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Nationwide Financial Services Inc – ‘DEF 14A’ for 5/5/04

On:  Wednesday, 3/31/04, at 10:36am ET   ·   Effective:  3/31/04   ·   For:  5/5/04   ·   Accession #:  1193125-4-54573   ·   File #:  1-12785

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/31/04  Nationwide Financial Services Inc DEF 14A     5/05/04    1:860K                                   RR Donnelley/FA

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 1: DEF 14A     Nationwide Financial Services DEF 14A               HTML    700K 

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

(Amendment No. )

Filed by the Registrant    x

Filed by a Party other than the Registrant    ¨

Check the appropriate box:

Nationwide Financial Services, Inc.

(Name of Registrant as Specified in its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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March 31, 2004

Nationwide Financial Services, Inc.

One Nationwide Plaza

Columbus, Ohio 43215-2220

Dear Nationwide Financial Services, Inc. Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of Nationwide Financial Services, Inc. on May 5, 2004. The meeting will begin at 1:30 p.m. at the home office of Nationwide Financial Services, Inc. located at One Nationwide Plaza, Columbus, Ohio 43215-2220.

Included with this letter are the official Notice of Annual Meeting of Shareholders, Proxy Statement and form of proxy. The matters listed in the Notice of Annual Meeting of Shareholders are described in detail in the Proxy Statement.

The vote of every shareholder is important. Please sign, date and promptly return your proxy to us by mail in the enclosed postage paid envelope. Alternatively, you may vote your proxy by telephone or via the Internet instead of mailing the proxy card. Please refer to the proxy card for voting instructions. Our Board of Directors and management look forward to greeting those shareholders who are able to attend.

Sincerely,

/s/ W.G. Jurgensen

W.G. Jurgensen

Chief Executive Officer

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NATIONWIDE FINANCIAL SERVICES, INC.

One Nationwide Plaza

Columbus, Ohio 43215-2220

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

March 31, 2004

To the Shareholders of Nationwide Financial Services, Inc.:

The Annual Meeting of Shareholders of Nationwide Financial Services, Inc. will be held at 1:30 p.m. on May 5, 2004, at One Nationwide Plaza, Columbus, Ohio 43215-2220, for the following purposes:

1. Elect the Class I directors to serve until the expiration of their terms and until their successors are elected;

2. Ratify the appointment of KPMG LLP as independent auditors of the Company for the year ending December 31, 2004;

3. Approve the Third Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan;

4. Approve the Amended and Restated Stock Retainer Plan for Non-Employee Directors; and

5. Transact such other business as may properly come before the Annual Meeting of Shareholders, or any adjournments thereof.

The Board of Directors has set March 8, 2004 as the record date for the Annual Meeting of Shareholders. Shareholders of record at the close of business on March 8, 2004 are entitled to vote on the matters submitted to a vote at the Annual Meeting of Shareholders. At least ten (10) days prior to the Annual Meeting of Shareholders, a complete list of shareholders entitled to vote at the Annual Meeting of Shareholders will be available for examination in our Secretary’s office during ordinary business hours.

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NATIONWIDE FINANCIAL SERVICES, INC.

One Nationwide Plaza

Columbus, Ohio 43215-2220

PROXY STATEMENT

We are providing these proxy materials in connection with the solicitation of proxies by the Board of Directors of Nationwide Financial Services, Inc. (which we refer to as “NFS” or the “Company”) to be voted at our Annual Meeting of Shareholders to be held on May 5, 2004, and at any adjournments of the meeting.

General Information About the Meeting and Voting

We will arrange for custodians, nominees and fiduciaries to forward proxy solicitation materials to beneficial owners of record. We will reimburse these individuals for reasonable expenses incurred in connection with forwarding proxy materials.

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If you are a registered shareholder of the Company, you may obtain a new proxy card by contacting Mellon Investor Services at 1-866-541-9688. If you are not a registered shareholder of the Company, you will need to contact your broker to obtain a new proxy card.

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In the election of directors, shareholders may cast votes “for” or “withhold” votes. Shareholder votes that are withheld will not be included in the vote and will not affect the outcome.

Shareholders may cast votes “for,” “against” or “abstain” when voting with respect to the ratification of KPMG LLP as independent auditors of the Company for the year ending December 31, 2004.

Shareholders may cast votes “for,” “against” or “abstain” when voting to approve the Third Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan and the Amended and Restated Stock Retainer Plan for Non-Employee Directors.

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If you return a properly signed proxy card but do not indicate how your shares should be voted, the proxy holders will vote your shares “for”:

Shareholders who participate in householding will continue to receive separate proxy cards.

Householding will not affect dividend check mailings in any way.

If a single copy of the annual report and proxy statement was delivered to an address that you share with another shareholder and you desire another copy, at your request to Kevin G. O’Brien, Vice President—Investor Relations, One Nationwide Plaza, Columbus, Ohio 43215-2220, we will promptly deliver a separate copy.

Some brokerage firms have adopted householding. If you hold your shares in “street name,” please contact your bank, broker or other holder of record to request information about householding.

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PROPOSAL 1

ELECTION OF DIRECTORS

The Company’s Board of Directors currently consists of thirteen directors divided into three classes: I, II and III. At each Annual Meeting of Shareholders, directors of one class will be elected for a three-year term to succeed the directors whose terms are expiring. At this year’s Annual Meeting of Shareholders, four Class I directors will be elected to hold office until the 2007 Annual Meeting of Shareholders and until their successors are elected. Henry S. Holloway is not seeking reelection as a Class I director and is retiring from the Board of Directors. James G. Brocksmith, Jr., Keith W. Eckel, James F. Patterson and Gerald D. Prothro are the nominees for Class I directors. Messrs. Brocksmith, Patterson and Prothro each currently serve as a Class I director of the Company and have agreed to continue to serve if elected. Keith W. Eckel is a new nominee for the Board of Directors. He was recommended as a nominee by the Governance Committee and approved as a nominee by all of the current members of the Board of Directors of the Company.

Information regarding the Class II and Class III directors who will continue in office after the Annual Meeting of Shareholders until the expiration of their terms as well as the nominees for the Class I directors is listed below:

NOMINEES FOR CLASS I DIRECTORS

CLASS II DIRECTORS

CLASS III DIRECTORS

The Board of Directors recommends that shareholders

vote “FOR” all of the Class I nominees for election as directors.

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Biographical Information

Arden L. Shisler has been Chairman of the Board since June 2003, and a director of the Company since November 1996. He has been Chairman of the Board since June 2003, and a director of Nationwide Life Insurance Company (“Nationwide Life”) and Nationwide Life and Annuity Insurance Company (“Nationwide Life and Annuity”) since May 2002. He is a director and Chairman of the Board of Nationwide Mutual Insurance Company (“Nationwide Mutual”), Nationwide Mutual Fire Insurance Company (“Nationwide Mutual Fire”) and Nationwide Corporation. He also serves as trustee for the following registered investment companies: Gartmore Mutual Funds since February 2000 and Gartmore Variable Insurance Trust since July 2000. Mr. Shisler has been consultant to K & B Transport, Inc., a trucking firm in Dalton, Ohio, since January 2003. Previously he was President and Chief Executive Officer of K & B Transport, Inc. from January 1992 to January 2003, and Chief Operating Officer from April 1986 to January 1992.

W.G. Jurgensen has been Chief Executive Officer of the Company since August 2000, and was Chairman of the Board from January 2001 to June 2003, and Chief Executive Officer-Elect from May to August 2000. He has been a director of the Company since May 2000. He has also been Chief Executive Officer of Nationwide Mutual, Nationwide Mutual Fire, Nationwide Life and Nationwide Life and Annuity, since August 2000, was Chief Executive Officer-Elect of those companies from May to August 2000 and has been a director of Nationwide Mutual, Nationwide Mutual Fire, Nationwide Life and Nationwide Life and Annuity since May 2000. He also serves as a director of several other companies within Nationwide, which is comprised of the Company, Nationwide Mutual, Nationwide Mutual Fire and all of their respective subsidiaries and affiliates (collectively, “Nationwide”). Previously, he was Executive Vice President of Bank One Corporation from 1998 to May 2000. Mr. Jurgensen was Executive Vice President of First Chicago NBD Corporation and Chairman of FCC National Bank from 1996 to 1998. Mr. Jurgensen has been a director of ConAgra Foods, Inc., a producer and marketer of food products, since August 2002.

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 and a director of Nationwide Life and Nationwide Life and Annuity since April 1996. He also serves as a director of several other Nationwide companies. Previously, he was Executive Vice President—Property and Casualty Operations of Nationwide Mutual and Nationwide Life from April 1995 to April 1996. He was Senior Vice President—Property and Casualty Operations of Nationwide Mutual and Nationwide Life from September 1993 to April 1995. Prior to that time, Mr. Gasper held various management positions in other Nationwide companies. Mr. Gasper has announced his intention to retire from all of his Nationwide director and officer positions following the Company’s Annual Meeting in May 2004.

Joseph A. Alutto has been a director of the Company, Nationwide Life and Nationwide Life and Annuity since May 2002. Mr. Alutto has been Dean of the Fisher College of Business at The Ohio State University since March 1991. He has been a director of United Retail Group, Inc., a retailer of women’s apparel and accessories, since December 1992.

James G. Brocksmith, Jr. has been a director of the Company since April 1997, and a director of Nationwide Life and Nationwide Life and Annuity since May 2002. Mr. Brocksmith retired from KPMG LLP in January 1997, where he was Deputy Chairman and Chief Operating Officer. Mr. Brocksmith was employed at KPMG LLP for 32 years. He has been a director of Worthington Industries, a diversified metal processing company, since February 2003; a director of Alberto-Culver Company, a manufacturer and marketer of consumer products, since October 2002; a director of Sempra Energy, a designer and implementer of energy solutions for businesses, governments and institutions, since October 2001; and a director of AAR Corporation, a supplier to the aviation/aerospace industry, since January 2001.

Keith W. Eckel is nominated for election as a Class I director. He has been a director of Nationwide Mutual and Nationwide Mutual Fire since 1996 and Nationwide Corporation since 1998. Mr. Eckel also serves as the Chairman of the Board of Allied Group, Inc., a subsidiary of Nationwide Mutual. He is a partner of Fred W. Eckel Sons and president of Eckel Farms, Inc. in northeast Pennsylvania.

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Lydia M. Marshall has been a director of the Company since February 1997, and a director of Nationwide Life and Nationwide Life and Annuity since May 2002. Ms. Marshall has been Chair and Chief Executive Officer of Versura Inc., an Internet-based service provider to financial institutions, colleges and universities, since October 1999. Previously, she was Managing Director of Rockport Capital Incorporated from 1997 to October 1999, and Executive Vice President—Marketing of the Student Loan Marketing Association (“Sallie Mae”) from 1993 to 1997. Prior to that time, Ms. Marshall held several positions with Sallie Mae and Citicorp. Ms. Marshall has been a director of Nationwide Mutual, Nationwide Mutual Fire and Nationwide Corporation since October 2001, and also serves as a director of Scottsdale Insurance Company (“Scottsdale”), a subsidiary of Nationwide Mutual.

Donald L. McWhorter has been a director of the Company since February 1997, and a director of Nationwide Life and Nationwide Life and Annuity since May 2002. Mr. McWhorter retired from Banc One Corporation in April 1995 after serving as President and Chief Operating Officer since April 1992. Previously he was Chairman and Chief Executive Officer of Banc One Ohio Corporation from July 1989 to April 1992. Prior to that time, Mr. McWhorter held other positions with Banc One.

David O. Miller has been a director of the Company since November 1996, and a director of Nationwide Life and Nationwide Life and Annuity since May 2002, as well as from April 1985 until May 2001. Mr. Miller has been a land and apartment developer since 1962. He has been the President of Owen Potato Farm, Inc. since 1962 and has been a partner of Newark Properties LTD since 2000. Previously, Mr. Miller was a partner of M&M Enterprises in Licking County, Ohio, from 1974 to 2001. He served as Chairman of the Board of Nationwide Life, Nationwide Life and Annuity and Nationwide Corporation from April 1998 to May 2001. Mr. Miller serves on the boards of directors of several other Nationwide companies and as Chairman of the Board of Scottsdale.

Martha Miller de Lombera has been a director of the Company, Nationwide Life and Nationwide Life and Annuity since August 2003. Ms. Miller de Lombera retired from Procter & Gamble in April 2001, where she was Vice President and General Manager of the company’s Latin American North Market Development Organization. She was employed at Procter & Gamble for 25 years. Ms. Miller de Lombera has been a director of Ryerson Tull, Inc., a North American distributor and processor of metals since January 2004, and a director of Grupo Aeroportunario del Sureste, S.A. de C.V., an airport operator in southeastern Mexico, since March 2001.

James F. Patterson has been a director of the Company since November 1996, and a director of Nationwide Life and Nationwide Life and Annuity since May 2002, as well as from April 1989 until May 2001. He has served as director and Vice Chairman of Nationwide Mutual, Nationwide Mutual Fire and Nationwide Corporation since April 2001. He formerly served as Chairman of the Board of Nationwide Mutual Fire and currently serves on the board of Allied Group, Inc., a subsidiary of Nationwide Mutual. 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.

Gerald D. Prothro has been a director of the Company since February 1997, and a director of Nationwide Life and Nationwide Life and Annuity since May 2002. Mr. Prothro has been Managing Director of IKT Investments, Ltd. since December 2000. Mr. Prothro was Senior Vice President and Chief Technology Officer at BroadStream Communications Corporation from May 1999 to December 2000. Previously, he was Managing Director of IKT, Inc. from July 1998 to May 1999. He retired from International Business Machines (“IBM”) Corporation in 1998 after nearly 30 years of service. Mr. Prothro held executive positions with IBM including Vice President for Corporate Strategy, Vice President and IBM Chief Information Officer, and IBM Director and Secretary of the Corporate Management Committee.

Alex Shumate has been a director of the Company, Nationwide Life and Nationwide Life and Annuity since May 2002. Mr. Shumate has been a partner of the law firm of Squire, Sanders and Dempsey since February 1988 and Managing Partner of its Columbus office since 1991. He has been a director of Wm. Wrigley Jr. Company, a provider of consumer foods, since 1998.

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The listing of Executive Officers and biographical sketches appear in the Company’s Annual Report on Form 10-K for year ended December 31, 2003.

The Board of Directors and its Committees

The full Board of Directors met seven (7) times during 2003. The Board of Directors has the following standing committees: an Audit Committee (the “Audit Committee”), a Compensation Committee (the “Compensation Committee”), a Governance Committee (the “Governance Committee”), a Finance Committee (the “Finance Committee”) and an Officer Election Committee (the “Officer Election Committee”). The Governance Committee serves as the nominating committee.

The charters of the Audit Committee, Compensation Committee and Governance Committee, the Governance Guidelines and other governance documents are posted on the Company’s website (http://www.nationwidefinancial.com) under the Corporate Governance subsection of the Investor Relations area of the website. They are also available in print, free of charge, to any shareholder who requests from Kevin G. O’Brien, Vice President—Investor Relations, One Nationwide Plaza, Columbus, Ohio 43215-2220, or you may call (614) 677-5331.

Audit Committee

The Audit Committee is a separately designated standing committee of the Board of Directors established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee consists of four directors, all of whom are independent as defined by the Independence Standards for Directors adopted by the Company’s Board of Directors and the NYSE listing standards currently applicable and in effect until the day of the Annual Meeting of Shareholders. The purpose of the Audit Committee is to engage and oversee the Company’s independent auditors and to assist the Board of Directors in its oversight of:

The Audit Committee operates under a written charter approved by the Board of Directors. The charter provides that the Audit Committee’s responsibilities fall into five categories of activities as generally described below:

Authority and Committee Governance Activities

The Audit Committee reviews its charter annually and updates it as necessary. It also receives reports from management and the independent auditors as it requests or as is required by law or regulation, including reports required by the Sarbanes-Oxley Act of 2002 and the listing standards of the NYSE. It also receives and considers the regular reports of management regarding the establishment, and quarterly and annual assessments of, internal controls and disclosure controls, including any significant deficiencies in the controls or any fraud involving management or other employees who have a significant role in such controls. The Audit Committee meets separately and periodically with management, internal auditors and the independent auditors. It conducts an annual performance self-evaluation.

Engagement and Oversight of Independent Auditors

The Audit Committee appoints (subject to ratification by the shareholders), terminates, compensates and oversees the work of the Company’s independent auditors who report to the Audit Committee. It reviews and

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approves the scope and plan of the annual audit by the independent auditors. It establishes and annually reviews the Company’s policy regarding engagement of independent audit firms and approves all audit and non-audit services (and related fees) provided by such firms. At least annually, the Audit Committee obtains and reviews a report by the independent auditor describing the firm’s internal quality control review, any peer review of the firm, or any inquiry board investigation by governmental or professional authorities within the preceding five years, as well as any steps taken to deal with any issues raised by such reviews. It also reviews any audit problems or difficulties with management’s response with the Company’s independent auditors, sets hiring policies for the Company’s employment of current or former employees of the independent auditor and approves the assignment and required rotation of the independent auditor lead engagement and review partners.

Oversight of Financial Reporting Activities

The Audit Committee discusses the annual audited financial statements and quarterly financial statements with management and the independent auditors, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” discusses earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies and timely reviews, with management and the independent auditors, the audit of the Company’s financial statements.

Oversight of Internal Audit Function

The Audit Committee ensures that the Company establishes and maintains an effective internal audit function, and considers and reviews with management: any significant findings, management’s responses thereto, and the adequacy of the Company’s internal controls.

Other Activities

The Audit Committee may engage and compensate independent counsel and other advisers as its deems necessary to carry out its duties; discusses policies with respect to risk assessment and risk management; reviews with management the results of the Company’s monitoring of compliance with the conflict of interest policy, waivers of that policy and required disclosure of such waivers; and reviews management’s assessment of legal and regulatory matters that may have a material impact on the financial statements, related Company compliance policies and programs and reports received from regulators. The Audit Committee reports its actions to the Board of Directors regularly.

Ms. Marshall and Messrs. Alutto, Brocksmith, and Prothro are members of the Audit Committee. Currently, Mr. Brocksmith serves on the board of directors and audit committee of four other public companies. The Board of Directors has determined that such service will not impair his ability to effectively serve on the NFS Board of Directors and Audit Committee.

Mr. Brocksmith, who is independent under the NYSE listing standards, has been designated by the Board of Directors as an audit committee financial expert. The Audit Committee met twelve (12) times during 2003. For more information regarding the activities of the Audit Committee, see the Audit Committee Report later in this Proxy Statement.

Compensation Committee

The Compensation Committee consists of four directors, all of whom are independent as defined by the NYSE listing standards and the Independence Standards for Directors adopted by the Company’s Board of Directors. The Compensation Committee’s primary purpose is to discharge the responsibilities of the Board of Directors as they relate to the compensation of the Company’s executives. The Compensation Committee also carries out the Board’s oversight responsibilities by reviewing the human resources, compensation and benefit practices and provides an annual report on executive compensation for inclusion in the annual proxy statement.

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The Compensation Committee operates under a written charter approved by the Board of Directors. The charter provides that the Compensation Committee’s duties include, among other things:

The Compensation Committee has the sole authority to retain and terminate any consultant assisting in the evaluation of the compensation of the Board or any officer and has the power to retain independent counsel, auditors or others to assist in the conduct of any investigation into matters within the Compensation Committee’s scope of responsibilities.

Messrs. Brocksmith, McWhorter, Miller and Prothro are the members of the Compensation Committee. The Compensation Committee met six (6) times during 2003.

Governance Committee

The Governance Committee consists of five directors, all of whom are independent as defined by the NYSE listing standards and the Independence Standards for Directors adopted by the Company’s Board of Directors. The Governance Committee’s primary purposes are to:

The Governance Committee operates under a written charter approved by the Board of Directors. The charter provides that in meeting its responsibilities, the Governance Committee, among other things:

The Governance Committee has the sole authority to retain and terminate any search firm to identify director candidates and has the power to retain independent counsel, auditors or others to assist it in the conduct of any investigation into matters within the Governance Committee’s scope of responsibilities.

The Governance Committee has recommended and the Board has adopted a policy with respect to consideration of director nominations by shareholders who are entitled to vote in the election of directors of the Company. This policy is also posted on the Company’s website (http://www.nationwidefinancial.com) under the Corporate Governance subsection of the Investor Relations area of the website. The Policy on Director Nominations provides that recommendations concerning potential candidates may be submitted to the Secretary of the Company by mailing the recommendations to One Nationwide Plaza, 1-38-03, Columbus, Ohio 43215-2220. Any recommendations from shareholders should be accompanied by a detailed résumé of the

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candidate, a description of his or her relationship to the nominating shareholder and the Company (if any), the consent of the candidate to serve as a director in the event he or she is nominated and elected and a description of the nominating shareholder’s relationship to the Company, including documentation reflecting the number and type of securities owned and the period for which the securities have been held. Recommendations must be received not later than October 31 of each calendar year for consideration in connection with elections to be held at the following year’s Annual Meeting of Shareholders.

Recommended candidates are evaluated based on the criteria set forth in the Company’s Governance Guidelines and Policy Statement Regarding Board Composition and Selection of New Board Members, both of which are also posted on the same area of the Company’s website described above. The process is the same for all nominees, including those recommended by shareholders. Generally, as set forth in the Governance Guidelines, the Governance Committee will recommend candidates for election to the Board of Directors who complement the existing range of experience, expertise and relationships. In addition, candidates must be dedicated to the long-term interests of the Company, its shareholders and customers. The candidate must have the time to carry out all of the duties of a director of the Company and must have the personal skills to be a contributing and productive member of the Board of Directors.

The Policy Statement Regarding Board Composition and Selection of New Board Members contains the process for identifying potential candidates for election to the Board of Directors. The Policy Statement provides that the Governance Committee has the responsibility for recommending a candidate to fill a Board vacancy, but the ultimate decision on the nomination of a candidate is solely that of the Board as a whole. Because of the importance of the Board to the success of the Company, the process by which the Governance Committee decides on its recommendations is of the utmost importance. The Governance Committee has the following responsibilities as part of this process:

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The Governance Committee has also recommended and the Board has adopted the Nationwide Financial Services, Inc. Procedure for Communications with the Board of Directors, which is also posted on the Company’s website (http://www.nationwidefinancial.com) under the Corporate Governance subsection of the Investor Relations area of the website. The procedure incorporates the SEC’s rules relating to communications between shareholders and boards of directors, and provides a process through which interested parties may submit communications to the Company’s Board of Directors or its individual members.

The Governance Committee will also consider other issues related to corporate governance. Messrs. Brocksmith, McWhorter, Miller, Patterson and Shisler are the members of the Governance Committee. The Governance Committee met eight (8) times during 2003.

Finance Committee

The Finance Committee consists of seven directors, none of whom is an officer or employee of the Company. The Finance Committee is responsible for reviewing the investments, significant financial transactions and financial status of the Company. The Board of Directors has approved the written charter of the Finance Committee. Mmes. Marshall and Miller de Lombera and Messrs. Alutto, Holloway, McWhorter, Patterson and Shumate are the members of the Finance Committee, which met six (6) times during 2003.

Officer Election Committee

The Officer Election Committee consists of a single member, W.G. Jurgensen. The Board of Directors has, by resolution, delegated to the Officer Election Committee the authority to elect officers of the Company, other than senior vice presidents and more senior officers. The Officer Election Committee met two (2) times during 2003.

Governance Guidelines

The Board of Directors of NFS, upon recommendation of the Governance Committee, adopted Governance Guidelines on March 5, 2003. The Governance Guidelines address the responsibilities, operations and compensation of the Board of Directors. They also provide for an annual self-evaluation of the effectiveness of the Board of Directors and its committees.

The Governance Guidelines also address the qualifications for membership on the Board, outlining the process for identifying and selecting candidates for election or re-election to the Board. The goal, as identified in the Governance Guidelines, is to create a board which has, as a whole, the skills and background necessary to help NFS deal with the challenges it faces. The Governance Guidelines provide that directors are not eligible for re-election after attaining age 70. Candidates will be selected so that the Board will have a majority of directors who meet the criteria for independence required by the NYSE listing standards.

The Governance Committee is responsible for annually reviewing with the Board the requisite skills and characteristics of Board members as well as the composition of the Board as a whole. This assessment will include directors’ qualifications as independent, as well as considerations of diversity, age, skills and experience in the context of the needs of the Board.

The Board has, and has always fulfilled, a fiduciary duty to nominate only those who it believes, after appropriate inquiry, will serve the best long-term interests of the Company. In deciding whether to re-nominate a director, the Board should consider the recommendations of the Governance Committee, as well as the director’s contribution to the Board and to the Company. The Governance Committee should consider all relevant factors, including its own experience in working with the director and the results of a Board self-evaluation process, which the Governance Committee should arrange to be conducted annually. In addition, the Governance Committee must consider the member’s status as an independent director, as defined in the NYSE listing standards mentioned above.

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The Governance Guidelines prohibit directors from serving on the boards of directors of more than three other public companies, or on the audit committee of more than two other public companies, unless the Board of Directors determines that such simultaneous service would not impair the ability of the director to effectively serve on the NFS Board of Directors or Audit Committee, as applicable. Any determination by the Board of Directors approving of service on more than three public company audit committees will be disclosed in the annual proxy statement.

Additional Governance Policies

Upon recommendation of the Governance Committee, on March 5, 2003 the Board of Directors of the Company adopted several governance policies reflecting the Governance Committee’s ongoing review of the Company’s governance structures, as well as policies to implement the requirements of the Sarbanes-Oxley Act of 2002 and the NYSE listing standards. Among the policies adopted by the Board of Directors is a process for:

The Board of Directors adopted a revised version of the Nationwide Code of Conduct and Business Practices which is posted on the Company’s website (http://www.nationwidefinancial.com) under the Corporate Governance subsection of the Investor Relations area of the website. The code is available in print, free of charge, to any shareholder who requests it. You may request a copy by contacting Kevin G. O’Brien, Vice President—Investor Relations, One Nationwide Plaza, Columbus, Ohio 43215-2220, or you may call (614) 677-5331. All directors, officers and employees of the Nationwide group of companies are required to adhere to the code. As required by the Securities and Exchange Commission regulations and the listing standards of the NYSE, the code contains written standards designed to deter wrongdoing and to promote honest, ethical conduct including ethical handling of conflicts; full, fair, accurate, timely and understandable disclosure in regulatory reports and public communications; compliance with laws, rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the code. It also contains compliance standards and procedures that facilitate the effective operation of the code. Any waivers from, or amendments to, the code for directors and executive officers must be approved by the Board of Directors or a designated board committee and will be promptly disclosed to the shareholders by posting any waiver on the website listed above.

On March 3, 2004, the Board of Directors of the Company adopted Independence Standards for Directors of the Company which are attached to this Proxy Statement as Appendix A and posted on the Company’s website (http://www.nationwidefinancial.com) under the Corporate Governance subsection of the Investor Relations area of the website. These standards contain objective standards that the Board has determined are appropriate. The Company qualifies as a “controlled company¹” under the NYSE listing standards, and therefore is not required to meet the NYSE listing standards that require a majority of the full Board and one hundred percent of the Compensation and Governance Committees be composed of independent directors. The Board of Directors of the Company believes it is good corporate governance to comply with these requirements. The Board, upon recommendation of the Governance Committee, also determined the independence of each Board member at its meeting on March 3, 2004 in accordance with the Independence Standards for Directors. The Board determined that ten out of the thirteen directors meet the Independence Standards for Directors and have no material relationship with the Company. The following are the independent directors: Mmes. Marshall and Miller de Lombera and Messrs. Shisler, Alutto, Brocksmith, Holloway, McWhorter, Miller, Patterson and Prothro.

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The non-management directors of the Company meet in regularly scheduled executive sessions without management. Mr. Shisler, the independent Chairman of the Board, presides over each executive session. Interested parties may make their concerns known to Mr. Shisler or the non-management directors as a group by using the procedures set forth in the Procedure for Communications with the Board of Directors posted on the Company’s website.

Director Attendance

During fiscal year 2003, each director attended all of the meetings of the Board of Directors and the committees of the Board of Directors on which he or she served during the period of his or her service as a director or a member of a committee.

It is the policy of the Board of Directors that each of its members should attend the Annual Meeting of Shareholders of the Company unless the absence of a director is unavoidable as a result of a conflict or factor beyond the control of the director. All of the then current directors of the Company were in attendance at the last Annual Meeting of Shareholders.

Director Compensation

Members of the Board of Directors who are employees of the Company or its affiliates are not separately compensated for service on the Board of Directors or any of its committees.

During 2003, directors of the Company who are not employees of the Company or its affiliates received an annual cash retainer of $27,500; a stock retainer consisting of a grant of shares of Class A Common Stock of the Company having a value of $27,500; and a stock option grant valued at $45,000 for service on the Board and its committees. The cash and stock retainers are paid in monthly installments. In addition, the Chairman of the Board received a supplemental annual retainer of $40,000, paid one-half in cash and one-half in shares of the Company’s Class A Common Stock, for his additional duties. This supplemental retainer of cash and stock is also paid in monthly installments.

The 2003 stock option grant to the directors of the Company was made on March 4, 2003, and had an exercise price of $23.28, which was equal to the fair market value of the Class A Common Stock on that date. One-third of the options granted become exercisable on each of the first three anniversary dates of the grant and the grants have a ten-year term. The non-employee directors also received a cash meeting fee of $1,500 for each board or committee meeting attended. Committee chairmen receive an additional $500 per committee meeting attended and all directors are reimbursed for reasonable travel expenses incurred in attending meetings.

An additional retainer of $15,000 is payable in cash to the members of special committees, if and when such committees are established by the Board of Directors.

Compensation for the non-employee members of the Board of Directors of the Company was revised effective January 1, 2004. The director compensation arrangements for 2004 are described below.

In 2004, directors of the Company who are not employees of the Company or its affiliates will receive an annual cash retainer of $32,500; a stock retainer consisting of a grant of shares of Class A Common Stock of the Company having a value of $32,500; and a stock option grant valued at $45,000 for service on the Board and its committees. The retainers of cash and stock are paid in monthly installments. The Chairman of the Board receives a supplemental annual retainer of $40,000, paid one-half in cash and one-half in shares of the Company’s Class A Common Stock, for his additional duties. This supplemental retainer of cash and stock is also paid in monthly installments.

In addition, the cash meeting fee increased to $2,250 for each Audit Committee meeting attended, and to $2,000 for each other board or committee meeting attended. Committee chairmen continue to receive an

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additional $500 per committee meeting attended and all directors are reimbursed for reasonable travel expenses incurred in attending meetings.

No change was made to the amount of the additional retainer ($15,000), which is payable in cash to the members of special committees, if and when such committees are established by the Board of Directors.

Directors may elect annually to defer any or all of their cash compensation for board service. Amounts deferred earn a return equivalent to the rate of return on selected investment choices offered under the Nationwide Board of Directors’ Deferred Compensation Plan.

Prior to 2002, if a non-employee director of the Board did not receive life, accident, health and dental insurance benefits (“Welfare Benefits”) as a result of service on the board of another Nationwide company, the Company would provide such Welfare Benefits. Effective January 1, 2002, non-employee directors were offered a one-time choice of an annual award of stock options (maximum value $5,000) in lieu of the Welfare Benefits. Non-employee directors who are first elected after September 10, 2001 receive only the stock option grant of $5,000 a year; no Welfare Benefits are offered.

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EXECUTIVE COMPENSATION AND OTHER INFORMATION

The salaries and benefits of certain officers and employees of the Company and its subsidiaries, including some of the executive officers named in the table below, will be paid by Nationwide Mutual and reimbursed in accordance with the terms of the Amended and Restated Cost Sharing Agreement. See the section of this Proxy Statement entitled “Certain Relationships and Related Transactions” for a description of the Amended and Restated Cost Sharing Agreement.

The following table provides certain information concerning compensation received by the Company’s Chief Executive Officer and the four other most highly paid executive officers in 2003. It includes information for the fiscal years ended December 31, 2003, 2002 and 2001 for services rendered to the Company and its subsidiaries.

SUMMARY COMPENSATION TABLE

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OPTION/SAR GRANTS IN LAST FISCAL YEAR

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND

FISCAL YEAR-END OPTION/SAR VALUES

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Pension Plans

Retirement Plan

Nationwide maintains a qualified defined-benefit plan called the Nationwide Retirement Plan (“NRP”), which was restated effective January 1, 2002 to add an Account Balance feature. In general, the executive officers named in the Summary Compensation Table and other participants of NFS will receive an annual retirement benefit under the Nationwide Retirement Plan equal to the greater of the Final Average Pay (if applicable) or Account Balance formulas as described below:

The Final Average Pay (“FAP”) Formula

The FAP formula is computed as follows:

With respect to Messrs. Karas, Gasper, Thresher and Phelan, because their compensation is allocated solely to the Company and its subsidiaries, covered compensation includes the compensation listed under the headings Salary and Bonus shown in the Summary Compensation Table. Covered compensation for Mr. Jurgensen includes the amount set forth under the headings Salary and Bonus shown in the Summary Compensation Table and additional compensation amounts received for services rendered and allocated to other Nationwide companies.

The definition of Final Average Compensation changed on January 1, 1996. For service earned prior to that date, Final Average Compensation is the average of the highest three consecutive covered compensation amounts of the participant in the participant’s last 10 years of service. For service earned since 1995, Final Average Compensation is the average of the highest five 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 Nationwide company.

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 with certain Nationwide companies 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. New hires and rehires on or after January 1, 2002 are not eligible for the FAP formula.

Account Balance Formula

The Account Balance formula was added for all employees effective as of January 1, 2002. The notional account under this formula is comprised of the following components:

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A participant becomes fully vested after the completion of five years of vesting service. The NRP allows a participant the option of receiving their retirement plan benefit at any age – provided that they have at least five years of service when they leave Nationwide. If a participant leaves Nationwide at termination before age 65 years and decides to receive benefits before age 65, the monthly benefit amount earned will be reduced due to the longer payout period. A pre-retirement death benefit is payable to:

The NRP also provides for the funding of retiree medical benefits under Section 401(h) of the Internal Revenue Code.

Excess and Supplemental Plans

Nationwide maintains an unfunded, nonqualified defined-benefit excess benefit plan called the Nationwide Excess Benefit Plan. Nationwide also maintains an unfunded, nonqualified defined-benefit supplemental benefit plan called the Nationwide Supplemental Retirement Plan. Any participant of Nationwide or the Company, whose benefits are limited under the Nationwide Retirement Plan by reason of limitations under Internal Revenue Code Section 415 on the maximum benefit that may be paid under the Nationwide Retirement Plan will receive, under the Nationwide Excess Benefit Plan, that portion of the benefit that he or she would have been entitled to receive under the Nationwide Retirement Plan in the absence of such limitations. Officers who earn in excess of the limit on compensation set forth in Internal Revenue Code Section 401(a)(17) annually, who have at least five years of vesting service, and whose benefits under the Nationwide Retirement Plan are limited by reason of certain other limitations under the Internal Revenue Code, may receive benefits under the Nationwide Supplemental Retirement Plan. Benefits under the Nationwide Supplemental Retirement Plan will be:

For individuals participating in the Nationwide Supplemental Retirement Plan on January 1, 1999, benefits vest at the same time as benefits vest under the Nationwide Retirement Plan. Benefits under the Nationwide Excess Benefit Plan vest at the same time as benefits vest under the Nationwide Retirement Plan. Benefits for all other participants in the Nationwide Supplemental Retirement Plan vest over a period of five years of participation in that plan.

The chart below uses the Final Average Pay formula and indicates the estimated maximum annual retirement benefits that a hypothetical participant would be entitled to receive under the Nationwide Retirement Plan, including payments made under the Nationwide Excess Benefit Plan and Nationwide Supplemental Retirement Plan, 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 (as defined previously) equaled the amounts indicated. For purposes of the chart, it is assumed that the Final Average Compensation is the same whether measured over the three-year averaging period that applies to service accumulated prior to 1996 or the five-year period that applies to service accumulated after 1995. In actual operation, the total benefit received under the Nationwide

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Retirement Plan (including payments made under the Nationwide Excess Benefit Plan and Nationwide Supplemental Retirement Plan) would be the total of the benefit determined based on years of service earned under each method. We have not shown the Account Balance formula computations in the chart below because we believe that using the Final Average Pay formula will result in higher amounts.

PENSION PLAN TABLE

All executive officers named in the Summary Compensation Table have a portion or all of their benefits 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 Nationwide Retirement Plan for Messrs. Gasper and Karas was 29.5 years and 31.5 years, respectively. Messrs. Gasper and Karas have earned additional years of service since 1996. Messrs. Thresher and Phelan began participation in the Retirement Plan in 1997 and 1999, respectively. Mr. Jurgensen became eligible to participate in the Retirement Plan in 2001, but is entitled, pursuant to an agreement with Nationwide Mutual, to a retirement benefit of 4% of his highest five-year average compensation for each full or partial year of service with Nationwide, to a maximum of 16.25 years, if he completes at least five years of service or becomes entitled to severance benefits under the agreement. For purposes of such agreement, Mr. Jurgensen’s highest five-year average compensation is the greater of the average of his salary and annual incentive compensation over the five-year period, or the period of his employment by Nationwide. This benefit is reduced by the benefits received under the Nationwide Retirement Plan, Nationwide Excess Benefit Plan and Nationwide Supplemental Retirement Plan, as well as any benefit received under any defined benefit pension plans maintained by Mr. Jurgensen’s prior employers, and will be paid by Nationwide Mutual (not the Nationwide Retirement Plan). After 1995, the benefit of each executive officer named in the Summary Compensation Table will be calculated under the post-1995 five-year definition of Final Average Compensation. Covered compensation paid by the Company for the fiscal year ended December 31, 2003, for Messrs. Jurgensen, Gasper, Karas, Thresher and Phelan was as follows: Mr. Jurgensen, $906,152; Mr. Gasper, $1,270,646; Mr. Karas, $539,900; Mr. Thresher, $503,715 and Mr. Phelan, $466,608.

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REPORT OF THE COMPENSATION COMMITTEE

ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the “Compensation Committee”) established the components of compensation for executive officers for 2003. We describe our compensation philosophy and pay components for our executive officers in our report below.

Compensation Philosophy and Objectives

The Compensation Committee believes that the compensation program for our executive officers should support the Company’s business strategies and operate within a competitive framework. In addition, the Compensation Committee determines compensation based on the overall financial results of the Company, teamwork, and individual contributions that help build value for our shareholders. The goals of our compensation program are to:

Independent compensation consultants provide competitive market data to the Compensation Committee. This data compares our compensation practices to various groups of similar companies (referred to as the market comparison group). These companies compete with us for customers, capital and executives, and are similar to the Company in size, scope and business focus. This group includes both multi-line insurers and diversified financial organizations. The companies chosen for the market comparison group are not necessarily the same companies that comprise the peer group in the Performance Graph included later in this Proxy Statement. The market comparison group includes more companies than those in the peer group in order to provide the Compensation Committee a broader database for comparison purposes. This competitive market data is an important tool we use when we make decisions on compensation.

2003 Compensation

The principal components of compensation for the executive officers for 2003 are:

As described below, each component of compensation serves a somewhat different purpose. The description below applies to our executive officers other than Mr. Jurgensen, whose compensation is discussed in the section below titled Compensation of our Chief Executive Officer.

2003 Salary

Salaries compensate executive officers for individual performance and reward the executive for contributions to the achievement of the Company’s goals. We use salaries to retain, attract and motivate top-caliber executive talent.

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In determining adjustments to salaries for the executive officers for 2003, the Compensation Committee evaluated the executives’ level of responsibility, prior experience, expertise and value to the Company. We also considered industry salaries and salary practices of the market comparison group, recent Company performance, and individual contributions to the Company and Nationwide Mutual, Nationwide Mutual Fire and all of their respective subsidiaries and affiliates (collectively, “Nationwide”). When evaluating an individual’s performance for 2003, the Compensation Committee considered, among other things, the executive’s actions to:

Salaries for the executive officers named in the Summary Compensation Table other than the Chief Executive Officer increased by a weighted average of 2.5% in 2003, based on year ending base salaries, and were established by the Compensation Committee at levels consistent with our philosophy and objectives. The overall salary increase percent reflects individual performance, Company performance and increases for promotions. This rate of increase enables us to maintain competitive salaries.

2003 Annual Incentive Compensation

The SEIP, which is our annual incentive compensation plan, promotes our pay-for-performance philosophy by providing our executive officers with direct financial rewards in the form of annual incentives.

Each year, the Compensation Committee sets specific Company performance measures for the annual incentive plan. The Compensation Committee provides participants with a target incentive award opportunity as a percentage of their base salary. These targets are determined by considering the executive’s level of responsibility, value to the Company, and the annual incentive target levels among the market comparison group. The Compensation Committee awards annual incentives based on the Company’s success in meeting the performance targets. Under the plan’s formula, the Compensation Committee has discretion to make a downward (but not upward) adjustment of the calculated awards based on other criteria, which include an executive’s individual performance.

Annual incentive awards for 2003 were based on net operating return on equity, operating earnings per share and operating revenue growth. The Compensation Committee also considered the influence of other factors on Company and Nationwide performance, including individual performance. These discretionary factors may influence awards negatively, but cannot impact awards positively.

For 2003, individual targets for the executive officers named in the Summary Compensation Table other than the Chief Executive Officer ranged from 65% to 125% of salary. Individual payouts under the annual incentive plan may range from zero to 2.5 times the individual’s target incentive award opportunity. For 2003, the financial performance of the Company as indicated by the three factors referred to above resulted in a cash payout of 98% of target for Mr. Gasper, 81% of target for Mr. Karas, 99% of target for Mr. Thresher and 83% of target for Mr. Phelan.

2003 Long-Term Incentive Compensation

Long-term incentive compensation comprises a significant portion of an executive officer’s total compensation package consistent with our philosophy of emphasizing conditional or contingent components of compensation. When determining long-term incentive awards, the Compensation Committee considers the executive officer’s level of responsibility, position within the Company and Nationwide, prior experience, historical awards, various individual and Company performance criteria, and pay practices of the market comparison group.

We have one long-term incentive compensation plan, the LTEP, described below. This plan is designed to offer competitive pay and to align the executive officers’ interests with those of our shareholders.

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Second Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan

The LTEP authorizes grants of stock options, stock appreciation rights, restricted stock, performance stock and performance units. To the extent an award is performance based, performance measures considered in determining awards under this plan are chosen from among specified measures: earnings per share, economic value added, market share, net income, operating income, return on assets, return on capital, return on equity, return on investment, revenue, share price, stock price growth, or total shareholder return. The objectives of the LTEP are to encourage high levels of performance by selected directors, employees and agents of the Company and certain of its affiliates, to attract and retain high caliber individuals, and to align their interests with those of our shareholders.

During March 2003, the Compensation Committee made grants to our executive officers and others under the LTEP. The economic value of the grants made to the executives was based on individual targets that ranged from 100% to 280% of the salary range midpoint. These targets were established at the 50^th percentile of grant practices among the market comparison group. Award sizes were determined based on Company performance on selected performance measures and the individual’s recent past and potential future impact on the Company’s performance. Grants to the executive officers were awarded in the form of nonqualified stock options that have an exercise price equal to the fair market value of our Class A Common Stock on the date of the option grant and will vest at the rate of one third of the shares on each of the first three anniversaries of the date of grant. Nonqualified stock option grants to executive officers (excluding the Chief Executive Officer) ranged from 43,718 to 230,966 shares.

2003 Compensation of our Chief Executive Officer

Our Chairman and Chief Executive Officer, W.G. Jurgensen, is also the Chief Executive Officer of Nationwide Mutual and other Nationwide entities. Mr. Jurgensen’s compensation is allocated among the companies in the Nationwide organization for which he provides services pursuant to the Amended and Restated Cost Sharing Agreement in such portions as determined each year in advance by the Compensation Committee and the Nationwide Mutual Human Resources Committee. Pursuant to the terms of this agreement, Nationwide Mutual pays his compensation, and the other companies in the Nationwide organization reimburse Nationwide Mutual. The compensation reported for Mr. Jurgensen in this Proxy Statement and discussed in this report is the amount of his total compensation that is allocated to the Company and its subsidiaries.

The Compensation Committee determined Mr. Jurgensen’s 2003 compensation in accordance with the same philosophy and objectives described earlier in this report and used for all executive officers, and incorporating a review of compensation practices from members of the peer group of companies identified in the Performance Graph included later in this Proxy Statement. In determining the salary compensation of Mr. Jurgensen for 2003, the Compensation Committee reviewed the financial results of the Company and Nationwide for 2002, his strong leadership, his clear strategic vision and his continued cultural transformation of the Company. The Compensation Committee also took into account the provisions of Mr. Jurgensen’s employment agreement, which are described in detail in the next section of this Proxy Statement. The portion of Mr. Jurgensen’s salary allocated to the Company was $300,000 in 2003. He received the same salary for 2003 that he received for 2002. In addition, in 2003 he received additional use of the Company plane in lieu of a recommended 4.0% salary increase for 2003. This salary continues to position Mr. Jurgensen’s base salary compensation at approximately the 50th percentile of the market comparison group.

The portion of Mr. Jurgensen’s annual incentive compensation allocated to the Company and paid as cash in 2003 under the SEIP was $771,919. In determining the annual incentive compensation award for Mr. Jurgensen for 2003, the Compensation Committee and the Board of Directors reviewed the level of achievement of specified 2003 NFS financial goals. It was allocated and paid pursuant to the terms of the Amended and Restated Cost Sharing Agreement.

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During March 2003, pursuant to the LTEP, the Compensation Committee granted Mr. Jurgensen options to purchase 234,058 shares of our Class A Common Stock. The Compensation Committee took into account Mr. Jurgensen’s role in the continued strategic positioning of the Company, Company performance, relative shareholder return and prior awards to the CEO. In addition, this grant reflects approximately the 50^th percentile of long-term compensation for chief executive officers of the market comparison group and of compensation practices from members of the peer group of companies identified in the Performance Graph included later in this Proxy Statement. The award of the Compensation Committee reflects the Company’s desire to have top officers build a significant personal level of stock ownership in the Company, so as to better align their interests with those of our shareholders.

Ownership Guidelines

The Compensation Committee and Board of Directors of the Company adopted stock ownership guidelines during 2002 to further encourage executive officers and directors of the Company to build and maintain ownership of the Company’s Class A Common Stock. The ownership guidelines suggest that directors build stock ownership in the Company’s Common Stock so that the directors build and maintain holdings in our Common Stock with a minimum value of three times their annual retainer within three years and a minimum value of five times their annual retainer within five years. Our Chief Executive Officer is encouraged to build and maintain his stock ownership over the same three and five year periods so that his holdings in our Common Stock are valued at a minimum of four times and five times, respectively, the annual salary he receives for services to the Company and all other Nationwide companies. Finally, senior executive officers of the Company are encouraged to build and maintain holdings of the Company’s Common Stock over a three-year period so that each is valued at a minimum of between one and three times their annual salary, depending on each participant’s level within Nationwide. The five-year minimum guideline range for senior executive officers is between two and four and one half times their annual salary, depending on each participant’s level within Nationwide. The Compensation Committee monitors progress towards achieving the ownership guidelines.

Policy on Deductibility of Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), provides that executive compensation in excess of $1.0 million paid to certain of a company’s executive officers in any calendar year is not deductible for purposes of corporate income taxes, unless it is performance-based compensation and is paid pursuant to a plan meeting certain requirements of the Code. The Compensation Committee will continue to rely on performance-based compensation programs. Programs will be designed to meet, in the best possible manner, future corporate business objectives. Certain awards under both the SEIP and LTEP are intended to qualify as “performance-based compensation” for the purposes of Section 162(m). However, the Compensation Committee may award compensation that is not fully deductible if the Compensation Committee determines that such an award is consistent with our philosophy and in the best interests of the Company and its shareholders.

Nationwide Financial Services, Inc. Compensation Committee

David O. Miller, Chairman

James G. Brocksmith, Jr.

Donald L. McWhorter

Gerald D. Prothro

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EMPLOYMENT AGREEMENTS

Nationwide Mutual entered into an employment agreement dated May 26, 2000, with Mr. Jurgensen, who became CEO of Nationwide Mutual, the Company and certain other Nationwide companies in 2000. The agreement has a three-year term (subject to earlier termination in certain circumstances), with an automatic one-year extension unless either party gives notice of nonrenewal.

Mr. Jurgensen’s annual base salary is to be no less than $1,000,000 from and after April 1, 2002, and his annual target performance bonus is 150% of base salary (maximum bonus—300% base salary). Upon joining the company, Mr. Jurgensen received an option to purchase 60,000 shares of Common Stock, vesting ratably over 5 years; 25,000 shares of restricted stock, vesting 12,500 shares on the third anniversary and 6,250 shares on each of the fourth and fifth anniversaries of the grant date; a target long-term incentive award of $1,500,000 under the Long-Term Performance Plan of Nationwide Mutual (with any payment pro-rated by a two-thirds participation rate); an additional option to purchase 150,000 shares of common stock under the LTEP, vesting ratably over 3 years; and a target long-term incentive award of $1,950,000 under the Long-Term Performance Plan of Nationwide Mutual for the 2000-2002 performance cycle. Mr. Jurgensen is eligible to receive future grants under stock incentive programs and cash long-term incentive programs consistent with other senior executives and competitive pay practices generally. Mr. Jurgensen and his eligible dependents are entitled to participate in all employee retirement and welfare benefit plans. Mr. Jurgensen will be eligible to participate in full retirement benefit of 4% of his highest 5-year average compensation for each full or partial year of service with Nationwide, to a maximum of 16.25 years, if he completes at least five years of service or becomes entitled to severance benefits under the agreement. Mr. Jurgensen was entitled to relocation expenses, grossed-up, including temporary living expenses and resale of his home at its appraised value. He is also entitled to receive executive fringe benefits available to senior level executives. If Mr. Jurgensen’s employment is terminated for any reason, subject to vesting provisions as described below, he will be entitled to receive an amount which, when added to benefits payable under all defined benefit retirement plans of Nationwide Mutual and its affiliates and any of Mr. Jurgensen’s former employers, will produce a single life annuity pension payable at age 65 in an annual amount equal to the number of years of service (up to 16.25) multiplied by .04 multiplied by his final average pay (as defined), up to an annual maximum of 65% of final average pay. Final average pay cannot be less than $2,125,000. This benefit vests if Mr. Jurgensen is employed on April 1, 2005, or if his employment is terminated without cause or under certain circumstances following a change in control. A survivor benefit is payable even if the benefit is not vested.

If Nationwide Mutual terminates Mr. Jurgensen’s employment without cause, Mr. Jurgensen will be entitled to receive severance benefits equal to three times his annual base salary, his annual performance bonus (at not less than the target amount) and long-term incentive awards at not less than the target amount (prorated if termination takes place prior to the final year of the award period). Any outstanding options and restricted stock will vest to the extent they would have vested on the next vesting date. Mr. Jurgensen shall also receive benefits under various Company retirement, savings and deferred compensation plans and cash payments equal to matching Company contributions under certain other Company plans.

Upon a change of control, as defined below, if Mr. Jurgensen’s employment is terminated without cause, if he resigns for good reason or if he resigns during the one month “window” period one year after the change in control, Mr. Jurgensen will be entitled to receive severance benefits equal to three times his salary and target annual bonus, his annual performance bonus (at not less than the target amount) and long-term incentive awards at not less than the total target amounts then in effect; all options and restricted stock shall vest in full. Mr. Jurgensen will also receive benefits under various Company retirement, saving and deferred compensation plans, cash payments equal to matching Company contributions under certain Company plans, and a gross-up payment to the extent any payment would constitute an excess parachute payment under the Internal Revenue Code.

A change of control for the purpose of these agreements is defined as the (i) sale or disposition of all or substantially all of the assets of Nationwide Mutual; (ii) liquidation or dissolution of Nationwide Mutual; (iii) change in the members constituting the Mutual Board by 50% or more within two years as a result of a corporate

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transaction; (iv) entering into an agreement giving power to direct the management of Nationwide Mutual to a person other than the policyholders; (v) entering into an agreement reinsuring all or substantially all the business of Nationwide Mutual (other than through an affiliate); (vi) sale or disposition of a controlling interest in Nationwide Mutual (other than to a subsidiary); or (vii) determination by the board of directors that certain other specified events shall constitute a change of control—a demutualization, establishment of a mutual holding company structure or any other event that the board shall designate.

The Company entered into an employment agreement dated July 1, 2000, as amended effective as of August 28, 2002, with Mr. Gasper, the President and Chief Operating Officer of the Company, Nationwide Life and Nationwide Life and Annuity. The amended agreement has a five-year term (subject to earlier termination in certain circumstances) expiring on June 30, 2005. The amended agreement provides that his annual base salary is to be no less than that in effect on July 1, 2000. He is entitled (i) to participate in all short-term and long-term incentive programs for senior executives at appropriate levels and employee retirement and welfare benefit plans and (ii) to receive executive fringe benefits, as available to senior level executives.

Upon a change of control, if Mr. Gasper’s employment is terminated without cause, if Mr. Gasper resigns for good reason or if he resigns during the one month “window” period one year after the change in control, he will be entitled to receive severance benefits equal to three times his salary and target, annual performance bonus (at not less than the target amount) and long-term incentive awards at not less than the total target amounts then in effect. All options and restricted stock will vest in full. He will also receive benefits under various Company retirement, savings and deferred compensation plans, cash payments equal to matching Company contributions under certain Company plans, and a gross-up payment to the extent any payment received would constitute an excess parachute payment under the Internal Revenue Code.

If the Company terminates his employment without cause or if Mr. Gasper resigns for good reason after a substantial reorganization of the Company, he will be entitled to receive severance benefits equal to two times annual base salary, annual performance bonus (at not less than the target amount) and long-term incentive awards at not less than the target amount (prorated if termination takes place prior to the final year of the award period). Any outstanding options and restricted stock will vest to the extent they would have vested on the next vesting date. He will also receive benefits under various Company retirement, savings and deferred compensation plans and cash payments equal to matching Company contributions under certain other Company plans.

By an agreement dated December 10, 2003, Mr. Gasper set his retirement date to be effective July 1, 2004. At retirement, Mr. Gasper will receive the benefits under Section 2.3(b) of his employment agreement (see the paragraph immediately above for a summary) as retirement benefits.

Mr. Gasper also had a Retention Bonus Agreement with the Company providing for a $500,000 payment if he remained an employee through July 1, 2003, or if he was terminated without cause before that date. Because the terms of this agreement were met, Mr. Gasper received the $500,000 bonus payment in 2003.

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BENEFICIAL OWNERSHIP OF COMMON STOCK

The following tables set forth certain information regarding beneficial ownership of (i) each person who is known by the Company to be the beneficial owner of more than five percent of either class of Common Stock, (ii) each director and nominee for director, (iii) each of the executive officers listed in the Summary Compensation Table, and (iv) all of the directors and executive officers of the Company as a group.

CLASS A COMMON STOCK

The following table sets forth the number of shares of stock of the Company owned beneficially as of March 8, 2004 by the directors, each nominee for director, each executive officer listed in the Summary Compensation Table and all directors and executive officers of the Company as a group.

SECURITY OWNERSHIP

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CLASS B COMMON STOCK

The Class B Common Stock is convertible into Class A Common Stock at any time by the holder on the basis of one share of Class A Common Stock for each share of Class B Common Stock converted.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934, as amended, requires that officers, directors and holders of more than 10% of NFS Common Stock file reports of their trading in NFS’ equity securities with the SEC. Based solely on a review of Forms 3, 4 and 5 furnished to us during and with respect to 2003, we believe that all such reports were timely filed, except for W.G. Jurgensen, the Chief Executive Officer of the Company. Mr. Jurgensen inadvertently failed to timely report the acquisition of certain shares. Mr. Jurgensen subsequently filed the Form 4.

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DESCRIPTION OF COMPENSATION PLANS

Senior Executive Incentive Plan

The SEIP is maintained by the Company for the benefit of its senior executive officers. Pursuant to the SEIP, annual incentive compensation awards may be granted to certain senior executive officers of the Company, including those named in the Summary Compensation Table. Participants are selected annually by the Compensation Committee of the Company’s Board of Directors. Awards under the SEIP are generally paid in cash. SEIP awards are based on the senior executive’s level of achievement of performance goals established by the Compensation Committee before the end of the first quarter of each calendar year. Awards may be based on criteria including, but not limited to, return on equity, operating earnings per share, stock performance, revenue and/or sales and expense levels. The Compensation Committee establishes minimum, target and maximum levels of performance goals. No payments will be made with respect to performance goals if the minimum level of performance is not achieved. Maximum performance will result in payment at 250% of the target level payment established for the award. The maximum possible payment to any participant who is a covered employee under the SEIP in any year is $5.0 million.

Individual Deferred Compensation Plan

Nationwide maintains the IDC Plan. Eligible executive officers of participating Nationwide companies, including the Company, may elect to defer payment of compensation otherwise payable to them. Eligible executive officers of the Company may enter into deferral agreements in which they may periodically elect to defer a portion of their salary, incentive compensation, and/or restricted stock earned during the following year or performance cycle. Elections are effective prospectively. Amounts deferred under the IDC Plan are generally payable in cash in annual installments beginning in January of the calendar year immediately following the calendar year the executive officer terminates employment or after the expiration of the deferral period elected by the executive officer, if applicable. Individual accounts under the IDC Plan are credited with deferral amounts (and earnings or losses) based on the net investment return on the participant’s choice of investment measures offered under the IDC Plan. Effective December 1, 2003, the IDC Plan permits acceleration of the payout, without penalty, if the participant dies and the participant’s estate is the beneficiary of the participant’s deferred compensation account.

The IDC Plan permits a participant or beneficiary to take an unscheduled withdrawal from his or her account, but such withdrawal is subject to a 10% early withdrawal penalty.

Savings Plan

Nationwide maintains the Nationwide Savings Plan (the “NSP”), a qualified profit-sharing plan including a qualified cash or deferred arrangement covering eligible employees of participating companies. Under the NSP, executive officers of the Company named in the Summary Compensation Table and other participants who are not residents of Puerto Rico may elect to contribute between 1% and 80% of their compensation to accounts established on their behalf. Contributions are in the form of voluntary, pre-tax salary deductions. Participating Nationwide 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 NSP by each employee, and 40% of the next 4% of compensation deferred or contributed by each employee to the NSP. All amounts contributed are held in a separate account for each participant and are invested in the available investment options chosen by the participant. The available investment options for employer matching contributions include the NFS Fund. However, the NFS Fund is not available as an investment option to certain executive officers, including those listed in the Summary Compensation Table of this Proxy Statement.

Normally, a participant is eligible to receive the value of his or her vested account balance upon termination of employment. However, a participant may withdraw all or a part of the amounts credited to his or her account prior to termination, such as upon attainment of age 59½. A participant is immediately vested in all amounts

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credited to his or her account as a result of salary deferrals or after-tax contributions (and earnings or losses on those deferrals or contributions), as applicable. A participant is vested in employer matching contributions (and earnings or losses on those contributions) on a pro rata basis over a period of five years.

Supplemental Defined Contribution Plan

Nationwide maintains an unfunded, nonqualified defined contribution supplemental benefit plan, the Nationwide Supplemental Defined Contribution Plan. The plan provides benefits equal to employer matching contributions that would have been made under the Nationwide Savings Plan for the participants but for the Internal Revenue Code limitation on compensation that can be considered for deferrals to the Nationwide Savings Plan. Only elected officers of Nationwide, including elected officers of the Company, earning in excess of the limit set forth in the Internal Revenue Code annually are eligible to participate in the Nationwide Supplemental Defined Contribution Plan. Benefits under the Nationwide Supplemental Defined Contribution Plan vest pro rata over a period of five years of participation in the plan. Amounts in participant accounts are invested in the funds available under the Plan and chosen by the participant. A participant receives the value of his or her account upon termination of employment.

Effective December 1, 2003, the Supplemental Defined Contribution Plan permits acceleration of the payout, without penalty, if the participant dies and the participant’s estate is the beneficiary of the participant’s deferred compensation account.

Second Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan

The purpose of the LTEP is to encourage high levels of performance by selected directors, employees and agents of the Company and certain of its affiliated companies, as well as to attract and retain the services of such individuals by aligning their interests with those of the Company’s shareholders.

The LTEP provides for the grant of any or all of the following types of awards: (i) stock options, including incentive stock options and nonqualified stock options, for shares of the Company’s Class A Common Stock;

(ii) stock appreciation rights (“SARs”), either in tandem with stock options or freestanding; (iii) restricted stock; and (iv) performance shares and performance units. 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.

The LTEP provides the Compensation Committee, which administers the LTEP, flexibility in creating the terms and restrictions deemed appropriate for particular awards. The LTEP is intended to constitute a nonqualified, unfunded, unsecured plan for incentive compensation. Certain awards under the LTEP are intended to qualify as “performance-based compensation” for purposes of Section 162(m) of the Code.

Subject to shareholder approval, the LTEP was amended with an effective date of January 1, 2004 and is referred to as the Third Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan. Beginning January 1, 2004, awards that may be made under the plan will also include awards based on the total economic value added and adjusted net income after capital charge for all Nationwide companies. The additional performance metrics apply to long-term incentive compensation awards and are referred to as Nationwide Value Added or NVA.

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PERFORMANCE GRAPH

The following graph shows a comparison of the Company’s cumulative total shareholder return along with the S&P 500 Stock Index and an index of peer companies selected by the Company for the past five years. Companies included in the peer group are the following: Allmerica Financial Corporation; AFLAC Inc.; Hartford Financial Services Group, Inc.; Jefferson Pilot Corporation; John Hancock Financial Services, Inc.; Lincoln National Corporation; Manulife Financial Corporation; MetLife Inc.; Protective Life Corporation; and Principal Financial Group. Companies included in the peer group have business operations similar to the Company and are considered to be significant competitors to the Company.

The graph plots the changes in the value of an initial $100 investment over the indicated time periods, assuming reinvestment of all dividends. Returns of the index of peer companies have been weighted according to their respective aggregate market capitalization at the beginning of each period shown on the graph.

There can be no assurance that the Company’s stock performance will continue into the future with the same or similar trends depicted in the preceding graph. The Company will not make or endorse any predictions as to future stock performance.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions With Management and Others

Alex Shumate, a director of the Company since May 2002, is a partner of the law firm Squire, Sanders, and Dempsey. His firm provided legal services to Nationwide during 2003. The amount was less than five percent of the firm’s gross revenues for its last full fiscal year.

Joseph A. Alutto, a director of the Company since May 2002, is Dean of the Fisher College of Business at The Ohio State University. His wife, Carol Newcomb, serves as the Executive Director of Executive Education at the Fisher College of Business. Nationwide paid approximately $400,000 in fees for executive training and other services to the Fisher College of Business during 2003.

Related Transactions

Intercompany Agreement

The Company, Nationwide Mutual and Nationwide Corporation entered into an Intercompany Agreement, certain provisions of which are summarized below (the “Intercompany Agreement”). As used in this summary, “Nationwide Mutual” means Nationwide Mutual collectively with its subsidiaries and affiliates (other than the Company and its subsidiaries).

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Sale of Limited Partnership

During 2001, the Company entered into a transaction with Nationwide Mutual, whereby it sold 78% of its interest in a limited partnership (representing 49% of the limited partnership) to Nationwide Mutual for $158.9 million. As a result of this sale, the Company recorded a realized gain of $44.4 million and related tax expense of $15.5 million. During 2002, the Company entered into transactions with Nationwide Mutual and Nationwide Indemnity Company (“NIC”), whereby it sold 100% of its remaining interest in the limited partnership (representing 15.11% of the limited partnership) to Nationwide Mutual and NIC for a total of $54.5 million. As a result of this sale, the Company recorded a realized gain of $23.2 million and related tax expense of $8.1 million. The sales prices for each transaction, which were paid in cash, represented the fair value of the portions of the limited partnership interests that were sold and were based on valuations of the limited

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partnership and its underlying investments as of the effective dates of the transactions. The valuations were completed by qualified management of the limited partnership and utilized a combination of internal and independent valuations of the underlying investments of the limited partnership. Additionally, senior financial officers and the Boards of Directors of the Company and Nationwide Mutual separately reviewed, through their respective Finance Committees, and approved the process and methodology of the valuations prior to the execution of these transactions. The Company no longer holds an economic or voting interest in the limited partnership.

Exchange of Shares

In June 2002, NFS exchanged all of its shares of common stock of Gartmore Global Investments, Inc. (“GGI”) and Nationwide Securities, Inc. (“NSI”) for approximately 9.1 million shares of NFS Class B Common Stock held by Nationwide Corporation. NFS’ interests in GGI and NSI were valued at approximately $362.8 million in these transactions. A special committee of independent directors of the NFS Board of Directors reviewed and recommended approval of the transaction by the full Board of Directors, which was obtained. As required by NFS’ Restated Certificate of Incorporation, the shares Nationwide Corporation exchanged were automatically converted from Class B Common Stock to Class A Common Stock upon return to NFS. NFS has retained these Class A shares in treasury for future issuance. The GGI and NSI transactions were between related parties and have therefore been recorded at carrying value of the underlying components of the transactions rather than fair value. As a result of these transactions, NFS recorded the NFS Class A shares received as treasury stock at Nationwide Corporation’s carrying value of these shares. NFS recorded the excess of Nationwide Corporation’s carrying value of NFS shares exchanged over the carrying value of GGI and NSI, net of transaction costs, $110.4 million, as a credit to additional paid-in-capital upon closing. These transactions are intended to qualify as tax-free exchanges.

Marketing Agreement

Funds of GGI, an affiliate, are offered to the Company’s customers as investment options in certain of the Company’s products. As of December 31, 2003 and 2002, customer allocations to GGI funds totaled $14.43 billion and $12.43 billion, respectively. For the years ended December 31, 2003 and 2002, GGI paid the Company $42.6 million and $37.9 million, respectively, for the distribution and servicing of these funds. In addition, effective June 28, 2002, the Company entered into a renewable three-year Marketing and Support Services Agreement with GGI. Under this agreement, the Company receives quarterly fees of $1.0 million in exchange for certain specified marketing and support of GGI product offerings.

Purchase of Shares of The 401(k) Companies, Inc.

On February 5, 2002, NFS purchased from existing shareholders the remaining 10% of shares of The 401(k) Companies, Inc. not owned by the Company for $3.9 million. The shareholders primarily consisted of management and employees of The 401(k) Companies, Inc.

Purchase of Shares of TBG Insurance Services Corporation

On May 31, 2002, NFS purchased an additional interest in TBG Insurance Services Corporation d/b/a TBG Financial (“TBG”), a leading COLI producer, for $40.7 million from existing shareholders. The shareholders primarily consisted of management and employees of TBG. This additional investment increased NFS’ ownership of TBG to 63%. As a result of the acquisition of these additional shares, the results of TBG are included in the consolidated financial statements of the Company beginning May 31, 2002.

Servicing Agreement Related to Market Street Fund

In connection with the Company’s acquisition of Provident Mutual Life Insurance Company as of October 1, 2002 (the “Nationwide Provident acquisition”), the Company entered into a servicing agreement with GGI related to the Market Street Fund reorganization. Under the servicing agreement, the Company received a payment of $3.9 million from GGI, which represented the fair value of the underlying intangibles at the date of the transaction.

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Group Annuity and Life Insurance Contracts

The Company has issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by Nationwide Mutual or its affiliates. Total account values of these contracts were $5.42 billion and $4.73 billion as of December 31, 2003 and 2002, respectively. Total revenues from these contracts were $143.4 million, $148.7 million and $154.0 million for the years ended December 31, 2003, 2002 and 2001, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances were $114.1 million, $115.7 million and $122.5 million for the years ended December 31, 2003, 2002 and 2001, respectively. The terms of these contracts are consistent in all material respects with what the Company offers to unaffiliated parties who are similarly situated.

In connection with the demutualization of Nationwide Provident, certain Nationwide Provident benefit plans that hold investments in group annuity contracts issued by Nationwide Provident received 1,071,721 shares of NFS Class A Common Stock, all of which have been sold as of December 31, 2003, including 671,426 shares that were sold in 2003.

Savings Plan

The 401(k) Companies, Inc., a wholly owned subsidiary of the Company, serves as the administrator of certain defined contribution plans sponsored by Nationwide Mutual and its affiliates. Total revenues reported by The 401(k) Companies, Inc. related to these administration services totaled $2.7 million, $2.9 million and $2.0 million during 2003, 2002 and 2001, respectively, and are included in the total revenue amounts described under Group Annuity and Life Insurance Contracts above.

Federal Income Taxes

Through September 30, 2002, the Company filed a consolidated federal income tax return with Nationwide Mutual. As a result of the Nationwide Provident acquisition, which reduced Nationwide Corporation’s economic ownership in the Company from 79.8% to 63.0%, NFS and its subsidiaries no longer qualify to be included in the Nationwide Mutual consolidated federal income tax return. The members of the Nationwide Mutual consolidated federal income tax return group participated in a tax sharing arrangement, which provided, in effect, for each member to bear essentially the same federal income tax liability as if separate tax returns were filed. Total payments (from) to Nationwide Mutual were $(0.2) million, $47.3 million and $(48.7) million for the years ended December 31, 2003, 2002 and 2001, respectively.

Modified Coinsurance Agreements

Nationwide Life has a reinsurance agreement with Nationwide Mutual whereby all of Nationwide Life’s accident and health business not ceded to unaffiliated reinsurers is ceded to Nationwide Mutual on a modified coinsurance basis. Either party may terminate the agreement on January 1 of any year with prior notice. Under a modified coinsurance agreement, the ceding company retains invested assets and investment earnings are paid to the reinsurer. Under the terms of Nationwide Life’s agreements, the investment risk associated with changes in interest rates is borne by the reinsurer. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder. The Company believes that the terms of the modified coinsurance agreements are consistent in all material respects with what the Company could have obtained with unaffiliated parties. Revenues ceded to Nationwide Mutual for the years ended December 31, 2003, 2002 and 2001 were $286.7 million, $325.0 million and $200.7 million, respectively, while benefits, claims and expenses ceded were $247.5 million, $328.4 million and $210.1 million, respectively.

Amended and Restated 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

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services, such as investment management, advertising, personnel and general management services, to those subsidiaries. Expenses covered by such agreement are subject to allocation among Nationwide Mutual and such subsidiaries. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, salary expense, commission expense and other methods agreed to by the participating companies and that are within industry guidelines and practices. In addition, Nationwide Services Company, LLC, a subsidiary of Nationwide Mutual, provides computer, telephone, mail, employee benefits administration and other services to Nationwide Mutual and certain of its direct and indirect subsidiaries, including the Company, based on specified rates for units of service consumed. For the years ended December 31, 2003, 2002 and 2001, the Company made payments to Nationwide Mutual and Nationwide Services Company, LLC totaling $186.8 million, $146.1 million and $145.6 million, respectively. The Company does not believe that expenses recognized under these agreements are materially different than expenses that would have been recognized had the Company operated on a stand-alone basis.

Marketing Allowance Agreement

Under a marketing agreement with Nationwide Mutual, Nationwide Life makes payments to cover a portion of the agent marketing allowance that is paid to Nationwide agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $24.8 million, $24.9 million and $26.4 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Leases

The Company leases office space from Nationwide Mutual and certain of its subsidiaries. For the years ended December 31, 2003, 2002 and 2001, the Company made lease payments to Nationwide Mutual and its subsidiaries of $18.0 million, $20.8 million and $18.7 million, respectively.

Repurchase Agreement

The Company also participates in intercompany repurchase agreements with affiliates whereby the seller will transfer securities to the buyer at a stated value. Upon demand or after a stated period, the seller will repurchase the securities at the original sales price plus interest. As of December 31, 2003 and 2002, the Company had no borrowings from affiliated entities under such agreements. During 2003, 2002 and 2001, the most the Company had outstanding at any given time was $126.0 million, $224.9 million and $368.5 million, respectively, and the Company incurred interest expense on intercompany repurchase agreements of $0.1 million, $0.3 million and $0.2 million for 2003, 2002 and 2001, respectively. The Company believes that the terms of the repurchase agreements are materially consistent with what the Company could have obtained with unaffiliated parties.

Cash Management Agreement

The Company and various affiliates entered into agreements with Nationwide Cash Management Company (“NCMC”), an affiliate, under which NCMC acts as a common agent in handling the purchase and sale of short-term securities for the respective accounts of the participants. Amounts on deposit with NCMC for the benefit of the Company were $278.6 million and $236.1 million as of December 31, 2003 and 2002, respectively, and are included in short-term investments on the Company’s consolidated balance sheets. For each of the years in the three-year period ending December 31, 2003, the Company paid NCMC fees and expenses totaling $0.4 million under this agreement.

Online Brokerage Software Application

The Company and an affiliate are currently developing a browser-based policy administration and online brokerage software application for defined benefit plans. In connection with the development of this application, the Company made net payments, which were expensed, to that affiliate related to development totaling $1.6 million and $0.4 million for the years ended December 31, 2003 and 2002, respectively.

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PROPOSAL 2

RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS

In accordance with the Audit Committee charter, the Audit Committee has appointed KPMG LLP as independent auditors of the Company for the year ending December 31, 2004. KPMG LLP served as independent auditors for the Company since before the Company’s initial public offering in 1997. Although shareholders’ ratification of this appointment is not required, the Board of Directors requests ratification by the shareholders of the Company. Representatives of KPMG LLP are expected to be present at the Annual Meeting of Shareholders, with the opportunity to make a statement should they desire to do so, and will be available to respond to appropriate questions from the shareholders.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for services rendered by KPMG LLP for the audits of the consolidated financial statements for the Company and its subsidiaries, including consolidated or individual audits of such subsidiaries financial statements, where appropriate, for each of the years ended December 31, 2003 and 2002 and the reviews of the consolidated financial statements included in the Forms 10-Q for the Company and Nationwide Life Insurance Company filed during each year indicated and fees billed for other services rendered by KPMG LLP.

PRINCIPAL ACCOUNTANT FEES AND SERVICES TABLE

The Audit Committee of the Board of Directors considered whether the provision of the services covered under “All Other Fees” above is compatible with maintaining the independence of KPMG LLP.

None of the above fees fall under the de minimis exception to the pre-approval rules.

The Board of Directors of the Company has adopted the following pre-approval policies and procedures for services provided by the independent auditors.

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Types of Services and Audit Committee Pre-approval

There are four categories of services the independent auditor may provide NFS and its subsidiaries as follows:

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