<PAGE> 1
[NATIONWIDE LOGO]
NATIONWIDE(R)
VARIABLE
ACCOUNT-3
ANNUAL REPORT
TO
CONTRACT OWNERS
DECEMBER 31, 1995
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
APO-1545-T (12/95)
<PAGE> 2
[NATIONWIDE LOGO]
NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43216
[PHOTO OF PETER F. FRENZER, PRESIDENT]
PRESIDENT'S MESSAGE
Nationwide Life Insurance Company is pleased to bring you the 1995 annual report
of the Nationwide Variable Account-3.
Both equity and fixed income investments turned in a stellar performance during
1995. The major market indices ended the year fully one-third or more higher
than their levels at the beginning of the year. These results equate directly to
the returns enjoyed by our variable annuity participants and contract owners.
Low interest rates and modest inflation should provide a continued favorable
environment for stocks and fixed income investments during 1996. Slowing levels
of economic activity and uncertainty about corporate profits may, however,
dampen a repeat of the strong 1995 market performance. The diverse offering of
investment options within your contract should enable you to take advantage of
changing market conditions.
The year 1995 was a record-setting sales year for our variable investment
products. For this we thank you, our valued customer, for your confidence in the
Nationwide Insurance Enterprise and in our products. Please do not hesitate to
let us know how we can better serve your financial planning and retirement
needs.
/s/ Peter F. Frenzer
---------------------------
Peter F. Frenzer, President
3
<PAGE> 3
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Van Kampen American Capital - Common Stock Fund
2,266,671 shares (cost $32,118,444)............................. $ 33,297,403
Van Kampen American Capital - Domestic Strategic Income Fund
1,962,643 shares (cost $15,504,893)............................. 16,113,302
Van Kampen American Capital - Emerging Growth Fund
102,966 shares (cost $1,148,376)................................ 1,205,731
Van Kampen American Capital - Global Equity Fund
9,854 shares (cost $99,547)..................................... 101,593
Van Kampen American Capital - Government Fund
1,011,302 shares (cost $9,045,490).............................. 9,162,395
Van Kampen American Capital - Money Market Fund
6,529,366 shares (cost $6,529,366).............................. 6,529,366
Van Kampen American Capital - Multiple Strategy Fund
3,067,275 shares (cost $35,504,768)............................. 35,703,077
Van Kampen American Capital - Real Estate Securities Fund
4,582 shares (cost $47,403)..................................... 49,209
------------
Total assets............................................... 102,162,076
ACCOUNTS PAYABLE...................................................... 1,021
------------
CONTRACT OWNERS' EQUITY............................................... $102,161,055
============
</TABLE>
4
<PAGE> 4
<TABLE>
<CAPTION>
Contract owners' equity represented by: Units Unit Value
--------- ----------
<S> <C> <C> <C>
Contracts in accumulation phase:
Van Kampen American Capital -
Common Stock Fund:
Tax qualified............................... 425,489 $25.778191 $10,968,337
Non-tax qualified........................... 865,665 25.778191 22,315,278
Van Kampen American Capital -
Domestic Strategic Income Fund:
Tax qualified............................... 294,678 15.854864 4,672,080
Non-tax qualified........................... 720,487 15.854864 11,423,223
Van Kampen American Capital -
Emerging Growth Fund:
Tax qualified............................... 24,126 11.635151 280,710
Non-tax qualified........................... 79,497 11.635151 924,960
Van Kampen American Capital -
Global Equity Fund:
Tax qualified............................... 4,239 10.244062 43,425
Non-tax qualified........................... 5,677 10.244062 58,156
Van Kampen American Capital -
Government Fund:
Tax qualified............................... 187,304 14.827943 2,777,333
Non-tax qualified........................... 427,994 14.827943 6,346,271
Van Kampen American Capital -
Money Market Fund:
Tax qualified............................... 147,447 13.724323 2,023,610
Non-tax qualified........................... 326,438 13.724323 4,480,141
Van Kampen American Capital -
Multiple Strategy Fund:
Tax qualified............................... 606,415 21.272421 12,899,915
Non-tax qualified........................... 1,070,729 21.272421 22,776,998
Van Kampen American Capital -
Real Estate Securities Fund:
Tax qualified............................... 1,762 10.765351 18,969
Non-tax qualified........................... 2,808 10.765351 30,229
========= =========
Reserves for annuity contracts in payout phase:
Non-tax qualified........................... 121,420
------------
$102,161,055
============
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
5
<PAGE> 5
NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
INVESTMENT ACTIVITY:
Reinvested capital gains and dividends.................... $ 10,887,325 10,126,858 6,943,526
------------ ----------- -----------
Gain (loss) on investments:
Proceeds from redemptions of mutual fund shares......... 40,426,461 46,483,900 43,408,325
Cost of mutual fund shares sold......................... (40,641,053) (45,783,206) (39,734,553)
------------ ----------- -----------
Realized gain (loss) on investments..................... (214,592) 700,694 3,673,772
Change in unrealized gain (loss) on investments......... 13,497,708 (14,166,680) (2,060,761)
------------ ----------- -----------
Net gain (loss) on investments........................ 13,283,116 (13,465,986) 1,613,011
------------ ----------- -----------
Net investment activity....................... 24,170,441 (3,339,128) 8,556,537
------------ ----------- -----------
EQUITY TRANSACTIONS:
Purchase payments received from contract owners........... 3,278,740 5,550,286 25,974,374
Redemptions............................................... (20,264,414) (15,199,321) (9,340,200)
Annuity benefits.......................................... (14,594) (9,959) (8,803)
Adjustments to maintain reserves.......................... (2,440) (215) (4,228)
------------ ----------- -----------
Net equity transactions....................... (17,002,708) (9,659,209) 16,621,143
------------ ----------- -----------
EXPENSES (NOTE 2):
Contract charges.......................................... (1,402,772) (1,494,001) (1,446,876)
Contingent deferred sales charges......................... (405,272) (342,156) (204,793)
------------ ----------- -----------
Total expenses................................ (1,808,044) (1,836,157) (1,651,669)
------------ ----------- -----------
NET CHANGE IN CONTRACT OWNERS' EQUITY....................... 5,359,689 (14,834,494) 23,526,011
CONTRACT OWNERS' EQUITY BEGINNING OF PERIOD................. 96,801,366 111,635,860 88,109,849
------------ ----------- -----------
CONTRACT OWNERS' EQUITY END OF PERIOD....................... $102,161,055 96,801,366 111,635,860
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
6
<PAGE> 6
NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(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):
Van Kampen American Capital - Common Stock Fund
Van Kampen American Capital - Domestic Strategic Income Fund
(formerly American Capital - Corporate Bond Portfolio)
Van Kampen American Capital - Emerging Growth Fund
Van Kampen American Capital - Global Equity Fund
Van Kampen American Capital - Government Fund
Van Kampen American Capital - Money Market Fund
Van Kampen American Capital - Multiple Strategy Fund
Van Kampen American Capital - Real Estate Securities Fund
At December 31, 1995, 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 December 31, 1995. 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.
7
<PAGE> 7
(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 administrative 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) SCHEDULE I
Schedule I presents the components of the change in the unit values, which
are the basis for contract owners' equity. This schedule is presented in the
following format:
- Beginning unit value - Jan. 1
- Reinvested capital gains and dividends
(This amount reflects the increase in the unit value due to capital
gains and dividend distributions from the underlying mutual funds.)
- Unrealized gain (loss)
(This amount reflects the increase (decrease) in the unit value
resulting from the market appreciation (depreciation) of the
underlying mutual funds.)
- Contract charges
(This amount reflects the decrease in the unit value due to the
mortality risk charge, expense risk charge and administration charge
discussed in note 2.)
- Ending unit value - Dec. 31
- Percentage increase (decrease) in unit value.
For contracts in the payout phase, an assumed investment return of 3.5%,
used in the calculation of the annuity benefit payment amount, results in a
corresponding reduction in the components of the unit values as shown in
Schedule I.
- --------------------------------------------------------------------------------
8
<PAGE> 8
SCHEDULE I
NATIONWIDE VARIABLE ACCOUNT-3
TAX QUALIFIED AND NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNDERLYING MUTUAL FUNDS OF VAN KAMPEN AMERICAN CAPITAL)
<TABLE>
<CAPTION>
DOMESTIC
COMMON STRATEGIC EMERGING GLOBAL
STOCK INCOME GROWTH EQUITY
FUND FUND FUND FUND
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 $19.065611 13.235145 10.000000 10.000000
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 3.443612 1.250586 .000000 .000000
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 3.564450 1.560777 1.705967 .309001
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.295482) (.191644) (.070816) (.064939)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $25.778191 15.854864 11.635151 10.244062
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 35% 20% 16%(b) 2%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 $19.993094 14.016253 ** **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 2.272837 1.376728
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.944375) (1.981901)
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.255945) (.175935)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.065611 13.235145
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (5)% (6)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 $18.587100 12.208185 ** **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends 1.141359 1.091003
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .514295 .892204
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.249660) (.175139)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 $19.993094 14.016253
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 8% 15%
=======================================================================================================================
<CAPTION>
MONEY MULTIPLE REAL ESTATE
GOVERNMENT MARKET STRATEGY SECURITIES
FUND FUND FUND FUND
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
1995
Beginning unit value - Jan. 1 12.821877 13.183559 16.406732 10.000000
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .953483 .716291 2.391189 .091958
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) 1.235082 .000000 2.721948 .739393
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.182499) (.175527) (.247448) (.066000)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 14.827943 13.724323 21.272421 10.765351
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 16% 4% 30% 8%(b)
=======================================================================================================================
1994
Beginning unit value - Jan. 1 13.620968 12.879003 17.253369 **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .835320 .474206 1.980194
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (1.464669) .000000 (2.608938)
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.169742) (.169650) (.217893)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 12.821877 13.183559 16.406732
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) (6)% 2% (5)%
=======================================================================================================================
1993
Beginning unit value - Jan. 1 12.794291 12.709641 16.230095 **
-----------------------------------------------------------------------------------------------------------------------
Reinvested capital gains and dividends .824185 .336808 1.370959
-----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) .178307 .000000 (.127808)
-----------------------------------------------------------------------------------------------------------------------
Contract charges (.175815) (.167446) (.219877)
-----------------------------------------------------------------------------------------------------------------------
Ending unit value - Dec. 31 13.620968 12.879003 17.253369
-----------------------------------------------------------------------------------------------------------------------
Percentage increase (decrease)
in unit value* (a) 6% 1% 6%
=======================================================================================================================
</TABLE>
* An annualized rate of return cannot be determined as:
(a) Contract charges do not include the annual contract maintenance charge
discussed in note 2; and
(b) This investment option was not utilized for the entire year indicated.
** This investment option was not being utilized or was not available.
See note 3.
- --------------------------------------------------------------------------------
9
<PAGE> 9
Independent Auditors' Report
The Board of Directors and Contract Owners of
Nationwide Variable Account-3
Nationwide Life Insurance Company:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-3 as of December 31,
1995, and the related statements of operations and changes in contract owners'
equity and schedules of changes in unit value for each of the years in the three
year period then ended. These financial statements and schedules of changes in
unit value are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements of changes
in unit value based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules of
changes in unit value are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and the
transfer agents of the underlying mutual funds. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and schedules of changes in
unit value referred to above present fairly, in all material respects, the
financial position of Nationwide Variable Account-3 as of December 31, 1995, and
the results of its operations and its changes in contract owners' equity and the
schedules of changes in unit value for each of the years in the three year
period then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 6, 1996
- --------------------------------------------------------------------------------
10
<PAGE> 10
[THIS PAGE LEFT BLANK INTENTIONALLY]
11
<PAGE> 11
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.
