<PAGE> 1
[Nationwide Logo]
NATIONWIDE(R)
VARIABLE
ACCOUNT-3
SEMI-ANNUAL REPORT
TO
CONTRACT OWNERS
JUNE 30, 1999
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-1545-AA (6/99)
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[Logo]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
[Photo]
PRESIDENT'S MESSAGE
On behalf of Nationwide Life Insurance Company, we are pleased to present the
1999 semi-annual report of the Nationwide Variable Account-3.
Equity investments performed well during the first half of 1999 with the major
market indices showing double-digit gains. Fixed income investments did not fare
as well during this period in the face of the Federal Reserve's inflation
cautiousness. The Fed is mindful of the resilient U.S. economy and the
increasingly tight labor pool that portends future wage inflation. Accordingly,
we have seen a ratcheting-up of short-term interest rates to dampen the momentum
of the current expansion. How aggressively the Fed may react to the perceived
inflation threat only adds uncertainty to the already jittery equity markets.
Over the long term, however, a slower but sustainable rate of growth, with low
inflation, provides a favorable environment for further advances in financial
assets.
At mid-year, we are pleased to report that all the mission-critical systems used
to service our variable annuity and variable life business have been internally
inventoried, assessed and tested as being Year 2000 compliant. We are currently
contacting our critical business partners to determine if they will be Year 2000
compliant. Contingency plans are being developed and are to be completed by the
end of the third quarter. All these steps are being taken to assure that
Nationwide Financial will be able to continue to serve your financial needs into
the Year 2000 and beyond.
Thank you for selecting Nationwide Financial to help you achieve your financial
planning and retirement savings goals. You have our commitment to provide the
consistent, high quality service you expect and deserve.
/s/ Joseph J. Gasper
Joseph J. Gasper, President
August 19, 1999
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
Van Kampen LIT - Asset Allocation Fund
2,372,264 shares (cost $27,883,234) ......................... $27,921,548
Van Kampen LIT - Domestic Income Fund
710,761 shares (cost $5,953,393) ............................ 5,657,656
Van Kampen LIT - Emerging Growth Fund
205,011 shares (cost $3,656,077) ............................ 5,656,259
Van Kampen LIT - Enterprise Fund
1,698,080 shares (cost $30,153,081) ......................... 37,578,519
Van Kampen LIT - Global Equity Fund
60,220 shares (cost $726,779) ............................... 885,233
Van Kampen LIT - Government Fund
437,210 shares (cost $3,914,280) ............................ 3,856,194
Van Kampen LIT - Money Market Fund
4,642,760 shares (cost $4,642,760) .......................... 4,642,760
Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio
29,317 shares (cost $442,928) ............................... 407,207
-----------
Total investments ........................................ 86,605,376
Accounts Receivable ............................................... 78
-----------
Total assets ............................................. 86,605,454
-----------
CONTRACT OWNERS' EQUITY .............................................. $86,605,454
===========
</TABLE>
4
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<TABLE>
<CAPTION>
PERIOD
Contract owners' equity represented by: UNITS UNIT VALUE RETURN*
-------- ---------- -------
Contracts in accumulation phase:
<S> <C> <C> <C> <C>
Van Kampen LIT - Asset Allocation Fund:
Tax qualified ........................... 302,503 $ 33.145490 $ 10,026,610 1%
Non-tax qualified ....................... 539,094 33.145490 17,868,535 1%
Van Kampen LIT - Domestic Income Fund:
Tax qualified ........................... 66,811 18.739328 1,251,993 (3)%
Non-tax qualified ....................... 234,369 18.739328 4,391,918 (3)%
Van Kampen LIT - Emerging Growth Fund:
Tax qualified ........................... 76,616 26.196440 2,007,066 21%
Non-tax qualified ....................... 139,303 26.196440 3,649,243 21%
Van Kampen LIT - Enterprise Fund:
Tax qualified ........................... 218,498 53.531852 11,696,603 6%
Non-tax qualified ....................... 482,760 53.531852 25,843,037 6%
Van Kampen LIT - Global Equity Fund:
Tax qualified ........................... 19,475 17.959771 349,767 11%
Non-tax qualified ....................... 29,815 17.959771 535,471 11%
Van Kampen LIT - Government Fund:
Tax qualified ........................... 41,527 16.638550 690,949 (4)%
Non-tax qualified ....................... 188,542 16.638550 3,137,065 (4)%
Van Kampen LIT - Money Market Fund:
Tax qualified ........................... 88,289 15.503979 1,368,831 2%
Non-tax qualified ....................... 209,743 15.503979 3,251,851 2%
Van Kampen LIT - Morgan Stanley
Real Estate Securities Portfolio:
Tax qualified ........................... 7,249 16.833721 122,028 8%
Non-tax qualified ....................... 16,941 16.833721 285,180 8%
======= =========
Reserves for annuity contracts in payout phase:
Tax qualified ........................... 1,846
Non-tax qualified ....................... 127,461
------------
$ 86,605,454
============
</TABLE>
*The period return does not include contract charges satisfied by surrendering
units.
See accompanying notes to financial statements.
5
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\ NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL ASSET ALLOCATION FUND
----------------------------- ----------------------------
1999 1998 1999 1998
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. $ 1,917,366 313,872 992,341 36,927
Mortality, expense and administration
charges (note 2)................................ (594,275) (658,537) (192,677) (224,227)
------------ ------------ ------------ ------------
Net investment activity......................... 1,323,091 (344,665) 799,664 (187,300)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold............. 20,636,637 18,430,453 4,546,783 5,121,901
Cost of mutual fund shares sold................... (16,871,588) (16,369,611) (3,640,667) (5,011,813)
------------ ------------ ------------ ------------
Realized gain (loss) on investments............. 3,765,049 2,060,842 906,116 110,088
Change in unrealized gain (loss) on investments... (7,628,758) 7,464,220 (4,418,229) 1,733,504
------------ ------------ ------------ ------------
Net gain (loss) on investments.................. (3,863,709) 9,525,062 (3,512,113) 1,843,592
------------ ------------ ------------ ------------
Reinvested capital gains ......................... 5,717,165 1,466,481 2,990,224 998,161
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations............ 3,176,547 10,646,878 277,775 2,654,453
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners................................. 606,907 1,350,852 155,331 358,340
Transfers between funds........................... -- -- (1,066,142) (575,779)
Redemptions....................................... (12,341,754) (10,767,616) (3,075,872) (3,449,023)
Annuity benefits.................................. (13,081) (10,050) (4,826) (3,415)
Annual contract maintenance charge (note 2)....... (33,557) (41,210) (13,087) (15,789)
Contingent deferred sales charges (note 2)........ (17,966) (31,754) (7,723) (7,111)
Adjustments to maintain reserves.................. 234 (1,359) 124 (612)
Net equity transactions....................... ------------ ------------ ------------ ------------
(11,799,216) (9,501,137) (4,012,196) (3,693,389)
------------ ------------ ------------ ------------
Net change in contract owners' equity............... (8,622,669) 1,145,741 (3,734,421) (1,038,936)
Contract owners' equity beginning of period......... 95,228,123 99,463,998 31,656,055 34,342,903
------------ ------------ ------------ ------------
Contract owners' equity end of period............... $ 86,605,454 100,609,739 27,921,634 33,303,967
============ ============ ============ ============
</TABLE>
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
DOMESTIC INCOME FUND EMERGING GROWTH FUND
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ -------------- -----------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................. 429,732 20,180 -- 1,446
Mortality, expense and administration
charges (note 2)................................ (40,522) (50,297) (30,052) (24,803)
------------ ------------ ------------ ------------
Net investment activity......................... 389,210 (30,117) (30,052) (23,357)
------------ ------------ ------------ ------------
Proceeds from mutual fund shares sold............. 1,366,647 1,815,568 599,675 284,952
Cost of mutual fund shares sold................... (1,342,355) (1,752,995) (318,545) (220,249)
------------ ------------ ------------ ------------
Realized gain (loss) on investments............. 24,292 62,573 281,130 64,703
Change in unrealized gain (loss) on investments... (643,784) 238,574 660,430 701,549
------------ ------------ ------------ ------------
Net gain (loss) on investments.................. (619,492) 301,147 941,560 766,252
------------ ------------ ------------ ------------
Reinvested capital gains ......................... -- -- -- --
------------ ------------ ------------ ------------
Net increase (decrease) in contract owners'
equity resulting from operations............ (230,282) 271,030 911,508 742,895
------------ ------------ ------------ ------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners................................. 28,173 202,974 90,305 130,043
Transfers between funds........................... 44,751 (486,117) 728,216 115,186
Redemptions....................................... (886,510) (1,091,566) (186,707) (220,510)
Annuity benefits.................................. (1,273) (1,288) -- --
Annual contract maintenance charge (note 2)....... (2,751) (3,652) (1,876) (1,786)
Contingent deferred sales charges (note 2)........ (2,135) (4,346) (994) (1,462)
Adjustments to maintain reserves.................. (151) (29) 53 (13,107)
Net equity transactions....................... ------------ ------------ ------------ ------------
(819,896) (1,384,024) 628,997 8,364
------------ ------------ ------------ ------------
Net change in contract owners' equity............... (1,050,178) (1,112,994) 1,540,505 751,259
Contract owners' equity beginning of period......... 6,707,663 8,373,324 4,115,804 3,461,804
------------ ------------ ------------ ------------
Contract owners' equity end of period............... 5,657,485 7,260,330 5,656,309 4,213,063
============ ============ ============ ============
</TABLE>
6
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
ENTERPRISE FUND GLOBAL EQUITY FUND
------------------------------ ------------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ $ 115,759 37,274 2,343 10,562
Mortality, expense and administration
charges (note 2)............................... (251,705) (278,009) (5,414) (5,630)
-------------- -------------- -------------- --------------
Net investment activity........................ (135,946) (240,735) (3,071) 4,932
-------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold............ 7,760,058 5,363,456 135,136 58,537
Cost of mutual fund shares sold.................. (5,219,605) (3,593,707) (130,078) (57,992)
-------------- -------------- -------------- --------------
Realized gain (loss) on investments............ 2,540,453 1,769,749 5,058 545
Change in unrealized gain (loss) on investments.. (2,960,494) 4,652,148 83,268 118,991
-------------- -------------- -------------- --------------
Net gain (loss) on investments................. (420,041) 6,421,897 88,326 119,536
-------------- -------------- -------------- --------------
Reinvested capital gains ........................ 2,726,941 457,154 - -
-------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations........... 2,170,954 6,638,316 85,255 124,468
-------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners................................ 275,030 432,694 17,607 11,442
Transfers between funds.......................... (1,218,296) (173,620) (13,248) 132,333
Redemptions...................................... (4,913,871) (3,725,720) (66,383) (27,736)
Annuity benefits................................. (2,938) (1,316) - -
Annual contract maintenance charge (note 2)...... (11,705) (14,928) (399) (409)
Contingent deferred sales charges (note 2)....... (4,551) (7,821) (215) (57)
Adjustments to maintain reserves................. 267 (39,930) 2 7
-------------- -------------- -------------- --------------
Net equity transactions...................... (5,876,064) (3,530,641) (62,636) 115,580
-------------- -------------- -------------- --------------
Net change in contract owners' equity.............. (3,705,110) 3,107,675 22,619 240,048
Contract owners' equity beginning of period........ 41,283,855 40,292,749 862,619 706,509
-------------- -------------- -------------- --------------
Contract owners' equity end of period.............. $ 37,578,745 43,400,424 885,238 946,557
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT FUND MONEY MARKET FUND
------------------------------ ------------------------------
1999 1998 1999 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends ............................ 206,767 47,499 146,808 158,849
Mortality, expense and administration
charges (note 2)............................... (26,956) (29,580) (44,560) (41,587)
------------- -------------- -------------- --------------
Net investment activity........................ 179,811 17,919 102,248 117,262
------------- -------------- -------------- --------------
Proceeds from mutual fund shares sold............ 629,977 705,149 5,529,793 4,925,425
Cost of mutual fund shares sold.................. (613,821) (656,252) (5,529,793) (4,925,425)
------------- -------------- -------------- --------------
Realized gain (loss) on investments............ 16,156 48,897 - -
Change in unrealized gain (loss) on investments.. (364,744) 69,831 - -
------------- -------------- -------------- --------------
Net gain (loss) on investments................. (348,588) 118,728 - -
------------- -------------- -------------- --------------
Reinvested capital gains ........................ - - - -
------------- -------------- -------------- --------------
Net increase (decrease) in contract owners'
equity resulting from operations........... (168,777) 136,647 102,248 117,262
------------- -------------- -------------- --------------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners................................ 11,658 41,815 23,183 149,005
Transfers between funds.......................... 287,464 (250,960) 1,249,465 1,225,127
Redemptions...................................... (452,922) (351,728) (2,747,262) (1,817,499)
Annuity benefits................................. (2,510) (2,497) (1,534) (1,534)
Annual contract maintenance charge (note 2)...... (1,781) (2,063) (1,852) (2,349)
Contingent deferred sales charges (note 2)....... (201) (2,556) (2,103) (8,246)
Adjustments to maintain reserves................. (45) (19) (13) 52,327
------------- -------------- -------------- --------------
Net equity transactions...................... (158,338) (568,008) (1,480,116) (403,169)
------------- -------------- -------------- --------------
Net change in contract owners' equity.............. (327,115) (431,361) (1,377,868) (285,907)
Contract owners' equity beginning of period........ 4,183,233 4,717,386 6,020,585 6,874,194
------------- -------------- -------------- --------------
Contract owners' equity end of period.............. 3,856,118 4,286,025 4,642,717 6,588,287
============= ============== ============== ==============
</TABLE>
7
<PAGE> 7
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN LIT)
(UNAUDITED)
<TABLE>
<CAPTION>
MORGAN STANLEY REAL ESTATE
SECURITIES PORTFOLIO
-------------------------
1999 1998
------------- ----------
<S> <C> <C>
INVESTMENT ACTIVITY:
Reinvested dividends .......................... $ 23,616 1,135
Mortality, expense and administration
charges (note 2) ............................ (2,389) (4,404)
--------- ---------
Net investment activity ..................... 21,227 (3,269)
--------- ---------
Proceeds from mutual fund shares sold ......... 68,568 155,465
Cost of mutual fund shares sold ............... (76,724) (151,178)
--------- ---------
Realized gain (loss) on investments ......... (8,156) 4,287
Change in unrealized gain (loss) on investments 14,795 (50,377)
--------- ---------
Net gain (loss) on investments .............. 6,639 (46,090)
--------- ---------
Reinvested capital gains ...................... -- 11,166
--------- ---------
Net increase (decrease) in contract owners'
equity resulting from operations ........ 27,866 (38,193)
--------- ---------
EQUITY TRANSACTIONS:
Purchase payments received from
contract owners ............................. 5,619 24,539
Transfers between funds ....................... (12,210) 13,830
Redemptions ................................... (12,226) (83,834)
Annuity benefits .............................. -- --
Annual contract maintenance charge (note 2 .... (106) (234)
Contingent deferred sales charges (note 2) .... (43) (155)
Adjustments to maintain reserves .............. (2) 4
--------- ---------
Net equity transactions ................... (18,967) (45,850)
--------- ---------
NET change in contract owners' equity ........... 8,899 (84,043)
Contract owners' equity beginning of period ..... 398,309 695,129
--------- ---------
Contract owners' equity end of period........... $ 407,208 611,086
========= =========
</TABLE>
See accompanying notes to financial statements.
8
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NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
(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 Life Investment Trust
(Van Kampen LIT):
Van Kampen LIT - Asset Allocation Fund
Van Kampen LIT - Domestic Income Fund
Van Kampen LIT - Emerging Growth Fund
Van Kampen LIT - Enterprise Fund
Van Kampen LIT - Global Equity Fund
Van Kampen LIT - Government Fund
Van Kampen LIT - Money Market Fund
Van Kampen LIT - Morgan Stanley Real Estate Securities Portfolio
At June 30, 1999, contract owners have invested in all of the above
funds. The contract owners' equity is affected by the investment
results of each fund, equity transactions by contract owners and
certain contract expenses (see note 2). The accompanying financial
statements include only contract owners' purchase payments pertaining
to the variable portions of their contracts and exclude any purchase
payments for fixed dollar benefits, the latter being included in the
accounts of the Company.
A contract owner may choose from among a number of different
underlying mutual fund options. The underlying mutual fund options are
not available to the general public directly. The underlying mutual
funds are available as investment options in variable life insurance
policies or variable annuity contracts issued by life insurance
companies or, in some cases, through participation in certain
qualified pension or retirement plans.
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.
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<PAGE> 9
(c) Security Valuation, Transactions and Related Investment Income
The market value of the underlying mutual funds is based on the
closing net asset value per share at June 30, 1999. The cost of
investments sold is determined on 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.
(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 up to $35, dependent upon contract type and
issue date (up to $30, dependent upon contract type and issue date, 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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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
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