<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                      ------------------------------------

                                    FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996        COMMISSION FILE NO. 2-28596

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


<TABLE>
<S>                                                                        <C>
                              OHIO                                                      31-4156830
 (State or other jurisdiction of incorporation or organization)            (I.R.S. Employer Identification No.)
</TABLE>


                              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
                                (Title of Class)


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

                                      NONE
                                (Title of Class)


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 FEBRUARY 28, 1997.

COMMON STOCK - 3,814,779 SHARES ISSUED AND OUTSTANDING AS OF DECEMBER 31, 1996
(Title of Class)




<PAGE>   2
                                     PART I

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

              Organization

              Nationwide Life Insurance Company (NLIC) was incorporated in 1929
              and is an Ohio stock legal reserve life insurance company. NLIC
              offers a variety of forms of variable annuities, fixed annuities,
              ordinary life insurance, universal life insurance, variable
              universal life insurance and term and endowment coverage on a
              participating and a non-participating basis. During 1996, NLIC
              discontinued its individual and group accident and health
              insurance and group life insurance business and in connection
              therewith, has entered into reinsurance agreements to cede all
              existing and any future writings to other affiliated companies and
              is implementing a plan to cease writing any new business prior to
              December 31, 1997.

              As of December 31, 1996, NLIC was wholly owned by Nationwide
              Corporation (Nationwide Corp.). Wholly owned subsidiaries of NLIC
              as of December 31, 1996 include Nationwide Life and Annuity
              Insurance Company (NLAIC), Employers Life Insurance Company of
              Wausau (ELICW), National Casualty Company (NCC), West Coast Life
              Insurance Company (WCLIC), Nationwide Advisory Services, Inc.
              (NAS), Nationwide Investment Services Corporation (NISC) and NWE,
              Inc. (NWE). NLIC and its subsidiaries are collectively referred to
              as "the Company."

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

              In November 1996, Nationwide Corp. formed Nationwide Financial
              Services, Inc. (NFS) as a holding company for NLIC and the other
              companies of the Enterprise that offer or distribute long-term
              savings and retirement products. On January 27, 1997, Nationwide
              Corp. contributed to NFS the common stock of the Company and three
              marketing and distribution companies.

              In anticipation of the restructuring described above, on September
              24, 1996, NLIC's Board of Directors declared a dividend payable
              January 1, 1997 to Nationwide Corp. consisting of the outstanding
              shares of common stock of certain subsidiaries (ELICW, NCC and
              WCLIC) 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 ELICW and
              NMIC effective January 1, 1996.

              NLAIC offers universal life insurance, variable universal life
              insurance and individual annuity contracts on a non-participating
              basis. ELICW, purchased on December 31, 1994, writes group
              accident and health insurance and group life insurance business.
              On December 31, 1993, Nationwide Corp. contributed all of the
              outstanding shares of common stock of NCC, WCLIC and NAS to the
              Company. NCC is a property casualty company that serves as a
              fronting company for a property casualty subsidiary of NMIC. WCLIC
              principally writes high dollar term life insurance business. NAS
              is a registered broker-dealer providing investment management and
              administration services. NISC, contributed by Nationwide Corp. on
              April 5, 1996, is a registered broker-dealer doing business solely
              in the deferred compensation market. NWE was formed by NLIC on
              January 18, 1994 to hold special investments.



                                       2
<PAGE>   3


              Description of Business

              The Company is a leading provider of long-term savings and
              retirement products to retail and institutional customers
              throughout the United States (U.S.). The Company offers variable
              annuities, fixed annuities and life insurance as well as mutual
              funds and pension products and administrative services. By
              developing and offering a wide variety of products, the Company
              believes that it has positioned itself to compete effectively in
              various stock market and interest rate environments. The Company
              markets its products through a broad spectrum of wholesale and
              retail distribution channels, including financial planners,
              pension plan administrators, securities firms, banks and
              Enterprise insurance agents.

              The Company is one of the leaders in the development and sale of
              variable annuities. For the year ended December 31, 1996, the
              Company was the fourth largest U.S. writer of individual variable
              annuity contracts based on sales, according to The Variable
              Annuity Research & Data Service. Its principal variable annuity
              series, The Best of America, allows the customer to choose from 36
              investment options, including mutual funds managed by such
              well-known firms as American Century, Dreyfus, Fidelity, Janus,
              Neuberger & Berman, Oppenheimer, T. Rowe Price, Templeton,
              Vanguard and Warburg Pincus, as well as mutual funds managed by
              the Company.

              In the mid-1970's, to capitalize on anticipated opportunities in
              the growing market for long-term savings and retirement products,
              the Company embarked on a specific strategy of broadening its
              distribution channels and product offerings beyond selling
              traditional life insurance. Over a 20-year period, the Company
              added financial planners, pension plan administrators, securities
              firms and banks as new distribution channels. Such distribution
              channels in the aggregate accounted for approximately 93.8% of the
              Company's sales in 1996. Currently, the Company administers
              approximately 15,000 pension plans and has distribution
              arrangements with 151 banks and other financial institutions, over
              1,000 broker/dealers and over 30,000 registered representatives.
              The Company has payroll deduction variable annuity enrollee
              customers in approximately 6,000 state and local government
              entities and 1,800 school districts, which have been obtained
              principally through sponsorship relationships with the National
              Association of Counties and The United States Conference of Mayors
              and an exclusive contractual arrangement with The National
              Education Association of the United States.

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

              The Company believes that demographic trends and shifts in
              attitudes toward retirement savings will continue to support
              increased consumer demand for its products. According to U.S.
              Census Bureau projections, the number of Americans between the
              ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
              million in 2005, making this "preretirement" age group the fastest
              growing segment of the U.S. population. The Company believes that
              Americans increasingly are supplementing traditional sources of
              retirement income, such as employer-provided defined benefit plans
              and Social Security, with self-directed investments.

              Product Segments

              During 1996, the Company changed its reporting segments to better
              reflect the way the businesses are managed. Prior periods have
              been restated to reflect these changes. Operating segment data is
              presented in note 16 to the consolidated financial statements and
              in Financial Statement Schedule III.




                                       3
<PAGE>   4


              The Company has three primary operating segments: Variable
              Annuities, Fixed Annuities and Life Insurance. The Variable
              Annuities segment, which accounted for $90.2 million (or 28.7%) of
              the Company's operating income (which excludes realized gains and
              losses on investments and discontinued operations) before federal
              income tax expense for 1996, consists of annuity contracts that
              provide the customer with the opportunity to invest in mutual
              funds managed by independent investment managers and the Company,
              with investment returns accumulating on a tax-deferred basis. The
              Fixed Annuities segment, which accounted for $135.4 million (or
              43.0%) of the Company's operating income before federal income tax
              expense for 1996, consists of annuity contracts that generate a
              return for the customer at a specified interest rate, fixed for a
              prescribed period, with returns accumulating on a tax-deferred
              basis. Such contracts consist of single premium deferred
              annuities, flexible premium deferred annuities and single premium
              immediate annuities. The Fixed Annuities segment also includes the
              fixed option under the Company's variable annuity contracts, which
              accounted for 70.5% of the Company's fixed annuity policy reserves
              as of December 31, 1996. For the year ended December 31, 1996, the
              average crediting rates on contracts (including the fixed option
              under the Company's variable annuity contracts) in the Fixed
              Annuities segment was 6.3%. Substantially all of the Company's
              crediting rates on its fixed annuity contracts are guaranteed for
              a period not exceeding 15 months. The Life Insurance segment,
              which accounted for $67.2 million (or 21.4%) of the Company's
              operating income before federal income tax expense for 1996,
              consists of insurance products, including variable life insurance
              products, that provide a death benefit and may also allow the
              customer to build cash value on a tax-deferred basis. In addition,
              the Company reports corporate income and expenses not specifically
              allocated to its product segments in a Corporate and Other
              segment, which accounted for $21.8 million (or 6.9%) of the
              Company's operating income before federal income tax expense for
              1996.

              Regulation

              NLIC and its insurance company subsidiaries, 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 stockholders. The
              Company can not predict the effect that any proposed or future
              legislation may have on the financial condition or results of
              operations of the Company.

              Competition

              The Company competes with a large number of other insurers as well
              as non-insurance financial services companies, such as banks,
              broker/dealers and mutual funds, some of whom have greater
              financial resources, offer alternative products and, with respect
              to other insurers, have higher ratings than the Company. The
              Company believes that competition in the Company's lines of
              business is based on price, product features, commission
              structure, perceived financial strength, claims-paying ratings,
              service and name recognition. National banks, with their
              preexisting customer bases for financial services products, may
              pose increasing competition in the future to insurers who sell
              annuities, including the Company, as a result of the U.S. Supreme
              Court's 1994 decision in NationsBank of North Carolina v. Variable
              Annuity Life Insurance Company, which permits national banks to
              sell annuity products of life insurance companies in certain
              circumstances.

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




                                       4
<PAGE>   5


              Employees

              As of December 31, 1996, the Company had approximately 3,200
              employees. None of the employees of the Company are covered by a
              collective bargaining agreement and the Company believes that its
              employee relations are satisfactory.


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

              The Company's principal executive offices are located in Columbus,
              Ohio. The Company leases its home office complex, consisting of
              approximately 465,000 square feet, from NMIC and its subsidiaries
              at One Nationwide Plaza, Two Nationwide Plaza and Three Nationwide
              Plaza, Columbus, Ohio. The Company believes that its present
              facilities are adequate for the anticipated needs of the Company.

ITEM 3        LEGAL PROCEEDINGS
------        -----------------

              From time to time 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
              defendents in lawsuits, including class action lawsuits, relating
              to life insurance pricing and sales practices. A number of these
              lawsuits have resulted in substantial jury awards or settlements.
              In October 1996, a policyholder of NLIC filed a complaint in
              Alabama state court against NLIC and an agent of NLIC (Wayne M.
              King v. Nationwide Life Insurance Company and Danny Nix) related
              to the sale of a whole life policy on a "vanishing premium" basis
              and seeking unspecified compensatory and punitive damages. In
              February 1997, NLIC was named as a defendant in a lawsuit filed in
              New York Supreme Court also related to the sale of whole life
              policies on a "vanishing premium" basis (John H. Snyder v.
              Nationwide Mutual Insurance Company, Nationwide Mutual Insurance
              Co. and Nationwide Life Insurance Co.). The plaintiff in such
              lawsuit seeks to represent a national class of NLIC policyholders
              and claims unspecified compensatory and punitive damages. This
              lawsuit is in the early stage and has not been certified as a
              class action. NLIC intends to defend these cases vigorously. There
              can be no assurance that any future litigation relating to pricing
              and sales practices will not have a material effect on the
              Company.

ITEM 4        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------        ---------------------------------------------------

              On April 3, 1996, a special meeting of the sole shareholder of
              NLIC was held. The purpose of this meeting was to vote on a
              proposal to amend and restate the Code of Regulations of
              Nationwide Life Insurance Company to update the titles and duties
              of certain officers and consider revisions in the indemnification
              provisions. The Proxy Committee cast all 3,814,779 shares in favor
              of the resolution, none against. No shares were withheld from the
              vote.




                                       5
<PAGE>   6


              On April 4, 1996, NLIC held its annual shareholder meeting. At the
              annual meeting, the shareholder elected as Directors the six
              nominees of the Board of Directors by the following vote of the
              Proxy Committee:

<TABLE>
<CAPTION>
                  Nominee                             Shares For            Shares Withheld
                  -------                             ----------            ---------------
                  <S>                                 <C>                         <C>
                  One-Year Term:
                      Joseph J. Gasper                3,814,779                   -0-

                  Three-Year Term:
                      Keith W. Eckel                  3,814,779                   -0-
                      Charles L. Fuellgraf, Jr.       3,814,779                   -0-
                      Dimon Richard McFerson          3,814,779                   -0-
                      Arden L. Shisler                3,814,779                   -0-
                      Harold W. Weihl                 3,814,779                   -0-
</TABLE>

              The term of office of the Directors, Lewis J. Alphin, Willard J.
              Engel, Fred C. Finney, Henry S. Holloway, David O. Miller, C. Ray
              Noecker, James F. Patterson, Robert L. Stewart and Nancy C.
              Thomas, continued after the meeting.


                                     PART II

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

              There is no established public trading market for the NLIC's
              shares of common stock. As of December 31, 1996, none of the
              3,814,779 shares of NLIC's common stock issued and outstanding was
              held by public shareholders. Nationwide Corp. was the sole
              shareholder of NLIC's common stock until January 27, 1997, when it
              contributed all of the outstanding shares of NLIC's common stock
              to NFS.

              NLIC paid cash dividends of $50,000,000 and $7,450,000 to
              Nationwide Corp. during 1996 and 1995, respectively. On September
              24, 1996, NLIC's Board of Directors declared a dividend payable
              January 1, 1997 to Nationwide Corp., consisting of the outstanding
              shares of common stock of ELICW, NCC and WCLIC, amounting to
              $485,707,298.

              On February 6, 1997 NLIC's Board of Directors declared an
              $850,000,000 dividend which was paid on February 24, 1997 to NFS,
              which then made an equivalent distribution to Nationwide Corp.
              This dividend payment was approved by the Department of Insurance
              of the State of Ohio.

              NLIC currently does not have a formal dividend policy. Management
              of NLIC currently does not anticipate making further dividend
              payments during 1997.

              Reference is made to Item 7 - Management's Discussion and Analysis
              of Financial Condition and Results of Operations and note 12 to
              the consolidated financial statements for information regarding
              dividend restrictions.

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

              The following table sets forth certain summary consolidated
              financial data. The consolidated income statement data set forth
              below for the years ended December 31, 1992 through 1996 and the
              consolidated balance sheet data as of December 31, 1992 through
              1996 are derived from the consolidated financial statements of the
              Company. The summary consolidated financial data set forth below
              should be read in conjunction with the consolidated financial
              statements of the Company and notes thereto and the other
              financial information, including Item 7 - Management's Discussion
              and Analysis of Financial Condition and Results of Operations,
              included elsewhere herein.




                                       6
<PAGE>   7


                    Selected Consolidated Financial Data (1)
                                ($000's omitted)

<TABLE>
<CAPTION>
                                                                      As of and for the year ended December 31,
                                                    ------------------------------------------------------------------------
                                                         1996           1995          1994          1993          1992
                                                    --------------- ------------- ------------- ------------- --------------
              <S>                                   <C>                <C>           <C>           <C>           <C>      
              Total revenues                        $   1,992,838      1,798,651     1,599,499     1,597,993     1,368,429
              Total benefits and expenses               1,677,341      1,511,079     1,357,641     1,319,985     1,239,877
                                                    --------------- ------------- ------------- ------------- --------------
              Income from continuing operations
                before federal income tax expense
                and cumulative effect of changes
                in accounting principles                  315,497        287,572       241,858       278,008       128,552
              Federal income tax expense                  110,889         99,808        78,589        94,905        33,804
                                                    --------------- ------------- ------------- ------------- --------------
              Income from continuing operations
                before other items                        204,608        187,764       163,269       183,103        94,748
              Income from discontinued
                operations (less federal income
                tax expense)                               11,324         24,714        20,459        28,637         2,067
              Cumulative effect of changes in
                accounting principles                           -              -             -          (231)            -
                                                    --------------- ------------- ------------- ------------- --------------
              Net income                            $     215,932        212,478       183,728       211,509        96,815
                                                    =============== ============= ============= ============= ==============

              Total assets                          $  47,766,246     38,507,633    29,246,024    24,700,213    20,763,028
                                                    =============== ============= ============= ============= ==============
<FN>
              ----------
              (1)   Consolidated financial data of the Company as of and for the
                    years ended December 31, 1995, 1994, 1993 and 1992 has been
                    restated to reflect the discontinued operations treatment of
                    certain NLIC subsidiaries and lines of business that were
                    unrelated to the long-term savings and retirement products
                    business. See note 2 to the consolidated financial
                    statements herein for additional information regarding the
                    discontinued operations treatment.
</TABLE>


ITEM 7        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
------        --------------------------------------------------------------- 
              RESULTS OF OPERATIONS
              ---------------------

              INTRODUCTION

              The following analysis of consolidated results of operations and
              financial condition of the Company should be read in conjunction
              with Item 6 - Selected Consolidated Financial Data and the
              consolidated financial statements and related notes included
              elsewhere herein.

              RESULTS OF OPERATIONS

              Policy Charges. Policy charges include asset fees, which are
              primarily earned from separate account assets generated from sales
              of variable annuities; administration fees, which include fees
              charged per contract on a variety of the Company's products and
              premium loads on universal life insurance products; surrender
              fees, which are charged as a percentage of assets withdrawn during
              a specified period (usually the first seven years) of annuity and
              certain life insurance contracts; and cost-of-insurance charges
              earned on universal life insurance products. For 1996, policy
              charges were $400.9 million, a 39.9% increase from $286.5 million
              in 1995. Policy charges increased 32.0% in 1995 from $217.2
              million in 1994. Increases in policy charges have resulted
              primarily from increases in separate account assets and the
              resulting higher levels of asset fees, as well as a moderate
              increase in all of the fees discussed above due to the growth in
              customer accounts.




                                       7
<PAGE>   8


              Life Insurance Premiums. Life insurance premiums are earned
              primarily from traditional life insurance in the Life Insurance
              segment, but are also earned from the sale of life-contingent
              immediate annuities in the Fixed Annuities segment. Life insurance
              premiums from traditional life insurance policies are recognized
              as revenue when due from the policyholder. For life-contingent
              immediate annuities, net premium (i.e., the portion of the premium
              which covers benefits and expenses) is recognized as revenue when
              received. Any premium received in excess of the net premium is
              deferred and recognized as revenue over the expected benefit
              period. Traditional life insurance products accounted for 87.9%,
              83.5% and 88.6% of the total life insurance premiums in 1996, 1995
              and 1994, respectively. Life insurance premiums were $198.6
              million for 1996, a 0.3% decrease from $199.1 million for 1995.
              The slight decrease in 1996 was due to an $8.7 million decrease in
              sales of life-contingent immediate annuities offset by an $8.3
              million increase in traditional life insurance premiums. Life
              insurance premiums increased 12.7% in 1995 from $176.7 million in
              1994. The 1995 increase in life insurance premiums resulted from
              an increase in traditional life insurance in-force in the Life
              Insurance segment and growth in the Fixed Annuities segment.

              Net Investment Income. Net investment income includes the gross
              investment income earned on investments supporting fixed annuities
              and certain life insurance products as well as the yield on the
              Company's general account invested assets which are not allocated
              to product segments. Net investment income was $1.36 billion in
              1996, $1.29 billion in 1995 and $1.21 billion in 1994. Net
              investment income has increased as a result of growth in the
              Company's general account invested assets. General account
              invested assets were $18.31 billion, $17.78 billion and $15.18
              billion as of December 31, 1996, 1995 and 1994, respectively.

              Realized Gains/(Losses) on Investments. Realized gains (losses) on
              investments are not considered by the Company to be a recurring
              source of earnings (operations). The Company makes decisions
              concerning the sale of invested assets based on a variety of
              market, business, tax and other factors. All realized gains and
              losses are reported in the Corporate and Other segment. Net
              realized losses on investments were $0.3 million in 1996, $1.7
              million in 1995 and $16.5 million in 1994.

              Other Income. Other income consists of investment management fees
              earned by a subsidiary of the Company from the management of
              Nationwide mutual funds. Net investment management fees earned on
              Nationwide mutual fund assets selected as investment options for
              variable annuity products and variable life insurance products are
              reported in the Variable Annuities segment and Life Insurance
              segment, respectively. The Company also sells its mutual fund
              products separately, and investment management fees from these
              assets are included in the Corporate and Other segment. Other
              income was $35.9 million in 1996, $20.7 million in 1995 and $11.3
              million in 1994. The increase in other income in 1996 and 1995
              resulted primarily from an increase in asset management fees
              earned on mutual fund assets.

              Benefits and Claims. Benefits and claims consist primarily of
              interest credited on fixed annuity products and life insurance
              benefits in the Life Insurance segment. Benefits and claims
              increased 4.0% to $1.16 billion in 1996 from 1995. Benefits and
              claims increased 12.4% to $1.12 billion in 1995 from $992.7
              million in 1994. The changes in benefits and claims from year to
              year are primarily attributable to the changes in interest
              credited which are discussed in the Fixed Annuities segment
              results below. Life insurance benefits have remained consistent
              over the periods.

              Policyholder Dividends. Policyholder dividends are paid on certain
              participating policies, primarily in the Life Insurance segment.
              Policyholder dividends were $41.0 million in 1996, a 2.8% increase
              over 1995. Policyholder dividends increased 2.8% to $39.9 million
              in 1995 from $38.8 million in 1994.

              Amortization of DAC. Amortization of deferred policy acquisition
              costs (DAC) results from the capitalization of commissions and
              other costs of acquiring new contracts and the amortization of
              these costs over the estimated life of the contract. Amortization
              of DAC was $133.4 million in 1996, a 61.3% increase over 1995.
              Amortization of DAC decreased 3.4% to $82.7 million in 1995 from
              $85.6 million in 1994. The increase in 1996 was primarily
              attributable to growth in all product segments while the decrease
              in 1995 resulted from a decrease in the amortization rate for
              variable and fixed individual annuities due to lower than
              anticipated lapse rates and strong separate account asset
              performance.




                                       8
<PAGE>   9


              Operating Expenses. Operating expenses were $342.4 million in
              1996, an 25.4% increase from 1995. Operating expenses increased
              13.4% to $273.0 million in 1995 from $240.7 million in 1994. These
              increases were primarily due to the increasing number of
              individual and group annuity contracts in-force and the related
              increase in administrative processing costs. The Company has
              controlled its operating expenses by taking advantage of economies
              of scale and by increasing productivity through investments in
              technology. As a result, the ratio of operating expenses to total
              assets declined to 0.72% in 1996 and 0.71% in 1995 from 0.82% in
              1994.

              Federal Income Tax Expense. Federal income tax expense was $110.9
              million, $99.8 million and $78.6 million, representing effective
              tax rates of 35.2%, 34.7% and 32.5% for 1996, 1995 and 1994,
              respectively. The increase in the 1996 effective tax rate is the
              result of greater benefits in 1995 and 1994 from charitable
              donations of appreciated securities.

              Net Operating Income. Net operating income is net income,
              excluding realized gains and losses on investments (net of related
              federal income tax) and discontinued operations. Net operating
              income for 1996 was $203.7 million, an 8.5% increase from 1995.
              The Company's net operating income increased 8.2% to $187.7
              million in 1995 from $173.5 million in 1994.

              Discontinued Operations. Discontinued operations include the
              results of (i) the three NLIC subsidiaries whose outstanding
              capital stock, on September 24, 1996, was declared as a dividend
              to Nationwide Corp. and (ii) all of NLIC's accident and health and
              group life business which was ceded to affiliates effective
              January 1, 1996. NLIC did not recognize any gain or loss on the
              disposal of these subsidiaries or discontinuance of the accident
              and health and group life insurance business. Income from
              discontinued operations was $11.3 million in 1996, a 54.3%
              decrease from $24.7 million in 1995. The decrease is attributable
              to losses incurred on group accident and health business, which
              are due to increases in the volume of claims and medical costs.
              Income from discontinued operations was $24.7 million in 1995, a
              20.5% increase from $20.5 million in 1994. The increase is
              attributable to the income reported by ELICW, which NLIC acquired
              effective December 31, 1994.


              EFFECT OF DIVIDEND AND CAPITAL CONTRIBUTIONS

              On February 24, 1997, NLIC paid a dividend to NFS, which
              subsequently made a dividend payment to Nationwide Corp.,
              consisting of securities having an aggregate fair value of $850.0
              million. On March 10, 1997 and March 11, 1997, NFS made cash
              capital contributions to NLIC totaling $836.8 million. These
              transactions resulted in a net decrease in invested assets of NLIC
              of $13.2 million, which is expected to result in a decrease in net
              investment income in the future.


              RESULTS OF OPERATIONS BY PRODUCT SEGMENT

              The Company has three product segments: Variable Annuities, Fixed
              Annuities and Life Insurance. In addition, the Company reports
              corporate income and expenses and investments and related
              investment income supporting capital not specifically allocated to
              its product segments in a Corporate and Other segment. All
              information set forth below relating to the Company's Variable
              Annuities segment excludes the fixed option under the Company's
              variable annuity contracts. Such information is included in the
              Company's Fixed Annuities segment.




                                       9
<PAGE>   10


              The table below presents summary financial data for the Company by
              segment.

<TABLE>
<CAPTION>
                                                                                      As of and for the Year Ended
                                                                                              December 31,
                                                                                ------------------------------------------
                                                                                    1996          1995          1994
                                                                                ------------------------------------------
                                                                                          (Dollars in millions)
              <S>                                                               <C>               <C>           <C>  
              REVENUES:
              Variable Annuities (1)                                            $     284.6         189.0         132.7
              Fixed Annuities (1)                                                   1,092.6       1,052.0         939.9
              Life Insurance                                                          435.6         409.1         383.1
              Corporate and Other                                                     180.3         150.3         160.3
                                                                                ------------------------------------------
                   Total operating revenues                                         1,993.1       1,800.4       1,616.0
              Realized losses on investments                                           (0.3)         (1.7)        (16.5)
                                                                                ------------------------------------------
                   Total revenues                                                $  1,992.8       1,798.7       1,599.5
                                                                                ==========================================

              INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL
                 INCOME TAX EXPENSE:
              Variable Annuities                                                $      90.3          50.8          24.6
              Fixed Annuities                                                         135.4         137.0         139.0
              Life Insurance                                                           67.2          67.6          53.0
              Corporate and Other                                                      22.9          33.9          41.8
                                                                                ------------------------------------------
                   Total operating income                                             315.8         289.3         258.4
              Realized losses on investments                                           (0.3)         (1.7)        (16.5)
                                                                                ------------------------------------------
                   Total income from continuing operations before federal
                      income tax expense                                        $     315.5         287.6         241.9
                                                                                ==========================================

              POLICY RESERVES:
              Variable Annuities (2)                                              $24,278.1      16,761.8      10,751.1
              Fixed Annuities (2)                                                  13,511.8      12,784.0      11,247.0
              Life Insurance                                                        2,938.9       2,660.5       2,425.2
              Corporate and Other                                                   3,302.5       2,644.3       2,252.7
                                                                                ------------------------------------------
                   Total policy reserves (3)                                      $44,031.3      34,850.6      26,676.0
                                                                                ==========================================

<FN>
              ----------
              (1) Revenues related to the fixed option under the Company's
                  variable annuity contracts are included in Fixed Annuities.

              (2) Policy reserves related to the fixed option under the
                  Company's variable annuity contracts are included in Fixed
                  Annuities. As of December 31, 1996, 1995 and 1994, such policy
                  reserves represented $9.52 billion, $8.83 billion and $7.27
                  billion, respectively.

              (3) Total policy reserves as presented here differ from the
                  amounts set forth in the Company's financial statements
                  because the presented amounts exclude (i) accident and health
                  and group life insurance business ceded to other members of
                  the Enterprise and (ii) the fixed annuity policy reserves
                  ceded to Franklin Life Insurance Company (Franklin Life). See
                  Item 13 - Certain Relationships and Related Transactions.
</TABLE>




                                       10
<PAGE>   11


              Variable Annuities

              Revenues. Revenues in the Variable Annuities segment consist of
              policy charges and other income. Policy charges consist of asset
              fees, which are generally a percentage of separate account assets
              deposited for the purchase of variable annuities; administration
              fees, which are generally a specific dollar amount per contract;
              and surrender fees, which are charged against assets withdrawn
              during a specified period (generally the first seven years) of
              variable annuity contracts. The separate account assets generated
              by the Variable Annuities segment do not contribute to net
              investment income of the Company because the customer receives the
              investment benefit and bears the investment risk of these assets.
              Other income includes net investment management fees earned on
              separate account assets held in mutual funds managed by a
              subsidiary of NLIC.

              Revenues were $284.6 million in 1996, a 50.6% increase from 1995.
              Revenues increased 42.4% to $189.0 million in 1995 from $132.7
              million in 1994. Revenues have increased primarily as a result of
              growth in separate account assets related to this segment and the
              corresponding growth in asset fees, which were $261.8 million,
              $172.8 million and $120.4 million in 1996, 1995 and 1994,
              respectively. Asset fees as a percentage of variable annuity
              separate account assets have remained relatively stable during the
              periods presented, reflecting minimal changes in the levels of
              asset fees charged on most variable annuity products.

              Income from Continuing Operations Before Federal Income Tax
              Expense. Income from continuing operations before federal income
              tax expense was $90.3 million in 1996, a 77.8% increase from 1995.
              Income from continuing operations before federal income tax
              expense increased 106.5% to $50.8 million in 1995 from $24.6
              million in 1994. Increases have primarily resulted from growth in
              variable annuity separate account assets and the corresponding
              increases in asset fees combined with expense levels which have
              decreased as a percentage of revenues. Total expenses were $189.7
              million, $135.4 million and $105.8 million, or 66.7%, 71.6% and
              79.7% of total revenues, for 1996, 1995 and 1994, respectively.
              During the period, the Company has controlled its operating
              expenses by taking advantage of economies of scale and by
              increasing productivity through investments in technology.

              Policy Reserves. Variable annuity policy reserves increased 44.9%
              from $16.76 billion as of December 31, 1995 to $24.28 billion as
              of December 31, 1996. Of this increase, $2.72 billion was due to
              market appreciation of separate account assets, while $6.50
              billion of statutory premiums and deposits offset by $1.70 billion
              of withdrawals and policy charges resulted in the remainder of the
              increase. Variable annuity policy reserves increased 55.9% to
              $16.76 billion as of December 31, 1995 from $10.75 billion as of
              December 31, 1994, which was a 36.8% increase from $7.86 billion
              as of December 31, 1993. Market appreciation accounted for $2.93
              billion of the increase in 1995 while market depreciation
              accounted for an $84.0 million decrease in 1994. Statutory
              premiums and deposits were $4.40 billion and $3.82 billion, while
              withdrawals and policy charges were $1.32 billion and $840.0
              million, in 1995 and 1994, respectively.

              Fixed Annuities

              Revenues. Revenues in the Fixed Annuities segment consist mainly
              of net investment income, which is earned on invested assets
              allocated to support fixed annuity policy reserves and
              shareholders' equity allocated to such segment. Total revenues
              were $1.09 billion, $1.05 billion and $939.9 million in 1996, 1995
              and 1994, respectively. Net investment income was $1.05 billion,
              $1.00 billion and $903.7 million, representing average pre-tax
              yields on the assets supporting this segment of 8.22%, 8.50% and
              8.59%, in 1996, 1995 and 1994, respectively. The increase in net
              investment income for each period presented is the result of the
              increases in policy reserves discussed below and the corresponding
              increase in invested assets.

              Interest Credited. Interest credited on account balances was
              $805.0 million, $775.7 million and $680.9 million, representing
              crediting rates of 6.30%, 6.58% and 6.47%, for 1996, 1995 and
              1994, respectively. The differential between net investment income
              and interest credited on account balances resulted in spreads of
              $245.6 million, $227.1 million and $222.8 million, or 1.92%, 1.92%
              and 2.12%, in 1996, 1995 and 1994, respectively. Spreads vary
              depending on crediting rates offered by competitors, performance
              of the investment portfolio and other factors. The higher spread
              in 1994 is primarily the result of declining interest rates in
              late 1993 and early 1994 which resulted in lower crediting rates.



                                       11
<PAGE>   12



              Income from Continuing Operations Before Federal Income Tax
              Expense. Income from continuing operations before federal income
              tax expense was $135.4 million in 1996, a 1.2% decrease from 1995.
              Income from continuing operations before federal income tax
              expense decreased 1.4% to $137.0 million in 1995 from $139.0
              million in 1994. Narrowing spreads, offset by asset growth, caused
              1996 and 1995 earnings to decline from 1994.

              Policy Reserves. Fixed annuity policy reserves increased 5.7% to
              $13.51 billion as of December 31, 1996, from $12.78 billion as of
              December 31, 1995. Statutory premiums and deposits of $1.60
              billion and interest credited of $805.0 million were offset by
              $1.68 billion of withdrawals, annuity benefits and policy charges.
              Policy reserves increased 13.6% to $12.78 billion as of December
              31, 1995 from $11.25 billion as of December 31, 1994. Statutory
              premiums and deposits were $1.86 billion and $1.31 billion, while
              interest credited was $775.7 million and $680.9 million in 1995
              and 1994, respectively. Withdrawals and policy charges were $1.10
              billion and $895.0 million in 1995 and 1994, respectively.

              Life Insurance

              Revenues. Revenues in the Life Insurance segment consist of the
              life insurance premiums and policy charges, as well as net
              investment income. Total revenues were $435.6 million, $409.1
              million and $383.1 million for 1996, 1995 and 1994, respectively.
              The increases are attributed to increases in life insurance
              in-force with the majority of the growth coming from the variable
              universal life product.

              Income from Continuing Operations Before Federal Income Tax
              Expense. Income from continuing operations before federal income
              tax expense was $67.2 million in 1996, a 0.6% decrease from $67.6
              million for 1995. The decrease is attributable to the increased
              amount of amortization of DAC due to increased volume and higher
              general expenses due to increased sales offset by an increase in
              revenues from the variable universal product. Income from
              continuing operations before federal income tax expense increased
              27.5% to $67.6 million in 1995 from $53.0 million in 1994. The
              increase is due to growth in insurance in-force, particularly
              variable universal life, combined with only minimal increases in
              expenses.

              Life Insurance In-Force. Life insurance in-force was $37.72
              billion, $33.41 billion and $30.13 billion as of December 31,
              1996, 1995 and 1994, respectively. Nearly two-thirds of the growth
              of life insurance in-force is in variable universal life and term
              insurance policies.

              Corporate and Other

              Revenues. Revenues in the Corporate and Other segment consist of
              net investment income on invested assets not allocated to the
              three product segments, all realized investment gains and losses,
              investment management fees and other revenues earned from
              Nationwide mutual funds other than the portion allocated to the
              Variable Annuities and Life Insurance segments and net investment
              income and policy charges from group annuity contracts issued to
              Enterprise employee and agent benefit plans. Total revenues
              excluding realized gains and losses were $180.3 million for 1996,
              a 20.0% increase from 1995. The increase in 1996 is the result of
              an increase in investment income and investment management fees
              earned. Total revenues excluding realized gains and losses were
              $150.3 million and $160.3 million in 1995 and 1994, respectively.
              The decrease is a result of a reduction of $155.0 million of
              invested assets. Effective December 31, 1994, the Company
              transferred $155.0 million of invested assets from the Corporate
              and Other segment for the purchase of ELICW. Realized losses on
              investments were $0.3 million, $1.7 million and $16.5 million in
              1996, 1995 and 1994, respectively.

              Income from Continuing Operations Before Federal Income Tax
              Expense. Income from continuing operations before federal income
              tax expense excluding realized gains and losses was $22.9 million,
              $33.9 million and $41.8 million in 1996, 1995 and 1994,
              respectively. The decrease in 1996 from 1995 is due to a decrease
              in net investment income and higher operating expenses. The change
              from 1994 to 1995 is primarily attributed to the change in
              revenues discussed above.




                                       12
<PAGE>   13


              INTERCOMPANY AGREEMENTS

              The Company has existing arrangements with NMIC and other
              affiliates that address the sharing of federal income taxes, the
              leasing of office space and the sharing of certain operational and
              administrative services. These arrangements have been in effect
              for all periods for which financial data is presented herein. See
              Item 13 - Certain Relationships and Related Transactions-Existing
              Arrangements with the Enterprise. The Company does not believe
              that expenses recognized under the intercompany arrangements are
              materially different from expenses that would have been recognized
              had the Company operated on a stand-alone basis.

              NMIC and its U.S. subsidiaries, including the Company, file a
              consolidated federal income tax return. The members of the
              consolidated group currently have a tax sharing arrangement which
              provides for each member to bear essentially the same federal
              income tax liability as if separate tax returns were filed. For
              the years ended December 31, 1996, 1995 and 1994, the Company made
              federal income tax payments under the tax sharing arrangement of
              $115.8 million, $51.8 million and $83.2 million, respectively. See
              Item 13 - Certain Relationships and Related Transactions-Existing
              Arrangements with the Enterprise-Federal Income Taxes.

              The Company leases approximately 465,000 square feet of office
              space at a current market rate of $19.53 per square foot, with
              limited exceptions, from NMIC and certain of its subsidiaries. For
              the years ended December 31, 1996, 1995 and 1994, the Company made
              lease payments to NMIC and its subsidiaries of $9.1 million, $9.0
              million and $8.1 million, respectively. See Item 13 - Certain
              Relationships and Related Transactions-Existing Arrangements with
              the Enterprise-Lease.

              Pursuant to a cost sharing agreement among NMIC and certain of its
              direct and indirect subsidiaries, including the Company, NMIC
              provides certain operational and administrative services, such as
              sales support, advertising, personnel and general management
              services, to those subsidiaries. Expenses covered by such
              agreement are subject to allocation among NMIC and such
              subsidiaries. Amounts allocated to the Company were $101.6
              million, $107.1 million and $100.6 million for the years ended
              December 31, 1996, 1995 and 1994, respectively. Under the cost
              sharing agreement, expenses are allocated in accordance with NAIC
              guidelines and are based on standard allocation techniques and
              procedures acceptable under general cost accounting practices.
              Measures used to allocate expenses include individual employee
              estimates of time spent, special cost studies, salary expense,
              commissions expense and other measures that are agreed to by the
              participating companies and are within regulatory and industry
              guidelines and practices. The cost sharing agreement will remain
              in effect until terminated upon the consent of both NMIC and the
              Company. See Item 13 - Certain Relationships and Related
              Transactions-Existing Arrangements with the Enterprise-Cost
              Sharing Agreement.


              REINSURANCE

              The Company follows the customary industry practice of reinsuring
              (ceding) a portion of its life insurance and annuity risks with
              other companies in order to reduce net liability on individual
              risks, to provide protection against large losses and to obtain
              greater diversification of risks. The ceding of risk does not
              discharge the original insurer from its primary obligation to the
              policyholder. The Company has entered into a reinsurance contract
              to cede a portion of its general account individual annuity
              reserves to Franklin Life. Total recoveries due from Franklin Life
              were $240.5 million and $245.3 million as of December 31, 1996 and
              1995, respectively. Under the terms of the contract, Franklin Life
              has established a trust as collateral for the recoveries. The
              trust assets are invested in investment grade securities, the
              market value of which must at all times be greater than or equal
              to 102% of the reinsured reserves. The Company has no other
              material reinsurance arrangements with unaffiliated reinsurers.




                                       13
<PAGE>   14


              The only material reinsurance agreements which the Company has
              with affiliates are the modified coinsurance agreements pursuant
              to which NLIC reinsured all of its accident and health and group
              life insurance business to ELICW and NMIC. See Item 13 - Certain
              Relationships and Related Transactions-Existing Arrangements with
              the Enterprise-Modified Coinsurance Agreements. NLIC entered into
              these reinsurance agreements because its accident and health and
              group life insurance business was unrelated to NLIC's long-term
              savings and retirement products. Accordingly, all accident and
              health and group life insurance business is accounted for as
              discontinued operations. Under the modified coinsurance
              agreements, invested assets are retained by the ceding company and
              investment earnings are paid to the reinsurer. Under the terms of
              such agreements, the investment risk associated with changes in
              interest rates is borne by ELICW or NMIC, as the case may be. Risk
              of asset default is retained by the Company, although a fee is
              paid by ELICW or NMIC, as the case may be, to NLIC for NLIC's
              retention of such risk. The contracts will remain in force until
              all policy obligations are settled. However, with respect to the
              agreement between NLIC and NMIC, either party may terminate the
              contract on January 1 of any year with prior notice. NLIC believes
              that the terms of such modified coinsurance agreements are
              consistent in all material respects with what NLIC could have
              obtained with unaffiliated parties.

              Total premiums ceded under the intercompany reinsurance agreements
              were $321.6 million during 1996. The effect of the reinsurance
              agreements was an increase in NLIC's income from discontinued
              operations before federal income tax expense of $4.5 million
              during 1996. NLIC does not expect the intercompany reinsurance
              agreements to have any material adverse effect on NLIC's future
              operations.


              LIQUIDITY AND CAPITAL RESOURCES

              State insurance laws generally restrict the ability of insurance
              companies to pay cash dividends in excess of certain prescribed
              limitations without prior approval. The ability of NLIC to pay
              dividends is subject to restrictions set forth in the insurance
              laws and regulations of Ohio, its domiciliary state. The Ohio
              insurance laws require 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 policyholders' surplus
              as of the prior December 31 or (ii) the net income of the insurer
              for the 12-month period ending as of the prior December 31. The
              Ohio insurance laws also require insurers to seek prior regulatory
              approval for any dividend paid from other than earned surplus. The
              payment of dividends by NLIC may also be subject to restrictions
              set forth in the insurance laws of New York that limit the amount
              of statutory profits on NLIC's participating policies (measured
              before dividends to policyholders) that can inure to the benefit
              of NLIC and its stockholder. NLIC currently does not expect such
              regulatory requirements to impair its ability to pay operating
              expenses and dividends in the future. However, NLIC can give no
              assurance that dividends will be declared or paid.

              As a result of the $850.0 million dividend paid on February 24,
              1997 and the dividend by NLIC of the stock of certain subsidiaries
              that do not operate in the long-term savings and retirement
              market, any dividend paid by NLIC during the 12-month period
              immediately following the $850.0 million dividend would be an
              extraordinary dividend under Ohio insurance laws. Accordingly, no
              such dividend could be paid without prior regulatory approval.
              NLIC has no reason to believe that any reasonably foreseeable
              dividend to be paid by NLIC would not receive the required
              approval.

              NLIC's statutory capital and surplus was $1.00 billion as of
              December 31, 1996. NLIC paid a dividend of $850.0 million on
              February 24, 1997. NFS contributed amounts totaling $836.8 million
              to NLIC on March 10, 1997 and March 11, 1997. NLIC believes that
              after such dividend and such contribution from NFS, NLIC has
              adequate statutory capital and surplus to satisfy all regulatory
              requirements and to support its growth over the following year.




                                       14
<PAGE>   15


              NLIC paid the dividend by transferring primarily fixed maturity
              investments with an aggregate market value on February 24, 1997 of
              $850.0 million from the Corporate and Other segment. NLIC
              recognized a gain of $14.4 million on the transfer of the
              securities. The related tax impact of the gain will be recognized
              but will not be paid as long as the securities are held by NMIC
              and NLIC remains within the consolidated federal tax return of
              NMIC.

              NLIC's principal sources of funds are premiums and other
              considerations paid, contract charges earned, net investment
              income received and proceeds from investments called, redeemed or
              sold. The principal uses of these funds are the payment of
              benefits on annuity contracts and life insurance policies,
              operating expenses and the purchase of investments. Net cash
              provided by operating activities (reflecting principally (i)
              premiums and contract charges collected, less (ii) benefits paid
              on life insurance products, plus (iii) income collected on
              invested assets, less (iv) commissions and other general expenses
              paid) was $346.2 million, $187.6 million and $39.9 million for the
              years ended December 31, 1996, 1995 and 1994, respectively. Net
              cash used by investing activities (principally reflecting
              investments purchased less investments called, redeemed or sold)
              was $771.3 million, $1.72 billion and $1.39 billion in the years
              ended December 31, 1996, 1995 and 1994, respectively. Net cash
              provided by financing activities (principally reflecting deposits
              to investment product and universal life insurance product account
              balances less withdrawals from such account balances and capital
              contributions less dividends paid) was $459.5 million, $1.54
              billion and $1.34 billion for the years ended December 31, 1996,
              1995 and 1994, respectively.

              A primary liquidity concern with respect to life insurance and
              annuity products is the risk of early policyholder and
              contractholder withdrawal. The Company closely evaluates and
              manages this risk. The following table summarizes the Company's
              annuity policy reserves as of December 31, 1996 and 1995 by the
              contractholder's ability to withdraw funds.

<TABLE>
<CAPTION>
                                                                                   As of                    As of
                                                                             December 31, 1996        December 31, 1995
                                                                           ----------------------- ------------------------
                                                                              Policy                  Policy
                                                                             Reserves       %        Reserves        %
                                                                           ------------- --------- ------------- ----------
                                                                                        (Dollars in millions)

               <S>                                                          <C>            <C>      <C>            <C> 
               Not subject to discretionary withdrawal                      $  1,139.5       2.8%   $  1,087.2       3.4%
               Subject to discretionary withdrawal with adjustment:
                   With market value adjustment                               35,463.2      86.3      27,312.1      84.8
                   At contract value, less surrender charge of 5% or more      1,046.6       2.5         992.1       3.1
                                                                           ------------- --------- ------------- ----------
                                                                              37,649.3      91.6      29,391.4      91.3

               Subject to discretionary withdrawal at contract value with
                 no surrender charge or surrender charge less than 5%          3,443.2       8.4       2,798.7       8.7
                                                                           ------------- --------- ------------- ----------
                      Total annuity policy reserves                          $41,092.5     100.0%    $32,190.1     100.0%
                                                                           ============= ========= ============= ==========
</TABLE>

              Life insurance policies are also subject to withdrawal. However,
              they are less susceptible to withdrawal than are annuity contracts
              because policyholders may incur surrender charges and undergo a
              new underwriting process in order to obtain a new insurance
              policy.

              NLIC's principal sources of liquidity to meet unexpected cash
              outflows are its portfolio of liquid assets and its net operating
              cash flow.

              The short- and long-term liquidity requirements of the Company are
              monitored regularly to match cash inflows with cash requirements.
              The Company periodically reviews its short- and long-term
              projected sources and uses of funds and the asset/liability,
              investment and cash flow assumptions underlying these projections.
              Adjustments are made periodically with respect to the Company's
              investment policies to reflect changes in the Company's short- and
              long-term cash needs and changing business and economic
              conditions.




                                       15
<PAGE>   16


              The Company employs an asset/liability management approach
              tailored to the specific requirements of each of its product
              lines. The Company's general account invested assets are primarily
              managed in a number of pools that are separated by weighted
              average maturity of the assets acquired by the pools. On bonds and
              mortgages, the weighted average maturity is based on repayments
              which are scheduled to occur under the terms of the asset. For
              mortgage backed securities, repayments are determined using the
              current rate of repayment of the underlying pool of mortgages and
              the terms of the securities. Each product line has an investment
              strategy based on the specific characteristics of such product
              line. The strategy establishes asset duration, quality and other
              guidelines. The Company's actuaries determine the amount of new
              investments needed for each line to arrive at the amount of new
              investments needed for each pool by month. The investments
              acquired for each pool are shared on a proportional basis by each
              of the lines requesting investments in the pool based on their
              actual investment needs.

              For all business having future benefits which cannot be changed at
              the option of the policyholder, the underlying assets are managed
              in a separate pool. The duration of assets and liabilities in this
              pool are kept as close together as possible. For assets, the
              repayment cash flows, plus anticipated coupon payments, are used
              in calculating asset duration. Future benefits and expenses are
              used for liabilities. On December 31, 1996, the average duration
              of assets in this pool was 6.80 years and the average duration of
              the liabilities was 7.44 years. Policy reserves on this business
              were $1.11 billion as of December 31, 1996.

              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 as
              a final step in its asset/liability management process. Annually,
              the Company's annuity and insurance business is analyzed to
              determine the adequacy of the reserves supporting such business.
              This analysis is accomplished by projecting under a number of
              possible future interest rate scenarios the anticipated cash flows
              from such business and the assets required to support such
              business. The first seven of these scenarios are required by state
              insurance laws. Projections are also made using 13 additional
              scenarios which involve more extreme fluctuations in future
              interest rates. Finally, to get a statistical analysis of possible
              results and to minimize any bias in the 20 predetermined
              scenarios, additional projections are made using 200 randomly
              generated interest rate scenarios. For the Company's 1996 cash
              flow testing process, interest rates for 90-day treasury bills
              ranged from 0.4% to 11.5% under the 20 predetermined scenarios and
              0.8% to 25.3% under the 200 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 for year end 1996 indicated that the
              Company's reserves were adequate as of December 31, 1996.

              The Company manages its investment portfolio in part to reduce its
              exposure to interest rate fluctuations. In general, the fair value
              of the Company's fixed maturity portfolio increases or decreases
              in inverse relationship with fluctuations in interest rates. For
              example, if interest rates rise, the Company's fixed maturity
              investments will generally decrease in value. Additionally, the
              Company's net investment income may be affected by interest rate
              changes. If interest rates decline, net investment income will
              decrease if high-yielding fixed maturity investments mature or are
              sold and the proceeds therefrom are reinvested in securities
              yielding a lower rate.




                                       16
<PAGE>   17


              On August 12, 1996, NLIC and NMIC entered into a Credit Facility
              (Credit Facility) which provides for a $600.0 million loan over a
              five-year term on a fully revolving basis with a group of banks
              led by Morgan Guaranty Trust Company of New York. The Credit
              Facility provides for several and not joint liability with respect
              to any amount drawn by either NLIC or NMIC. To date, neither NLIC
              nor NMIC has drawn down any amount under the Credit Facility. The
              Credit Facility provides for several borrowing options including
              interest at a spread over LIBOR, money market auction, CD or base
              rate. The Credit Facility also provides covenants, including, but
              not limited to, restrictions on decreases in the statutory surplus
              of NMIC below $2.75 billion, mergers and sales of assets if a
              default has occurred and is continuing, transactions with
              affiliates (which must be on an arm's-length basis on terms at
              least as favorable to NLIC or NMIC as could have been obtained
              from a third party who was not affiliated with NLIC or NMIC) and
              restrictions on the creation, assumption or suffering to exist of
              liens. In addition, the Credit Facility provides for customary
              representations, warranties and events of default. Pursuant to the
              terms of the Credit Facility, NLIC may not declare or pay a
              dividend if it is, or if the payment thereof would cause it to be,
              in default under such facility. Events of default under the Credit
              Facility include, among others, the failure of NMIC and its
              affiliates to maintain beneficial ownership of more than 50% of
              the combined voting power of NLIC's outstanding voting stock and
              the failure of NLIC to maintain statutory surplus in excess of
              $875.0 million. Amounts borrowed under the Credit Facility may be
              used for, among other things, general corporate purposes.

              Given the Company's historic cash flow and current financial
              results, management of the Company believes that the cash flow
              from the operating activities of the Company over the next year
              will provide sufficient liquidity for the operations of the
              Company, as well as provide sufficient funds to enable the Company
              to make dividend payments.

              INVESTMENTS

              General

              The Company's assets are divided between separate account and
              general account assets. As of December 31, 1996, $26.9 billion (or
              56.3%) of the Company's total assets were held in separate
              accounts and $20.9 billion (or 43.7%) were held in the Company's
              general account, including $18.3 billion of general account
              investments. Separate account assets consist primarily of deposits
              from the Company's variable annuity business. Most separate
              account assets are invested in various mutual fund options
              available within the variable annuity products sold by the
              Company. All of the investment risk in the Company's separate
              account assets is borne by the Company's customers, with the
              exception of $280.2 million of policy reserves as of December 31,
              1996 ($205.7 million as of December 31, 1995) for which the
              Company bears the investment risk. General account assets consist
              mainly of investments generated by premiums on life insurance
              products and deposits in the Company's Fixed Annuities segment.
              The Company generates profits on these products in part, based on
              the spread between the yield on general account invested assets
              and crediting rates on these products.

              The Company's general account investment policies emphasize high
              quality, diversification across asset classes and individual
              risks, and a buy and hold strategy. The Company's general account
              assets are invested primarily in fixed maturity securities and
              commercial mortgage loans. The Company has a general policy of
              diversifying investments within asset categories. Additionally,
              the Company's investment policy provides that fixed maturity
              investments are limited to purchases of investment grade
              securities or unrated securities which, in the opinion of the
              Company, should qualify for such rating. The Company monitors its
              exposure to individual borrowers, credit risks, industries or
              property types and geographic locations. The Company's investments
              are subject to suitability and diversification requirements under
              applicable insurance laws. The Investment Committee of the Board
              of Directors of the Company, which is comprised of the Chairman
              and five outside directors, meets ten times a year. Such committee
              approves investment policy and strategy, approves all mortgage
              loans and large private placements and reviews and ratifies all
              other investments. In relation to the life insurers reporting to
              the American Council of Life Insurance (ACLI), the Company's
              general account investment portfolio has achieved (i) higher net
              investment yields, (ii) lower bond default rates and (iii) lower
              mortgage delinquency rates, in each case in each of the three
              years ended December 31, 1996.




                                       17
<PAGE>   18


              Fixed Maturity

              As of December 31, 1996, general account fixed maturity securities
              were $12.3 billion (or 67.2%) of the carrying value of
              consolidated general account invested assets. As of such date,
              public and private fixed maturity securities constituted $8.4
              billion (or 68.3%) and $3.9 billion (or 31.7%), respectively, of
              total general account fixed maturity securities. The Company's
              general account fixed maturity securities portfolio consists
              primarily of investment grade corporate fixed maturity securities,
              high-quality mortgage-backed securities and U.S. government and
              agency obligations.

              Below investment grade fixed maturity securities in the Company's
              general account as of December 31, 1996 included the securities of
              23 issuers representing approximately 1.8% of the carrying value
              of total fixed maturity securities. The Company's investment
              policy provides that fixed maturity investments are limited to
              purchases of investment grade securities or unrated securities
              which, in the opinion of the Company, should qualify for such
              rating. All of the below grade fixed maturity securities held in
              the Company's general account as of December 31, 1996 were
              investment grade securities when purchased by the Company.

              The National Association of Insurance Commissioners (NAIC) assigns
              securities quality ratings and uniform valuations called "NAIC
              Designations" which are used by insurers when preparing their
              annual statements. The NAIC assigns designations to publicly
              traded as well as privately placed securities. The designations
              assigned by the NAIC range from class 1 to class 6, with a
              designation in class 1 being of the highest quality. Of the
              Company's general account fixed maturity securities, 98.2% by the
              carrying value were in the highest two NAIC Designations as of
              December 31, 1996.

              The following table sets forth an analysis of credit quality, as
              determined by NAIC Designation, of the Company's general account
              fixed maturity securities portfolio as of December 31, 1996 and
              1995.

<TABLE>
<CAPTION>
                                   General Account Fixed Maturity Securities - Credit Quality

                                                                As of December 31, 1996       As of December 31, 1995
                                                               ---------------------------   ---------------------------
                   NAIC               Rating Agency               Carrying        % of          Carrying       % of
              Designation (1)   Equivalent Designation (2)         Value         Total           Value         Total
              ---------------- -----------------------------   --------------- -----------   ---------------------------
                                                                                (Dollars in millions)
                     <S>       <C>                                 <C>            <C>            <C>           <C>  
                     1         Aaa/Aa/A                            $ 8,447.5       68.7%         $ 8,643.9      69.2%
                     2         Baa                                   3,629.9       29.5            3,562.9      28.5
                     3         Ba                                      166.6        1.3              224.1       1.8
                     4         B                                        49.7        0.4               44.9       0.4
                     5         Caa and lower                            10.9        0.1                2.8       -
                     6         In or near default                        -          -                  7.0       0.1
                                                               --------------- -----------   ---------------------------
                                                                   $12,304.6      100.0%         $12,485.6     100.0%
                                                               =============== ===========   ===========================
<FN>
              ----------
              (1)   NAIC Designations are assigned no less frequently than
                    annually. Some designations for securities shown as of
                    December 31, 1996 have been assigned to securities not yet
                    assigned an NAIC Designation in a manner approximating
                    equivalent public rating categories.

              (2)   Comparison's between NAIC and Moody's designations are
                    published by the NAIC. In the event no Moody's rating is
                    available, the Company has assigned internal ratings
                    corresponding to the public rating.
</TABLE>

              The Company maintains significant general account investments in
              mortgage-backed securities (MBSs). The Company's general account
              MBS investments include residential MBSs and commercial MBSs. As
              of December 31, 1996, MBSs were $3.67 billion (or 29.8%) of the
              carrying value of the general account fixed maturity securities,
              all of which were guaranteed by the U.S. government or an agency
              of the U.S. government.




                                       18
<PAGE>   19


              The Company believes that general account MBS investments add
              diversification, liquidity, credit quality and additional yield to
              its general account fixed maturity securities portfolio. The
              objective of the Company's general account MBS investments is to
              provide reasonable cash flow stability and increased yield.
              General account MBS investments include collateralized mortgage
              obligations (CMOs) and mortgage-backed pass-through securities.
              The Company's general account MBS investments do not include
              interest-only securities or principal-only securities or other
              MBSs which may exhibit extreme market volatility.

              Prepayment risk is an inherent risk of holding MBSs. However, the
              degree of prepayment risk is particular to the type of MBS held.
              The Company limits its exposure to prepayments by purchasing less
              volatile types of MBSs. As of December 31, 1996, $2.97 billion (or
              81.0% of the carrying value of the general account MBS portfolio
              was invested in planned amortization class CMOs (PACs). PACs are
              securities whose cash flows are designed to remain constant over a
              variety of mortgage prepayment environments. Other classes in the
              CMO security are structured to accept the volatility of mortgage
              prepayment changes, thereby insulating the PAC class. Of the
              remaining general account MBS portfolio, $2.5 million (or 0.1%)
              was invested in mortgage-backed pass-through or sequential CMOs.
              Pass-throughs are securities in which the monthly cash flows of
              principal and interest (both scheduled and prepayments) generated
              by the underlying mortgages are distributed on a pro rata basis to
              the holders of the securities. A sequential MBS is structured to
              divide the CMO security into sequentially ordered classes. Receipt
              of principal payments are made currently on all classes. While
              these securities are more sensitive to prepayment risk than PACs,
              the Company does not consider them highly volatile securities.

              The following table sets forth the distribution by investment type
              of the Company's general account MBS portfolio as of December 31,
              1996.


              General Account Mortgage-Backed Securities - Investment Type (1)
 
<TABLE>
<CAPTION>
                                                                 As of December 31, 1996
                                                               -----------------------------
                                                                  Carrying         % of
                                                                   Value           Total
                                                               ---------------  ------------
                                                                  (Dollars in millions)
              <S>                                                  <C>             <C> 
              Accrual                                              $    41.4         1.1%
              Planned Amortization Class                             2,970.6        81.0
              Sequential                                                 2.5         0.1
              Scheduled                                                167.2         4.6
              Targeted Amortization Class                               87.7         2.4
              Very Accurately Defined Maturity                         395.9        10.8
                                                               ---------------  ------------
                                                                    $3,665.3       100.0%
                                                               ===============  ============
<FN>
              ----------
              (1)   All general account mortgage-backed securities are agency-backed.
</TABLE>


              Pursuant to the Company's investment policies, the Company does
              not invest in derivative securities other than MBSs.




                                       19
<PAGE>   20


              Mortgage Loans

              As of December 31, 1996, general account mortgage loans were $5.27
              billion (or 28.8%) of the carrying value of consolidated general
              account invested assets. As of such date, commercial mortgage
              loans constituted substantially all (99.9%) of total general
              account mortgage loans with the remainder being 76 residual
              residential loans originated prior to 1981 with a principal
              balance of $2.7 million. These mortgages, substantially all of
              which are made on a non-recourse basis, consist primarily of fixed
              rate mortgages on existing income-producing properties. As of
              December 31, 1996, there were two second mortgages totaling $2.6
              million and no construction loans, participating or convertible
              mortgages or land development loans. Commitments to fund mortgage
              loans of $327.5 million extending into 1997 were outstanding as of
              December 31, 1996.

              See notes 5 and 9 to the consolidated financial statements for an
              analysis of activity in the valuation allowance account for
              mortgage loans and a summary of mortgage loans by region and
              property type.

              The Company aggressively seeks to manage and resolve its troubled
              commercial mortgage loans. Commercial mortgage loans are placed
              into default immediately following the Company failing to receive
              payment when due. With respect to a delinquent mortgage loan, the
              Company seeks to enforce the assignment of rents clause in order
              to gain control of the rental income from the property shortly
              following the default in payment. The foreclosure process with
              respect to a delinquent mortgage loan is generally initiated by
              the Company prior to the second mortgage payment becoming
              delinquent. Over the last five years, the Company has recovered
              approximately 74% of the unpaid principal of all of its mortgage
              loans in default.

              The following table sets forth the delinquency, foreclosure and
              restructured commercial mortgage loan experience for the Company
              and for the life insurers reporting to the ACLI for the periods
              indicated.

<TABLE>
<CAPTION>
                                                The Company and Life Insurance Industry
                                                        Problem Loan Comparison

                                               For the Year Ended         For the Year Ended        For the Year Ended
                                                December 31, 1996         December 31, 1995          December 31, 1994
                                             ------------------------   -----------------------   ------------------------
                                               Company     ACLI (1)      Company     ACLI (1)      Company     ACLI (1)
                                             ------------ -----------   ----------- -----------   ----------- ------------
              <S>                               <C>          <C>           <C>         <C>           <C>         <C>  
              Delinquent (2)                    0.79%        1.79%         0.63%       2.35%         0.48%       3.38%
              In foreclosure (3)                0.79         1.10          0.63        1.45          0.48        1.80
              Restructured (4)                  1.11         6.81          1.48        8.27          1.95        9.58
                                             ------------ -----------   ----------- -----------   ----------- ------------
                   Subtotal                     1.90         8.60          2.11       10.62          2.43       12.96
              Foreclosed - year to date         0.35         1.01          0.74        1.75          1.18        2.52
                                             ------------ -----------   ----------- -----------   ----------- ------------
                   Total                        2.25%        9.61%         2.85%      12.37%         3.61%      15.48%
                                             ============ ===========   =========== ===========   =========== ============
<FN>
              ----------
              (1)   Source: ACLI Investment Bulletins entitled "Quarterly Survey
                    of Mortgage Loan Delinquencies and Foreclosures," numbers
                    1367, 1326 and 1289, dated March 6, 1997, February 28, 1996
                    and March 9, 1995, respectively.

              (2)   Commercial mortgage loans are classified by the Company and
                    the ACLI as delinquent when they are 60 days or more past
                    due.

              (3)   Delinquent includes loans in foreclosure; therefore,
                    subtotal and total lines exclude "In foreclosure" amounts.

              (4)   Commercial mortgage loans are classified by the Company and
                    the ACLI as restructured when they are in good standing, but
                    the basic terms have been modified as a result of an actual
                    or anticipated delinquency.
</TABLE>




                                       20
<PAGE>   21


              INFLATION

              Many of the Company's assets and liabilities are monetary in
              nature and sensitive to the interest rate environment which can be
              affected by inflation. The Company is exposed to the risk of a
              reduction in interest spread or profit margins when interest rates
              fluctuate. Bond calls, mortgage prepayments, contract surrenders
              and withdrawals of annuities and life insurance policies are
              influenced by the interest rate environment. In general, the fair
              value of the Company's fixed maturities portfolio increases or
              decreases inversely with fluctuations in interest rates. For
              example, if interest rates rise, the Company's fixed maturity
              investments will generally decrease in value. Additionally, the
              Company's net investment income may be affected by the interest
              rate changes. If interest rates decline, net investment income
              will decrease if high-yielding fixed maturity investments mature
              or are sold and the proceeds therefrom are reinvested in
              securities yielding a lower rate. Management attempts to mitigate
              the negative impact if interest rate changes through
              asset/liability management, product design, management of
              crediting rates, relatively high surrender charges and management
              of mortality charges and dividend scales with respect to its
              in-force life insurance policies, but there can be no assurance
              that such attempts will be completely successful. Extreme changes
              in the interest rate environment could cause net interest margins
              to fluctuate from historical levels.


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

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

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


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

              Not applicable.





                                       21
<PAGE>   22


                                    PART III

ITEM 10       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------       --------------------------------------------------

              The following table provides information regarding the executive
              officers and directors of the Company. Executive officers perform
              duties for the Company and other members of the Enterprise.

<TABLE>
<CAPTION>
              Name                              Age   Position with the Company
              -------------------------------- ------ ----------------------------------------------------------------------
              <S>                               <C>   <C>
              Dimon Richard McFerson (1)        59    Chairman and Chief Executive Officer - Nationwide
                                                         Insurance Enterprise and Director
              Joseph J. Gasper                  53    President and Chief Operating Officer and Director
              Gordon E. McCutchan               61    Executive Vice President - Law and Corporate Services and
                                                         Secretary
              Robert A. Oakley                  50    Executive Vice President - Chief Financial Officer
              Robert J. Woodward, Jr.           55    Executive Vice President - Chief Investment Officer
              James E. Brock                    49    Senior Vice President - Life Company Operations
              Thomas L. Crumrine                54    Senior Vice President - Property and Casualty Insurance
              W. Sidney Druen                   54    Senior Vice President and General Counsel and Assistant Secretary
              Mark E. Fiebrink                  45    Senior Vice President - Chief Actuary - Property and Casualty
              Danny M. Fullerton                48    Senior Vice President - Property and Casualty Marketing
              Harvey S. Galloway, Jr.           62    Senior Vice President - Chief Actuary - Life, Health and Annuities
              Richard A. Karas                  54    Senior Vice President - Sales-Financial Services
              James A. Taylor                   52    Senior Vice President - Property and Casualty Insurance
              Susan A. Wolken                   46    Senior Vice President - Enterprise Administration
              Duane M. Campbell                 61    Vice President and Treasurer
              Lewis J. Alphin (3)               48    Director
              Keith W. Eckel (3)                50    Director
              Willard J. Engel (2)(3)           57    Director
              Fred C. Finney (2)                50    Director
              Charles L. Fuellgraf, Jr.(1)(2)   65    Director
              Henry S. Holloway (1)(2)          64    Director
              David O. Miller (1)(2)            58    Director
              C. Ray Noecker (3)                50    Director
              James F. Patterson (3)            54    Director
              Arden L. Shisler (1)              55    Director
              Robert L. Stewart (3)             60    Director
              Nancy C. Thomas (1)(2)            62    Director
              Harold W. Weihl                   64    Director
<FN>
                 ----------
                  (1)   Member of the Executive Committee.
                  (2)   Member of the Salary and Compensation Committee.
                  (3)   Member of the Audit Committee.
</TABLE>

              Biographical information for each of the individuals listed in the
              above table is set forth below.

              DIMON RICHARD MCFERSON has been Chief Executive Officer of the
              Enterprise since December 1992. He has been Chairman and Chief
              Executive Officer-Enterprise of the Company since April 1996 and a
              director of the Company since April 1988. Previously, he was
              elected President and Chief Executive Officer-Enterprise of NLIC
              and NLAIC in December 1993. He was President and General Manager
              from April 1988 to April 1991; President and Chief Operating
              Officer from April 1991 to December 1992; and President and Chief
              Executive Officer from December 1992 to April 1996 of NMIC,
              Nationwide Mutual Fire Insurance Company and Nationwide Property
              and Casualty Insurance Company. Mr. McFerson has been with the
              Enterprise for 17 years.




                                       22
<PAGE>   23


              JOSEPH J. GASPER has been President and Chief Operating Officer
              and a director of the Company since April 1996. Previously, he was
              Executive Vice President-Property/Casualty Operations of the
              Enterprise from April 1995 to April 1996 and Senior Vice President
              Property/Casualty Operations of the Enterprise from September 1993
              to April 1995. Prior to that time, Mr. Gasper held numerous
              positions within the Enterprise. Mr. Gasper has been with the
              Enterprise for 30 years.

              GORDON E. MCCUTCHAN has been Executive Vice President-Law and
              Corporate Services and Secretary of the Company since September
              1994. Previously, he was Executive Vice President, General Counsel
              and Secretary of the Enterprise from November 1989 to September
              1994. Prior to that time, Mr. McCutchan held several positions
              within the Enterprise. Mr. McCutchan has been with the Enterprise
              for 33 years.

              ROBERT A. OAKLEY has been Executive Vice President-Chief Financial
              Officer of the Company since April 1995. Previously, he was Senior
              Vice President-Chief Financial Officer of the Enterprise from
              October 1993 to April 1995. Prior to that time, Mr. Oakley held
              several positions within the Enterprise. Mr. Oakley has been with
              the Enterprise for 21 years.

              ROBERT J. WOODWARD, JR. has been Executive Vice President-Chief
              Investment Officer of the Company since August 1995. Previously,
              he was Senior Vice President-Fixed Income Investments of the
              Enterprise from March 1991 to August 1995. Prior to that time, Mr.
              Woodward held several positions within the Enterprise. Mr.
              Woodward has been with the Enterprise for 32 years.

              JAMES E. BROCK has been Senior Vice President-Life Company
              Operations of the Company since April 1996. Previously, he was
              Senior Vice President-Investment Product Operations of the
              Enterprise from November 1990 to April 1996. Prior to that time,
              Mr. Brock held several positions within the Enterprise. Mr. Brock
              has been with the Enterprise for 27 years.

              THOMAS L. CRUMRINE has been Senior Vice President-Property and
              Casualty Insurance of the Company since March 1996. Previously, he
              was Senior Vice President-Claims of the Enterprise from April 1995
              to March 1996. Prior to that time, Mr. Crumrine held several
              positions within the Enterprise. Mr. Crumrine has been with the
              Enterprise for 30 years.

              W. SIDNEY DRUEN has been Senior Vice President and General Counsel
              and Assistant Secretary of the Company since September 1994.
              Previously, he was Vice President, Deputy General Counsel and
              Assistant Secretary of the Enterprise from October 1989 to
              September 1994. Prior to that time, Mr. Druen held several
              positions within the Enterprise. Mr. Druen has been with the
              Enterprise for 27 years.

              MARK E. FIEBRINK has been Senior Vice President-Chief
              Actuary-Property and Casualty of the Company since May 1993.
              Previously, he was Senior Vice President-Finance of Employers
              Insurance of Wausau A Mutual Company and Wausau Service
              Corporation from May 1992 to May 1993. Prior to that time, Mr.
              Fiebrink held several positions with the Wausau Insurance
              Companies. Mr. Fiebrink has been with the Enterprise for 11 years.

              DANNY M. FULLERTON has been Senior Vice President-Property and
              Casualty Marketing of the Company since November 1996. Previously,
              he was Vice President-Agency Operations of the Enterprise from
              July 1994 to November 1996. Prior to that time, Mr. Fullerton held
              several positions within the Enterprise. Mr. Fullerton has been
              with the Enterprise for 12 years.

              HARVEY S. GALLOWAY, JR. has been Senior Vice President-Chief
              Actuary-Life, Health and Annuities of the Company since April
              1993. Previously, he was Senior Vice President and Chief Actuary
              of the Enterprise from January 1983 to April 1993. Prior to that
              time, Mr. Galloway held several positions within the Enterprise.
              Mr. Galloway has been with the Enterprise for 27 years.

              RICHARD A. KARAS has been Senior Vice President-Sales-Financial
              Services of the Company since March 1993. Previously, he was Vice
              President-Sales-Financial Services of the Enterprise from February
              1989 to March 1993. Prior to that time, Mr. Karas held several
              positions within the Enterprise. Mr. Karas has been with the
              Enterprise for 32 years.



                                       23
<PAGE>   24



              JAMES A. TAYLOR has been Senior Vice President-Property and
              Casualty Insurance of the Company since March 1996. Previously, he
              was Vice President-North Carolina/Alabama/Georgia of the
              Enterprise from January 1996 to March 1996. Prior to that time,
              Mr. Taylor held several positions within the Enterprise. Mr.
              Taylor has been with the Enterprise for 30 years.

              SUSAN A. WOLKEN has been Senior Vice President-Enterprise
              Administration of the Company since July 1996. Previously, she was
              Senior Vice President-Human Resources of the Enterprise from April
              1995 to July 1996. Prior to that time, she held several positions
              within the Enterprise. Ms. Wolken has been with the Enterprise for
              22 years.

              DUANE M. CAMPBELL has been Vice President and Treasurer of the
              Company since August 1996. Previously, he was Assistant Treasurer
              of the Enterprise from January 1987 to August 1996. Prior to that
              time, Mr. Campbell held several positions within the Enterprise.
              Mr. Campbell has been with the Enterprise for 33 years.

              LEWIS J. ALPHIN has been a director of the Company since April
              1993. Mr. Alphin has been a farm owner and operator in Mt. Olive,
              North Carolina, since 1971. Mr. Alphin serves on the board of
              directors of several members of the Enterprise.

              KEITH W. ECKEL has been a director of the Company since April
              1996. Mr. Eckel has been Partner of Fred W. Eckel Sons and
              President of Eckel Farms, Inc. since May 1968. Mr. Eckel serves on
              the board of directors of several members of the Enterprise. He is
              also an advisory board member of Penn Security Bank and Trust
              Company.

              WILLARD J. ENGEL has been a director of the Company since April
              1994. Mr. Engel has been General Manager of Lyon County
              Co-operative Oil Co. since March 1975. Mr. Engel serves on the
              board of directors of several members of the Enterprise.

              FRED C. FINNEY has been a director of the Company since April
              1992. Mr. Finney has been owner and operator of Moreland Fruit
              Farm and operator of Melrose Orchard since January 1985. Mr.
              Finney serves on the board of directors of several members of the
              Enterprise.

              CHARLES L. FUELLGRAF, JR. has been a director of the Company since
              April 1969. Mr. Fuellgraf has been Chief Executive Officer of
              Fuellgraf Electric Company, an electrical contractor, of Butler,
              Pennsylvania, and Nashville, Tennessee, since 1986. He is Chairman
              of the Board of Nationwide Communications Inc. and serves on the
              board of directors of several members of the Enterprise.

              HENRY S. HOLLOWAY has been a director of the Company since April
              1986. Mr. Holloway has been a farm owner and operator in
              Darlington, Maryland, since 1959. He is Chairman of the Board of
              the Nationwide Life Insurance Company, Nationwide Life and Annuity
              Insurance Company and Nationwide Corp. and serves on the board of
              directors of several members of the Enterprise. He is also a
              director of the National Cooperative Business Association and the
              Forest Hill State Bank.

              DAVID O. MILLER has been a director of the Company since April
              1985. Mr. Miller has been a farm owner and land developer since
              1962. He is the President of the Owen Potato Farm Inc., the owner
              of The Berry Barn and is a partner of M&M Enterprises in Licking
              County, Ohio. He is Chairman of the Board of the Wausau Insurance
              Companies and serves on the board of directors of several members
              of the Enterprise. He is also a director of the National
              Cooperative Business Association.

              C. RAY NOECKER has been a director of the Company since April
              1994. Mr. Noecker has been owner and manager of Noecker Farms
              since March 1969. Mr. Noecker serves on the board of directors of
              several members of the Enterprise.




                                       24
<PAGE>   25


              JAMES F. PATTERSON has been a director of the Company since April
              1989. Mr. Patterson has operated the Patterson Fruit Farm in
              Chesterland, Ohio, since 1964 and has been the President of
              Patterson Farms, Inc. since December 1991. He is Chairman of the
              Board of Nationwide Mutual Fire Insurance Company and serves on
              the board of directors of several members of the Enterprise. He is
              also a trustee of The Ohio State University and serves on the
              board of directors of the University Hospitals Health System in
              Cleveland, Ohio, and Geauga Hospital, Inc. in Chardon, Ohio.

              ARDEN L. SHISLER has been a director of the Company since April
              1984. Mr. Shisler has been President and Chief Executive Officer
              of K & B Transport, Inc., a trucking firm in Dalton, Ohio, since
              January 1992. Previously, he was Chief Operating Officer of K & B
              Transport, Inc. from April 1986 to January 1992. Prior to that
              time, Mr. Shisler held several positions with K & B Transport,
              Inc. He is Chairman of the Board of Nationwide Mutual Insurance
              Company and serves on the board of directors of several members of
              the Enterprise. He is also a director of the National Cooperative
              Business Association.

              ROBERT L. STEWART has been a director of the Company since April
              1989. Mr. Stewart has been owner/operator of Sunnydale Farms since
              1960 and owner/operator of Sunnydale Mining since 1989. He is
              Chairman of the Board of Farmland Insurance Companies and serves
              on the board of directors of several members of the Enterprise.

              NANCY C. THOMAS has been a director of the Company since April
              1986. Mrs. Thomas has been a farm owner/operator of Da-Ma-Lor
              Farms since November 1958. She is Chairman of the Board of
              Nationwide Property and Casualty Insurance Company and serves on
              the board of directors of several members of the Enterprise.
              She is also a director of Farm Credit Services (4th District).

              HAROLD W. WEIHL has been a director of the Company since April
              1990. Mr. Weihl has been owner and operator of Weihl Farms since
              April 1950. He is Chairman of the Board of Nationwide General
              Insurance Company and serves on the board of directors of several
              members of the Enterprise.

              The Company's Board of Directors currently consists of fifteen
              directors, divided into three classes. The term of the first class
              will expire at the annual meeting of the sole shareholder to be
              held in 1997, the term of the second class will expire at the
              annual meeting of the sole shareholder in 1998 and the term of the
              third class will expire at the annual meeting of the sole
              shareholder in 1999. Messrs. Alphin, Engel, Gasper, Miller and
              Noecker are members of the first class; Messrs. Finney, Holloway,
              Patterson and Stewart and Mrs. Thomas are members of the second
              class; and Messrs. Eckel, Fuellgraf, McFerson, Shisler and Weihl
              are members of the third class. At each annual meeting of the sole
              shareholder, directors will be elected for a three-year term to
              succeed the directors whose terms are then to expire. Officers of
              the Company are elected annually and serve until their retirement,
              resignation or removal.

              The Board of Directors has an Audit Committee currently consisting
              of six directors, none of whom is an officer or employee of the
              Company. Messrs. Alphin, Eckel, Engel, Noecker, Patterson and
              Stewart are the members of such committee. The Audit Committee
              recommends to the Board of Directors the selection of independent
              certified public accountants to audit annually the books and
              records of the Company, reviews the activities and the reports of
              the independent certified public accountants and reports the
              results of such review to the Board of Directors. The Audit
              Committee also considers the adequacy of the Company's internal
              controls and internal auditing methods and procedures.

              The Board of Directors has a Salary and Compensation Committee
              currently consisting of six directors, none of whom is an officer
              or employee of the Company, which, as authorized by the Board of
              Directors, makes determinations with respect to non-cash
              compensation to officers, directors and employees of the Company.
              Messrs. Engel, Finney, Fuellgraf, Holloway and Miller and Mrs.
              Thomas are the members of such committee.

              The Board of Directors has an Executive Committee currently
              consisting of six directors, which, to the extent authorized by
              the Board of Directors, exercises all the powers and authority of
              the Board of Directors in the management of the business and
              affairs of the Company. Messrs. Fuellgraf, Holloway, McFerson,
              Miller and Shisler and Mrs. Thomas are the members of such
              committee.




                                       25
<PAGE>   26


ITEM 11       EXECUTIVE COMPENSATION
-------       ----------------------

              The following summary compensation table sets forth information
              regarding the compensation of the Chief Executive Officer and each
              of the four most highly compensated executive officers of the
              Company (collectively, the "Named Executive Officers") for the
              fiscal year ended December 31, 1996 solely for services rendered
              to NLIC and its subsidiaries. Pursuant to a cost sharing
              agreement, the salaries and benefits of certain of the officers
              and employees of the Company, including the Named Executive
              Officers, will be paid by NMIC and reimbursed in accordance with
              the terms of such agreement. See Item 13 - Certain Relationships
              and Related Transactions for a complete description of the cost
              sharing agreement.


<TABLE>
<CAPTION>
                                                         Summary Compensation Table
                                                                                                Long-term
                                                             Annual Compensation              Compensation
                                                   ----------------------------------------- ----------------
                                                                             Other Annual         LTIP           All Other
              Name and                                           Bonus       Compensation        Payouts        Compensation
              principal position            Year     Salary       (1)            (2)               (3)              (4)
              ----------------------------- ------ ----------- ----------- ----------------- ---------------- -----------------

              <S>                           <C>      <C>           <C>           <C>              <C>              <C>   
              Dimon Richard McFerson        1996     $324,790      80,058            -            149,803          13,363
               Chairman and Chief           1995      122,072      34,208            -            133,272           7,360
                Executive Officer -         1994      127,568      41,244            -             70,427           6,891
                Nationwide Insurance
                Enterprise

              Harvey S. Galloway, Jr. (5)   1996      239,531      67,645            -             71,708          11,587
               Senior Vice President and    1995            -           -            -                  -               -
                Chief Actuary - Life,       1994            -           -            -                  -               -
                Health and Annuities

              Robert J. Woodward, Jr.       1996      222,784      59,399            -             64,698          10,610
               Executive Vice President -   1995      174,717      48,059            -             99,319           9,873
                Chief Investment Officer    1994      172,172      57,559            -             43,981           8,486

              Joseph J. Gasper (6)          1996      232,959           -            -                  -          10,650
               President and Chief          1995            -           -            -                  -               -
                Operating Officer           1994            -           -            -                  -               -

              James E. Brock                1996      158,420      43,421            -             47,412           7,641
               Senior Vice President -      1995      150,982      40,819            -             44,790           7,303
                Life Company Operations     1994      140,478      40,060            -             41,513           6,868

<FN>
             ----------
             (1)  Represents the amount received by the Named Executive Officer
                  under the Management Incentive Plan. See description of the
                  plan following this table.

             (2)  Aggregate perquisites and other personal benefits are less
                  than the lower of $50,000 or 10% of combined salary and bonus.

             (3)  Represents the amount received by the Named Executive Officer
                  under the Executive Incentive Plan and under the Sustained
                  Performance Incentive Plan in 1995. No payouts were made in
                  1996 or 1994 under the Sustained Performance Incentive Plan.
                  See description of each plan following this table.

             (4)  Represents contributions made or credited to the Named
                  Executive Officer by the Company under the Nationwide
                  Insurance Enterprise Savings Plan and the Nationwide Insurance
                  Enterprise Supplemental Defined Contribution Plan. See
                  description of each plan following this table.
</TABLE>




                                       26
<PAGE>   27


             (5)  Represents compensation received by Mr. Galloway solely for
                  his services rendered to the Company in 1996 as allocated
                  pursuant to a cost sharing agreement. During 1995 and 1994,
                  compensation received by Mr. Galloway was allocated to
                  Nationwide Corp. pursuant to the cost sharing agreement. Such
                  compensation is not reflected in the table.

             (6)  Represents compensation received by Mr. Gasper solely for his
                  services rendered to the Company in 1996 as allocated pursuant
                  to a cost sharing agreement. Prior to April 1996, Mr. Gasper
                  was Executive Vice President - Property/Casualty Operations of
                  NMIC and received compensation from NMIC and its
                  property/casualty insurance subsidiaries for services rendered
                  to such companies. Such compensation is not reflected in the
                  table.

              INCENTIVE PLANS

              Sustained Performance Incentive Plan

              Prior to 1997, NMIC and certain of its subsidiaries and
              affiliates, including NLIC, maintained the Sustained Performance
              Incentive Plan (SPIP). Under the SPIP, payments were made to the
              Named Executive Officers and other senior officers of the
              participating companies in each odd numbered calendar year based
              on the achievement of measures tied to the performance of the
              Enterprise over the preceding four years. Performance measures
              were based on profitability, growth and strategic objectives for
              the Enterprise which were established in advance by the Boards of
              Directors of the participating companies. Under the SPIP,
              participants were granted target incentive amounts that
              represented a percentage (10% to 20% depending on the
              participant's position within the participating company) of the
              sum of the participant's base salary for the last two years of the
              performance cycle. The actual amount received by the participant
              ranged from zero to twice the target incentive amount, depending
              solely on the achievement of the performance measures.

              NMIC and the participating subsidiaries and affiliates terminated
              the SPIP at the close of calendar year 1996. If a payment under
              the SPIP is made in 1997, covering performance measured for the
              period from 1993 to 1996, such payment will be made in cash as
              provided in the SPIP. To facilitate the termination of the SPIP,
              the performance measurement period for 1995 to 1998 was closed at
              the end of calendar 1996. Payments made in 1997 for such
              performance measurement period will be made in shares of
              restricted stock of NFS.

              Executive Incentive Plan

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain the Executive Incentive Plan (EIP). Under the EIP,
              annual payments are made to the Named Executive Officers and
              certain other officers of the participating companies based on the
              achievement of measures tied to the performance of the Enterprise
              and the relevant operating company over the preceding three years.
              Performance measures are based on profitability and growth
              objectives which are established in advance by the Board of
              Directors of the participating company. Under the EIP, the
              participant will be granted a target incentive amount that
              represents a percentage (from 5% to 25% depending on the
              participant's position within the participating company) of the
              participant's base salary. The actual amount received by the
              participant will range from zero to twice the target incentive
              amount, depending solely on the achievement of the performance
              measures.




                                       27
<PAGE>   28

              Management Incentive Plan

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain the Management Incentive Plan (MIP). Under the MIP,
              annual payments are made to the Named Executive Officers and
              certain other management employees of the participating companies
              based on the achievement of measures tied to the performance of
              the Enterprise, the relevant operating company, the relevant
              business unit and the individual participant over the preceding
              year. Performance measures are based on profitability, growth,
              expense management and key strategic objectives which are
              established in advance. Under the MIP, the participant will be
              granted a target incentive amount that represents a percentage
              (from 5% to 15% depending on the participant's position within the
              participating company) of the participant's base salary. The
              actual amount received by the participant under the MIP will range
              from zero to twice the target incentive amount, depending solely
              on the achievement of the performance measures.

              PENSION PLANS

              Nationwide Insurance Enterprise Retirement Plan

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain a qualified defined benefit plan, the Nationwide
              Insurance Enterprise Retirement Plan (Retirement Plan). In
              general, a participant's annual retirement benefit under the
              Retirement Plan will be equal to the sum of (i) 1.25% of the
              participant's Final Average Compensation times years of service
              (to a maximum of 35 years) and (ii) 0.50% of the participant's
              Final Average Compensation in excess of Social Security Covered
              Compensation times years of service (to a maximum of 35 years).
              Final Average Compensation, for the portion of the participant's
              benefit which is attributable to service on or after January 1,
              1996, is the average of the highest five consecutive covered
              compensation amounts of the participant in the participant's last
              10 years of service. For the portion of a participant's benefit
              attributable to service prior to January 1, 1996, Final Average
              Compensation is the average of the highest 3 consecutive covered
              compensation amounts of the participant in the participant's last
              10 years of service. Covered compensation, for purposes of
              determining Final Average Compensation under either method, is
              calculated on a calendar year basis and includes compensation from
              any member of the Enterprise. Covered compensation for all of the
              Named Executive Officers includes the amounts set forth under the
              headings Salary, Bonus and LTIP Payouts and a portion of the
              compensation that is included under the heading Other Annual
              Compensation in the Summary Compensation Table and additional
              compensation amounts received for services rendered to other
              members of the Enterprise. Social Security Covered Compensation
              means the average of the social security wage bases in effect
              during the 35 year period ending with the last day of the year the
              participant attains social security retirement age. The portion of
              a participant's benefit attributable to years of service credited
              prior to 1996 is also subject to post-retirement increases
              following the commencement of benefits or the participant's
              attainment of age 65, whichever is later.

              A participant becomes fully vested after the completion of five
              years of vesting service. The Retirement Plan generally provides
              for payments to or on behalf of each vested participant upon such
              participant's retirement on his or her normal retirement date or
              later, although provision is made for payment of early retirement
              benefits on a reduced basis commencing at age 55 for those
              participants with 15 or more years of vesting service or at age 62
              for those with 5 or more years of vesting service. The normal
              retirement date under the Retirement Plan is the later of the date
              the participant attains age 65 or completes five years of vesting
              service. Death benefits are payable to a participant's spouse or,
              under certain circumstances, the named beneficiary, of a
              participant who dies with a vested benefit under the Retirement
              Plan or while an employee. The Retirement Plan also provides for
              the funding of retiree medical benefits under Section 401(h) of
              the Internal Revenue Code (IRC).




                                       28
<PAGE>   29


              Nationwide Insurance Enterprise Excess Benefit and Supplemental
              Retirement Plans

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain an unfunded, nonqualified defined benefit excess
              benefit plan, the Nationwide Insurance Enterprise Excess Benefit
              Plan (Excess Plan) and an unfunded, nonqualified defined benefit
              supplemental benefit plan pursuant to which certain participants
              may receive a supplemental retirement benefit, the Nationwide
              Insurance Enterprise Supplemental Retirement Plan (Supplemental
              Plan). Any participant whose benefits are limited under the
              Retirement Plan by reason of limitations under Section 415 of the
              IRC on the maximum benefit that may be paid under the Retirement
              Plan will receive, under the Excess Plan, that portion of the
              benefit that he or she would have been entitled to receive under
              the Retirement Plan in the absence of such limitations. Officers
              who earn in excess of $160,000 annually, have at least 5 years of
              vesting service and whose benefits under the Retirement Plan are
              limited by reason of other certain limitations under the IRC, may
              receive benefits under the Supplemental Plan. Benefits under the
              Supplemental Plan will be the sum of (i) 1.25% of the
              participant's Final Average Compensation times years of service
              (up to a maximum of 40 years) and (ii) 0.75% of the participant's
              Final Average Compensation in excess of Social Security Covered
              Compensation times years of service (up to a maximum of 40 years)
              reduced by benefits accrued under the Retirement Plan and the
              Excess Plan. The benefits under the Excess and Supplemental Plans
              vest at the same time as benefits vest under the Retirement Plan.

              The chart below indicates the estimated maximum annual retirement
              benefits that a hypothetical participant would be entitled to
              receive under the Retirement Plan (including payments made under
              the Excess and Supplemental Plans as a result of limitations
              imposed by the IRC) computed on a straight-life annuity basis, if
              retirement occurred at age 65 and the number of credited years of
              service and Final Average Compensation equaled the amounts
              indicated. For purposes of the chart, it is assumed that the Final
              Average Compensation is the same whether measured over the
              three-year averaging period that applies to service accumulated
              prior to 1996 or the five-year period that applies to service
              accumulated after 1995. In actual operation, the total benefit
              received under the Retirement Plan (including payments made under
              the Excess and Supplemental Plans) would be the total of the
              benefit determined based on years of service earned under each
              method.

                                        Pension Plan Table

<TABLE>
<CAPTION>
                                                            Years of Service
                    Final Average   ------------------------------------------------------------------
                     Compensation        15           20           25           30            35
                  -------------------------------------------------------------------------------------
                       <S>              <C>          <C>          <C>          <C>          <C>   
                       $125,000          30,744       40,992       51,241       61,489       71,737
                        150,000          41,898       55,864       69,830       83,795       97,761
                        175,000          49,398       65,864       82,330       98,795      115,261
                        200,000          56,898       75,864       94,830      113,795      132,761
                        225,000          64,398       85,864      107,330      128,795      150,261
                        250,000          71,898       95,864      119,830      143,795      167,761
                        300,000          86,898      115,864      144,830      173,795      202,761
                        400,000         116,898      155,864      194,830      233,795      272,761
                        450,000         131,898      175,864      219,830      263,795      307,761
                        500,000         146,898      195,864      244,830      293,795      342,761
</TABLE>

              All Named Executive Officers have a portion of their benefit
              calculated based on the post-1995 definition of Final Average
              Compensation. As of December 31, 1995, the number of credited
              years of service under the Retirement Plan for Messrs. McFerson,
              Galloway, Woodward, Gasper and Brock was 23 years, 26.5 years,
              32.7 years, 29.5 years and 26.5 years, respectively. Mr.
              McFerson's credited years of service include, pursuant to an
              agreement with NMIC, 8.17 years in excess of those actually earned
              through employment by the Enterprise. The benefit attributable to
              those additional years will be paid by NMIC (not the Retirement
              Plan) and is reduced by the benefit payable under the retirement
              plan of Mr. McFerson's previous employer.




                                       29
<PAGE>   30


              Each of the Named Executive Officers earned an additional year of
              service in 1996 and their benefit for such year and all future
              years will be calculated under the new definition of Final Average
              Compensation. Covered compensation paid by the Company for the
              fiscal year ended December 31, 1996 for Messrs. McFerson,
              Galloway, Woodward, Gasper and Brock was $444,217, $392,313,
              $348,003, $349,412 and $343,167, respectively.

              SAVINGS PLANS

              Nationwide Insurance Enterprise Savings Plan

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain the Nationwide Insurance Enterprise Savings Plan
              (Savings Plan), a qualified profit sharing plan including a
              qualified cash or deferred arrangement covering eligible employees
              of participating companies within the Enterprise. Under the
              Savings Plan, participants who are not residents of Puerto Rico
              may elect to contribute between 1% and 16% of their compensation
              to accounts established on their behalf under the Savings Plan in
              the form of voluntary salary reductions on a pre-tax basis and
              participants who are residents of Puerto Rico may make
              contributions on an after-tax basis. The participating companies
              are obligated to make matching employer contributions, for the
              benefit of their participating employees, at the rate of 70% of
              the first 2% of compensation deferred or contributed to the
              Savings Plan by each employee, and 40% of the next 4% of
              compensation deferred or contributed by each employee to the
              Savings Plan. All amounts contributed to the Savings Plan are held
              in a separate account for each participant and are invested in one
              or more funds made available under the Savings Plan and selected
              by the participant. Normally, a participant receives the value of
              his or her account upon termination of employment, although a
              participant may withdraw all or a part of the amounts credited to
              his or her accounts during employment under certain circumstances
              including attainment of age 59 1/2, or receive a loan of a portion
              of his or her account balance. Under the Savings Plan, a
              participant is immediately vested in all amounts credited to his
              or her account as a result of salary deferrals (and earnings on
              those deferrals) or after-tax contributions (and earnings on those
              contributions), as applicable. A participant is vested in amounts
              attributable to employer matching contributions (and earnings on
              those contributions) over a period of five years.

              Nationwide Insurance Enterprise Supplemental Defined Contribution
              Plan

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain an unfunded, nonqualified defined contribution
              supplemental benefit plan, the Nationwide Insurance Enterprise
              Supplemental Defined Contribution Plan (DC Supplemental Plan),
              which provides benefits, equal to employer matching contributions
              that would have been made under the Savings Plan for the
              participants, in the absence of the IRC limitations on
              compensation that can be considered and amounts that can be
              deferred under the Savings Plan less actual matching contributions
              to the Savings Plan in the absence of the limitations under IRC
              Sections 401(a)(17) and 402(g), reduced by actual employer
              contributions made to the Savings Plan. Participants are limited
              to those officers earning in excess of $160,000 annually. Benefits
              under the DC Supplemental Plan vest at the same time as employer
              matching contributions vest under the Savings Plan.

              DEFERRED COMPENSATION PROGRAM

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain a deferred compensation program (Officers' Deferred
              Compensation Program) pursuant to which officers of participating
              companies may elect to defer payment of amounts otherwise payable
              to them. In addition, participants receive credit for employer
              matching contributions which were not made under the Savings Plan
              or DC Supplemental Plan and any reduction in benefits under the
              Retirement Plan, Supplemental Plan or Excess Plan as a result of
              salary or other deferrals under the Deferred Compensation Program.
              An eligible officer is permitted to enter into a deferral
              agreement pursuant to which such officer may annually elect to
              defer a portion of his or her salary or his or her incentive
              compensation earned under the Management Incentive Plan or
              Executive Incentive Plan during the following year. Any such
              election is effective prospectively. Amounts deferred under the
              Officers' Deferred Compensation Program will generally be payable
              in annual installments beginning in January of the calendar year
              following the calendar year in which the officer terminates
              employment. Amounts deferred under the Officers' Deferred
              Compensation Program are credited with interest. The interest rate
              is based on the fixed rate option in the Savings Plan.



                                       30
<PAGE>   31


              NATIONWIDE SALARIED EMPLOYEES SEVERANCE PAY PLAN

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain the Nationwide Salaried Employees Severance Pay
              Plan (Severance Plan), an unfunded plan which provides severance
              benefits to employees whose employment is involuntarily terminated
              due to unsatisfactory job performance or job elimination without
              an offer of replacement employment within the Enterprise or with a
              successor employer. Employees will not be entitled to benefits if
              their employment is terminated as a result of theft, absenteeism,
              insubordination and other similar problems. The benefit provided
              is a lump sum payment determined on the basis of years of service
              completed (a minimum of 6 months of service is required) and
              salary, with a maximum benefit of 8 weeks of salary plus an
              additional week of salary for each full or partial year of service
              in excess of 11 years.

              DIRECTOR COMPENSATION

              Directors of the Company also serve as a director on the boards of
              various other Enterprise companies. Compensation for services as a
              director consists of a base annual rate for each director plus
              varying amounts for fringe benefits and reimbursement of
              out-of-pocket expenses. Directors who are also officers are
              excluded from this arrangement. The following table represents
              total compensation payments made to the directors, who are not
              also officers, from the Company for the fiscal year ended December
              31, 1996.

<TABLE>
<CAPTION>
                   Director                       Compensation
                   --------------------------- -------------------
                   <S>                                <C>
                   Lewis J. Alphin                    $10,344
                   Keith W. Eckel                       7,222
                   Willard J. Engel                    10,188
                   Fred C. Finney                      11,648
                   Charles L. Fuellgraf, Jr.            8,820
                   Henry S. Holloway                   14,059
                   David O. Miller                     13,783
                   C. Ray Noecker                      10,847
                   James F. Patterson                  10,949
                   Arden L. Shisler                    13,621
                   Robert L. Stewart                   12,039
                   Nancy C. Thomas                     10,072
                   Harold W. Weihl                      9,856
</TABLE>

              Directors' Deferred Compensation Program

              NMIC and certain of its subsidiaries and affiliates, including
              NLIC, maintain a deferred compensation program applicable to
              nonemployee members of their Board of Directors (Directors'
              Deferred Compensation Program). Each director who has been elected
              to the board of directors at least twice and has served for at
              least 3 years on the Board of Directors of a participating company
              is entitled to monthly payments, following termination of his or
              her service on the board of directors, of a monthly amount equal
              to the monthly director's fee being received by that director at
              the time of his or her retirement from the Board of Directors. The
              number of monthly payments will equal the number of months the
              individual served on the Board of Directors (other than months in
              which he or she was also a salaried officer of the participating
              company).





                                       31
<PAGE>   32


ITEM 12       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------       --------------------------------------------------------------

              Security Ownership of Certain Beneficial Owners as of February 28,
              1997.

<TABLE>
<CAPTION>
                                                                             Amount and Nature of       Percent
              Title of Class     Name and Address of Beneficial Owner        Beneficial Ownership      of Class
              ---------------- ----------------------------------------------------------------------- ----------
               <S>                <C>                                        <C>                         <C>
               Common Stock       Nationwide Financial Services, Inc.        3,814,779 Shares of         100%
                                  One Nationwide Plaza                                 record and
                                  Columbus, Ohio 43215                                 beneficially (1)
<FN>
              ----------
              (1)   Sole voting and investment power
</TABLE>


ITEM 13       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ($000's omitted)
-------       ----------------------------------------------

              EXISTING ARRANGEMENTS WITH THE ENTERPRISE

              Organization of the Company

              The Company is member of the Enterprise and offers and distributes
              long-term savings and retirement products. On September 24, 1996,
              NLIC's Board of Director's declared a dividend payable January 1,
              1997 to Nationwide Corp. consisting of the outstanding common
              stock of those subsidiaries of NLIC that do not operate in the
              long-term savings and retirement market. On January 27, 1997,
              Nationwide Corp. contributed to NFS all of the outstanding common
              stock of NLIC and the other companies within the Enterprise that
              offer or distribute long-term savings and retirement products.

              On December 31, 1996, NLIC paid a $50,000 cash dividend to
              Nationwide Corp. In addition, on February 24, 1997, NLIC made a
              dividend to NFS consisting of securities having an aggregate
              market value of $850,000.

              On March 10, 1997 and March 11, 1997, NFS made cash capital
              contributions to NLIC totaling $295,740 and $541,040,
              respectively.

              Effective January 1, 1996, NLIC entered into a 100% modified
              coinsurance agreement with ELICW pursuant to which all of NLIC's
              group accident and health and group life insurance business was
              reinsured by ELICW. NLIC also entered into a 100% modified
              coinsurance agreement with NMIC effective January 1, 1996,
              pursuant to which all of NLIC's individual accident and health
              insurance business was reinsured by NMIC. See Modified Coinsurance
              Agreements.

              Federal Income Taxes

              NMIC and its U.S. subsidiaries, including the NLIC and its
              subsidiaries, file a consolidated federal income tax return. The
              members of the consolidated group currently 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. For the year ended December 31, 1996, the
              Company made federal income tax payments under the tax sharing
              arrangement of $115,839.




                                       32
<PAGE>   33


              Legal Services

              The attorneys in the Office of General Counsel of NMIC also
              operate as the law firm of Druen, Rath & Dietrich. Pursuant to a
              partnership agreement, the firm limits its representation to the
              members of the Enterprise. The partnership was formed to assure
              compliance with Ohio law that prohibits corporations from
              practicing law. Through a retainer arrangement, an annual retainer
              fee is paid by each member of the Enterprise based upon an
              estimate of time spent by each attorney working on legal matters
              related to the respective member during the previous year. W.
              Sidney Druen, Senior Vice President and General Counsel of the
              Company, is the senior partner in such firm, and all attorneys and
              other employees of the firm are salaried employees of NMIC. The
              firm applies all of its retainer fees toward office overhead under
              a rental and office expense agreement with NMIC. For the year
              ended December 31, 1996, the Company paid the firm $1,580 for
              legal services rendered to the Company which amounts were
              immediately remitted to NMIC.

              Lease

              Pursuant to an arrangement between NMIC and certain of its
              subsidiaries, the Company leases approximately 465,000 square feet
              of office space at One Nationwide Plaza, Two Nationwide Plaza and
              Three Nationwide Plaza, Columbus, Ohio, at a current market rate
              of $19.53 per square foot, with limited exceptions. Under the
              arrangement, the Company determines the amount of office space
              necessary to conduct its operations and leases such space from
              NMIC, subject to availability. For the year ended December 31,
              1996, the Company made payments to NMIC and its subsidiaries
              totaling $9,065 under such arrangement.

              Modified Coinsurance Agreements

              Effective January 1, 1996, NLIC entered into a 100% modified
              coinsurance agreement with ELICW. Under the agreement, NLIC cedes
              to ELICW, and ELICW assumes, NLIC's group accident and health and
              group life insurance business and any ceded or assumed reinsurance
              applicable to such group business. For the year ended December 31,
              1996, NLIC ceded $224,224 of premium to ELICW.

              Effective January 1, 1996, NLIC also entered into a 100% modified
              coinsurance agreement with NMIC. Under the agreement, NLIC cedes
              to NMIC, and NMIC assumes, NLIC's individual accident and health
              insurance business and any ceded or assumed reinsurance applicable
              to such business. For the year ended December 31, 1996, NLIC ceded
              $97,331 of premium to NMIC.

              NLIC entered into these reinsurance agreements because the
              accident and health and group life insurance business was
              unrelated to NLIC's long-term savings and retirement products.
              Under the modified coinsurance agreements, invested assets are
              retained by the ceding company and investment earnings are paid to
              the reinsurer. Under the terms of such agreements, the investment
              risk associated with changes in interest rates is borne by ELICW
              or NMIC, as the case may be. Risk of asset default is retained by
              NLIC, although a fee is paid by ELICW or NMIC, as the case may be,
              to NLIC for the NLIC's retention of such risk. The contracts will
              remain in force until all policy obligations are settled. However,
              with respect to the agreement between NLIC and NMIC, either party
              may terminate the contract on January 1 of any year with prior
              notice. NLIC believes that the terms of such modified coinsurance
              contracts are consistent in all material respects with what NLIC
              could have obtained with unaffiliated parties.




                                       33
<PAGE>   34


              Cost Sharing Agreement

              Pursuant to a cost sharing agreement among NMIC and certain of its
              direct and indirect subsidiaries, including the Company, NMIC
              provides certain operational and administrative services, such as
              sales support, advertising, personnel and general management
              services, to those subsidiaries. Expenses covered by such
              agreement are subject to allocation among NMIC and such
              subsidiaries. Under such agreement, for the year ended December
              31, 1996, the Company made payments to NMIC totaling $101,584.
              Under the cost sharing agreement, expenses are allocated in
              accordance with National Association of Insurance Commissioner's
              guidelines and are based on standard allocation techniques and
              procedures acceptable under general cost accounting practices.
              Measures used to allocate expenses include individual employee
              estimates of time spent, special cost studies, salary expense,
              commissions expense and other measures that are agreed to by the
              participating companies and are within regulatory and industry
              guidelines and practices.

              Cash Management Agreements

              NMIC has entered into separate Investment Agency Agreements with
              Nationwide Cash Management Company (NCMC) and California Cash
              Management Company (CCMC), each an affiliate of the Company.
              Pursuant to the terms of such agreements, NCMC and CCMC make, hold
              and administer short-term investments (those maturing in one year
              or less) for NMIC and certain of its affiliates, including NLIC
              and it's subsidiaries. Under each agreement, expenses of NCMC or
              CCMC, as the case may be, are allocated pro rata among the
              participants based upon the participant's ownership percentage of
              total assets held by NCMC or CCMC. For the year ended December 31,
              1996, the Company paid NCMC and CCMC fees and expenses totaling
              $41 under such agreements.

              Benefit Plans

              The Company participates in the common employee benefit programs
              with NMIC and its subsidiaries. Included in these programs are
              accident and health benefits, disability income benefits and life
              insurance benefits. The Company ultimately pays for all benefits
              provided to its employees under the benefit program plus an
              administrative processing fee, reduced by employee contributions.
              The administrative processing fee paid by the Company was
              approximately $1,000 for the year ended December 31, 1996.

              The Company also participates, along with NMIC and its
              subsidiaries and affiliates, in life insurance and health care
              benefit plans for qualifying retirees. Such plans are funded in
              amounts determined at the discretion of management of NMIC based
              on current and anticipated future costs. Contributions to the plan
              by the participating companies are primarily invested in group
              annuity contracts of NLIC. Contributions by the Company
              approximated $1,495 for the year ended December 31, 1996.

              Repurchase Agreement

              NLIC and certain of it's subsidiaries are party to a master
              repurchase agreement pursuant to which securities or other
              financial instruments are transferred between parties against the
              transfer of funds by the transferee for a period of time ending on
              a specific date or upon the demand of the transferor.

              FUTURE TRANSACTIONS WITH THE ENTERPRISE

              In the future, the Company may enter into agreements with members
              of the Enterprise that will not be the result of arm's length
              negotiations between independent parties. Conflicts of interests
              could arise in the future with respect to transactions involving
              members of the Enterprise, on the one hand, and the Company, on
              the other hand. In addition, under the Ohio insurance laws,
              arrangements and agreements between the Company and other members
              of the Enterprise must be fair and equitable and may be subject to
              the approval of the Superintendent of Insurance of the State of
              Ohio. The Credit Facility requires that any transaction between
              NLIC and any of its affiliates be on an arm's-length basis on
              terms at least as favorable to NLIC as could have been obtained
              from a third party which is not an affiliate.




                                       34
<PAGE>   35


              Reference is made to note 13 to the consolidated financial
              statements herein for additional information regarding
              transactions with affiliates.


                                     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-2
                 Consolidated Balance Sheets as of December 31, 1996 and 1995                                          F-3 
                 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994                F-4
                 Consolidated Statements of Shareholder's Equity for the years
                    ended December 31, 1996, 1995 and 1994                                                             F-5
                 Consolidated Statements of Cash Flows for the  years ended December 31, 1996, 1995
                    and 1994                                                                                           F-6
                 Notes to Consolidated Financial Statements                                                            F-7

              FINANCIAL STATEMENT SCHEDULES:
                 Schedule I    Consolidated Summary of Investments - Other Than Investments in
                                  Related Parties as of December 31, 1996                                             F-26
                 Schedule III  Supplementary Insurance Information as of December 31, 1996, 1995 and
                                  1994 and for each of the years then ended                                           F-27
                 Schedule IV   Reinsurance as of December 31, 1996, 1995 and 1994 and for each of the
                                  years then ended                                                                    F-28
                 Schedule V    Valuation and Qualifying Accounts for the years ended December 31,
                                  1996, 1995 and 1994                                                                 F-29

              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                                                                                            E-1
</TABLE>





                                                      35
<PAGE>   36



                                   SIGNATURES


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



                          NATIONWIDE LIFE INSURANCE COMPANY (Registrant)



                          By   /s/ Dimon R. McFerson
                               -----------------------------------------------
                               Dimon R. McFerson, Chairman and Chief Executive
                               Officer - Nationwide Insurance Enterprise


Date:  March 5, 1997




                                       36
<PAGE>   37





Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 5, 1997.



<TABLE>
<S>                                                             <C>
/s/ Dimon R. McFerson                                           /s/ Joseph J. Gasper
-------------------------------------------------------------   -----------------------------------------------------------
Dimon R. McFerson, Chairman and Chief Executive                 Joseph J. Gasper, President and Chief Operating
Officer - Nationwide Insurance Enterprise and Director          Officer and Director


/s/ Lewis J. Alphin                                             /s/ Keith W. Eckel
-------------------------------------------------------------   -----------------------------------------------------------
Lewis J. Alphin, Director                                       Keith W. Eckel, Director


/s/ Willard J. Engel                                            /s/ Fred C. Finney
-------------------------------------------------------------   -----------------------------------------------------------
Willard J. Engel, Director                                      Fred C. Finney, Director


/s/ Charles L. Fuellgraf, Jr.                                   /s/ Henry S. Holloway
-------------------------------------------------------------   -----------------------------------------------------------
Charles L. Fuellgraf, Jr., Director                             Henry S. Holloway, Director


/s/ David O. Miller                                             /s/ C. Ray Noecker
-------------------------------------------------------------   -----------------------------------------------------------
David O. Miller, Director                                       C. Ray Noecker, Director


/s/ James F. Patterson                                          /s/ Arden L. Shisler
-------------------------------------------------------------   -----------------------------------------------------------
James F. Patterson, Director                                    Arden L. Shisler, Director


/s/ Robert L. Stewart                                           /s/ Nancy C. Thomas
-------------------------------------------------------------   -----------------------------------------------------------
Robert L. Stewart, Director                                     Nancy C. Thomas, Director


/s/ Harold W. Weihl                                             /s/ Robert A. Oakley
-------------------------------------------------------------   -----------------------------------------------------------
Harold W. Weihl, Director                                       Robert A. Oakley, Executive Vice President - Chief
                                                                Financial Officer

/s/ Mark R. Thresher
-------------------------------------------------------------
Mark R. Thresher, Vice President - Controller
</TABLE>



                                       37
<PAGE>   38


               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

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

                        Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994

                           For Inclusion in Form 10-K
                      To Securities and Exchange Commission








                                       F-1
<PAGE>   39


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


The Board of Directors
Nationwide Life Insurance Company:

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

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nationwide Life
Insurance Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.

In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.

                                                           KPMG Peat Marwick LLP

Columbus, Ohio
January 31, 1997





                                      F-2
<PAGE>   40





<TABLE>
<CAPTION>
                                      

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                           Consolidated Balance Sheets

                           December 31, 1996 and 1995
                                ($000's omitted)

                                        Assets                                                1996               1995
                                        ------                                          -----------------   ----------------
<S>                                                                                     <C>                 <C>       
Investments (notes 5, 8 and 9): 
   Securities available-for-sale, at fair value:
      Fixed maturity securities (cost $11,970,878 in 1996; $11,862,556 in 1995)             $12,304,639          12,485,564
      Equity securities (cost $43,890 in 1996; $23,617 in 1995)                                  59,131              29,953
   Mortgage loans on real estate, net                                                         5,272,119           4,602,764
   Real estate, net                                                                             265,759             229,442
   Policy loans                                                                                 371,816             336,356
   Other long-term investments                                                                   28,668              61,989
   Short-term investments (note 13)                                                               4,789              32,792
                                                                                        -----------------   ----------------
                                                                                             18,306,921          17,778,860
                                                                                        -----------------   ----------------

Cash                                                                                             43,784               9,455
Accrued investment income                                                                       210,182             212,963
Deferred policy acquisition costs                                                             1,366,509           1,020,356
Investment in subsidiaries classified as discontinued operations (notes 1 and 2)                485,707             506,677
Other assets (note 6)                                                                           426,441             388,214
Assets held in Separate Accounts (note 8)                                                    26,926,702          18,591,108
                                                                                        -----------------   ----------------
                                                                                            $47,766,246          38,507,633
                                                                                        =================   ================

                         Liabilities and Shareholder's Equity
                         ------------------------------------

Future policy benefits and claims (notes 6 and 8)                                           $17,179,060          16,358,614
Policyholders' dividend accumulations                                                           361,401             348,027
Other policyholder funds                                                                         60,073              65,297
Accrued federal income tax (note 7):
   Current                                                                                       30,170              35,301
   Deferred                                                                                     162,212             246,627
                                                                                        -----------------   ----------------
                                                                                                192,382             281,928
                                                                                        -----------------   ----------------

Dividend payable to shareholder (notes 1 and 2)                                                 485,707                   -
Other liabilities                                                                               423,047             234,147
Liabilities related to Separate Accounts (note 8)                                            26,926,702          18,591,108
                                                                                        -----------------   ----------------
                                                                                             45,628,372          35,879,121
                                                                                        -----------------   ----------------

Commitments and contingencies (notes 6, 9 and 15)

Shareholder's equity (notes 3, 4, 5, 12 and 13):
   Capital shares, $1 par value.  Authorized 5,000,000 shares, issued and
      outstanding 3,814,779 shares                                                                3,815               3,815
   Additional paid-in capital                                                                   527,874             657,118
   Retained earnings                                                                          1,432,593           1,583,275
   Unrealized gains on securities available-for-sale, net                                       173,592             384,304
                                                                                        -----------------   ----------------
                                                                                              2,137,874           2,628,512
                                                                                        -----------------   ----------------
                                                                                            $47,766,246          38,507,633
                                                                                        =================   ================
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   41


               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                        Consolidated Statements of Income

                  Years ended December 31, 1996, 1995 and 1994
                                ($000's omitted)
<TABLE>
<CAPTION>

                                                                                   1996            1995            1994
                                                                              ---------------  --------------  -------------
<S>                                                                           <C>              <C>             <C>    
Revenues (note 16):
   Investment product and universal life insurance product policy charges       $   400,902        286,534         217,245
   Traditional life insurance premiums                                              198,642        199,106         176,658
   Net investment income (note 5)                                                 1,357,759      1,294,033       1,210,811
   Realized losses on investments  (note 5)                                            (326)        (1,724)        (16,527)
   Other income                                                                      35,861         20,702          11,312
                                                                              ---------------  --------------  -------------
                                                                                  1,992,838      1,798,651       1,599,499
                                                                              ---------------  --------------  -------------
Benefits and expenses:
   Benefits and claims                                                            1,160,580      1,115,493         992,667
   Provision for policyholders' dividends on participating policies (note 12)        40,973         39,937          38,754
   Amortization of deferred policy acquisition costs                                133,394         82,695          85,568
   Other operating expenses (note 13)                                               342,394        272,954         240,652
                                                                              ---------------  --------------  -------------
                                                                                  1,677,341      1,511,079       1,357,641
                                                                              ---------------  --------------  -------------
      Income from continuing operations before federal income tax expense           315,497        287,572         241,858
                                                                              ---------------  --------------  -------------

Federal income tax expense (benefit) (note 7):
   Current                                                                          116,512         88,700          73,559
   Deferred                                                                          (5,623)        11,108           5,030
                                                                              ---------------  --------------  -------------
                                                                                    110,889         99,808          78,589
                                                                              ---------------  --------------  -------------
      Income from continuing operations                                             204,608        187,764         163,269

Income from discontinued operations (less federal income tax expense of
   $4,453, $7,446 and $10,915 in 1996, 1995 and 1994, respectively) (note 2)         11,324         24,714          20,459
                                                                              ---------------  --------------  -------------

      Net income                                                                $   215,932        212,478         183,728
                                                                              ===============  ==============  =============
</TABLE>


See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>   42


               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                 Consolidated Statements of Shareholder's Equity

                  Years ended December 31, 1996, 1995 and 1994
                                ($000's omitted)
<TABLE>
<CAPTION>

                                                                                             Unrealized
                                                                                           gains (losses)
                                                             Additional                    on securities        Total
                                                 Capital      paid-in        Retained      available-for-   shareholder's
                                                  shares      capital        earnings        sale, net          equity
                                                ----------- ------------- --------------- ----------------- ---------------
<S>                                             <C>         <C>           <C>             <C>               <C>      
1994:
   Balance, beginning of year                       $3,815      406,089       1,194,519             6,745       1,611,168
   Capital contribution                                  -      200,000               -                 -         200,000
   Net income                                            -            -         183,728                 -         183,728
   Adjustment for change in accounting for
      certain investments in debt and equity
      securities, net (note 4)                           -            -               -           212,553         212,553
   Unrealized losses on securities available-
      for-sale, net                                      -            -               -          (338,971)       (338,971)
                                                ----------- ------------- --------------- ----------------- ---------------
   Balance, end of year                             $3,815      606,089       1,378,247          (119,673)      1,868,478
                                                =========== ============= =============== ================= ===============

1995:
   Balance, beginning of year                        3,815      606,089       1,378,247          (119,673)      1,868,478
   Capital contribution (note 13)                        -       51,029               -            (4,111)         46,918
   Dividends to shareholder                              -            -          (7,450)                -          (7,450)
   Net income                                            -            -         212,478                 -         212,478
   Unrealized gains on securities available-
      for-sale, net                                      -            -               -           508,088         508,088
                                                ----------- ------------- --------------- ----------------- ---------------
   Balance, end of year                             $3,815      657,118       1,583,275           384,304       2,628,512
                                                =========== ============= =============== ================= ===============

1996:
   Balance, beginning of year                        3,815      657,118       1,583,275           384,304       2,628,512
   Capital contribution (note 13)                        -           25               5                 -              30
   Dividends to shareholder                              -     (129,269)       (366,619)          (39,819)       (535,707)
   Net income                                            -            -         215,932                 -         215,932
   Unrealized losses on securities available-
      for-sale, net                                      -            -               -          (170,893)       (170,893)
                                                ----------- ------------- --------------- ----------------- ---------------
   Balance, end of year                             $3,815      527,874       1,432,593           173,592       2,137,874
                                                =========== ============= =============== ================= ===============

</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>   43


               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 1996, 1995 and 1994
                                ($000's omitted)
<TABLE>
<CAPTION>

                                                                                       1996            1995            1994
                                                                                 ---------------- --------------- ---------------
<S>                                                                              <C>              <C>             <C>    
  Cash flows from operating activities:
     Net income                                                                    $    215,932        212,478         183,728
     Adjustments to reconcile net income to net cash provided by operating
        activities:
           Capitalization of deferred policy acquisition costs                         (422,572)      (321,327)       (242,431)
           Amortization of deferred policy acquisition costs                            133,394         82,695          85,568
           Amortization and depreciation                                                  6,962         10,234           3,603
           Realized (gains) losses on invested assets, net                                 (284)         3,250          16,094
           Deferred federal income tax expense (benefit)                                  7,603        (30,673)          9,946
           Decrease (increase) in accrued investment income                               2,781        (16,999)        (12,808)
           (Increase) decrease in other assets                                          (38,876)        39,880        (102,676)
           Increase in policy liabilities                                               305,755        135,937         118,361
           Increase in policyholders' dividend accumulations                             13,374         12,639          15,298
           (Decrease) increase in accrued federal income tax payable                     (5,131)        30,836          (5,714)
           Increase in other liabilities                                                188,900         26,851             506
           Other, net                                                                   (61,679)         1,832         (29,595)
                                                                                 ---------------  --------------- ---------------
              Net cash provided by operating activities                                 346,159        187,633          39,880
                                                                                 ---------------- --------------- ---------------

  Cash flows from investing activities:
     Proceeds from maturity of securities available-for-sale                          1,162,766        634,553         544,843
     Proceeds from sale of securities available-for-sale                                299,558        107,345         228,308
     Proceeds from maturity of fixed maturity securities held-to-maturity                     -        564,450         491,862
     Proceeds from repayments of mortgage loans on real estate                          309,050        207,832         190,574
     Proceeds from sale of real estate                                                   18,519         48,331          46,713
     Proceeds from repayments of policy loans and sale of other invested assets          22,795         53,587         120,506
     Cost of securities available-for-sale acquired                                  (1,573,640)    (1,942,413)     (1,816,370)
     Cost of fixed maturity securities held-to-maturity acquired                              -       (593,636)       (410,379)
     Cost of mortgage loans on real estate acquired                                    (972,776)      (796,026)       (471,570)
     Cost of real estate acquired                                                        (7,862)       (10,928)         (6,385)
     Policy loans issued and other invested assets acquired                             (57,740)       (75,910)        (65,302)
     Short-term investments, net                                                         28,003         77,837         (89,376)
     Purchase of affiliate (note 13)                                                          -              -        (155,000)
                                                                                ---------------- --------------- ---------------
              Net cash used in investing activities                                    (771,327)    (1,724,978)     (1,391,576)
                                                                                ---------------- --------------- ---------------

  Cash flows from financing activities:
     Proceeds from capital contributions                                                     30              -         200,000
     Dividends paid to shareholder                                                      (50,000)        (7,450)              -
     Increase in investment product and universal life insurance
        product account balances                                                      2,293,933      2,809,385       3,547,976
     Decrease in investment product and universal life insurance
        product account balances                                                     (1,784,466)    (1,258,758)     (2,412,595)
                                                                                ---------------- --------------- --------------
              Net cash provided by financing activities                                 459,497      1,543,177       1,335,381
                                                                                ---------------- --------------- --------------

  Net increase (decrease) in cash                                                        34,329          5,832         (16,315)

                                                                                 ---------------- --------------- ---------------
  Cash, beginning of year                                                                 9,455          3,623          19,938
                                                                                 ---------------- --------------- ---------------
  Cash, end of year                                                               $      43,784          9,455           3,623
                                                                                 ================ =============== ===============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>   44




               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 1996, 1995 and 1994
                                ($000's omitted)

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

         Nationwide Life Insurance Company (NLIC) is a wholly owned subsidiary
         of Nationwide Corporation (Nationwide Corp.). Wholly owned subsidiaries
         of NLIC include Nationwide Life and Annuity Insurance Company (NLAIC),
         Employers Life Insurance Company of Wausau and subsidiaries (ELICW),
         National Casualty Company (NCC), West Coast Life Insurance Company
         (WCLIC), Nationwide Advisory Services, Inc. (formerly Nationwide
         Financial Services, Inc.), Nationwide Investment Services Corporation
         (formerly PEBSCO Securities Corporation) (NISC) and NWE, Inc. NLIC and
         its subsidiaries are collectively referred to as "the Company."

         Nationwide Corp. formed Nationwide Financial Services, Inc. (NFS) in
         November 1996 as a holding company for NLIC and the other companies of
         the Nationwide Insurance Enterprise that offer or distribute long-term
         savings and retirement products. On January 27, 1997, Nationwide Corp.
         contributed to NFS the common stock of NLIC and three marketing and
         distribution companies. NFS is planning an initial public offering of
         its Class A common stock during the first quarter of 1997.

         In anticipation of the restructuring described above, on September 24,
         1996, NLIC's Board of Directors declared a dividend payable January 1,
         1997 to Nationwide Corp. consisting of the outstanding shares of common
         stock of certain subsidiaries (ELICW, NCC and WCLIC) 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 ELICW and another affiliate effective January 1, 1996. These
         subsidiaries and all accident and health and group life insurance
         business have been accounted for as discontinued operations for all
         periods presented. See notes 2 and 13.

         In addition, as part of the restructuring described above, NLIC intends
         to make an $850,000 distribution to NFS which will then make an
         equivalent distribution to Nationwide Corp.

         The Company is a leading provider of long-term savings and retirement
         products to retail and institutional customers and is subject to
         competition from other financial services providers throughout the
         United States. The Company is subject to regulation by the Insurance
         Departments of states in which it is licensed, and undergoes periodic
         examinations by those departments.

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

              LEGAL/REGULATORY RISK is the risk that changes in the legal or
              regulatory environment in which an insurer operates will create
              additional expenses not anticipated by the insurer in pricing its
              products. That is, regulatory initiatives, new legal theories or
              insurance company insolvencies through guaranty fund assessments
              may create costs for the insurer beyond those currently recorded
              in the consolidated financial statements. The Company mitigates
              this risk by offering a wide range of products and by operating
              throughout the United States, thus reducing its exposure to any
              single product or jurisdiction, and also by employing underwriting
              practices which identify and minimize the adverse impact of this
              risk.

              CREDIT RISK is 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.



                                      F-7
<PAGE>   45



               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

(2)      Discontinued Operations
         -----------------------

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

         On September 24, 1996, NLIC's Board of Directors declared a dividend to
         Nationwide Corp. consisting of the outstanding shares of common stock
         of three subsidiaries: ELICW, NCC and WCLIC. ELICW writes group
         accident and health and group life insurance business and maintains it
         offices in Wausau, Wisconsin. NCC is a property and casualty company
         that serves as a fronting company for a property and casualty
         subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate.
         NCC maintains its offices in Scottsdale, Arizona. WCLIC writes high
         dollar term life insurance policies and is located in San Francisco,
         California. ELICW, NCC and WCLIC have been accounted for as
         discontinued operations for all periods presented. NLIC did not
         recognize any gain or loss on the disposal of these subsidiaries.

         A summary of the combined results of operations, including the results
         of the accident and health and group life insurance business ELICW
         assumed from NLIC in 1996, and assets and liabilities of ELICW, NCC and
         WCLIC as of and for the years ended December 31, 1996, 1995 and 1994 is
         as follows:
<TABLE>
<CAPTION>

                                                                                    1996           1995          1994
                                                                                ------------   -----------   -----------

               <S>                                                               <C>             <C>           <C>   
               Revenues                                                          $   668,870       422,149        84,226
               Net income                                                             11,324        26,456        11,753
               Assets, consisting primarily of investments                         3,029,293     2,967,326     2,537,692
               Liabilities, consisting primarily of policy benefits and claims     2,543,586     2,460,649     2,179,263
</TABLE>

         During 1996, NLIC entered into two reinsurance agreements whereby all
         of NLIC's accident and health and group life insurance business was
         ceded to ELICW and NMIC, effective January 1, 1996. See note 13 for a
         complete discussion of the reinsurance agreements. NLIC has
         discontinued its accident and health and group life insurance business
         and in connection therewith has entered into reinsurance agreements to
         cede all existing and any future writings to other affiliated companies
         and will cease writing any new business prior to December 31, 1997.
         NLIC's accident and health and group life insurance business is
         accounted for as discontinued operations for all periods presented.
         NLIC did not recognize any gain or loss on the disposal of the accident
         and health and group life insurance business. The assets, liabilities,
         results of operations and activities of discontinued operations are
         distinguished physically, operationally and for financial reporting
         purposes from the remaining assets, liabilities, results of operations
         and activities of NLIC.




                                      F-8
<PAGE>   46
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         A summary of the results of operations, net of amounts ceded to ELICW
         and NMIC in 1996, and assets and liabilities of NLIC's accident and
         health and group life insurance business as of and for the years ended
         December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>

                                                                                    1996           1995          1994
                                                                                ------------   -----------   -----------

<S>                                                                                 <C>            <C>           <C>    
               Revenues                                                             $      -       354,788       362,476
               Net income (loss)                                                           -        (1,742)        8,706
               Assets, consisting primarily of investments                           259,185       239,426       234,082
               Liabilities, consisting primarily of policy benefits and claims       259,185       239,426       234,082
</TABLE>

(3)      Summary of Significant Accounting Policies
         ------------------------------------------

         The significant accounting policies followed by the Company that
         materially affect financial reporting are summarized below. The
         accompanying consolidated financial statements have been prepared in
         accordance with generally accepted accounting principles (GAAP) which
         differ from statutory accounting practices prescribed or permitted by
         regulatory authorities. Annual Statements for NLIC and its insurance
         subsidiaries, filed with the department of insurance of each insurance
         company's state of domicile, are prepared on the basis of accounting
         practices prescribed or permitted by each department. Prescribed
         statutory accounting practices include a variety of publications of the
         National Association of Insurance Commissioners (NAIC), as well as
         state laws, regulations and general administrative rules. Permitted
         statutory accounting practices encompass all accounting practices not
         so prescribed. The Company has no material permitted statutory
         accounting practices.

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

         The most significant estimates include those used in determining
         deferred policy acquisition costs, valuation allowances for mortgage
         loans on real estate and real estate investments and the liability for
         future policy benefits and claims. Although some variability is
         inherent in these estimates, management believes the amounts provided
         are adequate.

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

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

         (b)  Valuation of Investments and Related Gains and Losses
              -----------------------------------------------------

              The Company is required to classify its fixed maturity securities
              and equity securities as either held-to-maturity,
              available-for-sale or trading. Fixed maturity securities are
              classified as held-to-maturity when the Company has the positive
              intent and ability to hold the securities to maturity and are
              stated at amortized cost. Fixed maturity securities not classified
              as held-to-maturity and all equity securities are classified as
              available-for-sale and are stated at fair value, with the
              unrealized gains and losses, net of adjustments to deferred policy
              acquisition costs and deferred federal income tax, reported as a
              separate component of shareholder's equity. The adjustment to
              deferred policy acquisition costs represents the change in
              amortization of deferred policy acquisition costs that would have
              been required as a charge or credit to operations had such
              unrealized amounts been realized. The Company has no fixed
              maturity securities classified as held-to-maturity or trading as
              of December 31, 1996 or 1995.



                                      F-9

<PAGE>   47
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued



              Mortgage loans on real estate are carried at the unpaid principal
              balance less valuation allowances. The Company provides valuation
              allowances for impairments of mortgage loans on real estate based
              on a review by portfolio managers. The measurement of impaired
              loans is based on the present value of expected future cash flows
              discounted at the loan's effective interest rate or, as a
              practical expedient, at the fair value of the collateral, if the
              loan is collateral dependent. Loans in foreclosure and loans
              considered to be impaired are placed on non-accrual status.
              Interest received on non-accrual status mortgage loans on real
              estate are included in interest income in the period received.

              Real estate is carried at cost less accumulated depreciation and
              valuation allowances. Other long-term investments are carried on
              the equity basis, adjusted for valuation allowances. Impairment
              losses are recorded on long-lived assets used in operations when
              indicators of impairment are present and the undiscounted cash
              flows estimated to be generated by those assets are less than the
              assets' carrying amount.

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

         (c)  Revenues and Benefits
              ---------------------

              INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
              Investment products consist primarily of individual and group
              variable and fixed annuities, annuities without life contingencies
              and guaranteed investment contracts. Universal life insurance
              products include universal life insurance, variable universal life
              insurance and other interest-sensitive life insurance policies.
              Revenues for investment products and universal life insurance
              products consist of net investment income, asset fees, cost of
              insurance, policy administration and surrender charges that have
              been earned and assessed against policy account balances during
              the period. Policy benefits and claims that are charged to expense
              include interest credited to policy account balances and benefits
              and claims incurred in the period in excess of related policy
              account balances.

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

              ACCIDENT AND HEALTH INSURANCE PRODUCTS: Accident and health
              insurance premiums are recognized as revenue over the terms of the
              policies. Policy claims are charged to expense in the period that
              the claims are incurred. All accident and health insurance
              business is accounted for as discontinued operations. See note 2.

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

              The costs of acquiring new business, principally commissions,
              certain expenses of the policy issue and underwriting department
              and certain variable agency expenses have been deferred. For
              investment products and universal life insurance products,
              deferred policy acquisition costs are being amortized with
              interest over the lives of the policies in relation to the present
              value of estimated future gross profits from projected interest
              margins, asset fees, cost of insurance, policy administration and
              surrender charges. For years in which gross profits are negative,
              deferred policy acquisition costs are amortized based on the
              present value of gross revenues. For traditional life products,
              these deferred policy acquisition costs are predominantly being
              amortized with interest over the premium paying period of the
              related policies in proportion to the ratio of actual annual
              premium revenue to the anticipated total premium revenue. Such
              anticipated premium revenue was estimated using the same
              assumptions as were used for computing liabilities for future
              policy benefits. Deferred policy acquisition costs are adjusted to
              reflect the impact of unrealized gains and losses on fixed
              maturity securities available-for-sale as described in note 3(b).



                                      F-10
<PAGE>   48

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

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

              Separate Account assets and liabilities represent contractholders'
              funds which have been segregated into accounts with specific
              investment objectives. The investment income and gains or losses
              of these accounts accrue directly to the contractholders. The
              activity of the Separate Accounts is not reflected in the
              consolidated statements of income and cash flows except for the
              fees the Company receives.

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

              Future policy benefits for investment products in the accumulation
              phase, universal life insurance and variable universal life
              insurance policies have been calculated based on participants'
              contributions plus interest credited less applicable contract
              charges.

              Future policy benefits for traditional life insurance policies
              have been calculated using a net level premium method based on
              estimates of mortality, morbidity, investment yields and
              withdrawals which were used or which were being experienced at the
              time the policies were issued, rather than the assumptions
              prescribed by state regulatory authorities. See note 6.

              Future policy benefits and claims for collectively renewable
              long-term disability policies and group long-term disability
              policies are the present value of amounts not yet due on reported
              claims and an estimate of amounts to be paid on incurred but
              unreported claims. The impact of reserve discounting is not
              material. Future policy benefits and claims on other group health
              insurance policies are not discounted. All health insurance
              business is accounted for as discontinued operations. See note 2.

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

              Participating business represents approximately 52% in 1996 (54%
              in 1995 and 55% in 1994) of the Company's life insurance in force,
              78% in 1996 (79% in 1995 and 79% in 1994) of the number of life
              insurance policies in force, and 40% in 1996 (47% in 1995 and 51%
              in 1994) of life insurance premiums. The provision for
              policyholder dividends is based on current dividend scales. Future
              dividends are provided for ratably in future policy benefits based
              on dividend scales in effect at the time the policies were issued.

         (h)  Federal Income Tax
              ------------------

              The Company, with the exception of ELICW, files a consolidated
              federal income tax return with NMIC, the majority shareholder of
              Nationwide Corp. The members of the consolidated tax return group
              have a tax sharing arrangement which provides, in effect, for each
              member to bear essentially the same federal income tax liability
              as if separate tax returns were filed. Through 1994, ELICW filed a
              consolidated federal income tax return with Employers Insurance of
              Wausau A Mutual Company, an affiliate. Beginning in 1995, ELICW
              files a separate federal income tax return.

              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.



                                      F-11
<PAGE>   49
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         (i)  Reinsurance Ceded
              -----------------
  
              Reinsurance premiums ceded and reinsurance recoveries on benefits
              and claims incurred are deducted from the respective income and
              expense accounts. Assets and liabilities related to reinsurance
              ceded are reported on a gross basis. All of the Company's accident
              and health and group life insurance business is ceded to
              affiliates and is accounted for as discontinued operations. See
              notes 2 and 13.

         (j)  Reclassification
              ----------------

              Certain items in the 1995 and 1994 consolidated financial
              statements have been reclassified to conform to the 1996
              presentation.


(4)      Change in Accounting Principle
         ------------------------------

         Effective January 1, 1994, the Company changed its method of accounting
         for certain investments in debt and equity securities in connection
         with the issuance of STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
         NO. 115 - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
         SECURITIES. As of January 1, 1994, the Company classified fixed
         maturity securities with amortized cost and fair value of $6,299,665
         and $6,721,714, respectively, as available-for-sale and recorded the
         securities at fair value. Previously, these securities were recorded at
         amortized cost. The effect as of January 1, 1994 has been recorded as a
         direct credit to shareholder's equity as follows:
<TABLE>
<CAPTION>

             <S>                                                                     <C>    
             Excess of fair value over amortized cost of fixed maturity
                securities available-for-sale                                         $ 422,049
             Adjustment to deferred policy acquisition costs                            (95,044)
             Deferred federal income tax                                               (114,452)
                                                                                    --------------
                                                                                      $ 212,553
                                                                                    ==============
</TABLE>


(5)      Investments
         -----------

         The amortized cost and estimated fair value of securities
         available-for-sale were as follows as of December 31, 1996:
<TABLE>
<CAPTION>

                                                                                     Gross         Gross
                                                                    Amortized     unrealized    unrealized     Estimated
                                                                      cost           gains        losses       fair value
                                                                  ------------    ----------    -----------    -----------  
<S>                                                                <C>             <C>          <C>            <C>    
             1996:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of
                   U.S. government corporations and agencies       $   275,696         4,795        (1,340)        279,151
                 Obligations of states and political subdivisions        6,242           450            (2)          6,690
                 Debt securities issued by foreign governments         100,656         2,141          (857)        101,940
                 Corporate securities                                7,999,310       285,946       (33,686)      8,251,570
                 Mortgage-backed securities                          3,588,974        91,438       (15,124)      3,665,288
                                                                   ------------    ----------   ------------   ------------ 
                     Total fixed maturity securities                11,970,878       384,770       (51,009)     12,304,639
               Equity securities                                        43,890        15,571          (330)         59,131
                                                                   ------------    ----------   ------------   ------------ 
                                                                   $12,014,768       400,341       (51,339)     12,363,770
                                                                   ============    ==========   ============   ============ 
</TABLE>





                                      F-12
<PAGE>   50
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         The amortized cost and estimated fair value of securities
         available-for-sale were as follows as of December 31, 1995:
<TABLE>
<CAPTION>

                                                                                     Gross         Gross
                                                                    Amortized     unrealized    unrealized     Estimated
                                                                      cost           gains        losses       fair value
                                                                   ------------    ----------   -----------  ---------------
<S>                                                                <C>                <C>              <C>         <C>    
             1995:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of 
                   U.S. government corporations and agencies       $   310,186        12,764           (1)         322,949
                 Obligations of states and political subdivisions        8,655         1,205           (1)           9,859
                 Debt securities issued by foreign governments         101,414         4,387          (66)         105,735
                 Corporate securities                                7,888,440       473,681      (25,742)       8,336,379
                 Mortgage-backed securities                          3,553,861       165,169       (8,388)       3,710,642
                                                                   ------------    ----------   -----------  ---------------
                     Total fixed maturity securities                11,862,556       657,206      (34,198)      12,485,564
               Equity securities                                        23,617         6,382          (46)          29,953
                                                                   ------------    ----------   -----------  ---------------
                                                                   $11,886,173       663,588      (34,244)      12,515,517
                                                                   ============    ==========   ===========  ===============
</TABLE>


         The amortized cost and estimated fair value of fixed maturity
         securities available-for-sale as of December 31, 1996, by contractual
         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
                                                                                      cost          fair value
                                                                                ---------------   --------------
                                                                                
<S>                                                                             <C>                    <C>                 
             Fixed maturity securities available-for-sale:
                Due in one year or less                                         $     440,235          444,214
                Due after one year through five years                               3,937,010        4,053,152
                Due after five years through ten years                              2,809,813        2,871,806
                Due after ten years                                                 1,194,846        1,270,179
                                                                                ---------------   --------------
                                                                                    8,381,904        8,639,351

             Mortgage-backed securities                                             3,588,974        3,665,288
                                                                                ---------------   --------------
                                                                                  $11,970,878       12,304,639
                                                                                ===============   ==============
</TABLE>


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

                                                                                   1996            1995
                                                                              ---------------  --------------

             <S>                                                                  <C>              <C>    
             Gross unrealized gains                                               $349,002         629,344
             Adjustment to deferred policy acquisition costs                       (81,939)       (138,914)
             Deferred federal income tax                                           (93,471)       (171,649)
                                                                              ---------------  --------------
                                                                                   173,592         318,781

             Unrealized gains on securities available-for-sale, net, of
                subsidiaries classified as discontinued operations (note 2)              -          65,523
                                                                              ---------------  --------------
                                                                                  $173,592         384,304
                                                                              ===============  ==============
</TABLE>


                                      F-13
<PAGE>   51
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


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

                                                                          1996             1995            1994
                                                                     ---------------   -------------  --------------
             <S>                                                     <C>               <C>            <C>    
             Securities available-for-sale:
                Fixed maturity securities                               $(289,247)         876,332       (675,373)
                Equity securities                                           8,905              (26)        (1,927)
             Fixed maturity securities held-to-maturity                         -           75,626       (398,183)
                                                                     ---------------   -------------  --------------
                                                                        $(280,342)         951,932     (1,075,483)
                                                                     ===============   =============  ==============
</TABLE>

         Proceeds from the sale of securities available-for-sale during 1996,
         1995 and 1994 were $299,558, $107,345 and $228,308, respectively.
         During 1996, gross gains of $6,606 ($4,838 and $3,045 in 1995 and 1994,
         respectively) and gross losses of $6,925 ($2,147 and $21,280 in 1995
         and 1994, respectively) were realized on those sales.

         During 1995, the Company transferred fixed maturity securities
         classified as held-to-maturity with amortized cost of $25,429 to
         available-for-sale securities due to evidence of a significant
         deterioration in the issuer's creditworthiness. The transfer of those
         fixed maturity securities resulted in a gross unrealized loss of
         $3,535.

         As permitted by the Financial Accounting Standards Board's Special
         Report, A GUIDE TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR
         CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, issued in November
         1995 the Company transferred all of its fixed maturity securities
         previously classified as held-to-maturity to available-for-sale. As of
         December 14, 1995, the date of transfer, the fixed maturity securities
         had amortized cost of $3,320,093, resulting in a gross unrealized gain
         of $155,940.

         Investments that were non-income producing for the twelve month period
         preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
         consisted of $248 ($6,982 in 1995) in fixed maturity securities,
         $20,633 ($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in
         other long-term investments.

         Real estate is presented at cost less accumulated depreciation of
         $30,338 as of December 31, 1996 ($30,482 as of December 31, 1995) and
         valuation allowances of $15,219 as of December 31, 1996 ($25,819 as of
         December 31, 1995).

         The recorded investment of mortgage loans on real estate considered to
         be impaired (under SFAS NO. 114 - ACCOUNTING BY CREDITORS FOR
         IMPAIRMENT OF A LOAN as amended by SFAS NO. 118 - ACCOUNTING BY
         CREDITORS FOR IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURE)
         as of December 31, 1996 was $51,765 ($44,409 as of December 31, 1995),
         which includes $41,663 ($23,975 as of December 31, 1995) of impaired
         mortgage loans on real estate for which the related valuation allowance
         was $8,485 ($5,276 as of December 31, 1995) and $10,102 ($20,434 as of
         December 31, 1995) of impaired mortgage loans on real estate for which
         there was no valuation allowance. During 1996, the average recorded
         investment in impaired mortgage loans on real estate was approximately
         $39,674 ($22,181 in 1995) and interest income recognized on those loans
         was $2,103 ($387 in 1995), 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 is summarized for the years ended December 31:
<TABLE>
<CAPTION>

                                                                                   1996           1995
                                                                               -------------  --------------

<S>                                                                                <C>             <C>   
             Allowance, beginning of year                                          $49,128         46,381
                  Additions charged to operations                                    4,497          7,433
                  Direct write-downs charged against the allowance                  (2,587)        (4,686)
                                                                               -------------  -------------  
             Allowance, end of year                                                $51,038         49,128
                                                                               =============  ==============
</TABLE>




                                      F-14


<PAGE>   52

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         An analysis of investment income by investment type follows for the
         years ended December 31:
<TABLE>
<CAPTION>

                                                                          1996             1995           1994
                                                                     ---------------   -------------  ------------
        <S>                                                           <C>              <C>            <C>          
             Gross investment income:
                 Securities available-for-sale:
                   Fixed maturity securities                          $   917,135          685,787        647,927
                   Equity securities                                        1,291            1,330            509
                 Fixed maturity securities held-to-maturity                     -          201,808        185,938
                 Mortgage loans on real estate                            432,815          395,478        372,734
                 Real estate                                               44,332           38,344         40,170
                 Short-term investments                                     4,155           10,576          6,141
                 Other                                                      3,998            7,239          2,121
                                                                     ---------------   -------------  --------------
                       Total investment income                          1,403,726        1,340,562      1,255,540
             Less investment expenses                                      45,967           46,529         44,729
                                                                     ---------------   -------------  ---------------  
                       Net investment income                           $1,357,759        1,294,033      1,210,811
                                                                     ===============   =============  ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                        1996          1995          1994
                                                                     ------------  ------------  ------------
        <S>                                                          <C>           <C>           <C>    
             Securities available-for-sale:
                Fixed maturity securities                              $(3,462)        4,213        (7,296)
                Equity securities                                        3,143         3,386         1,422
             Mortgage loans on real estate                              (4,115)       (7,091)      (20,446)
             Real estate and other                                       4,108        (2,232)        9,793
                                                                     ------------  ------------  ------------ 
                                                                      $   (326)       (1,724)      (16,527)
                                                                     ============  ============  ============
</TABLE>

         Fixed maturity securities with an amortized cost of $6,161 and $5,592
         as of December 31, 1996 and 1995, respectively, were on deposit with
         various regulatory agencies as required by law.

(6)      Future Policy Benefits and Claims
         ---------------------------------

         The liability for future policy benefits for investment contracts
         represents approximately 87% and 87% of the total liability for future
         policy benefits as of December 31, 1996 and 1995, respectively. The
         average interest rate credited on investment product policies was
         approximately 6.3%, 6.6% and 6.5% for the years ended December 31,
         1996, 1995 and 1994, respectively.

         The liability for future policy benefits for traditional life insurance
         policies has been established based upon the following assumptions:

              Interest rates:  Interest rates vary as follows:
              --------------
<TABLE>
<CAPTION>

                   Year of issue                Interest rates
                   -----------------   ----------------------------------------

                   <S>                <C>                
                   1996                6.6%, not graded
                   1984-1995           6.0% to 10.5%, not graded
                   1966-1983           6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
                   1965 and prior      generally lower than post 1965 issues

</TABLE>



                                      F-15
<PAGE>   53
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


              WITHDRAWALS: Rates, which vary by issue age, type of coverage
              and policy duration, are based on Company experience.

              MORTALITY: Mortality and morbidity rates are based on
              published tables, modified for the Company's actual
              experience.

         The Company has entered into a reinsurance contract to cede a portion
         of its general account individual annuity business to The Franklin Life
         Insurance Company (Franklin). Total recoveries due from Franklin were
         $240,451 and $245,255 as of December 31, 1996 and 1995, respectively.
         The contract is immaterial to the Company's results of operations. The
         ceding of risk does not discharge the original insurer from its primary
         obligation to the policyholder. Under the terms of the contract,
         Franklin has established a trust as collateral for the recoveries. The
         trust assets are invested in investment grade securities, the market
         value of which must at all times be greater than or equal to 102% of
         the reinsured reserves.

         The Company has reinsurance agreements with certain affiliates as
         described in note 13. All other reinsurance agreements are not material
         to either premiums or reinsurance recoverables.

(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, 1996
         and 1995 are as follows:
<TABLE>
<CAPTION>

                                                                              1996               1995
                                                                        -----------------   ---------------
            <S>                                                         <C>                 <C>    
             Deferred tax assets:
                Future policy benefits                                        $175,571            149,192
                Liabilities in Separate Accounts                               188,426            129,120
                Mortgage loans on real estate and real estate                   23,366             25,165
                Other policyholder funds                                         7,407              7,424
                Other assets and other liabilities                              53,757             41,847
                                                                        -----------------   ---------------
                  Total gross deferred tax assets                              448,527            352,748
                  Less valuation allowances                                     (7,000)            (7,000)
                                                                        -----------------   ---------------
                  Net deferred tax assets                                      441,527            345,748
                                                                        =================   ===============

             Deferred tax liabilities:
                Deferred policy acquisition costs                              399,345            299,579
                Fixed maturity securities                                      133,210            227,345
                Deferred tax on realized investment gains                       37,597             40,634
                Equity securities and other long-term investments                8,210              3,780
                Other                                                           25,377             21,037
                                                                        -----------------   ---------------
                  Total gross deferred tax liabilities                         603,739            592,375
                                                                        -----------------   ---------------
                                                                              $162,212            246,627
                                                                        =================   ===============
</TABLE>

         In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion of the
         total gross deferred tax assets will not be realized. Nearly all future
         deductible amounts can be offset by future taxable amounts or recovery
         of federal income tax paid within the statutory carryback period. There
         has been no change in the valuation allowance for the years ended
         December 31, 1996, 1995 and 1994.




                                      F-16
<PAGE>   54

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

         Total federal income tax expense for the years ended December 31, 1996,
         1995 and 1994 differs from the amount computed by applying the U.S.
         federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>

                                                                1996                    1995                    1994
                                                   ----------------------   ----------------------   ----------------------
                                                      Amount        %          Amount        %          Amount        %
                                                   ----------------------   ----------------------   ----------------------

             <S>                                      <C>          <C>         <C>          <C>          <C>         <C> 
             Computed (expected) tax expense          $110,424     35.0        $100,650     35.0         $84,650     35.0
             Tax exempt interest and dividends
                received deduction                        (212)    (0.1)            (18)    (0.0)           (130)    (0.1)
             Other, net                                    677      0.3            (824)    (0.3)         (5,931)    (2.5)
                                                   ------------  --------   ------------- --------   ------------- --------
               Total (effective rate of each year)    $110,889     35.2       $  99,808     34.7         $78,589     32.5
                                                   ============  ========   ============= ========   ============= ========
</TABLE>

         Total federal  income tax paid was $115,839,  $51,840 and $83,239  
         during the years ended  December 31, 1996,  1995 and 1994, 
         respectively.


 (8)     Disclosures about Fair Value of Financial Instruments
         -----------------------------------------------------

         SFAS NO. 107 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
         (SFAS 107) requires disclosure of fair value information about existing
         on and off-balance sheet financial instruments. SFAS 107 defines the
         fair value of a financial instrument 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 based on estimates 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. SFAS 107 excludes certain assets and
         liabilities from its disclosure requirements. Accordingly, the
         aggregate fair value amounts presented do not represent the underlying
         value of the Company.

         Although insurance contracts, other than policies such as annuities
         that are classified as investment contracts, are specifically exempted
         from SFAS 107 disclosures, estimated fair value of policy reserves on
         life insurance contracts is provided to make the fair value disclosures
         more meaningful.

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

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

              CASH, SHORT-TERM INVESTMENTS AND POLICY LOANS: The carrying amount
              reported in the consolidated balance sheets for these instruments
              approximates their fair value.

              FIXED MATURITY AND EQUITY SECURITIES: 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.

              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 includes certain surrender
              charges.




                                      F-17
<PAGE>   55
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


              MORTGAGE LOANS ON REAL ESTATE: 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 mortgages in default is the estimated fair value of
              the underlying collateral.

              INVESTMENT CONTRACTS: Fair value for the Company's liabilities
              under investment type contracts is disclosed using two methods.
              For investment contracts without defined maturities, fair value is
              the amount payable on demand. For investment contracts with known
              or determined maturities, fair value is estimated using discounted
              cash flow analyses. 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 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.

              POLICYHOLDERS' DIVIDEND ACCUMULATIONS AND OTHER POLICYHOLDER
              FUNDS: The carrying amount reported in the consolidated balance
              sheets for these instruments approximates their fair value.

              COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
              nominal fair value because of the short-term nature of such
              commitments. See note 9.

           Carrying amount and estimated fair value of financial instruments
           subject to SFAS 107 and policy reserves on life insurance contracts
           were as follows as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>

                                                                           1996                            1995
                                                             ------------------------------   -------------------------------
                                                                Carrying      Estimated          Carrying       Estimated
                                                                 amount       fair value          amount        fair value
                                                             ------------------------------   --------------- ---------------
               <S>                                             <C>             <C>               <C>             <C>       
               Assets
               ------
               Investments:
                  Securities available-for-sale:
                     Fixed maturity securities                 $12,304,639     12,304,639        12,485,564      12,485,564
                     Equity securities                              59,131         59,131            29,953          29,953
                  Mortgage loans on real estate, net             5,272,119      5,397,865         4,602,764       4,961,655
                  Policy loans                                     371,816        371,816           336,356         336,356
                  Short-term investments                             4,789          4,789            32,792          32,792
               Cash                                                 43,784         43,784             9,455           9,455
               Assets held in Separate Accounts                 26,926,702     26,926,702        18,591,108      18,591,108

               Liabilities
               -----------
               Investment contracts                             13,914,441     13,484,526        13,229,360      12,876,798
               Policy reserves on life insurance contracts       2,971,337      2,775,991         2,836,323       2,733,486
               Policyholders' dividend accumulations               361,401        361,401           348,027         348,027
               Other policyholder funds                             60,073         60,073            65,297          65,297
               Liabilities related to Separate Accounts         26,926,702     26,164,213        18,591,108      18,052,362
</TABLE>

(9)      Additional Financial Instruments Disclosures
         --------------------------------------------
         
         FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Company is a
         party to financial instruments with off-balance-sheet risk in the
         normal course of business through management of its investment
         portfolio. These financial instruments include commitments to extend
         credit in the form of loans. These instruments involve, to varying
         degrees, elements of credit risk in excess of amounts recognized on the
         consolidated balance sheets.



                                      F-18
<PAGE>   56
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         Commitments to fund fixed rate mortgage loans on real estate are
         agreements to lend to a borrower, and are subject to conditions
         established in the contract. Commitments generally have fixed
         expiration dates or other termination clauses and may require payment
         of a deposit. Commitments extended by the Company are based on
         management's case-by-case credit evaluation of the borrower and the
         borrower's loan collateral. The underlying mortgage property represents
         the collateral if the commitment is funded. The Company's policy for
         new mortgage loans on real estate is to lend no more than 75% of
         collateral value. Should the commitment be funded, the Company's
         exposure to credit loss in the event of nonperformance by the borrower
         is represented by the contractual amounts of these commitments less the
         net realizable value of the collateral. The contractual amounts also
         represent the cash requirements for all unfunded commitments.
         Commitments on mortgage loans on real estate of $327,456 extending into
         1997 were outstanding as of December 31, 1996.

         SIGNIFICANT CONCENTRATIONS OF CREDIT RISK: The Company grants mainly
         commercial mortgage loans on real estate to customers throughout the
         United States. The Company has a diversified portfolio with no more
         than 21% (20% in 1995) in any geographic area and no more than 2% (2%
         in 1995) with any one borrower as of December 31, 1996.

         The Company had a significant reinsurance recoverable balance from one
         reinsurer as of December 31, 1996 and 1995. See note 6.

         The summary below depicts loans by remaining principal balance as of
         December 31, 1996 and 1995:
<TABLE>
<CAPTION>

                                                                                             Apartment
                                                Office       Warehouse         Retail         & other           Total
                                              ------------  -------------   -------------   -------------   --------------
              <S>                              <C>             <C>             <C>             <C>            <C>                 
               1996:
                 East North Central             $139,518        119,069         549,064         215,038        1,022,689
                 East South Central               33,267         22,252         172,968          90,623          319,110
                 Mountain                         17,972         43,027         113,292          73,390          247,681
                 Middle Atlantic                 129,077         54,046         160,833          18,498          362,454
                 New England                      33,348         43,581         161,960               -          238,889
                 Pacific                         202,562        325,046         424,295         110,108        1,062,011
                 South Atlantic                  103,889        134,492         482,934         385,185        1,106,500
                 West North Central              126,467          2,441          75,180          40,529          244,617
                 West South Central              104,877        120,314         197,090         304,256          726,537
                                              -------------   -------------   -------------   --------------  ------------
                                                $890,977        864,268       2,337,616       1,237,627        5,330,488
                                              ============  =============   =============   =============
                    Less valuation allowances and unamortized discount                                            58,369
                                                                                                            --------------
                         Total mortgage loans on real estate, net                                             $5,272,119
                                                                                                            ==============
</TABLE>

<TABLE>
<CAPTION>

                 <S>                          <C>             <C>             <C>             <C>              <C>    
               1995:
                 East North Central             $138,965        101,925         514,995         175,213          931,098
                 East South Central               21,329         13,053         180,858          82,383          297,623
                 Mountain                              -         17,219         138,220          45,274          200,713
                 Middle Atlantic                 116,187         64,813         158,252          10,793          350,045
                 New England                       9,559         39,525         148,449               1          197,534
                 Pacific                         183,206        233,186         374,915         105,419          896,726
                 South Atlantic                  106,246         73,541         446,800         278,265          904,852
                 West North Central              133,899         14,205          78,065          36,651          262,820
                 West South Central               69,140         92,594         190,299         267,268          619,301
                                              ------------  ------------    -------------   -------------   --------------
                                                $778,531        650,061       2,230,853       1,001,267        4,660,712
                                              ============  =============   =============   =============
                    Less valuation allowances and unamortized discount                                            57,948
                                                                                                            --------------
                         Total mortgage loans on real estate, net                                             $4,602,764
                                                                                                            ==============
</TABLE>






                                      F-19
<PAGE>   57
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(10)     Pension Plan
         ------------

         The Company is a participant, together with other affiliated companies,
         in a pension plan covering all employees who have completed at least
         one thousand hours of service within a twelve-month period and who have
         met certain age requirements. 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.

         Effective January 1, 1995, the plan was amended to provide enhanced
         benefits for participants who met certain eligibility requirements and
         elected early retirement no later than March 15, 1995. The entire cost
         of the enhanced benefit was borne by NMIC and certain of its property
         and casualty insurance company affiliates.

         Effective December 31, 1995, the Nationwide Insurance Companies and
         Affiliates Retirement Plan was merged with the Farmland Mutual
         Insurance Company Employees' Retirement Plan and the Wausau Insurance
         Companies Pension Plan to form the Nationwide Insurance Enterprise
         Retirement Plan. Immediately prior to the merger, the plans were
         amended to provide consistent benefits for service after January 1,
         1996. These amendments had no significant impact on the accumulated
         benefit obligation or projected benefit obligation as of December 31,
         1995.

         Pension costs charged to operations by the Company during the years
         ended December 31, 1996, 1995 and 1994 were $7,381, $10,478 and
         $10,063, respectively.

         The Company's net accrued pension expense as of December 31, 1996 and
         1995 was $1,075 and $1,392, respectively.

         The net periodic pension cost for the Nationwide Insurance Enterprise
         Retirement Plan as a whole for the year ended December 31, 1996 and for
         the Nationwide Insurance Companies and Affiliates Retirement Plan as a
         whole for the years ended December 31, 1995 and 1994 follows:

<TABLE>
<CAPTION>
                                                                        1996             1995              1994
                                                                   ---------------  ---------------   ---------------

              <S>                                                    <C>                  <C>               <C>   
              Service cost (benefits earned during the period)       $   75,466           64,524            64,740
              Interest cost on projected benefit obligation             105,511           95,283            73,951
              Actual return on plan assets                             (210,583)        (249,294)          (21,495)
              Net amortization and deferral                             101,795          143,353           (62,150)
                                                                   ---------------  ---------------   ---------------
                                                                     $   72,189           53,866            55,046
                                                                   ===============  ===============   ===============
</TABLE>


         Basis for measurements, net periodic pension cost:

<TABLE>
<CAPTION>
                                                                        1996             1995              1994
                                                                   ---------------  ---------------   ---------------

              <S>                                                   <C>              <C>               <C>  
              Weighted average discount rate                           6.00%            7.50%             5.75%
              Rate of increase in future compensation levels           4.25%            6.25%             4.50%
              Expected long-term rate of return on plan assets         6.75%            8.75%             7.00%
</TABLE>





                                      F-20
<PAGE>   58
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         Information regarding the funded status of the Nationwide Insurance
         Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
         follows:
<TABLE>
<CAPTION>

                                                                                1996              1995
                                                                           ---------------   ---------------
              <S>                                                          <C>               <C>      
              Accumulated benefit obligation:
                 Vested                                                      $1,338,554         1,236,730
                 Nonvested                                                       11,149            26,503
                                                                           ---------------   ---------------
                                                                             $1,349,703         1,263,233
                                                                           ===============   ===============

              Net accrued pension expense:
                 Projected benefit obligation for services rendered to       
                    date                                                     $1,847,828         1,780,616
                 Plan assets at fair value                                    1,947,933         1,738,004
                                                                           ---------------   ---------------
                    Plan assets in excess of (less than) projected benefit
                       obligation                                               100,105           (42,612)
                 Unrecognized prior service cost                                 37,870            42,845
                 Unrecognized net gains                                        (201,952)          (63,130)
                 Unrecognized net asset at transition                            37,158            41,305
                                                                           ---------------   ---------------
                                                                            $   (26,819)          (21,592)
                                                                           ===============   ===============
</TABLE>

         Basis for measurements, funded status of plan:

<TABLE>
<CAPTION>
                                                                                1996              1995
                                                                           ---------------   ---------------

              <S>                                                              <C>               <C>  
              Weighted average discount rate                                   6.50%             6.00%
              Rate of increase in future compensation levels                   4.75%             4.25%
</TABLE>

         Assets of the Nationwide Insurance Enterprise Retirement Plan are
         invested in group annuity contracts of NLIC and ELICW.

(11)     Postretirement Benefits Other Than Pensions
         -------------------------------------------

         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; 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,
         1996 and 1995 was $34,884 and $33,537, respectively, and the net
         periodic postretirement benefit cost (NPPBC) for 1996, 1995 and 1994
         was $3,286, $3,132 and $4,284, respectively.




                                      F-21
<PAGE>   59
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         The amount of NPPBC for the plan as a whole for the years ended
         December 31, 1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>

                                                                                        1996          1995          1994
                                                                                     -----------   -----------   -----------

            <S>                                                                       <C>              <C>           <C>  
             Service cost (benefits attributed to employee service during the year)   $  6,541         6,235         8,586
             Interest cost on accumulated postretirement benefit obligation             13,679        14,151        14,011
             Actual return on plan assets                                               (4,348)       (2,657)       (1,622)
             Amortization of unrecognized transition obligation of affiliates              173         2,966           568
             Net amortization and deferral                                               1,830        (1,619)        1,622
                                                                                     -----------   -----------   -----------
                                                                                       $17,875        19,076        23,165
                                                                                     ===========   ===========   ===========
</TABLE>

         Information regarding the funded status of the plan as a whole as of
         December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>

                                                                                             1996              1995
                                                                                        ---------------   ---------------
             <S>                                                                          <C>                   <C>   
             Accrued postretirement benefit expense:
                Retirees                                                                  $   92,954            88,680
                Fully eligible, active plan participants                                      23,749            28,793
                Other active plan participants                                                83,986            90,375
                                                                                        ---------------   ---------------
                   Accumulated postretirement benefit obligation (APBO)                      200,689           207,848
                Plan assets at fair value                                                     63,044            54,325
                                                                                        ---------------   ---------------
                   Plan assets less than accumulated postretirement benefit obligation      (137,645)         (153,523)
                Unrecognized transition obligation of affiliates                               1,654             1,827
                Unrecognized net gains                                                       (23,225)           (1,038)
                                                                                        ---------------   ---------------
                                                                                           $(159,216)         (152,734)
                                                                                        ===============   ===============
</TABLE>

         Actuarial  assumptions  used for the  measurement  of the APBO as of 
         December 31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were 
         as follows:

<TABLE>
<CAPTION>
                                                      1996          1996         1995         1995         1994
                                                      APBO         NPPBC         APBO        NPPBC         NPPBC
                                                   ------------  -----------  -----------  -----------  ------------
             <S>                                     <C>           <C>          <C>          <C>          <C>  

             Discount rate                            7.25%         6.65%        6.75%        8.00%        7.00%
             Long-term rate of return on plan
                 assets, net of tax                     -           4.80%         -           8.00%         N/A
             Assumed health care cost trend rate:
                 Initial rate                        11.00%        11.00%       11.00%       10.00%       12.00%
                 Ultimate rate                        6.00%         6.00%        6.00%        6.00%        6.00%
                 Uniform declining period           12 Years      12 Years     12 Years     12 Years     12 Years
</TABLE>


         The health care cost trend rate assumption has an effect on the amounts
         reported. For the plan as a whole, a one percentage point increase in
         the assumed health care cost trend rate would increase the APBO as of
         December 31, 1996 by $701 and the NPPBC for the year ended December 31,
         1996 by $83.

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

         Each insurance company's state of domicile imposes minimum risk-based
         capital requirements that were developed by the NAIC. The formulas for
         determining the amount of risk-based capital specify various weighting
         factors that are applied to financial balances or various levels of
         activity based on the perceived degree of risk. Regulatory compliance
         is determined by a ratio of the company's regulatory total adjusted
         capital, as defined by the NAIC, to its authorized control level
         risk-based capital, as defined by the NAIC. Companies below specific
         trigger points or ratios are classified within certain levels, each of
         which requires specified corrective action. NLIC and each of its
         insurance company subsidiaries exceed the minimum risk-based capital
         requirements.




                                      F-22
<PAGE>   60
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


         The statutory capital shares and surplus of NLIC as of December 31,
         1996, 1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861,
         respectively. The statutory net income of NLIC for the years ended
         December 31, 1996, 1995 and 1994 was $73,218, $86,529 and $76,532,
         respectively.

         NLIC is limited in the amount of shareholder dividends it may pay
         without prior approval by the Department of Insurance of the State of
         Ohio (the Department). NLIC's dividend of the outstanding shares of
         common stock of certain companies which was declared on September 24,
         1996 and the anticipated $850,000 dividend (as discussed in note 1) are
         deemed extraordinary under Ohio insurance laws. As a result of such
         dividends, any dividend paid by NLIC during the 12-month period
         immediately following the $850,000 dividend would also be an
         extraordinary dividend under Ohio insurance laws. Accordingly, no such
         dividend could be paid without prior regulatory approval.

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

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

(13)     Transactions With Affiliates
         ----------------------------

         The Company leases office space from NMIC and certain of its
         subsidiaries. For the years ended December 31, 1996, 1995 and 1994, the
         Company made lease payments to NMIC and its subsidiaries of $9,065,
         $8,986 and $8,133, respectively.

         Pursuant to a cost sharing agreement among NMIC and certain of its
         direct and indirect subsidiaries, including the Company, NMIC provides
         certain operational and administrative services, such as sales support,
         advertising, personnel and general management services, to those
         subsidiaries. Expenses covered by this agreement are subject to
         allocation among NMIC, the Company and other affiliates. Amounts
         allocated to the Company were $101,584, $107,112, and $100,601 in 1996,
         1995 and 1994, respectively. The allocations are based on techniques
         and procedures in accordance with insurance regulatory guidelines.
         Measures used to allocate expenses among companies include individual
         employee estimates of time spent, special cost studies, salary expense,
         commissions expense and other methods agreed to by the participating
         companies that are within industry guidelines and practices. The
         Company believes these allocation methods are reasonable. In addition,
         the Company does not believe that expenses recognized under the
         intercompany agreements are materially different than expenses that
         would have been recognized had the Company operated on a stand alone
         basis. Amounts payable to NMIC from the Company under the cost sharing
         agreement were $15,111 and $1,186 as of December 31, 1996 and 1995,
         respectively.

         The Company also participates in intercompany repurchase agreements
         with affiliates whereby the seller will transfer securities to the
         buyer at a stated value. Upon demand or a stated period, the securities
         will be repurchased by the seller at the original sales price plus a
         price differential. Transactions under the agreements during 1996 and
         1995 were not material. The Company believes that the terms of the
         repurchase agreements are materially consistent with what the Company
         could have obtained with unaffiliated parties.



                                      F-23
<PAGE>   61

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued

         Intercompany reinsurance contracts exist between NLIC and, respectively
         NMIC and ELICW whereby all of NLIC's accident and health and group life
         insurance business is ceded on a modified coinsurance basis. NLIC
         entered into the reinsurance agreements during 1996 because the
         accident and health and group life insurance business was unrelated to
         NLIC's long-term savings and retirement products. Accordingly, the
         accident and health and group life insurance business has been
         accounted for as discontinued operations for all periods presented.
         Under modified coinsurance agreements, invested assets are retained by
         the ceding company and investment earnings are paid to the reinsurer.
         Under the terms of NLIC's agreements, the investment risk associated
         with changes in interest rates is borne by NMIC or ELICW, as the case
         may be. Risk of asset default is retained by NLIC, although a fee is
         paid by NMIC or ELICW, as the case may be, to NLIC for the NLIC's
         retention of such risk. The agreements will remain in force until all
         policy obligations are settled. However, with respect to the agreement
         between NLIC and NMIC, either party may terminate the contract on
         January 1 of any year with prior notice. The ceding of risk does not
         discharge the original insurer from its primary obligation to the
         policyholder. NLIC believes that the terms of the modified coinsurance
         agreements are consistent in all material respects with what NLIC could
         have obtained with unaffiliated parties.

         Amounts ceded to ELICW in 1996 are included in ELICW's results of
         operations for 1996 which, combined with the results of WCLIC and NCC,
         are summarized in note 2. Amounts ceded to ELICW in 1996 include
         premiums of $224,224, net investment income and other revenue of
         $14,833, and benefits, claims and other expenses of $246,641. Amounts
         ceded to NMIC in 1996 include premiums of $97,331, net investment
         income of $10,890, and benefits, claims and other expenses of $100,476.

         The Company and various affiliates entered into agreements with
         Nationwide Cash Management Company (NCMC) and California Cash
         Management Company (CCMC), both affiliates, under which NCMC and CCMC
         act as common agents in handling the purchase and sale of short-term
         securities for the respective accounts of the participants. Amounts on
         deposit with NCMC and CCMC were $4,789 and $9,654 as of December 31,
         1996 and 1995, respectively, and are included in short-term investments
         on the accompanying consolidated balance sheets.

         On April, 5 1996, Nationwide Corp. contributed all of the outstanding
         shares, with shareholder equity value of $30, of NISC to NLIC. NLIC
         contributed an additional $500 to NISC on August 30, 1996.

         On March 1, 1995, Nationwide Corp. contributed all of the outstanding
         shares of common stock of Farmland Life Insurance Company (Farmland) to
         NLIC. Farmland merged into WCLIC effective June 30, 1995. The
         contribution resulted in a direct increase to consolidated
         shareholder's equity of $46,918. As discussed in note 2, WCLIC is
         accounted for as discontinued operations.

         Effective December 31, 1994, NLIC purchased all of the outstanding
         shares of common stock of ELICW from Wausau Service Corporation (WSC)
         for $155,000. NLIC transferred fixed maturity securities and cash with
         a fair value of $155,000 to WSC on December 28, 1994, which resulted in
         a realized loss of $19,239 on the disposition of the securities. The
         purchase price approximated both the historical cost basis and fair
         value of net assets of ELICW. ELICW has and will continue to share home
         office, other facilities, equipment and common management and
         administrative services with WSC. As discussed in note 2, ELICW is
         accounted for as discontinued operations.

         Certain annuity products are sold through three affiliated companies
         which are also subsidiaries of Nationwide Corp. Total commissions and
         fees paid to these affiliates for the years ended December 31, 1996,
         1995 and 1994 were $76,922, $57,280 and $50,168, respectively.

(14)     Bank Lines of Credit
         --------------------

         In August 1996, NLIC, along with NMIC, established a $600,000 revolving
         credit facility which provides for a $600,000 loan over a five year
         term on a fully revolving basis with a group of national financial
         institutions. The credit facility provides for several and not joint
         liability with respect to any amount drawn by either NLIC or NMIC. NLIC
         and NMIC pay facility and usage fees to the financial institutions to
         maintain the revolving credit facility. All previously existing line of
         credit agreements were canceled.




                                      F-24
<PAGE>   62
               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, Continued


(15)     Contingencies
         -------------

         The Company is a defendant in various lawsuits. In the opinion of
         management, the effects, if any, of such lawsuits are not expected to
         be material to the Company's financial position or results of
         operations.

(16)     Segment Information
         -------------------

         The Company has three primary segments: Variable Annuities, Fixed
         Annuities and Life Insurance. The Variable Annuities segment consists
         of annuity contracts that provide the customer with the opportunity to
         invest in mutual funds managed by the Company and independent
         investment managers, with the investment returns accumulating on a
         tax-deferred basis. The Fixed Annuities segment consists of annuity
         contracts that generate a return for the customer at a specified
         interest rate, fixed for a prescribed period, with returns accumulating
         on a tax-deferred basis. The Life Insurance segment consists of
         insurance products that provide a death benefit and may also allow the
         customer to build cash value on a tax-deferred basis. In addition, the
         Company reports corporate expenses and investments, and the related
         investment income supporting capital not specifically allocated to its
         product segments in a Corporate and Other segment. In addition, all
         realized gains and losses, investment management fees and other revenue
         earned from mutual funds, other than the portion allocated to the
         variable annuities and life insurance segments, are reported in the
         Corporate and Other segment.

         During 1996, the Company changed its reporting segments to better
         reflect the way the businesses are managed. Prior periods have been
         restated to reflect these changes.

         The following table summarizes the revenues and income from continuing
         operations before federal income tax expense for the years ended
         December 31, 1996, 1995 and 1994 and assets as of December 31, 1996,
         1995 and 1994, by business segment.
<TABLE>
<CAPTION>

                                                                              1996              1995              1994
                                                                        -----------------  ---------------   ---------------
             <S>                                                        <C>                <C>               <C>    
              Revenues:
                   Variable Annuities                                      $    284,638          189,071           132,687
                   Fixed Annuities                                            1,092,566        1,051,970           939,868
                   Life Insurance                                               435,657          409,135           383,150
                   Corporate and Other                                          179,977          148,475           143,794
                                                                        -----------------  ---------------   ---------------
                                                                           $  1,992,838        1,798,651         1,599,499
                                                                        =================  ===============   ===============

              Income from continuing operations before federal income tax
                 expense:
                   Variable Annuities                                            90,244           50,837            24,574
                   Fixed Annuities                                              135,405          137,000           138,950
                   Life Insurance                                                67,242           67,590            53,046
                   Corporate and Other                                           22,606           32,145            25,288
                                                                        -----------------  ---------------   ---------------
                                                                          $     315,497          287,572           241,858
                                                                        =================  ===============   ===============

              Assets:

                   Variable Annuities                                        25,069,725       17,333,039        11,146,465
                   Fixed Annuities                                           13,994,715       13,250,359        11,668,973
                   Life Insurance                                             3,353,286        3,027,420         2,752,283
                   Corporate and Other                                        5,348,520        4,896,815         3,678,303
                                                                        -----------------  ---------------   ---------------
                                                                            $47,766,246       38,507,633        29,246,024
                                                                        =================  ===============   ===============
</TABLE>






                                      F-25
<PAGE>   63
<TABLE>


                                                                                                                 SCHEDULE I

                                        NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
                                                                 
                                               Consolidated Summary of Investments -
                                             Other Than Investments in Related Parties
                                                                 
                                                      As of December 31, 1996
                                                         ($000's omitted)
<CAPTION>

--------------------------------------------------------------- ---------------    --------------   -----------------
                           Column A                                 Column B         Column C          Column D
--------------------------------------------------------------- ---------------    --------------   -----------------
                                                                                                    Amount at which
                                                                                                     shown in the
                                                                                                     consolidated
                      Type of Investment                              Cost         Market value      balance sheet
--------------------------------------------------------------- ---------------    --------------   -----------------
<S>                                                             <C>                <C>               <C>      
Fixed maturity securities available-for-sale:
   Bonds:
      U.S. Government and government agencies and authorities     $  3,757,887        3,834,762           3,834,762
      States, municipalities and political subdivisions                  6,242            6,690               6,690
      Foreign governments                                              100,656          101,940             101,940
      Public utilities                                               1,798,736        1,843,938           1,843,938
      All other corporate                                            6,307,357        6,517,309           6,517,309
                                                                ---------------    --------------   -----------------
          Total fixed maturity securities available-for-sale        11,970,878       12,304,639          12,304,639
                                                                ---------------    --------------   -----------------

Equity securities available-for-sale:
   Common stocks:
      Industrial, miscellaneous and all other                           43,501           50,405              50,405
   Non-redeemable preferred stock                                          389            8,726               8,726
                                                                ---------------    --------------   -----------------
          Total equity securities available-for-sale                    43,890           59,131              59,131
                                                                ---------------    --------------   -----------------

Mortgage loans on real estate, net                                   5,327,317                            5,272,119 (1)
Real estate, net:
   Investment properties                                               253,383                              217,611 (1)
   Acquired in satisfaction of debt                                     57,933                               48,148 (1)
Policy loans                                                           371,816                              371,816
Other long-term investments                                             27,370                               28,668 (2)
Short-term investments                                                   4,789                                4,789
                                                                ---------------                      ----------------
          Total investments                                        $18,057,376                           18,306,921
                                                                ===============                      ================
<FN>

----------
(1)  Difference from Column B is primarily due to valuation allowances due to
     impairments on mortgage loans on real estate and due to accumulated
     depreciation and valuation allowances due to impairments on real estate.
     See Management's Discussion and Analysis of Financial Condition and Results
     of Operations and note 5 to the consolidated financial statements.

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

</TABLE>






See accompanying independent auditors' report.


                                      F-26
<PAGE>   64
<TABLE>
<CAPTION>


                                                                                                               SCHEDULE III

                                    NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                            Supplemental Insurance Information

                                          As of December 31, 1996, 1995 and 1994
                                           and for each of the years then ended

                                                     ($000's omitted)

----------------------------------- --------------  ------------------  -----------------   ------------------ ---------------
             Column A                  Column B          Column C            Column D           Column E          Column F
----------------------------------- --------------  ------------------  -----------------   -----------------  ---------------
                                       Deferred       Future policy                            Other policy
                                        policy      benefits, losses,                           claims and         
                                     acquisition        claims and      Unearned premiums    benefits payable    Premium
             Segment                    costs         loss expenses            (1)                 (2)           revenue
----------------------------------- --------------  ------------------  -----------------    ----------------  --------------

<C>                                 <C>             <C>                                     <C>                <C>    
1996: Variable Annuities               $   791,611                   -                                      -               -
      Fixed Annuities                      242,421          14,952,877                                    687          24,030
      Life Insurance                       414,417           1,995,802                                395,739         174,612
      Corporate and Other                  (81,940)            230,381                                 25,048               -
                                    --------------  ------------------                       ----------------  -------------- 
             Total                      $1,366,509          17,179,060                                421,474         198,642
                                    ==============  ==================                       ================  ============== 

1995: Variable Annuities                   571,283                   -                                      -               -
      Fixed Annuities                      221,111          14,221,622                                    455          32,774
      Life Insurance                       366,876           1,898,641                                383,983         166,332
      Corporate and Other                 (138,914)            238,351                                 28,886               -
                                    --------------  ------------------                       ----------------  -------------- 
             Total                      $1,020,356          16,358,614                                413,324         199,106
                                    ==============  ==================                       ================  ============== 

1994: Variable Annuities                   395,397                   -                                      -               -
      Fixed Annuities                      198,639          12,633,253                                    240          20,134
      Life Insurance                       327,079           1,806,762                                371,984         156,524
      Corporate and Other                   74,445             233,569                                 26,927               -
                                    --------------  ------------------                       ----------------  -------------- 
             Total                     $   995,560          14,673,584                                399,151         176,658
                                    ==============  ==================                       ================  ============== 
<CAPTION>

----------------------------------- -------------- -------------------  -----------------    ----------------  -------------- 
             Column A                  Column G          Column H            Column I           Column J          Column K
----------------------------------- -------------- -------------------  -----------------    ----------------  -------------- 
                                         Net                               Amortization           Other
                                      investment    Benefits, claims,      of deferred          operating        
                                        income          losses and            policy            expenses          Premiums
             Segment                     (3)       settlement expenses  acquisition costs          (3)            written
----------------------------------- -------------- -------------------  -----------------   -----------------  -------------- 

1996: Variable Annuities               $   (21,449)              4,624             57,412             132,357
      Fixed Annuities                    1,050,557             838,533             38,635              79,737
      Life Insurance                       174,002             211,386             37,347              78,965
      Corporate and Other                  154,649             106,037                  -              51,335
                                    -------------- -------------------  -----------------   ----------------- 
             Total                      $1,357,759           1,160,580            133,394             342,394
                                    ============== ===================  =================   ================= 

1995: Variable Annuities                   (17,640)              2,881             26,264             109,089
      Fixed Annuities                    1,002,718             804,980             29,499              80,260
      Life Insurance                       171,255             201,986             31,021              68,832
      Corporate and Other                  137,700             105,646             (4,089)             14,773
                                    -------------- -------------------  -----------------   ----------------- 
             Total                      $1,294,033           1,115,493             82,695             272,954
                                    ============== ===================  =================   =================  

1994: Variable Annuities                   (13,415)              2,277             22,135              83,701
      Fixed Annuities                      903,572             702,082             29,849              69,975
      Life Insurance                       166,329             191,006             29,495              69,861
      Corporate and Other                  154,325              97,302              4,089              17,115
                                    -------------- -------------------  -----------------   ----------------- 
             Total                      $1,210,811             992,667             85,568             240,652
                                    ============== ===================  =================   =================  
<FN>

----------
(1)  Unearned premiums are included in Column C amounts.

(2)  Column E agrees to the sum of the Balance Sheet captions, Policyholders'
     dividend accumulations and Other policyholder funds.

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


</TABLE>

See accompanying independent auditors' report.


                                      F-27
<PAGE>   65


                                                                    SCHEDULE IV

                              NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                                  Reinsurance

                                    As of December 31, 1996, 1995 and 1994
                                     and for each of the years then ended

                                                ($000's omitted)
<TABLE>
<CAPTION>

-------------------------------   ----------------- -----------------  ----------------   ----------------  ---------------
           Column A                  Column B           Column C           Column D          Column E          Column F
-------------------------------   ----------------- -----------------  ----------------   ----------------  ---------------
                                                                                                              Percentage
                                                        Ceded to         Assumed from                         of amount
                                   Gross amount      other companies   other companies      Net amount      assumed to net
                                  ----------------- -----------------  ----------------   ----------------  ---------------
<S>                               <C>               <C>                <C>                <C>               <C> 
1996:
Life insurance in force              $47,071,264          6,633,567            288,593        40,726,290           0.7%
                                  ================= =================  ================   ================  ===============

Premiums:
   Life insurance                        225,615             29,282              2,309           198,642           1.2%
   Accident and health insurance         291,871            305,789             13,918                 -         N/A
                                  ----------------- -----------------  ----------------   ----------------  ---------------
          Total                      $   517,486            335,071             16,227           198,642           8.2%
                                  ================= =================  ================   ================  ===============


1995:
Life Insurance in force              $41,087,025          8,935,743            391,174        32,542,456           1.2%
                                  ================= =================  ================   ================  ===============

Premiums:
   Life insurance                        221,257             24,360              2,209           199,106           1.1%
   Accident and health insurance         298,058            313,036             14,978                 -         N/A
                                  ----------------- -----------------  ----------------   ----------------  ---------------
          Total                      $   519,315            337,396             17,187           199,106           8.6%
                                  ================= =================  ================   ================  ===============


1994:
Life Insurance in force              $35,926,633          7,550,623            829,742        29,205,752           2.8%
                                  ================= =================  ================   ================  ===============

Premiums:
   Life insurance                        198,705             24,912              2,865           176,658           1.6%
   Accident and health insurance         303,435            321,696             18,261                 -         N/A
                                  ----------------- -----------------  ----------------   ----------------  ---------------
          Total                      $   502,140            346,608             21,126           176,658          12.0%
                                  ================= =================  ================   ================  ===============
<FN>

----------
Note:  The life insurance caption represents principally premiums from
       traditional life insurance and life-contingent immediate annuities and
       excludes deposits on invesment products and universal life insurance
       products.
</TABLE>


See accompanying independent auditors' report.


                                      F-28
<PAGE>   66

<TABLE>
<CAPTION>

                                                                                                                 SCHEDULE V

                                        NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES
                                                                 
                                                 Valuation and Qualifying Accounts
                                                                 
                                           Years ended December 31, 1996, 1995 and 1994
                                                         ($000's omitted)

-------------------------------------------------  ------------   -----------------------------   ------------ -------------
                    Column A                         Column B               Column C               Column D      Column E
-------------------------------------------------  ------------   -----------------------------   ------------ -------------
                                                    Balance at     Charged to                                   Balance at
                                                   beginning of     costs and      Charged to     Deductions      end of
                  Description                         period        expenses     other accounts      (1)          period
-------------------------------------------------  ------------   ------------   --------------   ------------ -------------
<S>                                                <C>            <C>            <C>              <C>          <C>   
1996:
Valuation  allowances - mortgage loans on real
   estate                                              $49,128          4,497               -          2,587        51,038
Valuation allowances - real estate                      25,819        (10,600)              -              -        15,219
                                                   ------------   ------------   --------------   ------------ -------------
     Total                                             $74,947         (6,103)              -          2,587        66,257
                                                   ============   ============   ==============   ============ =============


1995:
Valuation allowances - fixed maturity securities             -          8,908               -          8,908             -
Valuation  allowances  - mortgage  loans on real
   estate                                               46,381          7,433               -          4,686        49,128
Valuation allowances - real estate                      27,330         (1,511)              -              -        25,819
                                                   ------------   ------------   --------------   ------------ -------------
     Total                                             $73,711         14,830               -         13,594        74,947
                                                   ============   ============   ==============   ============ =============


1994:
Valuation allowances - fixed maturity securities         4,800         (4,800)              -              -             -
Valuation  allowances  - mortgage  loans on real
   estate                                               42,150         20,445               -         16,214        46,381
Valuation allowances - real estate                      31,357         (4,027)              -              -        27,330
                                                   ------------   ------------   --------------   ------------ -------------
     Total                                             $78,307         11,618               -         16,214        73,711
                                                   ============   ============   ==============   ============ =============
<FN>

----------
(1)  Amounts represent direct write-downs charged against the valuation allowance.
</TABLE>



See accompanying independent auditors' report.


                                      F-29



 
<PAGE>   67
<TABLE>
<CAPTION>

                                  EXHIBIT INDEX

  Exhibit                                                                                                            Page
------------                                                                                                        --------

   <S>       <C>                                                                                                      <C>
     3       Form of Amended and Restated Code of Regulations of Nationwide Life Insurance Company                     E-2

    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 (Incorporated by reference to Exhibit 10.2 to Form S-1,
                Registration Number 333-18527, filed March 5, 1997)

    10.2     Form of First Amendment to Cost Sharing Agreement among parties named therein 
                (Incorporated by reference to Exhibit 10.3 to Form S-1, Registration Number 
                333-18527, filed March 5, 1997)

    10.3     Modified Coinsurance Agreement between Nationwide Life Insurance Company and Nationwide
                Mutual Insurance Company (Incorporated by reference to Exhibit 10.4 to Form S-1, 
                Registration Number 333-18527, filed March 5, 1997)

    10.4     Modified Coinsurance Agreement between Employers Life Insurance Company of Wausau and
                Nationwide Life Insurance Company (Incorporated by reference to Exhibit 10.5 to Form S-1,
                Registration Number 333-18527, filed March 5, 1997)

    10.5     Credit Facility, dated August 12, 1996, among Nationwide Life Insurance Company, 
                Nationwide Mutual Insurance Company, the banks named therein and Morgan Guaranty 
                Trust Company of New York, the administrative agent (Incorporated by reference to
                Exhibit 10.6 to Form S-1, Registration Number 333-18527, filed March 5, 1997)

    10.6     Form of Lease Agreement between Nationwide Life Insurance Company and Nationwide Mutual
                Insurance Company (Incorporated by reference to Exhibit 10.7 to Form S-1, Registration 
                Number 333-18527, filed March 5, 1997)

    10.7     General Description of Nationwide Insurance Enterprise Executive Incentive Plan (Incorporated by
                reference to Exhibit 10.9 to Form S-1, Registration Number 333-18527, filed March 5, 1997)

    10.8     General Description of Nationwide Insurance Enterprise Management Incentive Plan (Incorporated
                by reference to Exhibit 10.10 to Form S-1, Registration Number 333-18527, filed March 5, 1997)

    10.9     Nationwide Insurance Enterprise Excess Benefit Plan effective as of December 31, 1996 
                (Incorporated by reference to Exhibit 10.11 to Form S-1, Registration Number 333-18527, 
                filed March 5, 1997)

    10.10    Nationwide Insurance Enterprise Supplemental Retirement Plan effective as of December 31, 1996 
                (Incorporated by reference to Exhibit 10.12 to Form S-1, Registration Number 333-18527, filed
                March 5, 1997)

    10.11    Nationwide Salaried Employees Severance Pay Plan (Incorporated by reference to Exhibit 10.13 to
                Form S-1, Registration Number 333-18527, filed March 5, 1997)

    10.12    Nationwide Insurance Enterprise Supplemental Defined  Contribution Plan effective as of 
                January 1, 1996 (Incorporated by reference to Exhibit 10.14 to Form S-1, Registration 
                Number 333-18527, filed March 5, 1997)

    10.13    General Description of Nationwide Insurance Enterprise Individual Deferred Compensation Program
                (Incorporated by reference to Exhibit 10.15 to Form S-1, Registration Number 333-18527, filed
                March 5, 1997)

    10.14    General Description of Nationwide Mutual Insurance Company Directors Deferred Compensation
                Program (Incorporated by reference to Exhibit 10.16 to Form S-1, Registration Number 333-18527,
                filed March 5, 1997)

    10.15    Deferred Compensation Agreement, dated as of September 3, 1979, between Nationwide Mutual 
                Insurance Company and D. Richard McFerson (Incorporated by reference to Exhibit 10.11 to Form
                S-1, Registration Number 333-18527, filed March 5, 1997)

    21       Subsidiaries of the Registrant                                                                           E-10
    27.1     Financial Data Schedule - 1996
    27.2     Restated Financial Data Schedule - 1995
    27.3     Restated Financial Data Schedule - 1994
<FN>

----------
                  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.
</TABLE>

                                      E-1