2004 nationwide financial annual report

Nationwide Financial® 2004 Annual Report

The right people. The right strategy.The right solutions for consumers.

02 Financial Highlights05 Letter to Shareholders13 Business Segments Overview14 Individual Investments16 Individual Protection18 Retirement Plans20 In-Retirement22 Condensed Consolidated Statements of Income23 Condensed Consolidated Balance Sheets

24 Condensed Consolidated Statements of Cash Flows25 Report of Management, Report of Independent Registered

Public Accounting Firm & Certifi cation Confi rmation26 Five-Year Summary Condensed Consolidated

Statements of Income27 Five-Year Summary Condensed Consolidated

Balance Sheets and Segment Data28 Board of Directors & Management Team29 Form 10-K & Exhibit A

2004 Annual Report 1

Named new leadership

Aligned our operations with our primary market segments

Instilled more rigorous fi nancial discipline

Created a more market-driven organization

Increased net operating earnings by 17 percent

In 2004 we:

With the right

people and strategyWe’re passionate about helping Americans reach their dreams for retirement, and

our spirit of innovation will help their dreams become reality. In 2004, we made

signifi cant progress in positioning our company for long-term value creation.

Nationwide Financial2

Financial Highlights

For a reconciliation of non-GAAP financial measures used in this annual report to the most directly comparable GAAP financial measures, please refer to Exhibit A, which is located on the last 3 pages of this annual report, directly preceding the back cover. The non-GAAP financial measures used in this annual report are operating revenues; net operating earnings; net operating earnings per diluted share; net operating return on average equity and book value per share excluding AOCI.

Results of operations (in millions, except per share data)

Years Ended December 31, 2004 % Change 2003 2002 2001 2000

Total revenues $ 4,180.2 6% $ 3,944.2 $ 3,291.1 $ 3,067.6 $ 3,050.9

Operating revenues 4,219.7 5% 4,029.3 3,379.4 3,082.6 3,075.8

Net income 502.0 26% 397.8 144.2 412.8 434.9

Net operating earnings 531.1 17% 453.8 198.3 434.0 451.2

Total assets 116,950.6 5% 111,088.2 95,560.3 91,960.9 93,178.6

Return on average equity,

including accumulated other

comprehensive income (AOCI) 10.0% N/A 8.4% 3.9% 12.3% 15.8%

Net operating return on average equity,

excluding AOCI 11.6% N/A 10.8% 5.8% 13.8% 16.7%

Share Data (in millions, except per share data)

Years Ended December 31, 2004 % Change 2003 2002 2001 2000

Weighted average shares outstanding:

Basic 152.1 0% 151.8 132.4 128.9 128.7

Diluted 152.9 0% 152.3 132.6 129.2 128.9

Closing price per share of

Class A common stock $ 38.23 16% $ 33.06 $ 28.65 $ 41.46 $ 47.50

Net income per diluted share 3.28 26% 2.61 1.09 3.20 3.38

Net operating earnings per diluted share 3.47 16% 2.98 1.50 3.36 3.50

Dividends paid 0.67 29% 0.52 0.50 0.48 0.44

Book value per share:

Including AOCI 34.20 7% 32.10 29.25 26.71 23.29

Excluding AOCI 31.36 9% 28.77 26.62 25.14 22.40

Long-term debt/total capital ratio:

Including AOCI 21.2% N/A 22.4% 21.2% 20.7% 16.6%

Excluding AOCI 22.7% N/A 24.3% 22.9% 21.7% 17.2%

“ Improved fi nancial discipline allows Nationwide Financial to create the resources to grow our business.”

– Eileen KennedySenior Vice President and Chief Financial Offi cer

Enhancing our fi nancial discipline and

risk management capabilities

Building a culture of sound financial

discipline and risk management allows

Nationwide Financial to more effectively

manage our capital and to maximize returns.

This leads to increased shareholder value.

The risk and return measures we’ve put into

place enable us to make more educated

decisions about the products and features

we bring to market. And, as always, we’ll

continue to aggressively manage our cost

structure in a thoughtful way for the benefi t

of our customers and shareholders.


00 01 02 03 04 00 01 02 03 04 00 01 02 03 04 00 01 02 03 04

$451 $434

$198

$454$531

Net Operating Earnings(in millions)

$3.1 $3.1 $3.4$4.0 $4.2

Operating Revenues(in billions)

$93 $92 $96$111 $117

Total Assets(in billions)

17%14%

6%

11% 12%

Net Operating Returnon Average Equity*

*(Ex. AOCI)

Jerry Jurgensen Chief Executive Officer

Mark Thresher President and Chief Operating Officer



We are pleased to report solid improvement in our financial

performance during 2004, reflecting the progress we’re making

toward our long-term objective of increasing returns and

creating value for our shareholders.

To Our Shareholders:

During 2004, we implemented significant

changes to our operating model to align our

operations with our primary market segments:

Individual Investments, Individual Protection,

Retirement Plans and In-Retirement. At the

same time, we named new leadership. We

made these changes to create an organization

that is more market-driven and focused on the

life-cycle needs of consumers – strengthening

our ability to deliver On Your SideSM service

to more and more Americans. We’re very confi-

dent in our leadership team and believe our

new operating model creates a solid founda-

tion for long-term growth.

In the past year, we took significant steps

designed to improve profitability and returns

in our businesses. We re-priced the majority of

our individual products to increase returns. We

enhanced our risk management capabilities,

including expansion of our financial hedging

strategies to better manage the volatility in

our variable annuity business.

We’re taking a more disciplined approach

to capital allocation, which in certain cases

means curtailing growth on some product

lines and exiting others. And we continue

to focus on improving our cost structure

through disciplined expense management.

These actions are moving us in the right

direction. Total revenues in 2004 increased 6

percent to $4.2 billion. Net operating earnings

increased 17 percent to $531 million, or $3.47

per diluted share. Total assets increased


5 percent to $117 billion. And, our net operating

return on average equity, excluding AOCI,

increased 80 basis points to 11.6 percent.

We achieved these results by improving

operating performance in all of our businesses.

Favorable equity market performance and the

positive impact of prepayment income from

our investment portfolio also contributed to

our results.

While we’re making progress, we aren’t

satisfi ed with these results. We have much

work to do.

Strategic Priorities

We have substantial opportunity for growth

by improving execution within our existing

mix of businesses and by leveraging our core

strengths into new opportunities. Our ultimate

goal is clear: to become the premier provider

of fi nancial solutions for consumers, helping

them to achieve financial security as they

prepare for and live in retirement.

Nationwide Financial emerged during the

late 1990s with one of the top distribution

models in our industry. The business model

worked well as we focused on product

innovation and channel expansion. Our

variable annuity business drove much of the

growth we experienced during that period.

That environment changed starting in 2000.

The market downturn severely impacted the

profi tability of the variable annuity business,

a legacy that remains with us today. Some

in our industry chose to take on more risk

by off ering additional guarantee features to

drive sales. Our decision to take a diff erent

path was criticized by some, yet we have

remained steadfast in our resolve to off er only

those products and features that meet our

disciplined risk-and-return profi les.

Our primary focus remains on value creation.

True economic value creation can occur only if

we consistently achieve returns that exceed

our cost of capital. That is the guiding principle

upon which we have built our strategy.

Building a focused distribution strategy

We continue to merge our smaller sales territories and to

re-structure and re-allocate our internal sales resources.

This results in a more streamlined sales organization that is

better aligned to serve our customers, producers and fi rms.

– Rick KarasSenior Vice President Sales


During the past year, we’ve demonstrated

our commitment to make the diffi cult deci-

sions necessary to improve our financial

performance and position us for long-term

growth. But as we look forward, our business

will continue to face uncertainty – not only

from the markets, but also from legislative and

regulatory reform. We will continue to evolve

to meet these new challenges.

The fi nancial services marketplace is changing.

Consumer product preferences and buying

habits are shifting; simplicity and packaged

investments are gaining interest. Those

Americans entering retirement in record

numbers have a growing need to move from

accumulating assets to managing them during

retirement. There is increasing recognition

that individuals will need to become more

responsible for their own retirement security.

Against this backdrop, we operate our busi-

nesses with a strategic focus on the long term.

This means we will allocate capital and make

investments in ways we believe will create

the greatest long-term value, even when it

appears the stock market might reward other

alternatives more quickly.

Understanding and acting on consumer needs

We’re deepening our understanding of consumer needs,

and we’re using that knowledge to make intelligent

decisions about new products and services. Helping

consumers achieve their fi nancial goals depends on our

ability to develop an environment and process through

which we can develop truly insightful and creative solutions.

– Gordon HeckerVice President andChief Marketing Offi cer

Our primary focus remains on value creation. True economic

value creation can occur only if we consistently achieve returns

that exceed our cost of capital.


Managing our talent to drive business results

Talent management is critical to all our strategic

initiatives. We’re developing a comprehensive

talent-management strategy that includes a focus

on leader succession, a vital component of our

long-range planning eff ort. The right talent will

drive our results and our overall success.

– Kim GeyerVice PresidentHuman Resources

Our 2005 Focus

To succeed over the next several years and

beyond, we must be willing to challenge the

status quo. We must be nimble and responsive

to rapidly changing consumer needs. We must

deliver products and services valued by our

customers in a way that defi nes a sustainable

competitive advantage. And we must operate

efficiently to ensure our competitiveness

and profi tability.

During 2005, our top priority is to strengthen

our underlying operating model while building

platforms that will allow us to take advantage

of the tremendous growth opportunities that

are emerging. To achieve these objectives,

we will concentrate on fi ve strategic priorities

during 2005.

1. Enhancing our fi nancial discipline and risk

management capabilities

We will build on the progress we made in

2004 to further improve the profi tability of our

business by instilling more rigorous fi nancial

discipline and expense management into our

operations. With greater fi nancial discipline,

Sources of Long-Term Value Creation

Focus on Profitability

Risk & Capital Management

New Growth Opportunities

Focus on profi tability (near term)Financial disciplineIncreased accountabilityExpense management

Focus on risk and capital management (medium term) Enhanced risk managementEffi cient capital management

Focus on growth (longer term)In-retirement businessConsumer focusInnovation


Developing more eff ective and effi cient operations

By uniting our outbound sales support and inbound

customer service functions, we now have a more

holistic view of our service delivery to our customers and

producer partners. This gives us greater effi ciency and

improves our ability to consistently deliver On Your Side

service to the customers and producers who count on

us every day.

– Bill JacksonVice PresidentSales Support

During 2005, our top priority is to strengthen our underlying operating

model while building platforms that will allow us to take advantage of

the tremendous growth opportunities that are emerging.

we’re able to more effectively manage our

diverse business mix and direct capital to

higher-return businesses.

It’s critical that we continue to enhance our

risk management capability to fully optimize

returns based on levels of risk we choose to

accept. To do this, we’re more fully defi ning

our risk capacity, developing an enterprise

portfolio view of risk, and investing in technol-

ogy to expand our risk-modeling capability.

2. Building a focused distribution strategy

Our distribution platform is already recognized

as one of the best in the industry. But we can

do better. We have signifi cant opportunities to

increase our sales by refi ning our sales pro-

cesses and relationships with key producers.

During 2005, we intend to implement a

segmentation strategy across our distribu-

tion channels, supported by a consistent and

repeatable sales process, to more fully focus

and optimize sales productivity. In addition, we

believe we can increase sales by expanding the

reach of the Nationwide Financial Network.

3. Understanding and acting on

consumer needs

A respected and well-known brand is essential

to our long-term success as we evolve our

business model from a sales company to a

consumer-focused, market-driven organiza-

tion. A successful brand can create demand for

products, outperform competitors and support

premium pricing. During 2005, we will continue


The opportunities to strengthen and grow our business have

never been better. We’re confident we have the right people

and the right strategy, and we are keenly focused on creating

the right financial solutions for consumers.

to invest in our brand through an expanded

On Your Side marketing campaign in partner-

ship with our parent, Nationwide Mutual

Insurance Company.

But to take full advantage of increased

brand awareness, we must also enhance our

marketing capabilities. As part of our effort

to establish a culture of innovation, we’re

implementing new methods for identifying

articulated and unarticulated consumer needs,

and we’re using that knowledge to create

new products and services.

We’re also building a new business to serve

the needs of consumers approaching or living

in retirement. We believe the retirement trend

represents an unprecedented opportunity

in U.S. business history. The unique financial

needs of consumers living in retirement are

not adequately met by the financial services

industry today, and the number of retirees

will continue to grow in the coming years.

By leveraging our core strengths, Nationwide

Financial is well positioned to capitalize on

this opportunity. During 2005, we will invest in

infrastructure, new service delivery platforms

and product solutions to help secure our

position in this market.

4. Developing more effective and

efficient operations

Accountability, operational efficiency and

prudent expense management continue to be

critical components of our drive to strengthen

our core operating model and improve profit-

ability and returns. While we have streamlined

many processes over the last several years,

significant opportunities remain. In 2005, we

will focus on lowering the cost structure in our

core operations. We’ve implemented many

initiatives designed to combine functions


and technologies that can be shared across

multiple business units. In some cases, these

efforts may require some investment in new

technologies that will result in increased

efficiencies in the coming years.

5. Managing our talent to drive

business results

We’re very proud of the talent and dedication

exhibited by our associates each and every

day. And as we evolve our business model, we

must appropriately manage our talent. Having

the right people, in the right places, doing

the right things is critical to the successful

execution of our strategy. During 2005, we will

continue to refine our talent-management

process to support diversity and inclusion and

to reward performance that drives both short-

and long-term results.

Meeting the Challenge

We do not underestimate the complexity of

the challenges we face. However, the oppor-

tunities to strengthen and grow our business

have never been better. We’re confident we

have the right people and the right strategy,

and we are keenly focused on creating the

right financial solutions for consumers. This

positions us well to achieve profitable growth

and improve returns for our shareholders over

the next several years.

We thank you for your continued support.

– Jerry Jurgensen Chief Executive Officer

– Mark R. Thresher President and Chief Operating Officer


It’s no secret in our industry that consumer preferences are chang-ing. The trick is to understand why and to do something about it so we keep the customers we have and attract new ones in the future. We’ve structured our entire business around meeting the life-cycle needs of our customers – providing the solutions that help them achieve financial security as they prepare for and live in retirement.

We build long-term value for shareholders by serving the long-term needs of our customers.


Individual Investments Individual Protection

With an eye on innovative, consumer-

focused solutions, we off er a portfolio of

products that provide guarantees as well

as those that allow individuals to tap into

market potential.

Variable annuities

Fixed annuities

Advisory services

Life insurance is an important part

of any financial plan, and we offer

solutions that meet a wide range of

consumer needs.

Variable life insurance

Universal life insurance

Term insurance

Whole life insurance

Corporate-owned life insurance

Retirement Plans

We’re a market leader in this business,

and we’re continually seeking new and

better ways to help plan sponsors serve

the retirement-planning needs of their

employees.

Private-sector retirement plans

Public-sector retirement plans

Our goal is to become the trusted

fi nancial advisor to consumers who are

entering and living in retirement.

In-Retirement


Identifying solutions to meet consumers’ investing needs

A growing market means growing opportu-

nity. By 2010, the number of Americans 55

or older is estimated to increase to 75 million

from 60 million in 2002.1

In addition, retirement wealth has increased

by about 14 percent since 2003, yet annuities

account for only 3 percent of total house-

hold wealth.2

We believe this under-consumption of prod-

ucts that help consumers save for retirement

is about to change. As saving for retirement

becomes more of a personal responsibility for

those approaching retirement, the products

we off er are quickly coming to the forefront

of the public’s attention.

We’re energized and ready for this opportu-

nity, armed with new products and a diverse

solution set that makes it easier for consumers

to achieve a secure and fl exible retirement.

Innovating today

In 2004, we streamlined our business model to

focus on creating solutions that are right for our

customers, producers and shareholders.

We answered the call of our customers’

changing needs and found a way to take our

variable annuities to a new level. Our newest

feature, Capital Preservation PlusSM Lifetime

Income, combines some of the best of all

living benefi ts on the market today, but with

greater protection, flexibility and liquidity.

“ We’re creating solutions that address consumer demand for principle protection and the desire for upside market participation.”

– Mark PhelanSenior Vice President

Individual Investments


Customers can have upside potential and

downside protection at the same time. And

the product has the profi tability and risk-and-

return profi le that safeguards the interests of

our shareholders.

We’ve also enhanced our America’s market-

FLEX® product. MarketFLEX embodies our

disciplined investment strategy, focusing on

world-class money management. It provides

improved diversifi cation for investment port-

folios, enhanced risk management to protect

assets and the possibility to make money in

all market conditions.

Planning for tomorrow

We enjoy a history of stability and effective

risk management, and we’ll continue this by

making decisions that incorporate strong

fi nancial discipline.

For a profi table future that emphasizes long-

term value creation, we’ll continue to simplify

our products and improve upon our market-

leading service. In addition, we expect to invest

in the creation of new fi nancial solutions that

include variable and fi xed annuities, personal

pension plans and managed separate accounts.

We’ll maintain our commitment to improv-

ing efficiency, which saved us more than

$2 million last year. We’ve already re-engineered

our workflow and improved our technology,

eliminating many manual processes.

Recognizing the growing consumer interest in

packaged investments, our advisory services

platform will help investment professionals

spend more time building client relationships

by providing the service and technology sup-

port they need to grow their businesses.

We’re ready for the future, and we’re making

sure our customers are, too.

1 U.S. Census, 20002 Federal Reserve

Individual InvestmentsVariableAnnuity

FixedAnnuity

Adv. Svcs./ Other Total

Non-Affi liated DistributionIndependent Broker/Dealers $1,492.3 $ 16.2 $190.6 $1,699.1Wirehouse and Regional Firms 991.6 20.6 52.2 1,064.4Financial Institutions 1,270.8 774.3 32.3 2,077.4Life Specialists 2.3 — — 2.3CPA Channel 42.3 0.9 40.2 83.4

Total Non-Affi liated 3,799.3 812.0 315.3 4,926.6Affi liated Distribution

Nationwide Agents 224.6 38.6 8.7 271.9Nationwide Financial Network 106.4 8.2 25.4 140.0

Total Affi liated 331.0 46.8 34.1 411.9TOTAL $4,130.3 $858.8 $349.4 $5,338.5

2004 Sales by Channel/Product Type(in millions)

00 01 02 03 04

00 01 02 03 04

$276$227

($121)

$186$239

(in millions)

00 01 02 03 04

$1.1 $1.1$1.2

$1.4 $1.5

Operating Revenues(in billions)

Pre-Tax Operating Earnings


Helping consumers protect what matters most

The desire for a secure financial future for

loved ones leads many Americans to consider

life insurance as a foundation for personal

fi nancial planning. And life insurance can be

a valuable tool for business owners to protect

themselves and their business interests.

While conventional wisdom might say the

life insurance market is mature, we believe

there are segments of the market that have

very attractive growth potential. Nationwide

Financial is a market leader in individual vari-

able universal life (VUL) and corporate-owned

life insurance (COLI), and we’re building on

this strong foundation by focusing on three

strategic opportunities.

First, we’ll target affluent, high-net-worth

consumers, who have a greater tendency to

own life insurance products. We’ve found that

the vast majority who do own life products are

underinsured, so there’s ample opportunity for

growth by getting them to increase their cov-

erage to more appropriate levels of protection.

Secondly, we’ll focus on the small-business

market – represented by approximately 5

million small businesses in the United States.

Nearly 60 percent of small-business owners

don’t own a life insurance product, so we’ll

focus our eff orts on educating them about the

role life insurance can play in protecting their

fi nancial interests.

Thirdly, we’re prepared to meet the opportuni-

ties in the in-retirement market. Life insurance

will play a signifi cant role as clients seek tax-

advantaged vehicles to execute wealth transfer

and tax-preferred income strategies. Cash-

value life insurance can be an ideal vehicle to

Individual ProtectionFixed

LifeVariable

Life/COLI TotalNon-Affi liated Distribution

Independent Broker/Dealers $ 24.0 $258.6 $282.6Wirehouse and Regional Firms 15.2 48.8 64.0Financial Institutions 14.2 33.6 47.8Life Specialists — 380.5 380.5CPA Channel 0.9 2.8 3.7

Total Non-Affi liated 54.3 724.3 778.6Affi liated Distribution

Nationwide Agents 275.9 95.3 371.2Nationwide Financial Network 176.7 256.1 432.8TBG Financial — 184.2 184.2

Total Affi liated 452.6 535.6 988.2TOTAL $506.9 $1,259.9 $1,766.8


00 01 02 03 04

$161$190 $187

$215$243

(in millions)

00 01 02 03 04

$751 $835$1,004

$1,352 $1,355

Operating Revenues(in millions)

Pre-TaxOperating Earnings


provide tax-preferred supplemental income to

help retirees live the life they planned for.

Developing innovative solutions

Moving the Individual Protection segment for-

ward won’t happen without innovation, and

we have several new products and changes to

existing products expected in 2005, including:

• a new version of our accumulation VUL

product, “The Best of America Next

Generation® II.” This life insurance solution

includes protection against policy lapses,

as well as an option for long-term care.

Benefits to brokers include additional

sales support and an improved under-

writing capability that enables quicker

turnaround time.

• a new pricing structure in our existing uni-

versal life series, which makes this solution

available to a larger customer base.

• our new policy management system,

which helps producers and customers

better manage policies throughout their

life cycles, making us easier to do business

with and reflecting the On Your Side

promise we’ve made to our customers.

We have re-focused our eff orts to maximize

production in both the affiliated and non-

affi liated distribution platforms.

Nationwide Financial recognizes the impor-

tance of life insurance in financial planning,

and our expertise in this segment is providing

real value for our customers and shareholders.

“ Life insurance will play a

signifi cant role as consumers

seek tax-advantaged vehicles

to execute wealth-transfer and

tax-preferred income strategies.”

– Peter GolatoSenior Vice President

Individual Protection

00 01 02 03 04

$161$190 $187

$215$243

(in millions)

00 01 02 03 04

$751 $835$1,004

$1,352 $1,355




Serving the retirement needs of partners and participants

As the debate over Social Security takes

center stage in Washington, defi ned contri-

bution plans are becoming more important

in Americans’ financial plans. Through their

employer-sponsored programs, participants

are becoming more accountable for their

own retirement.

Consumer education will remain a priority as

individuals better understand the importance

of contributing to their retirement plans.

Nationwide Financial is committed to partner-

ing with investment professionals and plan

sponsors to deliver this important benefi t to

working Americans.

We anticipate steady growth for the retirement

business. Industry estimates indicate public-

sector IRS Code Section 457 plans will reach

$158 billion in assets by 2008.1 Furthermore,

more than 12,000 small businesses will likely

establish new 401(k) plans in 2005.2 Our goal is

to maintain our position as an industry leader

in this market. By leveraging the strengths of

our private- and public -sector businesses,

we have the scale to bring a wide range of

solutions to the varied needs of this market.

During 2004, our private-sector retirement

plan business intensified its focus on the

small-plan retirement market. In 2005, we’ll

“ Our market leadership,

dedicated fi eld presence and

focus on education give us a

competitive advantage in the

retirement plan market.”

– Duane MeekSenior Vice President

Retirement Plans


further align our services around our customers

and expect to increase our presence in the

market by simplifying business processes and

providing greater flexibility to third-party

administrators and investment professionals.

The 401(k) Company continued making sig-

nifi cant strides in the large-plan private-sector

market in 2004. We demonstrated our strength

in this market through the acquisition of nine

new client relationships and the growth of assets

under administration by more than $4 billion.

Within the public sector, Nationwide

Retirement Solutions (NRS) has renewed

long-standing relationships with our

business partners and plan sponsors while

acquiring new clients. In 2004, we renewed

contracts with the City of Chicago, the

State of Alabama and Marin County, California,

and we established a new relationship with

the City of Phoenix.

The ongoing measurement of our customers’

satisfaction demonstrates success for the

fourth consecutive year. In the coming year,

NRS is launching the Education Statement,

which gives plan participants easy-to-use tools

and information to help them maximize the

value of their retirement accounts.

As the face of retirement changes, Nationwide

Financial will continue to change with it, help-

ing investment professionals serve their clients

and improving consumers’ understanding

of their complex retirement needs.

1 2004 Cerulli Quantitative Update2 RG Wuelfi ng & Associates

Retirement PlansPrivateSector

PublicSector Total

Non-Affi liated DistributionIndependent Broker/Dealers $3,018.3 $ — $3,018.3Wirehouse and Regional Firms 863.7 — 863.7Financial Institutions 493.3 — 493.3Pension Plan Administrators 476.1 — 476.1CPA Channel 136.1 — 136.1

Total Non-Affi liated 4,987.5 — 4,987.5Affi liated Distribution

Nationwide Retirement Solutions 28.8 3,637.1 3,665.9Nationwide Agents 71.2 — 71.2Nationwide Financial Network 188.1 — 188.1The 401(k) Company 893.1 — 893.1

Total Affi liated 1,181.2 3,637.1 4,818.3TOTAL $6,168.7 $3,637.1 $9,805.8


00 01 02 03 04

$213$179

$140 $149$179

(in millions)

00 01 02 03 04

$1,066 $983 $919 $953 $1,008




In-RetirementLeveraging the Market Opportunity

Americans’ life expectancy is increasing, meaning

consumers are living longer in retirement than

ever before. Nationwide Financial is committed to

serving the fi nancial needs of consumers as they

enter and live in retirement.

Providing fi nancial advice for people living in retirement

Nationwide Financial is committed to

maintaining relationships for life by helping

consumers manage their fi nances before and

after their retirement. Evolving retiree needs

require creative solutions. Nationwide Financial

is positioned to address this opportunity

through our emerging In-Retirement segment.

But we’re not starting from scratch. We have

sizable and meaningful relationships with

many customers within our existing busi-

nesses who already rely on us to help them

achieve their retirement goals. For example,

our private-sector retirement plan business

serves over 3.5 million customers, with 500,000

participants age 55 and over. In the next fi ve

years, nearly a quarter million public employees

served through Nationwide Retirement

Solutions – a group that currently holds

$7.2 billion in assets – will likely retire.

The dramatic increase in the number of

retirees versus workers will profoundly change

the fi nancial services industry. Retirees will be

a dominant population group in size and in

assets. While our history with most of these

customers has been on the accumulation

side, we believe we have the agility to provide

in-retirement solutions by capitalizing on our

existing relationships and forging new ones.

We’ll achieve success in this segment by

understanding the uniqueness of in-retirement

consumers. We will package solutions that

6%6%

10%14%

64%

6%7%

12%

14%

61%

7%10%

13%

12%

59%

Estimates Estimates

Retirees: The Fastest GrowingU.S. Population Segment(1)

2004

293million

2010

309million

2020

336million

Age 75+ Fully Retired65-74 Transitioning retirees55-64 Pre-retired45-54<45

Age

75+ Fully Retired

65-74Transitioning retirees

55-64 Pre-retired

45-54

<45

14%

18%

25%

25%

18%

13%

17%

30%

24%

15%

14%

22%

31%

19%

14%

Investable assets* by age group

Aging Population toControl More Assets(1)(2)

2001 2010 2020

* Investable assets include financial assets held in pension accounts such as 401(k) and IRAs.

(1) U.S. Census(2) Survey of Consumer

Finances; McKinsey


meet these unique needs by supporting our

investment professionals and fi rms as they serve

those in retirement and by building strategic

partnerships and alliances with companies

who have demonstrated best-in-class solutions.

We will develop solutions that help retirees get

the most value out of their largest assets; and

help customers and their dependents make

informed decisions about their health care that

in the long-term will help protect their wealth.

And we’ll communicate and interact with

our customers in the manner that is most

convenient and eff ective for them.

Delivering to this population is something we

take seriously. This means giving consumers

guidance through trustworthy providers. It

means helping them manage risks, such as

longevity, health care, long-term care, infl ation

and investment risks. And it means manag-

ing their assets to meet income, growth and

protection needs for decades.

It means providing On Your Side service to help

them fulfi ll their retirement dreams.

“ Serving the needs of consum-

ers in retirement provides a

natural, strategic complement

to all our other businesses.”

– Keith MillnerSenior Vice President

In-Retirement


Condensed Consolidated Statements of Income(in millions, except earnings per share amounts)

Years Ended December 31, 2004 2003 2002

Revenues: Policy charges $ 1,235.0 $ 1,126.8 $ 1,028.4 Life insurance premiums 402.7 426.2 302.3 Net investment income 2,265.7 2,226.5 1,913.2 Net realized losses on investments, hedging instruments and hedged items (30.8) (69.4) (79.4)Other 307.6 234.1 126.6

Total revenues 4,180.2 3,944.2 3,291.1

Benefits and expenses: Interest credited to policyholder account values 1,352.5 1,391.4 1,279.1 Other benefits and claims 526.9 563.5 374.8 Policyholder dividends on participating policies 101.4 105.7 63.5 Amortization of deferred policy acquisition costs 442.1 399.5 678.1 Amortization of value of business acquired 52.3 46.4 15.2 Interest expense on debt 102.2 96.2 76.8 Other operating expenses 928.2 823.7 670.1

Total benefits and expenses 3,505.6 3,426.4 3,157.6

Income from continuing operations before federal income tax expense 674.6 517.8 133.5 Federal income tax expense (benefit) 169.2 119.4 (7.3)

Income from continuing operations 505.4 398.4 140.8 Discontinued operations, net of tax — — 3.4 Cumulative effect of adoption of accounting principles, net of tax (3.4) (0.6) —

Net income $ 502.0 $ 397.8 $ 144.2

Earnings from continuing operations per common share: Basic $ 3.32 $ 2.62 $ 1.06 Diluted $ 3.30 $ 2.61 $ 1.06

Earnings per common share: Basic $ 3.30 $ 2.62 $ 1.09 Diluted $ 3.28 $ 2.61 $ 1.09

Weighted average common shares outstanding: Basic 152.1 151.8 132.4 Diluted 152.9 152.3 132.6 Cash dividends declared per common share $ 0.72 $ 0.52 $ 0.51


Condensed Consolidated Balance Sheets(in millions, except per share amounts)

December 31, 2004 2003

Assets Investments: Securities available-for-sale, at fair value: Fixed maturity securities (cost $30,423.2 in 2004; $29,562.9 in 2003) $ 31,516.8 $ 30,787.1 Equity securities (cost $73.1 in 2004; $117.0 in 2003) 87.0 128.7 Trading assets, at fair value 15.9 4.9 Mortgage loans on real estate, net 9,267.5 8,964.7 Real estate, net 108.3 123.4 Policy loans 987.2 963.2 Other long-term investments 604.2 194.6 Short-term investments, including amounts managed by a related party 2,009.9 1,970.3

Total investments 44,596.8 43,136.9 Cash 52.4 11.5 Accrued investment income 428.7 439.6 Deferred policy acquisition costs 3,561.1 3,329.9 Value of business acquired 480.4 523.0 Other intangible assets 48.7 52.3 Goodwill 382.3 406.7 Other assets 2,497.0 2,250.7 Assets held in separate accounts 64,903.2 60,937.6

Total assets $ 116,950.6 $ 111,088.2

Liabilities and Shareholders’ Equity Liabilities: Future policy benefits and claims $ 41,077.2 $ 40,049.3 Short-term debt 230.8 205.3 Long-term debt 1,406.0 1,405.6 Other liabilities 4,118.3 3,615.0 Liabilities related to separate accounts 64,903.2 60,937.6

Total liabilities 111,735.5 106,212.8

Shareholders’ equity: Preferred stock, $0.01 par value; authorized — 50.0 shares; issued and outstanding — none — — Class A common stock, $0.01 par value; authorized — 750.0 shares; issued — 66.2 and 65.5 shares in 2004 and 2003, respectively; outstanding — 56.9 and 56.3 shares in 2004 and 2003, respectively 0.7 0.6 Class B common stock, $0.01 par value; authorized — 750.0 shares; issued and outstanding — 95.6 shares 1.0 1.0 Additional paid-in capital 1,634.6 1,614.3 Retained earnings 3,400.0 3,006.4 Accumulated other comprehensive income 432.2 504.9 Treasury stock (251.4) (247.6) Other, net (2.0) (4.2)

Total shareholders’ equity 5,215.1 4,875.4

Total liabilities and shareholders’ equity $ 116,950.6 $ 111,088.2


Condensed Consolidated Statements of Cash Flows(in millions)

Years Ended December 31, 2004 2003 2002

Cash flows from operating activities: Net income $ 502.0 $ 397.8 $ 144.2 Adjustments to reconcile net income to net cash provided by operating activities: Interest credited to policyholder account values 1,352.5 1,391.4 1,279.1 Capitalization of deferred policy acquisition costs (561.9) (642.9) (695.0) Amortization of deferred policy acquisition costs 442.1 399.5 678.1 Amortization and depreciation 167.3 170.8 36.7 Net realized losses on investments, hedging instruments and hedged items 30.8 69.4 79.4 Decrease (increase) in accrued investment income 10.9 (37.1) (18.6) Increase in other assets (342.4) (727.9) (597.2) (Decrease) increase in policy liabilities (2.0) 17.4 64.5 Increase in other liabilities 464.3 294.1 470.8 Income from discontinued operations — — (3.4) Other, net 23.4 61.8 40.0

Net cash provided by continuing operations 2,087.0 1,394.3 1,478.6 Net cash provided by discontinued operations — — 3.4

Net cash provided by operating activities 2,087.0 1,394.3 1,482.0

Cash flows from investing activities: Proceeds from maturity of securities available-for-sale 3,888.4 4,622.2 4,095.1 Proceeds from sale of securities available-for-sale 3,767.2 2,538.0 1,610.1 Proceeds from repayments of mortgage loans on real estate 2,083.2 1,554.9 1,029.3 Proceeds from sale of real estate 21.9 33.2 111.3 Proceeds from repayments of policy loans and sale of other invested assets 95.3 121.7 66.3 Cost of securities available-for-sale acquired (8,368.8) (10,181.4) (10,381.8)Cost of mortgage loans on real estate acquired (2,348.4) (2,053.7) (1,835.7)Net change in short-term investments (48.7) (539.6) (242.4)Collateral received (paid) — securities lending, net 89.4 (26.1) 158.9 Other, net (473.7) (55.9) (704.2)

Net cash used in investing activities (1,294.2) (3,986.7) (6,093.1)

Cash flows from financing activities: Net proceeds from issuance of long-term debt — 197.2 296.0 Net change in short-term debt 25.5 202.6 (97.3)Cash dividends paid (101.9) (78.9) (70.5)Investment and universal life insurance product deposits 4,399.1 5,471.0 6,785.4 Investment and universal life insurance product withdrawals (5,091.3) (3,214.5) (2,350.5)Other, net 16.7 4.8 4.7

Net cash (used in) provided by financing activities (751.9) 2,582.2 4,567.8

Net increase (decrease) in cash 40.9 (10.2) (43.3)Cash, beginning of period 11.5 21.7 65.0

Cash, end of period $ 52.4 $ 11.5 $ 21.7


Report of Management

The management of Nationwide Financial Services, Inc. and its subsidiaries (the “Company”) is responsible for the preparation and

integrity of the condensed consolidated financial statements and other information contained in this Summary Annual Report.

The condensed consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles,

and where necessary, include amounts that are based on the best estimates and judgment of management. The condensed

consolidated financial statements should be read in conjunction with the consolidated financial statements, including the

footnotes thereto, contained in the Annual Report on Form 10-K. The Annual Report on Form 10-K is furnished in conjunction

with the Company’s Proxy Statement for the 2005 Annual Meeting of Shareholders.

Mark R. Thresher

President and Chief Operating Officer

March 1, 2005

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Nationwide Financial Services, Inc.:

We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the con-

solidated balance sheets of Nationwide Financial Services, Inc. and subsidiaries (the “Company”) as of December 31, 2004 and 2003,

and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year

period ended December 31, 2004 (not presented herein); and in our report dated March 1, 2005, we expressed an unqualified

opinion on those consolidated financial statements with an explanatory paragraph referring to the Company’s adoption of the

American Institute of Certified Public Accountants’ Statement of Position 03-1, Accounting and Reporting by Insurance Enterprises for

Certain Nontraditional Long-Duration Contracts and for Separate Accounts, in 2004.

In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all

material respects, in relation to the consolidated financial statements from which it has been derived.

Columbus, Ohio

March 1, 2005

Certification Confirmation

Nationwide Financial Services, Inc. submitted a CEO Certification to the New York Stock Exchange (NYSE), as required by Section

303A.12(a) of the NYSE Listed Company Manual, certifying that Mr. Jurgensen was not aware of any violation by the Company of

the NYSE’s Corporate Governance listing standards. The CEO Certification was submitted to the NYSE within thirty days of the

Company’s Annual Meeting of Shareholders in 2004, as required by the NYSE rules. Also, the certifications by the Company’s CEO

and CFO required by Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the Securities and Exchange Commission with

the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.


Five-Year Summary Condensed Consolidated Statements of Income(in millions, except per share amounts)

Years Ended December 31, 2004 2003 2002 2001 2000

Revenues:Policy charges $ 1,235.0 $ 1,126.8 $ 1,028.4 $ 1,019.1 $ 1,092.2 Life insurance premiums 402.7 426.2 302.3 251.1 240.0 Net investment income 2,265.7 2,226.5 1,913.2 1,735.1 1,661.9 Net realized losses on investments, hedging instruments and hedged items (30.8) (69.4) (79.4) (14.3) (24.9)Other 307.6 234.1 126.6 76.6 81.7

Total revenues 4,180.2 3,944.2 3,291.1 3,067.6 3,050.9

Benefits and expenses:Interest credited and other benefits 1,980.8 2,060.6 1,717.4 1,567.4 1,470.0 Interest expense on debt 102.2 96.2 76.8 54.9 48.5 Other operating expenses 1,422.6 1,269.6 1,363.4 877.1 910.0

Total benefits and expenses 3,505.6 3,426.4 3,157.6 2,499.4 2,428.5

Income from continuing operations before federal income taxes 674.6 517.8 133.5 568.2 622.4 Federal income tax expense (benefit) 169.2 119.4 (7.3) 143.9 187.3

Income from continuing operations 505.4 398.4 140.8 424.3 435.1 Discontinued operations, net of tax — — 3.4 (4.4) (0.2)Cumulative effect of adoption of accounting principles, net of tax (3.4) (0.6) — (7.1) —

Net income $ 502.0 $ 397.8 $ 144.2 $ 412.8 $ 434.9

Earnings per common share:Basic $ 3.30 $ 2.62 $ 1.09 $ 3.20 $ 3.38 Diluted $ 3.28 $ 2.61 $ 1.09 $ 3.20 $ 3.38

Weighted average common shares outstanding:

Basic 152.1 151.8 132.4 128.9 128.7 Diluted 152.9 152.3 132.6 129.2 128.9 Cash dividends declared per common share $ 0.72 $ 0.52 $ 0.51 $ 0.48 $ 0.46


Five-Year Summary Condensed Consolidated Balance Sheets and Segment Data(in millions, except per share amounts)

Years Ended December 31, 2004 2003 2002 2001 2000

Assets:Total invested assets $ 44,596.8 $ 43,136.9 $ 39,132.5 $ 27,814.4 $ 23,359.2 Deferred policy acquisition costs 3,561.1 3,329.9 3,026.9 3,213.7 2,872.7 Other assets 3,889.5 3,683.8 3,052.6 1,286.1 977.9 Assets held in separate accounts 64,903.2 60,937.6 50,348.3 59,646.7 65,968.8

Total assets $ 116,950.6 $ 111,088.2 $ 95,560.3 $ 91,960.9 $ 93,178.6

Liabilities: Future policy benefits and claims $ 41,077.2 $ 40,049.3 $ 36,274.3 $ 25,491.6 $ 22,243.3 Short-term debt 230.8 205.3 2.7 100.0 118.7 Long-term debt 1,406.0 1,405.6 1,197.6 897.0 598.4 Other liabilities 4,118.3 3,615.0 3,294.1 2,382.3 1,251.9 Liabilities related to separate accounts 64,903.2 60,937.6 50,348.3 59,646.7 65,968.8

Total liabilities 111,735.5 106,212.8 91,117.0 88,517.6 90,181.1 Shareholders’ equity: 5,215.1 4,875.4 4,443.3 3,443.3 2,997.5

Total liabilities and shareholders’ equity $ 116,950.6 $ 111,088.2 $ 95,560.3 $ 91,960.9 $ 93,178.6

Book value per common share $ 34.20 $ 32.10 $ 29.25 $ 26.71 $ 23.29

Customer funds managed and administered: Individual Investments $ 52,481.9 $ 49,333.9 $ 40,896.5 $ 42,186.7 $ 43,694.9 Retirement Plans 76,661.2 64,224.3 45,524.8 47,289.2 45,526.3 Individual Protection 15,683.0 13,897.1 12,158.9 8,099.2 7,225.5 Corporate and Other 4,401.6 4,606.3 4,273.6 3,128.1 1,627.7

Total $ 149,227.7 $ 132,061.6 $ 102,853.8 $ 100,703.2 $ 98,074.4

Pre-tax operating earnings (loss) by reporting segment:

Individual Investments $ 239.4 $ 185.5 $ (121.1) $ 227.2 $ 276.3 Retirement Plans 178.6 148.8 139.6 179.1 212.5 Individual Protection 243.0 215.2 186.7 189.7 161.1 Corporate and Other 53.1 53.4 16.6 (12.8) (2.6)

Sales by reporting segment:Individual Investments $ 5,338.5 $ 6,738.8 $ 7,330.3 $ 7,625.6 $ 7,338.7 Retirement Plans 9,805.8 8,400.9 7,424.7 6,985.7 7,392.2 Individual Protection 1,766.8 1,722.5 1,543.3 1,540.6 1,530.2 Corporate and Other — — — — —

Total $ 16,911.1 $ 16,862.2 $ 16,298.3 $ 16,151.9 $ 16,261.1

Nationwide Financiala

Jerry JurgensenChief Executive Officer

Mark R. ThresherPresident and Chief Operating Officer

Antonio M. CaxideVice PresidentBusiness Unit Chief Investment Officer

Roger A. CraigVice PresidentDivision General Counsel

Kim R. GeyerVice PresidentHuman Resources

Peter A. GolatoSenior Vice PresidentIndividual Protection

Gordon E. HeckerVice PresidentMarketing

William S. JacksonVice PresidentSales and Service Center

Richard A. KarasSenior Vice PresidentNon-Affiliated Sales

M. Eileen KennedySenior Vice President andChief Financial Officer

Duane C. MeekSenior Vice PresidentRetirement Plans

Keith I. MillnerSenior Vice PresidentIn-Retirement

R. Dennis NoiceSenior Vice PresidentSystems

Mark D. PhelanSenior Vice PresidentIndividual Investments

R. Clay ThompsonVice PresidentAffiliated Distribution

Nationwide Financial Leadership Team

Jerry JurgensenChief Executive Officer Nationwide

Patricia R. HatlerExecutive Vice President Chief Legal andGovernance Officer Nationwide

Terri L. HillExecutive Vice President Chief Administrative Officer Nationwide

Paul J. HondrosPresident and Chief Executive Officer Gartmore

Donna A. JamesPresident Strategic InvestmentsNationwide

Michael C. KellerExecutive Vice President Chief Information Officer Nationwide

Michael D. MillerPresident and Chief Operating Officer Scottsdale Insurance

Stephen S. RasmussenPresident and Chief Operating OfficerProperty and Casualty Insurance Nationwide

Kathleen D. RicordExecutive Vice President Chief Marketing OfficerNationwide

Robert A. RosholtExecutive Vice President Chief Finance and Investment OfficerNationwide

Mark R. ThresherPresident and Chief Operating OfficerNationwide Financial

Nationwide Office of the CEO

Board of Directors

Joseph A. Alutto (3)Dean of Max M. Fisher College of BusinessThe Ohio State University

James G. Brocksmith, Jr. (1)(2)(4)Retired Deputy Chairman and Chief Operating OfficerKPMG LLP

Keith W. Eckel (1)(6)Partner, Fred W. Eckel SonsPresident, Eckel Farms Inc.

Jerry Jurgensen (5)(6)Chief Executive Officer

Lydia M. Marshall (1)(3)(6)Former Chair and Chief Executive OfficerVersura, Inc.

Donald L. McWhorter (2)(3)(4)Retired President and Chief Operating OfficerBanc One Corporation

David O. Miller (2)(4)(6)PresidentOwen Potato Farm, Inc.Partner, Newark Properties LTD

Martha Miller de Lombera (3)Retired Vice PresidentProctor and Gamble

James F. Patterson (3)(4)(6)PresidentPatterson Farms, Inc.

Gerald D. Prothro (1)(2)(3)Managing DirectorIKT Investments, Ltd.

Arden L. Shisler (4)(6)Former President and Chief Executive OfficerK&B Transport, Inc.

Alex Shumate (3)Managing PartnerSquire, Sanders & Dempsey(Columbus, Ohio, Office)

(1) Member of Audit Committee; (2) Member of Compensation Committee; (3) Member of Finance Committee; (4) Member of Governance Committee; (5) Member of Officer Election Committee; (6) Current or Former Board Member of Nationwide Mutual Insurance Company

James F. Patterson, Joseph A. Alutto, Alex Shumate Arden L. Shisler, Keith W. Eckel, Lydia M. Marshall Donald L. McWhorter, Martha Miller de Lombera, David O. Miller James G. Brocksmith, Jr., Jerry Jurgensen, Gerald D. Prothro


NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Exhibit A - Non-GAAP Measures Used in the 2004 Annual Report by Nationwide Financial Services, Inc.

Nationwide Financial Services, Inc. (NFS) prepares its consolidated financial statements in accordance with U.S.generally accepted accounting principles (GAAP). In addition to using the GAAP consolidated financialstatements, NFS also analyzes operating performance using the following non-GAAP financial measures. Thenon-GAAP financial measures below appear in the accompanying annual report.

Operating revenues are calculated by adjusting total revenues to exclude net realized gains and losses oninvestments not related to securitizations and periodic net coupon settlements on non-qualifying derivatives,hedging instruments and hedged items.

Net operating earnings are calculated by adjusting net income to exclude net realized gains and losses oninvestments not related to securitizations and periodic net coupon settlements on non-qualifying derivatives,hedging instruments and hedged items, discontinued operations and the cumulative effect of adoption ofaccounting principles, if any, all net of tax.

Net operating earnings per diluted share are calculated by dividing net operating earnings by the number ofweighted average diluted shares outstanding for the period indicated.

Net operating return on average equity is calculated by annualizing net operating earnings and dividing byaverage shareholders’ equity excluding accumulated other comprehensive income (AOCI).

Book value per share excluding AOCI is calculated by dividing total shareholders’ equity less AOCI by thenumber of shares outstanding as of the date indicated.

Use of Non-GAAP Measures in Practice

Operating revenues, net operating earnings, net operating earnings per diluted share, net operating return onaverage equity, book value per share excluding AOCI or similar measures are commonly used in the insuranceindustry as measures of ongoing earnings performance.

Excluded Items, Utilization of Non-GAAP Measures and Cautionary Information

The excluded items are important in understanding NFS’ overall results of operations, and NFS’ definition ofthese non-GAAP financial measures may differ from those used by other companies. None of these non-GAAPfinancial measures should be viewed as substitutes for any GAAP financial measures.

Specifically, operating revenues, net operating earnings, net operating earnings per diluted share, net operatingreturn on average equity and book value per share excluding AOCI should not be viewed as substitutes for totalrevenues, net income, earnings per diluted share, return on average equity and book value per share, respectively,determined in accordance with GAAP. NFS believes that the presentation of these non-GAAP financial measuresas they are measured for management purposes enhances the understanding of NFS’ results of operations byhighlighting the results from continuing operations, on a pre- and post-tax basis as applicable, and the underlyingprofitability drivers of NFS’s business.

NFS excludes net realized gains and losses on investments not related to securitizations and periodic net couponsettlements on non-qualifying derivatives, hedging instruments and hedged items, net of tax, from these non-GAAP financial measures because such items are often the result of a series of independent event-drivenactivities, the timing of which may or may not be at NFS’ discretion. Excluding the fluctuating effects of thesetransactions helps to depict trends in the underlying profitability of NFS’ business without consideration of theseitems. NFS also excludes discontinued operations and the cumulative effect of adoption of accounting principlesfrom net operating earnings, if any, as such adjustments are not reflective of the continuing operations of NFS’business.

A-1


Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

The following tables reconcile non-GAAP financial measures used in the accompanying NFS annual report to themost comparable GAAP financial measures for each of the periods indicated. The results of past accountingperiods are not necessarily indicative of the results to be expected for any future accounting period.

Operating revenues to revenuesYears ended December 31,

(in millions) 2004 2003 2002 2001 2000

Operating revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,219.7 $4,029.3 $3,379.4 $3,082.6 $3,075.8Net realized losses on investments,

hedging instruments and hedged items1 . . . . . . . . . . . . (39.5) (85.1) (88.3) (15.0) (24.9)

Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,180.2 $3,944.2 $3,291.1 $3,067.6 $3,050.9

Net operating earnings to net income and net operating return on average equity to return on average equity

Years ended December 31,

2004 2003 2002

Ratio Ratio Ratio

(in millions) Amount Ex AOCI w/AOCI Amount Ex AOCI w/AOCI Amount Ex AOCI w/AOCI

Net operating earnings . . . . . . $ 531.1 11.6% 10.5% $ 453.8 10.8% 9.6% $ 198.3 5.8% 5.4%Net realized losses on

investments, hedginginstruments and hedgeditems, net of taxes1 . . . . . . . (25.7) (0.6%) (0.5%) (55.4) (1.3%) (1.2%) (57.5) (1.7%) (1.6%)

Discontinued operations, netof taxes . . . . . . . . . . . . . . . . — — — — — — 3.4 0.1% 0.1%

Cumulative effect of adoptionof accounting principles, netof taxes . . . . . . . . . . . . . . . . (3.4) 0.0% 0.0% (0.6) 0.0% 0.0% — — —

Net income . . . . . . . . . . . . . . . $ 502.0 11.0% 10.0% $ 397.8 9.5% 8.4% $ 144.2 4.2% 3.9%

Average equity, excludingAOCI . . . . . . . . . . . . . . . . . . $4,565.1 $4,192.3 $3,405.2

Average AOCI . . . . . . . . . . . . 475.2 528.4 297.9

Average equity . . . . . . . . . . . . $5,040.3 $4,720.7 $3,703.1

A-2


Net operating earnings to net income and net operating return on average equity to return on average equity,continued

(in millions)

Years ended December 31,

2001 2000

Ratio Ratio

Amount Ex AOCI w/AOCI Amount Ex AOCI w/AOCI

Net operating earnings . . . . . . . . . . . . . . . . . . . . . . $ 434.0 13.8% 12.9% $ 451.2 16.7% 16.4%Net realized losses on investments, hedging

instruments and hedged items, net of taxes1 . . . (9.7) (0.3%) (0.3%) (16.1) (0.6%) (0.6%)Discontinued operations, net of taxes . . . . . . . . . . (4.4) (0.1%) (0.1%) (0.2) (0.0%) (0.0%)Cumulative effect of adoption of accounting

principles, net of taxes . . . . . . . . . . . . . . . . . . . . (7.1) (0.2%) (0.2%) — — —

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 412.8 13.2% 12.3% $ 434.9 16.1% 15.8%

Average equity, excluding AOCI . . . . . . . . . . . . . . $3,144.9 $2,694.6Average AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226.6 49.5

Average equity . . . . . . . . . . . . . . . . . . . . . . . . $3,371.5 $2,744.2

Book value per share excluding AOCI to book value per share

(in millions, except per share data)

As of December 31,

2004 2003 2002

Amount Per share Amount Per share Amount Per share

Total equity, excluding AOCI . . . . . . . . . . . . . . $4,782.9 $31.36 $4,370.5 $28.77 $4,043.0 $26.62AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 432.2 2.84 504.9 3.33 400.3 2.63

Total equity . . . . . . . . . . . . . . . . . . . . . . . . $5,215.1 $34.20 $4,875.4 $32.10 $4,443.3 $29.25

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . 152.5 151.9 151.9

(in millions, except per share data)

As of December 31,

2001 2000

Amount Per share Amount Per share

Total equity, excluding AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,240.8 $25.14 $2,883.0 $22.40AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202.5 1.57 114.5 0.89

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,443.3 $26.71 $2,997.5 $23.29

Shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128.9 128.7

A-3


Net operating earnings per diluted share to net income per diluted shareYears ended December 31,

(in millions, except per share data) 2004 2003 2002 2001 2000

Net operating earnings per diluted share . . . . . . . . . . . . . . . . . . . $ 3.47 $ 2.98 $ 1.50 $ 3.36 $ 3.50Adjustments for:

Net realized losses on investments, hedging instrumentsand hedged items, net of taxes . . . . . . . . . . . . . . . . . . . . . (0.17) (0.37) (0.44) (0.08) (0.12)

Discontinued operations, net of taxes . . . . . . . . . . . . . . . . . . — — 0.03 (0.03) —Cumulative effect of adoption of accounting principles, net

of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) — — (0.05) —

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3.28 $ 2.61 $ 1.09 $ 3.20 $ 3.38

Weighted average diluted shares outstanding . . . . . . . . . . . . . . . . 152.9 152.3 132.6 129.2 128.9

Long-term debt to total capital excluding AOCI to long-term debt to total capitalYears ended December 31,

(in millions) 2004 2003 2002 2001 2000

Long-term debt to total capital excluding AOCI . . . . . . . . . . . . . . . 22.7% 24.3% 22.9% 21.7% 17.2%Adjustment attributable to AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . (1.5%) (1.9%) (1.7%) (1.0%) (0.6%)

Long-term debt to total capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.2% 22.4% 21.2% 20.7% 16.6%

1 Excluding periodic net coupon settlements on non-qualifying derivatives.

A-4

Shareholders’ Information

Corporate Offices

Nationwide Financial Services, Inc.

One Nationwide Plaza

Columbus, OH 43215

www.nationwidefinancial.com

Annual Shareholders’ Meeting

The Annual Meeting of Shareholders of Nationwide Financial

Services, Inc. will be held at 1:30 p.m. on Wednesday, May 4,

2005, at One Nationwide Plaza, Columbus, OH. Shareholders

of record as of March 7, 2005, are entitled to notice of and vote

at the meeting.

Stock Transfer Agent/Direct Purchase Plan

Mellon Investor Services

P.O. Box 3316

South Hackensack, NJ 07606

(866) 541-9688

If you are a registered shareholder, you can perform transactions

online by visiting Mellon on the Web. Visit www.melloninvestor.com,

click on For Investors and then click on Investor ServiceDirect.

Inquiries

Nationwide Financial Services, Inc.

Investor Relations

One Nationwide Plaza

Columbus, OH 43215

Attention:

Mark Barnett

Vice President, Investor Relations

For additional information, visit our Website at

www.nationwidefinancial.com.

Independent Registered Public Accounting Firm

KPMG LLP

191 W. Nationwide Blvd.

Suite 500

Columbus, OH 43215

Stock Symbol

Nationwide Financial’s common stock is traded on the New York

Stock Exchange under the symbol “NFS.” On March 1, 2005, NFS

had approximately 133,900 registered shareholders and approxi-

mately 14,100 shareholders whose shares are held by brokers

and other nominees.

Credit Ratings

Financial Strength

A.M. Best A+

Moody’s Aa3

Standard & Poor’s AA-

Debt Ratings

Senior Notes

Retail Trust-Pref. Securities

Preferred Securities

Commercial Paper

A.M. Best a- bbb bbb AMB-1

Moody’s A3 Baa1 Baa1 P-1

Standard & Poor’s A- BBB BBB A-1+

Common Stock Prices and Dividend Information

Market Price DividendsQuarter Ended High Low Closing Paid

March 31, 2004 $38.86 $33.01 $36.05 $0.13

June 30, 2004 37.75 33.05 37.61 0.18

September 30, 2004 37.55 32.90 35.11 0.18

December 31, 2004 39.04 32.06 38.23 0.18

March 31, 2003 $31.85 $21.37 $24.37 $0.13

June 30, 2003 33.82 24.25 32.50 0.13

September 30, 2003 34.40 28.76 31.34 0.13

December 31, 2003 36.00 31.22 33.06 0.13

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Nationwide, Nationwide Financial and the Nationwide Framemark are federally registered service marks of Nationwide Mutual Insurance Company. On Your Side is a service mark of Nationwide Mutual Insurance Company. America’s marketFLEX and The Best of America Next Generation II are federally registered service marks of Nationwide Life Insurance Company. © 2005, Nationwide Financial Services, Inc. All rights reserved.

Nationwide Financial Services, Inc.One Nationwide PlazaColumbus, OH 43215 G-9239-G

Nationw

ide Fin

ancial 2004 A

nn

ual Report

2004 nationwide financial annual report

Economy & Finance