NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST, 424B4, 1997-03-07

NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
424B4, 1997-03-07
LIFE INSURANCE

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RULE NO. 424(b)(4)
REGISTRATION NO. 333-18533

$100,000,000
NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST
7.899% Capital Securities

LOGO
(LIQUIDATION AMOUNT $1,000 PER CAPITAL SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY

NATIONWIDE FINANCIAL SERVICES, INC.

-----------

The 7.899% Capital Securities (the "Capital Securities") offered hereby
represent preferred undivided beneficial interests in the assets of
Nationwide Financial Services Capital Trust, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"). Nationwide
Financial Services, Inc., a Delaware corporation (the "Company"), will
be the owner of all of the undivided beneficial interests in the assets
of the Trust represented by common securities of the Trust (the
"Common Securities" and, together with the Capital Securities, the
"Trust Securities"). The Trust exists for the sole purpose of
issuing the Trust Securities and investing the proceeds thereof in
an equivalent amount of 7.899% Junior Subordinated Deferrable
Interest Debentures due 2037 (the "Junior Subordinated
Debentures") of the Company having the terms described herein.
Whenever a Declaration Event of Default (as defined herein)
shall have occurred and be continuing, the holders of the
Capital Securities will have a preference over the holders
of the Common Securities with respect to cash
distributions and amounts payable upon liquidation,
redemption or otherwise. See "Description of the
Capital Securities--Subordination of Common
Securities."

In connection with the public offering of the Capital Securities (the
"Capital Securities Offering"), the Company expects to consummate the
sale of shares of its Class A Common Stock, $0.01 par value ("Class A
Common Stock"), in concurrent underwritten initial public offerings
(the "Equity Offerings") and the public offering (the "Note
Offering") of $300 million aggregate amount of Senior Notes due
2027 (the "Notes"). The Equity Offerings and the Note
Offering are being made pursuant to separate prospectuses.
See "The Equity Offerings, the Note Offering and the
Capital Securities Offering."
(continued on next page)

The Capital Securities have been approved for listing on the New York
Stock Exchange (the "NYSE"), subject to official notice of
issuance. Trading of the Capital Securities on the NYSE is
expected to commence within a 30-day period after the
initial delivery of the Capital Securities. See
"Underwriting."

FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE CAPITAL SECURITIES,
SEE "RISK FACTORS" BEGINNING ON PAGE 17
HEREIN.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC(1) COMMISSION TRUST(1)(2)(3)
------------ ------------ ---------------
<S> <C> <C> <C>
Per Capital Security.................. $1,000 (3) $1,000
Total................................. $100,000,000 (3) $100,000,000
</TABLE>
(1) Plus accrued distributions, if any, from March 11, 1997.
(2) Expenses of the offering, which are payable by the Company, are estimated
to be $716,000.
(3) In view of the fact that the proceeds of the sale of the Capital
Securities will be invested in the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters as compensation for their
arranging the investment therein of such proceeds $10 per Capital Security
(or $1,000,000 in the aggregate). See "Underwriting."

The Capital Securities are offered by the several Underwriters when, as and
if issued by the Trust, delivered to and accepted by the Underwriters and
subject to their right to reject orders in whole or in part. It is expected
that the Capital Securities will be ready for delivery in book-entry form only
through the facilities of The Depository Trust Company on or about March 11,
1997, against payment in immediately available funds.

CREDIT SUISSE FIRST BOSTON MORGAN STANLEY & CO.
INCORPORATED
MERRILL LYNCH & CO.

Prospectus dated March 6, 1997.
<PAGE>

(continued from front cover)

Holders of the Capital Securities will be entitled to receive cumulative
cash distributions at an annual rate of 7.899% of the liquidation amount of
$1,000 per Capital Security, accruing from the date of original issuance and
payable semi-annually in arrears on March 1 and September 1 of each year,
commencing September 1, 1997. See "Description of the Capital Securities--
Distributions." The distribution rate and the distribution and other payment
dates for the Capital Securities will correspond to the interest rate and
interest and other payment dates on the Junior Subordinated Debentures, which
will be the sole assets of the Trust. As a result, if principal or interest is
not paid on the Junior Subordinated Debentures, no amounts will be paid on the
Capital Securities.

The Company has, through the Guarantee (as defined herein), the Junior
Subordinated Debentures, the Indenture (as defined herein) and the Declaration
(as defined herein), taken together, fully and unconditionally guaranteed all
of the Trust's obligations under the Capital Securities. The Company will
guarantee the payment of distributions and payments on liquidation of the
Trust or the redemption of Capital Securities, as described below, but only in
each case to the extent of funds held by the Trust (the "Guarantee"). See
"Description of the Capital Securities," "Description of the Guarantee" and
"Description of the Junior Subordinated Debentures." If the Company fails to
make principal or interest payments on the Junior Subordinated Debentures held
by the Trust, the Trust will have insufficient funds to pay distributions on
the Capital Securities. The Guarantee does not apply to payment of
distributions when the Trust does not have sufficient funds to pay such
distributions. In such event, a holder of Capital Securities may institute a
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on the Junior Subordinated Debentures
without first instituting any legal proceeding against the Property Trustee
(as defined herein) or any other person or entity. Further, under the
Guarantee, when the Trust has funds available for distribution, holders of the
Capital Securities may proceed directly against the Company, as guarantor,
rather than having to proceed against the Trust before attempting to collect
from the Company.

The Company's obligations under the Guarantee are subordinate and junior in
right of payment to all other liabilities of the Company, except any
liabilities that may be made pari passu expressly by their terms. The
Guarantee will rank pari passu with the most senior preferred or preference
stock now or hereafter issued by the Company and certain other related
guarantees. See "Description of the Guarantee--Status of the Guarantee;
Subordination." The obligations of the Company under the Junior Subordinated
Debentures are unsecured and will be subordinate and junior in right of
payment, to the extent set forth herein, to all existing and future Senior
Indebtedness (as defined herein) of the Company. Because the Company is a
holding company, the right of the Company to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of
the subsidiary, except to the extent the Company may itself be recognized as a
creditor of that subsidiary. Accordingly, the Guarantee and the Junior
Subordinated Debentures (and therefore the Capital Securities) will be
effectively subordinated to all existing and future liabilities and
obligations of the Company's subsidiaries, including obligations to
policyholders, and the holders of the Junior Subordinated Debentures should
look only to the assets of the Company for payments thereon. At December 31,
1996, after giving effect to the Note Offering, the aggregate amount of Senior
Indebtedness and liabilities and obligations of the Company's subsidiaries
that would effectively rank senior to the Guarantee and the Junior
Subordinated Debentures was approximately $45.9 billion. See "Capitalization."
The terms of the Junior Subordinated Debentures place no limitation on the
amount of Senior Indebtedness that may be incurred by the Company.

So long as no Event of Default (as defined herein) has occurred and is
continuing, the Company has the right at any time under the Indenture, subject
to the conditions set forth herein, to defer the interest payments due from
time to time on the Junior Subordinated Debentures for successive periods not
exceeding 10 consecutive semi-annual periods (each group of successive
periods, a "Deferral Period"), and, as a consequence, semi-annual
distributions on the Capital Securities would be deferred by the Trust until
the end of any such Deferral Period. During a Deferral Period, the Company
will be prohibited from paying dividends on any of its capital stock (subject
to certain exceptions) and making certain other restricted payments until
semi-annual interest payments are resumed and all accumulated and unpaid
interest (including interest thereon to the extent

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<PAGE>

permitted by law) on the Junior Subordinated Debentures is made current.
During such Deferral Period, distributions will continue to accrue with
interest thereon (to the extent permitted by applicable law) at a rate of
7.899% per annum compounded semi-annually, and during any Deferral Period,
holders of Capital Securities will be required to include deferred interest
income in their gross income for United States federal income tax purposes in
advance of receipt of the cash distributions with respect to such deferred
interest payments. There could be multiple Deferral Periods of varying lengths
throughout the term of the Junior Subordinated Debentures. See "Risk Factors--
Factors Relating to the Capital Securities--Option to Extend Interest Payment
Period," "--Tax Consequences of Extension of Interest Payment Period,"
"Description of the Capital Securities--Distributions" and "Description of the
Junior Subordinated Debentures--Option to Extend Interest Payment Period."

The Junior Subordinated Debentures are redeemable by the Company (i) in
whole at any time or in part from time to time at par plus the applicable
Make-Whole Premium (as defined herein) or (ii) under certain circumstances, in
whole, within 90 days following the occurrence of a Tax Event (as defined
herein), at par, plus, in the case of clause (i) or (ii) above, accrued and
unpaid interest thereon to the date fixed for redemption. If the Company
redeems Junior Subordinated Debentures, the Trust must redeem Trust Securities
on a pro rata basis having an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Debentures so redeemed
at a redemption price per Trust Security of $1,000 plus any additional amount
payable upon redemption of the Junior Subordinated Debentures as a result of
the Make-Whole Premium and, in all cases, accrued and unpaid distributions
thereon to the date fixed for redemption (the "Redemption Price"). See
"Description of the Capital Securities--Mandatory Redemption." The outstanding
Trust Securities will be redeemed upon maturity of the Junior Subordinated
Debentures. In addition, at any time, the Company will have the right to
terminate the Trust and, after satisfaction of the liabilities of creditors of
the Trust as provided by applicable law, cause the Junior Subordinated
Debentures to be distributed to the holders of the Trust Securities in
connection with the liquidation of the Trust.

In the event of a Liquidation (as defined herein) of the Trust, the holders
of the Capital Securities will be entitled, after satisfaction of liabilities
to creditors of the Trust as provided by applicable law, to receive for each
Capital Security a liquidation amount of $1,000 per Capital Security plus any
additional amount payable upon redemption of the Junior Subordinated
Debentures as a result of the Make-Whole Premium and accrued and unpaid
distributions thereon to the date of payment, unless, in connection with such
Liquidation, Junior Subordinated Debentures are distributed to the holders of
the Capital Securities. See "Description of the Capital Securities--
Distribution of Cash Upon Liquidation of the Trust." If the Junior
Subordinated Debentures are distributed to the holders of the Capital
Securities, the Company will use its best efforts to have the Junior
Subordinated Debentures listed on the NYSE or on such other exchange as the
Capital Securities are then listed. See "Description of the Capital
Securities--Distribution of the Junior Subordinated Debentures Upon
Liquidation of the Trust."

The Capital Securities will be issued only as fully registered securities
registered in the name of Cede & Co., as nominee for The Depository Trust
Company ("DTC"). One or more fully registered global Capital Security
certificates will be issued, representing in the aggregate the total number of
Capital Securities, and will be deposited with DTC. See "Description of the
Capital Securities--Book-Entry-Only Issuance--The Depository Trust Company."

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF
THIS DOCUMENT.
----------------

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NO EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR INDIVIDUAL RETIREMENT
ACCOUNT OR PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "IRC") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS
INCLUDE "PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A
"PLAN ASSET ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY
ACQUIRE OR SHOULD HOLD THE CAPITAL SECURITIES OR ANY INTEREST THEREIN, UNLESS
SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER
U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-
23, 95-60, 91-38, 90-1 OR 84-14. ANY PURCHASER OR HOLDER OF THE CAPITAL
SECURITIES OR ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS
PURCHASE AND HOLDING THEREOF THAT IT EITHER (A) IS NOT A PLAN OR A PLAN ASSET
ENTITY AND IS NOT PURCHASING SUCH SECURITIES ON BEHALF OF OR WITH "PLAN
ASSETS" OF ANY PLAN OR (B) IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE
UNDER PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH RESPECT TO SUCH PURCHASE
AND HOLDING. SEE "ERISA CONSIDERATIONS."
-----------

AVAILABLE INFORMATION

The Company and the Trust have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-1 (together
with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") pursuant to the provisions of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, for the registration of the Capital Securities offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company, the Trust and the Capital Securities offered hereby, reference
is made to the Registration Statement, including exhibits thereto and
financial statements and notes filed as a part thereof. Statements made in
this Prospectus concerning the contents of any contract or other document are
not necessarily complete. With respect to each such contract or other document
filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits and schedules
thereto filed by the Company and the Trust with the Commission may be
inspected at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the regional
offices of the Commission located at Seven World Trade Center, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). So long as the Company
is subject to the periodic reporting requirements of the Exchange Act, it will
continue to furnish the reports and other information required thereby to the
Commission. The Company intends to furnish the holders of the Capital
Securities with annual reports containing, among other information, audited
consolidated financial statements reported upon by an independent public
accounting firm and quarterly reports for each of the first three quarters of
each fiscal year containing unaudited condensed consolidated financial
information. The Company also intends to furnish such other reports as it may
determine or as may be required by law.

No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not consider that such
financial statements would be material to the holders of Capital Securities
because (i) all of the voting securities of the Trust will be owned by the
Company, a reporting company under the Exchange Act, (ii) the Trust has and
will have no independent operations but exists for the sole purpose of issuing
securities representing undivided beneficial interests in the assets of the
Trust and investing the proceeds thereof in Junior Subordinated Debentures,
and (iii) the Company's obligations described herein, under the Declaration,
the Indenture, the Junior Subordinated Debentures and the Guarantee, taken
together, constitute a full and unconditional guarantee of all the Trust's
obligations under the Capital Securities. See "Description of the Capital
Securities," "Description of the Guarantee," "Description of the Junior
Subordinated Debentures" and "Effect of Obligations Under the Junior
Subordinated Debentures, the Guarantee and the Declaration."

4
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PROSPECTUS SUMMARY

The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. The Company was formed in November 1996
as a holding company for Nationwide Life Insurance Company and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. The information contained in this
Prospectus gives effect to the contribution by Nationwide Corporation to the
Company of Nationwide Life and such other companies described under "Recent
History." Except as otherwise indicated, all financial data and ratios
presented herein have been prepared using generally accepted accounting
principles ("GAAP"). See "Glossary of Selected Insurance Terms" for the
definitions of certain insurance terms used herein.

As used in this Prospectus, the "Company" means Nationwide Financial
Services, Inc. and, unless the context otherwise requires, its subsidiaries;
"Nationwide Life" means Nationwide Life Insurance Company and, unless the
context otherwise requires, Nationwide Life and Annuity Insurance Company;
"Nationwide Corp." means Nationwide Corporation; "Nationwide Mutual" means
Nationwide Mutual Insurance Company; and "Nationwide Insurance Enterprise"
means Nationwide Mutual and its subsidiaries and affiliates. Nationwide(R) is a
registered service mark of Nationwide Mutual, and The Best of America(R) is a
registered service mark of Nationwide Life.

THE COMPANY

OVERVIEW

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

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

The Company is a member of the Nationwide Insurance Enterprise, which is
known nationally as a writer of automobile and homeowners' insurance throughout
the United States. The property/casualty insurers within the Nationwide
Insurance Enterprise are the fifth largest property/casualty insurance group in
the United States based on 1995 net premiums written, according to A.M. Best
Company, Inc. ("A.M. Best").

In the mid-1970s, to capitalize on anticipated opportunities in the growing
market for long-term savings and retirement products, the Company embarked on a
specific strategy of broadening its distribution channels and product offerings
beyond selling traditional life insurance to the automobile and homeowner
customers of

5
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the Nationwide Insurance Enterprise. Over a 20-year period, the Company added
financial planners, pension plan administrators, securities firms and banks as
new distribution channels. Such distribution channels in the aggregate
accounted for approximately 93.8% of the Company's sales in 1996. Currently,
the Company administers approximately 15,000 pension plans and has distribution
arrangements with 151 banks and other financial institutions, over 1,000
broker/dealers and over 30,000 registered representatives. The Company has
payroll deduction variable annuity enrollee customers in approximately 6,000
state and local government entities and 1,800 school districts, which have been
obtained principally through sponsorship relationships with the National
Association of Counties and The United States Conference of Mayors and an
exclusive contractual arrangement with The National Education Association of
the United States.

The Company has grown substantially in recent years as a result of its long-
term investment in developing the distribution channels necessary to reach its
target customers and the products required to meet the demands of these
customers. The Company believes its growth has been further enhanced by
favorable demographic trends, the growing tendency of Americans to supplement
traditional sources of retirement income with self-directed investments, such
as products offered by the Company, and the performance of the financial
markets, particularly the U.S. stock markets, in recent years. From 1992 to
1996, the Company's assets grew from $20.8 billion to $47.8 billion, a compound
annual growth rate of 23.1%. Asset growth during this period resulted from
sales of the Company's products as well as market appreciation of assets in the
Company's separate accounts and in its general account investment portfolio.
During the same period, the Company's net operating income (i.e., net income
excluding realized gains and losses on investments (net of related federal
income tax), discontinued operations and cumulative effect of accounting
changes) grew from $97.0 million to $211.3 million, a compound annual growth
rate of 21.5%. The Company's sales of variable annuities grew from $1.56
billion in 1992 to $6.50 billion in 1996, a compound annual growth rate of
42.9%. The Company's separate account assets, which are generated by the sale
of variable annuities and variable universal life insurance, grew from 29.3% of
total assets at December 31, 1992 to 56.4% of total assets at December 31,
1996. During this period of substantial growth, the Company controlled its
operating expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology. From 1992 to 1996, the
Company's total assets increased by 130.1% while operating expenses increased
by only 55.1%. As a result, its ratio of operating expenses to total assets
fell from 1.10% in 1992 to 0.74% in 1996.

The Company believes that demographic trends and shifts in attitudes toward
retirement savings will continue to support increased consumer demand for its
products. According to U.S. Census Bureau projections, the number of Americans
between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
million in 2005, making this "preretirement" age group the fastest growing
segment of the U.S. population. The Company believes that Americans
increasingly are supplementing traditional sources of retirement income, such
as employer-provided defined benefit plans and Social Security, with self-
directed investments. Reflecting this shift, industry sales of individual
variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in
1996, a compound annual growth rate of 26.9%, according to VARDS. During the
same period, industry individual variable annuity assets grew from $212 billion
to $501 billion, a compound annual growth rate of 24.0%, according to VARDS.

The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment, which accounted for $90.3
million (or 27.5%) of the Company's operating income before federal income tax
expense in 1996, consists of annuity contracts that provide the customer with
the opportunity to invest in mutual funds managed by independent investment
managers and the Company, with investment returns accumulating on a tax-
deferred basis. The Fixed Annuities segment, which accounted for $135.4 million
(or 41.2%) of the Company's operating income before federal income tax expense
in 1996, consists of annuity contracts that generate a return for the customer
at a specified interest rate, fixed for a prescribed period, with returns
accumulating on a tax-deferred basis. Such contracts consist of single premium
deferred annuities, flexible premium deferred annuities and single premium
immediate annuities. The Fixed Annuities segment also includes the fixed option
under the Company's variable annuity contracts, which

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accounted for 70.5% of the Company's fixed annuity policy reserves as of
December 31, 1996. For the year ended December 31, 1996, the average crediting
rate on contracts (including the fixed option under the Company's variable
annuity contracts) in the Fixed Annuities segment was 6.3%. Substantially all
of the Company's crediting rates on its fixed annuity contracts are guaranteed
for a period not exceeding 15 months. See "Business--Product Segments--Fixed
Annuities." The Life Insurance segment, which accounted for $67.2 million (or
20.5%) of the Company's operating income before federal income tax expense in
1996, consists of insurance products, including variable life insurance, that
provide a death benefit and may also allow the customer to build cash value on
a tax-deferred basis.

BUSINESS STRATEGIES

The Company's objective is to continue its record of profitable growth by
following the strategies set forth below:

Enhance the Company's Leading Position in the Market for Variable
Annuities. The Company believes that the variable annuity business is
attractive because it generates fee income and requires significantly less
capital support than fixed annuities and life insurance. The Company also
believes, based on the aging of the U.S. population and recent increases in
sales of retirement savings products, that variable annuities will continue to
experience high rates of industry sales growth and that the Company possesses
distinct competitive advantages that will allow it to continue to benefit from
this anticipated growth. Some of the Company's most important advantages
include its innovative product offerings and strong relationships with
independent, well-known fund managers. For example, the Company's The Best of
America IV and The Best of America--America's Vision individual variable
annuity contracts allow the customer to choose from 36 investment options,
including mutual funds managed by a variety of well-known fund managers and the
Company. In the aggregate, the Company's group variable annuity products offer
over 100 underlying investment options. The Company works closely with its
investment managers and product distributors to adapt the Company's products
and services to changes in the retail and institutional marketplace.

Capture a Growing Share of Sales in all Distribution Channels. The Company's
broad distribution system permits it to offer its products across a wide range
of markets and customers. The Company continually seeks to gain a larger share
of each of its distributor's sales by offering products that are attractive to
its distributors from both a financial perspective and in helping the
distributor build relationships with its customers. In addition to providing
new products to its distributors, the Company seeks to increase sales in each
of its existing distribution channels by cross-selling those products not
currently offered through such channel. The Company also seeks to add new
distributors to its existing channels and regularly evaluates possible new
distribution channels. While many of the Company's competitors employ a variety
of distribution channels, the Company believes that few of its competitors have
a developed distribution system that is as broad as the Company's and that this
distinguishing characteristic provides the Company with an important
competitive advantage.

Maintain a Diverse Product Portfolio. The Company offers a diverse mix of
variable annuity, fixed annuity, mutual fund and life insurance products. Based
on its experience, the Company believes that demand for, and financial results
of, certain of these products are sensitive to stock market and/or interest
rate environments, while some products are relatively insensitive to such
factors. The Company emphasizes the sale and development of variable annuities,
which tend to experience higher sales growth when interest rates are low, and
fixed annuities, which tend to experience higher sales growth when interest
rates are high. The Company also sells traditional life insurance products
which it believes provide it with a stable source of revenues throughout
changing market conditions. The Company's strategy is to rely on a variety of
products, each of which may perform differently in given stock market and
interest rate environments, so that the Company will be able to grow profitably
in a variety of such environments.

Emphasize Payroll Deductions and Tax-Qualified and Group Annuities. To
further enable it to grow profitably in a variety of stock market and interest
rate environments, the Company concentrates on the sale of annuities through
payroll deductions and the sale of tax-qualified and group annuities. Annuities
sold through

7
<PAGE>

payroll deductions are somewhat insulated from changes in market conditions
because of the recurring nature of their deposits. In 1996, 38.2% of the
Company's total annuity statutory premiums and deposits were attributable to
payroll deductions. Group annuities and tax-qualified annuities are also
somewhat insulated from changes in market conditions because they usually are
provided through employers as a voluntary retirement benefit with a limited
number of competing investment options. In addition, tax-qualified annuities
subject the customer to a tax penalty for early withdrawal. Tax-qualified
annuities accounted for 70.3% and group annuities accounted for 43.6% of the
Company's total annuity statutory premiums and deposits in 1996.

Build on the Company's Brand Strength. The Company believes that the brand
names it uses in connection with its products, such as Nationwide and The Best
of America, are well-known and have a strong reputation in the financial
services market. The Company intends to extend its brand names across markets,
applying The Best of America name across many of its wholesale and retail
distribution channels. The Company believes that, as the numbers of products
and competitors in its markets grow, consumers, distributors, retirement plan
sponsors and other decision makers in the market for long-term savings and
retirement products will continue to emphasize nationally known brand names.
See "Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise--Intercompany Agreement."

Continue Commitment to Technological Excellence. The Company has made and is
committed to continue making significant investments in information systems to
enable it to offer innovative products, to more effectively cross-sell products
across distribution channels and to offer high quality service. The information
systems that the Company has developed for its variable products are costly to
replicate. The Company believes that these systems provide it with a
significant competitive advantage and impose a barrier to entry for new
competitors.

PRINCIPAL STOCKHOLDER

Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings, Nationwide
Corp. will own all of the outstanding shares of the Class B Common Stock, $0.01
par value, of the Company ("Class B Common Stock and, together with Class A
Common Stock, the "Common Stock"), representing 83.6% and 98.1% (81.6% and
97.8% if the Underwriters' over-allotment option is exercised in full) of the
total number of shares of Common Stock outstanding and the combined voting
power of the stockholders of the Company, respectively. Nationwide Corp. is a
subsidiary of Nationwide Mutual. Nationwide Mutual and Nationwide Mutual Fire
Insurance Company ("Nationwide Mutual Fire") are mutual companies which are the
controlling entities of the Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is an affiliated group of over 100 companies that offers a
wide range of insurance and investment products and services. Nationwide Mutual
and Nationwide Mutual Fire control the companies within the Nationwide
Insurance Enterprise through a variety of means, including security ownership,
management contracts and common directors. The Nationwide Insurance Enterprise
had $68.0 billion in total statutory assets as of December 31, 1996. See "Risk
Factors--Control by and Relationship with the Nationwide Insurance Enterprise;
Conflicts of Interest" and "Certain Relationships and Related Transactions."

THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING

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

The Company's executive offices are located at One Nationwide Plaza,
Columbus, Ohio 43215, and its telephone number is (614) 249-7111. The place of
business and the telephone number of the Trust are the principal executive
offices and telephone number of the Company.

8
<PAGE>

THE CAPITAL SECURITIES OFFERING

The Trust..................... Nationwide Financial Services Capital Trust, a
Delaware business trust.

Securities Offered............ $100,000,000 aggregate liquidation amount of
7.899% Capital Securities (Liquidation Amount,
$1,000 per Capital Security).

Distributions................. Distributions on the Capital Securities will
accrue from the date of original issuance of
the Capital Securities and will be payable at
the annual rate of 7.899% of the liquidation
amount of $1,000 per Capital Security. Subject
to the distribution deferral provisions
described below, distributions will be payable
semi-annually in arrears on March 1 and
September 1 of each year, commencing September
1, 1997. Because distributions on the Capital
Securities constitute interest, corporate
holders thereof will not be entitled to a
dividends-received deduction.

Distribution Deferral The ability of the Trust to pay distributions
Provisions.................... on the Capital Securities is solely dependent
on its receipt of principal and interest
payments from the Company on the Junior
Subordinated Debentures. So long as no Event of
Default has occurred and is continuing, the
Company has the right at any time to defer the
interest payments due from time to time on the
Junior Subordinated Debentures during any
Deferral Period for a period not exceeding 10
consecutive semi-annual periods. Semi-annual
distributions on the Capital Securities would
be deferred by the Trust (but would continue to
accumulate semi-annually and would accrue
interest to the extent permitted by law) until
the end of any such Deferral Period. There
could be multiple Deferral Periods of varying
lengths throughout the term of the Junior
Subordinated Debentures. See "Risk Factors--
Factors Relating to the Capital Securities--
Option to Extend Interest Payment Period" and
"--Tax Consequences of Extension of Interest
Payment Period," "Description of the Capital
Securities--Distributions" and "Description of
the Junior Subordinated Debentures--Option to
Extend Interest Payment Period." If a deferral
of an interest payment occurs, the holders of
the Capital Securities will continue to accrue
income for United States federal income tax
purposes in advance of any corresponding cash
distribution. See "Risk Factors--Factors
Relating to the Capital Securities--Option to
Extend Interest Payment Period" and "--Tax
Consequences of Extension of Interest Payment
Period," and "United States Federal Income
Taxation--Original Issue Discount."

Rights Upon Deferral of During any Deferral Period, interest on the
Distributions................. Junior Subordinated Debentures will compound
semi-annually and semi-annual distributions
(compounded semi-annually at the distribution
rate) will accrue on the Capital Securities.
The Company has agreed, among other things, not
to declare or pay any dividend on its

9
<PAGE>

capital stock (subject to certain exceptions)
or make certain other restricted payments
during any Deferral Period. See "Description of
the Junior Subordinated Debentures--Option to
Extend Interest Payment Period" and
"Description of the Guarantee--Certain
Covenants of the Company."

Distribution of Junior
Subordinated Debentures Upon
Liquidation of the Trust.....
At any time, the Company will have the right to
terminate the Trust and, after satisfaction of
liabilities to creditors of the Trust as
provided by applicable law, cause Junior
Subordinated Debentures to be distributed to
the holders of the Trust Securities in
connection with the liquidation of the Trust.
Such Junior Subordinated Debentures shall have
an aggregate principal amount, an interest rate
and accrued and unpaid interest equal to,
respectively, the aggregate liquidation amount,
distribution rate and accrued and unpaid
distributions of the Trust Securities. See
"Description of the Capital Securities--
Distribution of Junior Subordinated Debentures
Upon Liquidation of the Trust."

Distribution of Cash Upon
Liquidation of the Trust.....
In the event of a Liquidation of the Trust, the
holders will be entitled, after satisfaction of
liabilities to creditors of the Trust as
provided by applicable law, to receive $1,000
per Capital Security plus any additional amount
payable upon redemption of the Junior
Subordinated Debentures as a result of the
Make-Whole Premium and accrued and unpaid
distributions thereon to the date of payment,
unless, in connection with such Liquidation,
Junior Subordinated Debentures are distributed
to such holders. See "Description of the
Capital Securities--Distribution of Cash Upon
Liquidation of the Trust" and "--Distribution
of Junior Subordinated Debentures Upon
Liquidation of the Trust."

Mandatory Redemption.......... Upon the repayment or payment of the Junior
Subordinated Debentures, whether at maturity or
upon redemption or otherwise, the Trust must
use the proceeds from such repayment or
redemption to redeem Trust Securities having an
aggregate liquidation amount equal to the
aggregate principal amount of Junior
Subordinated Debentures so repaid or redeemed
at the Redemption Price. See "Description of
the Capital Securities--Mandatory Redemption."

Tax Event..................... If at any time a Tax Event shall occur and be
continuing, the Trust shall, except in limited
circumstances, be dissolved and Junior
Subordinated Debentures shall be distributed to
the holders of Trust Securities. See "--
Distribution of Junior Subordinated Debentures
Upon Liquidation of the Trust." In certain
circumstances, upon the occurrence of a Tax
Event, cash will be distributed in redemption
of the Junior Subordinated Debentures at the
Redemption Price; provided, that no Make-Whole
Premium shall be payable in connection with
such redemption. See "Description of the
Capital Securities--Tax Event Distribution."

10
<PAGE>

Guarantee..................... The Company will guarantee, as described
herein, the payment in full of (i) the
distributions on the Capital Securities to the
extent of funds held by the Trust, (ii) the
amount payable upon redemption of the Capital
Securities to the extent of funds held by the
Trust and (iii) generally, the liquidation
amount of the Capital Securities to the extent
of the assets of the Trust available for
distribution to holders of Capital Securities.
The Guarantee will be subordinated and junior
in right of payment to all other liabilities of
the Company, except any liabilities that may be
made pari passu expressly by their terms. The
Guarantee will rank pari passu with the most
senior preferred or preference stock now or
hereafter issued by the Company and any
guarantee now or hereafter entered into by the
Company in respect of any preferred or
preference stock or preferred securities of any
affiliate of the Company. Upon the liquidation,
dissolution or winding up of the Company, its
obligations under the Guarantee will rank
junior to all of its other liabilities, except
as aforesaid, and as a result, funds may not be
available for payment under the Guarantee. See
"Risk Factors--Factors Relating to the Capital
Securities--Subordination of Guarantee and
Junior Subordinated Debentures" and
"Description of the Guarantee--Status of the
Guarantee; Subordination."

The Company has, through the Guarantee, the
Junior Subordinated Debentures, the Indenture
and the Declaration, taken together, fully and
unconditionally guaranteed all of the Trust's
obligations under the Capital Securities. No
single document standing alone or operating in
conjunction with fewer than all of the other
documents constitutes such guarantee. It is
only the combined operation of these documents
that has the effect of providing a full and
unconditional guarantee of the Trust's
obligations under the Capital Securities. See
"Description of the Guarantee" and "Effect of
Obligations Under the Junior Subordinated
Debentures, the Guarantee and the Declaration."

Voting Rights................. Except as specified herein, holders of the
Capital Securities will have no voting rights.
See "Description of the Capital Securities--
Voting Rights; Amendment of Declaration."

Junior Subordinated The Junior Subordinated Debentures will mature
Debentures.................... on March 1, 2037 and will bear interest at the
rate of 7.899% per annum, payable semi-annually
in arrears. So long as no Event of Default has
occurred and is continuing, interest payments
may be deferred from time to time by the
Company (during any Deferral Period, interest
would continue to accrue and compound semi-
annually) for a Deferral Period not to exceed
10 consecutive semi-annual periods, provided
that no such Deferral Period may extend beyond
the maturity date of the Junior Subordinated
Debentures. Prior to the termination of any
Deferral Period of less than 10 consecutive
semi-annual periods, so long as no Event of
Default has occurred and is continuing, the
Company may

11
<PAGE>

further extend the Deferral Period; provided,
that no such Deferral Period, as extended, may
exceed 10 consecutive semi-annual periods or
extend beyond the maturity date of the Junior
Subordinated Debentures. Upon the termination
of any Deferral Period, the Company is required
to pay all amounts then due and, upon such
payment, the Company may select a new Deferral
Period, subject to the preceding sentence. No
interest shall be due during a Deferral Period
until the end of such period. During a Deferral
Period, the Company will be prohibited from
paying dividends on any of its capital stock
(subject to certain exceptions) and making
certain other restricted payments until semi-
annual interest payments are resumed and all
accumulated and unpaid interest (including
interest thereon to the extent permitted by
law) on the Junior Subordinated Debentures is
made current. The Company may optionally redeem
the Junior Subordinated Debentures at any time
at the Redemption Price, which includes (except
in the case of a redemption following a Tax
Event) the Make-Whole Premium. The payment of
the principal of and interest on the Junior
Subordinated Debentures will be subordinated
and junior in right of payment, to the extent
set forth herein, to all existing and future
Senior Indebtedness of the Company. Further,
the Junior Subordinated Debentures (and
therefore the Capital Securities) will be
effectively subordinated to all existing and
future liabilities and obligations of the
Company's subsidiaries, including obligations
to policyholders. At December 31, 1996, after
giving effect to the Note Offering, the
aggregate amount of Senior Indebtedness and
liabilities and obligations of the Company's
subsidiaries, including obligations to
policyholders, that would effectively rank
senior to the Junior Subordinated Debentures
was approximately $45.9 billion. See
"Capitalization" and "Pro Forma Selected
Consolidated Financial Data." See "Description
of the Junior Subordinated Debentures" and
"Risk Factors--Factors Relating to the Capital
Securities--Subordination of Guarantee and
Junior Subordinated Debentures."

Form of Capital Securities.... The Capital Securities will be issued only as
fully-registered securities registered in the
name of Cede & Co., as nominee for DTC. One or
more fully registered global Capital Security
certificates will be issued, representing in
the aggregate the total number of Capital
Securities, and will be deposited with DTC. See
"Description of the Capital Securities--Book-
Entry-Only Issuance--The Depository Trust
Company."

12
<PAGE>

Use of Proceeds............... All of the proceeds from the sale of the
Capital Securities will be invested by the
Trust in Junior Subordinated Debentures and the
net proceeds to the Company of $98.2 million
from the sale of Junior Subordinated Debentures
will be contributed by the Company to the
capital of Nationwide Life. Of the $455.6
million estimated net proceeds from the Equity
Offerings, the Company will contribute $371.6
million to the capital of Nationwide Life and
retain the balance for general corporate
purposes. All of the net proceeds from the Note
Offering will be contributed by the Company to
the capital of Nationwide Life. See "Use of
Proceeds" and "The Equity Offerings, the Note
Offering and the Capital Securities Offering."

RISK FACTORS

Potential purchasers of the Capital Securities offered hereby should
carefully consider the risk factors set forth herein under "Risk Factors"
commencing on page 17, as well as other information contained in this
Prospectus.

13
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

The following table sets forth certain summary consolidated financial data
for the Company. The consolidated income statement data set forth below for the
years ended December 31, 1992 through 1996 and the consolidated balance sheet
data as of December 31, 1992 through 1996 are derived from the consolidated
financial statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Segment and Other Data
and Pro Forma Consolidated Balance Sheet Data appearing below are unaudited.
The summary consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto and the other financial information, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere herein.

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Total revenues.......... $ 2,016.6 $ 1,837.0 $ 1,634.1 $ 1,639.3 $ 1,405.6
Total benefits and
expenses............... 1,688.5 1,555.8 1,393.7 1,363.5 1,289.2
--------- --------- --------- --------- ---------
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................ 328.1 281.2 240.4 275.8 116.4
Federal income tax
expense................ 115.8 96.3 82.5 96.7 32.1
--------- --------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of
accounting changes..... 212.3 184.9 157.9 179.1 84.3
Income from discontinued
operations, net of
federal income tax
expense................ 11.3 24.7 20.5 28.6 2.1
--------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
changes................ 223.6 209.6 178.4 207.7 86.4
Cumulative effect of
accounting changes, net
of federal income tax
benefit................ -- -- -- (0.1) --
--------- --------- --------- --------- ---------
Net income.............. $ 223.6 $ 209.6 $ 178.4 $ 207.6 $ 86.4
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $19,915.0 $17,156.2 $15,697.5 $14,674.8
Separate account
assets................. 26,926.7 18,591.1 12,087.1 9,006.4 6,081.4
Total assets............ 47,770.2 38,506.1 29,243.3 24,703.9 20,756.2
Long-term debt.......... -- -- -- -- --
Total liabilities....... 45,638.5 35,889.4 27,382.7 23,094.3 19,358.6
Shareholder's
equity(1).............. 2,131.7 2,616.7 1,860.6 1,609.6 1,397.6
SEGMENT AND OTHER DATA:
Operating income (loss)
before income taxes by
segment(2):
Variable Annuities..... $ 90.3 $ 50.8 $ 24.6 $ 10.4 $ 13.1
Fixed Annuities........ 135.4 137.0 139.0 105.9 95.3
Life Insurance......... 67.2 67.6 53.0 49.7 46.1
Corporate and
Other(1)(3)........... 35.4 27.5 40.3 3.6 (18.7)
Policy reserves by
segment:
Variable Annuities(4).. 24,278.1 16,761.8 10,751.1 7,854.8 5,028.2
Fixed Annuities(4)..... 13,511.8 12,784.0 11,247.0 10,154.1 9,659.8
Life Insurance......... 2,938.9 2,660.5 2,425.2 2,255.0 2,084.8
Corporate and
Other(3).............. 3,302.5 2,644.3 2,252.7 2,103.9 1,823.0
Statutory premiums,
deposits and other
considerations by
product segment(5):
Variable Annuities(6).. 6,500.3 4,399.3 3,821.1 2,414.2 1,561.8
Fixed Annuities(6)..... 1,600.5 1,864.2 1,308.6 1,300.9 1,637.8
Life Insurance......... 439.3 352.4 320.8 279.4 264.7
Corporate and
Other(3).............. 502.6 182.1 148.5 205.3 91.7
Net operating
income(2).............. 211.3 184.8 168.2 109.7 97.0
Ratio of earnings to
fixed charges(7)....... 1.3x 1.3x 1.3x 1.3x 1.1x
</TABLE>

14
<PAGE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA(8):
General account assets.................................. $19,993.5
Separate account assets................................. 26,926.7
Total assets............................................ 46,920.2
Long-term debt.......................................... --
Total liabilities....................................... 45,638.5
Shareholder's equity(1)................................. 1,281.7
</TABLE>
- -------
(1) The Company has received cash capital contributions and declared cash
dividends over the periods presented as follows:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------ ----- ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash capital contributions............. $ -- $ -- $200.0 $100.0 $13.5
Cash dividends......................... (52.0) (8.5) (1.0) (10.6) (4.6)
------ ----- ------ ------ -----
Net contributions...................... $(52.0) $(8.5) $199.0 $ 89.4 $ 8.9
====== ===== ====== ====== =====
</TABLE>

The cash capital contributions and cash dividends and the related increases
and decreases to net investment income are recorded in the Corporate and
Other segment. The cash capital contributions and cash dividends had a
direct impact on the Company's shareholder's equity and the operating
income/(loss) before federal income tax expense of the Corporate and Other
segment.
(2) Excludes realized gains/(losses) on investments (net of related federal
income tax expense where applicable), discontinued operations and
cumulative effect of accounting changes.
(3) The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees, other revenues
and operating expenses of Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments;
commissions and other income earned by the marketing and distribution
subsidiaries of the Company; and revenues, benefits and expenses
associated with group annuity contracts issued to Nationwide Insurance
Enterprise employee and agent benefit plans.
(4) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such amounts were $9.52 billion, $8.83 billion and
$7.27 billion, respectively.
(5) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(6) Statutory premiums, deposits and other considerations related to the fixed
option under the Company's variable annuity contracts are included in
Fixed Annuities. For the years ended December 31, 1996, 1995 and 1994,
such amounts were $1.24 billion, $1.57 billion and $1.05 billion,
respectively.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and cumulative
effect of accounting changes and fixed charges. Fixed charges consist of
interest expense on debt plus interest credited to policyholder account
balances. There was no interest expense on debt for any of the periods
presented.
(8) Pro forma to give effect to the Special Dividend (as defined herein)
totalling $850.0 million as if the Special Dividend had occurred as of
December 31, 1996. The Special Dividend was paid by the Company on
February 24, 1997.

15
<PAGE>

SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA

The summary pro forma consolidated financial data for the Company set forth
below give effect to the Special Dividend (as defined herein), the Equity
Offerings, the Note Offering, the Capital Securities Offering and, with respect
to Consolidated Income Statement Data only, the 1996 Cash Dividend (as defined
herein) as if they had been consummated at the beginning of the period
indicated or, in the case of the balance sheet data, as of the date indicated.
The summary pro forma consolidated financial data do not purport to reflect
what the Company's financial position or results of operations would actually
have been if the Special Dividend, the Equity Offerings, the Note Offering, the
Capital Securities Offering and the 1996 Cash Dividend had in fact occurred on
such date nor should they be taken as indicative of the future results of
operations of the Company. The summary pro forma consolidated financial data
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto and the other financial information pertaining to
the Company included elsewhere herein. See "Recent History," "Pro Forma
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR
ENDED
DECEMBER 31, 1996
-----------------------
ACTUAL PRO FORMA(1)
--------- ------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Income from continuing
operations............. $ 212.3 $ 147.0
Income from continuing
operations per common
share(2)............... 2.03 1.17
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. 20,843.5 20,847.5
Separate account as-
sets................... 26,926.7 26,926.7
Total assets............ 47,770.2 47,774.2
Long-term debt.......... -- 298.4
Capital Securities(3)... -- 100.0
Shareholders' equity.... 2,131.7 1,737.3
Debt/capital ratio(4)... -- 15.2%
Debt and Capital
Securities/capital ra-
tio(4)................. -- 20.3%
Book value per common
share(2)............... $ 20.35 $ 13.87
Adjusted book value per
common share(2)(4)..... 18.69 12.48
OTHER DATA:
Ratio of earnings to
fixed charges(5)....... 1.3x 1.2x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net proceeds
of $455.6 million and the issuance of 20,540,000 shares of Class A Common
Stock), (ii) the Special Dividend totalling $850.0 million which was paid
by the Company on February 24, 1997, (iii) the Note Offering and the
Capital Securities Offering (assuming net proceeds of $393.2 million from
such offerings) and (iv) with respect to Consolidated Income Statement Data
only, the 1996 Cash Dividend totalling $50.0 million which was paid by the
Company on December 31, 1996. Results reflect the reduction of $68.3
million of pre-tax net investment income for the year ended December 31,
1996 as a result of the decrease in invested assets of the Company from the
1996 Cash Dividend totalling $50.0 million and the Special Dividend
totalling $850.0 million. If this reduction were partially offset by net
investment income on the proceeds from the Equity Offerings, the Note
Offering and the Capital Securities Offering at an assumed reinvestment
rate of 7.5%, the net adjustment would be a reduction of $4.5 million. The
$300 million aggregate principal amount of Notes will bear interest at a
rate of 8.0% per annum. The $100 million aggregate liquidation amount of
the Capital Securities will bear a distribution rate of 7.899% per annum.
Interest expense includes amortization of deferred issuance costs and
discount.
(2) Actual is based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma is based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 shares of Class A
Common Stock assumed to be issued in the Equity Offerings.
(3) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the Common
Securities of the Trust, which are the only voting securities of the Trust,
are owned by the Company, that the sole assets of the Trust are the junior
subordinated debentures (indicating the principal amount, interest rate and
maturity date thereof) and that the Trust's obligations with respect to the
Capital Securities, through the Guarantee, the Junior Subordinated
Debentures, the Indenture and the Declaration, taken together, are fully
and unconditionally guaranteed by the Company.
(4) Adjusted to exclude net unrealized gains and losses recorded in
shareholder's equity in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS 115").
(5) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed charges.
Fixed charges consist of interest expense on debt plus interest credited to
policyholder account balances. There was no actual interest expense on debt
for the year ended December 31, 1996.

16
<PAGE>

RISK FACTORS

Prospective purchasers of the Capital Securities offered hereby should
consider carefully the risk factors set forth below, as well as the other
information set forth in this Prospectus.

FACTORS RELATING TO THE CAPITAL SECURITIES

Subordination of Guarantee and Junior Subordinated Debentures. The Company's
obligations under the Guarantee are unsecured, subordinate and junior in right
of payment to all other liabilities of the Company, with certain limited
exceptions. The obligations of the Company under the Junior Subordinated
Debentures are subordinate and junior in right of payment to all existing and
future Senior Indebtedness of the Company. There are no terms of the Capital
Securities, the Junior Subordinated Debentures or the Guarantee that limit the
Company's ability to incur additional unsecured or secured indebtedness or
liabilities, including indebtedness or liabilities that would rank senior to
the Junior Subordinated Debentures and the Guarantee. Because the Company is a
holding company, the right of the Company to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of
the subsidiary, except to the extent the Company may itself be recognized as a
creditor of that subsidiary. In addition, the principal sources of the
Company's income are dividends, interest and fees from its insurance and non-
insurance affiliates. In addition, payment of dividends to the Company by the
subsidiary insurance companies is subject to ongoing review by insurance
regulators and is subject to various statutory limitations and in certain
circumstances requires approval by insurance regulatory authorities. See
"Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries." Accordingly, the Guarantee and the Junior
Subordinated Debentures (and therefore the Capital Securities) will be
effectively subordinated to all existing and future liabilities and
obligations of the Company's subsidiaries, including obligations to
policyholders. Holders of Junior Subordinated Debentures should look only to
the assets of the Company for payments of interest and principal and premium,
if any, thereon. See "Description of the Guarantee--Status of the Guarantee;
Subordination," "Description of the Junior Subordinated Debentures--
Subordination," "The Equity Offerings, the Note Offering and the Capital
Securities Offering," "Capitalization" and "Pro Forma Consolidated Financial
Data." At December 31, 1996, after giving effect to the Note Offering, the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would effectively rank senior to the Guarantee and
the Junior Subordinated Debentures was approximately $45.9 billion. See
"Capitalization" and "Pro Forma Consolidated Financial Data."

The ability of the Trust to pay amounts due on the Capital Securities is
wholly dependent upon the Company's making payments on the Junior Subordinated
Debentures as and when required.

Option to Extend Interest Payment Period. So long as no Event of Default has
occurred and is continuing, the Company has the right at any time under the
Indenture to defer interest payments from time to time on the Junior
Subordinated Debentures during any Deferral Period for a period not exceeding
10 consecutive semi-annual periods. Upon the termination of any Deferral
Period and the payment of all amounts then due, the Company may select a new
Deferral Period, subject to the requirements described herein. As a
consequence, during any such Deferral Period, semi-annual distributions on the
Capital Securities would be deferred (but would continue to accrue with
interest thereon) by the Trust. In the event that the Company exercises this
right, during such period the Company (i) shall not declare or pay dividends
on, make distributions with respect to, or redeem, purchase or acquire, or
make a liquidation payment with respect to, any of its capital stock (other
than stock dividends paid by the Company which consist of stock of the same
class as that on which the dividend is being paid), (ii) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any such Deferral Period, the Company
may further extend the Deferral Period, so long as no Event of Default has
occurred and is continuing, provided that such Deferral Period, as extended,
may not exceed 10 consecutive semi-annual periods and may not extend beyond
the maturity date of the Junior Subordinated Debentures. Upon the termination
of any Deferral Period and the payment of all

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<PAGE>

amounts then due, the Company may commence a new Deferral Period, subject to
the above requirements. Consequently, there could be multiple Deferral Periods
of varying lengths prior to the maturity date of the Junior Subordinated
Debentures. See "Description of the Capital Securities--Distributions" and
"Description of the Junior Subordinated Debentures--Option to Extend Interest
Payment Period."

Tax Consequences of Extension of Interest Payment Period. Should the Company
exercise its right to defer payments of interest on the Junior Subordinated
Debentures by extending the interest payment period, each holder of Capital
Securities will accrue income (as original issue discount ("OID")) in respect
of the deferred interest allocable to its Capital Securities for United States
federal income tax purposes. Such income will be allocated but not distributed
to holders of the Capital Securities. As a result, each such holder of the
Capital Securities will recognize income for United States federal income tax
purposes in advance of the receipt of cash and will not receive the cash from
the Trust related to such income if such holder disposes of its Capital
Securities prior to the record date for the date on which distributions of
such amounts are made. The Company has no current intention of exercising its
right to defer payments of interest by extending the interest payment period
on the Junior Subordinated Debentures. However, should the Company determine
to exercise such right in the future, the market price of the Capital
Securities is likely to be adversely affected. A holder that disposes of its
Capital Securities during a Deferral Period, therefore, might not receive the
same return on its investment as a holder that continues to hold its Capital
Securities. In addition, as a result of the existence of the Company's right
to defer interest payments, the market price of the Capital Securities (which
represent an undivided beneficial interest in the Junior Subordinated
Debentures) may be more volatile than the market price of other securities on
which OID accrues that do not have such rights. See "United States Federal
Income Taxation--Original Issue Discount."

Rights Under the Guarantee. The Guarantee Trustee (as defined herein) will
hold the Guarantee for the benefit of the holders of the Capital Securities.
The Guarantee guarantees to the holders of the Capital Securities the payment
(but not the collection) of (i) any accrued and unpaid distributions on the
Capital Securities to the extent of funds held by the Trust, (ii) the amount
payable upon redemption, including all accrued and unpaid distributions, of
the Capital Securities called for redemption by the Trust, to the extent of
funds held by the Trust and (iii) upon a Liquidation (other than in connection
with a redemption of all of the Capital Securities), the lesser of (a) the
aggregate of the liquidation amount and all accrued and unpaid distributions
on the Capital Securities to the date of payment, to the extent of funds held
by the Trust and (b) the amount of assets of the Trust remaining available for
distribution to holders of the Capital Securities upon a Liquidation. The
holders of a majority in liquidation amount of the Capital Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee. Any
holder of the Capital Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity. If the Company were to default on its obligations
under the Junior Subordinated Debentures, the Trust would lack available funds
for the payment of distributions or amounts payable on redemption of the
Capital Securities or otherwise, and, in each such event, holders of the
Capital Securities would not be able to rely upon the Guarantee for payment of
such amounts. Instead, the remedy of holders of the Capital Securities is to
enforce the rights of the Trust to receive payments on the Junior Subordinated
Debentures held by the Trust against the Company pursuant to the terms of the
Junior Subordinated Debentures. See "Description of the Guarantee" and
"Description of the Junior Subordinated Debentures--Events of Default." The
Declaration will provide that each holder of Capital Securities by acceptance
thereof agrees to the provisions of the Guarantee (including the subordination
provisions thereof) and the Indenture.

Tax Event Distribution. If, at any time, a Tax Event shall occur and be
continuing, the Trust shall, except in the limited circumstances described
below, be dissolved with the result that the Junior Subordinated Debentures
will be distributed to the holders of the Trust Securities in connection with
the liquidation of the Trust. Furthermore, under certain circumstances, the
Company shall have the right to redeem the Junior Subordinated Debentures at
par plus accrued and unpaid interest thereon to the date fixed for redemption,
in

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<PAGE>

whole or in part, in lieu of a distribution of the Junior Subordinated
Debentures by the Trust in which event the Trust will redeem the Trust
Securities on a pro rata basis to the same extent as the Junior Subordinated
Debentures are redeemed by the Company. See "Description of the Capital
Securities--Tax Event Distribution."

Under current United States federal income tax law, a distribution of Junior
Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Capital Securities. Upon occurrence of a Tax
Event, however, a dissolution of the Trust in which holders of the Capital
Securities receive cash would be a taxable event to such holders. See "United
States Federal Income Taxation--Receipt of Junior Subordinated Debentures or
Cash Upon Liquidation of the Trust."

There can be no assurance as to the market prices for the Capital Securities
or the Junior Subordinated Debentures that may be distributed in exchange for
Capital Securities. Accordingly, the Capital Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary
market, or the Junior Subordinated Debentures that a holder of Capital
Securities may receive on dissolution and liquidation of the Trust, may trade
at a discount to the price that the investor paid to purchase the Capital
Securities offered hereby. Because holders of Capital Securities may receive
Junior Subordinated Debentures upon the occurrence of a Tax Event or upon
liquidation or dissolution of the Trust, prospective purchasers of Capital
Securities are also making an investment decision with regard to the Junior
Subordinated Debentures and should carefully review all the information
regarding the Junior Subordinated Debentures contained in this Prospectus. See
"Description of the Capital Securities--Tax Event Distribution" and "--
Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust"
and "Description of the Junior Subordinated Debentures--General."

Distribution of the Junior Subordinated Debentures. At any time, the Company
will have the right to terminate the Trust and, after satisfaction of the
liabilities of creditors of the Trust as provided by applicable law, cause the
Junior Subordinated Debentures to be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. Under current
United States federal income tax law and interpretations thereof and assuming,
as expected, the Trust is treated as a grantor trust, a distribution of the
Junior Subordinated Debentures should not be a taxable event to holders of the
Capital Securities. Should there be a change in such law, or a change in the
legal interpretation thereof, however, the distribution of the Junior
Subordinated Debentures could be a taxable event to the holders of the Capital
Securities. In addition, a dissolution of the Trust in which holders of the
Capital Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation--Receipt of Junior Subordinated
Debentures or Cash Upon Liquidation of the Trust."

Prepayment Considerations. At the option of the Company, the Junior
Subordinated Debentures may be redeemed, at any time, at a redemption price
equal to the sum of (i) 100% of the principal amount of the Junior
Subordinated Debentures to be redeemed and (ii) the Make-Whole Premium (except
that in the event of a redemption following a Tax Event, the redemption price
shall not include the Make-Whole Premium), plus any accrued and unpaid
interest to the redemption date. See "Description of the Junior Subordinated
Debentures--Optional Redemption." If Junior Subordinated Debentures are
redeemed, the Trust must redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of Junior
Subordinated Debentures so redeemed. See "Description of the Capital
Securities--Mandatory Redemption."

Proposed Tax Law Changes. On February 6, 1997 the revenue portion of
President Clinton's Budget proposal (the "Proposal") was released. The
Proposal would, among other things, deny deductions for interest on a debt
instrument issued by a corporation with a maximum weighted average maturity of
more than 40 years or which has a maximum term of more than 15 years and is
not shown as indebtedness on the separate balance sheet of the issuer. An
instrument would not be shown as indebtedness on a balance sheet merely
because it was described as indebtedness in footnotes or other narrative
disclosures. The Proposal would apply only to corporations which file annual
financial statements with the Commission, and the relevant balance sheet would
be the balance sheet filed with the Commission. The proposal would be
effective generally for instruments issued on or after the date of first
committee action. As currently drafted, the Proposal could affect the Junior
Subordinated Debentures unless the Junior Subordinated Debentures were issued
prior to the first date of any

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<PAGE>

committee action. In addition, the Proposal could be enacted with retroactive
effect. If the Proposal is enacted so as to apply to the Junior Subordinated
Debentures, the Company would not be entitled to an interest deduction with
respect to the Junior Subordinated Debentures. There can be no assurance that
current or future legislative proposals or final legislation will not give
rise to a Tax Event, which would permit the Company to cause a redemption of
the Junior Subordinated Debentures or a distribution of the Junior
Subordinated Debentures in a Liquidation. See "Description of the Capital
Securities--Tax Event Distribution."

Limited Voting Rights. Except as specified herein, holders of Capital
Securities will have no voting rights. See "Description of the Capital
Securities--Voting Rights; Amendment of Declaration."

Trading Characteristics of Capital Securities. The Capital Securities may
trade at a price that does not fully reflect the value of accrued but unpaid
distributions. A holder who disposes of its Capital Securities between record
dates for payments of distributions thereon will be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income. To the extent the selling
price is less than the holder's adjusted tax basis a holder will recognize a
capital loss. Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "United States Federal Income Taxation--Sales of Capital
Securities."

Lack of Public Market for the Capital Securities. The Capital Securities
have been approved for listing on the NYSE, subject to official notice of
issuance. Trading of the Capital Securities on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Capital
Securities. There is no existing trading market for the Capital Securities,
and there can be no assurance regarding the future development of a market for
the Capital Securities, or the ability of holders of the Capital Securities to
sell their Capital Securities or the price at which such holders may be able
to sell their Capital Securities. If such a market were to develop, the
Capital Securities could trade at prices that may be higher or lower than the
initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities.

CONTROL BY AND RELATIONSHIP WITH THE NATIONWIDE INSURANCE ENTERPRISE;
CONFLICTS OF INTEREST

Control by Nationwide Corp.

The Company has two classes of common stock with different voting rights
that enable Nationwide Corp. (the holder of all of the outstanding Class B
Common Stock) to control the Company. On all matters submitted to a
stockholder vote, each share of Class A Common Stock is entitled to one vote
per share and each share of Class B Common Stock is entitled to ten votes per
share. Both classes vote together as a single class on all matters, subject to
certain exceptions described under "Description of Capital Stock." Upon any
transfer of shares of Class B Common Stock to a person other than a member of
the Nationwide Insurance Enterprise, such shares will convert automatically
into shares of Class A Common Stock. See "Description of Capital Stock."

Upon completion of the Equity Offerings, Nationwide Corp. will own all of
the outstanding shares of Class B Common Stock representing 83.6% and 98.1%
(81.6% and 97.8% if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock outstanding and the
combined voting power of the stockholders of the Company, respectively. For so
long as Nationwide Corp. and its affiliates (excluding the Company and its
subsidiaries) continue beneficially to own shares of Common Stock representing
more than 50% of the combined voting power of the stockholders of the Company,
Nationwide Corp. will control the Company, will be able to elect all of the
Company's directors and will be able to determine the outcome of corporate
actions requiring stockholder approval, including, among other things, the
adoption of amendments of the Certificate of Incorporation of the Company (the
"Certificate"), the approval of mergers and sales of all or substantially all
of the Company's assets, the incurrence of indebtedness in excess of specified
amounts, the issuance of additional Common Stock or other equity securities
and, with certain specified exceptions, the

20
<PAGE>

payment of dividends with respect to the Common Stock. Pursuant to an
intercompany agreement (the "Intercompany Agreement") among Nationwide Mutual,
Nationwide Corp. and the Company, until such time as Nationwide Corp. and its
affiliates no longer own at least 50% of the combined voting power of the
outstanding voting stock of the Company, the prior written consent of
Nationwide Mutual is required in connection with these and other corporate
actions. See "Certain Relationships and Related Transactions--New Agreements
with the Nationwide Insurance Enterprise--Intercompany Agreement."

Use of Nationwide Insurance Enterprise Insurance Agents

Nationwide Mutual has informed the Company that it currently intends that
the Company will be its principal affiliate in the U.S. offering variable
annuity, fixed annuity and individual universal, variable and traditional life
insurance products. In the Intercompany Agreement, Nationwide Mutual has
agreed that the Company has the exclusive right, subject to certain limited
exceptions, to distribute such products through Nationwide Insurance
Enterprise insurance agents for at least five years following the Equity
Offerings. Thereafter, the Intercompany Agreement provides that Nationwide
Mutual will have the option to terminate such right on one year's notice if
Nationwide Corp. and its affiliates no longer own at least 50% of the combined
voting power of the outstanding voting stock of the Company. The termination
of such right could have an adverse effect on the Company's ability to
distribute certain of its life insurance products. In 1996, 5.8% of the
Company's statutory premiums and deposits were attributable to products sold
by Nationwide Insurance Enterprise insurance agents. See "Certain
Relationships and Related Transactions--New Agreements with the Nationwide
Insurance Enterprise--Intercompany Agreement--Nationwide Insurance Enterprise
Insurance Agents."

Deconsolidation and Control of Tax Matters

Beneficial ownership of at least 80% of the combined voting power and value
of the outstanding capital stock of the Company is required in order for
Nationwide Mutual to continue to include the Company in its consolidated group
for federal income tax purposes. Either a sale by Nationwide Corp. of some of
its shares of Class B Common Stock to persons other than its affiliates or the
Company's issuance of additional shares of voting stock to persons other than
Nationwide Corp. or its affiliates (except the Company and its subsidiaries)
could cause Nationwide Corp.'s ownership of the combined voting power and
value of the outstanding capital stock of the Company to fall below 80%,
resulting in the loss of the ability of the Company and its domestic
subsidiaries to join with Nationwide Mutual and its domestic subsidiaries in
the filing of a consolidated federal income tax return. Under applicable law,
each member of Nationwide Mutual's consolidated tax group, which includes the
Company and its subsidiaries, is jointly and severally liable for the federal
income tax liability of each other member of the group and is also jointly and
severally liable for pension and benefit funding and termination liabilities
of other group members, and certain benefit plan taxes. If the Company were no
longer included in Nationwide Mutual's consolidated tax group for federal tax
purposes, there is no assurance that the Company's tax position would be as
favorable as it is at present. Additionally, deconsolidation would result in
the payment by the Company of approximately $54.0 million of deferred income
taxes. The Company has recorded this amount as a deferred tax liability and
therefore the payment would have no impact on net income or shareholders'
equity. However, the payment would result in a $54.0 million decrease in
Nationwide Life's statutory surplus. See "Certain Relationships and Related
Transactions--New Agreements with the Nationwide Insurance Enterprise--Tax
Sharing Agreement."

By virtue of its control of the Company and the terms of a tax sharing
agreement (the "Tax Sharing Agreement") among Nationwide Mutual and, among
others, the Company, Nationwide Mutual effectively will control all of the
Company's tax decisions. Under the Tax Sharing Agreement, Nationwide Mutual
will have sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company, to file all returns on behalf
of the Company and to determine the amount of the Company's liability to (or
entitlement to payment from) Nationwide Corp. under the Tax Sharing Agreement.
This arrangement may result in conflicts of interest between the Company and
Nationwide Mutual. For example, under the Tax Sharing

21
<PAGE>

Agreement, Nationwide Mutual may choose to contest, compromise or settle any
adjustment or deficiency proposed by the relevant tax authority in a manner
that may be beneficial to Nationwide Mutual and detrimental to the Company.
Under the Tax Sharing Agreement, however, Nationwide Mutual is obligated to
act in good faith with regard to all persons included in the applicable
returns. See "Certain Relationships and Related Transactions--New Agreements
with the Nationwide Insurance Enterprise--Tax Sharing Agreement."

Use of "Nationwide" Name and Certain Other Service Marks

Pursuant to the Intercompany Agreement, among other things, Nationwide
Mutual has granted to the Company and certain of its subsidiaries a non-
exclusive, non-assignable, revocable license to use the "Nationwide" name and
certain other service marks solely in connection with the Company's annuity,
pension and life insurance businesses and activities related to such
businesses. The Intercompany Agreement provides that, subject to Nationwide
Mutual's right to revoke such license under certain circumstances, such
license will remain in effect for at least five years following the Equity
Offerings. Thereafter, the Intercompany Agreement provides that, subject to
certain exceptions, Nationwide Mutual will have the option to revoke such
license on one year's notice if Nationwide Corp. and its affiliates no longer
own at least 50% of the combined voting power of the outstanding voting stock
of the Company. Upon the revocation of such license, the Company and any of
its subsidiaries shall change their names to exclude the word "Nationwide" and
shall discontinue the use of the other licensed service marks. The revocation
of such license could have a material adverse effect on the Company's ability
to conduct its business. See "Certain Relationships and Related Transactions--
New Agreements with the Nationwide Insurance Enterprise--Intercompany
Agreement--License to Use Nationwide Name and Service Marks." Nationwide Life
owns "The Best of America" service mark and does not license such mark from
Nationwide Mutual.

Common Directors and Officers

The Company's Board of Directors currently consists of ten members, seven of
whom serve concurrently on the boards of directors of other companies within
the Nationwide Insurance Enterprise. In addition, a significant number of
officers of the Company also serve as officers of Nationwide Mutual or other
companies within the Nationwide Insurance Enterprise. Service as a director or
officer of both the Company and another company (other than a subsidiary of
the Company) within the Nationwide Insurance Enterprise could create or appear
to create potential conflicts of interest when the director or officer is
faced with decisions that could have different implications for the Company
and such other company. A conflict of interest could also exist with respect
to allocation of the time and attention of persons who are officers of both
the Company and one or more other companies within the Nationwide Insurance
Enterprise. Under Delaware law, directors and officers have a fiduciary duty
to act in good faith and in what they believe to be in the best interests of
the corporation and its stockholders. Such duties include the duty to refrain
from impermissible self-dealing and to deal fairly with respect to
transactions in which such directors or officers, or other companies with
which they are affiliated, have an interest. See "--Allocation of Corporate
Opportunities."

Intercompany Transactions

The Company has engaged in various transactions, and is party to various
arrangements, with members of the Nationwide Insurance Enterprise, certain of
which will continue after the consummation of the Capital Securities Offering.
In the future, the Company may enter into agreements with members of the
Nationwide Insurance Enterprise that will not be the result of arm's-length
negotiations between independent parties. Conflicts of interest could arise
with respect to transactions involving members of the Nationwide Insurance
Enterprise, on the one hand, and the Company, on the other hand. Any such
transactions that are material to the Company will be subject to approval by a
vote of disinterested members of the Company's Board of Directors. In
addition, under Ohio insurance holding company laws, arrangements and
agreements between the Company's insurance subsidiaries and other members of
the Nationwide Insurance Enterprise must be fair and equitable and may be
subject to the approval of the Superintendent of Insurance of the State of
Ohio. Finally, the Company's

22
<PAGE>

credit facility requires that any transaction between the Company and any of
its affiliates be on an arm's-length basis on terms at least as favorable to
the Company as could have been obtained from a third party which is not an
affiliate. See "Business--Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions."

Allocation of Corporate Opportunities

Nationwide Mutual has informed the Company that it currently intends that
the Company will be its principal affiliate in the U.S. offering variable
annuity, fixed annuity and individual universal, variable and traditional life
insurance products. However, conflicts may exist between the Company and other
members of the Nationwide Insurance Enterprise with respect to the allocation
of corporate opportunities among the Company and such other members. The
Certificate provides that members of the Nationwide Insurance Enterprise have
no duty to refrain from engaging in the same or similar lines of business as
the Company. The Certificate further provides that in the event a member of
the Nationwide Insurance Enterprise or a director or officer of the Company
who is also a director or officer of another member of the Nationwide
Insurance Enterprise acquires knowledge of a potential transaction or other
matter that may constitute a corporate opportunity of either or both the
Company and another member of the Nationwide Insurance Enterprise, such member
of the Nationwide Insurance Enterprise, officer or director may allocate such
opportunity among the Company and the other members of the Nationwide
Insurance Enterprise as such member, officer or director deems appropriate
under the circumstances. The Certificate specifies that none of the foregoing
members, officers or directors will be liable to the Company or any
Stockholders of the Company for breach of any fiduciary duty by reason of such
action. These provisions may limit the liability of such persons under
Delaware law. See "Description of Capital Stock--Certain Certificate and Bylaw
Provisions--Certain Provisions Relating to Corporate Opportunities."

INTEREST RATE RISK

The Company's Fixed Annuities segment is subject to several inherent risks
arising from movements in interest rates. Interest rate changes can cause
compression of the Company's net spread between interest earned on investments
and interest credited on customer deposits, thereby adversely affecting the
Company's results. Interest rate changes can also produce an unanticipated
increase in transfers to separate account (variable) options or withdrawals of
the Company's fixed annuity products which may force the Company to sell
investment assets at a loss in order to fund such transfers or withdrawals.

The Company will experience spread compression when it is unable or chooses
not to maintain the same margin between its investment earnings and its
crediting rates. When interest rates rise, the Company may not be able to
replace the assets in its investment portfolio with higher-yielding assets
that will be necessary to fund the higher crediting rates necessary to keep
the products in its Fixed Annuities segment competitive. As a result, the
Company may experience either a decrease in sales and an increase in transfers
to separate account (variable) options or withdrawals (as described below) if
it chooses to maintain its spread by not raising its crediting rates, or
spread compression if it does increase its crediting rates. Conversely, when
interest rates fall, the Company would have to reinvest the cash received from
its investments (i.e., interest and payments of principal upon maturity or
redemption) in the lower-yielding instruments then available. If the Company
were unable (e.g., due to guaranteed minimum or fixed crediting rates or
limitations on the frequency of crediting rate resets) or chose not to reduce
the crediting rate on the products in its Fixed Annuities segment or acquire
relatively higher-risk securities yielding higher rates of return, spread
compression would occur.

If, as a result of interest rate increases, the Company were unable or chose
not to raise its crediting rates to keep them competitive, the Company may
experience an increase in transfers to separate account (variable) options or
withdrawals. If the Company lacked sufficient liquidity, the Company might
have to sell investment securities to fund associated payments. Because the
value of such securities would likely have decreased in response to the
increase in interest rates, the Company would realize a loss on the sales.
Although certain of the

23
<PAGE>

Company's products contain market value adjustment features which approximate
and transfer such loss to the customer if the selected time horizon for the
fixed return investment is terminated prior to maturity, there can be no
assurance that the Company would be fully insulated from realizing any losses
on sales of its securities. In addition, regardless of whether the Company
realizes an investment loss, the withdrawals would produce a decrease in
invested assets, with an adverse effect on future earnings therefrom. Finally,
premature withdrawals may also cause the Company to accelerate amortization of
deferred policy acquisition costs and value of insurance in force which would
otherwise be amortized over a longer period, but the impact of such
acceleration generally would be offset to some extent by surrender charge
fees.

INVESTMENT PORTFOLIO EXPOSURE

The Company's general account investment portfolio consists primarily of
investment grade fixed maturity securities. The fair value of these and the
Company's other general account invested assets fluctuates depending upon
general economic and market conditions and the interest rate environment. In
general, the market value of the Company's general account fixed maturity
securities portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.

Mortgage backed securities ("MBSs"), including collateralized mortgage
obligations ("CMOs"), are subject to prepayment risks that vary with, among
other things, interest rates. Such securities accounted for approximately 30%
of the carrying value of the Company's general account fixed maturity
securities as of December 31, 1996. During periods of declining interest
rates, MBSs generally prepay faster as the underlying mortgages are prepaid
and refinanced by the borrowers in order to take advantage of the lower rates.
MBSs that have an amortized cost that is greater than par (i.e., purchased at
a premium) may incur a reduction in yield or a loss as a result of such
prepayments. In addition, during such periods, the Company will generally be
unable to reinvest the proceeds of any such prepayment at comparable yields.
Conversely, during periods of rising interest rates, prepayments generally
slow. MBSs that have an amortized value that is less than par (i.e., purchased
at a discount) may incur a decrease in yield or a loss as a result of slower
prepayments.

The Company attempts to mitigate the negative impact of interest rate
changes through asset/liability management, including purchasing non-callable
bonds where practical and investing in private placement bonds, mortgage loans
and mortgage-backed securities which provide prepayment protection. There can
be no assurance, however, that management will be able to manage successfully
the negative impact of interest rate changes. See "Business--Investments."
Additionally, the Company may, from time to time, for business, regulatory or
other reasons, elect or be required to sell certain of its general account
invested assets at a time when their fair values are less than their original
cost, resulting in realized capital losses, which would reduce net income.

The risk of fluctuations in market value of substantially all of the
Company's separate account assets is borne by the policyholders. The Company's
policy charges for administering such separate account assets, however, are
generally set as a percentage of such assets. Accordingly, fluctuations in the
market value of separate account assets may result in fluctuations in the
Company's revenue from policy charges.

RESTRICTIONS ON DIVIDENDS

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<PAGE>

companies to seek prior regulatory approval to pay a dividend or distribution
of cash or other property if the fair market value thereof, together with that
of other dividends or distributions made in the preceding 12 months, exceeds
the greater of (i) 10% of policyholders' surplus as of the prior December 31
or (ii) the net income of the insurer for the 12-month period ending as of the
prior December 31. The Ohio insurance laws also require insurers to seek prior
regulatory approval for any dividend paid from other than earned surplus. As a
result of the Special Dividend and the dividend by Nationwide Life of the
stock of certain subsidiaries that do not operate in the long-term savings and
retirement market, any dividend paid by Nationwide Life during the 12-month
period immediately following the Special Dividend would be an extraordinary
dividend under Ohio insurance laws. Accordingly, no such dividend could be
paid without prior regulatory approval. See "Recent History." The payment of
dividends by Nationwide Life may also be subject to restrictions set forth in
the insurance laws of New York that limit the amount of statutory profits on
Nationwide Life's participating policies (measured before dividends to
policyholders) that can inure to the benefit of the Company and its
stockholders. The Company currently does not expect such regulatory
requirements to impair its ability to pay operating expenses and stockholder
dividends in the future, and to meet its debt service obligations. The Company
can give no assurance, however, that any dividends will be declared or paid by
Nationwide Life. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries."

REGULATION

The Company's insurance subsidiaries are subject to extensive regulation and
supervision in the jurisdictions in which they do business. Such regulations,
in addition to limiting the amount of dividends and other payments that can be
paid by the Company's insurance subsidiaries without prior approval, impose
restrictions on the amount and type of investments the Company's insurance
subsidiaries may hold. These regulations also affect many other aspects of the
Company's insurance subsidiaries' businesses, including risk-based capital
requirements, the type and amount of required asset valuation reserve accounts
and policy forms. These regulations are primarily intended to protect
policyholders rather than stockholders and other investors. The Company cannot
predict the effect that any proposed or future legislation may have on the
financial condition or results of operations of the Company and its insurance
subsidiaries. See "Business--Regulation."

COMPETITION

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

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

RATINGS

25
<PAGE>

organizations continually review the financial performance and condition of
insurers, including the Company. Any lowering of the Company's ratings could
have a material adverse effect on the Company's ability to market its products
and could increase the surrender of the Company's annuity products. Both of
these consequences could, depending upon the extent thereof, have a material
adverse effect on the Company's liquidity and, under certain circumstances,
net income. Nationwide Life is rated "A+" (Superior) by A.M. Best and its
claims-paying ability is rated "Aa2" (Excellent) by Moody's Investors Service,
Inc. ("Moody's") and "AA+" (Excellent) by Standard & Poor's Corporation
("S&P"). Moody's recently confirmed and S&P recently affirmed Nationwide
Life's claims-paying ability rating with a negative outlook. Such ratings
reflect the rating agency's opinion of Nationwide Life's financial strength,
operating performance and ability to meet its obligations to policyholders and
are not evaluations directed toward the protection of investors. Such factors
are of concern to policyholders, agents and intermediaries. Such ratings
should not be relied upon when making a decision to invest in the Capital
Securities. See "Business--Ratings."

SALES PRACTICE LITIGATION

In recent years, life insurance companies, have been named as defendants in
lawsuits, including class actions, relating to life insurance pricing and
sales practices. A number of these lawsuits have resulted in substantial jury
awards or settlements. Nationwide Life has been named as a defendant in two
lawsuits, including one in which the plaintiff seeks to represent a national
class, related to the sale of whole life policies on a "vanishing premium"
basis. There can be no assurance that any future litigation relating to
pricing and sales practices will not have a material adverse effect on the
Company. See "Business--Legal Proceedings."

FEDERAL INCOME TAX LEGISLATION

Current federal income tax laws generally permit the tax-deferred
accumulation of earnings on the premiums paid by the holders of annuities and
life insurance products. Taxes, if any, are payable on the accumulated tax-
deferred earnings when such earnings are actually paid. Congress has, from
time to time, considered possible legislation that would eliminate the
deferral of taxation on the accretion of value within certain annuities and
life insurance products. The 1994 United States Supreme Court ruling in
NationsBank of North Carolina v. Variable Annuity Life Insurance Company that
annuities are not insurance for purposes of the National Bank Act may cause
Congress to consider legislation that would eliminate such tax deferral at
least for certain annuities. Other possible legislation, including a
simplified "flat tax" income tax structure with an exemption from taxation for
investment income, could also adversely affect purchases of annuities and life
insurance if such legislation were to be enacted. There can be no assurance as
to whether legislation will be enacted which would contain provisions with
possible adverse effects on the Company's annuity and life insurance products.
See "Business--Regulation--Potential Tax Legislation."

26
<PAGE>

NATIONWIDE FINANCIAL SERVICES CAPITAL TRUST

GENERAL

Nationwide Financial Services Capital Trust is a statutory business trust
which was formed under Delaware law pursuant to a declaration of trust, dated
as of December 18, 1996, executed by the Company, as sponsor of the Trust, and
the trustees of the Trust named therein and the filing of a certificate of
trust with the Secretary of State of the State of Delaware on December 19,
1996. Such declaration of trust will be amended and restated in its entirety
by the Company, as sponsor of the Trust, and the trustees of the Trust (as so
amended and restated, the "Declaration"), as of or prior to the date the Trust
issues any of the Trust Securities. The Company will directly acquire Common
Securities in an aggregate liquidation amount equal to 3% or more of the total
capital of the Trust. The Common Securities will rank pari passu, and payment
will be made thereon pro rata, with the Capital Securities, except that, upon
the occurrence and during the continuance of a Declaration Event of Default,
the rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Capital Securities. The
assets of the Trust will consist solely of the Junior Subordinated Debentures,
and payments under the Junior Subordinated Debentures will be the sole revenue
of the Trust. The Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Junior Subordinated Debentures and (iii) engaging in only those other
activities necessary or incidental thereto. The term of the Trust will expire
on March 1, 2052.

Pursuant to the Declaration, the number of trustees will initially be four.
Three of the trustees (the "Regular Trustees") will be individuals who are
employees or officers of or who are affiliated with the Company. The fourth
trustee will be a financial institution that is unaffiliated with the Company
(the "Property Trustee") and will maintain its principal place of business in
the State of Delaware (the "Delaware Trustee"). Initially, Wilmington Trust
Company, a Delaware banking corporation, will act as Property Trustee and as
Delaware Trustee until, in each case, removed or replaced by the holder of the
Common Securities. The Property Trustee will also act as indenture trustee
under the Guarantee (the "Guarantee Trustee") and under the Indenture (the
"Indenture Trustee"). See "Description of the Guarantee," "Description of the
Capital Securities" and "Description of the Junior Subordinated Debentures."

The Property Trustee will hold title to the Junior Subordinated Debentures
for the benefit of the holders of the Trust Securities and will have the power
to exercise all rights, powers and privileges under the Indenture as the
holder of the Junior Subordinated Debentures. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
trust account (the "Property Account") to hold all payments made in respect of
the Junior Subordinated Debentures for the benefit of the holders of the Trust
Securities. The Guarantee Trustee will hold the Guarantee for the benefit of
the holders of the Capital Securities. The Company, as the holder of all of
the Common Securities, will have the right to appoint, remove or replace any
of the Regular Trustees, the Property Trustee and the Delaware Trustee,
provided, however, that if a Declaration Event of Default shall have occurred
and be continuing, the Property Trustee may be removed only by the vote of
holders of a majority in liquidation amount of the Capital Securities voting
as a class. The Company will pay all fees and expenses related to the Trust
and the offering of the Capital Securities.

The rights of the holders of the Capital Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Capital Securities." The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). At the time the
Registration Statement becomes effective, the Declaration, the Indenture and
the Guarantee will be qualified under the Trust Indenture Act.

The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company.

27
<PAGE>

ACCOUNTING TREATMENT

The financial statements of the Trust will be included in the Company's
consolidated financial statements, with the Capital Securities shown
separately as "Company-obligated mandatorily redeemable capital securities of
the Nationwide Financial Services Capital Trust, holding solely junior
subordinated debentures of Nationwide Financial Services, Inc." A footnote to
the Company's consolidated financial statements will indicate that all of the
Common Securities of the Trust, which are the only voting securities of the
Trust, are owned by the Company, that the sole assets of the Trust are the
Junior Subordinated Debentures (indicating the principal amount, interest rate
and maturity date thereof) and that the Trust's obligations with respect to
the Capital Securities, through the Guarantee, the Junior Subordinated
Debentures, the Indenture and the Declaration, taken together, are fully and
unconditionally guaranteed by the Company. See "Capitalization" and "Pro Forma
Consolidated Financial Data."

USE OF PROCEEDS

The proceeds to the Trust (without giving effect to expenses of the offering
payable by the Company) from the offering of the Capital Securities will be
$100,000,000. All of the proceeds from the sale of the Capital Securities will
be invested by the Trust in Junior Subordinated Debentures and the net
proceeds to the Company of $98.2 million from the sale of Junior Subordinated
Debentures will be contributed by the Company to the capital of Nationwide
Life. The net proceeds to the Company from the Equity Offerings (after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company in connection therewith) are estimated to be
$455.6 million. The net proceeds to the Company from the sale of the Notes are
estimated to be $295.0 million. Of the $455.6 million estimated net proceeds
to the Company from the Equity Offerings, the Company will contribute
approximately $371.6 million to the capital of Nationwide Life and retain the
balance for general corporate purposes, which amount will be invested in
short-term interest-bearing securities. The Company expects to contribute all
of the net proceeds from the Note Offering to the capital of Nationwide Life.

28
<PAGE>

RECENT HISTORY

The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. On January 27,
1997, Nationwide Corp. contributed to the Company all of the outstanding
capital stock of Nationwide Life and the other companies within the Nationwide
Insurance Enterprise that offer or distribute long-term savings and retirement
products. The historical financial information contained in this Prospectus
gives effect to such contribution to the Company.

In anticipation of the Equity Offerings, Nationwide Life effected the
following transactions: (i) on September 24, 1996, the Board of Directors of
Nationwide Life declared a dividend to Nationwide Corp. consisting of the
stock of those subsidiaries of Nationwide Life that do not operate in the
long-term savings and retirement market and (ii) effective January 1, 1996,
Nationwide Life reinsured all of its accident and health and group life
insurance business to other members of the Nationwide Insurance Enterprise.
Such subsidiaries and the accident and health and group life insurance
business have been accounted for herein as discontinued operations.

On December 31, 1996, Nationwide Life paid a $50.0 million cash dividend to
Nationwide Corp. (the "1996 Cash Dividend"). In addition, on February 24,
1997, Nationwide Life paid a dividend to the Company, and the Company paid an
equivalent dividend to Nationwide Corp., consisting of securities having an
aggregate market value of $850.0 million (the "Special Dividend"). The
historical financial information contained in this Prospectus does not give
effect to the Special Dividend, except where indicated in pro forma
presentations. See "Certain Relationships and Related Transactions--Existing
Arrangements with the Nationwide Insurance Enterprise--Organization of the
Company" and "--Modified Coinsurance Agreements."

Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings,
Nationwide Corp. will own all of the outstanding shares of the Class B Common
Stock, representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters'
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding and the combined voting power of the stockholders of
the Company. Nationwide Corp. is a subsidiary of Nationwide Mutual. Nationwide
Mutual and Nationwide Mutual Fire are mutual companies which are the
controlling entities of the Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is an affiliated group of over 100 companies that offers
a wide range of insurance and investment products and services. Nationwide
Mutual and Nationwide Mutual Fire control the companies within the Nationwide
Insurance Enterprise through a variety of means, including security ownership,
management contracts and common directors. The Nationwide Insurance Enterprise
had $68.0 billion in total statutory assets as of December 31, 1996. See "Risk
Factors--Control by and Relationship with the Nationwide Insurance Enterprise;
Conflicts of Interest" and "Certain Relationships and Related Transactions."

29
<PAGE>

CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving effect to the Special Dividend, (iii) the pro forma
capitalization of the Company after giving effect to the Special Dividend and
the Equity Offerings (assuming net proceeds of $455.6 million from the
issuance of 20,540,000 shares of Class A Common Stock), (iv) the pro forma
capitalization of the Company after giving effect to the Special Dividend, the
Equity Offerings and the Note Offering, (v) the pro forma capitalization of
the Company after giving effect to the Special Dividend, the Equity Offerings
and the Capital Securities Offering and (vi) the pro forma capitalization of
the Company after giving effect to the Special Dividend, the Equity Offerings,
the Note Offering and the Capital Securities Offering. This table should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------------------------------
PRO FORMA
FOR THE
PRO FORMA PRO FORMA SPECIAL
FOR THE FOR THE DIVIDEND,
SPECIAL SPECIAL THE EQUITY
PRO FORMA DIVIDEND, DIVIDEND, OFFERINGS,
FOR THE THE THE EQUITY THE NOTE
SPECIAL EQUITY OFFERINGS OFFERING
PRO FORMA DIVIDEND OFFERINGS AND THE AND THE
FOR THE AND THE AND THE CAPITAL CAPITAL
SPECIAL EQUITY NOTE SECURITIES SECURITIES
ACTUAL DIVIDEND OFFERINGS OFFERING OFFERING OFFERING
-------- --------- --------- --------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Notes................... $ -- $ -- $ -- $ 298.4 $ -- $ 298.4
Company-obligated
mandatorily redeemable
capital securities of
the Nationwide
Financial Services
Capital Trust, holding
solely junior
subordinated debentures
of Nationwide Financial
Services, Inc.(1)...... -- -- -- -- 100.0 100.0
Shareholders' equity:
Preferred stock, $0.01
par value; 50,000,000
shares authorized; no
shares issued and
outstanding.......... -- -- -- -- -- --
Class A Common Stock,
$0.01 par value;
750,000,000 shares
authorized(2)........ -- -- 0.2 0.2 0.2 0.2
Class B Common Stock,
$0.01 par value;
750,000,000 shares
authorized(3)........ 1.0 1.0 1.0 1.0 1.0 1.0
Additional paid-in
capital.............. 551.5 551.5 1,006.9 1,006.9 1,006.9 1,006.9
Unrealized gains on
securities available-
for-sale, net........ 173.6 173.6 173.6 173.6 173.6 173.6
Retained earnings..... 1,405.6 555.6 555.6 555.6 555.6 555.6
-------- -------- -------- -------- -------- --------
Total shareholders'
equity............... 2,131.7 1,281.7 1,737.3 1,737.3 1,737.3 1,737.3
-------- -------- -------- -------- -------- --------
Total capitalization.. $2,131.7 $1,281.7 $1,737.3 $2,035.7 $1,837.3 $2,135.7
======== ======== ======== ======== ======== ========
Debt/capital ratio(4)... -- % -- % -- % 16.0% -- % 15.2%
Debt and Capital
Securities/capital
ratio(4)............... -- -- -- 16.0 6.0 20.3
Book value per common
share(2)(3)............ $ 20.35 $ 12.24 $ 13.87 $ 13.87 $ 13.87 $ 13.87
Adjusted book value per
common share(2)(3)(4).. 18.69 10.58 12.48 12.48 12.48 12.48
</TABLE>
- --------
(1) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the
Common Securities of the Trust, which are the only voting securities of
the Trust, are owned by the Company, that the sole assets of the Trust are
the junior subordinated debentures (indicating the principal amount,
interest rate and maturity date thereof), and that the Trust's obligations
with respect to the Capital Securities, through the Guarantee, the Junior
Subordinated Debentures, the Indenture and the Declaration, taken
together, are fully and unconditionally guaranteed by the Company.
(2) Based on no shares of Class A Common Stock outstanding for "Actual" and
"Pro Forma for the Special Dividend" columns and 20,540,000 shares of
Class A Common Stock outstanding for all other columns.
(3) Based on 104,745,000 shares of Class B Common Stock outstanding for all
columns.
(4) Adjusted to exclude net unrealized gains on securities available-for-sale
in accordance with SFAS 115.

30
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth certain selected consolidated financial data
for the Company. The consolidated income statement data set forth below for
the years ended December 31, 1992 through 1996 and the consolidated balance
sheet data as of December 31, 1992 through 1996 are derived from the
consolidated financial statements of the Company, which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Segment and
Other Data and Pro Forma Consolidated Balance Sheet Data appearing below are
unaudited. The selected consolidated financial data set forth below should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto and the other financial information, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein.

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ 286.6 $ 217.2 $ 165.5 $ 131.3
Life insurance
premiums.............. 198.6 199.1 176.7 188.4 200.2
Net investment income.. 1,357.8 1,294.0 1,210.8 1,131.2 1,049.4
Realized gains/(losses)
on investments........ (0.2) (1.7) (16.5) 106.2 (19.4)
Other income........... 59.5 59.0 45.9 48.1 44.1
--------- --------- --------- --------- ---------
Total revenues......... 2,016.6 1,837.0 1,634.1 1,639.3 1,405.6
--------- --------- --------- --------- ---------
Benefits and expenses:
Benefits and claims.... 1,160.6 1,115.4 992.7 982.2 966.3
Policyholder
dividends............. 41.0 39.9 38.8 43.0 45.7
Amortization of
deferred policy
acquisition costs..... 133.4 82.7 85.6 70.2 49.2
Operating expenses..... 353.5 317.8 276.6 268.2 228.0
--------- --------- --------- --------- ---------
Total benefits and ex-
penses................ 1,688.5 1,555.8 1,393.7 1,363.5 1,289.2
--------- --------- --------- --------- ---------
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................ 328.1 281.2 240.4 275.8 116.4
Federal income tax
expense................ 115.8 96.3 82.5 96.7 32.1
--------- --------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of
accounting changes..... 212.3 184.9 157.9 179.1 84.3
Income from discontinued
operations, net of
federal income tax
expense................ 11.3 24.7 20.5 28.6 2.1
--------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
changes................ 223.6 209.6 178.4 207.7 86.4
Cumulative effect of
accounting changes, net
of federal income tax
benefit................ -- -- -- (0.1) --
--------- --------- --------- --------- ---------
Net income............. $ 223.6 $ 209.6 $ 178.4 $ 207.6 $ 86.4
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $19,915.0 $17,156.2 $15,697.5 $14,674.8
Separate account
assets................. 26,926.7 18,591.1 12,087.1 9,006.4 6,081.4
Total assets............ 47,770.2 38,506.1 29,243.3 24,703.9 20,756.2
Long-term debt.......... -- -- -- -- --
Total liabilities....... 45,638.5 35,889.4 27,382.7 23,094.3 19,358.6
Shareholder's
equity(1).............. 2,131.7 2,616.7 1,860.6 1,609.6 1,397.6
SEGMENT AND OTHER DATA:
Operating income (loss)
before income taxes by
segment(2):
Variable Annuities..... $ 90.3 $ 50.8 $ 24.6 $ 10.4 $ 13.1
Fixed Annuities........ 135.4 137.0 139.0 105.9 95.3
Life Insurance......... 67.2 67.6 53.0 49.7 46.1
Corporate and
Other(1)(3)........... 35.4 27.5 40.3 3.6 (18.7)
</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Policy reserves by seg-
ment:
Variable Annuities(4).. $24,278.1 $16,761.8 $10,751.1 $ 7,854.8 $5,028.2
Fixed Annuities(4)..... 13,511.8 12,784.0 11,247.0 10,154.1 9,659.8
Life Insurance......... 2,938.9 2,660.5 2,425.2 2,255.0 2,084.8
Corporate and
Other(3).............. 3,302.5 2,644.3 2,252.7 2,103.9 1,823.0
Statutory premiums,
deposits and other
considerations by
product segment(5):
Variable Annuities(6).. 6,500.3 4,399.3 3,821.1 2,414.2 1,561.8
Fixed Annuities(6)..... 1,600.5 1,864.2 1,308.6 1,300.9 1,637.8
Life Insurance......... 439.3 352.4 320.8 279.4 264.7
Corporate and
Other(3).............. 502.6 182.1 148.5 205.3 91.7
Net operating in-
come(2)................ 211.3 184.8 168.2 109.7 97.0
Ratio of earnings to
fixed charges(7)....... 1.3x 1.3x 1.3x 1.3x 1.1x
</TABLE>

- --------
(1) The Company has received cash capital contributions and declared cash
dividends over the periods presented as follows:

The cash capital contributions and cash dividends and the related increases
and decreases to net investment income are recorded in the Corporate and
Other segment. The cash capital contributions and cash dividends had a
direct impact on the Company's shareholder's equity and the operating income
(loss) before federal income tax expense of the Corporate and Other segment.
(2) Excludes realized gains/(losses) on investments (net of related federal
income tax where applicable), discontinued operations and cumulative
effect of accounting changes.
(3) The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees; other revenues
and operating expenses of Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments;
commissions and other income earned by the marketing and distribution
subsidiaries of the Company; and revenues, benefits and expenses
associated with group annuity contracts issued to Nationwide Insurance
Enterprise employee and agent benefit plans.
(4) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such amounts were $9.52 billion, $8.83 billion and
$7.27 billion, respectively.
(5) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(6) Statutory premiums, deposits and other considerations related to the fixed
option under the Company's variable annuity contracts are included in
Fixed Annuities. For the years ended December 31, 1996, 1995 and 1994,
such amounts were $1.24 billion, $1.57 billion and $1.05 billion,
respectively.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and cumulative
effect of accounting changes and fixed charges. Fixed charges consist of
interest expense on debt plus interest credited to policyholder account
balances. There was no interest expense on debt for any of the periods
presented.
(8) Pro forma to give effect to the Special Dividend totalling $850.0 million
as if the Special Dividend had occurred as of December 31, 1996. The
Special Dividend was paid by the Company on February 24, 1997.

32
<PAGE>

PRO FORMA CONSOLIDATED FINANCIAL DATA

The pro forma consolidated financial data for the Company set forth in the
tables below give effect to (i) the Special Dividend, the Equity Offerings,
the Note Offering and the Capital Securities Offering, (ii) the Special
Dividend and the Equity Offerings, (iii) the Special Dividend, the Equity
Offerings and the Note Offering and (iv) the Special Dividend, the Equity
Offerings and the Capital Securities Offering. The Consolidated Income
Statement Data and Other Data set forth in the tables below also give effect
to 1996 Cash Dividend. The tables below are presented as if each of the
Special Dividend, the Equity Offerings, the Note Offering, the Capital
Securities Offering and the 1996 Cash Dividend, as applicable, had been
consummated at the beginning of the period indicated or, in the case of the
balance sheet data, as of the date indicated. The pro forma financial data do
not purport to reflect what the Company's financial position or results of
operations would actually have been if any or all of the Equity Offerings, the
Special Dividend, the Note Offering, the Capital Securities Offering and the
1996 Cash Dividend had in fact occurred on such dates nor should they be taken
as indicative of the future results of operations of the Company. The pro
forma consolidated financial information should be read in conjunction with
the consolidated financial statements of the Company and the notes thereto and
the other financial information pertaining to the Company included elsewhere
herein. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE NOTE OFFERING,
THE CAPITAL SECURITIES OFFERING AND, WITH RESPECT TO CONSOLIDATED INCOME
STATEMENT DATA AND OTHER DATA ONLY, THE 1996 CASH DIVIDEND

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
-------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Policy charges.......................... $ 400.9 $ -- $ 400.9
Life insurance premiums................. 198.6 -- 198.6
Net investment income................... 1,357.8 (68.3)(2) 1,289.5
Realized losses on investments.......... (0.2) -- (0.2)
Other income............................ 59.5 -- 59.5
-------- ------- --------
Total revenues......................... 2,016.6 (68.3) 1,948.3
-------- ------- --------
Benefits and Expenses:
Benefits and claims..................... 1,160.6 -- 1,160.6
Policyholder dividends.................. 41.0 -- 41.0
Amortization of deferred policy acquisi-
tion costs............................. 133.4 -- 133.4
Operating expenses...................... 353.5 -- 353.5
Interest expense........................ -- 32.1 (3) 32.1
-------- ------- --------
Total benefits and expenses............ 1,688.5 32.1 1,720.6
-------- ------- --------
Income from continuing operations before
federal income tax expense.............. 328.1 (100.4) 227.7
Federal income tax expense............... 115.8 (35.1)(4) 80.7
-------- ------- --------
Income from continuing operations.... $ 212.3 $ (65.3) $ 147.0
======== ======= ========
</TABLE>

33
<PAGE>

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
-------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
General account assets................... $20,843.5 $ 4.0(5) $20,847.5
Separate account assets.................. 26,926.7 -- 26,926.7
Total assets............................. 47,770.2 4.0 47,774.2
Long-term debt........................... -- 298.4 (6) 298.4
Capital Securities....................... -- 100.0 (7) 100.0
Shareholders' equity..................... 2,131.7 (394.4)(8) 1,737.3
OTHER DATA:
Net operating income(9).................. $ 211.3 $ (65.3) $ 146.0
Realized gains/(losses) on investments,
net of tax.............................. 1.0 -- 1.0
--------- ------- ---------
Income from continuing operations....... $ 212.3 $ (65.3) $ 147.0
========= ======= =========
Income from continuing operations per
common share(10)....................... $ 2.03 $ 1.17
========= =========
Ratio of earnings to fixed charges(11)... 1.3x 1.2x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $455.6 million and the issuance of 20,540,000 shares of Class
A Common Stock), (ii) the Special Dividend totalling $850.0 million which
was paid by the Company on February 24, 1997, (iii) the Note Offering and
the Capital Securities Offering (assuming net proceeds of $393.2 million
from such offerings) and (iv) with respect to Consolidated Income
Statement Data and Other Data only, the 1996 Cash Dividend totalling
$50.0 million which was paid by the Company on December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings, the Note Offering and the Capital Securities Offering at an
assumed reinvestment rate of 7.5%, the net adjustment would be a
reduction of $4.5 million, resulting in pro forma net operating income of
$187.4 million.
(3) The $300 million aggregate principal amount of Notes will bear interest
at a rate of 8.0% per annum. The $100 million aggregate liquidation
amount of the Capital Securities will bear a distribution rate of 7.899%
per annum. Interest expense includes amortization of deferred issuance
costs and discount.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings, the Note Offering and the Capital Securities Offering. Also
included are capitalized issuance costs.
(6) Represents aggregate principal amount of Notes less discount.
(7) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services
Capital Trust, holding solely junior subordinated debentures of
Nationwide Financial Services, Inc." with a footnote indicating that all
of the Common Securities of the Trust, which are the only voting
securities of the Trust, are owned by the Company, that the sole assets
of the Trust are the junior subordinated debentures (indicating the
principal amount, interest rate and maturity date thereof) and that the
Trust's obligations with respect to the Capital Securities, through the
Guarantee, the Junior Subordinated Debentures, the Indenture and the
Declaration, taken together, are fully and unconditionally guaranteed by
the Company.
(8) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(9) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(10) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(11) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.

34
<PAGE>

PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS AND, WITH RESPECT TO
CONSOLIDATED INCOME STATEMENT DATA AND OTHER DATA ONLY, THE 1996 CASH DIVIDEND

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ -- $ 400.9
Life insurance premi-
ums................... 198.6 -- 198.6
Net investment income.. 1,357.8 (67.5)(2) 1,290.3
Realized losses on in-
vestments............. (0.2) -- (0.2)
Other income........... 59.5 -- 59.5
--------------- ------------- ---------------
Total revenues........ 2,016.6 (67.5) 1,949.1
--------------- ------------- ---------------
Benefits and Expenses:
Benefits and claims.... 1,160.6 -- 1,160.6
Policyholder divi-
dends................. 41.0 -- 41.0
Amortization of de-
ferred policy acquisi-
tion costs............ 133.4 -- 133.4
Operating expenses..... 353.5 -- 353.5
Interest expense....... -- -- --
--------------- ------------- ---------------
Total benefits and
expenses............. 1,688.5 -- 1,688.5
--------------- ------------- ---------------
Income from continuing
operations before fed-
eral income tax ex-
pense.................. 328.1 (67.5) 260.6
Federal income tax ex-
pense.................. 115.8 (23.6)(3) 92.2
--------------- ------------- ---------------
Income from continu-
ing operations..... $ 212.3 $ (43.9) $ 168.4
=============== ============= ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $ 20,843.5 $ (394.4)(4) $ 20,449.1
Separate account as-
sets................... 26,926.7 -- 26,926.7
Total assets............ 47,770.2 (394.4) 47,375.8
Long-term debt.......... -- -- --
Capital Securities...... -- -- --
Shareholders' equity.... 2,131.7 (394.4)(4) 1,737.3
OTHER DATA:
Net operating income
(5).................... $ 211.3 $ (43.9) $ 167.4
Realized gains/(losses)
on investments, net of
tax.................... 1.0 -- 1.0
--------------- ------------- ---------------
Income from continuing
operations............ $ 212.3 $ (43.9) $ 168.4
=============== ============= ===============
Income from continuing
operations per common
share(6).............. $ 2.03 $ 1.34
=============== ===============
Ratio of earnings to
fixed charges (7)...... 1.3x 1.3x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $455.6 million from the issuance of 20,540,000 shares of Class
A Common Stock), (ii) the Special Dividend totalling $850.0 million which
was paid by the Company on February 24, 1997 and (iii) with respect to
Consolidated Income Statement Data and Other Data only, the 1996 Cash
Dividend totalling $50.0 million which was paid by the Company on December
31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings at an assumed reinvestment rate of 7.5%, the net adjustment
would be a reduction of $33.3 million, resulting in net operating income
of $189.7 million.
(3) Income tax effect of the pro forma adjustments at the statutory rate.
(4) The excess of the Special Dividend over the proceeds form the Equity
Offerings.
(5) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(6) Actual is based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma is based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 shares of Class
A Common Stock assumed to be issued in the Equity Offerings.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed charges.
Fixed charges consist of interest expense on debt plus interest credited
to policyholder account balances. There was no actual interest expense on
debt for the year ended December 31, 1996.

35
<PAGE>

PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE NOTE OFFERING
AND, WITH RESPECT TO CONSOLIDATED INCOME STATEMENT DATA AND OTHER DATA ONLY,
THE 1996 CASH DIVIDEND

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges........ $ 400.9 $ -- $ 400.9
Life insurance
premiums............. 198.6 -- 198.6
Net investment
income............... 1,357.8 (68.1)(2) 1,289.7
Realized losses on
investments.......... (0.2) -- (0.2)
Other income.......... 59.5 -- 59.5
--------------- ------------ ---------------
Total revenues...... 2,016.6 (68.1) 1,948.5
--------------- ------------ ---------------
Benefits and Expenses:
Benefits and claims... 1,160.6 -- 1,160.6
Policyholder
dividends............ 41.0 -- 41.0
Amortization of
deferred policy
acquisition costs.... 133.4 -- 133.4
Operating expenses.... 353.5 -- 353.5
Interest expense...... -- 24.2 (3) 24.2
--------------- ------------ ---------------
Total benefits and
expenses........... 1,688.5 24.2 1,712.7
--------------- ------------ ---------------
Income from continuing
operations before
income tax expense.... 328.1 (92.3) 235.8
Federal income tax
expense............... 115.8 (32.3)(4) 83.5
--------------- ------------ ---------------
Income from
continuing
operations........ $ 212.3 $ (60.0) $ 152.3
=============== ============ ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account
assets................ $ 20,843.5 $ (96.0)(5) $ 20,747.5
Separate accounts
assets................ 26,926.7 -- 26,926.7
Total assets........... 47,770.2 (96.0) 47,674.2
Long-term debt......... -- 298.4 (6) 298.4
Capital Securities..... -- -- --
Shareholders' equity... 2,131.7 (394.4)(7) 1,737.3
OTHER DATA:
Net operating income
(8)................... $ 211.3 $ (60.0) $ 151.3
Realized gains/(losses)
on investments, net of
tax................... 1.0 -- 1.0
--------------- ------------ ---------------
Income from continu-
ing operations....... $ 212.3 $ (60.0) $ 152.3
=============== ============ ===============
Income from
continuing
operations per
common share (9)..... $ 2.03 $ 1.22
=============== ===============
Ratio of earnings to
fixed charges (10).... 1.3x 1.2x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $455.6 million from the issuance of 20,540,000 shares of
Class A Common Stock), (ii) the Special Dividend totalling $850.0 million
which was paid by the Company on February 24, 1997, (iii) the Note
Offering (assuming net proceeds of $295.0 million) and (iv) with respect
to Consolidated Income Statement Data and Other Data only, the 1996 Cash
Dividend totalling $50.0 million which was paid by the Company on
December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings and the Note Offering at an assumed reinvestment rate of 7.5%,
the net adjustment would be a reduction of $11.8 million, resulting in
pro forma net operating income of $187.9 million.
(3) The $300 million aggregate principal amount of the Notes will bear
interest at a rate of 8.0% per annum. Interest expense includes
amortization of deferred issuance costs and discount.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings and Note Offering. Also included are capitalized issuance
costs.
(6) Represents aggregate principal amount of Notes less discount.
(7) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(8) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(9) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(10) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.

36
<PAGE>

PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE CAPITAL
SECURITIES OFFERING AND, WITH RESPECT TO CONSOLIDATED INCOME STATEMENT DATA
AND OTHER DATA ONLY, THE 1996 CASH DIVIDEND

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges........ $ 400.9 $ -- $ 400.9
Life insurance
premiums............. 198.6 -- 198.6
Net investment
income............... 1,357.8 (67.7)(2) 1,290.1
Realized losses on
investments.......... (0.2) -- (0.2)
Other income.......... 59.5 -- 59.5
--------------- ------------- ---------------
Total revenues....... 2,016.6 (67.7) 1,948.9
--------------- ------------- ---------------
Benefits and Expenses:
Benefits and claims... 1,160.6 -- 1,160.6
Policyholder
dividends............ 41.0 -- 41.0
Amortization of
deferred policy
acquisition costs.... 133.4 -- 133.4
Operating expenses.... 353.5 -- 353.5
Interest expense...... -- 7.9 (3) 7.9
--------------- ------------- ---------------
Total benefits and
expenses............ 1,688.5 7.9 1,696.4
--------------- ------------- ---------------
Income from continuing
operations before
federal income tax
expense............... 328.1 (75.6) 252.5
Federal income tax
expense............... 115.8 (26.5)(4) 89.3
--------------- ------------- ---------------
Income from
continuing
operations........ $ 212.3 $ (49.1) $ 163.2
=============== ============= ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account
assets................ $20,843.5 $(294.4)(5) $20,549.1
Separate account
assets................ 26,926.7 -- 26,926.7
Total assets........... 47,770.2 (294.4) 47,475.8
Long-term debt......... -- -- --
Capital securities..... -- 100.0 (6) 100.0
Shareholders' equity... 2,131.7 (394.4)(7) 1,737.3
OTHER DATA:
Net operating
income(8)............. $ 211.3 $ (49.1) $ 162.2
Realized gains/(losses)
on investments, net of
tax................... 1.0 -- 1.0
--------------- ------------- ---------------
Income from
continuing
operations.......... $ 212.3 $ (49.1) $ 163.2
=============== ============= ===============
Income from
continuing
operations per
common share(9)..... $ 2.03 $ 1.30
=============== ===============
Ratio of earnings to
fixed charges(10)..... 1.3x 1.3x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $455.6 million from the issuance of 20,540,000 shares of
Class A Common Stock), (ii) the Special Dividend totalling $850.0 million
which was paid by the Company on February 24, 1997, (iii) the Capital
Securities Offering (assuming net proceeds of $98.2 million) and (iv)
with respect to Consolidated Income Statement Data and Other Data only,
the 1996 Cash Dividend totalling $50.0 million which was paid by the
Company on December 31, 1996.
(2) Reduction in net investment income on the 1996 Cash Dividend and the
Special Dividend at an assumed rate of 7.5%. If this reduction were
partially offset by net investment income on the proceeds from the Equity
Offerings and the Capital Securities Offering at an assumed reinvestment
rate of 7.5%, the net adjustment would be a reduction of $26.2 million,
resulting in pro forma net operating income of $189.1 million.
(3) The $100 million aggregate liquidation amount of the Capital Securities
will bear a distribution rate of 7.899% per annum. Interest expense
includes amortization of deferred issuance costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings and Capital Securities Offering. Also included are capitalized
issuance costs.
(6) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services
Capital Trust, holding solely junior subordinated debentures of
Nationwide Financial Services, Inc." with a footnote indicating that all
of the Common Securities of the Trust, which are the only voting
securities of the Trust, are owned by the Company, that the sole assets
of the Trust are the junior subordinated debentures (indicating the
principal amount, interest rate and maturity date thereof) and that the
Trust's obligations with respect to the Capital Securities, through the
Guarantee, the Junior Subordinated Debentures, the Indenture and the
Declaration, taken together, are fully and unconditionally guaranteed by
the Company.
(7) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(8) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(9) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(10) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.

37
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The following analysis of consolidated results of operations and financial
condition of the Company should be read in conjunction with "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Data" and the
Consolidated Financial Statements and related footnotes included elsewhere in
this Prospectus.

The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. The
consolidated financial information discussed below includes the results of
operations of Nationwide Life and the related marketing and distribution
companies as though they had been consolidated with the Company for all
periods presented. See "Recent History," "Certain Relationships and Related
Transactions--Existing Arrangements with the Nationwide Insurance Enterprise--
Organization of the Company" and "--Modified Coinsurance Agreements."

RESULTS OF OPERATIONS

Policy Charges. Policy charges include asset fees, which are primarily
earned from separate account assets generated from sales of variable
annuities; administration fees, which include fees charged per contract on a
variety of the Company's products and premium loads on universal life
insurance products; surrender fees, which are charged as a percentage of
assets withdrawn during a specified period (usually the first seven years) of
annuity and certain life insurance contracts; and cost-of-insurance ("COI")
charges earned on universal life insurance products. For 1996, policy charges
were $400.9 million, a 39.9% increase from $286.6 million in 1995. Policy
charges increased 32.0% in 1995 from $217.2 million in 1994. Increases in
policy charges have resulted primarily from increases in separate account
assets and the resulting higher levels of asset fees, as well as a moderate
increase in all of the fees discussed above due to the growth in customer
accounts.

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

Net Investment Income. Net investment income includes the gross investment
income earned on investments supporting fixed annuities and certain life
insurance products as well as the yield on the Company's general account
invested assets which are not allocated to product segments. Net investment
income was $1.36 billion in 1996, $1.29 billion in 1995 and $1.21 billion in
1994. Net investment income has increased as a result of growth in the
Company's general account invested assets. General account invested assets
were $18.32 billion, $17.83 billion and $15.23 billion as of December 31,
1996, 1995 and 1994, respectively.

Realized Gains/(Losses) on Investments. Realized gains on investments are
not considered by the Company to be a recurring source of earnings. The
Company makes decisions concerning the sale of invested assets based on a
variety of market, business, tax and other factors. All realized gains and
losses are reported in the Corporate and Other segment. Net realized losses on
investments were $0.2 million in 1996, $1.7 million in 1995 and $16.5 million
in 1994.

38
<PAGE>

Other Income. Other income consists of investment management fees earned by
a subsidiary of the Company from the management of Nationwide mutual funds, as
well as commission and other income earned by the Company's marketing and
distribution subsidiaries. Net investment management fees earned on Nationwide
mutual fund assets selected as investment options for variable annuity
products and variable life insurance products are reported in the Variable
Annuities segment and Life Insurance segment, respectively. The Company also
sells its mutual fund products separately, and investment management fees from
these assets are included in the Corporate and Other segment. Other income was
$59.5 million in 1996, a 0.8% increase from 1995. Other income increased 28.8%
to $59.0 million in 1995 from $45.9 million in 1994. The increase in other
income in 1996 and 1995 resulted primarily from an increase in commission
income.

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

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

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

Operating Expenses. Operating expenses were $353.5 million in 1996, an 11.3%
increase 1995. Operating expenses increased 14.9% to $317.8 million in 1995
from $276.6 million in 1994. These increases were primarily due to the
increasing number of individual and group annuity contracts in-force and the
related increase in administrative processing costs. The Company has
controlled its operating expenses by taking advantage of economies of scale
and by increasing productivity through investments in technology. As a result,
the ratio of operating expenses to total assets declined to 0.74% in 1996 from
0.83% in 1995 and 0.95% in 1994.

Federal Income Tax Expenses. Federal income tax expense was $115.8 million,
$96.3 million and $82.5 million, representing effective tax rates of 35.3%,
34.3% and 34.3%, for 1996, 1995 and 1994, respectively. The increase in the
1996 effective tax rate is the result of greater benefits in 1995 and from
charitable donations of appreciated securities.

Net Operating Income. Net operating income is net income, excluding realized
gains and losses on investments (net of related federal income tax) and
discontinued operations. Net operating income for 1996 was $211.3 million, a
14.3% increase from 1995. The Company's net operating income increased 9.9% to
$184.8 million in 1995 from $168.2 million in 1994.

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

39
<PAGE>

EFFECT OF THE SPECIAL DIVIDEND, THE NOTE OFFERING AND THE CAPITAL SECURITIES
OFFERING

In connection with the Capital Securities Offering, the Company expects to
consummate the Equity Offerings and the Note Offering. The consummation of the
Capital Securities Offering is not conditioned on the completion of the Note
Offering. There can be no assurance that the Note Offering will be
consummated. See "Use of Proceeds," "Recent History" and "The Equity
Offerings, the Note Offering and the Capital Securities Offering." The Equity
Offerings and the Note Offering are being made pursuant to separate
prospectuses.
The proceeds from the Capital Securities Offering will be used by the Trust
to purchase Junior Subordinated Debentures of the Company. The proceeds
received by the Company from the sale of the Junior Subordinated Debentures,
together with proceeds from the Note Offering, will be contributed to the
capital of Nationwide Life. On February 24, 1997, Nationwide Life paid a
dividend to the Company, and the Company paid an equivalent dividend to
Nationwide Corp., consisting of securities having an aggregate market value of
$850.0 million. Together with the effect of the proceeds of the Equity
Offerings, these transactions are expected to result in a net decrease in
invested assets of the Company of $1.2 million, which is expected to result in
a slight decrease in net investment income in the future. Interest expense
generated by the securities sold in the Note Offering and the Capital
Securities Offering is expected to be approximately $32.1 million per year.
See Note 3 to "Pro Forma Consolidated Financial Data--Pro Forma for the
Special Dividend, the Equity Offerings, the Note Offering, the Capital
Securities Offering and, with respect to Consolidated Income Statement Data
and Other Data only, the 1996 Cash Dividend."

The Notes will mature on March 1, 2027, with interest payable semi-annually.
The Notes include the option for the Company to redeem part or all of the
outstanding Notes beginning March 1, 2007. The Notes will not require any
sinking fund payments.

40
<PAGE>

RESULTS OF OPERATIONS BY PRODUCT SEGMENT

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

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

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES:
Variable Annuities(1)......................... $ 284.6 $ 189.0 $ 132.7
Fixed Annuities(1)............................ 1,092.6 1,052.0 939.9
Life Insurance................................ 435.6 409.1 383.1
Corporate and Other........................... 204.0 188.6 194.9
--------- --------- ---------
Total operating revenues.................... 2,016.8 1,838.7 1,650.6
Realized losses on investments................ (0.2) (1.7) (16.5)
--------- --------- ---------
Total revenues.............................. $ 2,016.6 $ 1,837.0 $ 1,634.1
========= ========= =========
INCOME FROM CONTINUING OPERATIONS BEFORE FED-
ERAL INCOME TAX
EXPENSE:
Variable Annuities............................ $ 90.3 $ 50.8 $ 24.6
Fixed Annuities............................... 135.4 137.0 139.0
Life Insurance................................ 67.2 67.6 53.0
Corporate and Other........................... 35.4 27.5 40.3
--------- --------- ---------
Total operating income...................... 328.3 282.9 256.9
Realized losses on investments................ (0.2) (1.7) (16.5)
--------- --------- ---------
Total income from continuing operations
before income federal tax expense.......... $ 328.1 $ 281.2 $ 240.4
========= ========= =========
POLICY RESERVES:
Variable Annuities(2)......................... $24,278.1 $16,761.8 $10,751.1
Fixed Annuities(2)............................ 13,511.8 12,784.0 11,247.0
Life Insurance................................ 2,938.9 2,660.5 2,425.2
Corporate and Other........................... 3,302.5 2,644.3 2,252.7
--------- --------- ---------
Total policy reserves(3).................... $44,031.3 $34,850.6 $26,676.0
========= ========= =========
</TABLE>
- --------
(1) Revenues related to the fixed option under the Company's variable annuity
contracts are included in Fixed Annuities.
(2) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such policy reserves represented $9.52 billion, $8.83
billion and $7.27 billion, respectively.
(3) Total policy reserves as presented here differ from the amounts set forth
in the Company's financial statements because the presented amounts
exclude (i) accident and health and group life insurance business ceded to
other members of the Nationwide Insurance Enterprise and (ii) the fixed
annuity policy reserves ceded to Franklin Life Insurance Company
("Franklin Life"). See "Business--Reinsurance" and "Certain Relationships
and Related Transactions--Existing Arrangements with the Nationwide
Insurance Enterprise--Modified Coinsurance Agreements."

41
<PAGE>

Variable Annuities

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

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

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

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

Fixed Annuities

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

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

42
<PAGE>

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

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

Life Insurance

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

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

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

Corporate and Other

Revenues. Revenues in the Corporate and Other segment consist of net
investment income on invested assets not allocated to the three product
segments, all realized investment gains and losses, investment management fees
and other revenues earned from Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments, commissions
and other income earned by the marketing and distribution subsidiaries of the
Company and net investment income and policy charges from group annuity
contracts issued to Nationwide Insurance Enterprise employee and agent benefit
plans. Total revenues excluding realized gains and losses were $204.0 million
for 1996, an 8.2% increase from 1995. The increase in 1996 is the result of an
increase in investment income, investment management fees and commissions
earned. Total revenues excluding realized gains and losses were $188.6 million
and $194.9 million in 1995 and 1994, respectively. The decrease is a result of
a reduction of $155.0 million of invested assets discussed below. Effective
December 31, 1994, the Company transferred $155.0 million of invested assets
from the Corporate and Other segment for the purchase of Employers Life.
Realized losses on investments were $0.2 million, $1.7 million and $16.5
million in 1996, 1995 and 1994, respectively.

Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense excluding
realized gains and losses was $35.4 million, $27.5 million and $40.3 million
in 1996, 1995 and 1994, respectively. The changes between years are primarily
attributed to the changes in revenues discussed above. Interest expense
related to the Note Offering and the Capital Securities Offering will be
recorded in the Corporate and Other segment which will reduce income from
continuing operations before federal income tax expense for the Corporate and
Other segment in periods after the completion of such offerings.

43
<PAGE>

INTERCOMPANY AGREEMENTS

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

Nationwide Mutual and its U.S. subsidiaries, including the Company and its
subsidiaries, file a consolidated federal income tax return. The members of
the consolidated group currently have a tax sharing arrangement which provides
for each member to bear essentially the same federal income tax liability as
if separate tax returns were filed. For the years ended December 31, 1996,
1995 and 1994, the Company made federal income tax payments under the tax
sharing arrangement of $117.3 million, $58.1 million and $84.9 million,
respectively. See "Certain Relationships and Related Transactions--Existing
Arrangements with the Nationwide Insurance Enterprise--Federal Income Taxes."

The Company leases 512,000 square feet of office space at a current market
rate of $19.53 per square foot, with limited exceptions, from Nationwide
Mutual and certain of its subsidiaries. For the years ended December 31, 1996,
1995 and 1994, the Company made lease payments to Nationwide Mutual and its
subsidiaries of $10.0 million, $9.9 million and $9.0 million, respectively.
See "Certain Relationships and Related Transactions--Existing Arrangements
with the Nationwide Insurance Enterprise--Lease."

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

Upon consummation of the Equity Offerings, certain other intercompany
agreements will become effective, including the revised Tax Sharing Agreement,
a lease agreement (the "Lease Agreement") and the Intercompany Agreement. The
Company will be subject to the Tax Sharing Agreement until such time as
Nationwide Mutual no longer beneficially owns at least 80% of the combined
voting power and value of the outstanding capital stock of the Company. The
initial term of the Lease Agreement is for 12 months and automatically renews
upon the same terms and conditions unless either Nationwide Mutual or the
Company gives 30 days' written notice to the other party prior to the end of
such 12-month period. Neither the Tax Sharing Agreement nor the Lease
Agreement may be amended without the prior written consent of the Company. See
"Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise."

The Intercompany Agreement will govern, among other things, the use by the
Company of certain trade names and service marks owned by Nationwide Mutual,
Nationwide Mutual's approval of certain extraordinary transactions involving
the Company, Nationwide Corp.'s preemptive and registration rights, certain
indemnification matters and the use by the Company of Nationwide Insurance
Enterprise insurance agents. The Intercompany Agreement may not be amended
without the prior written consent of the Company and certain

44
<PAGE>

material provisions thereof may not be amended without the approval of a
majority of the directors of the Company who are not officers or directors of
members of the Nationwide Insurance Enterprise other than the Company and its
subsidiaries. See "Certain Relationships and Related Transactions--New
Agreements with the Nationwide Insurance Enterprise--Intercompany Agreement."

The Company does not believe its results of operations will be materially
adversely affected as a result of any of the new intercompany agreements that
will become effective upon the consummation of the Equity Offerings.

REINSURANCE

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

The Company is an insurance holding company whose principal asset is the
common stock of Nationwide Life. The principal sources of funds for the
Company to pay principal, interest, dividends and operating expenses are
dividends from Nationwide Life and other subsidiaries and payments from
Nationwide Life under the Tax Sharing Agreement.

State insurance laws generally restrict the ability of insurance companies
to pay cash dividends in excess of certain prescribed limitations without
prior approval. The ability of Nationwide Life to pay dividends is subject to
restrictions set forth in the insurance laws and regulations of Ohio, its
domiciliary state. The Ohio insurance

45
<PAGE>

laws require life insurance companies to seek prior regulatory approval to pay
a dividend or distribution of cash or other property if the fair market value
thereof, together with that of other dividends or distributions made in the
preceding 12 months, exceeds the greater of (i) 10% of policyholders' surplus
as of the prior December 31 or (ii) the net income of the insurer for the 12-
month period ending as of the prior December 31. The Ohio insurance laws also
require insurers to seek prior regulatory approval for any dividend paid from
other than earned surplus. The payment of dividends by Nationwide Life may
also be subject to restrictions set forth in the insurance laws of New York
that limit the amount of statutory profits on Nationwide Life's participating
policies (measured before dividends to policyholders) that can inure to the
benefit of the Company and its stockholders. The Company currently does not
expect such regulatory requirements to impair its ability to pay operating
expenses and dividends in the future. However, the Company can give no
assurance that dividends will be declared or paid by the Company.

As a result of the Special Dividend and the dividend by Nationwide Life of
the stock of certain subsidiaries that do not operate in the long-term savings
and retirement market, any dividend paid by Nationwide Life during the 12-
month period immediately following the Special Dividend would be an
extraordinary dividend under Ohio insurance laws. See "Recent History."
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 Nationwide Life would not receive the required approval.
However, in order to increase liquidity at the holding company level, the
Company will retain approximately $84.0 million from the net proceeds of the
Equity Offerings. The $84.0 million, which will be invested in short-term
interest-bearing securities, will be available initially to pay interest
associated with the Note Offering and the Capital Securities Offering,
stockholder dividends, and expenses.

Nationwide Life's statutory capital and surplus was $1.00 billion at
December 31, 1996. Nationwide Life paid the Special Dividend of $850.0 million
on February 24, 1997. The Company will contribute to Nationwide Life
approximately $371.6 million of the net proceeds from the Equity Offerings.
The Company believes that after the Special Dividend and such contribution of
the proceeds from the Equity Offerings, Nationwide Life will have adequate
statutory capital and surplus to satisfy all regulatory requirements and to
support its growth over the following year. In addition, any proceeds from the
Note Offering and the Capital Securities Offerings will be contributed to
Nationwide Life, providing it with additional capital resources.

Nationwide Life paid the Special Dividend by transferring primarily fixed
maturity investments with an aggregate market value on the date of transfer of
$850.0 million from the Corporate and Other segment. The Company may recognize
a gain or loss on the transfer of the securities. The related tax impact of
any gain or loss would be recognized but would not be paid as long as the
securities are held by Nationwide Mutual and the Company remains within the
consolidated federal tax return of Nationwide Mutual.

Nationwide Life's principal sources of funds are premiums and other
considerations paid, contract charges earned, net investment income received
and proceeds from investments called, redeemed or sold. The principal uses of
these funds are the payment of benefits on annuity contracts and life
insurance policies, operating expenses and the purchase of investments. Net
cash provided by operating activities (reflecting principally (i) premiums and
contract charges collected, less (ii) benefits paid on life insurance
products, plus (iii) income collected on invested assets, less (iv)
commissions and other general expenses paid) was $341.6 million, $192.8
million and $77.9 million for the years ended December 31, 1996, 1995 and
1994, respectively. Net cash used by investing activities (principally
reflecting investments purchased less investments called, redeemed or sold)
was $765.9 million, $1.73 billion and $1.43 billion in the years ended
December 31, 1996, 1995 and 1994, respectively. Net cash provided by financing
activities (principally reflecting deposits to investment product and
universal life insurance product account balances less withdrawals from such
account balances and capital contributions less dividends paid) was $457.5
million, $1.54 billion and $1.33 billion for the years ended December 31,
1996, 1995 and 1994, respectively.

A primary liquidity concern with respect to life insurance and annuity
products is the risk of early policyholder and contractholder withdrawal. The
Company closely evaluates and manages this risk. The

46
<PAGE>

following table summarizes the Company's annuity policy reserves as of
December 31, 1996 and 1995 by the contractholder's ability to withdraw funds.
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
POLICY POLICY
RESERVES % RESERVES %
------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary withdrawal.. $ 1,139.5 2.8% $ 1,087.2 3.4%
Subject to discretionary withdrawal with
adjustment:
With market value adjustment........... 35,463.2 86.3 27,312.1 84.8
At contract value, less surrender
charge of 5% or more.................. 1,046.6 2.5 992.1 3.1
---------- ------- ---------- -------
37,649.3 91.6 29,391.4 91.3
Subject to discretionary withdrawal at
contract value with no surrender charge
or surrender charge less than 5%........ 3,443.2 8.4 2,798.7 8.7
---------- ------- ---------- -------
Total annuity policy reserves........ $41,092.5 100.0% $32,190.1 100.0%
========== ======= ========== =======
</TABLE>

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

Nationwide Life's principal sources of liquidity to meet unexpected cash
outflows are its portfolio of liquid assets and its net operating cash flow.
See "Business--Investments."

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

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

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

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

47
<PAGE>

for longer maturity treasury securities had comparable ranges. The values
produced by each projection are used to determine future gains or losses from
the Company's annuity and insurance business, which, in turn, are used to
quantify the adequacy of the Company's reserves over the entire projection
period. The results of the Company's cash flow testing for year end 1996 (the
most recent year for which results are available) indicated that the Company's
reserves were adequate at December 31, 1996.

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

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

Given the Company's historic cash flow and current financial results,
management of the Company believes that the cash flow from the operating
activities of the Company over the next year will provide sufficient liquidity
for the operations of the Company, as well as provide sufficient funds to
enable the Company to make dividend payments, satisfy debt service obligations
and pay other operating expenses. Although the Company currently anticipates
that it will be able to make dividend payments and pay other operating and
capital expenses for the foreseeable future, the Company can give no
assurances as to whether the net cash provided primarily by dividends from
Nationwide Life and its other subsidiaries will provide sufficient funds for
the Company to do so.

INFLATION

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

48
<PAGE>

BUSINESS

OVERVIEW

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

The Company has grown substantially in recent years as a result of its long-
term investment in developing the distribution channels necessary to reach its
target customers and the products required to meet the demands of these
customers. The Company believes its growth has been enhanced further by
favorable demographic trends, the growing tendency of Americans to supplement
traditional sources of retirement income with self-directed investments, such
as products offered by the Company, and the performance of the financial
markets, particularly the U.S. stock markets, in recent years. From 1992 to
1996, the Company's assets grew from $20.8 billion to $47.8 billion, a
compound annual growth rate of 23.1%. During the same period, the Company's
net operating income grew from $97.0 million to $211.3 million, a compound
annual growth rate of 21.5%. Asset growth during this period resulted from
sales of the Company's products as well as market appreciation of assets in
the Company's separate accounts and in its general account investment
portfolio. The Company's sales of variable annuities grew from $1.56 billion
in 1992 to $6.50 billion in 1996, a compound annual growth rate of 42.9%. The
Company's separate account assets, which are generated by the sale of variable
annuities and variable universal life insurance, grew from 29.3% of total
assets at December 31, 1992 to 56.4% of total assets at December 31, 1996.
During this period of substantial growth, the Company controlled its operating
expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology. From 1992 to 1996, the
Company's total assets increased by 130.1% while operating expenses increased
by only 55.1%. As a result, its ratio of operating expenses to total assets
fell from 1.10% in 1992 to 0.74% in 1996.

The Company believes that demographic trends and shifts in attitudes toward
retirement savings will continue to support increased consumer demand for its
products. According to U.S. Census Bureau projections, the number of Americans
between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
million in 2005, making this "preretirement" age group the fastest growing
segment of the U.S. population. The Company believes that Americans
increasingly are supplementing traditional sources of retirement income, such
as employer-provided defined benefit plans and Social Security, with self-
directed investments. Reflecting this shift, industry sales of individual
variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in
1996, a compound annual growth rate of 26.9%, according to VARDS. During the
same period, industry individual variable annuity assets grew from $212
billion to $501 billion, a compound annual growth rate of 24.0%, according to
VARDS.

PRODUCT SEGMENTS

49
<PAGE>

before federal income tax expense for 1996, consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds managed by
independent investment managers and the Company, with investment returns
accumulating on a tax-deferred basis. The Fixed Annuities segment, which
accounted for $135.4 million (or 41.2%) of the Company's operating income
before federal income tax expense for 1996, consists of annuity contracts that
generate a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis. Such
contracts consist of single premium deferred annuities, flexible premium
deferred annuities and single premium immediate annuities. The Fixed Annuities
segment also includes the fixed option under the Company's variable annuity
contracts, which accounted for 70.5% of the Company's fixed annuity policy
reserves as of December 31, 1996. For the year ended December 31, 1996, the
average crediting rate on contracts (including the fixed option under the
Company's variable contracts) in the Fixed Annuities segment was 6.3%.
Substantially all of the Company's crediting rates on its fixed annuity
contracts are guaranteed for a period not exceeding 15 months. See "--Product
Segments--Fixed Annuities." The Life Insurance segment, which accounted for
$67.2 million (or 20.5%) of the Company's operating income before federal
income tax expense for 1996, consists of insurance products, including
variable life insurance products, that provide a death benefit and may also
allow the customer to build cash value on a tax-deferred basis. In addition,
the Company reports corporate income and expenses not specifically allocated
to its product segments in a Corporate and Other segment, which accounted for
$35.4 million (or 10.7%) of the Company's operating income before federal
income tax expense for 1996. After giving pro forma effect to the 1996 Cash
Dividend, the Special Dividend, the Equity Offerings, the Note Offering and
the Capital Securities Offering as if each had been consummated at January 1,
1996, and assuming the aggregate proceeds of the Equity Offerings, the Note
Offering and the Capital Securities Offering had been invested to earn a
return of 7.5%, the Variable Annuities, Fixed Annuities, Life Insurance and
Corporate and Other segments would have represented 31.0%, 46.4%, 23.0% and
(0.4%), respectively, of the Company's operating income (loss) before federal
income tax expense for 1996. See "Pro Forma Consolidated Financial Data."

Variable Annuities

The Company is one of the leaders in the development and sale of individual
and group variable annuity products. For the year ended December 31, 1996, the
Company was the fourth largest U.S. writer of individual variable annuity
contracts based on sales, according to VARDS. The Company believes that
demographic trends and shifts in attitudes toward retirement savings will
continue to support increased consumer demand for its variable annuity
products.

The Company believes that it possesses distinct competitive advantages in
the market for variable annuities. Some of the Company's most important
advantages include its innovative product offerings and strong relationships
with independent, well-known fund managers. For example, the Company's The
Best of America IV and The Best of America--America's Vision individual
variable annuity contracts allow the customer to choose from 36 investment
options, including mutual funds managed by a variety of well-known fund
managers and the Company. In the aggregate, the Company's group variable
annuity products offer over 100 underlying investment options.

The Company markets its variable annuity products through a broad spectrum
of channels, including broker/dealers, financial planners, banks and
Nationwide Insurance Enterprise insurance agents. See "--Marketing and
Distribution." The Company seeks to capture a growing share of variable
annuity sales in these channels by working closely with its investment
managers and product distributors to adapt the Company's products and services
to changes in the retail and institutional marketplace in order to enhance its
leading position in the market for variable annuities. The Company is
following a strategy of extending The Best of America brand name to more of
its products and distribution channels in an effort to build upon its brand
name recognition.

50
<PAGE>

The wide array of investment options available under the Company's variable
annuity contracts include mutual funds managed by the nationally recognized
money managers set forth below:

AIM Advisors, Inc. Neuberger & Berman Management
American Century Investors Incorporated
Research Corporation Oppenheimer Management Corporation
Banc One Investment Advisers Phoenix Investment Counsel, Inc.
Corporation Putnam Investment Management, Inc.
Capital Research and Management SEI Financial Management Corporation
Company Smith Barney Advisers, Inc.
Davis Selected Advisors, L.P. Smith Barney Mutual Funds
Delaware Management Company, Management, Inc.
Inc. Strong Capital Management, Inc.
Evergreen Asset Management T. Rowe Price-Flemington
Corp. International, Inc.
Federated Advisers Templeton Global Advisors Limited
Fidelity Management & Research Templeton Investment Counsel, Inc.
Company Tiffany Capital Advisors, Inc. (The
INVESCO Funds Group, Inc. Dreyfus Socially Responsible Growth
J&W Seligman & Co. Incorporated Fund, Inc.)
Janus Capital Corporation Van Eck Associates Corporation
Lexington Management Van Kampen American Capital Asset
Corporation Management, Inc.
Massachusetts Financial Service The Vanguard Group, Inc.
Company (MFS(R) Variable Warburg Pincus Counsellors, Inc.
Insurance Trust) Weiss, Peck & Greer, L.L.C.
Mellon Equity Associates
(Dreyfus Stock Index Fund,
Inc.)
Miller Anderson & Sherrerd

The Company believes that the variable annuity business is attractive because
it generates fee income. In addition, because the investment risk on variable
annuities is borne principally by the customer and not the Company, the
variable annuity business requires significantly less capital support than
fixed annuity and traditional life insurance businesses. The Company receives
income from variable annuity contracts primarily in the form of asset and
administration fees. In addition, most of the Company's variable annuity
products provide for a contingent deferred sales charge, also known as a
"surrender charge" or "back-end load," that is assessed against customer
withdrawals in excess of specified amounts made during a specified period,
usually the first seven years of the contract. Surrender charges are intended
to protect the Company from withdrawals early in the contract period, before
the Company has had the opportunity to recover its sales expenses. Generally,
surrender charges on variable annuity products are 7% of premiums withdrawn
during the first year, scaling ratably to 0% for the eighth year and each year
thereafter.

The Company's variable annuity products consist almost entirely of flexible
premium deferred variable annuity ("FPVA") contracts. FPVA contracts are
distributed through broker/dealers, financial planners, banks, pension plan
administrators and Nationwide Insurance Enterprise insurance agents. Such
contracts are savings vehicles in which the customer makes a single deposit or
a series of deposits. The customer has the flexibility to invest in mutual
funds managed by independent investment managers and the Company. Deposits may
be made at regular or irregular intervals and in regular or irregular amounts.
The value of the annuity fluctuates in accordance with the investment
experience of the mutual funds chosen by the customer. The customer is
permitted to withdraw all or part of the accumulated value of the annuity, less
a surrender charge for withdrawals during an initial penalty period of
generally seven years. As specified in the FPVA contract, the customer
generally can elect from a number of payment options that provide either fixed
or variable benefit payments.

51
<PAGE>

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

VARIABLE ANNUITIES SELECTED FINANCIAL DATA(1)

<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges................................... $ 293.5 $ 196.8 $ 137.9
Net investment income and other income(2)........ (8.9) (7.8) (5.2)
-------- -------- --------
Total revenues................................. 284.6 189.0 132.7
-------- -------- --------
Benefits and claims.............................. 4.6 2.9 2.3
Amortization of deferred policy acquisition
costs........................................... 57.4 26.3 22.1
Operating expenses............................... 132.3 109.0 83.7
-------- -------- --------
Total benefits and expenses.................... 194.3 138.2 108.1
-------- -------- --------
Operating income before federal income tax
expense..................................... $ 90.3 $ 50.8 $ 24.6
======== ======== ========
OTHER DATA:
Statutory premiums, deposits and other
considerations(3)............................... $6,500.3 $4,399.3 $3,821.1
Withdrawals...................................... 1,697.3 1,071.6 684.8
Policy reserves at period end.................... 24,278.1 16,761.8 10,751.1
Ratio of policy charges/average policy reserves.. 1.43% 1.44% 1.48%
</TABLE>
- --------
(1) Excludes the fixed option under the Company's variable annuity contracts
which is reported in the Company's Fixed Annuities segment.
(2) The Company's method of allocating net investment income results in a
charge (negative net investment income) to this segment which is
recognized as net investment income in the Corporate and Other segment.
The charge relates to non-invested assets which support this segment on a
statutory basis.
(3) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.

The Company offers individual variable annuities under The Best of America
brand name. In addition to The Best of America individual variable annuities,
the Company markets employer-sponsored variable annuities to both public
sector employees and teachers for use in connection with plans described under
Sections 457 and 403(b) of the IRC, and to private sector employees for use in
connection with IRC Section 401(k) plans. These employer-sponsored variable
annuities are marketed under several brand names, including Group Best of
America. The Company also markets variable annuities as "private label"
products. Such products are offered through banks and are also offered to
members of The National Education Association of the United States (the "NEA")
under The NEA Valuebuilder brand name.

The Best of America. The Company's principal FPVA contracts are sold under
the brand names The Best of America--America's Vision and The Best of America
IV. These two brand name variable annuities accounted for $3.50 billion (or
53.8%) of the Company's variable annuity sales in 1996, and $13.97 billion (or
57.5%) of the Company's variable annuity policy reserves as of December 31,
1996. The Company's The Best of America--America's Vision product is intended
to appeal to distributors in the market for large initial deposits. The
contract requires a minimum initial deposit of $15,000. The Company's The Best
of America IV product is intended primarily for the tax-qualified, payroll
deduction market, where initial deposits are often smaller. The Best of
America IV generally pays a lower up-front commission to distributors but
requires only $1,500 as an initial deposit. Both products generate an annual
asset fee and annual administration fees for the Company.

52
<PAGE>

Group Best of America. These group variable annuity products accounted for
$1.62 billion (or 25.0%) of the Company's variable annuity sales in 1996, and
$4.37 billion (or 18.0%) of the Company's variable annuity policy reserves as
of December 31, 1996. Group Best of America products are typically offered
only on a tax-qualified basis. These products may be structured with a variety
of features which may be arranged in over 600 combinations of front-end loads,
back-end loads and asset-based fees.

Section 457 Contracts. These products accounted for $799.3 million (or
12.3%) of the Company's variable annuity sales in 1996, and $4.10 billion (or
16.9%) of the Company's variable annuity policy reserves as of December 31,
1996. The Company offers a variety of group variable annuity contracts that
are designed primarily for use in conjunction with plans described under IRC
Section 457. Section 457 permits employees of state and local governments to
defer a certain portion of their yearly income and invest such income on a
tax-deferred basis. These contracts typically generate an annual asset fee and
may also generate annual administration fees for the Company.

Private Label Variable Annuities. These products accounted for $487.8
million (or 7.5%) of the Company's variable annuity sales in 1996, and $1.65
billion (or 6.8%) of the Company's variable annuity policy reserves as of
December 31, 1996. The Company has developed several private label variable
annuity products in conjunction with other financial intermediaries, including
Bank One, Fidelity Asset Management Corporation and First Union Bank. These
products allow financial intermediaries to market products with substantially
the same features as The Best of America IV to their own customer bases under
their own brand names. The Company believes these private label products
strengthen the Company's ties to certain significant distributors of the
Company's products. These contracts generate an annual asset fee and may also
generate annual administration fees for the Company.

The NEA Valuebuilder. This product accounted for $89.5 million (or 1.4%) of
the Company's variable annuity sales in 1996, and $196.8 million (or 0.8%) of
the Company's variable annuity account balances as of December 31, 1996. The
Company offers individual variable annuity contracts to the Teacher Market
under Section 403(b) of the IRC. Section 403(b) permits teachers and other
employees of educational organizations to defer a certain portion of their
yearly income and invest such income on a tax-deferred basis. These contracts
generate an annual asset fee and may also generate annual administration fees
for the Company.

Fixed Annuities

The Company has sought to maintain its ability to grow profitably in a
variety of market environments. The Company believes that periods of rising
interest rates, that tend to cause lower sales growth in its Variable
Annuities segment, make its fixed annuity products more attractive to
consumers. In addition to providing balance to the Company's variable annuity
business, its fixed annuity business allows the Company to offer a
comprehensive portfolio of savings alternatives to its customers and
distributors as the Company seeks to capture a growing share of sales in all
distribution channels. The Fixed Annuities segment includes the fixed option
under the Company's variable annuity products. Customers who purchase variable
annuities are able to designate some or all of their deposits to fixed options
which, like the Company's fixed annuity contracts, offer a guarantee of
principal and a guaranteed interest rate for a specified period of time. The
Company includes such business in its Fixed Annuities segment because of its
similar characteristics. The fixed option under the Company's variable annuity
products accounted for $1.24 billion (or 77.3%) of the Company's fixed annuity
sales in 1996, and $9.52 billion (or 70.5%) of the Company's fixed annuity
policy reserves as of December 31, 1996.

Fixed annuity products are marketed to individuals who choose to allocate
long-term savings to products that provide a guarantee of principal, a stable
net asset value and a guarantee of the interest rate to be credited to the
principal amount for some period of time. The Company's fixed annuity products
are offered both to individuals and as group products to employers for use in
employee benefit programs. The Company's individual fixed annuity products are
distributed through its wholesale and retail channels and include single
premium deferred annuity contracts, flexible premium deferred annuity
contracts and single premium immediate annuity contracts. The Company's group
fixed annuity contracts are also distributed through its wholesale and retail

53
<PAGE>

channels. The Company invests fixed annuity customer deposits in its general
account investment portfolio. See "--Investments." Unlike variable annuity
assets that are held in the Company's separate account, the Company bears the
investment risk on assets held in its general account. The Company attempts to
earn a spread by investing a customer's deposits for higher yields than the
interest rate it credits to the customer's fixed annuity contract.

For the year ended December 31, 1996, the average crediting rate on
contracts (including the fixed option under the Company's variable contracts)
in the Fixed Annuities segment was 6.3%. Substantially all of the Company's
crediting rates on the Company's fixed annuity contracts are guaranteed for a
period not exceeding 15 months.

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

FIXED ANNUITIES SELECTED FINANCIAL DATA(1)

<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges.................................. $ 18.0 $ 16.4 $ 16.1
Life insurance premiums......................... 24.0 32.8 20.1
Net investment income........................... 1,050.6 1,002.8 903.7
--------- --------- ---------
Total revenues................................ 1,092.6 1,052.0 939.9
--------- --------- ---------
Benefits and claims............................. 838.5 805.0 702.1
Policyholder dividends.......................... 0.3 0.2 (1.0)
Amortization of deferred policy acquisition
costs.......................................... 38.6 29.5 29.9
Operating expenses.............................. 79.8 80.3 69.9
--------- --------- ---------
Total benefits and expenses................... 957.2 915.0 800.9
--------- --------- ---------
Operating income before federal income tax
expense.................................... $ 135.4 $ 137.0 $ 139.0
========= ========= =========
OTHER DATA:
Statutory premiums, deposits and other
considerations(2).............................. $ 1,600.5 $ 1,864.2 $ 1,308.6
Interest credited............................... 805.0 775.7 680.9
Withdrawals and benefits........................ 1,375.4 1,151.6 906.8
Policy reserves at period end................... 13,511.8 12,784.0 11,247.0
Net spread earned (basis points)................ 192 192 212
</TABLE>
- --------
(1) Includes the fixed option under the Company's variable annuity contracts.
(2) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.

Fixed Option Under Variable Annuity Contracts. Fixed options under variable
annuity contracts accounted for $1.24 billion (or 77.3%) of the Company's
fixed annuity sales in 1996, and $9.52 billion (or 70.5%) of the Company's
fixed annuity policy reserves as of December 31, 1996. Fixed options are
available to customers who purchase certain of the Company's variable
annuities by designation of some or all of their deposits to such options. A
fixed option offers the customer a guarantee of principal and a guaranteed
interest rate for a specified period of time. Substantially all crediting
rates on fixed options under variable annuity contracts are guaranteed for a
period not exceeding 15 months. Such contracts have no maturity date and
remain in force until the customer elects to take the proceeds of the annuity
as a single payment or as a specified income for life or for a fixed number of
years. The Company reports its fixed option business in its Fixed Annuities
segment because the characteristics of such business are similar to those of
its fixed annuity business. Although the customer may elect, subject to
limitations for certain products, to transfer balances from the fixed option
to other investment options, it is the Company's experience that historically
few have made such election.

54
<PAGE>

Single Premium Deferred Annuity ("SPDA") Contracts. SPDA contracts accounted
for $211.0 million (or 13.2%) of the Company's fixed annuity sales in 1996,
and $1.74 billion (or 12.9%) of the Company's fixed annuity policy reserves as
of December 31, 1996. SPDA contracts are distributed through broker/dealers,
financial planners, banks and Nationwide Insurance Enterprise insurance
agents. An SPDA contract is a savings vehicle in which the customer makes a
single deposit with the Company. The Company guarantees the customer's
principal and credits the customer's account with earnings at an interest rate
that is stated and fixed for an initial period, typically at least one year.
Thereafter, the Company resets, typically annually, the interest rate credited
to the contract based upon market and other conditions. SPDA contracts have no
maturity date and remain in force until the customer elects to take the
proceeds of the annuity as a single payment or as a specified income for life
or for a fixed number of years. No front-end sales charges are imposed for the
Company's SPDA contracts. All such contracts, however, provide for the
imposition of certain surrender charges, which are assessed against
withdrawals in excess of specified amounts and which occur during the
surrender charge period. The surrender charges are typically set within the
range of 7% and 0% and typically decline from year to year, disappearing after
seven contract years.

Flexible Premium Deferred Annuity ("FPDA") Contracts. FPDA contracts
accounted for $96.8 million (or 6.0%) of the Company's fixed annuity sales for
1996, and $1.22 billion (or 9.0%) of the Company's fixed annuity policy
reserves as of December 31, 1996. FPDA contracts are distributed through
broker/dealers, financial planners, banks and Nationwide Insurance Enterprise
insurance agents. FPDA contracts are typically marketed to teachers and
employees of tax-exempt organizations as tax-qualified retirement programs.
Under these contracts, the Company accepts a single deposit or a series of
deposits. Deposits may be paid at intervals which are either regular or
irregular. FPDA contracts contain substantially the same guarantee of
principal and interest rate terms included in the Company's SPDA contracts.
Surrender charges are typically set within the range of 7% and 0% and
typically decline from year to year, disappearing after seven contract years.

Single Premium Immediate Annuity ("SPIA") Contracts. SPIA contracts
accounted for $55.3 million (or 3.5%) of the Company's fixed annuity sales for
1996, and $1.03 billion (or 7.6%) of the Company's fixed annuity policy
reserves as of December 31, 1996. The Company's SPIA contracts are offered
through its retail and wholesale distribution channels and are offered as
either direct purchases or as fixed annuity options under the Company's
various individual and group annuity contracts. An SPIA is an annuity that
requires a one-time deposit in exchange for guaranteed, periodic annuity
benefit payments, often for the contract holder's lifetime. SPIA contracts are
often purchased by persons at or near retirement age who desire a steady
stream of future income.

The following table sets forth policy reserves as of December 31, 1996 for
the Company's fixed annuity contracts by crediting rates in effect on such
date. Substantially all of the Company's fixed annuity contracts are
guaranteed for a period not exceeding 15 months.

FIXED ANNUITY POLICY RESERVES BY CREDITING RATES

<TABLE>
<CAPTION>
AMOUNT OF
CREDITING RATES POLICY RESERVES(1)
- --------------- ------------------
(DOLLARS IN
MILLIONS)
<S> <C>
up to 4.75%.................................................. $ 257.0
4.76 to 5.75%................................................ 4,136.2
5.76 to 6.75%................................................ 5,196.3
6.76 to 7.75%................................................ 2,982.0
7.76 to 8.75%................................................ 23.7
8.76 to 9.75%................................................ 5.9
greater than 9.75%........................................... 910.7
---------
Total Policy Reserves...................................... $13,511.8
=========
</TABLE>
- --------
(1) Policy reserves are net of reinsurance of $240.5 million.

55
<PAGE>

Life Insurance

The Company's Life Insurance segment is composed of a wide range of whole
life, universal life, term life and variable universal life products. In
recent years, the Company has placed particular emphasis within this segment
on the sale of variable life insurance products that offer multiple investment
options. From 1992 to 1996, first year premiums related to the Company's
variable universal life insurance products grew from $16.5 million to $140.7
million, a compound annual growth rate of 70.9%. The Company distributes its
variable universal life insurance products through its wholesale distribution
channels as well as through Nationwide Insurance Enterprise insurance agents.
The Company's target markets for its life insurance products include the
holders of personal automobile and homeowners' insurance policies issued by
members of the Nationwide Insurance Enterprise and select customers to whom
the accumulation of cash values is of paramount importance. As of December 31,
1996, approximately 10% of the Nationwide Insurance Enterprise's 7.7 million
property/casualty policyholders also owned at least one of the Company's life
insurance products. The Company distributes its traditional and universal life
insurance products through Nationwide Insurance Enterprise insurance agents.
See "Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise-- Intercompany Agreement--Nationwide Insurance
Enterprise Insurance Agents." During 1996, approximately 24.9% of first year
premiums were provided by Nationwide Insurance Enterprise insurance agents and
approximately 75.1% were provided by the Company's wholesale distribution
channels.

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

LIFE INSURANCE SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges.................................... $ 86.6 $ 71.3 $ 60.2
Life insurance premiums........................... 174.6 166.3 156.6
Net investment income............................. 174.0 171.3 166.3
Other income...................................... 0.4 0.2 --
--------- --------- ---------
Total revenues.................................. 435.6 409.1 383.1
--------- --------- ---------
Benefits and claims............................... 211.4 202.0 191.0
Policyholder dividends............................ 40.7 39.7 39.8
Amortization of deferred policy acquisition
costs............................................ 37.4 31.0 29.5
Operating expenses................................ 78.9 68.8 69.8
--------- --------- ---------
Total benefits and expenses..................... 368.4 341.5 330.1
--------- --------- ---------
Operating income before federal income tax
expense...................................... $ 67.2 $ 67.6 $ 53.0
========= ========= =========
OTHER DATA:
First year premiums (sales):
Traditional life................................. $ 35.1 $ 31.9 $ 32.1
Universal life/variable universal life........... 149.1 95.4 87.2
Life insurance in force:
Traditional life................................. 19,098.5 17,657.9 16,381.6
Universal life/variable universal life........... 18,621.1 15,748.5 13,745.9
</TABLE>

Traditional Life Insurance Products. The Company offers whole life and term
life insurance. Whole life insurance combines a death benefit with a savings
plan that increases gradually in amount over a period of years. The customer
pays a level premium over the customer's expected lifetime. The customer may
borrow against

56
<PAGE>

the savings and also has the option of surrendering the policy and receiving
the accumulated cash value rather than the death benefit. Term life insurance
provides only a death benefit without any savings component. These traditional
life insurance products are distributed on a retail basis by Nationwide
Insurance Enterprise insurance agents.

Universal Life and Variable Universal Life Insurance Products. The Company
offers universal life and variable universal life insurance products including
both flexible premium and single premium designs. These products provide life
insurance under which the benefits payable upon death or surrender depend upon
the policyholder's account value. Universal life insurance provides whole life
insurance with flexible premiums and adjustable death benefits. For universal
life, the policyholder's account value is credited based on an adjustable rate
of return set by the Company relating to current interest rates. For variable
universal life, the policyholder's account value is credited with the
investment experience of the mutual funds chosen by the customer. The variable
universal life products also typically include a general account guaranteed
interest investment option. All of the Company's variable universal life
insurance products are marketed under the Company's The Best of America--Life
Planning Series brand name and have the same wide range of investment options
as the Company's variable annuity products. These products are distributed on
a retail basis by Nationwide Insurance Enterprise insurance agents as well as
through wholesale distribution channels by broker/dealers, financial planners
and banks.

MARKETING AND DISTRIBUTION

The Company defines wholesale channels of distribution as channels in which
an unaffiliated company, such as a securities broker/dealer, pension plan
administrator, bank or other financial institution, sells the Company's
products to its own customer base. The Company defines retail channels as
those in which the Company's representatives, such as Nationwide Insurance
Enterprise insurance agents, agents of the Company's sales subsidiaries and
affiliates or individual financial planners, market products directly to a
customer base identified by the Company. The Company provides, through both
its retail and wholesale channels, the means for employers sponsoring tax-
favored retirement plans (such as those described in IRC Sections 401(k),
403(b) and 457) to allow their employees to make contributions to such plans
through payroll deductions. Typically, the Company receives the right from an
employer to market products to employees and arrange to deduct periodic
deposits from the employees' regular paychecks. The Company believes that the
payroll deduction market is characterized by more predictable levels of sales
than other markets because these customers are less likely, even in times of
market volatility, to stop making annuity deposits than customers in other
markets. In addition, the Company believes that payroll deduction access to
customers provides significant insulation from competition by providing the
customer with a convenient, planned method of periodic saving. In both the
Pension Market, where the Company's products are distributed primarily on a
wholesale basis, and in the Public Sector and Teacher Markets, where the
Company's products are distributed primarily on a retail basis, payroll
deduction is the primary method used for collecting premiums and deposits.

57
<PAGE>

The following table summarizes certain selected unaudited financial data for
the Company's distribution channels.

STATUTORY PREMIUMS, DEPOSITS AND OTHER CONSIDERATIONS BY DISTRIBUTION
CHANNEL(1)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
-------------- --------------- ---------------
$ % $ % $ %
-------- ----- -------- ------ -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholesale channels:
Investment dealers............ $3,627.8 40.1% $2,835.4 41.7% $2,279.0 40.7%
Pension market................ 1,911.6 21.1 1,573.7 23.1 1,366.5 24.4
Financial institutions........ 947.2 10.5 515.4 7.6 324.3 5.8
-------- ----- -------- ------ -------- ------
Total wholesale channels..... 6,486.6 71.7 4,924.5 72.4 3,969.8 70.9
-------- ----- -------- ------ -------- ------
Retail channels:
Public sector and teacher
markets...................... 1,528.0 16.9 1,244.9 18.3 1,104.4 19.8
Nationwide Insurance
Enterprise insurance agents.. 525.5 5.8 446.5 6.6 376.3 6.7
-------- ----- -------- ------ -------- ------
Total retail channels........ 2,053.5 22.7 1,691.4 24.9 1,480.7 26.5
-------- ----- -------- ------ -------- ------
Other(2)....................... 502.5 5.6 182.1 2.7 148.5 2.6
-------- ----- -------- ------ -------- ------
Total statutory premiums,
deposits and other
considerations............... $9,042.6 100.0% $6,798.0 100.0% $5,599.0 100.0%
======== ===== ======== ====== ======== ======
</TABLE>
- --------
(1) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(2) Statutory premiums, deposits and other considerations from Nationwide
Insurance Enterprise employee and agent benefit plans.

Wholesale Channels

Investment Dealers. The Company sells individual and group variable
annuities, fixed annuities and variable life insurance through broker/dealers
in all 50 states and the District of Columbia. The Company has access to over
1,000 broker/dealers and over 30,000 registered representatives. Target
markets include retirement planning for individuals, retirement planning for
institutions of higher education and 501(c)(3) hospitals, participant-directed
401(k) plans covering less than 1,000 lives, small business life insurance
(fewer than 500 employees) and IRA rollovers and tax-sheltered annuity
transfers. The Company historically has focused on distributing through mid-
sized regional broker/dealers and financial planning firms. The Company
believes that it has strong broker/dealer relationships based on its diverse
product mix, large selection of fund options and administrative technology. In
addition to such relationships, the Company believes its financial strength
and The Best of America brand name are competitive advantages in this
distribution channel. The Company regularly seeks to add new broker/dealers to
its distribution network.

Pension Market. The Company defines the Pension Market as defined
contribution plans pursuant to Section 401 of the IRC sponsored by employers
as part of employee retirement programs. The Company markets group variable
annuities, group fixed annuities and record-keeping services to these plan
sponsors primarily through over 200 regional pension plan administrators
located in 45 states. The Company targets employers having between 25 and
2,000 employees because it believes that these plan sponsors tend to require
more extensive record-keeping services from pension plan administrators and
therefore tend to become long-term customers. As of December 31, 1996, 401(k)
plans administered by the Company included over 280,000

58
<PAGE>

participants. These participants generally make deposits through payroll
deductions. The Company believes, based on industry survey data, that it is
the third largest administrator of 401(k) plans based on total number of
plans.

Financial Institutions. The Company markets individual variable annuities
(under its brand names and on a private-label basis), individual fixed
annuities and variable universal life insurance through financial
institutions, consisting primarily of banks and their subsidiaries. The
Company seeks to establish marketing relationships with financial institutions
having assets of $500.0 million or more. From January 1, 1991 to December 31,
1996, the number of financial institutions through which the Company
distributes its products increased from 7 to 151. The Company is actively
seeking to increase the number of financial institutions with which it has
distribution arrangements. The Company believes that its expertise in training
financial institution personnel to sell annuities, its breadth of product
offerings, its financial strength and the Nationwide and The Best of America
brand names are competitive advantages in this distribution channel. See
"Certain Relationships and Related Transactions--New Agreement with the
Nationwide Insurance Enterprise--Intercompany Agreement--License to Use
Nationwide Name and Service Marks".

Retail Channels

Public Sector and Teacher Markets. The Company markets various products and
services on a retail basis through several subsidiary sales organizations to
both the Public Sector and Teacher Markets. With respect to the Public Sector
Market, the Company markets group variable annuities and fixed annuities to
state and local governments for use in their IRC Section 457 retirement
programs. Section 457 permits employees of state and local government entities
and certain tax-exempt organizations to defer receipt of up to 33% of their
taxable income, not to exceed $7,500 per year, and have such amounts
accumulate on a tax-deferred basis until received. The Company currently
markets such products to, and administers Section 457 retirement programs for,
approximately 6,000 state and local government entities in 48 states. The
Company believes that its existing relationships with state and local
government entities and the Company's sponsorship by such entities as the
National Association of Counties ("NACO") and The United States Conference of
Mayors ("USCM") provide it with distinct competitive advantages in this
market. NACO sponsorship, which began in 1980 and has been renewed three
times, expires on December 31, 2005, and USCM sponsorship, which began in 1979
and has been renewed twice, expires on December 31, 2004.

With respect to the Teacher Market, the Company has an exclusive contractual
arrangement with the NEA to offer and sell certain products to its 2.2 million
members. Under The NEA Valuebuilder brand name, the Company markets both
qualified and non-qualified (under IRC Section 403(b)) individual variable
annuity contracts. The Company also offers IRAs in this market. The Teacher
Market is primarily serviced by the Company's network of approximately 140
representatives known as Valuebuilder Investment Professionals. As of December
31, 1996, the Company administers plans for over 1,800 school districts in 48
states. Section 403(b) permits teachers and employees of certain tax-exempt
organizations to defer receipt of a portion of their taxable income, not to
exceed $9,500 per year, and invest the amount deferred in tax-deferred annuity
products. The Company's marketing approach to these customers emphasizes
educational seminars and other targeted communication channels such as direct
mail. The NEA exclusive contractual arrangement, which began in 1990,
automatically renewed on July 26, 1995 for an additional 5-year period.

Nationwide Insurance Enterprise Insurance Agents. The Company sells
traditional life, universal life and variable universal life insurance
products and individual annuities through approximately 4,500 licensed
Nationwide Insurance Enterprise insurance agents who primarily target the
holders of personal automobile and homeowners' insurance policies issued by
the Nationwide Insurance Enterprise. As of December 31, 1996, approximately
10% of the Nationwide Insurance Enterprise's 7.7 million property/casualty
policyholders also owned at least one of the Company's life insurance
products. The Nationwide Insurance Enterprise insurance agents sell
exclusively Nationwide Insurance Enterprise products and may not offer
products which compete with those of the Company. See "Certain Relationships
and Related Transactions--New Agreements with Nationwide Insurance
Enterprise--Intercompany Agreement--Nationwide Insurance Enterprise Insurance
Agents."

59
<PAGE>

Mutual Funds

Nationwide Mutual Funds. In addition to including Company-managed mutual
funds among the investment options for its variable products, the Company
markets 10 public, open-end mutual funds through Nationwide Insurance
Enterprise insurance agents and directly to Nationwide Insurance Enterprise
employees and their families. These products employ the existing investment
management, shareholder services, accounting and administrative capabilities
developed by the Company to support its variable annuity products. As of
December 31, 1996, these mutual funds had $6.0 billion of assets under
management, of which $3.9 billion related to variable annuities and variable
life insurance and $2.1 billion related to retail mutual fund customers.

CORPORATE AND OTHER SEGMENT

The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees, other revenues and
operating expenses of Nationwide mutual funds other than the portion allocated
to the Variable Annuities and Life Insurance segments; commissions and other
income earned by the marketing and distribution subsidiaries of the Company;
and revenues, benefits and expenses associated with group annuity contracts
issued to Nationwide Insurance Enterprise employee and agent benefit plans.

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

CORPORATE AND OTHER SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net investment income................................ $ 154.7 $ 137.6 $ 154.2
Other income......................................... 49.3 51.0 40.7
-------- -------- --------
Total revenues..................................... 204.0 188.6 194.9
-------- -------- --------
Interest credited.................................... 106.1 105.6 97.3
Operating expenses................................... 62.5 55.5 57.3
-------- -------- --------
Total benefits and expenses........................ 168.6 161.1 154.6
-------- -------- --------
Operating income before federal income tax
expense(1)...................................... $ 35.4 $ 27.5 $ 40.3
======== ======== ========
OTHER DATA(2):
Nationwide mutual fund assets........................ $2,136.2 $2,113.9 $1,665.6
</TABLE>
- --------
(1) Excludes realized gains (losses) on investments and discontinued
operations.
(2) Excludes mutual funds selected as investment options under the Company's
variable annuity and variable universal life insurance contracts and
mutual funds selected as investment options under Nationwide Insurance
Enterprise employee and agent benefit plans.

Interest expense related to the Note Offering and the Capital Securities
Offering will be recorded in the Corporate and Other segment which will reduce
income before taxes for the Corporate and Other segment in periods after the
completion of such offerings.

LIFE INSURANCE UNDERWRITING

Life insurance policies are individually underwritten based on standardized
underwriting guidelines and procedures. After initial processing, each file is
reviewed and additional information (such as medical examinations, doctors'
statements and special medical tests) is obtained to make an underwriting
decision. The Company follows detailed, uniform underwriting procedures
designed to assess and quantify insurance risks before issuing life insurance
policies to individuals.

60
<PAGE>

LIFE INSURANCE AND ANNUITY RESERVES

In accordance with applicable insurance regulations, the Company records in
its statutory financial statements actuarially determined reserves that are
calculated to meet future obligations under outstanding insurance contracts.
The reserves are based on statutorily recognized methods using prescribed
morbidity and mortality tables and interest rates. Reserves include unearned
premiums, premium deposits, claims that have been reported but are not yet
paid, claims that have been incurred but have not been reported and claims in
the process of settlement. The Company's reserves satisfy applicable statutory
requirements.

The reserves reflected in the consolidated financial statements of the
Company are calculated based on GAAP. These reserves are based upon the
Company's best estimates of mortality, persistency, expenses and investment
income with appropriate provisions for adverse statistical deviation and the
use of the net level premium method for all non-interest-sensitive products
and the retrospective deposit method for interest-sensitive products. GAAP
reserves differ from statutory reserves due to the use of different
assumptions regarding mortality and interest rates and the introduction of
lapse assumptions into the GAAP reserve calculation.

REINSURANCE

The Company follows the customary industry practice of reinsuring a portion
of its life insurance and annuity risks with other companies in order to
reduce net liability on individual risks, to provide protection against large
losses and to obtain greater diversification of risks. The maximum amount of
individual ordinary life insurance retained by the Company on any one life is
$500,000, which amount will increase to $1.0 million effective April 1, 1997.
The Company cedes insurance primarily on an automatic basis, under which risks
are ceded to a reinsurer on specific blocks of business where the underlying
risks meet certain predetermined criteria, and on a facultative basis, under
which the reinsurer's prior approval is required for each risk reinsured. The
Company also cedes insurance on a case-by-case basis particularly where the
Company may be writing new risks or is unwilling to retain the full costs
associated with new lines of business. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder. The
Company has entered into a reinsurance contract to cede a portion of its
general account individual annuity reserves to Franklin Life. Total recoveries
due from Franklin Life were $240.5 million and $245.3 million as of December
31, 1996 and 1995, respectively. Under the terms of the contract, Franklin
Life has established a trust as collateral for the recoveries. The trust
assets are invested in investment grade securities, the market value of which
must at all times be greater than or equal to 102% of the reinsured reserves.
The Company has no other material reinsurance arrangements with unaffiliated
reinsurers. The only material reinsurance agreements the Company has with
affiliates are the modified coinsurance agreements pursuant to which
Nationwide Life reinsured all of its accident and health and group life
insurance business to other members of the Nationwide Insurance Enterprise.
See "Certain Relationships and Related Transactions--Existing Arrangements
with Nationwide Insurance Enterprise--Modified Coinsurance Agreements."
Premiums and policy reserves ceded to unaffiliated reinsurers were 0.3% of
statutory premiums and considerations in 1996 and 0.8% of policy reserves as
of December 31, 1996. The Company's principal unaffiliated reinsurers of
individual life insurance and annuity policies at December 31, 1995 (and their
corresponding A.M. Best ratings) were: American United Life Insurance Company
(A+), Reinsurance Group of America (A+), Lincoln National Life Insurance
Company (A+), Franklin Life (A+), and Indianapolis Life Insurance Company
(A+). See "--Ratings."

INVESTMENTS

General

The Company's assets are divided between separate account and general
account assets. As of December 31, 1996, $26.9 billion (or 56%) of the
Company's total assets were held in separate accounts and $20.8 billion (or
44%) were held in the Company's general account, including $18.3 billion of
general account investments. Separate account assets consist primarily of
deposits from the Company's variable annuity business. Most separate account
assets are invested in various mutual fund options available within the
variable annuity products sold by the Company. All of the investment risk in
the Company's separate account assets is borne by the Company's customers,
with the exception of $280.2 million of policy reserves as of December 31,
1996 ($205.7 million as of December 31, 1995) for which the Company bears the
investment risk. General account assets consist mainly of investments
generated by premiums on life insurance products and deposits in the Company's

61
<PAGE>

Fixed Annuities segment. The Company generates profits on these products, in
part, based on the spread between the yield on general account invested assets
and crediting rates on these products.

The Company's general account investment policies emphasize high credit
quality, diversification across asset classes and individual investment risks,
and a buy and hold strategy. As noted in the table below, the Company's
general account assets are invested primarily in fixed maturity securities and
commercial mortgage loans. The Company has a general policy of diversifying
investments within asset categories. Additionally, the Company's investment
policy provides that fixed maturity investments are limited to purchases of
investment grade securities or unrated securities which, in the opinion of the
Company, should qualify for such rating. The Company monitors its exposure to
individual borrowers, credit risks, industries or property types and
geographic locations. The Company's investments are subject to suitability and
diversification requirements under applicable insurance laws. See "Business--
Regulation." The Investment Committee of the Board of Directors of Nationwide
Life, which is comprised of the Chairman and five outside directors, meets ten
times a year. Such committee approves investment policy and strategy, approves
all mortgage loans and large private placements and reviews and ratifies all
other investments. In relation to the life insurers reporting to the American
Council of Life Insurance ("ACLI"), the Company's general account investment
portfolio has achieved (i) higher net investment yields, (ii) lower bond
default rates and (iii) lower mortgage delinquency rates, in each case in each
of the five years ended December 31, 1995 (with ACLI data not yet available
for the year ended December 31, 1996).

The following table summarizes the Company's consolidated invested assets by
asset category as of December 31, 1996 and December 31, 1995.

CONSOLIDATED INVESTED ASSETS

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------- -------------------------
% OF % OF
CARRYING GENERAL ACCOUNT CARRYING GENERAL ACCOUNT
VALUE INVESTED ASSETS VALUE INVESTED ASSETS
--------- --------------- --------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities(1):
Public.................... $ 8,395.6 45.8% $ 8,609.8 48.3%
Private................... 3,914.9 21.4 3,891.8 21.8
Mortgage loans, net:
Commercial................ 5,269.4 28.8 4,624.3 25.9
Residential............... 2.7 -- 3.1 --
Real estate, net........... 265.8 1.5 229.4 1.3
Policy loans............... 371.8 2.0 336.4 1.9
Equity securities(1)....... 59.1 0.3 37.5 0.2
Other long-term
investments............... 28.7 0.2 62.0 0.4
Short-term investments..... 9.3 -- 42.7 0.2
--------- ----- --------- -----
Total general account
invested assets......... $18,317.3 100.0% $17,837.0 100.0%
========= ===== ========= =====
Total separate account
assets.................. $26,926.7 $18,591.1
========= =========
</TABLE>
- --------
(1) As of December 31, 1996, all fixed maturities and equity securities are
classified as available-for-sale and are carried at fair value.

62
<PAGE>

arrive at the amount of new investments needed for each pool by month. The
investments acquired for each pool are shared on a proportional basis by each
of the lines requesting investments in the pool based on their actual
investment needs.

The following table summarizes the net investment yield of the Company's
general account invested assets relative to that of the life insurers
reporting to the ACLI.

NET INVESTMENT YIELD

<TABLE>
<CAPTION>
THE BASIS POINT
YEAR COMPANY ACLI(1) DIFFERENCE
- ---- ------- ------- -----------
<S> <C> <C> <C>
1991................................................ 9.34% 9.09% 25
1992................................................ 8.93 8.58 35
1993................................................ 8.57 8.07 50
1994................................................ 8.37 7.63 74
1995................................................ 8.21 7.90 31
1996................................................ 8.00 -- --
</TABLE>
- --------
(1) Source: ACLI Statistical Bulletin #97-1 (January 8, 1997) entitled
"Revised Rate of Investment Income of U.S. Legal Reserve Life Insurance
Companies." ACLI data for the year ended December 31, 1996 are not yet
available.

63
<PAGE>

Fixed Maturity Securities

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

The following table summarizes the composition of the Company's general
account fixed maturity securities by category as of December 31, 1996.

GENERAL ACCOUNT FIXED MATURITY SECURITIES -- COMPOSITION

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
U.S. government/agencies............................ $ 285.0 2.3%
Foreign governments................................. 102.0 0.9
State and political subdivisions.................... 6.6 --
Mortgage-backed securities:
U.S. government/agencies........................... 3,665.3 29.8
Non-government/agencies............................ -- --
Corporate........................................... 8,251.6 67.0
------------- ---------
Total............................................. $ 12,310.5 100.0%
============= =========
</TABLE>

The following table sets forth scheduled maturities for the Company's
general account fixed maturity securities as of December 31, 1996.

GENERAL ACCOUNT FIXED MATURITY SECURITIES -- SCHEDULED MATURITIES(1)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less............................. $ 444.2 3.6%
Due after one year through five years............... 4,059.1 33.0
Due after five years through 10 years............... 2,871.8 23.3
Due after 10 years.................................. 1,270.1 10.3
Mortgage-backed securities.......................... 3,665.3 29.8
------------- ---------
Total fixed maturity securities................... $ 12,310.5 100.0%
============= =========
</TABLE>
- --------
(1) General account fixed maturity securities with call dates are classified
on their earliest call date.

The average duration and average maturity of the Company's general account
fixed maturity securities as of December 31, 1996 were approximately 3.75 and
7.97 years, respectively. As a result, the market value of the Company's
general account investments may fluctuate significantly in response to changes
in interest rates. In addition, the Company may also be likely to experience
investment losses to the extent its liquidity needs require the disposition of
general account fixed maturity securities in unfavorable interest rate
environments.

The Company's portfolio of general account investment grade fixed maturity
securities is diversified by number and type of issuer. As of December 31,
1996, general account investment grade fixed maturity securities

64
<PAGE>

included the securities of over 548 issuers, with no issuer, other than the
U.S. government or its agencies, representing more than 0.6% of the carrying
value of general account investment grade fixed maturity securities. As of
December 31, 1996, one investment with a value of $0.5 million had been
restructured and is currently performing.

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

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

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

GENERAL ACCOUNT FIXED MATURITY SECURITIES -- CREDIT QUALITY

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
-------------------------- --------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- ------------- ------------ ------------- ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A.. $ 8,453.4 68.7% $ 8,659.9 69.3%
2 Baa....... 3,629.9 29.5 3,562.9 28.5
3 Ba........ 166.6 1.3 224.1 1.8
4 B......... 49.7 0.4 44.9 0.4
Caa and
5 lower..... 10.9 0.1 2.8 --
In or near
6 default... -- -- 7.0 --
Redeemable preferred stock and other..... -- -- -- --
------------- ---------- ------------- ----------
Total................................. $ 12,310.5 100.0% $ 12,501.6 100.0%
============= ========== ============= ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.

65
<PAGE>

GENERAL ACCOUNT PUBLIC FIXED MATURITY SECURITIES -- CREDIT QUALITY

<TABLE>
<CAPTION>
AS OF DECEMBER
31, 1996 AS OF DECEMBER 31, 1995
------------------- -------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- -------- ---------- ------------ ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A......... $6,540.4 77.9% $ 6,730.2 78.2%
2 Baa.............. 1,776.6 21.2 1,811.0 21.0
3 Ba............... 52.7 0.6 49.0 0.6
4 B................ 25.9 0.3 19.6 0.2
5 Caa and lower.... -- -- -- --
In or near
6 default.......... -- -- -- --
Redeemable preferred stock and other..... -- -- -- --
-------- ------ ------------ ----------
Total................................. $8,395.6 100.0% $ 8,609.8 100.0%
======== ====== ============ ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.

The Company invests in private fixed maturity securities because of the (i)
generally higher nominal yield available compared to comparably rated public
fixed maturity securities, (ii) more restrictive financial and business
covenants available in private fixed maturity security loan agreements and
(iii) stronger prepayment protection. Although private fixed maturity
securities are not registered with the Commission and generally are less
liquid than public fixed maturity securities, restrictive financial and
business covenants included in private fixed maturity security loan agreements
generally are designed to compensate for the impact of increased liquidity
risk. A significant majority of the private fixed maturity securities that the
Company holds are participations in issues that are also owned by other
investors. In addition, some of the private fixed maturity securities are
rated by nationally recognized rating agencies and substantially all have been
assigned a rating designation by the NAIC.

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

GENERAL ACCOUNT PRIVATE FIXED MATURITY SECURITIES -- CREDIT QUALITY

<TABLE>
<CAPTION>
AS OF DECEMBER
31, 1996 AS OF DECEMBER 31, 1995
------------------- --------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- -------- ---------- ------------- ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A....... $1,913.0 48.9% $ 1,929.7 49.6%
2 Baa............ 1,853.4 47.3 1,751.9 45.0
3 Ba............. 113.9 2.9 175.1 4.5
4 B.............. 25.7 0.6 25.3 0.6
Caa and
5 lower.......... 10.9 0.3 2.8 0.1
In or near
6 default........ -- -- 7.0 0.2
Redeemable preferred stock and other..... -- -- -- --
-------- ----- ------------- ----------
Total................................. $3,914.9 100.0% $ 3,891.8 100.0%
======== ===== ============= ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.

66
<PAGE>

The following table sets forth the bond default rates for the Company and
the life insurers reporting to the ACLI for the periods indicated.

COMPANY AND LIFE INDUSTRY
BOND DEFAULT RATES

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Company................................. 0.00% 0.04% 0.03% 0.01% 0.03%
ACLI(1)................................. -- 0.09 0.19 0.28 0.60
</TABLE>
- --------
(1) Source: ACLI Statistical Bulletins entitled "Quality Distribution of Bond
Holdings of U.S. Legal Reserve Life Insurance Companies:" Bulletin #'s 96-
2, 95-7, 94-5 and 93-5, dated May 15, 1996, July 24, 1995, July 28, 1994
and August 3, 1993, respectively. ACLI data for the year ended December
31, 1996 are not yet available.

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

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

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

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

GENERAL ACCOUNT MORTGAGE-BACKED SECURITIES -- INVESTMENT TYPE(1)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accrual............................................ $ 41.4 1.1%
PAC................................................ 2,970.6 81.0
Sequential......................................... 2.5 0.1
Scheduled.......................................... 167.2 4.6
TAC................................................ 87.7 2.4
VADM............................................... 395.9 10.8
------------- ----------
Total............................................ $ 3,665.3 100.0%
============= ==========
</TABLE>
- --------
(1) All general account mortgage-backed securities are agency-backed.

67
<PAGE>

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

Mortgage Loans

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

The following tables set forth the distribution by property type and region
of the Company's commercial mortgages as of December 31, 1996 and December 31,
1995.

GENERAL ACCOUNT COMMERCIAL MORTGAGE
LOAN PORTFOLIO -- PROPERTY TYPE

68
<PAGE>

GENERAL ACCOUNT COMMERCIAL MORTGAGE
LOAN PORTFOLIO -- REGION

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Region(1):
New England............ 35 $ 238.9 4.5% 30 $ 197.5 4.2%
Middle Atlantic........ 62 362.5 6.8 57 350.0 7.5
East North Central..... 180 1,022.5 19.2 160 930.9 19.9
West North Central..... 33 244.5 4.6 36 262.4 5.6
South Atlantic......... 225 1,103.4 20.7 187 901.4 19.3
East South Central..... 65 319.1 6.0 63 307.1 6.5
West South Central..... 105 725.7 13.6 91 618.4 13.2
Mountain............... 51 247.5 4.6 45 203.8 4.4
Pacific and other...... 212 1,064.0 20.0 181 910.7 19.4
--- -------- ----- --- -------- -----
Total................ 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
- --------
(1) The ACLI defines each of the regions set forth above as follows: (i) New
England includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont; (ii) Middle Atlantic includes New York, New Jersey and
Pennsylvania; (iii) East North Central includes Illinois, Indiana,
Michigan, Ohio and Wisconsin; (iv) West North Central includes Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota; (v)
South Atlantic includes Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia and West Virginia; (vi)
East South Central includes Alabama, Kentucky, Mississippi and Tennessee;
(vii) West South Central includes Arkansas, Louisiana, Oklahoma and Texas;
(viii) Mountain includes Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming; and (ix) Pacific and other includes Alaska,
California, Hawaii, Oregon, Washington, Puerto Rico, U.S. Territories and
Possessions, Canada and other foreign jurisdictions.

As of December 31, 1996, the Company's largest mortgage loan exposure to any
borrowing group was $95.7 million, or 1.8% of the Company's general account
mortgage portfolio.

The following table sets forth the composition of the Company's general
account commercial mortgage loan portfolio by loan size as of December 31,
1996 and December 31, 1995.

GENERAL ACCOUNT COMMERCIAL MORTGAGE LOAN PORTFOLIO -- LOAN SIZE

69
<PAGE>

The Company's investment policy with regard to the origination of new
mortgage loans involves a review of the economics of the property being
financed, adherence to guidelines that provide for diversification of the
mortgage portfolio by property type and location, a review of industry lending
practices prevailing from time to time and diversification of the Company's
total general account investment portfolio. Guidelines for new mortgage loans
generally require a loan-to-value ratio of not greater than 75% at the time of
origination.

Substantially all of the general account commercial mortgage loans were
originated by the Company and not purchased from third parties. The Company
originates general account commercial mortgage loans through a national
network of mortgage banking correspondent companies which represent the
Company in many of the major metropolitan areas of the United States.
Typically, a correspondent company is an independent business which has a
staff of experienced specialists in property finance who are highly
knowledgeable about the real estate market in the company's local or regional
area. The correspondent company is an expert in the appraisal, underwriting
and servicing of commercial mortgage loans. Typically, the correspondent
company is the Company's one representative through which all mortgage
investment opportunities in the particular market must originate. The
correspondent company presents commercial mortgage loan opportunities to the
Company on property types and with respect to borrowers that meet the
Company's stringent underwriting requirements. After a mortgage loan is made,
the correspondent company services the loans for the Company by, among other
things, collecting all mortgage payments as well as amounts escrowed for the
payment of any taxes and insurance premiums. For its services, the
correspondent company receives from the Company an annual fee generally
ranging between .0625% and .125% of the mortgage balance.

Currently, the Company is represented by 24 correspondent companies that
originate commercial mortgage investment opportunities and service the general
account mortgage loans. In addition, the Company is represented by another 10
companies that service general account mortgage loans but do not originate
mortgage loan investment opportunities.

The general account commercial mortgage loan portfolio includes both
amortizing and balloon loans. The Company defines balloon loans to be
mortgages with periodic installments of principal and interest that do not
fully amortize the loan. The balance is due at a specified date in the future
which represents the end of the loan term.

The following table sets forth the maturity and principal repayment schedule
for the Company's general account mortgage loan portfolio as of December 31,
1996 and December 31, 1995.

GENERAL ACCOUNT MORTGAGE LOAN PORTFOLIO -- SCHEDULED MATURITIES

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
--------------------------------- ---------------------------------
AGGREGATE AGGREGATE
PRINCIPAL BALANCE % OF PRINCIPAL BALANCE % OF
OF MORTGAGE TOTAL PRINCIPAL OF MORTGAGE TOTAL PRINCIPAL
LOANS MATURING BALANCE LOANS MATURING BALANCE
----------------- --------------- ----------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1996.................... $ -- 0.0% $ 254.9 5.4%
1997.................... 162.0 3.0 210.4 4.5
1998.................... 210.2 3.9 230.2 4.9
1999.................... 349.3 6.6 347.3 7.4
2000.................... 519.5 9.7 564.6 12.1
2001.................... 357.1 6.7 367.1 7.8
2002.................... 429.8 8.1 439.1 9.4
2003.................... 490.0 9.2 303.5 6.5
2004.................... 378.5 7.1 369.4 7.9
2005.................... 686.7 12.9 694.6 14.8
2006.................... 453.5 8.5 103.3 2.2
After 2006.............. 1,293.9 24.3 800.9 17.1
-------- ------ -------- ------
$5,330.5 100.0% $4,685.3 100.0%
======== ====== ======== ======
</TABLE>

70
<PAGE>

The Company monitors all of the mortgage loans in its general account
mortgage loan portfolio on an ongoing basis and identifies mortgage loans
that, because of certain objective or subjective characteristics, cause
management to conclude that such loans require additional investigation. Among
criteria that cause a loan to be so identified are (i) borrower bankruptcies,
(ii) bankruptcies of major tenants of mortgaged properties, (iii) requests
from borrowers for loan restructuring or relief, (iv) known or suspected cash
flow deficiencies, (v) lateness of payments, (vi) noncompliance with
covenants, (vii) known or suspected loan-to-value imbalances, (viii) lease
rollovers affecting debt service coverage or property value, (ix) property
vacancy rates, (x) maturing loans identified as potential refinancing risks
and (xi) other subjective factors relating to the borrower or the mortgaged
property.

The Company and the ACLI define problem mortgage loans as loans which are 60
or more days delinquent and/or are in foreclosure. The following tables set
forth as of December 31, 1996 and 1995 the distribution by property type and
region of the Company's commercial mortgage loans that were delinquent or in
the process of foreclosure as compared to the life insurers reporting to the
ACLI.

COMMERCIAL MORTGAGE LOANS DELINQUENT OR IN THE
PROCESS OF FORECLOSURE BY PROPERTY TYPE

71
<PAGE>

COMMERCIAL MORTGAGE LOANS DELINQUENT OR IN THE
PROCESS OF FORECLOSURE BY REGION

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------------------------- -------------------------------------------
COMPANY ACLI(1) COMPANY ACLI(2)
------------------------------- ----------- ------------------------------- -----------
DELINQUENCY DELINQUENCY DELINQUENCY DELINQUENCY
AND AND AND AND
NUMBER OF PRINCIPAL FORECLOSURE FORECLOSURE NUMBER OF PRINCIPAL FORECLOSURE FORECLOSURE
LOANS BALANCE RATE(3) RATE LOANS BALANCE RATE(3) RATE
--------- --------- ----------- ----------- --------- --------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Region(4):
New England............ 2 $14.6 0.27% -- % 2 $14.8 0.32% 0.17%
Middle Atlantic........ 1 10.5 0.20 -- -- -- -- 0.51
East North Central..... 2 9.5 0.18 -- -- -- -- 0.36
West North Central..... -- -- -- -- -- -- -- 0.04
South Atlantic......... 1 3.1 0.06 -- 2 9.1 0.19 0.34
East South Central..... -- -- -- -- -- -- -- 0.05
West South Central..... -- -- -- -- -- -- -- 0.14
Mountain............... -- -- -- -- -- -- -- 0.06
Pacific................ 1 4.4 0.08 -- 1 5.6 0.12 0.60
Other.................. -- -- -- -- -- -- -- 0.08
--- ----- ---- --- --- ----- ---- ----
Total.................. 7 $42.1 0.79% -- % 5 $29.5 0.63% 2.35%
=== ===== ==== === === ===== ==== ====
</TABLE>
- --------
(1) ACLI data as of December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletin entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," Number 1326, dated February 28,
1996.
(3) Reflects, by region, commercial mortgage loans that are delinquent 60 days
or more or in the process of foreclosure as a percentage of composite
total loans.
(4) The ACLI defines each of the regions set forth above as follows: (i) New
England includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont; (ii) Middle Atlantic includes New York, New Jersey and
Pennsylvania; (iii) East North Central includes Illinois, Indiana,
Michigan, Ohio and Wisconsin; (iv) West North Central includes Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota; (v)
South Atlantic includes Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia and West Virginia; (vi)
East South Central includes Alabama, Kentucky, Mississippi and Tennessee;
(vii) West South Central includes Arkansas, Louisiana, Oklahoma and Texas;
(viii) Mountain includes Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming; and (ix) Pacific includes Alaska, California,
Hawaii, Oregon and Washington and (x) Other includes Puerto Rico, U.S.
Territories and Possessions, Canada and other foreign jurisdictions.

In certain situations delinquent mortgages may be restructured or modified.
As of December 31, 1996, the amortized cost of restructured mortgages totaled
$57.5 million, as compared with $66.0 million and $77.0 million as of December
31, 1995 and 1994, respectively.

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

72
<PAGE>

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

THE COMPANY AND LIFE INSURANCE INDUSTRY
PROBLEM LOAN COMPARISON

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------- ------------------- ------------------- ------------------- -------------------
COMPANY ACLI(1) COMPANY ACLI(2) COMPANY ACLI(2) COMPANY ACLI(2) COMPANY ACLI(2)
---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquent(3)...... 0.79% --% 0.63% 2.35% 0.48% 3.38% 0.80% 4.54% 1.41% 6.62%
In foreclosure(4).. 0.79 -- 0.63 1.45 0.48 1.80 0.80 2.17 1.41 3.16
Restructured(5).... 1.11 -- 1.48 8.27 1.95 9.58 1.87 9.35 1.25 7.44
---------- -------- -------- --------- -------- --------- -------- --------- -------- ---------
Subtotal.......... 1.90 -- 2.11 10.62 2.43 12.96 2.67 13.89 2.66 14.06
Foreclosed--year to
date.............. 0.35 -- 0.74 1.75 1.18 2.52 1.48 3.21 3.33 3.31
---------- -------- -------- --------- -------- --------- -------- --------- -------- ---------
Total............. 2.25% --% 2.85% 12.37% 3.61% 15.48% 4.15% 17.10% 5.99% 17.37%
========== ======== ======== ========= ======== ========= ======== ========= ======== =========
</TABLE>
- --------
(1) ACLI data for the year ended December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletins entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," numbers 1326, 1289, 1253 and 1213,
dated February 28, 1996, March 9, 1995, March 1, 1994 and March 2, 1993,
respectively.
(3) Commercial mortgage loans are classified by the Company and the ACLI as
delinquent when they are 60 days or more past due.
(4) Delinquent includes loans in foreclosure; therefore, subtotal and total
lines exclude "In foreclosure" amounts.
(5) Commercial mortgage loans are classified by the Company and the ACLI as
restructured when they are in good standing, but the basic terms have been
modified as a result of an actual or anticipated delinquency.

The following table shows credit-related realized and unrealized gains and
losses before taxes on the Company's general account commercial mortgage loans
for the periods indicated. Realized losses on general account commercial
mortgage loans are generally a result of delinquent loans 30 days or more past
due. The following table focuses on credit losses and does not reflect gains
from prepayment penalties of $4.5 million, $3.2 million, $6.4 million, $5.2
million and $1.3 million in 1996, 1995, 1994, 1993 and 1992, respectively.

GENERAL ACCOUNT COMMERCIAL MORTGAGE LOAN
CREDIT-RELATED LOSSES

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Realized losses......................... $ 4.1 $ 7.1 $ 20.4 $ 28.2 $ 36.1
Unrealized losses....................... -- -- -- -- --
----- ----- ------ ------ ------
Total................................. $ 4.1 $ 7.1 $ 20.4 $ 28.2 $ 36.1
===== ===== ====== ====== ======
Percentage of beginning of year
portfolio.............................. 0.09% 0.17% 0.53% 0.79% 1.12%
</TABLE>

Real Estate

As of December 31, 1996, equity real estate assets were $265.8 million, or
1.5% of the carrying value of general account invested assets. The equity real
estate category consists of retail, office, industrial and other properties.
Retail properties constitute the largest component of the category and are
primarily grocery store- anchored neighborhood shopping centers.

Policy Loans

The Company held $371.8 million of general account policy loans as of
December 31, 1996. Of such policy loans, 56.6% were on traditional life
policies and 43.4% were on universal life policies and annuities. Policy loans
are permitted to the extent of a policy's contractual limits and are
collateralized fully by policy cash values. Loan rates are fixed in the
contracts and range from 5% to 8%. For policies with variable rate provisions,
the

73
<PAGE>

loan interest rates were tied to external indices. The weighted average policy
loan interest rate was 7.39% as of December 31, 1996.

Equity Securities

As of December 31, 1996, the Company held general account equity securities
of $59.1 million, or 0.3% of general account consolidated invested assets. The
Company's general account equity security investments consist of a diversified
portfolio primarily of publicly traded common stocks.

Other Long-Term Investments

As of December 31, 1996, other long-term investments were $28.7 million, or
0.2% of the carrying value of general account invested assets. Such
investments primarily consist of joint ventures and limited partnership
interests in real estate.

Short-Term Investments

As of December 31, 1996, short-term investments were $9.3 million, or 0.05%
of the carrying value of general account invested assets. Such short-term
investments comprised cash and cash equivalents. The Company invests in U.S.
Treasury bills, commercial paper and certificates of deposit.

RATINGS

Ratings with respect to claims-paying ability and financial strength have
become an increasingly important factor in establishing the competitive
position of insurance companies. Ratings are important to maintaining public
confidence in the Company and its ability to market its annuity and life
insurance products. Rating organizations continually review the financial
performance and condition of insurers, including the Company. Any lowering of
the Company's ratings could have a material adverse effect on the Company's
ability to market its products and could increase the surrender of the
Company's annuity products. Both of these consequences could, depending upon
the extent thereof, have a material adverse effect on the Company's liquidity
and, under certain circumstances, net income. Nationwide Life is rated "A+"
(Superior) by A.M. Best and its claims-paying ability is rated "Aa2"
(Excellent) by Moody's and "AA+" (Excellent) by S&P. Moody's recently
confirmed and S&P recently affirmed Nationwide Life's claims-paying ability
rating with a negative outlook.

A.M. Best's ratings for insurance companies currently range from "A++" to
"F," and some companies are not rated. A.M. Best publications indicate that
"A++" and "A+" ratings are assigned to those companies that in A.M. Best's
opinion have achieved superior overall performance when compared to the norms
of the life insurance industry and generally have demonstrated a strong
ability to meet their policyholder and other contractual obligations.

Moody's rating for insurance companies currently range from "Aaa" to "Caa."
S&P ratings for insurance companies range from "AAA" to "CCCq." In evaluating
a company's financial and operating performance, Moody's and S&P review its
profitability, leverage and liquidity as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its policy reserves and the experience
and competency of its management.

The foregoing ratings reflect each rating agency's opinion of Nationwide
Life's financial strength, operating performance and ability to meet its
obligations to policyholders and are not evaluations directed toward the
protection of investors. Such factors are of concern to policyholders, agents
and intermediaries. Such ratings should not be relied upon when making a
decision to invest in the Capital Securities.

COMPETITION

The Company competes with a large number of other insurers as well as non-
insurance financial services companies, such as banks, broker/dealers and
mutual funds, some of whom have greater financial resources, offer

74
<PAGE>

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

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

REGULATION

General Regulation at State Level

As an insurance holding company, the Company is subject to regulation by the
states in which its insurance subsidiaries are domiciled and/or transact
business. Most states have enacted legislation that requires each insurance
holding company and each insurance company in an insurance holding company
system to register with the insurance regulatory authority of the insurance
company's state of domicile and, annually, to furnish financial and other
information concerning the operations of companies within the holding company
system that may materially affect the operations, management or financial
condition of the insurers within such system. The Company is subject to the
insurance holding company laws in Ohio. Under such laws, all transactions
within an insurance holding company system affecting insurers must be fair and
equitable and each insurer's policyholder surplus following any such
transaction must be both reasonable in relation to its outstanding liabilities
and adequate for its needs. The Ohio insurance holding company laws also
require prior notice or regulatory approval of the change of control of an
insurer or its holding company and of material intercorporate transfers of
assets within the holding company structure. Generally, under such laws, a
state insurance authority must approve in advance the direct or indirect
acquisition of 10% or more of the voting securities of an insurance company
domiciled in its state.

In addition, the laws of the various states establish regulatory agencies
with broad administrative powers to approve policy forms, grant and revoke
licenses to transact business, regulate trade practices, license agents,
require statutory financial statements and prescribe the type and amount of
investments permitted. In recent years, a number of life and annuity insurers
have been the subject of regulatory proceedings and litigation relating to
alleged improper life insurance pricing and sales practices. Some of these
insurers have incurred or paid substantial amounts in connection with the
resolution of such matters. In addition, state insurance regulatory
authorities regularly make inquiries, hold investigations and administer
market conduct examinations with respect to insurers' compliance with
applicable insurance laws and regulations. None of the Company's insurance
subsidiaries is the subject of any such investigation by any regulatory
authority or any such market conduct examination in any state at this time.
The Company's subsidiaries continuously monitor sales, marketing and
advertising practices and related activities of their agents and personnel and
provide continuing education and training in an effort to ensure compliance
with applicable insurance laws and regulations. There can be no assurance that
any non-compliance with such applicable laws and regulations would not have a
material adverse effect on the Company.

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

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As part of their routine regulatory oversight process, state insurance
departments conduct detailed examinations periodically (generally once every
three years) of the books, records and accounts of insurance companies
domiciled in their states. Such examinations are generally conducted in
cooperation with the departments of two or three other states under guidelines
promulgated by the NAIC. Nationwide Life's last examination occurred during
1993 for the three-year period ended December 31, 1992. Final reports of these
examinations have been issued by each of the Ohio, California and Delaware
insurance departments, and none of such reports raised any significant issues
or adjustments.

Regulation of Dividends and Other Payments from Insurance Subsidiaries

As an insurance holding company, the Company's ability to meet debt service
obligations, including payment of principal and interest on the Junior
Subordinated Debentures, and pay operating expenses and dividends depends
primarily on the receipt of sufficient funds from its primary operating
subsidiary, Nationwide Life. The inability of Nationwide Life to pay dividends
to the Company in an amount sufficient to meet debt service obligations and
pay operating expenses and dividends would have a material adverse effect on
the Company. The payment of dividends by Nationwide Life is subject to
restrictions set forth in the insurance laws and regulations of Ohio, its
domiciliary state. The Ohio insurance laws require Ohio-domiciled life
insurance companies to seek prior regulatory approval to pay a dividend or
distribution of cash or other property if the fair market value thereof,
together with that of other dividends or distributions made in the preceding
12 months, exceeds the greater of (i) 10% of policyholders' surplus as of the
prior December 31 or (ii) the net income of the insurer for the 12-month
period ending as of the prior December 31. The Ohio insurance laws also
require insurers to seek prior regulatory approval for any dividend paid from
other than earned surplus. Earned surplus is defined under the Ohio insurance
laws as the amount equal to the Company's unassigned funds as set forth in its
most recent statutory financial statements, including net unrealized capital
gains and losses or revaluation of assets. Additionally, following any
dividend, an insurer's policyholder surplus must be reasonable in relation to
the insurer's outstanding liabilities and adequate for its financial needs. As
a result of the Special Dividend and the dividend by Nationwide Life of the
stock of certain subsidiaries that do not operate in the long-term savings and
retirement market, any dividend paid by Nationwide Life during the 12-month
period immediately following the Special Dividend would be an extraordinary
dividend under Ohio insurance laws. See "Recent History." Accordingly, no such
dividend could be paid without prior regulatory approval. The payment of
dividends by Nationwide Life may also be subject to restrictions set forth in
the insurance laws of New York that limit the amount of statutory profits on
Nationwide Life's participating policies (measured before dividends to
policyholders) that can inure to the benefit of the Company and its
stockholders. The Company currently does not expect such regulatory
requirements to impair its ability to pay operating expenses and dividends and
to meet its debt service obligations in the future.

NAIC IRIS Ratios

In the 1970s, the NAIC developed a set of financial relationships or "tests"
known as the Insurance Regulatory Information System ("IRIS") that was
designed for early identification of companies which may require special
attention by insurance regulatory authorities. There are separate but similar
tests for property/casualty companies and life and health companies. Insurance
companies submit data annually to the NAIC, which in turn analyzes the data by
utilizing, in the case of life insurance companies, 13 ratios, each with
defined "usual ranges." An insurance company may fall out of the usual range
for one or more ratios because of specific transactions that are in themselves
immaterial or eliminated at the consolidated level. Generally, an insurance
company will become subject to regulatory scrutiny if it falls outside the
usual ranges of four or more of the ratios, and regulators may then act, if
the company has insufficient capital, to constrain the company's underwriting
capacity. No ratios for the Company's insurance subsidiaries currently fall
outside the usual range for any of the ratios.

Risk-Based Capital Requirements

In order to enhance the regulation of insurer solvency, the NAIC has adopted
a model law to implement risk-based capital ("RBC") requirements for life
insurance companies. The requirements are designed to monitor capital adequacy
and to raise the level of protection that statutory surplus provides for
policyholders.

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The model law measures four major areas of risk facing life insurers: (i) the
risk of loss from asset defaults and asset value fluctuation; (ii) the risk of
loss from adverse mortality and morbidity experience; (iii) the risk of loss
from mismatching of asset and liability cash flow due to changing interest
rates and (iv) business risks. Insurers having less statutory surplus than
required by the RBC model formula will be subject to varying degrees of
regulatory action depending on the level of capital inadequacy.

The RBC formula provides a mechanism for the calculation of an insurance
company's Authorized Control Level RBC and its total adjusted capital. The
model law sets forth the points at which a superintendent of insurance is
authorized and expected to take regulatory action. The first level is known as
the Company Action Level RBC, which is set at twice the Authorized Control
Level RBC. The second level is the Regulatory Action Level RBC, set at 1.5
times the Authorized Control Level RBC. The third is the Authorized Control
Level RBC, and the fourth is the Mandatory Control Level RBC, set at 70
percent of the Authorized Control Level RBC.

If an insurance company's adjusted capital is higher than the Regulatory
Action Level but below the Company Action Level, the insurance company must
submit to its superintendent of insurance a comprehensive financial plan. If
an insurance company's adjusted capital is higher than the Authorized Control
Level but lower than the Regulatory Action Level, the superintendent of
insurance shall perform such examination or analysis as he or she deems
necessary of the insurer's business and operations and issue any appropriate
corrective orders to address the insurance company's financial problems. If an
insurer's adjusted capital is higher than the Mandatory Control Level but
lower than the Authorized Control Level, the superintendent may place the
insurer under regulatory control. If the insurance company's adjusted capital
falls below the Mandatory Control Level, the superintendent will be required
to place the insurer under regulatory control. Based on the formula adopted by
the NAIC, Nationwide Life exceeded the Company Action Level by a substantial
amount as of December 31, 1995. After giving pro forma effect to the Special
Dividend and the contribution to Nationwide Life by the Company of $764.8
million of proceeds from the Equity Offerings, the Note Offering and the
Capital Securities Offering, Nationwide Life exceeded the Company Action Level
by a substantial amount as of December 31, 1996. See "Use of Proceeds,"
"Recent History" and "The Equity Offerings, the Note Offering and the Capital
Securities Offering."

Assessments Against Insurers

Insurance guaranty association laws exist in all states, the District of
Columbia and Puerto Rico. Insurers doing business in any of these
jurisdictions can be assessed for policyholder losses incurred by insolvent
insurance companies. The amount and timing of any future assessment on the
Company's insurance subsidiaries under these laws cannot be reasonably
estimated and are beyond the control of the Company and its insurance
subsidiaries. Recent regulatory actions against certain large life insurers
encountering financial difficulty have prompted the various state insurance
guaranty associations to begin assessing life insurance companies for the
deemed loss. Most of these laws do provide, however, that an assessment may be
excused or deferred if it would threaten an insurer's solvency and further
provide for annual limits on such assessments. A large part of the assessments
paid by the Company's insurance subsidiaries pursuant to these laws may be
used as credits for a portion of the Company's insurance subsidiaries' premium
taxes. Based on the best information presently available, the Company believes
the total assessments will not be material to its operating results or
financial position. For the years ended December 31, 1996, 1995 and 1994, the
Company paid $4.5 million, $7.5 million and $5.3 million, respectively, in
assessments pursuant to state insurance guaranty association laws.

General Regulation at Federal Level

Although the federal government generally does not directly regulate the
insurance business, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures that may
significantly affect the insurance business include limitations on antitrust
immunity, minimum solvency requirements and the removal of barriers
restricting banks from engaging in the insurance and mutual fund business.

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Securities Laws

Certain of the Company's insurance subsidiaries and certain policies and
contracts offered by them are subject to regulation under the federal
securities laws administered by the Commission and under certain state
securities laws. Certain separate accounts of the Company's insurance
subsidiaries are registered as investment companies under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). Separate
account interests under certain variable annuity contracts and variable
insurance policies issued by the Company's insurance subsidiaries are also
registered under the Securities Act. Certain other subsidiaries of the Company
are registered as broker/dealers under the Exchange Act and are members of,
and subject to regulation by, the National Association of Securities Dealers.

Certain of the Company's subsidiaries are investment advisors registered
under the Investment Advisers Act of 1940, as amended. The investment
companies managed by such subsidiaries are registered with the Commission
under the Investment Company Act and the shares of certain of these entities
are qualified for sale in certain states in the United States and the District
of Columbia. A subsidiary of the Company is registered with the Commission as
a transfer agent. Certain subsidiaries of the Company are also subject to the
Commission's net capital rules.

All aspects of the Company's subsidiaries' investment advisory activities
are subject to various federal and state laws and regulations in jurisdictions
in which they conduct business. These laws and regulations are primarily
intended to benefit investment advisory clients and investment company
shareholders and generally grant supervisory agencies broad administrative
powers, including the power to limit or restrict the carrying on of business
for failure to comply with such laws and regulations. In such event, the
possible sanctions which may be imposed include the suspension of individual
employees, limitations on the activities in which the investment advisor may
engage, suspension or revocation of the investment advisor's registration as
an advisor, censure and fines.

ERISA Compliance

On December 13, 1993, the United States Supreme Court issued its opinion in
John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank
holding that certain assets in excess of amounts necessary to satisfy
guaranteed obligations held by John Hancock in its general account under a
participating group annuity contract are "plan assets" and therefore subject
to certain fiduciary obligations under ERISA, which specify that fiduciaries
must perform their duties solely in the interest of ERISA plan participants
and beneficiaries. The Court limited the imposition of ERISA fiduciary
obligations in these instances to assets in an insurer's general account that
were not reserved to pay benefits of guaranteed benefit policies (i.e.,
benefits whose value would not fluctuate in accordance with the insurer's
investment experience). The Secretary of Labor is required to issue proposed
regulations not later than June 30, 1997, providing guidance for the purpose
of determining, in cases where an insurer issues one or more policies backed
by the insurer's general account to or for the benefit of an employee benefit
plan, which assets of the insurer constitute plan assets for purposes of ERISA
and the IRC. Final regulations, after a notice and comment period, must be
issued by December 31, 1997. The regulations will apply only with respect to a
policy issued by an insurer on or before December 31, 1998. In the case of
such a policy, the regulations will take effect at the end of the 18-month
period following the date such regulations become final. Generally, no person
will be liable under ERISA or the IRC for conduct occurring prior to the end
of such 18-month period, where the basis of a claim is that insurance company
general account assets constitute plan assets. New policies issued after
December 31, 1998, which are not guaranteed benefit policies will be subject
to the fiduciary obligations under ERISA.

The regulations should indicate the requirements that must be met in order
to satisfy ERISA's fiduciary standards. A review of Nationwide Life's
procedures with respect to its general account contracts will be required to
ensure compliance with the regulations.

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Potential Tax Legislation

Congress has, from time to time, considered possible legislation that would
eliminate the deferral of taxation on the accretion of value within certain
annuities and life insurance products. The 1994 United States Supreme Court
ruling in NationsBank of North Carolina v. Variable Annuity Life Insurance
Company that annuities are not insurance for purposes of the National Bank Act
may cause Congress to consider legislation that would eliminate such tax
deferral at least for certain annuities. Other possible legislation, including
a simplified "flat tax" income tax structure with an exemption from taxation
for investment income, could also adversely affect purchases of annuities and
life insurance if such legislation were to be enacted. There can be no
assurance as to whether legislation will be enacted which would contain
provisions with possible adverse effects on the Company's annuity and life
insurance products.

PROPERTIES

The Company's principal executive offices are located in Columbus, Ohio. The
Company leases its home office complex, consisting of approximately 512,000
square feet, from Nationwide Mutual and its subsidiaries at One Nationwide
Plaza, Two Nationwide Plaza and Three Nationwide Plaza, Columbus, Ohio. See
"Certain Relationships and Related Transactions."

The Company believes that its present facilities are adequate for the
anticipated needs of the Company.

LEGAL PROCEEDINGS

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

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

EMPLOYEES

As of December 31, 1996, the Company had approximately 3,550 employees. None
of the employees of the Company is covered by a collective bargaining
agreement, and the Company believes that its employee relations are
satisfactory.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table provides information regarding the executive officers
and directors of the Company. Of such executive officers, Messrs. Gasper,
Brock, Galloway, Karas, B. Barnes and Easley work exclusively for the Company.
The other executive officers perform duties for the Company and other members
of the Nationwide Insurance Enterprise.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Dimon Richard McFerson(1)........ 59 Chairman and Chief Executive Officer--
Nationwide Insurance Enterprise and
Director
53 President and Chief Operating Officer
Joseph J. Gasper................. and Director
Galen R. Barnes.................. 49 Executive Vice President
Richard D. Crabtree.............. 56 Executive Vice President
61 Executive Vice President--Law and
Gordon E. McCutchan.............. Corporate Services and Secretary
50 Executive Vice President--Chief
Robert A. Oakley................. Financial Officer
55 Executive Vice President--Chief
Robert J. Woodward, Jr........... Investment Officer
49 Senior Vice President--Company
James E. Brock................... Operations
54 Senior Vice President and General
W. Sidney Druen.................. Counsel
63 Senior Vice President--Chief Actuary--
Harvey S. Galloway, Jr........... Life and Annuities
54 Senior Vice President--Sales--Financial
Richard A. Karas................. Services
Bruce C. Barnes.................. 49 Vice President--Information Systems
Dennis W. Click.................. 58 Vice President and Assistant Secretary
David A. Diamond................. 41 Vice President--Controller
40 Vice President--Marketing and
Matthew S. Easley................ Administrative Services
Mark R. Thresher................. 40 Vice President--Finance and Treasurer
Charles L. Fuellgraf, Jr.(1)(2).. 65 Director
Henry S. Holloway(1)............. 64 Director
Lydia Micheaux Marshall(3)....... 48 Director
Donald L. McWhorter(2)(3)........ 61 Director
David O. Miller(1)(2)............ 58 Director
James F. Patterson(1)............ 55 Director
Gerald D. Prothro(3)............. 54 Director
Arden L. Shisler(1).............. 55 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.

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

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

JOSEPH J. GASPER has been President and Chief Operating Officer of the
Company since December 1996 and a director of the Company since November 1996.
Mr. Gasper has been President and Chief Operating Officer of Nationwide Life
since April 1996. Previously, he was Executive Vice President--
Property/Casualty

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Operations of Nationwide Mutual from April 1995 to April 1996. He was Senior
Vice President--Property/Casualty Operations of Nationwide Mutual from
September 1993 to April 1995. Prior to that time, Mr. Gasper held numerous
positions within the Nationwide Insurance Enterprise. Mr. Gasper has been with
the Nationwide Insurance Enterprise for 30 years.

GALEN R. BARNES has been Executive Vice President of the Company since
December 1996. Mr. Barnes has been President of the Nationwide Insurance
Enterprise since April 1996. Previously, he was President and Chief Operating
Officer of the Wausau Insurance Companies, members of the Nationwide Insurance
Enterprise, from May 1993 to September 1996 and was Senior Vice President of
the Nationwide Insurance Enterprise from May 1993 to April 1996. Prior to that
time, Mr. Barnes held several positions within the Nationwide Insurance
Enterprise. Mr. Barnes has been with the Nationwide Insurance Enterprise for
21 years.

RICHARD D. CRABTREE has been Executive Vice President of the Company since
December 1996. Mr. Crabtree has been a director and President and Chief
Operating Officer of Nationwide Mutual, Nationwide Mutual Fire and Nationwide
Property and Casualty Insurance Company since April 1996. Previously, he was
Executive Vice President--Property/Casualty Operations of the Nationwide
Insurance Enterprise from April 1995 to April 1996. Prior to that time, Mr.
Crabtree held various positions within the Nationwide Insurance Enterprise.
Mr. Crabtree has been with the Nationwide Insurance Enterprise for 31 years.

GORDON E. MCCUTCHAN has been Executive Vice President--Law and Corporate
Services and Secretary of the Company since December 1996. Mr. McCutchan has
been Executive Vice President--Law and Corporate Services and Secretary of the
Nationwide Insurance Enterprise since September 1994. Previously, he was
Executive Vice President, General Counsel and Secretary of the Nationwide
Insurance Enterprise from November 1989 to September 1994. Prior to that time,
Mr. McCutchan held several positions within the Nationwide Insurance
Enterprise. Mr. McCutchan has been with the Nationwide Insurance Enterprise
for 33 years.

ROBERT A. OAKLEY has been Executive Vice President--Chief Financial Officer
of the Company since December 1996. Mr. Oakley has been Executive Vice
President--Chief Financial Officer of the Nationwide Insurance Enterprise
since April 1995. Previously, he was Senior Vice President--Chief Financial
Officer of the Nationwide Insurance Enterprise from October 1993 to April
1995. Prior to that time, Mr. Oakley held several positions within the
Nationwide Insurance Enterprise. Mr. Oakley has been with the Nationwide
Insurance Enterprise for 21 years.

ROBERT J. WOODWARD, JR. has been Executive Vice President--Chief Investment
Officer of the Company since December 1996. Mr. Woodward has been Executive
Vice President--Chief Investment Officer of the Nationwide Insurance
Enterprise since August 1995. Previously, he was Senior Vice President--Fixed
Income Investments of the Nationwide Insurance Enterprise from March 1991 to
August 1995. Prior to that time, Mr. Woodward held several positions within
the Nationwide Insurance Enterprise. Mr. Woodward has been with the Nationwide
Insurance Enterprise for 32 years.

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

W. SIDNEY DRUEN has been Senior Vice President and General Counsel of the
Company since December 1996. Mr. Druen has been Senior Vice President and
General Counsel and Assistant Secretary of the Nationwide Insurance Enterprise
since September 1994. Previously, he was Vice President, Deputy General
Counsel and Assistant Secretary of the Nationwide Insurance Enterprise from
October 1989 to September 1994. Prior to that time, Mr. Druen held several
positions within the Nationwide Insurance Enterprise. Mr. Druen has been with
the Nationwide Insurance Enterprise for 27 years.

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HARVEY S. GALLOWAY, JR. has been Senior Vice President--Chief Actuary--Life
and Annuities of the Company since December 1996. Mr. Galloway has been Senior
Vice President--Chief Actuary--Life, Health and Annuities of the Nationwide
Insurance Enterprise since April 1993. Previously, he was Senior Vice
President and Chief Actuary of the Nationwide Insurance Enterprise from
January 1983 to April 1993. Prior to that time, Mr. Galloway held several
positions within the Nationwide Insurance Enterprise. Mr. Galloway has been
with the Nationwide Insurance Enterprise for 27 years.

RICHARD A. KARAS has been Senior Vice President--Sales--Financial Services
of the Company since December 1996. Mr. Karas has been Senior Vice President--
Sales--Financial Services of the Nationwide Insurance Enterprise since March
1993. Previously, he was Vice President--Sales--Financial Services of the
Nationwide Insurance Enterprise from February 1989 to March 1993. Prior to
that time, Mr. Karas held several positions within the Nationwide Insurance
Enterprise. Mr. Karas has been with the Nationwide Insurance Enterprise for 32
years.

BRUCE C. BARNES has been Vice President--Information Systems of the Company
since February 1997. Mr. Barnes has been Vice President--Life Systems of the
Nationwide Insurance Enterprise since May 1996. Previously, he was Vice
President--Investment Product Systems of the Nationwide Insurance Enterprise
from April 1995 to May 1996. Prior to that time Mr. Barnes was Vice
President--Individual Investment Products/Common Systems of the Nationwide
Insurance Enterprise from May 1994 to April 1995 and Associate Vice
President--Individual Investment Products/Common Systems of Nationwide Life
from May 1992 to May 1994. Mr. Barnes was Vice President--Information Services
of PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes
has been with the Nationwide Insurance Enterprise for 5 years.

DENNIS W. CLICK has been Vice President and Assistant Secretary of the
Company since December 1996. Mr. Click has been Vice President and Assistant
Secretary of the Nationwide Insurance Enterprise since August 1994.
Previously, he was Associate Vice President and Assistant Secretary of the
Nationwide Insurance Enterprise from August 1989 to August 1994. Prior to that
time, he held several positions within the Nationwide Insurance Enterprise.
Mr. Click has been with the Nationwide Insurance Enterprise for 36 years.

DAVID A. DIAMOND has been Vice President--Controller of the Company since
December 1996. Mr. Diamond has been Vice President--Enterprise Controller of
the Nationwide Insurance Enterprise since August 1996. Previously, he was Vice
President--Controller of Nationwide Life from October 1993 to August 1996.
Prior to that time, Mr. Diamond held several positions within the Nationwide
Insurance Enterprise. Mr. Diamond has been with the Nationwide Insurance
Enterprise for 8 years.

MATTHEW S. EASLEY has been Vice President--Marketing and Administrative
Services of the Company since December 1996. Mr. Easley has been Vice
President--Life Marketing and Administrative Services of the Nationwide
Insurance Enterprise since May 1996. Previously, he was Vice President--
Annuity and Pension Actuarial of the Nationwide Insurance Enterprise from
August 1989 to May 1996. Prior to that time, Mr. Easley held several positions
within the Nationwide Insurance Enterprise. Mr. Easley has been with the
Nationwide Insurance Enterprise for 14 years.

MARK R. THRESHER has been Vice President--Finance and Treasurer of the
Company since February 1997. Mr. Thresher has been Vice President--Controller
of Nationwide Life since August 1996. He was Vice President and Treasurer of
the Company from November 1996 to February 1997. Previously, he was Vice
President and Treasurer of the Nationwide Insurance Enterprise from June 1996
to August 1996. Prior to joining the Nationwide Insurance Enterprise, Mr.
Thresher served as a partner with KPMG Peat Marwick LLP since July 1988.

CHARLES L. FUELLGRAF, JR. has been a director of the Company since November
1996. Mr. Fuellgraf has been Chief Executive Officer of Fuellgraf Electric
Company, an electrical contractor, of Butler, Pennsylvania, and Nashville,
Tennessee, since 1986. He is Chairman of the Board of Nationwide
Communications Inc. and serves on the board of directors of several members of
the Nationwide Insurance Enterprise.

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HENRY S. HOLLOWAY has been a director of the Company since November 1996.
Mr. Holloway has been a farm owner and operator in Darlington, Maryland, since
1959. He is Chairman of the Board of Nationwide Life, Nationwide Life and
Annuity Insurance Company and Nationwide Corp. and serves on the board of
directors of several members of the Nationwide Insurance Enterprise. He is
also a director of the National Cooperative Business Association and the
Forest Hill State Bank.

LYDIA MICHEAUX MARSHALL has been a director of the Company since February
1997. Ms. Marshall has been Executive Vice President, Marketing of the Student
Loan Marketing Association ("Sallie Mae"), in Washington D.C., since November
1993. Previously, she was Senior Vice President, Marketing of Sallie Mae from
January 1991 to November 1993. Prior to that time, Ms. Marshall held several
positions with Sallie Mae. She is Chair of the Board of CARE (Cooperative for
American Relief Everywhere) and a trustee of the Greater Washington Board of
Trade's Greater Washington Initiative.

DONALD L. MCWHORTER has been a director of the Company since February 1997.
Mr. McWhorter retired from Banc One Corporation in April 1995, after serving
as President and Chief Operating officer of Banc One Corporation since April
1992. Previously, he was Chairman and Chief Executive officer of Banc One Ohio
from July 1989 to April 1992. Prior to that time, Mr. McWhorter held several
positions with Banc One Corporation.

DAVID O. MILLER has been a director of the Company since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the
President of Owen Potato Farm Inc., the owner of The Berry Barn and is a
partner of M&M Enterprises in Licking County, Ohio. He is Chairman of the
Board of the Wausau Insurance Companies and serves on the board of directors
of several members of the Nationwide Insurance Enterprise. He is also a
director of the National Cooperative Business Association.

JAMES F. PATTERSON has been a director of the Company since November 1996.
Mr. Patterson has operated the Patterson Fruit Farm in Chesterland, Ohio,
since 1964 and has been the President of Patterson Farms, Inc. since December
1991. He is Chairman of the Board of Nationwide Mutual Fire Insurance Company
and serves on the board of directors of several members of the Nationwide
Insurance Enterprise. He is also a trustee of The Ohio State University and
serves on the board of directors of the University Hospitals Health System in
Cleveland, Ohio, and Geauga Hospital, Inc. in Chardon, Ohio.

GERALD D. PROTHRO has been a director of the Company since February 1997.
Mr. Prothro has been Vice President and IBM Chief Information Officer of
International Business Machines Corporation since April 1994. Previously, he
was IBM Vice President, Information and Telecommunications Systems of
International Business Machines Corporation from June 1992 to April 1994.
Prior to that time, Mr. Prothro held several positions with International
Business Machines Corporation. He is a director of National Technological
University and a member of the Review and Priority Board of Lehigh
University/Iacocca Institute. He is also a trustee of Howard University.

ARDEN L. SHISLER has been a director of the Company since November 1996. Mr.
Shisler has been President and Chief Executive Officer of K & B Transport,
Inc., a trucking firm in Dalton, Ohio, since January 1992. Previously, he was
Chief Operating Officer of K & B Transport, Inc. from April 1986 to January
1992. Prior to that time, Mr. Shisler held several positions with K & B
Transport, Inc. He is Chairman of the Board of Nationwide Mutual Insurance
Company and serves on the board of directors of several members of the
Nationwide Insurance Enterprise. He is also a director of the National
Cooperative Business Association.

The Company's Board of Directors currently consists of ten directors,
divided into three classes. The initial term of the first class will expire at
the annual meeting of stockholders to be held in 1998, the initial term of the
second class will expire at the annual meeting of stockholders in 1999 and the
initial term of the third class will expire at the annual meeting of
stockholders in 2000. Messrs. Holloway, Patterson and Prothro are members of
the first class, Messrs. Fuellgraf, McFerson, McWhorter and Shisler are
members of the second class and Messrs. Gasper and Miller and Ms. Marshall are
members of the third class. At each annual meeting of stockholders, directors
will be elected for a three-year term to succeed the directors whose terms are
then to expire. Officers of the Company are elected annually and serve until
their retirement, resignation or removal.

The Company's Board of Directors has an Audit Committee currently consisting
of three directors, none of whom is an officer or employee of the Company. Ms.
Marshall and Messrs. McWhorter and Prothro are the

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<PAGE>

members of such committee. The Audit Committee recommends to the Board of
Directors the selection of independent certified public accountants to audit
annually the books and records of the Company, reviews the activities and the
reports of the independent certified public accountants and reports the
results of such review to the Board of Directors. The Audit Committee also
considers the adequacy of the Company's internal controls and internal
auditing methods and procedures. The Board of Directors has a Compensation
Committee currently consisting of three directors, none of whom is an officer
or employee of the Company, which, as authorized by the Board of Directors,
makes determinations with respect to non-cash compensation to officers,
directors and employees of the Company, including grants, options and awards
under the Company's 1996 Long-Term Equity Compensation Plan. Messrs.
Fuellgraf, McWhorter and Miller are the members of such committee. The Board
of Directors has an Executive Committee currently consisting of six directors,
which, to the extent authorized by the Board of Directors, exercises all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Company. Messrs. Fuellgraf, Holloway, McFerson,
Miller, Paterson and Shisler are the members of such committee.

DIRECTOR COMPENSATION

Directors of the Company who are not employees of the Company or its
affiliates will receive an annual retainer of $50,000. Pursuant to the
Nationwide Financial Services, Inc. Stock Retainer Plan for Non-Employee
Directors, the annual retainer will be paid (i) $25,000 in cash and (ii) in
shares of Class A Common Stock having an aggregate market value of $25,000 as
of the date of payment. In addition, the Company will reimburse directors for
reasonable travel expenses incurred in attending meetings of the Board of
Directors and committees thereof.

In addition, directors of the Company who are not employees of the Company
or its affiliates also receive compensation for service on the boards of
directors of Nationwide Life and Nationwide Life and Annuity Insurance
Company. For the fiscal year ended December 31, 1996, Messrs. Fuellgraf,
Holloway, Miller, Patterson and Shisler received $8,820, $14,059, $13,783,
$10,949 and $13,621, respectively, for service to such companies.

Directors' Deferred Compensation Program

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

Directors' Stock Retainer Plan

The Company has established the Nationwide Financial Services, Inc. Stock
Retainer Plan for Non-Employee Directors. As a means of solidifying the common
interests of the Company and its directors, pursuant to such plan, each
director of the Company will be paid half of the annual retainer fee in cash
and the other half in the form of shares of Class A Common Stock having an
equivalent fair market value as of the date of payment.

EXECUTIVE COMPENSATION

The Company was incorporated in November 1996. Pursuant to a cost sharing
agreement, the salaries and benefits of certain of the officers and employees
of the Company and its subsidiaries, including the Named Executive Officers
(as defined below), will be paid by Nationwide Mutual and reimbursed in
accordance with the terms of such agreement. See "Certain Relations and
Related Transactions--Existing Arrangements with the Nationwide Insurance
Enterprise--Cost Sharing Agreement."

The following summary compensation table sets forth information regarding
the compensation of the Chief Executive Officer and the other five most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") for the fiscal year ended December 31, 1996 solely for
services rendered to the Company and its subsidiaries.

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<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
- --------------------------- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Dimon Richard
McFerson(1)............. $324,790 $80,058(2) $ -- (3) $149,803(4) $13,363(5)
Chairman and Chief
Executive
Officer--Nationwide
Insurance Enterprise
Joseph J. Gasper(6)...... 232,959 --(2) -- (3) --(4) 10,650(5)
President and Chief
Operating Officer
Executive Vice
President--
Chief Investment
Officer
Harvey S. Galloway, Jr... 247,520 69,901(2) -- (3) 74,100(4) 11,973(5)
Senior Vice President--
Chief Actuary--Life and
Annuities
Robert J. Woodward, Jr.
(1)..................... 222,784 59,399(2) -- (3) 64,698(4) 10,610(5)
Executive Vice
President--
Chief Investment
Officer
James E. Brock........... 217,520 59,620(2) -- (3) 65,100(4) 10,492(5)
Senior Vice President--
Company Operations
Richard A. Karas ........ 216,905 52,312(2) -- (3) 57,750(4) 10,059(5)
Senior Vice President--
Sales--Financial Serv-
ices
</TABLE>
- --------
(1) Figures in the table represent compensation received by such person solely
for his services rendered to the Company and its subsidiaries as allocated
pursuant to a cost sharing agreement. See "Certain Relationships and
Related Transactions--Existing Arrangements with the Nationwide Insurance
Enterprise--Cost Sharing Agreement."
(2) Represents the amount received by the Named Executive Officer under the
Management Incentive Plan in 1996 for the 1995 award year. See "--
Incentive Plans--Management Incentive Plan." Payout under such plan for
the 1996 award year is not available as of the date of this Prospectus.
(3) Aggregate perquisites and other personal benefits are less than the lower
of $50,000 or 10% of combined salary and bonus.
(4) Represents the amount received by the Named Executive Officer under the
Executive Incentive Plan in 1996 for the award period 1993 to 1995. See
"--Incentive Plans--Executive Incentive Plan." No payouts were made in
1996 under the Sustained Performance Incentive Plan. See "--Incentive
Plans--Sustained Performance Incentive Plan."
(5) Represents contributions made or credited by the Company in 1996 under the
Savings Plan (as defined herein) and the DC Supplemental Plan (as defined
herein). See "--Savings Plans."
(6) Represents compensation received by Mr. Gasper solely for his services
rendered to the Company in 1996 as allocated pursuant to a cost sharing
agreement. Prior to April 1996, Mr. Gasper was the Executive Vice
President--Property/Casualty Operations of Nationwide Mutual and received
compensation from Nationwide Mutual and its property/casualty insurance
subsidiaries for services rendered to such companies. Such compensation is
not reflected in the table.

INCENTIVE PLANS

Sustained Performance Incentive Plan

Prior to 1997, Nationwide Mutual and certain of its subsidiaries and
affiliates, including Nationwide Life, maintained the Sustained Performance
Incentive Plan (the "SPIP"). Under the SPIP, payments were made to

85
<PAGE>

the Named Executive Officers and other senior officers of the participating
companies in each odd numbered calendar year based on the achievement of
measures tied to the performance of the Nationwide Insurance Enterprise over
the preceding four years. Performance measures were based on profitability,
growth and strategic objectives for the Nationwide Insurance Enterprise which
were established in advance by the boards of directors of the participating
companies. Under the SPIP, participants were granted target incentive amounts
that represented a percentage (10% to 20% depending on the participant's
position within the participating company) of the sum of the participant's
base salary for the last two years of the performance cycle. The actual amount
received by the participant ranged from zero to twice the target incentive
amount, depending solely on the achievement of the performance measures.

Nationwide Mutual and the participating subsidiaries and affiliates
terminated the SPIP at the close of calendar year 1996. If a payment under the
SPIP is made in 1997, covering performance measured for the period from 1993
to 1996, such payment will be made in cash as provided in the SPIP. To
facilitate the termination of the SPIP, the performance measurement period for
1995 to 1998 was closed at the end of calendar 1996. Payments made in 1997 for
such performance measurement period will be made in shares of restricted stock
of the Company under the Company's 1996 Long-Term Equity Compensation Plan.
Messrs. McFerson, Gasper, Galloway, Woodward, Brock and Karas will receive
23,602, 6,875, 4,282, 2,944 and 3,128 shares of restricted stock,
respectively.

Executive Incentive Plan

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

Management Incentive Plan

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

PENSION PLANS

Retirement Plan

Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a qualified defined benefit plan, the Nationwide
Insurance Enterprise Retirement Plan (the "Retirement Plan"). In general, a
participant's annual retirement benefit under the Retirement Plan will be
equal to the sum of (i) 1.25% of the participant's Final Average Compensation
times years of service (to a maximum of 35 years) and (ii) 0.50% of the
participant's Final Average Compensation in excess of Social Security Covered
Compensation

86
<PAGE>

times years of service (to a maximum of 35 years). Final Average Compensation,
for the portion of the participant's benefit which is attributable to service
on or after January 1, 1996, is the average of the highest five consecutive
covered compensation amounts of the participant in the participant's last 10
years of service. For the portion of a participant's benefit attributable to
service prior to January 1, 1996, Final Average Compensation is the average of
the highest 3 consecutive covered compensation amounts of the participant in
the participant's last 10 years of service. Covered compensation, for purposes
of determining Final Average Compensation under either method, is calculated
on a calendar year basis and includes compensation from any member of the
Nationwide Insurance Enterprise. With respect to Messrs. Gasper, Galloway,
Brock and Karas, because each such officer's compensation is allocated solely
to the Company and its subsidiaries, covered compensation includes the
compensation listed under the headings Salary, Bonus and LTIP Payouts and a
portion of the compensation that is included under the heading Other Annual
Compensation shown in the Summary Compensation Table. Covered compensation for
Messrs. McFerson and Woodward includes the amounts set forth under such
headings and additional compensation amounts received for services rendered to
other members of the Nationwide Insurance Enterprise. Social Security Covered
Compensation means the average of the social security wage bases in effect
during the 35 year period ending with the last day of the year the participant
attains social security retirement age. The portion of a participant's benefit
attributable to years of service credited prior to 1996 is also subject to
post-retirement increases following the commencement of benefits or the
participant's attainment of age 65, whichever is later.

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

Excess and Supplemental Plans

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

The chart below indicates the estimated maximum annual retirement benefits
that a hypothetical participant would be entitled to receive under the
Retirement Plan (including payments made under the Excess and Supplemental
Plans as a result of limitations imposed by the IRC) computed on a straight-
life annuity basis, if retirement occurred at age 65 and the number of
credited years of service and Final Average Compensation equaled the amounts
indicated. For purposes of the chart, it is assumed that the Final Average
Compensation is

87
<PAGE>

the same whether measured over the three-year averaging period that applies to
service accumulated prior to 1996 or the five-year period that applies to
service accumulated after 1995. In actual operation, the total benefit
received under the Retirement Plan (including payments made under the Excess
and Supplemental Plans) would be the total of the benefit determined based on
years of service earned under each method.

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

All Named Executive Officers have a portion of their benefit calculated
based on the post-1995 definition of Final Average Compensation. As of
December 31, 1995, the number of credited years of service under the
Retirement Plan for Messrs. McFerson, Gasper, Woodward, Galloway, Brock and
Karas was 23 years, 29.5 years, 32.7 years, 26.5 years, 26.5 years and 31.5
years, respectively. Mr. McFerson's credited years of service include,
pursuant to an agreement with Nationwide Mutual, 8.17 years in excess of those
actually earned through employment by the Nationwide Insurance Enterprise. The
benefit attributable to those additional years will be paid by Nationwide
Mutual (not the Retirement Plan) and is reduced by the benefit payable under
the retirement plan of Mr. McFerson's previous employer. Each of the Named
Executive Officers earned an additional year of service in 1996 and their
benefit for such year and all future years will be calculated under the new
definition of Final Average Compensation. Covered compensation paid by the
Company for the fiscal year ended December 31, 1996 for Messrs. McFerson,
Gasper, Woodward, Galloway, Brock and Karas was $444,217, $349,412, $348,003,
$392,313, $343,167 and $328,513, respectively.

SAVINGS PLANS

Savings Plan

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

88
<PAGE>

those deferrals) or after-tax contributions (and earnings on those
contributions), as applicable. A participant is vested in amounts attributable
to employer matching contributions (and earnings on those contributions) over
a period of five years.

Supplemental Defined Contribution Plan

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

DEFERRED COMPENSATION PROGRAM

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

SEVERANCE PAY PLAN

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

LONG-TERM EQUITY COMPENSATION PLAN

General

The Board of Directors of the Company has adopted, and Nationwide Corp., as
the sole stockholder of the Company has approved, the Nationwide Financial
Services, Inc. 1996 Long-Term Equity Compensation Plan (the "LTEP"). The
purpose of the LTEP is to benefit the stockholders of the Company by
encouraging high levels of performance by selected officers, directors and
employees of the Company and certain of its affiliates, attracting and
retaining the services of such individuals and aligning the interests of such
individuals with those of the stockholders.

89
<PAGE>

The LTEP grants the Compensation Committee of the Board of Directors of the
Company, which will administer the LTEP, flexibility in creating the terms and
restrictions deemed appropriate for particular awards as facts and
circumstances warrant. The LTEP is intended to constitute a nonqualified,
unfunded, unsecured plan for incentive and deferred compensation and is not
intended to be subject to any requirements of ERISA. The LTEP is intended to
satisfy the requirements of Section 16b-3 of the Exchange Act, and awards
under the LTEP which are performance-based are intended to qualify as
"performance-based compensation" for purposes of Section 162(m) of the IRC.

Types of Awards

The LTEP provides for the grant of any or all of the following types of
awards: (i) stock options, including incentive stock options and non-qualified
stock options, for shares of Class A Common Stock; (ii) stock appreciation
rights ("SARs"), either in tandem with stock options or freestanding; (iii)
restricted stock; and (iv) performance awards. Any stock option granted in the
form of an incentive stock option must satisfy the applicable requirements of
Section 422 of the IRC. Awards may be made to the same person on more than one
occasion and may be granted singly, in combination or in tandem as determined
by the Compensation Committee.

Term

The LTEP was effective as of December 11, 1996. No awards may be granted
under the LTEP after December 11, 2006, and the LTEP may be terminated by the
Board of Directors of the Company prior to such date. In the event of
expiration or earlier termination of the LTEP, the LTEP will remain in effect
until such time as all awards granted thereunder have been satisfied or have
expired. No new awards may by made under the LTEP after its expiration or
termination.

Administration

The LTEP will be administered by the Compensation Committee of the Board of
Directors of the Company. The Company intends that each member of the
Compensation Committee shall be a "nonemployee director" within the meaning
and for purposes of Rule 16b-3 under the Exchange Act and an "outside
director" within the meaning and for purposes of Section 162(m) of the IRC.
Under the LTEP, the Compensation Committee will have authority (i) to select
the employees, officers and directors of the Company and its affiliates to
receive awards; (ii) to determine the timing, form, amount or value and terms
of grants and awards, and the terms and conditions, if any, subject to which
grants and awards will be made and become payable under the LTEP, (iii) to
construe the LTEP and to prescribe rules and regulations with respect to the
administration of the LTEP and (iv) to make such other determinations
authorized under the LTEP as the Compensation Committee deems necessary or
appropriate.

Eligibility

All employees, officers and directors of the Nationwide Insurance Enterprise
are eligible to participate.

Shares Subject to the LTEP

The number of shares of Class A Common Stock which may be issued under the
LTEP, or as to which SARs or other awards may be granted, may not exceed 2.6
million.

In the event of any increases or decreases in the number of issued and
outstanding shares of Class A Common Stock pursuant to stock splits, mergers,
reorganizations, recapitalizations, stock dividends or other events described
under the terms of the LTEP, the Compensation Committee shall make appropriate
adjustments to the aggregate number of shares available for issuance under the
LTEP and the number of shares subject to outstanding grants or awards, to the
exercise price per share of outstanding stock options and to the number or
kinds of shares which may be distributed under the LTEP. The terms of stock
options, SARs, restricted stock and performance awards may also be subject to
adjustments by the Compensation Committee to reflect changes in the Company's
capitalization.

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<PAGE>

Stock Options

The Compensation Committee may grant awards in the form of options to
purchase shares of Class A Common Stock. The Compensation Committee shall,
with regard to each stock option, determine the number of shares subject to
the option and the manner and time of the option's exercise; provided,
however, that the maximum number of shares of Class A Common Stock that may be
subject to stock options granted under the LTEP to an individual optionee
during any calendar year cannot exceed 100,000 shares (subject to appropriate
adjustment in the event of stock dividends, stock splits and certain other
events). The exercise price of a stock option may not be less than the fair
market value of the Class A Common Stock on the date the option is granted.
The Committee will designate each option as a non-qualified or an incentive
stock option. The option price upon exercise may, at the discretion of the
Committee, be paid by a participant in cash, shares of Class A Common Stock, a
"cashless exercise" or a combination thereof.

Prior to the consummation of the Equity Offerings, stock options will be
granted under the LTEP to the following Named Executive Officers at an
exercise price equal to the initial public offering price in the following
amounts:

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAMED EXECUTIVE OFFICER SUBJECT TO OPTION
----------------------- -----------------
<S> <C>
Dimon Richard McFerson 40,000
Joseph J. Gasper 30,000
Robert J. Woodward, Jr. 10,000
Richard A. Karas 10,000
Harvey S. Galloway, Jr. 7,500
James E. Brock 7,500
</TABLE>

Additionally, 196,500 and 26,000 stock options will be granted in the
aggregate under the LTEP to other officers and directors, respectively, of the
Company and its subsidiaries.

Stock Appreciation Rights

The LTEP also authorizes the Compensation Committee to grant SARs either
independent of, or in connection with, a stock option. If granted with a stock
option, exercise of the SAR will result in the surrender of the right to
purchase the shares under the option to which the SAR was exercised. Upon
exercising an SAR, the holder receives for each share with respect as to which
the SAR is exercised, an amount equal to the difference between the exercise
price and the fair market value of Class A Common Stock on the date of
exercise. Payment of such amount may be made in shares of Class A Common
Stock, cash, or a combination thereof, as determined by the Compensation
Committee. The maximum number of shares of Class A Common Stock that may be
subject to SARs granted under the LTEP to an individual grantee during any
calendar year cannot exceed 100,000 shares (subject to appropriate adjustment
in the event of stock dividends, stock splits and certain other events).

Restricted Stock

The LTEP provides that shares of Class A Common Stock subject to certain
restrictions including restrictions on transferability may be awarded from
time to time as determined by the Compensation Committee. The Compensation
Committee will determine the nature and extent of the restrictions on such
shares, the duration of such restrictions and any circumstance under which
restricted shares will be forfeited by the participant. Subject to such
restrictions as the Compensation Committee shall determine, participants
holding shares of restricted stock may exercise full voting rights with
respect to such shares and may receive dividends payable to holders of such
shares. The maximum number of shares of Class A Common Stock that may be
granted in the form of restricted shares to an individual grantee during any
calendar year cannot exceed 100,000 shares (subject to appropriate adjustment
in the event of stock dividends, stock splits and certain other events).

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Prior to the consummation of the Equity Offerings, restricted stock will be
granted under the LTEP to the following officers of the Company in the
following amounts:

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF RESTRICTED STOCK
NAMED EXECUTIVE OFFICER (3 YEAR RESTRICTION)
----------------------- --------------------
<S> <C>
Dimon Richard McFerson 15,000
Joseph J. Gasper 10,000
Richard A. Karas 4,000
Robert J. Woodward, Jr. 3,500
Harvey S. Galloway, Jr. 3,000
James E. Brock 3,000
</TABLE>

Additionally, 69,750 and 8,000 shares of restricted stock will be granted in
the aggregate under the LTEP to other officers and directors, respectively, of
the Company and its subsidiaries.

Performance Awards

The LTEP provides for the Compensation Committee to grant performance
awards, consisting of performance units and/or performance shares, to eligible
persons under the LTEP from time to time. The beginning value of performance
units is set by the Compensation Committee at the time of grant, while the
beginning value of performance shares is equal to the fair market value of the
shares of the Class A Common Stock at the time of grant. A performance award
will be contingent upon future performance by the Company or any subsidiary,
division or department thereof. The Compensation Committee shall establish at
the time of grant the relevant performance criteria. Performance periods may
overlap and participants may be awarded performance units and performance
shares having different performance criteria. Unless the Compensation
Committee otherwise determines, in the event of a participant's termination as
an employee or director before the end of any relevant performance period
(other than due to death, disability or retirement), the participant will not
be entitled to any performance award related to such period. Subject to the
discretion of the Compensation Committee, participants who have earned shares
of Class A Common Stock in connection with grants of performance awards may
exercise full voting rights with respect to such shares and may receive
dividends payable to holders of such shares. Payment of a performance award
may be made in cash, Class A Common Stock or a combination thereof, as
determined by the Committee. The benefit to the grantee of a performance award
is the difference between its beginning value and its value at the end of the
performance period. The maximum performance award that may be granted to an
individual grantee during any calendar year cannot exceed the value of 100,000
shares of Class A Common Stock (subject to appropriate adjustment in the event
of stock dividends, stock splits and certain other events).

Award Agreements

Each award under the LTEP will be evidenced by an agreement in such form and
containing such provisions consistent with the provisions of the LTEP as the
Compensation Committee from time to time approves. In applicable situations,
such agreements may include provisions to qualify as an incentive stock
option, or providing for the payment of the option price, in whole or in part,
by the delivery of a number of shares of Class A Common Stock (plus cash if
necessary) having a fair market value equal to the option price. Such
agreements may also include provisions relating to (i) vesting, (ii) tax
matters (including provisions covering any applicable employee wage
withholding requirements), and (iii) any other matters not inconsistent with
the terms and provisions of the LTEP that the Compensation Committee in its
sole discretion determines. The terms and conditions of award agreements need
not to be identical.

Amendment

The Board of Directors of the Company may at any time terminate or amend the
LTEP in any respect; provided, however, that no amendment which requires
stockholder approval in order for the LTEP to comply with Rule 16b-3 under the
Exchange Act shall be effective unless such amendment is approved by the
requisite

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number of stockholders of the Company entitled to vote thereon. No amendment
or termination of the LTEP shall, without the consent of the optionee or
participant in the LTEP, alter or impair the rights of such person under any
options or other awards theretofore granted under the LTEP.

Change of Control

Upon the occurrence of a Change in Control (as defined in the LTEP), (i) the
exercisability and vesting of stock appreciation rights and stock options
shall be accelerated, (ii) the restrictions and limitations applicable to any
restricted stock shall lapse, (iii) the target payout opportunities attainable
under all outstanding awards of restricted stock, performance units and
performance shares shall be deemed to have been fully earned for the entire
performance period, (iv) the vesting of restricted stock and performance
awards denominated in shares of Class A Common Stock will be accelerated and
(v) within 30 days following the effective date of the Change in Control, a
pro rata amount of any outstanding performance awards will be paid in cash to
participants, based upon an assumed achievement of all relevant performance
goals and upon the portion of the performance period which has elapsed prior
to the Change in Control.

OWNERSHIP OF CAPITAL STOCK

Prior to the consummation of the Equity Offerings, all of the outstanding
shares of Common Stock of the Company will be owned by Nationwide Corp. After
the Equity Offerings, Nationwide Corp. will own all of the outstanding shares
of the Class B Common Stock and none of the outstanding shares of the Class A
Common Stock. Such shares of the Class B Common Stock will represent 83.6% and
98.1% (81.6% and 97.8% if the Underwriters' over-allotment option is exercised
in full) of the total number of shares of Common Stock outstanding and the
combined voting power of the stockholders of the Company, respectively,
following the Equity Offerings.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

EXISTING ARRANGEMENTS WITH THE NATIONWIDE INSURANCE ENTERPRISE

Organization of the Company

The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. On September
24, 1996, Nationwide Life declared a dividend to Nationwide Corp. consisting
of the stock of those subsidiaries of Nationwide Life that do not operate in
the long-term savings and retirement market. On January 27, 1997, Nationwide
Corp. contributed to the Company all of the outstanding capital stock of
Nationwide Life and the other companies within the Nationwide Insurance
Enterprise that offer or distribute long-term savings and retirement products.

On December 31, 1996, Nationwide Life paid a $50.0 million cash dividend to
Nationwide Corp. In addition, on February 24, 1997, Nationwide Life paid a
dividend to the Company, and the Company paid an equivalent dividend to
Nationwide Corp., consisting of securities having an aggregate market value of
$850.0 million.

Effective as of January 1, 1996, Nationwide Life entered into a 100%
modified coinsurance agreement with Employers Life pursuant to which all of
Nationwide Life's nonvariable group and wholesale life insurance business and
group and franchise health insurance business was reinsured by Employers Life.
Nationwide Life also entered into a 100% modified coinsurance agreement with
Nationwide Mutual effective as of January 1, 1996, pursuant to which all of
Nationwide Life's individual accident and health insurance business was
reinsured by Nationwide Mutual. See "--Modified Coinsurance Agreements."

Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings,
Nationwide Corp. will own all of the outstanding shares of the Class B Common
Stock representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of Common
Stock outstanding and the combined voting power of the stockholders of the
Company, respectively.

Federal Income Taxes

Nationwide Mutual and its U.S. subsidiaries, including the Company and its
subsidiaries, file a consolidated federal income tax return. The members of
the consolidated group currently have a tax sharing arrangement which
provides, in effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed. For the years
ended December 31, 1996 and 1995, the Company made federal income tax payments
under the tax sharing arrangement of $117.3 million and $58.1 million,
respectively.

Legal Services

The attorneys in the Office of General Counsel of Nationwide Mutual also
operate as the law firm of Druen, Rath & Dietrich. Pursuant to a partnership
agreement, the firm limits its representation to the members of the Nationwide
Insurance Enterprise. The partnership was formed to assure compliance with
Ohio law that prohibits corporations from practicing law. Through a retainer
arrangement, an annual retainer fee is paid by each member of the Nationwide
Insurance Enterprise based upon an estimate of time spent by each attorney
working on legal matters related to the respective member during the previous
year. W. Sidney Druen, Senior Vice President and General Counsel of the
Company, is the senior partner in such firm, and all attorneys and other
employees of the firm are salaried employees of Nationwide Mutual. The firm
applies all of its retainer fees toward office overhead under a rental and
office expense agreement with Nationwide Mutual. For the years ended December
31, 1996 and 1995, the Company paid the firm $2.0 million and $1.7 million,
respectively, for legal services rendered to the Company which amounts were
immediately remitted to Nationwide Mutual.

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Lease

Pursuant to an arrangement between Nationwide Mutual and certain of its
subsidiaries, the Company leases approximately 512,000 square feet of office
space at One Nationwide Plaza, Two Nationwide Plaza and Three Nationwide
Plaza, Columbus, Ohio, at a current market rate of $19.53 per square foot,
with limited exceptions. Under the arrangement, the Company determines the
amount of office space necessary to conduct its operations and leases such
space from Nationwide Mutual, subject to availability. For the years ended
December 31, 1996 and 1995, the Company made payments to Nationwide Mutual and
its subsidiaries totaling $10.0 million and $9.9 million, respectively, under
such arrangement.

Modified Coinsurance Agreements

Effective as of January 1, 1996, Nationwide Life entered into a 100%
modified coinsurance agreement with Employers Life. Under the agreement,
Nationwide Life cedes to Employers Life, and Employers Life assumes,
Nationwide Life's nonvariable group and wholesale life insurance business and
group and franchise health insurance business and any ceded or assumed
reinsurance applicable to such group business. For the year ended December 31,
1996, Nationwide Life ceded $224.3 million of premium to Employers Life.

Effective as of January 1, 1996, Nationwide Life also entered into a 100%
modified coinsurance agreement with Nationwide Mutual. Under the agreement,
Nationwide Life cedes to Nationwide Mutual, and Nationwide Mutual assumes,
Nationwide Life's individual accident and health insurance business and any
ceded or assumed reinsurance applicable to such business. For the year ended
December 31, 1996, Nationwide Life ceded $97.3 million of premium to
Nationwide Mutual.

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

Total premiums ceded under the reinsurance agreements were $321.6 million
during 1996. The effect of the reinsurance agreements was an increase in the
Company's income before federal income tax expense of $4.5 million during
1996.

Cost Sharing Agreement

Pursuant to a cost sharing agreement among Nationwide Mutual and certain of
its direct and indirect subsidiaries, including the Company, Nationwide Mutual
provides certain operational and administrative services, such as sales
support, advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to allocation
among Nationwide Mutual and such subsidiaries. Under such agreement, for the
years ended December 31, 1996 and 1995, the Company made payments to
Nationwide Mutual totaling $101.6 million and $107.1 million, respectively.
Under the cost sharing agreement, expenses are allocated in accordance with
NAIC guidelines and are based on standard allocation techniques and procedures
acceptable under general cost accounting practices. Measures used to allocate
expenses include individual employee estimates of time spent, special cost
studies, salary expense, commissions expense and other measures that are
agreed to by the participating companies and are within regulatory and
industry guidelines and practices. The cost sharing agreement will remain in
effect following the Equity Offerings until terminated upon the consent of
both Nationwide Mutual and the Company.

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<PAGE>

Cash Management Agreements

Nationwide Mutual has entered into separate Investment Agency Agreements
with California Cash Management Company ("CCMC") and Nationwide Cash
Management Company ("NCMC"), each an affiliate of the Company. Pursuant to the
terms of such agreements, CCMC and NCMC make, hold and administer short-term
investments (those maturing in one year or less) for Nationwide Mutual and
certain of its affiliates, including Nationwide Life and certain of the
Company's other subsidiaries. Under each agreement, expenses of CCMC or NCMC,
as the case may be, are allocated pro rata among the participants based upon
the participant's ownership percentage of total assets held by CCMC or NCMC.
For the years ended December 31, 1996 and 1995, the Company paid CCMC and NCMC
fees and expenses totaling $0.5 million and $0.5 million, respectively, under
such agreements.

Benefit Plans

The Company participates in the common employee benefit programs with
Nationwide Mutual and its subsidiaries. Included in these programs are
accident and health benefits, disability income benefits and life insurance
benefits. The Company ultimately pays for all benefits provided to its
employees under the benefit program plus an administrative processing fee,
reduced by employee contributions. The administrative processing fee paid by
the Company approximated $1.0 million and $0.7 million for the years ended
December 31, 1996 and 1995, respectively.

The Company also participates, along with Nationwide Mutual and its
subsidiaries and affiliates, in life insurance and health care benefit plans
for qualifying retirees. Such plans are funded in amounts determined at the
discretion of management of the Company based on current and anticipated
future costs. Contributions to the plan by the participating companies are
primarily invested in group annuity contracts of Nationwide Life.
Contributions by the Company approximated $1.6 million and $1.4 million for
the years ended December 31, 1996 and 1995, respectively.

Repurchase Agreement

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

NEW AGREEMENTS WITH THE NATIONWIDE INSURANCE ENTERPRISE

Set forth below are descriptions of certain agreements between the Company
and other members of the Nationwide Insurance Enterprise that will become
effective upon the consummation of the Equity Offerings.

Tax Sharing Agreement

The Company is, and after the Capital Security Offering will continue to be,
included in the consolidated United States federal income tax return for which
Nationwide Mutual is the common parent and the Company's tax liability will be
included in the consolidated federal income tax liability of Nationwide
Mutual. The Company also may be included in certain state and local tax
returns of Nationwide Mutual or its subsidiaries.

The Company will enter into the Tax Sharing Agreement which will become
effective for 1996 and subsequent years, as long as the Company is included in
Nationwide Mutual's consolidated federal income tax return. It will also be
effective for any year in which the Company is included in a consolidated or
combined state or local tax return. Under the Tax Sharing Agreement,
Nationwide Mutual will compute its federal tax on a consolidated basis, and
its state and/or local taxes on a combined basis (in those states or other
jurisdictions in which Nationwide Mutual files a combined return for such
year). Each corporation that is included in the consolidated and/or combined
return shall compute its federal, state, and/or local tax liability on a
separate basis, and the federal, state, and/or local tax liability of each
corporation shall be determined by applying the Percentage Method for
allocating tax liability, all as set forth in Treas. Reg. 1.1502-33(d)(3),
using a fixed percentage of

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100%. Pursuant to that regulation, each corporation's federal income tax
liability will be equal to the consolidated federal income tax liability
(including any amounts determined to be due as a result of a redetermination
of the tax liability of the consolidated group of which Nationwide Mutual is
the common parent, whether arising from any audit or otherwise, but in all
instances without regard to the alternative minimum tax) of Nationwide Mutual
times a fraction, the numerator of which is the federal tax liability of such
corporation determined on a separate basis, and the denominator of which is
the aggregated federal tax liability of all corporations in the consolidated
group, determined on a separate basis. Any corporation that has no federal
income tax liability when computed on a separate basis is ignored for purposes
of allocating the consolidated tax liability. The state and local tax
liability, in those states or other jurisdictions in which a combined return
is filed, shall be determined in a manner consistent with the foregoing
description. The Company will pay its tax liability, as computed above, to
Nationwide Mutual. The Company will be responsible for all taxes, including
assessments, if any, for prior years with respect to all other taxes payable
by the Company or any of its subsidiaries, and for all other federal, state
and local taxes that may be imposed upon the Company and that are not
addressed in the Tax Sharing Agreement.

By virtue of its control of the Company and the terms of the Tax Sharing
Agreement, Nationwide Mutual effectively will control all of the Company's tax
decisions. Under the Tax Sharing Agreement, Nationwide Mutual will have sole
authority to respond to and conduct all tax proceedings (including tax audits)
relating to the Company, to file all returns on behalf of the Company and to
determine the amount of the Company's liability to (or entitlement to payment
from) Nationwide Corp. under the Tax Sharing Agreement. This arrangement may
result in conflicts of interest between the Company and Nationwide Mutual. For
example, under the Tax Sharing Agreement, Nationwide Mutual may choose to
contest, compromise or settle any adjustment or deficiency proposed by the
relevant tax authority in a manner that may be beneficial to Nationwide Mutual
and detrimental to the Company. Under the Tax Sharing Agreement, however,
Nationwide Mutual is obligated to act in good faith with regard to all persons
included in the applicable returns.

The Tax Allocation Agreement may not be amended without the prior written
consent of the Company.

Intercompany Agreement

The Company, Nationwide Mutual and Nationwide Corp. will enter into the
Intercompany Agreement, certain provisions of which are summarized below. As
used herein, "Nationwide Mutual" means Nationwide Mutual collectively with its
subsidiaries and affiliates (other than the Company and its subsidiaries).

Nationwide Mutual Consent to Certain Events. The Intercompany Agreement will
provide that until Nationwide Mutual and its affiliates cease to control at
least 50% of the combined voting power of the outstanding voting stock of the
Company, the prior written consent of Nationwide Mutual will be required for:
(i) any consolidation or merger of the Company or any of its subsidiaries with
any person (other than with a wholly owned subsidiary); (ii) any sale, lease,
exchange or other disposition or acquisition of assets by the Company or any
of its subsidiaries (other than transactions to which the Company and its
subsidiaries are the only parties), or any series of related dispositions or
acquisitions, involving consideration in excess of $250 million; (iii) any
change in the authorized capital stock of the Company or the creation of any
additional class or series of capital stock of the Company; (iv) any issuance
by the Company or any subsidiary of the Company of any equity securities or
rights, warrants or options to purchase such equity securities, except (a) up
to 2.6 million shares of Class A Common Stock pursuant to employee and
director stock option, profit sharing and other benefit plans of the Company
and its subsidiaries and any options exercisable therefor, (b) shares of Class
A Common Stock issued upon the conversion of any Class B Common Stock, (c) the
issuance of shares of capital stock of a wholly owned subsidiary of the
Company to the Company or another wholly owned subsidiary of the Company and
(d) in the Equity Offerings; (v) the dissolution, liquidation or winding up of
the Company; (vi) the amendment of the Certificate and certain provisions of
the Bylaws affecting corporate governance; (vii) the election, removal or
filling of a vacancy in the office of the Chairman or Chief Executive Officer
or President of the Company; (viii) the declaration of dividends on any class
or series of capital stock of the Company, except dividends not in excess of
the most recent regular cash dividend or any dividend per share not in excess
of 15% of the then current per share market price of the Class A Common Stock;
(ix) capital expenditures or series of

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related capital expenditures of the Company or any of its subsidiaries in
excess of $250 million during any period of 12 consecutive months; (x) the
creation, incurrence or guaranty by the Company or any of its subsidiaries of
indebtedness for borrowed money in excess of $100 million, except the Note
Offering and the Capital Securities Offering; and (xi) any change in the
number of directors on the Board of Directors of the Company, the
determination of members of the Board of Directors or any committee thereof
and the filling of newly created memberships and vacancies on the Board of
Directors or any committee thereof.

License to Use Nationwide Name and Service Marks. Pursuant to the
Intercompany Agreement, Nationwide Mutual will grant to the Company and
certain of its subsidiaries a non-exclusive, non-assignable, revocable license
to use the "Nationwide" trade name and certain other service marks
specifically identified in the Intercompany Agreement (collectively, the
"Service Marks") solely for the purpose of identifying and advertising the
Company's long-term savings and retirement business and activities related to
such business. The Intercompany Agreement will provide, among other things,
that, subject to Nationwide Mutual's ability to revoke such license in the
circumstances described below, such license will remain in effect for at least
five years following the Equity Offerings. Thereafter, the Intercompany
Agreement provides that, subject to certain exceptions, Nationwide Mutual will
only have the option to revoke such license on one year's notice if Nationwide
Corp. and its affiliates no longer own at least 50% of the combined voting
power of the outstanding capital stock of the Company. Upon revocation of such
license, the Company and its subsidiaries will be required to discontinue use
of the Service Marks and to change the Company's name to exclude the word
"Nationwide." In addition, the Intercompany Agreement will provide that the
Company and its subsidiaries will not, without the prior written consent of
Nationwide Mutual, take any action with respect to (i) any litigation or
proceeding involving the Service Marks, (ii) any change in the Company's
names, logos and other identifications that might reasonably be expected to
adversely affect the Service Marks or (iii) any advertising campaigns or
strategies that use the Service Marks or that refer to any member of the
Nationwide Insurance Enterprise that are inconsistent with Nationwide Mutual's
guidelines and standards. Nationwide Mutual has the right to revoke the
license under certain circumstances relating to advertising, promotion or use
of the Service Marks in a manner contrary to Nationwide Mutual guidelines and
standards. In addition, Nationwide Mutual can revoke any of the Company's
subsidiaries' use of the Service Marks if there is a change of control of any
such subsidiary of the Company that is licensed to use the Service Marks. A
revocation by Nationwide Mutual of the license to use the Service Marks could
have a material adverse effect on the Company.

Equity Purchase Rights. The Company will agree that, to the extent permitted
by the NYSE and so long as Nationwide Mutual controls at least 50% of the
combined voting power of the outstanding voting stock of the Company,
Nationwide Corp. may purchase its pro rata share (based on its then current
percentage voting interest in the Company) of any voting equity securities to
be issued by the Company (excluding any such securities offered pursuant to
employee stock options or other benefit plans, divided reinvestment plans and
other offerings other than for cash) (the "Equity Purchase Rights").

Registration Rights. The Company will grant to Nationwide Corp. certain
demand and "piggyback" registration rights with respect to shares of Common
Stock owned by it. Nationwide Corp. has the right to request up to two demand
registrations in each calendar year, but not more than four in any five-year
period. Nationwide Corp. will also have the right, which it may exercise at
any time and from time to time, to include the shares of Common Stock held by
it in any registration of common equity securities of the Company initiated by
the Company on its own behalf or on behalf of any other stockholders of the
Company. These rights will be subject to certain "blackout" provisions. Such
registration rights will be transferable by Nationwide Corp. The Company will
agree to pay all costs and expenses in connection with each such registration,
except underwriting discounts and commissions applicable to the shares of
Common Stock sold by Nationwide Corp. The Intercompany Agreement will contain
customary terms and provisions with respect to, among other things,
registration procedures and certain rights to indemnification granted by
parties thereunder in connection with the registration of Common Stock on
behalf of Nationwide Mutual.

Indemnification. The Intercompany Agreement will provide that the Company
will indemnify Nationwide Mutual and its respective officers, directors,
employees and agents (collectively, the "Indemnitees") against

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losses based on, arising out of or resulting from (i) the use of the Service
Marks and (ii) any acts or omissions arising out of performances of the
Intercompany Agreement by the Company and its subsidiaries. In addition, the
Company will agree to indemnify the Indemnitees against certain civil
liabilities, including liabilities under the Securities Act, relating to
misstatements in or omissions from the Registration Statement of which this
Prospectus forms a part and any other registration statement that the Company
files under the Securities Act (other than misstatements or omissions made in
reliance on information relating to and furnished by any member of Nationwide
Mutual for use in the preparation thereof, against which Nationwide Mutual has
agreed to indemnify the Company). Nationwide Mutual also will agree to
indemnify the Company and its subsidiaries and each of their respective
officers, directors, employees and agents against losses based on, arising out
of or resulting from any breach by Nationwide Corp. or Nationwide Mutual of
the Intercompany Agreement and certain other specifically identified matters.

Nationwide Insurance Enterprise Insurance Agents. In the Intercompany
Agreement, Nationwide Mutual will agree to allow the Company to distribute its
variable annuity, fixed annuity and individual universal, variable and
traditional life insurance products through Nationwide Insurance Enterprise
insurance agents. Such right is exclusive to the Company, subject to the
limited right of certain other members of the Nationwide Insurance Enterprise
to sell such products through the agency force, for at least five years
following the Equity Offerings. Thereafter, the Intercompany Agreement
provides that Nationwide Mutual will only have the option to terminate the
Company's right to distribute products through Nationwide Insurance Enterprise
insurance agents on one year's notice if Nationwide Corp. and its affiliates
no longer own at least 50% of the combined voting power of the outstanding
voting stock of the Company. The termination of such right could have an
adverse effect on the Company's ability to distribute certain of its products.
In 1996, 5.8% of the Company's statutory premiums and deposits were
attributable to products sold by Nationwide Insurance Enterprise insurance
agents.

Amendment. The Intercompany Agreement may not be amended without the prior
written consent of the Company and certain material provisions thereof may not
be amended without the approval of a majority of the directors of the Company
who are not officers or directors of members of the Nationwide Insurance
Enterprise other than the Company and its subsidiaries.

Lease Agreement

The Company will enter into a Lease Agreement with Nationwide Mutual which
will provide that Nationwide Mutual will continue to lease to the Company the
premises currently occupied by the Company on terms consistent with prior
allocation practices. See "--Existing Arrangements with the Nationwide
Insurance Enterprise--Lease." The initial term of the Lease Agreement is for
12 months and automatically renews upon the same terms and conditions unless
either Nationwide Mutual or the Company gives 30 days' written notice to the
other party prior to the end of such 12-month period. The Lease Agreement may
not be amended without the prior written consent of the Company.

FUTURE TRANSACTIONS WITH THE NATIONWIDE INSURANCE ENTERPRISE

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

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DESCRIPTION OF THE CAPITAL SECURITIES

The following summary of the material terms and provisions of the Capital
Securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Declaration, a copy of the form of which is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part, the Trust Act and the Trust Indenture Act. The Capital Securities will
be issued pursuant to the terms of the Declaration. At the time the
Registration Statement becomes effective, the Declaration will be qualified as
an indenture under the Trust Indenture Act. Wilmington Trust Company will act
as Property Trustee under the Declaration. The Property Trustee will act as
indenture trustee for the Declaration for purposes of compliance with the
Trust Indenture Act. The terms of the Capital Securities will include those
stated in the Declaration, including those required to be made part of the
Declaration by the Trust Indenture Act. Capitalized terms not otherwise
defined herein have the meanings assigned to them in the Declaration.

GENERAL

The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. The Capital Securities entitle the holders thereof to
a preference in certain circumstances with respect to distributions and
amounts payable on redemption or liquidation over the Common Securities, as
well as other benefits, as described in the Declaration.

All of the Common Securities will be owned by the Company. The Common
Securities rank pari passu, and payments will be made thereon pro rata, with
the Capital Securities except as described under "--Subordination of Common
Securities." The Junior Subordinated Debentures will be owned by the Property
Trustee and held for the benefit of the holders of the Trust Securities. The
Guarantee does not guarantee payment of distributions or amounts payable on
redemption or liquidation of the Capital Securities when the Trust does not
have funds available to make such payments. The Company, however, has, through
the Guarantee and certain back-up obligations, consisting of obligations of
the Company to provide certain indemnities in respect of, and pay and be
responsible for, certain expenses, costs, liabilities and debts of the Trust
as set forth in the Declaration, the Indenture and the Junior Subordinated
Debentures, taken together, fully and unconditionally guaranteed all of the
Trust's obligations under the Capital Securities. No single document standing
alone or operating in conjunction with fewer than all of the other documents
constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full and unconditional guarantee
of the Trust's obligations under the Capital Securities. See "Description of
the Guarantee" and "Effect of Obligations Under the Junior Subordinated
Debentures, the Guarantee and the Declaration."

DISTRIBUTIONS

Distributions on the Capital Securities are fixed at a rate per annum of
7.899% of the stated liquidation amount of $1,000 per Capital Security.
Deferred distributions (and interest thereon) will (to the extent permitted by
applicable law) accrue interest (compounded semi-annually) at the same rate.
The term "distributions" as used herein includes any such interest payable
unless otherwise stated. The amount of distributions payable for any period
will be computed on the basis of a 360-day year of twelve 30-day months and,
for any period of less than a full calendar month, the number of days elapsed
in such month.

Distributions on the Capital Securities are cumulative, accrue from the date
of initial issuance and are payable semi-annually in arrears on March 1 and
September 1 of each year, commencing September 1, 1997, when, as and if
available for payment by the Property Trustee, except as otherwise described
below.

The Company has the right under the Indenture, so long as no Event of
Default (or event which would be an Event of Default with the giving of
required notice or passage of time) has occurred and is continuing, to defer
interest payments from time to time on the Junior Subordinated Debentures for
a Deferral Period not exceeding 10 consecutive semi-annual periods, and, as a
consequence, semi-annual distributions on the Capital Securities would be
deferred by the Trust (although to the extent permitted by law, such
distributions would continue to accrue interest since interest would continue
to accrue on the Junior Subordinated Debentures) during

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any such Deferral Period. In the event that the Company exercises this right,
during such period, the Company (i) shall not declare or pay dividends on,
make distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than
stock dividends paid by the Company which consist of stock of the same class
as that on which the dividend is being paid or purchases or acquisitions of
shares of Common Stock in connection with the satisfaction by the Company of
its obligations under any employee benefit plans), (ii) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures, and (iii) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee). Prior to the termination of any Deferral Period, the Company may
further extend such Deferral Period, so long as no Event of Default (or an
event which would be an Event of Default with the giving of required notice or
the passage of time) has occurred and is continuing; provided, that such
Deferral Period as extended may not exceed 10 consecutive semi-annual periods
and may not extend beyond the maturity date of the Junior Subordinated
Debentures. Upon the termination of any Deferral Period, the Company is
required to pay all amounts then due and, upon such payment, the Company may
select a new Deferral Period, subject to the above requirements. Consequently,
there could be multiple Deferral Periods of varying lengths prior to the
maturity date of the Junior Subordinated Debentures. See "Description of the
Junior Subordinated Debentures-- Interest" and "--Option to Extend Interest
Payment Period." If distributions are deferred, the deferred distributions and
accrued interest thereon shall be paid to holders of record of the Capital
Securities as they appear on the books and records of the Trust on the record
date for distributions due at the end of such Deferral Period.

Distributions on the Capital Securities must be paid semi-annually on the
dates payable to the extent of funds of the Trust available for the payment of
such distributions. Amounts available to the Trust for distribution to the
holders of the Capital Securities will be limited to payments under the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. See "Description of the Junior
Subordinated Debentures." The payment of distributions on the Capital
Securities is guaranteed by the Company, to the extent of funds held by the
Trust, as set forth under "Description of the Guarantee."

Distributions on the Capital Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which will be the first day of the month in which the relevant
payment date falls. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described
under "--Book-Entry-Only Issuance--The Depository Trust Company" below. In the
event that any date on which distributions are payable on the Capital
Securities is not a Business Day, payment of the distribution payable on such
date will be made on the next succeeding day which is a Business Day (without
any distribution or other payment in respect of any such delay) except that,
if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such date. A "Business Day" shall mean any
day other than a day on which banking institutions in New York, New York or
Wilmington, Delaware are authorized or required by law to close.

MANDATORY REDEMPTION

The Junior Subordinated Debentures will mature on March 1, 2037 and are
redeemable by the Company (i) in whole at any time or in part from time to
time at par plus the applicable Make-Whole Premium or (ii) under certain
circumstances, in whole, within 90 days following the occurrence of a Tax
Event, at par, plus, in the case of clause (i) or (ii) above, accrued and
unpaid interest thereon to the date fixed for redemption. Upon the repayment
or payment of the Junior Subordinated Debentures, whether at maturity or upon
redemption or otherwise, the Trust must use the proceeds from such repayment
or redemption to redeem Trust Securities having an aggregate liquidation
amount equal to the aggregate principal amount of Junior Subordinated
Debentures so repaid or redeemed at the Redemption Price (except, in the event
of a redemption following a Tax Event, the Redemption Price shall not include
the Make-Whole Premium); provided that holders of the Trust Securities shall
be given not less than 30 nor more than 60 days' notice of such redemption.
See "--Tax Event Distribution" and "Description of the Junior Subordinated
Debentures--Optional Redemption." In the event that fewer than

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all of the outstanding Trust Securities are to be redeemed, the Trust
Securities will be redeemed pro rata to each holder according to the aggregate
liquidation amount of Trust Securities held by the relevant holder in relation
to the aggregate liquidation amount of all Trust Securities outstanding. See
"--Book-Entry Issuance--The Depository Trust Company" below for a description
of DTC's procedures in the event of redemption.

DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST

At any time, the Company will have the right to terminate the Trust and,
after satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Securities in liquidation of the Trust. The
distribution of Junior Subordinated Debentures upon any dissolution of the
Trust is conditioned upon the receipt by the Regular Trustees of an opinion of
counsel by independent tax counsel experienced in such matters to the effect
that the holders of the Capital Securities will not recognize any gain or loss
for United States federal income tax purposes as a result of the dissolution
of the Trust and such distribution of Junior Subordinated Debentures. A
dissolution of the Trust in which holders of the Capital Securities receive
cash would be a taxable event to such holders. See "--Distribution of Cash
Upon Liquidation of the Trust" and "United States Federal Income Taxation--
Receipt of Junior Subordinated Debentures or Cash Upon Liquidation of the
Trust."

The Trust shall automatically terminate upon the first to occur: (i) certain
events of bankruptcy, dissolution or liquidation of the Company; (ii) the
distribution of Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, if the
Company has given direction to the Property Trustee to terminate the Trust
(which direction is optional and, except as described below, wholly within the
discretion of the Company); (iii) redemption of all of the Capital Securities
as described under "--Mandatory Redemption" above; (iv) expiration of the term
of the Trust; and (v) the entry of an order for the dissolution of the Trust
by a court of competent jurisdiction.

If a termination occurs as described in clause (i), (iv), or (v) of the
preceding paragraph, the Trust shall be liquidated by the Regular Trustees as
expeditiously as the Regular Trustees determine to be possible by
distributing, after satisfaction of liabilities to creditors of the Trust as
provided by applicable law, to each holder of the Capital Securities, Junior
Subordinated Debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Capital Securities.

If the Company either elects not to or is unable to liquidate the Trust and
distribute the Junior Subordinated Debentures to holders of the Trust
Securities, the Trust Securities will remain outstanding until the repayment
of the Junior Subordinated Debentures on their maturity.

After the date fixed for any distribution of Junior Subordinated Debentures
upon liquidation of the Trust (i) the Capital Securities will no longer be
deemed to be outstanding, and (ii) DTC or its nominee, as the record holder of
the Capital Securities, will receive a registered global certificate or
certificates representing the Junior Subordinated Debentures to be delivered
upon such distribution.

There can be no assurance as to the market prices for either the Capital
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities. Accordingly, the Capital Securities that an
investor may purchase, or the Junior Subordinated Debentures that the investor
may receive on dissolution and liquidation of the Trust, may trade at a
discount to the price that the investor paid to purchase the Capital
Securities offered hereby.

DISTRIBUTION OF CASH UPON LIQUIDATION OF THE TRUST

In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then
holders of the Trust Securities will be entitled to receive on a pro rata
basis

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solely out of the assets of the Trust, after satisfaction of liabilities to
creditors of the Trust as provided by applicable law, distributions in an
amount equal to the aggregate of the stated liquidation amount of $1,000 per
Capital Security plus any additional amount payable upon redemption of the
Junior Subordinated Debentures as a result of the Make-Whole Premium and
accrued and unpaid distributions thereon to the date of payment (the
"Liquidation Distribution"), unless, in connection with such Liquidation,
Junior Subordinated Debentures are distributed as provided above in "--
Distribution of Junior Subordinated Debentures Upon Liquidation of the Trust."

If, upon any such Liquidation, the Liquidation Distribution can be paid only
in part because the Trust has insufficient assets available to pay in full the
aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Capital Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any
such dissolution pro rata with the holders of the Capital Securities, except
that if a Declaration Event of Default has occurred and is continuing, the
Capital Securities shall have a preference over the Common Securities with
regard to such distributions.

TAX EVENT DISTRIBUTION

"Tax Event" means that the Regular Trustees shall have obtained an opinion
of nationally recognized independent tax counsel (reasonably acceptable to the
Regular Trustees) experienced in such matters (a "Dissolution Tax Opinion") to
the effect that, as a result of (a) any amendment to, or change (including any
announced prospective change, provided that a Tax Event shall not occur more
than 90 days before the effective date of any such prospective change) in, the
laws or any regulations thereunder of the United States or any political
subdivision or taxing authority thereof or therein or (b) any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations by any legislative body, court, governmental agency
or regulatory authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory determination on or after
the date of original issuance of the Capital Securities), which amendment or
change is effective or which pronouncement or decision is announced on or
after the date of original issuance of the Capital Securities, there is more
than an insubstantial risk that (i) the Trust is or will be subject to United
States federal income tax with respect to interest received on the Junior
Subordinated Debentures, (ii) interest payable in cash to the Trust on the
Junior Subordinated Debentures is not, or will not be, deductible, in whole or
in part, by the Company for United States federal income tax purposes or (iii)
the Trust is or will be subject to more than a de minimis amount of other
taxes, duties, assessments or other governmental charges.

If, at any time, a Tax Event shall occur and be continuing, the Trust shall,
except in the limited circumstances described below, be dissolved with the
result that the Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, will be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata basis within 90 days following
the occurrence of such Tax Event; provided, however, that such dissolution and
distribution shall be conditioned on (i) the Regular Trustees' receipt of an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the
holders of the Trust Securities will not recognize any gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of Junior Subordinated Debentures and (ii) the Company being
unable to avoid such Tax Event within such 90 day period by taking some
ministerial action or pursuing some other reasonable measure that will have no
adverse effect on the Trust, the Company or the holders of the Trust
Securities. Furthermore, if after receipt of a Dissolution Tax Opinion by the
Regular Trustees (i) the Company has received an opinion (a "Redemption Tax
Opinion") of nationally recognized independent tax counsel experienced in such
matters that, as a result of a Tax Event, there is more than an insubstantial
risk that the Company would be precluded from deducting the interest on the
Junior Subordinated Debentures for United States federal income tax purposes,
even after the Junior Subordinated Debentures were distributed to the holders
of Trust Securities in liquidation of such holders' interests in the Trust as
described above, or (ii) the Regular

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Trustees shall have been informed by such tax counsel that it cannot deliver a
No Recognition Opinion to the Trust, the Company shall have the right, upon
not less than 30 nor more than 60 days' notice, to redeem the Junior
Subordinated Debentures at par plus accrued and unpaid interest thereon to the
date fixed for redemption, in whole or in part, for cash within 90 days
following the occurrence of such Tax Event, and, following such redemption,
Trust Securities with an aggregate liquidation amount equal to the aggregate
principal amount of the Junior Subordinated Debentures so redeemed shall be
redeemed by the Trust at the Redemption Price on a pro rata basis; provided,
however, that (i) no Make-Whole Premium shall be payable in connection with a
redemption of Junior Subordinated Debentures upon the occurrence of a Tax
Event and (ii) if at the time there is available to the Company or the Trust
the opportunity to eliminate, within such 90 day period, the Tax Event by
taking some ministerial action, such as filing a form or making an election or
pursuing some other similar reasonable measure that has no adverse effect on
the Trust, the Company or the holders of the Trust Securities, the Company or
the Trust will pursue such measure in lieu of redemption.

On February 6, 1997, the Proposal was released. The Proposal would, among
other things, deny deductions for interest on a debt instrument issued by a
corporation with a maximum weighted average maturity of more than 40 years or
which has a maximum term of more than 15 years and is not shown as
indebtedness on the separate balance sheet of the issuer. An instrument would
not be shown as indebtedness on a balance sheet merely because it was
described as indebtedness in footnotes or other narrative disclosures. The
Proposal would apply only to corporations which file annual financial
statements with the Commission, and the relevant balance sheet would be the
balance sheet filed with the Commission. The Proposal would be effective
generally for instruments issued on or after the date of first committee
action. As currently drafted, the Proposal could affect the Junior
Subordinated Debentures unless the Junior Subordinated Debentures were issued
prior to the first date of any committee action. In addition, the Proposal
could be enacted with retroactive effect. If the Proposal is enacted so as to
apply to the Junior Subordinated Debentures, the Company would not be entitled
to an interest deduction with respect to the Junior Subordinated Debentures.
There can be no assurance that current or future legislative proposals or
final legislation will not give rise to a Tax Event, which would permit the
Company to cause a redemption of the Junior Subordinated Debentures or a
distribution of the Junior Subordinated Debentures in a Liquidation.

Notice of any redemption will be mailed at least 30 days but not more than
60 days before the date fixed for redemption to each holder of Junior
Subordinated Debentures to be redeemed at its registered address. Unless the
Company defaults in payment of the Redemption Price, on and after the date
fixed for redemption interest ceases to accrue on such Junior Subordinated
Debentures called for prepayment.

If the Trust is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums.
"Additional Sums" means such additional amounts as may be necessary in order
that the amount of distributions then due and payable by the Trust on the
outstanding Capital Securities and Common Securities shall not be reduced as a
result of any additional taxes, duties or other governmental charges to which
the Trust has become subject as a result of a Tax Event.

REDEMPTION PROCEDURES

The Trust Securities will not be redeemed unless all accrued and unpaid
distributions have been paid on all Trust Securities for all semi-annual
distribution periods terminating on or prior to the date of redemption.

If the Trust gives a notice of redemption in respect of Trust Securities
(which notice will be irrevocable), then, by 12:00 noon, New York time, on the
redemption date, the Trust will irrevocably deposit with DTC funds sufficient
to pay the amount payable on redemption and will give DTC irrevocable
instructions and authority to pay such amount to the beneficial owners of
Capital Securities so redeemed. Notwithstanding the foregoing, distributions
payable on or prior to the redemption date for any Trust Securities called for
redemption shall be payable to the holders of such Trust Securities on the
relevant record dates for the related distribution dates. If notice of
redemption shall have been given and funds are deposited as required, then
upon the date of such deposit, all rights of holders of such Trust Securities
so called for redemption will cease, except the right of the

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holders of such Trust Securities to receive the Redemption Price, but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Trust Securities is not a Business Day, then payment of the
amount payable on such date will be made on the next succeeding day which is a
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that payment of the Redemption Price in respect of Trust Securities is
improperly withheld or refused and not paid either by the Trust or by the
Company pursuant to the Guarantee described under "Description of the
Guarantee," distributions on such Trust Securities will continue to accrue at
the then applicable rate, from the original redemption date to the date of
payment, in which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the amount payable upon
redemption (other than for purposes of calculating any premium).

In the event that fewer than all of the outstanding Capital Securities are
to be redeemed, the Capital Securities will be redeemed as described below
under "--Book-Entry-Only Issuance--The Depository Trust Company."

Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time and from time to time purchase outstanding Capital Securities by
tender, in the open market or by private agreement.

SUBORDINATION OF COMMON SECURITIES

Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the
liquidation amount of the Trust Securities; provided, however, that, if on any
distribution date or redemption date a Declaration Event of Default shall have
occurred and be continuing, no payment of any distribution on, or amount
payable upon redemption of, any Common Security, and no other payment on
account of the redemption, liquidation or other acquisition of Common
Securities, shall be made unless payment in full in cash of all accumulated
and unpaid distributions on all outstanding Capital Securities for all
distribution periods terminating on or prior thereto, or in the case of
payment of the amount payable upon redemption of the Capital Securities, the
full amount of such amount in respect of all outstanding Capital Securities
shall have been made or provided for, and all funds available to the Property
Trustee shall first be applied to the payment in full in cash of all
distributions on, or the amount payable upon redemption of, Capital Securities
then due and payable.

In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until the effect of all such Declaration Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated. Until any
such Declaration Events of Default with respect to the Capital Securities have
been so cured, waived or otherwise eliminated, the Property Trustee shall act
solely on behalf of the holders of the Capital Securities and not the holders
of the Common Securities, and only the holders of the Capital Securities will
have the right to direct the Property Trustee to act on their behalf.

MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST

The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity or person,
except as described below. The Trust may with the consent of a majority of the
Regular Trustees, and without the consent of, among others, the holders of the
Capital Securities, consolidate, amalgamate, merge with or into, or be
replaced by, a trust organized as such under the laws of any state of the
United States of America or of the District of Columbia; provided that (i) if
the Trust is not the surviving entity, such successor entity either (x)
expressly assumes all of the obligations of the Trust under the Trust
Securities or (y) substitutes for the Trust Securities other securities (the
"Successor Securities") having substantially the same terms as the Capital
Securities or the Common Securities, as the case may be, as long as the
respective Successor Securities rank, with respect to participation in the
profits and distributions or in the assets of the successor entity, at least
as high as the corresponding Trust Securities rank with respect to
participation in the profits and dividends or in the

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assets of the Trust, (ii) the Company expressly acknowledges such successor
entity as the holder of the Junior Subordinated Debentures, (iii) the Capital
Securities or any corresponding Successor Securities are listed, or any
corresponding Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other organization on which
the Capital Securities are then listed, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Capital Securities (including
any corresponding Successor Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the powers, preferences
and other special rights of the holders of the Capital Securities (including
any corresponding Successor Securities) in any material respect, (vi) such
successor entity has a purpose substantially identical to that of the Trust,
(vii) the Company has provided a guarantee to the holders of the corresponding
Successor Securities with respect to such successor entity having
substantially the same terms as the Guarantee and (viii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an
opinion of a nationally recognized independent counsel (reasonably acceptable
to the Property Trustee) to the Trust experienced in such matters to the
effect that (x) such successor entity will be treated as a grantor trust for
United States federal income tax purposes, (y) following such merger,
consolidation, amalgamation or replacement, neither the Company nor such
successor entity will be required to register as an investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and (z) such
merger, consolidation, amalgamation or replacement will not adversely affect
the rights, preferences and privileges of the holders of the Capital
Securities (including any corresponding Successor Securities) in any material
respect. Notwithstanding the foregoing, the Trust shall not, except with the
consent of holders of 100% in liquidation amount of the Common Securities,
consolidate, amalgamate, merge with or into, or be replaced by any other
entity or permit any other entity to consolidate, amalgamate, merge with or
into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Trust or any successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.

EVENTS OF DEFAULT AND DECLARATION EVENTS OF DEFAULT

An event of default under the Indenture (an "Event of Default") or a default
by the Company under the Guarantee constitutes an event of default under the
Declaration with respect to the Capital Securities (a "Declaration Event of
Default"); provided that, pursuant to the Declaration, the holders of the
Common Securities will be deemed to have waived any Declaration Event of
Default with respect to the Common Securities until all Declaration Events of
Default with respect to the Capital Securities have been cured, waived or
otherwise eliminated. Until all such Declaration Events of Default with
respect to the Capital Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf
of the holders of the Capital Securities and only the holders of the Capital
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and, therefore, the Indenture.

As long as the Capital Securities are outstanding, upon the occurrence of an
Event of Default, the Property Trustee, as the sole holder of the Junior
Subordinated Debentures, will have the right under the Indenture to declare
the principal of and interest on the Junior Subordinated Debentures to be
immediately due and payable. The Company and the Trust are each required to
file annually with the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.

In addition to any other right of the holders of the Capital Securities
provided in the Declaration if the Property Trustee fails to enforce its
rights with respect to the Junior Subordinated Debentures held by the Trust,
any holder of Capital Securities may institute legal proceedings directly
against the Company to enforce the Property Trustee's rights under such Junior
Subordinated Debentures without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding
the foregoing, if a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Junior Subordinated Debentures issued to the
Trust on the date such interest or principal is otherwise payable, then a
holder of Capital Securities may institute a proceeding directly against the
Company for enforcement of payment to the holder of the Capital Securities of
the principal of or interest on the Junior Subordinated Debentures on or after
the respective due dates specified in the Junior Subordinated Debentures
(taking into account any Deferral Periods).

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VOTING RIGHTS

Except as described below, under the Trust Act and under "Description of the
Guarantee--Amendments and Assignment," and as otherwise required by law and
the Declaration, the holders of the Capital Securities will have no voting
rights.

Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Capital
Securities have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Junior Subordinated Debentures, to (i) exercise the remedies available
under the Indenture with respect to the Junior Subordinated Debentures, (ii)
waive any past Event of Default that is waiveable under the Indenture or
otherwise, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Junior Subordinated Debentures shall be due and payable,
or (iv) consent to any amendment, modification or termination of the Indenture
or such Junior Subordinated Debentures, where such consent shall be required;
provided, however, that, where a consent or action under the Indenture would
require the consent or act of the holders of more than a majority of the
aggregate principal amount of Junior Subordinated Debentures affected thereby,
only the holders of the percentage of the aggregate stated liquidation amount
of the Capital Securities which is at least equal to the percentage required
under the Indenture may direct the Property Trustee to give such consent or
take such action. The Property Trustee shall not revoke any action previously
authorized or approved by a vote of the holders of the Capital Securities
except by subsequent vote of the holders of the Capital Securities. A holder
of Capital Securities may also directly institute a proceeding on behalf of
the Trust for enforcement of payment to the Trust of the principal of or
premium, if any, or interest on the Junior Subordinated Debentures on or after
the respective due dates specified in the Indenture. The holders of the
Capital Securities would not be able to exercise directly any other remedies
available to the holder of the Junior Subordinated Debentures unless the
Property Trustee or the Indenture Trustee, acting for the benefit of the
Property Trustee, fails to do so. In such event, the holders of at least 25%
in aggregate liquidation amount of outstanding Capital Securities would have a
right to institute such proceedings. The Property Trustee shall notify all
holders of the Capital Securities of any notice of default received from the
Indenture Trustee with respect to the Junior Subordinated Debentures. Such
notice shall state that such Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place
of conducting a proceeding for a remedy, the Property Trustee shall not take
any of the actions described in clause (i), (ii), (iii) or (iv) above unless
the Property Trustee has obtained an opinion of tax counsel to the effect
that, as a result of such action, the Trust will not fail to be classified as
a grantor trust for United States federal income tax purposes.

In the event the consent of the Property Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect
to any amendment, modification or termination of the Indenture, the Property
Trustee shall request the direction of the holders of the Trust Securities
with respect to such amendment, modification or termination and shall vote
with respect to such amendment, modification or termination as directed by a
majority in liquidation amount of the Trust Securities voting together as a
single class; provided, however, that, where a consent under the Indenture
would require the consent of the holders of more than a majority of the
aggregate principal amount of the Junior Subordinated Debentures, the Property
Trustee may only give such consent at the direction of the holders of at least
the same proportion in aggregate stated liquidation amount of the Trust
Securities. The Property Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Property
Trustee has obtained an opinion of tax counsel to the effect that for United
States federal income tax purposes the Trust will not be classified as other
than a grantor trust.

A waiver of an Event of Default under the Indenture will constitute a waiver
of the corresponding Declaration Event of Default.

Any required approval or direction of holders of Capital Securities may be
given at a separate meeting of holders of Capital Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Capital

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Securities are entitled to vote, or of any matter upon which action by written
consent of such holders is to be taken, to be mailed to each holder of record
of Capital Securities. Each such notice will include a statement setting forth
the following information: (i) the date of such meeting or the date by which
such action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting on which such holders are entitled to vote or of such
matter upon which written consent is sought; and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Capital
Securities will be required for the Trust to redeem and cancel Capital
Securities or distribute Junior Subordinated Debentures in accordance with the
Declaration.

Notwithstanding that holders of Capital Securities are entitled to vote or
consent under any of the circumstances described above, none of the Capital
Securities that are owned at such time by the Company or any entity directly
or indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if such Capital Securities
were not outstanding.

The procedures by which holders of Capital Securities may exercise their
voting rights are described below. See "--Book-Entry-Only Issuance--The
Depository Trust Company" below.

Holders of the Capital Securities will have no rights to appoint or remove
the Regular Trustees, who may be appointed, removed or replaced only by the
Company as the indirect or direct holder of all of the Common Securities. If a
Declaration Event of Default has occurred and is continuing, the holders of a
majority in liquidation amount of the Capital Securities voting as a class
shall have the sole right to remove the Property Trustee.

MODIFICATION OF THE DECLARATION

The Declaration may be amended from time to time by the Regular Trustees,
without the consent of the holders of the Trust Securities (i) to cure any
ambiguity, correct or supplement any provisions in the Declaration that may be
defective or inconsistent with any other provision, (ii) to add to the
covenants, restrictions or obligations of the Company, (iii) to conform to any
change in Rule 3a-5 of the 1940 Act or written change in interpretation or
application of Rule 3a-5 of the 1940 Act by any legislative body, court,
government agency or regulatory authority, (iv) to modify, eliminate or add to
any provisions of the Declaration to such extent as shall be necessary to
ensure that the Trust will be classified for United States federal income tax
purposes as a grantor trust at all times that any Capital Securities and
Common Securities are outstanding; provided, however, that in the case of
(iii) and (iv), such amendment shall not adversely affect in any material
respect the interests of any holder of Capital Securities or Common
Securities. In addition, if any proposed amendment to the Declaration provides
for (a) any action that would adversely affect the powers, preferences or
special rights of the holders of the Capital Securities or the Common
Securities, whether by way of amendment to the Declaration or otherwise, or
(b) the dissolution, winding-up or termination of the Trust, other than as
described in the Declaration, then the holders of outstanding Trust Securities
as a single class, will be entitled to vote on such amendment or proposal (but
not on any other amendment or proposal) and such amendment or proposal shall
not be effective except (1) with the approval of the holders of at least 66
2/3% in liquidation amount of the Trust Securities, voting as a single class
and (2) upon receipt by the Regular Trustees of an opinion of counsel to the
effect that such amendment or the exercise of any power granted to the Regular
Trustees in accordance with such amendment will not affect the Trust's status
as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status as an "investment company" under the 1940 Act;
provided, however, if any amendment or proposal referred to in clause (a)
above would adversely affect only the Capital Securities or only the Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of 66 2/3% in liquidation amount of such class.

Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for United States federal income
tax purposes, (ii) reduce or otherwise adversely affect the powers of the
Property Trustee in contravention of the Trust Indenture Act of 1939 or (iii)
cause the Trust to be deemed an "investment company" which is required to be
registered under the 1940 Act.

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BOOK-ENTRY-ONLY ISSUANCE--THE DEPOSITORY TRUST COMPANY

DTC will act as securities depository for the Capital Securities. The
Capital Securities will initially be issued only as fully-registered
securities registered in the name of Cede & Co. (DTC's nominee). One or more
fully registered global Capital Security certificates will be issued,
representing in the aggregate the total number of Capital Securities, and will
be deposited with DTC.

The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in Capital Securities represented
by a global certificate.

DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Exchange Act. DTC holds securities that
its participants ("Participants") deposit with DTC. DTC also facilitates the
settlement of securities transactions among Participants through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the American
Stock Exchange, Inc., and the National Association of Securities Dealers, Inc.
Access to the DTC system is also available to others such as securities
brokers and dealers, banks and trust companies that clear transactions
through, or maintain a custodial relationship with, a Direct Participant,
either directly or indirectly ("Indirect Participants"). The rules applicable
to DTC and its Participants are on file with the Commission.

Purchases of Capital Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Capital
Securities on DTC's records. The ownership interest of each actual purchaser
of each Capital Security (a "Beneficial Owner") is in turn to be recorded on
the records of the Direct Participants and Indirect Participants. Beneficial
Owners will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct Participants or Indirect Participants through which the
Beneficial Owners purchased Capital Securities. Transfers of ownership
interests in the Capital Securities are to be accomplished by entries made on
the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Capital Securities, except in the event that use of the book-entry system for
the Capital Securities is discontinued.

The deposit of Capital Securities with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Capital Securities; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Capital Securities are credited, which may or may not be the Beneficial
Owners. The Participants are responsible for keeping account of their holdings
on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among the respective parties, subject to any statutory or
regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to Cede & Co. If less than all of the
Capital Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Capital Securities to be
redeemed in accordance with its procedures.

Although voting with respect to the Capital Securities is limited to the
holders of record of the Capital Securities, in those cases where a vote is
required, neither DTC nor Cede & Co. will itself consent or vote with respect
to Capital Securities. Under its usual procedures, DTC would mail an Omnibus
Proxy to the Trust as

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soon as possible after the record date. The Omnibus Proxy assigns the
consenting or voting rights of Cede & Co. to those Direct Participants to
whose accounts the Capital Securities are credited on the record date
(identified in a listing attached to the Omnibus Proxy). The Company and the
Trust believe that the arrangements among DTC, Direct and Indirect
Participants, and Beneficial Owners will enable the Beneficial Owners to
exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.

Distribution payments on the Capital Securities will be made by the Trust to
DTC. DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's
records unless DTC has reason to believe that it will not receive payments on
such payment date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices and will be the
responsibility of such Participant and not of DTC, the Trust or the Company,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the
Trust, disbursement of such payments to Direct Participants is the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Direct Participants and Indirect Participants.

Except as provided herein, a Beneficial Owner in a global Capital Security
certificate will not be entitled to receive physical delivery of Capital
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC to exercise any rights under the Capital Securities.
DTC may discontinue providing its services as securities depository with
respect to the Capital Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Capital Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
the Company) could decide to discontinue use of the system of book-entry
transfers through DTC (or a successor depository) with respect to the Capital
Securities. In that event, certificates for the Capital Securities will be
printed and delivered.

The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but the Trust and the Company assume no responsibility for the
accuracy thereof. Neither the Trust nor the Company assume any responsibility
for the performance by DTC or its Participants of their respective obligations
as described herein or under the rules and procedures governing their
respective operations.

INFORMATION CONCERNING THE PROPERTY TRUSTEE

The Property Trustee, prior to the occurrence of a Declaration Event of
Default, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after such a default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her
own affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at
the request of any holder of Capital Securities, unless offered reasonable
security and indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Capital Securities
will not be required to offer such security and indemnity in the event such
holders, by exercising their voting rights, direct the Property Trustee to
take action following a Declaration Event of Default. Wilmington Trust
Company, which is acting as the Property Trustee, the Delaware Trustee and the
Guarantee Trustee, is also serving as the trustee in connection with the Note
Offering.

GOVERNING LAW

The Declaration and the Capital Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.

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MISCELLANEOUS

The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act nor
characterized as other than a grantor trust for federal income tax purposes
and so that the Junior Subordinated Debentures will be treated as indebtedness
of the Company for United States federal income tax purposes. In this
connection, the Regular Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust or the Declaration
that the Regular Trustees determine in their discretion to be necessary or
desirable for such purposes as long as such action does not adversely affect
the interests of the holders of the Trust Securities.

Holders of the Capital Securities have no preemptive rights.

The Trust may not borrow money, issue debt or reinvest profits derived from
investments or pledge any of its assets.

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DESCRIPTION OF THE GUARANTEE

Set forth below is a summary of the material terms and provisions of the
Guarantee which will be executed and delivered by the Company for the benefit
of the holders from time to time of the Capital Securities. The summary does
not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the Guarantee, a copy of
the form of which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part, and the Trust Indenture Act. At the time
the Registration Statement becomes effective, the Guarantee will be qualified
as an indenture under the Trust Indenture Act. Wilmington Trust Company will
act as the Guarantee Trustee. Wilmington Trust Company, as the Guarantee
Trustee, will hold the Guarantee for the benefit of the holders of the Capital
Securities. The terms of the Guarantee will include those stated in the
Guarantee including those required to be made part of the Declaration by the
Trust Indenture Act.

GENERAL

The Company will irrevocably agree, to the extent set forth herein, to pay
in full on a subordinated basis, to the holders of the Capital Securities, the
Guarantee Payments (as defined herein), as and when due, regardless of any
defense, right of set off or counterclaim that the Trust may have or assert.
The following payments with respect to the Capital Securities, to the extent
not paid by or on behalf of the Trust (the "Guarantee Payments"), will be
subject to the Guarantee (without duplication): (i) any accrued and unpaid
distributions which are
required to be paid on the Capital Securities to the extent of funds held by
the Trust, (ii) the amount payable upon redemption of the Capital Securities,
to the extent of funds held by the Trust, with respect to any Capital
Securities called for redemption by the Trust and (iii) upon a Liquidation
(other than in connection with the distribution of Junior Subordinated
Debentures to the holders of the Capital Securities in exchange for Capital
Securities as provided in the Declaration), the lesser of (a) the aggregate of
the liquidation amount and all accrued and unpaid distributions on the Capital
Securities to the date of payment, to the extent of funds held by the Trust,
and (b) the amount of assets of the Trust remaining available for distribution
to holders of Capital Securities upon the Liquidation. The Company's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by the Company to the holders of Capital Securities or by
causing the Trust to pay such amounts to such holders.

Because the Guarantee is a guarantee of payment and not of collection,
holders of the Capital Securities may proceed directly against the Company as
guarantor, rather than having to proceed against the Trust before attempting
to collect from the Company, and the Company waives any right or remedy to
require that any action be brought against the Trust or any other person or
entity before proceeding against the Company. Such obligations will not be
discharged except by payment of the Guarantee Payments in full.

If the Company fails to make interest payments on the Junior Subordinated
Debentures or pay amounts payable upon the redemption, acceleration or
maturity of the Junior Subordinated Debentures, the Trust will have
insufficient funds to pay distributions on or to pay amounts payable upon the
redemption or repayment of the Capital Securities. The Guarantee does not
cover payment of distributions or the amount payable upon redemption or
repayment in respect of the Capital Securities when the Trust does not have
sufficient funds to pay such distributions or such amount. The Company has
through the Guarantee, and certain back-up obligations, consisting of
obligations of the Company to provide certain indemnities in respect of, and
pay and be responsible for, certain expenses, costs, liabilities and debts of
the Trust as set forth in the Declaration, the Indenture and the Junior
Subordinated Debentures, taken together, fully and unconditionally guaranteed
all of the Trust's obligations under the Capital Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full and unconditional
guarantee of the Trust's obligations under the Capital Securities. See "Effect
of Obligations Under the Junior Subordinated Debentures and the Guarantee."

CERTAIN COVENANTS OF THE COMPANY

In the Guarantee, the Company will covenant that, so long as any Capital
Securities remain outstanding, if at such time (i) the Company has exercised
its option to defer interest payments on the Junior Subordinated

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Debentures and such deferral is continuing, (ii) the Company shall be in
default with respect to its payment or other obligations under the Guarantee
or (iii) there shall have occurred any event that, with the giving of notice
or the lapse of time or both, would constitute an Event of Default under the
Indenture, then the Company (a) shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than
stock dividends paid by the Company which consist of the stock of the same
class as that on which the dividend is being paid), (b) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Junior Subordinated Debentures, and (c) shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Guarantee).

AMENDMENTS AND ASSIGNMENT

Except with respect to any changes which do not adversely affect the rights
of holders of Capital Securities (in which case no consent of the holders of
the Capital Securities will be required), the Guarantee may be amended only
with the prior approval of the holders of not less than 66 2/3% in aggregate
stated liquidation amount of the outstanding Capital Securities. The manner of
obtaining any such approval of holders of the Capital Securities will be as
set forth under "Description of the Capital Securities--Book-Entry-Only
Issuance--The Depository Trust Company." All guarantees and agreements
contained in the Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Capital Securities then outstanding. Except in connection
with any permitted merger or consolidation of the Company with or into another
entity or any permitted sale, transfer or lease of the Company's assets to
another entity as described below under "Description of the Junior
Subordinated Debentures--Restrictions," the Company may not assign its rights
or delegate its obligations under the Guarantee without the prior approval of
the holders of at least 66 2/3% of the aggregate stated liquidation amount of
the Capital Securities then outstanding.

TERMINATION OF THE GUARANTEE

The Guarantee will terminate and be of no further force and effect upon (i)
full payment of the applicable Redemption Price of each Capital Security, (ii)
the distribution of the Junior Subordinated Debentures to all holders of the
Capital Securities, or (iii) full payment of the amounts payable upon a
Liquidation. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Capital
Securities must restore payment of any sums paid under such Capital Securities
or the Guarantee.

STATUS OF THE GUARANTEE; SUBORDINATION

The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all liabilities of
the Company, except any liabilities that may be made pari passu expressly by
their terms, (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by the Company and with any guarantee now or
hereafter entered into by the Company in respect of any preferred or
preference stock or preferred securities of any affiliate of the Company and
(iii) senior to the Common Stock. Upon the bankruptcy, liquidation or winding
up of the Company, its obligations under the Guarantee will rank junior to all
its other liabilities (except as aforesaid) and, therefore, funds may not be
available for payment under the Guarantee.

The Company is a non-operating holding company and almost all of the
operations of the Company are conducted by the Company's subsidiaries. The
Company relies primarily on dividends from such subsidiaries to meet its
obligations for payment of principal and interest on its outstanding debt
obligations and corporate expenses. The Company is a legal entity separate and
distinct from its insurance and non-insurance affiliates. The principal
sources of the Company's income are dividends, interest and fees from its
insurance and non-insurance affiliates. In addition, payment of dividends to
the Company by the subsidiary insurance companies is subject to ongoing review
by insurance regulators and is subject to various statutory limitations and in
certain circumstances requires approval by insurance regulatory authorities.
See "Business--Regulation--Regulation of Dividends and Other Payments from
Insurance Subsidiaries." Accordingly, the Guarantee will be effectively

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subordinated to all existing and future liabilities and obligations of the
Company's subsidiaries, including obligations to policyholders. At December
31, 1996, after giving effect to the Note Offering, the aggregate amount of
liabilities and obligations of the Company's subsidiaries that would
effectively rank senior to the Guarantee was approximately $45.9 billion.

The Declaration provides that each holder of Capital Securities by
acceptance thereof agrees to the subordination provisions and other terms of
the Guarantee.

INFORMATION CONCERNING THE GUARANTEE TRUSTEE

The Guarantee Trustee, prior to the occurrence of a default under the
Guarantee, undertakes to perform only such duties as are specifically set
forth in the Guarantee and, after such a default, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of Capital Securities unless it is offered reasonable
security and indemnity against the costs, expenses and liabilities that might
be incurred thereby.

GOVERNING LAW

The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.

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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES

Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest with the proceeds of
the issuance and sale of (i) the Capital Securities and (ii) the Common
Securities. The following description does not purport to be complete and is
qualified in its entirety by reference to the indenture (the "Indenture")
between the Company and Wilmington Trust Company, as Indenture Trustee, a copy
of the form of which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part, and the Trust Indenture Act. The Indenture
will be qualified under the Trust Indenture Act. Whenever particular
provisions or defined terms in the Indenture are referred to herein, such
provisions or defined terms are incorporated by reference herein.

At any time, the Company will have the right to liquidate the Trust and
cause the Junior Subordinated Debentures to be distributed to the holders of
the Trust Securities in liquidation of the Trust. See "Description of the
Capital Securities--Distribution of Junior Subordinated Debentures upon
Liquidation of the Trust."

GENERAL

The Property Trustee will be the initial holder of the Junior Subordinated
Debentures. The Junior Subordinated Debentures will be limited in aggregate
principal amount to approximately 103.09% of the aggregate stated liquidation
amount of the Capital Securities, such amount being the sum of the aggregate
stated liquidation amount of the Capital Securities and the Common Securities.

The entire principal amount of the Junior Subordinated Debentures will
become due and payable, together with any accrued and unpaid interest thereon,
including Additional Sums, if any, on March 1, 2037.

The obligations of the Company under the Junior Subordinated Debentures will
be unsecured and will rank junior and be subordinate in right of payment to
all existing and future Senior Indebtedness of the Company. See "--
Subordination."

The Junior Subordinated Debentures, if distributed to holders of Capital
Securities in a dissolution of the Trust, will initially be issued as a global
security.

Payments on Junior Subordinated Debentures will be made to DTC, as the
depository for the Junior Subordinated Debentures.

The Indenture does not contain any provisions that afford holders of Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company. The Junior Subordinated Debentures are not entitled to
the benefit of any sinking fund.

Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the
prior claims of creditors of the subsidiary, except to the extent the Company
may itself be recognized as a creditor of that subsidiary. Accordingly, the
Junior Subordinated Debentures will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries, and holders of
Junior Subordinated Debentures should look only to the assets of the Company
for payments on the Junior Subordinated Debentures. The Indenture does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company including Senior Indebtedness. In addition, the Company relies
primarily on dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt obligations and
corporate expenses, which dividends may be limited in certain circumstances.
See "--Subordination" and "Business-- Regulation--Regulation of Dividends and
Other Payments from Insurance Subsidiaries" above.

INTEREST

Each Junior Subordinated Debenture will bear interest at the rate of 7.899%
per annum from the original date of issuance, payable semi-annually in arrears
on March 1 and September 1 (each, an "Interest Payment

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Date"), commencing September 1, 1997, to the person in whose name such Junior
Subordinated Debenture is registered at the close of business on the first day
of the month in which the Interest Payment Date occurs. Interest will compound
semi-annually and will accrue to the extent permitted by law at the annual
rate of 7.899% on any interest installment not paid when due.

The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months, and, for any period of less than a
full calendar month, the number of days elapsed in such month. In the event
that any date on which interest is payable on the Junior Subordinated
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day which is a Business Day (without
any interest or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.

OPTION TO EXTEND INTEREST PAYMENT PERIOD

The Company shall have the right at any time during the term of the Junior
Subordinated Debentures, so long as no Event of Default (or an event which
would be an Event of Default with the giving of required notice or the passage
of time) has occurred and is continuing, to defer interest payments from time
to time for successive periods not exceeding 10 consecutive semi-annual
periods. At the end of each Deferral Period, the Company shall pay all
interest and Additional Payments (consisting of Compounded Interest (defined
as interest on interest payments deferred during the Deferral Period, at the
rate specified for the Junior Subordinated Debentures to the extent permitted
by applicable law) and any Additional Sums) then accrued and unpaid. In no
event shall any Deferral Period extend beyond the maturity of the Junior
Subordinated Debentures. During any Deferral Period, the Company (i) shall not
declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock (other than stock dividends paid by the Company which consist of
stock of the same class as that on which the dividend is being paid), (ii)
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company that
rank pari passu with or junior to the Junior Subordinated Debentures, and
(iii) shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Guarantee). Prior to the termination of any such
Deferral Period, the Company may further extend such Deferral Period, so long
as no Event of Default (or an event which would be an Event of Default with
the giving of required notice or the passage of time) has occurred and is
continuing, provided that such Deferral Period together with all such further
extensions thereof may not exceed 10 consecutive semi-annual periods or extend
beyond the maturity of the Junior Subordinated Debentures. Upon the
termination of any Deferral Period and the payment of all amounts then due,
the Company may commence a new Deferral Period, subject to the above
requirements. Consequently, there could be multiple Deferral Periods of
varying lengths prior to the maturity of the Junior Subordinated Debentures.
No interest during a Deferral Period, except at the end thereof, shall be due
and payable. If the Property Trustee shall be the sole holder of the Junior
Subordinated Debentures, the Company shall give the Property Trustee and the
Indenture Trustee notice of its selection of a Deferral Period at least one
Business Day prior to the earlier of (i) the Interest Payment Date or (ii) the
date the Trust is required to give notice to any applicable self-regulatory
organization or to holders of the Capital Securities on the record date or the
date such distributions are payable, but in any event not less than ten
Business Days prior to such record date. The Company shall cause the trust to
give notice of the Company's selection of such Deferral Period to the holders
of the Capital Securities. If the Property Trustee shall not be the sole
holder of the Junior Subordinated Debentures, the Company shall give the
holders of the Junior Subordinated Debentures and the Indenture Trustee notice
of its selection of such Deferral Period at least ten Business Days prior to
the earlier of (i) the Interest Payment Date or (ii) the date the Trust is
required to give notice to any applicable self-regulatory organization or to
holders of the Junior Subordinated Debentures on the record date or the date
such distributions are payable, but in any event not less than two Business
Days prior to such record date.

OPTIONAL REDEMPTION

The Company shall have the right to redeem the Junior Subordinated
Debentures, in certain circumstances upon the occurrence of a Tax Event as
described under "Description of the Capital Securities--Tax Event
Distribution," upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to 100% of the

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principal amount of the Junior Subordinated Debentures to be redeemed plus any
accrued and unpaid interest to the redemption date. The Company shall also
have the right to redeem the Junior Subordinated Debentures in whole at any
time or in part from time to time, upon not less than 30 nor more than 60
days' notice, at a Redemption Price equal to the sum of (i) 100% of the
principal amount of the Junior Subordinated Debentures to be redeemed and (ii)
the Make-Whole Premium, if any, plus any accrued and unpaid interest thereon
to the date fixed for redemption. As used herein, the Make-Whole Premium shall
mean the excess, if any, of (i) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the
redemption date on a semiannual basis at the Treasury Rate plus 20 basis
points over (ii) 100% of the principal amount of the Junior Subordinated
Debentures to be redeemed.

"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury
Price for such redemption date.

"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable
to the remaining term of the Junior Subordinated Debentures to be redeemed
that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining term of such Junior
Subordinated Debentures.

"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Indenture Trustee after consultation with the Company.

"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for
U.S. Government Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such business day, (A) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Indenture Trustee obtains fewer than three such
Reference Treasury Dealer Quotations, the average of all such Quotations.

"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Indenture Trustee by such Reference Treasury Dealer at 5:00
p.m. on the third business day preceding such redemption date.

"Reference Treasury Dealer" means each of Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and their respective successors; provided,
however, that if any of the foregoing shall cease to be a primary U.S.
Government Securities dealer in New York City (a "Primary Treasury Dealer"),
the Company shall substitute therefor another Primary Treasury Dealer.

SUBORDINATION

The Indenture provides that the Junior Subordinated Debentures are
subordinate and junior in right of payment to all existing and future Senior
Indebtedness of the Company. No payment of principal of (including redemption
payments) or premium, if any, or interest on the Junior Subordinated
Debentures may be made (i) if any Senior Indebtedness is not paid when due,
any applicable grace period with respect to such default has ended and such
default has not been cured or waived, or (ii) if the maturity of any Senior
Indebtedness has been accelerated because of a default thereunder. Upon any
payment by the Company or distribution of assets of the Company to creditors
upon any dissolution, winding up, liquidation or reorganization, whether
voluntary or involuntary or in bankruptcy, insolvency, receivership or other
proceedings, all principal of, and premium, if any, and interest due or to
become due on, all Senior Indebtedness must be paid in full before the holders
of the

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Junior Subordinated Debentures are entitled to receive or retain any payment.
In the event that, notwithstanding the foregoing, any payment or distribution
of assets of the Company, whether in cash, property or securities, shall be
received or collected by the Indenture Trustee or the holders of the Junior
Subordinated Debentures in contravention of the foregoing provisions, such
payment or distribution shall be held for the benefit of and shall be paid
over to the holders of Senior Indebtedness or their representative or
representatives or to the trustee or trustees under any indenture under which
any instrument evidencing Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay in full all
Senior Indebtedness then due, after giving effect to any concurrent payment or
distribution to the holders of Senior Indebtedness. Subject to the payment in
full of all Senior Indebtedness, the rights of the holders of the Junior
Subordinated Debentures will be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Junior Subordinated Debentures are
paid in full.

The term "Senior Indebtedness" shall mean in respect of the Company (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of
such obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii)
all capital lease obligations of such obligor, (iii) all obligations of such
obligor issued or assumed as the deferred purchase price of property, all
conditional sale obligations of such obligor and all obligations of such
obligor under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all obligations of
such obligor for the reimbursement of any letter of credit, banker's
acceptance, security purchase facility or similar credit transaction, (v) all
obligations of the type referred to in clauses (i) through (iv) above of other
persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise, (vi) all obligations of the type referred to
in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed
by such obligor), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Junior Subordinated Debentures and (2)
any indebtedness (including all other debt securities initially issued to any
other trust, or a trustee of such trust, partnership or other entity
affiliated with the Company that is, directly or indirectly, a financing
vehicle of the Company (a "Financing Entity") in connection with the issuance
by such Financing Entity of preferred securities or other similar securities
and (vii) interest accruing subsequent to events of bankruptcy of the Company
and its subsidiaries at the rate provided for in the documentation governing
such Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the debtor in a bankruptcy case under relevant bankruptcy
law. Such Senior Indebtedness shall continue to be Senior Indebtedness and
entitled to the benefits of the subordination provisions irrespective of any
amendment, modification or waiver of any term of such Senior Indebtedness or
extension or renewal of such Senior Indebtedness.

The Indenture does not limit the aggregate amount of Senior Indebtedness the
Company may issue.

At December 31, 1996, after giving effect to the Note Offering, the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would effectively rank senior to the Junior
Subordinated Debentures was approximately $45.9 billion.

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CERTAIN COVENANTS

If (i) there shall have occurred any event that would constitute an Event of
Default, (ii) the Company shall be in default with respect to its payment of
any obligations under the Guarantee, or (iii) the Company shall have given
notice of its election of a Deferral Period as provided in the Indenture and
such period, or any extension thereof, shall be continuing, then the Company
(a) shall not declare or pay dividends on, make distributions with respect to,
or redeem, purchase or acquire, or make a liquidation payment with respect to,
any of its capital stock (other than stock dividends paid by the Company which
consist of stock of the same class as that on which the dividend is being
paid), (b) shall not make any payment of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities issued by the
Company that rank pari passu with or junior to the Junior Subordinated
Debentures, and (c) shall not make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).

The Company will covenant (i) to directly maintain 100% ownership of the
Common Securities of the Trust; provided, however, that any permitted
successor of the Company under the Indenture may succeed to the Company's
ownership of such Common Securities and (ii) to use its reasonable efforts to
cause the Trust (x) to remain a statutory business trust, except in connection
with the distribution of Junior Subordinated Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the
Trust Securities or certain mergers, consolidations or amalgamations, each as
permitted by the Declaration, and (y) to otherwise continue to be classified
as a grantor trust for United States federal income tax purposes.

RESTRICTIONS

The Indenture provides that the Company shall not consolidate with or merge
with or into any other entity, or, directly or indirectly, convey, transfer or
lease all or substantially all of the properties and assets of the Company on
a consolidated basis to any entity, unless (i) the surviving entity is a
corporation, partnership or trust organized and validly existing under the
laws of the United States of America, any state thereof or the District of
Columbia and such corporation or entity assumes by supplemental indenture all
the obligations of the Company under the Indenture and the Junior Subordinated
Debentures, (ii) no Event of Default shall exist immediately after the
transaction, (iii) such transaction is permitted under, and does not give rise
to, any breach or violation of the Declaration or the Guarantee and (iv) the
Company has delivered to the Indenture Trustee an officer's certificate and an
opinion of counsel stating that such transaction and, if required, such
supplemental indenture comply with the Indenture, including all conditions
precedent.

EVENTS OF DEFAULT

The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of
Default" with respect to the Junior Subordinated Debentures: (i) failure for
30 days to pay interest on the Junior Subordinated Debentures, including any
Compounded Interest in respect thereof, when due and payable, provided that a
Deferral Period shall not constitute a default in the payment of interest for
this purpose; (ii) failure to pay principal of or premium, if any, on the
Junior Subordinated Debentures when due whether at maturity, upon redemption,
by declaration or otherwise; (iii) failure to observe or perform any other
covenant or warranty contained in the Indenture for 90 days after proper
notice; (iv) the dissolution, winding up or termination of the Trust, except
in connection with the distribution of Junior Subordinated Debentures to the
holders of Capital Securities permitted by the Declaration; or (v) certain
events in bankruptcy, insolvency or reorganization of the Company or any
Significant Subsidiary. A default under any other indebtedness of the Company
or the Trust would not constitute an Event of Default under the Junior
Subordinated Debentures.

The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures may declare
the principal of and any other amounts payable (including any Additional Sums)
on the Junior Subordinated Debentures due and payable immediately if an Event
of Default occurs and is continuing and, if the Property Trustee is the sole
holder of the Junior Subordinated Debentures

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and the Indenture Trustee or such holders of Junior Subordinated Debentures
fail to make such declaration, the holders of at least 25% in aggregate
liquidation amount of outstanding Capital Securities shall have such right.
After such declaration of acceleration, but before a judgment or decree based
on acceleration, the holders of a majority in aggregate principal amount of
outstanding Junior Subordinated Debentures may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than the
nonpayment of accelerated principal, have been cured or waived as provided in
the Indenture and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration and certain fees and expenses
of the Indenture Trustee has been deposited with the Indenture Trustee.

No holder of any Junior Subordinated Debenture will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such holder shall have previously given to the Indenture
Trustee written notice of a continuing Event of Default and unless the holders
of at least 25% in aggregate principal amount of the Junior Subordinated
Debentures then outstanding shall also have made written request, and offered
reasonable security or indemnity, to the Indenture Trustee to institute such
proceeding as Indenture Trustee, and the Indenture Trustee shall not have
received from the holders of a majority in aggregate principal amount of the
outstanding Junior Subordinated Debentures a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
However, such limitations do not apply to a suit instituted by a holder of a
Junior Subordinated Debenture or a holder of a Capital Security for
enforcement of payment of the principal of or interest on such Junior
Subordinated Debenture on or after the respective due dates specified in such
Junior Subordinated Debenture.

A holder of Capital Securities may directly institute a proceeding on behalf
of the Trust for enforcement of payment to the Trust of the principal of or
premium, if any, or interest on the Junior Subordinated Debentures on or after
the respective due dates specified in the Indenture. The holders of the
Capital Securities would not be able to exercise directly any other remedies
available to the holder of the Junior Subordinated Debentures unless the
Property Trustee or the Indenture Trustee, acting for the benefit of the
Property Trustee, fails to do so. In such event, the holders of at least 25%
in aggregate liquidation preference of outstanding Capital Securities would
have such right to institute proceedings.

Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee in case an Event of Default shall occur and be continuing,
the Indenture Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any
holders of Junior Subordinated Debentures, unless such holders shall have
offered to the Indenture Trustee reasonable security or indemnity. Subject to
such provisions for the indemnification of the Indenture Trustee, the holders
of a majority in aggregate principal amount of the Junior Subordinated
Debentures then outstanding will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee
with respect to such series.

The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures may, on behalf of the holders of all the Junior
Subordinated Debentures, waive any past default, except a default in the
payment of principal, premium, if any, or interest (including any Additional
Payments) on any Junior Subordinated Debenture (unless such default has been
cured and a sum sufficient to make such payments due otherwise than by
acceleration has been deposited with the Indenture Trustee) or a default in
respect of a covenant or provision which under the Indenture cannot be
modified or amended without the consent of the holder of each Junior
Subordinated Debenture affected. The Company is required to file annually with
the Indenture Trustee and the Property Trustee a certificate as to whether or
not the Company is in compliance with all the conditions and covenants under
the Indenture.

MODIFICATION OF THE INDENTURE

From time to time, the Company when authorized by a Board resolution, and
the Indenture Trustee may, without the consent of the holders of the Junior
Subordinated Debentures, enter into one or more supplements to

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the Indenture for specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies (provided that any such action does
not adversely affect the interests of the holders of the Junior Subordinated
Debentures or the holders of outstanding Capital Securities). The Indenture
contains provisions permitting the Company and the Indenture Trustee, with the
consent of the holders of not less than a majority in principal amount of the
Junior Subordinated Debentures, to modify the Indenture or any supplemental
indenture; provided that no such modification may, without the consent of the
holder of each outstanding Junior Subordinated Debenture (i) extend the stated
maturity of principal of or premium, if any, or interest on including any
Additional Payments any Junior Subordinated Debentures, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any premium payable upon the redemption thereof,
or impair the right to institute suit for the enforcement of any payment
thereon on or after the stated maturity date (or, in the case of redemption,
on or after the redemption date) or modify the subordination provisions of the
Indenture in a manner adverse to the holders, or (ii) reduce the percentage in
principal amount of Junior Subordinated Debentures outstanding, the holders of
which are required to consent to any such supplemental indenture or for any
waiver of compliance with certain provisions of the Indenture and their
consequences provided for in the Indenture. Further, if the Trust is the sole
holder of the Junior Subordinated Debentures, so long as any of the Capital
Securities remains outstanding, no modification of the Indenture or any
supplemental indenture may be made that adversely affects the holders of such
Capital Securities, and no termination of the Indenture or any supplemental
indenture may occur, and no waiver of any Event of Default or compliance with
any covenant under the Indenture or any supplemental indenture shall be
effective, without the prior consent of the holders of the percentage of the
aggregate liquidation amount of the outstanding Capital Securities which is at
least equal to the percentage of aggregate stated liquidation preference of
the outstanding Junior Subordinated Debentures required under the Indenture or
any supplemental indenture to make such modification, termination or waiver.

In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Junior Subordinated Debentures, any supplemental
indenture for certain other usual purposes.

SETOFF

Notwithstanding anything to the contrary contained in the Indenture, the
Company shall have the right to set off any payment with respect to the Junior
Subordinated Debentures it is otherwise required to make thereunder with and
to the extent the Company has theretofore made, or is concurrently on the date
of such payment making, a payment under the Guarantee.

GOVERNING LAW

The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the laws of the State of New York.

INFORMATION CONCERNING THE INDENTURE TRUSTEE

The Indenture Trustee, except during the continuance of an Event of Default,
undertakes to perform only such duties as are specifically set forth in the
Indenture and, if an Event of Default has occurred and is continuing, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by
the Indenture at the request of any holder of Junior Subordinated Debentures,
unless offered reasonable security or indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. The Indenture
Trustee is not required to expend or risk its own funds or otherwise incur any
financial liability in the performance of its duties under the Indenture if
the Indenture Trustee reasonably believes that repayment or adequate security
or indemnity is not reasonably assured to it.

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EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES, THE GUARANTEE AND THE DECLARATION

As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities and use the proceeds thereof to purchase from the Company
the Junior Subordinated Debentures.

As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Capital Securities primarily because (i)
the aggregate principal amount of Junior Subordinated Debentures will be equal
to the sum of the aggregate stated liquidation amount of the Capital
Securities and the Common Securities; (ii) the interest rate and interest and
other payment dates on the Junior Subordinated Debentures will match the
distribution rate and distribution and other payment dates for the Capital
Securities; (iii) the Declaration provides that the Company shall pay for all,
and the Trust shall not be obligated to pay, directly or indirectly, for any,
costs and expenses of the Trust; and (iv) the Declaration further provides
that the holders of Common Securities and the Regular Trustees shall not cause
or permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.

A holder of Capital Securities may, subject to certain limitations, directly
institute a proceeding on behalf of the Trust for enforcement of payment to
the Trust of the principal of or premium, if any, or interest on the Junior
Subordinated Debentures on or after the respective due dates specified in the
Indenture. The holders of the Capital Securities would not be able to exercise
directly any other remedies available to the holder of the Junior Subordinated
Debentures unless the Property Trustee or the Indenture Trustee, acting for
the benefit of the Property Trustee, fails to do so. In such event, the
holders of at least 25% in aggregate liquidation amount of outstanding Capital
Securities would have such right to institute proceedings. In addition, if the
Company fails to make interest or other payments on the Junior Subordinated
Debentures when due, the Declaration provides a mechanism whereby the holders
of the Capital Securities may direct the Property Trustee to enforce its
rights under the Junior Subordinated Debentures.

The Company has, through the Junior Subordinated Debentures, the Indenture,
the Declaration and the Guarantee, taken together, fully and unconditionally
guaranteed all of the Trust's obligations under the Capital Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full and
unconditional guarantee of the Trust's obligations under the Capital
Securities. If and to the extent that the Company does not make payments on
the Junior Subordinated Debentures, the Trust will not pay distributions or
other payments due on the Capital Securities.

If the Company fails to make payments under the Guarantee, any holder of a
Capital Security may institute a legal proceeding directly against the Company
to enforce its rights under the Guarantee without first instituting a legal
proceeding against the Trust or any other person or entity.

UNITED STATES FEDERAL INCOME TAXATION

GENERAL

The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of Capital Securities.
It represents the opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., tax
counsel to the Trust. Unless otherwise stated, this summary deals only with
Capital Securities held as capital assets by holders who purchase the Capital
Securities upon original issuance
("Initial Holders"). It does not deal with special classes of holders such as
banks, thrifts, real estate investment trusts, regulated investment companies,
insurance companies, dealers in securities or currencies, tax-exempt
investors, or persons that will hold the Capital Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency

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other than the U.S. dollar or the tax consequences to shareholders, partners
or beneficiaries of a holder of Capital Securities. Further, it does not
include any description of any alternative minimum tax consequences or the tax
laws of any state or local government or of any foreign government that may be
applicable to the Capital Securities. This summary is based on the IRC, U.S.
Treasury regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change, possibly on a retroactive basis. Any such changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of the Capital Securities. See "-- Proposed Tax
Law Changes."

CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES AND THE TRUST

In connection with the issuance of the Junior Subordinated Debentures,
LeBoeuf, Lamb, Greene & MacRae, L.L.P., legal counsel for the Company and the
Trust, has rendered its opinion as of the date of this Prospectus generally to
the effect that, under current law in effect as of the date of this Prospectus
and assuming full compliance with the terms of the Indenture (and certain
other documents), the Junior Subordinated Debentures, when issued, would be
classified for United States federal income tax purposes as indebtedness of
the Company.

In connection with the issuance of the Capital Securities, LeBoeuf, Lamb,
Greene & MacRae, L.L.P. has rendered its opinion as of the date of this
Prospectus generally to the effect that, under current law in effect as of the
date of this Prospectus and assuming full compliance with the terms of the
Declaration, the Trust, upon issuance of the Capital Securities, would be
classified for United States federal income tax purposes as a grantor trust
and not as an association taxable as a corporation. Accordingly, for United
States federal income tax purposes, each holder of Capital Securities
generally will be considered the owner of an undivided interest in the Junior
Subordinated Debentures. Each holder will be required to include in its gross
income its allocable share of income accrued on the Subordinated Debentures.

Investors should be aware that these tax opinions do not address any other
issue and are not binding on the Internal Revenue Service or the courts.

ORIGINAL ISSUE DISCOUNT

Under recently issued income tax regulations applicable to all debt
instruments that, like the Junior Subordinated Debentures, are issued on or
after August 13, 1996, remote contingencies that stated interest will not be
timely paid are ignored in determining whether a debt instrument is issued
with OID, which determination depends in part on whether interest is
"unconditionally payable" on the debt instrument. OID must be included in
income by all holders as it accrues economically on a daily basis, without
regard to when it is paid in cash or whether a particular holder generally
uses the cash method of accounting. The Company has concluded that the
likelihood of its exercising its option to defer payments of interest is
remote. This conclusion is based on the Company's analysis, as of the date of
issue of the Junior Subordinated Debentures, of various facts and
circumstances deemed relevant to exercising such deferral option, including,
among other things, the inability of the Company to declare dividends on its
stock while interest on the Junior Subordinated Debentures is being deferred,
and the likely impact of the non-payment of dividends upon the ratings of the
Company's securities if the deferral option is exercised. Based upon this
conclusion by the Company, and in the absence of any specific definition of
"remote" in the applicable income tax regulations, in the opinion of LeBoeuf,
Lamb, Greene & MacRae, L.L.P., although the matter is not entirely free from
doubt, the Subordinated Debentures will not include OID. As a consequence,
holders of the Capital Securities should report interest under their own
methods of accounting (e.g., cash or accrual) instead of under the daily
economic accrual rules for OID instruments.

Under the new regulations, however, if the Company exercises its right to
defer payments of interest, the Junior Subordinated Debentures will become OID
instruments, and all holders of the Capital Securities will be required to
accrue interest on a daily basis and to report that OID as taxable interest
income during any Deferral Period even though the Company will not pay the
interest in cash until the end of the Deferral Period, and even though a
holder may use the cash method of accounting. A holder who disposes of the
Capital Securities during

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such a Deferral Period may suffer a loss because the market value of the Trust
Securities will likely fall if the Company exercises its option to defer
payments of interest on the Junior Subordinated Debentures. Furthermore, the
market value of the Capital Securities may not reflect the accumulated
distribution that will be paid at the end of the Deferral Period, and a holder
who sells the Capital Securities during the Deferral Period will not receive
from the Company any cash related to the interest (OID) income the holder
accrued and included in its taxable income under the OID rules (because that
cash will be paid to the holder of record at the end of the Deferral Period).

If the Junior Subordinated Debentures become OID instruments (i.e., if the
Company exercises its rights to defer payment of interest), the Junior
Subordinated Debentures will be taxed as OID instruments for as long as they
remain outstanding. Thus, even after the end of the Deferral Period, all
holders will be required to continue accruing interest (OID) on the Junior
Subordinated Debentures on a daily basis, regardless of their method of
accounting.

The new regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service other than the preamble to the
Treasury Decision that issued the new regulations, which added the concept of
"remote contingencies" to existing definitions used to determine whether
interest payable under a debt instrument is "unconditionally payable." The new
regulations could be viewed as a favorable reversal of the Internal Revenue
Service's previous position, as expressed in a 1995 Revenue Ruling that has
not been withdrawn. It is possible that the IRS could take a position contrary
to the interpretation herein.

MARKET DISCOUNT AND BOND PREMIUM

Holders of Capital Securities other than Initial Holders may be considered
to have acquired their undivided interests in the Junior Subordinated
Debentures with "market discount" or "acquisition premium" as such phrases are
defined for United States federal income tax purposes. Such holders are
advised to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Capital Securities.

RECEIPT OF JUNIOR SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE
TRUST

As described under the caption "Description of the Capital Securities--
Distribution of the Junior Subordinated Debentures upon Liquidation of the
Trust," Junior Subordinated Debentures may be distributed to holders in
exchange for the Capital Securities and in liquidation of the Trust. Under
current law, such a distribution, for United States federal income tax
purposes, would be treated as a non-taxable event to each holder, and each
holder would receive an aggregate tax basis in the Junior Subordinated
Debentures equal to such holder's aggregate tax basis in its Capital
Securities. A holder's holding period in the Junior Subordinated Debentures so
received in liquidation of the Trust would include the period during which the
Capital Securities were held by such holder.

Under certain circumstances described herein (see "Description of the
Capital Securities--Tax Event Distribution" and "Description of the
Subordinated Debentures -- Optional Redemption"), the Junior Subordinated
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Capital Securities. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Capital Securities,
and a holder could recognize gain or loss as if it sold such redeemed Capital
Securities for cash. See "-- Sales of Capital Securities."

SALES OF CAPITAL SECURITIES

A holder that sells Capital Securities will recognize gain or loss equal to
the difference between its adjusted tax basis in the Capital Securities and
the amount realized on the sale of such Capital Securities. To the extent of
any accrued but unpaid interest the amount realized on the sale of such
Capital Securities will be treated as

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ordinary income. Assuming the Company does not defer interest on the Junior
Subordinated Debentures by extending the interest payment period, a holder's
adjusted tax basis in the Capital Securities generally will equal its initial
purchase price. Subject to the market discount rules described above and the
discussion below regarding accrued and unpaid interest, such gain or loss
generally will be a capital gain or loss and generally will be a long-term
capital gain or loss if the Capital Securities have been held for more than
one year.

The Capital Securities may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. If the Company exercises its right to defer payments
of interest, the Junior Subordinated Debentures will become OID instruments
and a holder who disposes of Capital Securities between record dates for
payments of distributions thereon will be required to include in income as
ordinary income, accrued and unpaid interest on the Junior Subordinated
Debentures through the date of disposition, and to add such amount to such
holder's adjusted tax basis in its pro rata share of the underlying Junior
Subordinated Debentures deemed disposed of. To the extent the selling price is
less than the holder's adjusted tax basis (which will include all accrued but
unpaid interest) a holder will recognize a capital loss. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. Accrual basis taxpayers would
be subjected to similar treatment without regard to the Company's election to
defer.

UNITED STATES ALIEN HOLDERS

For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a
foreign partnership, or a foreign estate or trust.

Under present United States federal income tax law: (i) payments by the
Trust or any of its paying agents to any holder of a Capital Security who or
which is a United States Alien Holder will not be subject to United States
federal withholding tax; provided that, (a) the beneficial owner of the
Capital Security does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled to
vote, (b) the beneficial owner of the Capital Security is not a controlled
foreign corporation that is related to the Company through stock ownership,
and (c) either (A) the beneficial owner of the Capital Security certifies to
the Trust or its agent, under penalties of perjury, that it is not a United
States holder and provides its name and address or (B) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "Financial
Institution"), and holds the Capital Security in such capacity, certifies to
the Trust or its agent, under penalties of perjury, that such statement has
been received from the beneficial owner by it or by a Financial Institution
between it and the beneficial owner and furnishes the Trust or its agent with
a copy thereof; and (ii) a United States Alien Holder of a Capital Security
will not be subject to United States federal withholding tax on any gain
realized upon the sale or other disposition of a Capital Security.

INFORMATION REPORTING TO HOLDERS

Income on the Capital Securities will be reported to holders on Forms 1099,
which forms should be mailed to holders of Capital Securities by January 31
following each calendar year.

BACKUP WITHHOLDING

Payments made on, and proceeds from the sale of, the Capital Securities may
be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax, provided the required
information is provided to the Internal Revenue Service.

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PROPOSED TAX LAW CHANGES

THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS
WITHIN RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE CAPITAL SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES
IN UNITED STATES FEDERAL OR OTHER TAX LAWS.

ERISA CONSIDERATIONS

Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the IRC and
entities whose assets are considered assets of such plans ("Plans"), may
purchase the Capital Securities subject to the investing fiduciary's
determination that the investment in the Capital Securities satisfies ERISA's
fiduciary standards and other requirements applicable to investments by Plans.
Accordingly, among other factors, the fiduciary should consider whether the
investment would satisfy the prudence and diversification requirements of
ERISA and would be consistent with the documents and instruments governing the
Plans.

Under regulations issued by the U.S. Department of Labor (the "DOL"), a Plan
that owns the Capital Securities may be deemed to own a portion of the assets
held in the Trust, including a portion of the Junior Subordinated Debentures
held in the Trust. In addition, the Company and its affiliates may be "parties
in interest" (within the meaning of ERISA) or "disqualified persons" (within
the meaning of Section 4975 of the IRC) with respect to certain Plans
(generally, Plans maintained or sponsored by, or contributed to by, any such
persons or Plans with respect to which any such persons are fiduciaries or
service providers). The acquisition and ownership of the Capital Securities
and a deemed acquisition and ownership of an interest in the Junior
Subordinated Debentures by a Plan with respect to which the Company or any of
its affiliates is considered a party in interest or a disqualified person may
constitute or result in a prohibited transaction under ERISA or Section 4975
of the IRC, unless such securities are acquired and are held pursuant to and
in accordance with an applicable exemption. In this regard, the DOL has issued
PTCEs that may apply to the acquisition and holding of the Capital Securities.
These class exemptions are PTCE 84-14 (respecting transactions determined by
independent qualified professional asset managers), PTCE 90-1 (respecting
insurance company separate accounts), PTCE 91-38 (respecting bank collective
trust funds), PTCE 95-60 (respecting insurance company general accounts) and
PTCE 96-23 (respecting transactions determined by in-house asset managers).

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Any fiduciary proposing to acquire the Capital Securities on behalf of a
Plan should consult with ERISA counsel for the Plan and should not acquire the
Capital Securities unless it is determined that such acquisition and holding
does not and will not constitute a prohibited transaction and will satisfy the
applicable fiduciary requirements imposed under ERISA. Any such acquisition by
a Plan shall be deemed a representation by the Plan and the fiduciary
effecting the investment on behalf of the Plan that such acquisition and
holding satisfies the applicable fiduciary requirements of ERISA, and is
entitled to exemptive relief from the prohibited transaction provisions of
ERISA and the IRC in accordance with one or more of the foregoing PTCEs or
another available prohibited transaction exemption.

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DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

The following statements are subject to and qualified in their entirety by
reference to detailed provisions of the Company's Certificate and Bylaws
(copies of which have been incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part).

The Company is currently authorized to issue 750 million shares of Class A
Common Stock, 750 million shares of Class B Common Stock and 50 million shares
of Preferred Stock. The shares of Class A Common Stock and Class B Common
Stock are identical in all respects except for voting rights and certain
conversion rights and transfer restrictions regarding the shares of Class B
Common Stock as described below.

CLASS A COMMON STOCK AND CLASS B COMMON STOCK

Voting

All outstanding shares of Common Stock are fully paid and nonassessable.
Except for the Equity Purchase Rights, holders of Common Stock do not have any
preemptive rights to subscribe for or purchase any additional securities
issued by the Company. No redemption or sinking fund provisions are associated
with the Common Stock. Cumulative voting is not permitted by holders of Common
Stock.

The holders of Class B Common Stock are entitled to ten votes per share. The
holders of Class A Common Stock are entitled to one vote per share. Proposals
submitted to a vote of stockholders will be voted on by holders of Class A
Common Stock and Class B Common Stock voting together as a single class. At
all meetings of the stockholders of the Company, the holders of record
entitled to exercise at least a majority of the voting power of the Company,
represented in person or by proxy, shall constitute a quorum for the
transaction of business; and the affirmative vote of the holders, represented
in person or by proxy, of a majority of the Common Stock present at a meeting
at which a quorum is in existence shall be the act of the stockholders of the
Company. The superior voting rights of the Class B Common Stock might
discourage unsolicited merger proposals and unfriendly tender offers.

Transfer

The Certificate does not contain any restrictions on the transfer of shares
of Class A Common Stock. Upon any sale or other transfer of shares of Class B
Common Stock to any person or persons other than a member of the Nationwide
Insurance Enterprise, such shares of Class B Common Stock will be converted
into an equal number of shares of Class A Common Stock.

Conversion

Class A Common Stock has no conversion rights. Class B Common Stock is
convertible into Class A Common Stock, in whole or in part, at any time and
from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. If at
any time after the initial issuance of shares of Class A Common Stock the
number of outstanding shares of Class B Common Stock falls below 5% of the
aggregate number of issued and outstanding shares of Common Stock, then each
outstanding share of Class B Common Stock shall automatically convert into one
share of Class A Common Stock. In the event of any sale or transfer of shares
of Class B Common Stock to any person or persons other than a member of the
Nationwide Insurance Enterprise shares of Class B Common Stock so transferred
shall be automatically converted into an equal number of shares of Class A
Common Stock.

Dividends

Holders of Common Stock are entitled to receive cash dividends pro rata on a
per share basis if and when such dividends are declared by the Board of
Directors of the Company from funds legally available therefor. In the case of
any dividend paid other than in cash or Common Stock (or securities
convertible into or exchangeable for Common Stock), holders of Class A Common
Stock and Class B Common Stock are entitled to receive such

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dividend pro rata on a per share basis. Dividends paid in Common Stock (or
securities convertible into or exchangeable for Common Stock) may be paid in
shares of Class A Common Stock (or securities convertible into or exchangeable
for Class A Common Stock) on the Class A Common Stock and in shares of Class B
Common Stock (or securities convertible into or exchangeable for Class B
Common Stock) on the Class B Common Stock.

Liquidation, Merger or Consolidation

Holders of Class A Common Stock and Class B Common Stock share with each
other on a ratable basis as a single class in the net assets of the Company
available for distribution in respect of the Common Stock in the event of
liquidation or any payments made on the Common Stock in the event of a merger
or consolidation of the Company.

PREFERRED STOCK

Under the Certificate, the Company has authority to issue 50 million shares
of Preferred Stock. Preferred Stock may be issued from time to time in one or
more classes with such full, special, limited or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and qualifications and limitations or restrictions thereof, as
shall be stated in the Certificate or any amendment thereof or in any
resolution adopted by the Board of Directors of the Company establishing any
class of Preferred Stock. The Board of Directors of the Company has the
authority to issue shares of Preferred Stock without further action of the
stockholders. The ability of the Board of Directors to issue Preferred Stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. No shares of
Preferred Stock have been issued or are outstanding.

CERTAIN CERTIFICATE AND BYLAW PROVISIONS

Certain provisions of the Company's Certificate and Bylaws, summarized in
the following paragraphs, may be considered to have an anti-takeover effect
and may delay, deter or prevent a tender offer, proxy contest or other
takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including such an attempt as might result in payment of a
premium over the market price for shares held by stockholders.

Classified Board of Directors

The Certificate provides for the Board of Directors of the Company to be
divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year at
the annual meeting of stockholders. The Board of Directors believes that a
classified board of directors will help to assure the continuity and stability
of the Board of Directors and the business strategies and policies of the
Company as determined by the Board of Directors because continuity and
stability in the composition of the Board of Directors and in the policies
formulated by it will be enhanced by the staggered three-year terms.

The classified board provisions could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. In addition, the classified board provisions
could delay stockholders who do not like the policies of the Board of
Directors from removing a majority of the Board of Directors for two years.

Number of Directors; Removal; Filling Vacancies

The Certificate provides that the Board of Directors will consist of one to
fifteen members, the exact number to be fixed from time to time by resolution
adopted by a majority of the entire Board of Directors assuming no vacancies.
The Board of Directors currently consists of ten directors. Further, subject
to the rights of the holders of any series of Preferred Stock then
outstanding, the Certificate authorizes the Board of Directors to fill newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority

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representation on the Board of Directors by permitting the Board of Directors
to enlarge the Board of Directors and fill the new directorships with its own
nominees. A director so elected by the Board of Directors holds office until
the next election of the class for which such director has been chosen and
until his successor is elected and qualified. Subject to the rights of the
holders of any series of Preferred Stock then outstanding, the Certificate
also provides that directors may be removed only for cause and only by the
affirmative vote of holders of a majority of the outstanding voting power of
the Company. The effect of these provisions is to preclude a stockholder from
removing incumbent directors without cause and simultaneously gaining control
of the Board of Directors by filling the vacancies created by such removal
with its own nominees.

Special Meetings of Stockholders

The Bylaws provide that special meetings of stockholders may be called by
the Chairman of the Board of Directors, the Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise or the President and Chief Operating
Officer and shall be called by the Secretary at the request in writing of a
majority of the Board of Directors. Stockholders are not permitted to call
special meetings of stockholders.

Advance Notice Requirements for Stockholder Proposals and Director Nominations

The Company's Bylaws provide in order to properly submit any business to, or
to nominate any person for election to the Board of Directors at, an annual
meeting of stockholders, a stockholder must provide timely notice thereof in
writing to the Secretary of the Company. To be considered timely, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company (i) not less than 60 days nor more
than 90 days before the first anniversary date of the Company's proxy
statement in connection with the last annual meeting of stockholders or (ii)
if no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, not less than
a reasonable time, as determined by the Board of Directors, prior to the date
of the applicable annual meeting. The Bylaws also specify certain requirements
pertaining to the form and substance of a stockholder's notice. These
provisions may preclude some stockholders from making nominations for
directors at an annual or special meeting or from bringing other matters
before the stockholders at a meeting.

Class B Common Stock

The superior voting rights of the Class B Common Stock might discourage
unsolicited merger proposals and unfriendly tender offers.

No Action by Written Consent of the Stockholders

The Certificate does not allow the stockholders of the Company to take
action by written consent in lieu of a meeting.

Delaware Takeover Statute

The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a Delaware corporation from engaging in any "business
combination" with any "interested stockholder" for a period of three years
following the time that such stockholder became an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; or (ii) upon the
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder owned at least 85% of the voting stock of the
corporation, as defined in Section 203; or (iii) at or subsequent to such
time, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. For these purposes,
the term "business combination" includes but is not limited to mergers, asset
or stock sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own)
15% or more of the corporation's voting stock.

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Limitation on Liability

The Company's Certificate contains a provision that is designed to limit the
directors' liability to the extent permitted by the DGCL and any amendments
thereto. Specifically, directors will not be held liable to the Company or its
stockholders for an act or omission in such capacity as a director, except for
liability as a result of (i) a breach of the duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or improper repurchase of the Company's stock under Section
174 of the DGCL, or (iv) actions or omissions pursuant to which the director
received an improper personal benefit. The principal effect of the limitation
on liability provision is that a stockholder is unable to prosecute an action
for monetary damages against a director of the Company unless the stockholder
can demonstrate one of the specified bases for liability. This provision,
however, does not eliminate or limit director liability arising in connection
with causes of action brought under the federal securities laws. The Company's
Certificate does not eliminate its directors' duty of care. The inclusion of
this provision in the Company's Certificate may, however, discourage or deter
stockholders or management from bringing a lawsuit against directors for a
breach of their fiduciary duties, even though such an action, if successful,
might otherwise have benefited the Company and its stockholders. This
provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care.

Indemnification

The Company's Bylaws also provide that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
Company is generally required to indemnify its directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them
to defend against such proceedings. To receive indemnification, the director
or officer must have been successful in the legal proceeding or acted in good
faith and in what was reasonably believed to be a lawful manner in the
Company's best interest.

Certificate Provisions Relating to Corporate Opportunities

The Certificate provides that except as Nationwide Mutual (or its successors
or assigns) may otherwise agree in writing and except as set forth in the
Intercompany Agreement:

(i) no member of the Nationwide Insurance Enterprise shall have a duty to
refrain from engaging directly or indirectly in the same or similar
business activities or lines of business as the Company; and

(ii) no member of the Nationwide Insurance Enterprise, nor any director,
officer, employee or agent or any member of Nationwide Mutual (except as
provided below), will be liable to the Company or to its stockholders for
breach of any fiduciary duty by reason of any such activities of such
member's or of such person's participation thereon.

The Certificate also provides that if in the event any member of the
Nationwide Insurance Enterprise (other than the Company) acquires knowledge of
a potential transaction or matter which may be a corporate opportunity both
for a member of the Nationwide Insurance Enterprise and the Company, no member
of the Nationwide Insurance Enterprise shall have any duty to communicate or
offer such corporate opportunity to the Company nor shall any such member be
liable to the Company or its stockholders for breach of any fiduciary duty as
a stockholder of the Company or controlling person of a stockholder by reason
of the fact that any such member of the Nationwide Insurance Enterprise
pursues or acquires such opportunity for itself, directs such corporate
opportunity to another person or entity or does not communicate information
regarding, or offer such corporate opportunity to the Company.

Further, the Certificate provides that in the event that a director,
officer, employee or agent of the Company who is also a director, officer,
employee or agent of any member of the Nationwide Insurance Enterprise

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acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for the Company or any member of the Nationwide
Insurance Enterprise (whether such potential transaction or matter is proposed
by a third party or is conceived of by such director, officer, employee or
agent of the Company), such director, officer, employee or agent shall be
entitled to offer such corporate opportunity to the Company or such member of
the Nationwide Insurance Enterprise as such director, officer, employee or
agent deems appropriate under the circumstances in his or her sole discretion,
and no such director, officer or agent shall be liable to the Company or its
stockholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Company or the derivation
of any improper personal benefit by reason of the fact that (i) such director,
officer, employee or agent offered such corporate opportunity to such member
of the Nationwide Insurance Enterprise (rather than the Company) or did not
communicate information regarding such corporate opportunity to the Company or
(ii) such member of the Nationwide Insurance Enterprise pursues or acquires
such corporate opportunity for itself or directs such corporate opportunity to
another person or does not communicate information regarding such corporate
opportunity to the Company. The enforceability of the provisions discussed
above under the DGCL has not been established and counsel to the Company has
not delivered an opinion as to the enforceability of such provisions. These
provisions of the Certificate may eliminate certain rights that might have
been available to stockholders under the DGCL had such provisions not been
included in the Certificate.

The foregoing provisions of the Certificate shall expire on the date that
the members of the Nationwide Insurance Enterprise cease to beneficially own
(directly or indirectly) in the aggregate Common Stock representing at least
50% of the voting power of the outstanding shares of Common Stock.

LISTINGS

The Class A Common Stock has been approved for listing on the NYSE under the
symbol "NFS", subject to official notice of issuance.

TRANSFER AGENT AND REGISTRAR

First Chicago Trust Company of New York will serve as transfer agent and
registrar for the Class A Common Stock.

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THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING

In connection with the Capital Securities Offering, the Company expects to
consummate the public offering of 16,432,000 shares of Class A Common Stock in
the United States and Canada and 4,108,000 shares of Class A Common Stock
outside the United States and Canada and the public offering of $300 million
aggregate principal amount of Notes. See "Capitalization."

The consummation of the Capital Securities Offering is not conditioned on
the completion of the Note Offering. There can be no assurance that the Note
Offering will be consummated.

The Equity Offerings and the Note Offering are being made pursuant to
separate prospectuses.

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated March 6, 1997 (the "Underwriting Agreement"), the
underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch,
Pierce, Fenner & Smith Incorporated are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Trust the following respective liquidation amounts of Capital Securities:

<TABLE>
<CAPTION>
Liquidation
Amount of
Capital
Underwriter Securities
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation......................... $ 33,400,000
Morgan Stanley & Co. Incorporated.............................. 33,300,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............. 33,300,000
------------
Total........................................................ $100,000,000
============
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Capital Securities, if any are purchased. The
Underwriting Agreement provides that, in the event of a default by an
Underwriter, in certain circumstances the purchase commitments of non-
defaulting Underwriters may be increased or the Underwriting Agreement may be
terminated.

The Company has been advised by the Representatives that the Underwriters
propose to offer the Capital Securities to the public initially at the public
offering price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of 0.60%
of the principal amount per Note, and the Underwriters and such dealers may
allow a discount of 0.25% of such principal amount per Note on sales to
certain other dealers. After the initial public offering, the public offering
price and concession and discount to dealers may be changed by the
Representatives.

In view of the fact that the proceeds of the sale of the Capital Securities
will be used to purchase the Junior Subordinated Debentures, the Underwriting
Agreement provides that the Company will agree to pay as compensation
("Underwriters' Compensation") to the Underwriters arranging the investment
therein of such proceeds an amount in same day funds of $10 per Capital
Security (or $1,000,000 in the aggregate).

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Each of the Trust and the Company has agreed that, without the prior written
consent of Credit Suisse First Boston Corporation, it will not offer, sell,
contract to sell or otherwise dispose of, directly or indirectly, or file with
the Commission a registration statement under the Securities Act relating to
any additional units of Capital Securities, or securities convertible into or
exchangeable or exercisable for Capital Securities or the Junior Subordinated
Debentures or any debt securities substantially similar to the Junior
Subordinated Debentures or any equity securities substantially similar to the
Capital Securities (except for the Junior Subordinated Debentures and the
Capital Securities offered hereby), for a period of 90 days after the date of
this Prospectus.

The Capital Securities have been approved for listing on the NYSE, subject
to official notice of issuance.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in
respect thereof.

From time to time, Credit Suisse First Boston Corporation has provided
investment banking services to the Company, Nationwide Life and other members
of the Nationwide Insurance Enterprise, for which it has received customary
compensation. It is expected that Credit Suisse First Boston Corporation will
continue to provide such services in the future. The Representatives also are
acting as representatives of the underwriters of the Equity Offerings and the
Note Offering.

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NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the Capital Securities in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of the Capital Securities are effected. Accordingly, any
resale of Capital Securities in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of Capital Securities.

REPRESENTATIONS OF PURCHASERS

Each purchaser of the Capital Securities in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Capital
Securities without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, that such purchaser is purchasing as
principal and not as agent, and (iii) such purchaser has reviewed the text
above under "Resale Restrictions."

RIGHTS OF ACTION AND ENFORCEMENT

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.

NOTICE TO BRITISH COLUMBIA RESIDENTS

A purchaser of the Capital Securities to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file within
the British Columbia Securities Commission a report within ten days of the
sale of any Capital Securities acquired by such purchaser pursuant to this
offering. Such report must be in the form attached to British Columbia
Securities Commission Blanket Order BOR #95/17, a copy of which may be
obtained from the Company. Only one such report must be filed in respect of
Capital Securities acquired on the same date and under the same prospectus
exemption.

LEGAL MATTERS

Certain matters of Delaware law relating to the validity of the Capital
Securities will be passed upon on behalf of the Trust by Richards, Layton &
Finger, P.A., Wilmington, Delaware, special Delaware counsel to the Trust. The
validity of the Junior Subordinated Debentures, the Guarantee and certain
matters relating thereto, will be passed upon on behalf of the Company and the
Trust by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability
partnership including professional corporations, New York, New York. LeBoeuf,
Lamb, Greene & MacRae, L.L.P. will also pass upon certain United States
federal income tax matters on behalf of the Company and the Trust. Certain
legal matters will be passed upon for the Underwriters by Dewey Ballantine,
New York, New York.

135
<PAGE>

EXPERTS

The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries as of December 31, 1996 and 1995, and for
each of the years in the three-year period ended December 31, 1996 included
herein and elsewhere in this Registration Statement have been included herein
and elsewhere in this Registration Statement in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.

136
<PAGE>

GLOSSARY OF SELECTED INSURANCE TERMS

ANNUITY.......................... A contract that provides for a fixed or
variable periodic payment made from a
stated or contingent date and continued for
a specific period, such as for a number of
years (certain period) or for life (life
contingent), either immediately or after a
stated accumulation period.

ASSET VALUATION RESERVE; AVR..... The asset valuation reserve adopted by the
NAIC in 1991. AVR appears as a liability on
a life insurer's statutory financial
statements. AVR establishes statutory
reserves for debt securities, common
stocks, preferred stocks, mortgage loans,
equity real estate, joint ventures and
other invested assets. AVR generally
captures all realized and unrealized gains
and losses on such assets, other than those
resulting from changes in interest rates.
AVR has no effect on financial statements
prepared in conformity with GAAP.

CASH VALUE....................... The amount of cash that may be realized by
the owner of a life insurance policy or
annuity contract with a life insurance
company upon lapse or surrender of the
policy or contract prior to its maturity.

CEDE, CEDING COMPANY............. When a company reinsures all or a portion
of its risk with another, it "cedes"
business and is referred to as the "ceding
company."

COINSURANCE...................... A form of indemnity reinsurance under which
the reserves and supporting assets as well
as the risk are transferred to the
reinsurer.

CREDITING RATES.................. Interest rates applied to life insurance
policies and annuity contracts, whether
contractually guaranteed or currently
declared for a specified period.

DEFERRED ANNUITY................. An annuity that (i) can be paid either with
a single premium or a series of
installments and (ii) includes a schedule
of periodic income benefit to commence
after an accumulation period.

DEFERRED POLICY ACQUISITION Commissions and other selling expenses that
COSTS............................ vary with and are directly related to the
production of business. These acquisition
costs are deferred and amortized in
conformity with GAAP.

FIXED OPTION UNDER THE COMPANY'S
VARIABLE ANNUITY CONTRACTS.......
Includes an investment option under the
Company's individual variable annuity
contracts which provides the contractholder
a return at a specified interest rate,
fixed for a prescribed period. Also
included are the Company's fixed group
annuity contracts offered as companion
contracts with variable group annuity
contracts. A fixed group annuity contract
which is

137
<PAGE>

companioned with a variable group annuity
contract would operate in a manner which is
indistinguishable from the fixed option of
a variable annuity. For example,
companioned fixed group annuity contracts
have the same surrender charge schedules
and deposit commission scales as the
variable contract with which they are
companioned. In addition, monies can be
moved between the fixed group annuity
contract and the variable contract, subject
to certain limitations, without incurring a
surrender charge.

GENERAL ACCOUNT.................. All an insurer's assets other than those
allocated to a separate account. The
insurer bears the investment risk on the
invested assets of the general account.

GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES; GAAP................. United States generally accepted accounting
principles as defined by the American
Institute of Certified Public Accountants
and the Financial Accounting Standards
Board.

IMMEDIATE ANNUITY................ An annuity that begins payment immediately
after issuance.

IN FORCE......................... The total face amount of insurance coverage
under contracts that have not expired.

INSURANCE GUARANTY Associations created in all states, the
ASSOCIATIONS..................... District of Columbia and Puerto Rico by
law, to cover funding shortfalls in paying
claims of insolvent life insurance
companies. These associations obtain funds
by post-insolvency assessments of life
insurance companies operating in a
particular state in proportion to their
business written in that state.

INSURANCE PREMIUM................ The amount paid by a policyholder under the
terms of the contract. The insurance
company assumes the risks of the insured
(length of life, state of health or
liability exposure) in exchange for a
premium payment. Premiums are calculated by
combining expectation of loss and expense
and profit loadings.

MODIFIED COINSURANCE............. Indemnity reinsurance that differs from
coinsurance only in that the reserves and
related assets are held by the ceding
company while the risk remains with the
reinsurer. The ceding company pays interest
to the reinsurer to replace what would have
been earned by the reinsurer if it had held
the assets.

MORBIDITY RATE................... The relative incidence of sickness or
disability due to disease or physical
impairment.

MORTALITY RATE...................
The relative incidence of death of life
insureds or annuitants.

NAIC.............................
The National Association of Insurance
Commissioners, an association of the chief
insurance supervisory officials of each
state, territory and possession of the
United States.

138
<PAGE>

PERSISTENCY......................
Percentage of life insurance policies or
annuity contracts remaining in force until
completion of the term for which the policy
or contract was written.

POLICY ACQUISITION COSTS......... Agents' and brokers' commissions, premiums,
taxes, marketing, underwriting and other
direct expenses related to the production
of business. Such costs that vary with and
are primarily related to the production of
business are deferred and amortized to
achieve a matching of revenues and expenses
when reported in financial statements
prepared in conformity with GAAP.

POLICY RESERVES; RESERVES........ Liabilities established by insurers to
reflect the present value of claims
payments and the related expenses that the
insurer will ultimately be required to pay
in respect of insurance it has written.

REINSURANCE...................... The practice whereby one party, called the
reinsurer or assuming company, in
consideration of a premium paid to such
party, agrees to indemnify another party,
called the ceding company. Reinsurance
provides a primary insurer with three major
benefits: it reduces net liability on
individual risks; it helps to protect
against catastrophic losses; and it helps
to maintain acceptable surplus and reserve
ratios. Reinsurance provides a primary
insurer with additional underwriting
capacity in that the primary insurer can
accept larger risks and can expand the
volume of business it writes without
increasing its capital base. Reinsurance
may be on an assumption or indemnity basis.
Assumption reinsurance is the permanent
transfer of insurance liabilities from the
ceding to the assuming company. Under
indemnity reinsurance, the ceding company
cedes some or all risks but retains its
liability to and its contractual
relationship with the insured. The two
forms of indemnity reinsurance are
proportional, where the amount ceded is
defined at the time the contract is entered
into, and stop loss, where the reinsurer is
responsible for losses in excess of a
predetermined dollar amount.

RISK-BASED CAPITAL Regulatory and rating agency targeted
REQUIREMENTS..................... surplus based on the relationship of
statutory capital and surplus, with certain
adjustments, to the sum of stated
percentages of each element of a specified
list of Company risk exposures.

SEPARATE ACCOUNTS................ Investment accounts maintained by an
insurer to which funds have been allocated
for certain policies under provisions of
relevant state insurance law. The
investments in each separate account are
maintained separately from those in other
separate accounts and the general account.
The investment results of the separate
account assets are passed through directly
to the separate account policyholders, so
that an insurer derives management and
other fees from, but bears no investment
risk on, these assets, except the risk on a
small number of products that returns on
separate account assets will not meet the
relatively low minimum rate guaranteed on
these products.

139
<PAGE>

SINGLE PREMIUM DEFERRED
ANNUITIES; SPDA'S................ Annuities that require a one-time lump sum
payment of consideration upon the issuance
of the contract with benefit payments
commencing at some future date following an
accumulation period.

STATUTORY ACCOUNTING PRACTICES... Those accounting practices prescribed or
permitted by an insurer's domiciliary state
insurance regulator for purposes of
financial reporting to regulators.

SURRENDERS AND WITHDRAWALS....... Surrenders of life insurance policies and
annuity contracts for their entire net cash
surrender values and withdrawals of a
portion of such values.

TERM LIFE INSURANCE..............
Life insurance offering protection during a
certain number of years, but expiring
without policy cash value if the insured
survives the stated period. Most term
policies provide for guaranteed
continuation of coverage for life at
increased premium rates.

UNIVERSAL LIFE INSURANCE......... Life insurance under which (i) premiums are
generally flexible, (ii) the level of death
benefits may be adjusted and (iii)
mortality, expense and other charges may
vary. This policy is sometimes referred to
as unbundled life insurance because its
three basic elements (investment earnings,
cost of protection and expense charges) are
separately identified both in the policy
and in an annual report to the
policyholder.

VARIABLE ANNUITY.................
An annuity in which values and benefits may
vary. The value of a unit fluctuates in
accordance with the investment experience
of a separate account; variable annuity
contracts typically include a general
account guaranteed interest investment
option. At the time of the payment of
benefits to the annuitant, the annuitant
can generally elect from a number of
payment options which provide either fixed
or variable benefit payments.

VARIABLE LIFE INSURANCE.......... Life insurance under which the benefits
payable upon death or surrender typically
varies to reflect the investment experience
of the separate account supporting such
policies; variable life insurance policies
typically include a general account
guaranteed interest investment option.

WHOLE LIFE INSURANCE.............
Insurance which is guaranteed for the life
of the insured.

140
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-3
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994........................................................... F-4
Consolidated Statements of Shareholder's Equity for the Years Ended
December 31, 1996, 1995 and 1994........................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Nationwide Financial Services, Inc.:

We have audited the accompanying consolidated balance sheets of Nationwide
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholder's equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements 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
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

As discussed in note 1 to the consolidated financial statements, the Company
was formed in November 1996 as a holding company for Nationwide Life Insurance
Company and the other companies within the Nationwide Insurance Enterprise
that offer or distribute long-term savings and retirement products. The
consolidated financial statements are presented as if these companies were
consolidated for all periods presented.

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

KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997

F-2
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
($000'S OMITTED)

<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Investments (notes 6, 9 and 10):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996;
$11,872,870 in 1995)................................ $12,304,639 12,495,878
Equity securities (cost $43,890 in 1996; $31,234 in
1995)............................................... 59,131 37,570
Fixed maturity securities held-to-maturity, at
amortized cost (fair value $5,944 in 1996; $5,989 in
1995)................................................. 5,877 5,720
Mortgage loans on real estate, net..................... 5,272,119 4,627,387
Real estate, net....................................... 265,759 229,442
Policy loans........................................... 371,816 336,356
Other long-term investments............................ 28,668 61,989
Short-term investments (note 14)....................... 9,261 42,671
----------- ----------
18,317,270 17,837,013
----------- ----------
Cash..................................................... 43,183 10,055
Accrued investment income................................ 210,182 212,963
Deferred policy acquisition costs........................ 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued
operations (notes 1 and 3).............................. 485,707 506,677
Other assets (note 7).................................... 420,685 327,916
Assets held in Separate Accounts (note 9)................ 26,926,702 18,591,108
----------- ----------
$47,770,238 38,506,088
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims (notes 7 and 9)........ $17,179,060 16,358,614
Policyholders' dividend accumulations.................... 361,401 348,027
Other policyholder funds................................. 60,073 65,297
Accrued federal income tax (note 8):
Current................................................ 29,201 36,980
Deferred............................................... 158,896 237,247
----------- ----------
188,097 274,227
----------- ----------
Dividend payable to shareholder (notes 1 and 3).......... 485,707 --
Other liabilities........................................ 437,465 252,085
Liabilities related to Separate Accounts (note 9)........ 26,926,702 18,591,108
----------- ----------
45,638,505 35,889,358
----------- ----------
Commitments and contingencies (notes 10 and 16)
Shareholder's equity (notes 2, 4, 5, 6, 13 and 14):
Class A common shares, $.01 par value. Authorized
750,000,000 shares, no shares issued and outstanding.. -- --
Class B common shares, $.01 par value. Authorized
750,000,000 shares, 104,745,000 shares issued and
outstanding........................................... 1,047 1,047
Additional paid-in capital............................. 551,422 680,690
Retained earnings...................................... 1,405,672 1,550,689
Unrealized gains on securities available-for-sale,
net................................................... 173,592 384,304
----------- ----------
2,131,733 2,616,730
----------- ----------
$47,770,238 38,506,088
=========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED, EXCEPT PER COMMON SHARE INFORMATION)

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 17):
Investment product and universal life
insurance product policy charges........ $ 400,902 286,534 217,245
Traditional life insurance premiums...... 198,642 199,106 176,658
Net investment income (note 6)........... 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 6).. (208) (1,724) (16,527)
Other income............................. 59,505 59,089 45,897
---------- ---------- ----------
2,016,600 1,837,038 1,634,084
---------- ---------- ----------
Benefits and expenses:
Benefits and claims...................... 1,160,580 1,115,493 992,667
Provision for policyholders' dividends
on participating policies (note 13)..... 40,973 39,937 38,754
Amortization of deferred policy
acquisition costs....................... 133,394 82,695 85,568
Other operating expenses (note 14)....... 353,565 317,743 276,632
---------- ---------- ----------
1,688,512 1,555,868 1,393,621
---------- ---------- ----------
Income from continuing operations
before federal income tax expense..... 328,088 281,170 240,463
---------- ---------- ----------
Federal income tax expense (benefit) (note
8):
Current.................................. 116,021 89,400 77,009
Deferred................................. (211) 6,914 5,507
---------- ---------- ----------
115,810 96,314 82,516
---------- ---------- ----------
Income from continuing operations...... 212,278 184,856 157,947
Income from discontinued operations (less
federal income tax expense of $4,453,
$7,446 and $10,915 in 1996, 1995 and 1994,
respectively) (note 3).................... 11,324 24,714 20,459
---------- ---------- ----------
Net income............................. $ 223,602 209,570 178,406
========== ========== ==========
Pro forma results per common share (note
4):
Income from continuing operations........ $ 1.69
Net income............................... $ 1.78
Pro forma weighted average number of common
shares
outstanding for calculation using income
from continuing operations (in thousands)
(note 4).................................. 125,285
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)

<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
CLASS A CLASS B ADDITIONAL ON SECURITIES TOTAL
COMMON COMMON PAID-IN RETAINED AVAILABLE-FOR- SHAREHOLDER'S
SHARES SHARES CAPITAL EARNINGS SALE, NET EQUITY
------- ------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Balance, beginning of
year................. $-- 1,047 429,661 1,172,163 6,745 1,609,616
Capital contribution.. -- -- 200,000 -- -- 200,000
Dividends to
shareholder.......... -- -- -- (1,000) -- (1,000)
Net income............ -- -- -- 178,406 -- 178,406
Adjustment for change
in accounting for
certain investments
in debt and equity
securities, net (note
5)................... -- -- -- -- 212,553 212,553
Unrealized losses on
securities available-
for-sale, net........ -- -- -- -- (338,971) (338,971)
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 629,661 1,349,569 (119,673) 1,860,604
==== ===== ======== ========= ======== =========
1995:
Balance, beginning of
year................. -- 1,047 629,661 1,349,569 (119,673) 1,860,604
Capital contribution.. -- -- 51,029 -- (4,111) 46,918
Dividends to
shareholder.......... -- -- -- (8,450) -- (8,450)
Net income............ -- -- -- 209,570 -- 209,570
Unrealized gains on
securities available-
for-sale, net........ -- -- -- -- 508,088 508,088
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 680,690 1,550,689 384,304 2,616,730
==== ===== ======== ========= ======== =========
1996:
Balance, beginning of
year................. -- 1,047 680,690 1,550,689 384,304 2,616,730
Issuance of common
shares............... -- -- 1 -- -- 1
Dividends to
shareholder (notes 1
and 3)............... -- -- (129,269) (368,619) (39,819) (537,707)
Net income............ -- -- -- 223,602 -- 223,602
Unrealized losses on
securities available-
for-sale, net........ -- -- -- -- (170,893) (170,893)
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 551,422 1,405,672 173,592 2,131,733
==== ===== ======== ========= ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 223,602 209,570 178,406
Adjustments to reconcile net income to
net cash provided by operating
activities:
Capitalization of deferred policy
acquisition costs.................. (422,572) (321,327) (242,431)
Amortization of deferred policy
acquisition costs.................. 133,394 82,695 85,568
Amortization and depreciation....... 7,307 13,189 5,383
Realized (gains) losses on invested
assets, net........................ (633) 3,250 16,094
Deferred federal income tax
(benefit) expense.................. (173) 5,305 6,190
Decrease (increase) in accrued
investment income.................. 2,781 (16,889) (12,918)
(Increase) decrease in other
assets............................. (93,575) 25,844 (72,268)
Increase in policy liabilities...... 305,755 135,937 118,361
Increase in policyholders' dividend
accumulations...................... 13,374 12,639 15,298
(Decrease) increase in accrued
federal income tax payable......... (7,779) 32,579 (3,927)
Increase in other liabilities....... 185,380 31,966 6,856
Other, net.......................... (5,281) (21,970) (22,760)
----------- ----------- -----------
Net cash provided by operating ac-
tivities......................... 341,580 192,788 77,852
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities
available-for-sale................... 1,162,766 634,553 544,843
Proceeds from sale of securities
available-for-sale................... 299,558 150,453 268,987
Proceeds from maturity of fixed
maturity securities
held-to-maturity..................... -- 564,450 491,862
Proceeds from repayments of mortgage
loans on real estate................. 309,050 207,832 190,574
Proceeds from sale of real estate..... 18,519 48,331 46,713
Proceeds from repayments of policy
loans and sale of other invested
assets............................... 22,795 53,587 120,506
Cost of securities available-for-sale
acquired............................. (1,573,640) (1,998,165) (1,858,036)
Cost of fixed maturity securities
held-to-maturity acquired............ -- (599,356) (410,379)
Cost of mortgage loans on real estate
acquired............................. (972,776) (796,026) (497,349)
Cost of real estate acquired.......... (7,862) (10,928) (6,385)
Policy loans issued and other invested
assets acquired...................... (57,740) (75,910) (65,302)
Short-term investments, net........... 33,410 91,659 (98,541)
Purchase of affiliate (note 14)....... -- -- (155,000)
----------- ----------- -----------
Net cash used in investing activi-
ties............................. (765,920) (1,729,520) (1,427,507)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
shares............................... 1 -- --
Proceeds from capital contributions... -- -- 200,000
Dividends paid to shareholder......... (52,000) (8,450) (1,000)
Increase in investment product and
universal life insurance product
account balances..................... 2,293,933 2,809,385 3,547,976
Decrease in investment product and
universal life insurance product
account balances..................... (1,784,466) (1,258,758) (2,412,595)
----------- ----------- -----------
Net cash provided by financing ac-
tivities......................... 457,468 1,542,177 1,334,381
----------- ----------- -----------
Net increase (decrease) in cash......... 33,128 5,445 (15,274)
Cash, beginning of year................. 10,055 4,610 19,884
----------- ----------- -----------
Cash, end of year....................... $ 43,183 10,055 4,610
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.

F-6
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)

(1) ORGANIZATION AND DESCRIPTION OF BUSINESS

Nationwide Financial Services, Inc. (NFS) was formed in November 1996 as a
holding company for Nationwide Life Insurance Company (NLIC) and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. NFS is a wholly owned subsidiary of
Nationwide Corporation (Nationwide Corp.). The consolidated financial
statements represent the results of NLIC and subsidiaries and three marketing
and distribution companies as if they were consolidated with NFS for all
periods presented. This presentation is based on Nationwide Corp.'s
contribution of the common stock of those entities to NFS on January 27, 1997
in anticipation of the initial public offering of common stock of NFS
described more fully in note 2. NFS and the other companies whose results are
included in the consolidated financial statements are collectively referred to
as "the Company."

In anticipation of the restructuring described above, on September 24, 1996,
NLIC's Board of Directors declared a dividend payable to Nationwide Corp.
consisting of the outstanding shares of common stock of certain subsidiaries
that do not offer or distribute long-term savings and retirement products. In
addition, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was ceded
to two affiliates effective January 1, 1996. These subsidiaries and all
accident and health and group life insurance business have been accounted for
as discontinued operations for all periods presented. See notes 3 and 14.

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

The three marketing and distribution companies contributed by Nationwide
Corp. to NFS in January, 1997 are: Public Employees Benefit Services
Corporation (PEBSCO), NEA Valuebuilder Investor Services, Inc. (NEAVIS) and
Nationwide Financial Institution Distributors Agency, Inc. (NFIDA).

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

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

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

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

F-7
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

(2) INITIAL PUBLIC OFFERING

The Company is currently planning an initial public offering of its Class A
common stock (the Equity Offering) during the first quarter of 1997. After the
Equity Offering, Nationwide Corp. will continue to own all of the shares of
Class B common stock, which will represent approximately 98% of the voting
stock of the Company. Subsequent to December 31, 1996, the Company's Board of
Directors approved a 104,745 for one split of the Company's Class B common
stock, which will become effective February 10, 1997. Share information for
all periods presented has been restated to reflect the split.

In connection with the Equity Offering, the Company expects to consummate
the public offering of $300,000 of senior notes due 2027. In addition,
Nationwide Financial Services Capital Trust, an affiliate of the Company,
expects to consummate the public offering of $100,000 of capital securities.

See note 13 for information on voting and conversion rights of Class A and
Class B common stock.

(3) DISCONTINUED OPERATIONS

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

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

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

<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ 668,870 422,149 84,226
Net income.................................. 11,324 26,456 11,753
Assets, consisting primarily of
investments................................ 3,029,293 2,967,326 2,537,692
Liabilities, consisting primarily of policy
benefits and claims........................ 2,543,586 2,460,649 2,179,263
</TABLE>

During 1996, NLIC entered into two reinsurance agreements whereby all of
NLIC's accident and health and group life insurance business was ceded to
ELICW and NMIC, effective January 1, 1996. See note 14 for a complete
discussion of the reinsurance agreements. The Company plans to discontinue its
accident and health

F-8
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

and group life business and in connection therewith intends to cede all
existing and any future writings to other companies and to cease writing any
new business effective prior to December 31, 1997. NLIC's accident and health
and group life insurance business is accounted for as discontinued operations
for all periods presented. 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, net of amounts ceded to ELICW and
NMIC in 1996, and assets and liabilities of NLIC's accident and health and
group life insurance business as of and for the years ended December 31, 1996,
1995 and 1994 is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues......................................... $ -- 354,788 362,476
Net income (loss)................................ -- (1,742) 8,706
Assets, consisting primarily of investments...... 259,185 239,426 234,082
Liabilities, consisting primarily of policy
benefits and claims............................. 259,185 239,426 234,082
</TABLE>

(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

(a) Consolidation Policy

The consolidated financial statements include the accounts of NFS 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

F-9
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 trading as of December 31, 1996 or 1995.

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.

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

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

Accident and Health Insurance Products: Accident and health insurance
premiums are recognized as revenue over the terms of the policies. Policy
claims are charged to expense in the period that claims are incurred. All
accident and health insurance business is accounted for as discontinued
operations. See note 3.

(d) Deferred Policy Acquisition Costs

The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain variable
agency expenses have been deferred. For investment products and universal life
insurance products, deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present value of
estimated future gross profits from projected interest margins,

F-10
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

asset fees, cost of insurance, policy administration and surrender charges.
For years in which gross profits are negative, deferred policy acquisition
costs are amortized based on the present value of gross revenues. For
traditional life insurance products, these deferred policy acquisition costs
are predominantly being amortized with interest over the premium paying period
of the related policies in proportion to the ratio of actual annual premium
revenue to the anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for computing
liabilities for future policy benefits. Deferred policy acquisition costs are
adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 4(b).

(e) Separate Accounts

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

(f) Future Policy Benefits

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

Future policy benefits for traditional life insurance policies have been
calculated using a net level premium method based on estimates of mortality,
morbidity, investment yields and withdrawals which were used or which were
being experienced at the time the policies were issued, rather than the
assumptions prescribed by state regulatory authorities. See note 7.

Future policy benefits and claims for collectively renewable long-term
disability policies and group long-term disability policies are the present
value of amounts not yet due on reported claims and an estimate of amounts to
be paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance business is
accounted for as discontinued operations. See note 3.

(g) Participating Business

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

(h) Federal Income Tax

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

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

F-11
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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
3 and 14.

(j) Earnings per Common Share

Pro forma earnings per common share information is based on the weighted
average actual number of Class B common shares outstanding during the periods
presented, adjusted for the stock split described in note 2, plus the number
of Class A common shares expected to be issued for the Equity Offering.

(5) CHANGE IN ACCOUNTING PRINCIPLE

Effective January 1, 1994, the Company changed its method of accounting for
certain investments in debt and equity securities in connection with the
issuance of Statement of Financial Accounting Standards (SFAS) No. 115--
Accounting for Certain Investments in Debt and Equity Securities. As of
January 1, 1994, the Company classified fixed maturity securities with
amortized cost and fair value of $6,299,665 and $6,721,714, respectively, as
available-for-sale and recorded the securities at fair value. Previously,
these securities were

F-12
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

recorded at amortized cost. The effect as of January 1, 1994 has been recorded
as a direct credit to shareholder's equity as follows:

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

(6) INVESTMENTS

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

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

The amortized cost and estimated fair value of the U.S. Treasury security
classified as held-to-maturity as of December 31, 1996 were $5,877 and $5,944,
respectively. Gross gains of $67 were unrealized on the security. The security
had a contractual maturity date of March 31, 1998.

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

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies...... $ 320,500 12,764 (1) 333,263
Obligations of states and
political subdivisions......... 8,655 1,205 (1) 9,859
Debt securities issued by
foreign governments............ 101,414 4,387 (66) 105,735
Corporate securities............ 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities...... 3,553,861 165,169 (8,388) 3,710,642
----------- ------- ------- ----------
Total fixed maturity
securities................... 11,872,870 657,206 (34,198) 12,495,878
Equity securities................. 31,234 6,382 (46) 37,570
----------- ------- ------- ----------
$11,904,104 663,588 (34,244) 12,533,448
=========== ======= ======= ==========
</TABLE>

F-13
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The amortized cost and estimated fair value of the U.S. Treasury security
classified as held-to-maturity as of December 31, 1995 were $5,720 and $5,989,
respectively. Gross gains of $269 were unrealized on the security.

The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- ----------
<S> <C> <C>
Fixed maturity securities available-for-sale
Due in one year or less................................ $ 440,235 444,214
Due after one year through five years.................. 3,937,010 4,053,152
Due after five years through ten years................. 2,809,813 2,871,806
Due after ten years.................................... 1,194,846 1,270,179
----------- ----------
8,381,904 8,639,351
Mortgage-backed securities............................... 3,588,974 3,665,288
----------- ----------
$11,970,878 12,304,639
=========== ==========
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Gross unrealized gains................................... $349,002 629,344
Adjustment to deferred policy acquisition costs.......... (81,939) (138,914)
Deferred federal income tax.............................. (93,471) (171,649)
-------- --------
173,592 318,781
Unrealized gains on securities available-for-sale, net,
of subsidiaries classified as discontinued operations
(note 3)................................................ -- 65,523
-------- --------
$173,592 384,304
======== ========
</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>
1996 1995 1994
--------- ------- ----------
<S> <C> <C> <C>
Securities available-for-
sale:
Fixed maturity
securities............. $(289,247) 876,332 (675,373)
Equity securities....... 8,905 (26) (1,927)
Fixed maturity securities
held-to-maturity......... (202) 75,895 (398,183)
--------- ------- ----------
$(280,544) 952,201 (1,075,483)
========= ======= ==========
</TABLE>

Proceeds from the sale of securities available-for-sale during 1996, 1995
and 1994 were $299,558, $150,453 and $268,987, respectively. During 1996,
gross gains of $6,368 ($4,838 and $3,045 in 1995 and 1994, respectively) and
gross losses of $13,659 ($2,147 and $21,280 in 1995 and 1994, respectively)
were realized on those sales.

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

F-14
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 $3,320,093,
resulting in a gross unrealized gain of $155,940.

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

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

The recorded investment of mortgage loans on real estate considered to be
impaired (under SFAS No. 114--Accounting by Creditors for Impairment of a Loan
as amended by SFAS No. 118--Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosure) as of December 31, 1996 was $51,765
($44,409 as of December 31, 1995), which includes $41,663 ($23,975 as of
December 31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $8,485 ($5,276 as of December 31, 1995) and
$10,102 ($20,434 as of December 31, 1995) of impaired mortgage loans on real
estate for which there was no valuation allowance. During 1996, the average
recorded investment in impaired mortgage loans on real estate was
approximately $39,674 ($22,181 in 1995) and interest income recognized on
those loans was $2,103 ($387 in 1995), which is equal to interest income
recognized using a cash-basis method of income recognition.

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

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Allowance, beginning of year............................. $49,128 $46,381
Additions charged to operations........................ 4,497 7,433
Direct write-downs charged against the allowance....... (2,587) (4,686)
------- -------
Allowance, end of year................................... $51,038 $49,128
======= =======
</TABLE>

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

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

F-15
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities....................... $ (3,462) 4,213 (7,296)
Equity securities............................... 3,143 3,386 1,422
Mortgage loans on real estate..................... (4,115) (7,091) (20,446)
Real estate and other............................. 4,226 (2,232) 9,793
-------- ------ -------
$ (208) (1,724) (16,527)
======== ====== =======
</TABLE>

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

(7) FUTURE POLICY BENEFITS AND CLAIMS

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

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

Interest rates: Interest rates vary as follows:

<TABLE>
<CAPTION>
YEAR OF ISSUE INTEREST RATES
------------- --------------
<S> <C>
1996................. 6.6%, not graded
1984-1995............ 6.0% to 10.5%, not graded
1966-1983............ 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior....... generally lower than post 1965 issues
</TABLE>

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

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

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

The Company has reinsurance agreements with certain affiliates as described
in note 14. All other reinsurance agreements are not material to either
premiums or reinsurance recoverables.

F-16
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) FEDERAL INCOME TAX

The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996 and 1995
are as follows:

<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Future policy benefits.................................. $175,571 149,192
Liabilities in Separate Accounts........................ 188,426 129,120
Mortgage loans on real estate and real estate........... 23,366 25,165
Other policyholder funds................................ 7,407 7,424
Other assets and other liabilities...................... 57,849 52,003
-------- -------
Total gross deferred tax assets....................... 452,619 362,904
Less valuation allowance.............................. (7,776) (7,776)
-------- -------
Net deferred tax assets............................... 444,843 355,128
-------- -------
Deferred tax liabilities:
Deferred policy acquisition costs....................... 399,345 299,579
Fixed maturity securities............................... 133,210 227,345
Deferred tax on realized investment gains............... 37,597 40,634
Equity securities and other long-term investments....... 8,210 3,780
Other................................................... 25,377 21,037
-------- -------
Total gross deferred tax liabilities.................. 603,739 592,375
-------- -------
$158,896 237,247
======== =======
</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 year ended December 31, 1996 (decrease of $756
during 1995 and no change during 1994).

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

<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax ex-
pense.......................... $114,831 35.0 $98,410 35.0 $84,162 35.0
Tax exempt interest and divi-
dends received deduction....... (212) (0.1) (18) 0.0 (130) (0.1)
Other, net...................... 1,191 0.4 (2,078) (0.7) (1,516) (0.6)
-------- ---- ------- ---- ------- ----
Total (effective rate of each
year)........................ $115,810 35.3 $96,314 34.3 $82,516 34.3
======== ==== ======= ==== ======= ====
</TABLE>

Total federal income tax paid was $117,327, $58,112 and $84,903 during the
years ended December 31, 1996, 1995 and 1994, respectively.

(9) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107--Disclosures about Fair Value of Financial Instruments (SFAS
107) requires disclosure of fair value information about existing on and off-
balance sheet financial instruments. SFAS 107 defines the fair

F-17
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

value of a financial instrument as the amount at which the financial
instrument could be exchanged in a current transaction between willing
parties. In cases where quoted market prices are not available, fair value is
based on estimates using present value or other valuation techniques.

These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although fair
value estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in the immediate settlement of the instruments. SFAS 107
excludes certain assets and liabilities from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.

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

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

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

Cash, short-term investments and policy loans: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.

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

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

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

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

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

Policyholders' dividend accumulations and other policyholder funds: The
carrying amount reported in the consolidated balance sheets for these
instruments approximates their fair value.

F-18
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

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

<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Investments:
Securities available-for-sale:
Fixed maturity securities...... $12,304,639 12,304,639 12,495,878 12,495,878
Equity securities.............. 59,131 59,131 37,570 37,570
Fixed maturity securities held-
to-maturity.................... 5,877 5,944 5,720 5,989
Mortgage loans on real estate,
net............................ 5,272,119 5,397,865 4,627,387 4,987,569
Policy loans.................... 371,816 371,816 336,356 336,356
Short-term investments.......... 9,261 9,261 42,671 42,671
Cash............................. 43,183 43,183 10,055 10,055
Assets held in Separate
Accounts........................ 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
Investment contracts............. 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance
contracts....................... 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend
accumulations................... 361,401 361,401 348,027 348,027
Other policyholder funds......... 60,073 60,073 65,297 65,297
Liabilities related to Separate
Accounts........................ 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>

(10) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES

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

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

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

The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 7.

F-19
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

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

<TABLE>
<CAPTION>
APARTMENT
OFFICE WAREHOUSE RETAIL & OTHER TOTAL
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1995:
East North Central......... $138,965 101,925 514,995 175,213 931,098
East South Central......... 28,642 15,266 180,858 82,383 307,149
Mountain................... -- 17,219 141,537 45,274 204,030
Middle Atlantic............ 116,187 64,813 158,252 10,793 350,045
New England................ 9,559 39,525 148,449 1 197,534
Pacific.................... 183,206 241,857 378,024 105,419 908,506
South Atlantic............. 106,246 73,541 446,800 278,265 904,852
West North Central......... 133,899 14,205 78,065 36,651 262,820
West South Central......... 69,140 92,594 190,299 267,268 619,301
-------- ------- --------- --------- ----------
$785,844 660,945 2,237,279 1,001,267 4,685,335
======== ======= ========= =========
Less valuation allowances
and unamortized discount.. 57,948
----------
Total mortgage loans on
real estate, net........ $4,627,387
==========
</TABLE>

(11) PENSION PLAN

The Company is a participant, together with other affiliated companies, in a
pension plan covering all employees who have completed at least one thousand
hours of service within a twelve-month period and who have met certain age
requirements. Benefits are based upon the highest average annual salary of a
specified number of consecutive years of the last ten years of service. The
Company funds pension costs accrued for direct employees plus an allocation of
pension costs accrued for employees of affiliates whose work efforts benefit
the Company.

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

F-20
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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. Immediately
prior to the merger, the plans were amended to provide consistent benefits for
service after January 1, 1996. These amendments had no significant impact on
the accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.

Pension costs charged to operations by the Company during the years ended
December 31, 1996, 1995 and 1994 were $8,167, $11,383 and $11,113,
respectively.

The Company's net accrued pension expense as of December 31, 1996 and 1995
was $1,236 and $1,553, respectively.

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

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)..................................... $ 75,466 64,524 64,740
Interest cost on projected benefit
obligation.................................. 105,511 95,283 73,951
Actual return on plan assets................. (210,583) (249,294) (21,495)
Net amortization and deferral................ 101,795 143,353 (62,150)
-------- -------- -------
$ 72,189 53,866 55,046
======== ======== =======

Basis for measurements, net periodic pension cost:

<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Weighted average discount rate............... 6.00% 7.50% 5.75%
Rate of increase in future compensation
levels...................................... 4.25% 6.25% 4.50%
Expected long-term rate of return on plan
assets...................................... 6.75% 8.75% 7.00%
</TABLE>

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

<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Accumulated benefit obligation:
Vested............................................ $1,338,554 1,236,730
Nonvested......................................... 11,149 26,503
---------- ---------
$1,349,703 1,263,233
========== =========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date.......................................... $1,847,828 1,780,616
Plan assets at fair value......................... 1,947,933 1,738,004
---------- ---------
Plan assets in excess of (less than) projected
benefit obligation............................... 100,105 (42,612)
Unrecognized prior service cost................... 37,870 42,845
Unrecognized net gains............................ (201,952) (63,130)
Unrecognized net asset at transition.............. 37,158 41,305
---------- ---------
$ (26,819) (21,592)
========== =========
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Basis for measurements, funded status of plan:
Weighted average discount rate.................... 6.50% 6.00%
Rate of increase in future compensation levels.... 4.75% 4.25%
</TABLE>

F-21
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

(12) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

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

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

The Company's accrued postretirement benefit expense as of December 31, 1996
and 1995 was $34,884 and $33,539, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $3,394, $3,221
and $4,524, respectively.

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

<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year)........................ $ 6,541 6,235 8,586
Interest cost on accumulated postretirement
benefit obligation.............................. 13,679 14,151 14,011
Actual return on plan assets..................... (4,348) (2,657) (1,622)
Amortization of unrecognized transition
obligation of affiliates........................ 173 2,966 568
Net amortization and deferral.................... 1,830 (1,619) 1,622
------- ------ ------
$17,875 19,076 23,165
======= ====== ======
</TABLE>

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

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

F-22
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Discount rate............... 7.25% 6.65% 6.75% 8.00% 7.00%
Long term rate of return on
plan assets, net of tax.... -- 4.80% -- 8.00% N/A
Assumed health care cost
trend rate:
Initial rate.............. 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate............. 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period.. 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>

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

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

The holders of Class A common stock are entitled to one vote per share. The
holders of Class B common stock are entitled to ten votes per share. Class A
common stock has no conversion rights. Class B common stock is convertible
into Class A common stock, in whole or in part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A common
stock for each share of Class B common stock converted. If at any time after
the initial issuance of shares of Class A common stock the number of
outstanding shares of Class B common stock falls below 5% of the aggregate
number of issued and outstanding shares of common stock, then each outstanding
share of Class B common stock shall automatically convert into one share of
Class A common stock. In the event of any sale or transfer of shares of Class
B common stock to any person or persons other than NMIC or its affiliates,
such shares of Class B common stock so transferred shall be automatically
converted into an equal number of shares of Class A common stock.

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

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

NLIC is limited in the amount of shareholder dividends it may pay without
prior approval by the Department of Insurance of the State of Ohio (the
Department). NLIC's dividend of the outstanding shares of common stock of
certain companies which was declared on September 24, 1996 and the anticipated
$850,000 dividend (as discussed in note 1) are deemed extraordinary under Ohio
insurance laws. As a result of such

F-23
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

dividends, any dividend paid by NLIC during the 12-month period immediately
following the $850,000 dividend would also be an extraordinary dividend under
Ohio insurance laws. Accordingly, no such dividend could be paid without prior
regulatory approval.

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

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

(14) TRANSACTIONS WITH AFFILIATES

The Company leases office space from NMIC and certain of its subsidiaries.
For the years ended December 31, 1996, 1995 and 1994, the Company made lease
payments to NMIC and its subsidiaries of $9,985, $9,880 and $8,987,
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 and such
subsidiaries. Amounts allocated to the Company were $101,584, $107,112 and
$100,601 in 1996, 1995 and 1994, respectively. Under the cost sharing
agreement, expenses are allocated in accordance with NAIC guidelines and are
based on standard allocation techniques and procedures acceptable under
general cost accounting practices. Measures used to allocate expenses include
individual employee estimates of time spent, special cost studies, salary
expense, commissions expense and other measures that are agreed to by the
participating companies and are within regulatory and industry guidelines and
practices. The Company believes these allocation measures 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 $15,111
and $1,186 as of December 31, 1996 and 1995, respectively.

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

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

F-24
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 ELICW in 1996 are included in ELICW's results of operations
for 1996 which, combined with the results of WCLIC and NCC, are summarized in
note 3. Amounts ceded to ELICW in 1996 include premiums of $224,224, net
investment income and other revenue of $14,833, and benefits, claims and other
expenses of $246,641. Amounts ceded to NMIC in 1996 include premiums of
$97,331, net investment income of $10,890, and benefits, claims and other
expenses of $100,476.

The Company and various affiliates entered into agreements with Nationwide
Cash Management Company (NCMC) and California Cash Management Company (CCMC),
both affiliates, under which NCMC and CCMC act as common agents in handling
the purchase and sale of short-term securities for the respective accounts of
the participants. Amounts on deposit with NCMC and CCMC were $9,261 and
$18,602 as of December 31, 1996 and 1995, 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 $46,918. As
discussed in note 3, WCLIC is accounted for as discontinued operations.

Effective December 31, 1994, NLIC purchased all of the outstanding shares of
common stock of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of $155,000
to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on
the disposition of the securities. The purchase price approximated both the
historical cost basis and fair value of net assets of ELICW. ELICW has and
will continue to share home office, other facilities, equipment and common
management and administrative services with WSC. As discussed in note 3, ELICW
is accounted for as discontinued operations.

(15) BANK LINES OF CREDIT

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

(16) 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.

(17) SEGMENT INFORMATION

The Company has three primary segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment consists of annuity
contracts that provide the customer with the opportunity to invest in mutual
funds managed by the Company and independent investment managers, with the
investment returns accumulating on a tax-deferred basis. The Fixed Annuities
segment consists of annuity contracts that generate a return for the customer
at a specified interest rate, fixed for a prescribed period, with returns
accumulating on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the Company
reports

F-25
<PAGE>

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

corporate expenses and investments, and the related investment income
supporting capital not specifically allocated to its product segments in a
Corporate and Other segment. In addition, all realized gains and losses,
investment management fees and other revenue earned from mutual funds other
than the portion allocated to the variable annuities and life insurance
segments, and commissions and other income earned by the marketing and
distribution companies 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,
1996, 1995 and 1994 and assets as of December 31, 1996, 1995 and 1994, by
business segment.

<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Variable Annuities......................... $ 284,638 189,071 132,687
Fixed Annuities............................ 1,092,566 1,051,970 939,868
Life Insurance............................. 435,657 409,135 383,150
Corporate and Other........................ 203,739 186,862 178,379
----------- ---------- ----------
$ 2,016,600 1,837,038 1,634,084
=========== ========== ==========
Income from continuing operations before
federal income tax expense:
Variable Annuities......................... 90,244 50,837 24,574
Fixed Annuities............................ 135,405 137,000 138,950
Life Insurance............................. 67,242 67,590 53,046
Corporate and Other........................ 35,197 25,743 23,893
----------- ---------- ----------
$ 328,088 281,170 240,463
=========== ========== ==========
Assets:
Variable Annuities......................... 25,069,725 17,333,039 11,146,465
Fixed Annuities............................ 13,994,715 13,250,359 11,668,973
Life Insurance............................. 3,353,286 3,027,420 2,752,283
Corporate and Other, including discontinued
operations................................ 5,352,512 4,895,270 3,675,592
----------- ---------- ----------
$47,770,238 38,506,088 29,243,313
=========== ========== ==========
</TABLE>

F-26
<PAGE>

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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Prospectus Summary....................................................... 5
Risk Factors............................................................. 17
Nationwide Financial Services Capital Trust.............................. 27
Use of Proceeds.......................................................... 28
Recent History........................................................... 29
Capitalization........................................................... 30
Selected Consolidated Financial Data..................................... 31
Pro Forma Consolidated Financial Data.................................... 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 38
Business................................................................. 49
Management............................................................... 80
Ownership of Capital Stock............................................... 93
Certain Relationships and Related Transactions........................... 94
Description of the Capital Securities.................................... 100
Description of the Guarantee............................................. 112
Description of the Junior Subordinated Debentures........................ 115
Effect of Obligations under the Junior Subordinated Debentures, the
Guarantee and the Declaration........................................... 122
United States Federal Income Taxation.................................... 122
ERISA Considerations..................................................... 126
Description of Capital Stock............................................. 128
The Equity Offerings, the Note Offering and the Capital Securities Offer-
ing..................................................................... 133
Underwriting............................................................. 133
Notice to Canadian Residents............................................. 135
Legal Matters............................................................ 135
Experts.................................................................. 136
Glossary of Selected Insurance Terms..................................... 137
Index to Financial Statements............................................ F-1
</TABLE>

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

UNTIL MARCH 31, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.

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[LOGO]

Nationwide Financial
Services Capital Trust

$100,000,000

7.899% Capital Securities
(Liquidation Amount $1,000 per Capital Security)

fully and unconditionally guaranteed, as described herein, by

Nationwide Financial Services, Inc.

PROSPECTUS

CREDIT SUISSE FIRST BOSTON

MORGAN STANLEY & CO.
Incorporated

MERRILL LYNCH & CO.

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