<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                      ------------------------------------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998          COMMISSION FILE NO. 2-28596

                        NATIONWIDE LIFE INSURANCE COMPANY
             (Exact name of registrant as specified in its charter)


             OHIO                                             31-4156830
(State or other jurisdiction of                            (I.R.S. Employer 
incorporation or organization)                            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)


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

                                      NONE

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

                                      NONE

     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
                                  ---        ---

  All voting stock was held by affiliates of the Registrant on March 19, 1999.


   COMMON STOCK   (par value $1 per share) - 3,814,779 shares issued and
                     outstanding as of March 20, 1999
(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.


<PAGE>   2

                                     PART I

ITEM 1        BUSINESS
------        --------

              ORGANIZATION

              Nationwide Life Insurance Company (NLIC) was incorporated in 1929
              and is an Ohio stock legal reserve life insurance company. NLIC
              offers a variety of forms of variable annuities, fixed annuities
              and life insurance on a participating and a non-participating
              basis.

              Prior to January 27, 1997, NLIC was wholly owned by Nationwide
              Corporation (Nationwide Corp.). On that date, Nationwide Corp.
              contributed the outstanding shares of NLIC's common stock to
              Nationwide Financial Services, Inc. (NFS), a holding company
              formed by Nationwide Corp. in November 1996 for NLIC and other
              companies within the Nationwide Insurance Enterprise that offer or
              distribute long-term savings and retirement products. On March 11,
              1997, NFS completed an initial public offering of its Class A
              common stock.

              During 1996 and 1997, Nationwide Corp. and NFS completed certain
              transactions in anticipation of the initial public offering that
              focused the business of NFS on long-term savings and retirement
              products. On September 24, 1996, NLIC declared a dividend payable
              to Nationwide Corp. on January 1, 1997 consisting of the
              outstanding shares of common stock of certain subsidiaries that do
              not offer or distribute long-term savings and retirement products.
              In addition, during 1996, NLIC entered into two reinsurance
              agreements whereby all of NLIC's accident and health and group
              life insurance business was ceded to two affiliates effective
              January 1, 1996. These subsidiaries, Employers Life Insurance
              Company of Wausau (ELICW), National Casualty Company (NCC) and
              West Coast Life Insurance Company (WCLIC), through December 31,
              1996, and all accident and health and group life insurance
              business have been accounted for as discontinued operations.
              Additionally, NLIC paid $900.0 million of dividends, $50.0 million
              to Nationwide Corp. on December 31, 1996 and $850.0 million to
              NFS, which then made an equivalent dividend to Nationwide Corp.,
              on February 24, 1997.

              NFS contributed $836.8 million to the capital of NLIC during March
              1997.

              Wholly owned subsidiaries of NLIC as of December 31, 1998 include
              Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide
              Advisory Services, Inc. (NAS), Nationwide Investment Services
              Corporation (NISC) and NWE, Inc. (NWE). NLIC and its subsidiaries
              are collectively referred to as "the Company."

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

              NLAIC offers universal life insurance, variable universal life
              insurance, corporate-owned life insurance and individual annuity
              contracts on a non-participating basis. NAS is a registered
              broker-dealer providing investment management and administration
              services. NISC, contributed by Nationwide Corp. on April 5, 1996,
              is a registered broker-dealer doing business solely in the
              deferred compensation market. NWE was formed by NLIC to hold
              special investments.

              The Company is a leading provider of long-term savings and
              retirement products. The Company offers variable annuities, fixed
              annuities and life insurance as well as investment management
              services and pension products and administrative services. By
              developing and offering a wide variety of products, the Company
              believes that it has positioned itself to compete effectively in
              various stock market and interest rate environments. The Company
              markets its products through a broad spectrum of wholesale and
              retail distribution channels, including independent
              broker/dealers, national and regional brokerage firms, pension
              plan administrators, financial institutions, exclusive sales
              representatives and Nationwide Insurance Enterprise insurance
              agents.


                                       2
<PAGE>   3


              The Company is one of the leaders in the development and sale of
              variable annuities. For the year ended December 31, 1998, the
              Company was the third largest writer of individual variable
              annuity contracts in the United States (U.S.) based on sales,
              according to The Variable Annuity Research & Data Service. Its
              principal annuity series, The BEST of AMERICA(R), allows the
              customer to choose from up to 39 investment options, including
              mutual funds managed by premier mutual fund managers.

              The Company has grown substantially in recent years as a result of
              its long-term investment in developing the distribution channels
              necessary to reach its target customers and the products required
              to meet the demands of these customers. The Company believes its
              growth has been further enhanced by favorable demographic trends,
              the growing tendency of Americans to supplement traditional
              sources of retirement income with self-directed investments, such
              as products offered by the Company, and the performance of the
              financial markets, particularly the U.S. stock markets, in recent
              years.

              BUSINESS SEGMENTS

              The Company has three product segments: Variable Annuities, Fixed
              Annuities and Life Insurance. In addition, the Company reports
              corporate revenues and expenses, investments and related
              investment income supporting capital not specifically allocated to
              its product segments, revenues and expenses of its investment
              advisor subsidiary (other than the portion allocated to the
              Variable Annuities and Life Insurance segments) and revenues and
              expenses related to group annuity contracts sold to Nationwide
              Insurance Enterprise employee benefits plans in a Corporate and
              Other segment.

              The Variable Annuities segment, which accounted for $218.4 million
              (or 41%) of the Company's operating income before federal income
              tax expense for 1998, consists of annuity contracts that provide
              the customer with the opportunity to invest in mutual funds
              managed by independent investment managers and the Company, with
              investment returns accumulating on a tax-deferred basis.

              The Fixed Annuities segment, which accounted for $175.3 million
              (or 33%) of the Company's operating income before federal income
              tax expense for 1998, consists of annuity contracts that generate
              a return for the customer at a specified interest rate, fixed for
              a prescribed period, with returns accumulating on a tax-deferred
              basis. Such contracts consist of single premium deferred
              annuities, flexible premium deferred annuities and single premium
              immediate annuities. The Fixed Annuities segment also includes the
              fixed option under the Company's variable annuity contracts, which
              accounted for 81% of the Company's fixed annuity sales in 1998 and
              75% of the Company's fixed annuity policy reserves as of December
              31, 1998. During 1998, the average crediting rates on contracts
              (including the fixed option under the Company's variable annuity
              contracts) in the Fixed Annuities segment was 5.95%. Substantially
              all of the Company's crediting rates on its fixed annuity
              contracts are guaranteed for a period not exceeding 15 months.

              The Life Insurance segment, which accounted for $94.8 million (or
              18%) of the Company's operating income before federal income tax
              expense for 1998, is composed of a wide range of variable
              universal life insurance, whole life insurance, universal life
              insurance, term life insurance and corporate-owned life insurance
              products that provide a death benefit and may also allow the
              customer to build cash value on a tax-deferred basis.

              The Corporate and Other segment accounted for $40.2 million (or
              8%) of the Company's operating income (which excludes realized
              gains and losses on investments) before federal income tax expense
              for 1998.

              Additional information related to the Company's business segments
              is included in note 13 to the consolidated financial statements
              and Financial Statement Schedule III.



                                       3
<PAGE>   4


              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 surrender of the Company's annuity 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 is rated "A+" (Superior)
              by A.M. Best Company, Inc. and its claims-paying ability is rated
              "Aa2" (Excellent) by Moody's Investor Services, Inc., "AA+"
              (Excellent) by Standard & Poor's Corporation and "AA+" (Excellent)
              by Duff & Phelps Credit Rating Co.

              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.

              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 the Company's lines of
              business is based on price, product features, commission
              structure, perceived financial strength, claims-paying ratings,
              service and name recognition. National banks, with their
              preexisting customer bases for financial services products, may
              pose increasing competition in the future to insurers who sell
              annuities, including the Company, as a result of the U.S. Supreme
              Court's 1994 decision in NationsBank of North Carolina v. Variable
              Annuity Life Insurance Company, which permits national banks to
              sell annuity products of life insurance companies in certain
              circumstances.

              Several proposals to repeal or modify the Glass-Steagall Act of
              1933, as amended, and the Bank Holding Company Act of 1956, as
              amended, have been made by members of Congress and the Clinton
              Administration. Currently, the Bank Holding Company Act restricts
              banks from being affiliated with insurance companies. None of
              these proposals has yet been enacted, and it is not possible to
              predict whether any of these proposals will be enacted, or, if
              enacted, their potential effect on the Company.

              REGULATION

              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 limit the amount of dividends
              and other payments that can be paid by insurance companies without
              prior approval and impose restrictions on the amount and type of
              investments insurance companies may hold. These regulations also
              affect many other aspects of insurance companies businesses,
              including licensing of insurers and their products and agents,
              risk-based capital requirements and the type and amount of
              required asset valuation reserve accounts. These regulations are
              primarily intended to protect policyholders rather than
              shareholders. The Company can not 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 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.



                                       4
<PAGE>   5


              As part of their routine regulatory oversight process, state
              insurance departments conduct detailed examinations periodically
              (generally once every three to four years) of the books, records
              and accounts of insurance companies domiciled in their states.
              Such examinations are generally conducted in cooperation with the
              departments of two or three other states under guidelines
              promulgated by the National Association of Insurance Commissioners
              (NAIC). The most recently completed examination of the Company's
              insurance subsidiaries was conducted by the Ohio and Delaware
              insurance departments for the four-year period ended December 31,
              1996. The final reports of these examinations did not result in
              any significant issues or adjustments.

              The payment of dividends by NLIC is subject to restrictions set
              forth in the insurance laws and regulations of Ohio, its
              domiciliary state. The 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. The 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 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 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.

              EMPLOYEES

              As of December 31, 1998, the Company had approximately 3,660
              employees. None of the employees of the Company are covered by a
              collective bargaining agreement and the Company believes that its
              employee relations are satisfactory.


ITEM 2        PROPERTIES
------        ----------

              The Company's principal executive offices are located in Columbus,
              Ohio. The Company leases its home office complex, consisting of
              approximately 448,000 square feet, from NMIC and its subsidiaries
              at One Nationwide Plaza, Two Nationwide Plaza and Three Nationwide
              Plaza, 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.

              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.



                                       5
<PAGE>   6


              In February 1997, NLIC was named as a defendant in a lawsuit filed
              in New York Supreme Court related to the sale of whole life
              policies on a " vanishing premium" basis (John H. Snyder v.
              Nationwide Mutual Insurance Company and Nationwide Life Insurance
              Co.). In April 1998, NLIC was named as a defendant in a lawsuit
              filed in Ohio State Court similar to the Snyder lawsuit (David and
              Joan Mishler v. Nationwide Life Insurance Co.). In August 1998,
              Nationwide Mutual Insurance Company and NLIC and the plaintiffs
              executed a stipulation of settlement and submitted it to the New
              York Supreme Court for approval. On August 20, 1998, the Court in
              the Snyder lawsuit signed an order preliminarily approving a class
              for settlement purposes (which would include the Mishler lawsuit)
              and scheduled a fairness hearing for December 17, 1998. At that
              hearing, the Court reviewed the fairness and reasonableness of the
              proposed settlement and issued a final order and judgment. The
              approved settlement provides for the dismissal of the Snyder and
              Mishler lawsuits, bars class members from pursuing litigation
              against Nationwide Mutual Insurance Company and its affiliates,
              including the Company and its subsidiaries, relating to the
              allegations in the Snyder lawsuit, and provides class members with
              a potential value of approximately $100 million in policy
              adjustments, discounted premiums, and discounted products.

              In November 1997, two plaintiffs, one who was the owner of a
              variable life insurance contract and the other who was the owner
              of a variable annuity contract, commenced a lawsuit in a federal
              court in Texas against NLIC and the American Century group of
              defendants (Robert Young and David D. Distad v. Nationwide Life
              Insurance Company et al.). In this lawsuit, plaintiffs seek to
              represent a class of variable life insurance contract owners and
              variable annuity contract owners whom they claim were allegedly
              misled when purchasing these variable contracts into believing
              that the performance of their underlying mutual fund option
              managed by American Century, whose shares may only be purchased by
              insurance companies, would track the performance of a mutual fund,
              also managed by American Century, whose shares are publicly
              traded. The amended complaint seeks unspecified compensatory and
              punitive damages. On April 27, 1998, the District Court denied, in
              part, and granted, in part, motions to dismiss the complaint filed
              by NLIC and American Century. The remaining claims against NLIC
              allege securities fraud, common law fraud, civil conspiracy, and
              breach of contract. On December 2, 1998, the District Court issued
              an order denying plaintiffs' motion for class certification. On
              December 10, 1998, the District Court stayed the lawsuit pending
              plaintiffs' petition to the United States Court of Appeals for the
              Fifth Circuit for interlocutory review of the order denying class
              certification. On December 14, 1998 plaintiffs filed their
              petition for interlocutory review, on which the Fifth Circuit has
              not yet ruled. NLIC intends to defend the case vigorously.

              On October 29, 1998, the Company and certain of its affiliates
              were named in a lawsuit filed in the Common Pleas Court of
              Franklin County, Ohio 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). The plaintiff in such lawsuit
              seeks to represent a national class of the Company's customers and
              seeks unspecified compensatory and punitive damages. The Company
              is currently evaluating this lawsuit, which has not been certified
              as a class. The Company intends to defend this lawsuit vigorously.

              There can be no assurance that any litigation relating to pricing
              or sales practices 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.



                                       6
<PAGE>   7



                                     PART II

ITEM 5        MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER 
------        ------------------------------------------------------------ 
              MATTERS
              -------

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

              NLIC paid $100.0 million in dividends to NFS during 1998. No cash
              dividends were paid during 1997 and $50.0 million was paid to
              Nationwide Corp. during 1996.

              On January 1, 1997, NLIC paid a dividend valued at $485.7 million
              to Nationwide Corp. consisting of the outstanding shares of common
              stock of ELICW, NCC and WCLIC. Also, on February 24, 1997, NLIC
              paid a dividend to NFS, and NFS paid an equivalent dividend to
              Nationwide Corp., consisting of securities having an aggregate
              fair value of $850.0 million. The dividend payments were approved
              by the Department of Insurance of the State of Ohio.

              NLIC currently does not have a formal dividend policy.

              Reference is made to note 9 of the consolidated financial
              statements for information regarding dividend restrictions.

ITEM 6        SELECTED CONSOLIDATED FINANCIAL DATA
------        ------------------------------------

              Omitted due to reduced disclosure format.



                                       7
<PAGE>   8


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, 1998
              follows. This discussion should be read in conjunction with the
              consolidated financial statements and related notes included
              elsewhere in this report.

              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) Nationwide
              Corporation's control of the Company through its beneficial
              ownership of approximately 97.8% of the combined voting power of
              all the outstanding common stock and approximately 81.5% of the
              economic interest in the Company; (ii) the Company's primary
              reliance, as a holding company, on dividends from its subsidiaries
              to meet debt payment obligations and the applicable regulatory
              restrictions on the ability of the Company's subsidiaries to pay
              such dividends; (iii) the potential impact on the Company's
              reported net income that could result from the adoption of certain
              accounting standards issued by the FASB; (iv) tax law changes
              impacting the tax treatment of life insurance and investment
              products; (v) 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; (vi) adverse state and federal legislation and
              regulation, including limitations on premium levels, increases in
              minimum capital and reserves, and other financial viability
              requirements; (vii) failure to expand distribution channels in
              order to obtain new customers or failure to retain existing
              customers; (viii) inability to carry out marketing and sales
              plans, including, among others, changes to certain products and
              acceptance of the revised products in the market; (ix) changes in
              interest rates and the capital markets causing a reduction of
              investment income or asset fees, reduction in the value of the
              Company's investment portfolio or a reduction in the demand for
              the Company's products; (x) general economic and business
              conditions which are less favorable than expected; (xi)
              unanticipated changes in industry trends and ratings assigned by
              nationally recognized statistical rating organizations or A.M.
              Best Company, Inc.; (xii) inaccuracies in assumptions regarding
              future persistency, mortality, morbidity and interest rates used
              in calculating reserve amounts and (xiii) failure of the Company
              or its significant business partners and vendors to identify and
              correct all non-Year 2000 compliant systems or to develop and
              execute adequate contingency plans.

              RESULTS OF OPERATIONS

              In addition to net income, the Company reports net operating
              income, which excludes realized investment gains and losses and
              results of discontinued operations. Net operating income is
              commonly used in the insurance industry as a measure of on-going
              earnings performance.

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

<TABLE>
<CAPTION>
                 (in millions of dollars)                                  1998          1997          1996
                                                                           ----          ----          ----
                 <S>                                                      <C>           <C>           <C>   
                 Net income                                               $366.7        $279.7        $215.9
                 Realized gains on investments, net of tax                 (18.5)         (7.9)         (1.0)
                 Income from discontinued operations, net of tax              --            --         (11.3)
                                                                          ------        ------        ------
                   Net operating income                                   $348.2        $271.8        $203.6
                                                                          ======        ======        ======
</TABLE>



                                       8
<PAGE>   9


              Revenues

              Total revenues for 1998, excluding realized gains and losses on
              investments, increased to $2.45 billion compared to $2.21 billion
              for 1997 and $1.99 billion for 1996. Increases in policy charges
              and net investment income accounted for most of the growth.

              Policy charges include asset fees, which are primarily earned from
              separate account assets generated from sales of variable
              annuities; administration fees, which include fees charged per
              contract on a variety of the Company's products and premium loads
              on universal life insurance products; surrender fees, which are
              charged as a percentage of premiums withdrawn during a specified
              period of annuity and certain life insurance contracts; and cost
              of insurance charges earned on universal life insurance products.
              Policy charges for each of the last three years were as follows:

<TABLE>
<CAPTION>
                 (in millions of dollars)                                 1998          1997          1996
                                                                         ------        ------        ------
                 <S>                                                     <C>           <C>           <C>   
                 Asset fees                                              $494.7        $384.8        $275.5
                 Cost of insurance charges                                 88.8          68.5          53.2
                 Administrative fees                                       73.8          59.5          50.1
                 Surrender fees                                            41.6          32.4          22.1
                                                                         ------        ------        -----
                   Total policy charges                                  $698.9        $545.2        $400.9
                                                                         ======        ======        ======
</TABLE>

              The growth in asset fees reflects increases in total separate
              account assets of $13.2 billion, or 35%, in 1998 and $10.8
              billion, or 40%, in 1997. Record variable annuity sales and strong
              equity market performance in each of the last three years have
              resulted in separate account balances increasing 145% from $20.81
              billion at the beginning of 1996 to $50.94 billion at the end of
              1998.

              Cost of insurance charges are assessed as a percentage of 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 increase in cost of
              insurance charges is due primarily to growth in the net amount at
              risk related to individual variable universal life insurance
              reflecting expanded distribution and increased customer demand for
              variable life products. The net amount at risk related to
              individual variable universal life insurance grew to $14.95
              billion at the end of 1998 compared to $10.44 billion and $7.52
              billion at the end of 1997 and 1996, respectively.

              The growth in administrative fees is consistent with the increased
              number of annuity and life insurance contracts in force during
              1998 compared to the prior two years. Nearly all of the increase
              in surrender charges over the past two years is attributable to
              policyholder withdrawals in the Variable Annuities segment, and is
              driven by an overall increase in variable annuity policy reserves.

              Net investment income includes the gross investment income earned
              on investments supporting fixed annuities and certain life
              insurance products as well as the yield on the Company's general
              account invested assets which are not allocated to product
              segments. Net investment income grew from $1.36 billion and $1.41
              billion in 1996 and 1997, respectively, to $1.48 billion in 1998
              primarily due to increased invested assets to support growth in
              fixed annuity and life insurance policy reserves. Fixed annuity
              policy reserves, which include the fixed option of the Company's
              variable annuity products, increased $682.4 million in 1997 and
              $704.7 million in 1998 and were $14.90 billion as of year end
              1998. The growth in life insurance reserves was led by
              corporate-owned life insurance products, where fixed reserves
              increased $201.1 million in 1997 and $596.7 million in 1998. The
              increase in net investment income due to growth in invested assets
              was partially offset by declining investment yields in 1998 and
              1997 due to lower market interest rates.

              The $20.3 million and $10.6 million increases in other income
              during 1998 and 1997, respectively, were primarily attributable to
              growth in the Company's mutual fund operations.

              Realized gains and losses on investments 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.



                                       9
<PAGE>   10



              Benefits and Expenses

              Interest credited to policyholder account balances totaled $1.07
              billion in 1998 compared to $1.02 billion in 1997 and $982.3
              million in 1996 and principally relates to fixed annuity and
              corporate-owned life insurance products. The growth in interest
              credited reflects the increase in policy reserves previously
              discussed partially offset by reduced average crediting rates. The
              average crediting rate on fixed annuity policy reserves was 5.95%
              in 1998 compared to 6.12% and 6.30% in 1997 and 1996,
              respectively.

              Amortization of deferred policy acquisition costs (DAC) increased
              $47.3 million in 1998 and $33.8 million in 1997 principally due to
              the Variable Annuities segment, which accounted for $36.1 and
              $30.4 million of the increases as a result of strong sales growth
              in each of the last two years.

              Operating expenses were $419.7 million in 1998, a 9% increase from
              1997 operating expenses of $384.9 million. Operating expenses were
              $342.4 million in 1996. The increase reflects the growth in the
              number of annuity and life insurance contracts in-force and the
              related increase in administrative processing costs. Increased
              operating expenses in 1997 also reflect the cost of certain
              technology initiatives.

              Federal income tax expense was $190.4 million representing an
              effective tax rate of 34.2% for 1998. Federal income tax expense
              in 1997 and 1996 was $150.2 million and $110.9 million,
              respectively, representing effective rates of 34.9% and 35.2%.

              Year 2000

              The Company has developed and implemented a plan to address issues
              related to the Year 2000. The problem relates to many existing
              computer systems using only two digits to identify a year in a
              date field. These systems were designed and developed without
              considering the impact of the upcoming change in the century. If
              not corrected, many computer systems could fail or create
              erroneous results when processing information dated after December
              31, 1999. Like many organizations, the Company is required to
              renovate or replace many computer systems so that the systems will
              function properly after December 31, 1999.

              The Company has completed an inventory and assessment of all
              computer systems and has implemented a plan to renovate or replace
              all applications that were identified as not Year 2000 compliant.
              The Company has renovated all applications that required
              renovation. Testing of the renovated programs included running
              each application in a Year 2000 environment and was completed as
              planned during 1998. For applications being replaced, the Company
              had all replacement systems in place and functioning as planned by
              year-end 1998. Conversions of existing traditional life policies
              will continue through second quarter, 1999. In addition, the
              shareholder services system that support mutual fund products will
              be fully deployed in the first quarter of 1999.

              The Company has completed an inventory and assessment of all
              vendor products and has tested and certified that each vendor
              product is Year 2000 compliant. Any vendor products that could not
              be certified as Year 2000 compliant were replaced or eliminated in
              1998.

              The Company has also addressed issues associated with the exchange
              of electronic data with external organizations. The Company has
              completed an inventory and assessment of all business partners
              including electronic interfaces. Processes have been put in place
              and programs initiated to process data irrespective of the format
              by converting non-compliant data into a Year 2000 compliant
              format.

              Systems supporting the Company's infrastructure such as
              telecommunications, voice and networks will be compliant by March
              1999. The Company's assessment of Year 2000 issues has also
              included non-information technology systems with embedded computer
              chips. The Company's building systems such as fire, security, and
              elevators and escalators supporting facilities in Columbus, Ohio
              have been tested and are Year 2000 compliant.



                                       10
<PAGE>   11


              In addition to resolving internal Year 2000 readiness issues, the
              Company is surveying significant external organizations (business
              partners) to assess if they will be Year 2000 compliant and be in
              a position to do business in the Year 2000 and beyond.
              Specifically, the Company has contacted mutual fund organizations
              that provide funds for our variable annuity and life products. The
              same action will continue during the first quarter of 1999 with
              wholesale producers. The Company continues its efforts to identify
              external risk factors and is planning to develop contingency plans
              as part of its ongoing risk management strategy.

              Operating expenses in 1998 and 1997 include approximately $44.7
              million and $45.4 million, respectively, for technology projects,
              including costs related to Year 2000. The company anticipates
              spending approximately $5 million on Year 2000 activities in 1999.
              Management does not anticipate that the completion of Year 2000
              renovation and replacement activities will result in a reduction
              in operating expenses. Rather, personnel and resources currently
              allocated to Year 2000 issues will be assigned to other
              technology-related projects.

              Recently Issued Accounting Standards

              In June 1998, the FASB issued SFAS No. 133 - Accounting for
              Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
              establishes accounting and reporting standards for derivative
              instruments and for hedging activities. Contracts that contain
              embedded derivatives, such as certain insurance contracts, are
              also addressed by the Statement. SFAS 133 requires that an entity
              recognize all derivatives as either assets or liabilities in the
              statement of financial position and measure those instruments at
              fair value. The Statement is effective for fiscal years beginning
              after June 15, 1999. It may be implemented earlier provided
              adoption occurs as of the beginning of any fiscal quarter after
              issuance. The Company plans to adopt this Statement in first
              quarter 2000 and is currently evaluating the impact on results of
              operations and financial condition.

              In March 1998, The American Institute of Certified Public
              Accountant's Accounting Standards Executive Committee issued
              Statement of Position 98-1 - Accounting for the Costs of Computer
              Software Developed or Obtained for Internal Use (SOP 98-1). SOP
              98-1 provides guidance intended to standardize accounting
              practices for costs incurred to develop or obtain computer
              software for internal use. Specifically, SOP 98-1 provides
              guidance for determining whether computer software is for internal
              use and when costs incurred for internal use software are to be
              capitalized. SOP 98-1 is effective for financial statements for
              fiscal years beginning after December 15, 1998. The Company does
              not expect the adoption of SOP 98-1, which occurred on January 1,
              1999, to have a material impact on the Company's financial
              statements.


              Statutory Premiums and Deposits

              The Company sells its products through a broad distribution
              network comprised of wholesale and retail distribution channels.
              Wholesale distributors are unaffiliated entities that sell the
              Company's products to their own customer base and include
              independent broker/dealers, national and regional brokerage firms,
              pension plan administrators and financial institutions. Retail
              distributors are representatives of the Company who market
              products directly to a customer base identified by the Company and
              include exclusive sales representatives and Nationwide Insurance
              Enterprise insurance agents.



                                       11
<PAGE>   12




              Statutory premiums and deposits by distribution channel for each
              of the last three years are summarized as follows:

<TABLE>
<CAPTION>
                      (in millions of dollars)                        1998         1997         1996
                                                                      ----         ----         ----
                      <S>                                           <C>          <C>          <C>
                      Wholesale channels:
                        Independent broker/dealers                  $ 3,682.0    $ 3,699.1    $3,607.8
                        National and regional brokerage firms (1)       337.4           --          --
                        Financial institutions                        2,036.0      1,653.2       947.2
                        Pension plan administrators                   2,854.6      2,325.0     1,911.6
                        Life specialists                                645.7        195.0        20.0
                                                                    ---------    ---------    --------
                          Total wholesale channels                    9,555.7      7,872.3     6,486.6
                                                                    ---------    ---------    --------
                      Retail channels:
                        Exclusive retail sales representatives        2,327.9      1,862.1     1,528.0
                        Nationwide agents                               935.5        602.7       525.5
                                                                    ---------    ---------    --------
                          Total retail channels                       3,263.4      2,464.8     2,053.5
                                                                    ---------    ---------    --------
                      Total external premiums and  deposits          12,819.1     10,337.1     8,540.1
                                                                    ---------    ---------    --------
                      Nationwide Insurance Enterprise
                        employee and agent benefit plans                323.3        174.9       502.5
                                                                    ---------    ---------    --------
                      Total statutory premiums  and deposits        $13,142.4    $10,512.0    $9,042.6
                                                                    =========    =========    ========
</TABLE>

              (1)  Prior to 1998, national and regional brokerage firm sales
                   were included in independent broker/dealer sales.


              Excluding Nationwide Insurance Enterprise benefit plan sales, the
              Company achieved annual sales growth of 24%, 21%, and 29% in 1998,
              1997 and 1996, respectively.

              The Company's flagship products are marketed under The BEST of
              AMERICA(R) brand, and include individual and group variable
              annuities and variable life insurance. The BEST of AMERICA(R)
              products allow customers to choose from among 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 which 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. In addition, the Company utilizes an exclusive
              arrangement with the National Education Association (NEA) to
              market tax-qualified annuities under IRC 403(b) to NEA members.
              Variable annuities developed for the NEA members are sold under
              the NEA Valuebuilder brand.




                                       12
<PAGE>   13


              External statutory premiums and deposits by product are as
              follows:

<TABLE>
<CAPTION>
                 (in millions of dollars)                     1998           1997            1996
                                                              ----           ----            ----
                 <S>                                        <C>            <C>             <C>
                 The BEST of AMERICA(R) products:
                   Individual variable annuities            $ 4,661.1      $ 4,269.6       $3,801.5
                   Group variable annuities                   2,760.0        2,220.5        1,807.1
                   Variable universal life                      315.9          220.0          165.4
                 Private label annuities                      1,093.3        1,006.4          625.9
                 IRC Section 457 annuities                    2,155.3        1,716.5        1,425.8
                 The NEA Valuebuilder annuities                 172.6          145.6          102.2
                 Traditional/Universal life                     246.0          248.4          253.9
                 Corporate owned life insurance                 645.8          195.0           20.0
                 Other                                          769.1          315.1          338.3
                                                            ---------      ---------       --------
                                                            $12,819.1      $10,337.1       $8,540.1
                                                            =========      =========       ========
</TABLE>


              BUSINESS SEGMENTS

              The Company has three product segments: Variable Annuities, Fixed
              Annuities and Life Insurance. In addition, the Company reports
              certain other revenues and expenses in a Corporate and Other
              segment. All information set forth below relating to the Company's
              Variable Annuities segment excludes the fixed option under the
              Company's variable annuity contracts. Such information is included
              in the Company's Fixed Annuities segment.

              The following table summarizes operating income before federal
              income tax expense for the Company's business segments for each of
              the last three years.

<TABLE>
<CAPTION>
                 (in millions of dollars)                          1998          1997          1996
                                                                   ----          ----          ----
                 <S>                                               <C>           <C>          <C>
                 Operating income:
                   Variable annuities                              $218.4        $150.9       $  90.3
                   Fixed annuities                                  175.3         169.5         135.4
                   Life insurance                                    94.8          70.9          67.2
                   Corporate and other                               40.2          27.5          22.9
                                                                   ------        ------        ------
                                                                   $528.7        $418.8        $315.8
                                                                   ======        ======        ======
</TABLE>

              Variable Annuities

              The Variable Annuities segment consists of annuity contracts that
              provide the customer with the opportunity to invest in mutual
              funds managed by independent investment managers and the Company,
              with investment returns accumulating on a tax-deferred basis. The
              Company's variable annuity products consist almost entirely of
              flexible premium deferred variable annuity contracts.



                                       13
<PAGE>   14


              The following table summarizes certain selected financial data for
              the Company's Variable Annuities segment for the years indicated.

<TABLE>
<CAPTION>
              (in millions of dollars)                                       1998              1997             1996
                                                                             ----              ----             ----
              <S>                                                          <C>               <C>              <C>
              Income Statement Data:
              Revenues                                                     $   529.5         $   404.0        $   284.6
              Benefits and expenses                                            311.1             253.1            194.3
                                                                           ---------         ---------        ---------
              Operating income before federal income tax expense           $   218.4         $   150.9        $    90.3
                                                                           =========         =========        =========

              Other Data:
              Statutory premiums and deposits (1)                          $ 9,543.3         $ 7,535.8        $ 6,500.3
              Policy reserves as of year end                               $46,420.8         $34,486.7        $24,278.1
              Pre-tax operating income to average policy reserves               0.54%             0.51%            0.44%
</TABLE>

              ----------
              (1)  Statutory data have been derived from the Annual Statements
                   of the Company's life insurance subsidiaries, as filed with
                   insurance regulatory authorities and prepared in accordance
                   with statutory accounting practices.

              Variable Annuities segment revenues reflect a significant increase
              in policy charges, primarily asset fees, consistent with the
              growth in variable annuity policy reserves. Asset fees were $479.1
              million in 1998 up 29% from $370.2 million in 1997 and totaled
              $261.8 million in 1996. Asset fees are charged as a percentage of
              policy reserves which have increased substantially in the past
              three years as a result of steady premium growth and through
              market appreciation on investments underlying reserves. Variable
              annuity policy reserves grew $11.93 billion during 1998 reaching
              $46.42 billion as of year end 1998 compared to growth in 1997 of
              $10.21 billion and year end 1997 reserves of $34.49 billion.
              During 1996, policy reserves increased $7.52 billion.

              The Company has continued to achieve high sales growth through
              deeper penetration of existing distribution channels and the
              addition of new sales outlets. In addition, growing consumer
              acceptance of equity-based retirement savings products, a robust
              United States stock market and low interest rates have all
              combined to provide a very favorable environment for variable
              annuity sales. The Company's broad network of strong distribution
              relationships coupled with product innovation allowed the Company
              to maintain its ranking as the third largest seller of individual
              variable annuities in the United States during 1998. Company sales
              of all variable annuities increased 27% during 1998 to a record
              $9.54 billion compared to $7.54 billion in 1997. Variable annuity
              sales in 1997 represented a 16% increase over 1996 sales of $6.50
              billion.

              An example of the Company's ability to develop innovative products
              and to leverage its strong distributor relationships to maintain
              its competitive position is America's FUTURE Annuity. This
              individual variable annuity product was developed in late 1997 in
              partnership with distributors and offers the customer greater
              flexibility and investment choice with insurance charges lower
              than comparable products sold through the financial planning
              community. Sales of this product reached $2.4 billion during 1998,
              its first full year of availability.

              Although the equity markets were more volatile in 1998 than in the
              previous two years, equity market conditions over each of the past
              three years have contributed significantly to the growth in
              variable annuity policy reserves. Variable annuity policy reserves
              reflect market appreciation of $6.80 billion, $5.21 billion and
              $2.72 billion in 1998, 1997 and 1996, respectively.

              Increased variable annuity revenues were partially offset by
              increased amortization of DAC in 1998 compared to 1997 and 1996
              due to overall growth in the variable annuity business and by
              increased operating expenses.



                                       14
<PAGE>   15


              Operating expenses increased 15% during 1998 and 20% during 1997;
              however, the growth in expenses was far outpaced by the 31% and
              42% increases in revenues over those same periods. As a result,
              operating income as a percentage of reserves has improved to 0.54%
              in 1998 up 3 basis points from 1997 and up 10 basis points from
              1996. The Company has controlled operating expense growth by
              increasing productivity through investments in technology and
              economies of scale.

              Fixed Annuities

              The Fixed Annuities segment consists of annuity contracts that
              generate a return for the customer at a specified interest rate,
              fixed for a prescribed period, with returns accumulating on a
              tax-deferred basis. Such contracts consist of single premium
              deferred annuities, flexible premium deferred annuities and single
              premium immediate annuities. The Fixed Annuities segment includes
              the fixed option under the Company's variable annuity contracts.

              The following table summarizes certain selected financial data for
              the Company's Fixed Annuities segment for the years indicated.

<TABLE>
<CAPTION>
              (in millions of dollars)                                       1998              1997             1996
                                                                             ----              ----             ----
              <S>                                                          <C>               <C>             <C>
              Income Statement Data:
              Revenues:
                Net investment income                                      $ 1,116.6         $ 1,098.2        $ 1,050.6
                Other                                                           35.7              43.2             42.0
                                                                           ---------         ---------        ---------
                                                                             1,152.3           1,141.4          1,092.6
                                                                           ---------         ---------        ---------
              Benefits and expenses:
                Interest credited to policyholder account balances             828.6             823.4            805.0
                Other benefits and expenses                                    148.4             148.5            152.2
                                                                           ---------         ---------        ---------
                                                                               977.0             971.9            957.2
                                                                           ---------         ---------        ---------
              Operating income before federal income tax expense           $   175.3         $   169.5        $   135.4
                                                                           =========         =========        =========

              Other Data:
              Statutory premiums and deposits (1)                          $ 2,068.0         $ 2,137.9        $ 1,600.5
              Policy reserves as of year end                               $14,898.9         $14,194.2        $13,511.8
              Pre-tax operating income to average policy reserves               1.21%             1.22%            1.03%
</TABLE>
              ----------
              (1)  Statutory data have been derived from the Annual Statements
                   of the Company's life insurance subsidiaries, as filed with
                   insurance regulatory authorities and prepared in accordance
                   with statutory accounting practices.

              Fixed Annuities segment results reflect an increase in interest
              spread income attributable to growth in fixed annuity policy
              reserves and wider interest margins. Interest spread is the
              differential between net investment income and interest credited
              to policyholder account balances. Interest spreads vary depending
              on crediting rates offered by competitors, performance of the
              investment portfolio, changes in market interest rates and other
              factors. The following table depicts the interest margins on
              general account policy reserves in the Fixed Annuities segment for
              each of the last three years.

<TABLE>
<CAPTION>
                                                                  1998          1997          1996
                                                                  ----          ----          ----
                     <S>                                          <C>           <C>           <C>
                     Net investment income                        8.02%         8.16%         8.22%
                     Interest credited                            5.95          6.12          6.30
                                                                  ----          ----          ----
                                                                  2.07%         2.04%         1.92%
                                                                  ====          ====          ====
</TABLE>



                                       15
<PAGE>   16


              The declining interest rate environment has put pressure on
              interest margins when fixed income investments mature or prepay
              and are reinvested at lower rates; however, mortgage loan and bond
              prepayment income actually increased interest margins in 1998.
              Prepayment income added 8 additional basis points to the 1998
              interest margin compared to 1997. The Company expects 1999
              interest margins excluding prepayment income to return to
              historically normal levels of 190 to 195 basis points.

              The Company is able to mitigate the effects of lower investment
              yields by periodically resetting the rates credited on fixed
              annuity contracts. As of December 31, 1998, $7.17 billion, or 48%
              of fixed annuity policy reserves, were in contracts where the
              guaranteed interest rate is reestablished each quarter. Fixed
              annuity policy reserves of $5.29 billion are in contracts that
              adjust the crediting rate on an annual basis with portions
              resetting in each calendar quarter. The Company also has $1.36
              billion of fixed annuity policy reserves that call for the
              crediting rate to be reset annually on each January 1. The
              remaining $1.08 billion of fixed annuity policy reserves are in
              payout status where the Company has guaranteed periodic, typically
              monthly, payments.

              Fixed annuity policy reserves increased to $14.90 billion as of
              year-end compared to $14.19 billion a year ago and $13.51 billion
              as of the end of 1996. Fixed annuity sales during 1998 were $2.07
              billion, essentially even with 1997 sales of $2.14 billion,
              reflecting the low interest rate environment and customer
              preference for equity-linked products. Sales in 1996 were $1.60
              billion. The increase in sales in 1998 and 1997 over 1996 reflects
              the impact of first year bonus crediting rate programs for certain
              of the Company's variable annuity products. Such programs
              initially attract sales to the Fixed Annuities segment. Over the
              subsequent twelve months, the funds are then systematically
              transferred to variable investments. Most of the Company's fixed
              annuity sales are premiums allocated to the guaranteed fixed
              option of variable annuity contracts. Fixed annuity sales for 1998
              include $1.68 billion in premiums allocated to the fixed option
              under a variable annuity contract, compared to $1.67 billion in
              1997 and $1.24 billion in 1996.

              Results in 1996 were adversely impacted by a $13.0 million charge
              related to reserve strengthening for the immediate annuity line.

              Life Insurance

              The Life Insurance segment consists of insurance products,
              including variable universal life insurance and corporate-owned
              life insurance products, that provide a death benefit and also
              allow the customer to build cash value on a tax-deferred basis.



                                       16
<PAGE>   17


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

<TABLE>
<CAPTION>
              (in millions of dollars)                                        1998              1997             1996
                                                                              ----              ----             ----
              <S>                                                           <C>               <C>
              Income Statement Data:
              Revenues                                                      $  551.2          $  473.1         $  435.6
              Benefits and expenses                                            456.4             402.2            368.4
                                                                            --------          --------         --------
              Operating income before federal income tax expense            $   94.8          $   70.9         $   67.2
                                                                            ========          ========         ========

              Other Data:
              Statutory premiums (1):
                Traditional and universal life                              $  246.0          $  248.4         $  253.9
                Variable universal life                                        316.0             220.0            165.4
                Corporate-owned life                                           645.8             195.0             20.0
              Policy reserves as of year end:
                Traditional and universal life                               2,439.7           2,369.5          2,295.5
                Variable universal life                                      1,270.1             895.6            622.6
                Corporate-owned life                                           903.6             221.9             20.8
</TABLE>
              ----------
              (1)  Statutory data have been derived from the Annual Statements
                   of the Company's life insurance subsidiaries, as filed with
                   insurance regulatory authorities and prepared in accordance
                   with statutory accounting practices.

              The increase in Life Insurance segment earnings is attributable to
              strong growth in investment life insurance products, which include
              individual variable universal life insurance and corporate-owned
              life insurance, where the Company has aggressively expanded its
              distribution capabilities. Investment life premiums and deposits
              increased from $185.4 million in 1996 to $415.0 million in 1997 to
              $961.8 million in 1998. As a result of the sales growth and high
              persistency, revenues from investment life products increased to
              $150.4 million in 1998 from $71.9 million in 1997 and $45.5
              million in 1996. The Company believes there are growth
              opportunities for investment life products and in 1999 will be
              introducing new products and expanding distribution to new outlets
              to better penetrate these markets.

              The increase in benefits and expenses is composed primarily of
              increased interest credited to policyholders and increased
              operating expenses. Death claims and other policyholder benefits
              reflected modest growth during 1997 and 1998. Interest credited to
              policyholders increased $36.9 million in 1998 reaching $115.4
              million compared to $78.5 million a year ago. Interest credited to
              policyholders totaled $70.2 million in 1996. The increased
              corporate-owned life insurance business discussed previously
              accounted for most of the increases. Operating expenses grew to
              $101.7 million in 1998 compared to $94.5 million and $78.9 million
              in 1997 and 1996, respectively, reflecting the increased number of
              policies in-force as well as technology related expenditures.



                                       17
<PAGE>   18




              Corporate and Other

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

<TABLE>
<CAPTION>
              (in millions of dollars)                                         1998              1997             1996
                                                                               ----              ----             ----
              <S>                                                             <C>               <C>
              Income Statement Data:
              Revenues                                                        $214.3            $187.8           $180.4
              Benefits and expenses                                            174.1             160.3            157.5
                                                                              ------            ------           ------
              Operating income before federal income tax expense(1)           $ 40.2            $ 27.5           $ 22.9
                                                                              ======            ======           ======
</TABLE>
              ----------
              (1)  Excludes realized gains (losses) on investments and
                   discontinued operations.

              Revenues in the Corporate and Other segment consist of net
              investment income on invested assets not allocated to the three
              product segments, investment management fees and other revenues
              earned from Nationwide mutual funds other than the portion
              allocated to the Variable Annuities and Life Insurance segments
              and net investment income and policy charges from group annuity
              contracts issued to Nationwide Insurance Enterprise employee and
              agent benefit plans.


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 and 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% 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 1998. The average crediting rate of annuity
              products during 1998 was 5.95%, well in excess of the guaranteed
              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 backed securities
              with limited prepayment exposure.



                                       18
<PAGE>   19


              Conversely, a rising interest rate environment could result in a
              reduction of interest spread income or an increase in policyholder
              surrenders. Investments supporting annuity liabilities generally
              have a weighted average maturity of seven years when purchased 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 mortgage-backed 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 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. The
              Company's general account investments are primarily managed in a
              number of pools that are segregated by weighted average maturity
              of the assets acquired by the pools. 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 backed securities, repayments are determined
              using the current rate of repayment of the underlying mortgages
              and the terms of the securities. Each product line has an
              investment strategy based on its specific characteristics. The
              strategy establishes asset duration, quality and other guidelines.
              The Company determines the amount of new investments needed for
              each line to arrive at the amount of new investments needed for
              each pool by month. The investments acquired for each pool are
              shared on a proportional basis by each of the lines requesting
              investments in the pool based on their actual investment needs.

              For all business having future benefits which 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. On December 31, 1998, the average duration
              of assets in this pool was 7.5 years and the average duration of
              the liabilities was 7.8 years. Policy reserves on this business
              were $1.1 billion as of December 31, 1998.

              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. Annually, 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 under a number of possible future
              interest rate scenarios the anticipated cash flows from such
              business and the assets required to support such business. The
              first seven of these scenarios are required by the state insurance
              laws. Projections are also made using 13 additional scenarios
              which involve more extreme fluctuations in future interest rates.
              Finally, to get a statistical analysis of possible results and to
              minimize any bias in the 20 predetermined scenarios, additional
              projections are made using 50 randomly generated interest rate
              scenarios. For the Company's 1998 cash flow testing process,
              interest rates for 90-day treasury bills ranged from 0.7% to 9.5%
              under the 20 predetermined scenarios and 1.2% to 21.9% 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 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, 1998.


                                       19
<PAGE>   20


              CHARACTERISTICS OF INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS

              The following table provides information about the Company's
              financial instruments 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.

<TABLE>
<CAPTION>
                                                                                                There-                 Fair
(in millions of dollars)                 1999       2000       2001      2002        2003       after       Total      Value
-----------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
ASSETS
Fixed maturity securities:
   Corporate bonds:
     Principal                         $1,092.7   $1,049.2   $1,667.6   $1,386.3   $  882.7   $2,864.0   $ 8,942.5  $ 9,364.2
     Average interest rate                  8.0%       7.5%       7.3%       7.2%       7.0%       7.6%
   Mortgage and other asset-
     backed securities:
     Principal                         $  905.3   $  964.3   $  870.7   $  588.9   $  367.3   $  718.3   $ 4,414.8  $ 4,499.4
     Average interest rate                  7.3%       7.4%       7.2%       7.4%       7.4%       7.0%
   Other fixed maturity securities:
     Principal                         $    7.8   $   72.0   $   54.6   $  103.3   $   60.6   $   65.7   $   364.0  $   381.5
     Average interest rate                  8.5%       6.4%       7.0%       6.6%       6.9%       6.8%
Mortgage loans on real estate:
     Principal                         $  185.9   $  373.9   $  313.1   $  339.5   $  408.8   $3,749.6   $ 5,372.4  $ 5,527.6
     Average interest rate                  9.2%       9.3%       7.0%       8.5%       7.6%       7.1%

LIABILITIES
Deferred fixed annuities:
     Principal                         $1,639.6   $1,548.3   $1,733.7   $1,232.5   $1,169.6   $8,270.7   $15,594.4  $15,282.0
     Average credited rate                  5.2%       4.8%       4.5%       4.3%       4.1%       4.1%
Immediate annuities:
     Principal                         $   20.6   $   20.7   $   22.3   $   25.2   $   29.9   $   53.1   $   171.8  $   201.6
     Average credited rate                  7.3%       7.3%       7.3%       7.3%       7.4%       7.4%
</TABLE>

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

              Mortgage and other asset-backed securities (MBSs): The maturity
              year is determined based on the terms of the securities and the
              current rate of prepayment of the underlying pools of mortgages.
              The Company limits its exposure to prepayments by purchasing less
              volatile types of MBSs (see "Management's Discussion and Analysis
              of Financial Condition and Results of Operations - Investments -
              Fixed Maturity Securities").

              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.



                                       20
<PAGE>   21


              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 ($10.30 billion) which are
              generally subject to market value adjustment upon surrender and
              may also be subject to surrender charges. Of the total group
              annuity liabilities, $7.17 billion was in contracts where the
              crediting rate is reset quarterly. For the remaining $3.13 billion
              of group annuity reserves, the crediting rate is reset annually on
              January 1. Also included are $5.29 billion of individual annuity
              liabilities where the crediting rate is reset annually, with
              portions resetting in each calendar quarter. Such individual
              annuity contracts are also subject to surrender charges calculated
              as a percentage of the lesser of deposits made or the amount
              surrendered and assessed at declining rates during the first seven
              years after a deposit is made. The average crediting rate is
              calculated as the difference between the projected yield of the
              assets backing the liabilities and a targeted interest spread.

              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.

              EQUITY MARKET RISK

              Asset fees calculated as a percentage of the separate account
              assets are a significant source of revenue to the Company. At
              December 31, 1998, 86% 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 which may require
              the Company to accelerate the amortization of deferred policy
              acquisition costs.

ITEM 8        CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------        --------------------------------------------------------

              The consolidated financial statements of Nationwide Life Insurance
              Company and Subsidiaries are included in a separate section of
              this report which is indexed in Item 14 - Exhibits, Financial
              Statement Schedules, and Reports on Form 8-K.

              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.



                                       21

<PAGE>   22


                                    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
-------       --------------------------------------------------------------

              Omitted due to reduced disclosure format.


ITEM 13       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------       ----------------------------------------------

              Omitted due to reduced disclosure format.


                                     PART IV

ITEM 14       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-------       ----------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
              <S>                                                                                                    <C>
              CONSOLIDATED FINANCIAL STATEMENTS:
                Independent Auditors' Report                                                                           F-1 
                Consolidated Balance Sheets as of December 31, 1998 and 1997                                           F-2 
                Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996                 F-3
                Consolidated Statements of Shareholder's Equity for the years ended December 31, 1998,
                  1997 and 1996                                                                                        F-4
                Consolidated Statements of Cash Flows for the  years ended December 31, 1998, 1997
                  and 1996                                                                                             F-5
                Notes 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, 1998                                              F-28
                Schedule III   Supplementary Insurance Information as of December 31, 1998, 1997 and
                                 1996 and for each of the years then ended                                            F-29
                Schedule IV    Reinsurance as of December 31, 1998, 1997 and 1996 and for each of the
                                 years then ended                                                                     F-30
                Schedule V     Valuation and Qualifying Accounts for the years ended December 31,
                                 1998, 1997 and 1996                                                                  F-31

                  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                                                                                             25
</TABLE>



                                       22

<PAGE>   23



                                   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/ DIMON R. McFERSON
                                 -----------------------------------------------
                                 Dimon R. McFerson, Chairman and Chief Executive
                                 Officer - Nationwide Insurance Enterprise


Date: March 3, 1999



                                       23

<PAGE>   24





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.


<TABLE>
<S>                                           <C>               <C>                                               <C>
/s/ DIMON R. McFERSON                             3/3/99        /s/ JOSEPH J. GASPER                              2/9/99
---------------------------------------------     ------        ----------------------------------------------    ------
Dimon R. McFerson, Chairman and Chief              Date         Joseph J. Gasper, President and Chief              Date
Executive Officer - Nationwide Insurance                        Operating Officer and Director
Enterprise and Director



/s/ LEWIS J. ALPHIN                                3/2/99       /s/ A.I. BELL                                     3/2/99
---------------------------------------------      ------       ----------------------------------------------    ------
Lewis J. Alphin, Director                           Date        A.I. Bell, Director                                Date



/s/ KEITH W. ECKEL                                 3/2/99       /s/ WILLARD J. ENGEL                              3/2/99
---------------------------------------------      ------      -----------------------------------------------    ------
Keith W. Eckel, Director                            Date        Willard J. Engel, Director                         Date



/s/ FRED C. FINNEY                                 3/2/99       /s/ CHARLES L. FUELLGRAF, JR.                     3/2/99
---------------------------------------------      ------       ----------------------------------------------    ------
Fred C. Finney, Director                            Date        Charles L. Fuellgraf, Jr., Director                Date



/s/ DAVID O. MILLER                                3/2/99       /s/ YVONNE L. MONTGOMERY                          3/2/99
---------------------------------------------      ------       ---------------------------------------------     ------
David O. Miller, Director                           Date        Yvonne L. Montgomery, Director                     Date



/s/ JAMES F. PATTERSON                             3/2/99       /s/ ARDEN L. SHISLER                              3/2/99
---------------------------------------------      ------       --------------------------------------------      ------
James F. Patterson, Director                        Date        Arden L. Shisler, Director                         Date



/s/ ROBERT L. STEWART                              3/2/99       /s/ NANCY C. THOMAS                               3/2/99
---------------------------------------------      ------       --------------------------------------------      ------
Robert L. Stewart, Director                         Date        Nancy C. Thomas, Director                          Date



/s/ HAROLD W. WEIHL                                3/2/99       /s/ ROBERT A. OAKLEY                              2/9/99
---------------------------------------------      ------       --------------------------------------------      ------
Harold W. Weihl, Director                           Date        Robert A. Oakley, Executive Vice                   Date
                                                                President - Chief Financial Officer



/s/ MARK R. THRESHER                               2/9/99
---------------------------------------------      ------
Mark R. Thresher, Vice President -                  Date
Controller (Chief Accounting Officer)
</TABLE>



                                       24
<PAGE>   25


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit                                                                                  Page
 -------                                                                                  ----
<S>          <C>                                                                          <C>
   3.1       Amended Articles of Incorporation of Nationwide Life Insurance
             Company, dated March 14, 1986 (previously filed as Exhibit 3.1 to
             Form 10-K, Commission File Number 2-28596, filed March 31,1998, and
             incorporated herein by reference)

   3.2       Form of Amended and Restated Code of Regulations of Nationwide Life
             Insurance Company (previously filed as Exhibit 3 to Form 10-K,
             Commission File Number 2-28596, filed March 28, 1997, and
             incorporated herein by reference)

  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)

  10.2       Form of First Amendment to Cost Sharing Agreement among parties
             named therein (previously filed as Exhibit 10.2 to Form 10-K,
             Commission File Number 2-28596, filed March 28, 1997, and
             incorporated herein by reference)

  10.3       Modified Coinsurance Agreement between Nationwide Life Insurance
             Company and Nationwide Mutual Insurance Company (previously filed
             as Exhibit 10.3 to Form 10-K, Commission File Number 2-28596, filed
             March 28, 1997, and incorporated herein by reference)

  10.4       Modified Coinsurance Agreement between Employers Life Insurance
             Company of Wausau and Nationwide Life Insurance Company (previously
             filed as Exhibit 10.4 to Form 10-K, Commission File Number 2-28596,
             filed March 28, 1997, and incorporated herein by reference)

  10.5       Credit Facility, dated August 12, 1996, among Nationwide Life
             Insurance Company, Nationwide Mutual Insurance Company, the banks
             named therein and Morgan Guaranty Trust Company of New York, the
             administrative agent (previously filed as Exhibit 10.5 to Form
             10-K, Commission File Number 2-28596, filed March 28, 1997, and
             incorporated herein by reference)

  10.5.1     Amendment dated as of September 8, 1997 to the Credit Agreement
             dated as of August 12, 1996 among Nationwide Mutual Insurance
             Company, Nationwide Life Insurance Company, the banks party thereto
             and Morgan Guaranty Trust Company of New York, as administrative
             agent (previously filed as Exhibit 10(a) to Form 10-Q for the
             quarterly period ended September 30, 1997, Commission File Number
             1-12785, filed November 13, 1997, 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 10.6 to Form 10-K, Commission File Number 2-28596, filed
             March 28, 1997, and incorporated herein by reference)

  10.7       General Description of Nationwide Insurance Enterprise Executive
             Incentive Plan (previously filed as Exhibit 10.7 to Form 10-K,
             Commission File Number 2-28596, filed March 28, 1997, and
             incorporated herein by reference)

  10.8       General Description of Nationwide Insurance Enterprise Management
             Incentive Plan (previously filed as Exhibit 10.8 to Form 10-K,
             Commission File Number 2-28596, filed March 28, 1997, and
             incorporated herein by reference)

  10.9       Nationwide Insurance Enterprise Excess Benefit Plan effective as of
             December 31, 1996 (previously filed as Exhibit 10.9 to Form 10-K,
             Commission File Number 2-28596, filed March 28, 1997, and
             incorporated herein by reference)

  10.10      Nationwide Insurance Enterprise Supplemental Retirement Plan
             effective as of December 31, 1996 (previously filed as Exhibit
             10.10 to Form 10-K, Commission File Number 2-28596, filed March 28,
             1997, and incorporated herein by reference)
</TABLE>



                                       25
<PAGE>   26

<TABLE>
<CAPTION>
 Exhibit                                                                                  Page
 -------                                                                                  ----
<S>          <C>                                                                          <C>
  10.11      Nationwide Salaried Employees Severance Pay Plan (previously filed
             as Exhibit 10.11 to Form 10-K, Commission File Number 2-28596,
             filed March 28, 1997, and incorporated herein by reference)

  10.12      Nationwide Insurance Enterprise Supplemental Defined Contribution
             Plan effective as of January 1, 1996 (previously filed as Exhibit
             10.12 to Form 10-K, Commission File Number 2-28596, filed March 28,
             1997, and incorporated herein by reference)

  10.13      General Description of Nationwide Insurance Enterprise Individual
             Deferred Compensation Program previously filed as Exhibit 10.13 to
             Form 10-K, Commission File Number 2-28596, filed March 28, 1997,
             and incorporated herein by reference)

  10.14      General Description of Nationwide Mutual Insurance Company
             Directors Deferred Compensation Program (previously filed as
             Exhibit 10.14 to Form 10-K, Commission File Number 2-28596, filed
             March 28, 1997, and incorporated herein by reference)

  10.15      Deferred Compensation Agreement, dated as of September 3, 1979,
             between Nationwide Mutual Insurance Company and D. Richard McFerson
             (previously filed as Exhibit 10.15 to Form 10-K, Commission File
             Number 2-28596, filed March 28, 1997, and incorporated herein by
             reference)

  27         Financial Data Schedule (electronic filing only)
------
</TABLE>
            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.



                                       26
<PAGE>   27
                          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 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 generally accepted auditing
standards. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles. 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.





                                                                        KPMG LLP



Columbus, Ohio
January 29, 1999



                                      F-1

<PAGE>   28

<TABLE>
<CAPTION>
                     NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
             (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

                                 Consolidated Balance Sheets

                     (in millions of dollars, except per share amounts)


                                                                          December 31,
                                                                    -----------------------
                                        Assets                        1998          1997
                                        ------                      ---------     ---------
<S>                                                                 <C>           <C>
Investments:
  Securities available-for-sale, at fair value:
    Fixed maturity securities                                       $14,245.1     $13,204.1
    Equity securities                                                   127.2          80.4
  Mortgage loans on real estate, net                                  5,328.4       5,181.6
  Real estate, net                                                      243.6         311.4
  Policy loans                                                          464.3         415.3
  Other long-term investments                                            44.0          25.2
  Short-term investments                                                289.1         358.4
                                                                    ---------     ---------
                                                                     20,741.7      19,576.4
                                                                    ---------     ---------

Cash                                                                      3.4         175.6
Accrued investment income                                               218.7         210.5
Deferred policy acquisition costs                                     2,022.2       1,665.4
Other assets                                                            420.3         438.4
Assets held in separate accounts                                     50,935.8      37,724.4
                                                                    ---------     ---------
                                                                    $74,342.1     $59,790.7
                                                                    =========     =========

                         Liabilities and Shareholder's Equity
                         ------------------------------------
Future policy benefits and claims                                   $19,767.1     $18,702.8
Other liabilities                                                       866.1         885.6
Liabilities related to separate accounts                             50,935.8      37,724.4
                                                                    ---------     ---------
                                                                     71,569.0      57,312.8
                                                                    ---------     ---------

Commitments and contingencies (notes 7 and 12)

Shareholder's equity:
  Common stock, $1 par value.  Authorized 5.0 million shares;
    3.8 million shares issued and outstanding                             3.8           3.8
  Additional paid-in capital                                            914.7         914.7
  Retained earnings                                                   1,579.0       1,312.3
  Accumulated other comprehensive income                                275.6         247.1
                                                                    ---------     ---------
                                                                      2,773.1       2,477.9
                                                                    ---------     ---------
                                                                    $74,342.1     $59,790.7
                                                                    =========     =========
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-2

<PAGE>   29

<TABLE>
<CAPTION>
                                NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
                        (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

                                         Consolidated Statements of Income

                                             (in millions of dollars)


                                                                                    Years ended December 31,
                                                                              -----------------------------------
                                                                                 1998         1997        1996
                                                                              --------     --------     ---------
<S>                                                                           <C>          <C>          <C>
Revenues:
  Policy charges                                                              $  698.9     $  545.2     $  400.9
  Life insurance premiums                                                        200.0        205.4        198.6
  Net investment income                                                        1,481.6      1,409.2      1,357.8
  Realized gains (losses) on investments                                          28.4         11.1         (0.3)
  Other                                                                           66.8         46.5         35.9
                                                                              --------     --------     --------
                                                                               2,475.7      2,217.4      1,992.9
                                                                              --------     --------     --------
Benefits and expenses:
  Interest credited to policyholder account balances                           1,069.0      1,016.6        982.3
  Other benefits and claims                                                      175.8        178.2        178.3
  Policyholder dividends on participating policies                                39.6         40.6         41.0
  Amortization of deferred policy acquisition costs                              214.5        167.2        133.4
  Other operating expenses                                                       419.7        384.9        342.4
                                                                              --------     --------     --------
                                                                               1,918.6      1,787.5      1,677.4
                                                                              --------     --------     --------

    Income from continuing operations before federal income tax expense          557.1        429.9        315.5

Federal income tax expense                                                       190.4        150.2        110.9
                                                                              --------     --------     --------

    Income from continuing operations                                            366.7        279.7        204.6

Income from discontinued operations (less federal income tax expense
  of $4.5 in 1996)                                                                --           --           11.3
                                                                              --------     --------     --------

    Net income                                                                $  366.7     $  279.7     $  215.9
                                                                              ========     ========     ========
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-3

<PAGE>   30

<TABLE>
<CAPTION>
                             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, 1998, 1997 and 1996
                                         (in millions of dollars)


                                                                                  Accumulated
                                                         Additional                  other         Total
                                              Common      paid-in      Retained  comprehensive  shareholder's
                                              stock       capital      earnings      income        equity
                                              -----       -------      --------      ------        ------
<S>                                           <C>        <C>          <C>           <C>          <C>     
December 31, 1995                             $  3.8     $ 657.2      $1,583.2      $ 384.3      $2,628.5

Comprehensive income:
    Net income                                  --          --           215.9         --           215.9
    Net unrealized losses on securities
      available-for-sale arising during
      the year                                  --          --            --         (170.9)       (170.9)
                                                                                                 --------
  Total comprehensive income                                                                         45.0
                                                                                                 --------
Dividends to shareholder                        --        (129.3)       (366.5)       (39.8)       (535.6)
                                              ------     -------      --------      -------      --------
December 31, 1996                                3.8       527.9       1,432.6        173.6       2,137.9

Comprehensive income:
    Net income                                  --          --           279.7         --           279.7
    Net unrealized gains on securities
      available-for-sale arising during
      the year                                  --          --            --           73.5          73.5
                                                                                                 --------
  Total comprehensive income                                                                        353.2
                                                                                                 --------
Capital contribution                            --         836.8          --           --           836.8
Dividend to shareholder                         --        (450.0)       (400.0)        --          (850.0)
                                              ------     -------      --------      -------      --------
December 31, 1997                                3.8       914.7       1,312.3        247.1       2,477.9

Comprehensive income:
    Net income                                  --          --           366.7         --           366.7
    Net unrealized gains on securities
      available-for-sale arising during
      the year                                  --          --            --           28.5          28.5
                                                                                                 --------
  Total comprehensive income                                                                        395.2
                                                                                                 --------
Dividend to shareholder                         --          --          (100.0)        --          (100.0)
                                              ------     -------      --------      -------      --------
December 31, 1998                             $  3.8     $ 914.7      $1,579.0      $ 275.6      $2,773.1
                                              ======     =======      ========      =======      ========

</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-4


<PAGE>   31

<TABLE>
<CAPTION>

                                     NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
                            (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

                                           Consolidated Statements of Cash Flows

                                                  (in millions of dollars)


                                                                                           Years ended December 31,
                                                                                   ---------------------------------------
                                                                                     1998           1997            1996
                                                                                   ---------      ---------      ---------
<S>                                                                                <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                                       $   366.7      $   279.7      $   215.9
  Adjustments to reconcile net income to net cash provided by operating
    activities:
      Interest credited to policyholder account balances                             1,069.0        1,016.6          982.3
      Capitalization of deferred policy acquisition costs                             (584.2)        (487.9)        (422.6)
      Amortization of deferred policy acquisition costs                                214.5          167.2          133.4
      Amortization and depreciation                                                     (8.5)          (2.0)           7.0
      Realized gains on invested assets, net                                           (28.4)         (11.1)          (0.3)
      (Increase) decrease in accrued investment income                                  (8.2)          (0.3)           2.8
      (Increase) decrease in other assets                                               16.4          (12.7)         (38.9)
      Decrease in policy liabilities                                                    (8.3)         (23.1)        (151.0)
      (Decrease) increase in other liabilities                                         (34.8)         230.6          191.4
      Other, net                                                                       (11.3)         (10.9)         (61.7)
                                                                                   ---------      ---------      ---------
        Net cash provided by operating activities                                      982.9        1,146.1          858.3
                                                                                   ---------      ---------      ---------

Cash flows from investing activities:
  Proceeds from maturity of securities available-for-sale                            1,557.0          993.4        1,162.8
  Proceeds from sale of securities available-for-sale                                  610.5          574.5          299.6
  Proceeds from repayments of mortgage loans on real estate                            678.2          437.3          309.0
  Proceeds from sale of real estate                                                    103.8           34.8           18.5
  Proceeds from repayments of policy loans and sale of other invested assets            23.6           22.7           22.8
  Cost of securities available-for-sale acquired                                    (3,182.8)      (2,828.1)      (1,573.6)
  Cost of mortgage loans on real estate acquired                                      (829.1)        (752.2)        (972.8)
  Cost of real estate acquired                                                          (0.8)         (24.9)          (7.9)
  Policy loans issued and other invested assets acquired                               (88.4)         (62.5)         (57.7)
  Short-term investments, net                                                           69.3         (354.8)          28.0
                                                                                   ---------      ---------      ---------
        Net cash used in investing activities                                       (1,058.7)      (1,959.8)        (771.3)
                                                                                   ---------      ---------      ---------

Cash flows from financing activities:
  Proceeds from capital contributions                                                   --            836.8           --
  Cash dividends paid                                                                 (100.0)          --            (50.0)
  Increase in investment product and universal life insurance
    product account balances                                                         2,682.1        2,488.5        1,781.8
  Decrease in investment product and universal life insurance
    product account balances                                                        (2,678.5)      (2,379.8)      (1,784.5)
                                                                                   ---------      ---------      ---------
        Net cash (used in) provided by financing activities                            (96.4)         945.5          (52.7)
                                                                                   ---------      ---------      ---------
Net (decrease) increase in cash                                                       (172.2)         131.8           34.3

Cash, beginning of year                                                                175.6           43.8            9.5
                                                                                   ---------      ---------      ---------
Cash, end of year                                                                  $     3.4      $   175.6      $    43.8
                                                                                   =========      =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-5

<PAGE>   32


               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

                   Notes to Consolidated Financial Statements

                        December 31, 1998, 1997 and 1996



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

         Prior to January 27, 1997, Nationwide Life Insurance Company (NLIC) was
         wholly owned by Nationwide Corporation (Nationwide Corp.). On that
         date, Nationwide Corp. contributed the outstanding shares of NLIC's
         common stock to Nationwide Financial Services, Inc. (NFS), a holding
         company formed by Nationwide Corp. in November 1996 for NLIC and the
         other companies within the Nationwide Insurance Enterprise that offer
         or distribute long-term savings and retirement products. On March 11,
         1997, NFS completed an initial public offering of its Class A common
         stock.

         During 1996 and 1997, Nationwide Corp. and NFS completed certain
         transactions in anticipation of the initial public offering that
         focused the business of NFS on long-term savings and retirement
         products. On September 24, 1996, NLIC declared a dividend payable to
         Nationwide Corp. on January 1, 1997 consisting of the outstanding
         shares of common stock of certain subsidiaries that do not offer or
         distribute long-term savings or retirement products. In addition,
         during 1996, NLIC entered into two reinsurance agreements whereby all
         of NLIC's accident and health and group life insurance business was
         ceded to two affiliates effective January 1, 1996. These subsidiaries,
         through December 31, 1996, and all accident and health and group life
         insurance business have been accounted for as discontinued operations
         for all periods presented. See notes 10 and 14. Additionally, NLIC paid
         $900.0 million of dividends, $50.0 million to Nationwide Corp. on
         December 31, 1996 and $850.0 million to NFS, which then made an
         equivalent dividend to Nationwide Corp., on February 24, 1997.

         NFS contributed $836.8 million to the capital of NLIC during March
         1997.

         Wholly owned subsidiaries of NLIC include Nationwide Life and Annuity
         Insurance Company (NLAIC), Nationwide Advisory Services, Inc.,
         Nationwide Investment Services Corporation and NWE, Inc. NLIC and its
         subsidiaries are collectively referred to as "the Company."

         The Company is a leading provider of long-term savings and retirement
         products, including variable annuities, fixed annuities and life
         insurance.

(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 generally accepted accounting principles, which differ
         from statutory accounting practices prescribed or permitted by
         regulatory authorities. Annual Statements for NLIC and NLAIC, filed
         with the Department of Insurance of the State of Ohio (the Department),
         are prepared on the basis of accounting practices prescribed or
         permitted by the Department. Prescribed statutory accounting practices
         include a variety of publications of the National Association of
         Insurance Commissioners (NAIC), as well as state laws, regulations and
         general administrative rules. Permitted statutory accounting practices
         encompass all accounting practices not so prescribed. The Company has
         no material permitted statutory accounting practices.



                                      F-6

<PAGE>   33


               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         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, valuation allowances for mortgage
         loans on real estate and real estate investments and the liability for
         future policy benefits and claims. Although some variability is
         inherent in these estimates, management believes the amounts provided
         are adequate.

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

              The consolidated financial statements include the accounts of NLIC
              and its wholly owned subsidiaries. Operations that are classified
              and reported as discontinued operations are not consolidated but
              rather are reported as "Income from discontinued operations" in
              the accompanying consolidated statements of income. All
              significant intercompany balances and transactions have been
              eliminated.

         (b)  Valuation of Investments 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. Fixed maturity securities are
              classified as held-to-maturity when the Company has the positive
              intent and ability to hold the securities to maturity and are
              stated at amortized cost. Fixed maturity securities not classified
              as held-to-maturity and all equity securities are classified as
              available-for-sale and are stated at fair value, with the
              unrealized gains and losses, net of adjustments to deferred policy
              acquisition costs and deferred federal income tax, reported as a
              separate component of shareholder's equity. The adjustment to
              deferred policy acquisition costs represents the change in
              amortization of deferred policy acquisition costs that would have
              been required as a charge or credit to operations had such
              unrealized amounts been realized. The Company has no fixed
              maturity securities classified as held-to-maturity or trading as
              of December 31, 1998 or 1997.

              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. The measurement of impaired
              loans is based on the present value of expected future cash flows
              discounted at the loan's effective interest rate or, as a
              practical expedient, at the fair value of the collateral, if the
              loan is collateral dependent. Loans in foreclosure and loans
              considered to be impaired are placed on non-accrual status.
              Interest received on non-accrual status mortgage loans on real
              estate is included in interest income in the period received.

              Real estate is carried at cost less accumulated depreciation and
              valuation allowances. Other long-term investments are carried on
              the equity basis, adjusted for valuation allowances. 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.

              Realized gains and losses on the sale of investments are
              determined on the basis of specific security identification.
              Estimates for valuation allowances and other than temporary
              declines are included in realized gains and losses on investments.



                                      F-7

<PAGE>   34

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         (c)  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. Policy
              benefits and claims that are charged to expense include interest
              credited to policy account balances and benefits and claims
              incurred in the period in excess of related policy account
              balances.

              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.

         (d)  Deferred Policy Acquisition Costs
              ---------------------------------

              The costs of acquiring new business, principally commissions,
              certain expenses of the policy issue and underwriting department
              and certain variable sales expenses have been deferred. For
              investment products and universal life insurance products,
              deferred policy acquisition costs are 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. For years in which gross profits are negative,
              deferred policy acquisition costs are amortized based on the
              present value of gross revenues. For traditional life insurance
              products, these deferred policy acquisition costs are
              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 was estimated using the
              same assumptions as were used for computing liabilities for future
              policy benefits. Deferred policy acquisition costs are adjusted to
              reflect the impact of unrealized gains and losses on fixed
              maturity securities available-for-sale as described in note 2(b).

         (e)  Separate Accounts
              -----------------

              Separate account assets and liabilities represent contractholders'
              funds which have been segregated into accounts with specific
              investment objectives. For all but $743.9 million of separate
              account assets, the investment income and gains or losses of these
              accounts accrue directly to the contractholders. 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.

         (f)  Future Policy Benefits
              ----------------------

              Future policy benefits for investment products in the accumulation
              phase, universal life insurance and variable universal life
              insurance policies have been calculated based on participants'
              contributions plus interest credited less applicable contract
              charges. The average interest rate credited on investment product
              policy reserves was 6.0%, 6.1% and 6.3% for the years ended
              December 31, 1998, 1997 and 1996, respectively.

              Future policy benefits for traditional life insurance policies
              have 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, rather than the assumptions prescribed by state regulatory
              authorities.



                                      F-8

<PAGE>   35

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         (g)  Participating Business
              ----------------------

              Participating business represents approximately 40% in 1998 (50%
              in 1997 and 52% in 1996) of the Company's life insurance in force,
              74% in 1998 (77% in 1997 and 78% in 1996) of the number of life
              insurance policies in force, and 14% in 1998 (27% in 1997 and 40%
              in 1996) of life insurance statutory premiums. The provision for
              policyholder dividends is based on current dividend scales and is
              included in "Future policy benefits and claims" in the
              accompanying consolidated balance sheets.

         (h)  Federal Income Tax
              ------------------
 
              The Company files a consolidated federal income tax return with
              Nationwide Mutual Insurance Company (NMIC), the majority
              shareholder of Nationwide Corp. The members of the consolidated
              tax return group have a tax sharing arrangement which provides, in
              effect, for each member to bear essentially the same federal
              income tax liability as if separate tax returns were filed.

              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.

         (i)  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. All of the Company's accident
              and health and group life insurance business is ceded to
              affiliates and is accounted for as discontinued operations. See
              notes 10 and 14.




                                      F-9

<PAGE>   36

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



(j)           Recently Issued Accounting Pronouncements
              -----------------------------------------

              On January 1, 1998 the Company adopted SFAS No. 131 - Disclosures
              about Segments of an Enterprise and Related Information (SFAS
              131). SFAS 131 supersedes SFAS No. 14 - Financial Reporting for
              Segments of a Business Enterprise. SFAS 131 establishes standards
              for public business enterprises to report information about
              operating segments in annual financial statements and selected
              information about operating segments in interim financial reports.
              SFAS 131 also establishes standards for related disclosures about
              products and services, geographic areas, and major customers. The
              adoption of SFAS 131 did not affect results of operations or
              financial position, nor did it affect the manner in which the
              Company defines its operating segments. The segment information
              required for annual financial statements is included in note 13.

              On January 1, 1998, the Company adopted SFAS No. 132 - Employers'
              Disclosures about Pensions and Other Postretirement Benefits (SFAS
              132). SFAS 132 revises employers' disclosures about pension and
              other postretirement benefit plans. The Statement does not change
              the measurement or recognition of benefit plans in the financial
              statements. The revised disclosures required by SFAS 132 are
              included in note 8.

              In June 1998, the FASB issued SFAS No. 133 - Accounting for
              Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133
              establishes accounting and reporting standards for derivative
              instruments and for hedging activities. Contracts that contain
              embedded derivatives, such as certain insurance contracts, are
              also addressed by the Statement. SFAS 133 requires that an entity
              recognize all derivatives as either assets or liabilities in the
              statement of financial position and measure those instruments at
              fair value. The Statement is effective for fiscal years beginning
              after June 15, 1999. It may be implemented earlier provided
              adoption occurs as of the beginning of any fiscal quarter after
              issuance. The Company plans to adopt this Statement in first
              quarter 2000 and is currently evaluating the impact on results of
              operations and financial condition.

              In March 1998, The American Institute of Certified Public
              Accountant's Accounting Standards Executive Committee issued
              Statement of Position 98-1 - Accounting for the Costs of Computer
              Software Developed or Obtained for Internal Use (SOP 98-1). SOP
              98-1 provides guidance intended to standardize accounting
              practices for costs incurred to develop or obtain computer
              software for internal use. Specifically, SOP 98-1 provides
              guidance for determining whether computer software is for internal
              use and when costs incurred for internal use software are to be
              capitalized. SOP 98-1 is effective for financial statements for
              fiscal years beginning after December 15, 1998. The Company does
              not expect the adoption of SOP 98-1, which occurred on January 1,
              1999, to have a material impact on the Company's financial
              statements.


         (k)  Reclassification
              ----------------

              Certain items in the 1997 and 1996 consolidated financial
              statements have been reclassified to conform to the 1998
              presentation.



                                      F-10

<PAGE>   37

               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, 1998 and
         1997 were:

<TABLE>
<CAPTION>
                                                                                     Gross         Gross
                                                                     Amortized     unrealized    unrealized     Estimated
             (in millions of dollars)                                  cost           gains        losses       fair value
             ------------------------                                  ----           -----        ------       ----------
             <S>                                                     <C>             <C>           <C>          <C>
             December 31, 1998:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of U.S.
                   government corporations and agencies              $   255.9       $ 13.0        $   --        $   268.9
                 Obligations of states and political subdivisions          1.6           --            --              1.6
                 Debt securities issued by foreign governments           106.5          4.5            --            111.0
                 Corporate securities                                  9,899.6        423.2         (18.7)        10,304.1
                 Mortgage-backed securities                            3,457.7        104.2          (2.4)         3,559.5
                                                                     ---------       ------        ------        ---------
                     Total fixed maturity securities                  13,721.3        544.9         (21.1)        14,245.1
               Equity securities                                         110.4         18.3          (1.5)           127.2
                                                                     ---------       ------        ------        ---------
                                                                     $13,831.7       $563.2        $(22.6)       $14,372.3
                                                                     =========       ======        ======        =========

             December 31, 1997:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of U.S.
                   government corporations and agencies              $   305.1       $  8.6        $   --        $   313.7
                 Obligations of states and political subdivisions          1.6           --           --               1.6
                 Debt securities issued by foreign governments            93.3          2.7          (0.2)            95.8
                 Corporate securities                                  8,698.7        355.5         (11.5)         9,042.7
                 Mortgage-backed securities                            3,634.2        118.6          (2.5)         3,750.3
                                                                     ---------       ------        ------        ---------
                     Total fixed maturity securities                  12,732.9        485.4         (14.2)        13,204.1
               Equity securities                                          67.8         12.9          (0.3)            80.4
                                                                     ---------       ------        ------        ---------
                                                                     $12,800.7       $498.3        $(14.5)       $13,284.5
                                                                     =========       ======        ======        =========
</TABLE>

         As of December 31, 1998 the Company had entered into S&P 500 futures
         contracts with a notional amount of $20.0 million to reduce the risk of
         changes in the fair market value of certain investments classified as
         equity securities. These contracts had an unrealized loss of $1.3
         million as of December 31, 1998 which is included in the recorded
         amount of the equity securities and in accumulated other comprehensive
         income, net of tax, similar to other unrealized gains and losses on
         securities available-for-sale.



                                      F-11

<PAGE>   38

               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, 1998, 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.

<TABLE>
<CAPTION>
                                                                                   Amortized        Estimated
             (in millions of dollars)                                                 cost          fair value
                                                                                      ----          ----------
             <S>                                                                    <C>              <C>
             Fixed maturity securities available for sale:
               Due in one year or less                                              $ 2,019.9        $ 2,048.0
               Due after one year through five years                                  8,169.1          8,470.6
               Due after five years through ten years                                 2,795.0          2,927.7
               Due after ten years                                                      737.3            798.8
                                                                                    ---------        ---------
                                                                                    $13,721.3        $14,245.1
                                                                                    =========        =========
</TABLE>

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

<TABLE>
<CAPTION>
             (in millions of dollars)                                                1998          1997
                                                                                     ----          ----
             <S>                                                                    <C>           <C>
             Gross unrealized gains                                                 $ 540.6       $ 483.8
             Adjustment to deferred policy acquisition costs                         (116.6)       (103.7)
             Deferred federal income tax                                             (148.4)       (133.0)
                                                                                    -------       -------
                                                                                    $ 275.6       $ 247.1
                                                                                    =======       =======
</TABLE>

         An analysis of the change in gross unrealized gains (losses) on
         securities available-for-sale and fixed maturity securities
         held-to-maturity follows for the years ended December 31:

<TABLE>
<CAPTION>
             (in millions of dollars)                                         1998          1997          1996
                                                                              ----          ----          ----
             <S>                                                              <C>          <C>          <C>
             Securities available-for-sale:
               Fixed maturity securities                                      $52.6        $137.5       $(289.2)
               Equity securities                                                4.2          (2.7)          8.9
                                                                              -----        ------       -------
                                                                              $56.8        $134.8       $(280.3)
                                                                              =====        ======       =======
</TABLE>

         Proceeds from the sale of securities available-for-sale during 1998,
         1997 and 1996 were $610.5 million, $574.5 million and $299.6 million,
         respectively. During 1998, gross gains of $9.0 million ($9.9 million
         and $6.6 million in 1997 and 1996, respectively) and gross losses of
         $7.6 million ($18.0 million and $6.9 million in 1997 and 1996,
         respectively) were realized on those sales. In addition, gross gains of
         $15.1 million and gross losses of $0.7 million were realized in 1997
         when the Company paid a dividend to NFS, which then made an equivalent
         dividend to Nationwide Corp., consisting of securities having an
         aggregate fair value of $850.0 million.

         The recorded investment of mortgage loans on real estate considered to
         be impaired as of December 31, 1998 was $3.7 million. No valuation
         allowance has been recorded for these loans as of December 31, 1998.
         The recorded investment of mortgage loans on real estate considered to
         be impaired as of December 31, 1997 was $19.9 million which includes
         $3.9 million of impaired mortgage loans on real estate for which the
         related valuation allowance was $0.1 million and $16.0 million of
         impaired mortgage loans on real estate for which there was no valuation
         allowance. During 1998, the average recorded investment in impaired
         mortgage loans on real estate was approximately $9.1 million ($31.8
         million in 1997) and interest income recognized on those loans was $0.3
         million ($1.0 million in 1997), which is equal to interest income
         recognized using a cash-basis method of income recognition.



                                      F-12

<PAGE>   39

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         Activity in the valuation allowance account for mortgage loans on real
         estate is summarized for the years ended December 31:

<TABLE>
<CAPTION>
             (in millions of dollars)                                                1998          1997
                                                                                     ----          ----
             <S>                                                                     <C>           <C>
             Allowance, beginning of year                                            $42.5         $51.0
               Reductions credited to operations                                      (0.1)         (1.2)
               Direct write-downs charged against the allowance                         --          (7.3)
                                                                                     -----         -----
             Allowance, end of year                                                  $42.4         $42.5
                                                                                     =====         =====
</TABLE>

         Real estate is presented at cost less accumulated depreciation of $21.5
         million as of December 31, 1998 ($45.1 million as of December 31, 1997)
         and valuation allowances of $5.4 million as of December 31, 1998 ($11.1
         million as of December 31, 1997).

         Investments that were non-income producing for the twelve month period
         preceding December 31, 1998 amounted to $42.4 million ($19.4 million
         for 1997) and consisted of $32.7 million ($3.0 million in 1997) in
         securities available-for-sale and $9.7 million ($16.4 million in 1997)
         in real estate.

         An analysis of investment income by investment type follows for the
         years ended December 31:

<TABLE>
<CAPTION>
             (in millions of dollars)                                      1998            1997           1996
                                                                           ----            ----           ----
             <S>                                                          <C>             <C>            <C>
             Gross investment income:
               Securities available-for-sale:
                 Fixed maturity securities                                $  982.5        $  911.6       $  917.1
                 Equity securities                                             0.8             0.8            1.3
               Mortgage loans on real estate                                 458.9           457.7          432.8
               Real estate                                                    40.4            42.9           44.3
               Short-term investments                                         17.8            22.7            4.2
               Other                                                          30.7            21.0            4.0
                                                                          --------        --------       --------
                   Total investment income                                 1,531.1         1,456.7        1,403.7
             Less investment expenses                                         49.5            47.5           45.9
                                                                          --------        --------       --------
                   Net investment income                                  $1,481.6        $1,409.2       $1,357.8
                                                                          ========        ========       ========
</TABLE>

         An analysis of realized gains (losses) on investments, net of valuation
         allowances, by investment type follows for the years ended December 31:

<TABLE>
<CAPTION>
             (in millions of dollars)                                        1998            1997           1996
                                                                             ----            ----           ----
             <S>                                                            <C>             <C>            <C>
             Securities available-for-sale:
               Fixed maturity securities                                    $(0.7)          $ 3.6          $(3.5)
               Equity securities                                              2.1             2.7            3.2
             Mortgage loans on real estate                                    3.9             1.6           (4.1)
             Real estate and other                                           23.1             3.2            4.1
                                                                            -----           -----          -----
                                                                            $28.4           $11.1          $(0.3)
                                                                            =====           =====          =====
</TABLE>

         Fixed maturity securities with an amortized cost of $6.5 million and
         $6.2 million as of December 31, 1998 and 1997, respectively, were on
         deposit with various regulatory agencies as required by law.



                                      F-13

<PAGE>   40

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



(4)      Federal Income Tax
         ------------------

         The Company's current federal income tax liability was $72.8 million
         and $60.1 million as of December 31, 1998 and 1997, respectively.

         The tax effects of temporary differences that give rise to significant
         components of the net deferred tax liability as of December 31, 1998
         and 1997 are as follows:

<TABLE>
<CAPTION>
             (in millions of dollars)                                        1998            1997
                                                                             ----            ----
             <S>                                                            <C>             <C>
             Deferred tax assets:
               Future policy benefits                                       $207.7          $200.1
               Liabilities in Separate Accounts                              319.9           242.0
               Mortgage loans on real estate and real estate                  17.5            19.0
               Other assets and other liabilities                             58.9            59.2
                                                                            ------          ------
                 Total gross deferred tax assets                             604.0           520.3
                 Less valuation allowance                                     (7.0)           (7.0)
                                                                            ------          ------
                 Net deferred tax assets                                     597.0           513.3
                                                                            ------          ------

             Deferred tax liabilities:
               Deferred policy acquisition costs                             568.7           480.5
               Fixed maturity securities                                     212.2           193.3
               Deferred tax on realized investment gains                      34.8            40.1
               Equity securities and other long-term investments               9.6             7.5
               Other                                                          21.6            22.2
                                                                            ------          ------
                 Total gross deferred tax liabilities                        846.9           743.6
                                                                            ------          ------
                 Net deferred tax liability                                 $249.9          $230.3
                                                                            ======          ======
</TABLE>

         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. Nearly all future
         deductible amounts can be offset by future taxable amounts or recovery
         of federal income tax paid within the statutory carryback period. There
         has been no change in the valuation allowance for the years ended
         December 31, 1998, 1997 and 1996.

         Federal income tax expense attributable to income from continuing
         operations for the years ended December 31 was as follows:

<TABLE>
<CAPTION>
           (in millions of dollars)                                   1998            1997            1996
                                                                      ----            ----            ----
           <S>                                                       <C>             <C>             <C>
           Currently payable                                         $186.1          $121.7          $116.5
           Deferred tax expense (benefit)                               4.3            28.5            (5.6)
                                                                     ------          ------          ------
                                                                     $190.4          $150.2          $110.9
                                                                     ======          ======          ======
</TABLE>



                                      F-14

<PAGE>   41

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         Total federal income tax expense for the years ended December 31, 1998,
         1997 and 1996 differs from the amount computed by applying the U.S.
         federal income tax rate to income before tax as follows:

<TABLE>
<CAPTION>
                                                            1998                     1997                     1996
                                                       -----------------        ----------------        -----------------
         (in millions of dollars)                      Amount        %          Amount        %          Amount        %
                                                       ------        -          ------        -          ------        -

         <S>                                           <C>         <C>          <C>         <C>          <C>         <C> 
         Computed (expected) tax expense               $195.0      35.0         $150.5      35.0         $110.4      35.0
         Tax exempt interest and dividends
           received deduction                            (4.9)     (0.9)           -         0.0           (0.2)     (0.1)
         Other, net                                       0.3       0.1           (0.3)     (0.1)           0.7       0.3
                                                       ------      ----         ------      ----         ------      ----
             Total (effective rate of each year)       $190.4      34.2         $150.2      34.9         $110.9      35.2
                                                       ======      ====         ======      ====         ======      ====
</TABLE>

         Total federal income tax paid was $173.4 million, $91.8 million and
         $115.8 million during the years ended December 31, 1998, 1997 and 1996,
         respectively.

(5)      Comprehensive Income
         --------------------

         Pursuant to SFAS No. 130 - Reporting Comprehensive Income, which the
         Company adopted January 1, 1998, the Consolidated Statements of
         Shareholder's Equity include a new measure called "Comprehensive
         Income". Comprehensive Income includes net income as well as certain
         items that are reported directly within separate components of
         shareholders' equity that bypass net income. Currently, the Company's
         only component of Other Comprehensive Income is unrealized gains
         (losses) on securities available-for-sale. The related before and after
         federal tax amounts are as follows:

<TABLE>
<CAPTION>
             (in millions of dollars)                                        1998           1997           1996
                                                                             ----           ----           ----
             <S>                                                            <C>            <C>            <C>
             Unrealized gains (losses) on securities 
                available-for-sale arising during the period:
                Gross                                                       $ 58.2        $141.1         $(272.4)
                Adjustment to deferred policy acquisition costs              (12.9)        (21.8)           57.0
                Related federal income tax (expense) benefit                 (15.9)        (41.7)           44.0
                                                                            ------        ------          ------
                   Net                                                        29.4          77.6          (171.4)
                                                                            ------        ------          ------

             Reclassification adjustment for net (gains) losses 
                on securities available-for-sale realized 
                during the period:
                Gross                                                         (1.4)         (6.3)             0.7
                Related federal income tax expense (benefit)                   0.5           2.2             (0.2)
                                                                            ------        ------          -------
                   Net                                                        (0.9)         (4.1)             0.5
                                                                            ------        ------          -------
             Total Other Comprehensive Income                               $ 28.5        $ 73.5          $(170.9)
                                                                            ======        ======          =======
</TABLE>

(6)      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-15

<PAGE>   42

               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.

         The following methods and assumptions were used by the Company in
         estimating its fair value disclosures:

              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
              equity securities exclude the fair value of futures contracts
              designated as hedges of 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.
              Fair value for mortgage loans in default is the estimated fair
              value of the underlying collateral.

              Policy loans, short-term investments and cash: The carrying amount
              reported in the consolidated balance sheets for these instruments
              approximates 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 disclosed using 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 are similar to currently
              offered contracts with maturities consistent with those remaining
              for the contracts being valued.



                                      F-16

<PAGE>   43

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



              Policy reserves on life insurance contracts: Included are
              disclosures for individual 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, which the Company has used discounted cash flow analyses
              similar to those used for investment contracts with known
              maturities to estimate fair value.

              Commitments to extend credit: Commitments to extend credit have
              nominal fair value because of the short-term nature of such
              commitments. See note 7.

              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:

<TABLE>
<CAPTION>
                                                                         1998                              1997
                                                               -------------------------        --------------------------
                                                                Carrying      Estimated          Carrying       Estimated
               (in millions of dollars)                          amount       fair value          amount        fair value
                                                               ---------      ----------        ---------       ----------
               <S>                                              <C>            <C>               <C>            <C>
               Assets:
                 Investments:
                   Securities available-for-sale:
                     Fixed maturity securities                  $14,245.1      $14,245.1         $13,204.1       $13,204.1
                     Equity securities                              128.5          128.5              80.4            80.4
                   Mortgage loans on real estate, net             5,328.4        5,527.6           5,181.6         5,509.7
                   Policy loans                                     464.3          464.3             415.3           415.3
                   Short-term investments                           289.1          289.1             358.4           358.4
                 Cash                                                 3.4            3.4             175.6           175.6
                 Assets held in separate accounts                50,935.8       50,935.8          37,724.4        37,724.4

               Liabilities:
                 Investment contracts                            15,468.7       15,158.6          14,708.2        14,322.1
                 Policy reserves on life insurance contracts      3,914.0        3,768.9           3,345.4         3,182.4
                 Liabilities related to separate accounts        50,935.8       49,926.5          37,724.4        36,747.0
                 Futures contracts                                    1.3            1.3                --              --
</TABLE>

(7)      Risk Disclosures
         ----------------

         The following is a description of the most significant risks facing
         life insurers and how the Company 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
         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 would
         have to borrow funds or sell assets prior to maturity and potentially
         recognize a gain or loss.



                                      F-17

<PAGE>   44

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         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 United States, 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. 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 mortgage property represents
         the collateral if the commitment is funded. The Company's policy for
         new mortgage loans on real estate is to lend no more than 75% 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 $156.0 million
         extending into 1999 were outstanding as of December 31, 1998. The
         Company also had $40.0 million of commitments to purchase fixed
         maturity securities outstanding as of December 31, 1998.

         Significant Concentrations of Credit Risk: The Company grants mainly
         commercial mortgage loans on real estate to customers throughout the
         United States. The Company has a diversified portfolio with no more
         than 22% (20% in 1997) in any geographic area and no more than 2% (2%
         in 1997) with any one borrower as of December 31, 1998. As of December
         31, 1998, 42% (46% in 1997) of the remaining principal balance of the
         Company's commercial mortgage loan portfolio financed retail
         properties.

         Reinsurance: The Company has entered into a reinsurance contract to
         cede a portion of its general account individual annuity business to
         The Franklin Life Insurance Company (Franklin). Total recoveries due
         from Franklin were $187.9 million and $220.2 million as of December 31,
         1998 and 1997, respectively. The contract is 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 contract, Franklin has established a trust as
         collateral for the recoveries. The trust assets are invested in
         investment grade securities, the market value of which must at all
         times be greater than or equal to 102% of the reinsured reserves.

(8)      Pension Plan and Postretirement Benefits Other Than Pensions
         ------------------------------------------------------------

         The Company is a participant, together with other affiliated companies,
         in a pension plan covering all employees who have completed at least
         one year 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. Assets of the
         Retirement Plan are invested in group annuity contracts of NLIC and
         Employers Life Insurance Company of Wausau (ELICW).

         Pension costs charged to operations by the Company during the years
         ended December 31, 1998, 1997 and 1996 were $2.0 million, $7.5 million
         and $7.4 million, respectively. The Company has recorded a prepaid
         pension asset of $5.0 million as of December 31, 1998 and no prepaid or
         accrued pension asset or expense as of December 31, 1997.



                                      F-18

<PAGE>   45

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         In addition to the defined benefit pension plan, the Company, together
         with 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,
         1998 and 1997 was $40.1 million and $36.5 million, respectively, and
         the net periodic postretirement benefit cost (NPPBC) for 1998, 1997 and
         1996 was $4.1 million, $3.0 million and $3.3 million, respectively.

         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, 1998 and 1997 follows:

<TABLE>
<CAPTION>
                                                                             Pension Benefits      Postretirement Benefits
                                                                           ---------------------   -----------------------
              (in millions of dollars)                                       1998         1997         1998       1997
              ---------------------------------------------------------    --------     --------     --------   -------
              <S>                                                          <C>          <C>          <C>        <C>
              Change in benefit obligation:
              Benefit obligation at beginning of year                      $2,033.8     $1,847.8      $237.9    $ 200.7
              Service cost                                                     87.6         77.3         9.8        7.0
              Interest cost                                                   123.4        118.6        15.4       14.0
              Actuarial loss                                                  123.2         60.0        15.6       24.4
              Plan curtailment in 1998/merger in 1997                        (107.2)         1.5         -          -
              Benefits paid                                                   (75.8)       (71.4)       (8.6)      (8.2)
                                                                           --------     --------     -------    -------
              Benefit obligation at end of year                             2,185.0      2,033.8       270.1      237.9
                                                                           --------     --------     -------    -------

              Change in plan assets:
              Fair value of plan assets at beginning of year                2,212.9      1,947.9        69.2       63.0
              Actual return on plan assets                                    300.7        328.1         5.0        3.6
              Employer contribution                                           104.1          7.2        12.1       10.6
              Plan merger                                                       -            1.1         -          -
              Benefits paid                                                   (75.8)       (71.4)       (8.4)      (8.0)
                                                                           --------     --------     -------    -------
              Fair value of plan assets at end of year                      2,541.9      2,212.9        77.9       69.2
                                                                           --------     --------     -------    -------

              Funded status                                                   356.9        179.1      (192.2)    (168.7)
              Unrecognized prior service cost                                  31.5         34.7         -          -
              Unrecognized net (gains) losses                                (345.7)      (330.7)       16.0        1.6
              Unrecognized net (asset) obligation at transition               (11.0)        33.3         1.3        1.5
                                                                           --------     --------     -------    -------
              Prepaid (accrued) benefit cost                               $   31.7     $  (83.6)    $(174.9)   $(165.6)
                                                                           ========     ========     =======    ======= 
</TABLE>



                                      F-19

<PAGE>   46

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         Basis for measurements, funded status of the pension plan and
         postretirement life and health care benefit plan:

<TABLE>
<CAPTION>
                                                                             Pension Benefits          Postretirement Benefits
                                                                          --------------------         -----------------------
                                                                            1998         1997            1998           1997
                                                                          --------      ------         --------       --------
              <S>                                                         <C>           <C>            <C>            <C>
              Weighted average discount rate                               5.50%         6.00%           6.65%         6.70%
              Rate of increase in future compensation levels               3.75%         4.25%             --            --
              Assumed health care cost trend rate:
                    Initial rate                                             --            --           15.00%        12.13%
                    Ultimate rate                                            --            --            8.00%         6.12%
                    Uniform declining period                                 --            --           15 Years      12 Years
</TABLE>

         The net periodic pension cost for the pension plan as a whole for the
         years ended December 31, 1998, 1997 and 1996 follows:

<TABLE>
<CAPTION>
              (in millions of dollars)                                                   1998         1997         1996
              --------------------------------------------------------------------------------        ----         ----
              <S>                                                                      <C>          <C>
              Service cost (benefits earned during the period)                         $  87.6      $  77.3      $  75.5
              Interest cost on projected benefit obligation                              123.4        118.6        105.5
              Expected return on plan assets                                            (159.0)      (139.0)      (116.1)
              Recognized gains                                                            (3.8)         -            -
              Amortization of prior service cost                                           3.2          3.2          3.2
              Amortization of unrecognized transition obligation                           4.2          4.2          4.1
                                                                                       -------      -------      -------   
                                                                                       $  55.6      $  64.3      $  72.2
                                                                                       =======      =======      =======
</TABLE>

         Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
         affiliation with the Nationwide Insurance Enterprise and employees of
         WSC ended participation in the plan. A curtailment gain of $67.1
         million resulted (consisting of a $107.2 million reduction in the
         projected benefit obligation, net of the write-off of the $40.1 million
         remaining unamortized transition obligation related to WSC). The
         Company anticipates that the plan will settle the obligation related to
         WSC employees with a transfer of assets during 1999.

         Basis for measurements, net periodic pension cost for the pension plan:

<TABLE>
<CAPTION>
                                                                                       1998          1997          1996
                                                                                       ----          ----          ----
             <S>                                                                       <C>           <C>           <C>
             Weighted average discount rate                                            6.00%         6.50%         6.00%
             Rate of increase in future compensation levels                            4.25%         4.75%         4.25%
             Expected long-term rate of return on plan assets                          7.25%         7.25%         6.75%
</TABLE>



                                      F-20

<PAGE>   47

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         The amount of NPPBC for the postretirement benefit plan as a whole for
         the years ended December 31, 1998, 1997 and 1996 was as follows:

<TABLE>
<CAPTION>
             (in millions of dollars)                                                    1998          1997          1996
                                                                                         ----          ----          ----
             <S>                                                                         <C>           <C>           <C>
             Service cost (benefits attributed to employee service during the year)      $ 9.8         $ 7.0         $ 6.5
             Interest cost on accumulated postretirement benefit obligation               15.4          14.0          13.7
             Actual return on plan assets                                                 (5.0)         (3.6)         (4.3)
             Amortization of unrecognized transition obligation of affiliates              0.2           0.2           0.2
             Net amortization and deferral                                                 1.2          (0.5)          1.8
                                                                                         -----         -----         -----
                                                                                         $21.6         $17.1         $17.9
                                                                                         =====         =====         =====
</TABLE>

         Actuarial assumptions used for the measurement of the accumulated
         postretirement benefit obligation (APBO) and the NPPBC for the
         postretirement benefit plan for 1998, 1997 and 1996 were as follows:

<TABLE>
<CAPTION>
                                                                                      1998           1997         1996
                                                                                      -----          -----        ----
             <S>                                                                     <C>            <C>           <C>
             NPPBC:
               Discount rate                                                          6.70%         7.25%         6.65%
               Long term rate of return on plan
                   assets, net of tax                                                 5.83%         5.89%         4.80%
               Assumed health care cost trend rate:
                   Initial rate                                                      12.00%        11.00%        11.00%
                   Ultimate rate                                                      6.00%         6.00%         6.00%
                   Uniform declining period                                         12 Years      12 Years      12 Years
</TABLE>

         For the postretirement benefit plan as a whole, a one percentage point
         increase or decrease in the assumed health care cost trend rate would
         have no impact on the APBO as of December 31, 1998 and have no impact
         on the NPPBC for the year ended December 31, 1998.

(9)      Shareholder's Equity, Regulatory Risk-Based Capital, Retained Earnings
         ----------------------------------------------------------------------
         and Dividend Restrictions
         -------------------------

         Ohio, NLIC's and NLAIC's state of domicile, 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 the company's regulatory total adjusted
         capital, as defined by the NAIC, to its 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.

         The statutory capital and surplus of NLIC as of December 31, 1998, 1997
         and 1996 was $1.32 billion, $1.13 billion and $1.00 billion,
         respectively. The statutory net income of NLIC for the years ended
         December 31, 1998, 1997 and 1996 was $171.0 million, $111.7 million and
         $73.2 million, respectively.

         The Company is limited in the amount of shareholder dividends it may
         pay without prior approval by the Department. As of December 31, 1998,
         the maximum amount available for dividend payment from the Company to
         its shareholder without prior approval of the Department was $71.0
         million.


                                      F-21

<PAGE>   48

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         In addition, the payment of dividends by NLIC may also be subject to
         restrictions set forth in the insurance laws 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 shareholder.

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

(10)     Transactions With Affiliates
         ----------------------------

         As part of the restructuring described in note 1, NLIC paid a dividend
         valued at $485.7 million to Nationwide Corp. on January 1, 1997
         consisting of the outstanding shares of common stock of ELICW, National
         Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC).
         Also, on February 24, 1997, NLIC paid a dividend to NFS, and NFS paid
         an equivalent dividend to Nationwide Corp., consisting of securities
         having an aggregate fair value of $850.0 million. The Company
         recognized a gain of $14.4 million on the transfer of securities.

         The Company leases office space from NMIC and certain of its
         subsidiaries. For the years ended December 31, 1998, 1997 and 1996, the
         Company made lease payments to NMIC and its subsidiaries of $8.0
         million, $8.4 million and $9.1 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 sales support,
         advertising, personnel and general management services, to those
         subsidiaries. Expenses covered by this agreement are subject to
         allocation among NMIC, the Company and other affiliates. Amounts
         allocated to the Company were $95.0 million, $85.8 million and $101.6
         million in 1998, 1997 and 1996, respectively. The allocations are based
         on techniques and procedures in accordance with insurance regulatory
         guidelines. Measures used to allocate expenses among companies include
         individual employee estimates of time spent, special cost studies,
         salary expense, commissions expense and other methods agreed to by the
         participating companies that are within industry guidelines and
         practices. The Company believes these allocation methods are
         reasonable. In addition, the Company does not believe that expenses
         recognized under the inter-company agreements are materially different
         than expenses that would have been recognized had the Company operated
         on a stand alone basis. Amounts payable to NMIC from the Company under
         the cost sharing agreement were $31.9 million and $20.5 million as of
         December 31, 1998 and 1997, 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 a stated period, the securities
         will be repurchased by the seller at the original sales price plus a
         price differential. Transactions under the agreements during 1998 and
         1997 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.



                                      F-22

<PAGE>   49

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         Intercompany reinsurance agreements exist between NLIC and,
         respectively, NMIC and ELICW whereby all of NLIC's accident and health
         and group life insurance business is ceded on a modified coinsurance
         basis. NLIC entered into the reinsurance agreements during 1996 because
         the accident and health and group life insurance business was unrelated
         to the Company's long-term savings and retirement products.
         Accordingly, the accident and health and group life insurance business
         has been accounted for as discontinued operations for all periods
         presented. Under modified coinsurance agreements, invested assets are
         retained by the ceding company 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 ELICW or
         NMIC, as the case may be. Risk of asset default is retained by the
         Company, although a fee is paid by ELICW or NMIC, as the case may be,
         to the Company for the Company's retention of such risk. The agreements
         will remain in force until all policy obligations are settled. However,
         with respect to the agreement between NLIC and NMIC, either party may
         terminate the contract on January 1 of any year with prior notice. 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. Amounts ceded to NMIC and ELICW for the years ended December
         31, 1998, 1997 and 1996 were:

<TABLE>
<CAPTION>
                                                       1998                       1997                          1996
                                            ------------------------------------------------------------------------------------
         (in millions of dollars)               NMIC          ELICW        NMIC         ELICW            NMIC         ELICW
         -----------------------------------------------------------------------------------------------------------------------

         <S>                                    <C>          <C>          <C>           <C>             <C>           <C>   
         Premiums                               $90.1        $106.3       $ 91.4        $199.8          $ 97.3        $224.2
         Net investment income and other
            revenue                             $11.1        $  9.4       $ 10.7        $ 13.4          $ 10.9        $ 14.8
         Benefits, claims and expenses          $98.8        $160.5       $100.7        $225.9          $100.5        $246.6
</TABLE>

         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 $248.4 million and $211.0 million as
         of December 31, 1998 and 1997, respectively, and are included in
         short-term investments on the accompanying consolidated balance sheets.

         Certain annuity products are sold through three affiliated companies,
         which are also subsidiaries of NFS. Total commissions and fees paid to
         these affiliates for the three years ended December 31, 1998 were $60.0
         million, $66.1 million and $76.9 million, respectively.

(11)     Bank Lines of Credit
         --------------------

         In August 1996, NLIC, along with NMIC, entered into a $600.0 million
         revolving credit facility which provides for a $600.0 million loan over
         a five year term on a fully revolving basis with a group of national
         financial institutions. The credit facility provides for several and
         not joint liability with respect to any amount drawn by either NLIC or
         NMIC. NLIC and NMIC pay facility and usage fees to the financial
         institutions to maintain the revolving credit facility. All previously
         existing line of credit agreements were canceled. In September 1997,
         the credit agreement was amended to include NFS as a party to and
         borrower under the agreement. As of December 31, 1998 the Company had
         no amounts outstanding under the agreement.



                                      F-23

<PAGE>   50

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



(12)     Contingencies
         -------------

         On October 29, 1998, the Company and certain of its affiliates were
         named in a lawsuit filed in the Common Pleas Court of Franklin County,
         Ohio 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).
         The plaintiff in such lawsuit seeks to represent a national class of
         the Company's customers and seeks unspecified compensatory and punitive
         damages. The Company is currently evaluating this lawsuit, which is in
         an early stage and has not been certified as a class. The Company
         intends to defend this lawsuit vigorously.

(13)     Segment Information
         -------------------

         The Company uses differences in products as the basis for defining its
         reportable segments. The Company reports three product segments:
         Variable Annuities, Fixed Annuities and Life Insurance.

         The Variable Annuities segment consists of annuity contracts that
         provide the customer with the opportunity to invest in mutual funds
         managed by independent investment managers and the Company, with
         investment returns accumulating on a tax-deferred basis. The Company's
         variable annuity products consist almost entirely of flexible premium
         deferred variable annuity contracts.

         The Fixed Annuities segment consists of annuity contracts that generate
         a return for the customer at a specified interest rate, fixed for a
         prescribed period, with returns accumulating on a tax-deferred basis.
         Such contracts consist of single premium deferred annuities, flexible
         premium deferred annuities and single premium immediate annuities. The
         Fixed Annuities segment includes the fixed option under variable
         annuity contracts.

         The Life Insurance segment consists of insurance products, including
         variable universal life insurance and corporate-owned life insurance
         products, that provide a death benefit and may also allow the customer
         to build cash value on a tax-deferred basis.

         In addition to the product segments, the Company reports corporate
         revenue and expenses, investments and related investment income
         supporting capital not specifically allocated to its product segments,
         revenues and expenses of its investment advisor subsidiary (other than
         the portion allocated to the Variable Annuities and Life Insurance
         segments), revenues and expenses related to group annuity contracts
         sold to Nationwide Insurance Enterprise employee and agent benefit
         plans and all realized gains and losses on investments in a Corporate
         and Other segment.



                                      F-24

<PAGE>   51

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



The following table summarizes the financial results of the Company's business
segments for the years ended December 31, 1998, 1997 and 1996.

<TABLE>
<CAPTION>
                                       Variable      Fixed       Life     Corporate
(in millions of dollars)               Annuities   Annuities   Insurance  and Other    Total
------------------------------------  ---------    ---------   ---------  ---------    -----
<S>                                   <C>          <C>         <C>        <C>        <C>
1998:
Net investment income (1)             $   (31.3)   $ 1,116.6   $  231.6   $  164.7   $ 1,481.6
Other operating revenue                   560.8         35.7      319.6       49.6       965.7
                                      ---------    ---------   --------   --------   ---------
   Total operating revenue (2)            529.5      1,152.3      551.2      214.3     2,447.3
                                      ---------    ---------   --------   --------   ---------
Interest credited to policyholder
   account balances                          --        828.6      115.4      125.0     1,069.0
Amortization of deferred policy
   acquisition costs                      123.9         44.2       46.4         --       214.5
Other benefits and expenses               187.2        104.2      294.6       49.1       635.1
                                      ---------    ---------   --------   --------   ---------
   Total expenses                         311.1        977.0      456.4      174.1     1,918.6
                                      ---------    ---------   --------   --------   ---------
Operating income (loss) before
   federal income tax                     218.4        175.3       94.8       40.2       528.7
Realized gains on investments                --           --         --       28.4        28.4
                                      ---------    ---------   --------   --------   ---------
Consolidated income before
   federal tax expense                $   218.4    $   175.3   $   94.8   $   68.6   $   557.1
                                      =========    =========   ========   ========   =========

Assets as of year end                 $47,668.7    $15,215.7   $5,187.6   $6,270.1   $74,342.1
                                      =========    =========   ========   ========   =========


1997:
Net investment income (1)             $   (26.9)   $ 1,098.2   $  189.1   $  148.8   $ 1,409.2
Other operating revenue                   430.9         43.2      284.0       39.0       797.1
                                      ---------    ---------   --------   --------   ---------
   Total operating revenue (2)            404.0      1,141.4      473.1      187.8     2,206.3
                                      ---------    ---------   --------   --------   ---------
Interest credited to policyholder
   account balances                          --        823.4       78.5      114.7     1,016.6
Amortization of deferred policy
   acquisition costs                       87.8         39.8       39.6         --       167.2
Other benefits and expenses               165.3        108.7      284.1       45.6       603.7
                                      ---------    ---------   --------   --------   ---------
   Total expenses                         253.1        971.9      402.2      160.3     1,787.5
                                      ---------    ---------   --------   --------   ---------
Operating income before federal
    income tax                            150.9        169.5       70.9       27.5       418.8
Realized gains on investments                --           --         --       11.1        11.1
                                      ---------    ---------   --------   --------   ---------
Consolidated income before
   federal tax expense                $   150.9    $   169.5   $   70.9   $   38.6   $   429.9
                                      =========    =========   ========   ========   =========

Assets as of year end                 $35,278.7    $14,436.3   $3,901.4   $6,174.3   $59,790.7
                                      =========    =========   ========   ========   =========
</TABLE>



                                      F-25

<PAGE>   52

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



<TABLE>
<CAPTION>

                                                 Variable         Fixed            Life         Corporate
         (in millions of dollars)               Annuities       Annuities       Insurance       and Other        Total
         ------------------------------------   ----------      ----------      ---------       ---------     ---------
         <S>                                    <C>             <C>             <C>             <C>           <C>
         1996:
         Net investment income (1)              $    (21.5)     $  1,050.6      $   174.0       $   154.7      $ 1,357.8
         Other operating revenue                     306.1            42.0          261.6            25.7          635.4
                                                ----------      ----------      ---------       ---------      ---------
            Total operating revenue (2)              284.6         1,092.6          435.6           180.4        1,993.2
                                                ----------      ----------      ---------       ---------      ---------
         Interest credited to policyholder
            account balances                            --           805.0           70.2           107.1          982.3
         Amortization of deferred policy
            acquisition costs                         57.4            38.6           37.4              --          133.4
         Benefits and expenses                       136.9           113.6          260.8            50.4          561.7
                                                ----------      ----------      ---------       ---------      ---------
            Total expenses                           194.3           957.2          368.4           157.5        1,677.4
                                                ----------      ----------      ---------       ---------      ---------
         Operating income before federal
             income tax                               90.3           135.4           67.2            22.9          315.8
         Realized losses on investments                 --              --             --            (0.3)          (0.3)
                                                ----------      ----------      ---------       ---------      ---------
         Consolidated income from
            continuing operations before
            federal tax expense                 $     90.3      $    135.4       $   67.2        $   22.6      $   315.5
                                                ==========      ==========       ========        ========      =========

         Assets as of year end                  $ 25,069.7      $ 13,994.7       $3,353.3        $5,348.5      $47,766.2
                                                ==========      ==========       ========        ========      =========
</TABLE>

         -----------
         (1)  The Company's method of allocating net investment income results
              in a charge (negative net investment income) to the Variable
              Annuities segment which is recognized in the Corporate and Other
              segment. The charge relates to non-invested assets which support
              this segment on a statutory basis.

         (2)  Excludes realized gains and losses on investments.

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


 (14)    Discontinued Operations
         -----------------------

         As discussed in note 1, NFS is a holding company for NLIC and certain
         other companies within the Nationwide Insurance Enterprise that offer
         or distribute long-term savings and retirement products. Prior to the
         contribution by Nationwide Corp. of the outstanding common stock of
         NLIC to NFS, NLIC effected certain transactions with respect to certain
         subsidiaries and lines of business that were unrelated to long-term
         savings and retirement products.

         On September 24, 1996, NLIC's Board of Directors declared a dividend
         payable to Nationwide Corp. on January 1, 1997 consisting of the
         outstanding shares of common stock of three subsidiaries: ELICW, NCC
         and WCLIC. ELICW writes group accident and health and group life
         insurance business and maintains it offices in Wausau, Wisconsin. NCC
         is a property and casualty company with offices in Scottsdale, Arizona
         that serves as a fronting company for a property and casualty
         subsidiary of NMIC. WCLIC writes high dollar term life insurance
         policies and is located in San Francisco, California. ELICW, NCC and
         WCLIC have been accounted for as discontinued operations in the
         accompanying consolidated financial statements through December 31,
         1996. The Company did not recognize any gain or loss on the disposal of
         these subsidiaries.



                                      F-26

<PAGE>   53

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
       (a wholly owned subsidiary of Nationwide Financial Services, Inc.)

              Notes to Consolidated Financial Statements, Continued



         Also, during 1996, NLIC entered into two reinsurance agreements whereby
         all of NLIC's accident and health and group life insurance business was
         ceded to ELICW and NMIC, effective January 1, 1996. See note 10 for a
         complete discussion of the reinsurance agreements. The Company has
         discontinued its accident and health and group life insurance business
         and in connection therewith has entered into reinsurance agreements to
         cede all existing and any future writings to other affiliated
         companies. NLIC's accident and health and group life insurance business
         is accounted for as discontinued operations for all periods presented.
         The Company did not recognize any gain or loss on the disposal of the
         accident and health and group life insurance business. The assets,
         liabilities, results of operations and activities of discontinued
         operations are distinguished physically, operationally and for
         financial reporting purposes from the remaining assets, liabilities,
         results of operations and activities of the Company.

         A summary of the results of operations of discontinued operations for
         the years ended December 31, 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
             (in millions of dollars)                                                1998           1997          1996
                                                                                     ----           ----          ----     
             <S>                                                                    <C>            <C>
             Revenues                                                               $   --         $   --       $  668.9
             Net income                                                             $   --         $   --       $   11.3
</TABLE>

         A summary of the assets and liabilities of discontinued operations as
         of December 31, 1998, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
             (in millions of dollars)                                                1998           1997          1996
                                                                                     ----           ----          ----     
             <S>                                                                    <C>            <C>          <C>
             Assets, consisting primarily of investments                            $221.5         $247.3       $3,288.5
             Liabilities, consisting primarily of policy benefits and claims        $221.5         $247.3       $2,802.8
</TABLE>



                                      F-27

<PAGE>   54

<TABLE>
<CAPTION>

                                                                                                                     SCHEDULE I

                                       NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                             CONSOLIDATED SUMMARY OF INVESTMENTS -
                                        OTHER THAN INVESTMENTS IN RELATED PARTIES
                                                    (in millions of dollars)

                                                    As of December 31, 1998


-----------------------------------------------------------------------------    -----------    -----------   --------------
                                  Column A                                        Column B       Column C         Column D
-----------------------------------------------------------------------------    -----------    -----------   --------------
                                                                                                                 Amount at
                                                                                                                which shown
                                                                                                                   in the
                                                                                                  Market        consolidated
                             Type of Investment                                     Cost           value       balance sheet
-----------------------------------------------------------------------------    ----------      ---------     -------------
<S>                                                                               <C>            <C>           <C>
Fixed maturity securities available-for-sale:
   Bonds:
      U.S. Government and government agencies and authorities                     $ 3,713.6      $ 3,828.4       $ 3,828.4
      States, municipalities and political subdivisions                                 1.6            1.6             1.6
      Foreign governments                                                             106.5          111.0           111.0
      Public utilities                                                              1,456.9        1,475.8         1,475.8
      All other corporate                                                           8,442.7        8,828.3         8,828.3
                                                                                  ---------      ---------       ---------
          Total fixed maturity securities available-for-sale                       13,721.3       14,245.1        14,245.1
                                                                                  ---------      ---------       ---------

Equity securities available-for-sale:
   Common stocks:
      Industrial, miscellaneous and all other                                         110.4          127.2           127.2
   Non-redeemable preferred stock                                                        --            --               --
                                                                                  ---------      ---------       ---------
          Total equity securities available-for-sale                                  110.4          127.2           127.2
                                                                                  ---------      ---------       ---------

Mortgage loans on real estate, net                                                  5,371.7                        5,328.4 (1)
Real estate, net:
   Investment properties                                                              184.6                          186.8 (1)
   Acquired in satisfaction of debt                                                    60.0                           56.8 (1)
Policy loans                                                                          464.3                          464.3
Other long-term investments                                                            43.1                           44.0 (2)
Short-term investments                                                                289.1                          289.1
                                                                                  ---------                      ---------
          Total investments                                                       $20,244.5                      $20,741.7
                                                                                  =========                      =========
</TABLE>
----------

(1)  Difference from Column B is primarily due to valuation allowances due to
     impairments on mortgage loans on real estate and due to accumulated
     depreciation and valuation allowances due to impairments on real estate.
     See note 3 to the consolidated financial statements.

(2)  Difference from Column B is primarily due to operating gains (losses) of
     investments in limited partnerships.




See accompanying independent auditors' report.


                                                                     

                                      F-28

<PAGE>   55

<TABLE>
<CAPTION>
                                                                                                              SCHEDULE III

                                        NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                               SUPPLEMENTARY INSURANCE INFORMATION
                                                     (in millions of dollars)

                           As of December 31, 1998, 1997 and 1996 and for each of the years then ended

---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
              Column A                  Column B          Column C             Column D           Column E          Column F
---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
                                        Deferred        Future policy                           Other policy
                                         policy       benefits, losses,        Unearned          claims and
                                      acquisition        claims and            premiums       benefits payable      Premium
              Segment                    costs          loss expenses            (1)                 (1)            revenue
---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
<S>                                     <C>                <C>                <C>                <C>                  <C>   
1998: Variable Annuities                $1,247.9           $      --                                                  $   --
      Fixed Annuities                      316.7            14,592.3                                                    23.1
      Life Insurance                       574.2             3,173.9                                                   176.9
      Corporate and Other                 (116.6)            2,000.9                                                     -
                                        --------           ---------                                                  ------
         Total                          $2,022.2           $19,767.1                                                  $200.0
                                        ========           =========                                                  ======

1997: Variable Annuities                $1,018.4           $      --                                                  $   --
      Fixed Annuities                      277.9            14,103.1                                                    27.3
      Life Insurance                       472.9             2,683.4                                                   178.1
      Corporate and Other                 (103.8)            1,916.3                                                     -
                                        --------           ---------                                                  ------
         Total                          $1,665.4           $18,702.8                                                  $205.4
                                        ========           =========                                                  ======

1996: Variable Annuities                $  792.1           $      --                                                  $   --
      Fixed Annuities                      242.0            13,388.9                                                    24.0
      Life Insurance                       414.4             2,391.5                                                   174.6
      Corporate and Other                  (82.0)            1,820.2                                                      --
                                        --------           ---------                                                  ------
         Total                          $1,366.5           $17,600.6                                                  $198.6
                                        ========           =========                                                  ======

<CAPTION>
----------------------------------- ---------------- -------------------- ------------------- ------------------ ---------------
              Column A                  Column G          Column H             Column I           Column J          Column K
----------------------------------- ---------------- -------------------- ------------------- ------------------ ---------------
                                     Net investment   Benefits, claims,      Amortization           Other
                                         income          losses and       of deferred policy      operating         Premiums
              Segment                     (2)        settlement expenses  acquisition costs     expenses (2)        written
----------------------------------- ---------------- -------------------- ------------------- ------------------ ---------------
<S>                                     <C>                 <C>                 <C>                 <C>   
1998: Variable Annuities                $  (31.3)           $    3.5            $123.9              $183.7
      Fixed Annuities                    1,116.6               847.6              44.2                85.2
      Life Insurance                       231.6               268.7              46.4               101.7
      Corporate and Other                  164.7               125.0                --                49.1
                                        --------            --------            ------              ------
         Total                          $1,481.6            $1,244.8            $214.5              $419.7
                                        ========            ========            ======              ======

1997: Variable Annuities                $  (26.8)           $    5.9            $ 87.8              $159.4
      Fixed Annuities                    1,098.2               846.7              39.8                85.4
      Life Insurance                       189.1               227.5              39.6                94.5
      Corporate and Other                  148.7               114.7                --                45.6
                                        --------            --------            ------              ------
         Total                          $1,409.2            $1,194.8            $167.2              $384.9
                                        ========            ========            ======              ======

1996: Variable Annuities                $  (21.4)           $    4.6            $ 57.4              $132.3
      Fixed Annuities                    1,050.6               838.5              38.6                79.7
      Life Insurance                       174.0               211.4              37.4                79.0
      Corporate and Other                  154.6               106.1                --                51.4
                                        --------            --------            ------              ------
         Total                          $1,357.8            $1,160.6            $133.4              $342.4
                                        ========            ========            ======              ======
</TABLE>

----------
(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-29


<PAGE>   56

<TABLE>
<CAPTION>
                                                                                              SCHEDULE IV

                            NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                               REINSURANCE
                                         (in millions of dollars)

               As of December 31, 1998, 1997 and 1996 and for each of the years then ended


--------------------------------------   ---------      ----------    ----------   ---------      ---------
           Column A                       Column B       Column C      Column D     Column E       Column F
--------------------------------------   ---------      ----------    ----------   ---------      ----------
                                                                                                  Percentage
                                                        Ceded to       Assumed                     of amount
                                            Gross         other       From other     Net            assumed
                                           amount       companies     Companies     amount          to net
                                         ---------      ----------    ----------   ---------      ----------
<S>                                      <C>            <C>            <C>         <C>              <C>
1998:
  Life insurance in force                $61,789.2      $16,504.0      $ 28.0      $45,313.2        0.1%
                                         =========      =========      ======      =========        ===

  Premiums:
    Life insurance                       $   225.4      $    27.4      $  2.0      $   200.0        1.0%
    Accident and health insurance            169.7          179.4         9.7           --          N/A
                                         ---------      ---------      ------      ---------        ---
        Total                            $   395.1      $   206.8      $ 11.7      $   200.0        5.8%
                                         =========      =========      ======      =========        ===


1997:
  Life insurance in force                $52,648.4      $13,678.7      $289.7      $39,259.4        0.7%
                                         =========      =========      ======      =========        ===

  Premiums:
    Life insurance                       $   235.9      $    32.7      $  2.2      $   205.4        1.1%
    Accident and health insurance            261.2          272.6        11.4             --        N/A
                                         ---------      ---------      ------      ---------        ---
        Total                            $   497.1      $   305.3      $ 13.6      $   205.4        6.6%
                                         =========      =========      ======      =========        ===


1996:
  Life Insurance in force                $47,150.6      $11,164.6      $288.6      $36,274.6        0.8%
                                         =========      =========      ======      =========        ===

  Premiums:
    Life insurance                       $   225.6      $    29.3      $  2.3      $   198.6        1.2%
    Accident and health insurance            291.9          305.8        13.9             --        N/A
                                         ---------      ---------      ------      ---------        ---
        Total                            $   517.5      $   335.1      $ 16.2      $   198.6        8.2%
                                         =========      =========      ======      =========        === 
</TABLE>


----------
Note:  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-30

<PAGE>   57

<TABLE>
<CAPTION>

                                                                                                            SCHEDULE V

                                  NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                           VALUATION AND QUALIFYING ACCOUNTS
                                               (in millions of dollars)

                                     Years ended December 31, 1998, 1997 and 1996


-------------------------------------------------------- ------------- ---------------------- ----------- -----------
                        Column A                            Column B          Column C          Column D   Column E
-------------------------------------------------------- ------------- ---------------------- ----------- -----------
                                                           Balance at  Charged to  Charged to              Balance at
                                                            beginning   costs and    other    Deductions   end of
Description                                                 of period    expenses   accounts     (1)       period
-------------------------------------------------------- ------------- ----------- ---------- ----------- -----------
<S>                                                         <C>          <C>          <C>        <C>        <C>          
1998:
  Valuation allowances - fixed maturity securities            $  --      $  7.5       $--        $  --      $ 7.5
  Valuation allowances - mortgage loans on real estate         42.5        (0.1)       --           --       42.4
  Valuation allowances - real estate                           11.1        (5.7)       --           --        5.4
                                                              -----      ------       ---        -----      -----
      Total                                                   $53.6      $  1.7       $--        $  --      $55.3
                                                              =====      ======       ===        =====      =====


1997:
  Valuation allowances - fixed maturity securities            $  --      $ 16.2       $--        $16.2      $  --
  Valuation allowances - mortgage loans on real estate         51.0        (1.2)       --          7.3       42.5
  Valuation allowances - real estate                           15.2        (4.1)       --           --       11.1
                                                              -----      ------       ---        -----      -----
      Total                                                   $66.2      $ 10.9       $--        $23.5      $53.6
                                                              =====      ======       ===        =====      =====


1996:
  Valuation allowances - mortgage loans on real estate        $49.1      $  4.5       $--        $ 2.6      $51.0
  Valuation allowances - real estate                           25.8       (10.6)       --           --       15.2
                                                              -----      ------       ---        -----      -----
      Total                                                   $74.9      $ (6.1)      $--        $ 2.6      $66.2
                                                              =====      ======       ===        =====      =====
</TABLE>

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



See accompanying independent auditors' report.



                                      F-31