETINGS
Because the shareholder right to act by written consent (without
calling a formal meeting of shareholders) can be a powerful tool for
shareholders, MFS generally opposes proposals that would prevent shareholders
from taking action without a formal meeting or would take away a shareholder's
right to call a special meeting of company shareholders.
INDEPENDENT AUDITORS
MFS believes that the appointment of auditors is best left to the
board of directors of the company and therefore supports the ratification of
the board's selection of an auditor for the company. Recently, some shareholder
groups have submitted proposals to limit the non-audit activities of a
company's audit firm. Some proposals would prohibit the provision of any
non-audit services by a company's auditors to that company. MFS opposes
proposals recommending the prohibition or limitation of the performance of
non-audit services by an auditor, and proposals recommending the removal of a
company's auditor due to the performance of non-audit work for the company by
its auditor. MFS believes that the board, or its audit committee, should have
the discretion to hire the company's auditor for specific pieces of non-audit
work in the limited situations permitted under current law.
BEST PRACTICES STANDARDS
Best practices standards are rapidly developing in the corporate
governance areas as a result of recent corporate scandals, the Sarbanes-Oxley
Act of 2002 and revised listing standards on major stock exchanges. MFS
generally support these developments. However, many issuers are not publicly
registered, are not subject to these enhanced listing standards, or are not
operating in an environment that is comparable to that in the United States. In
reviewing proxy proposals under these circumstances, MFS votes for proposals
that enhance standards of corporate governance so long as we believe that -
given the circumstances or the environment within which the issuers operate -
the proposal is consistent with the best long-term economic interests of our
clients.
SOCIAL ISSUES
There are many groups advocating social change, and many have chosen
the publicly-held corporation as a vehicle for advancing their agenda. Common
among these are resolutions requiring the corporation to refrain from investing
or conducting business in certain countries, to adhere to some list of goals or
principles (e.g., environmental standards) or to promulgate special reports on
various activities. MFS votes against such proposals unless their
shareholder-oriented benefits will outweigh any costs or disruptions to the
business, including those that use corporate resources to further a particular
social objective outside the business of the company or when no discernible
shareholder economic advantage is evident.
The laws of various states may regulate how the interests of certain
clients subject to those laws (e.g., state pension plans) are voted with
respect to social issues. Thus, it may be necessary to cast ballots differently
for certain clients than MFS might normally do for other clients.
FOREIGN ISSUERS
MFS will evaluate items on proxies for foreign companies in the
context of the guidelines described above, as well as local market standards
and best practices. Proxies for foreign companies often contain significantly
more voting items than those of U.S. companies. Many of these items on foreign
proxies involve repetitive, non-controversial matters that are mandated by
local law. Accordingly, the items that are generally deemed routine and which
do not require the exercise of judgment under these guidelines (and therefore
voted in favor) for foreign issuers include the following: (i) receiving
financial statements or other reports from the board; (ii) approval of
declarations of dividends; (iii) appointment of shareholders to sign board
meeting minutes; (iv) discharge of management and supervisory boards; (v)
approval of share repurchase programs; (vi) election of directors in
uncontested elections and (vii) appointment of auditors.
In accordance with local law or business practices, many foreign
companies prevent the sales of shares that have been voted for a certain period
beginning prior to the shareholder meeting and ending on the day following the
meeting ("share blocking"). Depending on the country in which a company is
domiciled, the blocking period may begin a stated number of days prior to the
meeting (e.g., one, three or five days) or on a date established by the
company. While practices vary, in many countries the block period can be
continued for a longer period if the shareholder meeting is adjourned and
postponed to a later date. Similarly, practices vary widely as to the ability
of a shareholder to have the "block" restriction lifted early (e.g., in some
countries shares generally can be "unblocked" up to two days prior to the
meeting whereas in other countries the removal of the block appears to be
discretionary with the issuer's transfer agent). Due to these restrictions, MFS
must balance the benefits to its clients of voting proxies against the
potentially serious portfolio management consequences of a reduced flexibility
to sell the underlying shares at the most advantageous time. For companies in
countries with share blocking periods, the disadvantage of being unable to sell
the stock regardless of changing conditions generally outweighs the advantages
of voting at the shareholder meeting for routine items. Accordingly, MFS will
not vote those proxies in the absence of an unusual, significant vote.
B. ADMINISTRATIVE PROCEDURES
1. MFS PROXY REVIEW GROUP
The administration of these MFS Proxy Voting Policies and Procedures
is overseen by the MFS Proxy Voting Committee, which includes senior personnel
from the MFS Legal and Global Investment Support Departments. The MFS Proxy
Voting Committee:
a. Reviews these MFS Proxy Voting Policies and Procedures at least
annually and recommends any amendments considered to be necessary
or advisable;
b. Determines whether any potential material conflicts of interest
exist with respect to instances in which (i) MFS seeks to override
these MFS Proxy Voting Policies and Procedures and (ii) votes on
ballot items not clearly governed by these MFS Proxy Voting
Policies and Procedures; and
c. Considers special proxy issues as they may arise from time to time.
2. POTENTIAL CONFLICTS OF INTEREST
The MFS Proxy Voting Committee is responsible for monitoring potential
material conflicts of interest on the part of MFS or its affiliates that could
arise in connection with the voting of proxies on behalf of MFS' clients. Any
significant attempt to influence MFS' voting on a particular proxy matter
should be reported to the MFS Proxy Voting Committee.
In cases where proxies are voted in accordance with these MFS Proxy
Voting Policies and Procedures, no material conflict of interest will be deemed
to exist. In cases where (i) MFS is considering overriding these MFS Proxy
Voting Policies and Procedures, or (ii) matters presented for vote are not
clearly governed by these MFS Proxy Voting Policies and Procedures, the MFS
Proxy Voting Committee, or delegees, will follow these procedures:
a. Compare the name of the issuer of such proxy against a list of
significant current and potential (i) distributors of MFS Fund
shares, (ii) retirement plans administered by MFS, and (iii) MFS
institutional clients (the "MFS Significant Client List");
b. If the name of the issuer does not appear on the MFS Significant
Client List, then no material conflict of interest will be deemed
to exist, and the proxy will be voted as otherwise determined by
the MFS Proxy Voting Committee;
c. If the name of the issuer appears on the MFS Significant Client
List, then at least one member of the MFS Proxy Voting Committee
will carefully evaluate the proposed vote in order to ensure that
the proxy ultimately is voted in what MFS believes to be the best
long-term economic interests of MFS' clients, and not in MFS'
corporate interests; and
d. For all potential material conflicts of interest identified under
clause (c) above, the MFS Proxy Voting Committee will document: the
name of the issuer, the issuer's relationship to MFS, the analysis
of the matters submitted for proxy vote, and the basis for the
determination that the votes ultimately were cast in what MFS
believes to be the best long-term economic interests of MFS'
clients, and not in MFS' corporate interests. A copy of the
foregoing documentation will be provided to the MFS' Conflicts
Officer.
The members of the MFS Proxy Voting Committee are responsible for
creating and maintaining the MFS Significant Client List, in consultation with
MFS' distribution, retirement plan administration and institutional business
units. The MFS Significant Client List will be reviewed and updated
periodically, as appropriate.
3. GATHERING PROXIES
Most proxies received by MFS and its clients originate at Automatic
Data Processing Corp. ("ADP") although a few proxies are transmitted to
investors by corporate issuers through their custodians or depositories. ADP
and issuers send proxies and related material directly to the record holders of
the shares beneficially owned by MFS' clients, usually to the client's
custodian or, less commonly, to the client itself. This material will include
proxy cards, reflecting the proper shareholdings of Funds and of clients on the
record dates for such shareholder meetings, as well as proxy statements with
the issuer's explanation of the items to be voted upon.
MFS, on behalf of itself and the Funds, has entered into an agreement
with an independent proxy administration firm, Institutional Shareholder
Services, Inc. (the "Proxy Administrator"), pursuant to which the Proxy
Administrator performs various proxy vote related services, such as vote
processing and recordkeeping functions for MFS' Funds and institutional client
accounts. The Proxy Administrator receives proxy statements and proxy cards
directly or indirectly from various custodians, logs these materials into its
database and matches upcoming meetings with MFS Fund and client portfolio
holdings, which are input into the Proxy Administrator's system by an MFS
holdings datafeed. Through the use of the Proxy Administrator system, ballots
and proxy material summaries for the upcoming shareholders' meetings of over
10,000 corporations are available on-line to certain MFS employees and the MFS
Proxy Voting Committee.
4. ANALYZING PROXIES
Proxies are voted in accordance with these MFS Proxy Voting Policies
and Procedures. The Proxy Administrator at the prior direction of MFS
automatically votes all proxy matters that do not require the particular
exercise of discretion or judgment with respect to these MFS Proxy Voting
Policies and Procedures as determined by the MFS Proxy Voting Committee. With
respect to proxy matters that require the particular exercise of discretion or
judgment, MFS considers and votes on those proxy matters. Representatives of
the MFS Proxy Voting Committee review, as appropriate, votes cast to ensure
conformity with these MFS Proxy Voting Policies and Procedures.
As a general matter, portfolio managers and investment analysts have
little or no involvement in specific votes taken by MFS. This is designed to
promote consistency in the application of MFS' voting guidelines, to promote
consistency in voting on the same or similar issues (for the same or for
multiple issuers) across all client accounts, and to minimize the potential
that proxy solicitors, issuers, or third parties might attempt to exert
inappropriate influence on the vote. In limited types of votes (e.g., corporate
actions, such as mergers and acquisitions), a representative of MFS Proxy
Voting Committee may consult with or seek recommendations from portfolio
managers or analysts.(1) However, the MFS Proxy Voting Committee would
ultimately determine the manner in which all proxies are voted.
--------
(1) From time to time, due to travel schedules and other commitments, an
appropriate portfolio manager or research analyst is not available to
provide a recommendation on a merger or acquisition proposal. If such a
recommendation cannot be obtained within a few business days prior to the
shareholder meeting, the MFS Proxy Review Group may determine to vote the
proxy in what it believes to be the best long-term economic interests of
MFS' clients.
As noted above, MFS reserves the right to override the guidelines when
such an override is, in MFS' best judgment, consistent with the overall
principle of voting proxies in the best long-term economic interests of MFS'
clients. Any such override of the guidelines shall be analyzed, documented and
reported in accordance with the procedures set forth in these policies.
5. VOTING PROXIES
In accordance with its contract with MFS, the Proxy Administrator also
generates a variety of reports for the MFS Proxy Voting Committee, and makes
available on-line various other types of information so that the MFS Proxy
Voting Committee may review and monitor the votes cast by the Proxy
Administrator on behalf of MFS' clients.
C. MONITORING SYSTEM
It is the responsibility of the Proxy Administrator and MFS' Proxy
Voting Committee to monitor the proxy voting process. When proxy materials for
clients are received, they are forwarded to the Proxy Administrator and are
input into the Proxy Administrator's system. Through an interface with the
portfolio holdings database of MFS, the Proxy Administrator matches a list of
all MFS Funds and clients who hold shares of a company's stock and the number
of shares held on the record date with the Proxy Administrator's listing of any
upcoming shareholder's meeting of that company.
When the Proxy Administrator's system "tickler" shows that the voting
cut-off date of a shareholders' meeting is approaching, a Proxy Administrator
representative checks that the vote for MFS Funds and clients holding that
security has been recorded in the computer system. If a proxy card has not been
received from the client's custodian, the Proxy Administrator calls the
custodian requesting that the materials be forwarded immediately. If it is not
possible to receive the proxy card from the custodian in time to be voted at
the meeting, MFS may instruct the custodian to cast the vote in the manner
specified and to mail the proxy directly to the issuer.
D. RECORDS RETENTION
MFS will retain copies of these MFS Proxy Voting Policies and
Procedures in effect from time to time and will retain all proxy voting reports
submitted to the Board of Trustees, Board of Directors and Board of Managers of
the MFS Funds for the period required by applicable law. Proxy solicitation
materials, including electronic versions of the proxy cards completed by
representatives of the MFS Proxy Voting Committee, together with their
respective notes and comments, are maintained in an electronic format by the
Proxy Administrator and are accessible on-line by the MFS Proxy Voting
Committee. All proxy voting materials and supporting documentation, including
records generated by the Proxy Administrator's system as to proxies processed,
including the dates when proxy ballots were received and submitted, and the
votes on each company's proxy issues, are retained as required by applicable
law.
E. REPORTS
MFS FUNDS
MFS will report the results of its voting to the Board of Trustees,
Board of Directors and Board of Managers of the MFS Funds. These reports will
include: (i) a summary of how votes were cast; (ii) a review of situations
where MFS did not vote in accordance with the guidelines and the rationale
therefor; (iii) a review of the procedures used by MFS to identify material
conflicts of interest; and (iv) a review of these policies and the guidelines
and, as necessary or appropriate, any proposed modifications thereto to reflect
new developments in corporate governance and other issues. Based on these
reviews, the Trustees, Directors and Managers of the MFS Funds will consider
possible modifications to these policies to the extent necessary or advisable.
ALL MFS ADVISORY CLIENTS
At any time, a report can be printed by MFS for each client who has
requested that MFS furnish a record of votes cast. The report specifies the
proxy issues which have been voted for the client during the year and the
position taken with respect to each issue.
Generally, MFS will not divulge actual voting practices to any party
other than the client or its representatives (unless required by applicable
law) because we consider that information to be confidential and proprietary to
the client.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
GENERAL. Information regarding the portfolio manager(s) of the MFS Special Value
Trust (the "Fund") is set forth below.
PORTFOLIO MANAGER PRIMARY ROLE SINCE TITLE AND FIVE YEAR HISTORY
----------------- ------------ ----- -----------------------------
John Addeo Debt Securities 2002 Senior Vice President of MFS;
Portfolio Manager employed in the investment
management area of MFS since
1998.
Kenneth J. Enright Equity Securities 2004 Senior Vice President of MFS;
Portfolio Manager employed in the investment
management area of MFS since
1986
David P. Cole Debt Securities October 2006 Vice President of MFS;
Portfolio Manager employed in the investment
management area of MFS since
2004. High Yield Analyst at
Franklin Templeton Investments
from 1999 to 2004.
COMPENSATION. Portfolio manager total cash compensation is a combination of base
salary and performance bonus:
o Base Salary - Base salary represents a smaller percentage of portfolio
manager total cash compensation (generally below 33%) than incentive
compensation.
o Performance Bonus - Generally, incentive compensation represents a
majority of portfolio manager total cash compensation. The performance
bonus is based on a combination of quantitative and qualitative factors,
with more weight given to the former (generally over 60 %) and less
weight given to the latter.
>> The quantitative portion is based on pre-tax performance of all of
the accounts managed by the portfolio manager (which includes the
Fund and any other accounts managed by the portfolio manager) over a
one-, three- and five-year period relative to the appropriate Lipper
peer group universe and/or one or more benchmark indices with
respect to each account. Primary weight is given to portfolio
performance over a three-year time period with lesser consideration
given to portfolio performance over one- and five-year periods
(adjusted as appropriate if the portfolio manager has served for
shorter periods).
>> The qualitative portion is based on the results of an annual
internal peer review process (conducted by other portfolio managers,
analysts and traders) and management's assessment of overall
portfolio manager contributions to investor relations and the
investment process (distinct from fund and other account
performance).
Portfolio managers also typically benefit from the opportunity to participate in
the MFS Equity Plan. Equity interests and/or options to acquire equity interests
in MFS or its parent company are awarded by management, on a discretionary
basis, taking into account tenure at MFS, contribution to the investment
process, and other factors.
Finally, portfolio managers are provided with a benefits package including a
defined contribution plan, health coverage and other insurance, which are
available to other employees of MFS on substantially similar terms. The
percentage such benefits represent of any portfolio manager's compensation
depends upon the length of the individual's tenure at MFS and salary level, as
well as other factors.
OWNERSHIP OF FUND SHARES. The following table shows the dollar range of equity
securities of the Fund beneficially owned by the Fund's portfolio manager as of
the Fund's fiscal year ended October 31, 2006. The following dollar ranges
apply:
N. None
A. $1 - $10,000
B. $10,001 - $50,000
C. $50,001 - $100,000
D. $100,001 - $500,000
E. $500,001 - $1,000,000
F. Over $1,000,000
NAME OF PORTFOLIO MANAGER DOLLAR RANGE OF EQUITY SECURITIES IN FUND
------------------------- -----------------------------------------
John Addeo N
Kenneth J. Enright N
David P. Cole N
OTHER ACCOUNTS. In addition to the Fund, the Fund's portfolio manager is
responsible (either individually or jointly) for the day-to-day management of
certain other accounts, the number and total assets of which as of the Fund's
fiscal year ended October 31, 2006 were as follows:
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
--------------------- ----------------------- --------------
NUMBER OF NUMBER OF NUMBER OF
NAME ACCOUNTS* TOTAL ASSETS* ACCOUNTS TOTAL ASSETS ACCOUNTS TOTAL ASSETS
John Addeo 14 $4.8 billion 3 $492.7 million 2 $536.2
million
Kenneth J. Enright 11 $23.4 billion 0 N/A 2 $1.8 billion
David P. Cole 11 $4.4 billion 2 $225.2 million 0 N/A
-----------------
* Includes the Fund.
Advisory fees are not based upon performance of any of the accounts identified
in the table above.
POTENTIAL CONFLICTS OF INTEREST. MFS seeks to identify potential conflicts of
interest resulting from a portfolio manager's management of both the Fund and
other accounts, and has adopted policies and procedures designed to address
such potential conflicts.
The management of multiple funds and accounts (including proprietary accounts)
may give rise to potential conflicts of interest if the funds and accounts have
different objectives and strategies, benchmarks, time horizons and fees as a
portfolio manager must allocate his or her time and investment ideas across
multiple funds and accounts. In certain instances there may be securities which
are suitable for the Fund's portfolio as well as for accounts of MFS or its
subsidiaries with similar investment objectives. A Fund's trade allocation
policies may give rise to conflicts of interest if the Fund's orders do not get
fully executed or are delayed in getting executed due to being aggregated with
those of other accounts of MFS or its subsidiaries. A portfolio manager may
execute transactions for another fund or account that may adversely impact the
value of the Fund's investments. Investments selected for funds or accounts
other than the Fund may outperform investments selected for the Fund.
When two or more clients are simultaneously engaged in the purchase or sale of
the same security, the securities are allocated among clients in a manner
believed by MFS to be fair and equitable to each. It is recognized that in some
cases this system could have a detrimental effect on the price or volume of the
security as far as the Fund is concerned. In most cases, however, MFS believes
that the Fund's ability to participate in volume transactions will produce
better executions for the Fund.
MFS does not receive a performance fee for its management of the Fund. As a
result, MFS and/or a portfolio manager may have a financial incentive to
allocate favorable or limited opportunity investments or structure the timing
of investments to favor accounts other than the Fund - for instance, those that
pay a higher advisory fee and/or have a performance fee.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
=====================================================================================================================
MFS SPECIAL VALUE TRUST
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(D) MAXIMUM NUMBER
(C) TOTAL NUMBER OF (OR APPROXIMATE
SHARES PURCHASED AS DOLLAR VALUE) OF
(B) AVERAGE PART OF PUBLICLY SHARES THAT MAY YET
(A) TOTAL NUMBER OF PRICE PAID ANNOUNCED PLANS BE PURCHASED UNDER
PERIOD SHARES PURCHASED PER SHARE OR PROGRAMS THE PLANS OR PROGRAMS
=====================================================================================================================
11/1/05-11/30/05 0 n/a 0 673,558
12/1/05-12/31/05 0 n/a 0 673,558
1/1/06-1/31/06 0 n/a 0 673,558
2/1/06-2/28/06 0 n/a 0 673,558
3/1/06-3/31/06 0 n/a 0 679,033
4/1/06-4/30/06 0 n/a 0 679,033
5/1/06-5/31/06 0 n/a 0 679,033
6/1/06-6/30/06 0 n/a 0 679,033
7/1/06-7/31/06 0 n/a 0 679,033
8/1/06-8/31/06 0 n/a 0 679,033
9/1/06-9/30/06 0 n/a 0 679,033
10/1/06-10/31/06 0 n/a 0 679,033
TOTAL 0 N/A 0
======================================================================================================================
Note: The Board of Trustees approves procedures to repurchase shares annually.
The notification to shareholders of the program is part of the semi-annual and
annual reports sent to shareholders. These annual programs begin on March 1st
of each year. The programs conform to the conditions of Rule 10b-18 of the
securities Exchange Act of 1934 and limit the aggregate number of shares that
may be purchased in each annual period (March 1 through the following February
28) to 10% of the Registrant's outstanding shares as of the first day of the
plan year (March 1). The aggregate number of shares available for purchase for
the __________ plan year are ________.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no material changes to the procedures by which shareholders may send
recommendations to the Board for nominees to the Registrant's Board since the
Registrant last provided disclosure as to such procedures in response to the
requirements of Item 7(d)(2)(ii)(G) of Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940 (the "Act")) as conducted within 90 days of the filing date of this
Form N-CSR, the registrant's principal financial officer and principal
executive officer have concluded that those disclosure controls and
procedures provide reasonable assurance that the material information
required to be disclosed by the registrant on this report is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter covered by the report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant
intends to satisfy the Item 2 requirements through filing of an
exhibit: Code of Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act sent or given during the period covered by the report by or on
behalf of the Registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17
CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title
18 of the United States Code (18 U.S.C. 1350) as an exhibit. A
certification furnished pursuant to this paragraph will not be deemed
"filed" for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r),
or otherwise subject to the liability of that section. Such certification
will not be deemed to be incorporated by reference into any filing under
the Securities Act of 1933 or the Exchange Act, except to the extent that
the registrant specifically incorporates it by reference: Attached hereto.
NOTICE
A copy of the Amended and Restated Declaration of Trust of the Registrant is on
file with the Secretary of State of the Commonwealth of Massachusetts and notice
is hereby given that this instrument is executed on behalf of the Registrant by
an officer of the Registrant as an officer and not individually and the
obligations of or arising out of this instrument are not binding upon any of the
Trustees or shareholders individually, but are binding only upon the assets and
property of the respective constituent series of the Registrant.
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
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By (Signature and Title)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President
Date: December 22, 2006
-----------------
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)* MARIA F. DWYER
-----------------------------------------------------
Maria F. Dwyer, President (Principal Executive
Officer)
Date: December 22, 2006
-----------------
By (Signature and Title)* TRACY ATKINSON
-----------------------------------------------------
Tracy Atkinson, Treasurer (Principal Financial Officer
and Accounting Officer)
Date: December 22, 2006
-----------------
* Print name and title of each signing officer under his or her signature.