<PAGE> 1
[NATIONWIDE LOGO]
MFS
VARIABLE
ACCOUNT
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 1998
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-719-Y (6/98)
<PAGE> 2
[NATIONWIDE 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 present the 1998
semi-annual report of the MFS Variable Account.
The bull market continued its run in the first half of 1998. Most of the gains
came in the first quarter with more modest returns or small losses for the
second half of the period. At this writing, a market correction that began in
the second quarter continues to provide a good deal of day-to-day volatility.
Much of the capriciousness of the market is due to uncertainty about the
economic outcome in Asia. However, we think the correction will be of limited
magnitude and duration and will provide a healthy respite before further market
advances.
We believe that existing economic and market fundamentals provide an ongoing
favorable environment for financial assets. Interest rates remain low; inflation
is nearly nonexistent; corporate earnings, albeit slowing, remain positive, and
U.S. economic growth appears to be on a modest but sustainable track.
Against this backdrop, we believe our variable insurance products continue to
provide the versatile investment vehicle you need to respond to changing market
conditions. We are committed to the continual evaluation of our products and
services to ensure that we remain responsive to your long-term financial
planning and retirement-savings needs.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
August 17, 1998
2
<PAGE> 3
<TABLE>
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1998
(UNAUDITED)
<S> <C>
ASSETS:
Investments at market value:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
52,975,552 shares (cost $52,975,552) .............................................................. $ 52,975,552
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
4,368,283 shares (cost $49,618,643) ............................................................... 67,315,246
Massachusetts Investors Trust - Class A (MFSInvTr)
2,871,585 shares (cost $39,274,597) ............................................................... 57,718,864
MFS(R) Bond Fund - Class A (MFSBdFd)
2,078,517 shares (cost $27,003,250) ............................................................... 28,330,188
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
367,481 shares (cost $11,357,316) ................................................................. 15,717,178
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
8,539,720 shares (cost $103,711,918) .............................................................. 141,588,554
MFS(R) High Income Fund - Class A (MFSHiInc)
5,461,343 shares (cost $28,848,740) ............................................................... 30,692,745
MFS(R) Research Fund - Class A (MFSRsrch)
2,226,485 shares (cost $35,571,734) ............................................................... 56,196,478
MFS(R) Total Return Fund - Class A (MFSTotRe)
4,110,247 shares (cost $57,107,258) ............................................................... 69,339,859
MFS(R) World Governments Fund - Class A (MFSWdGvt)
497,268 shares (cost $5,556,962) .................................................................. 5,534,595
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,515,951 shares (cost $1,515,951) ................................................................ 1,515,951
----------
Total investments .............................................................................. 526,925,210
Accounts receivable ..................................................................................... 162,806
----------
Total assets ................................................................................... 527,088,016
ACCOUNTS PAYABLE ........................................................................................... -
----------
CONTRACT OWNERS' EQUITY (NOTE 4) ........................................................................... $ 527,088,016
==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
TOTAL MFSMyMkt
---------------------------- ------------------------------
1998 1997 1998 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ 5,105,729 $5,495,980 1,320,092 1,326,824
Mortality, expense and administration
charges (note 2):
Non-Spectrum ...................... (3,670) (3,396) (1,256) (1,400)
Spectrum .......................... (3,380,483) (3,060,443) (341,861) (381,069)
-------------- -------------- -------------- --------------
Net investment activity.............. 1,721,576 2,432,141 976,975 944,355
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 65,575,253 54,421,707 9,257,236 10,438,068
Cost of mutual fund shares sold........ (49,144,846) (49,160,548) (9,257,236) (10,438,068)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 16,430,407 5,261,159 - -
Change in unrealized gain (loss) on 46,487,977 43,131,486 - -
investments ......................... -------------- -------------- -------------- --------------
62,918,384 48,392,645 - -
Net gain (loss) on investments....... -------------- -------------- -------------- --------------
2,187,191 - - -
Reinvested capital gains............... -------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations. .................... 66,827,151 50,824,786 976,975 944,355
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners...................... 10,981,670 9,408,221 516,288 564,191
Transfers between funds................ - - 2,941,133 2,445,563
Redemptions............................ (45,829,640) (33,832,527) (4,921,374) (5,186,982)
Annuity benefits....................... (284,986) (270,143) (39,239) (44,347)
Annual contract maintenance charge (note 2) (122,609) (204,028) (23,036) (33,069)
Contingent deferred sales charges (note 2) (49,867) (56,880) (6,907) (11,579)
Adjustments to maintain reserves....... (874,357) (57,136) (60,555) (5,003)
-------------- -------------- -------------- --------------
Net equity transactions............ (36,179,789) (25,012,493) (1,593,690) (2,271,226)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... 30,647,362 25,812,293 (616,715) (1,326,871)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 496,440,654 465,401,028 53,627,515 59,634,697
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 527,088,016 491,213,321 53,010,800 58,307,826
============== ============== ============== ==============
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
MFSGrStk MFSinvTr
------------------------------ ------------------------------
1998 1997 1998 1997
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ - - 236,648 274,013
Mortality, expense and administration
charges (note 2):
Non-Spectrum ...................... (668) (440) (258) (209)
Spectrum .......................... (405,450) (266,929) (372,508) (302,199)
------------- -------------- -------------- --------------
Net investment activity.............. (406,118) (267,369) (136,118) (28,395)
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 5,415,916 4,969,313 7,082,665 3,290,916
Cost of mutual fund shares sold........ (4,102,311) (5,749,851) (4,663,000) (2,801,124)
------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 1,313,605 (780,538) 2,419,665 489,792
Change in unrealized gain (loss) on
investments ......................... 11,861,506 10,413,226 5,569,931 7,306,130
------------- -------------- -------------- --------------
Net gain (loss) on investments....... 13,175,111 9,632,688 7,989,596 7,795,922
------------- -------------- -------------- --------------
Reinvested capital gains............... - - 623,892 -
------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations. .................... 12,768,993 9,365,319 8,477,370 7,767,527
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners...................... 1,576,502 2,366,384 506,130 1,047,398
Transfers between funds................ 3,119,448 (73,451) (364,850) 2,106,773
Redemptions............................ (4,410,564) (3,427,388) (4,508,508) (2,365,836)
Annuity benefits....................... (21,173) (12,959) (16,938) (13,987)
Annual contract maintenance charge (note 2) (7,994) (14,529) (8,439) (14,415)
Contingent deferred sales charges (note 2) (2,628) (4,310) (2,347) (3,891)
Adjustments to maintain reserves....... (1,695) (7,607) (82,348) 21,422
------------- -------------- -------------- --------------
Net equity transactions............ 251,896 (1,173,860) (4,477,300) 777,464
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... 13,020,889 8,191,459 4,000,070 8,544,991
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 54,292,591 37,885,509 53,834,266 42,689,756
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 67,313,480 46,076,968 57,834,336 51,234,747
============= ============== ============== ==============
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
MFSBdFd MFSemGro
----------------------------- ------------------------------
1998 1997 1998 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ 934,958 1,081,627 - -
Mortality, expense and administration
charges (note 2):
Non-Spectrum ...................... (122) (131) - -
Spectrum .......................... (186,430) (200,365) (104,907) (94,362)
-------------- -------------- -------------- --------------
Net investment activity.............. 748,406 881,131 (104,907) (94,362)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 4,010,742 5,552,270 4,681,229 2,916,916
Cost of mutual fund shares sold........ (3,922,434) (6,140,881) (2,272,202) (1,694,458)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 88,308 (588,611) 2,409,027 1,222,458
Change in unrealized gain (loss) on (74,920) 602,832 394,201 548,844
investments ......................... -------------- -------------- -------------- --------------
13,388 14,221 2,803,228 1,771,302
Net gain (loss) on investments....... -------------- -------------- -------------- --------------
- - - -
Reinvested capital gains............... -------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations. .................... 761,794 895,352 2,698,321 1,676,940
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners...................... 303,596 569,060 687,957 559,764
Transfers between funds................ (461,251) (914,867) (778,450) (970,878)
Redemptions............................ (2,077,516) (3,811,306) (2,643,050) (1,333,744)
Annuity benefits....................... (24,810) (32,886) (412) (326)
Annual contract maintenance charge (note 2) (5,869) (12,173) (5,939) (9,852)
Contingent deferred sales charges (note 2) (4,034) (6,011) (1,117) (1,286)
Adjustments to maintain reserves....... (7,789) 9,952 7,828 216
-------------- -------------- -------------- --------------
Net equity transactions............ (2,277,673) (4,198,231) (2,733,183) (1,756,106)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... (1,515,879) (3,302,879) (34,862) (79,166)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 29,838,111 32,932,598 15,752,071 15,017,791
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 28,322,232 29,629,719 15,717,209 14,938,625
============== ============== ============== ==============
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
MFSGrOpp MFSHIinc
----------------------------- ------------------------------
1998 1997 1998 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ - - 1,311,994 1,441,096
Mortality, expense and administration
charges (note 2):
Non-Spectrum ...................... (859) (748) (114) (118)
Spectrum .......................... (893,967) (778,568) (206,002) (213,985)
------------- -------------- -------------- --------------
Net investment activity.............. (894,826) (779,316) 1,105,878 1,226,993
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 14,070,086 7,993,824 3,947,624 5,727,698
Cost of mutual fund shares sold........ (9,526,021) (6,168,106) (3,409,485) (5,792,526)
------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 4,544,065 1,825,718 538,139 (64,828)
Change in unrealized gain (loss) on
investments ......................... 19,859,236 15,483,334 (20,824) 471,254
------------- -------------- -------------- --------------
Net gain (loss) on investments....... 24,403,301 17,309,052 517,315 406,426
------------- -------------- -------------- --------------
Reinvested capital gains............... 1,563,299 - - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from 25,071,774 16,529,736 1,623,193 1,633,419
operations. .................... ------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from 4,450,471 1,506,627 193,892 471,100
contract owners...................... (1,284,838) (1,215,346) (222,922) (462,162)
Transfers between funds................ (13,141,803) (5,986,808) (2,195,837) (2,327,646)
Redemptions............................ (73,232) (63,777) (48,090) (47,019)
Annuity benefits....................... (39,015) (59,261) (11,252) (17,126)
Annual contract maintenance charge (note 2) (13,655) (12,301) (2,596) (3,074)
Contingent deferred sales charges (note 2) (747,105) (93,595) 5,896 9,530
Adjustments to maintain reserves....... ------------- -------------- -------------- --------------
(10,849,177) (5,924,461) (2,280,909) (2,376,397)
Net equity transactions............ ------------- -------------- -------------- --------------
14,222,597 10,605,275 (657,716) (742,978)
NET CHANGE IN CONTRACT OWNERS' EQUITY.... 127,367,533 116,502,318 31,354,959 33,862,351
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ------------- -------------- -------------- --------------
141,590,130 127,107,593 30,697,243 33,119,373
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ ============= ============== ============== ==============
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
MFSRsrch MFSTotRe
------------------------------ ------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ - - 1,260,789 1,324,616
Mortality, expense and administration
charges (note 2):
Non-Spectrum ...................... (320) (279) (73) (71)
Spectrum .......................... (354,261) (309,148) (464,563) (450,732)
-------------- -------------- -------------- --------------
Net investment activity.............. (354,581) (309,427) 796,153 873,813
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 6,973,698 4,049,396 7,998,318 6,704,161
Cost of mutual fund shares sold........ (3,934,121) (2,472,165) (5,848,154) (5,092,647)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 3,039,577 1,577,231 2,150,164 1,611,514
Change in unrealized gain (loss) on
investments ......................... 6,172,327 4,313,694 2,474,312 4,170,264
-------------- -------------- -------------- --------------
Net gain (loss) on investments....... 9,211,904 5,890,925 4,624,476 5,781,778
-------------- -------------- -------------- --------------
Reinvested capital gains............... - - - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations. .................... 8,857,323 5,581,498 5,420,629 6,655,591
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners...................... 1,545,450 942,143 550,291 523,149
Transfers between funds................ (1,096,149) 237,926 (579,499) (780,736)
Redemptions............................ (4,436,250) (2,835,221) (6,731,389) (5,084,767)
Annuity benefits....................... (27,322) (22,394) (29,842) (28,622)
Annual contract maintenance charge (note 2) (6,322) (14,006) (11,726) (23,862)
Contingent deferred sales charges (note 2) (4,858) (4,557) (10,023) (7,990)
Adjustments to maintain reserves....... 11,709 6,785 8,444 710
-------------- -------------- -------------- --------------
Net equity transactions............ (4,013,742) (1,689,324) (6,803,744) (5,402,118)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... 4,843,581 3,892,174 (1,383,115) 1,253,473
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 51,364,151 46,619,691 70,728,523 69,680,071
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 56,207,732 50,511,865 69,345,408 70,933,544
============== ============== ============== ==============
<CAPTION>
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
MFSWdGvt NSATMyMkt
------------------------------ ------------------------------
1998 1997 1998 1997
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ - - 41,248 47,804
Mortality, expense and administration
charges (note 2):
Non-Spectrum ...................... - - - -
Spectrum .......................... (40,207) (50,731) (10,327) (12,355)
------------- -------------- -------------- --------------
Net investment activity.............. (40,207) (50,731) 30,921 35,449
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 2,000,096 1,808,023 137,643 971,122
Cost of mutual fund shares sold........ (2,072,239) (1,839,600) (137,643) (971,122)
------------- -------------- -------------- --------------
Realized gain (loss) on investments.. (72,143) (31,577) - -
Change in unrealized gain (loss) on
investments ......................... 252,208 (178,092) - -
------------- -------------- -------------- --------------
Net gain (loss) on investments....... 180,065 (209,669) - -
------------- -------------- -------------- --------------
Reinvested capital gains............... - - - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations. .................... 139,858 (260,400) 30,921 35,449
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners...................... 643,257 798,882 7,836 59,523
Transfers between funds................ (1,272,622) (379,615) - 6,793
Redemptions............................ (634,256) (1,242,568) (129,093) (230,261)
Annuity benefits....................... (3,928) (3,826) - -
Annual contract maintenance charge (note 2) (1,961) (4,151) (1,056) (1,584)
Contingent deferred sales charges (note 2) (1,409) (1,476) (293) (405)
Adjustments to maintain reserves....... (8,733) 473 (9) (19)
------------- -------------- -------------- --------------
Net equity transactions............ (1,279,652) (832,281) (122,615) (165,953)
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... (1,139,794) (1,092,681) (91,694) (130,504)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 6,673,369 8,565,606 1,607,565 2,010,640
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 5,533,575 7,472,925 1,515,871 1,880,136
============= ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
(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 June 30, 1998, 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.
7
<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 June 30, 1998. 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.
8
<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.
(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.
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<PAGE> 10
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at June 30, 1998, 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>
PERIOD
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 6,827 $ 37.297790 $ 254,632 2%
Tax qualified spectrum 1,079,003 31.663754 34,165,286 2%
Non-tax qualified spectrum 572,420 31.685757 18,137,561 2%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified 850 171.407592 145,696 23%
Tax qualified spectrum 289,537 180.577664 52,283,915 23%
Non-tax qualified spectrum 90,271 153.229372 13,832,169 23%
Non-tax qualified spectrum (81-225) 4,021 166.923646 671,200 23%
Massachusetts Investors Trust - Class A:
Tax qualified 16 190.093495 3,041 16%
Non-tax qualified 289 179.378145 51,840 16%
Tax qualified spectrum 292,698 151.865113 44,450,615 16%
Non-tax qualified spectrum 93,660 136.259480 12,762,063 16%
Non-tax qualified spectrum (81-225) 1,447 144.762198 209,471 16%
MFS(R) Bond Fund - Class A:
Non-tax qualified 343 58.880491 20,196 3%
Tax qualified spectrum 409,064 50.270990 20,564,052 3%
Non-tax qualified spectrum 146,691 50.229885 7,368,272 3%
Non-tax qualified spectrum (81-225) 788 50.426324 39,736 3%
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum 326,884 47.918186 15,663,688 17%
Non-tax qualified spectrum (81-225) 781 47.918186 37,424 17%
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified 1,008 182.646892 184,108 20%
Tax qualified spectrum 680,022 169.087700 114,983,356 20%
Non-tax qualified spectrum 161,187 143.630348 23,151,345 20%
Non-tax qualified spectrum (81-225) 12,382 158.479933 1,962,299 20%
MFS(R) High Income Fund - Class A:
Non-tax qualified 231 75.924052 17,538 5%
Tax qualified spectrum 310,784 66.256138 20,591,348 5%
Non-tax qualified spectrum 141,767 65.250968 9,250,434 5%
Non-tax qualified spectrum (81-225) 4,994 66.256138 330,883 5%
</TABLE>
10
<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified 390 175.135301 68,303 18%
Tax qualified spectrum 242,877 172.153516 41,812,130 18%
Non-tax qualified spectrum 91,555 150.422448 13,771,927 18%
Non-tax qualified spectrum (81-225) 1,285 170.144034 218,635 18%
MFS(R) Total Return Fund - Class A:
Tax qualified 131 116.779750 15,298 8%
Tax qualified spectrum 514,706 106.565063 54,849,677 8%
Non-tax qualified spectrum 135,685 103.151426 13,996,101 8%
Non-tax qualified spectrum (81-225) 848 105.528324 89,488 8%
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum 94,505 51.381897 4,855,846 2%
Non-tax qualified spectrum 11,827 50.094013 592,462 2%
Non-tax qualified spectrum (81-225) 507 51.302017 26,010 2%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum 37,952 24.133783 915,925 2%
Non-tax qualified spectrum 24,843 24.149479 599,946 2%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified 65,443
Non-tax qualified 53,562
Tax qualified spectrum 2,774,284
Non-tax qualified spectrum 1,245,322
Non-tax qualified spectrum (81-225) 5,489
-----------
$ 527,088,016
===========
</TABLE>
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NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
----------------
Bulk Rate
U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
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