<PAGE> 1
[NATIONWIDE LOGO]
NATIONWIDE(R)
VARIABLE
ACCOUNT-3
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 1997
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-1545-W (6/97)
<PAGE> 2
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTO]
PRESIDENT'S MESSAGE
We are pleased to present the 1997 semi-annual report of the Nationwide Variable
Account-3.
Our Enterprise Vision statement states: "We exist to serve our customers."
Everything we do is focused on you, our customer, and on your needs.
We recognize that your expectations have changed and your standards for value
and service are higher than ever before. You are being asked to take more
responsibility for your own financial future, as employers and government
programs provide fewer guarantees.
We know that you expect service and products customized to fit your needs -
including financial advice - and you expect to receive service at any time,
anywhere and any way you choose.
We are responding to your changing needs and expectations with innovative
product offerings, continuing investment in the training and professional
development of our people, and our investment in technology to enable us to
serve you faster, better and more cost effectively.
Equity investments produced solid gains for the first half of 1997 with the Dow
Jones Industrial Average breaking the 8,000 mark on July 16. The U.S. economy,
in its seventh year of expansion, is growing vigorously and corporate profits
are better than anticipated.
Interest rates and inflation are still at very low levels. However, the risk of
a temporary spike remains as the Federal Reserve might be forced to raise
interest rates in order to keep our economy on an inflation-free growth path.
Even such policy actions are not expected to end the prosperous times which we
now enjoy. In the long run, equity valuations will reflect these excellent
economic conditions.
Thank you for giving Nationwide Life Insurance Company the opportunity to meet
your investment needs.
/S/ Joseph J. Gasper
Joseph J. Gasper, President
3
<PAGE> 3
<TABLE>
<CAPTION>
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1997
(UNAUDITED)
ASSETS:
Investments at market value:
<S> <C>
Van Kampen American Capital LIT - Asset Allocation Fund
2,788,061 shares (cost $31,908,029) ................................ $ 33,456,730
Van Kampen American Capital LIT - Domestic Income Fund
990,126 shares (cost $8,044,372) ................................... 8,267,551
Van Kampen American Capital LIT - Emerging Growth Fund
203,086 shares (cost $2,799,458) ................................... 3,015,833
Van Kampen American Capital LIT - Enterprise Fund
2,064,664 shares (cost $30,622,399) ................................ 38,856,967
Van Kampen American Capital LIT - Global Equity Fund
80,613 shares (cost $970,128) ...................................... 1,091,504
Van Kampen American Capital LIT - Government Fund
598,540 shares (cost $5,146,781) ................................... 5,171,387
Van Kampen American Capital LIT - Money Market Fund
7,712,594 shares (cost $7,712,594) ................................. 7,712,594
Van Kampen American Capital LIT - Real Estate Securities Fund
39,177 shares (cost $578,440) ...................................... 613,900
------------
Total investments ............................................... 98,186,466
Accounts receivable ...................................................... 960
------------
Total assets .................................................... 98,187,426
ACCOUNTS PAYABLE ............................................................ 86
------------
CONTRACT OWNERS' EQUITY ..................................................... $ 98,187,340
============
</TABLE>
4
<PAGE> 4
<TABLE>
<CAPTION>
Contract owners' equity represented by: UNITS UNIT VALUE
-------- ----------
Contracts in accumulation phase:
<S> <C> <C> <C>
Van Kampen American Capital LIT -
Asset Allocation Fund:
Tax qualified .............................. 454,877 $ 25.654514 $ 11,669,648
Non-tax qualified .......................... 848,367 25.654514 21,764,443
Van Kampen American Capital LIT -
Domestic Income Fund:
Tax qualified .............................. 123,819 17.342417 2,147,321
Non-tax qualified .......................... 351,918 17.342417 6,103,109
Van Kampen American Capital LIT -
Emerging Growth Fund:
Tax qualified .............................. 57,412 14.467987 830,636
Non-tax qualified .......................... 151,036 14.467987 2,185,187
Van Kampen American Capital LIT -
Enterprise Fund:
Tax qualified .............................. 333,503 37.007983 12,342,273
Non-tax qualified .......................... 715,911 37.007983 26,494,422
Van Kampen American Capital LIT -
Global Equity Fund:
Tax qualified .............................. 34,033 13.765549 468,483
Non-tax qualified .......................... 45,260 13.765549 623,029
Van Kampen American Capital LIT -
Government Fund:
Tax qualified .............................. 71,845 15.290749 1,098,564
Non-tax qualified .......................... 264,077 15.290749 4,037,935
Van Kampen American Capital LIT -
Money Market Fund:
Tax qualified .............................. 117,334 14.460731 1,696,735
Non-tax qualified .......................... 414,197 14.460731 5,989,591
Van Kampen American Capital LIT -
Real Estate Securities Fund:
Tax qualified .............................. 9,091 15.800344 143,641
Non-tax qualified .......................... 29,763 15.800344 470,266
======== =========
Reserves for annuity contracts in payout phase:
Tax qualified 1,783
Non-tax qualified 120,274
------------
$ 98,187,340
============
</TABLE>
See accompanying notes to financial statements.
================================================================================
5
<PAGE> 5
<TABLE>
<CAPTION>
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
(UNAUDITED)
TOTAL ASSET ALLOCATION FUND
------------------------------ ------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ 456,164 501,376 40,392 21,170
Mortality, expense and administration
charges (note 2)..................... (636,429) (666,943) (223,200) (237,112)
-------------- -------------- -------------- --------------
Net investment activity.............. (180,265) (165,567) (182,808) (215,942)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 26,520,461 24,687,009 6,458,668 3,583,953
Cost of mutual fund shares sold........ (25,584,268) (24,401,512) (6,743,705) (3,577,599)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 936,193 285,497 (285,037) 6,354
Change in unrealized gain (loss) on
investments.......................... 6,949,828 3,457,357 2,121,661 1,058,953
-------------- -------------- -------------- --------------
Net gain (loss) on investments....... 7,886,021 3,742,854 1,836,624 1,065,307
-------------- -------------- -------------- --------------
Reinvested capital gains .............. 1,180,089 1,849,001 690,251 695,596
-------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations....................... 8,885,845 5,426,288 2,344,067 1,544,961
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from contract
owners - net of transfers between funds 1,556,595 2,953,009 (1,775,143) 1,513,074
Redemptions............................ (11,441,321) (8,875,651) (3,541,487) (2,705,147)
Annuity benefits....................... (8,439) (7,775) (2,635) (2,460)
Annual contract maintenance charge (note 2) (48,785) (51,721) (18,996) (21,529)
Contingent deferred sales charges (note 2) (47,005) (95,916) (14,222) (29,828)
Adjustments to maintain reserves....... 736 1,920 3 64
-------------- -------------- -------------- --------------
Net equity transactions............ (9,988,219) (6,076,134) (5,352,480) (1,245,826)
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... (1,102,374) (649,846) (3,008,413) 299,135
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 99,289,714 102,161,055 36,465,197 35,702,800
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 98,187,340 101,511,209 33,456,784 36,001,935
============== ============== ============== ==============
<CAPTION>
DOMESTIC INCOME FUND EMERGING GROWTH FUND
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. 28,963 20,993 - -
Mortality, expense and administration
charges (note 2)..................... (60,044) (89,044) (18,927) (10,073)
------------- -------------- -------------- --------------
Net investment activity.............. (31,081) (68,051) (18,927) (10,073)
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 3,845,738 7,388,584 1,476,931 151,891
Cost of mutual fund shares sold........ (3,754,019) (7,412,370) (1,332,681) (126,321)
------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 91,719 (23,786) 144,250 25,570
Change in unrealized gain (loss) on
investments.......................... 258,732 (156,073) 98,651 144,087
------------- -------------- -------------- --------------
Net gain (loss) on investments....... 350,451 (179,859) 242,901 169,657
------------- -------------- -------------- --------------
Reinvested capital gains .............. - - - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations....................... 319,370 (247,910) 223,974 159,584
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from contract
owners - net of transfers between funds (1,315,821) (1,173,873) (682,975) 1,695,086
Redemptions............................ (1,629,868) (2,436,056) (66,290) (143,261)
Annuity benefits....................... (1,184) (1,064) - -
Annual contract maintenance charge (note 2) (5,040) (6,382) (1,550) (678)
Contingent deferred sales charges (note 2) (10,226) (22,800) (205) (3,080)
Adjustments to maintain reserves....... 172 (474) (13) 132
------------- -------------- -------------- --------------
Net equity transactions............ (2,961,967) (3,640,649) (751,033) 1,548,199
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... (2,642,597) (3,888,559) (527,059) 1,707,783
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 10,910,269 16,112,209 3,542,882 1,205,670
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... 8,267,672 12,223,650 3,015,823 2,913,453
============= ============== ============== ==============
</TABLE>
6
<PAGE> 6
<TABLE>
<CAPTION>
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
(UNAUDITED)
ENTERPRISE FUND GLOBAL EQUITY FUND
--------------------------- ---------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ 38,992 24,167 32 -
Mortality, expense and administration
charges (note 2)..................... (244,998) (232,134) (4,361) (1,290)
-------------- -------------- -------------- --------------
Net investment activity.............. (206,006) (207,967) (4,329) (1,290)
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 7,291,771 4,770,180 50,764 22,410
Cost of mutual fund shares sold........ (6,278,631) (4,313,075) (43,630) (20,163)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments.. 1,013,140 457,105 7,134 2,247
Change in unrealized gain (loss) on
investments........................... 4,331,214 2,693,163 109,823 18,670
-------------- -------------- -------------- --------------
Net gain (loss) on investments....... 5,344,354 3,150,268 116,957 20,917
-------------- -------------- -------------- --------------
Reinvested capital gains .............. 482,160 1,153,405 6,183 -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations....................... 5,620,508 4,095,706 118,811 19,627
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from contract 652,796 324,555 607,979 155,335
owners - net of transfers between funds (3,883,179) (2,249,838) (34,204) (19,434)
Redemptions............................ (740) (560) - -
Annuity benefits....................... (17,312) (17,330) (360) (78)
Annual contract maintenance charge (note 2) (13,981) (21,466) (374) (1)
Contingent deferred sales charges (note 2) 246 2,136 11 3
Adjustments to maintain reserves....... -------------- -------------- -------------- --------------
Net equity transactions............ (3,262,170) (1,962,503) 573,052 135,825
-------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... 2,358,338 2,133,203 691,863 155,452
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 36,499,067 33,297,243 399,649 101,581
-------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 38,857,405 35,430,446 1,091,512 257,033
============== ============== ============== ==============
<CAPTION>
GOVERNMENT FUND MONEY MARKET FUND
------------------------------ ------------------------------
1997 1996 1997 1996
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. 176,187 280,749 170,858 154,255
Mortality, expense and administration
charges (note 2)..................... (36,030) (54,481) (45,946) (42,440)
------------- -------------- -------------- --------------
Net investment activity.............. 140,157 226,268 124,912 111,815
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold.. 1,630,835 2,260,000 5,706,577 6,509,789
Cost of mutual fund shares sold........ (1,675,600) (2,442,009) (5,706,577) (6,509,789)
------------- -------------- -------------- --------------
Realized gain (loss) on investments.. (44,765) (182,009) - -
Change in unrealized gain (loss) on
investments........................... 10,701 (306,145) - -
------------- -------------- -------------- --------------
Net gain (loss) on investments....... (34,064) (488,154) - -
------------- -------------- -------------- --------------
Reinvested capital gains .............. - - - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract
owners' equity resulting from
operations....................... 106,093 (261,886) 124,912 111,815
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from contract
owners - net of transfers between funds (684,419) (841,093) 4,292,765 1,272,282
Redemptions............................ (502,954) (691,674) (1,766,986) (630,224)
Annuity benefits....................... (2,350) (2,281) (1,530) (1,410)
Annual contract maintenance charge (note 2) (2,563) (3,538) (2,797) (2,184)
Contingent deferred sales charges (note 2) (2,578) (13,913) (5,294) (4,827)
Adjustments to maintain reserves....... 173 24 141 44
------------- -------------- -------------- --------------
Net equity transactions............ (1,194,691) (1,552,475) 2,516,299 633,681
------------- -------------- -------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... (1,088,598) (1,814,361) 2,641,211 745,496
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 6,260,114 9,162,203 5,071,510 6,530,151
------------- -------------- -------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... 5,171,516 7,347,842 7,712,721 7,275,647
============= ============== ============== ==============
</TABLE>
7
<PAGE> 7
<TABLE>
<CAPTION>
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
(UNAUDITED)
REAL ESTATE SECURITIES FUND
------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .................. $ 740 42
Mortality, expense and administration
charges (note 2)..................... (2,923) (369)
-------------- --------------
Net investment activity.............. (2,183) (327)
-------------- --------------
Proceeds from mutual fund shares sold.. 59,177 202
Cost of mutual fund shares sold........ (49,425) (186)
-------------- --------------
Realized gain (loss) on investments.. 9,752 16
Change in unrealized gain (loss) on
investments ......................... 19,046 4,702
-------------- --------------
Net gain (loss) on investments....... 28,798 4,718
-------------- --------------
Reinvested capital gains .............. 1,495 -
Net increase (decrease) in contract -------------- --------------
owners' equity resulting from
operations....................... 28,110 4,391
-------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from contract
owners - net of transfers between funds 461,413 7,643
Redemptions............................ (16,353) (17)
Annuity benefits....................... - -
Annual contract maintenance charge (note 2) (167) (2)
Contingent deferred sales charges (note 2) (125) (1)
Adjustments to maintain reserves....... 3 (9)
-------------- --------------
Net equity transactions............ 444,771 7,614
-------------- --------------
NET CHANGE IN CONTRACT OWNERS' EQUITY.... 472,881 12,005
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD 141,026 49,198
-------------- --------------
CONTRACT OWNERS' EQUITY END OF PERIOD.... $ 613,907 61,203
============== ==============
See accompanying notes to financial statements.
</TABLE>
8
<PAGE> 8
NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
Nationwide Variable Account-3 (the Account) was established pursuant to
a resolution of the Board of Directors of Nationwide Life Insurance
Company (the Company) on October 7, 1987. 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 the brokerage community;
however, other distributors may be utilized.
(b) The Contracts
Only contracts without a front-end sales charge, but with a contingent
deferred sales charge and certain other fees, are offered for purchase.
See note 2 for a discussion of contract expenses.
Contract owners in either the accumulation or the payout phase may
invest in the following funds of the Van Kampen American Capital Life
Investment Trust (Van Kampen American Capital LIT):
Van Kampen American Capital LIT - Asset Allocation Fund
(formerly Van Kampen American Capital - Multiple Strategy Fund)
Van Kampen American Capital LIT - Domestic Income Fund
(formerly Van Kampen American Capital - Domestic Strategic
Income Fund)
Van Kampen American Capital LIT - Emerging Growth Fund
Van Kampen American Capital LIT - Enterprise Fund
(formerly Van Kampen American Capital - Common Stock Fund)
Van Kampen American Capital LIT - Global Equity Fund
Van Kampen American Capital LIT - Government Fund
Van Kampen American Capital LIT - Money Market Fund
Van Kampen American Capital LIT - Real Estate Securities Fund
At June 30, 1997, 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.
(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, 1997. The cost of investments
sold is determined on a 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 Company does not provide for income taxes within the Account. Taxes
are the responsibility of the contract owner upon termination or
withdrawal.
9
<PAGE> 9
(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) Reclassifications
Certain 1996 amounts have been reclassified to conform with the current
year presentation.
(2) EXPENSES
The Company does not deduct a sales charge from purchase payments received
from the contract owners. However, if any part of the contract value of
such contracts is surrendered, the Company will, with certain exceptions,
deduct from the contract owner's contract value a contingent deferred sales
charge, not to exceed 6% (3% after 36 months) of the lesser of the total of
all purchase payments made within 72 months prior to the date of the
request for surrender, or the amount surrendered. (For contracts issued in
the State of New York, the contingent deferred sales charge will not exceed
7% of purchase payments, such charge declining 1% per year, to 0%, after
the purchase payment has been held in the contract for seven years.) 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: (a) an annual
contract maintenance charge of $35 ($30 for contracts issued in the State
of New York) which is satisfied by surrendering units; and (b) a mortality
risk charge, an expense risk charge and an administration charge assessed
through the daily unit value calculation equal to an annual rate of 0.80%,
0.45% and 0.05%, respectively.
================================================================================
10
<PAGE> 10
Bulk Rate
U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: ONE NATIONWIDE PLAZA - COLUMBUS, OHIO 43215-2220
Nationwide(R) is a registered federal service mark of Nationwide Mutual
Insurance Company
