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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05912
MFS SPECIAL VALUE TRUST
(Exact name of registrant as specified in charter)
111 Huntington Avenue, Boston, Massachusetts 02199
(Address of principal executive offices) (Zip code)
Christopher R. Bohane
Massachusetts Financial Services Company
111 Huntington Avenue
Boston, Massachusetts 02199
(Name and address of agents for service)
Registrant’s telephone number, including area code: (617) 954-5000
Date of fiscal year end: October 31
Date of reporting period: October 31, 2020
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| ITEM 1. | REPORTS TO STOCKHOLDERS. |
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Annual Report
October 31, 2020
MFS® Special Value Trust
Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the fund’s annual and semiannual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the complete reports will be made available on the fund’s Web site, and you will be notified by mail each time a report is posted and provided with a Web site link to access the report.
If you are already signed up to receive shareholder reports by email, you will not be affected by this change and you need not take any action. You may sign up to receive shareholder reports and other communications from the fund by email by contacting your financial intermediary (such as a broker-dealer or bank) or, if you hold your shares directly with the fund, by calling 1-800-637-2304 or by logging into your Investor Center account at www.computershare.com/investor.
Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. Contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the fund, you can call 1-800-637-2304 to let the fund know that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the MFS fund complex if you invest directly.
MFV-ANN
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MANAGED DISTRIBUTION POLICY DISCLOSURE
The MFS Special Value Trust’s (the fund) Board of Trustees adopted a managed distribution policy. The fund seeks to pay monthly distributions based on an annual rate of 10.00% of the fund’s average monthly net asset value. The primary purpose of the managed distribution policy is to provide shareholders with a constant, but not guaranteed, fixed minimum rate of distribution each month. You should not draw any conclusions about the fund’s investment performance from the amount of the current distribution or from the terms of the fund’s managed distribution policy. The Board may amend or terminate the managed distribution policy at any time without prior notice to fund shareholders. The amendment or termination of the managed distribution policy could have an adverse effect on the market price of the fund’s shares.
With each distribution, the fund will issue a notice to shareholders and an accompanying press release which will provide detailed information regarding the amount and composition of the distribution and other related information. The amounts and sources of distributions reported in the notice to shareholders are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. The fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes. Please refer to “Tax Matters and Distributions” under Note 2 of the Notes to Financial Statements for information regarding the tax character of the fund’s distributions.
Under a managed distribution policy the fund may at times distribute more than its net investment income and net realized capital gains; therefore, a portion of your distribution may result in a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the fund is paid back to you. Any such returns of capital will decrease the fund’s total assets and, therefore, could have the effect of increasing the fund’s expense ratio. In addition, in order to make the level of distributions called for under its managed distribution policy, the fund may have to sell portfolio securities at a less than opportune time. A return of capital does not necessarily reflect the fund’s investment performance and should not be confused with ‘yield’ or ‘income’. The fund’s total return in relation to changes in net asset value is presented in the Financial Highlights.
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New York Stock Exchange Symbol: MFV
| Contact information | back cover |
NOT FDIC INSURED • MAY LOSE VALUE • NO BANK GUARANTEE
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LETTER FROM THE EXECUTIVE CHAIR
Dear Shareholders:
Markets experienced dramatic swings this year as the coronavirus pandemic brought the global economy to a standstill for several months early in the year, though
optimism over the development of vaccines and therapeutics later brightened the economic and market outlook. However, a great deal of uncertainty remains as case counts in the United States and Europe remain very high and it is still unclear when a vaccine will become widely available. In the United States, political uncertainty eased after former Vice President Joe Biden was projected the winner of the presidential election, though whether his party also gains control of Congress will not be known until two Senate runoff elections in Georgia in early January.
Global central banks have taken aggressive steps to cushion the economic and market fallout related to the virus, and
governments are deploying unprecedented levels of fiscal support, though in the U.S. some of those measures were allowed to lapse at the end of July as negotiators found themselves at an impasse over the scope of additional funding. The measures already put in place have helped build a supportive environment and are encouraging economic recovery; however, if markets disconnect from fundamentals, they can also sow the seeds of instability. In the aftermath of the crisis, societal changes may be likely as households, businesses, and governments adjust to a new reality, and any such alterations could affect the investment landscape. For investors, events such as the COVID-19 outbreak demonstrate the importance of having a deep understanding of company fundamentals, and we have built our global research platform to do just that.
Here at MFS®, we aim to help our clients navigate the growing complexity of the markets and world economies. Our long-term investment philosophy and commitment to the responsible allocation of capital allow us to tune out the noise and uncover what we believe are the best, most durable investment opportunities in the market. Through our unique global investment platform, we combine collective expertise, thoughtful risk management, and long-term discipline to create sustainable value for investors.
Respectfully,
Robert J. Manning
Executive Chair
MFS Investment Management
December 16, 2020
The opinions expressed in this letter are subject to change and may not be relied upon for investment advice. No forecasts can be guaranteed.
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Portfolio Composition – continued
| (a) | For all securities other than those specifically described below, ratings are assigned to underlying securities utilizing ratings from Moody’s, Fitch, and Standard & Poor’s rating agencies and applying the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 rating agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). Securities rated BBB or higher are considered investment grade. All ratings are subject to change. Not Rated includes fixed income securities and fixed income derivatives, which have not been rated by any rating agency. Non-Fixed Income includes equity securities (including convertible bonds and equity derivatives) and/or commodity-linked derivatives. The fund may or may not have held all of these instruments on this date. The fund is not rated by these agencies. |
| (g) | The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and S&P Global Market Intelligence Inc. (“S&P Global Market Intelligence”). GICS is a service mark of MSCI and S&P Global Market Intelligence and has been licensed for use by MFS. |
| (i) | For purposes of this presentation, the components include the value of securities, and reflect the impact of the equivalent exposure of derivative positions, if any. These amounts may be negative from time to time. Equivalent exposure is a calculated amount that translates the derivative position into a reasonable approximation of the amount of the underlying asset that the portfolio would have to hold at a given point in time to have the same price sensitivity that results from the portfolio’s ownership of the derivative contract. When dealing with derivatives, equivalent exposure is a more representative measure of the potential impact of a position on portfolio performance than value. The bond component will include any accrued interest amounts. |
| (o) | Less than 0.1%. |
Where the fund holds convertible bonds, they are treated as part of the equity portion of the portfolio.
Cash & Cash Equivalents includes any cash, investments in money market funds, short-term securities, and other assets less liabilities. Please see the Statement of Assets and Liabilities for additional information related to the fund’s cash position and other assets and liabilities.
Other includes equivalent exposure from currency derivatives and/or any offsets to derivative positions.
Percentages are based on net assets as of October 31, 2020.
The portfolio is actively managed and current holdings may be different.
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Summary of Results
For the twelve months ended October 31, 2020, the MFS Special Value Trust (fund) provided a total return of 1.44%, at net asset value and a total return of –10.63%, at market value. This compares with a return of 3.42% for the fund’s benchmark, the Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index (Bloomberg Index). The fund’s other benchmark, the MFS Special Value Trust Blended Index (Blended Index), generated a return of –0.44%. The Blended Index reflects the blended returns of various equity and fixed income market indices, with percentage allocations to each index designed to resemble the allocations of the fund. The market indices and related percentage allocations used to compile the Blended Index are set forth in the Performance Summary.
The performance commentary below is based on the net asset value performance of the fund, which reflects the performance of the underlying pool of assets held by the fund. The total return at market value represents the return earned by owners of the shares of the fund, which are traded publicly on the exchange.
Market Environment
Markets experienced an extraordinarily sharp selloff and, in many cases, an unusually rapid recovery late in the period. Central banks and fiscal authorities undertook astonishing levels of stimulus to offset the economic effects of government-imposed social-distancing measures implemented to slow the spread of the COVID-19 virus. At this point, the global economy looks to have experienced the deepest, steepest and possibly shortest recession in the postwar period. However, the recovery remains subject to more than the usual number of uncertainties due to questions about the evolution of the virus, what its continued impact will be and when vaccines or medicines will become available to prevent or treat it.
Around the world, central banks responded quickly and massively to the crisis with programs to improve liquidity and support markets. These programs proved largely successful in helping to restore market function, ease volatility and stimulate a continued market rebound. Late in the period, the US Federal Reserve adopted a new, flexible average-inflation-targeting framework, which is expected to result in policy rates remaining at low levels for a longer period. In developed countries, monetary easing measures were complemented by large fiscal stimulus initiatives, although late in the period there was uncertainty surrounding the timing and scope of additional US recovery funding. Due to relatively manageable external liabilities and balances of payments in many countries, along with persistently low inflation, even emerging market countries were able to implement countercyclical policies – a departure from the usual market-dictated response to risk-off crises.
Compounding market uncertainty earlier in the pandemic was a crash in the price of crude oil due to a sharp drop in global demand and a disagreement between Saudi Arabia and Russia over production cuts, which resulted in a price war. The subsequent decline in prices undercut oil exporters, many of which are in emerging markets, as well as a large segment of the high-yield credit market. The OPEC+ group later agreed on output cuts, with shale oil producers in the United States also decreasing
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Management Review – continued
production, which, along with the gradual reopening of some major economies and the resultant boost in demand, helped stabilize the price of crude oil.
As has often been the case in a crisis, market vulnerabilities have been revealed. For example, companies that have added significant leverage to their balance sheets in recent years by borrowing to fund dividend payments and stock buybacks have, in many cases, halted share repurchases and cut dividends, while some firms have been forced to recapitalize.
Detractors from Performance
Within the equity portion of the fund, underweight positions in both the consumer discretionary and consumer staples sectors held back performance relative to the equity portion of the Blended Index. Within the consumer discretionary sector, not owning shares of building materials and home improvements retailer Home Depot weighed on relative results. Although Home Depot’s earnings fell short of consensus expectations due to higher coronavirus-related expenses, investors appeared to have bid up its share price as home improvement demand remained strong, despite the pandemic. Within the consumer staples sector, not owning shares of retail giant Walmart and household products maker Procter & Gamble weakened relative returns. Despite the ongoing market volatility, the share price of Walmart outperformed the broader market, driven by growth in its grocery segment as consumers stocked up their pantries. Additionally, Walmart’s pickup and delivery services grew considerably amid the coronavirus crisis.
Stocks in other sectors that weighed on relative performance included the fund’s overweight positions in financial services firms Citigroup, U.S. Bancorp and JPMorgan Chase. A collapse in 10-year US Treasury bonds and the broader yield curve caused by the COVID-19 pandemic, combined with concerns that loan losses will increase due to the dramatic slowdown in global economic activity, pressured shares of many banks, including Citigroup. Additionally, the timing of the fund’s ownership in shares of global security company Northrop Grumman and chemical company PPG Industries (h), and not owning shares of electricity provider NextEra Energy and pharmaceutical and medical products maker Abbott Laboratories, further weakened relative results.
Within the fixed income portion of the fund, bond allocation weakened performance relative to the Bloomberg Index. From a sector perspective, the fund’s out-of-benchmark exposure to the government-related sovereign sector was a major detractor from relative results. From a quality perspective, bond selection within “BB” rated (r) issuers, and a greater exposure to “D” rated bonds, held back relative results.
Contributors to Performance
Within the equity portion of the fund, stock selection in the financials sector contributed to performance relative to the equity portion of the Blended Index. Within this sector, the fund’s overweight positions in securities exchange services provider NASDAQ and investment management company BlackRock boosted relative returns. The share price of NASDAQ appreciated throughout the reporting period as the company appeared to have been viewed as more defensive in nature, with a majority of its revenue being subscription-based. NASDAQ also benefited from higher market volatility caused by the COVID-19 pandemic. Additionally, the fund’s position in credit rating agency Moody’s (b)(h), and not owning shares of diversified financial services firm Wells Fargo, further supported relative results.
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An underweight position in the energy sector also aided relative performance, led by the fund not owning shares of weak-performing integrated oil and gas company Exxon Mobil. The share price of Exxon Mobil suffered at the beginning of the calendar year as oil and gas prices came under significant pressure due to lower demand, driven by disruptions caused by the COVID-19 virus and the price war between Saudi Arabia and Russia. As a result, Exxon Mobil’s chemical and refining margins came under pressure, which, paired with higher costs, weighed on its share price.
Security selection in the information technology sector further benefited relative returns, led by the fund’s overweight position in semiconductor company Texas Instruments and holdings of IT servicing firm Accenture (b). The share price of Texas Instruments increased, driven by higher revenues and improved gross margins.
Elsewhere, the fund’s overweight positions in life sciences supply company Thermo Fisher Scientific and industrial products and equipment Illinois Tools Works, and holdings of paint and coating manufacturer Sherwin-Williams (b), contributed to relative returns.
Within the fixed income portion of the fund, bond selection supported performance relative to the Bloomberg Index. From a sector perspective, bond selection within the industrials sector was a notable relative contributor. From a quality perspective, bond selection within both “D” and “CCC” rated issuers benefited relative performance.
Respectfully,
Portfolio Manager(s)
Ward Brown, Katherine Cannan, Nevin Chitkara, David Cole, Matt Ryan, and Michael Skatrud
Note to Shareholders: Effective December 31, 2019, Katherine Cannan was added as a Portfolio Manager of the Fund.
| (b) | Security is not a benchmark constituent. |
| (h) | Security was not held in the portfolio at period end. |
| (r) | Bonds rated “BBB”, “Baa”, or higher are considered investment grade; bonds rated “BB”, “Ba”, or below are considered non-investment grade. The source for bond quality ratings is Moody’s Investors Service, Standard & Poor’s and Fitch, Inc. and are applied using the following hierarchy: If all three agencies provide a rating, the middle rating (after dropping the highest and lowest ratings) is assigned; if two of the three agencies rate a security, the lower of the two is assigned. If none of the 3 Rating Agencies above assign a rating, but the security is rated by DBRS Morningstar, then the DBRS Morningstar rating is assigned. Ratings are shown in the S&P and Fitch scale (e.g., AAA). For securities which are not rated by any of the three agencies, the security is considered Not Rated. |
The views expressed in this report are those of the portfolio manager(s) 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 or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.
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PERFORMANCE SUMMARY THROUGH 10/31/20
The following chart presents the fund’s historical performance in comparison to its
benchmark(s). Investment return and principal value will fluctuate, and shares, when
sold, may be worth more or less than their original cost; current performance may be
lower or higher than quoted. The performance shown does not reflect the deduction
of taxes, if any, that a shareholder would pay on fund distributions or the sale of fund
shares. Performance data shown represents past performance and is no guarantee of
future results.
Price Summary for MFS Special Value Trust
| Date | Price | |||||||||||
|
Year Ended 10/31/20 |
Net Asset Value | 10/31/20 | $5.15 | |||||||||
| 10/31/19 | $5.60 | |||||||||||
| New York Stock Exchange Price | 10/31/20 | $5.25 | ||||||||||
| 2/07/20 | (high) (t) | $7.07 | ||||||||||
| 3/18/20 | (low) (t) | $3.26 | ||||||||||
| 10/31/19 | $6.48 | |||||||||||
Total Returns vs Benchmark(s)
|
Year Ended 10/31/20 |
MFS Special Value Trust at | |||||||||
| New York Stock Exchange Price (r) |
(10.63)% | |||||||||
| Net Asset Value (r) |
1.44% | |||||||||
| Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index (f) | 3.42% | |||||||||
| MFS Special Value Trust Blended Index (f) (w) | (0.44)% | |||||||||
| JPMorgan Emerging Markets Bond Index Global (f) | 1.97% | |||||||||
| Russell 1000® Value Index (f) | (7.57)% | |||||||||
| (f) | Source: FactSet Research Systems Inc. |
| (r) | Includes reinvestment of all distributions. |
| (t) | For the period November 1, 2019 through October 31, 2020. |
| (w) | As of October 31, 2020, the MFS Special Value Trust Blended Index (a custom index) was comprised of 57.50% Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index, 35% Russell 1000® Value Index, and 7.50% JPMorgan Emerging Markets Bond Index Global. |
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Performance Summary – continued
Benchmark Definition(s)
Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index (a) – a component of the Bloomberg Barclays U.S. High-Yield Corporate Bond Index, which measures performance of non-investment grade, fixed rate debt. The index limits the maximum exposure to any one issuer to 2%.
JPMorgan Emerging Markets Bond Index Global – measures the performance of U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds.
Russell 1000® Value Index (f) – 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.
| (a) | BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. |
| (f) | Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this document. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor, or endorse the content of this document. |
Notes to Performance Summary
The fund’s shares may trade at a discount or premium to net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the fund’s concurrent liquidation.
The fund’s target annual distribution rate is calculated based on an annual rate of 10.00% of the fund’s average monthly net asset value, not a fixed share price, and the fund’s dividend amount will fluctuate with changes in the fund’s average monthly net assets.
Net asset values and performance results based on net asset value per share do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from amounts reported in the Statement of Assets and Liabilities or the Financial Highlights.
From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.
In accordance with Section 23(c) of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.
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INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES, PRINCIPAL INVESTMENT TYPES AND PRINCIPAL RISKS
Investment Objective
The fund’s investment objective is to seek high current income, but may also consider capital appreciation. The fund’s objective may be changed without shareholder approval.
Principal Investment Strategies
MFS (Massachusetts Financial Services Company, the fund’s investment adviser) normally invests the majority of the fund’s assets in debt instruments, including below investment grade quality debt instruments. In addition, MFS normally invests a portion of the fund’s assets in equity securities.
MFS may invest the fund’s assets in foreign securities.
MFS may invest up to 100% of the fund’s assets in below investment grade quality debt instruments.
The fund seeks to make a monthly distribution at an annual fixed rate of 10% of the fund’s average monthly net asset value.
MFS normally invests the fund’s assets across different industries and sectors, but MFS may invest a significant percentage of the fund’s assets in issuers in a single industry or sector.
While MFS may use derivatives for any investment purpose, to the extent MFS uses derivatives, MFS expects to use derivatives primarily to increase or decrease exposure to a particular market, segment of the market, or security, to increase or decrease interest rate exposure, or as alternatives to direct investments.
MFS uses an active bottom-up investment approach to buying and selling investments for the fund. Investments are selected primarily based on fundamental analysis of individual issuers and/or instruments in light of the issuer’s financial condition and market, economic, political, and regulatory conditions. Factors considered for debt instruments may include the instrument’s credit quality, collateral characteristics, and indenture provisions, and the issuer’s management ability, capital structure, leverage, and ability to meet its current obligations. Factors considered for equity securities may include analysis of an issuer’s earnings, cash flows, competitive position, and management ability. MFS may also consider environmental, social, and governance (ESG) factors in its fundamental investment analysis. Quantitative screening tools that systematically evaluate the structure of a debt instrument and its features or the valuation, price and earnings momentum, earnings quality, and other factors of the issuer of an equity security may also be considered.
If approved by the fund’s Board of Trustees, the fund may use leverage through the issuance of preferred shares, borrowing from banks, and/or other methods of creating leverage, and investing the proceeds pursuant to its investment strategies.
MFS may engage in active and frequent trading in pursuing the fund’s principal investment strategies.
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
In response to market, economic, political, or other conditions, MFS may depart from the fund’s principal investment strategies by temporarily investing for defensive purposes.
Principal Investment Types
The principal investment types in which the fund may invest are:
Debt Instruments: Debt instruments represent obligations of corporations, governments, and other entities to repay money borrowed, or other instruments believed to have debt-like characteristics. The issuer or borrower usually pays a fixed, variable, or floating rate of interest, and must repay the amount borrowed, usually at the maturity of the instrument. Debt instruments generally trade in the over-the-counter market and can be less liquid than other types of investments, particularly during adverse market and economic conditions. During certain market conditions, debt instruments in some or many segments of the debt market can trade at a negative interest rate (i.e., the price to purchase the debt instrument is more than the present value of expected interest payments and principal due at the maturity of the instrument). Some debt instruments, such as zero coupon bonds or payment-in-kind bonds, do not pay current interest. Other debt instruments, such as certain mortgage-backed securities and other securitized instruments, make periodic payments of interest and/or principal. Some debt instruments are partially or fully secured by collateral supporting the payment of interest and principal.
Corporate Bonds: Corporate bonds are debt instruments issued by corporations or similar entities.
U.S. Government Securities: U.S. Government securities are securities issued or guaranteed as to the payment of principal and interest by the U.S. Treasury, by an agency or instrumentality of the U.S. Government, or by a U.S. Government-sponsored entity. Certain U.S. Government securities are not supported as to the payment of principal and interest by the full faith and credit of the U.S. Treasury or the ability to borrow from the U.S. Treasury. Some U.S. Government securities are supported as to the payment of principal and interest only by the credit of the entity issuing or guaranteeing the security. U.S. Government securities include mortgage-backed securities and other types of securitized instruments guaranteed by the U.S. Treasury, by an agency or instrumentality of the U.S. Government, or by a U.S. Government-sponsored entity.
Foreign Government Securities: Foreign government securities are debt instruments issued, guaranteed, or supported, as to the payment of principal and interest, by foreign governments, foreign government agencies, foreign semi-governmental entities or supranational entities, or debt instruments issued by entities organized and operated for the purpose of restructuring outstanding foreign government securities. Foreign government securities may not be supported as to the payment of principal and interest by the full faith and credit of the foreign government.
Equity Securities: Equity securities represent an ownership interest, or the right to acquire an ownership interest, in a company or other issuer. Different types of equity securities provide different voting and dividend rights and priorities in the event of
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
bankruptcy of the issuer. Equity securities include common stocks, preferred stocks, securities convertible into stocks, equity interests in real estate investment trusts (REITs), and depositary receipts for such securities.
Derivatives: Derivatives are financial contracts whose value is based on the value of one or more underlying indicators or the difference between underlying indicators. Underlying indicators may include a security or other financial instrument, asset, currency, interest rate, credit rating, commodity, volatility measure, or index. Derivatives often involve a counterparty to the transaction. Derivatives include futures, forward contracts, options, structured securities.
Principal Risks
The share price of the fund will change daily based on changes in market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions. As with any mutual fund, the fund may not achieve its objective and/or you could lose money on your investment in the fund. An investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. The significance of any specific risk to an investment in the fund will vary over time depending on the composition of the fund’s portfolio, market conditions, and other factors. You should read all of the risk information below carefully, because any one or more of these risks may result in losses to the fund.
The principal risks of investing in the fund are:
Investment Selection Risk: MFS’ investment analysis and its selection of investments may not produce the intended results and/or can lead to an investment focus that results in the fund underperforming other funds with similar investment strategies and/or underperforming the markets in which the fund invests. In addition, MFS or the fund’s other service providers may experience disruptions or operating errors that could negatively impact the fund.
Debt Market Risk: Debt markets can be volatile and can decline significantly in response to, or investor perceptions of, issuer, market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions. These conditions can affect a single instrument, issuer, or borrower, a particular type of instrument, issuer, or borrower, a segment of the debt markets, or debt markets generally. Certain changes or events, such as political, social, or economic developments, including increasing and negative interest rates or the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan (which has in the past resulted and may in the future result in a government shutdown); market closures and/or trading halts; government or regulatory actions, including the imposition of tariffs or other protectionist actions and changes in fiscal, monetary, or tax policies; natural disasters; outbreaks of pandemic and epidemic diseases; terrorist attacks; war; and other geopolitical changes or events can have a dramatic adverse effect on debt markets and may lead to periods of high volatility and reduced liquidity in a debt market or a segment of a debt market.
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
Interest Rate Risk: The price of a debt instrument typically changes in response to interest rate changes. Interest rates can change in response to the supply and demand for credit, government and/or central bank monetary policy and action, inflation rates, and other factors. In general, the price of a debt instrument falls when interest rates rise and rises when interest rates fall. Interest rate risk is generally greater for instruments with longer maturities, or that do not pay current interest. In addition, short-term and long-term interest rates, and interest rates in different countries, do not necessarily move in the same direction or by the same amount. An instrument’s reaction to interest rate changes depends on the timing of its interest and principal payments and the current interest rate for each of those time periods. Instruments with floating interest rates can be less sensitive to interest rate changes. The price of an instrument trading at a negative interest rate responds to interest rate changes like other debt instruments; however, an instrument purchased at a negative interest rate is expected to produce a negative return if held to maturity. Changes in government and/or central bank monetary policy may affect the level of interest rates.
Credit Risk: The price of a debt instrument depends, in part, on the issuer’s or borrower’s credit quality or ability to pay principal and interest when due. The price of a debt instrument is likely to fall if an issuer or borrower defaults on its obligation to pay principal or interest, if the instrument’s credit rating is downgraded by a credit rating agency, or based on other changes in, or perceptions of, the financial condition of the issuer or borrower. For certain types of instruments, including derivatives, the price of the instrument depends in part on the credit quality of the counterparty to the transaction. For other types of debt instruments, including securitized instruments, the price of the debt instrument also depends on the credit quality and adequacy of the underlying assets or collateral as well as whether there is a security interest in the underlying assets or collateral. Enforcing rights, if any, against the underlying assets or collateral may be difficult.
Below investment grade quality debt instruments can involve a substantially greater risk of default or can already be in default, and their values can decline significantly over short periods of time. Below investment grade quality debt instruments are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and principal. Below investment grade quality debt instruments tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The market for below investment grade quality debt instruments can be less liquid, especially during periods of recession or general market decline.
Foreign Risk: Investments in securities of foreign issuers, securities of companies with significant foreign exposure, and foreign currencies can involve additional risks relating to market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions. Political, social, diplomatic, and economic developments, U.S. and foreign government action such as the imposition of currency or capital blockages, controls, or tariffs, economic and trade sanctions or embargoes, security suspensions, entering or exiting trade or other intergovernmental agreements, or the expropriation or nationalization of assets in a particular country, can cause dramatic declines in certain or all securities with exposure to that country and other countries. In
12
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
the event of nationalization, expropriation, or other confiscation, the fund could lose its entire foreign investment in a particular country. Economies and financial markets are interconnected, which increases the likelihood that conditions in one country or region can adversely impact issuers in different countries and regions. Less stringent regulatory, accounting, auditing, and disclosure requirements for issuers and markets are more common in certain foreign countries. Enforcing legal rights can be difficult, costly, and slow in certain foreign countries, and can be particularly difficult against foreign governments. Changes in currency exchange rates can significantly impact the financial condition of a company or other issuer with exposure to multiple countries as well as affect the U.S. dollar value of foreign currency investments and investments denominated in foreign currencies. Additional risks of foreign investments include trading, settlement, custodial, and other operational risks, and withholding and other taxes. These factors can make foreign investments, especially those tied economically to emerging and frontier markets (emerging markets that are early in their development), more volatile and less liquid than U.S. investments. In addition, foreign markets can react differently to market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions than the U.S. market.
Prepayment/Extension Risk: Many types of debt instruments, including mortgage-backed securities, securitized instruments, certain corporate bonds, and municipal housing bonds, and certain derivatives, are subject to the risk of prepayment and/or extension. Prepayment occurs when unscheduled payments of principal are made or the instrument is called or redeemed prior to an instrument’s maturity. When interest rates decline, the instrument is called, or for other reasons, these debt instruments may be repaid more quickly than expected. As a result, the holder of the debt instrument may not be able to reinvest the proceeds at the same interest rate or on the same terms, reducing the potential for gain. When interest rates increase or for other reasons, these debt instruments may be repaid more slowly than expected, increasing the potential for loss. In addition, prepayment rates are difficult to predict and the potential impact of prepayment on the price of a debt instrument depends on the terms of the instrument.
Equity Market Risk: Equity markets can be volatile and can decline significantly in response to, or investor perceptions of, issuer, market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions. These conditions can affect a single issuer or type of security, issuers within a broad market sector, industry or geographic region, or the equity markets in general. Different parts of the market and different types of securities can react differently to these conditions. For example, the stocks of growth companies can react differently from the stocks of value companies, and the stocks of large cap companies can react differently from the stocks of small cap companies. Certain changes or events, such as political, social, or economic developments, including increasing or negative interest rates or the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan (which has in the past resulted and may in the future result in a government shutdown); market closures and/or trading halts; government or regulatory actions, including the imposition of tariffs or other protectionist actions and changes in fiscal, monetary, or tax policies; natural disasters; outbreaks of pandemic and epidemic
13
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
diseases; terrorist attacks; war; and other geopolitical changes or events, can have a dramatic adverse effect on equity markets and may lead to periods of high volatility in an equity market or a segment of an equity market.
Company Risk: Changes in the financial condition of a company or other issuer, changes in specific market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions that affect a particular type of investment or issuer, and changes in general market, economic, political, regulatory, geopolitical, environmental, public health, and other conditions can adversely affect the prices of investments. The prices of securities of smaller, less well-known issuers can be more volatile than the prices of securities of larger issuers or the market in general.
Managed Distribution Plan Risk: The fund may not be able to maintain a monthly distribution at an annual fixed rate of up to 10% of the fund’s average monthly net asset value due to many factors, including but not limited to, changes in market returns, fluctuations in market interest rates, and other factors. If income from the fund’s investments is less than the amount needed to make a monthly distribution, portfolio investments may be sold at less than opportune times to fund the distribution. Distributions that are treated as tax return of capital will have the effect of reducing the fund’s assets and could increase the fund’s expense ratio. If a portion of the fund’s distributions represents returns of capital over extended periods, the fund’s assets may be reduced over time to levels where the fund is no longer viable and might be liquidated.
Leveraging Risk: If the fund utilizes investment leverage, there can be no assurance that such a leveraging strategy will be successful during any period in which it is employed. The use of leverage is a speculative investment technique that results in greater volatility in the fund’s net asset value. To the extent that investments are purchased with the proceeds from the borrowings from a bank, the issuance of preferred shares, or the creation of tender option bonds, the fund’s net asset value will increase or decrease at a greater rate than a comparable unleveraged fund. If the investment income or gains earned from the investments purchased with the proceeds from the borrowings from a bank, the issuance of preferred shares, or the creation of tender option bonds, fails to cover the expenses of leveraging, the fund’s net asset value is likely to decrease more quickly than if the fund weren’t leveraged. In addition, the fund’s distributions could be reduced. The fund is currently required under the 1940 Act to maintain asset coverage of 200% on outstanding preferred shares and 300% on outstanding indebtedness. The fund may be required to sell a portion of its investments at a time when it may be disadvantageous to do so in order to redeem preferred shares or to reduce outstanding indebtedness to comply with asset coverage or other restrictions including those imposed by the 1940 Act and the rating agencies that rate the preferred shares. The expenses of leveraging are paid by the holders of common shares. Borrowings from a bank or preferred shares may have a stated maturity. If this leverage is not extended prior to maturity or replaced with the same or a different form of leverage, distributions to common shareholders may be decreased.
Certain transactions and investment strategies can result in leverage. Because movements in a fund’s share price generally correlate over time with the fund’s net
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
asset value, the market price of a leveraged fund will also tend to be more volatile than that of a comparable unleveraged fund. The costs of an offering of preferred shares and/or borrowing program would be borne by shareholders.
Under the terms of any loan agreement or of a purchase agreement between the fund and the investor in the preferred shares, as the case may be, the fund may be required to, among other things, limit its ability to pay distributions in certain circumstances, incur additional debts, engage in certain transactions, and pledge some or all of its assets. Such agreements could limit the fund’s ability to pursue its investment strategies. The terms of any loan agreement or purchase agreement could be more or less restrictive than those described.
Under guidelines generally required by a rating agency providing a rating for any preferred shares, the fund may be required to, among other things, maintain certain asset coverage requirements, restrict certain investments and practices, and adopt certain redemption requirements relating to preferred shares. Such guidelines or the terms of a purchase agreement between a fund and the investor in the preferred shares could limit the fund’s ability to pursue its investment strategies. The guidelines imposed with respect to preferred shares by a rating agency or an investor in the preferred shares could be more or less restrictive than those described.
Focus Risk: Issuers in a single industry, sector, country, or region can react similarly to market, currency, political, economic, regulatory, geopolitical, environmental, public health, and other conditions. These conditions include business environment changes; economic factors such as fiscal, monetary, and tax policies; inflation and unemployment rates; and government and regulatory changes. The fund’s performance will be affected by the conditions in the industries, sectors, countries and regions to which the fund is exposed.
Derivatives Risk: Derivatives can be highly volatile and involve risks in addition to, and potentially greater than, the risks of the underlying indicator(s). Gains or losses from derivatives can be substantially greater than the derivatives’ original cost and can sometimes be unlimited. Derivatives can involve leverage. Derivatives can be complex instruments and can involve analysis and processing that differs from that required for other investment types used by the fund. If the value of a derivative does not change as expected relative to the value of the market or other indicator to which the derivative is intended to provide exposure, the derivative may not have the effect intended. Derivatives can also reduce the opportunity for gains or result in losses by offsetting positive returns in other investments. Derivatives can be less liquid than other types of investments.
Anti-Takeover Provisions Risk: The fund’s declaration of trust includes provisions that could limit the ability of other persons or entities to acquire control of the fund, to convert the fund to an open-end fund, or to change the composition of the fund’s Board of Trustees. These provisions could reduce the opportunities for shareholders to sell their shares at a premium over the then-current market price.
Market Discount/Premium Risk: The market price of shares of the fund will be based on factors such as the supply and demand for shares in the market and general market, economic, industry, political or regulatory conditions. Whether shareholders will realize
15
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Investment Objective, Principal Investment Strategies, Principal Investment Types and Principal Risks – continued
gains or losses upon the sale of shares of the fund will depend on the market price of shares at the time of the sale, not on the fund’s net asset value. The market price may be lower or higher than the fund’s net asset value. Shares of closed-end funds frequently trade at a discount to their net asset value.
Counterparty and Third Party Risk: Transactions involving a counterparty other than the issuer of the instrument, including clearing organizations, or a third party responsible for servicing the instrument or effecting the transaction, are subject to the credit risk of the counterparty or third party, and to the counterparty’s or third party’s ability or willingness to perform in accordance with the terms of the transaction. If a counterparty or third party fails to meet its contractual obligations, goes bankrupt, or otherwise experiences a business interruption, the fund could miss investment opportunities, lose value on its investments, or otherwise hold investments it would prefer to sell, resulting in losses for the fund.
Liquidity Risk: Certain investments and types of investments are subject to restrictions on resale, may trade in the over-the-counter market, or may not have an active trading market due to adverse market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions, including investors trying to sell large quantities of a particular investment or type of investment, or lack of market makers or other buyers for a particular investment or type of investment. At times, all or a significant portion of a market may not have an active trading market. Without an active trading market, it may be difficult to value, and it may not be possible to sell, these investments and the fund could miss other investment opportunities and hold investments it would prefer to sell, resulting in losses for the fund. In addition, the fund may have to sell certain of these investments at prices or times that are not advantageous in order to meet redemptions or other cash needs, which could result in dilution of remaining investors’ interests in the fund. The prices of illiquid securities may be more volatile than more liquid investments.
Defensive Investing Risk: When MFS invests defensively, different factors could affect the fund’s performance and the fund may not achieve its investment objective. In addition, the defensive strategy may not work as intended.
Frequent Trading Risk: Frequent trading increases transaction costs, which may reduce the Fund’s return. Frequent trading can also result in the realization of a higher percentage of short-term capital gains and a lower percentage of long-term capital gains as compared to a fund that trades less frequently. Because short-term capital gains are distributed as ordinary income, this would generally increase your tax liability unless you hold your shares through a tax-advantaged or tax-exempt vehicle.
16
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| Portfolio Manager | Primary Role | Since | Title and Five Year History | |||
| Ward Brown | Emerging Markets Debt Instruments Portfolio Manager |
2012 | Investment Officer of MFS; employed in the investment management area of MFS since 2005. | |||
| Katherine Cannan | Equity Securities Portfolio Manager |
December 2019 |
Investment Officer of MFS; employed in the investment area of MFS since 2013. | |||
| Nevin Chitkara | Equity Securities Portfolio Manager |
2012 | Investment Officer of MFS; employed in the investment management area of MFS since 1997. | |||
| David Cole | Below Investment Grade Debt Instruments Portfolio Manager |
2006 | Investment Officer of MFS; employed in the investment management area of MFS since 2004. | |||
| Matt Ryan | Emerging Markets Debt Instruments Portfolio Manager |
2012 | Investment Officer of MFS; employed in the investment management area of MFS since 1997. | |||
| Michael Skatrud | Below Investment Grade Debt Instruments Portfolio Manager |
2018 | Investment Officer of MFS; employed in the investment management area of MFS since 2013. | |||
The following information in this annual report is a summary of certain changes since October 31, 2019. This information may not reflect all of the changes that have occurred since you purchased this fund.
Effective December 31, 2019, Katherine Cannan was added as a Portfolio Manager of the fund.
17
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DIVIDEND REINVESTMENT AND CASH
PURCHASE PLAN
The fund offers a Dividend Reinvestment and Cash Purchase Plan (the “Plan”) that allows common shareholders to reinvest either all of the distributions paid by the fund or only the long-term capital gains. Generally, 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 price of either the net asset value or 95% of the market price, whichever is greater. You can also buy shares on a quarterly basis in any amount $100 and over. The Plan Agent will purchase shares under the Cash Purchase Plan on the 15th of January, April, July, and October or shortly thereafter.
If shares are registered in your own name, new shareholders will automatically participate in the Plan, unless you have indicated that you do not wish to participate. 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 fund. 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 transaction expenses, including commissions. The tax status of dividends and capital gain distributions does not change whether received in cash or reinvested in additional shares – 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.
If your shares are held directly with the Plan Agent, you may withdraw from the Plan at any time by going to the Plan Agent’s website at www.computershare.com/investor, by calling 1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time or by writing to the Plan Agent at P.O. Box 505005, Louisville, KY 40233-5005. Please have available the name of the fund and your account number. 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 three ways: your full shares will be held in your account, the Plan Agent will sell your shares and send the proceeds to you, or you may transfer your full shares to your investment professional who can hold or sell them. Additionally, the Plan Agent will sell your fractional shares and send the proceeds to you.
If you have any questions or for further information or a copy of the Plan, contact the Plan Agent Computershare Trust Company, N.A. (the Transfer Agent for the fund) at 1-800-637-2304, at the Plan Agent’s website at www.computershare.com/investor, or by writing to the Plan Agent at P.O. Box 505005, Louisville, KY 40233-5005.
18
Table of Contents
10/31/20
The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - 58.5% | ||||||||
| Aerospace - 1.2% | ||||||||
| Bombardier, Inc., 7.5%, 3/15/2025 (n) | $ | 121,000 | $ | 88,028 | ||||
| Bombardier, Inc., 7.875%, 4/15/2027 (n) | 45,000 | 32,781 | ||||||
| Moog, Inc., 4.25%, 12/15/2027 (n) | 85,000 | 87,231 | ||||||
| TransDigm, Inc., 6.5%, 7/15/2024 | 70,000 | 69,913 | ||||||
| TransDigm, Inc., 6.25%, 3/15/2026 (n) | 70,000 | 72,974 | ||||||
| TransDigm, Inc., 6.375%, 6/15/2026 | 45,000 | 44,874 | ||||||
| TransDigm, Inc., 5.5%, 11/15/2027 | 45,000 | 43,931 | ||||||
|
|
|
|||||||
| $ | 439,732 | |||||||
| Automotive - 1.7% | ||||||||
| Adient U.S. LLC, 7%, 5/15/2026 (n) | $ | 55,000 | $ | 58,670 | ||||
| Allison Transmission, Inc., 5%, 10/01/2024 (n) | 130,000 | 131,163 | ||||||
| Allison Transmission, Inc., 5.875%, 6/01/2029 (n) | 40,000 | 43,750 | ||||||
| American Axle & Manufacturing, Inc., 6.25%, 3/15/2026 | 30,000 | 30,066 | ||||||
| Dana, Inc., 5.5%, 12/15/2024 | 5,000 | 5,075 | ||||||
| Dana, Inc., 5.375%, 11/15/2027 | 46,000 | 47,495 | ||||||
| Dana, Inc., 5.625%, 6/15/2028 | 15,000 | 15,746 | ||||||
| IAA Spinco, Inc., 5.5%, 6/15/2027 (n) | 95,000 | 99,869 | ||||||
| KAR Auction Services, Inc., 5.125%, 6/01/2025 (n) | 80,000 | 80,600 | ||||||
| Panther BR Aggregator 2 LP/Panther Finance Co., Inc., 8.5%, 5/15/2027 (n) | 80,000 | 83,452 | ||||||
| PM General Purchaser LLC, 9.5%, 10/01/2028 (n) | 20,000 | 20,900 | ||||||
|
|
|
|||||||
| $ | 616,786 | |||||||
| Broadcasting - 1.6% | ||||||||
| iHeartCommunications, Inc., 6.375%, 5/01/2026 (n) | $ | 35,000 | $ | 36,444 | ||||
| iHeartCommunications, Inc., 8.375%, 5/01/2027 | 45,000 | 43,659 | ||||||
| iHeartCommunications, Inc., 5.25%, 8/15/2027 (n) | 15,000 | 14,806 | ||||||
| Netflix, Inc., 5.875%, 2/15/2025 | 100,000 | 113,125 | ||||||
| Netflix, Inc., 3.625%, 6/15/2025 (n) | 45,000 | 46,744 | ||||||
| Netflix, Inc., 5.875%, 11/15/2028 | 75,000 | 89,610 | ||||||
| Netflix, Inc., 5.375%, 11/15/2029 (n) | 15,000 | 17,569 | ||||||
| Nexstar Escrow Corp., 5.625%, 7/15/2027 (n) | 90,000 | 93,825 | ||||||
| WMG Acquisition Corp., 3.875%, 7/15/2030 (n) | 125,000 | 125,819 | ||||||
|
|
|
|||||||
| $ | 581,601 | |||||||
| Brokerage & Asset Managers - 0.4% | ||||||||
| LPL Holdings, Inc., 4.625%, 11/15/2027 (n) | $ | 130,000 | $ | 133,250 | ||||
19
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Building - 2.8% | ||||||||
| ABC Supply Co., Inc., 5.875%, 5/15/2026 (n) | $ | 80,000 | $ | 83,000 | ||||
| ABC Supply Co., Inc., 4%, 1/15/2028 (n) | 90,000 | 91,350 | ||||||
| Beacon Escrow Corp., 4.875%, 11/01/2025 (n) | 100,000 | 98,100 | ||||||
| Core & Main LP, 8.625%, (8.625% cash or 9.375% PIK) 9/15/2024 (n)(p) | 30,000 | 30,225 | ||||||
| Core & Main LP, 6.125%, 8/15/2025 (n) | 77,000 | 78,155 | ||||||
| Cornerstone Building Brands, Inc., 8%, 4/15/2026 (n) | 55,000 | 57,200 | ||||||
| Cornerstone Building Brands, Inc., 6.125%, 1/15/2029 (n) | 15,000 | 15,323 | ||||||
| HD Supply, Inc., 5.375%, 10/15/2026 (n) | 80,000 | 83,683 | ||||||
| New Enterprise Stone & Lime Co., Inc., 6.25%, 3/15/2026 (n) | 70,000 | 72,362 | ||||||
| New Enterprise Stone & Lime Co., Inc., 9.75%, 7/15/2028 (n) | 35,000 | 37,800 | ||||||
| Patrick Industries, Inc., 7.5%, 10/15/2027 (n) | 60,000 | 65,006 | ||||||
| PriSo Acquisition Corp., 9%, 5/15/2023 (n) | 69,000 | 68,138 | ||||||
| SRM Escrow Issuer LLC, 6%, 11/01/2028 (n) | 50,000 | 50,000 | ||||||
| SRS Distribution, Inc., 8.25%, 7/01/2026 (n) | 40,000 | 42,200 | ||||||
| Standard Industries, Inc., 4.375%, 7/15/2030 (n) | 66,000 | 67,980 | ||||||
| Standard Industries, Inc., 3.375%, 1/15/2031 (n) | 30,000 | 29,200 | ||||||
| Summit Materials LLC/Summit Materials Finance Co., 5.25%, 1/15/2029 (n) | 30,000 | 30,900 | ||||||
| White Cap Buyer LLC, 6.875%, 10/15/2028 (n) | 40,000 | 41,000 | ||||||
|
|
|
|||||||
| $ | 1,041,622 | |||||||
| Business Services - 1.5% | ||||||||
| Ascend Learning LLC, 6.875%, 8/01/2025 (n) | $ | 75,000 | $ | 77,352 | ||||
| CDK Global, Inc., 4.875%, 6/01/2027 | 85,000 | 88,088 | ||||||
| Iron Mountain, Inc., 5.25%, 3/15/2028 (n) | 25,000 | 25,625 | ||||||
| Iron Mountain, Inc., 5.25%, 7/15/2030 (n) | 30,000 | 30,787 | ||||||
| Iron Mountain, Inc., REIT, 4.875%, 9/15/2027 (n) | 55,000 | 56,015 | ||||||
| MSCI, Inc., 4.75%, 8/01/2026 (n) | 80,000 | 83,100 | ||||||
| QualityTech LP/QTS Finance Corp., 4.75%, 11/15/2025 (n) | 25,000 | 25,902 | ||||||
| Refinitiv U.S. Holdings, Inc., 8.25%, 11/15/2026 (n) | 40,000 | 43,598 | ||||||
| Switch, Ltd., 3.75%, 9/15/2028 (n) | 49,000 | 49,061 | ||||||
| Verscend Escrow Corp., 9.75%, 8/15/2026 (n) | 60,000 | 64,500 | ||||||
|
|
|
|||||||
| $ | 544,028 | |||||||
| Cable TV - 4.8% | ||||||||
| Cable One, Inc., 4%, 11/15/2030 (n) | $ | 20,000 | $ | 20,300 | ||||
| CCO Holdings LLC/CCO Holdings Capital Corp., 5.75%, 2/15/2026 (n) | 210,000 | 217,699 | ||||||
| CCO Holdings LLC/CCO Holdings Capital Corp., 5.875%, 5/01/2027 (n) | 130,000 | 135,639 | ||||||
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.75%, 3/01/2030 (n) | 165,000 | 173,555 | ||||||
| CCO Holdings LLC/CCO Holdings Capital Corp., 4.5%, 8/15/2030 (n) | 50,000 | 51,963 | ||||||
| CSC Holdings LLC, 5.5%, 4/15/2027 (n) | 200,000 | 210,750 | ||||||
| DISH DBS Corp., 5.875%, 11/15/2024 | 60,000 | 60,362 | ||||||
20
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Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Cable TV - continued | ||||||||
| DISH DBS Corp., 7.75%, 7/01/2026 | $ | 65,000 | $ | 68,899 | ||||
| Intelsat Jackson Holdings S.A., 5.5%, 8/01/2023 (a)(d) | 60,000 | 35,175 | ||||||
| Intelsat Jackson Holdings S.A., 9.75%, 7/15/2025 (a)(d)(n) | 30,000 | 18,750 | ||||||
| Sirius XM Holdings, Inc., 4.625%, 7/15/2024 (n) | 100,000 | 103,120 | ||||||
| Sirius XM Holdings, Inc., 5.5%, 7/01/2029 (n) | 45,000 | 48,980 | ||||||
| Telenet Finance Luxembourg S.A., 5.5%, 3/01/2028 (n) | 200,000 | 210,000 | ||||||
| Telesat Holdings, Inc., 6.5%, 10/15/2027 (n) | 65,000 | 64,675 | ||||||
| Videotron Ltd., 5.375%, 6/15/2024 (n) | 25,000 | 27,188 | ||||||
| Videotron Ltd., 5.125%, 4/15/2027 (n) | 135,000 | 142,762 | ||||||
| Ziggo Bond Finance B.V., 5.125%, 2/28/2030 (n) | 200,000 | 205,500 | ||||||
|
|
|
|||||||
| $ | 1,795,317 | |||||||
| Chemicals - 1.0% | ||||||||
| Axalta Coating Systems Ltd., 4.75%, 6/15/2027 (n) | $ | 150,000 | $ | 157,125 | ||||
| Element Solutions, Inc., 3.875%, 9/01/2028 (n) | 50,000 | 49,375 | ||||||
| Ingevity Corp., 3.875%, 11/01/2028 (n) | 64,000 | 65,120 | ||||||
| Starfruit Finance Co./Starfruit U.S. Holding Co. LLC, 6.5%, 10/01/2026 (n) | EUR | 100,000 | 118,212 | |||||
|
|
|
|||||||
| $ | 389,832 | |||||||
| Computer Software - 0.5% | ||||||||
| Camelot Finance S.A., 4.5%, 11/01/2026 (n) | $ | 95,000 | $ | 98,800 | ||||
| PTC, Inc., 3.625%, 2/15/2025 (n) | 65,000 | 66,178 | ||||||
| PTC, Inc., 4%, 2/15/2028 (n) | 35,000 | 36,181 | ||||||
|
|
|
|||||||
| $ | 201,159 | |||||||
| Computer Software - Systems - 1.0% | ||||||||
| BY Crown Parent LLC, 4.25%, 1/31/2026 (n) | $ | 20,000 | $ | 20,250 | ||||
| Fair Isaac Corp., 5.25%, 5/15/2026 (n) | 140,000 | 155,400 | ||||||
| Fair Isaac Corp., 4%, 6/15/2028 (n) | 12,000 | 12,405 | ||||||
| JDA Software Group, Inc., 7.375%, 10/15/2024 (n) | 70,000 | 70,700 | ||||||
| SS&C Technologies Holdings, Inc., 5.5%, 9/30/2027 (n) | 95,000 | 100,969 | ||||||
|
|
|
|||||||
| $ | 359,724 | |||||||
| Conglomerates - 2.7% | ||||||||
| Amsted Industries Co., 5.625%, 7/01/2027 (n) | $ | 90,000 | $ | 94,500 | ||||
| BWX Technologies, Inc., 5.375%, 7/15/2026 (n) | 110,000 | 114,029 | ||||||
| BWX Technologies, Inc., 4.125%, 6/30/2028 (n) | 23,000 | 23,230 | ||||||
| CFX Escrow Corp., 6.375%, 2/15/2026 (n) | 70,000 | 73,675 | ||||||
| EnerSys, 5%, 4/30/2023 (n) | 100,000 | 102,750 | ||||||
| EnerSys, 4.375%, 12/15/2027 (n) | 20,000 | 20,550 | ||||||
| Gates Global LLC, 6.25%, 1/15/2026 (n) | 80,000 | 82,800 | ||||||
| Granite Holdings U.S. Acquisition Co., 11%, 10/01/2027 (n) | 40,000 | 41,500 | ||||||
| Griffon Corp., 5.75%, 3/01/2028 | 75,000 | 78,188 | ||||||
21
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Conglomerates - continued | ||||||||
| MTS Systems Corp., 5.75%, 8/15/2027 (n) | $ | 70,000 | $ | 70,942 | ||||
| Stevens Holding Co., Inc., 6.125%, 10/01/2026 (n) | 75,000 | 80,156 | ||||||
| TriMas Corp., 4.875%, 10/15/2025 (n) | 165,000 | 167,681 | ||||||
| WESCO Distribution, Inc., 7.125%, 6/15/2025 (n) | 26,000 | 28,015 | ||||||
| WESCO Distribution, Inc., 7.25%, 6/15/2028 (n) | 26,000 | 28,470 | ||||||
|
|
|
|||||||
| $ | 1,006,486 | |||||||
| Construction - 1.3% | ||||||||
| Lennar Corp., 4.75%, 11/29/2027 | $ | 55,000 | $ | 62,975 | ||||
| Mattamy Group Corp., 5.25%, 12/15/2027 (n) | 30,000 | 31,725 | ||||||
| Mattamy Group Corp., 4.625%, 3/01/2030 (n) | 55,000 | 55,825 | ||||||
| Shea Homes LP/Shea Homes Funding Corp., 4.75%, 2/15/2028 (n) | 70,000 | 70,700 | ||||||
| Taylor Morrison Communities, Inc., 5.875%, 6/15/2027 (n) | 20,000 | 22,100 | ||||||
| Taylor Morrison Communities, Inc., 5.125%, 8/01/2030 (n) | 20,000 | 21,713 | ||||||
| Toll Brothers Finance Corp., 4.875%, 11/15/2025 | 60,000 | 66,450 | ||||||
| Toll Brothers Finance Corp., 4.35%, 2/15/2028 | 85,000 | 92,805 | ||||||
| Weekley Homes LLC/Weekley Finance Corp., 4.875%, 9/15/2028 (n) | 74,000 | 74,949 | ||||||
|
|
|
|||||||
| $ | 499,242 | |||||||
| Consumer Products - 0.7% | ||||||||
| Coty, Inc., 6.5%, 4/15/2026 (n) | $ | 70,000 | $ | 54,779 | ||||
| Energizer Holdings, Inc., 4.375%, 3/31/2029 (n) | 50,000 | 50,475 | ||||||
| Mattel, Inc., 6.75%, 12/31/2025 (n) | 60,000 | 63,105 | ||||||
| Mattel, Inc., 5.875%, 12/15/2027 (n) | 39,000 | 42,381 | ||||||
| Prestige Brands, Inc., 5.125%, 1/15/2028 (n) | 55,000 | 57,131 | ||||||
|
|
|
|||||||
| $ | 267,871 | |||||||
| Consumer Services - 1.5% | ||||||||
| Allied Universal Holdco LLC, 6.625%, 7/15/2026 (n) | $ | 20,000 | $ | 20,951 | ||||
| Allied Universal Holdco LLC, 9.75%, 7/15/2027 (n) | 55,000 | 58,659 | ||||||
| ANGI Group LLC, 3.875%, 8/15/2028 (n) | 50,000 | 49,437 | ||||||
| Frontdoor, Inc., 6.75%, 8/15/2026 (n) | 55,000 | 58,712 | ||||||
| Garda World Security Corp., 4.625%, 2/15/2027 (n) | 20,000 | 19,500 | ||||||
| GW B-CR Security Corp., 9.5%, 11/01/2027 (n) | 44,000 | 46,970 | ||||||
| Match Group, Inc., 5%, 12/15/2027 (n) | 70,000 | 72,810 | ||||||
| Match Group, Inc., 4.625%, 6/01/2028 (n) | 65,000 | 67,298 | ||||||
| Realogy Group LLC, 9.375%, 4/01/2027 (n) | 70,000 | 74,126 | ||||||
| ServiceMaster Co. LLC, 5.125%, 11/15/2024 (n) | 70,000 | 71,855 | ||||||
|
|
|
|||||||
| $ | 540,318 | |||||||
| Containers - 1.8% | ||||||||
| ARD Finance S.A., 6.5%, (6.5% cash or 7.25% PIK) 6/30/2027 (n)(p) | $ | 200,000 | $ | 203,250 | ||||
| Berry Global Group, Inc., 4.875%, 7/15/2026 (n) | 45,000 | 47,068 | ||||||
| Berry Global Group, Inc., 5.625%, 7/15/2027 (n) | 30,000 | 31,384 | ||||||
22
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Containers - continued | ||||||||
| Crown Americas LLC/Crown Americas Capital Corp. V, 4.25%, 9/30/2026 | $ | 100,000 | $ | 106,363 | ||||
| Crown Americas LLC/Crown Americas Capital Corp. VI, 4.75%, 2/01/2026 | 40,000 | 41,500 | ||||||
| Flex Acquisition Co., Inc., 6.875%, 1/15/2025 (n) | 60,000 | 59,025 | ||||||
| Greif, Inc., 6.5%, 3/01/2027 (n) | 15,000 | 15,731 | ||||||
| Reynolds Group, 4%, 10/15/2027 (n) | 50,000 | 50,625 | ||||||
| Silgan Holdings, Inc., 4.75%, 3/15/2025 | 70,000 | 71,400 | ||||||
| Silgan Holdings, Inc., 4.125%, 2/01/2028 | 59,000 | 61,289 | ||||||
|
|
|
|||||||
| $ | 687,635 | |||||||
| Electrical Equipment - 0.3% | ||||||||
| CommScope Technologies LLC, 6%, 6/15/2025 (n) | $ | 44,000 | $ | 43,621 | ||||
| CommScope Technologies LLC, 5%, 3/15/2027 (n) | 60,000 | 55,988 | ||||||
|
|
|
|||||||
| $ | 99,609 | |||||||
| Electronics - 1.0% | ||||||||
| Diebold Nixdorf, Inc., 9.375%, 7/15/2025 (n) | $ | 35,000 | $ | 37,144 | ||||
| Entegris, Inc., 4.625%, 2/10/2026 (n) | 90,000 | 92,475 | ||||||
| Entegris, Inc., 4.375%, 4/15/2028 (n) | 30,000 | 31,200 | ||||||
| Sensata Technologies B.V., 5.625%, 11/01/2024 (n) | 50,000 | 54,860 | ||||||
| Sensata Technologies B.V., 5%, 10/01/2025 (n) | 110,000 | 120,081 | ||||||
| Sensata Technologies, Inc., 4.375%, 2/15/2030 (n) | 20,000 | 20,900 | ||||||
|
|
|
|||||||
| $ | 356,660 | |||||||
| Emerging Market Quasi-Sovereign - 0.3% | ||||||||
| Petroleos Mexicanos, 6.49%, 1/23/2027 | $ | 100,000 | $ | 93,200 | ||||
| Emerging Market Sovereign - 1.7% | ||||||||
| Arab Republic of Egypt, 6.588%, 2/21/2028 | $ | 200,000 | $ | 201,040 | ||||
| Government of Ukraine, 7.75%, 9/01/2024 | 100,000 | 103,375 | ||||||
| Republic of Ecuador, 0%, 7/31/2030 (n) | 8,116 | 3,693 | ||||||
| Republic of Ecuador, 0.5%, 7/31/2030 (n) | 37,800 | 25,137 | ||||||
| Republic of Ecuador, 0.5%, 7/31/2035 (n) | 99,060 | 54,112 | ||||||
| Republic of Ecuador, 0.5%, 7/31/2040 (n) | 45,400 | 22,473 | ||||||
| Republic of Turkey, 5.75%, 3/22/2024 | 200,000 | 194,444 | ||||||
| Republic of Venezuela, 7%, 3/31/2038 (a)(d) | 203,000 | 18,575 | ||||||
|
|
|
|||||||
| $ | 622,849 | |||||||
| Energy - Independent - 1.5% | ||||||||
| Afren PLC, 11.5%, 2/01/2016 (a)(d)(z) | $ | 195,167 | $ | 98 | ||||
| Apache Corp., 4.875%, 11/15/2027 | 20,000 | 18,770 | ||||||
| Apache Corp., 4.375%, 10/15/2028 | 80,000 | 73,160 | ||||||
| CrownRock LP/CrownRock Finance, Inc., 5.625%, 10/15/2025 (n) | 55,000 | 54,086 | ||||||
23
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Energy - Independent - continued | ||||||||
| EQT Corp., 5%, 1/15/2029 | $ | 9,000 | $ | 9,000 | ||||
| Laredo Petroleum, Inc., 10.125%, 1/15/2028 | 10,000 | 4,325 | ||||||
| Leviathan Bond Ltd., 6.5%, 6/30/2027 (n) | 107,000 | 110,210 | ||||||
| Magnolia Oil & Gas Operating LLC/Magnolia Oil & Gas Finance Corp., 6%, 8/01/2026 (n) | 50,000 | 47,500 | ||||||
| Matador Resources Co., 5.875%, 9/15/2026 | 25,000 | 20,125 | ||||||
| Murphy Oil Corp., 6.875%, 8/15/2024 | 15,000 | 13,425 | ||||||
| Murphy Oil Corp., 5.875%, 12/01/2027 | 20,000 | 15,782 | ||||||
| Newfield Exploration Co., 5.375%, 1/01/2026 | 10,000 | 9,399 | ||||||
| Occidental Petroleum Corp., 5.875%, 9/01/2025 | 50,000 | 44,000 | ||||||
| Ovintiv, Inc., 6.5%, 8/15/2034 | 15,000 | 14,085 | ||||||
| Parsley Energy LLC/Parsley Finance Corp., 5.625%, 10/15/2027 (n) | 35,000 | 37,231 | ||||||
| Southwestern Energy Co., 6.45%, 1/23/2025 | 29,900 | 29,956 | ||||||
| Southwestern Energy Co., 7.5%, 4/01/2026 | 42,900 | 43,664 | ||||||
| Southwestern Energy Co., 7.75%, 10/01/2027 | 10,000 | 10,337 | ||||||
|
|
|
|||||||
| $ | 555,153 | |||||||
| Entertainment - 0.7% | ||||||||
| Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp./Millennium Operations LLC, 5.5%, 5/01/2025 (n) | $ | 20,000 | $ | 20,250 | ||||
| Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp./Millennium Operations LLC, 5.375%, 4/15/2027 | 35,000 | 32,419 | ||||||
| Live Nation Entertainment, Inc., 5.625%, 3/15/2026 (n) | 55,000 | 52,525 | ||||||
| NCL Corp. Ltd., 3.625%, 12/15/2024 (n) | 25,000 | 17,250 | ||||||
| NCL Corp. Ltd., 10.25%, 2/01/2026 (n) | 30,000 | 30,900 | ||||||
| Royal Caribbean Cruises Ltd., 10.875%, 6/01/2023 (n) | 30,000 | 32,715 | ||||||
| Six Flags Entertainment Corp., 4.875%, 7/31/2024 (n) | 70,000 | 65,047 | ||||||
| Six Flags Entertainment Corp., 7%, 7/01/2025 (n) | 25,000 | 26,469 | ||||||
|
|
|
|||||||
| $ | 277,575 | |||||||
| Financial Institutions - 1.6% | ||||||||
| Avolon Holdings Funding Ltd., 5.125%, 10/01/2023 | $ | 55,000 | $ | 55,962 | ||||
| Avolon Holdings Funding Ltd., 3.95%, 7/01/2024 (n) | 42,000 | 41,181 | ||||||
| Credit Acceptance Corp., 5.125%, 12/31/2024 (n) | 70,000 | 69,475 | ||||||
| Freedom Mortgage Corp., 7.625%, 5/01/2026 (n) | 40,000 | 39,875 | ||||||
| Global Aircraft Leasing Co. Ltd., 6.5%, (6.5% cash or 7.25% PIK) 9/15/2024 (n)(p) | 149,220 | 99,977 | ||||||
| Nationstar Mortgage Holdings, Inc., 6%, 1/15/2027 (n) | 45,000 | 45,000 | ||||||
| Navient Corp., 5%, 3/15/2027 | 45,000 | 42,023 | ||||||
| OneMain Financial Corp., 6.875%, 3/15/2025 | 45,000 | 49,500 | ||||||
| OneMain Financial Corp., 7.125%, 3/15/2026 | 30,000 | 33,266 | ||||||
| Park Aerospace Holdings Ltd., 5.5%, 2/15/2024 (n) | 45,000 | 46,524 | ||||||
| Springleaf Finance Corp., 8.875%, 6/01/2025 | 30,000 | 33,000 | ||||||
| Springleaf Finance Corp., 5.375%, 11/15/2029 | 25,000 | 25,689 | ||||||
|
|
|
|||||||
| $ | 581,472 | |||||||
24
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Food & Beverages - 1.8% | ||||||||
| Aramark Services, Inc., 6.375%, 5/01/2025 (n) | $ | 55,000 | $ | 57,688 | ||||
| BRF S.A., 4.875%, 1/24/2030 (n) | 200,000 | 200,304 | ||||||
| JBS USA LLC/JBS USA Finance, Inc., 6.75%, 2/15/2028 (n) | 120,000 | 131,980 | ||||||
| JBS USA Lux S.A./JBS USA Finance, Inc., 5.5%, 1/15/2030 (n) | 35,000 | 38,062 | ||||||
| Lamb Weston Holdings, Inc., 4.625%, 11/01/2024 (n) | 100,000 | 103,250 | ||||||
| Lamb Weston Holdings, Inc., 4.875%, 5/15/2028 (n) | 11,000 | 11,918 | ||||||
| Performance Food Group Co., 5.5%, 10/15/2027 (n) | 65,000 | 66,625 | ||||||
| U.S. Foods Holding Corp., 5.875%, 6/15/2024 (n) | 30,000 | 29,888 | ||||||
| U.S. Foods Holding Corp., 6.25%, 4/15/2025 (n) | 25,000 | 26,125 | ||||||
|
|
|
|||||||
| $ | 665,840 | |||||||
| Gaming & Lodging - 3.1% | ||||||||
| Boyd Gaming Corp., 6.375%, 4/01/2026 | $ | 25,000 | $ | 25,940 | ||||
| Boyd Gaming Corp., 4.75%, 12/01/2027 | 45,000 | 43,763 | ||||||
| Caesars Resort Collection LLC / CRC Finco, Inc., 5.25%, 10/15/2025 (n) | 50,000 | 47,485 | ||||||
| CCM Merger, Inc., 6%, 3/15/2022 (n) | 85,000 | 86,402 | ||||||
| CCM Merger, Inc., 6.375%, 5/01/2026 (n) | 45,000 | 46,125 | ||||||
| Churchill Downs, Inc., 5.5%, 4/01/2027 (n) | 30,000 | 31,069 | ||||||
| Colt Merger Sub, Inc., 5.75%, 7/01/2025 (n) | 30,000 | 30,769 | ||||||
| Colt Merger Sub, Inc., 8.125%, 7/01/2027 (n) | 50,000 | 52,185 | ||||||
| Hilton Domestic Operating Co., Inc., 5.125%, 5/01/2026 | 65,000 | 65,812 | ||||||
| Hilton Worldwide Finance LLC, 4.625%, 4/01/2025 | 95,000 | 95,880 | ||||||
| MGM Growth Properties LLC, 4.625%, 6/15/2025 (n) | 60,000 | 61,108 | ||||||
| MGM Growth Properties LLC, 5.75%, 2/01/2027 | 25,000 | 26,978 | ||||||
| MGM Resorts International, 6.75%, 5/01/2025 | 60,000 | 63,114 | ||||||
| Scientific Games Corp., 8.25%, 3/15/2026 (n) | 35,000 | 35,504 | ||||||
| Scientific Games International, Inc., 7%, 5/15/2028 (n) | 20,000 | 19,866 | ||||||
| VICI Properties LP, REIT, 4.25%, 12/01/2026 (n) | 60,000 | 61,011 | ||||||
| VICI Properties LP, REIT, 3.75%, 2/15/2027 (n) | 70,000 | 70,175 | ||||||
| Wyndham Hotels & Resorts, Inc., 4.375%, 8/15/2028 (n) | 13,000 | 12,921 | ||||||
| Wyndham Hotels Group LLC, 5.375%, 4/15/2026 (n) | 105,000 | 106,312 | ||||||
| Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 5.5%, 3/01/2025 (n) | 115,000 | 110,112 | ||||||
| Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp., 5.25%, 5/15/2027 (n) | 20,000 | 18,600 | ||||||
| Wynn Macau Ltd., 5.5%, 1/15/2026 (n) | 35,000 | 33,967 | ||||||
| Wynn Resorts Finance LLC/Wynn Resorts Capital Corp., 5.125%, 10/01/2029 (n) | 25,000 | 23,938 | ||||||
|
|
|
|||||||
| $ | 1,169,036 | |||||||
| Industrial - 0.2% | ||||||||
| Williams Scotsman International, Inc., 4.625%, 8/15/2028 (n) | $ | 60,000 | $ | 60,375 | ||||
25
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Insurance - Property & Casualty - 0.7% | ||||||||
| Acrisure LLC/Acrisure Finance, Inc., 7%, 11/15/2025 (n) | $ | 50,000 | $ | 50,088 | ||||
| Alliant Holdings Intermediate LLC, 6.75%, 10/15/2027 (n) | 80,000 | 84,000 | ||||||
| AssuredPartners, Inc., 7%, 8/15/2025 (n) | 20,000 | 20,550 | ||||||
| Hub International Ltd., 7%, 5/01/2026 (n) | 90,000 | 92,250 | ||||||
|
|
|
|||||||
| $ | 246,888 | |||||||
| Machinery & Tools - 0.1% | ||||||||
| Clark Equipment Co., 5.875%, 6/01/2025 (n) | $ | 51,000 | $ | 53,040 | ||||
| Major Banks - 0.5% | ||||||||
| Sovcombank PJSC (SovCom Capital DAC), 8%, 4/07/2030 (n) | $ | 200,000 | $ | 201,562 | ||||
| Medical & Health Technology & Services - 3.6% | ||||||||
| Acadia Healthcare Co., Inc., 5%, 4/15/2029 (n) | $ | 50,000 | $ | 51,515 | ||||
| Akumin, Inc., 7%, 11/01/2025 (n) | 20,000 | 19,750 | ||||||
| Avantor Funding, Inc., 4.625%, 7/15/2028 (n) | 90,000 | 93,258 | ||||||
| BCPE Cycle Merger Sub II, Inc., 10.625%, 7/15/2027 (n) | 40,000 | 42,600 | ||||||
| Change Healthcare Holdings, Inc./Change Healthcare Finance, Inc., 5.75%, 3/01/2025 (n) | 45,000 | 44,981 | ||||||
| CHS/Community Health Systems, Inc., 6.625%, 2/15/2025 (n) | 95,000 | 92,644 | ||||||
| CHS/Community Health Systems, Inc., 8%, 12/15/2027 (n) | 10,000 | 9,850 | ||||||
| DaVita, Inc., 4.625%, 6/01/2030 (n) | 37,000 | 37,634 | ||||||
| DaVita, Inc., 3.75%, 2/15/2031 (n) | 45,000 | 43,256 | ||||||
| Encompass Health Corp., 5.75%, 9/15/2025 | 40,000 | 41,300 | ||||||
| HCA, Inc., 5.375%, 2/01/2025 | 160,000 | 177,173 | ||||||
| HCA, Inc., 5.875%, 2/15/2026 | 105,000 | 118,650 | ||||||
| HCA, Inc., 5.625%, 9/01/2028 | 20,000 | 23,279 | ||||||
| HCA, Inc., 3.5%, 9/01/2030 | 60,000 | 61,355 | ||||||
| HealthSouth Corp., 5.125%, 3/15/2023 | 90,000 | 90,675 | ||||||
| Heartland Dental LLC, 8.5%, 5/01/2026 (n) | 50,000 | 48,750 | ||||||
| IQVIA Holdings, Inc., 5%, 5/15/2027 (n) | 200,000 | 209,500 | ||||||
| LifePoint Health, Inc., 4.375%, 2/15/2027 (n) | 25,000 | 24,743 | ||||||
| Radiology Partners, Inc., 9.25%, 2/01/2028 (n) | 35,000 | 37,309 | ||||||
| Regional Care/LifePoint Health, Inc., 9.75%, 12/01/2026 (n) | 80,000 | 86,200 | ||||||
|
|
|
|||||||
| $ | 1,354,422 | |||||||
| Medical Equipment - 0.6% | ||||||||
| Hill-Rom Holdings, Inc., 4.375%, 9/15/2027 (n) | $ | 85,000 | $ | 87,869 | ||||
| Teleflex, Inc., 4.875%, 6/01/2026 | 30,000 | 31,200 | ||||||
| Teleflex, Inc., 4.625%, 11/15/2027 | 85,000 | 89,634 | ||||||
|
|
|
|||||||
| $ | 208,703 | |||||||
26
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Metals & Mining - 2.0% | ||||||||
| Arconic Corp., 6%, 5/15/2025 (n) | $ | 55,000 | $ | 58,231 | ||||
| Baffinland Iron Mines Corp./Baffinland Iron Mines LP, 8.75%, 7/15/2026 (n) | 55,000 | 57,613 | ||||||
| Big River Steel LLC/BRS Finance Corp., 6.625%, 1/31/2029 (n) | 40,000 | 41,200 | ||||||
| Compass Minerals International, Inc., 6.75%, 12/01/2027 (n) | 65,000 | 70,507 | ||||||
| Freeport-McMoRan, Inc., 5%, 9/01/2027 | 60,000 | 62,562 | ||||||
| Freeport-McMoRan, Inc., 4.375%, 8/01/2028 | 40,000 | 41,750 | ||||||
| Freeport-McMoRan, Inc., 5.25%, 9/01/2029 | 60,000 | 64,800 | ||||||
| Grinding Media, Inc./Moly-Cop AltaSteel Ltd., 7.375%, 12/15/2023 (n) | 55,000 | 55,550 | ||||||
| Kaiser Aluminum Corp., 4.625%, 3/01/2028 (n) | 98,000 | 96,530 | ||||||
| Novelis Corp., 5.875%, 9/30/2026 (n) | 95,000 | 98,029 | ||||||
| SunCoke Energy Partners LP/SunCoke Energy Partners Finance Corp., 7.5%, 6/15/2025 (n) | 35,000 | 31,325 | ||||||
| TMS International Corp., 7.25%, 8/15/2025 (n) | 85,000 | 80,962 | ||||||
|
|
|
|||||||
| $ | 759,059 | |||||||
| Midstream - 2.5% | ||||||||
| Cheniere Energy Partners LP, 5.25%, 10/01/2025 | $ | 145,000 | $ | 147,494 | ||||
| Cheniere Energy Partners LP, 4.5%, 10/01/2029 | 27,000 | 27,527 | ||||||
| EnLink Midstream Partners LP, 4.85%, 7/15/2026 | 25,000 | 21,336 | ||||||
| EQM Midstream Partners LP, 6%, 7/01/2025 (n) | 15,000 | 15,375 | ||||||
| EQM Midstream Partners LP, 6.5%, 7/01/2027 (n) | 15,000 | 15,732 | ||||||
| EQM Midstream Partners LP, 5.5%, 7/15/2028 | 120,000 | 121,530 | ||||||
| Genesis Energy LP/Genesis Energy Finance Corp., 5.625%, 6/15/2024 | 15,000 | 12,903 | ||||||
| Genesis Energy LP/Genesis Energy Finance Corp., 6.25%, 5/15/2026 | 53,900 | 43,131 | ||||||
| Northriver Midstream Finance LP, 5.625%, 2/15/2026 (n) | 75,000 | 74,288 | ||||||
| NuStar Logistics, LP, 5.75%, 10/01/2025 | 63,000 | 63,430 | ||||||
| Peru LNG, 5.375%, 3/22/2030 | 200,000 | 153,000 | ||||||
| Targa Resources Partners LP/Targa Resources Finance Corp., 5.375%, 2/01/2027 | 70,000 | 70,350 | ||||||
| Targa Resources Partners LP/Targa Resources Finance Corp., 6.875%, 1/15/2029 | 40,000 | 42,900 | ||||||
| Targa Resources Partners LP/Targa Resources Finance Corp., 4.875%, 2/01/2031 (n) | 25,000 | 24,398 | ||||||
| Western Midstream Operating LP, 5.05%, 2/01/2030 | 85,000 | 80,637 | ||||||
| Western Midstream Operation LP, 4.65%, 7/01/2026 | 35,000 | 33,600 | ||||||
|
|
|
|||||||
| $ | 947,631 | |||||||
| Municipals - 0.3% | ||||||||
| Puerto Rico Industrial, Tourist, Educational, Medical & Environmental Control Facilities Financing Authority Rev. (Cogeneration Facilities - AES Puerto Rico Project), 9.12%, 6/01/2022 | $ | 100,000 | $ | 102,500 | ||||
| Network & Telecom - 0.1% | ||||||||
| Front Range BidCo, Inc., 6.125%, 3/01/2028 (n) | $ | 50,000 | $ | 50,438 | ||||
27
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Oil Services - 0.6% | ||||||||
| Diamond Offshore Drill Co., 5.7%, 10/15/2039 (a)(d) | $ | 60,000 | $ | 4,050 | ||||
| Ensign Drilling, Inc., 9.25%, 4/15/2024 (n) | 40,000 | 13,800 | ||||||
| MV24 Capital B.V., 6.748%, 6/01/2034 (n) | 195,028 | 196,200 | ||||||
|
|
|
|||||||
| $ | 214,050 | |||||||
| Oils - 0.1% | ||||||||
| PBF Holding Co. LLC/PBF Finance Corp., 7.25%, 6/15/2025 | $ | 45,000 | $ | 18,675 | ||||
| PBF Holding Co. LLC/PBF Finance Corp., 6%, 2/15/2028 (n) | 40,000 | 15,398 | ||||||
|
|
|
|||||||
| $ | 34,073 | |||||||
| Other Banks & Diversified Financials - 0.6% | ||||||||
| BBVA Bancomer S.A./Texas, 5.875%, 9/13/2034 (n) | $ | 200,000 | $ | 207,574 | ||||
| Personal Computers & Peripherals - 0.2% | ||||||||
| NCR Corp., 5%, 10/01/2028 (n) | $ | 65,000 | $ | 64,350 | ||||
| Pharmaceuticals - 1.1% | ||||||||
| Bausch Health Companies, Inc., 5.5%, 3/01/2023 (n) | $ | 29,000 | $ | 28,928 | ||||
| Bausch Health Companies, Inc., 6.125%, 4/15/2025 (n) | 180,000 | 184,815 | ||||||
| Bausch Health Companies, Inc., 5%, 1/30/2028 (n) | 45,000 | 44,477 | ||||||
| Emergent BioSolutions, Inc., 3.875%, 8/15/2028 (n) | 65,000 | 65,325 | ||||||
| Jaguar Holding Co. II / Pharmaceutical Development LLC, 5%, 6/15/2028 (n) | 36,000 | 37,523 | ||||||
| Par Pharmaceutical, Inc., 7.5%, 4/01/2027 (n) | 35,000 | 37,100 | ||||||
|
|
|
|||||||
| $ | 398,168 | |||||||
| Pollution Control - 0.2% | ||||||||
| GFL Environmental, Inc., 3.75%, 8/01/2025 (n) | $ | 20,000 | $ | 20,000 | ||||
| GFL Environmental, Inc., 7%, 6/01/2026 (n) | 34,000 | 35,445 | ||||||
| GFL Environmental, Inc., 8.5%, 5/01/2027 (n) | 30,000 | 32,700 | ||||||
|
|
|
|||||||
| $ | 88,145 | |||||||
| Precious Metals & Minerals - 0.1% | ||||||||
| IAMGOLD Corp., 5.75%, 10/15/2028 (n) | $ | 50,000 | $ | 50,040 | ||||
| Printing & Publishing - 0.5% | ||||||||
| Cimpress N.V., 7%, 6/15/2026 (n) | $ | 150,000 | $ | 149,250 | ||||
| Meredith Corp., 6.875%, 2/01/2026 | 55,000 | 45,581 | ||||||
|
|
|
|||||||
| $ | 194,831 | |||||||
| Railroad & Shipping - 0.2% | ||||||||
| Watco Cos. LLC/Watco Finance Corp., 6.5%, 6/15/2027 (n) | $ | 58,000 | $ | 60,175 | ||||
28
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Real Estate - Healthcare - 0.3% | ||||||||
| MPT Operating Partnership LP/MPT Financial Co., REIT, 5.25%, 8/01/2026 | $ | 55,000 | $ | 57,062 | ||||
| MPT Operating Partnership LP/MPT Financial Co., REIT, 5%, 10/15/2027 | 55,000 | 57,555 | ||||||
|
|
|
|||||||
| $ | 114,617 | |||||||
| Real Estate - Other - 0.1% | ||||||||
| Ryman Hospitality Properties, Inc., REIT, 4.75%, 10/15/2027 (n) | $ | 51,000 | $ | 47,130 | ||||
| Restaurants - 0.2% | ||||||||
| Golden Nugget, Inc., 6.75%, 10/15/2024 (n) | $ | 75,000 | $ | 63,508 | ||||
| Retailers - 0.3% | ||||||||
| L Brands, Inc., 5.25%, 2/01/2028 | $ | 100,000 | $ | 98,500 | ||||
| L Brands, Inc., 6.625%, 10/01/2030 (n) | 25,000 | 26,250 | ||||||
|
|
|
|||||||
| $ | 124,750 | |||||||
| Specialty Chemicals - 0.2% | ||||||||
| Univar Solutions USA, Inc., 5.125%, 12/01/2027 (n) | $ | 70,000 | $ | 72,542 | ||||
| Specialty Stores - 0.5% | ||||||||
| Group 1 Automotive, Inc., 4%, 8/15/2028 (n) | $ | 39,000 | $ | 39,049 | ||||
| Penske Automotive Group Co., 5.375%, 12/01/2024 | 40,000 | 40,850 | ||||||
| Penske Automotive Group Co., 5.5%, 5/15/2026 | 55,000 | 56,753 | ||||||
| PetSmart, Inc., 7.125%, 3/15/2023 (n) | 35,000 | 35,044 | ||||||
| PetSmart, Inc., 8.875%, 6/01/2025 (n) | 20,000 | 20,475 | ||||||
|
|
|
|||||||
| $ | 192,171 | |||||||
| Supermarkets - 0.4% | ||||||||
| Albertsons Cos. LLC/Safeway, Inc., 5.75%, 3/15/2025 | $ | 36,000 | $ | 37,103 | ||||
| Albertsons Cos. LLC/Safeway, Inc., 4.625%, 1/15/2027 (n) | 85,000 | 87,647 | ||||||
| Albertsons Cos. LLC/Safeway, Inc., 5.875%, 2/15/2028 (n) | 10,000 | 10,575 | ||||||
|
|
|
|||||||
| $ | 135,325 | |||||||
| Telecommunications - Wireless - 3.4% | ||||||||
| Altice France S.A., 7.375%, 5/01/2026 (n) | $ | 200,000 | $ | 208,740 | ||||
| Altice France S.A., 6%, 2/15/2028 (n) | 200,000 | 192,500 | ||||||
| Digicel International Finance Ltd., 8.75%, 5/25/2024 (n) | 200,000 | 199,750 | ||||||
| SBA Communications Corp., 4.875%, 9/01/2024 | 100,000 | 102,180 | ||||||
| SBA Communications Corp., 3.875%, 2/15/2027 (n) | 55,000 | 55,894 | ||||||
| Sprint Capital Corp., 6.875%, 11/15/2028 | 105,000 | 132,825 | ||||||
| Sprint Corp., 7.125%, 6/15/2024 | 25,000 | 28,755 | ||||||
| Sprint Corp., 7.625%, 3/01/2026 | 170,000 | 206,885 | ||||||
29
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Bonds - continued | ||||||||
| Telecommunications - Wireless - continued | ||||||||
| T-Mobile USA, Inc., 6.5%, 1/15/2026 | $ | 25,000 | $ | 26,050 | ||||
| T-Mobile USA, Inc., 5.375%, 4/15/2027 | 115,000 | 122,762 | ||||||
|
|
|
|||||||
| $ | 1,276,341 | |||||||
| Tobacco - 0.2% | ||||||||
| Vector Group Ltd., 6.125%, 2/01/2025 (n) | $ | 30,000 | $ | 29,925 | ||||
| Vector Group Ltd., 10.5%, 11/01/2026 (n) | 30,000 | 30,900 | ||||||
|
|
|
|||||||
| $ | 60,825 | |||||||
| Utilities - Electric Power - 2.2% | ||||||||
| Adani Green Energy (UP) Ltd./Prayatna Developers Private Ltd., 6.25%, 12/10/2024 (n) | $ | 200,000 | $ | 216,000 | ||||
| Clearway Energy Operating LLC, 5.75%, 10/15/2025 | 155,000 | 162,362 | ||||||
| Clearway Energy Operating LLC, 4.75%, 3/15/2028 (n) | 30,000 | 31,538 | ||||||
| NextEra Energy Operating Co., 4.25%, 9/15/2024 (n) | 110,000 | 115,225 | ||||||
| NextEra Energy Operating Co., 4.5%, 9/15/2027 (n) | 35,000 | 38,238 | ||||||
| NextEra Energy, Inc., 4.25%, 7/15/2024 (n) | 46,000 | 48,070 | ||||||
| PG&E Corp., 5%, 7/01/2028 | 85,000 | 85,215 | ||||||
| TerraForm Global Operating LLC, 6.125%, 3/01/2026 (n) | 35,000 | 35,350 | ||||||
| TerraForm Power Operating Co., 5%, 1/31/2028 (n) | 95,000 | 104,293 | ||||||
|
|
|
|||||||
| $ | 836,291 | |||||||
| Total Bonds (Identified Cost, $21,984,434) | $ | 21,745,521 | ||||||
| Common Stocks - 37.6% | ||||||||
| Aerospace - 2.8% | ||||||||
| Honeywell International, Inc. | 3,049 | $ | 502,933 | |||||
| Northrop Grumman Corp. | 1,832 | 530,950 | ||||||
|
|
|
|||||||
| $ | 1,033,883 | |||||||
| Brokerage & Asset Managers - 3.0% | ||||||||
| BlackRock, Inc. | 787 | $ | 471,578 | |||||
| NASDAQ, Inc. | 5,330 | 644,877 | ||||||
|
|
|
|||||||
| $ | 1,116,455 | |||||||
| Business Services - 3.5% | ||||||||
| Accenture PLC, “A” | 2,075 | $ | 450,088 | |||||
| Equifax, Inc. | 2,326 | 317,732 | ||||||
| Fiserv, Inc. (a) | 5,683 | 542,556 | ||||||
|
|
|
|||||||
| $ | 1,310,376 | |||||||
| Cable TV - 1.8% | ||||||||
| Comcast Corp., “A” | 15,598 | $ | 658,859 | |||||
30
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Common Stocks - continued | ||||||||
| Construction - 1.5% | ||||||||
| ICA Tenedora, S.A. de C.V. (a) | 10,542 | $ | 19,082 | |||||
| Sherwin-Williams Co. | 818 | 562,768 | ||||||
|
|
|
|||||||
| $ | 581,850 | |||||||
| Electronics - 2.1% | ||||||||
| Texas Instruments, Inc. | 5,484 | $ | 792,931 | |||||
| Food & Beverages - 1.3% | ||||||||
| Nestle S.A., ADR | 4,333 | $ | 486,466 | |||||
| Health Maintenance Organizations - 1.3% | ||||||||
| Cigna Corp. | 2,837 | $ | 473,694 | |||||
| Insurance - 3.5% | ||||||||
| AON PLC | 2,440 | $ | 448,984 | |||||
| Chubb Ltd. | 3,423 | 444,682 | ||||||
| Marsh & McLennan Cos., Inc. | 3,861 | 399,459 | ||||||
|
|
|
|||||||
| $ | 1,293,125 | |||||||
| Machinery & Tools - 1.8% | ||||||||
| Illinois Tool Works, Inc. | 3,441 | $ | 674,023 | |||||
| Major Banks - 1.6% | ||||||||
| JPMorgan Chase & Co. | 5,955 | $ | 583,828 | |||||
| Medical Equipment - 3.6% | ||||||||
| Medtronic PLC | 5,255 | $ | 528,496 | |||||
| Thermo Fisher Scientific, Inc. | 1,727 | 817,078 | ||||||
|
|
|
|||||||
| $ | 1,345,574 | |||||||
| Oil Services - 0.0% | ||||||||
| LTRI Holdings LP (a)(u) | 60 | $ | 16,951 | |||||
| Other Banks & Diversified Financials - 2.3% | ||||||||
| Citigroup, Inc. | 10,883 | $ | 450,774 | |||||
| U.S. Bancorp | 10,303 | 401,302 | ||||||
|
|
|
|||||||
| $ | 852,076 | |||||||
| Pharmaceuticals - 1.6% | ||||||||
| Johnson & Johnson | 4,289 | $ | 588,065 | |||||
| Special Products & Services - 1.2% | ||||||||
| iShares iBoxx $ High Yield Corporate Bond ETF | 5,200 | $ | 436,176 | |||||
31
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||
| Common Stocks - continued | ||||||||
| Utilities - Electric Power - 4.7% | ||||||||
| Dominion Energy, Inc. | 5,148 | $ | 413,590 | |||||
| Duke Energy Corp. | 7,306 | 672,956 | ||||||
| Southern Co. | 11,500 | 660,675 | ||||||
|
|
|
|||||||
| $ | 1,747,221 | |||||||
| Total Common Stocks (Identified Cost, $9,403,517) | $ | 13,991,553 | ||||||
| Floating Rate Loans (r) - 0.4% | ||||||||
| Broadcasting - 0.0% | ||||||||
| Nexstar Broadcasting, Inc., Term Loan B4, 2.899%, 9/19/2026 | $ | 20,173 | $ | 19,618 | ||||
| Cable TV - 0.1% | ||||||||
| CSC Holdings LLC, Term Loan B5, 2.648%, 4/15/2027 | $ | 20,843 | $ | 20,122 | ||||
| Chemicals - 0.1% | ||||||||
| Axalta Coating Systems U.S. Holdings, Inc., Term Loan B3, 1.97%, 6/01/2024 | $ | 17,290 | $ | 16,750 | ||||
| Element Solutions, Inc., Term Loan B1, 2.147%, 1/31/2026 | 20,790 | 20,270 | ||||||
|
|
|
|||||||
| $ | 37,020 | |||||||
| Computer Software - Systems - 0.1% | ||||||||
| SS&C Technologies, Inc., Term Loan B5, 1.897%, 4/16/2025 | $ | 20,785 | $ | 20,173 | ||||
| Medical & Health Technology & Services - 0.1% | ||||||||
| DaVita Healthcare Partners, Inc., Term Loan B, 1.897%, 8/12/2026 | $ | 20,790 | $ | 20,319 | ||||
| Jaguar Holding Co. II, Term Loan, 3.5%, 8/18/2022 | 20,781 | 20,606 | ||||||
|
|
|
|||||||
| $ | 40,925 | |||||||
| Pharmaceuticals - 0.0% | ||||||||
| Bausch Health Companies, Inc., Term Loan B, 2.899%, 11/27/2025 | $ | 19,200 | $ | 18,691 | ||||
| Total Floating Rate Loans (Identified Cost, $161,103) | $ | 156,549 | ||||||
| Strike Price | First Exercise | |||||||||||||||
| Warrants - 0.0% | ||||||||||||||||
| Forest & Paper Products - 0.0% | ||||||||||||||||
| Appvion Holdings Corp. - Tranche A (1 share for 1 warrant, Expiration 6/13/23) (a) | $ | 27.17 | 8/24/18 | 40 | $ | 5 | ||||||||||
| Appvion Holdings Corp. - Tranche B (1 share for 1 warrant, Expiration 6/13/23) (a) | 31.25 | 8/24/18 | 40 | 0 | ||||||||||||
| Total Warrants (Identified Cost, $0) |
|
$ | 5 | |||||||||||||
32
Table of Contents
Portfolio of Investments – continued
| Issuer | Shares/Par | Value ($) | ||||||||||||||
| Investment Companies (h) - 3.1% | ||||||||||||||||
| Money Market Funds - 3.1% | ||||||||||||||||
| MFS Institutional Money Market Portfolio, 0.1% (v) (Identified Cost, $1,148,425) |
|
1,148,461 | $ | 1,148,461 | ||||||||||||
| Other Assets, Less Liabilities - 0.4% | 159,441 | |||||||||||||||
| Net Assets - 100.0% | $ | 37,201,530 | ||||||||||||||
| (a) | Non-income producing security. |
| (d) | In default. |
| (h) | An affiliated issuer, which may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. At period end, the aggregate values of the fund’s investments in affiliated issuers and in unaffiliated issuers were $1,148,461 and $35,893,628, respectively. |
| (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 $15,892,548, representing 42.7% of net assets. |
| (p) | Payment-in-kind (PIK) security for which interest income may be received in additional securities and/or cash. |
| (r) | The remaining maturities of floating rate loans may be less than the 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. The interest rate shown represents the weighted average of the floating interest rates on settled contracts within the loan facility at period end, unless otherwise indicated. The floating interest rates on settled contracts are determined periodically by reference to a base lending rate and a spread. |
| (u) | The security was valued using significant unobservable inputs and is considered level 3 under the fair value hierarchy. For further information about the fund’s level 3 holdings, please see Note 2 in the Notes to Financial Statements. |
| (v) | Affiliated issuer that is available only to investment companies managed by MFS. The rate quoted for the MFS Institutional Money Market Portfolio is the annualized seven-day yield of the fund at period end. |
| (z) | Restricted securities are not registered under the Securities Act of 1933 and are subject to legal restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are subsequently registered. Disposal of these securities may involve time-consuming negotiations and prompt sale at an acceptable price may be difficult. The fund holds the following restricted securities: |
| Restricted Securities | Acquisition Date |
Cost | Value | |||||||
| Afren PLC, 11.5%, 2/01/2016 | 2/11/11 | $191,339 | $98 | |||||||
| % of Net assets | 0.0% | |||||||||
The following abbreviations are used in this report and are defined:
| ADR | American Depositary Receipt |
| ETF | Exchange-Traded Fund |
| 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 |
33
Table of Contents
Portfolio of Investments – continued
Derivative Contracts at 10/31/20
Forward Foreign Currency Exchange Contracts
| Currency Purchased |
Currency Sold |
Counterparty | Settlement Date |
Unrealized Appreciation (Depreciation) |
||||||||||||||
| Asset Derivatives | ||||||||||||||||||
| USD | 108,702 | EUR | 92,322 | Citibank N.A. | 1/15/2021 | $985 | ||||||||||||
|
|
|
|||||||||||||||||
See Notes to Financial Statements
34
Table of Contents
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
At 10/31/20
This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.
| Assets | ||||
| Investments in unaffiliated issuers, at value (identified cost, $31,549,054) |
$35,893,628 | |||
| Investments in affiliated issuers, at value (identified cost, $1,148,425) |
1,148,461 | |||
| Cash |
186 | |||
| Receivables for |
||||
| Forward foreign currency exchange contracts |
985 | |||
| Investments sold |
157,330 | |||
| Interest and dividends |
331,733 | |||
| Other assets |
3,985 | |||
| Total assets |
$37,536,308 | |||
| Liabilities | ||||
| Payables for |
||||
| Investments purchased |
$233,360 | |||
| Payable to affiliates |
||||
| Investment adviser |
2,837 | |||
| Administrative services fee |
145 | |||
| Transfer agent and dividend disbursing costs |
165 | |||
| Accrued expenses and other liabilities |
98,271 | |||
| Total liabilities |
$334,778 | |||
| Net assets |
$37,201,530 | |||
| Net assets consist of | ||||
| Paid-in capital |
$33,017,410 | |||
| Total distributable earnings (loss) |
4,184,120 | |||
| Net assets |
$37,201,530 | |||
| Shares of beneficial interest outstanding |
7,227,080 | |||
| Net asset value per share (net assets of $37,201,530 / 7,227,080 shares of beneficial interest outstanding) |
$5.15 | |||
See Notes to Financial Statements
35
Table of Contents
Financial Statements
Year ended 10/31/20
This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.
| Net investment income (loss) | ||||
| Income |
||||
| Interest |
$1,257,820 | |||
| Dividends |
336,107 | |||
| Dividends from affiliated issuers |
9,196 | |||
| Other |
2,813 | |||
| Income on securities loaned |
559 | |||
| Foreign taxes withheld |
(1,840 | ) | ||
| Total investment income |
$1,604,655 | |||
| Expenses |
||||
| Management fee |
$316,546 | |||
| Transfer agent and dividend disbursing costs |
13,331 | |||
| Administrative services fee |
17,500 | |||
| Independent Trustees’ compensation |
8,525 | |||
| Stock exchange fee |
23,923 | |||
| Custodian fee |
6,496 | |||
| Shareholder communications |
44,454 | |||
| Audit and tax fees |
77,707 | |||
| Legal fees |
1,029 | |||
| Miscellaneous |
41,701 | |||
| Total expenses |
$551,212 | |||
| Net investment income (loss) |
$1,053,443 | |||
| Realized and unrealized gain (loss) | ||||
| Realized gain (loss) (identified cost basis) |
||||
| Unaffiliated issuers |
$2,677,773 | |||
| Affiliated issuers |
(141 | ) | ||
| Futures contracts |
(14,085 | ) | ||
| Forward foreign currency exchange contracts |
(6,433 | ) | ||
| Foreign currency |
90 | |||
| Net realized gain (loss) |
$2,657,204 | |||
| Change in unrealized appreciation or depreciation |
||||
| Unaffiliated issuers |
$(3,125,842 | ) | ||
| Affiliated issuers |
(178 | ) | ||
| Futures contracts |
(4,084 | ) | ||
| Forward foreign currency exchange contracts |
4,477 | |||
| Translation of assets and liabilities in foreign currencies |
(14 | ) | ||
| Net unrealized gain (loss) |
$(3,125,641 | ) | ||
| Net realized and unrealized gain (loss) |
$(468,437 | ) | ||
| Change in net assets from operations |
$585,006 | |||
See Notes to Financial Statements
36
Table of Contents
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.
| Year ended | ||||||||
| 10/31/20 | 10/31/19 | |||||||
| Change in net assets | ||||||||
| From operations | ||||||||
| Net investment income (loss) |
$1,053,443 | $1,133,601 | ||||||
| Net realized gain (loss) |
2,657,204 | 325,084 | ||||||
| Net unrealized gain (loss) |
(3,125,641 | ) | 3,635,384 | |||||
| Change in net assets from operations |
$585,006 | $5,094,069 | ||||||
| Distributions to shareholders |
$(3,734,845 | ) | $(1,435,228 | ) | ||||
| Tax return of capital distributions to shareholders |
$(104,397 | ) | $(2,484,303 | ) | ||||
| Change in net assets from fund share transactions |
$197,900 | $249,179 | ||||||
| Total change in net assets |
$(3,056,336 | ) | $1,423,717 | |||||
| Net assets | ||||||||
| At beginning of period |
40,257,866 | 38,834,149 | ||||||
| At end of period |
$37,201,530 | $40,257,866 | ||||||
See Notes to Financial Statements
37
Table of Contents
Financial Statements
The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.
| Year ended | ||||||||||||||||||||
| 10/31/20 | 10/31/19 | 10/31/18 | 10/31/17 | 10/31/16 | ||||||||||||||||
| Net asset value, beginning of period |
$5.60 | $5.43 | $6.03 | $5.91 | $6.09 | |||||||||||||||
| Income (loss) from investment operations |
|
|||||||||||||||||||
| Net investment income (loss) (d) |
$0.15 | $0.16 | $0.16 | $0.20 | (c) | $0.23 | ||||||||||||||
| Net realized and unrealized gain (loss) |
(0.07 | ) | 0.56 | (0.18 | ) | 0.52 | 0.18 | |||||||||||||
| Total from investment operations |
$0.08 | $0.72 | $(0.02 | ) | $0.72 | $0.41 | ||||||||||||||
| Less distributions declared to shareholders |
|
|||||||||||||||||||
| From net investment income |
$(0.16 | ) | $(0.17 | ) | $(0.18 | ) | $(0.21 | ) | $(0.24 | ) | ||||||||||
| From net realized gain |
(0.36 | ) | (0.03 | ) | (0.11 | ) | — | — | ||||||||||||
| From tax return of capital |
(0.01 | ) | (0.35 | ) | (0.29 | ) | (0.39 | ) | (0.35 | ) | ||||||||||
| Total distributions declared to shareholders |
$(0.53 | ) | $(0.55 | ) | $(0.58 | ) | $(0.60 | ) | $(0.59 | ) | ||||||||||
| Net increase from repurchase of capital shares |
$0.00 | (w) | $— | $— | $0.00 | (w) | $— | |||||||||||||
| Net asset value, end of period (x) |
$5.15 | $5.60 | $5.43 | $6.03 | $5.91 | |||||||||||||||
| Market value, end of period |
$5.25 | $6.48 | $5.49 | $6.66 | $5.50 | |||||||||||||||
| Total return at market value (%) (j)(r)(s)(x) |
(10.63 | ) | 30.24 | (8.87 | ) | 33.86 | 10.75 | |||||||||||||
| Total return at net asset value (%) |
1.44 | 13.80 | (0.44 | ) | 12.79 | (c) | 8.07 | |||||||||||||
| Ratios (%) (to average net assets) and Supplemental data: |
|
|||||||||||||||||||
| Expenses (f) |
1.44 | 1.41 | 1.39 | 1.23 | (c) | 1.42 | ||||||||||||||
| Net investment income (loss) |
2.76 | 2.89 | 2.76 | 3.35 | (c) | 3.88 | ||||||||||||||
| Portfolio turnover |
48 | 34 | 33 | 35 | 26 | |||||||||||||||
| Net assets at end of period (000 omitted) |
$37,202 | $40,258 | $38,834 | $42,842 | $41,849 | |||||||||||||||
See Notes to Financial Statements
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Financial Highlights – continued
| (c) | Amount reflects a one-time reimbursement of expenses by the custodian (or former custodian) without which net investment income and performance would be lower and expenses would be higher. |
| (d) | Per share data is based on average shares outstanding. |
| (f) | Ratios do not reflect reductions from fees paid indirectly, if applicable. |
| (j) | Total return at net asset value is calculated using the net asset value of the fund, not the publicly traded price and therefore may be different than the total return at market value. |
| (r) | Certain expenses have been reduced without which performance would have been lower. |
| (s) | From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower. |
| (w) | Per share amount was less than $0.01. |
| (x) | The net asset values and total returns at net asset value have been calculated on net assets which include adjustments made in accordance with U.S. generally accepted accounting principles required at period end for financial reporting purposes. |
See Notes to Financial Statements
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(1) Business and Organization
MFS Special Value Trust (the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a diversified closed-end management investment company.
The fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
(2) Significant Accounting Policies
General – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. In the preparation of these financial statements, management has evaluated subsequent events occurring after the date of the fund’s Statement of Assets and Liabilities through the date that the financial statements were issued. The fund invests in high-yield securities rated below investment grade. Investments in below investment grade quality securities can involve a substantially greater risk of default or can already be in default, and their values can decline significantly. Below investment grade quality securities tend to be more sensitive to adverse news about the issuer, or the market or economy in general, than higher quality debt instruments. The fund invests in foreign securities. Investments in foreign securities are vulnerable to the effects of changes in the relative values of the local currency and the U.S. dollar and to the effects of changes in each country’s market, economic, industrial, political, regulatory, geopolitical, environmental, public health, and other conditions.
In March 2020, the FASB issued Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional, temporary relief with respect to the financial reporting of contracts subject to certain types of modifications due to the planned discontinuation of the London Interbank Offered Rate (LIBOR) and other IBOR-based reference rates as of the end of 2021. The temporary relief provided by ASU 2020-04 is effective for certain reference rate-related contract modifications that occur during the period from March 12, 2020 through December 31, 2022. Management is evaluating the impact of ASU 2020-04 on the fund’s investments, derivatives, debt and other contracts that will undergo reference rate-related modifications as a result of the reference rate reform.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”). For callable debt securities purchased at a premium that have explicit, non-contingent call features and that are callable at fixed prices on preset dates, ASU 2017-08 requires the premium to be amortized to the earliest call date. The fund adopted ASU 2017-08 as of the beginning
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Notes to Financial Statements – continued
of the reporting period on a modified retrospective basis. The adoption resulted in a change in accounting principle, since the fund had historically amortized such premiums to maturity for U.S. GAAP. As a result of the adoption, the fund recognized a cumulative effect adjustment that increased the beginning of period cost of investments and decreased the unrealized appreciation on investments by offsetting amounts. Adoption had no impact on the fund’s net assets or any prior period information presented in the financial statements. With respect to the fund’s results of operations, amortization of premium to first call date under ASU 2017-08 accelerates amortization with the intent of more closely aligning the recognition of income on such bonds with the economics of the instrument.
Balance Sheet Offsetting – The fund’s accounting policy with respect to balance sheet offsetting is that, absent an event of default by the counterparty or a termination of the agreement, the International Swaps and Derivatives Association (ISDA) Master Agreement, or similar agreement, does not result in an offset of reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the fund and the applicable counterparty. The fund’s right to setoff may be restricted or prohibited by the bankruptcy or insolvency laws of the particular jurisdiction to which a specific master netting agreement counterparty is subject. Balance sheet offsetting disclosures, to the extent applicable to the fund, have been included in the fund’s Significant Accounting Policies note under the captions for each of the fund’s in-scope financial instruments and transactions.
Investment Valuations – Equity securities, including restricted equity securities, are generally valued at the last sale or official closing price on their primary market or exchange as provided by a third-party pricing service. Equity securities, for which there were no sales reported that day, are generally valued at the last quoted daily bid quotation on their primary market or exchange as provided by a third-party pricing service. Debt instruments and floating rate loans, including restricted debt instruments, are generally valued at an evaluated or composite bid as provided by a third-party pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price on their primary exchange as provided by a third-party pricing service. Futures contracts for which there were no trades that day for a particular position are generally valued at the closing bid quotation on their primary exchange as provided by a third-party pricing service. Forward foreign currency exchange contracts are generally valued at the mean of bid and asked prices for the time period interpolated from rates provided by a third-party pricing service for proximate time periods. Open-end investment companies are generally valued at net asset value per share. Securities and other assets generally valued on the basis of information from a third-party pricing service may also be valued at a broker/dealer bid quotation. In determining values, third-party pricing services can utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. The values of foreign securities and other assets and liabilities expressed in foreign currencies are converted to U.S. dollars using the mean of bid and asked prices for rates provided by a third-party pricing service.
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Notes to Financial Statements – continued
The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for most types of debt instruments and floating rate loans and many types of derivatives. These investments are generally valued at fair value based on information from third-party pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halt 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 after foreign markets close (such as developments in foreign markets and significant movements in the U.S. markets) and prior to the determination of the fund’s net asset value may be deemed to have a material effect on the value of securities traded in foreign markets. Accordingly, the fund’s foreign equity securities may often be valued at fair value. The adviser generally relies on third-party pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of an investment used to determine the fund’s net asset value may differ from quoted or published prices for the same investment. There can be no assurance that the fund could obtain the fair value assigned to an investment if it were to sell the investment at the same time at which the fund determines its net asset value per share.
Various inputs are used in determining the value of the fund’s assets or liabilities. These inputs are categorized into three broad levels. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fund’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. Level 1 includes unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 includes other significant observable market-based inputs (including quoted prices for similar securities, interest rates, prepayment speed, and credit risk). Level 3 includes unobservable inputs, which may include the adviser’s own assumptions in determining the fair value of investments. Other financial instruments are derivative instruments,
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Notes to Financial Statements – continued
such as forward foreign currency exchange contracts. The following is a summary of the levels used as of October 31, 2020 in valuing the fund’s assets or liabilities:
| Financial Instruments | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Equity Securities: | ||||||||||||||||
| United States |
$13,469,054 | $5 | $16,951 | $13,486,010 | ||||||||||||
| Switzerland |
486,466 | — | — | 486,466 | ||||||||||||
| Mexico |
— | 19,082 | — | 19,082 | ||||||||||||
| Non-U.S. Sovereign Debt | — | 716,049 | — | 716,049 | ||||||||||||
| Municipal Bonds | — | 102,500 | — | 102,500 | ||||||||||||
| U.S. Corporate Bonds | — | 16,941,556 | — | 16,941,556 | ||||||||||||
| Foreign Bonds | — | 3,985,416 | — | 3,985,416 | ||||||||||||
| Floating Rate Loans | — | 156,549 | — | 156,549 | ||||||||||||
| Mutual Funds | 1,148,461 | — | — | 1,148,461 | ||||||||||||
| Total | $15,103,981 | $21,921,157 | $16,951 | $37,042,089 | ||||||||||||
| Other Financial Instruments | ||||||||||||||||
| Forward Foreign Currency Exchange | ||||||||||||||||
| Contracts – Assets | $— | $985 | $— | $985 | ||||||||||||
For further information regarding security characteristics, see the Portfolio of Investments.
The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. The table presents the activity of level 3 securities held at the beginning and the end of the period.
| Equity Securities |
||||
| Balance as of 10/31/19 | $30,347 | |||
| Change in unrealized appreciation or depreciation |
(13,396 | ) | ||
| Balance as of 10/31/20 | $16,951 | |||
The net change in unrealized appreciation or depreciation from investments held as level 3 at October 31, 2020 is $(13,396). At October 31, 2020, the fund held one level 3 security.
Foreign Currency Translation – Purchases and sales of foreign investments, income, and expenses are converted into U.S. dollars based upon currency exchange rates prevailing on the respective dates of such transactions or on the reporting date for foreign denominated receivables and payables. Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Gains and losses attributable to foreign exchange rate movements on receivables, payables, income and expenses are recorded for financial statement purposes as foreign currency transaction gains and losses. That portion of both realized and unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed.
Derivatives – The fund uses derivatives primarily to increase or decrease exposure to a particular market or segment of the market, or security, to increase or decrease interest rate exposure, or as alternatives to direct investments. Derivatives are used for hedging
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Notes to Financial Statements – continued
or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to increase market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost.
The derivative instruments used by the fund during the period were futures contracts and forward foreign currency exchange contracts. Depending on the type of derivative, the fund may exit a derivative position by entering into an offsetting transaction with a counterparty or exchange, negotiating an agreement with the derivative counterparty, or novating the position to a third party. The fund’s period end derivatives, as presented in the Portfolio of Investments and the associated Derivative Contract tables, generally are indicative of the volume of its derivative activity during the period.
The following table presents, by major type of derivative contract, the fair value, on a gross basis, of the asset and liability components of derivatives held by the fund at October 31, 2020 as reported in the Statement of Assets and Liabilities:
| Fair Value | ||||||
| Risk | Derivative Contracts | Asset Derivatives | ||||
| Foreign Exchange | Forward Foreign Currency Exchange Contracts |
$985 | ||||
The following table presents, by major type of derivative contract, the realized gain (loss) on derivatives held by the fund for the year ended October 31, 2020 as reported in the Statement of Operations:
| Risk | Futures Contracts |
Forward Foreign Currency Exchange Contracts |
||||||
| Interest Rate | $(14,085 | ) | $— | |||||
| Foreign Exchange | — | (6,433 | ) | |||||
| Total | $(14,085 | ) | $(6,433 | ) | ||||
The following table presents, by major type of derivative contract, the change in unrealized appreciation or depreciation on derivatives held by the fund for the year ended October 31, 2020 as reported in the Statement of Operations:
| Risk | Futures Contracts |
Forward Foreign Currency Exchange Contracts |
||||||
| Interest Rate | $(4,084 | ) | $— | |||||
| Foreign Exchange | — | 4,477 | ||||||
| Total | $(4,084 | ) | $4,477 | |||||
Derivative counterparty credit risk is managed through formal evaluation of the creditworthiness of all potential counterparties. On certain, but not all, uncleared derivatives, the fund attempts to reduce its exposure to counterparty credit risk whenever possible by entering into an ISDA Master Agreement on a bilateral basis. The ISDA Master Agreement gives each party to the agreement the right to terminate all
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transactions traded under such agreement if there is a specified deterioration in the credit quality of the other party. Upon an event of default or a termination of the ISDA Master Agreement, the non-defaulting party has the right to close out all transactions traded under such agreement and to net amounts owed under each agreement to one net amount payable by one party to the other. This right to close out and net payments across all transactions traded under the ISDA Master Agreement could result in a reduction of the fund’s credit risk to such counterparty equal to any amounts payable by the fund under the applicable transactions, if any.
Collateral and margin requirements differ by type of derivative. For cleared derivatives (e.g., futures contracts, cleared swaps, and exchange-traded options), margin requirements are set by the clearing broker and the clearing house and collateral, in the form of cash or securities, is posted by the fund directly with the clearing broker. Collateral terms are counterparty agreement specific for uncleared derivatives (e.g., forward foreign currency exchange contracts, uncleared swap agreements, and uncleared options) and collateral, in the form of cash and securities, is held in segregated accounts with the fund’s custodian in connection with these agreements. For derivatives traded under an ISDA Master Agreement, which contains a collateral support annex, the collateral requirements are netted across all transactions traded under such counterparty-specific agreement and an amount is posted from one party to the other to collateralize such obligations. Cash that has been segregated or delivered to cover the fund’s collateral or margin obligations under derivative contracts, if any, will be reported separately in the Statement of Assets and Liabilities as restricted cash for uncleared derivatives and/or deposits with brokers for cleared derivatives. Securities pledged as collateral or margin for the same purpose, if any, are noted in the Portfolio of Investments. The fund may be required to make payments of interest on uncovered collateral or margin obligations with the broker. Any such payments are included in “Miscellaneous” expense in the Statement of Operations.
Futures Contracts – The fund entered into futures contracts which may be used to hedge against or obtain broad market exposure, interest rate exposure, currency exposure, or to manage duration. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Upon entering into a futures contract, the fund is required to deposit with the broker, either in cash or securities, an initial margin in an amount equal to a specified percentage of the notional amount of the contract. Subsequent payments (variation margin) are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gain or loss by the fund until the contract is closed or expires at which point the gain or loss on futures contracts is realized.
The fund bears the risk of interest rates, exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss. While futures contracts may present less counterparty risk to the fund since the contracts are exchange traded and the exchange’s clearinghouse guarantees payments to the broker, there is still counterparty credit risk due to the insolvency of the broker. The fund’s maximum risk of loss due to counterparty credit risk is equal to the margin posted by the fund to the broker plus any gains or minus any losses on the outstanding futures contracts.
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Forward Foreign Currency Exchange Contracts – The fund entered into forward foreign currency exchange contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date. These contracts may be used to hedge the fund’s currency risk or for non-hedging purposes. For hedging purposes, the fund may enter into contracts to deliver or receive foreign currency that the fund will receive from or use in its normal investment activities. The fund may also use contracts to hedge against declines in the value of foreign currency denominated securities due to unfavorable exchange rate movements. For non-hedging purposes, the fund may enter into contracts with the intent of changing the relative exposure of the fund’s portfolio of securities to different currencies to take advantage of anticipated exchange rate changes.
Forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any unrealized gains or losses are recorded as a receivable or payable for forward foreign currency exchange contracts until the contract settlement date. On contract settlement date, any gain or loss on the contract is recorded as realized gains or losses on forward foreign currency exchange contracts.
Risks may arise upon entering into these contracts from unanticipated movements in the value of the contract and from the potential inability of counterparties to meet the terms of their contracts. Generally, the fund’s maximum risk due to counterparty credit risk is the unrealized gain on the contract due to the use of Continuous Linked Settlement, a multicurrency cash settlement system for the centralized settlement of foreign transactions. This risk is mitigated in cases where there is an ISDA Master Agreement between the fund and the counterparty providing for netting as described above and, where applicable, by the posting of collateral by the counterparty to the fund to cover the fund’s exposure to the counterparty under such ISDA Master Agreement.
Security Loans – Under its Securities Lending Agency Agreement with the fund, State Street Bank and Trust Company, as lending agent, loans the securities of the fund to certain qualified institutions (the “Borrowers”) approved by the fund. Security loans can be terminated at the discretion of either the lending agent or the fund and the related securities must be returned within the earlier of the standard trade settlement period for such securities or within three business days. The loans are collateralized by cash and/or U.S. Treasury and federal agency obligations in an amount typically at least equal to the market value of the securities loaned. On loans collateralized by cash, the cash collateral is invested in a money market fund. The market value of the loaned securities is determined at the close of business of the fund and any additional required collateral is delivered to the fund on the next business day. The lending agent provides the fund with indemnification against Borrower default. In the event of Borrower default, the lending agent will, for the benefit of the fund, either purchase securities identical to those loaned or, when such purchase is commercially impracticable, pay the fund the market value of the loaned securities. In return, the lending agent assumes the fund’s rights to the related collateral. If the collateral value is less than the cost to purchase identical securities, the lending agent is responsible for the shortfall, but only to the extent that such shortfall is not due to a decline in collateral value resulting from collateral reinvestment for which the fund bears the risk of loss. A portion of the income generated upon investment of the collateral is remitted to the Borrowers, and
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the remainder is allocated between the fund and the lending agent. On loans collateralized by U.S. Treasury and/or federal agency obligations, a fee is received from the Borrower, and is allocated between the fund and the lending agent. Income from securities lending is separately reported in the Statement of Operations. The dividend and interest income earned on the securities loaned is accounted for in the same manner as other dividend and interest income. At October 31, 2020, there were no securities on loan or collateral outstanding.
Loans and Other Direct Debt Instruments – The fund invests in loans and loan participations or other receivables. These investments may include standby financing commitments, including revolving credit facilities, which contractually obligate the fund to supply additional cash to the borrower on demand. The fund generally provides this financial support in order to preserve its existing investment or to obtain a more senior secured interest in the assets of the borrower. Loan participations involve a risk of insolvency of the lending bank or other financial intermediary.
Indemnifications – Under the fund’s organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.
Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. The fund earns certain fees in connection with its floating rate loan purchasing activities. These fees are in addition to interest payments earned and may include amendment fees, commitment fees, facility fees, consent fees, and prepayment fees. Commitment fees are recorded on an accrual basis as income in the accompanying financial statements. Dividends received in cash are recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded when the fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Dividend and interest payments received in additional securities are recorded on the ex-dividend or ex-interest date in an amount equal to the value of the security on such date. Debt obligations may be placed on non-accrual status or set to accrue at a rate of interest less than the contractual coupon when the collection of all or a portion of interest has become doubtful. Interest income for those debt obligations may be further reduced by the write-off of the related interest receivables when deemed uncollectible.
The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.
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Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable income, including realized capital gains. As a result, no provision for federal income tax is required. The fund’s federal tax returns, when filed, will remain subject to examination by the Internal Revenue Service for a three year period. Management has analyzed the fund’s tax positions taken on federal and state tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability. Foreign taxes, if any, have been accrued by the fund in the accompanying financial statements in accordance with the applicable foreign tax law. Foreign income taxes may be withheld by certain countries in which the fund invests. Additionally, capital gains realized by the fund on securities issued in or by certain foreign countries may be subject to capital gains tax imposed by those countries.
Distributions to shareholders are recorded on the ex-dividend date. The fund seeks to pay monthly distributions based on an annual rate of 10.00% of the fund’s average monthly net asset value. As a result, distributions may exceed actual earnings which may result in a tax return of capital. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future.
Book/tax differences primarily relate to defaulted bonds and amortization and accretion of debt securities.
The tax character of distributions declared to shareholders for the last two fiscal years is as follows:
| Year ended 10/31/20 |
Year ended 10/31/19 |
|||||||
| Ordinary income (including any short-term capital gains) | $1,152,035 | $1,229,679 | ||||||
| Long-term capital gains | 2,582,810 | 205,549 | ||||||
| Tax return of capital (b) | 104,397 | 2,484,303 | ||||||
| Total distributions | $3,839,242 | $3,919,531 | ||||||
| (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 10/31/20 | ||||
| Cost of investments | $32,838,586 | |||
| Gross appreciation | 5,225,327 | |||
| Gross depreciation | (1,020,839 | ) | ||
| Net unrealized appreciation (depreciation) | $4,204,488 | |||
| Other temporary differences | (20,368 | ) | ||
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(3) Transactions with Affiliates
Investment Adviser – The fund has an investment advisory agreement with MFS to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.68% of the fund’s average daily net assets and 3.40% of gross income. Gross income is calculated based on tax elections that generally include the accretion of discount and exclude the amortization of premium, which may differ from investment income reported in the Statement of Operations. MFS has agreed to reduce its management fee to the lesser of the contractual management fee as set forth above or 0.90% of the fund’s average daily net assets. This written agreement will continue until modified by the fund’s Board of Trustees, but such agreement will continue at least until October 31, 2021. For the year ended October 31, 2020, the fund’s average daily net assets and gross income fees did not meet the thresholds required to waive the management fee under this agreement. The management fee, from net assets and gross income, incurred for the year ended October 31, 2020 was equivalent to an annual effective rate of 0.83% of the fund’s average daily net assets.
Transfer Agent – The fund engages Computershare Trust Company, N.A. (“Computershare”) as the sole transfer agent for the fund. MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the year ended October 31, 2020, these fees paid to MFSC amounted to $2,162.
Administrator – MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund reimburses MFS the costs incurred to provide these services. The fund is charged an annual fixed amount of $17,500 plus a fee based on average daily net assets. The administrative services fee incurred for the year ended October 31, 2020 was equivalent to an annual effective rate of 0.0458% of the fund’s average daily net assets.
Trustees’ and Officers’ Compensation – The fund pays compensation to independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to Trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration from MFS for their services to the fund. Certain officers and Trustees of the fund are officers or directors of MFS and MFSC.
Other – The fund invests in the MFS Institutional Money Market Portfolio which is managed by MFS and seeks current income consistent with preservation of capital and liquidity. This money market fund does not pay a management fee to MFS but does incur investment and operating costs.
The fund is permitted to engage in purchase and sale transactions with funds and accounts for which MFS serves as investment adviser or sub-adviser (“cross-trades”) pursuant to a policy adopted by the Board of Trustees. This policy has been designed to ensure that cross-trades conducted by the fund comply with Rule 17a-7 under the Investment Company Act of 1940. During the year ended October 31, 2020, the fund engaged in sale transactions pursuant to this policy, which amounted to $66,533. The sales transactions resulted in net realized gains (losses) of $47,633.
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The adviser has voluntarily undertaken to reimburse the fund from its own resources on a quarterly basis for the cost of investment research embedded in the cost of the fund’s securities trades. This agreement may be rescinded at any time. For the year ended October 31, 2020, this reimbursement amounted to $134, which is included in “Other” income in the Statement of Operations.
(4) Portfolio Securities
For the year ended October 31, 2020, purchases and sales of investments, other than short-term obligations, aggregated $17,906,692 and $20,564,783, respectively.
(5) Shares of Beneficial Interest
The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. The Trustees have authorized the repurchase by the fund of up to 10% annually of its own shares of beneficial interest. The fund repurchased 10,450 shares of beneficial interest during the year ended October 31, 2020 at an average price per share of $3.98 and a weighted average discount of 10.64% per share. Transactions in fund shares were as follows:
| Year ended 10/31/20 |
Year ended 10/31/19 |
|||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Shares issued to shareholders in reinvestment of distributions |
43,842 | $239,515 | 44,616 | $249,179 | ||||||||||||
| Capital shares repurchased | (10,450 | ) | (41,615 | ) | — | — | ||||||||||
| Net change | 33,392 | $197,900 | 44,616 | $249,179 | ||||||||||||
(6) Line of Credit
The fund and certain other funds managed by MFS participate in a $1.25 billion unsecured committed line of credit, subject to a $1 billion sublimit, provided by a syndicate of banks under a credit agreement. Borrowings may be made for temporary financing needs. Interest is charged to each fund, based on its borrowings, generally at a rate equal to the highest of one month LIBOR, the Federal Funds Effective Rate and the Overnight Bank Funding Rate, plus an agreed upon spread. A commitment fee, based on the average daily, unused portion of the committed line of credit, is allocated among the participating funds. In addition, the fund and other funds managed by MFS have established unsecured uncommitted borrowing arrangements with certain banks for temporary financing needs. Interest is charged to each fund, based on its borrowings, at rates equal to customary reference rates plus an agreed upon spread. For the year ended October 31, 2020, the fund’s commitment fee and interest expense were $196 and $0, respectively, and are included in “Miscellaneous” expense in the Statement of Operations.
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Notes to Financial Statements – continued
(7) Investments in Affiliated Issuers
An affiliated issuer may be considered one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common control. For the purposes of this report, the following were affiliated issuers:
| Affiliated Issuers | Beginning Value |
Purchases | Sales Proceeds |
Realized Gain (Loss) |
Change in Unrealized Appreciation or Depreciation |
Ending Value |
||||||||||||||||||
| MFS Institutional Money Market Portfolio |
$1,461,511 | $9,644,249 | $9,956,980 | $(141 | ) | $(178 | ) | $1,148,461 | ||||||||||||||||
| Affiliated Issuers | Dividend Income |
Capital Gain Distributions |
||||||||||||||||||||||
| MFS Institutional Money Market Portfolio |
|
$9,196 | $— | |||||||||||||||||||||
(8) Impacts of COVID-19
The pandemic related to the global spread of novel coronavirus disease (COVID-19), which was first detected in December 2019, has resulted in significant disruptions to global business activity and the global economy, as well as the economies of individual countries, the financial performance of individual companies and sectors, and the securities and commodities markets in general. This pandemic, the full effects of which are still unknown, has resulted in substantial market volatility and may have adversely impacted the prices and liquidity of the fund’s investments and the fund’s performance.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Trustees of MFS Special Value Trust
Opinion on the Financial Statements
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, 2020, 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, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at October 31, 2020, 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.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2020, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included
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Report of Independent Registered Public Accounting Firm – continued
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more MFS investment companies since 1993.
Boston, Massachusetts
December 16, 2020
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RESULTS OF SHAREHOLDER MEETING
(unaudited)
At the annual meeting of shareholders of MFS Special Value Trust, which was held on October 1, 2020, the following action was taken:
Item 1: To elect the following individuals as Trustees:
| Number of Shares | ||||||||
| Nominee |
For |
Withheld Authority |
||||||
| Steven E. Buller | 5,528,612.816 | 175,563.296 | ||||||
| Peter D. Jones | 5,528,152.816 | 176,023.296 | ||||||
| John P. Kavanaugh | 5,527,133.816 | 177,042.296 | ||||||
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TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND
The Trustees and Officers of the Trust, as of December 1, 2020, 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 111 Huntington Avenue, Boston, Massachusetts 02199-7618.
| Name, Age |
Position(s) with Fund |
Trustee/ Since (h) |
Term Expiring |
Number |
Principal the Past |
Other Directorships | ||||||
| INTERESTED TRUSTEES | ||||||||||||
| Robert J. Manning (k) (age 57) |
Trustee | February 2004 | 2022 | 133 | Massachusetts Financial Services Company, Executive Chairman (since January 2017); Director; Chairman of the Board; Chief Executive Officer (until 2015); Co-Chief Executive Officer (2015-2016) | N/A | ||||||
| Robin A. Stelmach (k)* (age 59) |
Trustee | January 2014 | 2021 | 133 | Massachusetts Financial Services Company, Vice Chair (since January 2017); Chief Operating Officer and Executive Vice President (until January 2017) | N/A | ||||||
| INDEPENDENT TRUSTEES | ||||||||||||
| John P. Kavanaugh (age 66) |
Trustee and Chair of Trustees | January 2009 | 2023 | 133 | Private investor | N/A | ||||||
| Steven E. Buller (age 69) |
Trustee | February 2014 | 2023 | 133 | Private investor; Financial Accounting Standards Advisory Council, Chairman (2014-2015) | N/A | ||||||
| John A. Caroselli (age 66) |
Trustee | March 2017 | 2021 | 133 | Private investor; JC Global Advisors, LLC (management consulting), President (since 2015); First Capital Corporation (commercial finance), Executive Vice President (until 2015) | N/A | ||||||
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Trustees and Officers – continued
| Name, Age |
Position(s) with Fund |
Trustee/ Since (h) |
Term Expiring |
Number |
Principal the Past |
Other Directorships | ||||||
| Maureen R. Goldfarb (age 65) |
Trustee | January 2009 | 2022 | 133 | Private investor | N/A | ||||||
| Peter D. Jones (age 65) |
Trustee | January 2019 | 2023 | 133 | Private investor; Franklin Templeton Institutional, LLC (investment management), Chairman (until 2015); Franklin Templeton Distributors, Inc. (investment management), President (until 2015) | N/A | ||||||
| James W. Kilman, Jr. (age 59) | Trustee | January 2019 | 2021 | 133 | Burford Capital Limited (finance and investment management), Chief Financial Officer (since 2019); KielStrand Capital LLC (family office), Chief Executive Officer (since 2016); Morgan Stanley & Co. (financial services), Vice Chairman of Investment Banking, Co-Head of Diversified Financials Coverage – Financial Institutions Investment Banking Group (until 2016) | Alpha-En Corporation, Director (2016-2019) | ||||||
| Clarence Otis, Jr. (age 64) |
Trustee | March 2017 | 2021 | 133 | Private investor | VF Corporation, Director; Verizon Communications, Inc., Director; The Travelers Companies, Director; Federal Reserve Bank of Atlanta, Director (until 2015) | ||||||
| Maryanne L. Roepke (age 64) |
Trustee | May 2014 | 2022 | 133 | Private investor | N/A | ||||||
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Trustees and Officers – continued
| Name, Age |
Position(s) with Fund |
Trustee/ Since (h) |
Term Expiring |
Number |
Principal the Past |
Other Directorships | ||||||
| Laurie J. Thomsen (age 63) |
Trustee | March 2005 | 2022 | 133 | Private investor | The Travelers Companies, Director; Dycom Industries, Inc., Director (since 2015) |
| Name, Age |
Position(s) with Fund |
Trustee/Officer Since (h) |
Term Expiring |
Number of MFS Funds for which the Person is an Officer |
Principal the Past Five Years | |||||
| OFFICERS | ||||||||||
| Christopher R. Bohane (k) (age 46) |
Assistant Secretary and Assistant Clerk | July 2005 | N/A | 133 | Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel | |||||
| Kino Clark (k) (age 52) |
Assistant Treasurer |
January 2012 | N/A | 133 | Massachusetts Financial Services Company, Vice President | |||||
| John W. Clark, Jr. (k) (age 53) |
Assistant Treasurer | April 2017 | N/A | 133 | Massachusetts Financial Services Company, Vice President (since March 2017); Deutsche Bank (financial services), Department Head – Treasurer’s Office (until February 2017) | |||||
| Thomas H. Connors (k) (age 61) |
Assistant Secretary and Assistant Clerk |
September 2012 | N/A | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | |||||
| David L. DiLorenzo (k) (age 52) |
President | July 2005 | N/A | 133 | Massachusetts Financial Services Company, Senior Vice President | |||||
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Trustees and Officers – continued
| Name, Age |
Position(s) with Fund |
Trustee/Officer Since (h) |
Term Expiring |
Number of MFS Funds for which the Person is an Officer |
Principal the Past Five Years | |||||
| Heidi W. Hardin (k) (age 53) |
Secretary and Clerk | April 2017 | N/A | 133 | Massachusetts Financial Services Company, Executive Vice President and General Counsel (since March 2017); Harris Associates (investment management), General Counsel (from September 2015 to January 2017); Janus Capital Management LLC (investment management), Senior Vice President and General Counsel (until September 2015) | |||||
| Brian E. Langenfeld (k) (age 47) |
Assistant Secretary and Assistant Clerk |
June 2006 | N/A | 133 | Massachusetts Financial Services Company, Vice President and Senior Counsel | |||||
| Amanda S. Mooradian (k) (age 41) |
Assistant Secretary and Assistant Clerk |
September 2018 | N/A | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | |||||
| Susan A. Pereira (k) (age 50) |
Assistant Secretary and Assistant Clerk |
July 2005 | N/A | 133 | Massachusetts Financial Services Company, Assistant Vice President and Senior Counsel | |||||
| Kasey L. Phillips (k) (age 49) |
Assistant Treasurer | September 2012 | N/A | 133 | Massachusetts Financial Services Company, Vice President | |||||
| Matthew A. Stowe (k) (age 46) |
Assistant Secretary and Assistant Clerk | October 2014 | N/A | 133 | Massachusetts Financial Services Company, Vice President and Assistant General Counsel | |||||
| Martin J. Wolin (k) (age 53) |
Chief Compliance Officer | July 2015 | N/A | 133 | Massachusetts Financial Services Company, Senior Vice President and Chief Compliance Officer (since July 2015) | |||||
| James O. Yost (k) (age 60) |
Treasurer | September 1990 | N/A | 133 | Massachusetts Financial Services Company, Senior Vice President | |||||
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Trustees and Officers – continued
| (h) | Date first appointed to serve as Trustee/officer of an MFS Fund. Each Trustee has served continuously since appointment unless indicated otherwise. For the period from December 15, 2004 until February 22, 2005, Mr. Manning served as Advisory Trustee. From January 2012 through December 2016, Messrs. DiLorenzo and Yost served as Treasurer and Deputy Treasurer of the Funds, respectively. |
| (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 a position with MFS. The address of MFS is 111 Huntington Avenue, Boston, Massachusetts 02199-7618. |
| * | As of December 31, 2020, Mrs. Stelmach will retire as Trustee. |
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 which term expires on the date of the third annual meeting following the election to office of the Trustee’s class. Each year the term of one class expires. Each Trustee and officer will serve until next elected or his or her earlier death, resignation, retirement or removal. Under the terms of the Board’s retirement policy, an Independent Trustee shall retire at the end of the calendar year in which he or she reaches the earlier of 75 years of age or 15 years of service on the Board (or, in the case of any Independent Trustee who joined the Board prior to 2015, 20 years of service on the Board).
Messrs. Buller, Kilman and Otis and Ms. Roepke are members of the Trust’s Audit Committee.
Each of the Interested Trustees and certain Officers hold comparable officer positions with certain affiliates of MFS.
| Investment Adviser | Custodian | |
| Massachusetts Financial Services Company Boston, MA 02199-7618 |
State Street Bank and Trust Company 1 Lincoln Street Boston, MA 02111-2900 | |
| Portfolio Manager(s) | Independent Registered Public Accounting Firm | |
| Ward Brown Katherine Cannan Nevin Chitkara David Cole Matt Ryan Michael Skatrud |
Ernst & Young LLP 200 Clarendon Street Boston, MA 02116 |
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BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT
MFS Special Value Trust
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 by videoconference (in accordance with Securities and Exchange Commission relief) over the course of three months beginning in May and ending in July, 2020 (“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 an independent consultant who was retained by and reported 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 that included, among other items: (i) information provided by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third party, on the investment performance (based on net asset value) of the Fund for various time periods ended December 31, 2019 and the investment performance (based on net asset value) of a group of funds with substantially similar investment classifications/ objectives (the “Broadridge performance universe”), (ii) information provided by Broadridge on the Fund’s advisory fees and other expenses and the advisory fees and other expenses of comparable funds identified by Broadridge as well as all other funds in the same investment classification/category (the “Broadridge expense group and universe”), (iii) information provided by MFS on the advisory fees of 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, and compared to MFS’ institutional business, (vi) MFS’ views regarding the outlook for the mutual fund industry and the strategic business plans of MFS, (vii) descriptions of
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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 Broadridge 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 in 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 Broadridge and MFS, the Trustees reviewed the Fund’s total return investment performance as well as the Broadridge performance universe 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 Broadridge performance universe over the five-year period ended December 31, 2019, which the Trustees believed was a long enough period to reflect differing market conditions. The total return performance of the Fund’s common shares ranked 1st out of a total of 4 funds in the Broadridge performance universe for the five-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 1st out of a total of 9 funds for the one-year period and 1st out of a total of 4 funds for the three-year period ended December 31, 2019. Given the size of the Broadridge performance universe and information previously provided by MFS regarding differences between the Fund and other funds in its Broadridge performance universe, the Trustees also reviewed the Fund’s performance in comparison to a custom benchmark developed by MFS. The Fund outperformed its custom benchmark for each of the one-, three- and five-year periods ended December 31, 2019 (one-year: 23.0% total return for the Fund versus 18.6% total return for the benchmark; three-year: 8.8% total return for the Fund versus 7.6% total return for the benchmark; five-year: 7.5% total return for the Fund versus 7.0% total return for the benchmark). Because of the passage of time, these performance results may 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
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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 daily net assets and the advisory fee and total expense ratios of the Broadridge expense group based on information provided by Broadridge. The Trustees considered that MFS has agreed in writing to reduce its advisory fee, which may not be changed without the Trustees’ approval. The Trustees also considered that, according to the data provided by Broadridge (which takes into account any fee reductions or expense limitations that were in effect during the Fund’s last fiscal year), the Fund’s effective advisory fee rate and total expense ratio were each higher than the Broadridge expense group median.
The Trustees also considered the advisory fees charged by MFS to any institutional separate accounts advised by MFS (“separate accounts”) and unaffiliated investment companies for which MFS serves as subadviser (“subadvised funds”) that have comparable investment strategies to the Fund, if any. 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, as well as the more extensive regulatory burdens imposed on MFS in managing the Fund, in comparison to separate accounts and subadvised funds.
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 presence 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
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Financial Inc. The Trustees also considered the advantages and possible disadvantages to the Fund of having an adviser that 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 Fund were satisfactory.
The Trustees considered so-called “fall-out benefits” to MFS such as reputational value derived from serving as investment manager to the MFS Funds. The Trustees also considered that MFS discontinued its historic practice of obtaining investment research from portfolio brokerage commissions paid by certain MFS Funds effective January 2018, and directly pays or voluntarily reimburses a Fund, if applicable, for the costs of external research acquired through the use of the Fund’s portfolio brokerage commissions.
Based on their evaluation of factors that they deemed to be material, including those factors described above, the Board of Trustees, including 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, 2020.
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PROXY VOTING POLICIES AND INFORMATION
MFS votes proxies on behalf of the fund pursuant to proxy voting policies and procedures that are available without charge, upon request, by calling 1-800-225-2606, by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available by August 31 of each year without charge by visiting mfs.com/proxyvoting, or by visiting the SEC’s Web site at http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports are available on the SEC’s Web site at http://www.sec.gov. A shareholder can obtain the portfolio holdings report for the first and third quarters of the fund’s fiscal year at mfs.com/closedendfunds by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Prospectus and Reports” tab.
From time to time, MFS may post important information about the fund or the MFS funds on the MFS Web site (mfs.com). This information is available at https://www.mfs.com/announcements or at mfs.com/closedendfunds by choosing the fund’s name and then scrolling to the “Resources” section and clicking on the “Announcements” tab, if any.
Additional information about the fund (e.g., performance, dividends and the fund’s price history) is also available at mfs.com/closedendfunds by choosing the fund’s name, if any.
INFORMATION ABOUT FUND CONTRACTS AND LEGAL CLAIMS
The fund has entered into contractual arrangements with an investment adviser, administrator, transfer agent, and custodian who each provide services to the fund. Unless expressly stated otherwise, shareholders are not parties to, or intended beneficiaries of these contractual arrangements, and these contractual arrangements are not intended to create any shareholder right to enforce them against the service providers or to seek any remedy under them against the service providers, either directly or on behalf of the fund.
Under the Trust’s By-Laws and Declaration of Trust, any claims asserted against or on behalf of the MFS Funds, including claims against Trustees and Officers, must be brought in state and federal courts located within the Commonwealth of Massachusetts.
FEDERAL TAX INFORMATION (unaudited)
The fund will notify shareholders of amounts for use in preparing 2020 income tax forms in January 2021. The following information is provided pursuant to provisions of the Internal Revenue Code.
The fund designates the maximum amount allowable as qualified dividend income eligible to be taxed at the same rate as long-term capital gain.
The fund intends to pass through the maximum amount allowable as Section 163(j) Interest Dividends as defined in Proposed Treasury Regulation §1.163(j)-1(b).
The fund designates $2,842,000 as capital gain dividends paid during the fiscal year.
For corporate shareholders, 24.61% of the ordinary income dividends paid during the fiscal year qualify for the corporate dividends received deduction.
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|
|
WHAT DOES MFS DO WITH YOUR PERSONAL INFORMATION? |
| ||
| Why? | Financial companies choose how they share your personal information. Federal law gives consumers the right to limit some but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal information. Please read this notice carefully to understand what we do. |
| What? | The types of personal information we collect and share depend on the product or service you have with us. This information can include:
• Social Security number and account balances • Account transactions and transaction history • Checking account information and wire transfer instructions
When you are no longer our customer, we continue to share your information as described in this notice. |
| How? | All financial companies need to share customers’ personal information to run their everyday business. In the section below, we list the reasons financial companies can share their customers’ personal information; the reasons MFS chooses to share; and whether you can limit this sharing. |
| Reasons we can share your personal information |
Does
MFS share? |
Can you limit this sharing? | ||
| For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus |
Yes | No | ||
| For our marketing purposes – to offer our products and services to you |
No | We don’t share | ||
| For joint marketing with other financial companies |
No | We don’t share | ||
| For our affiliates’ everyday business purposes – information about your transactions and experiences |
No | We don’t share | ||
| For our affiliates’ everyday business purposes – information about your creditworthiness |
No | We don’t share | ||
| For nonaffiliates to market to you | No | We don’t share |
| Questions? | Call 800-225-2606 or go to mfs.com. | |
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| Page 2 |
| Who we are | ||
| Who is providing this notice? | MFS Funds, MFS Investment Management, MFS Institutional Advisors, Inc., and MFS Heritage Trust Company. | |
| What we do | ||
| How does MFS protect my personal information? | To protect your personal information from unauthorized access and use, we use security measures that comply with federal law. These measures include procedural, electronic, and physical safeguards for the protection of the personal information we collect about you. | |
| How does MFS collect my personal information? | We collect your personal information, for example, when you
• open an account or provide account information • direct us to buy securities or direct us to sell your securities • make a wire transfer
We also collect your personal information from others, such as credit bureaus, affiliates, or other companies. | |
| Why can’t I limit all sharing? | Federal law gives you the right to limit only
• sharing for affiliates’ everyday business purposes – information about your creditworthiness • affiliates from using your information to market to you • sharing for nonaffiliates to market to you
State laws and individual companies may give you additional rights to limit sharing. | |
| Definitions | ||
| Affiliates | Companies related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share personal information with affiliates, except for everyday business purposes as described on page one of this notice. | |
| Nonaffiliates | Companies not related by common ownership or control. They can be financial and nonfinancial companies.
• MFS does not share with nonaffiliates so they can market to you. | |
| Joint marketing | A formal agreement between nonaffiliated financial companies that together market financial products or services to you.
• MFS doesn’t jointly market. | |
| Other important information | ||
| If you own an MFS product or receive an MFS service in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours. | ||
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TRANSFER AGENT, REGISTRAR, AND
DIVIDEND DISBURSING AGENT
CALL
1-800-637-2304
9 a.m. to 5 p.m. Eastern time
WRITE
Computershare Trust Company, N.A.
P.O. Box 505005
Louisville, KY 40233-5005
New York Stock Exchange Symbol: MFV
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| ITEM 2. | CODE OF ETHICS. |
The Registrant has adopted a Code of Ethics (the “Code”) 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. During the period covered by this report, the Registrant has not amended any provision in the Code that relates to an element of the Code’s definition enumerated in paragraph (b) of Item 2 of this Form N-CSR. During the period covered by this report, the Registrant did not grant a waiver, including an implicit waiver, from any provision of the Code.
A copy of the Code is filed as an exhibit to this Form N-CSR.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
Messrs. Steven E. Buller, James Kilman, and Clarence Otis, Jr. and Ms. Maryanne L. Roepke, 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. Buller, Kilman, and Otis and Ms. Roepke 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, 2020 and 2019, audit fees billed to the Fund by E&Y were as follows:
| Audit Fees | ||||||||
| 2020 | 2019 | |||||||
| Fees billed by E&Y: |
||||||||
| MFS Special Value Trust |
54,295 | 53,401 | ||||||
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For the fiscal years ended October 31, 2020 and 2019, 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 Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Fees billed by E&Y: |
||||||||||||||||||||||||
| To MFS Special Value Trust |
12,077 | 11,875 | 10,326 | 10,169 | 1,011 | 1,011 | ||||||||||||||||||
| Audit-Related Fees1 | Tax Fees2 | All Other Fees3 | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Fees billed by E&Y: |
||||||||||||||||||||||||
| To MFS and MFS Related Entities of MFS Special Value Trust* |
1,790,828 | 1,679,277 | 0 | 0 | 104,750 | 104,750 | ||||||||||||||||||
| Aggregate Fees for Non-audit Services |
||||||||
| 2020 | 2019 | |||||||
| Fees Billed by E&Y: |
||||||||
| To MFS Special Value Trust, MFS and MFS Related Entities# |
2,129,722 | 2,032,282 | ||||||
| * | 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 services related to review of internal controls and review of Rule 38a-1 compliance program. |
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.
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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. Steven E. Buller, James Kilman, and Clarence Otis, Jr. and Ms. Maryanne L. Roepke.
| 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. |
A copy of the proxy voting policies and procedures are attached hereto as EX-99.PROXYPOL.
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| ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Portfolio Manager(s)
Information regarding the portfolio manager(s) of the MFS Special Value Trust (the “Fund”) is set forth below. Each portfolio manager is primarily responsible for the day-to-day management of the Fund.
| Primary Role |
Since |
Title and Five Year History | ||||
| Ward Brown | Emerging Markets Debt Instruments Portfolio Manager | 2012 | Investment Officer of MFS; employed in the investment area of MFS since 2005 | |||
| Katherine Cannan | Equity Securities Portfolio Manager | 2019 | Investment Officer of MFS; employed in the investment area of MFS since 2013 | |||
| Nevin Chitkara | Equity Securities Portfolio Manager | 2012 | Investment Officer of MFS; employed in the investment area of MFS since 1997 | |||
| David Cole | Below Investment Grade Debt Instruments Portfolio Manager | 2006 | Investment Officer of MFS; employed in the investment area of MFS since 2004 | |||
| Matt Ryan | Emerging Markets Debt Instruments Portfolio Manager | 2012 | Investment Officer of MFS; employed in the investment area of MFS since 1997 | |||
| Michael Skatrud | Below Investment Grade Debt Instruments Portfolio Manager | 2018 | Investment Officer of MFS; employed in the investment area of MFS since 2013 | |||
Compensation
MFS’ philosophy is to align portfolio manager compensation with the goal to provide shareholders with long-term value through a collaborative investment process. Therefore, MFS uses long-term investment performance as well as contribution to the overall investment process and collaborative culture as key factors in determining portfolio manager compensation. In addition, MFS seeks to maintain total compensation programs that are competitive in the asset management industry in each geographic market where it has employees. MFS uses competitive compensation data to ensure that compensation practices are aligned with its goals of attracting, retaining, and motivating the highest-quality professionals.
MFS reviews portfolio manager compensation annually. In determining portfolio manager compensation, MFS uses quantitative means and qualitative means to help ensure a sustainable investment process. As of December 31, 2019, portfolio manager total cash compensation is a combination of base salary and performance bonus:
Base Salary – Base salary generally represents a smaller percentage of portfolio manager total cash compensation than performance bonus.
Performance Bonus – Generally, the performance bonus represents more than a majority of portfolio manager total cash compensation.
The performance bonus is based on a combination of quantitative and qualitative factors, generally with more weight given to the former and less weight given to the latter.
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The quantitative portion is primarily based on the pre-tax performance of accounts managed by the portfolio manager over a range of fixed-length time periods, intended to provide the ability to assess performance over time periods consistent with a full market cycle and a strategy’s investment horizon. The fixed-length time periods include the portfolio manager’s full tenure on each fund and, when available, ten-, five-, and three-year periods. For portfolio managers who have served for less than three years, shorter-term periods, including the one-year period, will also be considered, as will performance in previous roles, if any, held at the firm. Emphasis is generally placed on longer performance periods when multiple performance periods are available. Performance is evaluated across the full set of strategies and portfolios managed by a given portfolio manager, relative to appropriate peer group universes and/or representative indices (“benchmarks”). As of December 31, 2019, the following benchmarks were used to measure the following portfolio manager’s performance for the Fund:
| Fund |
Portfolio Manager |
Benchmark(s) | ||
| MFS Special Value Trust | Ward Brown | JPMorgan Emerging Markets Bond Index Global | ||
| Katherine Cannan | Russell 1000® Value Index Lipper Large-Cap Core Funds Lipper Large-Cap Value Funds | |||
| Nevin Chitkara | Russell 1000® Value Index Lipper Large-Cap Core Funds Lipper Large-Cap Value Funds | |||
| David Cole | Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index JPMorgan Emerging Markets Bond Index Global Russell 1000® Value Index | |||
| Matt Ryan | JPMorgan Emerging Markets Bond Index Global | |||
| Michael Skatrud | Bloomberg Barclays U.S. High-Yield Corporate Bond 2% Issuer Capped Index JPMorgan Emerging Markets Bond Index Global Russell 1000® Value Index | |||
Benchmarks may include versions and components of indices, custom indices, and linked indices that combine performance of different indices for different portions of the time period, where appropriate.
The qualitative portion is based on the results of an annual internal peer review process (where portfolio managers are evaluated by other portfolio managers, analysts, and traders) and management’s assessment of overall portfolio manager contribution to the MFS investment process and the client experience (distinct from fund and other account performance).
The performance bonus is generally a combination of cash and a deferred cash award. A deferred cash award is issued for a cash value and becomes payable over a three-year vesting period if the portfolio manager remains in the continuous employ of MFS or its affiliates. During the vesting period, the value of the unfunded deferred cash award will fluctuate as though the portfolio manager had invested the cash value of the award in an MFS Fund(s) selected by the portfolio manager.
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MFS Equity Plan – Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests are awarded by management, on a discretionary basis, taking into account tenure at MFS, contribution to the investment process, and other factors.
Finally, portfolio managers also participate in benefit plans (including a defined contribution plan and health and other insurance plans) and programs available generally to other employees of MFS. The percentage such benefits represent of any portfolio manager’s compensation depends upon the length of the individual’s tenure at MFS and salary level, as well as other factors.
Ownership of Fund Shares
The following table shows the dollar range of equity securities of the Fund beneficially owned by the Fund’s portfolio manager(s) as of the Fund’s fiscal year ended October 31, 2020. 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 | |
| Ward Brown |
N | |
| Katherine Cannan |
N | |
| Nevin Chitkara |
N | |
| David Cole |
N | |
| Matt Ryan |
N | |
| Michael Skatrud |
N |
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Other Accounts
In addition to the Fund, each portfolio manager of the Fund is named as a portfolio manager of certain other accounts managed or sub-advised by MFS or an affiliate. The number and assets of these accounts were as follows as of the Fund’s fiscal year ended October 31, 2020:
| Registered Investment Companies* |
Other Pooled Investment Vehicles |
Other Accounts | ||||||||||||||||||||||
| Name |
Number of Accounts |
Total Assets | Number of Accounts |
Total Assets | Number of Accounts |
Total Assets | ||||||||||||||||||
| Ward Brown |
7 | $ | 9.7 billion | 7 | $ | 4.2 billion | 6 | $ | 1.9 billion | |||||||||||||||
| Katherine Cannan |
12 | $ | 60.6 billion | 3 | $ | 3.1 billion | 17 | $ | 8.0 billion | |||||||||||||||
| Nevin Chitkara |
18 | $ | 67.3 billion | 9 | $ | 5.8 billion | 35 | $ | 17.5 billion | |||||||||||||||
| David Cole |
13 | $ | 9.5 billion | 7 | $ | 5.4 billion | 3 | $ | 213.8 million | |||||||||||||||
| Matt Ryan |
9 | $ | 13.4 billion | 8 | $ | 4.5 billion | 6 | $ | 1.9 billion | |||||||||||||||
| Michael Skatrud |
12 | $ | 9.4 billion | 7 | $ | 1.4 billion | 3 | $ | 213.8 million | |||||||||||||||
| * | 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) gives rise to conflicts of interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons and fees as a portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. In certain instances, there are securities which are suitable for the Fund’s portfolio as well as for accounts of MFS or its subsidiaries with similar investment objectives. MFS’ trade allocation policies may give rise to conflicts of interest if the Fund’s orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts of MFS or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely affect the value of the Fund’s investments. Investments selected for funds or accounts other than the Fund may outperform investments selected for the Fund.
When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by MFS to be fair and equitable to each. Allocations may be based on many factors and may not always be pro rata based on assets managed. The allocation methodology could have a detrimental effect on the price or volume of the security as far as the Fund is concerned.
MFS and/or a portfolio manager may have a financial incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Fund, for instance, those that pay a higher advisory fee and/or have a performance adjustment and/or include an investment by the portfolio manager.
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| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
MFS Special Value Trust
| Period |
(a) Total number of Shares Purchased |
(b) Average Price Paid per Share |
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased under the Plans or Programs |
||||||||||||
| 11/01/19-11/30/19 |
0 | N/A | 0 | 718,972 | ||||||||||||
| 12/01/19-12/31/19 |
0 | N/A | 0 | 718,972 | ||||||||||||
| 1/01/20-1/31/20 |
0 | N/A | 0 | 718,972 | ||||||||||||
| 2/01/20-2/28/20 |
0 | N/A | 0 | 718,972 | ||||||||||||
| 3/01/20-3/31/20 |
10,450 | 3.98 | 10,450 | 708,522 | ||||||||||||
| 4/01/20-4/30/20 |
0 | N/A | 0 | 708,522 | ||||||||||||
| 5/01/20-5/31/20 |
0 | N/A | 0 | 708,522 | ||||||||||||
| 6/01/20-6/30/20 |
0 | N/A | 0 | 708,522 | ||||||||||||
| 7/01/20-7/31/20 |
0 | N/A | 0 | 708,522 | ||||||||||||
| 8/01/20-8/31/20 |
0 | N/A | 0 | 708,522 | ||||||||||||
| 9/01/20-9/30/20 |
0 | N/A | 0 | 708,522 | ||||||||||||
| 10/1/20-10/31/20 |
0 | N/A | 0 | 722,312 | ||||||||||||
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| Total |
10,450 | 3.98 | 10,450 | |||||||||||||
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Note: The Board approved procedures to repurchase shares and reviews the results periodically. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on October 1st of each year. The programs conform to the conditions of Rule 10b-18 of the Securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (October 1 through the following September 30) to 10% of the Registrant’s outstanding shares as of the first day of the plan year (October 1). The aggregate number of shares available for purchase for the October 1, 2020 plan year is 722,312.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K or this Item.
| 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 |
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| 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 period covered by the report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
| ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
During the fiscal year ended October 31, 2020, there were no fees or income related to securities lending activities of the Registrant.
| ITEM 13. | EXHIBITS. |
| (a) | (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: Attached hereto as EX-99.COE. | |
| (2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2): Attached hereto as EX-99.302CERT. | ||
| (3) Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. | ||
| (4) Change in the registrant’s independent public accountant. 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 as EX-99.906CERT. | |
| (c) | Proxy Voting Policies and Procedures pursuant to Item 7 of Form N-CSR. Attached hereto as EX-99.PROXYPOL. | |
| (d) | Notices to Trust’s common shareholders in accordance with Investment Company Act Section 19(a) and Rule 19a-1. Attached hereto as EX-99.19a-1. | |
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Notice
A copy of the Amended and Restated Declaration of Trust of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant MFS SPECIAL VALUE TRUST
| By (Signature and Title)* | /S/ DAVID L. DILORENZO | |
| David L. DiLorenzo, President |
Date: December 16, 2020
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)* | /S/ DAVID L. DILORENZO | |
| David L. DiLorenzo, President (Principal Executive Officer) |
Date: December 16, 2020
| By (Signature and Title)* | /S/ JAMES O. YOST | |
| James O. Yost, Treasurer (Principal Financial Officer and Accounting Officer) |
Date: December 16, 2020
| * | Print name and title of each signing officer under his or her signature. |
