<PAGE> 1
[NATIONWIDE - LOGO]
NATIONWIDE(R)
VARIABLE
ACCOUNT-3
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 1998
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-1545-Y (6/98)
<PAGE> 2
[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[PHOTO]
PRESIDENT'S MESSAGE
We at Nationwide Life Insurance Company are pleased to present the 1998
semi-annual report of the Nationwide Variable Account-3.
The bull market continued its run in the first half of 1998. Most of the gains
came in the first quarter with more modest returns or small losses for the
second half of the period. At this writing, a market correction that began in
the second quarter continues to provide a good deal of day-to-day volatility.
Much of the capriciousness of the market is due to uncertainty about the
economic outcome in Asia. However, we think the correction will be of limited
magnitude and duration and will provide a healthy respite before further market
advances.
We believe that existing economic and market fundamentals provide an ongoing
favorable environment for financial assets. Interest rates remain low; inflation
is nearly nonexistent; corporate earnings, albeit slowing, remain positive, and
U.S. economic growth appears to be on a modest but sustainable track.
Against this backdrop, we believe our variable insurance products continue to
provide the versatile investment vehicle you need to respond to changing market
conditions. We are committed to the continual evaluation of our products and
services to ensure that we remain responsive to your long-term financial
planning and retirement-savings needs.
/s/ Joseph J. Gasper, President
Joseph J. Gasper, President
August 17, 1998
<PAGE> 3
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
Van Kampen American Capital LIT - Asset Allocation Fund
2,651,641 shares (cost $30,244,135) . . . . . . . . . . . . . . . . . . $ 33,304,609
Van Kampen American Capital LIT - Domestic Income Fund
846,196 shares (cost $6,966,563). . . . . . . . . . . . . . . . . . . . 7,260,361
Van Kampen American Capital LIT - Emerging Growth Fund
209,709 shares (cost $3,003,051). . . . . . . . . . . . . . . . . . . . 4,213,046
Van Kampen American Capital LIT - Enterprise Fund
2,059,856 shares (cost $32,837,449) . . . . . . . . . . . . . . . . . . 43,401,168
Van Kampen American Capital LIT - Global Equity Fund
74,532 shares (cost $908,309) . . . . . . . . . . . . . . . . . . . . . 946,554
Van Kampen American Capital LIT - Government Fund
467,914 shares (cost $4,097,486). . . . . . . . . . . . . . . . . . . . 4,286,096
Van Kampen American Capital LIT - Money Market Fund
6,588,338 shares (cost $6,588,338). . . . . . . . . . . . . . . . . . . 6,588,338
Van Kampen American Capital LIT - Morgan Stanley Real Estate Securities
Portfolio 41,262 shares (cost $635,098). . . . . . . . . . . . . . . . 611,091
-------------
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . 100,611,263
Accounts receivable -
-------------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,611,263
ACCOUNTS PAYABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524
-------------
CONTRACT OWNERS' EQUITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100,609,739
=============
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PERIOD
Contract owners' equity represented by: UNITS UNIT VALUE RETURN
-------- ---------- -------
<S> <C> <C> <C> <C>
Contracts in accumulation phase:
Van Kampen American Capital LIT -
Asset Allocation Fund:
Tax qualified. . . . . . . . . . . 372,315 $ 31.009702 $ 11,545,377 8%
Non-tax qualified. . . . . . . . . 700,574 31.009702 21,724,591 8%
Van Kampen American Capital LIT -
Domestic Income Fund:
Tax qualified. . . . . . . . . . . 93,861 19.100651 1,792,806 4%
Non-tax qualified. . . . . . . . . 285,391 19.100651 5,451,154 4%
Van Kampen American Capital LIT -
Emerging Growth Fund:
Tax qualified. . . . . . . . . . . 59,249 19.325961 1,145,044 21%
Non-tax qualified. . . . . . . . . 158,752 19.325961 3,068,035 21%
Van Kampen American Capital LIT -
Enterprise Fund:
Tax qualified. . . . . . . . . . . 298,709 47.849582 14,293,101 17%
Non-tax qualified. . . . . . . . . 607,465 47.849582 29,066,946 17%
Van Kampen American Capital LIT -
Global Equity Fund:
Tax qualified. . . . . . . . . . . 22,680 15.674011 355,487 16%
Non-tax qualified. . . . . . . . . 37,710 15.674011 591,067 16%
Van Kampen American Capital LIT -
Government Fund:
Tax qualified. . . . . . . . . . . 53,918 16.661505 898,355 3%
Non-tax qualified. . . . . . . . . 201,339 16.661505 3,354,611 3%
Van Kampen American Capital LIT -
Money Market Fund:
Tax qualified. . . . . . . . . . . 93,731 15.006946 1,406,616 2%
Non-tax qualified. . . . . . . . . 343,665 15.006946 5,157,362 2%
Van Kampen American Capital LIT - Morgan
Stanley Real Estate Securities Portfolio:
Tax qualified. . . . . . . . . . . 11,552 16.918595 195,444 (5)%
Non-tax qualified. . . . . . . . . 24,567 16.918595 415,639 (5)%
======== ========
Reserves for annuity contracts in payout phase:
Tax qualified. . . . . . . . . . . 1,896
Non-tax qualified. . . . . . . . . 146,208
-------------
$ 100,609,739
=============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL ASSET ALLOCATION FUND
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 313,872 456,164 36,927 40,392
Mortality, expense and administration
charges (note 2) ............................ (658,537) (636,429) (224,227) (223,200)
------------- ------------- ------------- -------------
Net investment activity ..................... (344,665) (180,265) (187,300) (182,808)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 18,430,453 26,520,461 5,121,901 6,458,668
Cost of mutual fund shares sold ............... (16,369,611) (25,584,268) (5,011,813) (6,743,705)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 2,060,842 936,193 110,088 (285,037)
Change in unrealized gain (loss) on investments 7,464,220 6,949,828 1,733,504 2,121,661
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 9,525,062 7,886,021 1,843,592 1,836,624
------------- ------------- ------------- -------------
Reinvested capital gains ...................... 1,466,481 1,180,089 998,161 690,251
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 10,646,878 8,885,845 2,654,453 2,344,067
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 1,350,852 1,556,595 358,340 294,740
Transfers between funds ....................... -- -- (575,779) (2,069,883)
Redemptions ................................... (10,767,616) (11,441,321) (3,449,023) (3,541,487)
Annuity benefits .............................. (10,050) (8,439) (3,415) (2,635)
Annual contract maintenance charge (note 2) ... (41,210) (48,785) (15,789) (18,996)
Contingent deferred sales charges (note 2) .... (31,754) (47,005) (7,111) (14,222)
Adjustments to maintain reserves .............. (1,359) 736 (612) 3
------------- ------------- ------------- -------------
Net equity transactions ................... (9,501,137) (9,988,219) (3,693,389) (5,352,480)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 1,145,741 (1,102,374) (1,038,936) (3,008,413)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 99,463,998 99,289,714 34,342,903 36,465,197
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... $ 100,609,739 98,187,340 33,303,967 33,456,784
============= ============= ============= =============
<CAPTION>
DOMESTIC INCOME FUND EMERGING GROWTH FUND
-------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 20,180 28,963 1,446 --
Mortality, expense and administration
charges (note 2) ............................ (50,297) (60,044) (24,803) (18,927)
------------- ------------- ------------- -------------
Net investment activity ..................... (30,117) (31,081) (23,357) (18,927)
------------- ------------- ------------- -------------
Proceeds from mutual fund shares sold ......... 1,815,568 3,845,738 284,952 1,476,931
Cost of mutual fund shares sold ............... (1,752,995) (3,754,019) (220,249) (1,332,681)
------------- ------------- ------------- -------------
Realized gain (loss) on investments ......... 62,573 91,719 64,703 144,250
Change in unrealized gain (loss) on investments 238,574 258,732 701,549 98,651
------------- ------------- ------------- -------------
Net gain (loss) on investments .............. 301,147 350,451 766,252 242,901
------------- ------------- ------------- -------------
Reinvested capital gains ...................... -- -- -- --
------------- ------------- ------------- -------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 271,030 319,370 742,895 223,974
------------- ------------- ------------- -------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 202,974 579,908 130,043 168,069
Transfers between funds ....................... (486,117) (1,895,729) 115,186 (851,044)
Redemptions ................................... (1,091,566) (1,629,868) (220,510) (66,290)
Annuity benefits .............................. (1,288) (1,184) -- --
Annual contract maintenance charge (note 2) ... (3,652) (5,040) (1,786) (1,550)
Contingent deferred sales charges (note 2) .... (4,346) (10,226) (1,462) (205)
Adjustments to maintain reserves .............. (29) 172 (13,107) (13)
------------- ------------- ------------- -------------
Net equity transactions ................... (1,384,024) (2,961,967) 8,364 (751,033)
------------- ------------- ------------- -------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (1,112,994) (2,642,597) 751,259 (527,059)
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 8,373,324 10,910,269 3,461,804 3,542,882
------------- ------------- ------------- -------------
CONTRACT OWNERS' EQUITY END OF PERIOD ........... 7,260,330 8,267,672 4,213,063 3,015,823
============= ============= ============= =============
</TABLE>
6
<PAGE> 6
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
ENTERPRISE FUND GLOBAL EQUITY FUND
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 37,274 38,992 10,562 32
Mortality, expense and administration
charges (note 2) ............................ (278,009) (244,998) (5,630) (4,361)
------------ ------------ ------------ ------------
Net investment activity ..................... (240,735) (206,006) 4,932 (4,329)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 5,363,456 7,291,771 58,537 50,764
Cost of mutual fund shares sold ............... (3,593,707) (6,278,631) (57,992) (43,630)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 1,769,749 1,013,140 545 7,134
Change in unrealized gain (loss) on investments 4,652,148 4,331,214 118,991 109,823
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. 6,421,897 5,344,354 119,536 116,957
------------ ------------ ------------ ------------
Reinvested capital gains ...................... 457,154 482,160 -- 6,183
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 6,638,316 5,620,508 124,468 118,811
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 432,694 292,070 11,442 70,021
Transfers between funds ....................... (173,620) 360,726 132,333 537,958
Redemptions ................................... (3,725,720) (3,883,179) (27,736) (34,204)
Annuity benefits .............................. (1,316) (740) -- --
Annual contract maintenance charge (note 2) ... (14,928) (17,312) (409) (360)
Contingent deferred sales charges (note 2) .... (7,821) (13,981) (57) (374)
Adjustments to maintain reserves .............. (39,930) 246 7 11
------------ ------------ ------------ ------------
Net equity transactions ................... (3,530,641) (3,262,170) 115,580 573,052
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... 3,107,675 2,358,338 240,048 691,863
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 40,292,749 36,499,067 706,509 399,649
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD .......... $ 43,400,424 38,857,405 946,557 1,091,512
============ ============ ============ ============
<CAPTION>
GOVERNMENT FUND MONEY MARKET FUND
------------------------------ -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... 47,499 176,187 158,849 170,858
Mortality, expense and administration
charges (note 2) ............................ (29,580) (36,030) (41,587) (45,946)
------------ ------------ ------------ ------------
Net investment activity ..................... 17,919 140,157 117,262 124,912
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold ......... 705,149 1,630,835 4,925,425 5,706,577
Cost of mutual fund shares sold ............... (656,252) (1,675,600) (4,925,425) (5,706,577)
------------ ------------ ------------ ------------
Realized gain (loss) on investments ......... 48,897 (44,765) -- --
Change in unrealized gain (loss) on investments 69,831 10,701 -- --
------------ ------------ ------------ ------------
Net gain (loss) on investments .............. 118,728 (34,064) -- --
------------ ------------ ------------ ------------
Reinvested capital gains ...................... -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 136,647 106,093 117,262 124,912
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 41,815 30,168 149,005 58,337
Transfers between funds ....................... (250,960) (714,587) 1,225,127 4,234,428
Redemptions ................................... (351,728) (502,954) (1,817,499) (1,766,986)
Annuity benefits .............................. (2,497) (2,350) (1,534) (1,530)
Annual contract maintenance charge (note 2) ... (2,063) (2,563) (2,349) (2,797)
Contingent deferred sales charges (note 2) .... (2,556) (2,578) (8,246) (5,294)
Adjustments to maintain reserves .............. (19) 173 52,327 141
------------ ------------ ------------ ------------
Net equity transactions ................... (568,008) (1,194,691) (403,169) 2,516,299
------------ ------------ ------------ ------------
NET CHANGE IN CONTRACT OWNERS' EQUITY ........... (431,361) (1,088,598) (285,907) 2,641,211
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ..... 4,717,386 6,260,114 6,874,194 5,071,510
------------ ------------ ------------ ------------
CONTRACT OWNERS' EQUITY END OF PERIOD$ .......... 4,286,025 5,171,516 6,588,287 7,712,721
============ ============ ============ ============
</TABLE>
7
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
REAL ESTATE
SECURITIES PORTFOLIO
---------------------------
1998 1997
------------- -------------
<S> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ........................... $ 1,135 740
Mortality, expense and administration
charges (note 2) ............................. (4,404) (2,923)
--------- ---------
Net investment activity ...................... (3,269) (2,183)
--------- ---------
Proceeds from mutual fund shares sold .......... 155,465 59,177
Cost of mutual fund shares sold ................ (151,178) (49,425)
--------- ---------
Realized gain (loss) on investments .......... 4,287 9,752
Change in unrealized gain (loss) on investments (50,377) 19,046
--------- ---------
Net gain (loss) on investments ............... (46,090) 28,798
--------- ---------
Reinvested capital gains ....................... 11,166 1,495
--------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ......... (38,193) 28,110
--------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners .............................. 24,539 63,282
Transfers between funds ........................ 13,830 398,131
Redemptions .................................... (83,834) (16,353)
Annuity benefits ............................... -- --
Annual contract maintenance charge (note 2) .... (234) (167)
Contingent deferred sales charges (note 2) ..... (155) (125)
Adjustments to maintain reserves ............... 4 3
--------- ---------
Net equity transactions .................... (45,850) 444,771
--------- ---------
NET CHANGE IN CONTRACT OWNERS' EQUITY ............ (84,043) 472,881
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD ...... 695,129 141,026
--------- ---------
CONTRACT OWNERS' EQUITY END OF PERIOD ............ $ 611,086 613,907
========= =========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 8
NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(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 - Morgan Stanley Real
Estate Securities Portfolio
(formerly Van Kampen American Capital LIT - Real Estate Securities
Fund)
At June 30, 1998, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment results
of each fund, equity transactions by contract owners and certain contract
expenses (see note 2). The accompanying financial statements include only
contract owners' purchase payments pertaining to the variable portions of
their contracts and exclude any purchase payments for fixed dollar
benefits, the latter being included in the accounts of the Company.
(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, 1998. 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.
(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.
(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.
10
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[THIS PAGE LEFT BLANK INTENTIONALLY]
11
<PAGE> 11
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
Bulk Rate
U.S. Postage
PAID
Columbus, Ohio
Permit No. 521
