<PAGE> 1
[LOGO]
MFS
VARIABLE
ACCOUNT
ANNUAL REPORT
TO
CONTRACT OWNERS
DECEMBER 31, 1997
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-719-X (12/97)
<PAGE> 2
[LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTO]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to bring you the
1997 annual report of the MFS Variable Account.
Equity markets ended a volatile season to record the third straight
year of gains topping the 20 percent mark. Additionally, returns on
fixed income investments were buoyed by declining inflation, steady
Federal Reserve policy and the positive outlook for lower budget
deficits.
The U.S. economy continues to be strong into 1998. However, there is
still much uncertainty about what effect the Southeast Asian crisis
will have on our economy during this year. The obvious result, we
believe, will be a slowing of economic growth due to reduced exports,
restrained pricing flexibility and lower corporate profits. We expect
the Federal Reserve will continue to stay on the sidelines as the
Southeast Asian economic turmoil plays out. At the same time, low
inflation and low interest rates should continue to provide a healthy
environment for financial assets.
We are committed to our customers as our most valuable asset. Our
commitment to you is to continue to add value to our products and
services to help you achieve your financial planning and retirement
goals. As always, we welcome and encourage your feedback.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
3
<PAGE> 3
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
53,689,665 shares (cost $53,689,665) ......................... $ 53,689,665
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
4,371,929 shares (cost $48,464,267) .......................... 54,299,363
Massachusetts Investors Trust - Class A (MFSInvTr)
3,072,042 shares (cost $40,805,788) .......................... 53,822,174
MFS(R) Bond Fund - Class A (MFSBdFd)
2,194,589 shares (cost $28,488,439) .......................... 29,890,295
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
435,385 shares (cost $11,786,584) ............................ 15,752,245
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
9,156,563 shares (cost $108,717,258) ......................... 127,459,362
MFS(R) High Income Fund - Class A (MFSHiInc)
5,666,868 shares (cost $29,472,950) .......................... 31,337,778
MFS(R) Research Fund - Class A (MFSRsrch)
2,412,329 shares (cost $36,906,073) .......................... 51,358,491
MFS(R) Total Return Fund - Class A (MFSTotRe)
4,474,201 shares (cost $61,023,567) .......................... 70,781,856
MFS(R) World Governments Fund - Class A (MFSWdGvt)
615,543 shares (cost $6,947,062) ............................. 6,672,487
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,607,744 shares (cost $1,607,744) ........................... 1,607,744
------------
Total investments ......................................... 496,671,460
Accounts receivable ................................................ --
------------
Total assets .............................................. 496,671,460
ACCOUNTS PAYABLE ...................................................... 230,806
------------
CONTRACT OWNERS' EQUITY (NOTE 4) ...................................... $496,440,654
============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL MFSMyMkt
----------------------------- -------------------------
1997 1996 1997 1996
-------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 11,168,972 12,293,761 2,705,836 2,921,530
Mortality, expense and administration
charges (note 2) ............................ (6,386,611) (6,079,619) (745,699) (829,089)
-------------- ------------ ----------- -----------
Net investment activity ..................... 4,782,361 6,214,142 1,960,137 2,092,441
-------------- ------------ ----------- -----------
Proceeds from mutual fund shares sold ......... 110,071,003 117,272,138 20,610,321 23,793,433
Cost of mutual fund shares sold ............... (93,780,092) (107,685,553) (20,610,321) (23,793,433)
-------------- ------------ ----------- -----------
Realized gain (loss) on investments ......... 16,290,911 9,586,585 - -
Change in unrealized gain (loss) on investments 28,874,119 13,552,160 - -
-------------- ------------ ----------- -----------
Net gain (loss) on investments .............. 45,165,030 23,138,745 - -
-------------- ------------ ----------- -----------
Reinvested capital gains ...................... 35,833,931 32,734,659 - -
-------------- ------------ ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 85,781,322 62,087,546 1,960,137 2,092,441
-------------- ------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 20,353,980 19,727,032 1,100,898 1,178,079
Transfers between funds - - 415,137 2,176,153
Redemptions ................................... (73,887,620) (70,243,669) (9,257,435) (11,269,674)
Annuity benefits .............................. (575,900) (569,003) (93,817) (108,113)
Annual contract maintenance charge (note 2) ... (313,759) (365,726) (52,111) (66,445)
Contingent deferred sales charges (note 2) .... (110,645) (157,482) (18,363) (42,224)
Adjustments to maintain reserves .............. (207,752) 160,437 (61,628) 21,273
-------------- ------------ ----------- -----------
Net equity transactions ................... (54,741,696) (51,448,411) (7,967,319) (8,110,951)
-------------- ------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 31,039,626 10,639,135 (6,007,182) (6,018,510)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 465,401,028 454,761,893 59,634,697 65,653,207
-------------- ------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... $ 496,440,654 465,401,028 53,627,515 59,634,697
============== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MFSGrStk MFSInvTr
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 24,246 - 539,189 555,368
Mortality, expense and administration
charges (note 2) ............................ (611,886) (489,752) (654,656) (508,389)
---------- ---------- ---------- ----------
Net investment activity ..................... (587,640) (489,752) (115,467) 46,979
---------- ---------- ---------- ----------
Proceeds from mutual fund shares sold ......... 9,529,571 9,842,454 8,177,991 7,763,408
Cost of mutual fund shares sold ............... (9,428,903) (9,788,967) (6,155,456) (7,533,000)
---------- ---------- ---------- ----------
Realized gain (loss) on investments ......... 100,668 53,487 2,022,535 230,408
Change in unrealized gain (loss) on investments 9,294,338 (1,684,051) 7,256,714 4,567,977
---------- ---------- ---------- ----------
Net gain (loss) on investments .............. 9,395,006 (1,630,564) 9,279,249 4,798,385
---------- ---------- ---------- ----------
Reinvested capital gains ...................... 8,263,416 9,112,937 3,629,713 3,580,811
---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 17,070,782 6,992,621 12,793,495 8,426,175
---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 3,635,654 2,472,324 1,942,537 2,139,513
Transfers between funds 2,687,926 (1,005,928) 2,765,560 1,308,452
Redemptions ................................... (6,922,257) (5,914,727) (6,309,234) (5,322,645)
Annuity benefits .............................. (28,863) (15,882) (29,288) (30,577)
Annual contract maintenance charge (note 2) ... (23,238) (25,468) (23,465) (24,452)
Contingent deferred sales charges (note 2) .... (7,888) (11,194) (6,896) (14,774)
Adjustments to maintain reserves .............. (5,034) 509 11,801 (16,165)
---------- ---------- ---------- ----------
Net equity transactions ................... (663,700) (4,500,366) (1,648,985) (1,960,648)
---------- ---------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ......... 16,407,082 2,492,255 11,144,510 6,465,527
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ... 37,885,509 35,393,254 42,689,756 36,224,229
---------- ---------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD ......... 54,292,591 37,885,509 53,834,266 42,689,756
========== ========== ========== ==========
</TABLE>
(Continued)
5
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MFSBdFd MFSEmGro
---------------------------- -----------------------
1997 1996 1997 1996
-------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................... $ 2,107,121 2,546,610 - -
Mortality, expense and administration
charges (note 2) ............................. (396,702) (462,241) (203,090) (190,970)
-------------- ----------- ---------- ----------
Net investment activity ...................... 1,710,419 2,084,369 (203,090) (190,970)
-------------- ----------- ---------- ----------
Proceeds from mutual fund shares sold .......... 9,333,099 11,825,895 5,262,476 3,875,747
Cost of mutual fund shares sold ................ (10,135,867) (12,672,918) (2,905,959) (2,507,651)
-------------- ----------- ---------- ----------
Realized gain (loss) on investments .......... (802,768) (847,023) 2,356,517 1,368,096
Change in unrealized gain (loss) on investments 1,637,890 (507,048) 300,196 344,788
-------------- ----------- ---------- ----------
Net gain (loss) on investments ............... 835,122 (1,354,071) 2,656,713 1,712,884
-------------- ----------- ---------- ----------
Reinvested capital gains ....................... - - 146,983 180,030
-------------- ----------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 2,545,541 730,298 2,600,606 1,701,944
-------------- ----------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 1,559,363 1,625,769 1,031,633 453,322
Transfers between funds ........................ (108,298) (3,044,250) (178,233) 1,349,623
Redemptions .................................... (6,948,653) (5,846,431) (2,704,987) (1,307,775)
Annuity benefits ............................... (60,635) (76,135) (2,476) (1,786)
Annual contract maintenance charge (note 2) .... (18,981) (23,688) (12,951) (12,957)
Contingent deferred sales charges (note 2) ..... (10,920) (6,283) (2,146) (3,876)
Adjustments to maintain reserves ............... (51,904) 8,954 2,834 (1,277)
-------------- ----------- ---------- ----------
Net equity transactions .................... (5,640,028) (7,362,064) (1,866,326) 475,274
-------------- ----------- ---------- ----------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... (3,094,487) (6,631,766) 734,280 2,177,218
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .... 32,932,598 39,564,364 15,017,791 12,840,573
-------------- ----------- ---------- ----------
CONTRACT OWNERS' EQUITY END OF PERIOD .......... $ 29,838,111 32,932,598 15,752,071 15,017,791
============== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
MFSGrOpp MFSHiInc
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................... - - 2,822,103 3,009,796
Mortality, expense and administration
charges (note 2) ............................. (1,647,663) (1,513,781) (429,925) (451,033)
----------- ----------- ----------- -----------
Net investment activity ...................... (1,647,663) (1,513,781) 2,392,178 2,558,763
----------- ----------- ----------- -----------
Proceeds from mutual fund shares sold .......... 18,780,010 22,640,718 11,960,059 12,380,392
Cost of mutual fund shares sold ................ (13,831,419) (18,764,003) (11,497,057) (12,023,351)
----------- ----------- ----------- -----------
Realized gain (loss) on investments .......... 4,948,591 3,876,715 463,002 357,041
Change in unrealized gain (loss) on investments 5,338,318 5,741,545 659,402 658,890
----------- ----------- ----------- -----------
Net gain (loss) on investments ............... 10,286,909 9,618,260 1,122,404 1,015,931
----------- ----------- ----------- -----------
Reinvested capital gains ....................... 15,812,829 12,866,449 - -
----------- ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ......... 24,452,075 20,970,928 3,514,582 3,574,694
----------- ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 4,422,563 6,515,933 2,014,240 1,043,677
Transfers between funds ........................ (1,615,174) (1,363,214) (1,592,252) (511,982)
Redemptions .................................... (16,045,965) (17,851,175) (6,332,971) (5,362,523)
Annuity benefits ............................... (146,801) (145,869) (96,044) (88,866)
Annual contract maintenance charge (note 2) .... (88,671) (103,450) (25,213) (29,914)
Contingent deferred sales charges (note 2) ..... (30,681) (29,103) (9,241) (10,977)
Adjustments to maintain reserves ............... (82,131) 89,876 19,507 15,088
----------- ----------- ----------- -----------
Net equity transactions .................... (13,586,860) (12,887,002) (6,021,974) (4,945,497)
----------- ----------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY .......... 10,865,215 8,083,926 (2,507,392) (1,370,803)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .... 116,502,318 108,418,392 33,862,351 35,233,154
----------- ----------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD .......... 127,367,533 116,502,318 31,354,959 33,862,351
=========== =========== =========== ===========
</TABLE>
6
<PAGE> 6
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
MFSRsrch MFSTotRe
------------------------ -------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................. $ - 59,553 2,616,792 2,910,060
Mortality, expense and administration
charges (note 2) ................................... (653,983) (555,936) (921,609) (925,017)
----------- ---------- ----------- -----------
Net investment activity ............................ (653,983) (496,383) 1,695,183 1,985,043
----------- ---------- ----------- -----------
Proceeds from mutual fund shares sold ................ 8,666,290 5,601,511 13,549,787 13,306,729
Cost of mutual fund shares sold ...................... (4,983,282) (3,453,854) (9,954,406) (10,003,074)
----------- ---------- ----------- -----------
Realized gain (loss) on investments ................ 3,683,008 2,147,657 3,595,381 3,303,655
Change in unrealized gain (loss) on investments ...... 3,267,694 4,681,987 1,350,731 (1,367,319)
----------- ---------- ----------- -----------
Net gain (loss) on investments ..................... 6,950,702 6,829,644 4,946,112 1,936,336
----------- ---------- ----------- -----------
Reinvested capital gains ............................. 2,277,894 2,232,263 5,669,396 4,711,473
----------- ---------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ............... 8,574,613 8,565,524 12,310,691 8,632,852
----------- ---------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................... 2,733,275 2,534,860 979,319 901,538
Transfers between funds .............................. (25,300) 4,574,639 (1,533,328) (3,481,107)
Redemptions .......................................... (6,469,698) (5,317,309) (10,543,599) (8,249,907)
Annuity benefits ..................................... (47,531) (41,066) (61,621) (51,710)
Annual contract maintenance charge (note 2) .......... (22,942) (23,769) (37,178) (43,179)
Contingent deferred sales charges (note 2) ........... (6,702) (8,038) (15,080) (27,258)
Adjustments to maintain reserves ..................... 8,745 16,472 (50,752) 24,541
----------- ---------- ----------- -----------
Net equity transactions .......................... (3,830,153) 1,735,789 (11,262,239) (10,927,082)
----------- ---------- ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................ 4,744,460 10,301,313 1,048,452 (2,294,230)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......... 46,619,691 36,318,378 69,680,071 71,974,301
----------- ---------- ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD ................ $51,364,151 46,619,691 70,728,523 69,680,071
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MFSWdGvt NSATMyMkt
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ................................. 260,144 186,391 93,541 104,453
Mortality, expense and administration
charges (note 2) ................................... (97,514) (125,846) (23,884) (27,565)
---------- ---------- ---------- ---------
Net investment activity ............................ 162,630 60,545 69,657 76,888
---------- ---------- ---------- ---------
Proceeds from mutual fund shares sold ................ 2,902,749 5,905,156 1,298,650 336,695
Cost of mutual fund shares sold ...................... (2,978,772) (6,808,607) (1,298,650) (336,695)
---------- ---------- ---------- ---------
Realized gain (loss) on investments ................ (76,023) (903,451) - -
Change in unrealized gain (loss) on investments ...... (231,164) 1,115,391 - -
---------- ---------- ---------- ---------
Net gain (loss) on investments ..................... (307,187) 211,940 - -
---------- ---------- ---------- ---------
Reinvested capital gains ............................. 33,700 50,696 - -
---------- ---------- ---------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ............... (110,857) 323,181 69,657 76,888
---------- ---------- ---------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .................................... 860,719 826,946 73,779 35,071
Transfers between funds .............................. (784,407) (22,534) (31,631) 20,148
Redemptions .......................................... (1,841,069) (3,547,879) (511,752) (253,624)
Annuity benefits ..................................... (8,824) (8,999) - -
Annual contract maintenance charge (note 2) .......... (6,389) (9,283) (2,620) (3,121)
Contingent deferred sales charges (note 2) ........... (2,323) (3,492) (405) (263)
Adjustments to maintain reserves ..................... 913 1,150 (103) 16
---------- ---------- ---------- ---------
Net equity transactions .......................... (1,781,380) (2,764,091) (472,732) (201,773)
---------- ---------- ---------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY ................ (1,892,237) (2,440,910) (403,075) (124,885)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD .......... 8,565,606 11,006,516 2,010,640 2,135,525
---------- ---------- ---------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ................ 6,673,369 8,565,606 1,607,565 2,010,640
========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 7
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
MFS Variable Account (the Account) was established by resolution of the
Board of Directors of Nationwide Life Insurance Company (the Company)
on March 3, 1976. The Account has been registered as a unit investment
trust under the Investment Company Act of 1940.
The Company offers tax qualified and non-tax qualified Individual
Deferred Variable Annuity Contracts through the Account. The primary
distribution for the contracts is through Massachusetts Financial
Services. Presently, the contracts are not actively marketed.
(b) The Contracts
Prior to February 12, 1979, the contracts purchased provided for a
front-end sales charge and certain other fees. Beginning February 12,
1979, only contracts (Spectrum) without a front-end sales charge but
with a contingent deferred sales charge and certain other fees were
offered for purchase. See note 2 for a discussion of contract expenses.
With certain exceptions, contract owners in either the accumulation or
payout phase may invest in any of the following funds:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
Massachusetts Investors Trust - Class A (MFSInvTr)
MFS(R) Bond Fund - Class A (MFSBdFd)
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
MFS(R) High Income Fund - Class A (MFSHiInc)
MFS(R) Research Fund - Class A (MFSRsrch)
MFS(R) Total Return Fund - Class A (MFSTotRe)
MFS(R) World Governments Fund - Class A (MFSWdGvt)
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
(managed for a fee by an affiliated investment advisor)
At December 31, 1997, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment
results of each fund, equity transactions by contract owners and
certain contract expenses (see note 2). The accompanying financial
statements include only contract owners' purchase payments pertaining
to the variable portions of their contracts and exclude any purchase
payments for fixed dollar benefits, the latter being included in the
accounts of the Company.
8
<PAGE> 8
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the closing
net asset value per share at December 31, 1997. The cost of investments
sold is determined on the specific identification basis. Investment
transactions are accounted for on the trade date (date the order to buy
or sell is executed) and dividend income is recorded on the ex-dividend
date.
(d) Federal Income Taxes
Operations of the Account form a part of, and are taxed with,
operations of the Company which is taxed as a life insurance company
under the Internal Revenue Code.
The Internal Revenue Service issued Rev. Rul. 81-225 on September 25,
1981 and IR-82-19 on February 3, 1982. The effect of Rev. Rul. 81-225
was to treat non-tax qualified contract holders, who purchased
contracts or made purchase payments after December 31, 1980, as the
owners of the underlying mutual fund shares for Federal income tax
purposes. However, for 1981, IR-82-19 did provide limited relief from
the ruling. Therefore, the Company maintained a capital gain reserve
liability, for all realized and unrealized capital gains existing on or
before December 31, 1981.
During 1982 and most of 1983, the Company continued to maintain
contract values which reflected a capital gain reserve liability for
those contracts and contract values affected by Rev. Rul. 81-225. On
December 16, 1983, the Company adjusted the affected (81-225) contract
values in order to treat the respective contract owners as the owners
of the underlying shares for Federal income tax purposes, as intended
by the ruling. As a result of this adjustment, contract owners' equity
was restored with amounts previously deducted to maintain the capital
gain reserve liability.
Because of the aforementioned, the Company no longer provides for
income taxes within the Account. Presently, taxes are the
responsibility of the contract owner upon termination or withdrawal.
(e) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles may require management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities, if
any, at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(f) Reclassifications
Certain 1996 amounts have been reclassified to conform with the current
period presentation.
9
<PAGE> 9
(2) EXPENSES
Net purchase payments received on contracts issued before February 12, 1979
represent gross contributions by the contract owners less a charge of 7.75%
by the Company to cover sales expenses.The Company does not deduct a sales
charge from purchase payments made for contracts issued beginning February
12, 1979. However, if any part of the contract value of such contracts is
surrendered the Company will, with certain exceptions, deduct from the
owner's contract value a contingent deferred sales charge equal to 5% of
the lesser of the total of all purchase payments made within 96 months
prior to the date of the request for surrender, or the amount surrendered;
no sales charges are deducted on redemptions used to purchase units in the
fixed investment options of the Company.
The following contract charges are deducted by the Company on each contract
(Non-Spectrum) issued prior to February 12, 1979: (a) a contract issue
charge of $15 assessed against the initial purchase payment and a $15
annual contract maintenance charge assessed against each contract by
surrendering units; and (b) a charge for mortality and expense risk
assessed through the daily unit value calculation equal to an annual rate
of 0.80% and 0.20%, respectively. Contract charges on contracts (Spectrum)
issued beginning February 12, 1979 include: (a) an annual contract
maintenance charge of $30 which is satisfied by surrendering units; and (b)
a charge for mortality and expense risk assessed through the daily unit
value calculation equal to an annual rate of 0.80% and 0.50%, respectively.
The following provides mortality, expense and administration charges by
contract type:
<TABLE>
<CAPTION>
TOTAL MFSMyMkt MFSGrStk MFSInvTr MFSBdFd MFSEmGro
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Spectrum.......... $ 7,145 1,774 981 390 457 -
Spectrum.............. $ 6,379,466 743,925 610,905 654,266 396,245 203,090
----------------------------------------------------------------------
Total............. $ 6,386,611 745,699 611,886 654,656 396,702 203,090
======================================================================
</TABLE>
<TABLE>
<CAPTION>
MFSGrOpp MFSHiInc MFSRsrch MFSTotRe MFSWdGvt SATMyMkt
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-Spectrum.......... $ 2,660 245 508 130 - -
Spectrum.............. $ 1,645,003 429,680 653,475 921,479 97,514 23,884
----------------------------------------------------------------------
Total............. $ 1,647,663 429,925 653,983 921,609 97,514 23,884
======================================================================
</TABLE>
(3) RELATED PARTY TRANSACTIONS
The Company performs various services on behalf of the Mutual Fund
Companies in which the Account invests and may receive fees for the
services performed. These services include, among other things, shareholder
communications, preparation, postage, fund transfer agency and various
other record keeping and customer service functions. These fees are paid to
an affiliate of the Company.
10
<PAGE> 10
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 1997,
for each series, in both the accumulation and payout phases. Due to the
nature of money market funds, an 81-225 adjustment (See note 1(d)) was not
required for either the MFS Series Trust IV - MFS(R) Money Market Fund or
the Nationwide Separate Account Trust - Money Market Fund.
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
--------- ------------ ------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
MFS Series Trust IV -
MFS(R) Money Market Fund:
Non-tax qualified ........................... 6,828 $ 36.580276 $ 249,770 4%
Tax qualified spectrum ...................... 1,143,756 31.101395 35,572,407 4%
Non-tax qualified spectrum .................. 556,766 31.123008 17,328,233 4%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified ........................... 850 138.838952 118,013 47%
Tax qualified spectrum ...................... 289,531 146.486721 42,412,447 46%
Non-tax qualified spectrum .................. 88,204 124.301472 10,963,887 46%
Non-tax qualified spectrum (81-225) ......... 4,090 135.410415 553,829 46%
Massachusetts Investors Trust - Class A:
Tax qualified ............................... 16 164.129808 2,626 30%
Non-tax qualified ........................... 289 154.878002 44,760 30%
Tax qualified spectrum ...................... 312,848 131.320106 41,083,233 30%
Non-tax qualified spectrum .................. 103,123 117.825672 12,150,537 30%
Non-tax qualified spectrum (81-225) ......... 1,827 125.178102 228,700 30%
MFS(R) Bond Fund - Class A:
Non-tax qualified ........................... 595 57.243116 34,060 9%
Tax qualified spectrum ...................... 453,678 48.946623 22,206,006 9%
Non-tax qualified spectrum .................. 147,342 48.906597 7,205,996 9%
Non-tax qualified spectrum (81-225) ......... 789 49.097863 38,738 9%
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum ...................... 385,073 40.798757 15,710,500 19%
Non-tax qualified spectrum (81-225) ......... 674 40.798757 27,498 19%
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ........................... 1,008 152.474948 153,695 22%
Tax qualified spectrum ...................... 732,936 141.368069 103,613,747 22%
Non-tax qualified spectrum .................. 172,812 120.084102 20,751,974 22%
Non-tax qualified spectrum (81-225) ......... 12,840 132.499304 1,701,291 22%
MFS(R) High Income Fund - Class A:
Non-tax qualified ........................... 358 72.045586 25,792 12%
Tax qualified spectrum ...................... 332,136 62.966234 20,913,353 11%
Non-tax qualified spectrum .................. 154,453 62.010978 9,577,782 11%
Non-tax qualified spectrum (81-225) ......... 4,996 62.966234 314,579 11%
</TABLE>
(Continued)
11
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified ............................. 390 148.464541 57,901 19%
Tax qualified spectrum ........................ 265,836 146.156474 38,853,652 19%
Non-tax qualified spectrum .................... 93,659 127.707031 11,960,913 19%
Non-tax qualified spectrum (81-225) ........... 1,318 144.450450 190,386 19%
MFS(R) Total Return Fund - Class A:
Tax qualified ................................. 131 108.143295 14,167 19%
Tax qualified spectrum ........................ 570,631 98.832664 56,396,982 19%
Non-tax qualified spectrum .................... 145,316 95.666722 13,901,905 19%
Non-tax qualified spectrum (81-225) ........... 805 97.871152 78,786 19%
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum ........................ 115,417 50.368842 5,813,421 (1)%
Non-tax qualified spectrum .................... 15,550 49.106357 763,604 (1)%
Non-tax qualified spectrum (81-225) ........... 666 50.290543 33,494 (1)%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum ........................ 41,782 23.669908 988,976 4%
Non-tax qualified spectrum .................... 26,117 23.685302 618,589 4%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified ................................. 57,958
Non-tax qualified ............................. 59,810
Tax qualified spectrum ........................ 2,494,828
Non-tax qualified spectrum .................... 1,166,344
Non-tax qualified spectrum (81-225) ........... 5,485
------------
$496,440,654
============
</TABLE>
12
<PAGE> 12
Independent Auditors' Report
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of MFS Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of MFS Variable Account as of December 31, 1997, and the
related statements of operations and changes in contract owners' equity for each
of the years in the two year period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the transfer agents of the underlying mutual funds. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MFS Variable Account as of
December 31, 1997, and the results of its operations and its changes in contract
owners' equity for each of the years in the two year period then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1998
13
<PAGE> 13
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220
Bulk Rate
U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
Nationwide (R) is a registered federal service mark of Nationwide Mutual
Insurance Company
