<PAGE>
                                  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, 2001          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 Identification No.)
incorporation or organization)

                              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 11, 2002.

                COMMON STOCK (par value $1 per share) - 3,814,779
       shares issued and outstanding as of March 11, 2002 (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>

                                     PART I

ITEM 1 BUSINESS

      ORGANIZATION

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

      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 group of
      companies that offer or distribute long-term savings and retirement
      products. On March 6, 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. 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.
      In December 2001, NFS invested in a $300.0 million, 7.50% surplus note
      issued by the Company, which is due on December 17, 2031.

      Wholly owned subsidiaries of NLIC as of December 31, 2001 include
      Nationwide Life and Annuity Insurance Company (NLAIC), Nationwide
      Securities, Inc. (NS), formerly Nationwide Advisory Services, Inc., and
      Nationwide Investment Services Corporation (NISC).

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

      NLAIC offers universal life insurance, variable universal life insurance,
      corporate-owned life insurance and individual annuity contracts on a
      non-participating basis. NS and NISC are registered broker/dealers.

      The Company is a leading provider of life insurance, long-term savings and
      retirement products in the United States (U.S.). The Company develops and
      sells a diverse range of products including individual annuities, private
      and public sector pension plans and life insurance. 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 sells its products through a
      diverse distribution network, including independent broker/dealers,
      brokerage firms, pension plan administrators, life insurance specialists,
      financial institutions, Nationwide Retirement Solutions and Nationwide
      agents.


                                       2
<PAGE>

      The Company is one of the leaders in the development and sale of variable
      annuities. As of December 31, 2001, the Company was the 4th largest writer
      of individual variable annuity contracts in the U.S., according to The
      Variable Annuity Research & Data Service (VARDS).

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

      The Individual Annuity segment, which accounted for $231.4 million (36%)
      of the Company's operating income before federal income tax expense for
      2001, consists of individual The BEST of AMERICA(R) and private label
      deferred variable annuity products, deferred fixed annuity products and
      income products. Individual deferred annuity contracts provide the
      customer with tax-deferred accumulation of savings and flexible payout
      options including lump sum, systematic withdrawal or a stream of payments
      for life. In addition, variable annuity contracts provide the customer
      with access to a wide range of investment options and asset protection in
      the event of an untimely death, while fixed annuity contracts generate a
      return for the customer at a specified interest rate fixed for prescribed
      periods.

      The Institutional Products segment, which accounted for $207.8 million
      (32%) of the Company's operating income before federal income tax expense
      for 2001, is comprised of the Company's private and public sector group
      retirement plans and medium-term note program. The private sector includes
      the 401(k) business generated through fixed and variable annuities. The
      public sector includes the Internal Revenue Code (IRC) Section 457
      business in the form of fixed and variable annuities.

      The Life Insurance segment, which accounted for $184.7 million (28%) of
      the Company's operating income before federal income tax expense for 2001,
      consists of investment life products, including both individual variable
      life and corporate-owned life insurance (COLI) products, traditional life
      insurance products and universal life insurance. Life insurance products
      provide a death benefit and generally also allow the customer to build
      cash value on a tax-advantaged basis.

      The Corporate segment accounted for $26.6 million (4%) of the Company's
      operating income (which excludes non-securitization related net realized
      gains and losses on investments, hedging instruments and hedged items)
      before federal income tax expense for 2001.

      Additional information related to the Company's business segments is
      included in note 16 to the consolidated financial statements and Financial
      Statement Schedule III, which can be found in the F pages of this report.


                                       3
<PAGE>

      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. (A.M. Best) and
      its claims-paying ability/financial strength is rated "Aa3" (Excellent) by
      Moody's Investors Service, Inc. (Moody's) and "AA" (Very Strong) by
      Standard & Poor's, A Division of The McGraw-Hill Companies, Inc. (S&P).

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

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

      COMPETITION

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

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

      REGULATION

      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 cannot predict the effect that any proposed or future legislation
      may have on the financial condition or results of operations of the
      Company.

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


                                       4
<PAGE>
      As part of their routine regulatory oversight process, state insurance
      departments conduct detailed examinations periodically of the books,
      records and accounts of insurance companies domiciled in their states.
      Such examinations are generally conducted in cooperation with the
      insurance departments of two or three other states under guidelines
      promulgated by the National Association of Insurance Commissioners (NAIC).
      The most recently completed examination of NLIC and NLAIC 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 Ohio Department of Insurance
      recently started the examination of NLIC and NLAIC for the five-year
      period ended December 31, 2001. No reports have been issued as of the date
      of this filing.

      The payment of dividends by NLIC is subject to restrictions set forth in
      the insurance laws and regulations of the State of Ohio, its domiciliary
      state. The State of Ohio insurance laws require Ohio-domiciled life
      insurance companies to seek prior regulatory approval to pay a dividend or
      distribution of cash or other property if the fair market value thereof,
      together with that of other dividends or distributions made in the
      preceding 12 months, exceeds the greater of (i) 10% of statutory-basis
      policyholders' surplus as of the prior December 31 or (ii) the
      statutory-basis net income of the insurer for the 12-month period ending
      as of the prior December 31. As of December 31, 2001, $141.0 million in
      dividends could be paid by NLIC without prior approval. The State of Ohio
      insurance laws also require insurers to seek prior regulatory approval for
      any dividend paid from other than earned surplus. Earned surplus is
      defined under the State of Ohio insurance laws as the amount equal to the
      Company's unassigned funds as set forth in its most recent statutory
      financial statements, including net unrealized capital gains and losses or
      revaluation of assets. Additionally, following any dividend, an insurer's
      policyholder surplus must be reasonable in relation to the insurer's
      outstanding liabilities and adequate for its financial needs. The payment
      of dividends by NLIC may also be subject to restrictions set forth in the
      insurance laws of the State of New York that limit the amount of statutory
      profits on NLIC's participating policies (measured before dividends to
      policyholders) that can inure to the benefit of the Company and its
      stockholders. The Company currently does not expect such regulatory
      requirements to impair its ability to pay operating expenses and dividends
      in the future.

      EMPLOYEES

      As of December 31, 2001, the Company had approximately 3,000 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

      Pursuant to an arrangement between NMIC and certain of its subsidiaries,
      during 2001 the Company leased on average approximately 806,000 square
      feet of office space, primarily in the four building home office complex
      in Columbus, Ohio. The Company believes that its present facilities are
      adequate for the anticipated needs of the Company.

ITEM 3 LEGAL PROCEEDINGS

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

      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>

      On October 29, 1998, the Company was named in a lawsuit filed in Ohio
      state court related to the sale of deferred annuity products for use as
      investments in tax-deferred contributory retirement plans (Mercedes
      Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance
      Company and Nationwide Life and Annuity Insurance Company). On May 3,
      1999, the complaint was amended to, among other things, add Marcus Shore
      as a second plaintiff. The amended complaint is brought as a class action
      on behalf of all persons who purchased individual deferred annuity
      contracts or participated in group annuity contracts sold by the Company
      and the other named Company affiliates which were used to fund certain
      tax-deferred retirement plans. The amended complaint seeks unspecified
      compensatory and punitive damages. On June 11, 1999, the Company and the
      other named defendants filed a motion to dismiss the amended complaint. On
      March 8, 2000, the court denied the motion to dismiss the amended
      complaint filed by the Company and the other named defendants. On January
      25, 2002, the plaintiffs filed a motion for leave to amend their complaint
      to add three new named plaintiffs. On February 9, 2002, the plaintiffs
      filed a motion for class certification. The class has not been certified.
      The Company intends to defend this lawsuit vigorously.

      On August 15, 2001, the Company was named in a lawsuit filed in
      Connecticut federal court titled Lou Haddock, as trustee of the Flyte Tool
      & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide
      Financial Services, Inc. and Nationwide Life Insurance Company. On
      September 5, 2001, the plaintiffs amended their complaint to include class
      action allegations. The plaintiffs seek to represent a class of plan
      trustees who purchased variable annuities to fund qualified ERISA
      retirement plans. The amended complaint alleges that the retirement plans
      purchased variable annuity contracts from the Company which invested in
      mutual funds that were offered by separate mutual fund companies; that the
      Company was a fiduciary under ERISA and that the Company breached its
      fiduciary duty when it accepted certain fees from the mutual fund
      companies that purportedly were never disclosed by the Company; and that
      the Company violated ERISA by replacing many of the mutual funds
      originally included in the plaintiffs' annuities with "inferior" funds
      because the new funds purportedly paid more in revenue sharing. The
      amended complaint seeks disgourgement of fees by the Company and other
      unspecified compensatory damages. On November 15, 2001, the Company filed
      a motion to dismiss the amended complaint, which has not been decided. On
      December 3, 2001, the plaintiffs filed a motion for class certification.
      On January 15, 2002, the plaintiffs filed a response to the Company's
      motion to dismiss the amended complaint. On February 22, 2002, the Company
      filed a reply in support of its motion to dismiss. The class has not been
      certified. The Company intends to defend this lawsuit vigorously.

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

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Omitted due to reduced disclosure format.

                                     PART II

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

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

      NLIC declared $35.0 million and $50.0 million in dividends to NFS during
      2001 and 2000, respectively. In addition, NLIC sought and obtained prior
      regulatory approval from the Ohio Department of Insurance to return $120.0
      million of capital to NFS during 2000.

      NLIC currently does not have a formal dividend policy.

      Reference is made to note 12 of the consolidated financial statements for
      information regarding dividend restrictions, which is included in the F
      pages of this report.

ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA

      Omitted due to reduced disclosure format.



                                       6
<PAGE>

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, 2001 follows. This
      discussion should be read in conjunction with the Company's consolidated
      financial statements and related notes included in the F pages of 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) the potential impact on the Company's reported net
      income that could result from the adoption of certain accounting standards
      issued by the Financial Accounting Standards Board; (ii) tax law changes
      impacting the tax treatment of life insurance and investment products;
      (iii) the repeal of federal estate tax; (iv) heightened competition,
      including specifically the intensification of price competition, the entry
      of new competitors and the development of new products by new and existing
      competitors; (v) adverse state and federal legislation and regulation,
      including limitations on premium levels, increases in minimum capital and
      reserves, and other financial viability requirements; (vi) failure to
      expand distribution channels in order to obtain new customers or failure
      to retain existing customers; (vii) inability to carry out marketing and
      sales plans, including, among others, development of new products and/or
      changes to certain existing products and acceptance of the new and/or
      revised products in the market; (viii) changes in interest rates and the
      capital markets causing a reduction of investment income and/or asset
      fees, reduction in the value of the Company's investment portfolio or a
      reduction in the demand for the Company's products; (ix) general economic
      and business conditions which are less favorable than expected; (x)
      competitive, regulatory or tax changes that affect the cost of, or demand
      for the Company's products; (xi) unanticipated changes in industry trends
      and ratings assigned by nationally recognized rating organizations; and
      (xii) inaccuracies in assumptions regarding future persistency, mortality,
      morbidity and interest rates used in calculating reserve amounts.

      CRITICAL ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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

      See note 2 to the consolidated financial statements, included in the F
      pages of this report, for a discussion of the Company's significant
      accounting policies, including recently issued accounting pronouncements.

      Impairment Losses on Investments

      Management regularly reviews its fixed maturity and equity securities
      portfolio to evaluate the necessity of recording impairment losses for
      other-than-temporary declines in the fair value of investments. A number
      of criteria are considered during this process including, but not limited
      to, the current fair value as compared to amortized cost or cost, as
      appropriate, of the security, the length of time the security's fair value
      has been below amortized cost/cost, and by how much, specific credit
      issues related to the issuer and current economic conditions. Impairment
      losses result in a reduction of the cost basis of the underlying
      investment.

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

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


                                       7
<PAGE>

      Valuation Allowances on Mortgage Loans on Real Estate

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

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

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

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

      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 spreads, 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. The Company regularly
      reviews the estimated future gross profits and revises such estimates when
      appropriate. The cumulative change in amortization as a result of changes
      in estimates to reflect current best estimates is recorded as a charge or
      credit to amortization expense. The most significant assumptions that are
      involved in the estimation of future gross profits include future market
      performance and surrender/lapse rates. In the event actual experience
      differs significantly from assumptions or assumptions are significantly
      revised, the Company may be required to record a significant charge or
      credit to amortization expense. 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) of the
      consolidated financial statements included in the F pages of this report.

      Federal Income Taxes

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


                                       8
<PAGE>

      RESULTS OF OPERATIONS

      Revenues

      Total operating revenues, which include net realized gains and losses from
      mortgage loan securitizations and exclude all other net realized gains and
      losses on investments, hedging instruments and hedged items, increased to
      $3.01 billion in 2001 compared to $3.00 billion for 2000 and $2.70 billion
      for 1999. The growth in operating revenues over the past two years has
      primarily been driven by an increase in net investment income due to
      growth in interest spread-based businesses, offset by lower policy charges
      in 2001 as a result of depressed equity markets.

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

<TABLE>
<CAPTION>
      (in millions)                      2001           2000              1999
                                      ----------     ----------         -------
<S>                                   <C>            <C>                <C>
      Asset fees                      $    614.2     $    714.6         $ 616.5
      Cost of insurance charges            201.9          156.5           117.0
      Administrative fees                  128.5          134.2           102.4
      Surrender fees                        72.7           86.1            59.6
                                      ----------     ----------         -------
        Total policy charges          $  1,017.3     $  1,091.4         $ 895.5
                                      ==========     ==========         =======
</TABLE>

      The decline in asset fees in 2001 reflects a decrease in total average
      separate account assets of $9.13 billion, or 13%, while asset fees
      increased in 2000 due to an increase in total average separate account
      assets of $11.99 billion or 21%. Market depreciation on investment options
      underlying variable annuity and investment life insurance products as a
      result of the sharp declines in the equity markets throughout 2001,
      partially offset by net flows into these products, resulted in the
      decrease in average separate account assets in 2001. Net flows into
      variable annuity and investment life insurance products, as well as market
      appreciation on underlying investment options, resulted in the increase in
      average separate account assets in 2000.

      Cost of insurance charges are assessed on the net amount at risk on
      universal life insurance policies. The net amount at risk is equal to a
      policy's death benefit minus the related policyholder account value. The
      amount charged is based on the insured's age and other underwriting
      factors. The increase in cost of insurance charges is due primarily to
      growth in the net amount at risk as a result of new sales of corporate and
      individual investment life insurance products and favorable persistency of
      in-force business. The net amount at risk related to corporate and
      individual investment life insurance grew to $32.93 billion at the end of
      2001 compared to $28.28 billion and $22.35 billion at the end of 2000 and
      1999, respectively.

      The decline in administrative fees in 2001 compared to 2000 is primarily
      attributable to case terminations in the Institutional Products segment
      that generated additional administrative fees in 2000, slightly offset by
      higher premium loads and per-policy administrative fees in 2001. The
      growth in administrative fees in 2000 compared to 1999 is attributable to
      administrative fees on case terminations and an increase in premium loads
      on corporate-owned and individual investment life products from greater
      sales.

      Lower surrender charges in 2001 were the result of the successful
      implementation of customer retention programs in the individual variable
      annuity business during the year. These programs were created as the
      heightened competitive environment in 2000 led to increased surrender
      activity and related fees.


                                       9
<PAGE>

      Net investment income includes the investment income earned on investments
      supporting fixed annuities and certain life insurance products as well as
      invested assets which are not allocated to product segments, net of
      related investment expenses. Net investment income totaled $1.73 billion
      in 2001 compared to $1.65 billion and $1.52 billion in 2000 and 1999,
      respectively. The increase in net investment income was primarily due to
      increased invested assets to support growth in individual fixed annuity,
      institutional products and life insurance policy reserves, partially
      offset by lower yields in 2001. General account assets supporting
      insurance products are closely correlated to the underlying reserves on
      these products. General account reserves supporting these products grew by
      $3.03 billion and $322.0 million in 2001 and 2000, respectively, and were
      $25.22 billion as of December 31, 2001. The growth in general account
      reserves reflects increased customer preference for fixed products in
      light of declining and volatile equity markets in the second half of 2000
      and 2001. In addition, the growth reflects the Company's commitment to
      strengthen its distribution and service capabilities for fixed products.
      The change in net investment income was also impacted by average yields on
      investments, which decreased by 52 basis points in 2001 and increased by
      24 basis points in 2000 following market interest rate trends.

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

      Net realized losses on investments, hedging instruments and hedged items
      totaled $18.3 million for 2001. During 2001, the Company entered into a
      transaction with NMIC, the Company's ultimate parent, whereby it sold a
      portion of its interest in a limited partnership that resulted in a $44.4
      million realized gain (see note 13 to the consolidated financial
      statements included in the F pages of this report). Also during 2001, the
      Company recorded realized losses related to other-than-temporary
      impairments on securities available-for-sale of $79.9 million, including
      $25.9 million on fixed maturity securities issued by Enron and affiliated
      entities.

      Other income includes fees earned by the Company's broker/dealers and in
      1999, fees for investment management services, as well as commissions and
      other income for administration, marketing and distribution services.

      Benefits and Expenses

      Interest credited to policyholder account balances totaled $1.24 billion
      in 2001 compared to $1.18 billion in 2000 and $1.10 billion in 1999 and
      principally relates to fixed annuities, both individual and institutional,
      funding agreements backing the Company's medium-term note program and
      certain life insurance products. The growth in interest credited reflects
      the overall increase in policy reserves for these products, partially
      offset by lower crediting rates in the Institutional Products segment.
      Crediting rates in the Individual Annuity segment have remained flat
      despite declining market interest rates in 2001, reflecting the current
      competitive market conditions.

      Other benefits and claims include policyholder benefits in excess of
      policyholder account balances for universal life and individual deferred
      annuities and net claims and provisions for future policy benefits for
      traditional life insurance products and immediate annuities. The growth in
      other benefits and claims in both 2001 and 2000 reflects additional life
      insurance claims primarily as a result of growth in life insurance
      in-force.


                                       10
<PAGE>

      Amortization of deferred policy acquisition costs (DAC) decreased $4.2
      million to $347.9 million in 2001. In 2000, amortization expense of $352.1
      million was up $79.5 million from 1999. The majority of the Company's DAC
      is related to variable and universal life products and deferred annuities
      where DAC is amortized in proportion to gross profits. The decline in
      amortization expense in 2001 is attributable to lower estimated gross
      profits from variable annuities, which were adversely impacted by lower
      equity markets throughout 2001. Lower amortization from variable annuities
      was partially offset by additional amortization from growth in life
      insurance products. Growth in amortization in 2000 compared to 1999 is
      attributable to higher gross profits from variable annuities due to growth
      in average account balances during the year coupled with a decrease in
      estimated future gross profits due to increased surrender activity during
      2000.

      Operating expenses were $444.1 million in 2001, a 7% decrease from 2000
      operating expenses of $479.0 million. Operating expenses were $463.4
      million in 1999. The decrease in 2001 reflects the Company's commitment to
      aggressive expense management in response to declining revenues and lower
      sales as a result of declining and volatile equity markets and a slowing
      economy throughout the year. The increase in 2000 reflected the growth in
      the number of annuity and life insurance contracts in-force and the
      related increase in administrative processing costs. The 1999 amount
      includes costs associated with investment management activities which were
      assigned to an affiliate in mid-1999.

      Federal income tax expense was $161.4 million representing an effective
      tax rate of 25.6% for 2001. Federal income tax expense in 2000 and 1999
      was $207.7 million and $201.4 million, respectively, representing
      effective rates of 30.4% and 33.2%. An increase in tax-exempt income and
      tax credits, including credits from affordable housing partnership
      investments, resulted in the decrease in effective rates in both years.

      Other Data

      The Company analyzes operating performance using a measure not defined in
      accounting principles generally accepted in the United States of America
      (GAAP), which the Company refers to as net operating income. The Company
      calculates net operating income by adjusting net income to exclude all net
      realized gains and losses on investments, hedging instruments and hedged
      items, net of tax (except for net realized gains and losses related to
      securitizations), and cumulative effect of adoption of accounting
      principles, net of tax. Net operating income or similar measures are
      commonly used in the insurance industry as a measure of ongoing earnings
      performance.

      The excluded items are important in understanding the Company's overall
      results of operations. Net operating income should not be viewed as a
      substitute for net income determined in accordance with GAAP, and it
      should be noted that the Company's definition of net operating income may
      differ from that used by other companies. However, the Company believes
      that the presentation of net operating income as it is measured for
      management purposes enhances the understanding of the Company's results of
      operations by highlighting the results from ongoing operations and the
      underlying profitability factors of the Company's business. The Company
      excludes non-securitization related net realized gains and losses on
      investments, hedging instruments and hedged items, net of tax, from net
      operating income because such items are often the result of a single
      non-recurring event which may or may not be at the Company's discretion.
      Including the fluctuating effects of these transactions could distort
      trends in the underlying profitability of the Company's business. The
      Company includes securitization-related net realized gains and losses in
      net operating income because the Company believes such activities are part
      of its core asset management capabilities and expects
      securitization-related income to be a recurring component of earnings in
      the future. The Company also excludes the cumulative effect of adoption of
      accounting principles, net of tax, from net operating income as such
      adjustments are not reflective of the underlying operations of the
      Company's business.


                                       11
<PAGE>

      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)                                                               2001              2000               1999
                                                                                -------           -------            -------
<S>                                                                             <C>               <C>                <C>
      Net income                                                                $ 461.8           $ 475.3            $ 405.1
      Net realized losses on investments, hedging instruments and hedged
        items, net of tax (excluding net realized gains and losses
        related to securitizations)                                                13.1              12.6                7.6
      Cumulative effect of adoption of accounting principles,
        net of tax                                                                  7.1                --                 --
                                                                                -------           -------            -------
        Net operating income                                                    $ 482.0           $ 487.9            $ 412.7
                                                                                =======           =======            =======
</TABLE>

      Sales Information

      The Company regularly monitors and reports a non-GAAP measure titled
      sales. Sales or similar measures are commonly used in the insurance
      industry as a measure of business generated in the period.

      Sales should not be viewed as a substitute for revenues determined in
      accordance with GAAP, and the Company's definition of sales might differ
      from that used by other companies. Sales generate customer funds managed
      and administered, which ultimately drive revenues. Sales are comprised of
      statutory premiums and deposits on individual and group annuities and life
      insurance products sold to a diverse customer base. Statutory premiums and
      deposits are calculated in accordance with accounting practices prescribed
      or permitted by regulatory authorities and then adjusted to arrive at
      sales.

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

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

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

      The Company also markets group deferred compensation retirement plans to
      employees of state and local governments for use under 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.


                                       12
<PAGE>

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

<TABLE>
<CAPTION>
      (in millions)                                                               2001              2000               1999
                                                                                =========         =========          =========
<S>                                                                             <C>               <C>                <C>
      The BEST of AMERICA products                                              $ 3,927.2         $ 5,475.4          $ 4,639.2
      Private label annuities                                                     1,398.3             998.7              947.8
      Other                                                                           2.8              90.9              382.5
                                                                                ---------         ---------          ---------
         Total individual variable annuity sales                                  5,328.3           6,565.0            5,969.5
                                                                                ---------         ---------          ---------

      Deferred fixed annuities                                                    1,874.4             534.8              332.5
      Immediate fixed annuities                                                     127.8             127.7               64.2
                                                                                ---------         ---------          ---------
         Total individual fixed annuity sales                                     2,002.2             662.5              396.7
                                                                                ---------         ---------          ---------
           Total individual annuity sales                                       $ 7,330.5         $ 7,227.5          $ 6,366.2
                                                                                =========         =========          =========

      The BEST of AMERICA products                                              $ 3,067.6         $ 3,931.4          $ 3,537.7
      Other                                                                          56.9              47.3               83.1
                                                                                ---------         ---------          ---------
         Total private sector pension plan sales                                  3,124.5           3,978.7            3,620.8
                                                                                ---------         ---------          ---------

      Total public sector pension plan sales -
         IRC Section 457 annuities                                                1,521.2           2,148.8            2,190.3
                                                                                ---------         ---------          ---------
           Total institutional products sales                                   $ 4,645.7         $ 6,127.5          $ 5,811.1
                                                                                =========         =========          =========

      The BEST of AMERICA variable life series                                  $   552.4         $   573.4          $   425.9
      Corporate-owned life insurance                                                742.3             711.4              409.2
      Traditional/Universal life insurance                                          245.9             245.4              260.8
                                                                                ---------         ---------          ---------
         Total life insurance sales                                             $ 1,540.6         $ 1,530.2          $ 1,095.9
                                                                                =========         =========          =========
</TABLE>

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

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

<TABLE>
<CAPTION>
      (in millions)                                                               2001              2000               1999
                                                                              ===========         =========          =========
<S>                                                                           <C>                 <C>                <C>
      Independent broker/dealers                                              $   4,185.9         $ 5,933.4          $ 5,097.8
      Brokerage firms                                                             2,123.5           1,183.8              900.2
      Financial institutions                                                      3,202.9           2,868.0            2,431.2
      Pension plan administrators                                                   959.7           1,044.2            1,165.7
      Life insurance specialists                                                    742.4             711.4              420.0
      Nationwide Retirement Solutions                                             1,591.7           2,328.6            2,470.3
      Nationwide agents                                                             710.6             815.8              787.9
                                                                              -----------         ---------          ---------
</TABLE>

      The 29% decrease in sales in the independent broker/dealer channel in 2001
      reflects primarily lower demand for variable annuities due to declining
      and volatile equity markets. Also contributing to the decline in 2001 were
      lower private sector group pension sales due to decreases in the average
      takeover case size reflecting the depressed equity markets and number of
      new plans sold in light of the economic slowdown. Total sales through this
      channel were up 16% in 2000 reflecting the strength of the Company's
      multiple product strategy, appointment of new distributors, introduction
      of new products and features and a diverse distribution network.

      Sales through brokerage firms increased 79% in 2001 compared to 2000,
      principally due to the addition of Waddell & Reed Financial, Inc. as a
      distributor. Sales through this new relationship totaled $1.04 billion for
      2001.


                                       13
<PAGE>

      Sales through financial institutions grew 12% and 18% during 2001 and
      2000, respectively, driven mainly by the appointment of new distributors
      in the bank channel who sell fixed annuity products and a shift in
      customer preference in 2001 to fixed annuity products in light of the
      declining and volatile equity markets.

      The increase in sales through life insurance specialists reflects $742.3
      million of COLI sales in 2001 compared to $711.4 million in 2000 and
      $409.2 million in 1999. The Company entered the COLI market in 1998 and
      quickly became a market leader through a focus on mid-sized cases. Sales
      for 2001 reflect continued growth in renewal premiums, offset by a sharp
      decline in first year premiums, as the depressed economic conditions have
      reduced demand for new executive benefit plans.

      BUSINESS SEGMENTS

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

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

<TABLE>
<CAPTION>
      (in millions)                                                                2001              2000               1999
                                                                                  =======           =======            =======
<S>                                                                               <C>               <C>                <C>
      Individual Annuity                                                          $ 231.4           $ 281.7            $ 259.2
      Institutional Products                                                        207.8             230.7              217.8
      Life Insurance                                                                184.7             152.9              120.8
      Corporate                                                                      26.6              37.1               20.3
                                                                                  -------           -------            -------
        Operating income before federal income tax expense                        $ 650.5           $ 702.4            $ 618.1
                                                                                  =======           =======            =======
</TABLE>

      Individual Annuity

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


                                       14
<PAGE>

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

<TABLE>
<CAPTION>
      (in millions)                                                             2001                  2000                  1999
                                                                             ==========            ==========            ==========
<S>                                                                          <C>                   <C>                   <C>
      INCOME STATEMENT DATA
      Revenues:
        Policy charges                                                       $    495.1            $    573.2            $    484.6
        Net investment income                                                     534.7                 483.2                 458.9
        Premiums on immediate annuities                                            60.9                  52.7                  26.8
                                                                             ----------            ----------            ----------
                                                                                1,090.7               1,109.1                 970.3
                                                                             ----------            ----------            ----------
      Benefits and expenses:
        Interest credited to policyholder account balances                        433.2                 396.4                 384.9
        Other benefits                                                             68.7                  54.0                  23.8
        Amortization of deferred policy acquisition costs                         220.0                 238.7                 170.9
        Other operating expenses                                                  137.4                 138.3                 131.5
                                                                             ----------            ----------            ----------
                                                                                  859.3                 827.4                 711.1
                                                                             ----------            ----------            ----------
         Operating income before federal income tax expense                  $    231.4            $    281.7            $    259.2
                                                                             ==========            ==========            ==========

      OTHER DATA
      Sales:
        Individual variable annuities                                        $  5,328.3            $  6,565.0            $  5,969.5
        Individual fixed annuities                                              2,002.2                 662.5                 396.7
                                                                             ----------            ----------            ----------
         Total individual annuity sales                                      $  7,330.5            $  7,227.5            $  6,366.2
                                                                             ==========            ==========            ==========

      Average account balances:
        Separate account                                                     $ 33,419.0            $ 37,934.0            $ 31,929.2
        General account                                                         7,619.7               6,942.9               6,712.5
                                                                             ----------            ----------            ----------
         Total average account balances                                      $ 41,038.7            $ 44,876.9            $ 38,641.7
                                                                             ==========            ==========            ==========

      Account balances as of year end:
        Individual variable annuities                                        $ 36,020.9            $ 39,621.9            $ 40,274.7
        Individual fixed annuities                                              5,756.6               3,941.8               3,722.2
                                                                             ----------            ----------            ----------
         Total account balances                                              $ 41,777.5            $ 43,563.7            $ 43,996.9
                                                                             ==========            ==========            ==========

      Return on average allocated capital                                          13.4%                 20.4%                 19.7%
      Pre-tax operating income to average account balances                         0.56%                 0.63%                 0.67%
                                                                             ----------            ----------            ----------
</TABLE>

      Pre-tax operating earnings reached $231.4 million in 2001, down 18%
      compared to 2000 pre-tax operating earnings of $281.7 million, which were
      up 9% from 1999. The decline in the equity markets during 2001 pushed
      average separate account balances lower, reducing policy charges and
      earnings for the year. Growth in average separate account balances in 2000
      from market appreciation and net flows lead to higher policy charges in
      2000 which were partially offset by higher amortization of DAC due to
      higher gross profits and additional surrender activity.

      Asset fees were $420.8 million in 2001 down 12% from $478.5 million in
      2000 and totaled $415.0 million in 1999. Asset fees are calculated daily
      and charged as a percentage of separate account assets. The fluctuations
      in asset fees are primarily due to changes in the market value of the
      investment options underlying the account balances, which have followed
      the general trends of the equity markets. Average separate account assets
      decreased 12% in 2001 to $33.42 billion following a 19% increase in 2000.

      Surrender fees decreased by $19.7 million to $55.7 million in 2001
      compared to $75.4 million in 2000 and $52.4 million in 1999. Lower
      surrender fees in 2001 were the result of the successful implementation of
      customer retention programs in the individual variable annuity business
      during the year. These programs were created as the heightened competitive
      environment in 2000 led to increased surrender activity and related fees.


                                       15
<PAGE>

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

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

<TABLE>
<CAPTION>
                                                                       2001                     2000                     1999
                                                                    =======                  =======                  =======
<S>                                                                 <C>                      <C>                      <C>
      Net investment income                                            7.58%                    7.88%                    7.58%
      Interest credited                                                5.69                     5.64                     5.72
                                                                    -------                  -------                  -------
        Interest spread                                                1.89%                    2.24%                    1.86%
                                                                    =======                  =======                  =======
</TABLE>

      Interest spreads narrowed in 2001 compared to the prior year. A
      combination of a competitive environment, a sharp decline in interest
      rates and a by-product of the Company's investment strategy all
      contributed to the reduction in spreads. As a strategic move to maintain
      market share, the Company did not lower crediting rates in the third
      quarter of 2001 as quickly as earned rates declined. In addition,
      throughout 2001, the Company had a significant increase in cash flows in
      the general account due to strong fixed annuity sales. As a result, at
      certain times throughout the year, cash positions were greater than
      targeted as the Company acquired appropriate long-term investments,
      putting pressure on spreads, especially given a declining interest rate
      environment. Declining interest rates in 2001 resulted in a significant
      increase in mortgage loan and bond prepayment income, which added 8 basis
      points to the 2001 interest spread, compared to 4 basis points and 7 basis
      points, in 2000 and 1999, respectively. Interest spreads in 2000 benefited
      from a declining interest rate environment that allowed the Company to
      earn additional spread while still offering competitive crediting rates.

      The Company is able to mitigate the effects of changes in investment
      yields by periodically resetting the rates credited on fixed features of
      individual annuity contracts. As of December 31, 2001, individual fixed
      annuity policy reserves and fixed option of variable annuity reserves of
      $2.62 billion and $2.96 billion, respectively, are in contracts that
      adjust the crediting rate periodically with portions resetting in each
      calendar quarter. Individual fixed annuity policy reserves of $1.55
      billion are in contracts that adjust the crediting rate every five years.
      The Company also has $373.0 million of fixed option of variable annuity
      policy reserves related to private label annuities that call for the
      crediting rate to be reset annually and $1.59 billion of individual fixed
      annuity policy reserves that are in payout status where the Company has
      guaranteed periodic, typically monthly, payments.

      Account balances ended 2001 at $41.78 billion, down $1.79 billion from the
      end of 2000 of $43.56 billion, which was down slightly from the end of
      1999. Net flows, which consists of deposits less withdrawals, of $3.09
      billion and $2.40 billion in 2001 and 2000, respectively, were offset by
      market depreciation of variable annuities of $4.51 billion and $1.45
      billion in 2001 and 2000, respectively. Sales of fixed annuities were
      $2.00 billion in 2001, up 202% from 2000. The decline in the equity
      markets fueled interest in fixed annuity sales across the industry. The
      Company has been able to generate sales growth in excess of industry rates
      due to a focus, beginning in the second half of 2000, on expanding the
      number of banks that sell the Company's fixed products. Sales of variable
      annuities were $5.33 billion in 2001, down 19% from 2000. Variable annuity
      sales in 2000 were up 10% over 1999. Declining equity markets have reduced
      consumer demand for variable annuities. Sales of a proprietary variable
      annuity by Waddell & Reed Financial, Inc. of nearly $1.00 billion in 2001
      provided growth in the brokerage channel, partially offsetting declines in
      the independent broker/dealer and financial institutions channels.
      According to VARDS, the Company was ranked 4th in total variable annuity
      sales in 2001 and 2000.

      The decrease in return on average allocated capital in 2001 is primarily a
      result of lower earnings on individual variable annuities due to depressed
      equity markets and additional allocated capital to support growth in fixed
      annuities during 2001.


                                       16
<PAGE>

      The decrease in pre-tax operating income to average account balances in
      2001 and 2000 is primarily a result of lower interest spreads on average
      general account reserves and the Company not being able to reduce its
      operating expenses as quickly and in proportion to the decrease in policy
      charges due to declining equity markets in 2001. In 2000, additional DAC
      amortization as a result of increased surrender activity decreased pre-tax
      operating income to average account balances.

      Institutional Products

      The Institutional Products segment is comprised of the Company's private
      and public sector group retirement plans and medium-term note program. The
      private sector includes the 401(k) business generated through fixed and
      variable annuities. The public sector includes the IRC Section 457
      business in the form of fixed and variable annuities. Sales results do not
      include business generated through the Company's medium-term note program,
      large case pension plan acquisitions and Nationwide employee and agent
      benefit plans, however the income statement data does reflect this
      business.

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

<TABLE>
<CAPTION>
      (in millions)                                                           2001                2000                1999
                                                                           ==========          ==========          ==========
<S>                                                                        <C>                 <C>                 <C>
      INCOME STATEMENT DATA
      Revenues:
        Policy charges                                                     $    205.9          $    251.6          $    211.9
        Net investment income                                                   847.5               827.4               771.2
                                                                           ----------          ----------          ----------
                                                                              1,053.4             1,079.0               983.1
                                                                           ----------          ----------          ----------
      Benefits and expenses:
        Interest credited to policyholder account balances                      627.8               628.8               580.9
        Other operating expenses                                                217.8               219.5               184.4
                                                                           ----------          ----------          ----------
                                                                                845.6               848.3               765.3
                                                                           ----------          ----------          ----------
          Operating income before federal income tax expense               $    207.8          $    230.7          $    217.8
                                                                           ==========          ==========          ==========

      OTHER DATA
      Sales:
        Private sector pension plans                                       $  3,124.5          $  3,978.7          $  3,620.8
        Public sector pension plans                                           1,521.2             2,148.8             2,190.3
                                                                           ----------          ----------          ----------
          Total institutional products sales                               $  4,645.7          $  6,127.5          $  5,811.1
                                                                           ==========          ==========          ==========

      Average account balances:
        Separate account                                                   $ 23,149.9          $ 27,806.7          $ 22,350.3
        General account                                                      11,528.3            10,521.2            10,147.7
                                                                           ----------          ----------          ----------
          Total average account balances                                   $ 34,678.2          $ 38,327.9          $ 32,498.0
                                                                           ==========          ==========          ==========

      Account balances as of year end:
        Private sector pension plans                                       $ 16,405.5          $ 18,001.4          $ 19,246.2
        Public sector pension plans                                          14,288.8            17,294.5            18,949.2
        Funding agreements backing medium-term notes                          3,128.1             1,627.7               574.5
                                                                           ----------          ----------          ----------
          Total account balances                                           $ 33,822.4          $ 36,923.6          $ 38,769.9
                                                                           ==========          ==========          ==========

      Return on average allocated capital                                        22.6%               24.2%               24.5%
      Pre-tax operating income to average account balances                       0.60%               0.59%               0.65%
                                                                           ----------          ----------          ----------
</TABLE>

      Pre-tax operating income totaled $207.8 million in 2001, down 10% compared
      to 2000 pre-tax operating income of $230.7 million, which was up 6% from
      1999. Declining equity markets throughout 2001 drove average separate
      account balances, policy charges and earnings lower. In addition, an
      intensively competitive environment in the public sector market have
      reduced revenues and earnings. Growth in the medium-term note program
      partially offset the declines in the pension businesses. Results for 2000
      benefited from growth in average account balances due to net flows and
      market appreciation.


                                       17
<PAGE>

      Asset fees declined 20% to $176.7 million in 2001 compared to $220.2
      million in 2000. The decline was driven by a 17% decrease in average
      separate account assets in 2001 compared to a 24% increase in 2000. Other
      policy charges are down in 2001 as a result of additional administration
      fees in 2000 from case terminations.

      Institutional Products segment results reflect an increase in interest
      spread income attributable to growth in average general account balances
      from the Company's medium-term note program. Interest spread is net
      investment income less interest credited to policyholder account balances.
      Interest spreads vary depending on crediting rates offered by the Company,
      performance of the investment portfolio, including the rate of
      prepayments, changes in market interest rates, the competitive environment
      and other factors.

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

<TABLE>
<CAPTION>
                                                                                   2001              2000               1999
                                                                                  ======            ======             ======
<S>                                                                               <C>               <C>                <C>
      Net investment income                                                         7.35%             7.86%              7.60%
      Interest credited                                                             5.44              5.98               5.72
                                                                                  ------            ------             ------
          Interest spread                                                           1.91%             1.88%              1.88%
                                                                                  ======            ======             ======
</TABLE>

      Interest spread on average general account reserves remained flat in 2001
      compared to 2000 and 1999. Declining interest rates in 2001 resulted in a
      significant increase in mortgage loan and bond prepayment income, which
      added 13 basis points to the 2001 interest spread, compared to 4 basis
      points and 8 basis points, in 2000 and 1999, respectively. The additional
      prepayment income offset the impact on spreads of higher than anticipated
      cash balances at times throughout 2001 and yields declining on new
      investments more quickly than crediting rates could be adjusted.

      The Company is able to mitigate the effects of changes in investment
      yields by periodically resetting the rates credited on fixed features sold
      through group annuity contracts. Fixed annuity policy reserves in the
      Institutional Products segment as of December 31, 2001, included $6.56
      billion in contracts where the guaranteed interest rate is reestablished
      each quarter and $922.2 million in contracts that adjust the crediting
      rate periodically with portions resetting in each calendar quarter. In
      this segment, the Company also has $1.50 billion of fixed option of
      variable annuity policy reserves that call for the crediting rate to be
      reset annually on January 1. The remaining $3.13 billion of fixed annuity
      policy reserves relate to funding agreements issued in conjunction with
      the Company's medium-term note program where the crediting rate is either
      fixed for the term of the contract or variable, based on an underlying
      index.

      Other operating expenses in 2001 decreased 1% compared to a 19% increase
      in 2000. The decrease in 2001 reflects the Company's commitment to
      aggressively manage expenses in response to declining revenues and lower
      sales as a result of declining and volatile equity markets and a slowing
      economy throughout the year. Higher operating expenses in 2000 reflect the
      significant technology investments made as part of the new business model
      in the public sector business.

      Account balances ended 2001 at $33.82 billion, down $3.10 billion from
      $36.92 billion at the end of 2000, and compared to $38.77 billion at the
      end of 1999. The decrease in 2001 is due to market depreciation on
      variable assets and large case terminations on fixed and variable annuity
      cases in both 2000 and 1999. The Company's medium-term note program posted
      a record year with $1.48 billion in new issues and ended 2001 with $3.13
      billion in account balances. Private sector sales were down in 2001
      reflecting lower sales due to decreases in the average takeover case size
      reflecting the depressed equity markets and an 11% decline in the number
      of new plans sold in light of the economic slow down. Sales of public
      sector pension plans in 2001 decreased 29% compared to 2000 reflecting the
      impact of earlier case terminations. Declines in sales in both private
      sector and public sector also reflect increased interest of plan sponsors
      to use investment vehicles other than group annuity contracts.

      The decrease in return on average allocated capital in 2001 is primarily a
      result of lower earnings on variable annuities due to depressed equity
      markets and additional allocated capital to support growth in the
      medium-term note program.


                                       18
<PAGE>

      Pre-tax operating income to average account balances of 0.60% in 2001
      remained relatively flat compared to 0.59% in 2000 and decreased from
      0.65% in 1999. The decrease in 2000 was primarily driven by a change in
      the mix of products, including new products with reduced policy charges
      and the growth in separate account products.

      Life Insurance

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

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

<TABLE>
<CAPTION>
      (in millions)                                                            2001                2000                1999
                                                                            =========           =========           =========
<S>                                                                         <C>                 <C>                 <C>
      INCOME STATEMENT DATA
      Revenues:
        Policy charges                                                      $   316.3           $   266.6           $   199.0
        Net investment income                                                   323.3               289.2               253.1
        Other                                                                   190.2               187.3               194.0
                                                                            ---------           ---------           ---------
                                                                                829.8               743.1               646.1
                                                                            ---------           ---------           ---------
      Benefits                                                                  431.1               389.3               359.5
      Operating expenses                                                        214.0               200.9               165.8
                                                                            ---------           ---------           ---------
                                                                                645.1               590.2               525.3
                                                                            ---------           ---------           ---------
          Operating income before federal income tax expense                $   184.7           $   152.9           $   120.8
                                                                            =========           =========           =========

      OTHER DATA
      Sales:
        The BEST of AMERICA variable life series                            $   552.4           $   573.4           $   425.9
        Corporate-owned life insurance                                          742.3               711.4               409.2
        Traditional/Universal life insurance                                    245.9               245.4               260.8
                                                                            ---------           ---------           ---------
          Total life insurance sales                                        $ 1,540.6           $ 1,530.2           $ 1,095.9
                                                                            =========           =========           =========

      Policy reserves as of year end:
        Individual investment life insurance                                $ 2,203.7           $ 2,092.0           $ 1,832.3
        Corporate investment life insurance                                   3,236.8             2,552.3             1,498.6
        Traditional life insurance                                            1,873.4             1,813.0             1,787.0
        Universal life insurance                                                785.3               768.2               795.9
                                                                            ---------           ---------           ---------
          Total policy reserves                                             $ 8,099.2           $ 7,225.5           $ 5,913.8
                                                                            =========           =========           =========

      Life insurance in-force as of year end:
        Individual investment life insurance                                $30,641.0           $26,781.5           $21,596.1
        Corporate investment life insurance                                   7,727.6             6,143.9             4,088.4
        Traditional life insurance                                           24,276.7            23,441.5            24,419.1
        Universal life insurance                                              7,806.3             8,023.1             8,460.1
                                                                            ---------           ---------           ---------
          Total insurance in-force                                          $70,451.6           $64,390.0           $58,563.7
                                                                            =========           =========           =========

      Return on average allocated capital                                        12.1%               11.5%               11.0%
                                                                            ---------           ---------           ---------
</TABLE>

      Life Insurance segment results reflect increased revenues driven by growth
      in investment life insurance in-force. Life Insurance segment earnings in
      2001 increased 21% to $184.7 million, up from $152.9 million a year ago
      and $120.8 million in 1999. The increase in Life Insurance segment
      earnings is attributable to revenue growth generated from new sales and
      high persistency of both individual and corporate investment life
      insurance products.


                                       19
<PAGE>

      Policy charges increased 19% to $316.3 million in 2001, following a 34%
      increase to $266.6 million in 2000. Cost of insurance charges, which are
      assessed on the amount of insurance in-force in excess of the related
      policyholder account value, increased 29% and 34% in 2001 and 2000,
      respectively, and reflect growth in insurance in-force and policy reserves
      from high persistency of in-force contracts and new sales. Administrative
      fees were flat in 2001 compared to 2000, after increasing 35% in 2000, and
      reflect lower first year sales growth in 2001.

      Net investment income increased in both 2001 and 2000 as a result of
      growth in general account corporate-owned life insurance in-force.

      While 2001 mortality experience was higher than 2000, the Company's
      mortality experience continues to be favorable relative to pricing
      assumptions. The favorable experience has allowed the Company to
      renegotiate and lower certain reinsurance premiums.

      Operating expenses were $214.0 million in 2001, up 7% from 2000. Operating
      expenses for 2000 were $200.9 million, a 21% increase over 1999. Although
      expenses did increase marginally in 2001 compared to 2000, the increase
      was significantly less than the increase in segment revenues, reflecting
      the operational efficiencies and scale advantage being developed in the
      investment life operation. Technology and process improvement investments
      intended to streamline and improve the underwriting and policy-issue
      process made in 2000 are helping to develop these efficiencies.

      Total life insurance sales in 2001 of $1.54 billion were essentially flat
      compared to $1.53 billion during 2000 and were $1.10 billion in 1999.
      Individual variable universal life sales have been adversely impacted by
      the phase out of the estate tax, uncertainty surrounding the taxation of
      split dollar plans, and the volatile stock market. Sales of new COLI cases
      were down given the depressed economic conditions where corporations are
      not forming new executive benefit plans and existing plans are being
      funded at lower levels. According to the Tillinghast-Towers Perrin Value
      Variable Life Survey, the Company ranked 6th in variable life sales in
      2001, up from 7th in 2000.

      Corporate

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

<TABLE>
<CAPTION>
      (in millions)                                                                 2001              2000              1999
                                                                                   ======            ======            =======
<S>                                                                                <C>               <C>               <C>
      INCOME STATEMENT DATA
      Operating revenues                                                           $ 35.5            $ 72.1            $ 103.7
      Operating expenses                                                              8.9              35.0               83.4
                                                                                   ------            ------            -------
        Operating income before federal income tax expense (1)                     $ 26.6            $ 37.1            $  20.3
                                                                                   ======            ======            =======
</TABLE>

      ----------
      (1)   Excludes net realized gains and losses on investments, hedging
            instruments and hedged items.

      The Corporate segment consists of net investment income not allocated to
      the three product segments, unallocated expenses, interest expense on debt
      and beginning in 2001, results from the Company's structured products
      initiatives.

      The decline in revenues reflects a decrease in net investment income on
      real estate investments, passive losses from affordable housing
      partnership investments, lower investment yields from declining interest
      rates and fewer investments retained in the Corporate segment as more
      capital and the related investment earnings are allocated to the product
      segments to support growth. Operating expenses include interest expense on
      debt, which totaled $6.2 million, $1.3 million and none in 2001, 2000 and
      1999, respectively.


                                       20
<PAGE>

      In addition to these operating revenues and expenses, the Company also
      reports net realized gains and losses on investments, hedging instruments
      and hedged items in the Corporate segment. The Company realized net
      investment gains of $61.6 million, including $44.4 million from the
      related party transaction discussed below, from the sale of investments
      and net losses on other-than-temporary impairments on securities
      available-for-sale of $79.9 million, including $25.9 million on fixed
      maturity securities issued by Enron and affiliated entities, during 2001.
      This compares to realized net investment losses of $8.9 million from the
      sale of investments and net losses on other-than-temporary impairments on
      securities available-for-sale of $10.5 million during 2000 and realized
      net investment losses of $19.1 million from the sale of investments and
      net gains on other-than-temporary impairments on securities
      available-for-sale of $7.5 million during 1999. During 2001, the Company
      entered into a transaction with NMIC, whereby it sold 78% of its interest
      in a limited partnership (representing 49% of the limited partnership) to
      NMIC for $158.9 million. As a result of this sale, the Company recorded a
      realized gain of $44.4 million.

      In addition, the Company realized an after tax loss of $4.8 million
      related to the adoption of FAS 133 in first quarter 2001 and an after tax
      loss of $2.3 million related to the adoption of EITF 99-20 in second
      quarter 2001.

      In an effort to continue to leverage investment expertise, the Company's
      structured products group structured and executed two transactions in
      2001. In the first quarter, the Company structured and launched a $315
      million collateralized bond obligation (CBO), generating $1.6 million of
      operating income for 2001. In the fourth quarter, the Company structured
      and launched its first commercial mortgage loan securitization, adding
      $1.9 million of operating income in 2001.

      RELATED PARTY TRANSACTIONS

      During 2001, the Company entered into a transaction with NMIC, whereby it
      sold 78% of its interest in a limited partnership (representing 49% of the
      limited partnership) to NMIC for $158.9 million. As a result of this sale,
      the Company recorded a realized gain of $44.4 million, and related tax
      expense of $15.5 million. The sale price, which was paid in cash,
      represented the fair value of the limited partnership interest and was
      based on a valuation of the limited partnership and its underlying
      investments. The valuation was completed by qualified management of the
      limited partnership and utilized a combination of internal and independent
      valuations of the underlying investments of the limited partnership.
      Additionally, senior financial officers and the Boards of Directors of the
      Company and NMIC separately reviewed and approved the valuation prior to
      the execution of this transaction. The Company continues to hold an
      economic and voting interest in the limited partnership of approximately
      14%, with NMIC holding the remaining interests.

      NLIC has issued group annuity and life insurance contracts and performs
      administrative services for various employee benefit plans sponsored by
      NMIC or its affiliates. Total account values of these contracts were $4.68
      billion and $4.80 billion as of December 31, 2001 and 2000, respectively.
      Total revenues from these contracts were $150.7 million, $156.8 million
      and $149.7 million for the years ended December 31, 2001, 2000 and 1999,
      respectively, and include policy charges, net investment income from
      investments backing the contracts and administrative fees. Total interest
      credited to the account balances were $118.4 million, $131.9 million and
      $112.0 million for the years ended December 31, 2001, 2000 and 1999,
      respectively. The terms of these contracts are consistent in all material
      respects with what the Company offers to unaffiliated parties.

      The Company files a consolidated federal tax return with NMIC, as
      described in note 2(i). Total payments (from) to NMIC were $(45.4)
      million, $74.6 million and $29.8 million for the years ended December 31,
      2001, 2000 and 1999, respectively.

      During second quarter 1999, the Company entered into a modified
      coinsurance arrangement to reinsure the 1999 operating results of an
      affiliated company, Employers Life Insurance Company of Wausau (ELOW)
      retroactive to January 1, 1999. In September 1999, NFS acquired ELOW for
      $120.8 million and immediately merged ELOW into NLIC terminating the
      modified coinsurance arrangement. Because ELOW was an affiliate, the
      Company accounted for the merger similar to poolings-of-interests;
      however, prior period financial statements were not restated due to
      immateriality. The reinsurance and merger combined contributed $1.46
      million to net income in 1999.


                                       21
<PAGE>

      The Company has a reinsurance agreement with NMIC whereby all of the
      Company's accident and health business is ceded to NMIC on a modified
      coinsurance basis. The agreement covers individual accident and health
      business for all periods presented and group and franchise accident and
      health business since July 1, 1999. Either party may terminate the
      agreement on January 1 of any year with prior notice. Prior to July 1,
      1999 group and franchise accident and health business and a block of group
      life insurance policies were ceded to ELOW under a modified coinsurance
      agreement. Under a modified coinsurance agreement, 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 the reinsurer.
      Risk of asset default is retained by the Company, although a fee is paid
      to the Company for the retention of such risk. The ceding of risk does not
      discharge the original insurer from its primary obligation to the
      policyholder. The Company believes that the terms of the modified
      coinsurance agreements are consistent in all material respects with what
      the Company could have obtained with unaffiliated parties. Revenues ceded
      to NMIC and ELOW for the years ended December 31, 2001, 2000 and 1999 were
      $200.7 million, $170.1 million, and $193.0 million, respectively, while
      benefits, claims and expenses ceded were $208.5 million, $168.0 million
      and $197.3 million, respectively.

      Pursuant to a cost sharing agreement among NMIC and certain of its direct
      and indirect subsidiaries, including the Company, NMIC provides certain
      operational and administrative services, such as investment management,
      advertising, personnel and general management services, to those
      subsidiaries. Expenses covered by such agreement are subject to allocation
      among NMIC and such subsidiaries. Measures used to allocate expenses among
      companies include individual employee estimates of time spent, special
      cost studies, salary expense, commission expense and other methods agreed
      to by the participating companies that are within industry guidelines and
      practices. In addition, Nationwide Services Company, a subsidiary of NMIC,
      provides computer, telephone, mail, employee benefits administration, and
      other services to NMIC and certain of its direct and indirect
      subsidiaries, including the Company, based on specified rates for units of
      service consumed. For the years ended December 31, 2001, 2000 and 1999,
      the Company made payments to NMIC and Nationwide Services Company totaling
      $139.8 million, $150.3 million, and $124.1 million, respectively. The
      Company does not believe that expenses recognized under these agreements
      are materially different than expenses that would have been recognized had
      the Company operated on a stand-alone basis.

      Under a marketing agreement with NMIC, NLIC makes payments to cover a
      portion of the agent marketing allowance that is paid to Nationwide
      agents. These costs cover product development and promotion, sales
      literature, rent and similar items. Payments under this agreement totaled
      $26.4 million, $31.4 million and $34.5 million for the years ended
      December 31, 2001, 2000 and 1999, respectively.

      The Company leases office space from NMIC and certain of its subsidiaries.
      For the years ended December 31, 2001, 2000 and 1999, the Company made
      lease payments to NMIC and its subsidiaries of $18.7 million, $14.1
      million and $9.9 million, respectively.

      The Company also participates in intercompany repurchase agreements with
      affiliates whereby the seller will transfer securities to the buyer at a
      stated value. Upon demand or after a stated period, the seller will
      repurchase the securities at the original sales price plus a price
      differential. During 2001, the most the Company had outstanding at any
      given time was $368.5 million and the Company incurred interest expense on
      intercompany repurchase agreements of $0.2 million for 2001. Transactions
      under the agreements during 2000 and 1999 were not material. The Company
      believes that the terms of the repurchase agreements are materially
      consistent with what the Company could have obtained with unaffiliated
      parties.

      The Company and various affiliates entered into agreements with Nationwide
      Cash Management Company (NCMC), an affiliate, under which NCMC acts as a
      common agent in handling the purchase and sale of short-term securities
      for the respective accounts of the participants. Amounts on deposit with
      NCMC were $54.8 million and $321.1 million as of December 31, 2001 and
      2000, respectively, and are included in short-term investments on the
      accompanying consolidated balance sheets.

      Certain annuity products are sold through affiliated companies, which are
      also subsidiaries of NFS. Total commissions and fees paid to these
      affiliates for the three years ended December 31, 2001 were $52.9 million,
      $65.0 million and $79.7 million, respectively.


                                       22
<PAGE>

      The Company makes seed investments in Gartmore Global Investments, Inc.,
      an affiliate, to capitalize new mutual fund offerings. As of December 31,
      2001 and 2000, the fair value of these investments totaled $54.5 million
      and $49.9 million, respectively.

      On December 19, 2001, the Company sold a 7.50%, $300.0 million surplus
      note to NFS, maturing on December 17, 2031. The fair value of the surplus
      note as of December 31, 2001 was $300.0 million. Principal and interest
      payments are subject to prior approval by the superintendent of insurance
      of the State of Ohio. The Company is scheduled to pay interest
      semi-annually on June 17 and December 17 of each year commencing June 17,
      2002.

      OFF-BALANCE SHEET TRANSACTIONS

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

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      MARKET RISK SENSITIVE FINANCIAL INSTRUMENTS

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

      Interest Rate Risk

      Fluctuations in interest rates can potentially impact the Company's
      earnings, cash flows and the fair value of its assets and liabilities.
      Generally, in a declining interest rate environment, the Company may be
      required to reinvest the proceeds from matured and prepaid investments at
      rates lower than the overall yield of the portfolio, which could reduce
      interest spread income. In addition, minimum guaranteed crediting rates
      (typically 3.0% or 3.5%) on certain annuity contracts could result in a
      reduction of the Company's interest spread income in the event of a
      significant and prolonged decline in interest rates from market rates at
      the end of 2001. The average crediting rate of fixed annuity products
      during 2001 was 5.69% and 5.44% for the Individual Annuity and
      Institutional Products segments, respectively, 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- and asset-backed securities
      with limited prepayment exposure.

      Conversely, a rising interest rate environment could result in a reduction
      of interest spread income or an increase in policyholder surrenders.
      Existing general account investments supporting annuity liabilities have a
      weighted average maturity of approximately 5.37 years as of December 31,
      2001 and therefore, the change in yield of the portfolio will lag changes
      in market interest rates. This lag is increased if the rate of prepayments
      of securities slows. To the extent the Company sets renewal rates based on
      current market rates, this will result in reduced interest spreads.
      Alternatively, if the Company sets renewal crediting rates while
      attempting to maintain a desired spread from the portfolio yield, the
      rates offered by the Company may be less than new money rates offered by
      competitors. This difference could result in an increase in surrender
      activity by policyholders. If the Company could not fund the surrenders
      with its cash flow from operations, the Company may be required to sell
      investments, which likely would have declined in value due to the increase
      in interest rates. The Company mitigates this risk by offering products
      that assess surrender charges or market value adjustments at the time of
      surrender, by investing in assets with maturities and durations that match
      the expected characteristics of the liabilities, and by investing in
      mortgage- and asset-backed securities with limited prepayment exposure.


                                       23
<PAGE>

      Asset/Liability Management Strategies to Manage Interest Rate Risk

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

      For individual immediate annuities having future benefits 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. As
      of December 31, 2001, the average duration of assets in this pool was 7.56
      years and the average duration of the liabilities was 7.50 years.
      Individual immediate annuity policy reserves on this business were $1.59
      billion as of December 31, 2001.

      Because the timing of the payment of future benefits on the majority of
      the Company's business can be changed by the policyholder, the Company
      employs cash flow testing techniques in its asset/liability management
      process. In addition, each year the Company's annuity and insurance
      business is analyzed to determine the adequacy of the reserves supporting
      such business. This analysis is accomplished by projecting the anticipated
      cash flows from such business and the assets required to support such
      business under a number of possible future interest rate scenarios. The
      first seven of these scenarios are required by state insurance regulation.
      Projections are also made using 11 additional scenarios, which involve
      more extreme fluctuations in future interest rates and equity markets.
      Finally, to get a statistical analysis of possible results and to minimize
      any bias in the 18 predetermined scenarios, additional projections are
      made using 50 randomly generated interest rate scenarios. For the
      Company's 2001 cash flow testing process, interest rates for 90-day
      treasury bills ranged from 1.18% to 10.90% under the 18 predetermined
      scenarios and 0.78% to 21.03% 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,
      2001.

      Use of Derivatives to Manage Interest Rate Risk

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

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

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

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

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


                                       24
<PAGE>

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

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

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

      Foreign Currency Risk Management

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

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

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

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

      Characteristics of Interest Rate Sensitive Financial Instruments

      The following table provides information about the Company's financial
      instruments as of December 31, 2001 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.


                                       25
<PAGE>

<TABLE>
<CAPTION>


(in millions)                         2002        2003        2004        2005        2006
                                   ---------   ---------   ---------   ---------   ---------
<S>                                <C>         <C>         <C>         <C>         <C>
ASSETS
Fixed maturity securities:
 Corporate bonds:
   Principal                       $ 1,592.8   $ 1,254.7   $ 1,338.2   $ 1,656.5   $ 1,788.9
   Average interest rate                 7.4%        6.9%        6.8%        7.2%        7.5%
 Mortgage and other asset-
   backed securities:
   Principal                       $ 1,088.4   $   838.5   $   837.7   $   705.9   $   635.6
   Average interest rate                 7.4%        7.4%        6.9%        6.7%        6.6%
 Other fixed maturity securities:
   Principal                       $    20.3   $    43.5   $    50.0   $    15.9   $    29.9
   Average interest rate                18.2%        7.6%        7.7%        6.1%        6.4%
Mortgage loans on real estate:
   Principal                       $   382.0   $   459.8   $   515.9   $   905.8   $   751.0
   Average interest rate                 8.5%        7.5%        7.3%        6.9%        7.1%

LIABILITIES
Deferred fixed annuities:
   Principal                       $ 2,328.0   $ 2,121.0   $ 1,819.0   $ 1,585.0   $ 1,493.0
   Average credited rate                 5.2%        5.1%        4.9%        4.8%        4.6%
Immediate annuities:
   Principal                       $    48.0   $    43.0   $    38.0   $    33.0   $    29.0
   Average credited rate                 7.1%        7.2%        7.2%        7.2%        7.2%
Short-term borrowings:
   Principal                       $   100.0   $      --   $      --   $      --   $      --
   Average interest rate                 1.9%         --          --          --          --
Long-term debt:
   Principal                       $      --   $      --   $      --   $      --   $      --
   Average interest rate                  --          --          --          --          --

DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps:
  Pay fixed/receive variable
    Notional value                 $    20.0   $    91.8   $   260.6   $   364.1    $  368.4
    Weighted average pay rate            3.5%        6.0%        5.7%        6.1%        5.9%
    Weighted average receive rate        2.6%        2.0%        2.2%        2.3%        2.1%
  Pay variable/receive fixed
    Notional value                 $     5.0   $     28.1  $    529.5  $    426.7   $   570.7
    Weighted average pay rate            2.4%        2.2%        2.5%        2.6%        2.5%
    Weighted average receive rate        7.0%        4.1%        4.0%        3.7%        4.3%
  Pay variable/receive variable
    Notional value                 $     7.5   $   375.9   $    98.1   $   424.1   $   102.6
    Weighted average pay rate            5.0%        2.3%        2.6%        2.2%        2.4%
    Weighted average receive rate        3.6%        3.5%        3.9%        2.6%        3.9%
  Convertible asset swap
    Notional value                 $      --   $    65.9   $   148.7   $    19.8   $    64.4
    Weighted average receive rate         --         3.4%        3.7%        4.2%        3.2%
  Credit default swap
    Notional value                 $      --   $    10.0   $    25.0   $    48.0   $   131.0
    Weighted average receive rate         --         1.3%        2.1%        1.8%        1.1%
Interest rate futures:
  Long positions
    Contract amount/notional       $    34.0   $     6.0   $     4.0   $     1.0   $      --
    Weighted average settlement
    price                               92.8        92.5        92.3        92.3          --
  Short positions
    Contract amount/notional       $ 2,026.4   $ 1,363.0   $ 1,021.0   $   663.0   $   392.0
    Weighted average settlement
    price                               95.8        93.5        93.3        93.3        93.1
</TABLE>

<TABLE>
<CAPTION>
                                                               2001        2000
                                     There-                    Fair        Fair
(in millions)                         after       Total       Value       Value
                                    ---------   ---------   ---------   ---------
<S>                                 <C>         <C>         <C>         <C>
ASSETS
Fixed maturity securities:
 Corporate bonds:
   Principal                        $ 4,477.9   $12,109.0   $12,063.9   $ 9,858.2
   Average interest rate                  7.7%        7.4%
 Mortgage and other asset-
   backed securities:
   Principal                        $ 1,961.9   $ 6,068.0   $ 5,968.8   $ 5,169.7
   Average interest rate                  6.8%        7.0%
 Other fixed maturity securities:
   Principal                        $   240.0   $   399.6   $   338.1   $   415.1
   Average interest rate                  7.6%        8.0%
Mortgage loans on real estate:
   Principal                        $ 4,111.1   $ 7,125.6   $ 7,293.3   $ 6,327.8
   Average interest rate                  7.6%        7.5%

LIABILITIES
Deferred fixed annuities:
   Principal                        $ 9,807.5   $19,153.5   $18,113.0   $15,697.8
   Average credited rate                  4.5%        4.7%
Immediate annuities:
   Principal                        $   205.0   $   396.0   $   308.0   $   282.0
   Average credited rate                  7.2%        7.2%
Short-term borrowings:
   Principal                        $      --   $   100.0   $   100.0   $   118.7
   Average interest rate                   --         1.9%
Long-term debt:
   Principal                        $   300.0   $   300.0   $   300.0   $      --
   Average interest rate                  7.5%        7.5%

DERIVATIVE FINANCIAL INSTRUMENTS
Interest rate swaps:
  Pay fixed/receive variable
    Notional value                  $   871.0   $ 1,975.9   $   (45.0)  $   (21.3)
    Weighted average pay rate             6.0%        5.9%
    Weighted average receive rate         2.3%        2.2%
  Pay variable/receive fixed
    Notional value                  $   835.9   $ 2,395.9   $   (32.1)  $   (32.1)
    Weighted average pay rate             2.5%        2.5%
    Weighted average receive rate         5.7%        4.6%
  Pay variable/receive variable
    Notional value                  $      --   $ 1,008.2   $   (20.4)  $     5.2
    Weighted average pay rate              --         2.3%
    Weighted average receive rate          --         3.2%
  Convertible asset swap
    Notional value                  $      --   $   298.8   $    27.6   $     1.9
    Weighted average receive rate          --         3.6%
  Credit default swap
    Notional value                  $      --   $   214.0   $    (0.7)  $      --
    Weighted average receive rate          --         1.4%
Interest rate futures:
  Long positions
    Contract amount/notional        $      --   $    45.0   $     0.4   $     0.3
    Weighted average settlement
    price                                  --        92.7
  Short positions
    Contract amount/notional        $   509.0   $ 5,974.4   $   (33.4)  $   (16.3)
    Weighted average settlement
    price                                92.9        94.2
</TABLE>

                                       26

<PAGE>

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

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

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

      Deferred fixed annuities: The maturity year is based on the expected date
      of policyholder withdrawal, taking into account actual experience, current
      interest rates and contract terms. Included are group annuity contracts
      representing $8.98 billion of general account liabilities as of December
      31, 2001, which are generally subject to market value adjustment upon
      surrender and which may also be subject to surrender charges. Of the total
      group annuity liabilities, $6.56 billion were in contracts where the
      crediting rate is reset quarterly, $922.2 million were in contracts that
      adjust the crediting rate on an annual basis with portions resetting in
      each calendar quarter and $1.50 billion were in contracts where the
      crediting rate is reset annually on January 1. Fixed annuity policy
      reserves of $3.13 billion relate to funding agreements issued in
      conjunction with the Company's medium-term note program where the
      crediting rate is either fixed for the term of the contract or variable,
      based on an underlying index. Also included in deferred fixed annuities
      are certain individual annuity contracts, which are also subject to
      surrender charges calculated as a percentage of the deposits made and
      assessed at declining rates during the first seven years after a deposit
      is made. As of December 31, 2001, individual annuity general account
      liabilities totaling $5.58 billion were in contracts where the crediting
      rate is reset periodically, with portions resetting in each calendar
      quarter and $373.0 million that reset annually. Individual fixed annuity
      policy reserves of $1.55 billion are in contracts that adjust the
      crediting rate every five years. The average crediting rate is calculated
      as the difference between the projected yield of the assets backing the
      liabilities and a targeted interest spread. However, for certain
      individual annuities the credited rate is also adjusted to partially
      reflect current new money rates.

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

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

      Derivative financial instruments: The maturity year is based on the terms
      of the related contracts. Interest rate swaps include cross-currency
      interest rate swaps that eliminate all foreign currency exposure the
      Company has with existing assets and liabilities. Cross-currency interest
      rate swaps in place against each foreign currency obligation hedge the
      Company against adverse currency movements with respect to both period
      interest payments and principal repayment. Underlying details by currency
      have therefore been omitted. Variable swap rates and settlement prices
      reflect rates and prices in effect as of December 31, 2001.

      Equity Market Risk

      Asset fees calculated as a percentage of the separate account assets are a
      significant source of revenue to the Company. As of December 31, 2001, 82%
      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.

      INFLATION

      The rate of inflation did not have a material effect on the revenues or
      operating results of the Company during 2001, 2000 or 1999.


                                       27
<PAGE>

ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The consolidated financial statements of Nationwide Life Insurance Company
      and Subsidiaries are indexed in Part IV, Item 14 - Exhibits, Financial
      Statement Schedules, and Reports on Form 8-K, and included in the F pages
      to this report.

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

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURES

      None.

                                    PART III

ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Omitted due to reduced disclosure format.

ITEM 11 EXECUTIVE COMPENSATION

      Omitted due to reduced disclosure format.

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      Omitted due to reduced disclosure format.

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Omitted due to reduced disclosure format.


                                       28
<PAGE>

                                     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, 2001 and 2000                                         F-2
        Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999               F-3
        Consolidated Statements of Shareholder's Equity for the years ended December 31, 2001,
          2000 and 1999                                                                                      F-4
        Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999           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, 2001                                         F-34
        Schedule III      Supplementary Insurance Information as of December 31, 2001, 2000 and
                            1999 and for each of the years then ended                                       F-35
        Schedule IV       Reinsurance as of December 31, 2001, 2000 and 1999 and for each of the
                            years then ended                                                                F-36
        Schedule V        Valuation and Qualifying Accounts for the years ended December 31,
                            2001, 2000 and 1999                                                             F-37

      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                                                                                           32
</TABLE>

      REPORTS ON FORM 8-K:

      On February 14, 2002, NLIC filed a Current Report on Form 8-K reporting
       the condensed consolidated balance sheets as of December 31, 2001 and
       2000 and the condensed consolidated income statements for the years ended
       December 31, 2001, 2000 and 1999.


                                       29
<PAGE>

                                   SIGNATURES

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

                               NATIONWIDE LIFE INSURANCE COMPANY (Registrant)

                                     By /s/ W. G. Jurgensen
                                        ---------------------------------------
                                     W. G. Jurgensen, Chief Executive Officer -
                                     Nationwide Life Insurance Company

Date: March 22, 2002


                                       30
<PAGE>

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/ W. G. Jurgensen                               March 22, 2002    /s/ Joseph J. Gasper                             March 22, 2002
---------------------------------------------   -----------------   ----------------------------------------------   ---------------
W. G. Jurgensen, Chief Executive Officer              Date          Joseph J. Gasper, President, Chief                     Date
and Director                                                        Operating Officer and Director

/s/ Michael S. Helfer                             March 22, 2002    /s/ Donna A. James                               March 22, 2002
---------------------------------------------   -----------------   ----------------------------------------------   ---------------
Michael S. Helfer, Executive Vice President -         Date          Donna A. James,  Executive  Vice  President -          Date
Corporate Strategy and Director                                     Chief Administrative Officer and Director

/s/ Robert A. Oakley                              March 22, 2002    /s/ Robert J. Woodward, Jr.                      March 22, 2002
---------------------------------------------   -----------------   ----------------------------------------------   ---------------
Robert A. Oakley, Executive Vice President -          Date          Robert J. Woodward,  Jr.,  Executive Vice              Date
Chief Financial Officer and Director                                President - Chief Investment Officer and
                                                                    Director

/s/ Galen R. Barnes                               March 22, 2002    /s/ Mark R. Thresher                             March 22, 2002
--------------------------------------------    -----------------   ----------------------------------------------   ---------------
Galen R. Barnes, Director                             Date          Mark R. Thresher, Senior Vice President -              Date
                                                                    Finance - Nationwide Financial
                                                                     (Chief Accounting Officer)
</TABLE>


                                       31
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
  Exhibit
  -------
<S>         <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 3.2 to
                  Form 10-Q, Commission File Number 2-28596, filed August 14,
                  2000, 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)
   10.1.2       Second Amendment to the Tax Sharing Agreement among Nationwide
                  Mutual Insurance Company and any corporation that may
                  hereafter be a subsidiary of Nationwide Mutual Insurance
                  Company (filed as Exhibit 10.2.2 to Form 10-K, Commission File
                  Number 1-12785, filed March 29, 2001, and incorporated herein
                  by reference)
   10.1.3       Third Amendment to the Tax Sharing Agreement among Nationwide
                  Mutual Insurance Company and any corporation that may
                  hereafter be a subsidiary of Nationwide Mutual Insurance
                  Company (filed as Exhibit 10.2.3 to Form 10-K, Commission File
                  Number 1-12785, filed March 29, 2001, and incorporated herein
                  by reference)
   10.2         Form of 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         Five Year Credit Agreement, dated May 25, 2000, among Nationwide
                  Financial Services, Inc., Nationwide Life Insurance Company,
                  Nationwide Mutual Insurance Company, the banks named therein
                  and Bank One, NA, as agent (filed as Exhibit 10.5 to Form
                  10-K, Commission File Number 1-12785, filed March 29, 2001,
                  and incorporated herein by reference)
   10.4.1       Amendment dated as of September 29, 2000 to the Five Year Credit
                  Agreement dated as of May 25, 2000 among Nationwide Financial
                  Services, Inc., Nationwide Life Insurance Company, Nationwide
                  Mutual Insurance Company, the banks party thereto and Bank
                  One, NA, as agent (filed as Exhibit 10.5.1 to Form 10-K,
                  Commission File Number 1-12785, filed March 29, 2001, and
                  incorporated herein by reference)
   10.5         364-Day Credit Agreement, dated May 25, 2000, among Nationwide
                  Financial Services, Inc., Nationwide Life Insurance Company,
                  Nationwide Mutual Insurance Company, the banks named therein
                  and Bank One, NA, as agent (filed as Exhibit 10.6 to Form
                  10-K, Commission File Number 1-12785, filed March 29, 2001,
                  and incorporated herein by reference)
   10.5.1       Amendment dated as of September 29, 2000 to the 364-Day Credit
                  Agreement dated as of May 25, 2000 among Nationwide Financial
                  Services, Inc., Nationwide Life Insurance Company, Nationwide
                  Mutual Insurance Company, the banks party thereto and Bank
                  One, NA, as agent (filed as Exhibit 10.6.1 to Form 10-K,
                  Commission File Number 1-12785, filed March 29, 2001, and
                  incorporated herein by reference)
   10.6         Form of Lease Agreement between Nationwide Life Insurance
                  Company and Nationwide Mutual Insurance Company (previously
                  filed as Exhibit 10.6 to Form 10-K, Commission File Number
                  2-28596, filed March 28, 1997, and incorporated herein by
                  reference)
   10.7         General Description of Nationwide Performance Incentive Plan
                  (filed as Exhibit 10.9 to Form 10-K, Commission File Number
                  1-12785, filed March 29, 2001, and incorporated herein by
                  reference)
   10.8         Form of Amended and Restated Nationwide Office of Investment
                  Incentive Plan (filed as Exhibit 10.10 to Form 10-Q,
                  Commission File Number 1-12785, filed November 13, 2001, and
                  incorporated herein by reference)
</TABLE>


                                       32
<PAGE>

<TABLE>
<CAPTION>
  Exhibit
  -------
<S>             <C>
   10.9         Nationwide Insurance 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 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)
   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 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 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)
   10.16        Investment Agency Agreement between Nationwide Cash Management
                  Company and Nationwide Financial Services, Inc. and certain
                  subsidiaries of Nationwide Financial Services, Inc.
                  (previously filed as Exhibit 10.19 to Form 10-K, Commission
                  File Number 1-12785, filed March 29, 2000, and incorporated
                  herein by reference)
   10.17        Master Repurchase Agreement between Nationwide Life Insurance
                  Company, Nationwide Life and Annuity Insurance Company, and
                  Nationwide Mutual Insurance Company and certain of its
                  subsidiaries and affiliates (previously filed as Exhibit 10.20
                  to Form 10-K, Commission File Number 1-12785, filed March 29,
                  2000, and incorporated herein by reference)
   10.18        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and John Cook (previously
                  filed as Exhibit 10.24 to Form 10-Q, Commission File Number
                  1-12785, filed August 14, 2000, and incorporated herein by
                  reference)
   10.19        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and Patricia Hatler
                  (previously filed as Exhibit 10.25 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.20        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and Richard Headley
                  (previously filed as Exhibit 10.26 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.21        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and Donna James
                  (previously filed as Exhibit 10.27 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.22        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and Greg Lashutka
                  (previously filed as Exhibit 10.28 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.23        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and Robert Oakley
                  (previously filed as Exhibit 10.29 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.24        Form of Employment Agreement, dated January 1, 2000, between
                  Nationwide Mutual Insurance Company and Robert Woodward
                  (previously filed as Exhibit 10.30 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.25        Form of Employment Agreement, dated August 11, 2000, between
                  Nationwide Mutual Insurance Company and Michael Helfer
                  (previously filed as Exhibit 10.31 to Form 10-Q, Commission
                  File Number 1-12785, filed August 14, 2000, and incorporated
                  herein by reference)
   10.26        Form of Employment Agreement, dated May 26, 2000, between
                  Nationwide Mutual Insurance Company and W.G. Jurgensen
                  (previously filed as Exhibit 10.32 to Form 10-Q, Commission
                  File Number 1-12785, filed November 13, 2000, and incorporated
                  herein by reference)
</TABLE>


                                       33
<PAGE>

<TABLE>
<CAPTION>
  Exhibit
  -------
<S>             <C>
   10.27        Form of Employment Agreement, dated July 1, 2000, between
                  Nationwide Financial Services, Inc. and Joseph Gasper
                  (previously filed as Exhibit 10.33 to Form 10-Q, Commission
                  File Number 1-12785, filed November 13, 2000, and incorporated
                  herein by reference)
   10.28        Form of Retention Agreement, dated July 1, 2000, between
                  Nationwide Financial Services, Inc. and Joseph Gasper
                  (previously filed as Exhibit 10.34 to Form 10-Q, Commission
                  File Number 1-12785, filed November 13, 2000, and incorporated
                  herein by reference)
   10.29        Form of Employee Leasing Agreement, dated July 1, 2000, between
                  Nationwide Mutual Insurance Company and Nationwide Financial
                  Services Inc. (previously filed as Exhibit 10.35 to Form 10-Q,
                  Commission File Number 1-12785, filed May 11,2001, and
                  incorporated herein by reference)
   10.30        Form of Employment Agreement, dated June 4, 2001, between
                  Nationwide Mutual Insurance Company and Michael C. Keller
                  (previously filed as Exhibit 10.36 to Form 10-Q, Commission
                  File Number 1-12785, filed August 10, 2001, and incorporated
                  herein by reference)
   10.31        General Description of Nationwide Economic Value Incentive Plan
                  (previously filed as Exhibit 10.38 to Form 10-K, Commission
                  File Number 1-12785, filed March 29, 2002, and incorporated
                  herein by reference)
</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.


                                       34
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Nationwide Life Insurance Company:

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

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.

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


KPMG LLP

Columbus, Ohio
January 29, 2002


                                      F-1
<PAGE>

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

                           Consolidated Balance Sheets

                     (in millions, except per share amounts)

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                     ------------------------------
                                                                                        2001                 2000
                                                                                     =========            =========
<S>                                                                                  <C>                  <C>
                                     ASSETS
Investments:
  Securities available-for-sale, at fair value:
    Fixed maturity securities (cost $17,961.6 in 2001; $15,245.8 in 2000)            $18,370.8            $15,443.0
    Equity securities (cost $83.0 in 2001; $103.5 in 2000)                                94.0                109.0
  Mortgage loans on real estate, net                                                   7,113.1              6,168.3
  Real estate, net                                                                       172.0                310.7
  Policy loans                                                                           591.1                562.6
  Other long-term investments                                                            125.0                101.8
  Short-term investments, including amounts managed by a related party                 1,011.3                442.6
                                                                                     ---------            ---------
                                                                                      27,477.3             23,138.0
                                                                                     ---------            ---------

Cash                                                                                      22.6                 18.4
Accrued investment income                                                                306.7                251.4
Deferred policy acquisition costs                                                      3,189.0              2,865.6
Other assets                                                                             646.0                396.7
Assets held in separate accounts                                                      59,513.0             65,897.2
                                                                                     ---------            ---------
                                                                                     $91,154.6            $92,567.3
                                                                                     =========            =========

                      LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims                                                    $25,216.0            $22,183.6
Short-term debt                                                                          100.0                118.7
Long-term debt, payable to NFS                                                           300.0                   --
Other liabilities                                                                      2,307.9              1,164.9
Liabilities related to separate accounts                                              59,513.0             65,897.2
                                                                                     ---------            ---------
                                                                                      87,436.9             89,364.4
                                                                                     ---------            ---------

Commitments and contingencies (notes 10 and 15)

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                                                             646.1                646.1
  Retained earnings                                                                    2,863.1              2,436.3
  Accumulated other comprehensive income                                                 204.7                116.7
                                                                                     ---------            ---------
                                                                                       3,717.7              3,202.9
                                                                                     ---------            ---------
                                                                                     $91,154.6            $92,567.3
                                                                                     =========            =========
</TABLE>

See accompanying notes to consolidated financial statements, including note 13
which describes related party transactions.


                                       F-2
<PAGE>

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

                        Consolidated Statements of Income

                                  (in millions)

<TABLE>
<CAPTION>
                                                                                             Years ended December 31,
                                                                                    ------------------------------------------
                                                                                     2001             2000             1999
                                                                                    ========         ========         ========
<S>                                                                                 <C>              <C>              <C>
Revenues:
  Policy charges                                                                    $1,017.3         $1,091.4         $  895.5
  Life insurance premiums                                                              251.1            240.0            220.8
  Net investment income                                                              1,725.0          1,654.9          1,520.8
  Net realized (losses) gains on investments, hedging instruments and hedged
     items:
      Unrelated parties                                                                (62.7)           (19.4)           (11.6)
      Related party                                                                     44.4               --               --
  Other                                                                                 14.1             17.0             66.1
                                                                                    --------         --------         --------
                                                                                     2,989.2          2,983.9          2,691.6
                                                                                    --------         --------         --------

Benefits and expenses:
  Interest credited to policyholder account balances                                 1,238.7          1,182.4          1,096.3
  Other benefits and claims                                                            280.3            241.6            210.4
  Policyholder dividends on participating policies                                      41.7             44.5             42.4
  Amortization of deferred policy acquisition costs                                    347.9            352.1            272.6
  Interest expense on debt                                                               6.2              1.3               --
  Other operating expenses                                                             444.1            479.0            463.4
                                                                                    --------         --------         --------
                                                                                     2,358.9          2,300.9          2,085.1
                                                                                    --------         --------         --------

    Income before federal income tax expense and cumulative effect of
     adoption of accounting principles                                                 630.3            683.0            606.5
Federal income tax expense                                                             161.4            207.7            201.4
                                                                                    --------         --------         --------
    Income before cumulative effect of adoption of accounting principles               468.9            475.3            405.1
Cumulative effect of adoption of accounting principles, net of tax                      (7.1)              --               --
                                                                                    --------         --------         --------
    Net income                                                                      $  461.8         $  475.3         $  405.1
                                                                                    ========         ========         ========
</TABLE>

See accompanying notes to consolidated financial statements, including note 13
which describes related party transactions.


                                       F-3
<PAGE>

               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, 2001, 2000 and 1999
                                  (in millions)

<TABLE>
<CAPTION>
                                                                                           Accumulated
                                                            Additional                        other            Total
                                                Common        paid-in       Retained       comprehensive   shareholder's
                                                stock         capital       earnings       income (loss)       equity
                                               ========     ==========      ========       =============   =============
<S>                                            <C>          <C>            <C>            <C>              <C>
Balance as of December 31, 1998                     3.8         914.7        1,579.0            275.6        2,773.1

Comprehensive income:
    Net income                                       --            --          405.1               --          405.1
    Net unrealized losses on securities
      available-for-sale arising during
      the year, net of tax                           --            --             --           (315.0)        (315.0)
                                                                                                            --------
  Total comprehensive income                                                                                    90.1
                                                                                                            --------
Capital contribution                                 --          26.4           87.9             23.5          137.8
Return of capital to shareholder                     --        (175.0)            --               --         (175.0)
Dividends to shareholder                             --            --          (61.0)              --          (61.0)
                                               --------      --------       --------         --------       --------
Balance as of December 31, 1999                     3.8         766.1        2,011.0            (15.9)       2,765.0
                                               ========      ========       ========         ========       ========

Comprehensive income:
    Net income                                       --            --          475.3               --          475.3
    Net unrealized gains on securities
      available-for-sale arising during
      the year, net of tax                           --            --             --            132.6          132.6
                                                                                                            --------
  Total comprehensive income                                                                                   607.9
                                                                                                            --------
Return of capital to shareholder                     --        (120.0)            --               --         (120.0)
Dividends to shareholder                             --            --          (50.0)              --          (50.0)
                                               --------      --------       --------         --------       --------
Balance as of December 31, 2000                $    3.8      $  646.1       $2,436.3         $  116.7       $3,202.9
                                               ========      ========       ========         ========       ========

Comprehensive income:
    Net income                                       --            --          461.8               --          461.8
    Net unrealized gains on securities
      available-for-sale arising during
      the year, net of tax                           --            --             --             98.2           98.2
    Cumulative effect of adoption of
      accounting principles, net of tax              --            --             --             (1.4)          (1.4)
    Accumulated net losses on cash flow
      hedges, net of tax                             --            --             --             (8.8)          (8.8)
                                                                                                            --------
  Total comprehensive income                                                                                   549.8
                                                                                                            --------
Dividends to shareholder                             --            --          (35.0)              --          (35.0)
                                               --------      --------       --------         --------       --------
Balance as of December 31, 2001                $    3.8      $  646.1       $2,863.1         $  204.7       $3,717.7
                                               ========      ========       ========         ========       ========
</TABLE>

See accompanying notes to consolidated financial statements, including note 13
which describes related party transactions.


                                       F-4
<PAGE>

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

                      Consolidated Statements of Cash Flows

                                  (in millions)

<TABLE>
<CAPTION>
                                                                                               Years ended December 31,
                                                                                      ------------------------------------------
                                                                                        2001             2000             1999
                                                                                      ========         ========         ========
<S>                                                                                   <C>              <C>              <C>
Cash flows from operating activities:
  Net income                                                                          $  461.8         $  475.3         $  405.1
  Adjustments to reconcile net income to net cash provided by operating
    activities:
      Interest credited to policyholder account balances                               1,238.7          1,182.4          1,096.3
      Capitalization of deferred policy acquisition costs                               (743.0)          (778.9)          (637.0)
      Amortization of deferred policy acquisition costs                                  347.9            352.1            272.6
      Amortization and depreciation                                                      (31.5)           (12.7)             2.4
      Realized losses (gains) on investments, hedging instruments and hedged
         items:
          Unrelated parties                                                               62.7             19.4             11.6
          Related parties                                                                (44.4)              --               --
     Cumulative effect of adoption of accounting principles                               10.9               --               --
      Increase in accrued investment income                                              (55.3)           (12.8)            (7.9)
     (Increase) decrease in other assets                                                (272.5)           (92.0)           122.9
      Increase (decrease) in policy liabilities                                           33.0             (0.3)           (20.9)
      Increase in other liabilities                                                      304.0            229.3            149.7
      Other, net                                                                           8.3             22.3             (8.6)
                                                                                      --------         --------         --------
        Net cash provided by operating activities                                      1,320.6          1,384.1          1,386.2
                                                                                      --------         --------         --------
Cash flows from investing activities:
  Proceeds from maturity of securities available-for-sale                              3,933.9          2,988.7          2,307.9
  Proceeds from sale of securities available-for-sale                                    497.8            602.0            513.1
  Proceeds from repayments of mortgage loans on real estate                            1,204.4            911.7            696.7
  Proceeds from sale of real estate                                                       29.1             18.7              5.7
  Proceeds from sale of limited partnership to related party                             158.9               --               --
  Proceeds from repayments of policy loans and sale of other invested assets              68.9             79.3             40.9
  Cost of securities available-for-sale acquired                                      (7,123.6)        (3,475.5)        (3,724.9)
  Cost of mortgage loans on real estate acquired                                      (2,123.1)        (1,318.0)          (971.4)
  Cost of real estate acquired                                                            (0.4)            (7.1)           (14.2)
  Short-term investments, net                                                           (568.7)           (26.6)           (27.5)
  Collateral received - securities lending, net                                          791.6               --               --
  Other, net                                                                            (192.2)          (182.3)          (110.9)
                                                                                      --------         --------         --------
        Net cash used in investing activities                                         (3,323.4)          (409.1)        (1,284.6)
                                                                                      --------         --------         --------
Cash flows from financing activities:
  Net proceeds from issuance of long-term debt to NFS                                    300.0               --               --
  Capital returned to shareholder                                                           --           (120.0)          (175.0)
  Net change in short-term debt                                                          (18.7)           118.7               --
  Cash dividends paid                                                                    (35.0)          (100.0)           (13.5)
  Increase in investment and universal life insurance product account balances         5,976.7          4,517.0          3,799.4
  Decrease in investment and universal life insurance product account balances        (4,216.0)        (5,377.1)        (3,711.1)
                                                                                      --------         --------         --------
        Net cash provided by (used in) financing activities                            2,007.0           (961.4)          (100.2)
                                                                                      --------         --------         --------
Net increase in cash                                                                       4.2             13.6              1.4

Cash, beginning of year                                                                   18.4              4.8              3.4
                                                                                      --------         --------         --------
Cash, end of year                                                                     $   22.6         $   18.4         $    4.8
                                                                                      ========         ========         ========
</TABLE>

See accompanying notes to consolidated financial statements, including note 13
which describes related party transactions.


                                       F-5
<PAGE>

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

                   Notes to Consolidated Financial Statements

                        December 31, 2001, 2000 and 1999

(1)   Organization and Description of Business

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

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

(2)   Summary of Significant Accounting Policies

      The significant accounting policies followed by the Company that
      materially affect financial reporting are summarized below. The
      accompanying consolidated financial statements have been prepared in
      accordance with accounting principles generally accepted in the United
      States of America (GAAP) which differ from statutory accounting practices.
      The statutory financial statements of NLIC and NLAIC are presented on the
      basis of accounting practices prescribed or permitted by the Ohio
      Department of Insurance (the Department). The State of Ohio has adopted
      the National Association of Insurance Commissioners (NAIC) statutory
      accounting practices (NAIC SAP) as the basis of its statutory accounting
      practices. NLIC and NLAIC have no statutory accounting practices that
      differ from NAIC SAP. See also note 12.

      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 for investment products and universal life
      insurance products, valuation allowances for mortgage loans on real
      estate, impairment losses on other investments and federal income taxes.
      Although some variability is inherent in these estimates, management
      believes the amounts provided are appropriate.

      (a)   Consolidation Policy

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


                                      F-6
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

            The Company is required to classify its fixed maturity securities
            and equity securities as either held-to-maturity, available-for-sale
            or trading. The Company classifies fixed maturity and equity
            securities as available-for-sale. Available-for-sale securities are
            stated at fair value, with the unrealized gains and losses, net of
            adjustments to deferred policy acquisition costs and deferred
            federal income tax, reported as a separate component of accumulated
            other comprehensive income (AOCI) in shareholders' 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. Management regularly reviews
            its fixed maturity and equity securities portfolio to evaluate the
            necessity of recording impairment losses for other-than-temporary
            declines in the fair value of investments. A number of criteria are
            considered during this process including, but not limited to, the
            current fair value as compared to amortized cost or cost, as
            appropriate, of the security, the length of time the security's fair
            value has been below amortized cost/cost, and by how much, and
            specific credit issues related to the issuer. Impairment losses
            result in a reduction of the cost basis of the underlying
            investment.

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

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

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

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

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


                                      F-7
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      (c)   Derivative Instruments

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

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

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

            Amounts receivable or payable under interest rate and foreign
            currency swaps are recognized as an adjustment to net investment
            income or interest credited to policyholder account balances
            consistent with the nature of the hedged item.

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

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


                                      F-8
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

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

      (d)   Revenues and Benefits

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


                                      F-9
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      (e)   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 that relate to and vary with the
            production of new or renewal business have been deferred. Deferred
            policy acquisition costs are subject to recoverability testing at
            the time of policy issuance and loss recognition testing at the end
            of each accounting period.

            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. The Company regularly reviews the estimated future
            gross profits and revises such estimates when appropriate. The
            cumulative change in amortization as a result of changes in
            estimates to reflect current best estimates is recorded as a charge
            or credit to amortization expense. The most significant assumptions
            that are involved in the estimation of future gross profits include
            future market performance and surrender/lapse rates. In the event
            actual expense differs significantly from assumptions or assumptions
            are significantly revised, the Company may be required to record a
            significant charge or credit to amortization expense. 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).

            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.

      (f)   Separate Accounts

            Separate account assets and liabilities represent contractholders'
            funds which have been segregated into accounts with specific
            investment objectives. Separate account assets are recorded at
            market value except for separate account contracts with guaranteed
            investment returns. For all but $1.39 billion and $1.12 billion of
            separate account assets as of December 31, 2001 and 2000,
            respectively, 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. Such
            fees are assessed on a daily or monthly basis and recognized as
            revenue when assessed and earned.

      (g)   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.

            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.

      (h)   Participating Business

            Participating business represented approximately 17% in 2001 (21% in
            2000 and 29% in 1999) of the Company's life insurance in force, 63%
            in 2001 (66% in 2000 and 69% in 1999) of the number of life
            insurance policies in force, and 9% in 2001 (8% in 2000 and 13% in
            1999) of life insurance statutory premiums. The provision for
            policyholder dividends was based on then current dividend scales and
            has been included in "Future policy benefits and claims" in the
            accompanying consolidated balance sheets.


                                      F-10
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      (i)   Federal Income Tax

            The Company files a consolidated federal income tax return with
            Nationwide Mutual Insurance Company (NMIC), the ultimate majority
            shareholder of NFS. 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 provides for federal income taxes based on amounts the
            Company believes it will ultimately owe. Inherent in the provision
            for federal income taxes are estimates regarding the deductibility
            of certain expenses and the realization of certain tax credits. In
            the event the ultimate deductibility of certain expenses or the
            realization of certain tax credits differ from estimates, the
            Company may be required to significantly change the provision for
            federal income taxes recorded in the consolidated financial
            statements.

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

      (j)   Reinsurance Ceded

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

      (k)   Recently Issued Accounting Pronouncements

            In June 1998, the Financial Accounting Standards Board (FASB) issued
            Statement of Financial Accounting Standards (SFAS) No. 133,
            Accounting for Derivative Instruments and Hedging Activities (SFAS
            133). SFAS 133, as amended by SFAS 137, Accounting for Derivative
            Instruments and Hedging Activities - Deferral of the Effective Date
            of FASB Statement No. 133, and SFAS 138, Accounting for Certain
            Derivative Instruments and Certain Hedging Activities, was adopted
            by the Company effective January 1, 2001. Upon adoption, the
            provisions of SFAS 133 were applied prospectively.

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

            As of January 1, 2001, the Company had $755.4 million notional
            amount of freestanding derivatives with a market value of ($7.0)
            million. All other derivatives qualified for hedge accounting under
            SFAS 133. The adoption of SFAS 133 resulted in the Company recording
            a net transition adjustment loss of $4.8 million (net of related
            income tax of $2.6 million) in net income. In addition, a net
            transition adjustment loss of $3.6 million (net of related income
            tax of $2.0 million) was recorded in AOCI at January 1, 2001. The
            adoption of SFAS 133 resulted in the Company derecognizing $17.0
            million of deferred assets related to hedges, recognizing $10.9
            million of additional derivative instrument liabilities and $1.3
            million of additional firm commitment assets, while also decreasing
            hedged future policy benefits by $3.0 million and increasing the
            carrying amount of hedged investments by $10.6 million. Further, the
            adoption of SFAS 133 resulted in the Company reporting total
            derivative instrument assets and liabilities of $44.8 million and
            $107.1 million, respectively, as of January 1, 2001.


                                      F-11
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

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

            In July 2001, the FASB issued Statement of Financial Accounting
            Standards No. 141, Business Combinations (SFAS 141) and Statement of
            Financial Accounting Standards No. 142, Goodwill and Other
            Intangible Assets (SFAS 142).

            SFAS 141 requires that the purchase method of accounting be used for
            all business combinations initiated after June 30, 2001 and the use
            of the pooling-of-interests method has been eliminated.

            SFAS 142 applies to all acquired intangible assets whether acquired
            singularly, as part of a group, or in a business combination. SFAS
            142 supersedes APB Opinion No. 17, Intangible Assets, and will carry
            forward provisions in Opinion 17 related to internally developed
            intangible assets. SFAS 142 changes the accounting for goodwill and
            intangible assets with indefinite lives from an amortization method
            to an impairment-only approach. The amortization of goodwill from
            past business combinations ceased upon adoption of this statement,
            which was January 1, 2002 for the Company. Companies are required to
            evaluate all existing goodwill and intangible assets with indefinite
            lives for impairment within six months of adoption. Any transitional
            impairment losses will be recognized in the first interim period in
            the year of adoption and will be recognized as the cumulative effect
            of a change in accounting principle.

            The Company does not expect any material impact of adopting SFAS 141
            and SFAS 142 on the results of operations and financial position.

            In October 2001, the FASB issued Statement of Financial Accounting
            Standards No. 144, Accounting for the Impairment or Disposal of
            Long-Lived Assets (SFAS 144). SFAS 144 supersedes SFAS 121,
            Accounting for the Impairment of Long-Lived Assets and for
            Long-Lived Assets to be Disposed of, and APB Opinion No. 30,
            Reporting the Results of Operations - Reporting the Effects of
            Disposal of a Segment of a Business, and Extraordinary, Unusual and
            Infrequently Occurring Events and Transactions. SFAS 144 is
            effective for fiscal years beginning after December 15, 2001
            (January 1, 2002 for the Company) and will carry forward many of the
            provisions of SFAS 121 and Opinion 30 for recognition and
            measurement of the impairment of long-lived assets to be held and
            used, and measurement of long-lived assets to be disposed of by
            sale. Under SFAS 144, if a long-lived asset is part of a group that
            includes other assets and liabilities, then the provisions of SFAS
            144 apply to the entire group. In addition, SFAS 144 does not apply
            to goodwill and other intangible assets that are not amortized.
            Management does not expect the adoption of SFAS 144 to have a
            material impact on the results of operations or financial position
            of the Company.


                                      F-12
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

            In 2001, the Accounting Standards Executive Committee of the
            American Institute of Certified Public Accountants issued Statement
            of Position 01-5, Amendments to Specific AICPA Pronouncements for
            Changes Related to the NAIC Codification (SOP 01-5). In doing so,
            AICPA SOP 94-5, Disclosures of Certain Matters in the Financial
            Statements of Insurance Enterprises, was amended to reflect the
            results of the completion of the NAIC codification of statutory
            accounting practices for certain insurance enterprises
            (Codification). The adoption of SOP 01-5 did not have an impact on
            the results of operations or financial position of the Company.

      (l)   Reclassification

            Certain items in the 2000 and 1999 consolidated financial statements
            and related footnotes have been reclassified to conform to the 2001
            presentation.

(3)   Investments

      The amortized cost, gross unrealized gains and losses and estimated fair
      value of securities available-for-sale as of December 31, 2001 and 2000
      were:

<TABLE>
<CAPTION>
                                                                                        Gross         Gross
                                                                     Amortized        unrealized    unrealized       Estimated
      (in millions)                                                    cost             gains         losses        fair value
                                                                     =========        ==========    ==========      ==========
<S>                                                                  <C>              <C>           <C>             <C>
      December 31, 2001
          Fixed maturity securities:
          U.S. Treasury securities and obligations of U.S.
            Government corporations and agencies                     $   263.2        $    23.1     $     0.5        $   285.8
          Obligations of states and political subdivisions                 7.6              0.3            --              7.9
          Debt securities issued by foreign governments                   41.8              2.6            --             44.4
          Corporate securities                                        11,769.8            470.6         176.5         12,063.9
          Mortgage-backed securities - U.S. Government backed          2,012.3             67.8           3.7          2,076.4
          Asset-backed securities                                      3,866.9             76.7          51.2          3,892.4
                                                                     ---------        ---------     ---------        ---------
              Total fixed maturity securities                         17,961.6            641.1         231.9         18,370.8
        Equity securities                                                 83.0             11.0            --             94.0
                                                                     ---------        ---------     ---------        ---------
                                                                     $18,044.6        $   652.1     $   231.9        $18,464.8
                                                                     =========        =========     =========        =========

      December 31, 2000
          Fixed maturity securities:
          U.S. Treasury securities and obligations of U.S.
            Government corporations and agencies                     $   277.5        $    33.4     $     0.1        $   310.8
          Obligations of states and political subdivisions                 8.6              0.2            --              8.8
          Debt securities issued by foreign governments                   94.1              1.5           0.1             95.5
          Corporate securities                                         9,758.3            235.0         135.1          9,858.2
          Mortgage-backed securities - U.S. Government backed          2,719.1             46.1           3.8          2,761.4
          Asset-backed securities                                      2,388.2             36.3          16.2          2,408.3
                                                                     ---------        ---------     ---------        ---------
              Total fixed maturity securities                         15,245.8            352.5         155.3         15,443.0
        Equity securities                                                103.5              9.5           4.0            109.0
                                                                     ---------        ---------     ---------        ---------
                                                                     $15,349.3        $   362.0     $   159.3        $15,552.0
                                                                     =========        =========     =========        =========
</TABLE>


                                      F-13
<PAGE>

               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, 2001, 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)                                                                           cost                 fair value
                                                                                            =========              ==========
<S>                                                                                         <C>                     <C>
      Fixed maturity securities available for sale:
         Due in one year or less                                                            $ 1,125.4               $ 1,141.7
         Due after one year through five years                                                5,154.4                 5,295.6
         Due after five years through ten years                                               4,073.6                 4,188.8
         Due after ten years                                                                  1,729.0                 1,775.9
                                                                                            ---------               ---------
                                                                                             12,082.4                12,402.0
          Mortgage-backed securities - U.S. Government backed                                 2,012.3                 2,076.4
          Asset-backed securities                                                             3,866.9                 3,892.4
                                                                                            ---------               ---------
                                                                                            $17,961.6               $18,370.8
                                                                                            =========               =========
</TABLE>

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

<TABLE>
<CAPTION>
      (in millions)                                                                           2001                    2000
                                                                                            =========               =========
<S>                                                                                         <C>                     <C>
      Gross unrealized gains                                                                $   420.2               $   202.7
      Adjustment to deferred policy acquisition costs                                           (94.9)                  (23.2)
      Deferred federal income tax                                                              (113.9)                  (62.8)
                                                                                            ---------               ---------
                                                                                            $   211.4               $   116.7
                                                                                            =========               =========
</TABLE>

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

<TABLE>
<CAPTION>
           (in millions)                                                   2001                  2000                   1999
                                                                          ======                ======                =======
<S>                                                                       <C>                   <C>                   <C>
      Securities available-for-sale:
        Fixed maturity securities                                         $212.0                $280.5                $(607.1)
        Equity securities                                                    5.5                  (2.5)                  (8.8)
                                                                          ------                ------                -------
                                                                          $217.5                $278.0                $(615.9)
                                                                          ======                ======                =======
</TABLE>

      Proceeds from the sale of securities available-for-sale during 2001, 2000
      and 1999 were $497.8 million, $602.0 million and $513.1 million,
      respectively. During 2001, gross gains of $31.3 million ($12.1 million and
      $10.4 million in 2000 and 1999, respectively) and gross losses of $10.1
      million ($15.1 million and $35.5 million in 2000 and 1999, respectively)
      were realized on those sales.

      The Company had $25.2 million and $13.0 million of real estate investments
      as of December 31, 2001 and 2000, respectively, that were non-income
      producing the preceding twelve months.

      Real estate is presented at cost less accumulated depreciation of $22.0
      million as of December 31, 2001 ($25.7 million as of December 31, 2000).
      The carrying value of real estate held for disposal totaled $33.4 million
      and $8.5 million as of December 31, 2001 and 2000, respectively.


                                      F-14
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      The recorded investment of mortgage loans on real estate considered to be
      impaired was $29.9 million as of December 31, 2001 ($9.8 million as of
      December 31, 2000), which includes $5.3 million ($5.3 million as of
      December 31, 2000) of impaired mortgage loans on real estate for which the
      related valuation allowance was $1.0 million ($1.6 million as of December
      31, 2000) and $24.6 million ($4.5 million as of December 31, 2000) of
      impaired mortgage loans on real estate for which there was no valuation
      allowance. Impaired mortgage loans with no valuation allowance are a
      result of collateral dependent loans where the fair value of the
      collateral is greater than the recorded investment of the loan. During
      2001, the average recorded investment in impaired mortgage loans on real
      estate was $7.9 million ($7.7 million in 2000) and interest income
      recognized on those loans totaled $0.4 million in 2001 ($0.4 million in
      2000) which is equal to interest income recognized using a cash-basis
      method of income recognition.

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

<TABLE>
<CAPTION>
      (in millions)                                                              2001               2000               1999
                                                                               ========           ========           ========
<S>                                                                            <C>                <C>                <C>
      Allowance, beginning of year                                             $   45.3           $   44.4           $   42.4
        Additions (reductions) charged (credited) to operations                    (1.2)               4.1                0.7
        Direct write-downs charged against the allowance                           (1.2)              (3.2)                --
        Allowance on acquired mortgage loans                                         --                 --                1.3
                                                                               --------           --------           --------
           Allowance, end of year                                              $   42.9           $   45.3           $   44.4
                                                                               ========           ========           ========
</TABLE>

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

<TABLE>
<CAPTION>
      (in millions)                                                              2001              2000               1999
                                                                               ========           ========           ========
<S>                                                                            <C>                <C>                <C>
      Gross investment income:
        Securities available-for-sale:
          Fixed maturity securities                                            $1,181.1           $1,095.5           $1,031.3
          Equity securities                                                         1.8                2.6                2.5
        Mortgage loans on real estate                                             527.9              494.5              460.4
        Real estate                                                                33.1               32.2               28.8
        Short-term investments                                                     28.3               27.0               18.6
        Derivatives                                                               (19.7)               3.9               (1.0)
        Other                                                                      20.9               49.3               27.5
                                                                               --------           --------           --------
            Total investment income                                             1,773.4            1,705.0            1,568.1
      Less investment expenses                                                     48.4               50.1               47.3
                                                                               --------           --------           --------
            Net investment income                                              $1,725.0           $1,654.9           $1,520.8
                                                                               ========           ========           ========
</TABLE>


                                      F-15
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      An analysis of net realized (losses) gains on investments, hedging
      instruments and hedged items, by investment type follows for the years
      ended December 31:

<TABLE>
<CAPTION>
      (in millions)                                                                       2001           2000           1999
                                                                                         ======         ======         ======
<S>                                                                                      <C>            <C>            <C>
      Unrelated parties:
         Realized gains (losses) on sale of securities available-for-sale:
            Fixed maturity securities                                                    $ 20.8         $ (7.7)        $(32.5)
            Equity securities                                                               0.4            4.7            7.4
         Other-than-temporary impairments of securities available-for-sale:
            Fixed maturity securities                                                     (66.1)         (10.5)           7.5
            Equity securities                                                             (13.8)            --             --
         Real estate                                                                        1.9           (0.5)           0.9
         Mortgage loans on real estate(1)                                                   0.6           (4.2)          (0.6)
         Derivatives                                                                         --           (2.7)          (1.6)
         Other                                                                             (6.5)           1.5            7.3
                                                                                         ------         ------         ------
                                                                                          (62.7)         (19.4)         (11.6)
      Related party - gain on sale of limited partnership                                  44.4             --             --
                                                                                         ------         ------         ------
      Net realized losses on investments, hedging instruments and
          hedged items                                                                   $(18.3)        $(19.4)        $(11.6)
                                                                                         ======         ======         ======
</TABLE>

----------
      (1)   The 2001 amount is comprised of $9.9 million of net realized gains
            on the sale of mortgage loans on real estate, including those
            related to a securitization transaction, and $9.3 million of
            realized losses on derivatives hedging the sale of mortgage loans on
            real estate.

      Fixed maturity securities with an amortized cost of $6.6 million as of
      December 31, 2001 and $6.5 million as of December 31, 2000 were on deposit
      with various regulatory agencies as required by law. In addition, fixed
      maturity securities with an amortized cost of $6.3 million as of December
      31, 2000 were placed in escrow under a contractual obligation and none as
      of December 31, 2001.

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

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

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

(4)   Short-term Debt

      NLIC has established a $300 million commercial paper program under which,
      borrowings are unsecured and are issued for terms of 364 days or less. As
      of December 31, 2001 and 2000 the Company had $100.0 million and $118.7
      million, respectively, of commercial paper outstanding at an average
      effective rate of 1.90% and 6.53%, respectively. See also note 14.

(5)   Long-term Debt, payable to NFS

      On December 19, 2001 the Company sold a 7.50%, $300.0 million surplus note
      to NFS, maturing on December 17, 2031. The fair value of the surplus note
      as of December 31, 2001 was $300.0 million. Principal and interest
      payments are subject to prior approval by the superintendent of insurance
      of the State of Ohio. The Company is scheduled to pay interest
      semi-annually on June 17 and December 17 of each year commencing June 17,
      2002.


                                      F-16
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

(6)   Derivative Financial Instruments

      QUALITATIVE DISCLOSURE

      Interest Rate Risk Management

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

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

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

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

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

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

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

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

      Foreign Currency Risk Management

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

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

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


                                      F-17
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

      Non-Hedging Derivatives

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

      QUANTITATIVE DISCLOSURE

      Fair Value Hedges

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

      Cash Flow Hedges

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

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

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

      Other Derivative Instruments, Including Embedded Derivatives

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


                                      F-18
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      The notional amount of derivative financial instruments outstanding as of
      December 31, 2001 and 2000 were as follows:

<TABLE>
<CAPTION>
       (in millions )                                                                              2001                  2000
                                                                                                 ========             ========
<S>                                                                                              <C>                  <C>
       Interest rate swaps
         Pay fixed/receive variable rate swaps hedging investments                               $1,952.3             $  934.8
         Pay variable/receive fixed rate swaps hedging investments                                  698.4                 98.8
         Pay variable/receive variable rate swaps hedging investments                               197.8                184.0
         Other contracts hedging investments                                                        523.0                 20.4

      Cross currency interest rate swaps
          Hedging foreign currency denominated investments                                           56.1                 30.5
          Hedging foreign currency denominated liabilities                                        2,500.4              1,512.2

      Interest rate futures contracts                                                             6,019.4              5,659.8
                                                                                                 --------             --------
</TABLE>

(7)   Federal Income Tax

      The tax effects of temporary differences that give rise to significant
      components of the net deferred tax liability as of December 31, 2001 and
      2000 were as follows:

<TABLE>
<CAPTION>
      (in millions)                                                                             2001                     2000
                                                                                              ========                 ========
<S>                                                                                           <C>                      <C>
      Deferred tax assets:
        Equity securities                                                                     $    6.5                 $     --
        Future policy benefits                                                                     8.2                     34.7
        Liabilities in separate accounts                                                         482.5                    462.7
        Mortgage loans on real estate and real estate                                              7.5                     18.8
        Derivatives                                                                               93.0                       --
        Other assets and other liabilities                                                        81.8                     40.3
                                                                                              --------                 --------
          Total gross deferred tax assets                                                        679.5                    556.5
        Less valuation allowance                                                                  (7.0)                    (7.0)
                                                                                              --------                 --------
          Net deferred tax assets                                                                672.5                    549.5
                                                                                              --------                 --------

      Deferred tax liabilities:
        Deferred policy acquisition costs                                                        861.3                    783.7
        Derivatives                                                                               91.5                       --
        Fixed maturity securities                                                                173.0                     98.8
        Deferred tax on realized investment gains                                                 26.1                     29.0
        Equity securities and other long-term investments                                         31.7                      6.4
        Other                                                                                     68.8                     38.1
                                                                                              --------                 --------
          Total gross deferred tax liabilities                                                 1,252.4                    956.0
                                                                                              --------                 --------
          Net deferred tax liability                                                          $  579.9                 $  406.5
                                                                                              ========                 ========
</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. Future taxable
      amounts or recovery of federal income tax paid within the statutory
      carryback period can offset nearly all future deductible amounts. The
      valuation allowance was unchanged for the years ended December 31, 2001,
      2000 and 1999.


                                      F-19
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      The Company's current federal income tax liability was $186.2 million and
      $108.9 million as of December 31, 2001 and 2000, respectively.

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

<TABLE>
<CAPTION>
      (in millions)                                                      2001                    2000                    1999
                                                                        ======                  ======                  ======
<S>                                                                     <C>                     <C>                     <C>
      Currently payable                                                 $ 32.5                  $ 78.0                  $ 53.6
      Deferred tax expense                                               128.9                   129.7                   147.8
                                                                        ------                  ------                  ------
                                                                        $161.4                  $207.7                  $201.4
                                                                        ======                  ======                  ======
</TABLE>

      Total federal income tax expense for the years ended December 31, 2001,
      2000 and 1999 differs from the amount computed by applying the U.S.
      federal income tax rate to income before federal income tax expense and
      cumulative effect of adoption of accounting principles as follows:

<TABLE>
<CAPTION>
                                                                  2001                     2000                    1999
                                                            -------------------     -------------------     -------------------
      (in millions)                                         Amount          %       Amount          %       Amount          %
                                                            ======       ======     ======       ======     ======       ======
<S>                                                         <C>            <C>      <C>            <C>      <C>            <C>
      Computed (expected) tax expense                       $220.6         35.0     $239.1         35.0     $212.3         35.0
      Tax exempt interest and dividends
        received deduction                                   (48.8)        (7.7)     (24.7)        (3.6)      (7.3)        (1.2)
      Income tax credits                                     (11.5)        (1.8)      (8.0)        (1.2)      (4.3)        (0.7)
      Other, net                                               1.1          0.1        1.3          0.2        0.7          0.1
                                                            ------       ------     ------       ------     ------       ------
          Total (effective rate of each year)               $161.4         25.6     $207.7         30.4     $201.4         33.2
                                                            ======       ======     ======       ======     ======       ======
</TABLE>

      Total federal income tax (refunded) paid was $(45.4) million, $74.6
      million and $29.8 million during the years ended December 31, 2001, 2000
      and 1999, respectively.


                                      F-20
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

(8)   Comprehensive Income (Loss)

      Comprehensive income (loss) includes net income as well as certain items
      that are reported directly within separate components of shareholder's
      equity that bypass net income. Other comprehensive income (loss) is
      comprised of unrealized gains (losses) on securities available-for-sale
      and accumulated net losses on cash flow hedges. The related before and
      after federal income tax amounts for the years ended December 31, 2001,
      2000 and 1999 were as follows:

<TABLE>
<CAPTION>
      (in millions)                                                                       2001           2000          1999
                                                                                         ======         ======        =======
<S>                                                                                      <C>            <C>           <C>
      Unrealized gains (losses) on securities available-for-sale arising
         during the period:
         Gross                                                                           $164.0         $264.5        $(665.3)
         Adjustment to deferred policy acquisition costs                                  (71.7)         (74.0)         167.5
         Related federal income tax (expense) benefit                                     (32.3)         (66.7)         171.4
                                                                                         ------         ------        -------
            Net                                                                            60.0          123.8         (326.4)
                                                                                         ------         ------        -------

      Reclassification adjustment for net losses on securities
         available-for-sale realized during the period:
         Gross                                                                             58.7           13.5           17.6
         Related federal income tax benefit                                               (20.5)          (4.7)          (6.2)
                                                                                         ------         ------        -------
            Net                                                                            38.2            8.8           11.4
                                                                                         ------         ------        -------

      Other comprehensive income (loss) on securities
         available-for-sale                                                                98.2          132.6         (315.0)
                                                                                         ------         ------        -------

      Accumulated net loss on cash flow hedges:
         Gross                                                                            (13.5)            --             --
         Related federal income tax benefit                                                 4.7             --             --
                                                                                         ------         ------        -------
           Other comprehensive loss on cash flow hedges                                    (8.8)            --             --
                                                                                         ------         ------        -------

      Accumulated net loss on transition adjustments:
            Transition adjustment - SFAS 133                                               (5.6)            --             --
            Transition adjustment - EITF 99-20                                              3.5             --             --
            Related federal income tax benefit                                              0.7             --             --
                                                                                         ------         ------        -------
              Other comprehensive loss on transition adjustments                           (1.4)            --             --
                                                                                         ------         ------        -------
      Total other comprehensive income (loss)                                            $ 88.0         $132.6        $(315.0)
                                                                                         ======         ======        =======
</TABLE>

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

(9)   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-21
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

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

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

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

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

            Mortgage loans on real estate, net: The fair value for mortgage
            loans on real estate is estimated using discounted cash flow
            analyses, using interest rates currently being offered for similar
            loans to borrowers with similar credit ratings. Loans with similar
            characteristics are aggregated for purposes of the calculations.
            Fair value for impaired mortgage loans 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 based on one of two methods. For
            investment contracts without defined maturities, fair value is the
            amount payable on demand. For investment contracts with known or
            determined maturities, fair value is estimated using discounted cash
            flow analysis. Interest rates used are similar to currently offered
            contracts with maturities consistent with those remaining for the
            contracts being valued.

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


                                      F-22
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

            Collateral received - securities lending and derivatives: The
            carrying amount reported in the consolidated balance sheets for
            these instruments approximates their fair value.

            Short-term debt: The carrying amount reported in the consolidated
            balance sheets for these instruments approximates their fair value.

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

            Commitments to extend credit: Commitments to extend credit have
            nominal fair value because of the short-term nature of such
            commitments. See note 10.

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

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

      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>
                                                                           2001                              2000
                                                                ---------------------------        ----------------------------
                                                                 Carrying        Estimated           Carrying        Estimated
           (in millions)                                          amount         fair value           amount         fair value
                                                                ==========       ==========         ==========       ==========
<S>                                                             <C>             <C>                 <C>             <C>
           Assets:
             Investments:
               Securities available-for-sale:
                 Fixed maturity securities                      $ 18,370.8       $ 18,370.8         $ 15,451.3       $ 15,451.3
                 Equity securities                                    94.0             94.0              109.0            109.0
               Mortgage loans on real estate, net                  7,113.1          7,293.3            6,168.3          6,327.8
               Policy loans                                          591.1            591.1              562.6            562.6
               Short-term investments                              1,011.3          1,011.3              442.6            442.6
             Cash                                                     22.6             22.6               18.4             18.4
             Assets held in separate accounts                     59,513.0         59,513.0           65,897.2         65,897.2

           Liabilities:
             Investment contracts                                (19,549.5)       (18,421.0)         (16,815.3)       (15,979.8)
             Policy reserves on life insurance contracts          (5,666.5)        (5,524.4)          (5,368.4)        (5,128.5)
             Collateral received - securities lending and
                 derivatives                                        (809.6)          (809.6)                --               --
             Short-term debt                                        (100.0)          (100.0)            (118.7)          (118.7)
             Long-term debt, payable to NFS                         (300.0)          (300.0)                --               --
             Liabilities related to separate accounts            (59,513.0)       (58,387.3)         (65,897.2)       (64,237.6)

           Derivative financial instruments:
             Interest rate swaps hedging assets                       (5.6)            (5.6)              (8.3)            (8.3)
             Cross currency interest rate swaps                      (66.0)           (66.0)             (24.3)           (24.3)
             Futures contracts                                       (33.0)           (33.0)             (16.0)           (16.0)
                                                                ----------       ----------         ----------       ----------
</TABLE>


                                      F-23
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

(10)  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 could potentially have to borrow funds or sell
      assets prior to maturity and potentially recognize a gain or loss.

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

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

      Commitments to fund fixed rate mortgage loans on real estate are
      agreements to lend to a borrower and are subject to conditions established
      in the contract. Commitments generally have fixed expiration dates or
      other termination clauses and may require payment of a deposit.
      Commitments extended by the Company are based on management's case-by-case
      credit evaluation of the borrower and the borrower's loan collateral. The
      underlying mortgage property represents the collateral if the commitment
      is funded. The Company's policy for new mortgage loans on real estate is
      to generally lend no more than 80% of collateral value. Should the
      commitment be funded, the Company's exposure to credit loss in the event
      of nonperformance by the borrower is represented by the contractual
      amounts of these commitments less the net realizable value of the
      collateral. The contractual amounts also represent the cash requirements
      for all unfunded commitments. Commitments on mortgage loans on real estate
      of $344.0 million extending into 2002 were outstanding as of December 31,
      2001. The Company also had $81.5 million of commitments to purchase fixed
      maturity securities outstanding as of December 31, 2001.

      Notional amounts of derivative financial instruments, primarily interest
      rate swaps, interest rate futures contracts and foreign currency swaps,
      significantly exceed the credit risk associated with these instruments and
      represent contractual balances on which calculations of amounts to be
      exchanged are based. Credit exposure is limited to the sum of the
      aggregate fair value of positions that have become favorable to NLIC,
      including accrued interest receivable due from counterparties. Potential
      credit losses are minimized through careful evaluation of counterparty
      credit standing, selection of counterparties from a limited group of high
      quality institutions, collateral agreements and other contract provisions.
      As of December 31, 2001, NLIC's credit risk from these derivative
      financial instruments was $1.5 million net of $18.0 million of cash
      colleteral.


                                      F-24
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      Equity Market Risk: Asset fees calculated as a percentage of the separate
      account assets are a significant source of revenue to the Company. As of
      December 31, 2001, 82% 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.

      Significant Concentrations of Credit Risk: The Company grants mainly
      commercial mortgage loans on real estate to customers throughout the U. S.
      The Company has a diversified portfolio with no more than 20% (22% in
      2000) in any geographic area and no more than 2% (1% in 2000) with any one
      borrower as of December 31, 2001. As of December 31, 2001, 34% (36% in
      2000) of the carrying value of the Company's commercial mortgage loan
      portfolio financed retail properties.

      Significant Business Concentrations: As of December 31, 2001, the Company
      did not have a material concentration of financial instruments in a single
      investee, industry or geographic location. Also, the Company did not have
      a concentration of business transactions with a particular customer,
      lender or distribution source, a market or geographic area in which
      business is conducted that makes it vulnerable to an event which could
      cause a severe impact to the Company's financial position.

      Reinsurance: The Company has entered into reinsurance contracts to cede a
      portion of its general account individual annuity business. Total
      recoveries due from these contracts were $161.2 million and $143.1 million
      as of December 31, 2001 and 2000, respectively. The contracts are
      immaterial to the Company's results of operations. The ceding of risk does
      not discharge the original insurer from its primary obligation to the
      policyholder. Under the terms of the contracts, trusts have been
      established as collateral for the recoveries. The trust assets are
      invested in investment grade securities, the fair value of which must at
      all times be greater than or equal to 100% or 102% of the reinsured
      reserves, as outlined in the underlying contract.

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

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

(11)  Pension Plan, Postretirement Benefits Other than Pensions and Retirement
      Savings Plan

      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 and who have met certain age requirements. Plan contributions
      are invested in a group annuity contract of NLIC. Benefits are based upon
      the highest average annual salary of a specified number of consecutive
      years of the last ten years of service. The Company funds pension costs
      accrued for direct employees plus an allocation of pension costs accrued
      for employees of affiliates whose work efforts benefit the Company.


                                      F-25
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      Pension costs (benefits) charged to operations by the Company during the
      years ended December 31, 2001, 2000 and 1999 were $5.0 million, $1.9
      million and $(8.3) million, respectively. The Company has recorded a
      prepaid pension asset of $9.4 million and $13.6 million as of December 31,
      2001 and 2000, respectively.

      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,
      2001 and 2000 was $53.8 million and $51.0 million, respectively and the
      net periodic postretirement benefit cost (NPPBC) for 2001, 2000 and 1999
      was $2.9 million, $3.8 million and $4.9 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, 2001 and 2000 follows:

<TABLE>
<CAPTION>
                                                                           Pension Benefits             Postretirement Benefits
                                                                      -------------------------         -----------------------
      (in millions)                                                     2001             2000             2001            2000
                                                                      ========         ========         ========       ========
<S>                                                                   <C>              <C>              <C>            <C>
      Change in benefit obligation
      Benefit obligation at beginning of year                         $1,981.7         $1,811.4         $  276.4       $  239.8
      Service cost                                                        89.3             81.4             12.6           12.2
      Interest cost                                                      129.1            125.3             21.4           18.7
      Participant contributions                                             --               --              3.3            2.9
      Plan amendment                                                      27.7               --              0.2             --
      Actuarial (gain) loss                                               (5.8)            34.8             20.2           16.1
      Benefits paid                                                      (89.8)           (71.2)           (20.1)         (13.3)
                                                                      --------         --------         --------       --------
      Benefit obligation at end of year                                2,132.2          1,981.7            314.0          276.4
                                                                      ========         ========         ========       ========

      Change in plan assets
      Fair value of plan assets at beginning of year                   2,337.1          2,247.6            119.4           91.3
      Actual return (loss) on plan assets                                (46.6)           140.9             (0.2)          12.2
      Employer contribution                                                 --               --             17.3           26.3
      Participant contributions                                             --               --              3.3            2.9
      Plan curtailment                                                      --             19.8               --             --
      Benefits paid                                                      (89.8)           (71.2)           (20.1)         (13.3)
                                                                      --------         --------         --------       --------
      Fair value of plan assets at end of year                         2,200.7          2,337.1            119.7          119.4
                                                                      --------         --------         --------       --------

      Funded status                                                       68.5            355.4           (194.3)        (157.0)
      Unrecognized prior service cost                                     49.5             25.0              0.2             --
      Unrecognized net gains                                             (79.3)          (311.7)            (4.0)         (34.1)
      Unrecognized net (asset) obligation at transition                   (5.1)            (6.4)             0.8            1.0
                                                                      --------         --------         --------       --------
      Prepaid (accrued) benefit cost                                  $   33.6         $   62.3         $ (197.3)      $ (190.1)
                                                                      ========         ========         ========       ========
</TABLE>


                                      F-26
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

<TABLE>
<CAPTION>
                                                                         Pension Benefits             Postretirement Benefits
                                                                      -----------------------        ------------------------
                                                                       2001             2000            2001            2000
                                                                      =======================        ========================
<S>                                                                    <C>              <C>            <C>              <C>
      Weighted average discount rate                                    6.50%           6.75%           7.25%            7.50%
      Rate of increase in future compensation levels                    4.75%           5.00%             --               --
      Assumed health care cost trend rate:
            Initial rate                                                  --              --           11.00%           11.00%
            Ultimate rate                                                 --              --            5.50%            5.50%
            Declining period                                              --              --           4 Years          4 Years
                                                                       -----           -----           -----            -----
</TABLE>

      The components of net periodic pension cost for the pension plan as a
      whole for the years ended December 31, 2001, 2000 and 1999 were as
      follows:

<TABLE>
<CAPTION>
      (in millions)                                                               2001               2000               1999
      =======================================================================================================================
<S>                                                                              <C>                <C>                <C>
      Service cost (benefits earned during the period)                           $ 89.3             $ 81.4             $ 80.0
      Interest cost on projected benefit obligation                               129.1              125.3              109.9
      Expected return on plan assets                                             (183.8)            (184.5)            (160.3)
      Recognized gains                                                             (7.8)             (11.8)              (9.1)
      Amortization of prior service cost                                            3.2                3.2                3.2
      Amortization of unrecognized transition asset                                (1.3)              (1.3)              (1.4)
                                                                                 ------             ------             ------
                                                                                 $ 28.7             $ 12.3             $ 22.3
                                                                                 ======             ======             ======
</TABLE>

      Effective December 31, 1998, Wausau Service Corporation (WSC) ended its
      affiliation with Nationwide and employees of WSC ended participation in
      the pension plan resulting in a curtailment gain of $67.1 million. During
      1999, the pension plan transferred assets to settle its obligation related
      to WSC employees, resulting in a gain of $32.9 million. The spin-off of
      liabilities and assets was completed in the year 2000, resulting in an
      adjustment to the curtailment gain of $19.8 million.

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

<TABLE>
<CAPTION>
                                                                                    2001             2000            1999
                                                                                    ====             ====            ====
<S>                                                                                 <C>              <C>             <C>
      Weighted average discount rate                                                6.75%            7.00%           6.08%
      Rate of increase in future compensation levels                                5.00%            5.25%           4.33%
      Expected long-term rate of return on plan assets                              8.00%            8.25%           7.33%
                                                                                    ----             ----            ----
</TABLE>

      The components of NPPBC for the postretirement benefit plan as a whole for
      the years ended December 31, 2001, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
      (in millions)                                                                       2001           2000           1999
                                                                                          =====          =====          =====
<S>                                                                                       <C>            <C>            <C>
      Service cost (benefits attributed to employee service during the year)              $12.6          $12.2          $14.2
      Interest cost on accumulated postretirement benefit obligation                       21.4           18.7           17.6
      Expected return on plan assets                                                       (9.6)          (7.9)          (4.8)
      Amortization of unrecognized transition obligation of affiliates                      0.6            0.6            0.6
      Net amortization and deferral                                                        (0.4)          (1.3)          (0.5)
                                                                                          -----          -----          -----
                                                                                          $24.6          $22.3          $27.1
                                                                                          =====          =====          =====
</TABLE>


                                      F-27
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      Actuarial assumptions used for the measurement of the NPPBC for the
      postretirement benefit plan for 2001, 2000 and 1999 were as follows:

<TABLE>
<CAPTION>
                                                                                          2001             2000            1999
                                                                                        =======          =======         =======
<S>                                                                                     <C>              <C>             <C>
      Discount rate                                                                       7.50%            7.80%           6.65%
      Long-term rate of return on plan assets, net of tax in 1999                         8.00%            8.30%           7.15%
      Assumed health care cost trend rate:
         Initial rate                                                                    11.00%           13.00%          15.00%
         Ultimate rate                                                                    5.50%            5.50%           5.50%
         Declining period                                                               4 Years          5 Years         6 Years
                                                                                        -------          -------         -------
</TABLE>

      Because current plan costs are very close to the employer dollar caps, the
      health care cost trend has an immaterial effect on plan obligations for
      the postretirement benefit plan as a whole. For this reason, the effect of
      a one percentage point increase or decrease in the assumed health care
      cost trend rate on the APBO as of December 31, 2001 and on the NPPBC for
      the year ended December 31, 2001 was not calculated.

      The Company, together with other affiliated companies, sponsors a defined
      contribution retirement savings plan covering substantially all employees
      of the Company. Employees may make salary deferral contributions of up to
      22%. Salary deferrals of up to 6% are subject to a 50% Company match. The
      Company match is funded on a bi-weekly basis and the expense of such
      contributions are allocated to the Company based on employee
      contributions. The Company's expense for contributions to this plan
      totaled $5.6 million, $4.4 million and $3.3 million for 2001, 2000 and
      1999, respectively. Individuals are subject to a dollar limit on salary
      deferrals per Internal Revenue Service (IRS) Section 402(g) and other
      limits also apply. The Company has no legal obligation for benefits under
      this plan.

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

      The State of Ohio, where NLIC and NLAIC are domiciled, imposes minimum
      risk-based capital requirements that were developed by the NAIC. The
      formulas for determining the amount of risk-based capital specify various
      weighting factors that are applied to financial balances or various levels
      of activity based on the perceived degree of risk. Regulatory compliance
      is determined by a ratio of the Company's insurance 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 for all periods presented herein.

      The statutory capital and surplus of NLIC as of December 31, 2001, 2000
      and 1999 was $1.76 billion, $1.28 billion and $1.35 billion, respectively.
      The statutory net income of NLIC for the years ended December 31, 2001,
      2000 and 1999 was $83.1 million, $158.7 million and $276.2 million,
      respectively.

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

      The Company is limited in the amount of shareholder dividends it may pay
      without prior approval by the Department. As of December 31, 2001 $141.0
      million in dividends could be paid by NLIC without prior approval.

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


                                      F-28
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

(13)  Related Party Transactions

      During 2001, the Company entered into a transaction with NMIC, whereby it
      sold 78% of its interest in a limited partnership (representing 49% of the
      limited partnership) to NMIC for $158.9 million. As a result of this sale,
      the Company recorded a realized gain of $44.4 million, and related tax
      expense of $15.5 million. The sale price, which was paid in cash,
      represented the fair value of the limited partnership interest and was
      based on a valuation of the limited partnership and its underlying
      investments. The valuation was completed by qualified management of the
      limited partnership and utilized a combination of internal and independent
      valuations of the underlying investments of the limited partnership.
      Additionally, senior financial officers and the Boards of Directors of the
      Company and NMIC separately reviewed and approved the valuation prior to
      the execution of this transaction. The Company continues to hold an
      economic and voting interest in the limited partnership of approximately
      14%, with NMIC holding the remaining interests.

      NLIC has issued group annuity and life insurance contracts and performs
      administrative services for various employee benefit plans sponsored by
      NMIC or its affiliates. Total account values of these contracts were $4.68
      billion and $4.80 billion as of December 31, 2001 and 2000, respectively.
      Total revenues from these contracts were $150.7 million, $156.8 million,
      and $149.7 million for the years ended December 31, 2001, 2000, and 1999,
      respectively, and include policy charges, net investment income from
      investments backing the contracts and administrative fees. Total interest
      credited to the account balances were $118.4 million, $131.9 million, and
      $112.0 million for the years ended December 31, 2001, 2000, and 1999,
      respectively. The terms of these contracts are consistent in all material
      respects with what the Company offers to unaffiliated parties.

      The Company files a consolidated federal tax return with NMIC, as
      described in Note 2(i). Total payments (from) to NMIC were $(45.4)
      million, $74.6 million, and $29.8 million for the years ended December 31,
      2001, 2000, and 1999, respectively.

      During second quarter 1999, the Company entered into a modified
      coinsurance arrangement to reinsure the 1999 operating results of an
      affiliated company, Employers Life Insurance Company of Wausau (ELOW)
      retroactive to January 1, 1999. In September 1999, NFS acquired ELOW for
      $120.8 million and immediately merged ELOW into NLIC terminating the
      modified coinsurance arrangement. Because ELOW was an affiliate, the
      Company accounted for the merger similar to poolings-of-interests;
      however, prior period financial statements were not restated due to
      immateriality. The reinsurance and merger combined contributed $1.46
      million to net income in 1999.

      The Company has a reinsurance agreement with NMIC whereby all of the
      Company's accident and health business is ceded to NMIC on a modified
      coinsurance basis. The agreement covers individual accident and health
      business for all periods presented and group and franchise accident and
      health business since July 1, 1999. Either party may terminate the
      agreement on January 1 of any year with prior notice. Prior to July 1,
      1999 group and franchise accident and health business and a block of group
      life insurance policies were ceded to ELOW under a modified coinsurance
      agreement. Under a modified coinsurance agreement, 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 the reinsurer.
      Risk of asset default is retained by the Company, although a fee is paid
      to the Company for the retention of such risk. The ceding of risk does not
      discharge the original insurer from its primary obligation to the
      policyholder. The Company believes that the terms of the modified
      coinsurance agreements are consistent in all material respects with what
      the Company could have obtained with unaffiliated parties. Revenues ceded
      to NMIC and ELOW for the years ended December 31, 2001, 2000 and 1999 were
      $200.7 million, $170.1 million, and $193.0 million, respectively, while
      benefits, claims and expenses ceded were $208.5 million, $168.0 million
      and $197.3 million, respectively.


                                      F-29
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

      Pursuant to a cost sharing agreement among NMIC and certain of its direct
      and indirect subsidiaries, including the Company, NMIC provides certain
      operational and administrative services, such as investment management,
      advertising, personnel and general management services, to those
      subsidiaries. Expenses covered by such agreement are subject to allocation
      among NMIC and such subsidiaries. Measures used to allocate expenses among
      companies include individual employee estimates of time spent, special
      cost studies, salary expense, commission expense and other methods agreed
      to by the participating companies that are within industry guidelines and
      practices. In addition, Nationwide Services Company, a subsidiary of NMIC,
      provides computer, telephone, mail, employee benefits administration, and
      other services to NMIC and certain of its direct and indirect
      subsidiaries, including the Company, based on specified rates for units of
      service consumed. For the years ended December 31, 2001, 2000 and 1999,
      the Company made payments to NMIC and Nationwide Services Company totaling
      $139.8 million, $150.3 million, and $124.1 million, respectively. The
      Company does not believe that expenses recognized under these agreements
      are materially different than expenses that would have been recognized had
      the Company operated on a stand-alone basis.

      Under a marketing agreement with NMIC, NLIC makes payments to cover a
      portion of the agent marketing allowance that is paid to Nationwide
      agents. These costs cover product development and promotion, sales
      literature, rent and similar items. Payments under this agreement totaled
      $26.4 million, $31.4 million and $34.5 million for the years ended
      December 31, 2001, 2000 and 1999, respectively.

      The Company leases office space from NMIC and certain of its subsidiaries.
      For the years ended December 31, 2001, 2000 and 1999, the Company made
      lease payments to NMIC and its subsidiaries of $18.7 million, $14.1
      million and $9.9 million, respectively.

      The Company also participates in intercompany repurchase agreements with
      affiliates whereby the seller will transfer securities to the buyer at a
      stated value. Upon demand or after a stated period, the seller will
      repurchase the securities at the original sales price plus a price
      differential. During 2001, the most the Company had outstanding at any
      given time was $368.5 million and the Company incurred interest expense on
      intercompany repurchase agreements of $0.2 million for 2001. Transactions
      under the agreements during 2000 and 1999 were not material. The Company
      believes that the terms of the repurchase agreements are materially
      consistent with what the Company could have obtained with unaffiliated
      parties.

      The Company and various affiliates entered into agreements with Nationwide
      Cash Management Company (NCMC), an affiliate, under which NCMC acts as a
      common agent in handling the purchase and sale of short-term securities
      for the respective accounts of the participants. Amounts on deposit with
      NCMC were $54.8 million and $321.1 million as of December 31, 2001 and
      2000, respectively, and are included in short-term investments on the
      accompanying consolidated balance sheets.

      Certain annuity products are sold through affiliated companies, which are
      also subsidiaries of NFS. Total commissions and fees paid to these
      affiliates for the three years ended December 31, 2001 were $52.9 million,
      $65.0 million and $79.7 million, respectively.

      On December 19, 2001 the Company sold a 7.50%, $300.0 million surplus note
      to NFS, maturing on December 17, 2031. The fair value of the surplus note
      as of December 31, 2001 was $300.0 million. Principal and interest
      payments are subject to prior approval by the superintendent of insurance
      of the State of Ohio. The Company is scheduled to pay interest
      semi-annually on June 17 and December 17 of each year commencing June 17,
      2002.


                                      F-30
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

(14)  Bank Lines of Credit

      The Company has available as a source of funds a $1 billion revolving
      credit facility entered into by NFS, NLIC and NMIC. The facility is
      comprised of a five year $700 million agreement and a 364 day $300 million
      agreement with a group of national financial institutions. The facility
      provides for several and not joint liability with respect to any amount
      drawn by any party. The facility provides covenants, including, but not
      limited to, requirements that the Company maintain consolidated tangible
      net worth, as defined, in excess of $1.69 billion and NLIC maintain
      statutory surplus in excess of $935 million. The Company had no amounts
      outstanding under this agreement as of December 31, 2001. Of the total
      facility, $300 million is designated to back NLIC's commercial paper
      program. Therefore, borrowing capacity under this facility is reduced by
      any amounts outstanding under the commercial paper program, which totaled
      $100.0 million as of December 31, 2001.

(15)  Contingencies

      On October 29, 1998, the Company was named in a lawsuit filed in Ohio
      state court related to the sale of deferred annuity products for use as
      investments in tax-deferred contributory retirement plans (Mercedes
      Castillo v. Nationwide Financial Services, Inc., Nationwide Life Insurance
      Company and Nationwide Life and Annuity Insurance Company). On May 3,
      1999, the complaint was amended to, among other things, add Marcus Shore
      as a second plaintiff. The amended complaint is brought as a class action
      on behalf of all persons who purchased individual deferred annuity
      contracts or participated in group annuity contracts sold by the Company
      and the other named Company affiliates which were used to fund certain
      tax-deferred retirement plans. The amended complaint seeks unspecified
      compensatory and punitive damages. On June 11, 1999, the Company and the
      other named defendants filed a motion to dismiss the amended complaint. On
      March 8, 2000, the court denied the motion to dismiss the amended
      complaint filed by the Company and the other named defendants. On January
      25, 2002, the plaintiffs filed a motion for leave to amend their complaint
      to add three new named plaintiffs. On February 9, 2002, the plaintiffs
      filed a motion for class certification. The class has not been certified.
      The Company intends to defend this lawsuit vigorously.

      On August 15, 2001, the Company was named in a lawsuit filed in
      Connecticut federal court titled Lou Haddock, as trustee of the Flyte Tool
      & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide
      Financial Services, Inc. and Nationwide Life Insurance Company. On
      September 5, 2001, the plaintiffs amended their complaint to include class
      action allegations. The plaintiffs seek to represent a class of plan
      trustees who purchased variable annuities to fund qualified ERISA
      retirement plans. The amended complaint alleges that the retirement plans
      purchased variable annuity contracts from the Company which invested in
      mutual funds that were offered by separate mutual fund companies; that the
      Company was a fiduciary under ERISA and that the Company breached its
      fiduciary duty when it accepted certain fees from the mutual fund
      companies that purportedly were never disclosed by the Company; and that
      the Company violated ERISA by replacing many of the mutual funds
      originally included in the plaintiffs' annuities with "inferior" funds
      because the new funds purportedly paid more in revenue sharing. The
      amended complaint seeks disgourgement of fees by the Company and other
      unspecified compensatory damages. On November 15, 2001, the Company filed
      a motion to dismiss the amended complaint, which has not been decided. On
      December 3, 2001, the plaintiffs filed a motion for class certification.
      On January 15, 2002, the plaintiffs filed a response to the Company's
      motion to dismiss the amended complaint. On February 22, 2002, the Company
      filed a reply in support of its motion to dismiss. The class has not been
      certified. The Company intends to defend this lawsuit vigorously.

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

(16)  Segment Information

      The Company uses differences in products as the basis for defining its
      reportable segments. The Company reports three product segments:
      Individual Annuity, Institutional Products and Life Insurance.


                                      F-31
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

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

      The Institutional Products segment is comprised of the Company's private
      and public sector group retirement plans and medium-term note program. The
      private sector includes the 401(k) business generated through fixed and
      variable annuities. The public sector includes the IRC Section 457
      business in the form of fixed and variable annuities.

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

      In addition to the product segments, the Company reports a Corporate
      segment. The Corporate segment includes net investment income not
      allocated to the three product segments, certain revenues and expenses of
      the Company's broker/dealer subsidiary, unallocated expenses and interest
      expense on debt. In addition to these operating revenues and expenses, the
      Company also reports net realized gains and losses on investments, hedging
      instruments and hedged items in the Corporate segment.

      The following tables summarize the financial results of the Company's
      business segments for the years ended December 31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>
                                                        Individual   Institutional      Life
      (in millions)                                       Annuity       Products      Insurance      Corporate        Total
                                                        ==========   ============     ==========     =========      =========
<S>                                                     <C>          <C>              <C>            <C>            <C>
      2001:
      Net investment income                              $   534.7      $   847.5      $   323.3     $    19.5      $ 1,725.0
      Other operating revenue                                556.0          205.9          506.5          16.0        1,284.4
                                                         ---------      ---------      ---------     ---------      ---------
         Total operating revenue (1)                       1,090.7        1,053.4          829.8          35.5        3,009.4
                                                         ---------      ---------      ---------     ---------      ---------
      Interest credited to policyholder
         account balances                                    433.2          627.8          177.7            --        1,238.7
      Amortization of deferred policy
         acquisition costs                                   220.0           47.6           80.3            --          347.9
      Interest expense on debt                                  --             --             --           6.2            6.2
      Other benefits and expenses                            206.1          170.2          387.1           2.7          766.1
                                                         ---------      ---------      ---------     ---------      ---------
         Total benefits and expenses                         859.3          845.6          645.1           8.9        2,358.9
                                                         ---------      ---------      ---------     ---------      ---------
      Operating income before
         federal income tax expense (1)                      231.4          207.8          184.7          26.6          650.5
      Net realized losses on investments,
         hedging instruments and hedged
         items (2)                                              --             --             --         (20.2)         (20.2)
                                                         ---------      ---------      ---------     ---------      ---------
      Income before federal income tax
         expense and cumulative effect of
         adoption of accounting principles               $   231.4      $   207.8      $   184.7     $     6.4      $   630.3
                                                         =========      =========      =========     =========      =========

      Assets as of year end                              $43,885.4      $34,130.1      $ 9,129.0     $ 4,010.1      $91,154.6
                                                         =========      =========      =========     =========      =========
</TABLE>

----------
(1)   Excludes net realized gains and losses on investments, hedging instruments
      and hedged items.
(2)   Realized gains related to securitization transactions are included in
      operating income.


                                      F-32
<PAGE>

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

              Notes to Consolidated Financial Statements, Continued

<TABLE>
<CAPTION>
                                                        Individual   Institutional       Life
      (in millions)                                       Annuity      Products        Insurance     Corporate        Total
                                                         =========   ============      =========     =========      =========
<S>                                                     <C>          <C>              <C>           <C>             <C>
      2000:
      Net investment income                              $   483.2      $   827.4      $   289.2     $    55.1      $ 1,654.9
      Other operating revenue                                625.9          251.6          453.9          17.0        1,348.4
                                                         ---------      ---------      ---------     ---------      ---------
         Total operating revenue(1)                        1,109.1        1,079.0          743.1          72.1        3,003.3
                                                         ---------      ---------      ---------     ---------      ---------
      Interest credited to policyholder
         account balances                                    396.4          628.8          157.2            --        1,182.4
      Amortization of deferred policy
         acquisition costs                                   238.7           49.2           64.2            --          352.1
      Interest expense on debt                                  --             --             --           1.3            1.3
      Other benefits and expenses                            192.3          170.3          368.8          33.7          765.1
                                                         ---------      ---------      ---------     ---------      ---------
         Total benefits and expenses                         827.4          848.3          590.2          35.0        2,300.9
                                                         ---------      ---------      ---------     ---------      ---------
      Operating income before
         federal income tax expense(1)                       281.7          230.7          152.9          37.1          702.4
      Net realized losses on investments,
         hedging instruments and hedged
         items                                                  --             --             --         (19.4)         (19.4)
                                                         ---------      ---------      ---------     ---------      ---------
      Income before federal income tax
         expense and cumulative effect of
         adoption of accounting principles               $   281.7      $   230.7      $   152.9     $    17.7      $   683.0
                                                         =========      =========      =========     =========      =========

      Assets as of year end                              $45,422.5      $37,217.3      $ 8,103.3     $ 1,824.2      $92,567.3
                                                         =========      =========      =========     =========      =========

      1999:
      Net investment income                              $   458.9      $   771.2      $   253.1     $    37.6      $ 1,520.8
      Other operating revenue                                511.4          211.9          393.0          66.1        1,182.4
                                                         ---------      ---------      ---------     ---------      ---------
         Total operating revenue (1)                         970.3          983.1          646.1         103.7        2,703.2
                                                         ---------      ---------      ---------     ---------      ---------
      Interest credited to policyholder
         account balances                                    384.9          580.9          130.5            --        1,096.3
      Amortization of deferred policy
         acquisition costs                                   170.9           41.6           60.1            --          272.6
      Other benefits and expenses                            155.3          142.8          334.7          83.4          716.2
                                                         ---------      ---------      ---------     ---------      ---------
         Total benefits and expenses                         711.1          765.3          525.3          83.4        2,085.1
                                                         ---------      ---------      ---------     ---------      ---------
      Operating income before
         federal income tax expense (1)                      259.2          217.8          120.8          20.3          618.1
      Net realized losses on investments,
         hedging instruments and hedged
         items                                                  --             --             --         (11.6)         (11.6)
                                                         ---------      ---------      ---------     ---------      ---------
      Income before federal income tax
         expense and cumulative effect of
         adoption of accounting principles               $   259.2      $   217.8      $   120.8     $     8.7      $   606.5
                                                         =========      =========      =========     =========      =========

      Assets as of year end                              $45,667.8      $39,045.1      $ 6,616.7     $ 1,346.3      $92,675.9
                                                         =========      =========      =========     =========      =========
</TABLE>

----------
(1)   Excludes net realized gains and losses on investments, hedging instruments
      and hedged items.

      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.


                                      F-33
<PAGE>

                                                                      SCHEDULE I

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

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

                             As of December 31, 2001

<TABLE>
<CAPTION>
                              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            $    2,275.5       $    2,362.2       $   2,362.2
      States, municipalities and political subdivisions                           7.6                7.9               7.9
      Foreign governments                                                        41.8               44.4              44.4
      Public utilities                                                        1,205.2            1,219.3           1,219.3
      All other corporate                                                    14,431.5           14,737.0          14,737.0
                                                                         ------------       ------------       -----------
          Total fixed maturity securities available-for-sale                 17,961.6           18,370.8          18,370.8
                                                                         ------------       ------------       -----------

Equity securities available-for-sale:
   Common stocks:
      Industrial, miscellaneous and all other                                    83.0               94.0              94.0
   Non-redeemable preferred stock                                                  --                 --                --
                                                                         ------------       ------------       -----------
          Total equity securities available-for-sale                             83.0               94.0              94.0
                                                                         ------------       ------------       -----------

Mortgage loans on real estate, net                                            7,131.0                              7,113.1 (1)
Real estate, net:
   Investment properties                                                        138.0                                116.7 (2), (4)
   Acquired in satisfaction of debt                                              23.7                                 22.3 (2)
Policy loans                                                                    591.1                                591.1
Other long-term investments                                                      90.6                                 86.7 (3), (5)
Short-term investments, including amounts managed by a related party          1,011.3                              1,011.3
                                                                         ------------                          -----------
          Total investments                                                $ 27,030.3                           $ 27,406.0
                                                                         ============                          ===========
</TABLE>

----------
(1)   Difference from Column B is primarily due to valuation allowances due to
      impairments on mortgage loans on real estate (see note 3 to the
      consolidated financial statements), hedges and commitment hedges on
      mortgage loans on real estate.
(2)   Difference from Column B primarily results from adjustments for
      accumulated depreciation.
(3)   Difference from Column B is primarily due to operating gains and/or losses
      of investments in limited partnerships.
(4)   Amount shown does not agree to the consolidated balance sheet due to an
      unconsolidated related party limited partnership investment in the amount
      of $33.0 million.
(5)   Amount shown does not agree to the consolidated balance sheet due to
      unconsolidated related party investments in the amount of $38.3 million.

See accompanying independent auditors' report.


                                      F-34
<PAGE>

                                                                    SCHEDULE III

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION
                                  (in millions)

   As of December 31, 2001, 2000 and 1999 and for each of the years then ended

<TABLE>
<CAPTION>
         Column A                   Column B             Column C                Column D               Column E          Column F
-----------------------------   ----------------   ---------------------   --------------------     --------------       -----------
                                    Deferred           Future policy
                                     policy          benefits, losses,                                Other policy
                                  acquisition           claims and               Unearned              claims and          Premium
          Segment                    costs             loss expenses            premiums(1)        benefits payable(1)     revenue
-----------------------------   ----------------   ---------------------   --------------------    -------------------   -----------
<S>                             <C>                <C>                     <C>                     <C>                   <C>
2001: Individual Annuity           $  1,946.8           $   8,857.2                                                        $   60.9
      Institutional Products            307.7              11,872.7                                                              --
      Life Insurance                  1,025.2               4,252.3                                                           190.2
      Corporate                         (90.7)                233.8                                                              --
                                   ----------           -----------                                                        --------
         Total                     $  3,189.0           $  25,216.0                                                        $  251.1
                                   ==========           ===========                                                        ========

2000: Individual Annuity           $  1,711.6           $   7,008.8                                                        $   52.7
      Institutional Products            293.7              10,944.0                                                              --
      Life Insurance                    877.8               3,995.6                                                           187.3
      Corporate                         (17.5)                235.2                                                              --
                                   ----------           -----------                                                        --------
         Total                     $  2,865.6           $  22,183.6                                                        $  240.0
                                   ==========           ===========                                                        ========

1999: Individual Annuity           $  1,525.1           $   7,337.8                                                        $   26.8
      Institutional Products            275.2              10,833.4                                                              --
      Life Insurance                    702.9               3,519.9                                                           194.0
      Corporate                          50.9                 170.5                                                              --
                                   ----------           -----------                                                        --------
         Total                     $  2,554.1           $  21,861.6                                                        $  220.8
                                   ==========           ===========                                                        ========
</TABLE>

<TABLE>
<CAPTION>
        Column A                    Column G             Column H                Column I               Column J          Column K
-----------------------------   ----------------   ---------------------   --------------------     --------------       -----------
                                                     Benefits, claims,         Amortization              Other
                                 Net investment         losses and          of deferred policy         operating          Premiums
         Segment                    income(2)       settlement expenses     acquisition costs         expenses(2)          written
-----------------------------   ----------------   ---------------------   --------------------     --------------       -----------
<S>                              <C>                <C>                     <C>                       <C>                 <C>
2001: Individual Annuity           $    534.7           $     501.8               $ 220.0                $ 137.5
      Institutional Products            847.5                 627.8                  47.6                  170.2
      Life Insurance                    323.3                 389.4                  80.3                  133.7
      Corporate                          19.5                    --                    --                    2.7
                                   ----------           -----------               -------                -------
         Total                     $  1,725.0           $   1,519.0               $ 347.9                $ 444.1
                                   ==========           ===========               =======                =======

2000: Individual Annuity           $    483.2           $     450.4               $ 238.7                $ 138.3
      Institutional Products            827.4                 628.8                  49.2                  170.3
      Life Insurance                    289.2                 344.8                  64.2                  136.7
      Corporate                          55.1                   -                     -                     33.7
                                   ----------           -----------               -------                -------
         Total                     $  1,654.9           $   1,424.0               $ 352.1                $ 479.0
                                   ==========           ===========               =======                =======

1999: Individual Annuity           $    458.9           $     408.7               $ 170.9                $ 131.5
      Institutional Products            771.2                 580.9                  41.6                  142.8
      Life Insurance                    253.1                 317.1                  60.1                  105.7
      Corporate                          37.6                   -                     -                     83.4
                                   ----------           -----------               -------                -------
         Total                     $  1,520.8           $   1,306.7               $ 272.6                $ 463.4
                                   ==========           ===========               =======                =======
</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-35
<PAGE>

                                                                     SCHEDULE IV

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                   REINSURANCE
                                  (in millions)

   As of December 31, 2001, 2000 and 1999 and for each of the years then ended

<TABLE>
<CAPTION>
           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>
2001:
  Life insurance in force                  $    107,765.8        $   37,331.3          $  17.1        $   70,451.6            0.0%
                                           ==============        ============          =======        ============          =====

  Premiums:
    Life insurance(1)                      $        264.9        $       14.0          $   0.2        $      251.1            0.1%
    Accident and health insurance                   176.4               182.2              5.8                  --            N/A
                                           --------------        ------------          -------        ------------          -----
        Total                              $        441.3        $      196.2          $   6.0        $      251.1            2.4%
                                           ==============        ============          =======        ============          =====

2000:
  Life insurance in force                  $     95,475.2        $   31,101.6          $  16.4        $   64,390.0            0.0%
                                           ==============        ============          =======        ============          =====

  Premiums:
    Life insurance(1)                      $        254.6        $       14.8          $   0.2        $      240.0            0.1%
    Accident and health insurance                   150.8               156.8              6.0                  --            N/A
                                           --------------        ------------          -------        ------------          -----
        Total                              $        405.4        $      171.6          $   6.2        $      240.0            2.6%
                                           ==============        ============          =======        ============          =====

1999:
  Life insurance in force                  $     84,845.3        $   26,296.5          $  14.9        $   58,563.7            0.0%
                                           ==============        ============          =======        ============          =====

  Premiums:
    Life insurance(1)                      $        242.2       $        22.6          $   1.2        $      220.8            0.6%
    Accident and health insurance                   134.9               142.8              7.9                  --            N/A
                                           --------------        ------------          -------        ------------          -----
        Total                              $        377.1        $      165.4          $   9.1        $      220.8            4.2%
                                           ==============        ============          =======        ============          =====
</TABLE>

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

See accompanying independent auditors' report.


                                      F-36
<PAGE>

                                                                      SCHEDULE V

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                                  (in millions)

                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>
                   Column A                                Column B              Column C                 Column D        Column E
------------------------------------------------------   ------------  ----------------------------   -----------------------------
                                                                          Charged
                                                          Balance at   (credited) to    Charged to                      Balance at
Description                                                beginning     costs and         other                          end of
                                                           of period      expenses       accounts      Deductions(1)      period
------------------------------------------------------   ------------  --------------  ------------   --------------   ------------
<S>                                                       <C>          <C>              <C>            <C>              <C>
2001:
  Valuation allowances - mortgage loans on real estate     $    45.3         $ (1.2)        $  --         $    1.2        $   42.9
  Valuation allowances - real estate                             5.2             --            --              5.2             -
                                                           ---------         ------         -----         --------        -------
      Total                                                $    50.5         $ (1.2)        $  --         $    6.4        $   42.9
                                                           =========         ======         =====         ========        =======

2000:
  Valuation allowances - mortgage loans on real estate     $    44.4         $  4.1         $  --         $    3.2        $   45.3
  Valuation allowances - real estate                             5.5            0.4            --              0.7             5.2
                                                           ---------         ------         -----         --------        -------
      Total                                                $    49.9         $  4.5         $  --         $    3.9        $   50.5
                                                           =========         ======         =====         ========        =======

1999:
  Valuation allowances - fixed maturity securities         $     7.5         $   --         $  --         $    7.5        $    --
  Valuation allowances - mortgage loans on real estate          42.4            0.7           1.3 (2)           --           44.4
  Valuation allowances - real estate                             5.4            0.9            --              0.8            5.5
                                                           ---------         ------         -----         --------        -------
      Total                                                $    55.3         $  1.6         $ 1.3         $    8.3        $  49.9
                                                           =========         ======         =====         ========        =======
</TABLE>

----------
(1)   Amounts represent direct write-downs charged against the valuation
      allowance.
(2)   Allowance on acquired mortgage loans.

See accompanying independent auditors' report.



                                      F-37