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NATIONWIDE(R)
VARIABLE
ACCOUNT-3
Annual Report
to
Contract Owners
December 31, 1996
NATIONWIDE LIFE INSURANCE COMPANY
HOME OFFICE: COLUMBUS, OHIO
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NATIONWIDE LIFE INSURANCE COMPANY
ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220
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PRESIDENT'S MESSAGE
On behalf of Nationwide Life Insurance Company, we are
pleased to bring you the 1996 annual report of the Nationwide
Variable Account-3.
The U.S. economy is enjoying the rewards of a stable
political system and a globally competitive business sector.
These good times will last, although not all years will show the
stellar performance of the last two years. 1997 may be the year
in which normalcy will return.
The economic expansion has lasted six years already, and all
resources are more or less fully employed. The job market in
particular is showing some strains, and wages are rising a
bit faster than before. Also, the competitive pressures from
abroad are increasing due to a sharp rise in the exchange
value of our currency. Business will be hard pressed under
those conditions to continue showing above-average profit
increases. For the economy as a whole, inflation has hit the
low point in this business cycle and will slowly but surely
be a more important variable for monetary policy.
In the last few years, and especially in 1996, our economy
expanded faster than the natural rate of growth. This cannot
continue without creating bottlenecks that in turn induce
price increases. Either the economy will slow under its own
weight or the Federal Reserve will have to step in. Some
indicators point to a softening of business activity. But
whether this is enough will be a close call.
Again, the long-term trend is very positive for the U.S.,
its business activity, and its financial markets. However,
1997 might turn out to have some more surprises than anticipated
right now.
/s/ JOSEPH J. GASPER
---------------------------
Joseph J. Gasper, President
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS# EQUITY
December 31, 1996
<TABLE>
<S> <C>
Assets:
Investments at market value:
Van Kampen American Capital LIT - Asset Allocation Fund
3,212,716 shares (cost $37,037,288) $36,464,328
Van Kampen American Capital LIT - Domestic Income Fund
1,362,055 shares (cost $10,945,612) 10,910,059
Van Kampen American Capital LIT - Emerging Growth Fund
259,361 shares (cost $3,425,148) 3,542,872
Van Kampen American Capital LIT - Enterprise Fund
2,244,657 shares (cost $32,594,775) 36,498,130
Van Kampen American Capital LIT - Global Equity Fund
34,275 shares (cost $388,090) 399,643
Van Kampen American Capital LIT - Government Fund
722,861 shares (cost $6,246,071) 6,259,977
Van Kampen American Capital LIT - Money Market Fund
5,073,275 shares (cost $5,073,275) 5,073,275
Van Kampen American Capital LIT - Real Estate Securities Fund
9,542 shares (cost $124,612) 141,026
-----------
Total investments 99,289,310
Accounts receivable 404
-----------
Total assets 99,289,714
===========
Contract owners' equity $99,289,714
===========
</TABLE>
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<TABLE>
<CAPTION>
Contract owners' equity represented by: Units Unit Value
<S> <C> <C> <C>
---------- ----------
Contracts in accumulation phase:
Van Kampen American Capital LIT -
Asset Allocation Fund:
Tax qualified 513,310 $23.907038 $12,271,722
Non-tax qualified 1,010,988 23.907038 24,169,729
Van Kampen American Capital LIT -
Domestic Income Fund:
Tax qualified 165,684 16.692636 2,765,703
Non-tax qualified 486,983 16.692636 8,129,030
Van Kampen American Capital LIT -
Emerging Growth Fund:
Tax qualified 91,181 13.395245 1,221,392
Non-tax qualified 173,307 13.395245 2,321,490
Van Kampen American Capital LIT -
Enterprise Fund:
Tax qualified 352,086 31.749417 11,178,525
Non-tax qualified 797,023 31.749417 25,305,016
Van Kampen American Capital LIT -
Global Equity Fund:
Tax qualified 13,264 11.800884 156,527
Non-tax qualified 20,602 11.800884 243,122
Van Kampen American Capital LIT -
Government Fund:
Tax qualified 101,057 14.944372 1,510,233
Non-tax qualified 315,546 14.944372 4,715,637
Van Kampen American Capital LIT -
Money Market Fund:
Tax qualified 115,165 14.208651 1,636,339
Non-tax qualified 240,045 14.208651 3,410,716
Van Kampen American Capital LIT -
Real Estate Securities Fund:
Tax qualified 4,266 14.931303 63,697
Non-tax qualified 5,179 14.931303 77,329
========== =========
Reserves for annuity contracts in payout phase:
Non-tax qualified 113,507
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$99,289,714
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</TABLE>
See accompanying notes to financial statements.
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NATIONWIDE VARIABLE ACCOUNT-3
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS# EQUITY
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Investment activity:
Reinvested capital gains and dividends $11,250,803 10,887,325 10,126,858
Mortality, expense and administration charges (note 2) (1,335,708) (1,294,825) (1,377,454)
----------- ---------- -----------
Net investment activity 9,915,095 9,592,500 8,749,404
----------- ---------- -----------
Proceeds from mutual fund shares sold 44,991,214 40,426,461 46,483,900
Cost of mutual fund shares sold (43,680,536) (40,641,053) (45,783,206)
----------- ---------- -----------
Realized gain (loss) on investments 1,310,678 (214,592) 700,694
Change in unrealized gain (loss) on investments 1,290,651 13,497,708 (14,166,680)
----------- ---------- -----------
Net gain (loss) on investments 2,601,329 13,283,116 (13,465,986)
----------- ---------- -----------
Net increase (decrease) in contract owners'
equity resulting from operations 12,516,424 22,875,616 (4,716,582)
----------- ---------- -----------
Equity transactions:
Purchase payments received from contract owners 4,521,793 3,278,740 5,550,286
Redemptions (19,642,633) (20,264,414) (15,199,321)
Annuity benefits (15,629) (14,594) (9,959)
Annual contract maintenance charge (note 2) (97,006) (107,947) (116,547)
Contingent deferred sales charges (note 2) (155,505) (405,272) (342,156)
Adjustments to maintain reserves 1,215 (2,440) (215)
----------- ---------- -----------
Net equity transactions (15,387,765) (17,515,927) (10,117,912)
----------- ---------- -----------
Net change in contract owners' equity (2,871,341) 5,359,689 (14,834,494)
Contract owners' equity beginning of period 102,161,055 96,801,366 111,635,860
----------- ---------- -----------
Contract owners' equity end of period $ 99,289,714 102,161,055 96,801,366
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
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NATIONWIDE VARIABLE ACCOUNT-3
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(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 December 31, 1996, 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, 1996. 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.
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(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 1995 and 1994 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.
(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.
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Schedule I
NATIONWIDE VARIABLE ACCOUNT-3
TAX QUALIFIED and NON-TAX QUALIFIED
SCHEDULES OF CHANGES IN UNIT VALUE
Years Ended December 31, 1996, 1995 and 1994
(Underlying Mutual Funds of Van Kampen American Capital LIT)
<TABLE>
<CAPTION>
Asset Domestic Emerging Global Money Real Estate
Allocation Income Growth Enterprise Equity Government Market Securities
Fund Fund Fund Fund Fund Fund Fund Fund
---------- -------- -------- ---------- ------ ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Beginning unit value -
Jan. 1 $21.272421 15.854864 11.635151 25.778191 10.244062 14.827943 13.724323 10.765351
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Reinvested capital
gains and dividends 3.405803 1.422257 .000000 3.485963 .356685 .956297 .667515 .287350
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Unrealized gain (loss) (.478818) (.376119) 1.929521 2.865166 1.346052 (.648124) .000000 4.033978
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.292368) (.208366) (.169427) (.379903) (.145915) (.191744) (.183187) (.155376)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $23.907038 16.692636 13.395245 31.749417 11.800884 14.944372 14.208651 14.931303
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in unit
value*(a) 12% 5% 15% 23% 15% 1% 4% 39%
==================================================================================================================================
1995
Beginning unit value -
Jan. 1 $16.406732 13.235145 10.000000 19.065611 10.000000 12.821877 13.183559 10.000000
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and dividends 2.391189 1.250586 .000000 3.443612 .000000 .953483 .716291 .091958
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Unrealized gain (loss) 2.721948 1.560777 1.705967 3.564450 .309001 1.235082 .000000 .739393
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.247448) (.191644) (.070816) (.295482) (.064939) (.182499) (.175527) (.066000)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $21.272421 15.854864 11.635151 25.778191 10.244062 14.827943 13.724323 10.765351
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in unit
value*(a) 30% 20% 16%(b) 35% 2%(b) 16% 4% 8%(b)
==================================================================================================================================
1994
Beginning unit value -
Jan. 1 $17.253369 14.016253 ** 19.993094 ** 13.620968 12.879003 **
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested capital
gains and dividends 1.980194 1.376728 2.272837 .835320 .474206
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) (2.608938) (1.981901) (2.944375) (1.464669) .000000
- ----------------------------------------------------------------------------------------------------------------------------------
Contract charges (.217893) (.175935) (.255945) (.169742) (.169650)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending unit value -
Dec. 31 $16.406732 13.235145 19.065611 12.821877 13.183559
- ----------------------------------------------------------------------------------------------------------------------------------
Percentage increase
(decrease) in unit
value*(a) (5)% (6)% (5)% (6)% 2%
==================================================================================================================================
</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 being utilized for
the entire year indicated.
**This investment option was not being utilized or was not available.
See note 3.
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Independent Auditors' Report
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The Board of Directors of Nationwide Life Insurance Company and
Contract Owners of Nationwide Variable Account-3:
We have audited the accompanying statement of assets, liabilities and
contract owners' equity of Nationwide Variable Account-3 as of December 31,
1996, 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 and schedules 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, 1996, by correspondence
with 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, 1996,
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 7, 1997
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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
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