<PAGE>   1
                          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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.





                                                         KPMG Peat Marwick LLP



Columbus, Ohio
January 30, 1998


                                       F-1


<PAGE>   2



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

                           Consolidated Balance Sheets

                            (in millions of dollars)

<TABLE>
<CAPTION>

                                                                                                   December 31,
                                                                                        -----------------------------------
                                        ASSETS                                                1997               1996
                                        ------
                                                                                        -----------------   ---------------
<S>                                                                                        <C>                 <C>
Investments:
  Securities available-for-sale, at fair value:
    Fixed maturity securities                                                               $13,204.1           $12,304.6
    Equity securities                                                                            80.4                59.1
  Mortgage loans on real estate, net                                                          5,181.6             5,272.1
  Real estate, net                                                                              311.4               265.8
  Policy loans                                                                                  415.3               371.8
  Other long-term investments                                                                    25.2                28.7
  Short-term investments                                                                        358.4                 4.8
                                                                                           ----------           ---------
                                                                                             19,576.4            18,306.9
                                                                                           ----------           ---------

Cash                                                                                            175.6                43.8
Accrued investment income                                                                       210.5               210.2
Deferred policy acquisition costs                                                             1,665.4             1,366.5
Investment in subsidiaries classified as discontinued operations                                  -                 485.7
Other assets                                                                                    438.4               426.5
Assets held in Separate Accounts                                                             37,724.4            26,926.7
                                                                                           ----------           ---------
                                                                                            $59,790.7           $47,766.3
                                                                                           ==========           =========

                         LIABILITIES AND SHAREHOLDER'S EQUITY
                         ------------------------------------

Future policy benefits and claims                                                           $18,702.8           $17,600.6
Other liabilities                                                                               885.6             1,101.1
Liabilities related to Separate Accounts                                                     37,724.4            26,926.7
                                                                                           ----------           ---------
                                                                                             57,312.8            45,628.4
                                                                                           ----------           ---------

Commitments and contingencies (notes 7 and 13)

Shareholder's equity:
  Common stock, $1 par value.  Authorized 5.0 million shares;
    3.8 million shares issued and outstanding                                                     3.8                 3.8
  Additional paid-in capital                                                                    914.7               527.9
  Retained earnings                                                                           1,312.3             1,432.6
  Unrealized gains on securities available-for-sale, net                                        247.1               173.6
                                                                                           ----------           ---------
                                                                                              2,477.9             2,137.9
                                                                                           ----------           ---------
                                                                                            $59,790.7           $47,766.3
                                                                                           ==========           =========

</TABLE>


See accompanying notes to consolidated financial statements.



                                      F-2


<PAGE>   3


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

                        Consolidated Statements of Income

                            (in millions of dollars)


<TABLE>
<CAPTION>
                                                                                        Years ended December 31,
                                                                              ---------------------------------------------
                                                                                  1997            1996           1995
                                                                              -------------   -------------  --------------

<S>                                                                            <C>             <C>            <C>
Revenues:
  Investment product and universal life insurance product policy charges       $   545.2       $   400.9      $   286.6
  Traditional life insurance premiums                                              205.4           198.6          199.1
  Net investment income                                                          1,409.2         1,357.8        1,294.0
  Realized gains (losses) on investments                                            11.1            (0.3)          (1.7)
  Other                                                                             46.5            35.9           20.7
                                                                              ----------      ----------     ----------
                                                                                 2,217.4         1,992.9        1,798.7
                                                                              ----------      ----------     ----------
Benefits and expenses:
  Interest credited to policyholder account balances                             1,016.6           982.3          950.3
  Other benefits and claims                                                        178.2           178.3          165.2
  Policyholder dividends on participating policies                                  40.6            41.0           39.9
  Amortization of deferred policy acquisition costs                                167.2           133.4           82.7
  Other operating expenses                                                         384.9           342.4          273.0
                                                                              ----------      ----------     ----------
                                                                                 1,787.5         1,677.4        1,511.1
                                                                              ----------      ----------     ----------

    Income from continuing operations before federal income tax expense            429.9           315.5          287.6

Federal income tax expense                                                         150.2           110.9           99.8
                                                                              ----------      ----------     ----------

    Income from continuing operations                                              279.7           204.6          187.8

Income from discontinued operations (less federal income tax expense
  of $4.5 and $7.4 in 1996 and 1995, respectively)                                   -              11.3           24.7
                                                                              ----------      ----------     ----------

    Net income                                                                 $   279.7       $   215.9      $   212.5
                                                                              ==========      ==========     ==========
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-3


<PAGE>   4


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

                 Consolidated Statements of Shareholder's Equity

                            (in millions of dollars)


<TABLE>
<CAPTION>
                                                                                          Unrealized
                                                                                            gains
                                                                                           (losses)
                                                           Additional                   on securities       Total
                                                Common       paid-in       Retained       available-    shareholder's
                                                 stock       capital       earnings     for-sale, net       equity
                                              ----------- ------------- -------------- ---------------- -------------
<S>                                           <C>           <C>           <C>              <C>            <C>
December 31, 1994                                 $3.8       $ 606.2       $1,378.2         $(119.7)       $1,868.5

  Capital contribution                             -            51.0            -              (4.1)           46.9
  Net income                                       -             -            212.5             -             212.5
  Dividends to shareholder                         -             -             (7.5)            -              (7.5)
  Unrealized gains on securities available-
    for-sale, net                                  -             -              -             508.1           508.1
                                              --------      --------       --------        --------       ---------
December 31, 1995                                  3.8         657.2        1,583.2           384.3          2628.5

  Net income                                       -             -            215.9             -             215.9
  Dividends to shareholder                         -          (129.3)        (366.5)          (39.8)         (535.6)
  Unrealized losses on securities available-
    for-sale, net                                  -             -              -            (170.9)         (170.9)
                                              --------      --------       --------        --------       ---------
December 31, 1996                                  3.8         527.9        1,432.6           173.6         2,137.9

  Capital contribution                             -           836.8            -               -             836.8
  Net income                                       -             -            279.7             -             279.7
  Dividends to shareholder                         -          (450.0)        (400.0)            -            (850.0)
  Unrealized gains on securities available-
    for-sale, net                                  -             -              -              73.5            73.5
                                              --------      --------       --------        --------       ---------
December 31, 1997                                 $3.8       $ 914.7       $1,312.3         $ 247.1        $2,477.9
                                              ========      ========       ========        ========       =========

</TABLE>



See accompanying notes to consolidated financial statements.



                                      F-4




<PAGE>   5


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

                      Consolidated Statements of Cash Flows

                            (in millions of dollars)

<TABLE>
<CAPTION>

                                                                                           Years ended December 31,
                                                                                ----------------------------------------------
                                                                                     1997           1996            1995
                                                                                ------------------------------ ---------------
<S>                                                                                  <C>            <C>             <C>

Cash flows from operating activities:
  Net income                                                                     $    279.7      $   215.9       $   212.5
  Adjustments to reconcile net income to net cash provided by operating
    activities:
      Interest credited to policyholder account balances                            1,016.6          982.3           950.3
      Capitalization of deferred policy acquisition costs                            (487.9)        (422.6)         (321.3)
      Amortization of deferred policy acquisition costs                               167.2          133.4            82.7
      Amortization and depreciation                                                    (2.0)           7.0            10.2
      Realized (gains) losses on invested assets, net                                 (11.1)          (0.3)            3.3
      (Increase) decrease in accrued investment income                                 (0.3)           2.8           (16.9)
      (Increase) decrease in other assets                                             (12.7)         (38.9)           39.9
      (Decrease) increase in policy liabilities                                       (23.1)        (151.0)          123.9
      Increase in other liabilities                                                   230.6          191.4            27.0
      Other, net                                                                      (10.9)         (61.7)            1.8
                                                                                -----------      ---------        --------
        Net cash provided by operating activities                                   1,146.1          858.3         1,113.4
                                                                                -----------      ---------        --------

Cash flows from investing activities:
  Proceeds from maturity of securities available-for-sale                             993.4        1,162.8           634.6
  Proceeds from sale of securities available-for-sale                                 574.5          299.6           107.3
  Proceeds from maturity of fixed maturity securities held-to-maturity                  -              -             564.4
  Proceeds from repayments of mortgage loans on real estate                           437.3          309.0           207.8
  Proceeds from sale of real estate                                                    34.8           18.5            48.3
  Proceeds from repayments of policy loans and sale of other invested assets           22.7           22.8            53.6
  Cost of securities available-for-sale acquired                                   (2,828.1)      (1,573.6)       (1,942.4)
  Cost of fixed maturity securities held-to-maturity acquired                           -              -            (593.6)
  Cost of mortgage loans on real estate acquired                                     (752.2)        (972.8)         (796.0)
  Cost of real estate acquired                                                        (24.9)          (7.9)          (10.9)
  Policy loans issued and other invested assets acquired                              (62.5)         (57.7)          (75.9)
  Short-term investments, net                                                        (354.8)          28.0            77.8
                                                                                -----------      ---------        --------
        Net cash used in investing activities                                      (1,959.8)        (771.3)       (1,725.0)
                                                                                -----------      ---------        --------

Cash flows from financing activities:
  Proceeds from capital contributions                                                 836.8            -               -
  Cash dividends paid                                                                   -            (50.0)           (7.5)
  Increase in investment product and universal life insurance
    product account balances                                                        2,488.5        1,781.8         1,883.7
  Decrease in investment product and universal life insurance
    product account balances                                                       (2,379.8)      (1,784.5)       (1,258.7)
                                                                                -----------      ---------        --------
        Net cash provided by (used in) financing activities                           945.5          (52.7)          617.5
                                                                                -----------      ---------        --------
Net increase in cash                                                                  131.8           34.3             5.9

Cash, beginning of year                                                                43.8            9.5             3.6
                                                                                -----------      ---------        --------

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

See accompanying notes to consolidated financial statements.



                                      F-5


<PAGE>   6

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

                   Notes to Consolidated Financial Statements

                        December 31, 1997, 1996 and 1995


(1)      ORGANIZATION AND DESCRIPTION OF BUSINESS

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

         During 1996 and 1997, Nationwide Corp. and NFS completed certain
         transactions in anticipation of the initial public offering that
         focused the business of NFS on long-term savings and retirement
         products. On September 24, 1996, NLIC declared a dividend payable to
         Nationwide Corp. on January 1, 1997 consisting of the outstanding
         shares of common stock of certain subsidiaries that do not offer or
         distribute long-term savings or retirement products. In addition,
         during 1996, NLIC entered into two reinsurance agreements whereby all
         of NLIC's accident and health and group life insurance business was
         ceded to two affiliates effective January 1, 1996. These subsidiaries,
         through December 31, 1996, and all accident and health and group life
         insurance business have been accounted for as discontinued operations
         for all periods presented. See notes 11 and 15. Additionally, NLIC paid
         $900.0 million of dividends, $50.0 million to Nationwide Corp. on
         December 31, 1996 and $850.0 million to NFS, which then made an
         equivalent dividend to Nationwide Corp., on February 24, 1997.

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

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

         The Company is a leading provider of long-term savings and retirement
         products. The Company is subject to regulation by the Insurance
         Departments of states in which it is licensed, and undergoes periodic
         examinations by those departments.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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


                                      F-6

<PAGE>   7


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

              Notes to Consolidated Financial Statements, Continued

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

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

         (a)  CONSOLIDATION POLICY

              The consolidated financial statements include the accounts of NLIC
              and its wholly owned subsidiaries. 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 from
              discontinued operations" in the accompanying consolidated
              statements of income. All significant intercompany balances and
              transactions have been eliminated.

         (b)  VALUATION OF INVESTMENTS AND RELATED GAINS AND LOSSES

              The Company is required to classify its fixed maturity securities
              and equity securities as either held-to-maturity,
              available-for-sale or trading. Fixed maturity securities are
              classified as held-to-maturity when the Company has the positive
              intent and ability to hold the securities to maturity and are
              stated at amortized cost. Fixed maturity securities not classified
              as held-to-maturity and all equity securities are classified as
              available-for-sale and are stated at fair value, with the
              unrealized gains and losses, net of adjustments to deferred policy
              acquisition costs and deferred federal income tax, reported as a
              separate component of shareholder's equity. The adjustment to
              deferred policy acquisition costs represents the change in
              amortization of deferred policy acquisition costs that would have
              been required as a charge or credit to operations had such
              unrealized amounts been realized. The Company has no fixed
              maturity securities classified as held-to-maturity or trading as
              of December 31, 1997 or 1996.

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

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

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

                                      F-7

<PAGE>   8



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

              Notes to Consolidated Financial Statements, Continued


         (c)  REVENUES AND BENEFITS

              INVESTMENT PRODUCTS AND UNIVERSAL LIFE INSURANCE PRODUCTS:
              Investment products consist primarily of individual and group
              variable and fixed annuities. 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.

         (d)  DEFERRED POLICY ACQUISITION COSTS

              The costs of acquiring new business, principally commissions,
              certain expenses of the policy issue and underwriting department
              and certain variable sales expenses have been deferred. For
              investment products and universal life insurance products,
              deferred policy acquisition costs are being amortized with
              interest over the lives of the policies in relation to the present
              value of estimated future gross profits from projected interest
              margins, asset fees, cost of insurance, policy administration and
              surrender charges. For years in which gross profits are negative,
              deferred policy acquisition costs are amortized based on the
              present value of gross revenues. Deferred policy acquisition costs
              are adjusted to reflect the impact of unrealized gains and losses
              on fixed maturity securities available-for-sale as described in
              note 2(b). For traditional life insurance products, these deferred
              policy acquisition costs are predominantly being amortized with
              interest over the premium paying period of the related policies in
              proportion to the ratio of actual annual premium revenue to the
              anticipated total premium revenue. Such anticipated premium
              revenue was estimated using the same assumptions as were used for
              computing liabilities for future policy benefits.

         (e)  SEPARATE ACCOUNTS

              Separate Account assets and liabilities represent contractholders'
              funds which have been segregated into accounts with specific
              investment objectives. For all but $365.5 million of separate
              account assets, the investment income and gains or losses of these
              accounts accrue directly to the contractholders. The activity of
              the Separate Accounts is not reflected in the consolidated
              statements of income and cash flows except for the fees the
              Company receives.

         (f)  FUTURE POLICY BENEFITS

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

              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 4.


                                      F-8
<PAGE>   9


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

              Notes to Consolidated Financial Statements, Continued


         (g)  PARTICIPATING BUSINESS

              Participating business represents approximately 50% in 1997 (52%
              in 1996 and 54% in 1995) of the Company's life insurance in force,
              77% in 1997 (78% in 1996 and 79% in 1995) of the number of life
              insurance policies in force, and 27% in 1997 (40% in 1996 and 47%
              in 1995) of life insurance statutory premiums. The provision for
              policyholder dividends is based on current dividend scales and is
              included in "Future policy benefits and claims" in the
              accompanying consolidated balance sheets.

         (h)  FEDERAL INCOME TAX

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

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

         (i)  REINSURANCE CEDED

              Reinsurance premiums ceded and reinsurance recoveries on benefits
              and claims incurred are deducted from the respective income and
              expense accounts. Assets and liabilities related to reinsurance
              ceded are reported on a gross basis. All of the Company's accident
              and health and group life insurance business is ceded to
              affiliates and is accounted for as discontinued operations. See
              notes 11 and 15.

         (j)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

              STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 130 - REPORTING
              COMPREHENSIVE INCOME was issued in June 1997 and is effective for
              fiscal years beginning after December 15, 1997. The statement
              establishes standards for reporting and display of comprehensive
              income and its components in a full set of financial statements.
              Comprehensive income includes all changes in equity during a
              period except those resulting from investments by shareholders and
              distributions to shareholders and includes net income.
              Comprehensive income would be reported in addition to earnings
              amounts currently presented. The Company will adopt the statement
              and begin reporting comprehensive income in the first quarter of
              1998.

         (k)  RECLASSIFICATION

              Certain items in the 1996 and 1995 consolidated financial
              statements have been reclassified to conform to the 1997
              presentation.

                                      F-9

<PAGE>   10


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

              Notes to Consolidated Financial Statements, Continued




(3)      INVESTMENTS

         The amortized cost, gross unrealized gains and losses and estimated
         fair value of securities available-for-sale as of December 31, 1997 and
         1996 were:
<TABLE>
<CAPTION>

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

             December 31, 1996:
               Fixed maturity securities:
                 U.S. Treasury securities and obligations of U.S.
                   government corporations and agencies            $     275.7    $     4.8      $   (1.3)     $     279.2
                 Obligations of states and political subdivisions          6.2          0.5           -                6.7
                 Debt securities issued by foreign governments           100.7          2.1          (0.9)           101.9
                 Corporate securities                                  7,999.3        285.9         (33.7)         8,251.5
                 Mortgage-backed securities                            3,589.0         91.4         (15.1)         3,665.3
                                                                  ------------    ---------     ---------      -----------
                     Total fixed maturity securities                  11,970.9        384.7         (51.0)        12,304.6
               Equity securities                                          43.9         15.6          (0.4)            59.1
                                                                  ------------    ---------     ---------      -----------
                                                                   $  12,014.8    $   400.3      $  (51.4)     $  12,363.7
                                                                  ============    =========     =========      ===========
</TABLE>


         The amortized cost and estimated fair value of fixed maturity
         securities available-for-sale as of December 31, 1997, 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
             (in millions of dollars)                                               cost          fair value
                                                                              --------------      ----------
<S>                                                                               <C>              <C>
             Fixed maturity securities available for sale:
               Due in one year or less                                            $     419.2      $     422.1
               Due after one year through five years                                  4,573.5          4,708.4
               Due after five years through ten years                                 2,772.6          2,879.7
               Due after ten years                                                    1,333.4          1,443.6
                                                                                  -----------      -----------
                                                                                      9,098.7          9,453.8
             Mortgage-backed securities                                               3,634.2          3,750.3
                                                                                  -----------      -----------
                                                                                  $  12,732.9      $  13,204.1
                                                                                  ===========      ===========
</TABLE>

                                      F-10

<PAGE>   11

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

              Notes to Consolidated Financial Statements, Continued


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

<TABLE>
<CAPTION>

             (in millions of dollars)                                                1997          1996
                                                                                 -----------     ----------
<S>                                                                                  <C>            <C>
             Gross unrealized gains                                                 $ 483.8        $349.0
             Adjustment to deferred policy acquisition costs                         (103.7)        (81.9)
             Deferred federal income tax                                             (133.0)        (93.5)
                                                                                   --------       -------
                                                                                    $ 247.1        $173.6
                                                                                   ========       =======
</TABLE>

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


             (in millions of dollars)                                         1997          1996           1995
                                                                          -----------   -------------   -----------
<S>                                                                          <C>           <C>            <C>
             Securities available-for-sale:
               Fixed maturity securities                                      $137.5       $(289.2)       $876.3
               Equity securities                                                (2.7)          8.9           -
             Fixed maturity securities held-to-maturity                          -             -            75.6
                                                                             -------       -------       -------
                                                                              $134.8       $(280.3)      $ 951.9
                                                                             =======       =======       =======
</TABLE>

         Proceeds from the sale of securities available-for-sale during 1997,
         1996 and 1995 were $574.5 million, $299.6 million and $107.3 million,
         respectively. During 1997, gross gains of $9.9 million ($6.6 million
         and $4.8 million in 1996 and 1995, respectively) and gross losses of
         $18.0 million ($6.9 million and $2.1 million in 1996 and 1995,
         respectively) were realized on those sales. In addition, gross gains of
         $15.1 million and gross losses of $0.7 million were realized in 1997
         when the Company paid a dividend to NFS, which then made an equivalent
         dividend to Nationwide Corp., consisting of securities having an
         aggregate fair value of $850.0 million.

         During 1995, the Company transferred fixed maturity securities
         classified as held-to-maturity with amortized cost of $25.4 million 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 $3.5
         million.

         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 nearly 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 $3.32 billion,
         resulting in a gross unrealized gain of $155.9 million.

         The recorded investment of mortgage loans on real estate considered to
         be impaired as of December 31, 1997 was $19.9 million ($51.8 million as
         of December 31, 1996), which includes $3.9 million ($41.7 million as of
         December 31, 1996) of impaired mortgage loans on real estate for which
         the related valuation allowance was $0.1 million ($8.5 million as of
         December 31, 1996) and $16.0 million ($10.1 million as of December 31,
         1996) of impaired mortgage loans on real estate for which there was no
         valuation allowance. During 1997, the average recorded investment in
         impaired mortgage loans on real estate was approximately $31.8 million
         ($39.7 million in 1996) and interest income recognized on those loans
         was $1.0 million ($2.1 million in 1996), which is equal to interest
         income recognized using a cash-basis method of income recognition.

                                      F-11

<PAGE>   12


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

              Notes to Consolidated Financial Statements, Continued


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

             (in millions of dollars)                                               1997          1996
                                                                                ------------- -------------
<S>                                                                                <C>            <C>
             Allowance, beginning of year                                            $51.0         $49.1
               (Reductions) additions charged to operations                           (1.2)          4.5
               Direct write-downs charged against the allowance                       (7.3)         (2.6)
                                                                                    ------        ------
             Allowance, end of year                                                  $42.5         $51.0
                                                                                    ======        ======
</TABLE>

         Real estate is presented at cost less accumulated depreciation of $45.1
         million as of December 31, 1997 ($30.3 million as of December 31, 1996)
         and valuation allowances of $11.1 million as of December 31, 1997
         ($15.2 million as of December 31, 1996).

         Investments that were non-income producing for the twelve month period
         preceding December 31, 1997 amounted to $19.4 million ($26.8 million
         for 1996) and consisted of $3.0 million ($0.2 million in 1996) in
         securities available-for-sale, $16.4 million ($20.6 million in 1996) in
         real estate and none ($5.9 million in 1996) in other long-term
         investments.

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

<TABLE>
<CAPTION>
             (in millions of dollars)                                      1997             1996           1995
                                                                        -----------      ---------      ---------
<S>                                                                      <C>             <C>            <C>
             Gross investment income:
               Securities available-for-sale:
                 Fixed maturity securities                                $  911.6        $  917.1       $  685.8
                 Equity securities                                             0.8             1.3            1.3
               Fixed maturity securities held-to-maturity                      -               -            201.8
               Mortgage loans on real estate                                 457.7           432.8          395.5
               Real estate                                                    42.9            44.3           38.3
               Short-term investments                                         22.7             4.2           10.6
               Other                                                          21.0             4.0            7.2
                                                                          --------        --------       --------
                   Total investment income                                 1,456.7         1,403.7        1,340.5
             Less investment expenses                                         47.5            45.9           46.5
                                                                          --------        --------       --------
                   Net investment income                                  $1,409.2        $1,357.8       $1,294.0
                                                                          ========        ========       ========
</TABLE>

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

             (in millions of dollars)                                       1997            1996           1995
                                                                         ---------       ---------       --------
<S>                                                                           <C>            <C>            <C>
             Securities available-for-sale:
               Fixed maturity securities                                    $ 3.6           $(3.5)         $ 4.2
               Equity securities                                              2.7             3.2            3.4
             Mortgage loans on real estate                                    1.6            (4.1)          (7.1)
             Real estate and other                                            3.2             4.1           (2.2)
                                                                           ------          ------         ------
                                                                            $11.1           $(0.3)         $(1.7)
                                                                           ======          ======         ======
</TABLE>

         Fixed  maturity securities with an amortized cost of $6.2 million as
         of  December  31,  1997 and 1996 were on deposit with various
         regulatory agencies as required by law.

                                      F-12

<PAGE>   13



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

              Notes to Consolidated Financial Statements, Continued


(4)      FUTURE POLICY BENEFITS AND CLAIMS

         The liability for future policy benefits for investment contracts
         represents approximately 86% and 87% of the total liability for future
         policy benefits as of December 31, 1997 and 1996, respectively. The
         average interest rate credited on investment product policies was
         approximately 6.1%, 6.3% and 6.6% for the years ended December 31,
         1997, 1996 and 1995, 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 by issue year and were 6.9%
              and 6.6% in 1997 and 1996, respectively. Interest rates have
              generally ranged from 6.0% to 10.5% for previous issue years.

              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
         $220.2 million and $240.5 million as of December 31, 1997 and 1996,
         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 11. All other reinsurance agreements are not material
         to either premiums or reinsurance recoverables.


(5)      FEDERAL INCOME TAX

         The  Company's current federal income tax liability was $60.1 million
         and $30.2 million as of December 31, 1997 and 1996, respectively.

                                      F-13

<PAGE>   14


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

              Notes to Consolidated Financial Statements, Continued


         The tax effects of temporary differences that give rise to significant
         components of the net deferred tax liability as of December 31, 1997
         and 1996 are as follows:
<TABLE>
<CAPTION>

             (in millions of dollars)                                        1997            1996
                                                                          ----------      ----------
<S>                                                                        <C>             <C>
             Deferred tax assets:
               Future policy benefits                                       $200.1          $183.0
               Liabilities in Separate Accounts                              242.0           188.4
               Mortgage loans on real estate and real estate                  19.0            23.4
               Other assets and other liabilities                             59.2            53.7
                                                                           -------          ------
                 Total gross deferred tax assets                             520.3           448.5
                 Less valuation allowance                                     (7.0)           (7.0)
                                                                           -------          ------
                 Net deferred tax assets                                     513.3           441.5
                                                                           -------          ------

             Deferred tax liabilities:
               Deferred policy acquisition costs                             480.5           399.3
               Fixed maturity securities                                     193.3           133.2
               Deferred tax on realized investment gains                      40.1            37.6
               Equity securities and other long-term investments               7.5             8.2
               Other                                                          22.2            25.4
                                                                           -------          ------
                 Total gross deferred tax liabilities                        743.6           603.7
                                                                           -------          ------
                 Net deferred tax liability                                 $230.3          $162.2
                                                                           =======          ======
</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, 1997, 1996 and 1995.

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

<TABLE>
<CAPTION>
           (in millions of dollars)                                   1997            1996            1995
                                                                   ---------       ---------       ---------
<S>                                                                 <C>             <C>             <C>
           Currently payable                                         $121.7          $116.5           $88.7
           Deferred tax expense (benefit)                              28.5            (5.6)           11.1
                                                                     ------          ------          ------
                                                                     $150.2          $110.9           $99.8
                                                                     ======          ======          ======
</TABLE>

         Total federal income tax expense for the years ended December 31, 1997,
         1996 and 1995 differs from the amount computed by applying the U.S.
         federal income tax rate to income before tax as follows:
<TABLE>
<CAPTION>

                                                           1997                     1996                     1995
                                                   ----------------------   ----------------------   ----------------------
         (in millions of dollars)                     Amount        %          Amount        %          Amount        %
                                                   ----------------------   ------------- --------   ------------- --------
<S>                                                   <C>         <C>          <C>         <C>          <C>         <C>
         Computed (expected) tax expense               $150.5      35.0         $110.4      35.0         $100.6      35.0
         Tax exempt interest and dividends
           received deduction                             -         0.0           (0.2)     (0.1)           -         0.0
         Other, net                                      (0.3)     (0.1)           0.7       0.3           (0.8)     (0.3)
                                                       ------      ----         ------      ----         ------      ----
             Total (effective rate of each year)       $150.2      34.9         $110.9      35.2         $ 99.8      34.7
                                                       ======      ====         ======      ====         ======      ====
</TABLE>

         Total federal income tax paid was $91.8 million,  $115.8 million and
         $51.8 million during the years ended December 31, 1997, 1996 and 1995,
         respectively.

                                      F-14


<PAGE>   15


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

              Notes to Consolidated Financial Statements, Continued


(6)      FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

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

              FIXED MATURITY AND EQUITY SECURITIES: The fair value for fixed
              maturity securities is based on quoted market prices, where
              available. For fixed maturity securities not actively traded, fair
              value is estimated using values obtained from independent pricing
              services or, in the case of private placements, is estimated by
              discounting expected future cash flows using a current market rate
              applicable to the yield, credit quality and maturity of the
              investments. The fair value for equity securities is based on
              quoted market prices.

              MORTGAGE LOANS ON REAL ESTATE, NET: The fair value for mortgage
              loans on real estate is estimated using discounted cash flow
              analyses, using interest rates currently being offered for similar
              loans to borrowers with similar credit ratings. Loans with similar
              characteristics are aggregated for purposes of the calculations.
              Fair value for mortgage loans in default is the estimated fair
              value of the underlying collateral.

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

              SEPARATE ACCOUNT ASSETS AND LIABILITIES: The fair value of assets
              held in Separate Accounts is based on quoted market prices. The
              fair value of liabilities related to Separate Accounts is the
              amount payable on demand, which includes certain surrender
              charges.

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


                                      F-15
<PAGE>   16

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

              Notes to Consolidated Financial Statements, Continued


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

              COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit have
              nominal fair value because of the short-term nature of such
              commitments. See note 13.

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


                                                                         1997                              1996
                                                             ------------------------------   -------------------------------
                                                                Carrying      Estimated          Carrying       Estimated
               (in millions of dollars)                          amount       fair value          amount        fair value
                                                             ------------------------------   --------------- ---------------

<S>                                                             <C>            <C>               <C>             <C>
               Assets:
                 Investments:
                   Securities available-for-sale:
                     Fixed maturity securities                  $13,204.1      $13,204.1         $12,304.6       $12,304.6
                     Equity securities                               80.4           80.4              59.1            59.1
                   Mortgage loans on real estate, net             5,181.6        5,509.7           5,272.1         5,397.9
                   Policy loans                                     415.3          415.3             371.8           371.8
                   Short-term investments                           358.4          358.4               4.8             4.8
                 Cash                                               175.6          175.6              43.8            43.8
                 Assets held in Separate Accounts                37,724.4       37,724.4          26,926.7        26,926.7

               Liabilities:
                 Investment contracts                            14,708.2       14,322.1          13,914.4        13,484.5
                 Policy reserves on life insurance contracts      3,345.4        3,182.4           3,392.8         3,197.5
                 Liabilities related to Separate Accounts        37,724.4       36,747.0          26,926.7        26,164.2


</TABLE>


(7)      RISK DISCLOSURES

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

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

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

                                      F-16

<PAGE>   17

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

              Notes to Consolidated Financial Statements, Continued


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

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

         Commitments to fund fixed rate mortgage loans on real estate are
         agreements to lend to a borrower, and are subject to conditions
         established in the contract. Commitments generally have fixed
         expiration dates or other termination clauses and may require payment
         of a deposit. Commitments extended by the Company are based on
         management's case-by-case credit evaluation of the borrower and the
         borrower's loan collateral. The underlying mortgage property represents
         the collateral if the commitment is funded. The Company's policy for
         new mortgage loans on real estate is to lend no more than 75% of
         collateral value. Should the commitment be funded, the Company's
         exposure to credit loss in the event of nonperformance by the borrower
         is represented by the contractual amounts of these commitments less the
         net realizable value of the collateral. The contractual amounts also
         represent the cash requirements for all unfunded commitments.
         Commitments on mortgage loans on real estate of $341.4 million
         extending into 1998 were outstanding as of December 31, 1997. The
         Company also had $63.9 million of commitments to purchase fixed
         maturity securities outstanding as of December 31, 1997.

         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 20% (21% in 1996) in any geographic area and no more than 2% (2%
         in 1996) with any one borrower as of December 31, 1997. As of December
         31, 1997, 46% (44% in 1996) of the remaining principal balance of the
         Company's commercial mortgage loan portfolio financed retail
         properties.

         The Company had a significant reinsurance recoverable balance from one
         reinsurer as of December 31, 1997 and 1996. See note 4.

(8)      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 year of service. 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.


                                      F-17
<PAGE>   18

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

              Notes to Consolidated Financial Statements, Continued


         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 (the 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, 1997,  1996 and 1995 were $7.5 million, $7.4
         million and $10.5 million, respectively.

         The Company had no net accrued pension expense as of December 31, 1997
         ($1.1 million as of December 31, 1996).

         The net periodic pension cost for the Retirement Plan as a whole for
         the years ended December 31, 1997 and 1996 and for the Nationwide
         Insurance Companies and Affiliates Retirement Plan as a whole for the
         year ended December 31, 1995 follows:
<TABLE>
<CAPTION>

              (in millions of dollars)                                   1997             1996              1995
                                                                     -----------      -----------       -----------

<S>                                                                   <C>              <C>               <C>
              Service cost (benefits earned during the period)        $   77.3         $   75.5          $   64.5
              Interest cost on projected benefit obligation              118.6            105.5              95.3
              Actual return on plan assets                              (328.0)          (210.6)           (249.3)
              Net amortization and deferral                              196.4            101.8             143.4
                                                                      --------         --------          --------
                                                                      $   64.3         $   72.2          $   53.9
                                                                      ========         ========          ========
</TABLE>

         Basis for measurements, net periodic pension cost:

<TABLE>
<CAPTION>

                                                                        1997             1996              1995
                                                                    -----------      -----------       -----------

<S>                                                                    <C>              <C>               <C>
              Weighted average discount rate                           6.50%            6.00%             7.50%
              Rate of increase in future compensation levels           4.75%            4.25%             6.25%
              Expected long-term rate of return on plan assets         7.25%            6.75%             8.75%
</TABLE>

         Information regarding the funded status of the Retirement Plan as a
         whole as of  December  31,  1997 and 1996 follows:
<TABLE>
<CAPTION>

              (in millions of dollars)                                           1997              1996
                                                                             -----------       -----------
<S>                                                                           <C>               <C>
              Accumulated benefit obligation:
                Vested                                                         $1,547.5          $1,338.6
                Nonvested                                                          13.5              11.1
                                                                               --------         ---------
                                                                               $1,561.0          $1,349.7
                                                                               ========         =========

              Net accrued pension expense:
                Projected benefit obligation for services rendered to date     $2,033.8          $1,847.8
                Plan assets at fair value                                       2,212.9           1,947.9
                                                                              ---------         ---------
                  Plan assets in excess of projected benefit obligation           179.1             100.1
                Unrecognized prior service cost                                    34.7              37.9
                Unrecognized net gains                                           (330.7)           (202.0)
                Unrecognized net asset at transition                               33.3              37.2
                                                                              ---------         ---------
                                                                              $   (83.6)        $   (26.8)
                                                                              =========         =========
</TABLE>
                                      F-18

<PAGE>   19


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

              Notes to Consolidated Financial Statements, Continued


         Basis for measurements, funded status of plan:
<TABLE>
<CAPTION>

                                                                                1997              1996
                                                                             -----------       -----------

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

</TABLE>
         Assets of the Retirement Plan are invested in group annuity contracts
         of NLIC and Employers Life Insurance Company of Wausau (ELICW).

(9)      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 (APBO), however, certain affiliated
         companies elected to amortize their initial transition obligation over
         periods ranging from 10 to 20 years.

         The Company's accrued postretirement benefit expense as of December 31,
         1997 and 1996 was $36.5 million and $34.9 million, respectively, and
         the net periodic postretirement benefit cost (NPPBC) for 1997, 1996 and
         1995 was $3.0 million, $3.3 million and $3.1 million, respectively.

         Information regarding the funded status of the plan as a whole as of
         December 31, 1997 and 1996 follows:

<TABLE>
<CAPTION>

             (in millions of dollars)                                                         1997             1996
                                                                                          -----------       -----------
<S>                                                                                        <C>               <C>
             Accrued postretirement benefit expense:
               Retirees                                                                    $   93.3          $   93.0
               Fully eligible, active plan participants                                        31.6              23.7
               Other active plan participants                                                 113.0              84.0
                                                                                           --------          --------
                 Accumulated postretirement benefit obligation                                237.9             200.7
               Plan assets at fair value                                                       69.2              63.0
                                                                                           --------          --------
                 Plan assets less than accumulated postretirement benefit obligation         (168.7)           (137.7)
               Unrecognized transition obligation of affiliates                                 1.5               1.7
               Unrecognized net losses (gains)                                                  1.6             (23.2)
                                                                                           --------          --------
                                                                                            $(165.6)          $(159.2)
                                                                                           ========          ========
</TABLE>

                                      F-19

<PAGE>   20


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

              Notes to Consolidated Financial Statements, Continued


         The amount of NPPBC for the plan as a whole for the years ended
         December 31, 1997, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
             (in millions of dollars)                            1997          1996          1995
                                                              -----------   ------------  ------------
<S>                                                                <C>           <C>           <C>
             Service cost (benefits attributed to employee
               service during the year)                          $  7.0        $  6.5        $  6.2
             Interest cost on accumulated postretirement
               benefit obligation                                  14.0          13.7          14.2
             Actual return on plan assets                          (3.6)         (4.3)         (2.7)
             Amortization of unrecognized transition
               obligation of affiliates                             0.2           0.2           3.0
             Net amortization and deferral                         (0.5)          1.8          (1.6)
                                                                -------        ------        ------
                                                                  $17.1         $17.9         $19.1
                                                                =======        ======        ======
</TABLE>

         Actuarial assumptions used for the measurement of the APBO and the
         NPPBC for 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>

                                                                 1997          1996          1995
                                                              -----------   -----------   -----------
<S>                                                           <C>           <C>           <C>
             APBO:
               Discount rate                                  6.70%         7.25%         6.75%
               Assumed health care cost trend rate:
                 Initial rate                                12.13%        11.00%        11.00%
                 Ultimate rate                                6.12%         6.00%         6.00%
                 Uniform declining period                   12 Years      12 Years      12 Years

             NPPBC:
               Discount rate                                  7.25%         6.65%         8.00%
               Long term rate of return on plan
                 assets, net of tax                           5.89%         4.80%         8.00%
               Assumed health care cost trend rate:
                 Initial rate                                11.00%        11.00%        10.00%
                 Ultimate rate                                6.00%         6.00%         6.00%
                 Uniform declining period                    12 Years      12 Years      12 Years
</TABLE>

         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,
         1997 by $0.4 million and have no impact on the NPPBC for the year ended
         December 31, 1997.

(10)     SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
         AND DIVIDEND RESTRICTIONS

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

                                      F-20

<PAGE>   21


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

              Notes to Consolidated Financial Statements, Continued


         The statutory capital and surplus of NLIC as of December 31, 1997, 1996
         and 1995 was $1.13 billion, $1.00 billion and $1.36 billion,
         respectively. The statutory net income of NLIC for the years ended
         December 31, 1997, 1996 and 1995 was $111.7 million, $73.2 million and
         $86.5 million, respectively.

         As a result of the $850.0 million dividend paid on February 24, 1997,
         any dividend paid by NLIC during the twelve-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. The Company has no reason to
         believe that any reasonably foreseeable dividend to be paid by NLIC
         would not receive the required 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 shareholder.

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

(11)     TRANSACTIONS WITH AFFILIATES

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

         The Company leases office space from NMIC and certain of its
         subsidiaries. For the years ended December 31, 1997, 1996 and 1995, the
         Company made lease payments to NMIC and its subsidiaries of $8.4
         million, $9.1 million and $9.0 million, respectively.

         Pursuant to a cost sharing agreement among NMIC and certain of its
         direct and indirect subsidiaries, including the Company, NMIC provides
         certain operational and administrative services, such as 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 $85.8 million, $101.6 million and $107.1
         million in 1997, 1996 and 1995, respectively. The allocations are based
         on techniques and procedures in accordance with insurance regulatory
         guidelines. Measures used to allocate expenses among companies include
         individual employee estimates of time spent, special cost studies,
         salary expense, commissions expense and other methods agreed to by the
         participating companies that are within industry guidelines and
         practices. The Company believes these allocation methods are
         reasonable. In addition, the Company does not believe that expenses
         recognized under the inter-company agreements are materially different
         than expenses that would have been recognized had the Company operated
         on a stand alone basis. Amounts payable to NMIC from the Company under
         the cost sharing agreement were $20.5 million and $15.1 million as of
         December 31, 1997 and 1996, 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 1997 and
         1996 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-21

<PAGE>   22

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

              Notes to Consolidated Financial Statements, Continued


         Intercompany reinsurance agreements exist between NLIC and,
         respectively, NMIC and ELICW whereby all of NLIC's accident and health
         and group life insurance business is ceded on a modified coinsurance
         basis. NLIC entered into the reinsurance agreements during 1996 because
         the accident and health and group life insurance business was unrelated
         to the Company's long-term savings and retirement products.
         Accordingly, the accident and health and group life insurance business
         has been accounted for as discontinued operations for all periods
         presented. Under modified coinsurance agreements, invested assets are
         retained by the ceding company and investment earnings are paid to the
         reinsurer. Under the terms of the Company's agreements, the investment
         risk associated with changes in interest rates is borne by ELICW or
         NMIC, as the case may be. Risk of asset default is retained by the
         Company, although a fee is paid by ELICW or NMIC, as the case may be,
         to the Company for the Company's retention of such risk. The agreements
         will remain in force until all policy obligations are settled. However,
         with respect to the agreement between NLIC and NMIC, either party may
         terminate the contract on January 1 of any year with prior notice. The
         ceding of risk does not discharge the original insurer from its primary
         obligation to the policyholder. The Company believes that the terms of
         the modified coinsurance agreements are consistent in all material
         respects with what the Company could have obtained with unaffiliated
         parties. Amounts ceded to NMIC and ELICW for the years ended December
         31, 1997 and 1996 were:

<TABLE>
<CAPTION>

                                                                   1997                          1996
                                                        ----------------------------  ----------------------------
             (in millions of dollars)                       NMIC          ELICW           NMIC          ELICW
                                                        -------------- -------------  ----------------------------
<S>                                                        <C>            <C>            <C>           <C>
             Premiums                                       $ 91.4         $199.8         $ 97.3        $224.2
             Net investment income and other revenue        $ 10.7         $ 13.4         $ 10.9        $ 14.8
             Benefits, claims and other expenses            $100.7         $225.9         $100.5        $246.6

</TABLE>

         The Company and various affiliates entered into agreements with
         Nationwide Cash Management Company (NCMC), an affiliate, under which
         NCMC acts as a common agent in handling the purchase and sale of
         short-term securities for the respective accounts of the participants.
         Amounts on deposit with NCMC were $211.0 million and $4.8 million as of
         December 31, 1997 and 1996, respectively, and are included in
         short-term investments on the accompanying consolidated balance sheets.

         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 $46.9 million. As discussed in note 15, WCLIC
         is accounted for as discontinued operations.

         Certain annuity products are sold through three affiliated companies,
         which are also subsidiaries of NFS. Total commissions and fees paid to
         these affiliates for the three years ended December 31, 1997 were $66.1
         million, $76.9 million and $57.3 million, respectively.

(12)     BANK LINES OF CREDIT

         In August 1996, NLIC, along with NMIC, entered into a $600.0 million
         revolving credit facility which provides for a $600.0 million loan over
         a five year term on a fully revolving basis with a group of national
         financial institutions. The credit facility provides for several and
         not joint liability with respect to any amount drawn by either NLIC or
         NMIC. NLIC and NMIC pay facility and usage fees to the financial
         institutions to maintain the revolving credit facility. All previously
         existing line of credit agreements were canceled. In September 1997,
         the credit agreement was amended to include NFS as a party to and
         borrower under the agreement.

                                      F-22

<PAGE>   23

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

              Notes to Consolidated Financial Statements, Continued


(13)     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.

(14)     SEGMENT INFORMATION

         The Company has three product segments: Variable Annuities, Fixed
         Annuities and Life Insurance. The Variable Annuities segment consists
         of annuity contracts that provide the customer with the opportunity to
         invest in mutual funds managed by 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 Fixed Annuities segment also includes the
         fixed option under the Company's variable annuity contracts. 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 and
         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.

         The following table summarizes revenues and income from continuing
         operations before federal income tax expense for the years ended
         December 31, 1997, 1996 and 1995 and assets as of December 31, 1997,
         1996 and 1995, by segment.
<TABLE>
<CAPTION>

              (in millions of dollars)                                         1997               1996             1995
                                                                           -------------      ------------     ------------
<S>                                                                         <C>               <C>              <C>
              Revenues:
                  Variable Annuities                                         $    404.0        $    284.6       $    189.1
                  Fixed Annuities                                               1,141.4           1,092.6          1,052.0
                  Life Insurance                                                  473.1             435.6            409.1
                  Corporate and Other                                             198.9             180.1            148.5
                                                                            -----------        ----------       ----------
                                                                             $  2,217.4        $  1,992.9       $  1,798.7
                                                                            ===========        ==========       ==========

              Income from continuing operations before federal income tax
                expense:
                  Variable Annuities                                         $    150.9        $     90.3       $     50.8
                  Fixed Annuities                                                 169.5             135.4            137.0
                  Life Insurance                                                   70.9              67.2             67.6
                  Corporate and Other                                              38.6              22.6             32.2
                                                                            -----------        ----------       ----------
                                                                             $    429.9        $    315.5       $    287.6
                                                                            ===========        ==========       ==========

              Assets:
                  Variable Annuities                                         $ 35,278.7        $ 25,069.7       $ 17,333.0
                  Fixed Annuities                                              14,436.3          13,994.7         13,250.4
                  Life Insurance                                                3,901.4           3,353.3          3,027.4
                  Corporate and Other                                           6,174.3           5,348.6          4,896.8
                                                                            -----------        ----------       ----------
                                                                             $ 59,790.7        $ 47,766.3       $ 38,507.6
                                                                            ===========        ==========       ==========
</TABLE>

                                      F-23

<PAGE>   24



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

              Notes to Consolidated Financial Statements, Continued


(15)     DISCONTINUED OPERATIONS

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

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

         Also, during 1996, NLIC entered into two reinsurance agreements whereby
         all of NLIC's accident and health and group life insurance business was
         ceded to ELICW and NMIC, effective January 1, 1996. See note 11 for a
         complete discussion of the reinsurance agreements. The Company has
         discontinued its accident and health and group life insurance business
         and in connection therewith has entered into reinsurance agreements to
         cede all existing and any future writings to other affiliated
         companies. NLIC's accident and health and group life insurance business
         is accounted for as discontinued operations for all periods presented.
         The Company did not recognize any gain or loss on the disposal of the
         accident and health and group life insurance business. The assets,
         liabilities, results of operations and activities of discontinued
         operations are distinguished physically, operationally and for
         financial reporting purposes from the remaining assets, liabilities,
         results of operations and activities of the Company.

         A summary of the results of operations of discontinued operations for
         the years ended December 31, 1997, 1996 and 1995 is as follows:

<TABLE>
<CAPTION>

             (in millions of dollars)                                               1997           1996          1995
                                                                                -------------- ------------- ------------

<S>                                                                               <C>            <C>           <C>
             Revenues                                                             $    -         $   668.9     $   776.9
             Net income                                                           $    -         $    11.3     $    24.7
</TABLE>

         A summary of the assets and liabilities of discontinued operations as
         of December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>

             (in millions of dollars)                                               1997           1996          1995
                                                                                -------------- ------------- -------------

<S>                                                                                 <C>           <C>           <C>
             Assets, consisting primarily of investments                            $247.3        $3,288.5      $3,206.7
             Liabilities, consisting primarily of policy benefits and claims        $247.3        $2,802.8      $2,700.0
</TABLE>


                                      F-24

<PAGE>   25



                                                                     SCHEDULE I

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

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

                             As of December 31, 1997
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------   -------------  --------------  ---------------
                                  Column A                                        Column B       Column C         Column D
-----------------------------------------------------------------------------   -------------  --------------  ---------------
                                                                                                                 Amount at
                                                                                                                which shown
                                                                                                                   in the
                                                                                                  Market        consolidated
                             Type of Investment                                     Cost           value       balance sheet
-----------------------------------------------------------------------------   -------------  --------------  ---------------
Fixed maturity securities available-for-sale:
   Bonds:
<S>                                                                              <C>            <C>             <C>
      U.S. Government and government agencies and authorities                    $  3,859.7     $  3,981.7      $  3,981.7
      States, municipalities and political subdivisions                                 1.6            1.6             1.6
      Foreign governments                                                              93.3           95.8            95.8
      Public utilities                                                              1,555.3        1,609.8         1,609.8
      All other corporate                                                           7,223.0        7,515.2         7,515.2
                                                                                 ----------     ----------      ----------
          Total fixed maturity securities available-for-sale                       12,732.9       13,204.1        13,204.1
                                                                                 ----------     ----------      ----------

Equity securities available-for-sale:
   Common stocks:
      Industrial, miscellaneous and all other                                          67.8           78.0            78.0
   Non-redeemable preferred stock                                                       -              2.4             2.4
                                                                                 ----------     ----------      ----------
          Total equity securities available-for-sale                                   67.8           80.4            80.4
                                                                                 ----------     ----------      ----------

Mortgage loans on real estate, net                                                  5,228.1                        5,181.6   (1)
Real estate, net:
   Investment properties                                                              254.9                          235.7   (1)
   Acquired in satisfaction of debt                                                    82.6                           75.7   (1)
Policy loans                                                                          415.3                          415.3
Other long-term investments                                                            27.9                           25.2   (2)
Short-term investments                                                                358.4                          358.4
                                                                                 ----------                     ----------
          Total investments                                                       $19,167.9                      $19,576.4
                                                                                 ==========                     ==========
</TABLE>
----------
(1)  Difference from Column B is primarily due to valuation allowances due to
     impairments on mortgage loans on real estate and due to accumulated
     depreciation and valuation allowances due to impairments on real estate.
     See note 3 to the consolidated financial statements.
(2)  Difference from Column B is primarily due to operating gains (losses) of
     investments in limited partnerships.

See accompanying independent auditors' report.

                                      F-25

<PAGE>   26


                                                                  SCHEDULE III

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                       SUPPLEMENTARY INSURANCE INFORMATION
                            (in millions of dollars)

   As of December 31, 1997, 1996 and 1995 and for each of the years then ended
<TABLE>
<CAPTION>
--------------------------------   ----------------- -------------------- ------------------- ------------------ ---------------
              Column A                  Column B          Column C             Column D           Column E          Column F
--------------------------------   ----------------- -------------------- ------------------- ------------------ ---------------
                                        Deferred        Future policy                           Other policy
                                         policy       benefits, losses,        Unearned          claims and
                                      acquisition        claims and            premiums       benefits payable      Premium
              Segment                    costs          loss expenses            (1)                 (1)            revenue
-------------------------------   ------------------ -------------------- ------------------- ------------------ ---------------

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

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

1995: Variable Annuities                $  569.8       $         -                                                 $     -
          Fixed Annuities                  220.7            12,759.3                                                    32.8
          Life Insurance                   366.9             2,282.6                                                   166.3
          Corporate and Other             (136.9)            1,730.0                                                     -
                                        --------       -------------                                               ---------
             Total                      $1,020.5       $    16,771.9                                               $   199.1
                                        ========       =============                                               =========


---------------------------------------------------- -------------------- ------------------- ------------------ ---------------
              Column A                  Column G          Column H             Column I           Column J          Column K
---------------------------------------------------- -------------------- ------------------- ------------------ ----------------
                                     Net investment   Benefits, claims,      Amortization           Other
                                         income          losses and       of deferred policy      operating         Premiums
              Segment                     (2)        settlement expenses  acquisition costs       expenses          written
                                                                                                     (2)
---------------------------------------------------- -------------------- ------------------- ------------------ ---------------

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

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

1995: Variable Annuities                $  (17.6)         $      2.9           $  26.3             $ 109.1
          Fixed Annuities                1,002.7               805.0              29.5                80.3
          Life Insurance                   171.2               202.0              31.0                68.8
          Corporate and Other              137.7               105.6              (4.1)               14.8
                                        --------          ----------           -------             -------
             Total                      $1,294.0          $  1,115.5           $  82.7             $ 273.0
                                        ========          ==========           =======             =======
</TABLE>
----------
(1) Unearned premiums and other policy claims and benefits payable are included
    in Column C amounts.
(2) Allocations of net investment income and certain operating expenses are
    based on a number of assumptions and estimates, and reported operating
    results would change by segment if different methods were applied.


See accompanying independent auditors' report.

                                      F-26



<PAGE>   27


                                                                    SCHEDULE IV

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                                   REINSURANCE
                            (in millions of dollars)

   As of December 31, 1997, 1996 and 1995 and for each of the years then ended

<TABLE>
<CAPTION>
-----------------------------------------------   ---------------  --------------  -------------   -------------   ------------
                   Column A                          Column B        Column C        Column D        Column E       Column F
-----------------------------------------------   ---------------  --------------  -------------   -------------   ------------
                                                                                                                   Percentage
                                                                     Ceded to        Assumed                        of amount
                                                      Gross            other        from other         Net           assumed
                                                      amount         companies      companies         amount         to net
                                                  ---------------  --------------  -------------   -------------   ------------

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

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


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

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


1995:
  Life Insurance in force                            $41,087.9       $ 8,935.7       $  391.2      $  32,543.4            1.2%
                                                   ===========       =========       ========      ===========        =======

  Premiums:
    Life insurance                                  $    221.3       $    24.4       $    2.2      $     199.1            1.1%
    Accident and health insurance                        298.0           313.0           15.0              -            N/A
                                                   -----------       ---------       --------      -----------        -------
        Total                                       $    519.3       $   337.4       $   17.2      $     199.1            8.6%
                                                   ===========       =========       ========      ===========        =======
</TABLE>
----------
Note:  The life insurance caption represents principally premiums from
       traditional life insurance and life-contingent immediate annuities and
       excludes deposits on investment products and universal life insurance
       products.

See accompanying independent auditors' report.

                                      F-27



<PAGE>   28


                                                                    SCHEDULE V

               NATIONWIDE LIFE INSURANCE COMPANY AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                            (in millions of dollars)

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------- ------------- -------------
                        Column A                            Column B             Column C              Column D      Column E
---------------------------------------------------  ----------------------------------------------- ------------- -------------
                                                           Balance at    Charged to     Charged to                  Balance at
                                                            beginning     costs and       other       Deductions      end of
Description                                                 of period     expenses       accounts        (1)          period
---------------------------------------------------   -------------------------------- ------------- ------------- -------------

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


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


1995:
  Valuation allowances - fixed maturity securities          $    -          $  8.9         $  -          $  8.9       $   -
  Valuation allowances - mortgage loans on real estate          46.4           7.4            -             4.7          49.1
  Valuation allowances - real estate                            27.3          (1.5)           -             -            25.8
                                                            --------        ------       -------        -------       -------
      Total                                                 $   73.7        $ 14.8         $  -          $ 13.6       $  74.9
                                                            ========        ======       =======        =======       =======
</TABLE>

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




See accompanying independent auditors' report.

                                      F-28