<PAGE> 1
[NATIONWIDE (R) LOGO]
MFS
VARIABLE
ACCOUNT
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 1999
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
<PAGE> 2
[LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PICTURE]
PRESIDENT'S MESSAGE
On behalf of Nationwide Life Insurance Company, we are pleased to present the
1999 semi-annual report of the MFS Variable Account.
Equity investments performed well during the first half of 1999 with the major
market indices showing double-digit gains. Fixed income investments did not fare
as well during this period in the face of the Federal Reserve's inflation
cautiousness. The Fed is mindful of the resilient U.S. economy and the
increasingly tight labor pool that portends future wage inflation. Accordingly,
we have seen a ratcheting-up of short-term interest rates to dampen the momentum
of the current expansion. How aggressively the Fed may react to the perceived
inflation threat only adds uncertainty to the already jittery equity markets.
Over the long term, however, a slower but sustainable rate of growth, with low
inflation, provides a favorable environment for further advances in financial
assets.
At mid-year, we are pleased to report that all the mission-critical systems used
to service our variable annuity and variable life business have been internally
inventoried, assessed and tested as being Year 2000 compliant. We are currently
contacting our critical business partners to determine if they will be Year 2000
compliant. Contingency plans are being developed and are to be completed by the
end of the third quarter. All these steps are being taken to assure that
Nationwide Financial will be able to continue to serve your financial needs into
the Year 2000 and beyond.
Thank you for selecting Nationwide Financial to help you achieve your financial
planning and retirement savings goals. You have our commitment to provide the
consistent, high quality service you expect and deserve.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
August 19, 1999
2
<PAGE> 3
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MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
47,531,138 shares (cost $47,531,138) ............................................................... $ 47,531,138
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
4,830,429 shares (cost $61,419,608) ................................................................ 86,223,154
Massachusetts Investors Trust - Class A (MFSInvTr)
2,653,908 shares (cost $40,283,425) ................................................................ 56,395,546
MFS(R) Bond Fund - Class A (MFSBdFd)
1,948,444 shares (cost $25,855,121) ................................................................ 24,647,815
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
305,306 shares (cost $11,070,962) .................................................................. 15,320,261
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
8,236,402 shares (cost $106,280,094) ............................................................... 138,783,375
MFS(R) High Income Fund - Class A (MFSHiInc)
4,719,856 shares (cost $25,160,333) ................................................................ 24,307,257
MFS(R) Research Fund - Class A (MFSRsrch)
1,911,134 shares (cost $33,701,472) ................................................................ 52,384,175
MFS(R) Total Return Fund - Class A (MFSTotRe)
3,968,348 shares (cost $57,232,940) ................................................................ 61,033,186
MFS(R) World Governments Fund - Class A (MFSWdGvt)
401,911 shares (cost $4,396,886) ................................................................... 4,103,511
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,146,998 shares (cost $1,146,999) ................................................................. 1,146,998
-------------
Total receivable ................................................................................ 511,876,416
Accounts receivable ...................................................................................... 677
-------------
Total assets .................................................................................... 511,877,093
ACCOUNTS PAYABLE ............................................................................................ 141,864
-------------
CONTRACT OWNERS' EQUITY (NOTE 4) ............................................................................ $ 511,735,229
=============
</TABLE>
See accompanying notes to financial statements.
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3
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL MFSMYMKT
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 4,315,070 5,105,729 1,048,718 1,320,092
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (3,676) (3,670) (1,303) (1,256)
Spectrum .................................. (3,302,093) (3,380,483) (322,332) (341,861)
------------- ------------- ------------- -------------
Net investment activity ..................... 1,009,302 1,721,576 725,083 976,975
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 67,067,359 65,575,253 12,405,882 9,257,236
Cost of mutual fund shares sold ............... (51,979,330) (49,144,846) (12,405,882) (9,257,236)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 15,088,029 16,430,407 -- --
Change in unrealized gain (loss) on investments 10,940,695 46,487,977 -- --
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 26,028,724 62,918,384 -- --
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 3,743,232 2,187,191 -- --
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 30,781,258 66,827,151 725,083 976,975
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 7,551,348 10,981,670 297,032 516,288
Transfers between funds ....................... -- -- 1,056,808 2,941,133
Redemptions ................................... (43,975,196) (45,829,640) (5,849,347) (4,921,374)
Annuity benefits .............................. (313,000) (284,986) (37,593) (39,239)
Annual contract maintenance charge (note 2) ... (155,448) (122,609) (22,812) (23,036)
Contingent deferred sales charges (note 2) .... (90,654) (49,867) (18,148) (6,907)
Adjustments to maintain reserves .............. (61,814) (874,357) (18,053) (60,555)
------------- ------------- ------------- -------------
Net equity transactions ................... (37,044,766) (36,179,789) (4,592,113) (1,593,690)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (6,263,508) 30,647,362 (3,867,030) (616,715)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 517,998,737 496,440,654 51,419,718 53,627,515
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 511,735,229 527,088,016 47,552,688 53,010,800
============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
MFSGRSTK MFSINVTR
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... -- -- 128,196 236,648
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (668) (668) (274) (258)
Spectrum .................................. (518,754) (405,450) (363,061) (372,508)
------------- ------------- ------------- -------------
Net investment activity ..................... (519,422) (406,118) (235,139) (136,118)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 6,090,844 5,415,916 5,422,064 7,082,665
Cost of mutual fund shares sold ............... (4,160,470) (4,102,311) (2,890,135) (4,663,000)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 1,930,374 1,313,605 2,531,929 2,419,665
Change in unrealized gain (loss) on investments 7,344,345 11,861,506 114,485 5,569,931
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 9,274,719 13,175,111 2,646,414 7,989,596
------------- ------------- ------------- -------------
Reinvested capital gains ...................... -- -- 275,455 623,892
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 8,755,297 12,768,993 2,686,730 8,477,370
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,907,617 1,576,502 749,541 506,130
Transfers between funds ....................... 5,851,965 3,119,448 708,386 (364,850)
Redemptions ................................... (4,690,213) (4,410,564) (4,579,448) (4,508,508)
Annuity benefits .............................. (28,099) (21,173) (21,789) (16,938)
Annual contract maintenance charge (note 2) ... (16,727) (7,994) (12,677) (8,439)
Contingent deferred sales charges (note 2) .... (10,560) (2,628) (11,006) (2,347)
Adjustments to maintain reserves .............. 1,680 (1,695) 5,708 (82,348)
------------- ------------- ------------- -------------
Net equity transactions ................... 3,015,663 251,896 (3,161,285) (4,477,300)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 11,770,960 13,020,889 (474,555) 4,000,070
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 74,455,073 54,292,591 56,873,438 53,834,266
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... 86,226,033 67,313,480 56,398,883 57,834,336
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
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4
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MFSBDFD MFSEMGRO
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 868,059 934,958 -- --
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (87) (122) -- --
Spectrum .................................. (170,821) (186,430) (96,792) (104,907)
------------ ------------ ------------ ------------
Net investment activity ..................... 697,151 748,406 (96,792) (104,907)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 3,224,456 4,010,742 4,706,142 4,681,229
Cost of mutual fund shares sold ............... (3,065,748) (3,922,434) (2,911,384) (2,272,202)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 158,708 88,308 1,794,758 2,409,027
Change in unrealized gain (loss) on investments (1,453,955) (74,920) (68,475) 394,201
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. (1,295,247) 13,388 1,726,283 2,803,228
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (598,096) 761,794 1,629,491 2,698,321
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 334,877 303,596 812,074 687,957
Transfers between funds ....................... (518,896) (461,251) (1,235,348) (778,450)
Redemptions ................................... (2,493,236) (2,077,516) (1,992,276) (2,643,050)
Annuity benefits .............................. (36,145) (24,810) (440) (412)
Annual contract maintenance charge (note 2) ... (8,148) (5,869) (6,572) (5,939)
Contingent deferred sales charges (note 2) .... (5,031) (4,034) (5,487) (1,117)
Adjustments to maintain reserves .............. (18,593) (7,789) 217 7,828
------------ ------------ ------------ ------------
Net equity transactions ................... (2,745,172) (2,277,673) (2,427,832) (2,733,183)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (3,343,268) (1,515,879) (798,341) (34,862)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 27,972,946 29,838,111 16,118,930 15,752,071
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 24,629,678 28,322,232 15,320,589 15,717,209
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MFSGROPP MFSHIINC
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... -- -- 1,174,007 1,311,994
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (820) (859) (81) (114)
Spectrum .................................. (889,923) (893,967) (166,545) (206,002)
------------ ------------ ------------ ------------
Net investment activity ..................... (890,744) (894,826) 1,007,381 1,105,878
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 14,900,767 14,070,086 4,546,507 3,947,624
Cost of mutual fund shares sold ............... (10,635,542) (9,526,021) (4,510,242) (3,409,485)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 4,265,225 4,544,065 36,265 538,139
Change in unrealized gain (loss) on investments 3,293,240 19,859,236 149,822 (20,824)
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. 7,558,465 24,403,301 186,087 517,315
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 3,467,777 1,563,299 -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 10,135,498 25,071,774 1,193,468 1,623,193
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 2,134,355 4,450,471 267,023 193,892
Transfers between funds ....................... (2,140,449) (1,284,838) (495,582) (222,922)
Redemptions ................................... (12,143,690) (13,141,803) (2,236,551) (2,195,837)
Annuity benefits .............................. (75,700) (73,232) (44,447) (48,090)
Annual contract maintenance charge (note 2) ... (47,152) (39,015) (10,996) (11,252)
Contingent deferred sales charges (note 2) .... (16,598) (13,655) (4,921) (2,596)
Adjustments to maintain reserves .............. (47,697) (747,105) 5,672 5,896
------------ ------------ ------------ ------------
Net equity transactions ................... (12,336,932) (10,849,177) (2,519,802) (2,280,909)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (2,201,434) 14,222,597 (1,326,334) (657,716)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 140,949,392 127,367,533 25,653,603 31,354,959
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... 138,747,958 141,590,130 24,327,269 30,697,243
============ ============ ============ ============
</TABLE>
(Continued)
5
<PAGE> 6
MFS VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS AND CHANGES
IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MFSRSRCH MFSTOTRE
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ -- -- 1,066,953 1,260,789
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (357) (320) (86) (73)
Spectrum .................................. (334,602) (354,261) (402,211) (464,563)
------------ ------------ ------------ ------------
Net investment activity ..................... (334,959) (354,581) 664,656 796,153
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 7,095,706 6,973,698 7,098,655 7,998,318
Cost of mutal fund shares sold ................ (3,712,019) (3,934,121) (5,995,623) (5,848,154)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 3,383,687 3,039,577 1,103,032 2,150,164
Change in unrealized gain (loss) on investments 1,029,302 6,172,327 561,780 2,474,312
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. 4,412,989 9,211,904 1,664,812 4,624,476
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 4,078,030 8,857,323 2,329,468 5,420,629
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 530,322 1,545,450 487,137 550,291
Transfers between funds ....................... (1,841,896) (1,096,149) (954,440) (579,499)
Redemptions ................................... (3,561,028) (4,436,250) (5,511,250) (6,731,389)
Annuity benefits .............................. (25,357) (27,322) (39,669) (29,842)
Annual contract maintenance charge (note 2) ... (10,686) (6,322) (16,702) (11,726)
Contingent deferred sales charges (note 2) .... (4,716) (4,858) (12,066) (10,023)
Adjustments to maintain reserves .............. 15,127 11,709 (6,553) 8,444
------------ ------------ ------------ ------------
Net equity transactions ................... (4,898,234) (4,013,742) (6,053,543) (6,803,744)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (820,204) 4,843,581 (3,724,075) (1,383,115)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 53,235,629 51,364,151 64,589,879 70,728,523
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 52,415,425 56,207,732 60,865,804 69,345,408
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MFSWDGVT NSATMYMKT
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... -- -- 29,137 41,248
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. -- -- -- --
Spectrum .................................. (28,744) (40,207) (8,306) (10,327)
------------ ------------ ------------ ------------
Net investment activity ..................... (28,744) (40,207) 20,831 30,921
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 1,313,797 2,000,096 262,539 137,643
Cost of mutal fund shares sold ................ (1,429,746) (2,072,239) (262,539) (137,643)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... (115,949) (72,143) -- --
Change in unrealized gain (loss) on investments (29,848) 252,208 (1) --
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. (145,797) 180,065 (1) --
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (174,541) 139,858 20,830 30,921
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 23,584 643,257 7,784 7,836
Transfers between funds ....................... (403,490) (1,272,622) (27,058) --
Redemptions ................................... (702,940) (634,256) (215,216) (129,093)
Annuity benefits .............................. (3,761) (3,928) -- --
Annual contract maintenance charge (note 2) ... (1,921) (1,961) (1,056) (1,056)
Contingent deferred sales charges (note 2) .... (237) (1,409) (1,884) (293)
Adjustments to maintain reserves .............. 711 (8,733) (32) (9)
------------ ------------ ------------ ------------
Net equity transactions ................... (1,088,055) (1,279,652) (237,461) (122,615)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (1,262,596) (1,139,794) (216,631) (91,694)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 5,365,936 6,673,369 1,364,193 1,607,565
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... 4,103,340 5,533,575 1,147,562 1,515,871
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 7
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(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, 1999, 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.
7
<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 June 30, 1999. 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.
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<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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<PAGE> 10
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at June 30, 1999, 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 ....................... 6,826 $ 38.622867 $ 263,640 2%
Tax qualified spectrum .................. 923,859 32.689310 30,200,313 1%
Non-tax qualified spectrum .............. 510,947 32.712027 16,714,112 1%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified ....................... 377 214.821653 80,988 12%
Tax qualified spectrum .................. 290,881 225.629543 65,631,347 11%
Non-tax qualified spectrum .............. 100,629 191.458202 19,266,247 11%
Non-tax qualified spectrum (81-225) ..... 3,976 208.569023 829,270 11%
Massachusetts Investors Trust - Class A:
Non-tax qualified ....................... 289 198.286930 57,305 5%
Tax qualified spectrum .................. 263,076 167.365423 44,029,826 5%
Non-tax qualified spectrum .............. 78,238 150.166988 11,748,765 5%
Non-tax qualified spectrum (81-225) ..... 982 159.537554 156,666 5%
MFS(R) Bond Fund - Class A:
Non-tax qualified ....................... 233 57.943815 13,501 (2)%
Tax qualified spectrum .................. 352,515 49.321372 17,386,523 (2)%
Non-tax qualified spectrum .............. 137,094 49.281052 6,756,137 (2)%
Non-tax qualified spectrum (81-225) ..... 786 49.473774 38,886 (2)%
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum .................. 273,113 56.039059 15,304,996 12%
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ....................... 830 210.325192 174,570 8%
Tax qualified spectrum .................. 588,560 194.121854 114,252,358 8%
Non-tax qualified spectrum .............. 128,181 164.895437 21,136,462 8%
Non-tax qualified spectrum (81-225) ..... 10,461 181.943563 1,903,312 8%
MFS(R) High Income Fund - Class A:
Non-tax qualified ....................... 217 75.497246 16,383 5%
Tax qualified spectrum .................. 254,112 65.684034 16,691,101 5%
Non-tax qualified spectrum .............. 106,846 64.687544 6,911,605 5%
Non-tax qualified spectrum (81-225) ..... 4,302 65.684034 282,573 5%
</TABLE>
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<PAGE> 11
<TABLE>
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified ....................... 390 195.930497 76,413 8%
Tax qualified spectrum .................. 205,063 192.011612 39,374,477 8%
Non-tax qualified spectrum .............. 73,900 167.773847 12,398,487 8%
Non-tax qualified spectrum (81-225) ..... 1,216 189.770339 230,761 8%
MFS(R) Total Return Fund - Class A:
Non-tax qualified ....................... 146 122.208055 17,842 4%
Tax qualified spectrum .................. 415,090 113.140072 46,963,312 4%
Non-tax qualified spectrum .............. 121,568 109.515815 13,313,619 4%
Non-tax qualified spectrum (81-225) ..... 1,015 112.039365 113,720 4%
MFS(R) World Governments Fund - Class A:
Tax qualified spectrum .................. 72,381 49.733776 3,599,780 (4)%
Non-tax qualified spectrum .............. 8,981 48.487196 435,464 (4)%
Non-tax qualified spectrum (81-225) ..... 367 49.656457 18,224 (4)%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum .................. 23,584 24.996179 589,510 2%
Non-tax qualified spectrum .............. 22,311 25.012434 558,052 2%
======== ===========
Reserves for annuity contracts in payout phase:
Tax qualified ........................... 67,717
Non-tax qualified ....................... 34,893
Tax qualified spectrum .................. 2,872,750
Non-tax qualified spectrum .............. 1,223,322
-------------
$ 511,735,229
=============
</TABLE>
* The period return does not include contract charges satisfied by surrendering
units.
- --------------------------------------------------------------------------------
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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
