<PAGE> 1
[NATIONWIDE LOGO]
MFS
VARIABLE
ACCOUNT
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 2000
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-719-AC (06/00)
<PAGE> 2
[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PRESIDENT PICTURE]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to bring you the 2000
semi-annual report of the MFS Variable Account.
During the first half of 2000 fixed income and equity markets took a hiatus from
their recent advances. It appears the Federal Reserve's interest rate hikers are
accomplishing the intended purpose. Recent economic statistics show some
moderation in the areas of home and vehicles sales because of the higher
interest costs. And, there are other favorable indications that the Fed may yet
"glide" the economy to a soft landing. Inflation remains low. Sustained
increases in worker productivity continue to dampen pricing pressures of an
increasingly tight labor pool. Corporate profitability growth remains viable. An
improving global economy bodes well for U.S. exporting businesses. While all
this provides a positive backdrop, we expect the markets will continue jittery
and volatile during the second half of the year as uncertainty over further Fed
actions persists. However, we believe patient investors in financial assets will
be amply rewarded when we move beyond this temporary respite.
Nationwide Life was a forerunner in the variable annuity and variable life
insurance business. We continue to develop new and innovative investment
products to better meet your financial planning and retirement needs. And, we
are equally committed to providing you, our valued customer, the exceptional
level of customer service you expect and deserve.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
August 16, 2000
3
<PAGE> 3
HOW TO READ THE SEMI-ANNUAL REPORT
This semi-annual report is a presentation of the variable account as a whole and
only describes the underlying contracts and products of the variable account in
general terms. Please note the variable account may have more than one variable
product available. Such products may have different underlying mutual funds
available than those available in your contract. Therefore, not all funds listed
in this report may be available in your contract. Please refer to your most
recent account statement for specific information about your investment in the
MFS Variable Account. Rules and regulations of the United States Securities and
Exchange Commission and recognized conventions of Generally Accepted Accounting
Principals prescribe the format and content of this report.
We also invite you to call our service center at 1-800-848-6331 if you have
questions about your account, or you may access your account using our voice
response unit. And, please visit our web-site at www.nwservicecenter.com for
additional information about your contract and to learn more about other
products and services offered by Nationwide Financial.
The Annual Report has four major financial sections:
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNER'S EQUITY
This statement begins on page 5 and lists all of the underlying mutual funds of
the variable account, the number of shares owned, the amount paid for the shares
and their market value as of the close of business on June 30, 2000. The mutual
funds are listed in alphabetical order. The market value of the assets changes
as the underlying mutual funds change in value. As contract owners make exchange
transactions between the funds, the number of shares increases or decreases
accordingly. When money is deposited or withdrawn by a contract owner, shares
are correspondingly purchased or redeemed. The total market value of the funds
is equal to the TOTAL INVESTMENTS of the variable account.
ACCOUNTS RECEIVABLE, if applicable, represents an asset of the variable account
for money market fund shares purchased by contract owners and reinvested
dividend shares added to contract owners' accounts, but not yet added to Total
investments. Total investments plus Accounts receivable equal TOTAL ASSETS of
the variable account.
ACCOUNTS PAYABLE, if applicable, is a liability of the variable account for
money market fund shares redeemed by contract owners' but not yet deducted from
Total investments.
Total assets minus Accounts payable equals CONTRACT OWNERS' EQUITY. A summary of
Contract owners' equity by funds series may be found on page 12. This summary
also includes investment return for the reporting period for each fund series.
STATEMENTS OF OPERATIONS AND STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY
These statements begin on page 6 and present the financial activity of each
underlying mutual fund sub-account of the variable account, for the periods
indicated.
The INVESTMENT ACTIVITY section shows income to the variable account for
reinvested dividends and capital gain distributions paid by the underlying
mutual funds. Also shown are the mortality, expense and administration charges
which are assessed through the daily unit value calculation and which represent
an expense to the variable account and its contract owners. This section also
shows the realized gain or loss as mutual fund shares are sold, and the change
in unrealized gain or loss, which represents the changes in market value of the
underlying fund shares.
The EQUITY TRANSACTIONS section illustrates the receipt of purchase payments, as
new contracts are sold or additional payments made to existing contracts. Also
presented are deductions from the variable account when the contract owners
withdraw money.
The sum of the above two sections represents the NET CHANGE IN CONTRACT OWNERS'
EQUITY which when added to the beginning Contract owners' equity equals Contract
owners' equity at the end of the reporting period.
Notes to Financial Statements, beginning on page 9, provide further disclosures
about the variable account and its underlying contract provisions.
4
<PAGE> 4
MFS VARIABLE ACCOUNT
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value:
MFS Series Trust IV - MFS(R) Money Market Fund (MFSMyMkt)
40,678,696 shares (cost $40,678,696).............................................................. $ 40,678,696
Massachusetts Investors Growth Stock Fund - Class A (MFSGrStk)
4,996,906 shares (cost $71,922,719)............................................................... 105,184,867
Massachusetts Investors Trust - Class A (MFSInvTr)
2,000,451 shares (cost $33,962,601)............................................................... 41,889,445
MFS(R) Bond Fund - Class A (MFSBdFd)
1,642,401 shares (cost $21,519,539)............................................................... 19,807,353
MFS(R) Emerging Growth Fund - Class A (MFSEmGro)
340,368 shares (cost $15,413,746)................................................................. 23,560,294
MFS(R) Global Governments Fund - Class A (MFSGlobGvt)
334,790 shares (cost $3,585,138).................................................................. 3,167,109
MFS(R) Growth Opportunities Fund - Class A (MFSGrOpp)
7,789,750 shares (cost $109,677,498).............................................................. 151,588,526
MFS(R) High Income Fund - Class A (MFSHiInc)
4,101,792 shares (cost $21,497,292)............................................................... 19,524,530
MFS(R) Research Fund - Class A (MFSRsrch)
1,662,194 shares (cost $33,842,526)............................................................... 50,896,367
MFS(R) Total Return Fund - Class A (MFSTotRe)
3,228,906 shares (cost $47,819,015)............................................................... 45,947,326
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
1,090,220 shares (cost $1,090,222)................................................................ 1,090,220
-------------
Total receivable............................................................................... 503,334,733
Accounts receivable..................................................................................... 14,954
-------------
Total assets................................................................................... 503,349,687
ACCOUNTS PAYABLE........................................................................................... 6,949
-------------
CONTRACT OWNERS' EQUITY (NOTE 4)........................................................................... $ 503,342,738
=============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 5
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY
STATEMENTS OF OPERATIONS
SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Total MFSMyMkt
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 3,714,402 4,315,070 1,152,564 1,048,718
Mortality, expense and administration
charges (note 2):
Non-Spectrum ............................... (2,622) (3,676) (552) (1,303)
Spectrum ................................... (3,319,553) (3,302,092) (275,700) (322,332)
------------- ------------- ------------- -------------
Net investment activity ...................... 392,227 1,009,302 876,312 725,083
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ........... 65,318,912 67,067,359 11,784,769 12,405,882
Cost of mutual fund shares sold ................. (48,494,582) (51,979,330) (11,784,769) (12,405,882)
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... 16,824,330 15,088,029 -- --
Change in unrealized gain (loss) on investments . (7,235,758) 10,940,695 -- --
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 9,588,572 26,028,724 -- --
------------- ------------- ------------- -------------
Reinvested capital gains ........................ 6,881,821 3,743,232 -- --
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 16,862,620 30,781,258 876,312 725,083
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 5,554,362 7,551,346 527,482 297,032
Transfers between funds ......................... -- -- 56,315 1,056,808
Redemptions ..................................... (42,602,958) (43,975,195) (5,596,521) (5,849,347)
Annuity benefits ................................ (337,432) (313,000) (34,702) (37,593)
Annual contract maintenance charge (note 2) ..... (137,726) (155,449) (19,646) (22,812)
Contingent deferred sales charges (note 2) ...... (57,121) (90,654) (6,554) (18,148)
Adjustments to maintain reserves ................ 82,009 (61,814) 11,214 (18,053)
------------- ------------- ------------- -------------
NET EQUITY TRANSACTIONS .................... (37,498,866) (37,044,766) (5,062,412) (4,592,113)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............. (20,636,246) (6,263,508) (4,186,100) (3,867,030)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 523,978,984 517,998,737 44,875,667 51,419,718
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............. $ 503,342,738 511,735,229 40,689,567 47,552,688
============= ============= ============= =============
MFSGrStk MFSInvTr
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ -- -- 26,666 128,196
Mortality, expense and administration
charges (note 2):
Non-Spectrum ............................... (583) (668) (63) (274)
Spectrum ................................... (686,321) (518,754) (288,337) (363,061)
------------- ------------- ------------- -------------
Net investment activity ...................... (686,904) (519,422) (261,734) (235,139)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ........... 7,346,998 6,090,844 8,753,228 5,422,064
Cost of mutual fund shares sold ................. (4,238,605) (4,160,470) (5,495,437) (2,890,135)
------------- ------------- ------------- -------------
Realized gain (loss) on investments .......... 3,108,393 1,930,374 3,257,791 2,531,929
Change in unrealized gain (loss) on investments . 347,542 7,344,345 (3,517,562) 114,485
------------- ------------- ------------- -------------
Net gain (loss) on investments ............... 3,455,935 9,274,719 (259,771) 2,646,414
------------- ------------- ------------- -------------
Reinvested capital gains ........................ -- -- 298,646 275,455
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 2,769,031 8,755,297 (222,859) 2,686,730
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 1,236,540 1,907,617 251,497 749,541
Transfers between funds ......................... 4,379,334 5,851,965 (2,811,257) 708,386
Redemptions ..................................... (6,003,408) (4,690,213) (5,194,989) (4,579,448)
Annuity benefits ................................ (36,126) (28,099) (21,720) (21,789)
Annual contract maintenance charge (note 2) ..... (18,896) (16,727) (10,244) (12,677)
Contingent deferred sales charges (note 2) ...... (8,750) (10,560) (6,211) (11,006)
Adjustments to maintain reserves ................ 7,689 1,680 6,483 5,708
------------- ------------- ------------- -------------
NET EQUITY TRANSACTIONS .................... (443,617) 3,015,663 (7,786,441) (3,161,285)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............. 2,325,414 11,770,960 (8,009,300) (474,555)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 102,866,429 74,455,073 49,904,547 56,873,438
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............. 105,191,843 86,226,033 41,895,247 56,398,883
============= ============= ============= =============
</TABLE>
6
<PAGE> 6
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
STATEMENTS OF OPERATIONS, CONTINUED
SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MFSBdFd MFSEmGro
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 726,620 868,059 -- --
Mortality, expense and administration
charges (note 2):
Non-Spectrum ............................... (15) (87) -- --
Spectrum ................................... (131,860) (170,821) (148,068) (96,792)
------------ ------------ ------------ ------------
Net investment activity ...................... 594,745 697,151 (148,068) (96,792)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ........... 2,431,819 3,224,456 1,957,296 4,706,142
Cost of mutual fund shares sold ................. (2,713,035) (3,065,748) (917,132) (2,911,384)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (281,216) 158,708 1,040,164 1,794,758
Change in unrealized gain (loss) on investments . 93,085 (1,453,955) (136,559) (68,475)
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (188,131) (1,295,247) 903,605 1,726,283
------------ ------------ ------------ ------------
Reinvested capital gains ........................ -- -- -- --
Net increase (decrease) in contract owners' ------------ ------------ ------------ ------------
equity resulting from operations ........ 406,614 (598,096) 755,537 1,629,491
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 251,320 334,877 439,130 812,074
Transfers between funds ......................... 119,031 (518,896) 3,396,652 (1,235,348)
Redemptions ..................................... (1,914,710) (2,493,236) (1,603,281) (1,992,276)
Annuity benefits ................................ (38,338) (36,145) (634) (440)
Annual contract maintenance charge (note 2) ..... (5,977) (8,148) (6,907) (6,572)
Contingent deferred sales charges (note 2) ...... (4,300) (5,031) (4,223) (5,487)
Adjustments to maintain reserves ................ 6,224 (18,593) 523 217
------------ ------------ ------------ ------------
NET EQUITY TRANSACTIONS .................... (1,586,750) (2,745,172) 2,221,260 (2,427,832)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............. (1,180,136) (3,343,268) 2,976,797 (798,341)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 20,993,325 27,972,946 20,584,022 16,118,930
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............. $ 19,813,189 24,629,678 23,560,819 15,320,589
============ ============ ============ ============
MFSGlobGvt MFSGrOpp
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ -- -- -- --
Mortality, expense and administration
charges (note 2):
Non-Spectrum ............................... -- -- (1,163) (820)
Spectrum ................................... (21,254) (28,744) (990,179) (889,924)
------------ ------------ ------------ ------------
Net investment activity ...................... (21,254) (28,744) (991,342) (890,744)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ........... 460,873 1,313,797 14,271,179 14,900,767
Cost of mutual fund shares sold ................. (545,681) (1,429,746) (7,867,044) (10,635,542)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (84,808) (115,949) 6,404,135 4,265,225
Change in unrealized gain (loss) on investments . 97,028 (29,848) (3,785,769) 3,293,240
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 12,220 (145,797) 2,618,366 7,558,465
------------ ------------ ------------ ------------
Reinvested capital gains ........................ -- -- 6,583,175 3,467,777
Net increase (decrease) in contract owners' ------------ ------------ ------------ ------------
equity resulting from operations ........ (9,034) (174,541) 8,210,199 10,135,498
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 36,471 23,584 766,195 2,134,355
Transfers between funds ......................... (201,316) (403,490) 64,723 (2,140,449)
Redemptions ..................................... (246,022) (702,940) (11,826,520) (12,143,690)
Annuity benefits ................................ (3,290) (3,761) (89,964) (75,700)
Annual contract maintenance charge (note 2) ..... (1,417) (1,921) (42,634) (47,152)
Contingent deferred sales charges (note 2) ...... (107) (237) (11,696) (16,598)
Adjustments to maintain reserves ................ 635 710 26,195 (47,698)
------------ ------------ ------------ ------------
NET EQUITY TRANSACTIONS .................... (415,046) (1,088,055) (11,113,701) (12,336,932)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............. (424,080) (1,262,596) (2,903,502) (2,201,434)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 3,591,599 5,365,936 154,517,095 140,949,392
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............. 3,167,519 4,103,340 151,613,593 138,747,958
============ ============ ============ ============
</TABLE>
(Continued)
7
<PAGE> 7
MFS VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN
CONTRACT OWNERS' EQUITY, CONTINUED
STATEMENTS OF OPERATIONS, CONTINUED
SIX MONTH PERIODS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MFSHiInc MFSRsrch
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 971,494 1,174,007 -- --
Mortality, expense and administration
charges (note 2):
Non-Spectrum ............................... (82) (81) (164) (357)
Spectrum ................................... (129,768) (166,545) (333,203) (334,602)
------------ ------------ ------------ ------------
Net investment activity ...................... 841,644 1,007,381 (333,367) (334,959)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ........... 3,714,369 4,546,507 5,861,930 7,095,706
Cost of mutual fund shares sold ................. (4,053,696) (4,510,242) (2,534,267) (3,712,019)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... (339,327) 36,265 3,327,663 3,383,687
Change in unrealized gain (loss) on investments . (581,973) 149,822 (372,010) 1,029,302
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... (921,300) 186,087 2,955,653 4,412,989
------------ ------------ ------------ ------------
Reinvested capital gains ........................ -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ (79,656) 1,193,468 2,622,286 4,078,030
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 870,681 267,023 322,399 530,322
Transfers between funds ......................... 210,215 (495,582) (1,978,838) (1,841,896)
Redemptions ..................................... (2,293,853) (2,236,551) (3,058,330) (3,561,028)
Annuity benefits ................................ (42,668) (44,447) (28,758) (25,357)
Annual contract maintenance charge (note 2) ..... (8,391) (10,996) (9,699) (10,686)
Contingent deferred sales charges (note 2) ...... (2,165) (4,921) (3,409) (4,716)
Adjustments to maintain reserves ................ 8,399 5,672 22,043 15,127
------------ ------------ ------------ ------------
NET EQUITY TRANSACTIONS .................... (1,257,782) (2,519,802) (4,734,592) (4,898,234)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............. (1,337,438) (1,326,334) (2,112,306) (820,204)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 20,871,738 25,653,603 53,028,164 53,235,629
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............. $ 19,534,300 24,327,269 50,915,858 52,415,425
============ ============ ============ ============
MFSTotRe NSATMyMkt
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ 806,667 1,066,953 30,391 29,137
Mortality, expense and administration
charges (note 2):
Non-Spectrum ............................... -- (86) -- --
Spectrum ................................... (308,208) (402,211) (6,655) (8,306)
------------ ------------ ------------ ------------
Net investment activity ...................... 498,459 664,656 23,736 20,831
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ........... 8,416,071 7,098,655 320,380 262,539
Cost of mutual fund shares sold ................. (8,024,536) (5,995,623) (320,380) (262,539)
------------ ------------ ------------ ------------
Realized gain (loss) on investments .......... 391,535 1,103,032 -- --
Change in unrealized gain (loss) on investments . 620,460 561,780 -- (1)
------------ ------------ ------------ ------------
Net gain (loss) on investments ............... 1,011,995 1,664,812 -- (1)
------------ ------------ ------------ ------------
Reinvested capital gains ........................ -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 1,510,454 2,329,468 23,736 20,830
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 846,239 487,137 6,408 7,784
Transfers between funds ......................... (3,233,408) (954,440) (1,451) (27,058)
Redemptions ..................................... (4,756,538) (5,511,250) (108,786) (215,216)
Annuity benefits ................................ (41,232) (39,669) -- --
Annual contract maintenance charge (note 2) ..... (13,077) (16,702) (838) (1,056)
Contingent deferred sales charges (note 2) ...... (8,118) (12,066) (1,588) (1,884)
Adjustments to maintain reserves ................ (5,307) (6,553) (2,089) (31)
------------ ------------ ------------ ------------
NET EQUITY TRANSACTIONS .................... (7,211,441) (6,053,543) (108,344) (237,461)
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............. (5,700,987) (3,724,075) (84,608) (216,631)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ....... 51,658,437 64,589,879 1,087,961 1,364,193
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD ............. 45,957,450 60,865,804 1,003,353 1,147,562
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 8
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
(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) Global Governments Fund - Class A (MFSGlobGvt)
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)
Nationwide Separate Account Trust - Money Market Fund (NSATMyMkt)
(managed for a fee by an affiliated investment advisor)
At June 30, 2000, 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.
(Continued)
9
<PAGE> 9
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
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, 2000. 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.
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<PAGE> 10
(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)
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<PAGE> 11
MFS VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(4) COMPONENTS OF CONTRACT OWNERS' EQUITY
The following is a summary of contract owners' equity at June 30, 2000, 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 ........................... 1,494 $ 40.276063 $ 60,172 2%
Tax qualified spectrum ...................... 747,614 33.985089 25,407,728 2%
Non-tax qualified spectrum .................. 437,754 34.008704 14,887,446 2%
Massachusetts Investors Growth
Stock Fund - Class A:
Non-tax qualified ........................... 354 272.335877 96,407 3%
Tax qualified spectrum ...................... 280,685 285.169979 80,042,936 3%
Non-tax qualified spectrum .................. 97,096 241.981302 23,495,416 3%
Non-tax qualified spectrum (81-225) ......... 4,063 263.607419 1,071,037 3%
Massachusetts Investors Trust - Class A:
Tax qualified spectrum ...................... 194,137 168.264594 32,666,383 0%
Non-tax qualified spectrum .................. 57,419 150.973766 8,668,763 0%
Non-tax qualified spectrum (81-225) ......... 981 160.394663 157,347 0%
MFS(R) Bond Fund - Class A:
Non-tax qualified ........................... 56 58.671102 3,286 2%
Tax qualified spectrum ...................... 258,371 49.788875 12,864,001 2%
Non-tax qualified spectrum .................. 131,306 49.748189 6,532,236 2%
Non-tax qualified spectrum (81-225) ......... 784 49.942720 39,155 2%
MFS(R) Emerging Growth Fund - Class A:
Tax qualified spectrum ...................... 306,824 76.693568 23,531,427 3%
Non-tax qualified spectrum (81-225) ......... 161 76.693568 12,348 3%
MFS(R) Global Governments Fund - Class A:
Tax qualified spectrum ...................... 55,673 49.250536 2,741,925 0%
Non-tax qualified spectrum .................. 7,606 48.016081 365,210 0%
Non-tax qualified spectrum (81-225) ......... 366 49.173978 17,998 0%
MFS(R) Growth Opportunities Fund - Class A:
Non-tax qualified ........................... 831 271.129654 225,309 6%
Tax qualified spectrum ...................... 502,068 249.483130 125,257,496 6%
Non-tax qualified spectrum .................. 105,571 211.921683 22,372,784 6%
Non-tax qualified spectrum (81-225) ......... 9,590 233.831729 2,242,446 6%
</TABLE>
12
<PAGE> 12
<TABLE>
<CAPTION>
PERIOD
UNITS UNIT VALUE RETURN*
----- ---------- -------
<S> <C> <C> <C> <C>
MFS(R) High Income Fund - Class A:
Non-tax qualified ........................... 217 76.104073 16,515 0%
Tax qualified spectrum ...................... 190,970 66.011068 12,606,134 0%
Non-tax qualified spectrum .................. 96,591 65.009614 6,279,344 0%
Non-tax qualified spectrum (81-225) ......... 3,617 66.011068 238,762 0%
MFS(R) Research Fund - Class A:
Tax qualified spectrum ...................... 170,017 228.434197 38,837,697 5%
Non-tax qualified spectrum .................. 57,308 199.598783 11,438,607 5%
Non-tax qualified spectrum (81-225) ......... 1,216 225.767780 274,534 5%
MFS(R) Total Return Fund - Class A:
Tax qualified spectrum ...................... 296,686 113.878290 33,786,094 4%
Non-tax qualified spectrum .................. 105,885 110.230386 11,671,744 4%
Non-tax qualified spectrum (81-225) ......... 798 112.770402 89,991 4%
Nationwide Separate Account Trust -
Money Market Fund:
Tax qualified spectrum ...................... 17,736 25.998612 461,111 2%
Non-tax qualified spectrum .................. 20,843 26.015520 542,241 2%
======== ==========
Reserves for annuity contracts in payout phase:
Tax qualified ............................... 76,719
Non-tax qualified ........................... 17,296
Tax qualified spectrum ...................... 2,967,489
Non-tax qualified spectrum .................. 1,279,204
-------------
$ 503,342,738
=============
</TABLE>
* The period return does not include contract charges satisfied by surrendering
units.
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NATIONWIDE LIFE INSURANCE COMPANY Bulk Rate
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220 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
