<PAGE> 1
[NATIONWIDE LOGO]
MFS
VARIABLE
ACCOUNT
ANNUAL REPORT
TO
CONTRACT OWNERS
DECEMBER 31, 1998
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
<PAGE> 2
[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTO OF JOSEPH J. GASPER]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to bring you the 1998 annual
report of the MFS Variable Account.
Equity markets again defied the odds in 1998 to tally a fourth straight year of
double-digit gains, as measured by the major indices. This surprise came
following the breathtaking correction during the third quarter that gave us a
broad double-digit retreat. Fixed income investments also provided respectable
returns in 1998, supported by the continued low inflationary environment and
favorable Federal Reserve actions.
The performance of the American economy continues strong into 1999. However, we
believe the persisting slump in Asia and recent difficulties in Latin America
will inevitably take their toll and dampen growth in the United States. This
moderation, we think, will be healthy for our economy and get us back to a more
sustainable growth level. We look for interest rates to continue within the
range of the recent past, and we expect inflation to remain subdued. Moreover,
we remain optimistic about long-term prospects for U.S. business activity;
holders of financial assets should continue to profit from the anticipated
favorable investment climate.
We are pleased you have chosen our Company to provide the investment products
and services to help you meet your retirement savings and financial planning
goals.
/s/ JOSEPH J. GASPER
---------------------------
Joseph J. Gasper, President
February 16, 1999
3
<PAGE> 3
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
51,380,279 shares (cost $51,380,279)................................................. $ 51,380,279
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
4,679,626 shares (cost $56,993,702).................................................. 74,452,903
Massachusetts Investors Trust - Class A (MFSInvTr)
2,808,459 shares (cost $40,873,652).................................................. 56,871,288
MFS(R) Bond Fund - Class A (MFSBdFd)
2,104,769 shares (cost $27,725,725).................................................. 27,972,374
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
361,409 shares (cost $11,801,045).................................................... 16,118,820
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
8,836,350 shares (cost $111,729,747)................................................. 140,939,788
MFS(R) High Income Fund - Class A (MFSHiInc)
5,007,676 shares (cost $26,642,197).................................................. 25,639,299
MFS(R) Research Fund - Class A (MFSRsrch)
2,116,064 shares (cost $35,565,608).................................................. 53,219,009
MFS(R) Total Return Fund - Class A (MFSTotRe)
4,328,472 shares (cost $61,515,481).................................................. 64,753,946
MFS(R) World Governments Fund - Class A (MFSWdGvt)
508,222 shares (cost $5,630,353)..................................................... 5,366,825
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,364,403 shares (cost $1,364,403)................................................... 1,364,403
-------------
Total assets...................................................................... 518,078,934
Accounts payable............................................................................... 80,197
-------------
Contract owners' equity (note 4)............................................................... $ 517,998,737
=============
</TABLE>
See accompanying notes to financial statements.
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4
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL MFSMYMKT
--------------------------------- --------------------------------
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends.............................. $ 10,369,909 11,168,972 2,582,102 2,705,836
Mortality, expense and administration
charges (note 2):
Non-Spectrum.................................. (7,274) (7,145) (2,584) (1,774)
Spectrum...................................... (6,596,560) (6,379,466) (687,836) (743,925)
-------------- -------------- -------------- --------------
Net investment activity......................... 3,766,075 4,782,361 1,891,682 1,960,137
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold............. 130,394,580 110,071,003 20,441,104 20,610,321
Cost of mutual fund shares sold................... (99,402,881) (93,780,092) (20,441,104) (20,610,321)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments........... 30,991,699 16,290,911 - -
Change in unrealized gain (loss) on investments... 18,094,682 28,874,119 - -
-------------- -------------- -------------- --------------
Net gain (loss) on investments................ 49,086,381 45,165,030 - -
-------------- -------------- -------------- --------------
Reinvested capital gains.......................... 34,176,159 35,833,931 - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations........ 87,028,615 85,781,322 1,891,682 1,960,137
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners.................................. 21,666,010 20,353,980 898,913 1,100,898
Transfers between funds............................ - - 4,471,627 415,137
Redemptions........................................ (86,101,187) (73,887,620) (9,288,873) (9,257,435)
Annuity benefits................................... (577,607) (575,900) (78,290) (93,817)
Annual contract maintenance charge (note 2)........ (219,538) (313,759) (39,671) (52,111)
Contingent deferred sales charges (note 2)......... (103,039) (110,645) (11,571) (18,363)
Adjustments to maintain reserves................... (135,171) (207,752) (51,614) (61,628)
-------------- -------------- -------------- --------------
Net equity transactions........................ (65,470,532) (54,741,696) (4,099,479) (7,967,319)
-------------- -------------- -------------- --------------
Net change in contract owners' equity................ 21,558,083 31,039,626 (2,207,797) (6,007,182)
Contract owners' equity beginning of period.......... 496,440,654 465,401,028 53,627,515 59,634,697
-------------- -------------- -------------- --------------
Contract owners' equity end of period................ $ 517,998,737 496,440,654 51,419,718 53,627,515
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
MFSGRSTK MFSINVTR
-------------------------------- ---------------------------------
1998 1997 1998 1997
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends.............................. 23,643 24,246 455,006 539,189
Mortality, expense and administration
charges (note 2):
Non-Spectrum.................................. (1,370) (981) (512) (390)
Spectrum...................................... (825,562) (610,905) (727,278) (654,266)
------------- -------------- -------------- --------------
Net investment activity......................... (803,289) (587,640) (272,784) (115,467)
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold............. 12,931,854 9,529,571 14,054,623 8,177,991
Cost of mutual fund shares sold................... (9,211,452) (9,428,903) (8,943,542) (6,155,456)
------------- -------------- -------------- --------------
Realized gain (loss) on investments........... 3,720,402 100,668 5,111,081 2,022,535
Change in unrealized gain (loss) on investments... 11,624,106 9,294,338 2,981,251 7,256,714
------------- -------------- -------------- --------------
Net gain (loss) on investments................ 15,344,508 9,395,006 8,092,332 9,279,249
------------- -------------- -------------- --------------
Reinvested capital gains.......................... 5,881,907 8,263,416 2,957,888 3,629,713
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations........ 20,423,126 17,070,782 10,777,436 12,793,495
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners.................................. 3,149,739 3,635,654 1,696,074 1,942,537
Transfers between funds............................ 6,233,843 2,687,926 (555,795) 2,765,560
Redemptions........................................ (9,503,275) (6,922,257) (8,819,189) (6,309,234)
Annuity benefits................................... (44,622) (28,863) (36,360) (29,288)
Annual contract maintenance charge (note 2)........ (17,039) (23,238) (16,463) (23,465)
Contingent deferred sales charges (note 2)......... (8,106) (7,888) (6,772) (6,896)
Adjustments to maintain reserves................... (71,184) (5,034) 241 11,801
------------- -------------- -------------- --------------
Net equity transactions..................... (260,644) (663,700) (7,738,264) (1,648,985)
------------- -------------- -------------- --------------
Net change in contract owners' equity................ 20,162,482 16,407,082 3,039,172 11,144,510
Contract owners' equity beginning of period.......... 54,292,591 37,885,509 53,834,266 42,689,756
------------- -------------- -------------- --------------
Contract owners' equity end of period................ 74,455,073 54,292,591 56,873,438 53,834,266
============= ============== ============== ==============
</TABLE>
(Continued)
5
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MFSBDFD MFSEMGRO
--------------------------------- ------------------------------
1998 1997 1998 1997
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends............................ $ 1,859,739 2,107,121 - -
Mortality, expense and administration
charges (note 2):
Non-Spectrum............................... (223) (457) - -
Spectrum................................... (373,037) (396,245) (197,843) (203,090)
-------------- -------------- ------------- -------------
Net investment activity...................... 1,486,479 1,710,419 (197,843) (203,090)
-------------- -------------- ------------- -------------
Proceeds from mutual fund shares sold........... 8,377,135 9,333,099 6,632,123 5,262,476
Cost of mutual fund shares sold................. (7,948,902) (10,135,867) (3,476,772) (2,905,959)
-------------- -------------- ------------- -------------
Realized gain (loss) on investments.......... 428,233 (802,768) 3,155,351 2,356,517
Change in unrealized gain (loss) on
investments................................ (1,155,208) 1,637,890 352,115 300,196
-------------- -------------- ------------- -------------
Net gain (loss) on investments............... (726,975) 835,122 3,507,466 2,656,713
-------------- -------------- ------------- -------------
Reinvested capital gains........................ 88,925 - 148,843 146,983
-------------- -------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations......... 848,429 2,545,541 3,458,466 2,600,606
-------------- -------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners.............................. 1,160,385 1,559,363 1,154,923 1,031,633
Transfers between funds......................... 401,769 (108,298) (431,140) (178,233)
Redemptions..................................... (4,211,550) (6,948,653) (3,810,007) (2,704,987)
Annuity benefits................................ (47,201) (60,635) (2,440) (2,476)
Annual contract maintenance charge (note 2)..... (11,467) (18,981) (8,292) (12,951)
Contingent deferred sales charges (note 2)...... (7,214) (10,920) (2,556) (2,146)
Adjustments to maintain reserves................ 1,684 (51,904) 7,905 2,834
-------------- -------------- ------------- -------------
Net equity transactions...................... (2,713,594) (5,640,028) (3,091,607) (1,866,326)
-------------- -------------- ------------- -------------
Net change in contract owners' equity.............. (1,865,165) (3,094,487) 366,859 734,280
Contract owners' equity beginning of period........ 29,838,111 32,932,598 15,752,071 15,017,791
-------------- -------------- ------------- -------------
Contract owners' equity end of period.............. 27,972,946 29,838,111 16,118,930 15,752,071
============== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
MFSGROPP MFSHIINC
--------------------------------- --------------------------------
1998 1997 1998 1997
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends............................ - - 2,551,491 2,822,103
Mortality, expense and administration
charges (note 2):
Non-Spectrum............................... (1,632) (2,660) (195) (245)
Spectrum................................... (1,730,709) (1,645,003) (385,733) (429,680)
------------- -------------- -------------- --------------
Net investment activity....................... (1,732,341) (1,647,663) 2,165,563 2,392,178
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold........... 26,360,076 18,780,010 9,322,459 11,960,059
Cost of mutual fund shares sold................. (18,002,705) (13,831,419) (8,501,775) (11,497,057)
------------- -------------- -------------- --------------
Realized gain (loss) on investments.......... 8,357,371 4,948,591 820,684 463,002
Change in unrealized gain (loss) on
investments................................ 10,467,937 5,338,318 (2,867,726) 659,402
------------- -------------- -------------- --------------
Net gain (loss) on investments............... 18,825,308 10,286,909 (2,047,042) 1,122,404
------------- -------------- -------------- --------------
Reinvested capital gains....................... 15,210,020 15,812,829 - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract owner'
equity resulting from operations........ 32,302,987 24,452,075 118,521 3,514,582
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners.............................. 7,638,546 4,422,563 1,174,207 2,014,240
Transfers between funds......................... (2,801,413) (1,615,174) (1,577,321) (1,592,252)
Redemptions..................................... (23,389,524) (16,045,965) (5,316,140) (6,332,971)
Annuity benefits................................ (151,243) (146,801) (91,832) (96,044)
Annual contract maintenance charge (note 2)..... (65,520) (88,671) (18,489) (25,213)
Contingent deferred sales charges (note 2)...... (26,490) (30,681) (5,958) (9,241)
Adjustments to maintain reserves................ 74,516 (82,131) 15,656 19,507
------------- -------------- -------------- --------------
Net equity transactions................... (18,721,128) (13,586,860) (5,819,877) (6,021,974)
------------- -------------- -------------- --------------
Net change in contract owners' equity.............. 13,581,859 10,865,215 (5,701,356) (2,507,392)
Contract owners' equity beginning of period........ 127,367,533 116,502,318 31,354,959 33,862,351
------------- -------------- -------------- --------------
Contract owners' equity end of period.............. 140,949,392 127,367,533 25,653,603 31,354,959
============= ============== ============== ==============
</TABLE>
6
<PAGE> 6
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
MFSRSRCH MFSTOTRE
----------------------------------- --------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends............................. $ - - 2,489,803 2,616,792
Mortality, expense and administration
charges (note 2):
Non-Spectrum................................ (639) (508) (119) (130)
Spectrum.................................... (682,488) (653,475) (891,862) (921,479)
-------------- -------------- -------------- --------------
Net investment activity....................... (683,127) (653,983) 1,597,822 1,695,183
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold............ 13,014,940 8,666,290 15,210,192 13,549,787
Cost of mutual fund shares sold.................. (7,349,389) (4,983,282) (11,393,719) (9,954,406)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments........... 5,665,551 3,683,008 3,816,473 3,595,381
Change in unrealized gain (loss) on 3,200,984 3,267,694 (6,519,824) 1,350,731
investments................................. -------------- -------------- -------------- --------------
8,866,535 6,950,702 (2,703,351) 4,946,112
Net gain (loss) on investments................ -------------- -------------- -------------- --------------
1,963,781 2,277,894 7,924,795 5,669,396
Reinvested capital gains......................... -------------- -------------- -------------- --------------
Net increase (decrease) in contract owners' 10,147,189 8,574,613 6,819,266 12,310,691
equity resulting from operations......... -------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners............................... 2,457,685 2,733,275 902,584 979,319
Transfers between funds.......................... (2,366,157) (25,300) (1,753,702) (1,533,328)
Redemptions...................................... (8,304,556) (6,469,698) (11,867,669) (10,543,599)
Annuity benefits................................. (53,782) (47,531) (62,970) (61,621)
Annual contract maintenance charge (note 2)...... (14,862) (22,942) (22,436) (37,178)
Contingent deferred sales charges (note 2)....... (11,114) (6,702) (19,514) (15,080)
Adjustments to maintain reserves................. 17,075 8,745 (134,203) (50,752)
-------------- -------------- -------------- --------------
Net equity transactions..................... (8,275,711) (3,830,153) (12,957,910) (11,262,239)
-------------- -------------- -------------- --------------
Net change in contract owners' equity............... 1,871,478 4,744,460 (6,138,644) 1,048,452
Contract owners' equity beginning of period......... 51,364,151 46,619,691 70,728,523 69,680,071
-------------- -------------- -------------- --------------
Contract owners' equity end of period............... 53,235,629 51,364,151 64,589,879 70,728,523
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
MFSWDGVT NSATMYMKT
--------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends............................. 331,281 260,144 76,844 93,541
Mortality, expense and administration
charges (note 2):
Non-Spectrum................................ - - - -
Spectrum.................................... (74,693) (97,514) (19,519) (23,884)
------------- -------------- -------------- --------------
Net investment activity........................ 256,588 162,630 57,325 69,657
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold............ 3,720,395 2,902,749 329,679 1,298,650
Cost of mutual fund shares sold.................. (3,803,842) (2,978,772) (329,679) (1,298,650)
------------- -------------- -------------- --------------
Realized gain (loss) on investments........... (83,447) (76,023) - -
Change in unrealized gain (loss) on
investments................................. 11,047 (231,164) - -
------------- -------------- -------------- --------------
Net gain (loss) on investments................ (72,400) (307,187) - -
------------- -------------- --------------- ---------------
Reinvested capital gains......................... - 33,700 - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners' 184,188 (110,857) 57,325 69,657
equity resulting from operations........ ------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners............................... 1,419,862 860,719 13,092 73,779
Transfers between funds.......................... (1,619,685) (784,407) (2,026) (31,631)
Redemptions...................................... (1,282,444) (1,841,069) (307,960) (511,752)
Annuity benefits................................. (8,867) (8,824) - -
Annual contract maintenance charge (note 2)...... (3,409) (6,389) (1,890) (2,620)
Contingent deferred sales charges (note 2)....... (1,880) (2,323) (1,864) (405)
Adjustments to maintain reserves................. 4,802 913 (49) (103)
------------- -------------- -------------- --------------
Net equity transactions.................... (1,491,621) (1,781,380) (300,697) (472,732)
------------- -------------- -------------- --------------
Net change in contract owners' equity............... (1,307,433) (1,892,237) (243,372) (403,075)
Contract owners' equity beginning of period......... 6,673,369 8,565,606 1,607,565 2,010,640
------------- -------------- -------------- --------------
Contract owners' equity end of period............... 5,365,936 6,673,369 1,364,193 1,607,565
============= ============== ============== ==============
</TABLE>
7
<PAGE> 7
- -------------------------------------------------------------------------------
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(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, 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.
A contract owner may choose from among a number of different underlying
mutual fund options. The underlying mutual fund options are not
available to the general public directly. The underlying mutual funds
are available as investment options in variable life insurance policies
or variable annuity contracts issued by life insurance companies or, in
some cases, through participation in certain qualified pension or
retirement plans.
8
<PAGE> 8
Some of the underlying mutual funds have been established by investment
advisers which manage publicly traded mutual funds having similar names
and investment objectives. While some of the underlying mutual funds
may be similar to, and may in fact be modeled after, publicly traded
mutual funds, the underlying mutual funds are not otherwise directly
related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any
corresponding underlying mutual funds may differ substantially.
(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, 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.
(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.
9
<PAGE> 9
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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(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 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>
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 ......................... 6,827 $38.008785 $ 259,486 4%
Tax qualified spectrum .................... 1,006,298 32.218020 32,420,929 4%
Non-tax qualified spectrum ................ 568,052 32.240409 18,314,229 4%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified ......................... 825 192.429178 158,754 39%
Tax qualified spectrum .................... 280,157 202.414393 56,707,809 38%
Non-tax qualified spectrum ................ 95,701 171.758959 16,437,504 38%
Non-tax qualified spectrum (81-225) ....... 3,999 187.109241 748,250 38%
Massachusetts Investors Trust - Class A:
Non-tax qualified ......................... 289 188.520679 54,482 22%
Tax qualified spectrum .................... 278,446 159.361559 44,373,589 21%
Non-tax qualified spectrum ................ 83,119 142.985600 11,884,820 21%
Non-tax qualified spectrum (81-225) ....... 1,004 151.908034 152,516 21%
MFS(R) Bond Fund - Class A:
Non-tax qualified ......................... 342 59.205904 20,248 3%
Tax qualified spectrum .................... 402,734 50.471558 20,326,612 3%
Non-tax qualified spectrum ................ 144,138 50.430297 7,268,922 3%
Non-tax qualified spectrum (81-225) ....... 786 50.627514 39,793 3%
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum .................... 320,469 50.131190 16,065,492 23%
Non-tax qualified spectrum (81-225) ....... 779 50.131190 39,052 23%
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ......................... 830 194.984157 161,837 28%
Tax qualified spectrum .................... 633,469 180.233377 114,172,257 27%
Non-tax qualified spectrum ................ 152,136 153.097965 23,291,712 27%
Non-tax qualified spectrum (81-225) ....... 11,929 168.926385 2,015,123 27%
MFS(R) High Income Fund - Class A:
Non-tax qualified ......................... 217 72.060325 15,637 0%
Tax qualified spectrum .................... 279,479 62.788270 17,548,003 0%
Non-tax qualified spectrum ................ 119,105 61.835712 7,364,942 0%
Non-tax qualified spectrum (81-225) ....... 4,449 62.788270 279,345 0%
</TABLE>
(Continued)
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<PAGE> 11
<TABLE>
<CAPTION>
ANNUAL
Contract owners' equity represented by: UNITS UNIT VALUE RETURN*
-------- ----------- -------
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified ......................... 390 180.672640 70,462 22%
Tax qualified spectrum .................... 225,728 177.325237 40,027,271 21%
Non-tax qualified spectrum ................ 81,260 154.941343 12,590,534 21%
Non-tax qualified spectrum (81-225) ....... 1,280 175.255390 224,327 21%
MFS(R) Total Return Fund - Class A:
Non-tax qualified ......................... 146 117.432831 17,145 11%
Tax qualified spectrum .................... 465,417 108.882919 50,675,962 10%
Non-tax qualified spectrum ................ 127,066 105.395033 13,392,125 10%
Non-tax qualified spectrum (81-225) ....... 1,118 107.823630 120,547 10%
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum .................... 85,861 51.773614 4,445,334 3%
Non-tax qualified spectrum ................ 16,423 50.475906 828,966 3%
Non-tax qualified spectrum (81-225) ....... 709 51.693122 36,650 3%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum .................... 32,830 24.593912 807,418 4%
Non-tax qualified spectrum ................ 22,624 24.609906 556,775 4%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified ............................. 65,104
Non-tax qualified ......................... 41,989
Tax qualified spectrum .................... 2,737,591
Non-tax qualified spectrum ................ 1,239,194
------------
$517,998,737
============
</TABLE>
* The annual return does not include contract charges satisfied by surrendering
units.
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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, 1998, 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, 1998, 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, 1998, 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 LLP
Columbus, Ohio
February 5, 1999
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<TABLE>
<S> <C>
NATIONWIDE LIFE INSURANCE COMPANY ----------------
HOME OFFICE: ONE NATIONWIDE PLAZA o COLUMBUS, OHIO 43215-2220 | Bulk Rate |
| U.S. Postage|
| P A I D |
|Columbus, Ohio|
|Permit No. 521|
----------------
Nationwide(R) is a registered federal service mark of Nationwide Mutual Insurance Company
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