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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



| | x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
| | - |  | ----------------------------------------------------

SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2002





OR





| |  ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
| | - |  | --------------------------------------------------------

SECURITIES EXCHANGE ACT OF 1934



For the transition period from              to



Commission File No. 2-64559



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NATIONWIDE LIFE INSURANCE COMPANY

(Exact name
of registrant as specified in its charter)



|OHIO                                                           |  | 31-4156830                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



One
Nationwide Plaza

Columbus, Ohio 43215

(614) 249-7111

(Address, including zip code, and telephone number,

including area code, of Registrants principal executive offices)



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Securities registered pursuant to Section 12(b) of the Act:



NONE



Securities registered pursuant to Section 12(g) of the Act:



NONE



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Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to the filing requirements for at least the past 90 days.  Yes  x  No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes ̈No  x



All voting stock was held by affiliates of the Registrant on March 10, 2003.



COMMON STOCK(par value $1 per share)  3,814,779 shares issued and outstanding as of March 10,
2003

(Title of Class)



The Registrant meets the conditions set forth in General Instruction I(1)(a) and (b) of

Form 10-K and is therefore filing this Form with the reduced disclosure format.



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PART I



|ITEM 1    Business |  | 
|------------------ |  | 



Organization



Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) was incorporated in 1929 and is an Ohio
stock legal reserve life insurance company. NLIC offers a variety of forms of individual annuities, Private and Public Sector pension plans and life insurance on a participating and a non-participating basis.



The Company is a member of the Nationwide group of companies
(Nationwide), which consists of Nationwide Mutual Insurance Company (NMIC) and all of its subsidiaries and affiliates.



All of the outstanding shares of NLICs common stock are owned by Nationwide Financial Services, Inc. (NFS), a holding company
formed by Nationwide Corporation (Nationwide Corp.), a subsidiary of NMIC.



In December 2001, NLIC sold NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June 2002, NLIC sold NFS an 8.15% $300.0 million surplus note maturing on June 27, 2032.



Wholly owned subsidiaries of NLIC as of
December 31, 2002 include Nationwide Life and Annuity Insurance Company (NLAIC) and Nationwide Investment Services Corporation (NISC). NLAIC offers universal life insurance, variable universal life insurance, corporate-owned life insurance and
individual annuity contracts on a non-participating basis. NISC is a registered broker/dealer.



The Company is a leading provider of long-term savings and retirement products in the United States of America (U.S.). The Company develops and sells a diverse range of products including individual
annuities, Private and Public Sector pension plans and other investment products sold to institutions, and life insurance. The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Companys
products to their own customer base include independent broker/dealers, wirehouse and regional firms, financial institutions, pension plan administrators and life insurance specialists. Affiliates of the Company who market products directly to a
customer base include Nationwide Retirement Solutions and agents of Nationwide Life Insurance Company of America and its subsidiaries (Nationwide Provident agents). The Company also distributes retirement savings products through the agency
distribution force of its ultimate parent company, NMIC (Nationwide agents). The Company believes its diverse range of competitive product offerings and strong distributor relationships positions it to compete effectively in the rapidly growing
retirement savings market under various economic conditions.



Use of Non-GAAP Financial Measures



The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These financial statements and measures are used by management to
assist in the analysis and management of the operations of the Company. In addition, the Company regularly reviews and reports non-GAAP financial measures called pre-tax operating income and net operating income, as well as monitoring and reporting
a non-GAAP financial measure titled sales.



Readers are encouraged to refer to Part II, Item 7 Managements Narrative Analysis of the Results of Operations  Other Data of this report for detailed discussions of the components of these non-GAAP
financial measures, how they differ from GAAP financial measures, how management uses this information and a reconciliation of pre-tax operating income and net operating income to the most directly comparable GAAP financial measures.



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Business
Segments



The Company reports three product
segments: Individual Annuity, Institutional Products and Life Insurance. During the second quarter of 2002, the Company paid a dividend to NFS that resulted in the disposal of a portion of the business that had been reported in the Corporate
segment. As a result, this business has been reported as discontinued operations. Beginning in 2002, structured products transactions previously reported in the Corporate segment are reported in the Institutional Products segment. Amounts reported
for prior periods have been revised to reflect these changes.



The Individual Annuity segment, which had a pre-tax operating loss of $122.8 million, which accounted for (48)% of the Companys pre-tax operating income for 2002, consists of individual The BEST of AMERICA®, private label and deferred variable annuity products, deferred fixed annuity products and income products.
Individual deferred annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts
provide the customer with access to a wide range of investment options and asset protection in the event of an untimely death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed
periods.



The Institutional Products segment,
which accounted for $203.4 million, or 80%, of the Companys pre-tax operating income for 2002, is comprised of the Companys Private and Public Sector group retirement plans, medium-term note program and structured products initiatives.
The Private Sector includes the 401(k) business generated through variable and fixed group annuities. The Public Sector includes the Internal Revenue Code (IRC) Section 457 business in the form of fixed and variable annuities.



The Life Insurance segment, which accounted for $171.5
million, or 67%, of the Companys pre-tax operating income for 2002, consists of investment life products, including both individual variable life and corporate-owned life insurance (COLI) products, traditional life insurance products and
universal life insurance. Life insurance products provide a death benefit and generally also allow the customer to build cash value on a tax-advantaged basis.



The Corporate segment accounted for $1.8 million, or 1%, of the Companys pre-tax operating income (which excludes
non-securitization related net realized gains and losses on investments, hedging instruments and hedged items) before federal income taxes for 2002.



Additional information related to the Companys business segments is included in note 18 to the consolidated financial statements
and Financial Statement Schedule III, included in the F pages of this report.



Reinsurance



The Company follows the industry practice of reinsuring a portion of its life insurance and annuity risks with other companies in order to reduce net liability on individual risks, to provide protection against large
losses and to obtain greater diversification of risks. The maximum amount of individual ordinary life insurance retained by the Company on any one life is $4.0 million. The Company cedes insurance primarily on an automatic basis, under which risks
are ceded to a reinsurer on specific blocks of business where the underlying risks meet certain predetermined criteria and on a facultative basis, under which the reinsurers prior approval is required for each risk reinsured. The Company also
cedes insurance on a case-by-case basis particularly where the Company may be writing new risks or is unwilling to retain the full costs associated with new lines of business. The ceding of risk does not discharge the original insurer from its
primary obligation to the policyholder. The Company has entered into reinsurance contracts to cede a portion of its general account individual annuity business. Total recoveries due from these contracts were $362.3 million and $161.2 million as of
December 31, 2002 and 2001, respectively. Under the terms of the contracts, trusts have been established as collateral for the recoveries. The trust assets are invested in investment grade securities, the fair value of which must at all times be
greater than or equal to 100% or 102% of the reinsured reserves, as outlined in the underlying contracts. The Company has no other material reinsurance arrangements with unaffiliated reinsurers. The only sizable reinsurance agreements the Company
has with affiliates are the modified coinsurance agreements pursuant to which NLIC reinsured all of its accident and health insurance business not ceded to unaffiliated reinsurers to other members of Nationwide as described in note 14 to the
Companys consolidated financial statements included in the F pages of this report.



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Ratings



Ratings with respect to claims-paying
ability and financial strength have become an increasingly important factor in establishing the competitive position of insurance companies. Ratings are important to maintaining public confidence in the Company and its ability to market its annuity
and life insurance products. Rating organizations continually review the financial performance and condition of insurers, including the Company. Any lowering of the Companys ratings could have a material adverse effect on the Companys
ability to market its products and could increase the rate of surrender of the Companys products. Both of these consequences could, depending upon the extent thereof, have a material adverse effect on the Companys liquidity and, under
certain circumstances, net income. NLIC and NLAIC are rated A+ (Superior) by A.M. Best Company, Inc. (A.M. Best) and their claims-paying ability/financial strength is rated Aa3 (Excellent) by Moodys Investors Service,
Inc. (Moodys) and AA- (Very Strong) by Standard & Poors, a Division of The McGraw-Hill Companies, Inc. (S&P).



The foregoing ratings reflect each rating agencys opinion of NLICs financial strength, operating performance and ability to
meet its obligations to policyholders and are not evaluations directed toward the protection of investors. Such factors are of concern to policyholders, agents and intermediaries.



The Companys financial strength is also reflected in the ratings of commercial paper. The commercial
paper is rated AMB-1 by A.M. Best, A-1+ by S&P and P-1 by Moodys.



Competition



The Company competes with a large number of other insurers as well as non-insurance financial services companies, such as banks,
broker/dealers and mutual funds, some of whom have greater financial resources, offer alternative products and, with respect to other insurers, have higher ratings than the Company. The Company believes that competition in its lines of business is
based on price, product features, commission structure, perceived financial strength, claims-paying ratings, service and name recognition.



On November 12, 1999, the Gramm-Leach-Bliley Act (the Act), was signed. The Act modernizes the regulatory framework for financial
services in the U.S., which allows banks, securities firms and insurance companies to affiliate more directly than they have been permitted to do in the past. While the Act facilitates these affiliations, to date no significant competitors of the
Company have acquired, or have been acquired by, a banking entity under authority of the Act. Nevertheless, it is not possible to anticipate whether such affiliations might occur in the future.



Regulation



General Regulation at State Level



NLIC and NLAIC, as with other insurance companies, are
subject to extensive regulation and supervision in the jurisdictions in which they do business. Such regulations include the establishment of regulatory agencies with broad administrative powers to approve policy forms, grant and revoke licenses to
transact business, regulate trade practices, license agents, require statutory financial statements, limit the amount of dividends and other payments that can be paid by insurance companies without prior approval and impose restrictions on the type
and amount of investments permitted. These regulations are primarily intended to protect policyholders rather than shareholders. The Company cannot predict the effect that any proposed or future legislation may have on the financial condition or
results of operations of the Company.



Insurance
companies are required to file detailed annual and quarterly statutory financial statements with state insurance regulators in each of the states in which they do business and their business and accounts are subject to examination by such agencies
at any time. In addition, insurance regulators periodically examine an insurers financial condition, adherence to statutory accounting practices and compliance with insurance department rules and regulations. Applicable state insurance laws,
rather than federal bankruptcy laws, apply to the liquidation or the restructuring of insurance companies.



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As part of
their routine regulatory oversight process, state insurance departments periodically conduct detailed examinations of the books, records and accounts of insurance companies domiciled in their states. Such examinations are generally conducted in
cooperation with the insurance departments of two or three other states under guidelines promulgated by the National Association of Insurance Commissioners (NAIC). The most recently completed examinations of NLIC and NLAIC were conducted by the
Ohio, Arizona, California, Iowa, Kansas, Texas and Wisconsin insurance departments for the five-year period ended December 31, 2001. The final reports of these examinations did not result in any significant issues or adjustments.



In recent years, a number of life and annuity insurers have
been the subject of regulatory proceedings and litigation relating to alleged improper life insurance pricing and sales practices. Some of these insurers have incurred or paid substantial amounts in connection with the resolution of such matters. In
addition, state insurance regulatory authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to insurers compliance with applicable insurance laws and regulations. Neither NLIC nor
NLAIC is the subject of any such investigation by any regulatory authority or any such market conduct examination in any state at this time. NLIC and NLAIC continuously monitor sales, marketing and advertising practices and related activities of
their agents and personnel and provide continuing education and training in an effort to ensure compliance with applicable insurance laws and regulations. There can be no assurance that any non-compliance with such applicable laws and regulations
would not have a material adverse effect on the Company.



Regulation of Dividends and Other Payments



The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio, its domiciliary state. The State of Ohio insurance laws require Ohio-domiciled life insurance
companies to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding 12 months, exceeds the greater of
(i) 10% of statutory-basis policyholders surplus as of the prior December 31 or (ii) the statutory-basis net income of the insurer for the 12-month period ending as of the prior December 31. As of December 31, 2002, no dividends could be paid
by NLIC without prior approval. The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned surplus. Earned surplus is defined under the State of Ohio insurance laws as the
amount equal to the Companys unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurers
policyholder surplus must be reasonable in relation to the insurers outstanding liabilities and adequate for its financial needs. The payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State
of New York that limit the amount of statutory profits on NLICs participating policies (measured before dividends to policyholders) that can inure to the benefit of the Company and its stockholders. The Company currently does not expect such
regulatory requirements to impair its ability to pay operating expenses and dividends in the future.



Available Information



The Company files Current Reports on Form 8-K, Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and other reports
electronically with the Securities and Exchange Commission, which are available on the Securities and Exchange Commissions web site (http://www.sec.gov).



|ITEM 2 |  | Properties
|------ |  | ----------



Pursuant to an arrangement between NMIC and certain of its subsidiaries, during 2002 the Company leased on average approximately 767,000
square feet of office space in the three building home office complex and in other offices in Columbus, Ohio. The Company believes that its present facilities are adequate for the anticipated needs of the Company.



|ITEM 3 |  | Legal Proceedings
|------ |  | -----------------



The Company is a party to litigation and arbitration proceedings in the ordinary course of its business, none of which is expected to
have a material adverse effect on the Company.



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In recent
years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or
settlements.



On October 29, 1998, the Company
was named in a lawsuit filed in Ohio state court related to the sale of deferred annuity products for use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life
Insurance Company and Nationwide Life and Annuity Insurance Company). On May 3, 1999, the complaint was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint seeks to bring a class action on behalf of all
persons who purchased individual deferred annuity contracts or participated in group annuity contracts sold by the Company and the other named Company affiliates, which plaintiff contends were used to fund certain tax-deferred retirement plans. The
amended complaint seeks unspecified compensatory and punitive damages. On June 11, 1999, the Company and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the court denied the motion to dismiss the amended
complaint filed by the Company and the other named defendants. On January 25, 2002, the plaintiffs filed a motion for leave to amend their complaint to add three new named plaintiffs. On February 9, 2002, the plaintiffs filed a motion for class
certification. On April 16, 2002, the Company and the other named defendants filed a motion for summary judgment on the individual claims of plaintiff Mercedes Castillo. On May 28, 2002, the Court denied plaintiffs motion to add new persons as
named plaintiffs, but granted Marcus Shores request to withdraw as named plaintiff, so the action is now proceeding with Mercedes Castillo as the only named plaintiff. On November 4, 2002, the Court issued a decision granting the
Companys and the other defendants motion for summary judgment on all of plaintiff Mercedes Castillos individual claims, and ruling that plaintiffs motion for class certification is moot. Judgment for the Company was entered
on November 15, 2002. On December 16, 2002, plaintiff Mercedes Castillo filed a notice of appeal from the Courts orders (a) granting the defendants motion for summary judgment; and (b) denying plaintiffs motion for leave to amend
the complaint to add three new named plaintiffs. The Companys responsive brief is due by April 23, 2003 and plaintiffs reply brief is due by May 12, 2003. The Company intends to defend this lawsuit vigorously.



On August 15, 2001, the Company was named in a lawsuit filed
in Connecticut federal court titled Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance Company. On September 6, 2001, the
plaintiffs amended their complaint to include class action allegations. Plaintiffs seek to represent a class of retirement plans that purchased variable annuities from NLIC to fund qualified ERISA retirement plans. The amended complaint alleges that
the retirement plans purchased variable annuity contracts from the Company that allowed plan participants to invest in funds that were offered by separate mutual fund companies; that the Company was a fiduciary under ERISA; that the Company breached
its fiduciary duty when it accepted certain fees from the mutual fund companies that purportedly were never disclosed by the Company; and that the Company violated ERISA by replacing many of the funds originally included in the plaintiffs
annuities with inferior funds because the new funds purportedly paid higher fees to the Company. The amended complaint seeks disgorgement of the fees allegedly received by the Company and other unspecified compensatory damages,
declaratory and injunctive relief and attorneys fees. On December 3, 2001, the plaintiffs filed a motion for class certification. The Company is opposing that motion. The Companys Motion to Dismiss was denied on September 11,
2002. On January 14, 2003, plaintiffs filed a motion to file a second amended complaint and the motion was granted on February 21, 2003. The second amended complaint removes the claims asserted against the Company concerning a violation of
ERISA through the replacement of many of the funds originally included in the plaintiffs annuities with inferior funds that purportedly paid higher fees to the Company. The Company intends to defend this lawsuit vigorously.



There can be no assurance that any such
litigation will not have a material adverse effect on the Company in the future.



|ITEM 4 |  | Submission of Matters to a Vote of Security Holders
|------ |  | ---------------------------------------------------



Omitted due to reduced disclosure format.



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PART II



|ITEM 5 |  | Market for the Registrants Common Stock and Related Shareholder Matters
|------ |  | ------------------------------------------------------------------------



There is no established public trading market for
NLICs shares of common stock. All 3,814,779 shares of NLICs common stock issued and outstanding are owned by NFS.



NLIC declared and paid $35.0 million, $35.0 million and $50.0 million in cash dividends to NFS during 2002, 2001 and 2000, respectively.
NLIC paid a non-cash dividend in the form of all of the common stock of Nationwide Securities, Inc., valued at $10.0 million, to NFS in 2002. In addition, NLIC sought and obtained prior regulatory approval from the Ohio Department of Insurance to
return $475.0 million and $120.0 million of capital to NFS during 2002 and 2000, respectively.



NLIC currently does not have a formal dividend policy.



Reference is made to Part I, Item 1  Business  Regulationof this report for information regarding dividend
restrictions.



|ITEM 6 |  | Selected Consolidated Financial Data
|------ |  | ------------------------------------



Omitted due to reduced disclosure format.



|ITEM 7 |  | Managements Narrative Analysis of the Results of Operations
|------ |  | ------------------------------------------------------------



Introduction



Managements narrative analysis of the results of operations of NLIC and subsidiaries for the
three years ended December 31, 2002 follows. This narrative analysis should be read in conjunction with the Companys consolidated financial statements and related notes included in the F pages of this report.



The Company is a leading provider of long-term savings and
retirement products in the U.S. The Company develops and sells a diverse range of products including individual annuities, Private and Public Sector pension plans and other investment products sold to institutions, and life insurance. The Company
sells its products through a diverse distribution network, including independent broker/dealers, wirehouse and regional firms, financial institutions, pension plan administrators, life insurance specialists, Nationwide Retirement Solutions,
Nationwide Provident agents and Nationwide agents.



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Forward-Looking Statements



Managements discussion and analysis contains certain
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the results of operations and businesses of the Company. These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include, among others, the following possibilities: (i) the potential impact on the
Companys reported consolidated net income that could result from the adoption of certain accounting standards issued by the Financial Accounting Standards Board (FASB) or other standard-setting bodies; (ii) tax law changes impacting the tax
treatment of life insurance and investment products; (iii) repeal of the federal estate tax; (iv) heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new
products by new and existing competitors; (v) adverse state and federal legislation and regulation, including limitations on premium levels, increases in minimum capital and reserves, and other financial viability requirements; (vi) failure to
expand distribution channels in order to obtain new customers or failure to retain existing customers; (vii) inability to carry out marketing and sales plans, including, among others, development of new products and/or changes to certain existing
products and acceptance of the new and/or revised products in the market; (viii) changes in interest rates and the stock markets causing a reduction of investment income and/or asset fees, an acceleration of the amortization of deferred policy
acquisition costs (DAC), reduction in the value of the Companys investment portfolio or separate account assets, or a reduction in the demand for the Companys products; (ix) general economic and business conditions which are less
favorable than expected; (x) competitive, regulatory or tax changes that affect the cost of, or demand for the Companys products; (xi) unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;
(xii) deviations from assumptions regarding future persistency, mortality, morbidity and interest rates used in calculating reserve amounts and in pricing the Companys products; and (xiii) adverse litigation results or resolution of litigation
and/or arbitration.



Critical Accounting
Policies and Recently Issued Accounting Pronouncements



In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of
the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates.



The most critical estimates include those used in determining
DAC for investment products and universal life insurance products, impairment losses on investments, valuation allowances for mortgage loans on real estate and federal income taxes.



See note 2 to the consolidated financial statements included in the F pages of this report for a discussion
of the Companys significant accounting policies, including recently issued accounting pronouncements. In addition, the following discussion of modified coinsurance arrangements relates to tentative guidance that could affect the Companys
accounting, if finalized. Although disclosure of the impact of proposed guidance issued by standard-setting bodies is not appropriate in the footnotes to financial statements issued in accordance with accounting principles generally accepted in the
United States of America, it is included herein as this tentative guidance is related solely to the Companys industry and could change the accounting for such arrangements in the future.



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On February
3, 2003 the FASBs Derivatives Implementation Group issued tentative guidance related to the bifurcation of an embedded derivative within a reinsurers receivable and ceding companys payable arising from a modified coinsurance
arrangement (DIG B36). Paragraph 12.a. of FASB Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities(SFAS 133) indicates that an embedded derivative must be separated from the host
contract if the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract. DIG B36 indicates that bifurcation is necessary in a
modified coinsurance arrangement because the yield on the receivable and payable is based on a specified proportion of the ceding companys return on either its general account assets or a specified block of those assets, rather than the
overall creditworthiness of the ceding company. Status of the guidance provided in DIG B36 related to modified coinsurance arrangements will remain tentative until it is formally cleared by the FASB and incorporated in an FASB staff implementation
guide, which is contingent upon an amendment of SFAS 133 being issued. As such, the Company is still evaluating the impact that this guidance will have on its financial results. The total amount of reserves that the Company holds under modified
coinsurance arrangements is $734.0 million.



Deferred Policy Acquisition Costs for Investment Products and Universal Life Insurance Products



The costs of acquiring business, principally commissions, certain expenses of the policy issue and underwriting department and certain
variable sales expenses that relate to and vary with the production of new and renewal business have been deferred. DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting
period.



For investment products (principally
individual and group annuities) and universal life insurance products, DAC is being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset
fees, cost of insurance, policy administration and surrender charges, less policy benefits and policy maintenance expenses. The DAC asset related to investment products and universal life insurance products is adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b) of the consolidated financial statements included in the F pages of this report.



The most significant assumptions that are involved in the estimation of future gross profits include future
net separate account performance, surrender/lapse rates, interest margins and mortality. The Companys long-term assumption for net separate account performance is 8 percent. If actual net separate account performance varies from the 8 percent
assumption, the Company assumes different performance levels over the next three years, such that the mean return equals the long-term assumption. This process is referred to as a reversion to the mean. The assumed net separate account return
assumptions used in the DAC models are intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, the Companys policy regarding the reversion to the mean process does not permit such returns to be
below zero percent or in excess of 15 percent during the three-year reversion period.



Changes in assumptions can have a significant impact on the amount of DAC reported for investment products and universal life insurance products and their related amortization patterns. In the event
actual experience differs from assumptions or assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense (DAC unlocking), which could be significant. In general, increases in the estimated general
and separate account returns result in increased expected future profitability and may lower the rate of DAC amortization, while increases in lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying
business and may increase the rate of DAC amortization.



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Due to the
magnitude of DAC balance related to the individual variable annuity business, the sensitivity of the calculation to minor changes in the underlying assumptions and the related volatility that could result in the reported DAC balance without
meaningful improvement in its reasonableness, the Company evaluates the appropriateness of the individual variable annuity DAC balance within pre-set parameters. Should the recorded balance of individual variable annuity DAC fall outside of these
parameters for a prescribed period of time, or should the recorded balance fall outside of these parameters and the Company determines it is not reasonably possible to get back within this period of time, assumptions are required to be unlocked and
the DAC is recalculated using revised best estimate assumptions. Otherwise, DAC is not unlocked to reflect updated assumptions. In the event DAC assumptions are unlocked and revised, the Company will continue to use the reversion to the mean
process.



For other investment products and
universal life insurance products, DAC is set each quarter to reflect revised best estimate assumptions, including the use of a reversion to the mean methodology over the next three years as it relates to net separate account performance. Any
resulting DAC unlocking adjustments are reflected currently in the consolidated financial statements.



As part of the regular quarterly analysis of DAC, at the end of the third quarter of 2002, the Company determined that using actual
experience to date and assumptions consistent with those used in the second quarter of 2002, its individual variable annuity DAC balance would be outside a pre-set parameter of acceptable results. The Company also determined that it was not
reasonably possible that the DAC would return to an amount within the acceptable parameter within a prescribed period of time. Accordingly, the Company unlocked its DAC assumptions for individual variable annuities and reduced the DAC asset to the
amount calculated using the revised assumptions. Because the Company unlocked the net separate account growth rate assumption for individual variable annuities for the three-year reversion period, the Company unlocked that assumption for all
investment products and variable universal life insurance products to be consistent across product lines.



Therefore, the Company recorded an acceleration of DAC amortization totaling $347.1 million before tax, or $225.6 million, net of $121.5
million of federal income tax benefit, which has been reported in the following segments in the amounts indicated, net of tax: Individual Annuity  $213.4 million, Institutional Products  $7.8 million and Life Insurance  $4.4
million. The acceleration of DAC amortization was the result of unlocking certain assumptions underlying the calculation of DAC for investment products and variable universal life insurance products. The most significant assumption changes were the
resetting of the Companys anchor date for reversion to the mean calculations to September 30, 2002, resetting the assumption for net separate account growth to 8 percent during the three-year reversion period for all investment products and
variable life insurance products and increasing future lapses and costs related to guaranteed minimum death benefits (GMDB) on individual variable annuity contracts. These adjustments were primarily driven by the sustained downturn in the equity
markets.



Impairment Losses on Investments



Management regularly reviews its fixed
maturity and equity securities portfolio to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. A number of criteria are considered during this process including, but not limited
to, the current fair value as compared to amortized cost or cost, as appropriate, of the security, the length of time the securitys fair value has been below amortized cost/cost, and by how much, specific credit issues related to the issuer
and current economic conditions. Also, the Company estimates the cash flows over the life of purchased beneficial interests in securitized financial assets. Based on current information and events, if the Company estimates that the fair value of its
beneficial interests is not greater than or equal to its carrying value and if there has been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment is
recognized and the purchased beneficial interest is written down to fair value. Other-than-temporary impairment losses result in a permanent reduction of the cost basis of the underlying investment.



Impairment losses are recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount.



10



---

Significant changes in the factors the Company considers when evaluating investments for
impairment losses could result in a significant change in impairment losses reported in the consolidated financial statements.



Valuation Allowances on Mortgage Loans on Real Estate



The Company provides valuation allowances for impairments of mortgage loans on real estate based on a
review by portfolio managers. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the
loan agreement. When the Company determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the estimated value of the mortgage loan. Estimated value is based on the present value
of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure and loans considered impaired are placed on non-accrual status.
Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received.



The valuation allowance account for mortgage loans on real estate is maintained at a level believed adequate by the Company to absorb
estimated credit losses. The Companys periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers
ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.



Significant changes in the factors the Company considers in determining the valuation allowance on mortgage loans on real estate could
result in a significant change in the provision for valuation allowance reported in the consolidated financial statements.



Federal Income Taxes



The Company provides for federal income taxes based on amounts the Company believes it will ultimately owe. Inherent in the
provision for federal income taxes are estimates regarding the deductibility of certain expenses and the realization of certain tax credits. In the event the ultimate deductibility of certain expenses or the realization of certain tax credits differ
from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements.



Results of Operations



Revenues



Total operating revenues, which exclude net realized gains and losses on investments not related to securitizations, hedging instruments
and hedged items, increased $79.7 million, or 3%, to $3.08 billion in 2002 compared to $3.00 billion in 2001. The growth in operating revenues in 2002 was primarily driven by an increase in net investment income as a result of continued growth in
interest spread-based businesses, which offset lower policy charges due to depressed equity markets. Operating revenues in 2001 increased by less than 1% from $3.00 billion reported in 2000, with growth in net investment income offsetting lower
policy charges.



Policy charges include asset
fees, which are primarily earned from separate account values generated from sales of individual and group variable annuities and investment life insurance products; cost of insurance charges earned on universal life insurance products;
administrative fees, which include fees charged per contract on a variety of the Companys products and premium loads on universal life insurance products; and surrender fees, which are charged as a percentage of premiums withdrawn during a
specified period of annuity and certain life insurance contracts.



11



---



Policy
charges for each of the last three years were as follows:



2002

2001

2000(in millions)Asset fees

$
538.8

$
614.2

$
714.6Cost of insurance charges


235.5


201.9


156.5Administrative fees


119.2


128.5


134.2Surrender fees


80.3


72.7


86.1Total policy charges

$
973.8

$
1,017.3

$
1,091.4




The decline in asset fees reflect decreases in total average separate account assets of $6.78 billion (11%) and $9.13 billion (13%) in 2002 and 2001, respectively. The decrease in average separate account values over the past two
years was fueled by market depreciation on investment options underlying variable annuity and investment life insurance products as a result of the sharp declines in the equity markets.



Cost of insurance charges are assessed on the net amount at risk on universal life insurance policies. The
net amount at risk is equal to a policys death benefit minus the related policyholder account value. The amount charged is based on the insureds age and other underwriting factors. The increase in cost of insurance charges is due
primarily to growth in the net amount at risk related to corporate and individual investment life insurance reflecting new sales, favorable persistency on policies sold in prior periods and equity market declines which lowered policyholder account
values. The net amount at risk related to corporate and individual investment life insurance grew to $36.15 billion at the end of 2002 compared to $32.93 billion and $28.28 billion at the end of 2001 and 2000, respectively.



Surrender fees increased in 2002 compared to a year ago,
primarily due to higher lapse activity in individual variable annuities and investment life insurance products as a result of the sustained downturn in the equity markets and the competitive environment in the marketplace. Lower surrender charges in
2001 compared to 2000 were the result of the successful implementation of customer retention programs in the individual variable annuity business during the year.



Net investment income includes the investment income earned on investments supporting fixed annuities, the
medium-term note program and certain life insurance products as well as invested assets not allocated to product segments, net of related investment expenses. Net investment income totaled $1.84 billion in 2002 compared to $1.72 billion and $1.65
billion in 2001 and 2000, respectively. These increases were primarily due to increased invested assets supporting growth in individual fixed annuity, medium-term notes and fixed life insurance policy reserves, partially offset by lower yields due
to declining market interest rates. General account assets supporting insurance products are closely correlated to the underlying reserves on these products. General account reserves supporting these products grew by $6.46 billion and $3.03 billion
in 2002 and 2001, respectively, and totaled $31.68 billion as of December 31, 2002. The growth in general account reserves reflects increased customer preference for fixed products in light of declining and volatile equity markets. In addition, the
growth reflects the Companys commitment to strengthen its distribution and service capabilities for fixed products. The changes in net investment income were also impacted by average yields on investments, which decreased by 81 basis points
and 52 basis points in 2002 in 2001, respectively, as a result of lower market interest rates.



Realized gains and losses on investments not related to securitizations, hedging instruments and hedged items are not considered by the Company to be recurring components of earnings. The Company makes
decisions concerning the sale of invested assets based on a variety of market, business, tax and other factors. In addition, charges related to other-than-temporary impairments of available-for-sale securities and other investments and valuation
allowances on mortgage loans on real estate are included in this caption. Also included are changes in the fair value of derivatives qualifying as fair value hedges and the change in the fair value of the hedged items, the ineffective portion of
cash flow hedges and changes in the fair value of free-standing derivatives, all of which are considered non-recurring components of earnings.



12



---



Losses from
other-than-temporary impairments were $120.3 million in 2002, compared to $80.6 million in 2001 and $15.4 million in 2000. Included in the 2002 losses were $22.5 million, pre-tax, related to WorldCom, Inc., and 2001 losses included $25.9 million
related to fixed maturity securities issued by Enron and affiliated entities. Non-impairment related net realized gains on investments, hedging instruments and hedged items totaled $35.9 million in 2002 compared to $62.3 million of net gains in 2001
and net losses of $4.0 million in 2000, including gains of $23.2 million and $44.4 million in 2002 and 2001, respectively, related to the two-step sale of a real estate limited partnership to related parties, as described in note 14 to the
consolidated financial statements included in the F pages of this report.



Benefits and Expenses



Interest credited to policyholder account values totaled $1.24 billion in both 2002 and 2001 and $1.18 billion in 2000 and principally relates to fixed annuities, both individual and institutional,
funding agreements backing the Companys medium-term note program and certain life insurance products. The growth in interest credited over the past two years reflects the increase in policy reserves for these products, partially offset by
lower crediting rates in response to lower market interest rates. Crediting rates in the Individual Annuity segment have declined in 2002 and new crediting rates for most products are at, or near, contractual minimums, while in 2001, crediting rates
remained flat despite declining market interest rates, reflecting competitive market conditions.



Other benefits and claims include policyholder benefits in excess of policyholder account values for universal life and individual
deferred annuities and net claims and provisions for future policy benefits for traditional life insurance products and immediate annuities. An increase in other benefits and claims in 2002 compared to a year ago reflects higher levels of GMDB
claims from individual variable annuity products and additional life insurance benefits reflecting growth in life insurance in-force. The growth in 2001 reflects additional life insurance claims primarily as a result of growth in life insurance
in-force.



The substantial increase in DAC
amortization in 2002 compared to a year ago reflects an acceleration of DAC amortization recorded in the third quarter of 2002. As part of the regular quarterly analysis of DAC, at the end of the third quarter of 2002, the Company determined that
using actual experience to date and assumptions consistent with those used in the second quarter of 2002, its individual variable annuity DAC balance would be outside a pre-set parameter of acceptable results. The Company also determined that it was
not reasonably possible that the DAC would return to an amount within the acceptable parameter within a prescribed period of time. Accordingly, the Company unlocked its DAC assumptions for individual variable annuities and reduced the DAC asset to
the amount calculated using the revised assumptions. Because the Company unlocked the net separate account growth rate assumption for individual variable annuities for the three-year reversion period, the Company unlocked that assumption for all
investment products and variable universal life insurance products to be consistent across product lines.



Therefore, the Company recorded an acceleration of DAC amortization totaling $347.1 million before tax, or $225.6 million, net of $121.5
million of tax benefit, which has been reported in the following segments in the amounts indicated, net of tax: Individual Annuity  $213.4 million, Institutional Products  $7.8 million and Life Insurance  $4.4 million. The
acceleration of DAC amortization was the result of unlocking certain assumptions underlying the calculation of DAC for investment products and variable universal life insurance products. The most significant assumption changes were the resetting of
the Companys anchor date for reversion to the mean calculations to September 30, 2002, resetting the assumption for net separate account growth to 8 percent during the three-year reversion period for all investment products and variable life
insurance products and increasing future lapses and costs related to GMDB on variable annuity contracts. These adjustments were primarily driven by the sustained downturn in the equity markets.



The increase in interest expense in 2002 relates to the
issuance of $300 million of surplus notes to NFS in both December 2001 and June 2002, partially offset by lower utilization of commercial paper.



13



---



Operating expenses were $508.6 million in 2002, a 16% increase from 2001 operating expenses of $439.3 million. Operating expenses were $472.0 million in 2000. The increase in 2002 reflects a growing customer base, increased
employee benefit costs and increased spending on projects focused on improving producer and customer support. The 7% decrease in 2001 compared to 2000 reflects the Companys commitment to aggressive expense management in response to declining
revenues and lower sales as a result of declining and volatile equity markets and a slowing economy throughout the year.



Federal income tax expense was $8.7 million representing an effective tax rate of 5.1% for 2002. Federal income tax expense in 2001 and
2000 was $161.2 million and $207.3 million, respectively, representing effective rates of 25.6% and 30.3%. The tax benefit of $121.5 million associated with the $347.1 million of accelerated DAC amortization in third quarter 2002 was calculated at
the U.S. federal corporate income tax rate of 35%, which causes a distortion in what would normally be expected to be reported as an effective tax rate. Excluding the accelerated DAC amortization and related tax benefit, the effective tax rate for
2002 was 25.2%, which is lower than 2001 due to an increase in tax credits from affordable housing partnership investments and the elimination of non-deductible goodwill amortization expense in 2002, partially offset by lower tax-exempt income. An
increase in tax-exempt income and tax credits, including credits from affordable housing partnership investments, resulted in the decrease in 2001.



Discontinued Operations



On June 27, 2002, NLIC paid a dividend to NFS consisting of its shares of common stock of Nationwide Securities, Inc. (NSI), a wholly
owned broker/dealer subsidiary. This is a transaction between related parties and therefore was recorded at carrying value, $10.0 million, of the underlying components of the transaction rather than fair value.



As a result of this transaction, the Company is no longer
engaged in asset management operations and the underlying results of NSI have been reported as discontinued operations. Also, effective in second quarter 2002, the structured products transactions, previously reported in the Corporate segment, are
reported in the Institutional Products segment. All periods presented have been revised to reflect these changes.



Income (loss) from discontinued operations, net of tax, for 2002, 2001 and 2000 was $0.7 million, $1.2 million and $(0.5) million,
respectively.



Other Data



The Company analyzes operating performance using non-GAAP
financial measures called pre-tax operating income and net operating income. The Company calculates pre-tax operating income by adjusting income from continuing operations before federal income taxes and cumulative effect of adoption of accounting
principles to exclude net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items. The Company calculates net operating income by adjusting net income to exclude net realized gains and losses on
investments not related to securitizations, hedging instruments and hedged items, discontinued operations and cumulative effect of adoption of accounting principles, all net of tax. Pre-tax operating income, net operating income, or similar measures
are commonly used in the insurance industry as measures of ongoing earnings performance.



14



---



The excluded
items are important in understanding the Companys overall results of operations. Pre-tax operating income or net operating income should not be viewed as substitutes for income from continuing operations before federal income taxes and
cumulative effect of adoption of accounting principles or net income, respectively, determined in accordance with GAAP, and it should be noted that the Companys definition of these non-GAAP financial measures may differ from those used by
other companies. The Company believes that the presentation of these non-GAAP financial measures as they are measured for management purposes enhances the understanding of the Companys results of operations by highlighting the results from
ongoing operations, on a pre- and post-tax basis, and the underlying profitability factors of the Companys business. The Company excludes net realized gains and losses on investments not related to securitizations, hedging instruments and
hedged items from these non-GAAP financial measures because such items are often the result of a single non-recurring event which may or may not be at the Companys discretion. Including the fluctuating effects of these transactions could
distort trends in the underlying profitability of the Companys business. The Company also excludes discontinued operations and the cumulative effect of adoption of accounting principles from net operating income, as such adjustments are not
reflective of the ongoing operations of the Companys business.



The following table reconciles the Companys reported income from continuing operations before federal income taxes and cumulative effect of adoption of accounting principles to pre-tax operating
income for each of the last three years.

|
|

2002

2001

2000(in millions)Income from continuing operations before federal income taxes and cumulative effect of
adoption of accounting principles

$
169.5

$
628.9

$
683.1Net realized losses on investments, hedging instruments and hedged items, (excluding net
realized gains and losses related to securitizations)


84.4


20.2


19.4Pre-tax operating income

$
253.9

$
649.1

$
702.5




The following table reconciles the Companys reported net income to net operating income for each of the last three years.

|
|

2002


2001


2000(in millions)Net income

$
161.5


$
461.8


$
475.3Net realized losses on investments, hedging instruments and hedged items, net of tax
(excluding net realized gains and losses related to securitizations)


54.9



13.1



12.6Discontinued operations, net of tax


(0.7
)


(1.2
)


0.5Cumulative effect of adoption of accounting principles, net of tax






7.1



Net operating income

$
215.7


$
480.8


$
488.4




Sales Information



The
Company regularly monitors and reports a non-GAAP financial measure titled sales. Sales or similar measures are commonly used in the insurance industry as a measure of business generated in the period. The Company has not provided a reconciliation
of sales to a comparative GAAP financial measures because it does not believe there is a similar GAAP measure as it relates to its industry, as described below.



15



---



Sales should
not be viewed as a substitute for revenues determined in accordance with GAAP, and the Companys definition of sales might differ from that used by other companies. Sales generate customer funds managed and administered, which ultimately drive
revenues. Sales are primarily comprised of statutory premiums and deposits on individual and group annuities and life insurance products sold to a diverse customer base. Statutory premiums and deposits are calculated in accordance with accounting
practices prescribed or permitted by regulatory authorities and then adjusted to arrive at sales. Revenues are generated from both current and previous sales that are in-force during part of the reporting period and are reported as policy charges,
life insurance premiums, net investment income and other revenues. Because revenues are generated primarily based on charges against the in-force or surrendering contracts based on a fraction of the value of the contract and sales relate primarily
to the amount of premiums and deposits received in a period, the Company does not believe a reconciliation of these amounts would be meaningful.



Sales are stated net of internal replacements, which in the Companys opinion provides a more meaningful disclosure of sales. In
addition, sales exclude: funding agreements issued under the Companys medium-term note program; large case bank-owned life insurance (BOLI); large case pension plan acquisitions; and deposits into Nationwide employee and agent benefit plans.
Although these products contribute to asset and earnings growth, they do not produce steady production flow that lends itself to meaningful comparisons and are therefore excluded from sales.



The Company believes that the presentation of sales as
measured for management purposes enhances the understanding of the Companys business and helps depict trends that may not be apparent in the results of operations due to differences between the timing of sales and revenue recognition.



The Companys flagship products are
marketed under The BEST of AMERICA®brand, and include individual variable and group annuities and variable life
insurance. The BEST of AMERICA products allow customers to choose from investment options managed by premier mutual fund managers. The Company has also developed private label variable and fixed annuity products in conjunction with other financial
services providers that allow those providers to sell products to their own customer bases under their own brand name.



The Company also markets group deferred compensation retirement plans to employees of state and local governments for use under Internal
Revenue Code (IRC) Section 457. The Company utilizes its sponsorship by the National Association of Counties and The United States Conference of Mayors when marketing IRC Section 457 products.



16



---



Sales by
product and segment for each of the last three years are as follows:



2002

2001

2000(in millions)The BEST of AMERICA annuity products

$
3,506.9

$
3,927.2

$
5,475.4Private label annuities


795.3


1,398.3


998.7Other





2.8


90.9Total individual variable annuity sales


4,302.2


5,328.3


6,565.0Deferred fixed annuities


2,528.3


1,874.4


534.8Income products


133.0


127.8


127.7Total individual fixed annuity sales


2,661.3


2,002.2


662.5Total individual annuity sales

$
6,963.5

$
7,330.5

$
7,227.5The BEST of AMERICA annuity products

$
2,611.2

$
3,067.6

$
3,931.4Other


46.5


56.9


47.3Total private sector pension plan sales


2,657.7


3,124.5


3,978.7Total public sector pension plan salesIRC Section 457 annuities


1,375.6


1,521.2


2,148.8Total institutional products sales

$
4,033.3

$
4,645.7

$
6,127.5The BEST of AMERICA variable life series

$
518.2

$
552.4

$
573.4Corporate-owned life insurance (COLI)


657.5


742.3


711.4Traditional/Universal life insurance


244.8


245.9


245.4Total life insurance sales

$
1,420.5

$
1,540.6

$
1,530.2


|
|

The Company sells its products through a diverse distribution network.
Unaffiliated entities that sell the Companys products to their own customer base include independent broker/dealers, wirehouse and regional firms, financial institutions, pension plan administrators and life insurance specialists.
Representatives of affiliates who market products directly to a customer base include Nationwide Retirement Solutions and Nationwide Provident agents. The Company also distributes retirement savings products through the agency distribution force of
its ultimate parent company, NMIC.



Sales by
distribution channel for each of the last three years are summarized as follows:



2002

2001

2000(in millions)Non-affiliated:Financial institutions

$
3,421.4

$
3,202.9

$
2,868.0Independent broker/dealers


3,326.3


3,977.4


5,705.0Wirehouse and regional firms


2,050.4


2,332.0


1,412.2Pension plan administrators


709.6


959.7


1,044.2Life insurance specialists(1)


657.5


742.4


711.4Affiliated:Nationwide Retirement Solutions


1,426.9


1,591.7


2,328.6Nationwide agents


726.3


710.6


815.8Nationwide Provident agents


98.9





Total sales

$
12,417.3

$
13,516.7

$
14,885.2


(1)    Includes sales generated by TBG Financial, an
affiliate.



17



---



Sales through
financial institutions grew 7% in 2002, driven mainly by increased fixed annuity sales, partially offset by lower production of variable annuities. Sales in 2001 grew 12% due primarily to the appointment of new distributors in the bank channel who
sell fixed annuity products and a shift in customer preference in 2001 to fixed annuity products in light of the declining and volatile equity markets.



The 16% decrease in sales in the independent broker/dealer channel in 2002 reflects primarily lower demand for variable annuities and
variable life insurance in light of depressed equity markets. Total sales through this channel were down 30% in 2001, reflecting lower demand for variable annuities due to declining and volatile equity markets. Also contributing to the decline in
2001 were lower Private Sector group pension sales due to decreases in the average takeover case size reflecting the depressed equity markets and number of new plans sold in light of the economic slowdown.



Sales through wirehouse and regional firms decreased 12% in
2002 to $2.05 billion compared to $2.33 billion in 2001, primarily reflecting lower sales from the Waddell & Reed Financial, Inc. relationship, partially offset by growth from other firms. Sales in this channel in 2001 increased 65% over 2000,
due primarily to higher sales following the launch of the Waddell & Reed Financial, Inc. relationship, which generated $1.04 billion of sales in 2001.



Sales through pension plan administrators dropped 26% and 8% in 2002 and 2001, respectively. As the Companys Private Sector pension
business model continues to evolve, direct production through this channel is not expected to grow, as more new business opportunities are being created in conjunction or partnership with the independent broker/dealers, wirehouse and regional firms
and financial institutions relationships.



The
11% decrease in sales through life insurance specialists in 2002 reflects a weakness in COLI sales being negatively impacted by the sluggish equity markets, the weak economy, unfavorable press regarding COLI and executive deferred compensation plans
and proposed legislation which would adversely impact the tax benefits of COLI. Sales for 2001 grew 4% over 2000 and reflect continued growth in renewal premiums, offset by a sharp decline in first-year premiums, as the depressed economic conditions
reduced demand for new executive benefit plans.



Business Segments



The
Company reports three product segments: Individual Annuity, Institutional Products and Life Insurance. In addition, the Company reports certain other revenues and expenses in a Corporate segment.



The following table summarizes pre-tax operating income
(loss) for the Companys business segments for each of the last three years.



2002


2001

2000(in millions)Individual Annuity

$
(122.8
)

$
231.4

$
280.7Institutional Products


203.4



211.3


220.0Life Insurance


171.5



189.7


161.1Corporate(1)


1.8



16.7


40.7Pre-tax operating income(1)

$
253.9


$
649.1

$
702.5(1)    Excludes net realized gains and losses on
investments not related to securitizations, hedging instruments and hedged items, discontinued operations and cumulative effect of adoption of accounting principles.




18



---



Individual
Annuity



The Individual Annuity segment
consists of individual The BEST of AMERICA and private label deferred variable annuity products, deferred fixed annuity products and income products. Individual deferred annuity contracts provide the customer with tax-deferred accumulation of
savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts provide the customer with access to a wide range of investment options and asset protection in
the event of an untimely death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods.



The following table summarizes certain selected financial data for the Companys Individual Annuity segment for the years indicated.



2002


2001


2000(in millions)Income Statement DataRevenues:Policy charges

$
456.8


$
495.1


$
573.2Net investment income


668.5



534.7



482.0Premiums on immediate annuities


69.4



60.9



52.7Total revenues


1,194.7



1,090.7



1,107.9Benefits and expenses:Interest credited to policyholder account values


505.9



433.2



396.4Other benefits


99.5



68.7



54.0Amortization of DAC


528.2



220.0



238.7Other operating expenses


183.9



137.4



138.1Total benefits and expenses


1,317.5



859.3



827.2Pre-tax operating (loss) income

$
(122.8
)

$
231.4


$
280.7Other DataSales:Individual variable annuities

$
4,302.2


$
5,328.3


$
6,565.0Individual fixed annuities


2,661.3



2,002.2



662.5Total individual annuity sales

$
6,963.5


$
7,330.5


$
7,227.5Average account values:Separate account

$
29,750.3


$
33,419.0


$
37,934.0General account


10,163.8



7,619.7



6,942.9Total average account values

$
39,914.1


$
41,038.7


$
44,876.9Account values as of year end:Individual variable annuities

$
30,611.4


$
36,020.9


$
39,621.9Individual fixed annuities


8,020.8



5,756.6



3,941.8Total account values

$
38,632.2


$
41,777.5


$
43,563.7GMDBNet amount at risk, net of reinsurance

$
2,961.9


$
1,293.8


$
179.6Return on average allocated capital


(3.2
)%


13.4
%


20.4
%Pre-tax operating (loss) income to average account values


(0.31
)%


0.56
%


0.63
%




19



---



Pre-tax
operating loss totaled $122.8 million in 2002 compared to earnings of $231.4 million in 2001, which were down 18% from 2000. The loss in 2002 was primarily due to the acceleration of DAC amortization recorded in third quarter 2002, which totaled
$328.3 million, as described in Part II, Item 7Managements Narrative Analysis of the Results of OperationsBenefits and Expenses.Excluding the accelerated DAC amortization, pre-tax operating income decreased 11% in 2002. In
both years, the decline in equity markets pushed average separate account balances lower, thereby reducing policy charges and earnings. The decline in policy charges was partially offset by additional interest spread income generated by rapid growth
in fixed annuities.



Asset fees were $373.3
million in 2002 down 11% from $420.8 million in 2001 and totaled $478.5 million in 2000. Asset fees are calculated daily and charged as a percentage of separate account values. The fluctuations in asset fees are primarily due to changes in the
market value of the investment options underlying the account values, which have followed the general trends of the equity markets. Average separate account values decreased 11% in 2002 to $29.75 billion following a 12% decrease in 2001.



Surrender fees increased by $4.7 million to
$60.4 million in 2002 compared to $55.7 million in 2001 and $75.4 million in 2000, primarily due to the competitive market place and sustained downturn in the equity markets. Lower surrender fees in 2001 were the result of the successful
implementation of customer retention programs in the individual variable annuity business during the year. These programs were created as the heightened competitive environment in 2000 led to increased surrender activity and related fees.



Interest spread income is net investment income
less interest credited to policyholder account values. Interest spread income can vary depending on crediting rates offered by the Company, performance of the investment portfolio, including the rate of prepayments, changes in market interest rates,
the competitive environment and other factors.



The following table depicts the interest spread on average general account values in the Individual Annuity segment for each of the last three years.



2002


2001


2000Net investment income

6.93
%

7.58
%

7.86
%Interest credited

4.98


5.69


5.71Interest spread on average general account values

1.95
%

1.89
%

2.15
%




Interest spread on average general account values increased 6 basis points in 2002 compared a year ago. The improvement was due to the Companys ability to lower renewal crediting rates more quickly than investment portfolio
rates have declined as a result of lower market interest rates. However, a one-year enhanced crediting rate special offered in the fourth quarter of 2002 coupled with new crediting rates at or near contractual minimum rates and a jump in prepayments
of higher yielding investments will put pressure on interest spread on average general account values in 2003. A combination of a competitive environment, a sharp decline in interest rates and a by-product of the Companys investment strategy
contributed to the reduction in interest spreads in 2001 compared to 2000. As a strategic move to maintain market share, the Company did not lower crediting rates in the third quarter of 2001 as quickly as earned rates declined. In addition,
throughout 2001, the Company had a significant increase in cash flows in the general account due to strong fixed annuity sales. As a result, at certain times throughout the year, cash positions were greater than targeted as the Company acquired
appropriate long-term investments, putting pressure on spreads, especially given a declining interest rate environment. Declining interest rates in 2002 and 2001 resulted in a significant increase in mortgage loan and bond prepayment income, which
added 6 and 8 basis points to the 2002 and 2001 interest spread, respectively, compared to 4 basis points in 2000.



Other benefits increased in 2002 primarily due to higher levels of GMDB claims. GMDB exposure, as measured by the difference between the
aggregate account value and death benefit due to the contract holder net of any reinsurance coverage, increased to $2.96 billion at the end of 2002 from $1.29 billion at the end of 2001. During 2002, the Company strengthened its reserve for GMDB
claims by $10.5 million to meet the current estimate of future net GMDB claims in excess of fees. The Companys reserve for GMDB claims was $13.7 million and $11.4 million as of December 31, 2002 and 2001, respectively.



20



---



Operating
expenses were $183.9 million in 2002, an increase of 34% over 2001. The increase reflects growth in the number of contracts in-force, an increase in employee benefit costs and projects focused on improving producer and customer support.



Account values ended 2002 at $38.63 billion,
down $3.15 billion from the end of 2001 of $41.78 billion, which was down $1.79 billion from the end of 2000. Net flows, which consists of deposits less withdrawals, of $1.98 billion and $3.09 billion in 2002 and 2001, respectively, were offset by
market depreciation of variable annuities of $4.88 billion and $4.51 billion in 2002 and 2001, respectively. The decrease in net flows is attributable to the decline in sales combined with an increase in variable annuity surrenders due to continued
losses in the equity markets. Individual annuity sales, which exclude internal replacements, during 2002 were $6.96 billion, down 5% from $7.33 billion a year ago. The decline in sales is driven by sustained weakness in the equity markets, which had
a negative impact on variable annuity demand. Variable annuity sales were $4.30 billion in 2002, down 19% compared to 2001. Sales of variable annuities were down 19% in 2001 compared to 2000. According to the Variable Annuity Research & Data
Service (VARDS), the Company was ranked 8thin total variable annuity sales in 2002. Partially offsetting a decline
in variable annuity sales was the strong appeal of fixed products to consumers, as fixed annuities sales reached a record $2.66 billion in 2002, a 33% increase from the $2.00 billion reported in 2001. Fixed annuity sales were up 202% in 2001 from
2000. The decline in the equity markets has fueled interest in fixed annuity sales across the industry. In addition, the Company has expanded the number of banks that sell the Companys fixed products.



The decrease in return on average allocated capital in 2002
is a result of lower earnings on individual variable annuities, primarily due to the accelerated DAC amortization charge resulting from depressed equity markets. Excluding the $328.3 million of accelerated DAC amortization, return on average
allocated capital in 2002 was 10.2%. The lower returns in 2002 and 2001 were driven by lower earnings from variable annuities due to the depressed equity markets and additional allocated capital to support growth in fixed annuities during 2002 and
2001.



Excluding the $328.3 million of
accelerated DAC amortization in 2002, pre-tax operating income to average account values was 51 basis points. The lower returns in 2002 and 2001 were driven by lower earnings from variable annuities and lower interest spreads on average general
account values in 2001. Also contributing to this decline was the Companys inability to reduce its operating expenses as quickly as and in proportion to the decrease in policy charges due to declining equity markets.



Institutional Products



The Institutional Products segment is comprised of the
Companys Private and Public Sector group retirement plans, medium-term note program and structured products initiatives. The Private Sector includes the 401(k) business generated through variable and fixed group annuities. The Public Sector
includes the IRC Section 457 business in the form of fixed and variable annuities.



Sales results do not include business generated through the Companys medium-term note program, large case pension plan acquisitions and Nationwide employee and agent benefit plans, however the
income statement data does reflect this business.



21



---



The following
table summarizes certain selected financial data for the Companys Institutional Products segment for the years indicated.



2002


2001


2000(in millions)Income Statement DataRevenues:Policy charges

$
169.8


$
205.9


$
251.6Net investment income


800.2



847.5



827.4Other


8.1



3.5



Total revenue


978.1



1,056.9



1,079.0Benefits and expenses:Interest credited to policyholder account values


548.9



627.8



628.8Amortization of DAC


53.7



47.6



49.2Other operating expenses


172.1



170.2



181.0Total benefits and expenses


774.7



845.6



859.0Pre-tax operating income

$
203.4


$
211.3


$
220.0Other DataSales:Private sector pension plans

$
2,657.7


$
3,124.5


$
3,978.7Public sector pension plans


1,375.6



1,521.2



2,148.8Total institutional products sales

$
4,033.3


$
4,645.7


$
6,127.5Average account values:Separate account

$
19,261.4


$
23,149.9


$
27,806.7General account


12,657.2



11,528.3



10,521.2Total average account values

$
31,918.6


$
34,678.2


$
38,327.9Account values as of year end:Private sector pension plans

$
13,797.2


$
16,405.5


$
18,001.4Public sector pension plans


12,065.1



14,288.8



17,294.5Funding agreements backing medium-term notes


4,273.6



3,128.1



1,627.7Total account values

$
30,135.9


$
33,822.4


$
36,923.6Return on average allocated capital


22.1
%


22.6
%


24.2
%Pre-tax operating income to average account values(1)


0.64
%


0.61
%


0.57
%(1)    Excludes pre-tax operating income from structured
products.




Pre-tax operating income totaled $203.4 million in 2002, down 4% compared to $211.3 million in 2001, which was down 4% from 2000. Results in 2002 include $12.0 million of accelerated DAC amortization, as described in Part
II,Item 7  Managements Narrative Analysis of the Results of Operations  Benefits and Expenses.Excluding the accelerated DAC amortization, pre-tax operating income increased 2% due to growth in interest spread income
and other income, which more than offset lower policy charges as a result of depressed equity markets and a shift in product mix to non-annuity products. Declining equity markets throughout the past two years has driven average separate account
balances, policy charges and earnings lower. In addition an intensively competitive environment in the Public Sector market and a shift in product mix to more administration-only cases have resulted in reduced revenues and earnings.



Asset fees declined 17% to $147.3 million in 2002 compared to
$176.7 million in 2001 and totaled $220.2 million in 2000. The declines were driven by back-to-back 17% decreases in average separate account assets in 2002 and 2001 as a result of sustained downturn in the equity markets and a shift in product mix
from annuities to administrative-only products. The 2001 decline in other policy charges was a result of additional administration fees in 2000 from case terminations.



22



---



Despite
growth in average general account values in 2002, net investment income has decreased compared to 2001, reflecting lower market interest rates in 2002 and the floating rate nature of many of the investments in this segment.



Interest spread income is net investment income less interest
credited to policyholder account values. Interest spread income can vary depending on crediting rates offered by the Company, performance of the investment portfolio, including the rate of prepayments, changes in market interest rates, the
competitive environment and other factors. Interest spread income was $31.6 million higher in 2002 compared to 2001, which was $21.1 million higher than 2000. The increases were driven by both higher average general account values and improved
interest spread. The increase in average general account values was led by growth in the medium-term note program, where the Company issued $1.18 billion and $1.48 billion of notes in 2002 and 2001, respectively. An increase in participants
allocating assets to the fixed option of the Companys retirement plan offerings also drove the increase in general account values in 2002.



The following table depicts the interest spread on average general account values in the Institutional Products segment for each of the
last three years.



2002


2001


2000Net investment income

6.32
%

7.35
%

7.86
%Interest credited

4.34


5.44


5.98Interest spread on average general account values

1.98
%

1.91
%

1.88
%




Interest spread improved 7 basis points in 2002 compared to 2001, as the Company was able to lower crediting rates more quickly than the decrease in investment portfolio rates, which decreased due to lower market interest rates.
Mortgage loan and bond prepayment income added 9 basis points to the 2002 interest spread, compared to 13 basis points and 4 basis points in 2001 and 2000, respectively. The additional prepayment income in 2001 offset the impact on spreads of higher
than anticipated cash balances at times throughout 2001 and yields declining on new investments more quickly than crediting rates could be adjusted.



The growth in other revenue in 2002 reflects additional structured products transactions.



Excluding the $12.0 million of accelerated DAC amortization
in 2002, amortization of DAC decreased 12% in 2002, following a 3% decrease in 2001, reflecting lower revenue and earnings from group annuity contracts.



Other operating expenses in 2002 increased 1%, compared to a 6% decrease in 2001. The increase in 2002 reflects the growth in the number
of cases being administered and an increase in employee benefit costs. The decrease in 2001 reflects the Companys commitment to aggressively manage expenses in response to declining revenues and lower sales as a result of declining and
volatile equity markets and a slowing economy throughout the year.



Account values ended 2002 at $30.14 billion, down $3.68 billion from $33.82 billion at the end of 2001, which were down 8% compared to $36.92 billion at the end of 2000. The decreases reflect market depreciation due to
depressed equity markets. Net flows, which consist of deposits less withdrawals, were $(118.1) million in 2002, compared to $473.1 million and $738.9 million in 2001 and 2000, respectively. Private Sector sales have decreased by 15% in 2002, as
an increasing percentage of pension sales are sold as trust products offered by an affiliate, Nationwide Trust Company, FSB. Private Sector sales were down 21% in 2001 reflecting lower sales due to decreases in the average takeover case size
reflecting the depressed equity markets and an 11% decline in the number of new plans sold in light of the economic slow down. Sales in the Public Sector declined from a year ago reflecting the impact of case terminations in 2001 and 2002 on
recurring deposits. In addition, an increasing number of new plan sales are administration-only products offered by Nationwide Retirement Solutions, an affiliate of the Company, rather than annuities offered by the Company. Sales of Public Sector
pension plans in 2001 decreased 29% compared to 2000 reflecting the impact of earlier case terminations.



23



---



The decrease
in return on average allocated capital in 2002 is primarily driven by lower earnings on variable annuities resulting from depressed equity markets and the accelerated DAC amortization. The decline in average allocated capital in 2001 compared to
2002 reflects lower earnings from variable annuities due to depressed equity markets and additional allocated capital to support growth in the medium-term note program.



Pre-tax operating income to average account balances of 0.64% in 2002 increased compared to 0.61% in 2001
and 0.57% in 2000, and reflects the growth in the medium-term note program.



Life Insurance



The Life Insurance segment consists of investment life products, including individual variable life and COLI products, traditional life insurance products and universal life insurance. Life insurance products provide a death
benefit and generally also allow the customer to build cash value on a tax-advantaged basis.



The following table summarizes certain selected financial data for the Companys Life Insurance segment for the years indicated.



2002


2001


2000(in millions)Income Statement DataRevenues:Policy charges

$
347.2


$
316.2


$
266.6Net investment income


328.6



323.3



289.2Other


190.5



195.3



195.5Total revenues


866.3



834.8



751.3Benefits and expenses:Benefits


458.2



431.1



389.3Amortization of DAC


88.2



80.3



64.2Operating expenses


148.4



133.7



136.7Total benefits


694.8



645.1



590.2Pre-tax operating income

$
171.5


$
189.7


$
161.1Other DataSales:The BEST of AMERICA variable life series

$
518.2


$
552.4


$
573.4Corporate-owned life insurance


657.5



742.3



711.4Traditional/Universal life insurance


244.8



245.9



245.4Total life insurance sales

$
1,420.5


$
1,540.6


$
1,530.2Policy reserves as of year end:Individual investment life insurance

$
2,121.6


$
2,203.7


$
2,092.0Corporate investment life insurance


3,652.8



3,236.8



2,552.3Traditional life insurance


1,937.1



1,873.4



1,813.0Universal life insurance


830.5



785.3



768.2Total policy reserves

$
8,542.0


$
8,099.2


$
7,225.5Life insurance in-force as of year end:Individual investment life insurance

$
33,536.9


$
30,641.0


$
26,781.5Corporate investment life insurance


8,387.1



7,727.6



6,143.9Traditional life insurance


24,046.9



24,276.7



23,441.5Universal life insurance


7,804.2



7,806.3



8,023.1Total insurance in-force

$
73,775.1


$
70,451.6


$
64,390.0Return on average allocated capital


11.8
%


11.6
%


12.1
%


|
|

|
|



24



---



Life
Insurance segment earnings in 2002 decreased 10% to $171.5 million from $189.7 million a year ago, while earnings in 2000 were $161.1 million. Earnings in 2002 include $6.8 million of expense from the acceleration of DAC amortization, as described
in Item 7  Managements Narrative Analysis of the Results of Operations  Benefits and Expenses.Excluding the acceleration of DAC amortization, operating earnings decreased $11.4 million or 6% compared to 2001. In 2002, an
increase in policy charges from a growing block of insurance in-force was offset by an increase in operating expenses and lower earnings from the Companys COLI business as a result of a slowdown in the COLI and deferred compensation markets
due to the economic downturn, depressed equity markets and proposed legislation which would adversely impact the tax advantages of COLI. In 2001 the increase in Life Insurance segment earnings was attributable to revenue growth generated from new
sales and high persistency of both individual and corporate investment life insurance products.



Policy charges increased 10% to $347.2 million in 2002, following a 19% increase to $316.2 million in 2001. Cost of insurance charges, which are assessed on the amount of insurance in-force in excess
of the related policyholder account value, increased 17% and 29% in 2002 and 2001, respectively, and reflect a growing block of investment life business, as insurance in-force increased 5% to $73.78 billion at 2002 compared to $70.45 billion at
2001. The growth in insurance in-force reflects both the impact of new sales as well as high persistency of in-force contracts. Administrative fees were $80.3 million or 9% lower in 2002 and flat in 2001 compared to 2000. Growth in fees assessed on
policies in-force offset lower fees assessed on premiums and deposits due to the decline in sale of investment life products.



Net investment income increased in both 2002 and 2001 reflecting growth in general account corporate-owned life insurance in-force.



Policy benefits increased 6% to $458.2 million
in 2002 following an 11% increase in 2001. The growth in 2002 reflects the growth in insurance in-force and higher mortality experience. In 2001, favorable mortality experience allowed the Company to renegotiate and lower certain reinsurance
premiums.



Amortization of DAC increased $7.9
million in 2002 following a $16.1 million increase in 2001. The increase in 2002 reflects $6.8 million of accelerated DAC amortization and the increase in 2001 reflects the growth in investment life insurance earnings.



Operating expenses were $148.4 million in 2002, up 11% from
2001, due to growth in insurance in-force and higher employee benefit costs. Operating expenses for 2001 were $133.7 million, a 2% decrease from 2000. Operating expenses for 2002 and 2001 also reflect the operational efficiencies and scale advantage
being developed in the investment life operation. Technology and process improvement investments intended to streamline and improve the underwriting and policy-issue process made in 2000 are helping to develop these efficiencies.



Total life insurance sales in 2002 of $1.42 billion were down
8% from sales of $1.54 billion in 2001, as individual variable life sales continue to be adversely impacted by the sluggish equity markets, concern over the potential for adverse tax legislation and consumer preference for fixed products. COLI sales
were negatively impacted throughout 2002 by the sluggish economy, depressed equity markets, unfavorable press regarding COLI and executive deferred compensation plans, and proposed legislation which would adversely impact the tax benefits of COLI.
First year premiums for fixed life were up from a year ago due to increased universal life and term life sales. Total life insurance sales of $1.54 billion in 2001 were essentially flat compared to $1.53 billion in 2000. Individual variable
universal life sales were adversely impacted by the phase out of the estate tax, uncertainty surrounding the taxation of split dollar plans and the volatile stock market. Sales of new COLI cases in 2001 were down given the depressed economic
conditions where corporations are not forming new executive benefit plans and existing plans are being funded at lower levels.



Return on average allocated capital increased slightly to 11.8% in 2002 compared to 11.6% and 12.1% in 2001 and 2000, respectively.



Corporate



The Corporate segment consists of net investment income not
allocated to the three product segments, interest expense on debt and unallocated expenses.



25



---



The following
table summarizes certain selected financial data for the Companys Corporate segment for the years indicated.



2002


2001


2000(in millions)Income Statement DataOperating revenues(1)

$
41.9


$
20.8


$
58.2Interest expense on debt, primarily with NFS


(36.0
)


(6.2
)


(1.3
)Other operating expenses


(4.1
)


2.1



(16.2
)Pre-tax operating income(1)

$
1.8


$
16.7


$
40.7(1)    Excludes net realized gains and losses on
investments not related to securitizations, hedging instruments and hedged  items, discontinued operations and cumulative effect of adoption of accounting principles.




The increase in revenues in 2002 reflects an increase in net investment income primarily attributable to income earned on the proceeds from the surplus note offerings completed in December 2001 and June 2002, less the impact of lower
investment income as a result of dividends paid to NFS and lower yields. The additional interest expense in 2002 reflects the surplus note offerings mentioned above, offset by lower utilization of commercial paper borrowings. The decline in revenues
in 2001 reflects a decrease in net investment income on real estate investments, higher passive losses from affordable housing partnership investments, lower investment yields from declining interest rates and fewer investments retained in the
Corporate segment as more capital and the related investment earnings were allocated to the product segments to support growth.



In addition to these operating revenues and expenses, the Company also reports net realized gains and losses on investments not related
to securitizations, hedging instruments and hedged items in the Corporate segment. Losses from other-than-temporary impairments were $120.3 million in 2002, compared to $80.6 million in 2001 and $15.4 million in 2000. Included in the 2002 losses
were $22.5 million related to WorldCom, Inc., and losses included $25.9 million related to fixed maturity securities issued by Enron and affiliated entities. Non-impairment related net realized gains on investments, hedging instruments and hedged
items totaled $35.9 million in 2002 compared to $62.3 of net gains in 2001 and net losses of $4.0 million in 2000, including gains of $23.2 million and $44.4 million in 2002 and 2001, respectively, related to the two-step sale of a real estate
partnership to related parties, as described in note 14 to the audited consolidated financial statements included in the F pages of this report.



The increase in interest expense on debt results from the issuance of $300 million of surplus notes in December 2001 and June 2002.



In addition, the Company realized an after tax
loss of $4.8 million related to the adoption of FAS 133 in first quarter 2001 and an after tax loss of $2.3 million related to the adoption of Emerging Issues Task Force Issue No. 99-20 in second quarter 2001.



26



---



An analysis
of net realized (losses) gains on investments, hedging instruments and hedged items, by source and investment type follows:

|
|

2002


2001


2000(in millions)Unrelated parties:Realized gains on sales, net of hedging losses:Fixed maturity securities, available-for-sale

$
42.0


$
30.1


$
7.4Hedging losses on fixed maturity sales


(41.1
)


(1.5
)


Equity securities, available-for-sale






1.2



5.0Real estate


14.0



3.3



3.5Mortgage loans on real estate


3.2



11.2



0.2Mortgage loan hedging losses


(1.2
)


(8.1
)


Other


0.1



1.2



1.8Total realized gains on sales  unrelated parties


17.0



37.4



17.9Realized losses on sales, net of hedging gains:Fixed maturity securities, available-for-sale


(15.7
)


(9.3
)


(15.1
)Hedging gains on fixed maturity sales


10.7



0.1



Equity securities, available-for-sale


(0.9
)


(0.8
)


(0.3
)Real estate


(3.0
)


(1.4
)


(0.9
)Mortgage loans on real estate


(3.3
)


(0.6
)


(2.6
)Mortgage loans hedging gains


0.9







Other


(1.0
)


(7.7
)


(0.3
)Total realized losses on sales  unrelated parties


(12.3
)


(19.7
)


(19.2
)Derivatives, excluding hedging gains and losses on sales


8.0



0.2



(2.7
)Other-than-temporary impairments:Fixed maturity securities, available-for-sale


(111.6
)


(66.1
)


(10.5
)Equity securities, available-for-sale






(13.8
)


Real estate


(2.4
)






(3.3
)Mortgage loans on real estate


(6.3
)


(0.7
)


(1.6
)Total other-than-temporary impairments


(120.3
)


(80.6
)


(15.4
)Total  unrelated parties


(107.6
)


(62.7
)


(19.4
)Related
parties  gain on sale of limited partnership


23.2



44.4



Net realized losses on investments, hedging instruments and hedged
items

$
(84.4
)

$
(18.3
)

$
(19.4
)




Related Party Transactions



During 2001, the Company entered into a transaction with NMIC, whereby it sold 78% of its interest in a limited partnership (representing 49% of the limited partnership) to NMIC for $158.9 million. As a result of this sale, the
Company recorded a realized gain of $44.4 million and related tax expense of $15.5 million. During 2002, the Company entered into transactions with NMIC and Nationwide Indemnity Company (NIC), whereby it sold 100% of its remaining interest in the
limited partnership (representing 15.11% of the limited partnership) to NMIC and NIC for a total of $54.5 million. As a result of this sale, the Company recorded a realized gain of $23.2 million and related tax expense of $8.1 million. The sales
prices for each transaction, which were paid in cash, represented the fair value of the portions of limited partnership interests that were sold and were based on valuations of the limited partnership and its underlying investments as of the
effective dates of the transactions. The valuations were completed by qualified management of the limited partnership and utilized a combination of internal and independent valuations of the underlying investments of the limited partnership.
Additionally, senior financial officers and the Boards of Directors of the Company and NMIC separately reviewed, through their respective Finance Committees, and approved the process and methodology of the valuations prior to the execution of these
transactions. The Company no longer holds an economic or voting interest in the limited partnership.



27



---



NLIC has
issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $4.50 billion and $4.68 billion as of
December 31, 2002 and 2001, respectively. Total revenues from these contracts were $143.3 million, $150.7 million and $156.8 million for the years ended December 31, 2002, 2001 and 2000, respectively, and include policy charges, net investment
income from investments backing the contracts and administrative fees. Total interest credited to the account balances were $114.8 million, $122.5 million and $135.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. The
terms of these contracts are consistent in all material respects with what the Company offers to unaffiliated parties who are similarly situated.



Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as discussed in more detail in note
2(i) to the Companys consolidated financial statements included in the F pages of this report, and beginning October 1, 2002, will file a consolidated federal income tax return with NLAIC. Total payments to (from) NMIC were $71.0 million,
$(45.4) million and $74.6 million for the years ended December 31, 2002, 2001 and 2000, respectively.



The Company has a reinsurance agreement with NMIC whereby all of the Companys accident and health business not ceded to
unaffiliated reinsurers is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets and
investment earnings are paid to the reinsurer. Under the terms of the Companys agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. The Company retains risk of asset default, although a fee is
paid to the Company for the retention of such risk. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent
in all material respects with what the Company could have obtained with unaffiliated parties. Revenues ceded to NMIC for the years ended December 31, 2002, 2001 and 2000 were $325.0 million, $200.7 million and $170.1 million, respectively,
while benefits, claims and expenses ceded were $328.4 million, $210.1 million and $171.0 million, respectively.



Pursuant to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides
certain operational and administrative services, such as investment management, advertising, personnel and general management services, to those subsidiaries. Expenses covered by such agreement are subject to allocation among NMIC and such
subsidiaries. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commission expense and other methods agreed to by the participating companies that are within
industry guidelines and practices. In addition, Nationwide Services Company, a subsidiary of NMIC, provides computer, telephone, mail, employee benefits administration, and other services to NMIC and certain of its direct and indirect subsidiaries,
including the Company, based on specified rates for units of service consumed. For the years ended December 31, 2002, 2001 and 2000, the Company made payments to NMIC and Nationwide Services Company, LLC totaling $135.6 million, $139.8 million and
$150.3 million, respectively. The Company does not believe that expenses recognized under these agreements are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis.



Under a marketing agreement with NMIC, NLIC makes payments to
cover a portion of the agent marketing allowance that is paid to Nationwide agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $24.9 million, $26.4 million and
$31.4 million for the years ended December 31, 2002, 2001 and 2000, respectively.



The Company leases office space from NMIC and certain of its subsidiaries. For the years ended December 31, 2002, 2001 and 2000, the Company made lease payments to NMIC and its subsidiaries of
$20.2 million, $18.7 million and $14.1 million, respectively.



28



---



The Company
also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or after a stated period, the seller will repurchase the securities at the original sales
price plus interest. As of December 31, 2002 and 2001, the Company had no borrowings from affiliated entities under such agreements. During 2002 and 2001, the most the Company had outstanding at any given time was $224.9 million and $368.5 million,
respectively, and the Company incurred interest expense on intercompany repurchase agreements of $0.3 million and $0.2 million for 2002 and 2001, respectively. Transactions under the agreements during 2000 were not material. The Company believes
that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties.



The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC
acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC were $87.0 million and $54.8 million as of December 31, 2002 and 2001, respectively, and
are included in short-term investments on the accompanying consolidated balance sheets. For the years ending December 31, 2002, 2001 and 2000 the Company paid NCMC fees and expenses totaling $0.3 million, $0.4 million and $0.3 million, respectively.



Certain annuity products are sold
through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the three years ended December 31, 2002 were $50.3 million, $52.9 million and $65.0 million, respectively.



Funds of Gartmore Global Investments, Inc. (GGI), an
affiliate, are offered as investment options in certain of the Companys products. As of December 31, 2002, total GGI funds in the Companys products were $12.21 billion. For the year ended December 31, 2002, GGI paid the Company $38.8
million for the distribution and servicing of these funds.



During the 2002, NLIC paid a dividend of $35.0 million and dividends in the form of return of capital of $475.0 million to NFS.



In addition, in June 2002, NLIC paid a dividend to NFS in the form of all of the shares of common stock of NSI, a wholly owned
broker/dealer subsidiary. Therefore, the results of the operations of NSI have been reflected as discontinued operations for all periods presented. This was a transaction between related parties and therefore was recorded at carrying value, $10.0
million, of the underlying components of the transaction rather than fair value.



In December 2001 NLIC sold NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June 2002, NLIC sold NFS an 8.15%, $300.0 million surplus note maturing June 27, 2032. The Company
made interest payments on surplus notes to NFS totaling $30.1 million in 2002 and none in 2001. In addition, the Company made interest payments on unsecured notes to NFS totaling $0.5 million in 2002.



Off-Balance Sheet Transactions



Under the medium-term note program, NLIC issues funding
agreements, which are insurance obligations, to an unrelated third-party trust to secure notes issued to investors by the trust. The funding agreements are recorded as a component of future policy benefits and claims on the Companys
consolidated balance sheets. Because the Company has no ownership interest in, or control over, the third-party trust that issues the notes, the Company does not include the trust in its consolidated financial statements and therefore, such notes
are not reflected in the consolidated financial statements of the Company. As the notes issued by the trust have a secured interest in the funding agreement issued by the Company, Moodys and S&P assign the same ratings to the notes as the
insurance financial strength ratings of NLIC.



29



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During 2002,
the Company sold credit enhanced equity interests in Low Income Housing Tax Credit Funds (Tax Credit Funds) to unrelated third parties for $125.3 million and recognized $6.8 million of income. The Company guaranteed cumulative after-tax yields to
third party investors ranging from 5.15% to 5.25%. These guarantees are in effect for approximately 15 years. The Tax Credit Funds will provide a stream of tax benefits to the investors that will generate a yield and return of capital. To the extent
that the tax benefits are not sufficient to provide these cumulative after-tax yields, then the Company must fund any shortfall, which is mitigated by cash reserves established by the Company at the inception of the transactions.



The maximum amount of undiscounted future payments that the
Company could be required to pay the investors under the terms of the guarantees is $368.7 million. The Company does not anticipate making any payments related to the guarantees.



At the time of the sales, $4.9 million of net sale proceeds were set aside as reserves for certain
properties owned by the Tax Credit Funds that had not met all of the criteria necessary to generate tax credits. Such criteria include completion of construction and the leasing of each unit to a qualified tenant among other criteria. Properties
meeting the necessary criteria are considered to have stabilized. The properties are evaluated regularly and upon stabilizing, the reserve is released. During 2002, $0.5 million of stabilization reserves were released into income.



To the extent there are cash deficits in any
specific property owned by the Tax Credit Funds, property reserves, property operating guaranties and reserves held by the Tax Credit Funds are exhausted before the Company is required to perform under its guarantees. To the extent the Company is
ever required to perform under its guarantees, it can recover any such funding out of the residual value generated upon the sale of any and/or all of the underlying properties of the Tax Credit Funds.



|ITEM 7A |  | Quantitative and Qualitative Disclosures About Market Risk
|------- |  | ----------------------------------------------------------



Market Risk Sensitive Financial Instruments



The Company is subject to potential fluctuations in earnings
and the fair value of certain of its assets and liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices. The following discussion focuses on specific exposures the Company has to interest
rate and equity price risk and describes strategies used to manage these risks. The discussion is limited to financial instruments subject to market risks and is not intended to be a complete discussion of all of the risks the Company is exposed to.



Interest Rate Risk



Fluctuations in interest rates can potentially impact the
Companys earnings, cash flows and the fair value of its assets and liabilities. Generally, in a declining interest rate environment, the Company may be required to reinvest the proceeds from matured and prepaid investments at rates lower than
the overall yield of the portfolio, which could reduce interest spread income. In addition, minimum guaranteed crediting rates (typically 3.0% or 3.5%) on certain annuity contracts could result in a reduction of the Companys interest spread
income in the event of a significant and prolonged decline in interest rates from market rates at the end of 2002. The average crediting rate of fixed annuity products during 2002 was 4.98% and 4.34% for the Individual Annuity and Institutional
Products segments, respectively, well in excess of the guaranteed rates. However, crediting rates on new individual annuity business issued in December were at, or near, minimum guaranteed crediting rates. The Company mitigates this risk by
investing in assets with maturities and durations that match the expected characteristics of the liabilities and by investing in mortgage- and asset-backed securities with limited prepayment exposure. Also, the Company is part of an industry effort
to lower the statutorily required minimum guaranteed interest crediting rate on future annuity issues.



30



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Conversely, a
rising interest rate environment could result in a reduction of interest spread income or an increase in policyholder surrenders. Existing general account investments supporting annuity liabilities have a weighted average maturity of approximately
5.42 years as of December 31, 2002 and therefore, the change in yield of the portfolio will lag changes in market interest rates. This lag is increased if the rate of prepayments of securities slows. To the extent the Company sets renewal rates
based on current market rates, this will result in reduced interest spreads. Alternatively, if the Company sets renewal crediting rates while attempting to maintain a desired spread from the portfolio yield, the rates offered by the Company may be
less than new money rates offered by competitors. This difference could result in an increase in surrender activity by policyholders. If the Company could not fund the surrenders with its cash flow from operations, the Company may be required to
sell investments, which likely would have declined in value due to the increase in interest rates. The Company mitigates this risk by offering products that assess surrender charges or market value adjustments at the time of surrender, by investing
in assets with maturities and durations that match the expected characteristics of the liabilities, and by investing in mortgage- and asset-backed securities with limited prepayment exposure.



Asset/Liability Management Strategies to Manage Interest
Rate Risk



The Company employs an
asset/liability management approach tailored to the specific requirements of each of its products. Each product line has an investment strategy based on its specific characteristics. The strategy establishes asset maturity and duration, quality and
other guidelines. For fixed maturity securities and mortgages, the weighted average maturity is based on repayments, which are scheduled to occur under the terms of the asset. For mortgage- and asset-backed securities, repayments are determined
using the current rate of repayment of the underlying mortgages or assets and the terms of the securities.



For individual immediate annuities having future benefits that cannot be changed at the option of the policyholder, the underlying assets
are managed in a separate pool. The duration of assets and liabilities in this pool are kept as close together as possible. For assets, the repayment cash flows, plus anticipated coupon payments, are used in calculating asset duration. Future
benefits and expenses are used for liabilities. As of December 31, 2002, the average duration of assets in this pool was 7.74 years and the average duration of the liabilities was 7.97 years. Individual immediate annuity policy reserves on this
business were $1.64 billion as of December 31, 2002.



Because the timing of the payment of future benefits on the majority of the Companys business can be changed by the policyholder, the Company employs cash flow testing techniques in its asset/liability management process. In
addition, each year the Companys annuity and insurance business is analyzed to determine the adequacy of the reserves supporting such business. This analysis is accomplished by projecting the anticipated cash flows from such business and the
assets required to support such business under a number of possible future interest rate scenarios. The first seven of these scenarios are required by state insurance regulation. Projections are also made using 12 additional scenarios, which involve
more extreme fluctuations in future interest rates and equity markets. Finally, to get a statistical analysis of possible results and to minimize any bias in the 19 predetermined scenarios, additional projections are made using 50 randomly generated
interest rate scenarios. For the Companys 2002 cash flow testing process, interest rates for 90-day treasury bills ranged from 0.10% to 9.24% under the 19 predetermined scenarios and 0.54% to 20.59% under the 50 random scenarios. Interest
rates for longer maturity treasury securities had comparable ranges. The values produced by each projection are used to determine future gains or losses from the Companys annuity and insurance business, which, in turn, are used to quantify the
adequacy of the Companys statutory-basis reserves over the entire projection period. The results of the Companys cash flow testing indicated that the Companys reserves were adequate as of December 31, 2002.



Use of Derivatives to Manage Interest Rate Risk



The Company is exposed to changes in the
fair value of fixed rate investments (commercial mortgage loans and corporate bonds) due to changes in interest rates. To manage this risk, the Company enters into various types of derivative instruments to minimize fluctuations in fair values
resulting from changes in interest rates. The Company principally uses interest rate swaps and short Eurodollar futures to manage this risk.



Under interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments, thereby creating floating
rate investments.



31



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Short
Eurodollar futures change the fixed rate cash flow exposure to variable rate cash flows. With short Eurodollar futures, if interest rates rise (fall), the gains (losses) on the futures adjust the fixed rate income on the investments, thereby
creating floating rate investments.



As a result
of entering into commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of the commitment due to changes in interest rates during the commitment period. To manage this risk, the Company enters
into short Treasury futures.



With short
Treasury futures, if interest rates rise (fall), the gains (losses) on the futures will offset the change in fair value of the commitment.



Floating rate investments (commercial mortgage loans and corporate bonds) expose the Company to fluctuations in cash flow and investment
income due to changes in interest rates. To manage this risk, the Company enters into receive fixed, pay variable over-the-counter interest rate swaps or long Eurodollar futures strips to convert the variable rate investments to a fixed rate.



In using interest rate swaps, the Company
receives fixed interest rate payments and makes variable rate payments; thereby creating fixed rate assets.



The long Eurodollar futures change the variable rate cash flow exposure to fixed rate cash flows. With long Eurodollar futures, if
interest rates rise (fall), the losses (gains) on the futures are used to reduce fluctuations in the variable rate income on the investments, thereby creating fixed rate investments.



Foreign Currency Risk Management



In conjunction with the Companys medium-term note program, from time to time, the Company issues both
fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in fair value of the liabilities due to changes in foreign currency exchange rates and interest rates. To manage these risks, the
Company enters into cross-currency interest rate swaps to convert these liabilities to a variable U.S. dollar rate.



For a fixed rate liability, the cross-currency interest rate swap is structured to receive a fixed rate, in the foreign currency, and pay
a variable U.S. dollar rate, generally 3-month libor. For a variable rate foreign liability, the cross-currency interest rate swap is structured to receive a variable rate, in the foreign currency, and pay a variable U.S. dollar rate, generally
3-month libor.



The Company is exposed to
changes in fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates and interest rates. To manage this risk, the Company uses cross-currency interest rate swaps to convert these assets
to variable U.S. dollar rate instruments. Cross-currency interest rate swaps on assets are structured to pay a fixed rate, in the foreign currency, and receive a variable U.S. dollar rate, generally 3-month libor.



Cross-currency interest rate swaps in place against each
foreign currency obligation or investment hedge the Company against adverse currency movements with respect to both period interest payments and principal repayment.



Characteristics of Interest Rate Sensitive Financial Instruments



The following table provides information about the
Companys financial instruments as of December 31, 2002 that are sensitive to changes in interest rates. Insurance contracts that subject the Company to significant mortality risk, including life insurance contracts and life-contingent
immediate annuities, do not meet the definition of a financial instrument and are not included in the table.



32



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|                                             |  | 2003          |         |   | 2004 |   |         | 2005 |  |   | 2006    |   |  | 2007 |         |   | There- after |   |         | Total |  |   | 2002 Fair Value |   |  | 2001 Fair Value |         
|-------------------------------------------- |  | ------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ------------ | - | ------- | ----- |  | - | --------------- | - |  | --------------- | --------
|                                             |  | (in millions) |        
|Assets                                       |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Fixed maturity securities:                   |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Corporate bonds:                             |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             | 1,290.5 |   |      | $ | 1,482.0 |      |  | $ | 1,966.4 |   |  | $    | 2,388.2 |   |              | $ | 1,430.8 |       |  | $ | 5,585.6         |   |  | $               | 14,143.5
|Average interest rate                        |  |               | 7.3     | % |      |   | 7.3     | %    |  |   | 6.9     | % |  |      | 6.8     | % |              |   | 7.0     | %     |  |   | 7.2             | % |  |                 | 7.1     
|Mortgage and other asset- backed securities: |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             | 1,665.5 |   |      | $ | 1,227.5 |      |  | $ | 1,035.5 |   |  | $    | 933.0   |   |              | $ | 915.7   |       |  | $ | 2,379.2         |   |  | $               | 8,156.4 
|Average interest rate                        |  |               | 6.8     | % |      |   | 6.2     | %    |  |   | 6.2     | % |  |      | 6.8     | % |              |   | 5.5     | %     |  |   | 6.2             | % |  |                 | 6.3     
|Other fixed maturity securities:             |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             | 35.1    |   |      | $ | 19.7    |      |  | $ | 39.9    |   |  | $    | 74.9    |   |              | $ | 58.3    |       |  | $ | 606.5           |   |  | $               | 834.4   
|Average interest rate                        |  |               | 8.0     | % |      |   | 7.0     | %    |  |   | 3.9     | % |  |      | 4.3     | % |              |   | 4.3     | %     |  |   | 5.9             | % |  |                 | 5.7     
|Mortgage loans on real estate:               |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             | 422.0   |   |      | $ | 493.0   |      |  | $ | 906.7   |   |  | $    | 728.2   |   |              | $ | 762.6   |       |  | $ | 4,554.5         |   |  | $               | 7,867.9 
|Average interest rate                        |  |               | 7.3     | % |      |   | 7.1     | %    |  |   | 6.8     | % |  |      | 7.1     | % |              |   | 5.8     | %     |  |   | 7.3             | % |  |                 | 7.1     
|Liabilities                                  |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Deferred fixed annuities:                    |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             | 2,824.0 |   |      | $ | 2,278.0 |      |  | $ | 2,132.0 |   |  | $    | 2,385.0 |   |              | $ | 2,034.0 |       |  | $ | 13,221.3        |   |  | $               | 24,874.3
|Average credited rate                        |  |               | 4.6     | % |      |   | 4.4     | %    |  |   | 4.1     | % |  |      | 3.8     | % |              |   | 3.6     | %     |  |   | 3.5             | % |  |                 | 3.8     
|Immediate annuities:                         |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             | 49.0    |   |      | $ | 44.0    |      |  | $ | 39.0    |   |  | $    | 34.0    |   |              | $ | 29.0    |       |  | $ | 207.0           |   |  | $               | 402.0   
|Average credited rate                        |  |               | 7.1     | % |      |   | 7.1     | %    |  |   | 7.1     | % |  |      | 7.2     | % |              |   | 7.2     | %     |  |   | 7.2             | % |  |                 | 7.2     
|Short-term debt:                             |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             |        |   |      | $ |        |      |  | $ |        |   |  | $    |        |   |              | $ |        |       |  | $ |                |   |  | $               |        
|Average interest rate                        |  |               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |              |   |        |       |  |   |                |   |  |                 |        
|Long-term debt:                              |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Principal                                    |  | $             |        |   |      | $ |        |      |  | $ |        |   |  | $    |        |   |              | $ |        |       |  | $ | 600.0           |   |  | $               | 600.0   
|Average interest rate                        |  |               |        |   |      |   |        |      |  |   |        |   |  |      |        |   |              |   |        |       |  |   | 7.8             | % |  |                 | 7.8     
|Derivative Financial Instruments             |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Interest rate swaps:                         |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Pay fixed/receive variable                   |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Notional value                               |  | $             | 75.1    |   |      | $ | 289.3   |      |  | $ | 404.6   |   |  | $    | 497.2   |   |              | $ | 341.7   |       |  | $ | 671.0           |   |  | $               | 2,278.9 
|Weighted average pay rate                    |  |               | 6.0     | % |      |   | 5.3     | %    |  |   | 5.8     | % |  |      | 5.1     | % |              |   | 5.7     | %     |  |   | 5.7             | % |  |                 | 5.5     
|Weighted average receive rate                |  |               | 1.4     | % |      |   | 1.6     | %    |  |   | 1.6     | % |  |      | 1.6     | % |              |   | 1.7     | %     |  |   | 1.7             | % |  |                 | 1.6     
|Pay variable/receive fixed                   |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Notional value                               |  | $             | 28.1    |   |      | $ | 529.5   |      |  | $ | 416.7   |   |  | $    | 1,052.7 |   |              | $ | 56.9    |       |  | $ | 776.6           |   |  | $               | 2,860.6 
|Weighted average pay rate                    |  |               | 1.6     | % |      |   | 1.7     | %    |  |   | 2.1     | % |  |      | 1.9     | % |              |   | 1.2     | %     |  |   | 2.0             | % |  |                 | 1.9     
|Weighted average receive rate                |  |               | 4.0     | % |      |   | 4.0     | %    |  |   | 4.0     | % |  |      | 4.8     | % |              |   | 4.7     | %     |  |   | 5.8             | % |  |                 | 4.8     
|Pay variable/receive variable                |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Notional value                               |  | $             | 442.9   |   |      | $ | 393.1   |      |  | $ | 615.1   |   |  | $    | 102.6   |   |              | $ |        |       |  | $ |                |   |  | $               | 1,553.7 
|Weighted average pay rate                    |  |               | 1.7     | % |      |   | 1.8     | %    |  |   | 1.8     | % |  |      | 1.8     | % |              |   |        |       |  |   |                |   |  |                 | 1.8     
|Weighted average receive rate                |  |               | 2.9     | % |      |   | 2.2     | %    |  |   | 2.0     | % |  |      | 3.6     | % |              |   |        |       |  |   |                |   |  |                 | 2.4     
|Pay fixed/receive fixed                      |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Notional value                               |  | $             |        |   |      | $ |        |      |  | $ | 25.0    |   |  | $    | 4.9     |   |              | $ | 8.8     |       |  | $ |                |   |  | $               | 38.7    
|Weighted average pay rate                    |  |               |        |   |      |   |        |      |  |   | 1.4     | % |  |      | 5.8     | % |              |   | 5.4     | %     |  |   |                |   |  |                 | 2.9     
|Weighted average receive rate                |  |               |        |   |      |   |        |      |  |   | 5.6     | % |  |      | 4.8     | % |              |   | 4.2     | %     |  |   |                 |   |  |                 | 5.2     
|Convertible asset swap                       |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Notional value                               |  | $             | 55.8    |   |      | $ | 111.7   |      |  | $ | 19.8    |   |  | $    | 19.5    |   |              | $ |        |       |  | $ |                |   |  | $               | 206.8   
|Weighted average receive rate                |  |               | 2.8     | % |      |   | 2.9     | %    |  |   | 2.9     | % |  |      | 1.5     | % |              |   |        |       |  |   |                |   |  |                 | 2.7     
|Credit default swap                          |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Notional value                               |  | $             | 15.0    |   |      | $ | 50.0    |      |  | $ | 64.0    |   |  | $    | 136.0   |   |              | $ | 219.0   |       |  | $ |                |   |  | $               | 484.0   
|Weighted average receive rate                |  |               | 1.5     | % |      |   | 1.8     | %    |  |   | 1.5     | % |  |      | 0.8     | % |              |   | 0.7     | %     |  |   |                |   |  |                 | 1.0     
|Interest rate futures:                       |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Long positions                               |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Contract amount/notional                     |  | $             | 6.0     |   |      | $ | 4.0     |      |  | $ | 1.0     |   |  | $    |        |   |              | $ |        |       |  | $ |                |   |  | $               | 11.0    
|Weighted average settlement price            |  |               | 92.5    |   |      |   | 92.3    |      |  |   | 92.3    |   |  |      |        |   |              |   |        |       |  |   |                |   |  |                 | 92.4    
|Short positions                              |  |               |         |   |      |   |         |      |  |   |         |   |  |      |         |   |              |   |         |       |  |   |                 |   |  |                 |         
|Contract amount/notional                     |  | $             | 1,625.9 |   |      | $ | 1,026.0 |      |  | $ | 678.0   |   |  | $    | 400.0   |   |              | $ | 233.0   |       |  | $ | 277.0           |   |  | $               | 4,239.9 
|Weighted average settlement price            |  |               | 96.6    |   |      |   | 93.4    |      |  |   | 93.3    |   |  |      | 93.1    |   |              |   | 93.1    |       |  |   | 92.8            |   |  |                 | 94.5    



33



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Additional
information about the characteristics of the financial instruments and assumptions underlying the data presented in the table above are as follows:



Mortgage- and asset-backed securities (MBSs and ABSs): The maturity year is determined based on the terms of the
securities and the current rate of prepayment of the underlying pools of mortgages or assets. The Company limits its exposure to prepayments by purchasing less volatile types of MBSs and ABSs.



Corporate bonds and other fixed maturity securities and
mortgage loans on real estate: The maturity year is determined based on the maturity date of the security or loan.



Deferred fixed annuities: The maturity year is based on the expected date of policyholder withdrawal, taking into account
actual experience, current interest rates and contract terms. Included are group annuity contracts representing $8.53 billion of general account liabilities as of December 31, 2002, which are generally subject to market value adjustment upon
surrender and which may also be subject to surrender charges. Of the total group annuity liabilities, $5.92 billion were in contracts where the crediting rate is reset quarterly, $1.09 billion were in contracts that adjust the crediting rate on an
annual basis with portions resetting in each calendar quarter and $1.52 billion were in contracts where the crediting rate is reset annually on January 1. Fixed annuity policy reserves of $4.27 billion relate to funding agreements issued in
conjunction with the Companys medium-term note program where the crediting rate is either fixed for the term of the contract or variable, based on an underlying index. Also included in deferred fixed annuities are certain individual annuity
contracts, which are also subject to surrender charges calculated as a percentage of the deposits made and assessed at declining rates during the first seven years after a deposit is made. As of December 31, 2002, individual annuity general account
liabilities totaling $6.63 billion were in contracts where the crediting rate is reset periodically, with portions resetting in each calendar quarter and $696.8 million that reset annually. Individual fixed annuity policy reserves of $2.89 billion
are in contracts that adjust the crediting rate every five years. The average crediting rate is calculated as the difference between the projected yield of the assets backing the liabilities and a targeted interest spread. However, for certain
individual annuities the credited rate is also adjusted to partially reflect current new money rates.



Immediate annuities: Included are non-life contingent contracts in payout status where the Company has guaranteed periodic,
typically monthly, payments. The maturity year is based on the terms of the contract.



Short-term debt and long-term debt: The maturity year is the stated maturity date of the obligation.



Derivative financial instruments:The maturity year is based on the terms of the related contracts.
Interest rate swaps include cross-currency interest rate swaps that eliminate all foreign currency exposure the Company has with existing assets and liabilities. Cross-currency interest rate swaps in place against each foreign currency obligation
hedge the Company against adverse currency movements with respect to both period interest payments and principal repayment. Underlying details by currency have therefore been omitted. Variable swap rates and settlement prices reflect rates and
prices in effect as of December 31, 2002.



Equity Market Risk



Asset fees calculated as a percentage of the separate account assets are a significant source of revenue to the Company. As of December 31, 2002, 76% of separate account assets were invested in equity mutual funds. Gains and losses
in the equity markets will result in corresponding increases and decreases in the Companys separate account assets and the reported asset fee revenue. In addition, a decrease in separate account assets may decrease the Companys
expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in GMDB claims, which may require the Company to accelerate the amortization of deferred policy acquisition costs.



The Companys individual variable annuity contracts
offer GMDB features. The GMDB generally provides a benefit if the annuitant dies and the policyholder contract value is less than a specified amount, which may be based on the premiums paid less amounts withdrawn or a policyholder contract value on
a specified anniversary date. A decline in the stock market causing the policyholder contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB
feature elected, will increase the net amount at risk, which is the GMDB in excess of the policyholder contract value, which could result in additional GMDB claims. As of December 31, 2002, the net amount of risk, net of amounts reinsured, was $2.96
billion.



34



---

Inflation



The rate of inflation did not have a material effect on the revenues or operating results of the Company
during 2002, 2001 or 2000.



|ITEM 8 |  | Consolidated Financial Statements and Supplementary Data
|------ |  | --------------------------------------------------------



The consolidated financial statements of Nationwide Life Insurance Company and Subsidiaries are indexed in
Part IV, Item 15  Exhibits, Financial Statement Schedules, and Reports on Form 8-K, and included in the F pages to this report.



Semi-annual and annual reports are sent to contract owners of the variable annuity and life insurance contracts issued through registered
separate accounts of the Company.



|ITEM 9 |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
|------ |  | -------------------------------------------------------------------------------------



None.



PART III



|ITEM 10 |  | Directors and Executive Officers of the Registrant
|------- |  | --------------------------------------------------



Omitted due to reduced disclosure format.



|ITEM 11 |  | Executive Compensation
|------- |  | ----------------------



Omitted due to reduced disclosure format.



|ITEM 12 |  | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
|------- |  | ----------------------------------------------------------------------------------------------



Omitted due to reduced disclosure format.



|ITEM 13 |  | Certain Relationships and Related Transactions
|------- |  | ----------------------------------------------



Omitted due to reduced disclosure format.



|ITEM 14 |  | Controls and Procedures
|------- |  | -----------------------



The Companys Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing date of this Annual Report (the Evaluation Date). Based on such evaluation,
such officers have concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures are effective.



There have been no significant changes in the Companys internal controls or in other factors that could significantly affect such
controls since the Evaluation Date.



35



---

PART IV



|ITEM 15 |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K
|------- |  | ----------------------------------------------------------------



PageConsolidated Financial Statements:Independent Auditors Report

F-1Consolidated Balance Sheets as of December 31, 2002 and 2001

F-2Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000

F-3Consolidated Statements of Shareholders Equity for the years ended December 31, 2002, 2001 and 2000

F-4Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000

F-5Notes to Consolidated Financial Statements

F-6




Financial Statement Schedules:Schedule I

Consolidated Summary of InvestmentsOther Than Investments in Related Parties as of December 31, 2002

F-42Schedule III

Supplementary Insurance Information as of December 31, 2002, 2001 and 2000 and for each of the years then ended

F-43Schedule IV

Reinsurance as of December 31, 2002, 2001 and 2000 and for each of the years then ended

F-44Schedule V

Valuation and Qualifying Accounts for the years ended December 31, 2002, 2001 and 2000

F-45




All other schedules are omitted because they are not applicable or not required, or because the required information has been included in the audited consolidated financial statements or notes thereto



Exhibit Index

39




Reports on Form 8-K:



On
February 4, 2003, NLIC filed a Current Report on Form 8-K reporting the condensed consolidated balance sheets as of December 31, 2002 and 2001 and the condensed consolidated income statements for the years ended December 31, 2002, 2001 and 2000.



36



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.



NATIONWIDE LIFE INSURANCE COMPANY (Registrant)By:

/s/ W.G. JurgensenW.G. Jurgensen, Chief Executive Officer Nationwide Life Insurancde Company




Date: March 24,
2003



37



---



Pursuant to the requirements
of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                                                                             
|---------------------------------------------------------------------------------------------
|/s/ W.G. JurgensenW.G. Jurgensen, Chief Executive Officer, Chairman of the Board and Director
|                                                                                             
|/s/ Joseph A. AluttoJoseph A. Alutto, Director                                               
|                                                                                             
|/s/ Henry S. HollowayHenry S. Holloway, Director                                             
|                                                                                             
|/s/ Donald L. McWhorterDonald L. McWhorter, Director                                         
|                                                                                             
|/s/ James F. PattersonJames F. Patterson, Director                                           
|                                                                                             
|/s/ Arden L. ShislerArden L. Shisler, Director                                               
|                                                                                             
|/s/ Mark R. ThresherMark R. Thresher, Senior Vice President Chief Financial Officer         



38



---



Exhibit Index



|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1     |  | Amended Articles of Incorporation of Nationwide Life Insurance Company, dated
February 3, 2000                                                                                                                                                                                                                                                                                                              
|3.2     |  | Form of Amended and Restated Code of Regulations of Nationwide Life Insurance
Company, dated May 7, 2002                                                                                                                                                                                                                                                                                                    
|10.1    |  | Form of Tax Sharing Agreement among Nationwide Mutual Insurance Company, Nationwide
Corporation and any corporation that may hereafter be a subsidiary of Nationwide Corporation (previously filed as Exhibit 10.1 to Form 10-K, Commission File Number 2-28596, filed March 28, 1997, and incorporated herein by
reference)                                                                                
|10.1.1  |  | First Amendment to the Tax Sharing Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and any corporation that may hereafter be a subsidiary of Nationwide Corporation (previously filed as Exhibit 10.2.1 to Form 10-K, Commission File Number 1-12785, filed March 31, 1998, and incorporated herein by
reference)                                                               
|10.1.2  |  | Second Amendment to the Tax Sharing Agreement among Nationwide Mutual Insurance
Company and any corporation that may hereafter be a subsidiary of Nationwide Mutual Insurance Company (filed as Exhibit 10.2.2 to Form 10-K, Commission File Number 1-12785, filed March 29, 2001, and incorporated herein by
reference)                                                                                    
|10.1.3  |  | Third Amendment to the Tax Sharing Agreement among Nationwide Mutual Insurance
Company and any corporation that may hereafter be a subsidiary of Nationwide Mutual Insurance Company (filed as Exhibit 10.2.3 to Form 10-K, Commission File Number 1-12785, filed March 29, 2001, and incorporated herein by
reference)                                                                                     
|10.2    |  | Form of Amended and Restated Cost Sharing Agreement among parties named therein
(previously filed as Exhibit 10.3 to Form 10-K, Commission File Number 1-12785, filed March 14, 2003, and incorporated herein by reference)                                                                                                                                                                                 
|10.3    |  | Modified Coinsurance Agreement between Nationwide Life Insurance Company and
Nationwide Mutual Insurance Company (previously filed as Exhibit 10.4 to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                                                                   
|10.4    |  | Five Year Credit Agreement, dated May 25, 2000, among Nationwide Financial Services,
Inc., Nationwide Life Insurance Company, Nationwide Mutual Insurance Company, the banks named therein and Bank One, NA, as agent (filed as Exhibit 10.5 to Form 10-K, Commission File Number 1-12785, filed March 29, 2001, and incorporated herein by
reference)                                                      
|10.4.1  |  | Amendment dated as of September 29, 2000 to the Five Year Credit Agreement dated as
of May 25, 2000 among Nationwide Financial Services, Inc., Nationwide Life Insurance Company, Nationwide Mutual Insurance Company, the banks party thereto and Bank One, NA, as agent (filed as Exhibit 10.5.1 to Form 10-K, Commission File Number
1-12785, filed March 29, 2001, and incorporated herein by reference)
|10.5    |  | 364-Day Credit Agreement, dated May 25, 2000, among Nationwide Financial Services,
Inc., Nationwide Life Insurance Company, Nationwide Mutual Insurance Company, the banks named therein and Bank One, NA, as agent (filed as Exhibit 10.6 to Form 10-K, Commission File Number 1-12785, filed March 29, 2001, and incorporated herein by
reference)                                                        
|10.5.1  |  | Amendment dated as of September 29, 2000 to the 364-Day Credit Agreement dated as of
May 25, 2000 among Nationwide Financial Services, Inc., Nationwide Life Insurance Company, Nationwide Mutual Insurance Company, the banks party thereto and Bank One, NA, as agent (filed as Exhibit 10.6.1 to Form 10-K, Commission File Number 1-12785,
filed March 29, 2001, and incorporated herein by reference)  
|10.6    |  | Form of Lease Agreement between Nationwide Life Insurance Company and Nationwide
Mutual Insurance Company (previously filed as Exhibit 10.7 to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                                                                          
|10.7    |  | General Description of Nationwide Performance Incentive Plan (filed as Exhibit 10.9
to Form 10-K, Commission File Number 1-12785, filed March 29, 2001, and incorporated herein by reference)                                                                                                                                                                                                               
|10.8    |  | Form of Amended and Restated Nationwide Office of Investment Incentive Plan (filed as
Exhibit 10.10 to Form 10-Q, Commission File Number 1-12785, filed November 13, 2001, and incorporated herein by reference)                                                                                                                                                                                            



39



---

|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9    |  | Nationwide Insurance Excess Benefit Plan effective as of December 31, 1996
(previously filed as Exhibit 10.11 to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                                                     
|10.10   |  | Restated Nationwide Insurance Retirement Plan effective as of January 1, 2002
(previously filed as Exhibit 10.12 to Form 10-Q, Commission File Number 1-12785, filed May 13, 2002, and incorporated herein by reference)                                                                                                                                 
|10.11   |  | Restated Nationwide Insurance Supplemental Retirement Plan effective as of January 1,
2002 (previously filed as Exhibit 10.12 to Form S-1, Registration Number 333-18527, filed March 5,1997, and incorporated herein by reference)                                                                                                                      
|10.12   |  | Nationwide Salaried Employees Severance Pay Plan (previously filed as Exhibit 10.13
to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                                                                               
|10.13   |  | Nationwide Insurance Supplemental Defined Contribution Plan effective as of January
1, 1996 (previously filed as Exhibit 10.14 to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                                    
|10.14   |  | General Description of Nationwide Insurance Individual Deferred Compensation Program
previously filed as Exhibit 10.15 to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                                            
|10.15   |  | General Description of Nationwide Mutual Insurance Company Directors Deferred
Compensation Program (previously filed as Exhibit 10.16 to Form S-1, Registration Number 333-18527, filed March 5, 1997, and incorporated herein by reference)                                                                                                             
|10.16   |  | Investment Agency Agreement between Nationwide Cash Management Company and Nationwide
Financial Services, Inc. and certain subsidiaries of Nationwide Financial Services, Inc. (previously filed as Exhibit 10.19 to Form 10-K, Commission File Number 1-12785, filed March 29, 2000, and incorporated herein by
reference)                              
|10.17   |  | Master Repurchase Agreement between Nationwide Life Insurance Company, Nationwide
Life and Annuity Insurance Company, and Nationwide Mutual Insurance Company and certain of its subsidiaries and affiliates (previously filed as Exhibit 10.20 to Form 10-K, Commission File Number 1-12785, filed March 29, 2000, and incorporated herein
by reference)
|10.18   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and John Cook (previously filed as Exhibit 10.24 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                             
|10.19   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and Patricia Hatler (previously filed as Exhibit 10.25 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                       
|10.20   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and Richard Headley (previously filed as Exhibit 10.26 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                       
|10.21   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and Donna James (previously filed as Exhibit 10.27 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                           
|10.22   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and Greg Lashutka (previously filed as Exhibit 10.28 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                         
|10.23   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and Robert Oakley (previously filed as Exhibit 10.29 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                         
|10.23.1 |  | Form of Amendment to Employment Agreement, effective August 29, 2002, between
Nationwide Mutual Insurance Company and Robert Oakley (previously filed as Exhibit 10.29.1 to Form 10-K, Commission File Number 1-12785, filed March 14, 2003, and incorporated herein by reference)                                                                       
|10.24   |  | Form of Employment Agreement, dated January 1, 2000, between Nationwide Mutual
Insurance Company and Robert Woodward (previously filed as Exhibit 10.30 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                       
|10.25   |  | Form of Employment Agreement, dated August 11, 2000, between Nationwide Mutual
Insurance Company and Michael Helfer (previously filed as Exhibit 10.31 to Form 10-Q, Commission File Number 1-12785, filed August 14, 2000, and incorporated herein by reference)                                                                                        



40



---



|Exhibit |  |                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.26   |  | Form of Employment Agreement, dated May 26, 2000, between Nationwide Mutual Insurance
Company and W.G. Jurgensen (previously filed as Exhibit 10.32 to Form 10-Q, Commission File Number 1-12785, filed November 13, 2000, and incorporated herein by reference)                    
|10.27   |  | Form of Employment Agreement, dated July 1, 2000, between Nationwide Financial
Services, Inc. and Joseph Gasper (previously filed as Exhibit 10.33 to Form 10-Q, Commission File Number 1-12785, filed November 13, 2000, and incorporated herein by reference)                     
|10.27.1 |  | Form of Amendment to Employment Agreement, effective August 28, 2002, between
Nationwide Financial Services, Inc. and Joseph Gasper (previously filed as Exhibit 10.33.1 to Form 10-K, Commission File Number 1-12785, filed March 14, 2003, and incorporated herein by reference)  
|10.28   |  | Form of Retention Agreement, dated July 1, 2000, between Nationwide Financial
Services, Inc. and Joseph Gasper (previously filed as Exhibit 10.34 to Form 10-Q, Commission File Number 1-12785, filed November 13, 2000, and incorporated herein by reference)                      
|10.29   |  | Form of Employee Leasing Agreement, dated July 1, 2000, between Nationwide Mutual
Insurance Company and Nationwide Financial Services Inc. (previously filed as Exhibit 10.35 to Form 10-Q, Commission File Number 1-12785, filed May 11,2001, and incorporated herein by reference)
|10.30   |  | Form of Employment Agreement, dated June 4, 2001, between Nationwide Mutual Insurance
Company and Michael C. Keller (previously filed as Exhibit 10.36 to Form 10-Q, Commission File Number 1-12785, filed August 10, 2001, and incorporated herein by reference)                   
|10.31   |  | General Description of Nationwide Economic Value Incentive Plan (previously filed as
Exhibit 10.38 to Form 10-K, Commission File Number 1-12785, filed March 29, 2002, and incorporated herein by reference)                                                                        
|10.32   |  | Form of Surplus Note, dated December 17, 2001, between Nationwide Financial Services,
Inc. and Nationwide Life Insurance Company                                                                                                                                                    
|10.33   |  | Form of Surplus Note, dated June 26, 2002, between Nationwide Financial Services,
Inc. and Nationwide Life Insurance Company                                                                                                                                                        
|99.1    |  | Certification of W.G. Jurgensen pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                            
|99.2    |  | Certification of Mark R. Thresher pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                          

---

All other exhibits referenced by Item
601 of Regulation S-K are not required under the related instructions or are inapplicable and therefore have been omitted.



41



---



CERTIFICATIONS



I, W.G. Jurgensen, Chief
Executive Officer of Nationwide Life Insurance Company, certify that:



|1. |  | I have reviewed this Annual Report on Form 10-K of Nationwide Life Insurance Company;
|-- |  | -------------------------------------------------------------------------------------

|2. |  | Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information included in this Annual Report fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) |  | presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Date: |  | March 24, 2003
|----- |  | --------------



|                                                       
|-------------------------------------------------------
|/s/ W.G. Jurgensen                                     
|Name:  W.G. Jurgensen Title:    Chief Executive Officer



42



---



I, Mark R. Thresher, Chief
Financial Officer of Nationwide Life Insurance Company, certify that:



|1. |  | I have reviewed this Annual Report on Form 10-K of Nationwide Life Insurance Company;
|-- |  | -------------------------------------------------------------------------------------

|2. |  | Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Based on my knowledge, the financial statements, and other financial information included in this Annual Report fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report
(the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c) |  | presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The registrants other certifying officers and I have indicated in this Annual Report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Date: March 24, 2003



|                                                         
|---------------------------------------------------------
|/s/ Mark R. Thresher                                     
|Name:  Mark R. Thresher Title:    Chief Financial Officer



43



---



INDEPENDENT AUDITORS REPORT



The
Board of Directors

Nationwide Life Insurance Company:



We have audited the consolidated financial statements of Nationwide Life Insurance Company and subsidiaries (collectively the
Company) as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our
audits.



We conducted our audits in accordance with auditing
standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Life Insurance Company and subsidiaries as of
December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.



As discussed in note 2 to the consolidated financial statements, the Company
changed its methods of accounting for derivative instruments and hedging activities, and for purchased or retained interests in securitized financial assets in 2001.





/s/ KPMG LLP





Columbus, Ohio

January 30, 2003



F-1



---



NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial
Services, Inc.)



Consolidated Balance Sheets

(in millions, except per share amounts)



|                                                                                     |  | December 31,
|------------------------------------------------------------------------------------ |  | ------------
|                                                                                     |  | 2002        
|Assets:                                                                              |  |             
|Investments:                                                                         |  |             
|Securities available-for-sale, at fair value:                                        |  |             
|Fixed maturity securities (cost $23,134.3 in 2002; $17,961.6 in 2001)                |  | $           
|Equity securities (cost $85.1 in 2002; $83.0 in 2001)                                |  |             
|Mortgage loans on real estate, net                                                   |  |             
|Real estate, net                                                                     |  |             
|Policy loans                                                                         |  |             
|Other long-term investments                                                          |  |             
|Short-term investments, including amounts managed by a related party                 |  |             
|                                                                                     |  |             
|                                                                                     |  |             
|                                                                                     |  |             
|Cash                                                                                 |  |             
|Accrued investment income                                                            |  |             
|Deferred policy acquisition costs                                                    |  |             
|Other assets                                                                         |  |             
|Assets held in separate accounts                                                     |  |             
|                                                                                     |  |             
|                                                                                     |  | $           
|                                                                                     |  |             
|Liabilities and Shareholders Equity:                                                |  |             
|Future policy benefits and claims                                                    |  | $           
|Short-term debt                                                                      |  |             
|Long-term debt, payable to Nationwide Financial Services, Inc.                       |  |             
|Other liabilities                                                                    |  |             
|Liabilities related to separate accounts                                             |  |             
|                                                                                     |  |             
|                                                                                     |  |             
|                                                                                     |  |             
|Commitments and contingencies (notes 11, 16 and 17)                                  |  |             
|Shareholders equity:                                                                |  |             
|Common stock, $1 par value. Authorized 5.0 shares; 3.8 shares issued and
outstanding |  |             
|Additional paid-in capital                                                           |  |             
|Retained earnings                                                                    |  |             
|Accumulated other comprehensive income                                               |  |             
|                                                                                     |  |             
|                                                                                     |  |             
|                                                                                     |  |             
|                                                                                     |  | $           
|                                                                                     |  |             



See
accompanying notes to consolidated financial statements, including note 14 which describes related party transactions.



F-2



---



NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial
Services, Inc.)



Consolidated Statements of
Income

(in millions)



|                                                                                                                         |  | Years ended December 31, |        
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------ | -------
|                                                                                                                         |  | 2002                     |        
|Revenues:                                                                                                                |  |                          |        
|Policy charges                                                                                                           |  | $                        | 973.8  
|Life insurance premiums                                                                                                  |  |                          | 259.9  
|Net investment income                                                                                                    |  |                          | 1,838.5
|Net realized (losses) gains on investments, hedging instruments and hedged
items:                                        |  |                          |        
|Unrelated parties                                                                                                        |  |                          | (107.6 
|Related parties                                                                                                          |  |                          | 23.2   
|Other                                                                                                                    |  |                          | 8.8    
|                                                                                                                         |  |                          |        
|                                                                                                                         |  |                          | 2,996.6
|                                                                                                                         |  |                          |        
|Benefits and expenses:                                                                                                   |  |                          |        
|Interest credited to policyholder account values                                                                         |  |                          | 1,241.2
|Other benefits and claims                                                                                                |  |                          | 326.0  
|Policyholder dividends on participating policies                                                                         |  |                          | 45.2   
|Amortization of deferred policy acquisition costs                                                                        |  |                          | 670.1  
|Interest expense on debt, primarily with a related party                                                                 |  |                          | 36.0   
|Other operating expenses                                                                                                 |  |                          | 508.6  
|                                                                                                                         |  |                          |        
|                                                                                                                         |  |                          | 2,827.1
|                                                                                                                         |  |                          |        
|Income from continuing operations before federal income taxes and cumulative effect of
adoption of accounting principles |  |                          | 169.5  
|Federal income tax expense                                                                                               |  |                          | 8.7    
|                                                                                                                         |  |                          |        
|Income from continuing operations before cumulative effect of adoption of accounting
principles                          |  |                          | 160.8  
|Income (loss) from discontinued operations, net of tax                                                                   |  |                          | 0.7    
|Cumulative effect of adoption of accounting principles, net of tax                                                       |  |                          |       
|                                                                                                                         |  |                          |        
|Net income                                                                                                               |  | $                        | 161.5  
|                                                                                                                         |  |                          |        



See
accompanying notes to consolidated financial statements, including note 14 which describes related party transactions.



F-3



---



NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial
Services, Inc.)



Consolidated Statements of
Shareholders Equity



Years ended December
31, 2002, 2001 and 2000

(in millions)



|                                                                                          |  | Common stock |     | Additional paid-in capital |   |        | Retained earnings |  |   | Accumulated other comprehensive income (loss) |   |  | Total shareholders equity |      
|----------------------------------------------------------------------------------------- |  | ------------ | --- | -------------------------- | - | ------ | ----------------- |  | - | --------------------------------------------- | - |  | -------------------------- | -----
|Balance as of December 31, 1999                                                           |  | $            | 3.8 |                            | $ | 766.1  |                   |  | $ | 2,011.0                                       |   |  | $                          | (15.9
|Comprehensive income:                                                                     |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Net income                                                                                |  |              |    |                            |   |       |                   |  |   | 475.3                                         |   |  |                            |     
|Net unrealized gains on securities available-for-sale arising during the year, net of
tax |  |              |    |                            |   |       |                   |  |   |                                              |   |  |                            | 132.6
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Total comprehensive income                                                                |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Return of capital to shareholder                                                          |  |              |    |                            |   | (120.0 | )                 |  |   |                                              |   |  |                            |     
|Dividends to shareholder                                                                  |  |              |    |                            |   |       |                   |  |   | (50.0                                         | ) |  |                            |     
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Balance as of December 31, 2000                                                           |  | $            | 3.8 |                            | $ | 646.1  |                   |  | $ | 2,436.3                                       |   |  | $                          | 116.7
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Comprehensive income:                                                                     |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Net income                                                                                |  |              |    |                            |   |       |                   |  |   | 461.8                                         |   |  |                            |     
|Net unrealized gains on securities available-for-sale arising during the year, net of
tax |  |              |    |                            |   |       |                   |  |   |                                              |   |  |                            | 98.2 
|Cumulative effect of adoption of accounting principles, net of tax                        |  |              |    |                            |   |       |                   |  |   |                                              |   |  |                            | (1.4 
|Accumulated net losses on cash flow hedges, net of tax                                    |  |              |    |                            |   |       |                   |  |   |                                              |   |  |                            | (8.8 
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Total comprehensive income                                                                |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Dividends to shareholder                                                                  |  |              |    |                            |   |       |                   |  |   | (35.0                                         | ) |  |                            |     
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Balance as of December 31, 2001                                                           |  | $            | 3.8 |                            | $ | 646.1  |                   |  | $ | 2,863.1                                       |   |  | $                          | 204.7
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Comprehensive income:                                                                     |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Net income                                                                                |  |              |    |                            |   |       |                   |  |   | 161.5                                         |   |  |                            |     
|Net unrealized gains on securities available-for-sale arising during the year, net of
tax |  |              |    |                            |   |       |                   |  |   |                                              |   |  |                            | 178.6
|Accumulated net gains on cash flow hedges, net of tax                                     |  |              |    |                            |   |       |                   |  |   |                                              |   |  |                            | 11.0 
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Total comprehensive income                                                                |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Returns of capital to shareholder                                                         |  |              |    |                            |   | (475.0 | )                 |  |   |                                              |   |  |                            |     
|Dividends to shareholder                                                                  |  |              |    |                            |   |       |                   |  |   | (45.0                                         | ) |  |                            |     
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      
|Balance as of December 31, 2002                                                           |  | $            | 3.8 |                            | $ | 171.1  |                   |  | $ | 2,979.6                                       |   |  | $                          | 394.3
|                                                                                          |  |              |     |                            |   |        |                   |  |   |                                               |   |  |                            |      



See
accompanying notes to consolidated financial statements, including note 14 which describes related party transactions.



F-4



---



NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial
Services, Inc.)



Consolidated Statements of Cash
Flows

(in millions)



|                                                                                    |  | Years ended December 31, |         
|----------------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                                    |  | 2002                     |         
|Cash flows from operating activities:                                               |  |                          |         
|Net income                                                                          |  | $                        | 161.5   
|Adjustments to reconcile net income to net cash provided by operating
activities:   |  |                          |         
|(Income) loss from discontinued operations                                          |  |                          | (0.7    
|Interest credited to policyholder account values                                    |  |                          | 1,241.2 
|Capitalization of deferred policy acquisition costs                                 |  |                          | (648.2  
|Amortization of deferred policy acquisition costs                                   |  |                          | 670.1   
|Amortization and depreciation                                                       |  |                          | (0.7    
|Realized losses (gains) on investments, hedging instruments and hedged
items:       |  |                          |         
|Unrelated parties                                                                   |  |                          | 107.6   
|Related parties                                                                     |  |                          | (23.2   
|Cumulative effect of adoption of accounting principles                              |  |                          |        
|Increase in accrued investment income                                               |  |                          | (22.0   
|(Increase) decrease in other assets                                                 |  |                          | (606.1  
|Increase (decrease) in policy liabilities                                           |  |                          | 36.2    
|Increase in other liabilities                                                       |  |                          | 426.9   
|Other, net                                                                          |  |                          | 33.0    
|                                                                                    |  |                          |         
|Net cash provided by continuing operations                                          |  |                          | 1,375.6 
|Net cash provided by (used in) discontinued operations                              |  |                          | 0.7     
|                                                                                    |  |                          |         
|Net cash provided by operating activities                                           |  |                          | 1,376.3 
|                                                                                    |  |                          |         
|Cash flows from investing activities:                                               |  |                          |         
|Proceeds from maturity of securities available-for-sale                             |  |                          | 3,887.7 
|Proceeds from sale of securities available-for-sale                                 |  |                          | 1,534.9 
|Proceeds from repayments of mortgage loans on real estate                           |  |                          | 1,009.0 
|Proceeds from sale of real estate                                                   |  |                          | 56.8    
|Proceeds from sale of limited partnership to related party                          |  |                          | 54.5    
|Proceeds from repayments of policy loans and sale of other invested
assets          |  |                          | 58.3    
|Cost of securities available-for-sale acquired                                      |  |                          | (9,874.5
|Cost of mortgage loans on real estate acquired                                      |  |                          | (1,810.2
|Cost of real estate acquired                                                        |  |                          | (2.0    
|Short-term investments, net                                                         |  |                          | (193.1  
|Disposal of subsidiary, net of cash                                                 |  |                          | (20.0   
|Collateral received  securities lending, net                                       |  |                          | 158.9   
|Other, net                                                                          |  |                          | (303.8  
|                                                                                    |  |                          |         
|Net cash used in continuing operations                                              |  |                          | (5,443.5
|Net cash provided by discontinued operations                                        |  |                          |        
|                                                                                    |  |                          |         
|Net cash used in investing activities                                               |  |                          | (5,443.5
|                                                                                    |  |                          |         
|Cash flows from financing activities:                                               |  |                          |         
|Net change in short-term debt                                                       |  |                          | (100.0  
|Net proceeds from issuance of long-term debt to Nationwide Financial Services,
Inc. |  |                          | 300.0   
|Capital returned to shareholder                                                     |  |                          | (475.0  
|Cash dividends paid to shareholder                                                  |  |                          | (35.0   
|Increase in investment and universal life insurance product account
values          |  |                          | 6,278.9 
|Decrease in investment and universal life insurance product account
values          |  |                          | (1,923.4
|                                                                                    |  |                          |         
|Net cash provided by (used in) financing activities                                 |  |                          | 4,045.5 
|                                                                                    |  |                          |         
|Net (decrease) increase in cash                                                     |  |                          | (21.7   
|Cash, beginning of year                                                             |  |                          | 22.6    
|                                                                                    |  |                          |         
|Cash, end of year                                                                   |  | $                        | 0.9     
|                                                                                    |  |                          |         



See accompanying notes to consolidated financial statements, including note 14 which describes related party transactions.



F-5



---



NATIONWIDE LIFE
INSURANCE COMPANY AND SUBSIDIARIE
S

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements



December 31, 2002, 2001 and 2000



| | (1) |  | Organization and Description of Business
| | --- |  | ----------------------------------------



Nationwide Life Insurance Company (NLIC, or collectively with its subsidiaries, the Company) is a leading provider of life insurance and
retirement savings products in the United States of America (U.S.) and is a wholly owned subsidiary of Nationwide Financial Services, Inc. (NFS). The Company develops and sells a diverse range of products including individual annuities, private and
public sector pension plans and other investment products sold to institutions and life insurance. NLIC sells its products through a diverse network of distribution channels, including independent broker/dealers, wirehouse and regional firms,
financial institutions, pension plan administrators, life insurance specialists, Nationwide Retirement Solutions, Nationwide Provident agents and Nationwide agents.



Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC) and
Nationwide Investment Services Corporation.



| | (2) |  | Summary of Significant Accounting Policies
| | --- |  | ------------------------------------------



The significant accounting policies followed by the Company that materially affect financial reporting are summarized below. The
accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP), which differ from statutory accounting practices. The statutory financial statements of NLIC and NLAIC
are presented on the basis of accounting practices prescribed or permitted by the Ohio Department of Insurance (the Department). The State of Ohio has adopted the National Association of Insurance Commissioners (NAIC) statutory accounting practices
(NAIC SAP) as the basis of its statutory accounting practices. NLIC and NLAIC have no statutory accounting practices that differ from NAIC SAP. See also note 13.



In preparing the consolidated financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses for the reporting period.
Actual results could differ significantly from those estimates.



The most significant estimates include those used in determining deferred policy acquisition costs (DAC) for investment products and universal life insurance products, valuation allowances for mortgage loans on real estate,
impairment losses on other investments and federal income taxes. Although some variability is inherent in these estimates, management believes the amounts provided are appropriate.



| | (a) |  | Consolidation Policy
| | --- |  | --------------------



The consolidated financial statements include the accounts of NLIC and companies in which NLIC directly or indirectly has a controlling
interest. All significant intercompany balances and transactions have been eliminated.



F-6



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (b) |  | Valuation of Investments, Investment Income and Related Gains and Losses
| | --- |  | ------------------------------------------------------------------------



The Company is required to classify its fixed maturity securities and equity securities as either
held-to-maturity, available-for-sale or trading. The Company classifies fixed maturity and equity securities as available-for-sale. Available-for-sale securities are stated at fair value, with the unrealized gains and losses, net of adjustments to
DAC, future policy benefits and claims, and deferred federal income tax, reported as a separate component of accumulated other comprehensive income (AOCI) in shareholders equity. The adjustment to DAC represents the change in amortization of
DAC that would have been required as a charge or credit to operations had such unrealized amounts been realized and allocated to the product lines. The adjustment to future policy benefits and claims represents the increase in policy reserves from
using a lower discount rate that would have been required if such unrealized gains been realized and the proceeds reinvested at lower market interest rates.



Management regularly reviews its fixed maturity and equity securities portfolio to evaluate the necessity of recording impairment losses
for other-than-temporary declines in the fair value of investments. A number of criteria are considered during this process including, but not limited to, the current fair value as compared to amortized cost or cost, as appropriate, of the security,
the length of time the securitys fair value has been below amortized cost/cost, and by how much, and specific credit issues related to the issuer, and current economic conditions. Also, the Company estimates the cash flows over the life of
certain purchased beneficial interests in securitized financial assets. Based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there
has been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment is recognized and the purchased beneficial interest is written down to fair value.
Other-than-temporary impairment losses result in a permanent reduction of the cost basis of the underlying investment.



For mortgage-backed securities, the Company recognizes income using a constant effective yield method based on prepayment assumptions and
the estimated economic life of the securities. When estimated prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments; any resulting
adjustment is included in net investment income. All other investment income is recorded on the accrual basis.



Mortgage loans on real estate are carried at the unpaid principal balance less valuation allowances. The Company provides valuation
allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the estimated value
of the mortgage loan. Estimated value is based on the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. Loans in foreclosure
and loans considered impaired are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received.



The valuation allowance account for mortgage loans on real
estate is maintained at a level believed adequate by the Company to absorb estimated probable credit losses. The Companys periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrowers ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.



Real estate is carried at cost less accumulated
depreciation. Real estate designated as held for disposal is carried at the lower of the carrying value at the time of such designation or fair value less cost to sell. Other long-term investments are carried on the equity method of accounting.
Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amount.



F-7



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Realized
gains and losses on the sale of investments are determined on the basis of specific security identification. Changes in valuation allowances and impairment losses for other-than-temporary declines in fair values are included in realized gains and
losses on investments, hedging instruments and hedged items.



| | (c) |  | Derivative Instruments
| | --- |  | ----------------------



Derivatives are carried at fair value. On the date the derivative contract is entered into, the Company designates the derivative as
either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset
or liability (cash flow hedge), a foreign currency fair value or cash flow hedge (foreign currency hedge) or a non-hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its
risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives that are used for hedging transactions are highly
effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting
prospectively.



The Company enters into interest
rate swaps, cross-currency swaps or Eurodollar Futures to hedge the fair value of existing fixed rate assets and liabilities. In addition, the Company uses short treasury future positions to hedge the fair value of bond and mortgage loan
commitments. Typically, the Company is hedging the risk of changes in fair value attributable to changes in benchmark interest rates. Derivative instruments classified as fair value hedges are carried at fair value, with changes in fair value
recorded in realized gains and losses on investments, hedging instruments and hedged items. Changes in the fair value of the hedged item, attributable to the risk being hedged, are also recorded in realized gains and losses on investments, hedging
instruments and hedged items. The adjustment of the carrying amount of hedged assets using Eurodollar Futures and firm commitments using Treasury Futures are accounted for in the same manner as other components of the carrying amount of that asset.
The adjustment of the carrying amount is amortized to investment income over the life of the asset.



The Company may enter into receive fixed/pay variable interest rate swaps to hedge existing floating rate assets or to hedge
cash flows from the anticipated purchase of investments. These derivative instruments are classified as cash flow hedges and are carried at fair value, with the offset recorded in AOCI to the extent the hedging relationship is effective. The
ineffective portion of the hedging relationship is recorded in realized gains and losses on investments, hedging instruments and hedged items. Gains and losses on cash flow derivative instruments are reclassified out of AOCI and recognized in
earnings over the same period(s) that the hedged item affects earnings.



Amounts receivable or payable under interest rate and foreign currency swaps are recognized as an adjustment to net investment income or interest credited to policyholder account values consistent with the nature of the
hedged item, except for interest rate swaps hedging the anticipated sale of investments where amounts receivable or payable under the swaps are recorded as realized gains and losses on investments, hedging instruments and hedged items, and except
for interest rate swaps hedging the anticipated purchase of investments where amounts receivable or payable under the swaps are recorded in AOCI to the extent the hedging relationship is effective.



From time to time, the Company may enter into a derivative
transaction that will not qualify for hedge accounting. These include basis swaps (receive one variable rate, pay another variable rate) to hedge variable rate assets or foreign-denominated liabilities. These instruments are carried at fair value,
with changes in fair value recorded in realized gains and losses on investments, hedging instruments and hedged items.



F-8



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



The Company discontinues hedge accounting prospectively when it is determined that
the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires, or is sold, terminated or exercised, the derivative is dedesignated as a hedging instrument, because it is
unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or management determines that designation of the derivative as a hedging instrument is no longer appropriate.



When hedge accounting is discontinued because
it is determined that the derivative no longer qualifies as an effective fair value hedge, the Company continues to carry the derivative on the consolidated balance sheet at its fair value and no longer adjusts the hedged item for changes in fair
value. The adjustment of the carrying amount of the hedged item is accounted for in the same manner as other components of the carrying amount of that item. When hedge accounting is discontinued because the hedged item no longer meets the definition
of a firm commitment, the Company continues to carry the derivative on the consolidated balance sheet at its fair value, removes any asset or liability that was recorded pursuant to recognition of the firm commitment from the consolidated balance
sheet and recognizes any gain or loss in net realized gains and losses on investments, hedging instruments and hedged items. When hedge accounting is discontinued because it is probable that a forecasted transaction will not occur, the Company
continues to carry the derivative on the consolidated balance sheet at fair value and gains and losses that were accumulated in AOCI are recognized immediately in realized gains and losses on investments, hedging instruments and hedged items. In all
other situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the consolidated balance sheet, and recognizes any changes in fair value in net realized gains and losses on investments,
hedging instruments and hedged items.



Prior to
the January 1, 2001 adoption of SFAS 133, defined in note 2(k), provided they met specific criteria, interest rate and foreign currency swaps and futures were considered hedges and accounted for under the accrual and deferral method, respectively.
Amounts receivable or payable under interest rate and foreign currency swaps were recognized as an adjustment to net investment income or interest credited to policyholder account values consistent with the nature of the hedged item. Changes in the
fair value of interest rate swaps were not recognized on the consolidated balance sheets, except for interest rate swaps designated as hedges of fixed maturity securities available-for-sale, for which changes in fair values were reported in AOCI.
Gains and losses on foreign currency swaps were recorded in earnings based on the related spot foreign exchange rate at the end of the reporting period. Gains and losses on these contracts offset those recorded as a result of translating the hedged
foreign currency denominated liabilities and investments to U.S. dollars.



| | (d) |  | Revenues and Benefits
| | --- |  | ---------------------



Investment Products and Universal Life Insurance Products: Investment products consist primarily of individual and group variable
and fixed deferred annuities. Universal life insurance products include universal life insurance, variable universal life insurance, corporate-owned life insurance and other interest-sensitive life insurance policies. Revenues for investment
products and universal life insurance products consist of net investment income, asset fees, cost of insurance, policy administration and surrender charges that have been earned and assessed against policy account balances during the period. The
timing of revenue recognition as it relates to fees assessed on investment contracts and universal life contracts is determined based on the nature of such fees. Asset fees, cost of insurance and policy administration charges are assessed on a daily
or monthly basis and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods
benefited. Surrender charges are recognized upon surrender of a contract in accordance with contractual terms. Policy benefits and claims that are charged to expense include interest credited to policy account values and benefits and claims incurred
in the period in excess of related policy account values.



F-9



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



Traditional Life Insurance Products: Traditional life insurance products
include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Premiums for traditional life
insurance products are recognized as revenue when due. Benefits and expenses are associated with earned premiums so as to result in recognition of profits over the life of the contract. This association is accomplished by the provision for future
policy benefits and the deferral and amortization of policy acquisition costs.



| | (e) |  | Deferred Policy Acquisition Costs
| | --- |  | ---------------------------------



The costs of acquiring business, principally commissions, certain expenses of the policy issue and underwriting department and certain
variable sales expenses that relate to and vary with the production of new and renewal business have been deferred. DAC is subject to recoverability testing at the time of policy issuance and loss recognition testing at the end of each reporting
period.



For investment products (principally
individual and group annuities) and universal life insurance products, DAC is being amortized with interest over the lives of the policies in relation to the present value of estimated future gross profits from projected interest margins, asset
fees, cost of insurance, policy administration and surrender charges, less policy benefits and policy maintenance expenses. The DAC asset related to investment products and universal life insurance products is adjusted to reflect the impact of
unrealized gains and losses on fixed maturity securities available-for-sale as described in note 2(b).



The most significant assumptions that are involved in the estimation of future gross profits include future net separate account
performance, surrender/lapse rates, interest margins and mortality. The Companys long-term assumption for net separate account performance is 8 percent. If actual net separate account performance varies from the 8 percent assumption, the
Company assumes different performance levels over the next three years, such that the mean return equals the long-term assumption. This process is referred to as a reversion to the mean. The assumed net separate account return assumptions used in
the DAC models are intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, the Companys policy regarding the reversion to the mean process does not permit such returns to be below zero percent or
in excess of 15 percent during the three-year reversion period.



Changes in assumptions can have a significant impact on the calculation of DAC on investment products and universal life insurance products and their related amortization patterns. In the event actual experience differs from
assumptions or assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense (DAC unlocking), which could be significant. In general, increases in the estimated general and separate account returns
result in increased expected future profitability and may lower the rate of DAC amortization, while increases in lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate
of DAC amortization.



Due to the magnitude of
the DAC asset related to the individual variable annuity business, the sensitivity of the calculation to minor changes in the underlying assumptions and the related volatility that could result in the reported DAC balance without meaningful
improvement in its reasonableness, the Company evaluates the appropriateness of the individual variable annuity DAC balance within pre-set parameters. Should the recorded balance of individual variable annuity DAC fall outside of these parameters
for a prescribed period of time, or should the recorded balance fall outside of these parameters and the Company determines it is not reasonably possible to get back within this period of time, assumptions are required to be unlocked and the DAC is
recalculated using revised best estimate assumptions. Otherwise, DAC on individual variable annuity business is not unlocked to reflect updated assumptions. In the event DAC assumptions are unlocked and revised, the Company will continue to use the
reversion to the mean process.



F-10



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





For other
investment products and universal life insurance products, DAC is unlocked each quarter to reflect revised best estimate assumptions, including the use of a reversion to the mean methodology over the next three years as it relates to net separate
account performance. Any resulting DAC unlocking adjustments are reflected currently as a charge or credit to DAC amortization expense.



For traditional life insurance products, DAC is predominantly being amortized with interest over the premium-paying period of the related
policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue is estimated using the same assumptions as those used for computing liabilities for future policy
benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to traditional life insurance products, although evaluations of DAC for recoverability at the time of policy issuance and loss recognition testing
at each reporting period are required.



| | (f) |  | Separate Accounts
| | --- |  | -----------------



Separate account assets and liabilities represent contractholders funds which have been segregated into accounts with specific
investment objectives. Separate account assets are recorded at fair value. The investment income and gains or losses of these accounts accrue directly to the contractholders. For certain contracts offered through separate accounts, the Company
guarantees the contractholder a minimum return. The activity of the separate accounts is not reflected in the consolidated statements of income and cash flows except for the fees the Company receives. Such fees are assessed on a daily or monthly
basis and recognized as revenue when assessed and earned.



| | (g) |  | Future Policy Benefits
| | --- |  | ----------------------



The liability for future policy benefits for investment products in the accumulation phase, universal life insurance and variable
universal life insurance policies is the policy account balance, which represents participants net premiums and deposits plus investment performance and interest credited less applicable contract charges.



The liability for future policy benefits for traditional life
insurance policies has been calculated by the net level premium method using interest rates varying from 6.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals which were used or which were being experienced at the
time the policies were issued.



The liability
for future policy benefits for payout annuities has been calculated using the present value of future benefits and maintenance costs discounted using interest rates varying from 3.0% to 13.0%. Also, as of December 31, 2002, the calculated reserve
was adjusted to reflect the incremental reserve that would be required if unrealized gains and losses had been realized and therefore resulted in the use of a lower discount rate, as discussed in note 2(b).



| | (h) |  | Participating Business
| | --- |  | ----------------------



Participating business represented approximately 15% in 2002 (17% in 2001 and 21% in 2000) of the Companys life insurance in-force,
59% of the number of life insurance policies in-force in 2002 (63% in 2001 and 66% in 2000), and 9% of life insurance statutory premiums in 2002 (9% in 2001 and 8% in 2000). The provision for policyholder dividends was based on then current dividend
scales and has been included in Future policy benefits and claims in the accompanying consolidated balance sheets.



F-11



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (i) |  | Federal Income Tax
| | --- |  | ------------------



Through September 30, 2002, the Company filed a consolidated federal income tax return with Nationwide Mutual Insurance Company (NMIC),
the ultimate majority shareholder of NFS. The members of the NMIC consolidated federal income tax return group participated in a tax sharing arrangement, which provided, in effect, for each member to bear essentially the same federal income tax
liability as if separate tax returns were filed.



As a result of NFS acquisition of Nationwide Life Insurance Company of America (NLICA) and subsidiaries on October 1, 2002, under Internal Revenue Code regulations, NFS and its subsidiaries cannot file a life/non-life
consolidated federal income tax return until five full years following NFS departure from the NMIC consolidated federal income tax return group. Therefore, NFS and its direct non-life insurance company subsidiaries will file a consolidated
federal income tax return; NLIC and NLAIC will file a consolidated federal income tax return; the direct non-life insurance companies under NLIC will file separate federal income tax returns; NLICA and its direct life insurance company subsidiaries
will file a consolidated federal income tax return; and the direct non-life insurance companies under NLICA will file a consolidated federal income tax return, until 2008, when NFS expects to be able to file a single consolidated federal income tax
return with all of its subsidiaries.



The
Company provides for federal income taxes based on amounts the Company believes it will ultimately owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain expenses and the realization of certain
tax credits. In the event the ultimate deductibility of certain expenses or the realization of certain tax credits differ from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the
consolidated financial statements.



The Company
utilizes the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation
allowances are established when necessary to reduce the deferred tax assets to the amounts expected to be realized.



| | (j) |  | Reinsurance Ceded
| | --- |  | -----------------



Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense
accounts. Assets and liabilities related to reinsurance ceded are reported on a gross basis.



F-12



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



| | (k) |  | Recently Issued Accounting Pronouncements
| | --- |  | -----------------------------------------



In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46, Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51(FIN 46). Accounting Research Bulletin No. 51, Consolidated Financial Statements(ARB 51) states that consolidation is usually necessary when a company has a controlling financial
interest in another company, a condition most commonly achieved via ownership of a majority voting interest. FIN 46 clarifies the application of ARB 51, to certain variable interest entities (VIE) where (i) the equity investors are
not empowered to make sufficient decisions about the entitys operations, or do not receive expected returns or absorb expected losses commensurate with their equity ownership; or (ii) do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from other parties. VIEs are consolidated by their primary beneficiary, which is a party having a majority of the entitys expected losses, expected residual returns, or
both. A company holding a significant variable interest in a VIE, but not deemed the primary beneficiary is subject to certain disclosure requirements specified by FIN 46. FIN 46 applies immediately to entities formed after January 31, 2003, and to
VIEs in which an enterprise obtains an interest after that date. It applies in the interim period beginning after June 15, 2003 to VIEs for which an enterprise holds a variable interest that it acquired prior to February 1, 2003 with earlier
adoption permitted. FIN 46 may be applied on a prospective basis with a cumulative-effect adjustment made as of the date of initial application or by restating previously issued financial statements for one or more years with a cumulative-effect
adjustment as of the beginning of the first year restated. The Company is evaluating the potential impact of adopting FIN 46 on the results of operations and financial position and currently expects to adopt FIN 46 on July 1, 2003. See note 19 for
transitional disclosures pertaining to VIE relationships in which the Company has a significant variable interest.



In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees 
an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34 (FIN 45). FIN 45 requires a guarantor to provide more detailed interim and annual financial statement disclosures about obligations under
certain guarantees it has issued. It also requires a guarantor to recognize, at the inception of new guarantees issued or modified after December 31, 2002, a liability for the fair value of the obligation undertaken in issuing the guarantee.
Although superceded by FIN 45, the guidance provided in FASB Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others has been incorporated into FIN 45 without change. The adoption of the transitional components of
FIN 45 by the Company on December 15, 2002 resulted in the inclusion of transition disclosures in note 17. The adoption of the remaining components of FIN 45 on January 1, 2003 is not expected to have a material impact on the financial position or
results of operations of the Company.



In June
2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which the Company adopted January 1, 2003. Adoption of SFAS 146 is not expected to
have any impact on the financial position or results of operations of the Company.



In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections (SFAS 145), which the Company adopted on
October 1, 2002. The adoption of SFAS 145 did not have any impact on the financial position or results of operations of the Company.



F-13



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
and APB Opinion No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB 30). SFAS 144 was adopted by the
Company on January 1, 2002 and carries forward many of the provisions of SFAS 121 and APB 30 for recognition and measurement of the impairment of long-lived assets to be held and used, and measurement of long-lived assets to be disposed of by sale.
Under SFAS 144, if a long-lived asset is part of a group that includes other assets and liabilities, then the provisions of SFAS 144 apply to the entire group. In addition, SFAS 144 does not apply to goodwill and other intangible assets that are not
amortized. The adoption of SFAS 144 did not have a material impact on the results of operations or financial position of the Company.



In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets(SFAS 142). SFAS 142 applies to all acquired
intangible assets whether acquired singularly, as part of a group, or in a business combination. SFAS 142 supersedes APB Opinion No. 17, Intangible Assets (APB 17) and carries forward provisions in APB 17 related to internally developed
intangible assets. SFAS 142 changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment-only approach. The Company adopted SFAS 142 on January 1, 2002, at which time, the Company had
no unamortized goodwill and therefore, the adoption of SFAS 142 did not have any impact on the results of operations or financial position of the Company.



In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133, as
amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities  Deferral of the Effective Date of FASB Statement No. 133 (SFAS 137), and SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities (SFAS 138), was adopted by the Company effective January 1, 2001. All references hereafter to SFAS 133 include the amendments outlined in SFAS 137 and SFAS 138. Upon adoption, the provisions of SFAS 133 were applied prospectively.



SFAS 133, establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value.



The adoption of SFAS 133 resulted in the Company recording a
net transition adjustment loss of $4.8 million (net of related income tax of $2.6 million) in net income. In addition, a net transition adjustment loss of $3.6 million (net of related income tax of $2.0 million) was recorded in AOCI as of January 1,
2001. The adoption of SFAS 133 resulted in the Company derecognizing $17.0 million of deferred assets related to hedges, recognizing $10.9 million of additional derivative instrument liabilities and $1.3 million of additional firm commitment assets,
while also decreasing hedged future policy benefits by $3.0 million and increasing the carrying amount of hedged investments by $10.6 million.



The adoption of SFAS 133 may increase the volatility of reported earnings and other comprehensive income. The amount of volatility will
vary with the level of derivative and hedging activities and fluctuations in market interest rates and foreign currency exchange rates during any period.



F-14



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



In November 1999, the Emerging Issues Task Force (EITF) issued EITF Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF 99-20). The Company adopted EITF 99-20 on April 1, 2001. EITF 99-20 establishes the method of recognizing
interest income and impairment on asset-backed investment securities. EITF 99-20 requires the Company to update the estimate of cash flows over the life of certain retained beneficial interests in securitization transactions and purchased beneficial
interests in securitized financial assets. Pursuant to EITF 99-20, based on current information and events, if the Company estimates that the fair value of its beneficial interests is not greater than or equal to its carrying value and if there has
been a decrease in the estimated cash flows since the last revised estimate, considering both timing and amount, then an other-than-temporary impairment should be recognized. The cumulative effect, net of tax, upon adoption of EITF 99-20 on April 1,
2001 decreased net income by $2.3 million with a corresponding increase to AOCI.



| | (l) |  | Discontinued Operations
| | --- |  | -----------------------



As described more fully in note 14, NLIC paid a dividend to NFS in the form of all of the shares of common stock of Nationwide
Securities, Inc. (NSI), a wholly owned broker/dealer subsidiary engaged in the asset management business. The accompanying consolidated financial statements and related notes reflect this business as discontinued operations.



| | (m) |  | Reclassification
| | --- |  | ----------------



Certain items in the 2001 and 2000 consolidated financial statements and related footnotes have been reclassified to conform to the 2002
presentation.



F-15



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (3) |  | Investments
| | --- |  | -----------



The amortized cost, gross unrealized gains and losses and estimated fair value of securities available-for-sale as of December 31, 2002
and 2001 were:



Amortized cost

Gross unrealized gains

Gross unrealized losses

Estimated fair value(in millions)December 31, 2002:Fixed maturity securities:U.S. Treasury securities and obligations of U.S. Government corporations and
agencies

$
774.3

$
64.4

$
0.3

$
838.4Obligations of states and political subdivisions


20.8


1.1





21.9Debt securities issued by foreign governments


39.3


2.7





42.0Corporate securities


14,143.5


934.5


116.6


14,961.4Mortgage-backed securitiesU.S. Government backed


3,808.9


157.3


154.8


3,811.4Asset-backed securities


4,347.5


146.5


0.1


4,493.9Total fixed maturity securities


23,134.3


1,306.5


271.8


24,169.0Equity securities


85.1


7.1


7.9


84.3Total

$
23,219.4

$
1,313.6

$
279.7

$
24,253.3December 31, 2001:Fixed maturity securities:U.S. Treasury securities and obligations of U.S. Government corporations and
agencies

$
263.2

$
23.1

$
0.5

$
285.8Obligations of states and political subdivisions


7.6


0.3





7.9Debt securities issued by foreign governments


41.8


2.6





44.4Corporate securities


11,769.8


470.6


176.5


12,063.9Mortgage-backed securities  U.S. Government backed


2,012.3


67.8


3.7


2,076.4Asset-backed securities


3,866.9


76.7


51.2


3,892.4Total fixed maturity securities


17,961.6


641.1


231.9


18,370.8Equity securities


83.0


11.0





94.0Total

$
18,044.6

$
652.1

$
231.9

$
18,464.8




As of December 31, 2002, the Company had unrealized losses on fixed maturity securities available-for-sale of $271.8 million, including $7.3 million related to securities that had a fair value that was less than 80% of amortized cost
as of December 31, 2002 and 2001. As part of the Companys normal assessment of other-than-temporary impairments of investments, as described in note 2(b), each of these securities were evaluated and no further impairments were deemed necessary
as of December 31, 2002.



F-16



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 2002, by expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment
penalties.



Amortized cost

Estimated fair value(in millions)Fixed maturity securities available for sale:Due in one year or less

$
1,100.2

$
965.0Due after one year through five years


6,769.6


7,155.4Due after five years through ten years


5,107.7


5,553.1Due after ten years


2,000.4


2,190.2Subtotal


14,977.9


15,863.7Mortgage-backed securities  U.S. Government backed


3,808.9


3,811.4Asset-backed securities


4,347.5


4,493.9Total

$
23,134.3

$
24,169.0




The components of unrealized gains on securities available-for-sale, net, were as follows as of December 31:



2002


2001(in millions)Unrealized gains, before adjustments and taxes

$
1,033.9


$
420.2Adjustment to deferred policy acquisition costs


(300.6
)


(94.9
)Adjustment to future policy benefits and claims


(133.2
)


Deferred federal income tax


(210.0
)


(113.9
)Net unrealized gains

$
390.1


$
211.4




An analysis of the change in gross unrealized gains on securities available-for-sale for the years ended December 31:



2002


2001

2000(in millions)Securities available-for-sale:Fixed maturity securities

$
625.5


$
212.0

$
280.5Equity securities


(11.8
)


5.5


(2.5
)Net change

$
613.7


$
217.5

$
278.0




Proceeds from the sale of securities available-for-sale during 2002, 2001 and 2000 were $1.53 billion, $497.8 million and $602.0 million, respectively. During 2002, gross gains of $42.0 million ($31.3 million and $12.4 million in
2001 and 2000, respectively) and gross losses of $16.6 million ($10.1 million and $15.4 million in 2001 and 2000, respectively) were realized on those sales.



The Company had $28.0 million and $25.2 million of real estate investments as of December 31, 2002 and 2001, respectively, that were
non-income producing the preceding twelve months.



Real estate is presented at cost less accumulated depreciation of $18.6 million as of December 31, 2002 ($22.0 million as of December 31, 2001). The carrying value of real estate held for disposal totaled $46.0 million and $33.4
million as of December 31, 2002 and 2001, respectively.



F-17



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



The recorded investment of mortgage loans on real estate considered to be impaired
was $27.4 million as of December 31, 2002 ($29.9 million as of December 31, 2001), which includes $10.9 million ($5.3 million as of December 31, 2001) of impaired mortgage loans on real estate for which the related valuation allowance was $2.5
million ($1.0 million as of December 31, 2001) and $16.5 million ($24.6 million as of December 31, 2001) of impaired mortgage loans on real estate for which there was no valuation allowance. Impaired mortgage loans with no valuation allowance are a
result of collateral dependent loans where the fair value of the collateral is greater than the recorded investment of the loan. During 2002, the average recorded investment in impaired mortgage loans on real estate was $5.5 million ($7.9 million in
2001) and interest income recognized on those loans totaled $0.1 million in 2002 ($0.4 million in 2001) which is equal to interest income recognized using a cash-basis method of income recognition.



Activity in the valuation allowance account for mortgage
loans on real estate for the years ended December 31 was as follows:



2002


2001


2000(in millions)Allowance, beginning of year

$
42.9


$
45.3


$
44.4Additions (reductions) charged (credited) to operations


1.5



(1.2
)


4.1Direct write-downs charged against the allowance


(1.0
)


(1.2
)


(3.2
)Allowance on acquired mortgage loans










Allowance, end of year

$
43.4


$
42.9


$
45.3


|
|

An analysis of investment income (loss) from continuing operations by
investment type follows for the years ended December 31:

|
|

2002


2001


2000(in millions)Securities available-for-sale:Fixed maturity securities

$
1,332.5


$
1,181.1


$
1,095.5Equity securities


1.9



1.8



2.6Mortgage loans on real estate


563.8



527.9



494.5Real estate


26.8



33.1



32.2Short-term investments


12.6



28.0



26.0Derivatives


(79.6
)


(19.7
)


3.9Other


31.0



20.9



49.3Gross investment income


1,889.0



1,773.1



1,704.0Less investment expenses


50.5



48.4



50.1Net investment income

$
1,838.5


$
1,724.7


$
1,653.9




F-18



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





An
analysis of net realized losses on investments, hedging instruments and hedged items from continuing operations, by source follows for the years ended December 31:



2002


2001


2000(in millions)Unrelated parties:Realized gains on sales, net of hedging losses:Fixed maturity securities, available-for-sale

$
42.0


$
30.1


$
7.4Hedging losses on fixed maturity sales


(41.1
)


(1.5
)


Equity securities, available-for-sale






1.2



5.0Real estate


14.0



3.3



3.5Mortgage loans on real estate


3.2



11.2



0.2Mortgage loan hedging losses


(1.2
)


(8.1
)


Other


0.1



1.2



1.8Total realized gains on sales  unrelated parties


17.0



37.4



17.9Realized losses on sales, net of hedging gains:Fixed maturity securities, available-for-sale


(15.7
)


(9.3
)


(15.1
)Hedging gains on fixed maturity sales


10.7



0.1



Equity securities, available-for-sale


(0.9
)


(0.8
)


(0.3
)Real estate


(3.0
)


(1.4
)


(0.9
)Mortgage loans on real estate


(3.3
)


(0.6
)


(2.6
)Mortgage loans hedging gains


0.9







Other


(1.0
)


(7.7
)


(0.3
)Total realized losses on sales  unrelated parties


(12.3
)


(19.7
)


(19.2
)Derivatives, excluding hedging gains and losses on sales


8.0



0.2



(2.7
)Other-than-temporary impairments:Fixed maturity securities, available-for-sale


(111.6
)


(66.1
)


(10.5
)Equity securities, available-for-sale






(13.8
)


Real estate


(2.4
)






(3.3
)Mortgage loans on real estate


(6.3
)


(0.7
)


(1.6
)Total other-than-temporary impairments


(120.3
)


(80.6
)


(15.4
)Total  unrelated parties


(107.6
)


(62.7
)


(19.4
)Related parties  gain on sale of limited partnership


23.2



44.4



Net realized losses on investments, hedging instruments and hedged
items

$
(84.4
)

$
(18.3
)

$
(19.4
)




Fixed maturity securities with an amortized cost of $7.3 million as of December 31, 2002 and $6.6 million as of December 31, 2001 were on deposit with various regulatory agencies as required by law.



As of December 31, 2002 and 2001 the Company had pledged
fixed maturity securities with a fair value of $152.4 million and $112.3 million, respectively, as collateral to various derivative counterparties.



As of December 31, 2002 and 2001 the Company held collateral of $413.1 million and $18.0 million, respectively, on derivative
transactions. This amount is included in short-term investments with a corresponding liability recorded in other liabilities.



F-19



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





As of
December 31, 2002 and 2001, the Company had loaned securities with a fair value of $950.5 million and $775.5 million, respectively. As of December 31, 2002 and 2001 the Company held collateral of $974.5 million and $791.6 million, respectively. This
amount is included in short-term investments with a corresponding liability recorded in other liabilities.



| | (4) |  | Deferred Policy Acquisition Costs
| | --- |  | ---------------------------------



As part of the regular quarterly analysis of DAC, at the end of the third quarter of 2002, the Company determined that using actual
experience to date and assumptions consistent with those used in the second quarter of 2002, its individual variable annuity DAC balance would be outside a pre-set parameter of acceptable results. The Company also determined that it was not
reasonably possible that the DAC would return to an amount within the acceptable parameter within a prescribed period of time. Accordingly, the Company unlocked its DAC assumptions for individual variable annuities and reduced the DAC asset to the
amount calculated using the revised assumptions. Because the Company unlocked the net separate account growth rate assumption for individual variable annuities for the three-year reversion period, the Company unlocked that assumption for all
investment products and variable universal life insurance products to be consistent across product lines.



Therefore, the Company recorded an acceleration of DAC amortization totaling $347.1 million, before tax, or $225.6 million, net of $121.5
million of federal income tax benefit, which has been reported in the following segments in the amounts indicated, net of tax: Individual Annuity - $213.4 million, Institutional Products - $7.8 million and Life Insurance - $4.4 million. The
acceleration of DAC amortization was the result of unlocking certain assumptions underlying the calculation of DAC for investment products and variable universal life insurance products. The most significant assumption changes were the resetting of
the Companys anchor date for reversion to the mean calculations to September 30, 2002, and resetting the assumption for net separate account growth to 8 percent during the three-year reversion period for all investment products and variable
life insurance products, as well as increasing the future lapses and costs related to guaranteed minimum death benefits on individual variable annuity contracts. These adjustments were primarily driven by the sustained downturn in the equity
markets.



| | (5) |  | Short-term Debt
| | --- |  | ---------------



NLIC has established a $500 million commercial paper program under which borrowings are unsecured and are issued for terms of 364 days or
less. NLIC had no commercial paper outstanding as of December 31, 2002 and $100.0 million outstanding, at an average effective rate of 1.90%, as of December 31, 2001. See also note 15.



The Company paid interest on short-term debt totaling $0.7 million, $5.3 million and $1.3 million in 2002,
2001 and 2000, respectively, including 0.5 million to NFS in 2002.



| | (6) |  | Long-term Debt, payable to Nationwide Financial Services, Inc.
| | --- |  | --------------------------------------------------------------



In December 2001, NLIC sold NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June
2002, NLIC sold NFS an 8.15%, $300.0 million surplus note maturing June 27, 2032. Principal and interest payments are subject to prior approval by the superintendent of insurance of the State of Ohio.



The Company made interest payments on surplus notes to NFS
totaling $30.1 million in 2002, none in 2001.



F-20



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (7) |  | Derivative Financial Instruments
| | --- |  | --------------------------------



Qualitative Disclosure



Interest Rate Risk Management



The Company is exposed to changes in the fair value of fixed rate investments (commercial mortgage loans and corporate bonds) due to
changes in interest rates. To manage this risk, the Company enters into various types of derivative instruments to minimize fluctuations in fair values resulting from changes in interest rates. The Company principally uses interest rate swaps and
short Eurodollar futures to manage this risk.



Under interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments, thereby creating floating rate investments.



Short Eurodollar futures change the fixed rate cash flow exposure to variable rate cash flows. With short
Eurodollar futures, if interest rates rise (fall), the gains (losses) on the futures adjust the fixed rate income on the investments, thereby creating floating rate investments.



As a result of entering into commercial mortgage loan and private placement commitments, the Company is
exposed to changes in the fair value of the commitment due to changes in interest rates during the commitment period. To manage this risk, the Company enters into short Treasury futures.



With short Treasury futures, if interest rates rise (fall), the gains (losses) on the futures will offset
the change in fair value of the commitment.



Floating rate investments (commercial mortgage loans and corporate bonds) expose the Company to fluctuations in cash flow and investment income due to changes in interest rates. To manage this risk, the Company enters into receive
fixed, pay variable over-the-counter interest rate swaps or long Eurodollar futures strips to convert the variable rate investments to a fixed rate.



In using interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments; thereby creating fixed
rate assets.



The long Eurodollar futures change
the variable rate cash flow exposure to fixed rate cash flows. With long Eurodollar futures, if interest rates rise (fall), the losses (gains) on the futures are used to reduce fluctuations in variable rate income on the investments, thereby
creating fixed rate investments.



Foreign
Currency Risk Management



In conjunction
with the Companys medium-term note program, from time to time, the Company issues both fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in fair value of the liabilities due
to changes in foreign currency exchange rates and interest rates. To manage these risks, the Company enters into cross-currency interest rate swaps to convert these liabilities to a variable U.S. dollar rate.



For a fixed rate liability, the cross-currency interest rate
swap is structured to receive a fixed rate, in the foreign currency, and pay a variable U.S. dollar rate, generally 3-month libor. For a variable rate foreign liability, the cross-currency interest rate swap is structured to receive a variable rate,
in the foreign currency, and pay a variable U.S. dollar rate, generally 3-month libor.



The Company is exposed to changes in fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates and interest rates. To manage this risk,
the Company uses cross-currency interest rate swaps to convert these assets to variable U.S. dollar rate instruments.



F-21



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Cross-currency interest rate swaps on assets are structured to pay a fixed rate, in the foreign currency, and receive a variable U.S. dollar rate, generally 3-month libor.



Non-Hedging Derivatives



From time-to-time, the Company enters into over-the-counter basis swaps (receive one variable rate, pay
another variable rate) to change the rate characteristics of a specific investment to better match the variable rate paid on a liability. While the pay-side terms of the basis swap will line up with the terms of the asset, the Company is not able to
match the receive-side terms of the derivative to a specific liability; therefore, basis swaps do not receive hedge accounting treatment.



The Company sells credit default protection on selected debt instruments and combines the credit default swap with selected assets the
Company owns, to replicate a higher yielding bond. The credit default swaps do not receive hedge accounting treatment.



Quantitative Disclosure



Fair Value Hedges



During the years ended December 31, 2002 and 2001, gains of $7.1 million and $2.1 million, respectively, were recognized in net realized
losses on investments, hedging instruments and hedged items. This represents the ineffective portion of the fair value hedging relationships. There were no gains or losses attributable to the portion of the derivative instruments change in
fair value excluded from the assessment of hedge effectiveness. There were also no gains or losses recognized in earnings as a result of hedged firm commitments no longer qualifying as fair value hedges.



Cash Flow Hedges



For the year ended December 31, 2002, the ineffective
portion of cash flow hedges was a gain of $1.8 million, and was immaterial in 2001. There were no gains or losses attributable to the portion of the derivative instruments change in fair value excluded from the assessment of hedge
effectiveness.



The Company anticipates
reclassifying less than $0.1 million in losses out of AOCI over the next 12-month period.



As of December 31, 2002, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with forecasted transactions is twelve months.
During 2002 and 2001, the Company did not discontinue any cash flow hedges because the original forecasted transaction was no longer probable.



Other Derivative Instruments, Including Embedded Derivatives



Net realized gains and losses on investments, hedging instruments and hedged items for the years ended
December 31, 2002 and 2001 include a loss of $2.2 million and $1.6 million, respectively, related to other derivative instruments, including embedded derivatives. For the years ended December 31, 2002 and 2001, a gain of $120.4 million and a loss of
$27.7 million, respectively, were recorded in net realized losses on investments, hedging instruments and hedged items reflecting the change in fair value of cross-currency interest rate swaps hedging variable rate medium-term notes denominated in
foreign currencies. An offsetting loss of $119.6 million and a gain of $26.3 million were recorded in net realized losses on investments, hedging instruments and hedged items to reflect the change in spot rates of these foreign currency denominated
obligations during the years ended December 31, 2002 and 2001, respectively.



F-22



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





The
notional amount of derivative financial instruments outstanding as of December 31, 2002 and 2001 were as follows:



2002

2001(in millions)Interest rate swaps:Pay fixed/receive variable rate swaps hedging investments

$
2,206.5

$
1,952.3Pay variable/receive fixed rate swaps hedging investments


229.7


698.4Pay variable/receive variable rate swaps hedging investments


221.0


197.8Other contracts hedging investments


690.8


523.0Cross currency interest rate swaps:Hedging foreign currency denominated investments


111.0


56.1Hedging foreign currency denominated liabilities


3,963.6


2,500.4Interest rate futures contracts


4,250.9


6,019.4Total

$
11,673.5

$
11,947.4




| | (8) |  | Federal Income Tax
| | --- |  | ------------------



Effective October 1, 2002, Nationwide Corporations ownership in NFS decreased from 80% to 63%, and as a result, NFS and its
subsidiaries, inlcuding the Company, no longer qualify to be included in the NMIC consolidated federal income tax return. Also, see note 2 (i) for a discussion of changes related to the Companys federal income tax consolidation group.



The tax effects of temporary differences that
give rise to significant components of the net deferred tax liability as of December 31, 2002 and 2001 were as follows:



2002


2001(in millions)Deferred tax assets:Equity securities

$



$
6.5Mortgage loans on real estate and real estate






7.5Future policy benefits


102.0



8.2Liabilities in separate accounts


447.6



482.5Derivatives


118.6



93.0Other


40.1



81.8Gross deferred tax assets


708.3



679.5Less valuation allowance


(7.0
)


(7.0
)Net deferred tax assets


701.3



672.5Deferred tax liabilities:Fixed maturity securities


402.2



173.0Equity securities and other investments


37.4



31.7Deferred policy acquisition costs


762.0



861.3Derivatives


78.4



91.5Deferred tax on realized investment gains






26.1Other


50.5



68.8Gross deferred tax liabilities


1,330.5



1,252.4Net deferred tax liability

$
629.2


$
579.9




In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Future taxable amounts or recovery of
federal income tax paid within the statutory carryback period can offset nearly all future deductible amounts. The valuation allowance was unchanged for each of the years in the three-year period ended December 31, 2002.



F-23



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





The
Companys current federal income tax liability was $176.4 million and $186.2 million as of December 31, 2002 and 2001, respectively.



Federal income tax expense attributable to income from continuing operations before cumulative effect of adoption of accounting
principles for the years ended December 31 was as follows:



2002


2001

2000(in millions)Current

$
63.7


$
32.2

$
77.6Deferred


(55.0
)


129.0


129.7Federal income tax expense

$
8.7


$
161.2

$
207.3




The customary relationship between federal income tax (benefit) expense and pre-tax (loss) income from continuing operations before cumulative effect of adoption of accounting principles does not exist in 2002. This is a result of
the impact of the $347.1 million of accelerated DAC amortization reported in 2002 (see note 4) compared to the level of pre-tax earnings.



Total federal income tax expense for the years ended December 31, 2002, 2001 and 2000 differs from the amount computed by applying the
U.S. federal income tax rate to income from continuing operations before federal income tax expense and cumulative effect of adoption of accounting principles as follows:



2002


2001


2000Amount


%


Amount


%


Amount


%(in millions)Computed (expected) tax expense

$
59.3


35.0


$
220.1


35.0


$
239.1


35.0Tax exempt interest and dividends received deduction


(38.9
)

(22.9
)


(48.8
)

(7.7
)


(24.7
)

(3.6
)Income tax credits


(12.7
)

(7.5
)


(11.5
)

(1.8
)


(8.0
)

(1.2
)Other, net


1.0


0.5



1.4


0.1



0.9


0.1Total (effective rate of each year)

$
8.7


5.1


$
161.2


25.6


$
207.3


30.3




Total federal income tax paid (refunded) was $71.0 million, $(45.4) million and $74.6 million during the years ended December 31, 2002, 2001 and 2000, respectively. The 2002 amount includes $56.0 million for previously deferred
intercompany gains for tax purposes that became due when NFS no longer qualified to be included in the NMIC consolidated federal income tax return, as described in note 2(i).



F-24



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (9) |  | Comprehensive Income
| | --- |  | --------------------



Comprehensive income includes net income as well as certain items that are reported directly within a separate component of
shareholders equity that bypass net income. Other comprehensive income is comprised of net unrealized gains on securities available-for-sale and accumulated net gains (losses) on cash flow hedges. The related before and after federal income
tax amounts for the years ended December 31, 2002, 2001 and 2000 were as follows:



2002


2001


2000(in millions)Unrealized gains on securities available-for-sale arising during the
period:Gross

$
527.5


$
164.0


$
264.5Adjustment to deferred policy acquisition costs


(205.7
)


(71.7
)


(74.0
)Adjustment to future policy benefits and claims


(133.2
)






Related federal income tax expense


(66.0
)


(32.3
)


(66.7
)Net unrealized gains


122.6



60.0



123.8Reclassification adjustment for net losses on securities available-for-sale realized
during the period:Gross


86.2



58.7



13.5Related federal income tax benefit


(30.2
)


(20.5
)


(4.7
)Net reclassification adjustment


56.0



38.2



8.8Other comprehensive income on securities available-for-sale


178.6



98.2



132.6Accumulated net gain (loss) on cash flow hedges:Gross


16.9



(13.5
)


Related federal income tax (expense) benefit


(5.9
)


4.7



Other comprehensive income (loss) on cash flow hedges


11.0



(8.8
)


Accumulated net loss on transition adjustments:Transition adjustment  SFAS 133






(5.6
)


Transition adjustment  EITF 99-20






3.5



Related federal income tax benefit






0.7



Other comprehensive loss on transition adjustments






(1.4
)


Total other comprehensive income

$
189.6


$
88.0


$
132.6




Reclassification adjustments for net realized gains and losses on the ineffective portion of cash flow hedges were immaterial during 2002 and 2001 and, therefore, are not reflected in the table above.



| | (10) |  | Fair Value of Financial Instruments
| | ---- |  | -----------------------------------



The following disclosures summarize the carrying amount and estimated fair value of the Companys financial instruments. Certain
assets and liabilities are specifically excluded from the disclosure requirements of financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.



F-25



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





The fair
value of a financial instrument is defined as the amount at which the financial instrument could be exchanged in a current transaction between willing parties. In cases where quoted market prices are not available, fair value is to be based on
estimates using present value or other valuation techniques. Many of the Companys assets and liabilities subject to the disclosure requirements are not actively traded, requiring fair values to be estimated by management using present value or
other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes
are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in the
immediate settlement of the instruments.



Although insurance contracts, other than policies such as annuities that are classified as investment contracts, are specifically exempted from the disclosure requirements, estimated fair value of policy reserves on life insurance
contracts is provided to make the fair value disclosures more meaningful.



The tax ramifications of the related unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.



In estimating its fair value disclosures, the Company used
the following methods and assumptions:



Fixed
maturity and equity securities: The fair value for fixed maturity securities is based on quoted market prices, where available. For fixed maturity securities not actively traded, fair value is estimated using values obtained from independent
pricing services or, in the case of private placements, is estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality and maturity of the investments. The fair value for equity securities
is based on quoted market prices. The carrying amount and fair value for fixed maturity and equity securities exclude the fair value of derivatives contracts designated as hedges of fixed maturity and equity securities.



Mortgage loans on real estate, net: The fair value for
mortgage loans on real estate is estimated using discounted cash flow analyses using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of
the calculations. Estimated value is based on the present value of expected future cash flows discounted at the loans effective interest rate, or the fair value of the collateral, if the loan is collateral dependent.



Policy loans, short-term investments and cash: The
carrying amounts reported in the consolidated balance sheets for these instruments approximate their fair value.



Separate account assets and liabilities: The fair value of assets held in separate accounts is based on quoted market prices. The
fair value of liabilities related to separate accounts is the amount payable on demand, which is net of certain surrender charges.



Investment contracts: The fair value for the Companys liabilities under investment type contracts is based on one of two
methods. For investment contracts without defined maturities, fair value is the amount payable on demand. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used
in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued.



Policy reserves on life insurance contracts: Included are disclosures for individual and corporate-owned life insurance, universal
life insurance and supplementary contracts with life contingencies for which the estimated fair value is the amount payable on demand. Also included are disclosures for the Companys limited payment policies, for which the Company has used
discounted cash flow analyses similar to those used for investment contracts with known maturities to estimate fair value.



F-26



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Short-term debt and collateral received  securities lending and derivatives: The carrying amounts reported in the consolidated balance sheets for these instruments approximates their fair value.



Long-term debt, payable to NFS: The fair value for
long-term debt is based on estimated market prices.



Commitments to extend credit: Commitments to extend credit have nominal fair value because of the short-term nature of such commitments. See note 11.



Interest rate and cross currency interest rate swaps: The fair value for interest rate and cross
currency interest rate swaps are calculated with pricing models using current rate assumptions.



Futures contracts: The fair value for futures contracts is based on quoted market prices.



Carrying amount and estimated fair value of financial instruments subject to disclosure requirements and policy reserves on life
insurance contracts were as follows as of December 31:



2002


2001Carrying amount


Estimated fair value


Carrying amount


Estimated fair value(in millions)Assets:Investments:Securities available-for-sale:Fixed maturity securities

$
24,169.0


$
24,169.0


$
18,370.8


$
18,370.8Equity securities


84.3



84.3



94.0



94.0Mortgage loans on real estate, net


7,923.2



8,536.4



7,113.1



7,293.3Policy loans


629.2



629.2



591.1



591.1Short-term investments


1,210.3



1,210.3



1,011.3



1,011.3Cash


0.9



0.9



22.6



22.6Assets held in separate accounts


47,208.2



47,208.2



59,513.0



59,513.0Liabilities:Investment contracts


(25,276.3
)


(23,634.1
)


(19,549.5
)


(18,421.0
)Policy reserves on life insurance contracts


(6,403.5
)


(6,479.6
)


(5,666.5
)


(5,524.4
)Collateral received  securities lending and derivatives


(1,363.6
)


(1,363.6
)


(809.6
)


(809.6
)Short-term debt










(100.0
)


(100.0
)Long-term debt, payable to NFS


(600.0
)


(600.0
)


(300.0
)


(300.0
)Liabilities related to separate accounts


(47,208.2
)


(45,524.6
)


(59,513.0
)


(58,387.3
)Derivative financial instruments:Interest rate swaps hedging assets


(141.2
)


(141.2
)


(5.6
)


(5.6
)Cross currency interest rate swaps


325.1



325.1



(66.0
)


(66.0
)Futures contracts


(45.7
)


(45.7
)


(33.0
)


(33.0
)




F-27



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (11) |  | Risk Disclosures
| | ---- |  | ----------------



The following is a description of the most significant risks facing the Company and how it mitigates those risks:



Credit Risk: The risk that issuers of securities
owned by the Company or mortgagors on mortgage loans on real estate owned by the Company will default or that other parties, including reinsurers, which owe the Company money, will not pay. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining sound reinsurance and credit and collection policies and by providing for any amounts deemed uncollectible.



Interest Rate Risk: The risk that interest rates will change and cause a decrease in the value of an insurers investments.
This change in rates may cause certain interest-sensitive products to become uncompetitive or may cause disintermediation. The Company mitigates this risk by charging fees for non-conformance with certain policy provisions, by offering products that
transfer this risk to the purchaser and/or by attempting to match the maturity schedule of its assets with the expected payouts of its liabilities. To the extent that liabilities come due more quickly than assets mature, an insurer could potentially
have to borrow funds or sell assets prior to maturity and potentially recognize a gain or loss.



Legal/Regulatory Risk: The risk that changes in the legal or regulatory environment in which an insurer operates will result in increased competition, reduced demand for a companys
products, or create additional expenses not anticipated by the insurer in pricing its products. The Company mitigates this risk by offering a wide range of products and by operating throughout the U. S., thus reducing its exposure to any single
product or jurisdiction and also by employing underwriting practices which identify and minimize the adverse impact of this risk.



Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business through management of its investment portfolio. These financial instruments include commitments to extend credit in the form of loans and derivative financial instruments. These instruments involve, to varying degrees,
elements of credit risk in excess of amounts recognized on the consolidated balance sheets.



Commitments to fund fixed rate mortgage loans on real estate are agreements to lend to a borrower and are subject to conditions established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a deposit. Commitments extended by the Company are based on managements case-by-case credit evaluation of the borrower and the borrowers loan collateral. The underlying
mortgaged property represents the collateral if the commitment is funded. The Companys policy for new mortgage loans on real estate is to generally lend no more than 80% of collateral value. Should the commitment be funded, the Companys
exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amounts of these commitments less the net realizable value of the collateral. The contractual amounts also represent the cash requirements for
all unfunded commitments. Commitments on mortgage loans on real estate of $252.5 million extending into 2003 were outstanding as of December 31, 2002. The Company also had $77.3 million of commitments to purchase fixed maturity securities
outstanding as of December 31, 2002.



Notional
amounts of derivative financial instruments, primarily interest rate swaps, interest rate futures contracts and foreign currency swaps, significantly exceed the credit risk associated with these instruments and represent contractual balances on
which calculations of amounts to be exchanged are based. Credit exposure is limited to the sum of the aggregate fair value of positions that have become favorable to the Company, including accrued interest receivable due from counterparties.
Potential credit losses are minimized through careful evaluation of counterparty credit standing, selection of counterparties from a limited group of high quality institutions, collateral agreements and other contract provisions. As of December 31,
2002, the Companys credit risk from these derivative financial instruments was $73.3 million, net of $387.1 million of cash collateral and $25.9 million in securities pledged as collateral.



F-28



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Equity
Market Risk: Asset fees calculated as a percentage of the separate account assets are a significant source of revenue to the Company. As of December 31, 2002, 76% of separate account assets were invested in equity mutual funds. Gains and losses
in the equity markets will result in corresponding increases and decreases in the Companys separate account assets and the reported asset fee revenue. In addition, a decrease in separate account assets may decrease the Companys
expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in guaranteed minimum death benefit (GMDB) claims, which may require the Company to accelerate the amortization of DAC.



The Companys individual variable annuity contracts
offer GMDB features. The GMDB generally provides a benefit if the annuitant dies and the policyholder contract value is less than a specified amount, which may be based on the premiums paid less amounts withdrawn or policyholder contract value on a
specified anniversary date. A decline in the stock market causing the policyholder contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature
elected, will increase the net amount at risk, which is the GMDB in excess of the policyholder contract value, which could result in additional GMDB claims. As of December 31, 2002, the net amount at risk, defined as the excess of the death benefit
over the account value, was $6.55 billion before reinsurance and $2.96 billion net of reinsurance. As of December 31, 2002, the Companys reserve for GMDB claims was $13.7 million



Significant Concentrations of Credit Risk: The Company grants mainly commercial mortgage loans on
real estate to customers throughout the U. S. As of December 31, 2002, the Company has a diversified portfolio with no more than 22% in any geographic area and no more than 1% with any one borrower. As of December 31, 2002, 33% of the carrying value
of the Companys commercial mortgage loan portfolio financed retail properties.



Significant Business Concentrations: As of December 31, 2002, the Company did not have a material concentration of financial instruments in a single investee, industry or geographic
location. Also, the Company did not have a concentration of business transactions with a particular customer, lender or distribution source, a market or geographic area in which business is conducted that makes it vulnerable to an event which could
cause a severe impact to the Companys financial position.



Guarantee Risk:In connection with the selling of securitized interests in Low Income Housing Tax Credit Funds (Tax Credit Funds), see note 17, the Company guarantees a specified minimum return to the investor. The
guaranteed return varies by transaction and follows general market trends. The Companys risk related to securitized interests in Tax Credit Funds is that the tax benefits provided to the investor are not sufficient to provide the guaranteed
cumulative after-tax yields. The Company mitigates these risks by having qualified individuals with extensive industry experience perform due diligence on each of the underlying properties to ensure they will be capable of delivering the amount of
credits anticipated and by requiring cash reserves to be held at various levels within these structures to provide for possible shortfalls in the amount of credits generated.



Reinsurance: The Company has entered into reinsurance contracts to cede a portion of its general
account individual annuity business. Total recoveries due from these contracts were $362.3 million as of December 31, 2002. The contracts are immaterial to the Companys results of operations. The ceding of risk does not discharge the original
insurer from its primary obligation to the policyholder. Under the terms of the contracts, trusts have been established as collateral for the recoveries. The trust assets are invested in investment grade securities, the fair value of which must at
all times be greater than or equal to 100% or 102% of the reinsured reserves, as outlined in the underlying contract.



Collateral  Derivatives: The Company enters into agreements with various counterparties to execute over-the-counter
derivative transactions. The Companys policy is to include a Credit Support Annex with each agreement to protect the Company for any exposure above the approved credit threshold. This also protects the counterparty against exposure to the
Company. The Company generally posts securities as collateral and receives cash as collateral from counterparties. The Company maintains ownership of the securities at all times and is entitled to receive from the borrower any payments for interest
or dividends received during the loan term.



F-29



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Collateral  Securities Lending: The Company, through its agent, lends certain portfolio holdings and in turn receives cash collateral. The cash collateral is invested in high-quality short-term investments. The
Companys policy requires a minimum of 102% of the fair value of the securities loaned be maintained as collateral. Net returns on the investments, after payment of a rebate to the borrower, are shared between the Company and its agent. Both
the borrower and the Company can request or return the loaned securities at any time. The Company maintains ownership of the securities at all times and is entitled to receive from the borrower any payments for interest or dividends received during
the loan term.



| | (12) |  | Pension Plan, Postretirement Benefits Other than Pensions and Retirement Savings Plan
| | ---- |  | -------------------------------------------------------------------------------------



The Company is a participant, together with other affiliated
companies except for Nationwide Provident, in pension plans covering all employees who have completed at least one year of service and who have met certain age requirements. Plan contributions are invested in a group annuity contract of NLIC.
Benefits are based upon the highest average annual salary of a specified number of consecutive years of the last ten years of service. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for
employees of affiliates whose work efforts benefit the Company.



Pension costs charged to operations by the Company during the years ended December 31, 2002, 2001 and 2000 were $10.0 million, $5.0 million and $1.9 million, respectively. The Company has recorded a pension liability of $0.5 million
as of December 31, 2002 compared to a prepaid pension asset of $9.4 million as of December 31, 2001.



In addition to the defined benefit pension plan, the Company, together with certain other affiliated companies, participates in life and
health care defined benefit plans for qualifying retirees. Postretirement life and health care benefits are contributory and generally available to full time employees who have attained age 55 and have accumulated 15 years of service with the
Company after reaching age 40. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Companys portion of the
per-participant cost of the postretirement health care benefits. These caps can increase annually, but not more than three percent. The Companys policy is to fund the cost of health care benefits in amounts determined at the discretion of
management. Plan assets are invested primarily in group annuity contracts of NLIC.



The Company elected to immediately recognize its estimated accumulated postretirement benefit obligation (APBO), however, certain affiliated companies elected to amortize their initial transition
obligation over periods ranging from 10 to 20 years.



The Companys accrued postretirement benefit expense as of December 31, 2002 and 2001 was $51.9 million and $53.8 million, respectively, and the net periodic postretirement benefit cost (NPPBC) for 2002, 2001 and 2000 was $3.5
million, $2.9 million and $3.8 million, respectively.



F-30



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued



Information regarding the funded status of the pension plan as a whole and the
postretirement life and health care benefit plan as a whole as of December 31, 2002 and 2001 follows:

|
|

Pension Benefits


Postretirement Benefits2002


2001


2002


2001(in millions)Change in benefit obligation:Benefit obligation at beginning of year

$
2,132.2


$
1,981.7


$
314.0


$
276.4Service cost


103.3



89.3



13.2



12.6Interest cost


135.6



129.1



22.5



21.4Participant contributions










4.0



3.3Plan amendment


(11.5
)


27.7



(117.7
)


0.2Actuarial (gain) loss


(13.1
)


(5.8
)


54.0



20.2Benefits paid


(97.6
)


(89.8
)


(20.3
)


(20.1
)Impact of settlement/curtailment


(12.7
)










Benefit obligation at end of year


2,236.2



2,132.2



269.7



314.0Change in plan assets:Fair value of plan assets at beginning of year


2,200.7



2,337.1



119.7



119.4Actual return on plan assets


(142.4
)


(46.6
)


(12.7
)


(0.2
)Employer contribution


4.3







16.2



17.3Participant contributions










4.0



3.3Benefits paid


(97.6
)


(89.8
)


(20.3
)


(20.1
)Fair value of plan assets at end of year


1,965.0



2,200.7



106.9



119.7Funded status


(271.2
)


68.5



(162.8
)


(194.3
)Unrecognized prior service cost


33.6



49.5



(116.9
)


0.2Unrecognized net losses (gains)


225.9



(79.3
)


71.9



(4.0
)Unrecognized net (asset) obligation at transition


(3.8
)


(5.1
)


0.1



0.8Prepaid (accrued) benefit cost, net

$
(15.5
)

$
33.6


$
(207.7
)

$
(197.3
)




Two significant plan changes were enacted to the postretirement benefit plans as of December 31, 2002. The postretirement medical plan was revised to reflect the current expectation that there will be no further increases in the
benefit cap after 2006. Prior to 2007, it is assumed that benefit caps will increase 3% per year. The postretirement death benefit plan was revised to reflect that all employer subsidies will be phased out beginning in 2007. The 2007 subsidy is
assumed to be 2/3 of the current subsidy and the 2008 subsidy is assumed to be 1/3 of the current amount. There is no employer subsidized benefit assumed after 2008.



Effective January 1, 2002, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) raised IRS
limits for benefits and salaries considered in qualified pension plans. The projected benefit obligation decreased by $11.5 million from December 31, 2001 due to the anticipation of the EGTRRA sunset provisions not recognized in the December 31,
2001 calculations.



Pension costs in 2002 and
December 31, 2002 pension liabilities include curtailment charges and gains calculated for the disposal of a segment of participants. Settlement credits of $10.0 million were directly assigned to NMIC and no costs were assigned to the Company.



F-31



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Assumptions used in calculating the funded status of the pension plan and postretirement life and health care benefit plan were as follows:



Pension Benefits


Postretirement Benefits2002


2001


2002


2001Weighted average discount rate

6.00
%

6.50
%

6.60
%

7.25
%Rate of increase in future compensation levels

4.50
%

4.75
%




Assumed health care cost trend rate:Initial rate







11.30
%(1)

11.00
%Ultimate rate







5.70
%(1)

5.50
%Declining period







11 Years


4 Years(1)    The 2002 initial rate is 12.3% for participants
over age 65, with an ultimate rate of 6.39%.




The components of net periodic pension cost for the pension plan as a whole for the years ended December 31, 2002, 2001 and 2000 were as follows:



2002


2001


2000(in millions)Service cost (benefits earned during the period)

$
103.3


$
89.3


$
81.4Interest cost on projected benefit obligation


135.6



129.1



125.3Expected return on plan assets


(178.6
)


(183.8
)


(184.5
)Recognized gains






(7.8
)


(11.8
)Amortization of prior service cost


4.4



3.2



3.2Amortization of unrecognized transition asset


(1.3
)


(1.3
)


(1.3
)Net periodic pension cost

$
63.4


$
28.7


$
12.3




A
curtailment gain of $19.8 million was recognized in 2000 as the result of a former affiliate of NMIC ending its participation in the pension plan.



Assumptions used in calculating the net periodic pension cost for the pension plan were as follows:



2002


2001


2000Weighted average discount rate

6.50
%

6.75
%

7.00
%Rate of increase in future compensation levels

4.75
%

5.00
%

5.25
%Expected long-term rate of return on plan assets

8.25
%

8.00
%

8.25
%




The plans investment strategy was modified based on the recommendations of a pension optimization study. This change in investment strategy is expected to increase long-term real rates of return 0.50% while maintaining the same
aggregate risk level. For this reason, the expected long-term rate of return was increased to 8.25% in 2002 from 8.00% in 2001.



The components of NPPBC for the postretirement benefit plan as a whole for the years ended December 31, 2002, 2001 and 2000 were as
follows:



2002


2001


2000(in millions)Service cost (benefits attributed to employee service during the year)

$
13.2


$
12.6


$
12.2Interest cost on accumulated postretirement benefit obligation


22.4



21.4



18.7Expected return on plan assets


(9.2
)


(9.6
)


(7.9
)Amortization of unrecognized transition obligation of affiliates


0.6



0.6



0.6Net amortization and deferral


(0.4
)


(0.4
)


(1.3
)NPPBC

$
26.6


$
24.6


$
22.3




F-32



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Actuarial
assumptions used for the measurement of the NPPBC for the postretirement benefit plan for 2002, 2001 and 2000 were as follows:



2002


2001


2000Discount rate

7.25
%

7.50
%

7.80
%Long-term rate of return on plan assets

7.75
%

8.00
%

8.30
%Assumed health care cost trend rate:Initial rate

11.30
%

11.00
%

13.00
%Ultimate rate

5.70
%

5.50
%

5.50
%Declining period

11 Years


4 Years


5 Years




Because current plan costs are very close to the employer dollar caps, the health care cost trend has an immaterial effect on plan obligations for the postretirement benefit plan as a whole. For this reason, the effect of a one
percentage point increase or decrease in the assumed health care cost trend rate on the APBO as of December 31, 2002 and on the NPPBC for the year ended December 31, 2002 was not calculated.



The Company, together with other affiliated companies,
sponsors a defined contribution retirement savings plan covering substantially all employees of the Company. Employees may make salary deferral contributions of up to 22%. Salary deferrals of up to 6% are subject to a 50% Company match. The
Companys expense for contributions to this plan totaled $5.7 million, $5.6 million and $4.4 million for 2002, 2001 and 2000, respectively, including amounts related to discontinued operations that are immaterial.



| | (13) |  | Shareholders Equity, Regulatory Risk-Based Capital, Retained Earnings and Dividend Restrictions
| | ---- |  | ------------------------------------------------------------------------------------------------



The State of Ohio, where NLIC and NLAIC are domiciled,
imposes minimum risk-based capital requirements that were developed by the NAIC. The formulas for determining the amount of risk-based capital specify various weighting factors that are applied to financial balances or various levels of activity
based on the perceived degree of risk. Regulatory compliance is determined by a ratio of total adjusted capital, as defined by the NAIC, to authorized control level risk-based capital, as defined by the NAIC. Companies below specific trigger points
or ratios are classified within certain levels, each of which requires specified corrective action. NLIC and NLAIC each exceed the minimum risk-based capital requirements for all periods presented herein.



The statutory capital and surplus of NLIC as of December 31,
2002 and 2001 was $1.61 billion and $1.76 billion, respectively. The statutory net income of NLIC for the years ended December 31, 2002, 2001 and 2000 was $92.5 million, $83.1 million and $158.7 million, respectively.



The NAIC completed a project to codify statutory accounting
principles (Codification), which became effective January 1, 2001 for NLIC and NLAIC. The resulting change to NLICs January 1, 2001 surplus was an increase of approximately $80.0 million. The significant change for NLIC, as a result of
Codification, was the recording of deferred taxes, which were not recorded prior to the adoption of Codification.



The Company is limited in the amount of shareholder dividends it may pay without prior approval by the Department. As of December 31,
2002 no dividends could be paid by NLIC without prior approval.



In addition, the payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on NLICs participating policies (measured
before dividends to policyholders) that can inure to the benefit of the Company and its shareholders.



The Company currently does not expect such regulatory requirements to impair its ability to pay operating expenses, interest and
shareholder dividends in the future.



F-33



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (14) |  | Related Party Transactions
| | ---- |  | --------------------------



During 2001, the Company entered into a transaction with NMIC, whereby it sold 78% of its interest in a limited partnership (representing
49% of the limited partnership) to NMIC for $158.9 million. As a result of this sale, the Company recorded a realized gain of $44.4 million, and related tax expense of $15.5 million. During 2002, the Company entered into transactions with NMIC and
Nationwide Indemnity Company (NIC), whereby it sold 100% of its remaining interest in the limited partnership (representing 15.11% of the limited partnership) to NMIC and NIC for a total of $54.5 million. As a result of this sale, the Company
recorded a realized gain of $23.2 million and related tax expense of $8.1 million. The sales prices for each transaction, which were paid in cash, represented the fair value of the portions of limited partnership interests that were sold and
were based on valuations of the limited partnership and its underlying investments as of the effective dates of the transactions. The valuations were completed by qualified management of the limited partnership and utilized a combination of internal
and independent valuations of the underlying investments of the limited partnership. Additionally, senior financial officers and the Boards of Directors of the Company and NMIC separately reviewed, through their respective Finance Committees, and
approved the process and methodology of the valuations prior to the execution of these transactions. The Company no longer holds an economic or voting interest in the limited partnership.



NLIC has issued group annuity and life insurance contracts and performs administrative services for various
employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $4.50 billion and $4.68 billion as of December 31, 2002 and 2001, respectively. Total revenues from these contracts were $143.3 million,
$150.7 million and $156.8 million for the years ended December 31, 2002, 2001 and 2000, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to
the account balances were $114.8 million, $122.5 million and $135.8 million for the years ended December 31, 2002, 2001 and 2000, respectively. The terms of these contracts are consistent in all material respects with what the Company offers to
unaffiliated parties who are similarly situated.



As discussed in more detail in note 2(i), through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC and beginning October 1, 2002, will file a consolidated federal income tax return with NLICA.
Total payments to (from) NMIC were $71.0 million, $(45.4) million and $74.6 million for the years ended December 31, 2002, 2001 and 2000, respectively.



NLIC has a reinsurance agreement with NMIC whereby all of NLICs accident and health business not ceded to unaffiliated reinsurers
is ceded to NMIC on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets and investment earnings are
paid to the reinsurer. Under the terms of NLICs agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. Risk of asset default is retained by NLIC, although a fee is paid to NLIC for the retention of
such risk. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent in all material respects with what the
Company could have obtained with unaffiliated parties. Revenues ceded to NMIC for the years ended December 31, 2002, 2001 and 2000 were $325.0 million, $200.7 million and $170.1 million, respectively, while benefits, claims and expenses ceded were
$328.4 million, $210.1 million and $171.0 million, respectively.



F-34



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





Pursuant
to a cost sharing agreement among NMIC and certain of its direct and indirect subsidiaries, including the Company, NMIC provides certain operational and administrative services, such as investment management, advertising, personnel and general
management services, to those subsidiaries. Expenses covered by such agreement are subject to allocation among NMIC and such subsidiaries. Measures used to allocate expenses among companies include individual employee estimates of time spent,
special cost studies, salary expense, commission expense and other methods agreed to by the participating companies that are within industry guidelines and practices. In addition, Nationwide Services Company, LLC, a subsidiary of NMIC, provides
computer, telephone, mail, employee benefits administration, and other services to NMIC and certain of its direct and indirect subsidiaries, including the Company, based on specified rates for units of service consumed. For the years ended December
31, 2002, 2001 and 2000, the Company made payments to NMIC and Nationwide Services Company, LLC, totaling $135.6 million, $139.8 million and $150.3 million, respectively. The Company does not believe that expenses recognized under these agreements
are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis.



Under a marketing agreement with NMIC, NLIC makes payments to cover a portion of the agent marketing allowance that is paid to Nationwide
agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $24.9 million, $26.4 million and $31.4 million for the years ended December 31, 2002, 2001 and 2000,
respectively.



The Company leases office space
from NMIC and certain of its subsidiaries. For the years ended December 31, 2002, 2001 and 2000, the Company made lease payments to NMIC and its subsidiaries of $20.2 million, $18.7 million and $14.1 million, respectively.



The Company also participates in intercompany repurchase
agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or after a stated period, the seller will repurchase the securities at the original sales price plus interest. As of December 31, 2002
and 2001, the Company had no borrowings from affiliated entities under such agreements. During 2002 and 2001, the most the Company had outstanding at any given time was $224.9 million and $368.5 million, respectively, and the Company incurred
interest expense on intercompany repurchase agreements of $0.3 million and $0.2 million for 2002 and 2001, respectively. Transactions under the agreements during 2000 were not material. The Company believes that the terms of the repurchase
agreements are materially consistent with what the Company could have obtained with unaffiliated parties.



The Company and various affiliates entered into agreements with Nationwide Cash Management Company (NCMC), an affiliate, under which NCMC
acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC for the benefit of the Company were $87.0 million and $54.8 million as of December 31,
2002 and 2001, respectively, and are included in short-term investments on the accompanying consolidated balance sheets. For the years ending December 31, 2002, 2001 and 2000, the Company paid NCMC fees and expenses totaling $0.3 million, $0.4
million and $0.3 million, respectively.



Certain annuity products are sold through affiliated companies, which are also subsidiaries of NFS. Total commissions and fees paid to these affiliates for the three years ended December 31, 2002 were $50.3 million, $52.9 million and
$65.0 million, respectively.



Funds of Gartmore
Global Investments, Inc. (GGI), an affiliate, are offered as investment options in certain of the Companys products. As of December 31, 2002, total GGI funds in the Companys products were $12.21 billion. For the year ended December 31,
2002, GGI paid the Company $38.8 million for the distribution and servicing of these funds.



During 2002, NLIC paid a dividend of $35.0 million and dividends in the form of return of capital of $475.0 million to NFS.



F-35



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





In
addition, in June 2002, NLIC paid a dividend to NFS in the form of all of the shares of common stock of NSI, a wholly owned broker/dealer subsidiary. Therefore, the results of the operations of NSI have been reflected as discontinued operations for
all periods presented. This was a transaction between related parties and therefore was recorded at carrying value, $10.0 million, of the underlying components of the transaction rather than fair value. Such amount represents a non-cash transaction
that is not reflected in the Consolidated Statement of Cash Flows.



In December 2001, NLIC sold NFS a 7.50%, $300.0 million surplus note maturing on December 17, 2031. In June 2002, NLIC sold NFS an 8.15%, $300.0 million surplus note maturing June 27, 2032. The Company made interest payments
on surplus notes to NFS totaling $30.1 million in 2002 and none in 2001. In addition, the Company made interest payments on unsecured notes to NFS totaling $0.5 million in 2002.



| | (15) |  | Bank Lines of Credit
| | ---- |  | --------------------



The Company has available as a source of funds a $1 billion revolving credit facility entered into by NFS, NLIC and NMIC. The facility is
comprised of a five-year $700 million agreement and a 364 day $300 million agreement with a group of financial institutions. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility
contains covenants, including, but not limited to, requirements that the Company maintain consolidated tangible net worth, as defined, in excess of $1.69 billion and NLIC maintain statutory surplus in excess of $935 million. The Company had no
amounts outstanding under this agreement as of December 31, 2002. NLIC is currently required to maintain an available credit facility equal to 50% of any amounts outstanding under its $500 million commercial paper program. Therefore, availability
under the aggregate $1 billion credit facility is reduced by an amount equal to 50% of any commercial paper outstanding. NLIC did not have any commercial paper outstanding as of December 31, 2002.



| | (16) |  | Contingencies
| | ---- |  | -------------



On October 29, 1998, the Company was named in a lawsuit filed in Ohio state court related to the sale of deferred annuity products for
use as investments in tax-deferred contributory retirement plans (Mercedes Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company). On May 3, 1999, the complaint
was amended to, among other things, add Marcus Shore as a second plaintiff. The amended complaint seeks to bring a class action on behalf of all persons who purchased individual deferred annuity contracts or participated in group annuity contracts
sold by the Company and the other named Company affiliates, which plaintiff contends were used to fund certain tax-deferred retirement plans. The amended complaint seeks unspecified compensatory and punitive damages. On June 11, 1999, the Company
and the other named defendants filed a motion to dismiss the amended complaint. On March 8, 2000, the court denied the motion to dismiss the amended complaint filed by the Company and the other named defendants. On January 25, 2002, the plaintiffs
filed a motion for leave to amend their complaint to add three new named plaintiffs. On February 9, 2002, the plaintiffs filed a motion for class certification. On April 16, 2002, the Company and the other named defendants filed a motion for summary
judgment on the individual claims of plaintiff Mercedes Castillo. On May 28, 2002, the Court denied plaintiffs motion to add new persons as named plaintiffs, but granted Marcus Shores request to withdraw as named plaintiff, so the action
is now proceeding with Mercedes Castillo as the only named plaintiff. On November 4, 2002, the Court issued a decision granting the Companys and the other defendants motion for summary judgment on all of plaintiff Mercedes
Castillos individual claims, and ruling that plaintiffs motion for class certification is moot. Judgment for the Company was entered on November 15, 2002. On December 16, 2002, plaintiff Mercedes Castillo filed a notice of appeal from
the courts orders (a) granting the defendants motion for summary judgment; and (b) denying plaintiffs motion for leave to amend the complaint to add three new named plaintiffs. The Companys responsive brief is due by April
23, 2003 and plaintiffs reply brief is due by May 12, 2003. The Company intends to defend this lawsuit vigorously.



F-36



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





On August
15, 2001, the Company was named in a lawsuit filed in Connecticut federal court titled Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life
Insurance Company. On September 6, 2001, the plaintiffs amended their complaint to include class action allegations. Plaintiffs seek to represent a class of retirement plans that purchased variable annuities from NLIC to fund qualified ERISA
retirement plans. The amended complaint alleges that the retirement plans purchased variable annuity contracts from the Company that allowed plan participants to invest in funds that were offered by separate mutual fund companies; that the Company
was a fiduciary under ERISA; that the Company breached its fiduciary duty when it accepted certain fees from the mutual fund companies that purportedly were never disclosed by the Company; and that the Company violated ERISA by replacing many of the
funds originally included in the plaintiffs annuities with inferior funds because the new funds purportedly paid higher fees to the Company. The amended complaint seeks disgorgement of the fees allegedly received by the Company and
other unspecified compensatory damages, declaratory and injunctive relief and attorneys fees. On December 3, 2001, the plaintiffs filed a motion for class certification. The Company is opposing that motion. The Companys Motion to
Dismiss was denied on September 11, 2002. On January 14, 2003, plaintiffs filed a motion to file a second amended complaint and the motion was granted on February 21, 2003. The second amended complaint removes the claims asserted
against the Company concerning a violation of ERISA through the replacement of many of the funds originally included in the plaintiffs annuities with inferior funds that purportedly paid higher fees to the Company. The Company
intends to defend this lawsuit vigorously.



There can be no assurance that any such litigation will not have a material adverse effect on the Company in the future.



| | (17) |  | Securitization Transactions
| | ---- |  | ---------------------------



During 2002, the Company sold credit enhanced equity interests in Tax Credit Funds to unrelated third parties for $125.3 million and
recognized $6.8 million of income. The Company guaranteed cumulative after-tax yield to unrelated third party investors ranging from 5.15% to 5.25%. These guarantees are in effect for approximately 15 years. The Tax Credit Funds will provide a
stream of tax benefits to the investors that will generate a yield and return of capital. To the extent that the tax benefits are not sufficient to provide these cumulative after-tax yields, then the Company must fund any shortfall, which is
mitigated by cash reserves established by the Company at the inception of the transactions.



The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $368.7 million. The Company does not anticipate making
any payments related to the guarantees.



At the
time of the sales, $4.9 million of net sale proceeds were set aside as reserves for certain properties owned by the Tax Credit Funds that had not met all of the criteria necessary to generate tax credits. Such criteria include completion of
construction and the leasing of each unit to a qualified tenant among other criteria. Properties meeting the necessary criteria are considered to have stabilized. The properties are evaluated regularly and upon stabilizing, the reserve
is released, and during 2002, $0.5 million of stabilization reserves were released into income.



To the extent there are cash deficits in any specific property owned by the Tax Credit Funds, property reserves, property operating guarantees and reserves held by the Tax Credit Funds are exhausted
before the Company is required to perform under its guarantees. To the extent the Company is ever required to perform under its guarantees, it can recover any such funding out of the cash flow distributed from the sale of any and/or all of the
underlying properties of the Tax Credit Funds. This cash flow distribution would be paid to the Company prior to any cash flow distributions to unrelated third party investors.



F-37



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





| | (18) |  | Segment Information
| | ---- |  | -------------------



The Company uses differences in products as the basis for defining its reportable segments. The Company reports three product segments:
Individual Annuity, Institutional Products and Life Insurance. During the second quarter of 2002, the Company paid a dividend to NFS that resulted in the disposal of a portion of the business that had been reported in the Corporate segment (see note
14). As a result, this business has been reported as discontinued operations. Also, structured products transactions previously reported in the Corporate segment are now reported in the Institutional Products segment. Amounts reported for all
periods have been revised to reflect these changes and to conform to the 2002 presentation.



The Individual Annuity segment consists of individual The BEST of AMERICA®and private label deferred variable annuity products, deferred fixed annuity products and income products. Individual deferred annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout
options including lump sum, systematic withdrawal or a stream of payments for life. In addition, variable annuity contracts provide the customer with access to a wide range of investment options and asset protection in the event of an untimely
death, while fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods.



The Institutional Products segment is comprised of the Companys Private and Public Sector pension plans, medium-term note program
and structured products transactions. The Private Sector includes the 401(k) business generated through fixed and variable annuities. The Public Sector includes the Internal Revenue Code Section 457 business in the form of fixed and variable
annuities.



The Life Insurance segment consists
of investment life products, including individual variable life and COLI products, traditional life insurance products and universal life insurance. Life insurance products provide a death benefit and generally also allow the customer to build cash
value on a tax-advantaged basis.



In addition to
the product segments, the Company reports a Corporate segment. The Corporate segment includes net investment income not allocated to the three product segments, unallocated expenses and interest expense on debt. In addition to these operating
revenues and expenses, the Company also reports net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items in the Corporate segment, but does not consider them as part of operating income.



F-38



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





The
following tables summarize the financial results of the Companys business segments for the years ended December 31, 2002, 2001 and 2000.



Individual Annuity


Institutional Products

Life Insurance

Corporate


Total(in millions)2002:Net investment income

$
668.5


$
800.2

$
328.6

$
41.2


$
1,838.5Other operating revenue


526.2



177.9


537.7


0.7



1,242.5Total operating revenue(1)


1,194.7



978.1


866.3


41.9



3,081.0Interest credited to policyholder account values


505.9



548.9


186.4






1,241.2Amortization of deferred policy acquisition costs


528.2



53.7


88.2






670.1Interest expense on debt












36.0



36.0Other benefits and expenses


283.4



172.1


420.2


4.1



879.8Total benefits and expenses


1,317.5



774.7


694.8


40.1



2,827.1Operating (loss) income before federal incometaxes(1)


(122.8
)


203.4


171.5


1.8



253.9Net realized losses on investments, hedging instruments and hedged items













(84.4
)


(84.4
)(Loss) income from continuing operations before federal income taxes and cumulative
effect of adoption of accounting principles

$
(122.8
)

$
203.4

$
171.5

$
(82.6
)

$
169.5Assets as of year end

$
40,830.0


$
30,440.7

$
9,676.3

$
5,075.6


$
86,022.6(1)    Excludes net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items, discontinued operations and cumulative effect of adoption of accounting
principles.




F-39



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





|                                                                                                                                |  | Individual Annuity |          | Institutional Products |   | Life Insurance |  | Corporate |         |  | Total |        
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | ---------------------- | - | -------------- |  | --------- | ------- |  | ----- | -------
|                                                                                                                                |  | (in millions)      |         
|2001:                                                                                                                           |  |                    |          |                        |   |                |  |           |         |  |       |        
|Net investment income                                                                                                           |  | $                  | 534.7    |                        | $ | 847.5          |  | $         | 323.3   |  | $     | 19.2   
|Other operating revenue                                                                                                         |  |                    | 556.0    |                        |   | 209.4          |  |           | 511.5   |  |       | 1.6    
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Total operating revenue(1)                                                                                                      |  |                    | 1,090.7  |                        |   | 1,056.9        |  |           | 834.8   |  |       | 20.8   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Interest credited to policyholder account values                                                                                |  |                    | 433.2    |                        |   | 627.8          |  |           | 177.7   |  |       |       
|Amortization of deferred policy acquisition costs                                                                               |  |                    | 220.0    |                        |   | 47.6           |  |           | 80.3    |  |       |       
|Interest expense on debt                                                                                                        |  |                    |         |                        |   |               |  |           |        |  |       | 6.2    
|Other benefits and expenses                                                                                                     |  |                    | 206.1    |                        |   | 170.2          |  |           | 387.1   |  |       | (2.1   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Total benefits and expenses                                                                                                     |  |                    | 859.3    |                        |   | 845.6          |  |           | 645.1   |  |       | 4.1    
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Operating income before federal income taxes(1)                                                                                 |  |                    | 231.4    |                        |   | 211.3          |  |           | 189.7   |  |       | 16.7   
|Net realized losses on investments, hedging instruments and hedged items                                                        |  |                    |         |                        |   |               |  |           |        |  |       | (20.2  
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Income (loss) from continuing operations before federal income taxes and cumulative
effect of adoption of accounting principles |  | $                  | 231.4    |                        | $ | 211.3          |  | $         | 189.7   |  | $     | (3.5   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Assets as of year end                                                                                                           |  | $                  | 43,885.4 |                        | $ | 34,130.1       |  | $         | 9,129.0 |  | $     | 4,010.1
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|2000:                                                                                                                           |  |                    |          |                        |   |                |  |           |         |  |       |        
|Net investment income                                                                                                           |  | $                  | 482.0    |                        | $ | 827.4          |  | $         | 289.2   |  | $     | 55.3   
|Other operating revenue                                                                                                         |  |                    | 625.9    |                        |   | 251.6          |  |           | 462.1   |  |       | 2.9    
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Total operating revenue(1)                                                                                                      |  |                    | 1,107.9  |                        |   | 1,079.0        |  |           | 751.3   |  |       | 58.2   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Interest credited to policyholder account values                                                                                |  |                    | 396.4    |                        |   | 628.8          |  |           | 157.2   |  |       |       
|Amortization of deferred policy acquisition costs                                                                               |  |                    | 238.7    |                        |   | 49.2           |  |           | 64.2    |  |       |       
|Interest expense on debt                                                                                                        |  |                    |         |                        |   |               |  |           |        |  |       | 1.3    
|Other benefits and expenses                                                                                                     |  |                    | 192.1    |                        |   | 181.0          |  |           | 368.8   |  |       | 16.2   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Total benefits and expenses                                                                                                     |  |                    | 827.2    |                        |   | 859.0          |  |           | 590.2   |  |       | 17.5   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Operating income before federal income taxes(1)                                                                                 |  |                    | 280.7    |                        |   | 220.0          |  |           | 161.1   |  |       | 40.7   
|Net realized losses on investments, hedging instruments and hedged items                                                        |  |                    |         |                        |   |               |  |           |        |  |       | (19.4  
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Income from continuing operations before federal income taxes and cumulative effect of
adoption of accounting principles        |  | $                  | 280.7    |                        | $ | 220.0          |  | $         | 161.1   |  | $     | 21.3   
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        
|Assets as of year end                                                                                                           |  | $                  | 45,422.5 |                        | $ | 37,217.3       |  | $         | 8,103.3 |  | $     | 1,824.2
|                                                                                                                                |  |                    |          |                        |   |                |  |           |         |  |       |        

---

|(1) |  | Excludes net realized gains and losses on investments not related to securitizations, hedging instruments and hedged items, discontinued operations and cumulative
effect of adoption of accounting principles.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Includes $24.8 million of assets related to discontinued operations.
|--- |  | --------------------------------------------------------------------

|(3) |  | Includes $22.5 million of assets related to discontinued operations.
|--- |  | --------------------------------------------------------------------



F-40



---

NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

(a wholly owned subsidiary of Nationwide Financial Services, Inc.)



Notes to Consolidated Financial Statements, Continued





The
Company has no significant revenue from customers located outside of the U.S. nor does the Company have any significant long-lived assets located outside the U.S.



| | (19) |  | Variable Interest Entities
| | ---- |  | --------------------------



As of December 31, 2002, the Company had investments of $71.0 million in Tax Credit Funds for the purpose of generating favorable
after-tax investment returns for the Company. These Tax Credit Funds and those that the Company has sold to others with a guarantee of the cumulative after-tax return, which are described in more detail in note 17, may be considered a VIE in
accordance with FIN 46. See note 2(k). The Companys maximum exposure to loss as a result of its involvement in these VIEs is $439.6 million, which is comprised of the carrying value of the Tax Credit Funds held by the Company for its own use
and the maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees.



| | (20) |  | Subsequent Event
| | ---- |  | ----------------



On February 13, 2003, NFS contributed as additional paid-in capital $200.0 million cash to NLIC for general corporate purposes.



F-41



---



SCHEDULE I



NATIONWIDE LIFE
INSURANCE COMPANY AND SUBSIDIARIES



CONSOLIDATED
SUMMARY OF INVESTMENTS

OTHER THAN INVESTMENTS IN RELATED PARTIES

(in millions)



As of December 31, 2002



|Column A                                                             |  | Column B |          | Column C     |   | Column D                                                | 
|-------------------------------------------------------------------- |  | -------- | -------- | ------------ | - | ------------------------------------------------------- | 
|Type of Investment                                                   |  | Cost     |          | Market value |   | Amount at which shown in the consolidated balance sheet | 
|Fixed maturity securities available-for-sale:                        |  |          |          |              |   |                                                         | 
|Bonds:                                                               |  |          |          |              |   |                                                         | 
|U.S. Government and government agencies and authorities              |  | $        | 5,121.8  |              | $ | 5,332.3                                                 | 
|States, municipalities and political subdivisions                    |  |          | 20.8     |              |   | 21.9                                                    | 
|Foreign governments                                                  |  |          | 39.3     |              |   | 42.0                                                    | 
|Public utilities                                                     |  |          | 1,544.4  |              |   | 1,609.2                                                 | 
|All other corporate                                                  |  |          | 16,408.0 |              |   | 17,163.6                                                | 
|                                                                     |  |          |          |              |   |                                                         | 
|Total fixed maturity securities available-for-sale                   |  |          | 23,134.3 |              |   | 24,169.0                                                | 
|                                                                     |  |          |          |              |   |                                                         | 
|Equity securities available-for-sale:                                |  |          |          |              |   |                                                         | 
|Common stocks:                                                       |  |          |          |              |   |                                                         | 
|Industrial, miscellaneous and all other                              |  |          | 85.1     |              |   | 84.3                                                    | 
|Non-redeemable preferred stock                                       |  |          |         |              |   |                                                        | 
|                                                                     |  |          |          |              |   |                                                         | 
|Total equity securities available-for-sale                           |  |          | 85.1     |              |   | 84.3                                                    | 
|                                                                     |  |          |          |              |   |                                                         | 
|Mortgage loans on real estate, net                                   |  |          | 7,964.1  |              |   |                                                         | 
|Real estate, net:                                                    |  |          |          |              |   |                                                         | 
|Investment properties                                                |  |          | 106.7    |              |   |                                                         | 
|Acquired in satisfaction of debt                                     |  |          | 28.5     |              |   |                                                         | 
|Policy loans                                                         |  |          | 629.2    |              |   |                                                         | 
|Other long-term investments                                          |  |          | 97.2     |              |   |                                                         | 
|Short-term investments, including amounts managed by a related party |  |          | 1,210.3  |              |   |                                                         | 
|                                                                     |  |          |          |              |   |                                                         | 
|Total investments                                                    |  | $        | 33,255.4 |              |   |                                                         | 
|                                                                     |  |          |          |              |   |                                                         | 

---

|(1) |  | Difference from Column B is primarily due to valuation allowances due to impairments on mortgage loans on real estate (see note 3 to the consolidated financial
statements), hedges and commitment hedges on mortgage loans on real estate.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Difference from Column B primarily results from adjustments for accumulated depreciation.
|--- |  | -----------------------------------------------------------------------------------------

|(3) |  | Difference from Column B is primarily due to operating gains and/or losses of investments in limited partnerships.
|--- |  | ------------------------------------------------------------------------------------------------------------------

|(4) |  | Amount shown does not agree to the consolidated balance sheet due to unconsolidated related party investments in the amount of $42.5 million.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------







See accompanying independent auditors report.



F-42



---



SCHEDULE III



NATIONWIDE
LIFE INSURANCE COMPANY AND SUBSIDIARIES



SUPPLEMENTARY INSURANCE INFORMATION

(in millions)



As of December 31, 2002, 2001 and 2000 and for each of the
years then ended



|Column A                 |  | Column B                          |         |   | Column C                                                 |   | Column D                                          |  | Column E                                    |       |  | Column F        
|------------------------ |  | --------------------------------- | ------- | - | -------------------------------------------------------- | - | ------------------------------------------------- |  | ------------------------------------------- | ----- |  | ----------------
|Segment                  |  | Deferred policy acquisition costs |         |   | Future policy benefits, losses, claims and loss expenses |   | Unearned premiums(1)                              |  | Other policy claims and benefits payable(1) |       |  | Premium revenue 
|2002: Individual Annuity |  | $                                 | 1,835.5 |   |                                                          | $ | 12,782.8                                          |  |                                             |       |  |                 
|Institutional Products   |  |                                   | 304.8   |   |                                                          |   | 12,783.8                                          |  |                                             |       |  |                 
|Life Insurance           |  |                                   | 1,128.3 |   |                                                          |   | 4,813.3                                           |  |                                             |       |  |                 
|Corporate                |  |                                   | (297.5  | ) |                                                          |   | 374.9                                             |  |                                             |       |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|Total                    |  | $                                 | 2,971.1 |   |                                                          | $ | 30,754.8                                          |  |                                             |       |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|2001: Individual Annuity |  | $                                 | 1,946.8 |   |                                                          | $ | 8,857.2                                           |  |                                             |       |  |                 
|Institutional Products   |  |                                   | 307.7   |   |                                                          |   | 11,872.7                                          |  |                                             |       |  |                 
|Life Insurance           |  |                                   | 1,025.2 |   |                                                          |   | 4,252.3                                           |  |                                             |       |  |                 
|Corporate                |  |                                   | (90.7   | ) |                                                          |   | 233.8                                             |  |                                             |       |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|Total                    |  | $                                 | 3,189.0 |   |                                                          | $ | 25,216.0                                          |  |                                             |       |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|2000: Individual Annuity |  | $                                 | 1,711.6 |   |                                                          | $ | 7,008.8                                           |  |                                             |       |  |                 
|Institutional Products   |  |                                   | 293.7   |   |                                                          |   | 10,944.0                                          |  |                                             |       |  |                 
|Life Insurance           |  |                                   | 877.8   |   |                                                          |   | 3,995.6                                           |  |                                             |       |  |                 
|Corporate                |  |                                   | (17.5   | ) |                                                          |   | 235.2                                             |  |                                             |       |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|Total                    |  | $                                 | 2,865.6 |   |                                                          | $ | 22,183.6                                          |  |                                             |       |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|                        
|Column A                 |  | Column G                          |         |   | Column H                                                 |   | Column I                                          |  | Column J                                    |       |  | Column K        
|Segment                  |  | Net investment income(2)          |         |   | Benefits, claims, losses and settlement expenses         |   | Amortization of deferred policy acquisition costs |  | Other operating expenses(2)                 |       |  | Premiums written
|2002: Individual Annuity |  | $                                 | 668.5   |   |                                                          | $ | 605.3                                             |  | $                                           | 528.2 |  | $               
|Institutional Products   |  |                                   | 800.2   |   |                                                          |   | 548.9                                             |  |                                             | 53.7  |  |                 
|Life Insurance           |  |                                   | 328.6   |   |                                                          |   | 412.9                                             |  |                                             | 88.2  |  |                 
|Corporate                |  |                                   | 41.2    |   |                                                          |   |                                                  |  |                                             |      |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|Total                    |  | $                                 | 1,838.5 |   |                                                          | $ | 1,567.1                                           |  | $                                           | 670.1 |  | $               
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|2001: Individual Annuity |  | $                                 | 534.7   |   |                                                          | $ | 501.8                                             |  | $                                           | 220.0 |  | $               
|Institutional Products   |  |                                   | 847.5   |   |                                                          |   | 627.8                                             |  |                                             | 47.6  |  |                 
|Life Insurance           |  |                                   | 323.3   |   |                                                          |   | 389.4                                             |  |                                             | 80.3  |  |                 
|Corporate                |  |                                   | 19.2    |   |                                                          |   |                                                  |  |                                             |      |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|Total                    |  | $                                 | 1,724.7 |   |                                                          | $ | 1,519.0                                           |  | $                                           | 347.9 |  | $               
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|2000: Individual Annuity |  | $                                 | 482.0   |   |                                                          | $ | 450.4                                             |  | $                                           | 238.7 |  | $               
|Institutional Products   |  |                                   | 827.4   |   |                                                          |   | 628.8                                             |  |                                             | 49.2  |  |                 
|Life Insurance           |  |                                   | 289.2   |   |                                                          |   | 344.8                                             |  |                                             | 64.2  |  |                 
|Corporate                |  |                                   | 55.3    |   |                                                          |   |                                                  |  |                                             |      |  |                 
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 
|Total                    |  | $                                 | 1,653.9 |   |                                                          | $ | 1,424.0                                           |  | $                                           | 352.1 |  | $               
|                         |  |                                   |         |   |                                                          |   |                                                   |  |                                             |       |  |                 

---

|(1) |  | Unearned premiums and other policy claims and benefits payable are included in Column C amounts.
|--- |  | ------------------------------------------------------------------------------------------------

|(2) |  | Allocations of net investment income and certain operating expenses are based on a number of assumptions and estimates, and reported operating results would change
by segment if different methods were applied.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



See accompanying independent auditors report.



F-43



---



SCHEDULE IV



NATIONWIDE
LIFE INSURANCE COMPANY AND SUBSIDIARIES



REINSURANCE

(in millions)



As of December 31, 2002, 2001 and 2000 and for each of the years then ended



|Column A                      |  | Column B     |           | Column C                 |   | Column D                     |  | Column E   |      | Column F                            |  
|----------------------------- |  | ------------ | --------- | ------------------------ | - | ---------------------------- |  | ---------- | ---- | ----------------------------------- | -
|                              |  | Gross amount |           | Ceded to other companies |   | Assumed from other companies |  | Net amount |      | Percentage of amount assumed to net |  
|2002:                         |  |              |           |                          |   |                              |  |            |      |                                     |  
|Life insurance in force       |  | $            | 114,644.4 |                          | $ | 40,883.5                     |  | $          | 14.2 |                                     | $
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|Premiums:                     |  |              |           |                          |   |                              |  |            |      |                                     |  
|Life insurance(1)             |  | $            | 275.9     |                          | $ | 16.3                         |  | $          | 0.3  |                                     | $
|Accident and health insurance |  |              | 303.4     |                          |   | 306.6                        |  |            | 3.2  |                                     |  
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|Total                         |  | $            | 579.3     |                          | $ | 322.9                        |  | $          | 3.5  |                                     | $
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|2001:                         |  |              |           |                          |   |                              |  |            |      |                                     |  
|Life insurance in force       |  | $            | 107,765.8 |                          | $ | 37,331.3                     |  | $          | 17.1 |                                     | $
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|Premiums:                     |  |              |           |                          |   |                              |  |            |      |                                     |  
|Life insurance(1)             |  | $            | 264.9     |                          | $ | 14.0                         |  | $          | 0.2  |                                     | $
|Accident and health insurance |  |              | 176.4     |                          |   | 182.2                        |  |            | 5.8  |                                     |  
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|Total                         |  | $            | 441.3     |                          | $ | 196.2                        |  | $          | 6.0  |                                     | $
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|2000:                         |  |              |           |                          |   |                              |  |            |      |                                     |  
|Life insurance in force       |  | $            | 95,475.2  |                          | $ | 31,101.6                     |  | $          | 16.4 |                                     | $
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|Premiums:                     |  |              |           |                          |   |                              |  |            |      |                                     |  
|Life insurance(1)             |  | $            | 254.6     |                          | $ | 14.8                         |  | $          | 0.2  |                                     | $
|Accident and health insurance |  |              | 150.8     |                          |   | 156.8                        |  |            | 6.0  |                                     |  
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  
|Total                         |  | $            | 405.4     |                          | $ | 171.6                        |  | $          | 6.2  |                                     | $
|                              |  |              |           |                          |   |                              |  |            |      |                                     |  

---

|(1) |  | The life insurance caption represents principally premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on
investment products and universal life insurance products.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

















See accompanying independent auditors report.



F-44



---



SCHEDULE V



NATIONWIDE
LIFE INSURANCE COMPANY AND SUBSIDIARIES



VALUATION AND QUALIFYING ACCOUNTS

(in millions)



Years ended December 31, 2002, 2001 and 2000



|Column A                                             |  | Column B                       |      | Column C                                 |   | Column D |                           | Column E
|---------------------------------------------------- |  | ------------------------------ | ---- | ---------------------------------------- | - | -------- | ------------------------- | --------
|Description                                          |  | Balance at beginning of period |      | Charged (credited) to costs and expenses |   |          | Charged to other accounts |         
|2002:                                                |  |                                |      |                                          |   |          |                           |         
|Valuation allowances  mortgage loans on real estate |  | $                              | 42.9 |                                          | $ | 1.5      |                           |         
|Valuation allowances  real estate                   |  |                                |     |                                          |   |         |                           |         
|                                                     |  |                                |      |                                          |   |          |                           |         
|Total                                                |  | $                              | 42.9 |                                          | $ | 1.5      |                           |         
|                                                     |  |                                |      |                                          |   |          |                           |         
|2001:                                                |  |                                |      |                                          |   |          |                           |         
|Valuation allowances  mortgage loans on real estate |  | $                              | 45.3 |                                          | $ | (1.2     | )                         |         
|Valuation allowances  real estate                   |  |                                | 5.2  |                                          |   |         |                           |         
|                                                     |  |                                |      |                                          |   |          |                           |         
|Total                                                |  | $                              | 50.5 |                                          | $ | (1.2     | )                         |         
|                                                     |  |                                |      |                                          |   |          |                           |         
|2000:                                                |  |                                |      |                                          |   |          |                           |         
|Valuation allowances  mortgage loans on real estate |  | $                              | 44.4 |                                          | $ | 4.1      |                           |         
|Valuation allowances  real estate                   |  |                                | 5.5  |                                          |   | 0.4      |                           |         
|                                                     |  |                                |      |                                          |   |          |                           |         
|Total                                                |  | $                              | 49.9 |                                          | $ | 4.5      |                           |         
|                                                     |  |                                |      |                                          |   |          |                           |         

---

|(1) |  | Amounts represent direct write-downs charged against the valuation allowance.
|--- |  | -----------------------------------------------------------------------------























See accompanying
independent auditors report.



F-45