<PAGE> 1
[LOGO - NATIONWIDE]
MFS
VARIABLE
ACCOUNT
ANNUAL REPORT
TO
CONTRACT OWNERS
DECEMBER 31, 1999
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
<PAGE> 2
[LOGO-NATIONWIDE]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTOGRAPH - PRESIDENT]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to bring you the 1999 annual
report of the MFS Variable Account.
During 1999 equity investments extended their spirited advance to a fifth
consecutive year. The S&P 500 was the laggard of the major indices with a
year-over-year change of a respectable 19.53%. The NASDAQ topped the list at
over 85% with the other indices falling into line nearer the lower end of the
range. Fixed earnings investments did not fare as well in the current
environment of rising interest rates.
The U.S. economy remains strong, inflation remains docile and the available
labor pool is incessantly tight. Against this good-news-bad-news backdrop, the
Federal Reserve is increasingly concerned that recent productivity gains will
subside and ignite wage inflation. To date, the Fed has hiked short-term
interest rates a quarter percentage point on four occasions since last June.
Prospectively, they may well become more aggressive in their preemptive efforts
to dampen economic growth and avoid a new round of inflation.
We believe some caution may be warranted at this juncture. Certain market
sectors are well extended and may inevitably retreat to less lofty valuation
levels. However, we remain bullish for the long-term prospects of financial
assets. Your variable insurance contract provides an excellent resource to help
you achieve your long-term retirement savings and financial planning objectives.
We appreciate your trust in our company and in our investment products, and we
welcome and encourage your feedback.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
February 10, 2000
3
<PAGE> 3
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
MFS Series Trust IV - MFS(R)Money Market Fund (MFSMyMkt)
44,839,567 shares (cost $44,839,567) ................................. $ 44,839,567
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
5,060,285 shares (cost $69,960,980) .................................. 102,875,587
Massachusetts Investors Trust - Class A (MFSInvTr)
2,381,892 shares (cost $38,456,230) .................................. 49,900,636
MFS(R)Bond Fund - Class A (MFSBdFd)
1,723,568 shares (cost $22,798,332) .................................. 20,993,061
MFS(R)Emerging Growth Fund - Class A (MFSEmGro)
309,109 shares (cost $12,300,453) .................................... 20,583,561
MFS(R)Growth Opportunities Fund - Class A (MFSGrOpp)
8,102,643 shares (cost $108,820,607) ................................. 154,517,403
MFS(R)High Income Fund - Class A (MFSHiInc)
4,176,635 shares (cost $22,232,196) .................................. 20,841,407
MFS(R)Research Fund - Class A (MFSRsrch)
1,835,939 shares (cost $35,559,355) .................................. 52,985,206
MFS(R)Total Return Fund - Class A (MFSTotRe)
3,735,009 shares (cost $54,334,069) .................................. 51,841,920
MFS(R)World Governments Fund - Class A (MFSWdGvt)
381,664 shares (cost $4,106,511) ..................................... 3,591,454
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,088,111 shares (cost $1,088,111) ................................... 1,088,111
-------------
Total receivable .................................................. 524,057,913
Accounts receivable ........................................................ 16
-------------
Total assets ...................................................... 524,057,929
ACCOUNTS PAYABLE .............................................................. 78,945
-------------
CONTRACT OWNERS' EQUITY (NOTE 4) .............................................. $ 523,978,984
=============
</TABLE>
See accompanying notes to financial
4
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
- --------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
TOTAL MFSMyMkt
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 8,566,936 10,369,909 2,182,838 2,582,102
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (6,760) (7,274) (1,901) (2,584)
Spectrum .................................. (6,518,341) (6,596,560) (626,290) (687,836)
------------- ------------- ------------- -------------
Net investment activity ..................... 2,041,835 3,766,075 1,554,647 1,891,682
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 137,636,399 130,394,580 23,621,380 20,441,104
Cost of mutual fund shares sold ............... (105,287,343) (99,402,881) (23,621,380) (20,441,104)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 32,349,056 30,991,699 - -
Change in unrealized gain (loss) on investments 22,704,757 18,094,682 - -
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 55,053,813 49,086,381 - -
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 30,356,218 34,176,159 - -
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 87,451,866 87,028,615 1,554,647 1,891,682
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 13,486,199 21,666,010 782,924 898,913
Transfers between funds ....................... - - 3,148,451 4,471,627
Redemptions ................................... (93,890,119) (86,101,187) (11,884,305) (9,288,873)
Annuity benefits .............................. (670,897) (577,607) (73,068) (78,290)
Annual contract maintenance charge (note 2) ... (241,389) (219,538) (37,058) (39,671)
Contingent deferred sales charges (note 2) .... (156,849) (103,039) (32,130) (11,571)
Adjustments to maintain reserves .............. 1,436 (135,171) (3,554) (51,614)
------------- ------------- ------------- -------------
Net equity transactions ................... (81,471,619) (65,470,532) (8,098,740) (4,099,479)
------------- ------------- ------------- -------------
Net change in contract owners' equity ........... 5,980,247 21,558,083 (6,544,093) (2,207,797)
Contract owners' equity beginning of period ..... 517,998,737 496,440,654 51,419,718 53,627,515
------------- ------------- ------------- -------------
Contract owners' equity end of period ........... $ 523,978,984 517,998,737 44,875,625 51,419,718
============= ============= ============= =============
<CAPTION>
MFSGrStk MFSInvTr
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... - 23,643 251,769 455,006
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (1,240) (1,370) (552) (512)
Spectrum .................................. (1,090,622) (825,562) (698,126) (727,278)
------------- ------------- ------------- -------------
Net investment activity ..................... (1,091,862) (803,289) (446,909) (272,784)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 15,786,263 12,931,854 13,218,357 14,054,623
Cost of mutual fund shares sold ............... (9,828,016) (9,211,452) (6,960,564) (8,943,542)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 5,958,247 3,720,402 6,257,793 5,111,081
Change in unrealized gain (loss) on investments 15,455,405 11,624,106 (4,553,230) 2,981,251
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 21,413,652 15,344,508 1,704,563 8,092,332
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 7,544,492 5,881,907 1,413,976 2,957,888
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 27,866,282 20,423,126 2,671,630 10,777,436
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 3,993,587 3,149,739 1,009,480 1,696,074
Transfers between funds ....................... 10,768,381 6,233,843 (1,193,708) (555,795)
Redemptions ................................... (14,092,092) (9,503,275) (9,374,362) (8,819,189)
Annuity benefits .............................. (65,351) (44,622) (50,984) (36,360)
Annual contract maintenance charge (note 2) ... (27,619) (17,039) (19,536) (16,463)
Contingent deferred sales charges (note 2) .... (21,585) (8,106) (17,722) (6,772)
Adjustments to maintain reserves .............. (10,309) (71,184) 6,257 241
------------- ------------- ------------- -------------
Net equity transactions ................... 545,012 (260,644) (9,640,575) (7,738,264)
------------- ------------- ------------- -------------
Net change in contract owners' equity ........... 28,411,294 20,162,482 (6,968,945) 3,039,172
Contract owners' equity beginning of period ..... 74,455,073 54,292,591 56,873,438 53,834,266
------------- ------------- ------------- -------------
Contract owners' equity end of period ........... 102,866,367 74,455,073 49,904,493 56,873,438
============= ============= ============= =============
</TABLE>
(Continued)
5
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
- -----------------------------------------
STATEMENTS OF OPERATIONS, CONTINUED
- -----------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MFSBdFd MFSEmGro
--------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 1,654,981 1,859,739 - -
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (111) (223) - -
Spectrum .................................. (320,201) (373,037) (202,824) (197,843)
------------ ----------- ----------- -----------
Net investment activity ..................... 1,334,669 1,486,479 (202,824) (197,843)
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ......... 7,173,570 8,377,135 7,091,245 6,632,123
Cost of mutual fund shares sold ............... (7,284,574) (7,948,902) (4,274,435) (3,476,772)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ......... (111,004) 428,233 2,816,810 3,155,351
Change in unrealized gain (loss) on investments (2,051,919) (1,155,208) 3,965,332 352,115
------------ ----------- ----------- -----------
Net gain (loss) on investments .............. (2,162,923) (726,975) 6,782,142 3,507,466
------------ ----------- ----------- -----------
Reinvested capital gains ...................... - 88,925 97,012 148,843
------------ ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (828,254) 848,429 6,676,330 3,458,466
------------ ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 384,574 1,160,385 1,796,971 1,154,923
Transfers between funds ....................... (1,297,499) 401,769 (181,944) (431,140)
Redemptions ................................... (5,140,591) (4,211,550) (3,808,479) (3,810,007)
Annuity benefits .............................. (75,346) (47,201) (3,048) (2,440)
Annual contract maintenance charge (note 2) ... (13,003) (11,467) (8,529) (8,292)
Contingent deferred sales charges (note 2) .... (9,288) (7,214) (6,544) (2,556)
Adjustments to maintain reserves .............. (228) 1,684 369 7,905
------------ ----------- ----------- -----------
Net equity transactions ................... (6,151,381) (2,713,594) (2,211,204) (3,091,607)
------------ ----------- ----------- -----------
Net change in contract owners' equity ........... (6,979,635) (1,865,165) 4,465,126 366,859
Contract owners' equity beginning of period ..... 27,972,946 29,838,111 16,118,930 15,752,071
------------ ----------- ----------- -----------
Contract owners' equity end of period ........... $ 20,993,311 27,972,946 20,584,056 16,118,930
============ =========== =========== ===========
<CAPTION>
MFSGrOpp MFSHiInc
---------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... - - 2,242,661 2,551,491
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (1,851) (1,632) (163) (195)
Spectrum .................................. (1,764,184) (1,730,709) (315,266) (385,733)
------------ ------------ ----------- -----------
Net investment activity ..................... (1,766,035) (1,732,341) 1,927,232 2,165,563
------------ ------------ ----------- -----------
Proceeds from mutual fund shares sold ......... 29,050,157 26,360,076 9,651,962 9,322,459
Cost of mutual fund shares sold ............... (20,434,106) (18,002,705) (9,791,758) (8,501,775)
------------ ------------ ----------- -----------
Realized gain (loss) on investments ......... 8,616,051 8,357,371 (139,796) 820,684
Change in unrealized gain (loss) on investments 16,486,755 10,467,937 (387,891) (2,867,726)
------------ ------------ ----------- -----------
Net gain (loss) on investments .............. 25,102,806 18,825,308 (527,687) (2,047,042)
------------ ------------ ----------- -----------
Reinvested capital gains ...................... 14,239,127 15,210,020 - -
------------ ------------ ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 37,575,898 32,302,987 1,399,545 118,521
------------ ------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 2,492,192 7,638,546 331,911 1,174,207
Transfers between funds ....................... (3,229,327) (2,801,413) (1,601,990) (1,577,321)
Redemptions ................................... (22,992,059) (23,389,524) (4,814,330) (5,316,140)
Annuity benefits .............................. (166,195) (151,243) (87,932) (91,832)
Annual contract maintenance charge (note 2) ... (70,423) (65,520) (16,665) (18,489)
Contingent deferred sales charges (note 2) .... (30,048) (26,490) (8,379) (5,958)
Adjustments to maintain reserves .............. (12,497) 74,516 16,018 15,656
------------ ------------ ----------- -----------
Net equity transactions ................... (24,008,357) (18,721,128) (6,181,367) (5,819,877)
------------ ------------ ----------- -----------
Net change in contract owners' equity ........... 13,567,541 13,581,859 (4,781,822) (5,701,356)
Contract owners' equity beginning of period ..... 140,949,392 127,367,533 25,653,603 31,354,959
------------ ------------ ----------- -----------
Contract owners' equity end of period ........... 154,516,933 140,949,392 20,871,781 25,653,603
============ ============ =========== ===========
</TABLE>
6
<PAGE> 6
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
- -------------------------------------
STATEMENTS OF OPERATIONS, CONTINUED
- -------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
MFSRsrch MFSTotRe
--------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ - - 1,900,797 2,489,803
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. (779) (639) (163) (119)
Spectrum .................................. (658,747) (682,488) (772,092) (891,862)
------------ ----------- ----------- -----------
Net investment activity ..................... (659,526) (683,127) 1,128,542 1,597,822
------------ ----------- ----------- -----------
Proceeds from mutual fund shares sold ......... 14,315,650 13,014,940 15,478,371 15,210,192
Cost of mutual fund shares sold ............... (7,063,124) (7,349,389) (13,603,307) (11,393,719)
------------ ----------- ----------- -----------
Realized gain (loss) on investments ......... 7,252,526 5,665,551 1,875,064 3,816,473
Change in unrealized gain (loss) on investments (227,551) 3,200,984 (5,730,615) (6,519,824)
------------ ----------- ----------- -----------
Net gain (loss) on investments .............. 7,024,975 8,866,535 (3,855,551) (2,703,351)
------------ ----------- ----------- -----------
Reinvested capital gains ...................... 3,686,963 1,963,781 3,374,648 7,924,795
------------ ----------- ----------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 10,052,412 10,147,189 647,639 6,819,266
------------ ----------- ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,672,547 2,457,685 946,201 902,584
Transfers between funds ....................... (2,490,592) (2,366,157) (3,370,521) (1,753,702)
Redemptions ................................... (9,391,456) (8,304,556) (10,996,606) (11,867,669)
Annuity benefits .............................. (50,346) (53,782) (90,215) (62,970)
Annual contract maintenance charge (note 2) ... (17,954) (14,862) (25,741) (22,436)
Contingent deferred sales charges (note 2) .... (8,945) (11,114) (19,527) (19,514)
Adjustments to maintain reserves .............. 26,933 17,075 (22,524) (134,203)
------------ ----------- ----------- -----------
Net equity transactions ................... (10,259,813) (8,275,711) (13,578,933) (12,957,910)
------------ ----------- ----------- -----------
Net change in contract owners' equity ........... (207,401) 1,871,478 (12,931,294) (6,138,644)
Contract owners' equity beginning of period ..... 53,235,629 51,364,151 64,589,879 70,728,523
------------ ----------- ----------- -----------
Contract owners' equity end of period ........... $ 53,028,228 53,235,629 51,658,585 64,589,879
============ =========== =========== ===========
<CAPTION>
MFSWdGvt NSATMyMkt
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 276,355 331,281 57,535 76,844
Mortality, expense and administration
charges (note 2):
Non-Spectrum .............................. - - - -
Spectrum .................................. (54,080) (74,693) (15,909) (19,519)
---------- ---------- ---------- ----------
Net investment activity ..................... 222,275 256,588 41,626 57,325
---------- ---------- ---------- ----------
Proceeds from mutual fund shares sold ......... 1,893,444 3,720,395 356,000 329,679
Cost of mutual fund shares sold ............... (2,070,079) (3,803,842) (356,000) (329,679)
---------- ---------- ---------- ----------
Realized gain (loss) on investments ......... (176,635) (83,447) - -
Change in unrealized gain (loss) on investments (251,529) 11,047 - -
---------- ---------- ---------- ----------
Net gain (loss) on investments .............. (428,164) (72,400) - -
---------- ---------- ---------- ----------
Reinvested capital gains ...................... - - - -
---------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (205,889) 184,188 41,626 57,325
---------- ---------- ---------- ----------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 60,934 1,419,862 14,878 13,092
Transfers between funds ....................... (524,193) (1,619,685) (27,058) (2,026)
Redemptions ................................... (1,094,100) (1,282,444) (301,739) (307,960)
Annuity benefits .............................. (8,412) (8,867) - -
Annual contract maintenance charge (note 2) ... (3,111) (3,409) (1,750) (1,890)
Contingent deferred sales charges (note 2) .... (539) (1,880) (2,142) (1,864)
Adjustments to maintain reserves .............. 1,038 4,802 (67) (49)
---------- ---------- ---------- ----------
Net equity transactions ................... (1,568,383) (1,491,621) (317,878) (300,697)
---------- ---------- ---------- ----------
Net change in contract owners' equity ........... (1,774,272) (1,307,433) (276,252) (243,372)
Contract owners' equity beginning of period ..... 5,365,936 6,673,369 1,364,193 1,607,565
---------- ---------- ---------- ----------
Contract owners' equity end of period ........... 3,591,664 5,365,936 1,087,941 1,364,193
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 7
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(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, 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.
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, 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.
(f) Calculation of Annuity Reserves
Annuity reserves are computed for contracts in the variable payout
stage according to industry standard mortality tables. The assumed
investment return is 3.5 percent unless the annuitant elects otherwise,
in which case the rate may vary from 3.5 percent to 7 percent, as
regulated by the laws of the respective states. The mortality risk is
fully borne by the Company and may result in additional amounts being
transferred into the Account by the Company to cover greater longevity
of annuitants than expected. Conversely, if reserves exceed amounts
required, transfers may be made to the Company.
9
<PAGE> 9
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(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.
(Continued)
10
<PAGE> 10
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at December 31, 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>
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 1,494 $ 39.388969 $ 58,847 4%
Tax qualified spectrum 836,061 33.286752 27,829,755 3%
Non-tax qualified spectrum 499,340 33.309883 16,632,957 3%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified 706 264.338201 186,623 37%
Tax qualified spectrum 281,457 277.213327 78,023,631 37%
Non-tax qualified spectrum 98,328 235.229678 23,129,664 37%
Non-tax qualified spectrum (81-225) 3,994 256.252391 1,023,472 37%
Massachusetts Investors Trust - Class A:
Non-tax qualified 289 199.617423 57,689 6%
Tax qualified spectrum 235,642 168.230713 39,642,222 6%
Non-tax qualified spectrum 63,779 150.943364 9,627,017 6%
Non-tax qualified spectrum (81-225) 982 160.362369 157,476 6%
MFS(R) Bond Fund - Class A:
Non-tax qualified 56 57.457644 3,218 (3)%
Tax qualified spectrum 296,161 48.832757 14,462,358 (3)%
Non-tax qualified spectrum 124,805 48.792845 6,089,591 (3)%
Non-tax qualified spectrum (81-225) 784 48.983649 38,403 (3)%
MFS(R)Emerging Growth Fund - Class A:
Tax qualified spectrum 276,955 74.260820 20,566,905 48%
MFS(R)Growth Opportunities Fund - Class A:
Non-tax qualified 1,102 256.397950 282,551 31%
Tax qualified spectrum 540,025 236.283783 127,599,150 31%
Non-tax qualified spectrum 114,789 200.709590 23,039,253 31%
Non-tax qualified spectrum (81-225) 9,598 221.460448 2,125,577 31%
MFS(R)High Income Fund - Class A:
Non-tax qualified 217 76.334509 16,565 6%
Tax qualified spectrum 214,222 66.310941 14,205,262 6%
Non-tax qualified spectrum 91,528 65.304939 5,977,230 6%
Non-tax qualified spectrum (81-225) 4,190 66.310941 277,843 6%
</TABLE>
(Continued)
11
<PAGE> 11
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
ANNUAL
UNITS UNIT VALUE RETURN*
----- ---------- -------
<S> <C> <C> <C> <C>
MFS(R) Research Fund - Class A:
Non-tax qualified 434 221.469939 96,118 23%
Tax qualified spectrum 186,365 216.708566 40,386,892 22%
Non-tax qualified spectrum 62,991 189.353287 11,927,553 22%
Non-tax qualified spectrum (81-225) 1,216 214.179022 260,442 22%
MFS(R)Total Return Fund - Class A:
Tax qualified spectrum 359,370 109.920643 39,502,181 1%
Non-tax qualified spectrum 109,211 106.399516 11,619,998 1%
Non-tax qualified spectrum (81-225) 1,014 108.851257 110,375 1%
MFS(R)World Governments Fund - Class A:
Tax qualified spectrum 63,386 49.309941 3,125,560 (5)%
Non-tax qualified spectrum 8,381 48.073994 402,908 (5)%
Non-tax qualified spectrum (81-225) 367 49.233289 18,069 (5)%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum 20,531 25.451018 522,535 3%
Non-tax qualified spectrum 22,201 25.467570 565,406 3%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified 74,006
Non-tax qualified 26,228
Tax qualified spectrum 2,980,540
Non-tax qualified spectrum 1,306,914
----------
$ 523,978,984
=============
</TABLE>
* The annual return does not include contract charges satisfied by surrendering
units.
12
<PAGE> 12
Independent Auditors' Report
----------------------------
The Board of Directors of Nationwide Life Insurance Company and Contract Owners
of MFS Variable Account:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of MFS Variable Account (comprised of the sub-accounts
listed in note 1(b)) (collectively, "the Account") as of December 31, 1999, 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 Account'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, 1999, 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 the Account as of December
31, 1999, 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 18, 2000
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---------------
NATIONWIDE LIFE INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220 U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
---------------
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
