10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2008

or

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

For the transition period from              to             

Commission File Number: 1-12785

NATIONWIDE FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Delaware	31-1486870
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
One Nationwide Plaza, Columbus, Ohio	43215
(Address of principal executive offices)	(Zip Code)

(614) 249-7111

(Registrant’s telephone number, including area code)

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

None

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

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller Reporting Company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

    Yes  ¨    No  x

Aggregate market value of the registrant’s voting common equity held by non-affiliates on June 30, 2008 computed by reference to the closing sale price per share of the registrant’s Class A common stock on the New York Stock Exchange as of June 30, 2008 was $3.44 billion.

As of February 25, 2009, the registrant had 100 shares of its common stock outstanding (par value $0.01 per share).

Documents Incorporated by Reference

None.

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2008

TABLE OF CONTENTS

PART I		1
ITEM 1	BUSINESS	1
ITEM 1A	RISK FACTORS	14
ITEM 1B	UNRESOLVED STAFF COMMENTS	22
ITEM 2	PROPERTIES	22
ITEM 3	LEGAL PROCEEDINGS	22
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	22
PART II		23
ITEM 5	MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT ’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	23
ITEM 6	SELECTED CONSOLIDATED FINANCIAL DATA	25
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	26
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	81
ITEM 8	CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	87
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	87
ITEM 9A	CONTROLS AND PROCEDURES	88
ITEM 9B	OTHER INFORMATION	88
PART III		89
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	89
ITEM 11	EXECUTIVE COMPENSATION	95
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	140
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	141
ITEM 14	PRINCIPAL ACCOUNTING FEES AND SERVICES	143
PART IV		146
ITEM 15	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	146
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING		F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-3
CONSOLIDATED STATEMENTS OF (LOSS) INCOME		F-4
CONSOLIDATED BALANCE SHEETS		F-5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY		F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS		F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-8
SIGNATURES		F-94

PART I

ITEM 1 BUSINESS

Overview

Nationwide Financial Services, Inc. (NFS, or collectively with its subsidiaries, the Company) was formed in November 1996. NFS is the holding company for Nationwide Life Insurance Company (NLIC) and other companies that comprise the life insurance and retirement savings operations of the Nationwide group of companies (Nationwide). This group includes Nationwide Financial Network (NFN), which refers to Nationwide Life Insurance Company of America (NLICA) and subsidiaries, including the affiliated distribution network. NFS is incorporated in Delaware and maintains its principal executive offices in Columbus, Ohio.

The Company is a leading provider of long-term savings and retirement products in the United States of America (U.S.). The Company develops and sells a diverse range of products, including individual annuities, private and public sector group retirement plans, other investment products sold to institutions, life insurance and investment advisory services. The Company also provides a wide range of banking products and services through Nationwide Bank (see Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) – Overview – Nationwide Bank Merger for more information) and mutual funds through Nationwide Funds Group (NFG) (see Part II, Item 7 – MD&A – Overview – Nationwide Funds Group Acquisition for more information).

The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Company’s products to their own customer bases include independent broker/dealers, financial institutions, wirehouse and regional firms, pension plan administrators, and life insurance specialists. Representatives of the Company that market products directly to a customer base include Nationwide Retirement Solutions, Inc. (NRS), an indirect wholly-owned subsidiary; NFN producers; and NFG. NFN producers include the agency distribution force of its ultimate majority parent company, Nationwide Mutual Insurance Company (NMIC). The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively in the rapidly growing retirement savings market.

The Company has grown its customer base in recent years as a result of its long-term investments in developing the distribution channels necessary to reach its target customers and the products required to meet the demands of these customers. The Company believes its growth has been enhanced further by favorable demographic trends and the growing tendency of Americans to supplement traditional sources of retirement income with self-directed investments, such as products offered by the Company. From 1997 to 2008, the Company’s customer funds managed and administered grew from $57.46 billion to $126.93 billion, a compound annual growth rate of 6.83%. Asset growth during this period resulted from net flows into the Company’s products, interest credited to and market appreciation of policyholder accounts, and acquisitions.

Capital Stock Transactions

On August 6, 2008, the Company entered into a definitive agreement with Nationwide Mutual Insurance Company (NMIC), Nationwide Corporation and NWM Merger Sub, Inc. for Nationwide Corporation to acquire by merger all of the outstanding Class A common stock of the Company it did not already own for $52.25 per share in cash. The transaction was approved by the Company’s shareholders on December 31, 2008 and closed effective January 1, 2009. As a result of the transaction, Nationwide Corporation owns all of the outstanding capital stock of the Company.

As of December 31, 2008, the Company had 46.3 million shares of Class A common stock outstanding, which had been publicly held and primarily were issued through NFS’ initial public offering completed in March 1997 and in conjunction with the acquisition of NFN in October 2002. The Class A shares represented 33.5% of the equity ownership in NFS and 4.8% of the combined voting power of NFS’ Class A and Class B common stock as of December 31, 2008. Nationwide Corporation owned all of the outstanding shares of Class B common stock, which represented the remaining 66.5% equity ownership and 95.2% of the combined voting power of the shareholders of NFS as of December 31, 2008.

1

Business Segments

Individual Investments

The Individual Investments segment consists of individual The BEST of AMERICA^® and private label deferred variable annuity products, individual annuity products, deferred fixed annuity products, income products and investment advisory services. Individual deferred annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, individual variable annuity contracts provide the customer with access to a wide range of investment options and asset protection features, while individual fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods.

The following table summarizes selected financial data for the Company’s Individual Investments segment for the years ended December 31:

(in millions)	2008			2007		2006
Total revenues	$	1,385.4		$	1,469.8	$	1,526.6
Pre-tax operating (loss) earnings		(220.2	)		300.7		223.1
Account values as of year end		39,551.2			53,587.0		52,963.6

The Company believes that demographic trends and shifts in attitudes toward retirement savings will continue to support increased consumer demand for its individual investment products. The Company also believes that it possesses distinct competitive advantages in the market for variable annuities. Some of the Company’s most important advantages include its innovative product offerings and strong relationships with independent well-known fund managers. The Company’s principal annuity product series, The BEST of AMERICA, allows customers to choose from over 50 investment options, which include funds managed by many of the premier U.S. mutual fund managers. The Company also sells individual fixed annuities, primarily through its financial institutions channel.

The Company markets its Individual Investments products through a broad spectrum of distribution channels, including independent broker/dealers, financial institutions, wirehouse and regional firms, pension plan administrators, NRS, NFN producers and Nationwide agents. The Company attempts to increase its market share of sales through these channels by working closely with its investment managers and product distributors to adapt the Company’s products and services to changes in the retail and institutional marketplace.

The variable annuity market is attractive to the Company because of its demographic positioning and unique value proposition. The retirement income and other financial protection that characterize the current variable annuity market are valuable tools for individuals approaching or already in retirement. Tremendous opportunity exists for variable annuity providers that can reach this growing market as the baby boomer population approaches peak retirement ages. In addition, variable annuities generally have more favorable capital usage and risk-adjusted return prospects than fixed annuities. The Company has de-emphasized the sale of fixed annuities because of lower risk-adjusted return prospects and the difficulty in attracting and retaining customers in such a highly commoditized market. While there is no specialized emphasis around fixed annuities, sales may change as market conditions change. When equity markets decline, fixed annuity sales are likely to increase as consumers seek less volatile investments. The Company continues to have fixed annuity options for such consumers.

The Company receives income from variable annuity contracts primarily in the form of asset fees. Most of the Company’s variable annuity products include a contingent deferred sales charge, also known as a “surrender charge” or “back-end load.” This charge is assessed against premium withdrawals in excess of specified amounts in the early years of the contract (usually the first seven years). Surrender charges are intended to protect the Company from withdrawals before the Company has had the opportunity to recover its initial sales expenses. Generally, surrender charges on individual variable annuity products equal 7% of deposits withdrawn during the first year, scaling ratably to no charge for the eighth year and beyond. Surrender charge periods of zero and four years are also available for some of the Company’s products.

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The Company’s variable annuity products consist almost entirely of flexible premium deferred variable annuity (FPVA) contracts. Such contracts are savings vehicles in which the customer makes a single deposit or series of deposits. The customer has the flexibility to invest in mutual funds managed by independent investment managers and NFG. In addition to mutual fund elections, fixed investment options are available to customers who purchase certain of the Company’s variable annuities by designation of some or all of their deposits to such options. A fixed option offers the customer a guarantee of principal and a guaranteed interest rate for a specified time period. Deposit intervals and amounts are flexible and, therefore, subject to variability. The value of a variable annuity fluctuates in accordance with the investment experience of the underlying mutual funds chosen by the customer. Such contracts have no maturity date and remain in force until the customer elects to take the proceeds of the annuity as a single payment or as a specified income stream for life or for a fixed number of years. The customer is permitted to withdraw all or part of the accumulated value of the annuity, less any applicable surrender charges, at any time. As specified in the FPVA contract, the customer generally can choose from a number of payment options that provide either a fixed or variable stream of benefit payments.

Guarantees are a common feature throughout the variable annuity industry. In addition to tax deferral, death benefit and living benefit guarantees differentiate variable annuities from other securities available in the financial services marketplace. Nearly all of the Company’s individual variable annuity products include guaranteed minimum death benefit (GMDB) features. A GMDB generally provides additional benefits if the annuitant dies and the policyholder’s contract value is less than a defined amount, which may be based on the premiums paid less amounts withdrawn or a policyholder contract value on a specified anniversary date. While GMDBs do create additional risk to the Company, such benefits are generally less valuable and less sensitive to assumption risk than living benefits. Accordingly, the Company is careful to offer only living benefit features that meet an acceptable risk/return profile. Beginning in 1999, the Company began offering optional guaranteed minimum income benefits (GMIBs), a living benefit that provides for enhanced annuitization guarantees. During 2003, the Company replaced its GMIB offering with Capital Preservation Plus, a guaranteed minimum accumulation benefit (GMAB) that provides a minimum investment return over 5 to 10 year horizons regardless of actual account performance. In 2005, the Company further modified its GMAB offering by developing a hybrid GMAB/guaranteed lifetime withdrawal benefit (GLWB) called Capital Preservation Plus Lifetime Income (CPPLI). This feature provides an enhanced retirement income floor option following the maturity of the GMAB guarantee. In 2006, the Company added a stand-alone GLWB, Lifetime Income (L.inc), to complement CPPLI in its product offerings. L.inc provides for enhanced retirement income security via guaranteed accumulation rates and withdrawal rates that increase with age without the liquidity loss associated with annuitization. The Company continually refines variable annuity guarantees to keep them attractive to prospective buyers while also balancing the risk and costs borne by the Company. In January 2009, the Company decided to simplify its living benefit guarantees and only offer L.inc on new sales. See Note 11 to the audited consolidated financial statements included in the F pages of this report for further discussion of variable annuity contracts offered by the Company.

Fixed annuity products are marketed to individuals who seek long-term savings products that provide a guarantee of principal, a stable net asset value and a guarantee of the interest rate to be credited to the principal amount for a specified time period. Fixed annuities generally consist of single premium deferred annuity (SPDA) and flexible premium deferred annuity (FPDA) contracts with initial interest guarantees of one to five years and annual re-determination of crediting rates thereafter. Both SPDAs and FPDAs are subject to long-term minimum crediting rates generally ranging from 1.5% to 3.5%. The Company invests fixed annuity customer deposits at its discretion in its general account investment portfolio, while variable annuity customer deposits are invested in mutual funds as directed by the customer and are held in the Company’s separate account. Unlike variable annuity assets that are held in the Company’s separate account, the Company bears the investment risk on assets held in its general account. The Company attempts to earn a spread by investing a customer’s deposits for higher yields than the interest rate it credits and associated expenses. Most fixed annuity contracts provide for the imposition of surrender charges, which are assessed against withdrawals (in excess of specified amounts) and serve to reimburse the company for unrecovered acquisition costs in the event of early termination. Generally, surrender charges on individual fixed annuity products are 6% to 8% of deposits withdrawn during the first year and typically decline annually, disappearing after five to seven contract years. Surrender charges are often limited to interest earned since inception. SPDA and FPDA contracts have no maturity date and remain in force until the customer elects to take the proceeds of the annuity as a single payment or as a specified income stream for life or for a fixed number of years. The Company’s individual fixed annuity products primarily are distributed through unaffiliated financial institutions and affiliated channels.

In 2005, the Company began issuing a fixed equity-indexed annuity (EIA) known as Clear Horizon. Unlike traditional individual fixed annuities, EIAs provide for interest earnings that are linked to the performance of specified equity market indices. Clear Horizon is a single premium, annual reset EIA under which an index credit is made (if applicable) on the last day of the calendar quarter of each policy anniversary, known as the index maturity date. The index credit is based on changes in the Standard & Poor’s (S&P) 500 Index and is subject to an index cap that varies based on when a contract is issued. Index credits are guaranteed never to be less than 0%.

3

Income products include single premium immediate annuity (SPIA) contracts. SPIAs are annuities that require a one-time deposit in exchange for guaranteed periodic annuity benefit payments, either for a certain time period or for the contractholder’s lifetime.

During 2008, the average net investment income earned and interest credited rates on contracts (including the fixed option under the Company’s variable contracts) in the Individual Investments segment were 5.12% and 3.58%, respectively (5.69% and 3.76%, respectively, in 2007).

The Company offers individual variable annuities under The BEST of AMERICA brand name. The Company also markets individual variable annuities as “private label” products.

Individual The BEST of AMERICA Products. The Company’s principal individual FPVA contracts are sold under the brand name The BEST of AMERICA, and the Company also offers FPVA contracts under different names. The BEST of AMERICA brand name individual variable annuities accounted for $3.79 billion (75%) of the Company’s Individual Investments segment sales in 2008 ($5.17 billion, or 84%, in 2007, and $4.39 billion, or 81%, in 2006) and $27.93 billion (71%) of the Company’s Individual Investments segment account values as of December 31, 2008 ($38.37 billion, or 72%, as of December 31, 2007). Certain of The BEST of AMERICA products are designed to allow for greater specialization of product design by distribution channel, liquidity options with shorter surrender charges, and enhanced death benefit and living benefit guarantees. The Best of America’s MarketFLEX Annuity is a specialty variable annuity offering tactical asset allocation services. All of these products generate asset fees and also may generate administrative fees for the Company.

Private Label Individual Variable Annuities. These products accounted for $417.3 million (8%) of the Company’s Individual Investments segment sales in 2008 ($434.6 million, or 7%, in 2007, and $356.6 million, or 7%, in 2006) and $4.86 billion (12%) of the Company’s Individual Investments segment account values as of December 31, 2008 ($7.44 billion, or 14%, as of December 31, 2007). The Company has developed several private label variable annuity products in conjunction with other financial intermediaries. These products allow financial intermediaries to market products with substantially the same features as the Company’s brand name products to their own customer bases under their own brand names. The Company believes these private label products strengthen the Company’s ties to certain significant distributors of the Company’s products. These products generate asset fees and also may generate administrative fees for the Company.

Individual Deferred Fixed Annuity Contracts. Deferred fixed annuities consist of SPDA and FPDA contracts. Total deferred fixed annuities accounted for $603.0 million (12%) of the Company’s Individual Investments segment sales in 2008 ($156.3 million, or 3%, in 2007, and $186.5 million, or 3%, in 2006) and $4.41 billion (11%) of the Company’s Individual Investments segment account values as of December 31, 2008 ($4.72 billion, or 9%, as of December 31, 2007). SPDA and FPDA contracts are distributed primarily through financial institutions and Nationwide agents.

Individual Single Premium Immediate Annuity Contracts. The Company offers both fixed and variable SPIA contracts. SPIA contracts accounted for $198.3 million (4%) of the Company’s Individual Investments segment sales in 2008 ($216.7 million, or 4%, in 2007, and $230.7 million, or 4%, in 2006) and $2.11 billion (5%) of the Company’s Individual Investments account segment values as of December 31, 2008 ($2.10 billion, or 4%, as of December 31, 2007). SPIAs are annuities that require a one-time deposit in exchange for guaranteed, periodic annuity benefit payments, often for the contractholder’s lifetime. SPIA contracts are attractive to customers at or near retirement age seeking a steady stream of future income. The Company’s SPIA contracts are offered through both affiliated and unaffiliated distribution channels and may be purchased directly or through annuitization of any of the Company’s various individual and group deferred annuity contracts.

Retirement Plans

The Retirement Plans segment is comprised of the Company’s private and public sector retirement plans business. The private sector primarily includes Internal Revenue Code (IRC) Section 401 fixed and variable group annuity business generated through NLIC and trust and custodial services through Nationwide Trust Company, FSB, a division of Nationwide Bank (NTC). Also included in the private sector is Registered Investment Advisors Services, Inc. d/b/a RIA Services Inc. (RIA), which facilitates professional money management of participant assets by registered investment advisors. The public sector primarily includes IRC Section 457 and Section 401(a) business in the form of full-service arrangements that provide plan administration and fixed and variable group annuities as well as administration-only business.

4

The following table summarizes selected financial data for the Company’s Retirement Plans segment for the years ended December 31:

(in millions)	2008		2007		2006
Total revenues	$	1,091.3	$	1,146.2	$	1,115.6
Pre-tax operating earnings		202.2		252.6		221.2
Account values as of year end		62,798.1		80,546.6		76,597.1

Most private sector plans are sold through the Company’s trust product offerings. The Company also sells group annuity products, the majority of which are fixed annuities offered as an investment option along with the trust product offering. The mix of product sales is consistent with the Company’s significant investment in NTC to develop trust product capabilities not prevalent elsewhere in the market.

The Company’s variable group annuity and trust products provide individual participants the ability to invest in mutual funds managed by independent investment managers and NFG. Deposit intervals and amounts are flexible and, therefore, subject to variability. The value of a variable group annuity varies with the investment experience of the mutual funds chosen by participants. Participants are restricted in their ability to withdraw funds from these contracts without tax penalties. The Company receives income from variable group annuity and trust contracts primarily in the form of asset and administrative fees. In addition, many of the Company’s variable group annuity and trust products provide for a surrender charge that is assessed against withdrawals in excess of specified amounts made during a period generally not exceeding nine years from contract issuance. Surrender charges are intended to protect the Company from withdrawals early in the contract period, before the Company has had the opportunity to recover its sales expenses.

The Company’s fixed group annuity contracts provide individual participants a guarantee of principal and a guaranteed interest rate for a specified time period. The Company attempts to earn a spread by investing a participant’s deposits for higher yields than the interest rate credited to the participant’s contract.

During 2008, the average net investment income earned and interest credited rates on fixed contracts in the Retirement Plans segment were 5.81% and 3.89%, respectively (5.88% and 3.98%, respectively, during 2007).

The Company markets employer-sponsored group annuities to both public sector employees for use in connection with plans described under IRC Section 457, Section 403(b) and Section 401(a) and to private sector employees for use in connection with IRC Section 401 and 403(b) plans. In addition, trust products offered through NTC are marketed in the private sector. These private sector employer-sponsored group annuities and trust products are marketed under several brand names, including The BEST of AMERICA Group Pension Series.

The BEST of AMERICA Group Pension Series. These products are offered as group annuity contracts and trust products by NTC. The BEST of AMERICA group annuity products accounted for $863.0 million (8%) of the Company’s Retirement Plans segment sales in 2008 ($1.06 billion, or 10%, in 2007, and $1.23 billion, or 12%, in 2006) and $4.54 billion (7%) of the Company’s Retirement Plans account values as of December 31, 2008 ($7.18 billion, or 9%, as of December 31, 2007). Trust products accounted for $4.71 billion (46%) of segment sales in 2008 ($5.13 billion, or 48%, in 2007, and $4.50 billion, or 45%, in 2006) and $15.92 billion (25%) of segment account values as of December 31, 2008 ($21.81 billion, or 27%, as of December 31, 2007). The BEST of AMERICA group products are typically offered only on a tax-qualified basis. These products may be structured with a variety of features that may be arranged in over 600 combinations of front-end loads, back-end loads and asset-based fees.

Section 457 Group Annuity Contracts. These group annuity contracts accounted for $1.77 billion (17%) of the Company’s Retirement Plans segment sales in 2008 ($1.55 billion, or 14%, in 2007, and $1.53 billion, or 15%, in 2006) and $14.40 billion (23%) of the Company’s Retirement Plans segment account values as of December 31, 2008 ($17.10 billion, or 21%, as of December 31, 2007). The Company offers a variety of group variable annuity contracts that are designed primarily for use in conjunction with plans described under IRC Section 457, which permits employees of state and local governments to defer a certain portion of their annual income and invest such income on a tax-deferred basis. These contracts typically generate asset fees and also may generate annual administrative fees for the Company.

5

Administration-Only Contracts. The Company offers administration and record-keeping services to IRC Section 457 plans outside of a group annuity contract. The contracts for these services accounted for $2.71 billion (26%) of the Company’s Retirement Plans segment sales in 2008 ($2.72 billion, or 25%, in 2007, and $2.48 billion, or 25%, in 2006) and $24.75 billion (39%) of the Company’s Retirement Plans segment account values as of December 31, 2008 ($31.16 billion, or 39%, as of December 31, 2007). In the past few years, the Company has experienced a shift in product mix from group annuity contracts to more administration-only cases. The Company collects a fee for administration-only contracts either as a percentage of plan assets or as a specified amount per participant or per contract.

NFN Group Annuities. NFN sells Selector+ Group Variable Annuities, which accounted for $176.7 million (2%) of the Company’s Retirement Plans segment sales in 2008 ($149.4 million, or 1%, in 2007, and $188.2 million, or 2%, in 2006) and provide diversified separate account investment options. The All Pro series of separate accounts is a series of multi-managed, style-specific separate accounts developed in conjunction with Wilshire Associates, Inc. The All Pro series is used in the STAR Program to develop asset allocation models. The STAR Program was developed to address the needs of plan sponsors making investment decisions to meet the stated objectives of their plan. The Selector+ Group Variable Annuity is available for governmental and corporate qualified retirement plans and has the flexibility to enable producers to choose from asset-based fees, deposit-based fees or a combination of both.

Individual Protection

The Individual Protection segment consists of investment life insurance products, including individual variable, corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) products; traditional life insurance products; and universal life insurance products. Life insurance products provide a death benefit and generally allow the customer to build cash value on a tax-advantaged basis.

The following table summarizes selected financial data for the Company’s Individual Protection segment for the years ended December 31:

(in millions)	2008		2007		2006
Total revenues	$	1,405.2	$	1,349.7	$	1,321.0
Pre-tax operating earnings		256.5		299.8		280.8
Life insurance policy reserves as of year end		18,250.0		20,990.5		19,686.8
Life insurance in force as of year end		145,360.1		137,518.7		133,312.7

The Company seeks to become a leading provider of life insurance and protection solutions to small businesses and consumers, helping individuals achieve financial security as they prepare for and live in retirement. By continuing to invest in the expansion of its universal and variable universal life insurance products, the Company seeks to capture a growing share of new sales through its various distribution channels.

The Company markets its Individual Protection products through a broad spectrum of distribution channels. Unaffiliated entities that sell these products to their own customer bases include independent broker/dealers (including brokerage general agencies and producer groups), financial institutions, wirehouse and regional firms, and life insurance specialists. Representatives of the Company who market these products directly to a customer base include NFN producers, including Nationwide agents.

COLI and BOLI Products. Corporations purchase COLI and banks purchase BOLI to fund non-qualified benefit plans. Corporations or banks may make a single premium payment or a series of premium payments. For fixed COLI and BOLI products, premium payments are credited with a guaranteed interest rate that is fixed for a specified time period. For variable COLI and BOLI products, the contractholder’s account value is credited with the investment experience of the underlying funds selected by the contractholder. COLI and BOLI products are sold through life insurance specialists.

Traditional Life Insurance Products. Whole life insurance combines a death benefit with a savings plan that increases gradually over a period of years. The customer generally pays a level premium over the expected lifetime. Whole life insurance contracts allow customers to borrow against their savings and provide the option of surrendering the policy and receiving the accumulated cash value rather than the death benefit. Term life insurance provides only a death benefit without any savings component. Traditional life insurance products are sold through NFN producers, including Nationwide agents, wirehouse and regional firms, and independent broker/dealers.

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Universal Life and Variable Universal Life Insurance Products. The Company offers universal life insurance and variable universal life insurance products, including both flexible premium and single premium designs. These products provide life insurance under which the benefits payable upon death or surrender depend upon the policyholder’s account value. Universal life insurance provides whole life insurance with flexible premiums and adjustable death benefits. For universal life insurance, the policyholder’s account value is credited an adjustable rate of return set by the Company based on current interest rates. For variable universal life insurance, the policyholder’s account value is credited with the investment experience of the mutual funds chosen by the customer. Variable universal life insurance products also typically include a general account guaranteed interest investment option. For certain products, the Company guarantees that a policy will not lapse if the policyholder’s account value goes to zero, provided the policyholder has complied with the no lapse guarantee requirements, including the payment of minimum specified premiums. The Company’s variable universal life insurance products are marketed under the Nationwide and The BEST of AMERICA brand names, which have the same wide range of investment options as the Company’s variable annuity products. These products are distributed on an unaffiliated basis by independent broker/dealers, financial institutions, and wirehouse and regional firms, and on an affiliated basis by NFN producers, including Nationwide agents.

Corporate and Other

The Corporate and Other segment includes the medium-term note (MTN) program; the retail operations of Nationwide Bank; structured products business; revenues and expenses of the Company’s retail asset management business and non-insurance subsidiaries not reported in other segments; non-operating realized gains and losses, including mark-to-market adjustments on embedded derivatives, net of economic hedges, related to products with living benefits included in the Individual Investments segment; and other revenues and expenses not allocated to other segments.

The following table summarizes selected financial data for the Company’s Corporate and Other segment for the years ended December 31:

(in millions)	2008			2007			2006
Operating revenues	$	382.5		$	716.0		$	599.9
Pre-tax operating (loss) earnings		(188.8	)		74.6			65.1
Non-operating net realized investment losses1		(1,556.8	)		(152.8	)		(0.6	)

¹ Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, net realized gains and losses related to hedges on GMDB contracts and securitizations).

MTN Program. The Company’s MTN program represents sales of funding agreements that secure medium-term notes issued through an unrelated third party trust. This program was launched in 1999 to expand spread-based product offerings. Sales of funding agreements totaled $125.0 million in 2008 ($1.35 billion in 2007 and $1.78 billion in 2006) and accounted for the majority of the Company’s Corporate and Other segment account values as of December 31, 2008 and 2007. Sales under the Company’s MTN program are not included in the Company’s sales data, as they do not produce steady production flow that lends itself to meaningful comparisons.

Nationwide Bank. Nationwide Bank is a federally chartered and Federal Deposit Insurance Corporation insured savings bank. The Company utilizes Nationwide Bank to offer savings, checking, certificate of deposit and money market accounts as well as various types of loans. Nationwide Bank deposits were $1.76 billion as of December 31, 2008 ($798.3 million as of December 31, 2007).

Structured Products. Structured products transactions refer to the structuring, sale and management of investment programs, including commercial mortgage loan securitizations and low-income-housing tax credit syndications. The Company utilizes such transactions to optimize portfolio management decisions, generate fee income and increase assets under management.

7

Marketing and Distribution

The Company provides, through both its affiliated and unaffiliated channels, the means for employers sponsoring tax-favored retirement plans (such as those described in IRC Sections 401 and 457) to allow their employees to make contributions to such plans through payroll deductions. Typically, the Company obtains permission from an employer to market products to employees and arranges to deduct periodic deposits from employees’ regular paychecks. The Company believes that the payroll deduction market is characterized by more predictable levels of sales than other markets because these customers are less likely than customers in other markets to stop making annuity deposits, even in times of market volatility. In addition, the Company believes that payroll deduction access to customers provides significant insulation from competition by providing the customer with a convenient, planned method of periodic saving. Payroll deduction is the primary method used for collecting premiums and deposits in both the private sector market, where the Company’s products are distributed primarily through unaffiliated entities, and in the public sector market, where the Company’s products are distributed primarily by affiliated entities.

See Part II, Item 7 – MD&A for sales by distribution channel for the years ended December 31, 2008, 2007 and 2006.

Unaffiliated Entities

Independent Broker/Dealers and Wirehouse and Regional Firms. The Company sells individual annuities, group retirement plans and life insurance through independent broker/dealers (including brokerage general agencies and producer groups in the Individual Protection segment) and wirehouse and regional firms in each state and the District of Columbia. The Company believes that it has developed strong broker/dealer relationships based on its diverse product mix, large selection of fund options and administrative technology. In addition to such relationships, the Company believes its financial strength and the Nationwide and The BEST of AMERICA brand names are competitive advantages in these distribution channels. The Company regularly seeks to expand this distribution network.

Financial Institutions. The Company markets individual variable and fixed annuities (under its brand names and on a private label basis), IRC Section 401 plans and life insurance through financial institutions, consisting primarily of banks and their subsidiaries. The Company believes that it has competitive advantages in this distribution channel, including its expertise in training financial institution personnel to sell annuities and pension products, its breadth of product offerings, its financial strength, the Nationwide and The BEST of AMERICA brand names, and the ability to offer private label products.

Pension Plan Administrators. The Company markets group retirement plans organized pursuant to IRC Section 401 and sponsored by employers as part of employee retirement programs through regional pension plan administrators. The Company also has linked pension plan administrators to the financial planning community to sell group pension products. The Company targets employers with 25 to 2,000 employees because it believes that these plan sponsors tend to require extensive record-keeping services from pension plan administrators and therefore are more likely to become long-term customers.

Life Insurance Specialists. The Company markets COLI and BOLI through life insurance specialists, which are firms that specialize in the design, implementation and administration of executive benefit plans.

Affiliated Entities

NRS. The Company markets various products and services to the public sector, primarily on a retail basis, through several subsidiary sales organizations. The Company markets group variable annuities and fixed annuities as well as administration and record-keeping services to state and local governments for use in their IRC Section 457 and Section 401(a) retirement programs. The Company maintains endorsement arrangements with state and local government entities, including the National Association of Counties (NACo), The United States Conference of Mayors (USCM) and The International Association of Fire Fighters (IAFF).

NFN Producers and Nationwide Agents. NFN producers and Nationwide agents distribute Nationwide life insurance, annuity, mutual fund and group annuity products to individuals through Nationwide exclusive agents, independent agents, and a retail call center. In addition, NFN producers offer securities, mutual funds and variable insurance products from numerous providers through Nationwide Securities, LLC. Nationwide agents sell traditional, universal and variable universal life insurance products and individual annuities through the licensed agency distribution force of NMIC. Nationwide agents primarily target the holders of personal automobile and homeowners’ insurance policies issued by NMIC and affiliated companies. Nationwide agents exclusively sell Nationwide products and may not offer products that compete with those of the Company.

8

Reinsurance

The Company follows the industry practice of reinsuring with other companies a portion of its life insurance and annuity risks in order to reduce net liability on individual risks, to provide protection against large losses and to obtain greater diversification of risks. During 2007, the Company increased the maximum amount of individual ordinary life insurance retained by the Company on any one life from $5.0 million to $10.0 million. This increase was prospective and did not change the retained amount for policies sold prior to the change. The Company cedes insurance primarily on an automatic basis, whereby risks are ceded to a reinsurer on specific blocks of business where the underlying risks meet certain predetermined criteria, and on a facultative basis, whereby the reinsurer’s prior approval is required for each risk reinsured. The Company also cedes insurance on a case-by-case basis, particularly where the Company may be writing new risks or is unwilling to retain the full costs associated with new lines of business. The Company maintains catastrophic reinsurance coverage to protect against large losses related to a single event. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder.

The Company has entered into reinsurance contracts with certain unaffiliated reinsurers to cede a portion of its general account life, annuity and health business. Total amounts recoverable under these reinsurance contracts include ceded reserves, paid and unpaid claims, and certain other amounts, and totaled $912.6 million and $964.8 million as of December 31, 2008 and 2007, respectively. The impact of these contracts on the Company’s results of operations is immaterial. Under the terms of the contracts, specified assets have been placed in trusts as collateral for the recoveries. The trust assets are invested in investment grade securities, the fair value of which must at all times be greater than or equal to 100% or 102% of the reinsured reserves, as outlined in each of the underlying contracts. Certain portions of the Company’s variable annuity guaranteed benefit risks are also reinsured. These treaties reduce the Company’s exposure to death benefit and income benefit guarantee risk in the Individual Investments segment. The Company has no other material reinsurance arrangements with unaffiliated reinsurers.

The Company’s only material reinsurance agreements with affiliates are the modified coinsurance agreements pursuant to which NLIC ceded to other members of Nationwide all of its accident and health insurance business not ceded to unaffiliated reinsurers, as described in Note 18 to the audited consolidated financial statements included in the F pages of this report.

Ratings

Ratings with respect to claims-paying ability and financial strength are one factor in establishing the competitive position of insurance companies. These ratings represent each agency’s opinion of an insurance company’s financial strength, operating performance, strategic position and ability to meet its obligations to policyholders. They are not evaluations directed toward the protection of investors and are not recommendations to buy, sell or hold securities. Such factors are important to policyholders, agents and intermediaries. Rating agencies utilize quantitative and qualitative analysis, including the use of key performance indicators, financial and operating ratios and proprietary capital models to establish ratings for the Company and certain subsidiaries. The Company’s ratings are continuously evaluated relative to its performance as measured using these metrics and the impact that changes in the underlying business in which it is engaged can have on such measures. In an effort to minimize the adverse impact of this risk, the Company maintains regular communications with the rating agencies, performs evaluations utilizing its own calculations of these key metrics and considers such evaluation in the way it conducts its business.

Ratings are important to maintaining public confidence in the Company and its ability to market its annuity and life insurance products. Rating agencies continually review the financial performance and condition of insurers, including the Company. Any lowering of the Company’s ratings could have an adverse effect on the Company’s ability to market its products and could increase the rate of surrender of the Company’s products. Both of these consequences could have an adverse effect on the Company’s liquidity and, under certain circumstances, net income. NLIC and its insurance company subsidiary Nationwide Life and Annuity Insurance Company (NLAIC), and NLICA and its insurance company subsidiary, Nationwide Life and Annuity Company of America (NLACA), have financial strength ratings of “A+” (Superior) and “A” (Excellent), respectively, from A.M. Best Company, Inc. (A.M. Best). Both NLIC and NLICA’s claims-paying ability/financial strength are rated “Aa3” (Excellent) by Moody’s Investors Service, Inc. (Moody’s) and “A+” (Strong) by Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (S&P).

On December 19, 2008, Moody’s put its current rating under review for possible downgrade. Moody’s review is currently ongoing. On December 22, 2008, S&P lowered its financial strength ratings of NLIC and NLAIC to “A+” from “AA-” with a stable outlook. On January 27, 2009, A.M. Best placed its ratings of NLIC and NLICA on negative outlook. These actions have taken place during a time when many major life insurers have experienced similar outlook changes and/or negative downgrades, caused by weak economic conditions and volatility in the credit and equity markets.

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The Company’s financial strength is also reflected in the ratings of its senior notes, subordinated debentures, capital securities issued by a subsidiary trust and commercial paper issued by NLIC. NLIC’s commercial paper rating was lowered by S&P on December 22, 2008 from “A-1+” to “A-1”. The following table summarizes the ratings of the Company’s securities as of December 31, 2008:

	A.M. Best	Moody’s	S&P
Senior notes	a-	A3	BBB+
Subordinated debentures	bbb+	Baa1	BBB
Capital securities issued by a subsidiary trust	bbb+	Baa1	BBB-
Commercial paper issued by NLIC	AMB-1	P-1	A-1

These ratings are subject to ongoing review by A.M. Best, Moody’s and S&P, and the maintenance of such ratings cannot be assured. If any rating is reduced from its current level, the Company’s financial position and results of operations could be adversely affected.

Competition

The Company competes with many other insurers as well as non-insurance financial services companies, including banks, broker/dealers and mutual funds, some of whom have greater financial resources, offer alternative products and, with respect to other insurers, have higher ratings than the Company. While no single company dominates the marketplace, many of the Company’s competitors have well-established national reputations and substantially greater financial resources and market share than the Company. Competition in the Company’s lines of business primarily is based on price, product features, commission structure, perceived financial strength, claims-paying ability, customer and producer service, and name recognition.

Regulation

Regulation at State Level

As an insurance holding company, the Company is subject to regulation by the states in which its insurance subsidiaries are domiciled and/or transact business. Most states have enacted legislation that requires each insurance holding company and each insurance company in an insurance holding company system to register with the insurance regulatory authority of the insurance company’s state of domicile and annually furnish financial and other information concerning the operations of companies within the holding company system that materially affect the operations, management or financial condition of the insurers within such a system. Under such laws, a state insurance authority usually must approve in advance the direct or indirect acquisition of 10% or more of the voting securities of an insurance company domiciled in its state.

The Company is subject to the insurance holding company laws in the States of Ohio, Pennsylvania and Delaware. Under such laws, all transactions within an insurance holding company system affecting insurers must be fair and equitable, and each insurer’s policyholder surplus following any such transaction must be both reasonable in relation to its outstanding liabilities and adequate for its needs. These insurance holding company laws also require prior notice or regulatory approval of the change of control of an insurer or its holding company, material intercorporate transfers of assets within the holding company structure and certain other material transactions involving entities within the holding company structure.

The Company’s insurance subsidiaries are regulated and supervised in the jurisdictions in which they do business. Among other things, states regulate operating licenses; agent licenses; advertising and marketing practices; the form and content of insurance policies, including pricing; the type and amount of investments; statutory capital requirements; payment of dividends by insurance company subsidiaries; assessments by guaranty associations; affiliate transactions; and claims practices. The Company cannot predict the effect that any proposed or future legislation may have on the financial condition or results of operations of the Company.

Insurance companies are required to file detailed annual and quarterly statutory financial statements with state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such regulators at any time. In addition, insurance regulators periodically examine an insurer’s financial condition, adherence to statutory accounting practices, and compliance with insurance department rules and regulations. Applicable state insurance laws, rather than federal bankruptcy laws, apply to the liquidation or restructuring of insurance companies. Changes in regulations, or in the interpretation of existing laws or regulations, may adversely impact pricing, reserve adequacy or exposure to litigation and could increase the costs of regulatory compliance by the Company’s insurance subsidiaries. Any proposed or future state legislation or regulations may negatively impact the Company’s financial position or results of operations.

10

As part of their routine regulatory oversight process, state insurance departments periodically conduct detailed examinations of the books, records and accounts of insurance companies domiciled in their states. Such examinations generally are conducted in cooperation with the insurance departments of multiple states under guidelines promulgated by the National Association of Insurance Commissioners (NAIC). The most recently completed financial examination of NLIC, NLAIC, NLICA, NLACA and Nationwide Life Insurance Company of Delaware was conducted by the Ohio Department of Insurance (ODI) for the five-year period ended December 31, 2006 on behalf of itself and several other states. The examination was completed during the first quarter of 2008 and did not result in any significant issues or adjustments. The ODI, in addition to the departments of insurance of two other states involved with the exam, Pennsylvania and Delaware, issued reports for their respective domiciliary companies.

State insurance regulatory authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to insurers’ compliance with applicable insurance laws and regulations. NLIC, NLAIC, NLICA and NLACA are currently undergoing regulatory market conduct examinations in eight states. The Company’s insurance subsidiaries continuously monitor sales, marketing and advertising practices and related activities of their agents and personnel and provide continuing education and training in an effort to ensure compliance with applicable insurance laws and regulations. There can be no assurance that any non-compliance with such applicable laws and regulations would not have a material adverse effect on the Company.

In December 2004, the NAIC adopted model legislation implementing new disclosure requirements with respect to compensation of insurance producers. In 2005, related state legislation was adopted in a few states and focused on the producer rather than the insurance company. Although the Company is not aware of regulatory or legislative developments or proposals regarding producer compensation disclosure that would have a material impact on its operations, the NAIC maintains a task force that will continue to review producer compensation disclosure requirements, and additional changes that could impact the Company are possible.

Regulation of Dividends and Other Payments from Insurance Subsidiaries

As an insurance holding company, NFS’ ability to meet debt service obligations and pay operating expenses and dividends depends primarily on the receipt of sufficient funds from its primary operating subsidiary, NLIC. The inability of NLIC to pay dividends to NFS in an amount sufficient to meet debt service obligations and pay operating expenses and dividends would have a material adverse effect on the Company. The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio, its domiciliary state. The State of Ohio insurance laws require Ohio-domiciled life insurance companies to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding 12 months, exceeds the greater of (1) 10% of statutory-basis policyholders’ surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer for the prior year. During the year ended December 31, 2008, NLIC paid a dividend of $246.5 million to NFS after providing prior notice to the ODI. The dividend included $181.9 million in cash and $64.6 million in securities. NLIC’s statutory capital and surplus as of December 31, 2008 was $2.26 billion, and statutory net loss for 2008 was $898.3 million. As of January 1, 2009, NLIC could not pay dividends to NFS without obtaining prior approval from the ODI. The benefits from the use of permitted practices approved by the ODI may not be considered when determining capital and surplus available for dividends. See Note 15 to the audited consolidated financial statements included in the F pages of this report for further discussion.

The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned surplus. Earned surplus is defined under the State of Ohio insurance laws as the amount equal to the Company’s unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurer’s policyholder surplus must be reasonable in relation to the insurer’s outstanding liabilities and adequate for its financial needs. The payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on NLIC’s participating policies (measured before dividends to policyholders) available for the benefit of the Company and its shareholders.

The ability of NLICA to pay dividends to NFS is subject to regulation under Pennsylvania insurance law. Under Pennsylvania insurance laws, unless the Pennsylvania Insurance Department (PID) either approves or does not disapprove payment within 30 days after being notified, NLICA may not pay any cash dividends or other non-stock distributions to NFS during any 12-month period if the total payments exceed the greater of (1) 10% of statutory-basis policyholders’ surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer for the prior year. NLICA paid a dividend of $213.7 million to NFS in 2008 after providing prior notice to the PID. The dividend included $98.9 million in cash, $86.6 million in securities and $28.2 million in mortgage loans. The statutory capital and surplus of NLICA as of December 31, 2008 was $488.4 million, and statutory net income for the year ended December 31, 2008 was $27.8 million. As of January 1, 2009, NLICA could not pay dividends to NFS without obtaining prior approval from the PID.

NFS currently does not expect such regulator requirements to impair the ability of its insurance company subsidiaries to pay sufficient dividends in order for NFS to have the necessary funds available to meet its obligations.

11

Risk-Based Capital Requirements

In order to enhance the regulation of insurer solvency, the NAIC has adopted a model law to implement risk-based capital (RBC) requirements for life insurance companies. The requirements are designed to monitor capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. The model law measures four major areas of risk facing life insurers: (1) the risk of loss from asset defaults and asset value fluctuation; (2) the risk of loss from adverse mortality (the relative incidence of death in a given time) and morbidity (the relative incidence of disability resulting from disease or physical impairment) experience; (3) the risk of loss from mismatching of asset and liability cash flow due to changing interest rates; and (4) business risks. Insurers having less statutory surplus than required by the RBC model formula will be subject to varying degrees of regulatory action depending on the level of capital inadequacy.

Based on the formula adopted by the NAIC, the adjusted capital of all of the Company’s insurance subsidiaries as of December 31, 2008 exceeded the levels at which the Company would be required to take corrective action.

Assessments Against and Refunds to Insurers

Insurance guaranty association laws exist in each state, the District of Columbia and the Commonwealth of Puerto Rico. Insurers doing business in any of these jurisdictions can be assessed for policyholder losses incurred by insolvent insurance companies. The amount and timing of any future assessment on or refund to the Company’s insurance subsidiaries under these laws cannot be reasonably estimated and are beyond the control of the Company and its insurance subsidiaries. A large part of the assessments paid by the Company’s insurance subsidiaries pursuant to these laws may be used as credits for a portion of the Company’s insurance subsidiaries’ premium taxes. For the years ended December 31, 2008, 2007, and 2006, net premium tax refunds received by the Company were immaterial.

Securities Laws

Certain of the Company’s insurance subsidiaries and certain policies and contracts offered by them are subject to regulation under the federal securities laws administered by the U.S. Securities and Exchange Commission (SEC) and under certain state securities laws. Certain separate accounts of the Company’s insurance subsidiaries are registered as investment companies under the Investment Company Act of 1940, as amended (Investment Company Act). Separate account interests under certain variable annuity contracts and variable insurance policies issued by the Company’s insurance subsidiaries are also registered under the Securities Act of 1933, as amended (Securities Act). Certain other subsidiaries of the Company are registered as broker/dealers under the Securities Exchange Act of 1934, as amended (Securities Exchange Act), and are members of, and subject to regulation by, the Financial Industry Regulatory Authority. Certain subsidiaries of the Company are also subject to the SEC’s net capital rules.

Certain of the Company’s subsidiaries are investment advisors registered under the Investment Advisors Act of 1940, as amended, and the Securities Act. The investment companies managed by such subsidiaries are registered with the SEC under the Investment Company Act, and the shares of certain of these entities are qualified for sale in certain states and the District of Columbia. A subsidiary of the Company is registered with the SEC as a transfer agent.

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

12

Unitary Savings and Loan Holding Company Status

Nationwide Bank is a federal savings bank chartered by and subject to comprehensive regulation and periodic examination by the Office of Thrift Supervision (OTS) of the U.S. Department of the Treasury. As a result of the Company’s ownership of Nationwide Bank, the Company is a unitary savings and loan holding company subject to regulation by the OTS and the provisions of the Home Owners’ Loan Act of 1933 (Home Owners’ Loan Act). As a unitary savings and loan holding company, the Company generally is not restricted as to the types of business activities in which it may engage, so long as Nationwide Bank continues to meet the qualified thrift lender test (QTL Test). Under the Home Owners’ Loan Act, unitary savings and loan holding companies such as the Company are grandfathered with full powers to continue and expand their current activities. However, if the Company should fail to qualify as a unitary savings and loan holding company (as a result of failure of the QTL Test or otherwise), then the types of activities in which the Company and its non-savings association subsidiaries would be able to engage would generally be limited to those eligible for bank holding companies (subject, however, to the Company’s ability to elect status as a financial holding company under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach-Bliley Act of 1999).

ERISA Considerations

On December 13, 1993, the U.S. Supreme Court issued its opinion in John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank, holding that certain assets in excess of amounts necessary to satisfy guaranteed obligations held by Hancock in its general account under a participating group annuity contract are “plan assets” and therefore subject to certain fiduciary obligations under the Employee Retirement Income Security Act of 1974, as amended (ERISA). ERISA requires that fiduciaries perform their duties solely in the interest of ERISA plan participants and beneficiaries, and with the care, skill, prudence and diligence that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. The Court imposed ERISA fiduciary obligations to the extent that the insurer’s general account is not reserved to pay benefits under guaranteed benefit policies (i.e., benefits whose value would not fluctuate in accordance with the insurer’s investment experience).

The U.S. Secretary of Labor issued final regulations on January 5, 2000, providing guidance for determining, in cases where an insurer issues one or more policies backed by the insurer’s general account to or for the benefit of an employee benefit plan, which assets of the insurer constitute plan assets for purposes of ERISA and the IRC. The regulations apply only with respect to a policy issued by an insurer to an ERISA plan on or before December 31, 1998. In the case of such a policy, most provisions of the regulations became applicable on July 5, 2001. Generally, where the basis of a claim is that insurance company general account assets constitute plan assets, no person will be liable under ERISA or the IRC for conduct occurring prior to July 5, 2001. However, certain provisions under the final regulations are applicable as follows: (1) certain contract termination features became applicable on January 5, 2000 if the insurer engages in certain unilateral actions; and (2) the initial and separate account disclosure provisions became applicable July 5, 2000. New non-guaranteed benefit policies issued after December 31, 1998 subject the issuer to ERISA fiduciary obligations. Since the Company issues fixed group annuity contracts that are backed by its general account and used to fund employee benefit plans, the Company is subject to these requirements.

Tax Legislation

Life insurance products may be used to provide income tax deferral and income tax free death benefits; annuity contracts may be used to provide income tax deferral. The value of these benefits is related to the level of income tax and capital gains tax rates. Changes to the income tax rates and the capital gains tax rates can affect the value of these benefits, and therefore the desirability of those products.

The U.S. Congress periodically has considered possible legislation that, if enacted, could materially reduce or eliminate many of the tax advantages of purchasing and owning annuity and life insurance products. Although the proposals have not been enacted, those proposals, or other similar proposals, could be introduced for enactment in future periods.

The administration of President Barack Obama may propose changes to the Internal Revenue Code to address the fiscal challenges currently faced by the federal government. These changes could include changes to the taxation of life insurance, annuities, mutual funds, retirement savings plans, and other investment alternatives offered by the Company. Such changes could have an adverse impact on the desirability of the products offered by the Company.

13

Employees

As of December 31, 2008, the Company had approximately 4,644 employees, none of which were covered by a collective bargaining agreement.

Available Information

The Company files electronically with the SEC its Current Reports on Form 8-K, Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and other reports, which are available on the SEC’s web site (http://www.sec.gov). In addition, all reports filed by the Company with the SEC may be read and copied at the SEC’s Public Reference Room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The Company also makes available these reports, free of charge, on its web site (http://www.nationwide.com). The Company’s Code of Conduct is also available on the Company’s web site. A copy of the Code of Conduct is also available from the Company free of charge. Requests for copies should be made to LeRoy Johnston III, Vice President – Ethics and Compliance, One Nationwide Plaza, Columbus, Ohio 43215-2220, or via telephone at 614-249-8437.

ITEM 1A RISK FACTORS

Adverse capital and credit market conditions may significantly affect the Company’s ability to meet liquidity needs and impact capital position.

The capital and credit markets have been experiencing extreme volatility and disruption for more than twelve months. During the second half of 2008, the volatility and disruption have reached unprecedented levels. In some cases, the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers. Economic conditions have continued to deteriorate in 2009.

The Company needs liquidity to pay its operating expenses, interest on its debt and dividends on its capital stock, and to replace certain maturing liabilities. The principal sources of the Company’s liquidity are insurance premiums, annuity considerations, deposit funds, cash flow from its investment portfolio and assets, consisting mainly of cash or assets that are readily convertible into cash. Sources of liquidity also include a variety of short- and long-term instruments, including repurchase agreements, commercial paper, bank loans, medium- and long-term debt, junior subordinated debt securities and capital securities.

In the event current resources do not satisfy the Company’s needs, the Company may have to seek additional financing. The availability of additional financing will depend on a variety of factors such as market conditions, the availability of credit generally and specifically to the financial services industry, the volume of trading activities, the Company’s credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of the Company’s long- or short-term financial prospects if it incurs large investment losses or if the level of business activity decreases due to a market downturn. Similarly, the Company’s access to funds may be impaired if regulatory authorities or rating agencies take negative actions against the Company. The Company’s internal sources of liquidity may prove to be insufficient, and in such case, the Company may not be able to successfully obtain additional financing on favorable terms, or at all.

Disruptions, uncertainty or volatility in the capital and credit markets may also limit the Company’s access to capital required to operate its business, most significantly its insurance operations. Such market conditions may limit the Company’s ability to replace, in a timely manner, maturing liabilities; satisfy statutory capital requirements; generate fee income and market-related revenue to meet liquidity needs; and access the capital necessary to grow its business. As such, the Company may be forced to issue shorter-term securities than it prefers, or bear an unattractive cost of capital, which could decrease the Company’s profitability and significantly reduce the Company’s financial flexibility. The Company’s results of operations, financial condition, cash flows and statutory capital position could be materially adversely affected by disruptions in the financial markets.

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Difficult conditions in the economy generally may materially adversely affect the Company’s business and results of operations, and these conditions may not improve in the near future.

The Company’s results of operations are materially affected by conditions in the economy in both the U.S. and elsewhere. The stress experienced by global capital markets that began in the second half of 2007 continued and substantially increased during 2008. Recently, concerns over inflation, energy costs, geopolitical issues, the availability and cost of credit, the U.S. mortgage market, and a declining real estate market in the U.S. have contributed to increased volatility and diminished expectations for the economy and the markets going forward. These factors, combined with volatile oil prices, declining business and consumer confidence, and increased unemployment, have precipitated an economic slowdown and a recession. In addition, the fixed-income markets are experiencing a period of extreme volatility, which has negatively impacted market liquidity conditions. Initially, the concerns on the part of market participants were focused on the Sub-prime segment of the mortgage-backed securities (MBS) market. However, these concerns have since expanded to include a broad range of MBSs (including those backed by commercial mortgages), asset-backed securities (ABSs) and other fixed income securities, including those rated investment grade, the U.S. and international credit and interbank money markets generally, and a wide range of financial institutions and markets, asset classes and sectors. As a result, the market for fixed income instruments has experienced decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default. Securities that are less liquid are more difficult to value and may be hard to dispose of. These events and the continuing market upheavals may have an adverse effect on the Company, in part because the Company has a large investment portfolio and also is dependent upon customer behavior. The Company’s revenues are likely to decline in such circumstances, and the Company’s profit margins could erode. In addition, in the event of extreme prolonged market events, such as the global credit crisis, the Company could incur significant losses. Even in the absence of a market downturn, the Company is exposed to substantial risk of loss due to market volatility.

The Company is a significant writer of variable annuity products. The account values of these products will be affected by the downturn in capital markets. Any decrease in account values will decrease the fees generated by the Company’s variable annuity products. See Part II, Item 7A – Quantitative and Qualitative Disclosures about Market Risk – Equity Market Risk for a complete discussion of risk factors associated with guaranteed contracts.

Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, and inflation all affect the business and economic environment and, ultimately, the amount and profitability of the Company’s business. In an economic downturn characterized by higher unemployment, lower family income, increased defaults on mortgage and consumer loans, lower corporate earnings, lower business investment and lower consumer spending, the demand for the Company’s financial and insurance products could be adversely affected. In addition, the Company may experience an elevated incidence of claims and lapses or surrenders of policies. The Company’s policyholders may choose to defer paying insurance premiums or stop paying insurance premiums altogether. Adverse changes in the economy could affect earnings negatively and could have a material adverse effect on the Company’s business, results of operations and financial condition. The current mortgage crisis also has raised the possibility of future legislative and regulatory actions in addition to the recent enactment of the Emergency Economic Stabilization Act of 2008 that could further impact the Company’s business. The Company cannot predict whether or when such actions may occur, or what impact, if any, such actions could have on the Company’s business, results of operations and financial condition.

The Internal Revenue Code may be changed to address the fiscal challenges currently faced by the federal government. These changes could include changes to the taxation of life insurance, annuities, mutual funds, retirement savings plans, and other investment alternatives offered by the Company. Such changes could have an adverse impact on the desirability of the products offered by the Company.

The impairment of other financial institutions could adversely affect the Company.

The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, hedge funds, and other investment funds and other institutions. Many of these transactions expose the Company to credit risk in the event of default of the counterparty. In addition, with respect to secured transactions, the Company’s credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due to it. The Company also has exposure to these financial institutions in the form of unsecured debt instruments, derivative transactions and equity investments. There can be no assurance that any such realized losses or impairments to the carrying value of these assets would not materially and adversely affect the Company’s business and results of operations.

15

The Company is exposed to significant financial and capital markets risk, which may adversely affect the Company’s results of operations, financial condition and liquidity, and the Company’s net investment income can vary from period to period.

The Company is exposed to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices, real estate values, foreign currency exchange rates, market volatility, the performance of the economy in general, the performance of the specific obligors included in its portfolio and other factors outside the Company’s control. The Company’s exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. A rise in interest rates will increase the net unrealized loss position of the Company’s investment portfolio and, if long-term interest rates rise dramatically within a six to twelve month time period, certain of the Company’s life insurance businesses may be exposed to disintermediation risk. Disintermediation risk refers to the risk that the Company’s policyholders may surrender their contracts in a rising interest rate environment, requiring the Company to sell assets, which likely would have declined in value due to the increase in interest rates. Due to the long-term nature of the liabilities associated with certain of the Company’s life insurance businesses, guaranteed benefits on variable annuities and structured settlements, sustained declines in long-term interest rates may subject the Company to reinvestment risks and increased hedging costs. In other situations, declines in interest rates may result in increasing the duration of certain life insurance liabilities, creating asset liability duration mismatches. The Company’s investment portfolio also contains interest rate sensitive instruments, such as fixed income securities, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic and international economic and political conditions, and other factors beyond the Company’s control. A rise in interest rates would increase the net unrealized loss position of the investment portfolio, offset by the Company’s ability to earn higher rates of return on funds reinvested. Conversely, a decline in interest rates would decrease the net unrealized loss position of the investment portfolio, offset by lower rates of return on funds reinvested. The Company’s mitigation efforts with respect to interest rate risk primarily are focused toward maintaining an investment portfolio with diversified maturities that has a weighted average duration that is approximately equal to the duration of the estimated liability cash flow profile. However, the Company’s estimate of the liability cash flow profile may be inaccurate, and the Company might need to sell assets, which likely would have declined in value due to the increase in interest rates, in order to cover the liability. Although the Company takes measures to manage the economic risks of investing in a changing interest rate environment, the Company may not be able to mitigate the interest rate risk of the Company’s assets relative to its liabilities.

The Company’s exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. A widening of credit spreads will increase the net unrealized loss position of the investment portfolio, will increase losses associated with credit based derivatives where the Company assumes credit exposure, and, if issuer credit spreads increase significantly or for an extended period of time, would likely result in higher other-than-temporary impairments. Credit spread tightening will reduce net investment income associated with new purchases of fixed maturities. In addition, market volatility can make it difficult to value certain of the Company’s securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period-to-period changes, which could have a material adverse effect on the Company’s results of operations or financial condition. Credit spreads on both corporate and structured securities have widened, resulting in continuing depressed pricing. Continuing challenges include continued weakness in the U.S. real estate market and increased mortgage delinquencies, investor anxiety over the U.S. economy, rating agency downgrades of various structured products and financial issuers, unresolved issues with structured investment vehicles and monolines, deleveraging of financial institutions and hedge funds, and a serious dislocation in the interbank market. If significant, continued volatility, changes in interest rates, changes in credit spreads and defaults, a lack of pricing transparency, market liquidity, declines in equity prices, and the strengthening or weakening of foreign currencies against the U.S. dollar, individually or in tandem, could have a material adverse effect on the Company’s results of operations, financial condition or cash flows through realized losses, impairments and changes in unrealized positions.

The Company’s primary exposure to equity risk relates to the potential for lower earnings associated with certain of the Company’s insurance businesses, such as variable annuities, where fee income is earned based upon the fair value of the assets under management. In addition, certain of the Company’s annuity products offer guaranteed benefits, which increase the Company’s potential benefit exposure and statutory reserve and capital requirements should equity markets decline, which could deplete capital. Increased reserve and capital requirements could lead to rating agency downgrades.

16

The Company invests a portion of its invested assets in investment funds, many of which make private equity investments. The amount and timing of income from such investment funds tends to be uneven as a result of the performance of the underlying investments, including private equity investments. The timing of distributions from the funds, which depends on particular events relating to the underlying investments, as well as the funds’ schedules for making distributions and their needs for cash, can be difficult to predict. As a result, the amount of income that the Company records from these investments can vary substantially from quarter to quarter. Recent equity and credit market volatility may reduce investment income for these types of investments.

The Company’s investments are reflected within the financial statements utilizing different accounting bases. Accordingly, the Company may not have recognized differences, which may be significant, between cost and fair value in the Company’s financial statements.

The Company’s principal investments are in fixed maturity and equity securities, trading securities, short-term investments, mortgage loans, policy loans, real estate, and real estate joint ventures and other limited partnerships. The carrying value of such investments is as follows:

• Fixed maturity and equity securities are classified as available-for-sale, except for trading securities, and are reported at their estimated fair value. Unrealized investment gains and losses on these securities are recorded as a separate component of other comprehensive income or loss, net of policyholder related amounts and deferred income taxes.

• Trading securities are recorded at fair value with subsequent changes in fair value recognized in net investment income.

• Short-term investments include investments with remaining maturities of one year or less, but greater than three months, at the time of acquisition and are stated at fair value.

• Mortgage loans held for investment are stated at unpaid principal balance, adjusted for any unamortized premium or discount, deferred fees or expenses, net of valuation allowances. Commercial mortgage loans that are held for sale are carried at fair value as elected under Statement of Financial Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of Financial Accounting Standards Board (FASB) Statement No. 115.

• Policy loans are stated at unpaid principal balances.

• Real estate joint ventures and other limited partnership interests in which the Company has more than a minor equity interest or more than a minor influence over the joint venture’s or partnership’s operations, but where the Company does not have a controlling interest and is not the primary beneficiary, are carried using the equity method of accounting.

Investments not carried at fair value in the Company’s financial statements (principally mortgage loans, policy loans, real estate, real estate joint ventures and other limited partnerships) may have fair values which are substantially higher or lower than the carrying value reflected in the Company’s financial statements. Each of such asset classes is regularly evaluated for impairment under the accounting guidance appropriate to the respective asset class.

The Company’s valuation of fixed maturity, equity and trading securities may include methodologies, estimations and assumptions which are subject to differing interpretations and could result in changes to investment valuations that may materially adversely affect the Company’s results of operations or financial condition.

Fixed maturity, equity and trading securities and certain other investments are reported at fair value on the balance sheet. The Company has categorized these securities into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

17

The Company categorizes financial assets recorded at fair value in the consolidated balance sheets as follows:

• Level 1 – Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets utilizing Level 1 valuations include U.S. Treasury and agency securities, equity securities listed in active markets, investments in publicly traded mutual funds with quoted market prices, and listed derivatives.

• Level 2 – Unadjusted quoted prices for similar assets in active markets or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable market data through correlation or other means. The types of assets utilizing Level 2 valuations generally include U.S. Government agency securities, municipal bonds, structured notes and certain MBSs and ABSs, certain corporate debt, certain private placement investments, and certain derivatives, including certain cross-currency interest rate swaps and credit default swaps.

• Level 3 – Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate about the assumptions market participants would use at the measurement date in pricing the asset. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs. Generally, the types of assets utilizing Level 3 valuations are certain MBSs and ABSs, certain corporate debt, certain private placement investments, certain mutual fund holdings, and certain derivatives.

Prices provided by independent pricing services and independent broker quotes used to assist in developing the fair value measurement can vary widely even for the same security. The determination of fair values in the absence of quoted market prices is based on: 1) valuation methodologies; 2) securities the Company deems to be comparable; and 3) assumptions deemed appropriate given the circumstances. The fair value estimates are made at a specific point in time, based on available market information and judgments about financial instruments, including estimates of the timing and amounts of expected future cash flows and the credit standing of the issuer or counterparty. Factors considered in estimating fair value include coupon rate, maturity, estimated duration, call provisions, sinking fund requirements, issuer credit worthiness, industry sector of the issuer, issuer and security specific liquidity, performance of the underlying collateral and quoted market prices of comparable securities. The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.

During periods of market disruption including periods of significantly changing interest rates, rapidly widening credit spreads, inactivity or illiquidity, it may be difficult to value certain of the Company’s securities, for example Alt-A and Sub-prime MBSs or certain types of ABSs, if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes that were in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, more securities may fall to Level 3 and thus result in more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation as well as valuation methods, which are more sophisticated or require greater estimation, thereby resulting in values which may be different from the value at which the investments ultimately may be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Company’s financial statements, and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on the Company’s results of operations or financial condition.

Some of the Company’s investments are relatively illiquid and are in asset classes that have been experiencing significant market valuation fluctuations.

The Company holds certain investments that may lack liquidity, such as privately placed fixed maturity securities; mortgage loans; policy loans; equity real estate, including real estate joint ventures; and other limited partnership interests. Even some of the Company’s very high quality assets have been more illiquid as a result of the recent challenging market conditions.

If the Company requires significant amounts of cash on short notice in excess of normal cash requirements or is required to post or return collateral in connection with the investment portfolio, derivatives transactions or securities lending activities, the Company may have difficulty selling these investments in a timely manner, be forced to sell them for less than the Company otherwise would have been able to realize, or both.

The reported value of the Company’s relatively illiquid types of investments and, at times, the high quality, generally liquid asset classes, do not necessarily reflect the lowest observed price for the asset. If the Company was forced to sell certain assets in the current market, there can be no assurance that the Company would be able to sell them for the prices at which they are recorded, and the Company may be forced to sell them at significantly lower prices.

18

The determination of the amount of allowances and impairments taken on the Company’s investments and the valuation allowance on the deferred income tax asset are judgmental and could materially impact the Company’s results of operations or financial position.

The determination of the amount of allowances and impairments vary by investment type and is based upon the Company’s periodic evaluation and assessment of known and inherent risks associated with the respective asset class. Such evaluations and assessments are revised as conditions change and new information becomes available. Management updates its evaluations regularly and reflects changes in allowances and impairments in operations as such evaluations are revised. Furthermore, additional impairments may need to be taken or allowances provided for in the future. Historical trends may not be indicative of future impairments or allowances.

For debt securities not subject to Emerging Issues Task Force Issue (EITF) No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets, as amended by FASB Staff Position (FSP) EITF 99-20-1 (EITF 99-20), an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or based on the probability that the Company may not be able to receive all contractual payments when due. Debt securities accounted for under EITF 99-20 may experience other-than-temporary impairment in future periods in the event an adverse change in cash flows is anticipated or probable. Furthermore, equity securities may experience other-than-temporary impairment in the future based on the prospects for recovery in value in a reasonable period.

Many criteria are considered during this process including, but not limited to, the current fair value as compared to cost or amortized cost, as appropriate, of the security; the amount and length of time a security’s fair value has been below cost or amortized cost; specific known and probable credit issues and financial prospects related to the issuer and/or collateral; management’s intent and ability to hold or dispose of the security; and current economic conditions. Other-than-temporary impairment losses result in a reduction to the cost basis of the underlying investment.

See Note 14 to the audited consolidated financial statements included in the F pages of this report for a discussion of management’s considerations in assessing the realizability of deferred tax assets.

Deterioration in the public debt and equity markets could lead to additional investment losses.

The prolonged and severe disruptions in the public debt and equity markets, including among other things, widening of credit spreads, bankruptcies and government intervention in a number of large financial institutions, have resulted in significant realized and unrealized losses in the Company’s investment portfolio. For the year ended December 31, 2008, the Company incurred substantial realized and unrealized investment losses, as described in Part II, Item 7 – MD&A. Subsequent to December 31, 2008, through the date of this report, conditions in the public debt and equity markets have continued to deteriorate, and pricing levels have continued to decline. As a result, depending on market conditions, the Company could incur substantial additional realized and unrealized losses in future periods, which could have a material adverse impact on the Company’s results of operations, equity, business, and insurer financial strength and debt ratings.

A downgrade or potential downgrade in the Company’s financial strength or credit ratings could result in a loss of business and adversely affect the Company’s financial condition and results of operations.

Financial strength ratings, which various Nationally Recognized Statistical Rating Organizations (NRSROs) publish as indicators of an insurance company’s ability to meet contractholder and policyholder obligations, are important to maintaining public confidence in the Company’s products, the Company’s ability to market its products and its competitive position.

Downgrades in the Company’s financial strength ratings could have an adverse effect on the Company’s financial condition and results of operations in many ways, including reducing new sales of insurance products, annuities and other investment products; adversely affecting the Company’s relationships with its sales force and independent sales intermediaries; increasing the number or amount of policy surrenders and withdrawals by contractholders and policyholders; requiring the Company to reduce prices for many of its products and services to remain competitive; and adversely affecting the Company’s ability to obtain reinsurance at reasonable prices or at all.

19

In addition to the financial strength ratings of the Company’s insurance subsidiaries, various NRSROs also publish credit ratings for NFS and several of its subsidiaries. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner and are important factors in the Company’s overall funding profile and ability to access certain types of liquidity. Downgrades in the Company’s credit ratings could have an adverse effect on the Company’s financial condition and results of operations in many ways, including limiting the Company’s access to capital markets, potentially increasing the cost of debt, and requiring the Company to post collateral.

On September 18, September 29, October 2, and October 10, 2008, A.M. Best Company, Inc., Fitch Ratings Ltd., Moody’s and Standard & Poor’s, respectively, each revised its outlook for the U.S. life insurance sector to negative from stable, citing, among other things, the significant deterioration and volatility in the credit and equity markets, economic and political uncertainty, and the expected impact of realized and unrealized investment losses on life insurers’ capital levels and profitability.

In view of the difficulties experienced recently by many financial institutions, including the Company’s competitors in the insurance industry, the Company believes it is possible that the NRSROs will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate, and may adjust upward the capital and other requirements employed in the NRSRO models for maintenance of certain ratings levels.

The Company cannot predict what actions rating agencies may take, or what actions the Company may take in response to the actions of rating agencies, which could adversely affect the Company’s business. As with other companies in the financial services industry, the Company’s ratings could be downgraded at any time and without any notices by any NRSRO.

If the Company’s business does not perform well or if actual experience versus estimates used in valuing and amortizing deferred policy acquisition costs (DAC) varies significantly, the Company may be required to accelerate the amortization of DAC, which could adversely affect the Company’s results of operations or financial condition.

The Company incurs significant costs in connection with acquiring new and renewal business. Those costs that vary with and primarily are related to the production of new and renewal business are deferred and referred to as DAC. The recovery of DAC is dependent upon the future profitability of the related business. The amount of future profit or margin primarily is dependent on investment returns in excess of the amounts credited to policyholders, mortality, morbidity, persistency, interest crediting rates, dividends paid to policyholders, expenses to administer the business, creditworthiness of reinsurance counterparties, and certain economic variables, such as inflation. Of these factors, the Company anticipates that investment returns are most likely to impact the rate of amortization of such costs. The aforementioned factors enter into management’s estimates of gross profits, which generally are used to amortize such costs. If the estimates of gross profits were overstated, then the amortization of such costs would be accelerated in the period the actual experience is known or when estimates are reevaluated and would result in a charge to income. Significant or sustained equity market declines could result in an acceleration of amortization of DAC related to variable annuity and variable universal life contracts, resulting in a charge to operations. Such adjustments could have a material adverse effect on the Company’s results of operations or financial condition.

Deviations from assumptions regarding future persistency, mortality, morbidity and interest rates used in calculating reserve amounts could have a material adverse impact on the Company’s results of operations or financial condition.

The process of calculating reserve amounts for a life insurance organization involves the use of a number of assumptions, including those related to persistency (how long a contract stays with a company), mortality, morbidity and interest rates (the rates expected to be paid or received on financial instruments, including insurance or investment contracts). Actual results could differ significantly from those assumed. As such, significant deviations from one or more of these assumptions could result in a material adverse impact on the Company’s results of operations or financial condition.

The Company’s insurance subsidiaries are subject to extensive regulations designed to benefit or protect policyholders rather than the Company.

See Part I, Item 1 – Business – Regulation – Regulation at State Level for a general description of the regulations designed to benefit or protect policyholders. Changes in regulations or in the interpretation of existing laws or regulations may adversely impact pricing, reserve adequacy or exposure to litigation and could increase the costs of regulatory compliance by the Company’s insurance subsidiaries. Any proposed or future state legislation or regulations may negatively impact the Company’s financial position or results of operations.

20

Certain changes in federal laws and regulations may adversely affect the Company’s financial position or results of operations.

Although the federal government does not directly regulate the insurance industry, federal legislation, administrative policies and court decisions may significantly and adversely affect certain areas of the Company’s business. In addition to product tax issues, these areas include pension and employee welfare benefit plan regulation, financial services regulation and taxation generally. For example, the following events could adversely affect the Company’s business:

• changes in laws such as ERISA, as amended, that apply to group annuities (see Part I, Item 1 – Business – Regulation – ERISA Considerations for a complete discussion of ERISA);

• changes in tax laws that would reduce or eliminate the tax-deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products; repeal of the federal estate tax;

• changes in the availability of, or rules concerning the establishment and operation of, Section 401, 403(b) and 457 plans or individual retirement accounts;

• changes in tax laws, including changes that could reduce or eliminate many of the tax advantages of purchasing and owning annuity and life insurance products (see Difficult conditions in the economy generally may adversely affect the Company’s business and results of operations, and these conditions may not improve in the near future, and Part I, Item 1 – Business – Regulation – Tax Legislation for a description of risk factors related to potential tax legislation and “Tax Matters” in Note 19 to the audited consolidated financial statements included in the F pages of this report for information regarding the Company’s separate account dividends received deduction); or

• changes in tax regulations, such as the proposed regulations that would alter the way tax sheltered annuities described in Section 403(b) of the IRC may be offered and sold.

Litigation or regulatory actions in connection with late trading, market timing, compensation and bidding arrangements, unsuitable sales and replacements, the use of finite reinsurance and/or other sales practices could have a material adverse impact on the Company.

See Part I, Item 3 – Legal Proceedings for a description of litigation and regulatory actions. These and future litigation matters may negatively affect the Company by resulting in the payment of substantial awards or settlements, increasing legal and compliance costs, requiring the Company to change certain aspects of its business operations, diverting management attention from other business issues or harming the Company’s reputation with customers.

Certain changes in accounting and/or financial reporting standards issued by the FASB, the SEC or other standard-setting bodies could have a material adverse impact on the Company’s financial position or results of operations.

The Company is subject to the application of U.S. generally accepted accounting principles (GAAP), which periodically are revised and/or expanded. As such, the Company periodically is required to adopt new or revised accounting and/or financial reporting standards issued by recognized accounting standard setters or regulators, including the FASB and the SEC. It is possible that future requirements could change the Company’s current application of GAAP, resulting in a material adverse impact on the Company’s financial position or results of operations.

The continued threat of terrorism and ongoing military and other actions may result in decreases in the Company’s consolidated net (loss) income, revenue and assets under management and may adversely impact the Company’s consolidated investment portfolio.

The continued threat of terrorism within the U.S. and abroad, ongoing military and other actions, and heightened security measures in response to these types of threats may cause significant volatility and declines in the U.S., European and other securities markets, loss of life, property damage, additional disruptions to commerce and reduced economic activity. Actual terrorist attacks could cause a decrease in the Company’s consolidated net income and/or revenue as a result of decreased economic activity and/or payment of claims. In addition, some of the assets in the Company’s investment portfolio may be adversely affected by declines in the securities markets and economic activity caused by the continued threat of terrorism, ongoing military and other actions and heightened security measures.

21

The Company cannot predict whether or the extent to which industry sectors in which the Company maintains investments may suffer losses as a result of potential decreased commercial and economic activity, how any such decrease might impact the ability of companies within the affected industry sectors to pay interest or principal on their securities, or how the value of any underlying collateral might be affected.

Although the Company does not believe that the continued threat of terrorist attacks will have any material impact on the Company’s financial strength or performance, the Company can offer no assurances that this threat, future terrorist-like events in the U.S. and abroad, or military actions by the U.S. will not have a material adverse impact on the Company’s business, financial position or results of operations.

The Company operates in a highly competitive industry, which can significantly impact operating results.

See Part I, Item 1 – Business – Competition for a description of competitive factors affecting the Company. The Company’s revenues and profitability could be impacted negatively due to competition.

Unauthorized data access and other security breaches could have an adverse impact on the Company’s business and reputation.

Security breaches and other improper accessing of data in the Company’s facilities, networks or databases could result in loss or theft of data and information or systems interruptions that may expose the Company to liability and have an adverse impact on the Company’s business. Moreover, any compromise of the security of the Company’s data could harm the Company’s reputation and business. There can be no assurances that the Company will be able to implement security measures to prevent such security breaches.

ITEM 1B UNRESOLVED STAFF COMMENTS

None.

ITEM 2 PROPERTIES

Pursuant to an arrangement between NMIC and certain of its subsidiaries, during 2008 the Company leased on average approximately 890,000 square feet of office space in the three-building home office complex and in other offices in central Ohio. In addition, the Company leases approximately 120,000 square feet of office space in Berwyn, Pennsylvania (of which approximately 90,000 square feet are subleased). The Company believes that its present and planned facilities are adequate for the anticipated needs of the Company.

ITEM 3 LEGAL PROCEEDINGS

See Note 19 to the audited consolidated financial statements included in the F pages of this report for a discussion of legal proceedings.

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 31, 2008, the Company held a special meeting of shareholders. At that meeting shareholders voted on the following proposal:

	For	Against	Withheld
Adoption and approval of the Agreement and Plan of Merger, dated as of August 6, 2008, among the Company, NMIC, NMFIC, Nationwide Corp. and NWM Merger Sub, Inc.	114,626,832	226,553	165,468

22

PART II

ITEM 5 MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On January 1, 2009, the Company became a wholly owned, privately held subsidiary of Nationwide Corporation through a merger of the Company and NWM Merger Sub, Inc., a wholly owned subsidiary of Nationwide Corporation. On that date, all 100 shares of NWM Merger Sub’s issued and outstanding common stock became the issued and outstanding common stock of the Company and all such shares are held by Nationwide Corporation.

Until the close of the market on December 31, 2008, the Class A common stock of NFS was traded on the New York Stock Exchange under the symbol “NFS.” As of December 31, 2008, NFS had 46,299,986 registered shareholders of Class A common stock. All of the shares of the Company’s Class A common stock were cancelled upon the closing of the merger transaction on January 1, 2009.

There was no established public trading market for the Company’s Class B common stock. All 91,778,717 shares of Class B common stock that had been outstanding on December 31, 2008 were owned by Nationwide Corporation. All of the shares of the Company’s Class B common stock were cancelled upon the closing of the merger transaction on January 1, 2009.

The following table presents quarterly high, low and closing sales prices of NFS Class A common stock and cash dividends declared on such shares for each quarter of 2008 and 2007:

	Market price						Dividends declared
Quarter ended	High		Low		Closing
March 31, 2008	$	48.52	$	37.42	$	47.28	$	0.29
June 30, 2008		51.69		47.15		48.01		0.29
September 30, 2008		51.90		41.75		49.33		0.29
December 31, 2008		52.24		40.35		52.21		—
March 31, 2007	$	55.80	$	51.84	$	53.86	$	0.26
June 30, 2007		64.74		54.05		63.22		0.26
September 30, 2007		65.52		45.32		53.82		0.26
December 31, 2007		55.60		41.78		45.01		0.26

See Part I, Item 1 – Business – Regulation – Regulation of Dividends and Other Payments from Insurance Subsidiaries for information regarding restrictions on the ability of NFS’ insurance subsidiaries to pay dividends to NFS.

NFS issued 39 shares of Class A common stock during the first quarter of 2008, at an average price of $44.17 per share, to Arden L. Shisler, the Chairman of the Board of Directors of the Company. Mr. Shisler is not an employee of NFS or its affiliates. This was a partial payment of the supplemental annual stock retainer for 2008 paid by NFS to the Chairman of the Board. The Chairman of the Board received a supplemental annual retainer of $40,000 for his additional duties, which in prior years was paid monthly one-half in cash and one-half in shares of the Company’s Class A common stock. For the remainder of 2008, the supplemental cash retainer for Mr. Shisler was paid in cash only. The issuance of these shares was exempt from registration under the Securities Act of 1933, as amended. On January 1, 2009, Mr. Shisler and all other members of the Company’s Board of Directors resigned. Three members of management were elected as the directors of the post-merger board of the Company.

See Note 15 to the audited consolidated financial statements included in the F pages of this report for a description of the Company’s stock repurchase program (the Program) activity. The Program terminated on January 1, 2009 upon the closing of the merger transaction described above as a result of the purchase of all of NFS’ outstanding publicly traded common stock by Nationwide Corporation.

23

The following table summarizes the information required by Item 703 of Regulation S-K for purchases of NFS’ equity securities by NFS or any affiliated purchasers, as defined in Rule 10b-18(a)(3) under the Securities Exchange Act, during the Company’s fourth quarter:

Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced programs	Approximate value of shares that may yet be purchased under the programs1 (in millions)
October 2008	100,000	$47.08	—	$438.0
November 2008	—	N/A	—	438.0
December 2008	—	N/A	—	438.0
Total	100,000	$47.08	—

¹ As previously noted above, the Program terminated on January 1, 2009 upon the closing of the merger transaction.

See Part III, Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for additional information required by this item.

24

ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA

Five-Year Summary

	Years ended or as of December 31,
(in millions, except per share amounts)	2008			2007		2006		2005		2004
Statements of (Loss) Income Data:
Total revenues	$	2,707.6		$	4,528.9	$	4,562.5	$	4,416.2	$	4,167.9
(Loss) income from continuing operations		(835.8	)		609.7		727.1		639.0		524.5
Net (loss) income		(849.0	)		626.8		724.0		610.4		516.4
(Loss) earnings from continuing operations per common share:
Basic	$	(6.06	)	$	4.28	$	4.85	$	4.18	$	3.45
Diluted		(6.06	)		4.25		4.82		4.16		3.43
(Loss) earnings per common share:
Basic	$	(6.16	)	$	4.40	$	4.83	$	3.99	$	3.40
Diluted		(6.16	)		4.37		4.80		3.97		3.38
Weighted average common shares outstanding:
Basic		137.9			142.5		149.9		152.9		152.1
Diluted		137.9			143.5		150.7		153.6		152.9
Cash dividends declared per common share	$	0.87		$	1.04	$	0.92	$	0.76	$	0.72
Balance Sheets Data:
Total assets	$	93,627.4		$	119,207.1	$	119,531.1	$	116,361.2	$	117,121.2
Long-term debt		1,725.9			1,565.1		1,398.5		1,398.0		1,406.0
Shareholders’ equity		3,058.2			5,324.6		5,622.7		5,387.6		5,234.0
Book value per common share	$	22.14		$	38.44	$	38.51	$	35.33	$	34.32
Segment Data:
Customer funds managed and administered:
Individual Investments	$	39,551.2		$	53,587.0	$	52,963.6	$	51,227.6	$	52,481.9
Retirement Plans		62,798.1			80,546.6		76,597.1		69,850.8		65,428.3
Individual Protection		18,250.0			20,990.5		19,686.8		17,388.6		15,683.0
Corporate and Other		6,326.5			7,241.3		7,662.4		7,017.8		6,703.4
Total	$	126,925.8		$	162,365.4	$	156,909.9	$	145,484.8	$	140,296.6
Pre-tax operating (loss) earnings:
Individual Investments	$	(220.2	)	$	300.7	$	223.1	$	250.7	$	244.0
Retirement Plans		202.2			252.6		221.2		191.3		183.3
Individual Protection		256.5			299.8		280.8		266.1		247.3
Corporate and Other		(188.8	)		74.6		65.1		54.9		66.8
Sales:
Individual Investments	$	5,066.3		$	6,126.6	$	5,391.1	$	4,109.2	$	5,338.5
Retirement Plans		10,339.9			10,691.2		10,010.0		9,509.4		8,912.7
Individual Protection		1,706.7			1,746.4		1,962.0		1,825.2		1,766.8
Total	$	17,112.9		$	18,564.2	$	17,363.1	$	15,443.8	$	16,018.0

As described in Part II, Item 7 – MD&A – Overview – Discontinued Operations, the results of operations of TBG Financial are reflected as discontinued for 2008 and all prior years. The results of operations of The 401(k) Company are reflected as discontinued for 2007 and all prior years. In addition, the results of operations of Cap Pro Holding, Inc., Nationwide Financial Services (Bermuda), Ltd. and William J. Lynch & Associates, Inc. are reflected as discontinued for 2005 and 2004. As described in Part II, Item 7  – MD&A – Overview – Nationwide Funds Group Acquisition, the results of operations of NFG for 2007 and all prior years are reflected as though the companies were combined for all periods presented.

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

TABLE OF CONTENTS

FORWARD-LOOKING INFORMATION	27
OVERVIEW	28
CRITICAL ACCOUNTING POLICIES AND RECENTLY ISSUED ACCOUNTING STANDARDS	32
RESULTS OF OPERATIONS	37
SALES	41
BUSINESS SEGMENTS	46
LIQUIDITY AND CAPITAL RESOURCES	62
CONTRACTUAL OBLIGATIONS AND COMMITMENTS	65
OFF-BALANCE SHEET TRANSACTIONS	67
INVESTMENTS	67

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Forward-Looking Information

The information included herein contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the results of operations and businesses of Nationwide Financial Services, Inc. and subsidiaries (NFS, or collectively, the Company). Whenever used in this report, words such as “anticipate,” “estimate,” “expect,” “intend,” “plan,” “believe,” “project,” “target” and other words of similar meaning are intended to identify such forward-looking statements. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated or projected, forecast, estimated or budgeted in such forward-looking statements include, among others, the following possibilities:

(i) NFS’ primary reliance, as a holding company, on dividends from its subsidiaries to meet debt service obligations and the applicable regulatory restrictions on the ability of NFS’ subsidiaries to pay such dividends;

(ii) the potential impact on the Company’s reported net (loss) income and related disclosures that could result from the adoption of certain accounting and/or financial reporting standards issued by the FASB, the SEC or other standard-setting bodies;

(iii) tax law changes impacting the tax treatment of life insurance and investment products;

(iv) repeal of the federal estate tax;

(v) heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new and existing competitors;

(vi) adverse state and federal legislation and regulation, including limitations on premium levels, increases in minimum capital and reserves, and other financial viability requirements; restrictions on mutual fund distribution payment arrangements such as revenue sharing and 12b-1 payments; and regulation changes resulting from industry practice investigations;

(vii) failure to expand distribution channels in order to obtain new customers or failure to retain existing customers;

(viii) inability to carry out marketing and sales plans, including, among others, development of new products and/or changes to certain existing products and acceptance of the new and/or revised products in the market;

(ix) changes in interest rates and the equity markets causing a reduction of investment income and/or asset fees, an acceleration of the amortization of DAC and/or value of business acquired (VOBA), a reduction in separate account assets or a reduction in the demand for the Company’s products; increased liabilities related to living benefits and death benefit guarantees;

(x) reduction in the value of the Company’s investment portfolio as a result of changes in interest rates, yields and liquidity in the market as well as geopolitical conditions and the impact of political, regulatory, judicial, economic or financial events, including terrorism, affecting the market generally and companies in the Company’s investment portfolio specifically; corresponding impact on the ultimate realizability of deferred tax assets;

(xi) general economic and business conditions which are less favorable than expected;

(xii) competitive, regulatory or tax changes that affect the cost of, or demand for, the Company’s products;

(xiii) unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;

(xiv) settlement of tax liabilities for amounts that differ significantly from those recorded on the balance sheets;

(xv) deviations from assumptions regarding future persistency, mortality (including as a result of the outbreak of a pandemic illness), morbidity and interest rates used in calculating reserve amounts and in pricing the Company’s products;

(xvi) adverse litigation results and/or resolution of litigation and/or arbitration or investigation results that could result in monetary damages or impact the manner in which the Company conducts its operations; and

(xvii) adverse consequences, including financial and reputation costs, regulatory problems and potential loss of customers resulting from failure to meet privacy regulations and/or protect the Company’s customers’ confidential information.

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Overview

Following is management’s discussion and analysis of financial condition and results of operations of the Company for the three years ended December 31, 2008. This discussion should be read in conjunction with the audited consolidated financial statements and related notes beginning on page F-1 of this report.

See Part I, Item 1 – Business – Overview and Part I, Item 1 – Business – Capital Stock Transactions for a description of the Company and its ownership structure.

Business Segments

Management views the Company’s business primarily based on its underlying products and uses this basis to define its four reportable segments: Individual Investments, Retirement Plans, Individual Protection, and Corporate and Other.

The primary segment profitability measure that management uses is pre-tax operating (loss) earnings, which is calculated by adjusting (loss) income from continuing operations before federal income tax (benefit) expense and discontinued operations to exclude: (1) net realized investment gains and losses, except for operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, and net realized gains and losses related to hedges on GMDB contracts and securitizations); and (2) the adjustment to amortization of DAC and VOBA related to net realized investment gains and losses.

See Part I, Item 1 – Business – Business Segments for a description of the components of each segment.

The following table summarizes pre-tax operating (loss) earnings by segment for the years ended December 31:

(dollars in millions)	2008			2007		Change	2006		Change
Individual Investments	$	(220.2	)	$	300.7	NM	$	223.1	35%
Retirement Plans		202.2			252.6	(20)%		221.2	14%
Individual Protection		256.5			299.8	(14)%		280.8	7%
Corporate and Other		(188.8	)		74.6	NM		65.1	15%

Revenues and Expenses

The Company earns revenues and generates cash primarily from policy charges, life insurance premiums and net investment income. Policy charges include asset fees, which are earned primarily from separate account values generated from the sale of individual and group variable annuities and investment life insurance products; cost of insurance charges earned on all life insurance products except traditional, which are assessed on the amount of insurance in force in excess of the related policyholder account value; administrative fees, which include fees charged per contract on a variety of the Company’s products and premium loads on universal life insurance products; and surrender fees, which are charged as a percentage of premiums withdrawn during a specified period for annuity and certain life insurance contracts. Net investment income includes earnings on investments supporting fixed annuities, the MTN program and certain life insurance products, and earnings on invested assets not allocated to product segments, all net of related investment expenses. Other income includes asset fees, administrative fees, commissions and other income earned by subsidiaries of the Company that provide administrative, marketing, distribution and retail asset management services.

Management makes decisions concerning the sale of invested assets based on a variety of market, business, tax and other factors. All realized gains and losses generated by these sales, charges related to other-than-temporary impairments of available-for-sale securities and other investments, and changes in valuation allowances on mortgage loans on real estate are reported in net realized investment gains and losses. Also included are changes in the fair values of derivatives qualifying as fair value hedges and the related changes in the fair values of hedged items; the ineffective, or excluded, portion of cash flow hedges; changes in the fair values of derivatives that do not qualify for hedge accounting treatment, including the mark-to-market of embedded derivatives, net of economic hedges; and periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment.

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The Company’s primary expenses include interest credited to policyholder accounts, life insurance and annuity benefits, amortization of DAC and general business operating expenses. Interest credited principally relates to individual and group fixed annuities, funding agreements backing the NLIC MTN program and certain life insurance products. Life insurance and annuity benefits include policyholder benefits in excess of policyholder accounts for universal life and individual deferred annuities and net claims and provisions for future policy benefits for traditional life insurance products and immediate annuities.

The Company regularly evaluates and adjusts the DAC balance when actual gross profits in a given reporting period vary from management’s initial estimates, with a corresponding charge or credit to current period earnings. This process is referred to by the Company as a “true-up”, which generally is performed, and the resulting impact recognized, on a quarterly basis. Additionally, the Company regularly evaluates its assumptions regarding the future estimated gross profits used as a basis for amortization of DAC and adjusts the total amortization recorded to date by a charge or credit to earnings if evidence suggests that these future assumptions and estimates should be revised. The Company refers to this process as “unlocking”, which generally is performed on an annual basis with any corresponding charge or credit reflected in the second quarter. In addition, the Company regularly monitors its actual experience and evaluates relevant internal and external information impacting its assumptions and may unlock more frequently than annually if such information and analysis warrants.

Profitability

The Company’s profitability largely depends on its ability to effectively price and manage risk on its various products, administer customer funds and control operating expenses. Lapse rates on existing contracts also impact profitability. The lapse rate and distribution of lapses affect surrender charges and impact DAC amortization assumptions when lapse experience changes significantly.

In particular, the Company’s profitability is driven by fee income on separate account products, general and separate account asset levels, and management’s ability to manage interest spread income. While asset fees are largely at guaranteed annual rates, amounts earned vary directly with the underlying performance of the separate accounts. Interest spread income is comprised of net investment income, excluding any applicable allocated charges for invested capital, less interest credited to policyholder accounts. Interest spread income can vary depending on crediting rates offered by the Company; performance of the investment portfolio, including the rate of prepayments; changes in market interest rates and the level of invested assets; the competitive environment; and other factors.

In addition, life insurance profits are significantly impacted by mortality, morbidity and persistency experience. Asset impairments and the tax position of the Company also impact profitability.

Discontinued Operations

Effective March 31, 2007, the Company completed the sale of The 401(k) Company for $115.4 million in cash and recorded a $45.5 million gain, net of taxes.

During the quarter ended December 31, 2007, the Company committed to a plan of sale of its interest in TBG Financial. Based on management’s determination that the carrying value of this business exceeded its estimated fair value (less estimated cost to sell), the Company recorded a $23.4 million loss, net of taxes. During 2008, the Company completed the sale of its interest in TBG Financial for $41.3 million in cash and potential additional consideration in the form of an earnout provision, resulting in the Company recording an additional loss of $13.2 million, net of taxes.

The results of operations of TBG Financial and The 401(k) Company for 2008 and all prior periods are reflected as discontinued operations in the consolidated statements of (loss) income. In addition, the sales tables and “Other Data” section of the Retirement Plans segment table in the subsequent portions of Part I, Item 7 – MD&A exclude amounts applicable to The 401(k) Company.

Cumulative Effect of Adoption of Accounting Principle

In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1). The Company adopted SOP 05-1 effective January 1, 2007, which resulted in a $6.0 million charge, net of taxes, as the cumulative effect of adoption of this accounting principle.

29

Nationwide Bank Merger

Nationwide Bank and Nationwide Federal Credit Union (NFCU) entered into an Agreement and Plan of Merger, dated as of June 16, 2006, pursuant to which Nationwide Bank would acquire 100% of the ownership interests in NFCU for $79.0 million in cash. The merger was effective January 1, 2007, with payment of merger consideration to the NFCU membership on January 8, 2007, on a pro rata basis according to the members’ deposit account balances as of March 31, 2006.

Nationwide Funds Group Acquisition

On February 2, 2007, NFS entered into a stock purchase agreement with Nationwide Corporation to acquire the Philadelphia-based retail asset management operations of NWD Investment Management, Inc. The transaction closed on April 30, 2007 with a final purchase price of $244.2 million. The acquired operations are known as NFG. The purchase was accounted for during the second quarter of 2007 at historical cost in a manner similar to a pooling of interests because the involved entities are under common control. NFG is reflected in the Company’s current and prior period consolidated financial statements at the historical cost of the transferred net assets to provide comparative information as though the companies were combined for all periods presented. The excess purchase price over the historical cost of the acquired net assets was accounted for as a $202.5 million equity transaction, including a $4.0 million true-up recorded during the fourth quarter of 2007.

Fair Value Measurements

As described in Note 4 to the audited consolidated financial statements included in the F pages of this report, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS 157), effective January 1, 2008. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

In accordance with SFAS 157, the Company categorized its financial instruments based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

The Company categorizes financial assets and liabilities recorded at fair value in the consolidated balance sheets as Level 1, Level 2 or Level 3 depending on the observability of inputs used to measure fair value.

Investments

For fixed maturity and marketable equity securities for which market quotations generally are available, the Company generally uses independent pricing services to assist in determining the fair value measurement. For certain fixed maturity securities not priced by independent services (generally private placement securities without quoted market prices), an internally developed pricing model or “corporate pricing matrix” is most often used. The corporate pricing matrix is developed by obtaining private spreads versus the U.S. Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the U.S. Treasury yield to create an estimated market yield for that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. The Company also utilized broker quotes to assist in pricing securities or to validate modeled prices.

As of December 31, 2008, 80% of the prices of fixed maturity securities were valued with assistance of independent pricing services, 11% were valued with assistance of the Company’s pricing matrices, 4% were valued with assistance of broker quotes and 5% were valued from other sources (compared to 74%, 16%, 7% and 3%, respectively, as of December 31, 2007).

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Available-for-sale securities valued using significant Level 3 inputs includes investments in markets which the Company considers inactive, the Company’s non-investment grade holdings in collateralized mortgage obligations, certain MBSs, ABSs and ABS trust preferred notes, certain broker-quoted or internally priced securities and securities that are at or near default based on designations assigned by the NAIC. As of December 31, 2008, Level 3 investments comprised 20% of total investments measured at fair value.

Counterparty Risk Associated with Derivatives

The Company’s derivative activities primarily are with financial institutions and corporations. To attempt to minimize credit risk, the Company enters into legally enforceable master netting agreements, which reduce risk by permitting the closeout and netting of transactions with the same counterparty upon occurrence of certain events. In addition, the Company attempts to reduce credit risk by obtaining collateral from counterparties. The determination of the need for and the levels of collateral vary based on an assessment of the credit risk of the counterparty. Generally, the Company accepts collateral in the form of cash, U.S. Treasury securities and other marketable securities.

As of December 31, 2008 and 2007, the Company had received $1,022.5 million and $245.4 million, respectively, of cash for derivative collateral, which is in turn invested in short-term investments. The Company also held $35.4 million and $18.5 million of securities as off-balance sheet collateral on derivative transactions as of December 31, 2008 and 2007, respectively. As of December 31, 2008 and 2007, the Company had pledged fixed maturity securities with a fair value of $24.5 million and $18.8 million, respectively, as collateral to various derivative counterparties.

The Company periodically evaluates the risks within the derivative portfolios due to credit exposure. When evaluating this risk, the Company considers several factors which include, but are not limited to, the counterparty risk associated with derivative receivables, the Company’s own credit as it relates to derivative payables, the collateral thresholds associated with each counterparty, and changes in relevant market data in order to gain insight into the probability of default by the counterparty. In addition, the effect that the Company’s exposure to credit risk could have on the effectiveness of the Company’s hedging relationships is considered. As of December 31, 2008, the impact of the exposure to credit risk on both the fair value measurement of derivative assets and liabilities and the effectiveness of the Company’s hedging relationships was immaterial.

Inactive Markets

Recent market conditions have led to illiquidity in certain markets for financial instruments, causing the Company to consider such markets inactive. Examples of the criterion used by the Company to determine that a market is inactive include, but are not limited to, a significant widening of bid-ask spreads in brokered markets, significant decreases in trade volumes relative to historical levels, few observable transactions, non-binding broker quotes, and noncurrent pricing for recent transactions with significant variance over time or among market makers in the observable prices for such transactions, thus reducing the potential relevance of those observations.

As of December 31, 2008, the Company had investments in markets that it considered inactive with an amortized cost of $4.87 billion and an estimated fair value of $3.56 billion, which represents 15% of the estimated fair value of all fixed maturity securities available-for-sale. Of these amounts, 94% were valued with the assistance of independent pricing services.

For the remaining 6% of investments in inactive markets for which pricing from an independent pricing service is not considered, the Company uses a weighting of broker quotes and internal pricing models to determine the estimated fair values. The Company’s holdings in these financial instruments were immaterial to the overall investment portfolio as of December 31, 2008, representing only 1% of the estimated fair value of fixed maturity securities available-for-sale.

Future Policy Benefits and Claims

The fair value measurements for future policy benefits and claims relate to embedded derivatives associated with contracts with living benefit riders (GMABs, GLWBs and equity-indexed annuities). Related derivatives are internally valued. The valuation of guaranteed minimum benefit embedded derivatives is based on capital market and actuarial risk assumptions, including risk margin considerations reflecting policyholder behavior. The Company uses observable inputs, such as published swap rates, in its capital market assumptions. Actuarial assumptions, including lapse behavior and mortality rates, are based on actual experience.

31

Critical Accounting Policies and Recently Issued Accounting Standards

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ significantly from those estimates.

The Company’s most critical estimates include, but are not limited to, those used to determine the following: the balance, recoverability and amortization of DAC; whether an available-for-sale security is other-than-temporarily impaired, valuation allowances for mortgage loans on real estate; derivative instruments; the liability for future policy benefits and claims; and federal income tax provision.

Note 2 and Note 3 to the audited consolidated financial statements included in the F pages of this report provide a summary of significant accounting policies and a discussion of recently issued accounting standards, respectively.

Deferred Policy Acquisition Costs

Investment and universal life insurance products

The Company has deferred certain costs of acquiring investment and universal life insurance products business, principally commissions, certain expenses of the policy issue and underwriting department, and certain variable sales expenses that relate to and vary with the production of new and renewal business. In addition, the Company defers sales inducements, such as interest credit bonuses and jumbo deposit bonuses. Investment products primarily consist of individual and group variable and fixed deferred annuities in the Individual Investments and Retirement Plans segments. Universal life insurance products include universal life insurance, variable universal life insurance, COLI, BOLI and other interest-sensitive life insurance policies in the Individual Protection segment. DAC is subject to recoverability testing in the year of policy issuance and loss recognition testing at the end of each reporting period.

For investment and universal life insurance products, the Company amortizes DAC with interest over the lives of the policies in relation to the present value of estimated gross profits from projected interest margins, asset fees, cost of insurance charges, administrative fees, surrender charges, and net realized investment gains and losses less policy benefits and policy maintenance expenses. The Company adjusts the DAC asset related to investment and universal life insurance products to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale, as described in Note 2(b) to the audited consolidated financial statements included in the F pages of this report.

The assumptions used in the estimation of future gross profits are based on the Company’s current best estimates of future events and are reviewed as part of an annual process during the second quarter. During the annual process, the Company performs a comprehensive study of assumptions, including mortality and persistency studies, maintenance expense studies, and an evaluation of projected general and separate account investment returns. The most significant assumptions that are involved in the estimation of future gross profits include future net separate account investment performance, surrender/lapse rates, interest margins and mortality. Currently, the Company’s long-term assumption for net separate account investment performance is approximately 7% growth per year and varies by product. The Company reviews this assumption, like others, as part of its annual process. If this assumption were unlocked, the date of the unlocking could become the anchor date used in the reversion to the mean process (defined below). Variances from the long-term assumption are expected since the majority of the investments in the underlying separate accounts are in equity securities, which strongly correlate in the aggregate with the S&P 500 Index. The Company bases its reversion to the mean process on actual net separate account investment performance from the anchor date to the valuation date. The Company then assumes different performance levels over the next three years such that the separate account mean return measured from the anchor date to the end of the life of the product equals the long-term assumption. The assumed net separate account investment performance used in the DAC models is intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, and as part of its pre-set parameters, the Company’s reversion to the mean process generally limits net separate account investment performance to 0-15% during the three-year reversion period. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

Changes in assumptions can have a significant impact on the amount of DAC reported for investment and universal life insurance products and their related amortization patterns. In the event actual experience differs from assumptions or future assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense, which could be significant. In general, increases in the estimated long-term general and separate account returns result in increased expected future profitability and may lower the rate of DAC amortization, while increases in long-term lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization.

32

In addition to the comprehensive annual study of assumptions, management evaluates the appropriateness of the individual variable annuity DAC balance quarterly within pre-set parameters. These parameters are designed to appropriately reflect the Company’s long-term expectations with respect to individual variable annuity contracts while also evaluating the potential impact of short-term experience on the Company’s recorded individual variable annuity DAC balance. If the recorded balance of individual variable annuity DAC falls outside of these parameters for a prescribed period, or if the recorded balance falls outside of these parameters and management determines it is not reasonably possible to get back within the parameters during a given period, assumptions are required to be unlocked, and DAC is recalculated using revised best estimate assumptions. When DAC assumptions are unlocked and revised, the Company continues to use the reversion to the mean process. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

For variable annuity products, the DAC balance is sensitive to the effects of changes in the Company’s estimates of gross profits, primarily due to the significant portion of the Company’s gross profits that are dependent upon the rate of return on assets held in separate accounts. This rate of return influences fees earned by the Company from these products and costs incurred by the Company associated with minimum contractual guarantees, as well as other sources of future expected gross profits. As previously stated, the Company’s current long-term assumption for net separate account investment performance is approximately 7% growth per year. In its ongoing evaluation of this assumption, the Company monitors its historical experience, market information and other relevant trends. To demonstrate the sensitivity of both the Company’s variable annuity product DAC balance, which was approximately $1.7 billion in aggregate at December 31, 2008, and related amortization, a 1% increase (to 8%) or decrease (to 6%) in the long-term assumption for net separate account investment performance would result in an approximately $20.0 million net increase or net decrease, respectively, in DAC amortization over the following year. These fluctuations are reasonably likely to occur. The information provided above considers only changes in the assumption for long-term net separate account investment performance and excludes changes in other assumptions used in the Company’s evaluation of DAC.

During the second quarter of 2007, the Company conducted its annual comprehensive review of model assumptions used to project DAC and other related balances, including sales inducement assets, VOBA, unearned revenue reserves, and guaranteed minimum death and income benefit reserves. This review included all assumptions, including expected separate account investment returns during the three-year reversion period, lapse rates, mortality and expenses. The Company determined as part of this annual review that the overall separate account returns were expected to exceed previous estimates due to favorable financial market trends. Additionally, while the Company estimated that the overall profitability of its variable products had improved, it expected the long-term net growth in separate account investment performance to moderate.

Accordingly, the second quarter 2007 unlocking process included changes in several assumptions, including assumptions affecting net separate account investment performance. This unlocking resulted in a net increase in DAC and a benefit to DAC amortization and other related balances totaling $216.5 million pre-tax, which was reported in the following segments in the pre-tax amounts indicated: Individual Investments - $196.4 million; Retirement Plans - $10.5 million; and Individual Protection - $9.6 million, net of a $5.1 million charge for the acceleration of amortization of VOBA. First, the Company reset the anchor date for its reversion to the mean calculations, which increased the annual net separate account growth rate to 7% during the first three years of the projection period from 0% (which was the rate of return for the three-year reversion period required from the previous anchor date). Second, as a result of its current analysis, including its evaluation of ongoing trends and expectations regarding financial market performance, the Company unlocked and reset its long-term assumption for net separate account growth rates to 7% from 8%. This decreased the net separate account growth rate by 1% to 7% for all years subsequent to the three-year reversion period. The combination of resetting these two factors resulted in a $161.9 million increase in DAC and benefit to DAC amortization and other related balances. The impact of changing the annual net separate account growth rate from 0% to 7% during the three-year reversion period had a much larger effect on the DAC balance when compared to the 1% incremental change in the long-term assumption for net separate account investment performance. The remainder of the increase in DAC and benefit to DAC amortization and other related balances resulting from the DAC unlocking process primarily was related to the recorded balance of individual variable annuity DAC falling outside the Company’s preset parameters for the prescribed period, which was driven by favorable market performance in excess of the assumed net separate account returns. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a $78.8 million increase in DAC and benefit to DAC amortization and other related balances. This was partially offset by a $24.2 million decrease in DAC and increase in DAC amortization and other related balances due to increasing estimated lapse rates for fixed annuity and BOLI products.

33

During the second quarter of 2007, the Company added a new feature to its existing GLWB rider, Lifetime Income (L.inc). This new feature results in a substantial change in the existing contracts and, therefore, an extinguishment of the DAC associated with those contracts pursuant to the American Institute of Certified Public Accountants’ Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts. As a result, the Company eliminated existing DAC and other related balances resulting in a $135.0 million pre-tax charge.

At the end of the second quarter of 2008, the Company determined as part of its comprehensive annual study of assumptions that certain assumptions should be unlocked. The unlocked assumptions primarily related to lapse and spread assumptions in the Individual Investments segment, the assumed growth rate on deposits per contract in the Retirement Plans segment, and mortality and lapse assumptions in the Individual Protection segment. Therefore, in the second quarter of 2008, the Company recorded the following pre-tax adjustments: 1) a decrease in DAC and additional DAC amortization of $13.9 million; 2) a decrease in other assets and additional benefits and claims of $0.6 million; 3) an increase in VOBA and a benefit to VOBA amortization of $4.9 million; and 4) a decrease in unearned revenue liability and additional administrative fees of $3.2 million. The net impact of this activity was a $6.4 million unfavorable pre-tax adjustment to net income in the second quarter of 2008, which was reported in the following segments in the pre-tax amounts indicated: Individual Investments - $12.0 million unfavorable; Retirement Plans - $2.3 million unfavorable; and Individual Protection - $7.9 million favorable.

During the third quarter of 2008, the Company’s recorded balance of individual variable annuity DAC fell outside the Company’s preset parameters for the prescribed period, which primarily was driven by unfavorable market performance compared to the assumed net separate account returns. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a decrease in DAC and an increase in DAC amortization and other related balances totaling $177.2 million pretax in the Individual Investments segment. During the fourth quarter of 2008, the Company’s recorded balance of individual variable annuity DAC fell outside the Company’s preset parameters, which primarily was driven by continued unfavorable market performance compared to assumed net separate account returns. Management made a determination that it was not reasonably possible to get back within the preset parameters during the remaining prescribed period. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a decrease in DAC and an increase in DAC amortization and other related balances of $243.1 million pre-tax in the Individual Investments segment. The Company continues to use the reversion to the mean process with the anchor date that was reset during the second quarter 2007 unlocking as described above. The Company evaluated the assumed separate account performance level over the next three years and determined that the assumptions inherent in the reversion period were reasonable. The annual net separate account growth rate for the mean reversion period is 15%, the maximum rate under the Company’s parameters. Accordingly, future periods may incur additional amortization of DAC if the Company’s actual returns are less than assumed.

Traditional life insurance products

Generally, DAC related to traditional life insurance products is amortized with interest over the premium-paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue is estimated using the same assumptions as those used for computing liabilities for future policy benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to traditional life insurance products, although evaluations of DAC for recoverability at the time of policy issuance and loss recognition testing at each reporting period are required.

Other-than-temporary Impairments

Management regularly reviews investments in its fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments.

For debt securities not subject to EITF 99-20, an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is no longer probable that the Company will recover all contractual amounts when due. Furthermore, equity securities may experience other-than-temporary impairments based on prospects of recovery in a reasonable period of time. Many criteria are considered during this process including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, management’s intent and ability to hold the security until recovery, current economic conditions that could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected security. Other-than-temporary impairment losses result in a reduction to the cost basis of the underlying investment.

34

In addition to the above, for certain beneficial interests in securitized financial assets with contractual cash flows, including ABSs, EITF 99-20 and FSP EITF 99-20-1 also require the Company to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is not greater than or equal to its carrying value based on current information and events, and if there has been a probable adverse change in estimated cash flows since the last revised estimate (considering both timing and amount), then the Company recognizes an other-than-temporary impairment and writes down the investment to fair value.

Impairment losses are recorded on investments in long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.

A significant change in impairment losses reported in the consolidated financial statements may result if one of the factors that management considers when evaluating investments for impairment changes significantly, such as the deterioration in the credit worthiness of individual issuers, market liquidity or performance of underlying collateral.

Valuation Allowances for Mortgage Loans on Real Estate

The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When management determines that a loan is impaired, a provision for loss is established equal to the difference between the carrying value and the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. In addition to the valuation allowance on specific loans, the Company maintains an unallocated allowance for probable losses inherent in the loan portfolio as of the balance sheet date, but not yet specifically identified by loan. Changes in the valuation allowance are recorded in net realized investment gains and losses. Loans in foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received.

The valuation allowance account for mortgage loans on real estate is maintained at a level believed adequate by management and reflects management’s best estimate of probable credit losses, including losses incurred at the balance sheet date but not yet identified by specific loan. Management’s periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.

Significant changes in the factors management considers in determining the valuation allowance for mortgage loans on real estate could result in a significant change in the valuation allowance reported in the consolidated financial statements.

Derivative Instruments

Derivatives are carried at fair value. On the date the derivative contract is entered into, the Company designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge); a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); a foreign currency fair value or cash flow hedge (foreign currency hedge); or a non-hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used for hedging transactions are expected to be and, for ongoing hedging relationships, have been, highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not, or is not expected to be, highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

See Note 2(c) and Note 5 of the audited consolidated financial statements included in the F pages of this report, for additional information regarding the Company’s use of derivatives instruments to manage interest rate and equity market risk.

35

Future Policy Benefits and Claims

The process of calculating reserve amounts for a life insurance organization involves the use of a number of assumptions, including those related to persistency, mortality, morbidity and interest rates.

The Company calculates its liability for future policy benefits and claims for investment products in the accumulation phase and universal life and variable universal life insurance policies as the policy account balance, which represents participants’ net premiums and deposits plus investment performance and interest credited less applicable contract charges.

The Company’s liability for funding agreements to an unrelated third party trust related to NLIC’s MTN program equals the balance that accrues to the benefit of the contractholder, including interest credited. The funding agreements constitute insurance obligations and are considered annuity contracts under Ohio insurance laws.

The liability for future policy benefits and claims for traditional life insurance policies was determined using the net level premium method using interest rates varying from 2.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals that were used or being experienced at the time the policies were issued.

The liability for future policy benefits for payout annuities was calculated using the present value of future benefits and maintenance costs discounted using interest rates varying generally from 3.0% to 13.0%.

Federal Income Taxes

Management provides for federal income taxes based on amounts it believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, management may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated statements of (loss) income.

Management has established tax reserves in accordance with the requirements of FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). See Note 3 to the audited consolidated financial statements included in the F pages of this report for a summary of FIN 48. These reserves are reviewed regularly and are adjusted as events occur that management believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations; conclusion of tax audits or substantial agreement on the deductibility/nondeductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or rendering of a court decision affecting a particular tax issue. Management believes its tax reserves reasonably provide for potential assessments that may result from Internal Revenue Service (IRS) examinations and other tax-related matters for all open tax years.

36

Results of Operations

2008 Compared to 2007

The following table summarizes the Company’s consolidated results of operations for the years ended December 31:

(dollars in millions)	2008			2007			Change
Revenues:
Policy charges:
Asset fees	$	677.1		$	773.2		(12)%
Cost of insurance charges		449.7			420.5		7%
Administrative fees		140.4			119.4		18%
Surrender fees		73.3			70.8		4%
Total policy charges		1,340.5			1,383.9		(3)%
Premiums		417.7			432.7		(3)%
Net investment income		1,971.3			2,276.7		(13)%
Net realized investment losses		(1,549.9	)		(165.2	)	NM
Other income		528.0			600.8		(12)%
Total revenues		2,707.6			4,528.9		(40)%
Benefits and expenses:
Interest credited to policyholder accounts		1,210.5			1,342.0		(10)%
Benefits and claims		875.4			682.9		28%
Policyholder dividends		93.1			83.1		12%
Amortization of DAC		691.6			382.1		81%
Amortization of VOBA and other intangible assets		32.4			50.2		(35)%
Interest expense		105.6			110.6		(5)%
Debt extinguishment costs		—			10.2		NM
Other operating expenses		1,066.9			1,067.4		—
Total benefits and expenses		4,075.5			3,728.5		9%
(Loss) income from continuing operations before federal income tax (benefit) expense		(1,367.9	)		800.4		NM
Federal income tax (benefit) expense		(532.1	)		190.7		NM
(Loss) income from continuing operations		(835.8	)		609.7		NM
Discontinued operations, net of taxes		(13.2	)		23.1		NM
Cumulative effect of adoption of accounting principle, net of taxes		—			(6.0	)	NM
Net (loss) income	$	(849.0	)	$	626.8		NM

The Company recorded a net loss during 2008 compared to net income in the prior year primarily due to increases in net realized investment losses and amortization of DAC. In addition, higher benefits and claims, lower interest spread income, lower other income and lower asset fees contributed to the overall decline. As previously discussed, the results of The 401(k) Company and TBG Financial are included as discontinued operations, contributing to the overall decline in net income. Lastly, the Company recorded a federal income tax benefit for the current year compared to federal income tax expense in 2007 primarily due to the aforementioned declines in net income.

Net realized investment losses increased primarily due to a $1.03 billion increase in impairment charges due to challenging conditions in the credit markets. In addition, the Company recorded a $474.0 million increase in losses on living benefit embedded derivatives, net of economic hedging activity. Finally, the Company recorded $49.6 million in losses in its structured products business related to impairments on mortgages and mortgage loan commitments, and valuation losses on assets held for trading purposes increased $26.7 million. The overall decline was offset by higher realized gains of $228.0 million on derivatives associated with the Company’s economic hedging program related to contracts with death benefit guarantees.

37

Higher amortization of DAC was due to several factors. First, the aforementioned DAC unlocking in 2007 lowered amortization of DAC by $235.8 million in the prior year. Next, the previously discussed DAC unlockings in 2008 increased amortization of DAC by $426.7 million in the current year. However, the Company modified the features of its L.inc product within the Individual Investments segment during 2007. This modification required the Company to extinguish existing DAC and other balances related to L.inc, resulting in a $124.0 million increase in amortization of DAC and increased annuity benefits of $11.0 million in the prior year. In addition, net realized losses on embedded derivatives in annuity products offering living benefits decreased amortization of DAC by $93.1 million in 2008. Finally, lower gross profits in the current year and a lower rate of DAC amortization due to the impact of 2007 unlocking further offset the increases described above by approximately $141.4 million.

Benefits and claims increased in the Individual Investments segment primarily due to higher exposure on GMDB contracts driven by unfavorable market conditions which increased benefits and claims by $134.3 million. In addition, adverse mortality in the current year in the variable universal life and universal life insurance businesses in the Individual Protection segment contributed to the increase. The average net claim size and the number of claims in these products increased over the prior year.

Interest spread income declined primarily within the Corporate and Other segment due to a $94.5 million decline in income from alternative investments, lower income from mortgage loan prepayments and bond call premiums, and reduced earnings from the MTN program. See Part II, Item 7 – MD&A – Business Segments for a more detailed discussion of interest spread income.

The decline in other income occurred primarily in the Corporate and Other segment due to lower retail asset management and broker/dealer revenues ($31.9 million) and in the Retirement Plans segment due to lower average non-insurance assets ($22.1 million).

The decrease in asset fees primarily was driven by lower average separate account values in the Individual Investments segment due to unfavorable market performance, partially offset by a higher average variable asset fee rate as new business with living benefit riders and corresponding higher fee rates influenced the overall average rate.

38

2007 Compared to 2006

The following table summarizes the Company’s consolidated results of operations for the years ended December 31:

(dollars in millions)	2007			2006			Change
Revenues:
Policy charges:
Asset fees	$	773.2		$	691.2		12%
Cost of insurance charges		420.5			402.0		5%
Administrative fees		119.4			139.1		(14)%
Surrender fees		70.8			83.7		(15)%
Total policy charges		1,383.9			1,316.0		5%
Premiums		432.7			441.5		(2)%
Net investment income		2,276.7			2,300.2		(1)%
Net realized investment (losses) gains		(165.2	)		9.1		NM
Other income		600.8			495.7		21%
Total revenues		4,528.9			4,562.5		(1)%
Benefits and expenses:
Interest credited to policyholder accounts		1,342.0			1,381.5		(3)%
Benefits and claims		682.9			646.8		6%
Policyholder dividends		83.1			90.7		(8)%
Amortization of DAC		382.1			462.9		(17)%
Amortization of VOBA and other intangible assets		50.2			49.3		2%
Interest expense		110.6			103.1		7%
Debt extinguishment costs		10.2			—		NM
Other operating expenses		1,067.4			1,028.9		4%
Total benefits and expenses		3,728.5			3,763.2		(1)%
Income from continuing operations before federal income tax expense		800.4			799.3		—
Federal income tax expense		190.7			72.2		NM
Income from continuing operations		609.7			727.1		(16)%
Discontinued operations, net of taxes		23.1			(3.1	)	NM
Cumulative effect of adoption of accounting principle, net of taxes		(6.0	)		—		NM
Net income	$	626.8		$	724.0		(13)%

The decrease in net income compared to 2006 was impacted by several events. First, $114.2 million of tax reserves were released into earnings during the second quarter of 2006. Second, 2007 results include the $45.5 million gain on the sale of The 401(k) Company, partially offset by a $23.3 million loss related to TBG Financial (both reported in discontinued operations as described previously). Lastly, the Company recorded higher income from continuing operations before federal income tax expense largely due to lower amortization of DAC and related adjustments as discussed previously and below, along with higher other income and asset fees. Partially offsetting these factors were net realized investment losses; higher other operating expenses; lower administrative fees; increased amortization of DAC and annuity benefits related to modifications of features in the Company’s L.inc product; and debt extinguishment costs.

Through June 2006, the Company’s federal income tax returns for tax years 2000-2002 were under IRS examination pursuant to a routine audit. In accordance with its regular practice, management established tax reserves representing its best estimate of additional amounts the Company could be required to pay if certain positions it had taken were challenged and ultimately denied by the IRS with respect to these tax years. These reserves are reviewed regularly and are adjusted as events occur that management believes impacts the Company’s liability for additional taxes, such as lapsing of applicable statutes of limitations; conclusion of tax audits or substantial agreement on the deductibility/non-deductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or rendering of a court decision affecting a particular tax issue. A significant component of the Company’s tax reserve as of December 31, 2005 was related to the separate account dividends received deduction (DRD).

39

In July 2006, the Company reached substantial agreement with the IRS on all open issues for tax years 2000-2002, including issues related to the DRD. Accordingly, the Company revised its estimate of amounts that may be due in connection with certain tax positions, including the DRD, for all open tax years. As a result of the revised estimate, $114.2 million of tax reserves were released into earnings during the second quarter of 2006.

Lower amortization of DAC primarily was due to the unlocking of DAC during the second quarter of 2007, which lowered amortization of DAC by $235.8 million. In addition, during the second quarter of 2007, the Company modified the features of its L.inc product within the Individual Investments segment. This modification resulted in a substantial change to the existing contracts and required the Company to extinguish existing DAC and certain other related balances related to this product, resulting in increased amortization of DAC of $124.0 million and increased annuity benefits of $11.0 million.

Other income increased primarily in the Retirement Plans segment due to higher average assets driven by strong market performance in the private sector business. The Corporate and Other segment also contributed to the increase with higher revenues from retail broker/dealer operations, partially offset by lower income in the structured products business that resulted from an unfavorable environment for mortgage loan securitizations.

Asset fees increased primarily due to higher average separate account values driven by favorable market performance in the Individual Investments segment.

The Company recorded net realized investment losses in 2007 compared to net gains in 2006 primarily due to a $100.1 million increase in impairment charges driven by challenging conditions in the credit markets. In addition, the Company recorded higher losses on living benefit embedded derivatives, net of economic hedging activity, primarily as a result of increased volatility in market returns. See Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk – Equity Market Risk for a detailed discussion of products with living benefits.

The increase in other operating expenses occurred within the Corporate and Other and Retirement Plans segments. The Corporate and Other segment was impacted by higher costs at Nationwide Bank, which completed its first year of retail operations in 2007, and increased commissions related to higher revenues in the retail broker/dealer operations. The increase in the Retirement Plans segment was due to higher trail commissions and continued investments in technology and infrastructure.

Lower administrative fees primarily were attributable to the Retirement Plans segment due to an $18.6 million policy adjustment in the second quarter of 2006 related to the surrender of a group fixed annuity contract.

Higher benefits and claims primarily were driven by increased annuity benefits of $12.5 million related to the unlocking of DAC and other related balances and the aforementioned increase in annuity benefits related to modification of L.inc features of $11.0 million. The remaining increase was due to higher guaranteed benefit expenses related to growth in this business.

On June 4, 2007, NFS redeemed all of its outstanding 8.00% senior notes due March 1, 2027 at a price of $317.4 million. This amount represents aggregate principal of $300.0 million, an $11.2 million premium due as a result of early redemption (3.728% of the principal amount) and $6.2 million of accrued interest through the redemption date. These senior notes were originally issued in March 1997 and, in accordance with their terms, became subject to optional redemption by NFS on or after March 1, 2007. As a result of this transaction, NFS incurred a $10.2 million charge ($6.6 million, net of taxes) during the quarter ended June 30, 2007. This charge includes the redemption premium described above and the accelerated amortization of both unamortized debt issuance costs and the unamortized discount on the original issuance, partially offset by a deferred gain on previous hedging transactions. These amounts (excluding the redemption premium) otherwise would have been recognized through 2027.

40

Sales

The Company regularly monitors and reports a production volume metric titled “sales.” Sales or similar measures are commonly used in the insurance industry as a measure of the volume of new and renewal business generated in a period.

Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP, including sales as it relates to non-insurance companies. Additionally, the Company’s definition of sales may differ from that used by other companies. As used in the insurance industry, sales, or similarly titled measures, generate customer funds managed and administered, which ultimately drive revenues.

As calculated and analyzed by management, statutory premiums and deposits on individual and group annuities and life insurance products calculated in accordance with accounting practices prescribed or permitted by regulatory authorities and deposits on administration-only group retirement plans and the advisory services program are adjusted as described below to arrive at sales.

Life insurance premiums determined on a GAAP basis are significantly different than statutory premiums and deposits. Life insurance premiums determined on a GAAP basis are recognized as revenue when due, as calculated on an accrual basis in proportion to the service provided and performance rendered under the contract. In addition, many life insurance and annuity products involve an initial deposit or a series of deposits from customers. These deposits are accounted for as such on a GAAP basis and therefore are not reflected in the GAAP income statement. On a statutory basis, life insurance premiums collected (cash basis) and deposits received (cash basis) are aggregated and reported as statutory premiums and annuity consideration revenues.

Sales, as reported by the Company, are stated net of internal replacements, which management believes provides a more meaningful disclosure of production in a given period. In addition, the Company’s definition of sales excludes funding agreements issued under the Company’s MTN program; asset transfers associated with large case BOLI and large case retirement plan acquisitions; and deposits into Nationwide employee and agent benefit plans. Although these products contribute to asset and earnings growth, their production flows potentially can mask trends in the underlying business and thus do not provide meaningful comparisons and analyses.

Management believes that the presentation of sales as measured for management purposes enhances the understanding of the Company’s business and helps depict longer-term trends that may not be apparent in the results of operations due to differences between the timing of sales and revenue recognition.

The Company’s flagship products are marketed under The BEST of AMERICA brand and include individual variable and group annuities, group private sector retirement plans sold through NTC, and variable life insurance. The BEST of AMERICA products allow customers to choose from investment options managed by premier mutual fund managers. The Company has also developed private label variable and fixed annuity products in conjunction with other financial services providers that allow those providers to sell products to their own customer bases under their own brand names.

The Company also markets group deferred compensation retirement plans to employees of state and local governments for use under IRC Section 457. The Company utilizes its endorsement by NACo, USCM and IAFF when marketing IRC Section 457 products.

See Part I, Item 1 – Business – Overview for a description of the Company’s sales distribution network.

41

2008 Compared to 2007

The following table summarizes sales by product and segment for the years ended December 31:

(dollars in millions)	2008		2007		Change
Individual Investments
Individual variable annuities	$	4,211.0	$	5,606.4	(25)%
Individual fixed annuities		603.0		156.3	286%
Income products		198.3		216.7	(8)%
Advisory services program		54.0		147.2	(63)%
Total Individual Investments		5,066.3		6,126.6	(17)%
Retirement Plans
Private sector:
Group annuity products		863.0		1,064.7	(19)%
Group trust products		4,710.6		5,126.3	(8)%
Total group products		5,573.6		6,191.0	(10)%
NFN products		176.7		149.4	18%
Other		111.1		82.7	34%
Total private sector		5,861.4		6,423.1	(9)%
Public sector:
IRC Section 457 annuities		1,771.8		1,548.5	14%
Administration-only agreements		2,706.7		2,719.6	—
Total public sector		4,478.5		4,268.1	5%
Total Retirement Plans		10,339.9		10,691.2	(3)%
Individual Protection
Corporate-owned life insurance		545.1		552.7	(1)%
Traditional/universal life insurance		607.7		554.4	10%
Variable life insurance		553.9		639.3	(13)%
Total Individual Protection		1,706.7		1,746.4	(2)%
Total sales	$	17,112.9	$	18,564.2	(8)%

See Part II, Item 7 – MD&A – Business Segments for an analysis of sales by product and segment.

42

The following table summarizes sales by distribution channel for the years ended December 31:

(dollars in millions)	2008		2007		Change
Non-affiliated:
Independent broker/dealers	$	5,556.3	$	6,354.7	(13)%
Financial institutions		2,385.6		2,501.2	(5)%
Wirehouse and regional firms		2,399.4		2,879.0	(17)%
Pension plan administrators		459.1		507.7	(10)%
Life insurance specialists		353.6		329.6	7%
Total non-affiliated sales		11,154.0		12,572.2	(11)%
Affiliated:
NRS		4,509.9		4,299.9	5%
NFN producers		1,257.5		1,468.9	(14)%
Mullin TBG		191.5		223.2	(14)%
Total affiliated sales		5,958.9		5,992.0	(1)%
Total sales	$	17,112.9	$	18,564.2	(8)%

The decrease in total sales primarily was due to lower variable product sales, especially individual variable annuity sales in the Individual Investments segment. The Company believes volatile market conditions and the current economic slowdown have negatively impacted variable product sales industry wide. Economic conditions also contributed to lower private sector group product sales in the Retirement Plans segment through reduced employer discretionary contributions, employee deferrals and plan transfers. The decline in advisory services program sales in Individual Investments segment was due to the Company exiting this business during 2008. Strong sales of individual fixed annuities in the Individual Investments segment, public sector IRC Section 457 annuity plans in the Retirement Plans segment and the ULtimate universal life product in the Individual Protection segment partially offset the overall decline.

Lower sales through the independent broker/dealers, wirehouse and regional firms, financial institutions, NFN producers, and pension plan administrators channels reflect the declines in variable and group product sales mentioned above, partially mitigated by increased sales of individual fixed annuities, IRC Section 457 annuities and universal life products.

Increased NRS sales were driven by additional deposits from two large administration-only agreements and increased contributions into the Company’s fixed return products.

43

2007 Compared to 2006

The following table summarizes sales by product and segment for the years ended December 31:

(dollars in millions)	2007		2006		Change
Individual Investments
Individual variable annuities	$	5,606.4	$	4,751.1	18%
Individual fixed annuities		156.3		186.5	(16)%
Income products		216.7		230.7	(6)%
Advisory services program		147.2		222.8	(34)%
Total Individual Investments		6,126.6		5,391.1	14%
Retirement Plans
Private sector:
Group annuity products		1,064.7		1,230.2	(13)%
Group trust products		5,126.3		4,504.0	14%
Total group products		6,191.0		5,734.2	8%
NFN products		149.4		188.2	(21)%
Other		82.7		69.4	19%
Total private sector		6,423.1		5,991.8	7%
Public sector:
IRC Section 457 annuities		1,548.5		1,533.3	1%
Administration-only agreements		2,719.6		2,484.9	9%
Total public sector		4,268.1		4,018.2	6%
Total Retirement Plans		10,691.2		10,010.0	7%
Individual Protection
Corporate-owned life insurance		552.7		805.9	(31)%
Traditional/universal life insurance		554.4		517.1	7%
Variable life insurance		639.3		639.0	—
Total Individual Protection		1,746.4		1,962.0	(11)%
Total sales	$	18,564.2	$	17,363.1	7%

See Part II, Item 7 – MD&A – Business Segments for an analysis of sales by product and segment.

44

The following table summarizes sales by distribution channel for the years ended December 31:

(dollars in millions)	2007		2006		Change
Non-affiliated:
Independent broker/dealers	$	6,354.7	$	5,758.2	10%
Financial institutions		2,501.2		2,295.1	9%
Wirehouse and regional firms		2,879.0		2,433.6	18%
Pension plan administrators		507.7		532.8	(5)%
Life insurance specialists		329.6		580.6	(43)%
Total non-affiliated sales		12,572.2		11,600.3	8%
Affiliated:
NRS		4,299.9		4,050.2	6%
NFN producers		1,468.9		1,486.5	—
Mullin TBG		223.2		226.1	(1)%
Total affiliated sales		5,992.0		5,762.8	4%
Total sales	$	18,564.2	$	17,363.1	7%

Total sales increased primarily due to improved individual variable annuity sales in the Individual Investments segment driven by continued market acceptance of the Company’s products with living benefit riders. In addition, higher sales in the Retirement Plans segment were led by private sector group trust product sales and public sector administration-only agreements, partially offset by lower group annuity sales as the majority of pension business continues to move to trust product offerings. Lower sales of COLI products in the Individual Protection segment due to the addition of two large COLI cases during 2006 also offset the overall increase.

Higher sales in the independent broker/dealers, wirehouse and regional firms, and financial institutions channels were driven by variable annuity products, specifically products offering living benefit riders.

The increase in sales through NRS reflects higher Retirement Plans sales as described above.

Sales decreased through the life insurance specialists channel due to the decline in COLI activity mentioned above.

45

Business Segments

Individual Investments

2008 Compared to 2007

The following table summarizes selected financial data for the Company’s Individual Investments segment for the years ended December 31:

(dollars in millions)	2008			2007		Change
Statements of (Loss) Income Data
Revenues:
Policy charges:
Asset fees	$	525.7		$	587.6	(11)%
Administrative fees		33.7			27.1	24%
Surrender fees		43.5			47.9	(9)%
Total policy charges		602.9			662.6	(9)%
Premiums		120.2			133.3	(10)%
Net investment income		530.4			642.9	(17)%
Other income		131.9			31.0	NM
Total revenues		1,385.4			1,469.8	(6)%
Benefits and expenses:
Interest credited to policyholder accounts		379.1			444.3	(15)%
Benefits and claims		378.5			233.5	62%
Amortization of DAC		647.7			287.1	126%
Amortization of VOBA and other intangible assets		7.8			5.3	47%
Other operating expenses		192.5			198.9	(3)%
Total benefits and expenses		1,605.6			1,169.1	37%
Pre-tax operating (loss) earnings	$	(220.2	)	$	300.7	NM
Other Data
Interest spread margin:
Net investment income		5.12%			5.69%
Interest credited		3.58%			3.76%
Interest spread on average general account values		1.54%			1.93%
Sales:
Individual variable annuities	$	4,211.0		$	5,606.4	(25)%
Individual fixed annuities		603.0			156.3	286%
Income products		198.3			216.7	(8)%
Advisory services program		54.0			147.2	(63)%
Total sales	$	5,066.3		$	6,126.6	(17)%
Average account values:
General account	$	10,576.8		$	11,814.2	(10)%
Separate account		36,238.6			41,366.0	(12)%
Advisory services program		443.4			634.9	(30)%
Total average account values	$	47,258.8		$	53,815.1	(12)%
Account values as of year end:
Individual variable annuities	$	32,954.3		$	46,121.5	(29)%
Individual fixed annuities		4,406.9			4,717.3	(7)%
Income products		2,107.4			2,101.0	—
Advisory services program		82.6			647.2	(87)%
Total account values	$	39,551.2		$	53,587.0	(26)%
Pre-tax operating (loss) earnings to average account values		(0.47)%			0.56%

46

The Individual Investments segment recorded a pre-tax operating loss for 2008 compared to pre-tax operating earnings in the prior year primarily due to higher amortization of DAC. In addition, higher benefits and claims, lower asset fees and interest spread income partially were offset by an increase in other income.

Higher amortization of DAC primarily was due to the aforementioned DAC unlocking in the second quarter of 2007, which lowered amortization of DAC by $208.9 million in 2007. In addition, the aforementioned DAC unlockings in 2008 increased amortization of DAC by $421.6 million in the current year. However, the Company modified the features of its L.inc product within this segment during the second quarter of 2007. This modification required the Company to extinguish existing DAC and other balances related to L.inc, resulting in a $124.0 million increase in amortization of DAC and increased annuity benefits of $11.0 million in 2007. Additionally, lower gross profits in the current year period and a lower rate of DAC amortization due to the impact of 2007 unlocking lowered amortization of DAC by $110.5 million and $30.9 million, respectively, to further offset the increases noted above.

Benefits and claims increased primarily due to higher exposure on GMDB contracts due to unfavorable market conditions which increased benefits and claims by $134.3 million.

Interest spread income declined primarily due to lower general account assets caused by variable and fixed annuity net outflows (average account values fell 10%), which reduced interest spread income by approximately $17.7 million. In addition, interest spread margins declined to 154 basis points in the current year compared to 193 basis points in 2007, reducing interest spread income by approximately $16.0 million. The current year margins included a $13.6 million decrease in income from mortgage loan prepayments and bond call premiums compared to a year ago, which contributed 11 basis points to the margin decline discussed above.

The decrease in asset fees primarily was driven by lower average separate account values driven by unfavorable market performance which decreased asset fees by $74.4 million. However, the average variable asset fee rate increased to 1.45% from 1.42% in the prior year as new business with living benefit riders and corresponding higher fee rates influenced the overall average rate, increasing asset fees by $12.5 million.

Other income increased primarily due to gains of $109.4 million on derivatives associated with the Company’s economic hedging program for GMDB contracts.

Lower overall sales primarily were attributable to the individual variable annuity business due to volatile market conditions and the current economic slowdown, partially offset by improved fixed annuity sales. In addition, the decline in advisory services program sales was due to the Company exiting this business during 2008.

The following table summarizes selected information about the Company’s deferred individual fixed annuities, including the fixed option of variable annuities, as of December 31, 2008:

	Ratchet			Reset			Market value adjustment (MVA) and other			Total
(dollars in millions)	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate
Minimum interest rate of 3.50% or greater	$	—	NA	$	895.5	3.73%	$	—	NA	$	895.5	3.73%
Minimum interest rate of 3.00% to 3.49%		1,071.8	4.02%		2,647.2	3.13%		—	NA		3,719.0	3.39%
Minimum interest rate lower than 3.00%		936.0	3.71%		944.7	3.83%		181.3	1.25%		2,062.0	3.55%
MVA with no minimum interest rate guarantee		—	NA		—	NA		3,166.6	2.60%		3,166.6	2.60%
Total deferred individual fixed annuities	$	2,007.8	3.88%	$	4,487.4	3.40%	$	3,347.9	2.53%	$	9,843.1	3.20%

See Note 11 to the audited consolidated financial statements included in the F pages of this report for further discussion of guarantee types offered on non-traditional variable annuity contacts offered by the Company, which are consistent with the fixed annuity descriptions above.

47

2007 Compared to 2006

The following table summarizes selected financial data for the Company’s Individual Investments segment for the years ended December 31:

(dollars in millions)	2007		2006		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	587.6	$	511.4	15%
Administrative fees		27.1		20.4	33%
Surrender fees		47.9		56.6	(15)%
Total policy charges		662.6		588.4	13%
Premiums		133.3		142.5	(6)%
Net investment income		642.9		781.1	(18)%
Other income		31.0		14.6	112%
Total revenues		1,469.8		1,526.6	(4)%
Benefits and expenses:
Interest credited to policyholder accounts		444.3		528.3	(16)%
Benefits and claims		233.5		202.4	15%
Amortization of DAC		287.1		352.7	(19)%
Amortization of VOBA and other intantgible assets		5.3		6.5	(18)%
Other operating expenses		198.9		213.6	(7)%
Total benefits and expenses		1,169.1		1,303.5	(10)%
Pre-tax operating earnings	$	300.7	$	223.1	35%
Other Data
Interest spread margin:
Net investment income		5.69%		5.74%
Interest credited		3.76%		3.76%
Interest spread on average general account values		1.93%		1.98%
Sales:
Individual variable annuities	$	5,606.4	$	4,751.1	18%
Individual fixed annuities		156.3		186.5	(16)%
Income products		216.7		230.7	(6)%
Advisory services program		147.2		222.8	(34)%
Total sales	$	6,126.6	$	5,391.1	14%
Average account values:
General account	$	11,814.2	$	14,041.3	(16)%
Separate account		41,366.0		37,223.3	11%
Advisory services program		634.9		508.1	25%
Total average account values	$	53,815.1	$	51,772.7	4%
Account values as of year end:
Individual variable annuities	$	46,121.5	$	43,804.8	5%
Individual fixed annuities		4,717.3		6,536.1	(28)%
Income products		2,101.0		2,025.6	4%
Advisory services program		647.2		597.1	8%
Total account values	$	53,587.0	$	52,963.6	1%
Pre-tax operating earnings to average account values		0.56%		0.43%

48

The increase in pre-tax operating earnings primarily was driven by higher asset fees and lower amortization of DAC, partially offset by lower interest spread income and higher benefits and claims.

Asset fees are calculated daily and charged as a percentage of separate account values. Higher average separate account values driven by favorable market performance increased asset fees by $58.8 million. In addition, the average variable asset fee rate increased to 1.42% from 1.37% in the prior year as new business sold with living benefit riders and corresponding higher fee rates influenced the overall average rate, increasing asset fees by $17.4 million.

Lower amortization of DAC primarily was due to the aforementioned DAC unlocking, which lowered amortization of DAC by $208.9 million. In addition, the Company modified the features of its L.inc product within this segment during 2007. This modification required the Company to extinguish existing DAC and other balances related to L.inc, resulting in a $124.0 million increase in amortization of DAC and increased annuity benefits of $11.0 million as explained below.

Interest spread income declined due to three factors. First, general account assets decreased due to fixed annuity outflows, reducing income by $43.0 million. Second, interest spread margins declined during 2007 to 193 basis points compared to 198 basis points in 2006. Long-duration higher yielding investments rolling over into lower yielding assets drove the margin compression and accounted for $7.8 million in reduced income. Third, the current year included only $17.6 million of income from mortgage loan prepayments and bond call premiums compared to $21.0 million in 2006.

Higher benefits and claims primarily were driven by increased annuity benefits of $12.5 million related to the unlocking of DAC and other related balances in 2007 and the aforementioned increase in annuity benefits related to modification of L.inc features of $11.0 million. The remaining increase was due to higher guaranteed benefit expenses related to growth in this business.

Higher sales in the individual variable annuity business were driven by continued market acceptance of the Company’s products with living benefit riders, especially L.inc, and a more targeted sales process. Sales of products with the L.inc rider increased $867.8 million compared to 2006.

The following table summarizes selected information about the Company’s deferred individual fixed annuities, including the fixed option of variable annuities, as of December 31, 2007:

	Ratchet			Reset			Market value adjustment (MVA) and other			Total
(dollars in millions)	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate	Account value		Weighted average crediting rate
Minimum interest rate of 3.50% or greater	$	—	N/A	$	1,032.8	3.88%	$	—	N/A	$	1,032.8	3.88%
Minimum interest rate of 3.00% to 3.49%		1,289.3	4.12%		3,375.2	3.12%		—	N/A		4,664.5	3.40%
Minimum interest rate lower than 3.00%		804.1	3.38%		433.5	3.66%		149.0	2.55%		1,386.6	3.38%
MVA with no minimum interest rate guarantee		—	N/A		—	N/A		1,512.5	2.73%		1,512.5	2.73%
Total deferred individual fixed annuities	$	2,093.4	3.84%	$	4,841.5	3.33%	$	1,661.5	2.72%	$	8,596.4	3.33%

49

Retirement Plans

2008 Compared to 2007

The following table summarizes selected financial data for the Company’s Retirement Plans segment for the years ended December 31:

(dollars in millions)	2008		2007		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	103.6	$	132.5	(22)%
Administrative fees		14.5		11.8	23%
Surrender fees		1.8		3.0	(40)%
Total policy charges		119.9		147.3	(19)%
Net investment income		650.8		655.2	(1)%
Other income		320.6		343.7	(7)%
Total revenues		1,091.3		1,146.2	(5)%
Benefits and expenses:
Interest credited to policyholder accounts		435.9		443.3	(2)%
Amortization of DAC		40.6		27.4	48%
Amortization of VOBA and other intangible assets		1.6		2.7	(41)%
Other operating expenses		411.0		420.2	(2)%
Total benefits and expenses		889.1		893.6	(1)%
Pre-tax operating earnings	$	202.2	$	252.6	(20)%
Other Data
Interest spread margin:
Net investment income		5.81%		5.88%
Interest credited		3.89%		3.98%
Interest spread on average general account values		1.92%		1.90%
Sales:
Private sector	$	5,861.4	$	6,423.1	(9)%
Public sector		4,478.5		4,268.1	5%
Total sales	$	10,339.9	$	10,691.2	(3)%
Average account values:
General account	$	11,202.4	$	11,135.3	1%
Separate account		13,993.9		17,723.6	(21)%
Non-insurance assets		19,759.9		20,747.9	(5)%
Administration-only		28,652.1		29,844.5	(4)%
Total average account values	$	73,608.3	$	79,451.3	(7)%
Account values as of year end:
Private sector	$	23,647.2	$	32,286.5	(27)%
Public sector		39,150.9		48,260.1	(19)%
Total account values	$	62,798.1	$	80,546.6	(22)%
Pre-tax operating earnings to average account values		0.27%		0.32%

50

The decrease in pre-tax operating earnings was driven by lower asset fees, higher amortization of DAC and lower other income, partially offset by reduced other operating expenses and higher interest spread income.

Asset fees decreased due to lower average separate account values driven by unfavorable market performance.

The decrease in other income, which includes administrative fees from administration-only plans and asset fees from non-insurance deferred compensation plans and the NTC platform, primarily was driven by lower other asset fees and mutual fund revenue of $17.0 million and $5.1 million, respectively, resulting from lower average non-insurance assets.

Higher amortization of DAC primarily was due to the aforementioned DAC unlocking in the second quarter of 2007, which lowered amortization of DAC in 2007 by $10.5 million. In addition, the aforementioned DAC unlocking in the second quarter of 2008 increased amortization of DAC by $2.3 million in the current year.

The decrease in other operating expenses primarily was due to lower employee incentives and benefits.

Interest spread income increased primarily due to lower crediting rates on both private and public sector products.

Private sector sales drove down overall sales due to fewer discretionary employer contributions, employee deferrals and plan transfers as a result of volatile market conditions and the current economic slowdown. The increase in public sector sales was driven by additional deposits from two large administration-only agreements and increased contributions into the Company’s fixed return products.

51

2007 Compared to 2006

The following table summarizes selected financial data for the Company’s Retirement Plans segment for the years ended December 31:

(dollars in millions)	2007		2006		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	132.5	$	134.0	(1)%
Administrative fees		11.8		36.0	(67)%
Surrender fees		3.0		4.5	(32)%
Total policy charges		147.3		174.5	(16)%
Net investment income		655.2		652.2	—
Other income		343.7		288.9	19%
Total revenues		1,146.2		1,115.6	3%
Benefits and expenses:
Interest credited to policyholder accounts		443.3		451.6	(2)%
Amortization of DAC		27.4		38.3	(28)%
Amortization of VOBA and other intangible assets		2.7		7.4	(64)%
Other operating expenses		420.2		397.1	6%
Total benefits and expenses		893.6		894.4	—
Pre-tax operating earnings	$	252.6	$	221.2	14%
Other Data
Interest spread margin:
Net investment income		5.88%		5.88%
Interest credited		3.98%		4.07%
Interest spread on average general account values		1.90%		1.81%
Sales:
Private sector	$	6,423.1	$	5,991.8	7%
Public sector		4,268.1		4,018.2	6%
Total sales	$	10,691.2	$	10,010.0	7%
Average account values:
General account	$	11,135.3	$	11,093.0	—
Separate account		17,723.6		18,512.4	(4)%
Non-insurance assets		20,747.9		16,515.0	26%
Administration-only		29,844.5		25,904.7	15%
Total average account values	$	79,451.3	$	72,025.1	10%
Account values as of year end:
Private sector	$	32,286.5	$	32,645.3	(1)%
Public sector		48,260.1		43,951.8	10%
Total account values	$	80,546.6	$	76,597.1	5%
Pre-tax operating earnings to average account values		0.32%		0.31%

The increase in pre-tax operating earnings primarily was driven by higher other income and interest spread income and lower amortization of DAC, partially offset by lower administrative fees and higher other operating expenses.

52

The increase in other income, which includes administrative fees from administration-only plans and asset fees from non-insurance deferred compensation plans and the NTC platform, primarily was driven by higher other asset fees and mutual fund revenue of $35.2 million and $20.3 million, respectively, resulting from higher average variable assets.

Interest spread income increased due to a lower average crediting rate as interest spread margins widened to 190 basis points in 2007 compared to 181 basis points for 2006. Included in 2007 were 11 basis points, or $11.7 million, of income from mortgage loan prepayments and bond call premiums compared to 9 basis points, or $9.9 million, in 2006.

Lower amortization of DAC primarily was due to the aforementioned DAC unlocking of the net separate account growth rate assumption for the three-year period and adjusting the net separate account growth rate and related discount rate assumptions. These factors lowered amortization of DAC by $10.5 million.

Lower administrative fees were attributable to the surrender of a group annuity contract during 2006, which resulted in an $18.6 million policy adjustment. In addition, the surrender of a group retirement plan in 2006 resulted in the recognition of $5.1 million of previously deferred revenue and $3.5 million of related VOBA amortization.

The increase in other operating expenses reflects higher general operating expenses due to investments in technology and infrastructure and expected increases in support, development and amortization of a new administrative platform placed into service during 2006. In addition, trail commissions increased $22.0 million from higher average assets and asset-based variable expenses. Trail commissions represent compensation paid to the Company’s producing firms based on the level of assets under management rather than new deposits made in a given time period. Instead of paying a one-time amount at the point of sale, a smaller payment is made each period that the business remains in force. In some cases, a combination of both types of compensation is paid.

Public sector sales increased due to growth in administration-only agreements.

53

Individual Protection

2008 Compared to 2007

The following table summarizes selected financial data for the Company’s Individual Protection segment for the years ended December 31:

(dollars in millions)	2008		2007		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	47.8	$	53.1	(10)%
Cost of insurance charges		449.7		420.5	7%
Administrative fees		92.2		80.5	15%
Surrender fees		28.0		19.9	41%
Total policy charges		617.7		574.0	8%
Premiums		297.5		299.4	(1)%
Net investment income		486.8		472.3	3%
Other income		3.2		4.0	(20)%
Total revenues		1,405.2		1,349.7	4%
Benefits and expenses:
Interest credited to policyholder accounts		196.1		192.0	2%
Benefits		508.7		449.4	13%
Policyholder dividends		93.1		83.1	12%
Amortization of DAC		129.9		93.1	40%
Amortization of VOBA and other intangible assets		22.1		40.4	(45)%
Other operating expenses		198.8		191.9	4%
Total benefits and expenses		1,148.7		1,049.9	9%
Pre-tax operating earnings	$	256.5	$	299.8	(14)%
Other Data
Sales:
Corporate-owned life insurance	$	545.1	$	552.7	(1)%
Traditional/universal life insurance		607.7		554.4	10%
Variable life insurance		553.9		639.3	(13)%
Total sales	$	1,706.7	$	1,746.4	(2)%
Policy reserves as of year end:
Individual investment life insurance	$	4,159.4	$	6,298.2	(34)%
Corporate investment life insurance		8,548.9		9,278.8	(8)%
Traditional life insurance		4,154.8		4,156.4	—
Universal life insurance		1,386.9		1,257.1	10%
Total policy reserves	$	18,250.0	$	20,990.5	(13)%
Insurance in force as of year end:
Individual investment life insurance	$	55,352.8	$	57,772.0	(4)%
Corporate investment life insurance		24,606.8		25,291.5	(3)%
Traditional life insurance		53,685.7		43,970.7	22%
Universal life insurance		11,714.8		10,484.5	12%
Total insurance in force	$	145,360.1	$	137,518.7	6%

54

Pre-tax operating earnings declined due to higher benefits, amortization of DAC, other operating expenses and policyholder dividends, partially offset by higher policy charges, lower amortization of VOBA and other intangible assets, and higher interest spread income.

Higher benefits primarily were due to adverse mortality in the current year in the variable life and universal life insurance businesses. The average net claim size and the number of claims in these products increased 22% and 16%, respectively, over the prior year.

Amortization of DAC increased primarily due to the aforementioned DAC unlocking in the second quarter of 2007, which lowered amortization of DAC by $18.1 million in 2007. In addition, the aforementioned DAC unlocking in the second quarter of 2008 increased amortization of DAC by $2.8 million in the current year. The remainder of the increase was due to higher gross profits in 2008.

Other operating expenses increased due to the Company’s announced plans to exit its NFN professional consulting group sales channel in 2008 and selling arrangement changes for the NFN independent agency force. As a result, the Individual Protection segment recorded a pre-tax charge of $24.7 million during the fourth quarter of 2008 related to intangibles assets and exit costs. Lower agency marketing costs ($6.3 million), premium taxes ($5.3 million) and employee incentives ($3.5 million) partially offset the overall increase.

Policyholder dividends increased due to a higher dividend scale in 2008.

Policy charges increased due to higher cost of insurance charges and administrative fees. Cost of insurance charges rose due to increased fixed life business in force combined with the aging of the individual life business block. The aging of a block generally increases cost of insurance charges as the Company’s related mortality risk also rises. Administrative fees were impacted by the aforementioned unlocking in the second quarter of 2008 and increased universal life sales upon which part of these fees are derived.

Lower amortization of VOBA and other intangible assets primarily was due to the unlocking during the second quarter of 2008 of the long-term lapse rate assumption and higher estimated gross profits in the investment life insurance business. These factors lowered amortization of VOBA by $7.5 million in 2008. In addition, unlocking of assumptions in the second quarter of 2007 increased VOBA amortization by $5.1 million.

Interest spread income increased primarily due to growth in the universal life business block driven by sales of the ULtimate product.

The decrease in sales primarily was due to lower renewals of variable life products, partially offset by an increase in universal life sales primarily driven by the ULtimate product.

55

2007 Compared to 2006

The following table summarizes selected financial data for the Company’s Individual Protection segment for the years ended December 31:

(dollars in millions)	2007		2006		Change
Statements of Income Data
Revenues:
Policy charges:
Asset fees	$	53.1	$	45.8	16%
Cost of insurance charges		420.5		402.0	5%
Administrative fees		80.5		82.7	(3)%
Surrender fees		19.9		22.6	(12)%
Total policy charges		574.0		553.1	4%
Premiums		299.4		299.0	—
Net investment income		472.3		468.1	1%
Other income		4.0		0.8	NM
Total revenues		1,349.7		1,321.0	2%
Benefits and expenses:
Interest credited to policyholder accounts		192.0		191.7	—
Benefits		449.4		444.4	1%
Policyholder dividends		83.1		90.7	(8)%
Amortization of DAC		93.1		81.6	14%
Amortization of VOBA and other intangible assets		40.4		33.8	20%
Other operating expenses		191.9		198.0	(3)%
Total benefits and expenses		1,049.9		1,040.2	1%
Pre-tax operating earnings	$	299.8	$	280.8	7%
Other Data
Sales:
Corporate-owned life insurance	$	552.7	$	805.9	(31)%
Traditional/universal life insurance		554.4		517.1	7%
Variable life insurance		639.3		639.0	—
Total sales	$	1,746.4	$	1,962.0	(11)%
Policy reserves as of year end:
Individual investment life insurance	$	6,298.2	$	5,842.5	8%
Corporate investment life insurance		9,278.8		8,514.4	9%
Traditional life insurance		4,156.4		4,170.9	—
Universal life insurance		1,257.1		1,159.0	8%
Total policy reserves	$	20,990.5	$	19,686.8	7%
Insurance in force as of year end:
Individual investment life insurance	$	57,772.0	$	57,536.7	—
Corporate investment life insurance		25,291.5		24,764.4	2%
Traditional life insurance		43,970.7		41,061.3	7%
Universal life insurance		10,484.5		9,950.3	5%
Total insurance in force	$	137,518.7	$	133,312.7	3%

The increase in pre-tax operating earnings primarily was due to higher policy charges and lower policyholder dividends. Higher amortization of DAC partially offset the overall increase.

56

Policy charges increased due to higher cost of insurance charges and asset fees. The aging of the individual life business block drove higher cost of insurance charges. Asset fees increased due to higher average separate account values.

Policyholder dividends have trended downward since the dividend scale was reduced in 2006. Furthermore, since participating policies are no longer sold, lapses decrease the number of policies on which dividends are paid.

Amortization of DAC increased primarily due to unlocking in 2006 related to mortality assumptions in fixed universal life and variable universal life that reduced amortization by $18.5 and $10.9 million, respectively. This increase was offset by lower amortization of DAC due to the aforementioned DAC unlocking in 2007 of the net separate account growth rate assumption for the three-year reversion period, adjusting the net separate account growth rate and related discount rate assumptions, and increasing estimated lapse rates for BOLI products. These factors lowered amortization of DAC by $18.1 million in 2007.

The decrease in sales primarily was due to the addition of two large COLI cases during 2006.

Corporate and Other

2008 Compared to 2007

The following table summarizes selected financial data for the Company’s Corporate and Other segment for the years ended December 31:

(dollars in millions)	2008			2007			Change
Statements of (Loss) Income Data
Operating revenues:
Net investment income	$	303.3		$	506.3		(40)%
Other income		79.2			209.7		(62)%
Total operating revenues		382.5			716.0		(47)%
Benefits and operating expenses:
Interest credited to policyholder accounts		199.7			262.4		(24)%
Interest expense		105.6			110.6		(5)%
Debt extinguishment costs		—			10.2		NM
Other operating expenses		266.0			258.2		3%
Total benefits and operating expenses		571.3			641.4		(11)%
Pre-tax operating (loss) earnings		(188.8	)		74.6		NM
Add: non-operating net realized investment losses1		(1,556.8	)		(152.8	)	NM
Add: adjustment to amortization related to net realized investment gains and losses		139.2			25.5		NM
Loss from continuing operations before federal income tax expense	$	(1,606.4	)	$	(52.7	)	NM
Other Data
Customer funds managed and administered as of year end:
Funding agreements backing medium-term notes	$	3,217.2		$	4,525.7		(29)%
Nationwide Bank deposits		1,763.5			798.3		121%
NFG		1,345.8			1,917.3		(30)%
Total customer funds managed and administered	$	6,326.5		$	7,241.3		(13)%

¹ Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes and net realized gains and losses related to hedges on GMDB contracts and securitizations).

57

The Company recorded a pre-tax operating loss in 2008 compared to earnings in the prior year primarily due to lower interest spread income and other income, partially offset by the aforementioned debt extinguishment costs recorded in the second quarter of 2007.

The decrease in interest spread income primarily was driven by lower income from hedge fund and private equity investments ($94.5 million). Lower income from mortgage loan prepayments and bond call premiums ($11.6 million), reduced earnings from the MTN program ($9.0 million) primarily due to lower prepayment income, and approximately a 10% decline in average asset levels further contributed to the shortfall.

Lower other income primarily was driven by a $49.6 million increase in losses in the Company’s structured products business in 2008 related to impairments on mortgages and mortgage loan commitments, a $26.7 million increase in valuation losses on assets held for trading purposes, a $19.8 million decline in retail asset management revenues (pre-tax operating earnings declined $6.6 million) and a $12.1 million decline in broker/dealer revenues (pre-tax operating earnings declined $7.4 million).

On June 4, 2007, NFS redeemed all of its outstanding 8.00% senior notes due March 1, 2027 at a price of $317.4 million. This amount represented aggregate principal of $300.0 million, an $11.2 million premium due as a result of early redemption (3.728% of the principal amount) and $6.2 million of accrued interest through the redemption date. These senior notes were originally issued in March 1997 and, in accordance with their terms, became subject to optional redemption by NFS on or after March 1, 2007. As a result of this transaction, NFS incurred a $10.2 million charge ($6.6 million, net of taxes) during the quarter ended June 30, 2007. This charge includes the redemption premium described above and the accelerated amortization of both unamortized debt issuance costs and the unamortized discount on the original issuance, partially offset by a deferred gain on previous hedging transactions. These amounts (excluding the redemption premium) otherwise would have been recognized through 2027.

Higher non-operating net realized investment losses were driven by a $1.03 billion increase in impairment charges compared to the prior year due to challenging conditions in the credit markets. In addition, the Company recorded a $474.0 million increase in losses on living benefit embedded derivatives, net of economic hedging activity.

The increase in losses on living benefit embedded derivatives, net of economic hedging activity, gave rise to the increase in the adjustment to amortization related to net realized investment gains and losses.

The following table summarizes net realized investment losses from continuing operations by source for the years ended December 31:

(in millions)	2008			2007
Total realized gains on sales, net of hedging losses	$	9.6		$	78.9
Total realized losses on sales, net of hedging gains		(122.9	)		(85.0	)
Total other-than-temporary and other investment impairments		(1,146.4	)		(116.9	)
Credit default swaps		(22.0	)		(7.5	)
Derivatives and embedded derivatives associated with living benefit contracts		(500.7	)		(26.7	)
Derivatives associated with death benefit contracts		109.4			—
Other derivatives		116.7			(1.0	)
Trading asset valuation losses		(32.3	)		(5.7	)
Total realized losses before adjustments		(1,588.6	)		(163.9	)
Amounts credited to policyholder dividend obligation		37.6			(2.5	)
Other		1.1			1.2
Net realized investment losses	$	(1,549.9	)	$	(165.2	)

58

The following table summarizes other-than-temporary and other investment impairments by asset type for the years ended December 31:

(in millions)	2008		2007
Fixed maturity securities:
Corporate securities
Public	$	226.8	$	10.6
Private		85.1		62.7
Mortgage-backed securities		358.5		—
Asset-backed securities		397.5		35.1
Total fixed maturity securities		1,067.9		108.4
Equity securities		60.2		—
Other		18.3		8.5
Total other-than-temporary and other investment impairments	$	1,146.4	$	116.9

Of the $1.15 billion and $116.9 million of other-than-temporary and other investment impairments recognized in the years ended December 31, 2008 and 2007, respectively, 79%, or $906.4 million, and 94%, or $109.7 million, were recognized due to adverse issuer or security specific credit events.

The Company has a comprehensive portfolio monitoring process for fixed maturity and equity securities to identify and evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. See Part II, Item 7 – MD&A – Critical Accounting Policies and Recently Issued Accounting Standards – Impairment Losses on Investments for a complete discussion of this process.

59

2007 Compared to 2006

The following table summarizes selected financial data for the Company’s Corporate and Other segment for the years ended December 31:

(dollars in millions)	2007			2006			Change
Statements of (Loss) Income Data
Operating revenues:
Net investment income	$	506.3		$	398.8		27%
Other income		209.7			201.1		4%
Total operating revenues		716.0			599.9		19%
Benefits and operating expenses:
Interest credited to policyholder accounts		262.4			209.9		25%
Interest expense		110.6			103.1		7%
Debt extinguishment costs		10.2			—		NM
Other operating expenses		258.2			221.8		16%
Total benefits and operating expenses		641.4			534.8		20%
Pre-tax operating earnings		74.6			65.1		15%
Add: non-operating net realized investment losses1		(152.8	)		(0.6	)	NM
Add: adjustment to amortization related to net realized investment gains and losses		25.5			9.7		NM
(Loss) income from continuing operations before federal income tax expense	$	(52.7	)	$	74.2		NM
Other Data
Customer funds managed and administered as of year end:
Funding agreements backing medium-term notes	$	4,525.7		$	4,599.5		(2)%
Nationwide Bank		798.3			222.3		NM
NFG		1,917.3			2,840.6		(33)%
Total customer funds managed and administered	$	7,241.3		$	7,662.4		(5)%

¹ Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, and net realized gains and losses related to securitizations).

The increase in pre-tax operating earnings primarily was attributable to higher interest spread income and other income, partially offset by higher other operating expenses and the aforementioned debt extinguishment costs.

Interest spread income increased primarily due to the $30.1 million contribution from Nationwide Bank, which completed its first year of retail operations in 2007. In addition, higher average assets and slightly higher average investment returns contributed to the increase.

Higher other income primarily was due to a $20.0 million increase in revenues from retail broker/dealer operations, partially offset by lower income in the structured products business driven by an unfavorable environment for mortgage loan securitizations.

Other operating expenses were higher primarily due to a $16.1 million increase at Nationwide Bank and higher commissions related to increased revenues from retail broker/dealer operations as mentioned above.

The increase in non-operating net realized investment losses was driven by higher impairment charges in 2007 due to challenging conditions in the credit markets. In addition, the Company recorded higher losses on living benefit embedded derivatives, net of economic hedging activity, primarily as a result of increased volatility in market returns.

60

The following table summarizes net realized investment gains from continuing operations by source for the years ended December 31:

(in millions)	2007			2006
Total realized gains on sales, net of hedging losses	$	78.9		$	98.7
Total realized losses on sales, net of hedging gains		(85.0	)		(75.6	)
Total other-than-temporary and other investment impairments		(116.9	)		(16.8	)
Credit default swaps		(7.5	)		(1.1	)
Other derivatives		(27.7	)		1.3
Trading asset valuation losses		(5.7	)		—
Total realized (losses) gains before adjustments		(163.9	)		6.5
Amounts credited to policyholder dividend obligation		(2.5	)		0.1
Other		1.2			2.5
Net realized investment (losses) gains	$	(165.2	)	$	9.1
The following table summarizes other-than-temporary and other investment impairments by asset type for the years ended December 31:
(in millions)	2007			2006
Fixed maturity securities:
Corporate securities
Public	$	10.6		$	4.3
Private		62.7			0.5
Asset-backed securities		35.1			2.1
Total fixed maturity securities		108.4			6.9
Equity securities		—			0.1
Other		8.5			9.8
Total other-than-temporary and other investment impairments	$	116.9		$	16.8

61

Liquidity and Capital Resources

Liquidity and capital resources demonstrate the overall financial strength of the Company and its ability to generate cash flows from its operations and borrow funds at competitive rates to meet operating and growth needs.

The Company’s capital structure consists of long-term debt and shareholders’ equity. The following table summarizes the Company’s capital structure as of December 31:

(in millions)	2008			2007			2006
Long-term debt	$	1,725.9		$	1,565.1		$	1,398.5
Shareholders’ equity, excluding accumulated other comprehensive income		4,429.0			5,406.1			5,590.8
Accumulated other comprehensive (loss) income		(1,370.8	)		(81.5	)		31.9
Total shareholders’ equity		3,058.2			5,324.6			5,622.7
Total capital	$	4,784.1		$	6,889.7		$	7,021.2

NFS is a holding company whose principal assets are the common stock of NLIC and NLICA. The principal sources of funds for NFS to pay interest, dividends and operating expenses are existing cash and investments and dividends from NLIC, NLICA and other subsidiaries. See Part I, Item 1 – Business – Regulation – Regulation of Dividends and Other Payments from Insurance Companies for a description of NLIC and NLICA dividend limitations. NFS currently does not expect such regulatory requirements to impair the ability of its insurance subsidiaries to pay sufficient dividends in order for NFS to have the necessary funds available to meet its obligations.

A primary liquidity concern with respect to annuity and life insurance products is the risk of early policyholder withdrawal. The Company attempts to mitigate this risk by offering variable products where the investment risk is transferred to the policyholder, charging surrender fees at the time of withdrawal for certain products, applying a market value adjustment to withdrawals for certain products in the Company’s general account, and monitoring and matching anticipated cash inflows and outflows.

For individual annuity products ($37.36 billion and $50.84 billion of reserves as of December 31, 2008 and 2007, respectively), surrender charges generally are calculated as a percentage of deposits and are assessed at declining rates during the first seven years after a deposit is made.

For group annuity products ($3.18 billion and $3.29 billion of reserves as of December 31, 2008 and 2007, respectively), surrender charge amounts and periods can vary significantly depending on the terms of each contract and the compensation structure for the producer. Generally, surrender charge percentages for group products are less than individual products because the Company incurs lower expenses at contract origination for group products. In addition, over ninety percent of the general account group annuity reserves are subject to a market value adjustment at withdrawal.

Life insurance policies are less susceptible to withdrawal than annuity products because policyholders generally must undergo a new underwriting process and may incur a surrender fee in order to obtain a new insurance policy.

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

Given the Company’s historical cash flow from operating and investing activities and current financial results, management of the Company believes that cash flows from operating activities over the next year will provide sufficient liquidity for the operations of the Company and sufficient funds for dividend and interest payments.

62

Short-Term Debt

The Company has available as a source of funds a $1.00 billion revolving variable rate credit facility entered into by NFS, NLIC and NMIC with a group of national financial institutions. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility provides covenants, including, but not limited to, requirements that the Company’s debt not exceed 40% of tangible net worth, as defined, and that NLIC maintain statutory surplus, as defined, in excess of $1.67 billion. Additionally, NMIC must maintain a required statutory surplus level, as defined. A breach by any borrower of the financial covenants will impact the availability of the line for the other borrowers and may accelerate payment. As of December 31, 2008, the Company, NLIC and NMIC were in compliance with all covenants. NLIC and NMIC had no amounts outstanding under this agreement as of December 31, 2008 and 2007. NLIC also has an $800.0 million commercial paper program and is required to maintain an available credit facility equal to 50% of any amounts outstanding under the commercial paper program. Therefore, borrowing capacity under the aggregate $1.00 billion revolving credit facility is reduced by 50% of any amounts outstanding under the commercial paper program. NLIC had $149.9 million of commercial paper outstanding at December 31, 2008 at a weighted average interest rate of 2.07% and $199.7 million outstanding at December 31, 2007 at a weighted average interest rate of 4.39%.

NLIC has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. This is an uncommitted facility contingent on the liquidity of the securities lending program. The borrowing facility was established to fund commercial mortgage loans that were originated with the intent of sale through securitization. The maximum amount available under the agreement is $350.0 million. The borrowing rate on this program is equal to one-month U.S. London Interbank Offered Rate (LIBOR) (0.44% and 4.60% as of December 31, 2008 and 2007, respectively). NLIC had $99.8 million and $85.6 million outstanding under this agreement as of December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company had not provided any guarantees on such borrowings, either directly or indirectly.

The Company also has a wholly-owned banking subsidiary with the ability to borrow from a single financial institution under a $50.0 million line of credit agreement and $500.0 million repurchase-based advance agreement. The borrowings are collateralized by investments owned by the subsidiary and are included in the consolidated balance sheets. The available portion of the credit facilities is limited by the collateral value of loans or securities pledged. The subsidiary had $46.0 million and $14.0 million outstanding under the $500.0 million repurchase-based advance agreement as of December 31, 2008 and December 31, 2007, respectively, at a weighted average interest rate of 1.94% in 2008 and 4.37% in 2007. The subsidiary had no amounts outstanding under the $50.0 million line of credit agreement at December 31, 2008 and 2007. As of December 31, 2008, the total additional collateralized borrowing capacity under these agreements was $322.9 million.

The Company also has a wholly-owned subsidiary with a five-year letter of credit issuance agreement with a single financial institution to provide up to $50.0 million in letters of credit. The agreement was effective September 30, 2006 and is guaranteed by NFS. The subsidiary had issued $50.0 million and $40.6 million in letters of credit from this facility as of December 31, 2008 and 2007, respectively. As of December 31, 2008 and 2007, there were no amounts outstanding under these agreements.

Long-Term Debt

Long-term debt primarily is comprised of (1) two separate issuances of $300.0 million in principal amount of senior notes and two separate issuances of $200.0 million in principal amount of senior notes, none of which is subject to any sinking fund payments; (2) a single issuance of $400.0 million in principal amount of fixed-to-floating rate junior subordinated notes; and (3) a single issuance of $100.0 million in principal amount of junior subordinated debentures that are due March 1, 2037 and pay a distribution rate of 7.899%, issued to an unconsolidated subsidiary trust.

63

The $300.0 million principal of 6.25% senior notes due November 15, 2011 were issued in November 2001 and are not redeemable prior to their maturity date. The $300.0 million principal of 5.90% senior notes due July 1, 2012, issued in June 2002, and the $200.0 million principal of 5.625% senior notes due February 13, 2015, issued in February 2003, are redeemable, in whole or in part, at the option of NFS at any time or from time to time at a redemption price equal to the greater of: (1) 100% of the aggregate principal amount of the notes to be redeemed; or (2) the sum of the present value of the remaining scheduled payments of principal and interest on the notes, discounted to the redemption date on a semi-annual basis at a prevailing U.S. Treasury rate plus 20 basis points, together in each case with accrued interest payments to the redemption date. The $200.0 million principal of 5.10% senior notes due October 1, 2015 were issued in September 2005 and are redeemable, in whole or in part, at the option of NFS at any time or from time to time at a redemption price equal to the greater of: (1) 100% of the aggregate principal amount of the notes to be redeemed; or (2) the sum of the present value of the remaining scheduled payments of principal and interest on the notes, discounted to the redemption date on a semi-annual basis at a prevailing U.S. Treasury rate plus 15 basis points, together in each case with accrued interest payments to the redemption date.

The terms of each series of senior notes contain various restrictive business and financial covenants, including limitations on the disposition of subsidiaries. As of December 31, 2008, the Company was in compliance with all such covenants.

On May 18, 2007, NFS issued $400.0 million principal of 6.75% fixed-to-floating rate junior subordinated notes. These notes bear interest at a fixed rate of 6.75% for a 30-year period, after which the notes will bear interest at the rate of three-month U.S. LIBOR plus 2.33%. These notes are redeemable under one of three scenarios. First, these notes are redeemable, in whole or in part, at any time on or after May 15, 2037 at their principal amount plus accrued and unpaid interest to the date of redemption, provided that in the event of a redemption in part, the principal amount outstanding after such redemption is at least $50.0 million. Next, these notes are redeemable, in whole or in part, prior to May 15, 2037, in cases not involving certain tax or rating agency events, at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the “make-whole price,” provided that in the event of redemption in part the principal amount outstanding after such redemption is at least $50.0 million. “Make-whole price” means the sum of the present values of the outstanding principal (discounted from May 15, 2037) and remaining scheduled payments of interest that would have been payable to and including May 15, 2037 (discounted from their respective interest payment dates) on the notes to be redeemed (not including any portion of such payments of interest accrued to the redemption date) to the redemption date on a semiannual basis at a prevailing U.S. Treasury rate plus 30 basis points, plus accrued and unpaid interest on the principal amount being redeemed to the redemption date. Lastly, these notes are redeemable in whole, but not in part, prior to May 15, 2037, within 90 days after the occurrence of certain tax or rating agency events, at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the “special event make-whole price.” “Special event make-whole price” means the sum of the present values of the outstanding principal (discounted from May 15, 2037) and remaining scheduled payments of interest that would have been payable to and including May 15, 2037 (discounted from their respective interest payment dates) on the notes to be redeemed (not including any portion of such payments of interest accrued to the redemption date) to the redemption date on a semiannual basis at a prevailing U.S. Treasury rate plus 50 basis points, plus accrued and unpaid interest on the principal amount being redeemed to the redemption date. The final maturity date for the notes is May 15, 2067, extendible to 2087.

On March 11, 1997, Nationwide Financial Services Capital Trust I (Trust I) sold, in a public offering, $100.0 million principal of 7.899% capital securities, representing preferred undivided beneficial interests in the assets of Trust I. This sale generated net proceeds of $98.3 million. Concurrent with the sale of the capital securities, NFS sold to Trust I $103.1 million principal of its 7.899% junior subordinated debentures due March 1, 2037. The junior subordinated debentures are the sole assets of Trust I and are redeemable by NFS in whole at any time or in part from time to time at par plus an applicable make-whole premium. The related capital securities will mature or be called simultaneously with the junior subordinated debentures and have a liquidation value of $1,000 per capital security. The capital securities are fully and unconditionally guaranteed by NFS, and there are no related sinking fund requirements. Distributions on the capital securities are cumulative and payable semi-annually in arrears. On February 18, 2009, Trust I delisted the capital securities from the New York Stock Exchange.

In addition, the Company’s wholly-owned banking subsidiary has fixed rate borrowings from various financial institutions that totaled $220.0 million and $65.0 million as of December 31, 2008 and December 31, 2007, respectively, with interest rates ranging from 1.80% to 4.45% in 2008 and 3.27% to 4.45% in 2007. These borrowings have maturity dates ranging from two to twenty years, and all are secured by investments and single family residential loans pledged by the subsidiary. The subsidiary made interest payments of $4.7 million and $0.1 million in 2008 and 2007, respectively.

Guarantees

See Note 20 to the audited consolidated financial statements included in the F pages of this report for a description of the potential impact on liquidity of the Company’s guarantees.

64

Contractual Obligations and Commitments

The following table summarizes the Company’s contractual obligations and commitments as of December 31, 2008 expected to be paid in the periods presented. Payment amounts reflect the Company’s estimate of undiscounted cash flows related to these obligations and commitments. Balance sheet amounts were determined in accordance with GAAP and may differ from the summation of undiscounted cash flows. The most significant difference relates to future policy benefits for life and health insurance, which include discounting.

	Payments due by period										Amount per balance sheet
(in millions)	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Debt:
Short-term1	$	300.2	$	—	$	—	$	—	$	300.2	$	295.7
Long-term2:										—
Unrelated parties		97.4		542.0		444.0		1,666.8		2,750.2		1,622.8
Related parties		8.1		16.3		16.3		291.8		332.5		103.1
Subtotal		405.7		558.3		460.3		1,958.6		3,382.9		2,021.6
Lease and license obligations3:
Operating leases		21.4		26.4		21.0		28.0		96.8		—
License		12.1		17.1		0.7		—		29.9		—
Subtotal		33.5		43.5		21.7		28.0		126.7		—
Purchase and lending commitments:
Fixed maturity securities4		7.9		56.4		6.6		—		70.9		—
Commercial mortgage loans4		24.9		—		—		—		24.9		—
Limited partnerships5		156.3		—		—		—		156.3		—
Subtotal		189.1		56.4		6.6		—		252.1		—
Future policy benefits and claims6:
Fixed annuities and fixed option of variable annuities7		1,723.0		2,752.9		1,976.3		4,102.9		10,555.1		10,456.0
Life and health insurance7		567.6		1,182.3		1,260.8		16,423.0		19,433.7		8,356.1
Single premium immediate annuities8		266.6		478.9		410.8		2,482.4		3,638.7		2,020.8
Group pension deferred fixed annuities9		1,330.9		2,640.5		2,134.9		9,466.3		15,572.6		11,497.5
Funding agreements backing MTNs2, 10		1,424.4		1,530.6		465.8		187.2		3,608.0		3,389.6
Subtotal		5,312.5		8,585.2		6,248.6		32,661.8		52,808.1		35,720.0
Cash and securities collateral11:
Cash collateral on securities lending		419.9		—		—		—		419.9		419.9
Cash collateral on derivative transactions		1,022.5		—		—		—		1,022.5		1,022.5
Securities collateral on derivative transactions		35.4		—		—		—		35.4		35.4
Subtotal		1,477.8		—		—		—		1,477.8		1,477.8
Total	$	7,418.6	$	9,243.4	$	6,737.2	$	34,648.4	$	58,047.6	$	39,219.4

65

¹ No contractual provisions exist that could create, increase or accelerate those obligations presented. The amount presented includes contractual principal and interest based on rates in effect at December 31, 2008.

² Contractual provisions exist that could increase or accelerate those obligations presented. The amounts presented include contractual principal and interest based on stated rates in effect at December 31, 2008.

³ Contractual provisions exist that could increase or accelerate those lease obligations presented, including various leases with early buyouts and/or escalation clauses. However, the impact of any such transactions would not be material to the Company’s financial position or results of operations.

⁴ No contractual provisions exist that could create, accelerate or materially increase those obligations presented.

⁵ Primarily related to investments in low-income-housing tax credit partnerships. Call dates for the obligations presented are either date or event specific. For date specific obligations, the Company is required to fund a specified amount on a stated date provided there are no defaults under the agreement. For event specific obligations, the Company is required to fund a specified amount of its capital commitment when properties in a fund become fully stabilized. For event specific obligations, the call date of these commitments may extend beyond one year but has been reflected in payments due in less than one year due to the call features. The Company’s capital typically is called within one to four years, depending on the timing of events.

⁶ A significant portion of policy contract benefits and claims to be paid do not have stated contractual maturity dates and may not result in any ultimate payment obligation. Amounts reported represent estimated undiscounted cash flows out of the Company’s general account related to death, surrender, annuity and other benefit payments under policy contracts in force at December 31, 2008. Separate account payments are not reflected due to the matched nature of these obligations and because the contract owners bear the investment risk of such deposits. Estimated payment amounts were developed based on the Company’s historical experience and related contractual provisions. Significant assumptions incorporated in the reported amounts include future policy lapse rates (including the impact of customer decisions to make future premium payments to keep the related policies in force); coverage levels remaining unchanged from those provided under contracts in force at December 31, 2008; future interest crediting rates; and estimated timing of payments. Actual amounts will vary, potentially by a significant amount, from the amounts indicated due to deviations between assumptions and actual results and the addition of new business in future periods.

⁷ Contractual provisions exist which could adjust the amount and/or timing of those obligations reported. Key assumptions related to payments due by period include customer lapse and withdrawal rates (including timing of death), exchanges to and from the fixed and separate accounts of the variable annuities, claims experience with respect to variable annuity guarantees, and future interest crediting level. Assumptions for future interest crediting levels were made based on processes consistent with the Company’s past practices, which is at the discretion of the Company, subject to guaranteed minimum crediting rates in many cases and/or subject to contractually obligated increases for specified time periods. Many of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of deposits made and are assessed at declining rates during the first seven years after a deposit is made. Amounts disclosed include an estimate of those accelerated payments, net of applicable surrender charges. See Note 2(k) to the audited consolidated financial statements included in the F pages of this report for a description of the Company’s method for establishing life and annuity reserves in accordance with GAAP. Health reserves are immaterial and are reflected in the less than one year column.

⁸ Certain assumptions have been made about mortality experience and retirement patterns in the amounts reported. Actual deaths and retirements may differ significantly from those projected, which could cause the timing of the obligations reported to vary significantly. In addition, contractual surrender provisions exist on an immaterial portion of these contracts that could accelerate those obligations presented. Amounts disclosed do not include an estimate of those accelerated payments. Most of the contracts with potentially accelerated payments are subject to surrender charges, which are generally calculated as a percentage of the commuted value of the remaining term certain benefit payments and are assessed at declining rates during the first seven policy years.

⁹ Contractual provisions exist that could increase those obligations presented. The process for determining future interest crediting rates as described in note 5 above was used to develop the estimates of payments due by period.

¹⁰ See Part II, Item 7 – MD&A – Off-Balance Sheet Transactions for a detailed discussion of the Company’s MTN program. Amounts presented include contractual principal and interest based on rates in effect at December 31, 2008.

¹¹ Since the timing of the return of collateral is uncertain, these obligations have been reflected in payments due in less than one year. See Part II, Item 7 – MD&A – Overview – Fair Value Measurements – Counterparty Risk Associated with Derivatives and Part II, Item 7 – MD&A – Investments – Securities Lending for a detailed discussion of the impact of collateral on the Company’s consolidated balance sheets.

66

Off-Balance Sheet Transactions

Under the MTN program, NLIC issues funding agreements to an unconsolidated third party trust to secure notes issued to investors by the trust. The funding agreements rank equal with all other insurance claims of the issuing company in the event of liquidation and should be treated as “annuities” under applicable Ohio insurance law. Therefore, the funding agreement obligations are classified as a component of future policy benefits and claims on the consolidated balance sheets. Because the Company is not the primary beneficiary of, and has no ownership interest in, or control over, the third party trust that issues the MTNs, the Company does not include the trust in its consolidated financial statements. Since the notes issued by the trust have a secured interest in the funding agreements issued by the Company, Moody’s and S&P assign the same ratings to the notes and the insurance financial strength of NLIC.

Investments

General

The Company’s assets are divided between separate account and general account assets. As of December 31, 2008, $48.84 billion (52%) of the Company’s total assets were held in separate accounts ($72.86 billion, or 61%, as of December 31, 2007) and $44.79 billion (48%) were held in the Company’s general account ($46.35 billion, or 39%, as of December 31, 2007), including $36.22 billion of general account investments ($39.07 billion as of December 31, 2007).

Separate account assets primarily consist of investments made with deposits from the Company’s variable annuity and variable life insurance business. Most separate account assets are invested in various mutual funds. After deducting fees or expense charges, the investment performance in the Company’s separate account assets is passed through to the Company’s customers. See Note 6 to the audited consolidated financial statements included in the F pages of this report for further information regarding the Company’s investments.

The following table summarizes the Company’s consolidated general account investments by asset category as of December 31:

	2008			2007
(dollars in millions)	Carrying value		% of total	Carrying value		% of total
Fixed maturity securities	$	23,069.7	63.7	$	27,189.2	69.6
Equity securities		60.7	0.2		124.2	0.3
Trading assets		66.1	0.2		37.7	0.1
Mortgage loans on real estate, net		7,888.2	21.8		8,316.1	21.3
Real estate, net		16.5	—		21.8	0.1
Policy loans		1,095.6	3.0		1,018.3	2.6
Other long-term investments		968.1	2.7		1,187.2	3.0
Short-term investments		3,055.0	8.4		1,173.6	3.0
Total	$	36,219.9	100.0	$	39,068.1	100.0

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The following table lists the ten largest securities aggregated by issuer/sponsor and classified as fixed maturity investment holdings by estimated fair value for both investment grade and non-investment grade securities included in the general account as of December 31, 2008 (excluding U.S. Treasury securities, obligations of U.S. Government corporations, agency bonds, and MBSs issued by government agencies explicitly backed by the full faith and credit of the U.S Government):

(in millions)	Rating1	Estimated fair value			Rating1	Estimated fair value
Investment Grade2				Non-Investment Grade
Countrywide Alternative Loan Trust3	AAA	$	183.2	Lehman Mortgage Trust3	BB	$	73.6
CTL Capital Trust	AA		163.9	Citimortgage Alternative Loan Trust3	BB		48.4
CS First Boston Mortgage Securities Corp.3	AAA		151.4	Steinhoff Europe AG	BBB-		39.7
Morgan Stanley Capital I	AAA		115.1	American Capital, Ltd.	BBB-		35.1
LB-UBS Commercial Mortgage Trust	AAA		106.3	CSX Corp.	BB+		33.9
Bear Stearns Commercial Mtg. Securities, Inc.	AA		104.8	Rockies Express Pipeline	BBB-		28.6
Citigroup, Inc.	A		90.2	The Thomson Corp.	B+		27.8
Bank of America Mortgage Securities	AAA		88.4	Rogers Communications, Inc.	BBB-		27.3
Washington Mutual MSC Mortgage PT3	AAA		86.2	Allied Capital Corp.	BBB-		26.3
Cox Communications, Inc.	BBB		85.0	American Airlines, Inc.	BBB-		25.5

¹ Predominant rating based on a weighted average of ratings by Moody’s and S&P.

² Includes investments in various trusts sponsored by the issuer/sponsor.

³ Represents the aggregate of collateralized mortgage obligation exposure.

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Securities Available-for-Sale

The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale as of the dates indicated:

(in millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
December 31, 2008:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations	$	135.8	$	29.3	$	—	$	165.1
U.S. Government agencies1		395.1		90.5		—		485.6
Obligations of states and political subdivisions		271.3		1.6		10.5		262.4
Debt securities issued by foreign governments		50.1		5.4		—		55.5
Corporate securities
Public		8,882.1		99.8		1,108.0		7,873.9
Private		5,050.4		50.8		406.0		4,695.2
Mortgage-backed securities		7,456.9		102.7		685.7		6,873.9
Asset-backed securities		3,584.0		21.0		946.9		2,658.1
Total fixed maturity securities		25,825.7		401.1		3,157.1		23,069.7
Equity securities		68.7		0.8		8.8		60.7
Total securities available-for-sale	$	25,894.4	$	401.9	$	3,165.9	$	23,130.4
December 31, 2007:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations	$	172.8	$	17.4	$	0.9	$	189.3
U.S. Government agencies		418.1		61.5		—		479.6
Obligations of states and political subdivisions		273.3		1.7		2.8		272.2
Debt securities issued by foreign governments		56.2		2.5		0.3		58.4
Corporate securities
Public		9,233.2		175.2		178.8		9,229.6
Private		6,010.7		135.7		66.9		6,079.5
Mortgage-backed securities		7,142.5		40.3		108.2		7,074.6
Asset-backed securities		3,957.1		33.4		184.5		3,806.0
Total fixed maturity securities		27,263.9		467.7		542.4		27,189.2
Equity securities		117.5		8.3		1.6		124.2
Total securities available-for-sale	$	27,381.4	$	476.0	$	544.0	$	27,313.4

¹ Includes $146.5 million of securities explicitly backed by the full faith and credit of the U.S. Government.

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For securities available-for-sale as of the dates indicated, the following table summarizes the Company’s gross unrealized losses based on the amount of time each type of security has been in an unrealized loss position:

	Less than or equal to one year				More than one year				Total
(in millions)	Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses
December 31, 2008:
Fixed maturity securities:
Obligations of states and political subdivisions	$	127.6	$	6.1	$	33.4	$	4.4	$	161.0	$	10.5
Corporate securities
Public		4,135.8		746.5		1,332.5		361.5		5,468.3		1,108.0
Private		2,269.4		284.7		1,003.0		121.3		3,272.4		406.0
Mortgage-backed securities		933.1		172.0		1,821.7		513.7		2,754.8		685.7
Asset-backed securities		1,200.3		308.6		1,259.8		638.3		2,460.1		946.9
Total fixed maturity securities		8,666.2		1,517.9		5,450.4		1,639.2		14,116.6		3,157.1
Equity securities		19.2		8.6		3.4		0.2		22.6		8.8
Total	$	8,685.4	$	1,526.5	$	5,453.8	$	1,639.4	$	14,139.2	$	3,165.9
% of gross unrealized losses				48%				52%
December 31, 2007:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations	$	23.7	$	0.6	$	4.2	$	0.3	$	27.9	$	0.9
U.S. Government agencies		—		—		13.9		—		13.9		—
Obligations of states and political subdivisions		23.9		0.2		154.3		2.6		178.2		2.8
Debt securities issued by foreign governments		26.4		0.3		1.2		—		27.6		0.3
Corporate securities
Public		2,452.6		103.4		2,287.7		75.4		4,740.3		178.8
Private		740.4		18.8		2,076.6		48.1		2,817.0		66.9
Mortgage-backed securities		1,448.4		27.6		2,775.7		80.6		4,224.1		108.2
Asset-backed securities		1,515.3		132.3		1,211.6		52.2		2,726.9		184.5
Total fixed maturity securities		6,230.7		283.2		8,525.2		259.2		14,755.9		542.4
Equity securities		37.5		1.6		0.1		—		37.6		1.6
Total	$	6,268.2	$	284.8	$	8,525.3	$	259.2	$	14,793.5	$	544.0
% of gross unrealized losses				52%				48%

The Company has fixed maturity securities that have been in an unrealized loss position for more than one year that are not other-than-temporarily impaired. The Company reviews investments in an unrealized loss position and evaluates whether or not the loss is other-than-temporary. Many criteria are considered during this process including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, management’s intent and ability to hold the security until recovery, current economic conditions that could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected security.

As of December 31, 2008, fixed maturity securities that have been in an unrealized loss position for more than one year totaled $1.64 billion, or 52% of the Company’s total unrealized losses on fixed maturity securities. Of this total, $1.39 billion, or 85%, were classified as investment grade securities, as defined by the NAIC.

70

The Company held securities issued by institutions in the financial sector with equity-type features, classified as fixed maturity, with estimated fair values of $661.2 million and $705.8 million, and gross unrealized losses of $379.9 million and $32.8 million, as of December 31, 2008 and December 31, 2007, respectively. Of these securities in an unrealized loss position as of December 31, 2008, $106.3 million, or 18%, were in an unrealized loss position for more than one year compared to $154.7 million, or 39%, as of December 31, 2007. As of December 31, 2008, the Company evaluates such securities for other-than-temporary impairment using the criteria of either a debt or an equity security depending on the facts and circumstances of the individual issuer.

The following table summarizes for the year ended December 31, 2008 the Company’s largest aggregate losses on sales and write-downs by issuer, the related circumstances giving rise to the losses and the circumstances that may have affected other material investments held:

(in millions)	Fair value at sale (proceeds)		YTD loss on sale		YTD write-downs			Holdings1		Net unrealized gain (loss)
Ownership interest in a collateralized debt obligation with exposure to financial sector debtors. An impairment was recognized in the second quarter of 2008 due to a depressed security price and thinning support in the CDO structure.	$	—	$	—	$	(39.1	)	$	—	$	—
Ownership interest in a corporate debt facility. The Company decided not to hold to maturity due to uncertainty in debt recovery.		—		—		(33.5	)		38.3		9.4
Ownership interest in a market value collateralized loan obligation. Impairments were recognized in the third and fourth quarters of 2008 due to deterioration in expected yield.		—		—		(29.1	)		—		—
Ownership interest in a corporate debt facility issued by a casino owner and operator. An impairment was recognized in the third quarter of 2008 due to declining consumer demand and deteriorating cash flows.		—		—		(24.4	)		6.8		0.2
Ownership interest in a corporate debt facility. An impairment was recognized in the fourth quarter of 2008 due to credit deterioration in the financial sector.		—		—		(24.0	)		16.0		—
Total	$	—	$	—	$	(150.1	)	$	61.1	$	9.6

¹ Holdings represent amortized cost of fixed maturity securities and cost of equity securities as of the date indicated for issuer and issuer sponsored vehicles.

No other issuer had aggregate losses on sales and write-downs greater than 2.0% of the Company’s total gross losses on sales and write-downs on fixed maturity and equity securities.

The majority of the increases in the Company’s unrealized losses from December 31, 2007 to December 31, 2008 was attributable to corporate securities, MBSs and ABSs. These increased unrealized loss positions primarily were driven by the combined impact of volatility in investment quality ratings and credit spreads, illiquid markets, and interest rate movements. In particular, exposure to the financial sector, including structured securities such as trust preferred, collateralized loan obligations (CLOs), collateralized debt obligations (CDOs) and commercial mortgage-backed securities (CMBS), have been significantly affected by negative circumstances in that sector. There is risk that further declines in estimated fair values of investments, or changes in anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in future periods, which could be significant.

71

For fixed maturity securities available-for-sale, the following tables summarize as of the dates indicated the Company’s gross unrealized loss position categorized as investment grade vs. non-investment grade, as defined by the NAIC, in an unrealized loss position for the period of time indicated, and based on the ratio of estimated fair value to amortized cost (in millions):

	Period of time for which unrealized loss has existed as of December 31, 2008
	Investment Grade						Non-Investment Grade						Total
Ratio of estimated fair value to amortized cost	Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total
Corporate securities - public and private
99.9% - 95.0%	$	56.1	$	20.8	$	76.9	$	2.1	$	0.1	$	2.2	$	58.2	$	20.9	$	79.1
94.9% - 90.0%		104.3		31.0		135.3		5.7		6.6		12.3		110.0		37.6		147.6
89.9% - 85.0%		87.9		34.5		122.4		7.9		8.7		16.6		95.8		43.2		139.0
84.9% - 80.0%		106.9		29.2		136.1		14.5		7.1		21.6		121.4		36.3		157.7
Below 80.0%		480.4		165.8		646.2		165.4		179.0		344.4		645.8		344.8		990.6
Total		835.6		281.3		1,116.9		195.6		201.5		397.1		1,031.2		482.8		1,514.0
Mortgage-backed securities
99.9% - 95.0%		2.8		2.9		5.7		—		—		—		2.8		2.9		5.7
94.9% - 90.0%		7.4		15.8		23.2		0.1		—		0.1		7.5		15.8		23.3
89.9% - 85.0%		20.0		25.9		45.9		—		—		—		20.0		25.9		45.9
84.9% - 80.0%		17.3		49.7		67.0		5.7		10.0		15.7		23.0		59.7		82.7
Below 80.0%		97.2		387.3		484.5		21.5		22.1		43.6		118.7		409.4		528.1
Total		144.7		481.6		626.3		27.3		32.1		59.4		172.0		513.7		685.7
Asset-backed securities
99.9% - 95.0%		5.2		2.1		7.3		0.5		—		0.5		5.7		2.1		7.8
94.9% - 90.0%		16.9		20.7		37.6		1.0		—		1.0		17.9		20.7		38.6
89.9% - 85.0%		25.1		30.1		55.2		0.3		0.8		1.1		25.4		30.9		56.3
84.9% - 80.0%		18.5		35.8		54.3		0.2		1.0		1.2		18.7		36.8		55.5
Below 80.0%		223.9		538.0		761.9		17.0		9.8		26.8		240.9		547.8		788.7
Total		289.6		626.7		916.3		19.0		11.6		30.6		308.6		638.3		946.9
Other fixed maturity securities1
99.9% - 95.0%		1.6		—		1.6		—		—		—		1.6		—		1.6
94.9% - 90.0%		3.4		0.1		3.5		—		—		—		3.4		0.1		3.5
89.9% - 85.0%		1.0		4.1		5.1		—		—		—		1.0		4.1		5.1
84.9% - 80.0%		0.1		0.2		0.3		—		—		—		0.1		0.2		0.3
Below 80.0%		—		—		—		—		—		—		—		—		—
Total		6.1		4.4		10.5		—		—		—		6.1		4.4		10.5
Total fixed maturity securities available-for-sale
99.9% - 95.0%		65.7		25.8		91.5		2.6		0.1		2.7		68.3		25.9		94.2
94.9% - 90.0%		132.0		67.6		199.6		6.8		6.6		13.4		138.8		74.2		213.0
89.9% - 85.0%		134.0		94.6		228.6		8.2		9.5		17.7		142.2		104.1		246.3
84.9% - 80.0%		142.8		114.9		257.7		20.4		18.1		38.5		163.2		133.0		296.2
Below 80.0%		801.5		1,091.1		1,892.6		203.9		210.9		414.8		1,005.4		1,302.0		2,307.4
Total	$	1,276.0	$	1,394.0	$	2,670.0	$	241.9	$	245.2	$	487.1	$	1,517.9	$	1,639.2	$	3,157.1

¹ Includes U.S. Treasury securities, obligations of U.S. Government corporations, U.S. Government agency securities, obligations of state and political subdivisions, and debt issued by foreign governments.

72

	Period of time for which unrealized loss has existed as of December 31, 2007
	Investment Grade						Non-Investment Grade						Total
Ratio of estimated fair value to amortized cost	Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total
Corporate securities - public and private
99.9% - 95.0%	$	23.1	$	51.0	$	74.1	$	13.0	$	5.7	$	18.7	$	36.1	$	56.7	$	92.8
94.9% - 90.0%		19.0		33.2		52.2		13.7		5.3		19.0		32.7		38.5		71.2
89.9% - 85.0%		16.5		11.5		28.0		3.8		7.6		11.4		20.3		19.1		39.4
84.9% - 80.0%		2.1		0.4		2.5		3.0		1.0		4.0		5.1		1.4		6.5
Below 80.0%		7.4		—		7.4		20.6		7.8		28.4		28.0		7.8		35.8
Total		68.1		96.1		164.2		54.1		27.4		81.5		122.2		123.5		245.7
Mortgage-backed securities
99.9% - 95.0%		22.0		39.3		61.3		—		—		—		22.0		39.3		61.3
94.9% - 90.0%		5.6		41.3		46.9		—		—		—		5.6		41.3		46.9
89.9% - 85.0%		—		—		—		—		—		—		—		—		—
84.9% - 80.0%		—		—		—		—		—		—		—		—		—
Below 80.0%		—		—		—		—		—		—		—		—		—
Total		27.6		80.6		108.2		—		—		—		27.6		80.6		108.2
Asset-backed securities
99.9% - 95.0%		15.5		15.6		31.1		0.2		—		0.2		15.7		15.6		31.3
94.9% - 90.0%		27.6		14.7		42.3		—		—		—		27.6		14.7		42.3
89.9% - 85.0%		19.8		9.2		29.0		—		—		—		19.8		9.2		29.0
84.9% - 80.0%		16.1		5.8		21.9		—		—		—		16.1		5.8		21.9
Below 80.0%		53.0		6.9		59.9		0.1		—		0.1		53.1		6.9		60.0
Total		132.0		52.2		184.2		0.3		—		0.3		132.3		52.2		184.5
Other fixed maturity securities1
99.9% - 95.0%		1.1		1.4		2.5		—		—		—		1.1		1.4		2.5
94.9% - 90.0%		—		1.5		1.5		—		—		—		—		1.5		1.5
89.9% - 85.0%		—		—		—		—		—		—		—		—		—
84.9% - 80.0%		—		—		—		—		—		—		—		—		—
Below 80.0%		—		—		—		—		—		—		—		—		—
Total		1.1		2.9		4.0		—		—		—		1.1		2.9		4.0
Total fixed maturity securities available-for-sale
99.9% - 95.0%		61.7		107.3		169.0		13.2		5.7		18.9		74.9		113.0		187.9
94.9% - 90.0%		52.2		90.7		142.9		13.7		5.3		19.0		65.9		96.0		161.9
89.9% - 85.0%		36.3		20.7		57.0		3.8		7.6		11.4		40.1		28.3		68.4
84.9% - 80.0%		18.2		6.2		24.4		3.0		1.0		4.0		21.2		7.2		28.4
Below 80.0%		60.4		6.9		67.3		20.7		7.8		28.5		81.1		14.7		95.8
Total	$	228.8	$	231.8	$	460.6	$	54.4	$	27.4	$	81.8	$	283.2	$	259.2	$	542.4

¹ Includes U.S. Treasury securities, obligations of U.S. Government corporations, U.S. Government agency securities, obligations of state and political subdivisions, and debt issued by foreign governments.

As of December 31, 2008, 27% of the Company’s investments in an unrealized loss position had ratios of estimated fair value to amortized cost of at least 80%. In addition, 85% of the Company’s investments in an unrealized loss position were classified as investment grade, as defined by the NAIC. Of the Company’s investments in unrealized loss positions classified as non-investment grade, 50% have been in an unrealized loss position for less than one year.

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The NAIC assigns securities quality ratings and uniform valuations (called NAIC Designations), which are used by insurers when preparing their annual statements. For most securities, NAIC ratings are derived from ratings received from nationally recognized rating agencies. The NAIC also assigns ratings to securities that do not receive public ratings. The designations assigned by the NAIC range from class 1 (highest quality) to class 6 (lowest quality). Of the Company’s general account fixed maturity securities, 93% and 94% were in the two highest NAIC Designations as of December 31, 2008 and 2007, respectively.

The following table summarizes the credit quality, as determined by NAIC Designation, of the Company’s general account fixed maturity securities portfolio and shows the equivalent ratings between the NAIC and nationally recognized rating agencies as of December 31:

(in millions)	Rating agency equivalent designation2	2008				2007
NAIC designation1		Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
1	Aaa/Aa/A	$	17,087.2	$	15,612.2	$	19,153.4	$	19,056.5
2	Baa		6,633.9		5,821.6		6,445.9		6,512.7
3	Ba		1,233.3		990.0		1,194.0		1,166.7
4	B		571.4		397.2		348.2		341.6
5	Caa and lower		190.5		148.2		83.8		73.1
6	In or near default		109.4		100.5		38.6		38.6
	Total	$	25,825.7	$	23,069.7	$	27,263.9	$	27,189.2

¹ NAIC Designations are assigned at least annually. Some designations for securities shown have been assigned to securities not yet assigned an NAIC Designation in a manner approximating equivalent public rating categories.

² Comparisons between NAIC and Moody’s designations are published by the NAIC. If no Moody’s rating is available, the Company assigns internal ratings corresponding to public ratings.

Mortgage-Backed and Asset-Backed Securities

The Company’s general account MBS portfolio is comprised of residential MBS investments. As of December 31, 2008, MBS investments totaled $6.87 billion (30%) of the carrying value of the Company’s general account fixed maturity securities available-for-sale compared to $7.07 billion (26%) as of December 31, 2007.

The Company believes that MBS investments may add diversification, liquidity, credit quality and additional yield to its general account portfolio. The Company’s objective for its MBS portfolio is to provide reasonable cash flow stability and increased yield. The MBS portfolio includes collateralized mortgage obligations (CMOs), real estate mortgage investment conduits (REMICs) and mortgage-backed pass-through securities. The Company’s general account MBS portfolio generally does not include interest-only securities, principal-only securities or other MBS investments which may exhibit extreme market volatility.

Prepayment/extension risk is an inherent risk of holding MBSs. However, the degree of prepayment/extension risk varies by the type of MBS held. The Company limits its exposure to prepayments/extensions by holding less volatile types of MBSs. As of December 31, 2008, $1.80 billion (26%) of the carrying value of the general account MBS portfolio was invested in planned amortization class CMOs/REMICs (PACs) compared to $2.07 billion (29%) as of December 31, 2007. PACs are securities whose cash flows are designed to remain constant in a variety of mortgage prepayment environments. Most of the Company’s non-PAC MBSs possess varying degrees of cash flow structure and prepayment/extension risk. The MBS portfolio contained 26% of pure pass-throughs as of December 31, 2008 compared to 8% as of December 31, 2007.

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The following table summarizes the distribution by investment type of the Company’s general account MBS portfolio as of December 31:

	2008					2007
(dollars in millions)	Amortized cost		Estimated fair value		% of estimated fair value	Amortized cost		Estimated fair value		% of estimated fair value
Planned amortization class	$	1,831.7	$	1,803.0	26.2	$	2,067.7	$	2,067.7	29.2
Multi-family mortgage pass-through certificates		1,733.6		1,768.5	25.7		544.6		548.7	7.8
Sequential		1,359.0		1,241.1	18.1		1,533.0		1,528.5	21.6
Non-accelerating securities – CMO		1,363.7		1,088.4	15.8		1,490.9		1,450.3	20.5
Very accurately defined maturity		617.9		531.1	7.7		662.2		645.0	9.1
Floating rate		213.2		135.5	2.0		371.9		361.7	5.1
Accrual		57.1		58.1	0.8		76.6		77.4	1.1
Other		280.7		248.2	3.7		395.6		395.3	5.6
Total	$	7,456.9	$	6,873.9	100.0	$	7,142.5	$	7,074.6	100.0

The Company’s general account ABS portfolio includes home equity and credit card-backed investments, among others. As of December 31, 2008, ABS investments were $2.66 billion (12%) of the carrying value of the Company’s general account fixed maturity securities available-for-sale compared to $3.81 billion (14%) as of December 31, 2007.

The Company believes that general account ABS investments may add diversification, liquidity, credit quality and additional yield to its general account portfolio. Like the MBS portfolio, the Company’s objective for its ABS portfolio is to provide reasonable cash flow stability and increased yield. The Company’s general account ABS portfolio generally does not include interest-only securities, principal-only securities or other ABS investments which may exhibit extreme market volatility.

The following table summarizes the distribution by investment type of the Company’s general account ABS portfolio as of December 31:

	2008					2007
(dollars in millions)	Amortized cost		Estimated fair value		% of estimated fair value	Amortized cost		Estimated fair value		% of estimated fair value
CMBS	$	1,488.9	$	1,015.6	38.2	$	1,241.9	$	1,216.5	32.0
Home equity/improvement		732.6		570.9	21.5		926.1		858.5	22.6
Credit card-backed		307.1		271.9	10.2		325.1		326.1	8.6
Non-accelerated securities		170.6		143.4	5.4		181.5		176.1	4.6
Trust preferred		236.6		129.8	4.9		367.4		341.4	9.0
CBO/CLO/CDO		173.3		120.2	4.5		386.0		343.3	9.0
Enhanced equity/equity trust certificates		114.9		101.9	3.8		122.4		126.2	3.3
Pass-through certificate		83.2		81.5	3.1		79.7		80.8	2.1
Franchise/business loan		103.7		68.2	2.6		109.3		110.7	2.9
Student loans		30.0		28.5	1.1		51.0		50.5	1.3
Other		143.1		126.2	4.7		166.7		175.9	4.6
Total	$	3,584.0	$	2,658.1	100.0	$	3,957.1	$	3,806.0	100.0

When making investments in MBSs or ABSs, the Company evaluates the quality of the underlying collateral, the structure of the transaction (which dictates how losses in the underlying collateral will be distributed) and prepayment risks.

Recent conditions in the securities markets, including changes in investment quality ratings, liquidity, credit spreads and interest rates, have resulted in declines in the values of investment securities, including corporate debt securities, MBSs and ABSs. When evaluating whether these securities are other-than-temporarily impaired, the Company considers characteristics of the underlying collateral, such as delinquency and default rates, the quality of the underlying borrower, the type of collateral in the pool, the vintage year of the collateral, subordination levels within the structure of the collateral pool, expected future cash flows, and the Company’s ability and intent to hold the security to recovery. These and other factors also affect the estimated fair value of these securities.

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In general, recent market activity has negatively impacted the valuation of securities containing Alt-A and Sub-prime collateral, which are classifications of investments in which the Company invests. The Company considers Alt-A collateral to be mortgages whose underwriting standards do not qualify the mortgage for regular conforming or jumbo loan programs. Typical underwriting characteristics that cause a mortgage to fall into the Alt-A classification may include, but are not limited to, inadequate loan documentation of a borrower’s financial information, debt-to-income ratios above normal lending limits, loan-to-value ratios above normal lending limits that do not have primary mortgage insurance, a borrower who is a temporary resident, and loans securing non-conforming types of real estate. Alt-A mortgages are generally issued to borrowers having higher Fair Isaac Credit Organization (FICO) scores, and the lender typically issues a slightly higher interest rate for such mortgages. In addition, the Company considers Sub-prime collateral to be mortgages that are first-lien mortgage loans issued to Sub-prime borrowers, as demonstrated by recent delinquent rent or housing payments or substandard FICO scores. Second-lien mortgage loans are also considered Sub-prime.

The estimated fair values of the Company’s holdings of Alt-A and Sub-prime collateralized mortgages are determined under the same processes as other fixed maturity securities (see Note 2(b) included in the F pages of this report for further information).

The Company’s investments in securities that contain Alt-A and Sub-prime collateral are predominantly highly rated. As of December 31, 2008, 76% and 85% of securities containing Alt-A and Sub-prime collateral, respectively, were rated AA or better. In addition, 68% and 77% of Alt-A and Sub-prime collateral, respectively, was originated in 2005 or earlier.

In addition, recent market activity has negatively impacted the Company’s investments in CMBS. These investments in CMBS are generally characterized by securities that are collateralized by static, heterogeneous pools of mortgages on commercial real estate properties. Deals are generally diversified across property types, geography, borrowers, tenants, loan size, coupon and vintages. As of December 31, 2008, the amortized cost and estimated fair value of the Company’s investments in CMBS totaled $1.49 billion and $1.01 billion, respectively, while the December 31, 2007 amortized cost and estimated fair value both totaled $1.20 billion.

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The following tables summarize the distribution by collateral classification, rating and origination year, respectively, of the Company’s general account MBSs and ABSs as of December 31, 2008:

(dollars in millions)	Amortized     cost		Estimated fair value		% of estimated fair value total
Government agency		$4,409.8	$	4,499.7	47.2
Prime		1,396.3		1,085.3	11.4
Alt-A		1,871.3		1,469.5	15.4
Sub-prime		678.6		530.5	5.6
Non-residential mortgage collateral		2,684.9		1,947.0	20.4
Total	$	11,040.9	$	9,532.0	100.0

	Alt-A				Sub-prime
(dollars in millions)	Amortized cost	Estimated fair value		% of estimated fair value total	Amortized cost		Estimated fair value		% of estimated fair value total
AAA	$1,293.6	$	1,011.1	68.8	$	371.3	$	315.8	59.5
AA	141.4		98.8	6.7		183.0		134.5	25.4
A	92.5		77.2	5.3		20.6		18.7	3.5
BBB	54.4		47.7	3.2		34.7		20.0	3.8
BB and below	289.4		234.7	16.0		69.0		41.5	7.8
Total	$1,871.3	$	1,469.5	100.0	$	678.6	$	530.5	100.0
	Alt-A				Sub-prime
(dollars in millions)	Amortized     cost	Estimated fair value		% of estimated fair value total	Amortized cost		Estimated fair value		% of estimated fair value total
Pre-2005	$573.9	$	486.9	33.1	$	431.8	$	345.3	65.1
2005	693.4		519.2	35.3		80.5		62.6	11.8
2006	301.2		248.6	16.9		142.4		109.9	20.7
2007	302.8		214.8	14.7		23.9		12.7	2.4
Total	$1,871.3	$	1,469.5	100.0	$	678.6	$	530.5	100.0

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The following table summarizes the distribution of the Company’s general account MBSs and ABSs with non-residential mortgage collateral by collateral classification, and rating, as of December 31, 2008:

	Amortized cost								Estimated fair value
(dollars in millions)	AAA		AA		A and below		Total		AAA		AA		A and below		Total
Commercial mortgage-backed securities	$	1,203.7	$	191.4	$	93.8	$	1,488.9	$	909.6	$	71.5	$	34.5	$	1,015.6
Credit cards		204.1		—		105.0		309.1		179.3		—		94.5		273.8
Trust preferreds		117.7		49.3		69.6		236.6		61.6		19.9		48.3		129.8
CBO/CLO/CDO		74.1		24.4		74.8		173.3		66.8		16.8		36.6		120.2
Aviations		1.3		0.6		96.1		98.0		1.3		0.6		82.0		83.9
Franchise/business loans		25.3		—		82.5		107.8		23.9		—		47.7		71.6
Automobiles		39.4		—		10.0		49.4		36.9		—		7.5		44.4
Student loans		30.0		—		—		30.0		28.5		—		—		28.5
Tobacco		1.2		—		22.4		23.6		1.2		—		20.1		21.3
Other		12.2		32.5		123.5		168.2		11.5		28.9		117.5		157.9
Total	$	1,709.0	$	298.2	$	677.7	$	2,684.9	$	1,320.6	$	137.7	$	488.7	$	1,947.0

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The following tables summarize the distribution by collateral classification, rating and origination year, respectively, of the Company’s general account MBSs and ABSs as of December 31, 2007:

(dollars in millions)	Amortized     cost		Estimated fair value		% of estimated fair value total
Government agency		$3,515.4	$	3,524.7	32.4
Prime		1,573.2		1,541.6	14.2
Alt-A		2,279.3		2,230.3	20.5
Sub-prime		864.4		809.3	7.4
Non-residential mortgage collateral		2,867.3		2,774.7	25.5
Total	$	11,099.6	$	10,880.6	100.0

	Alt-A					Sub-prime
(dollars in millions)	Amortized     cost		Estimated fair value		% of estimated fair value total	Amortized cost		Estimated fair value		% of estimated fair value total
AAA		$2,252.6	$	2,204.3	98.8	$	630.6	$	595.3	73.5
AA		26.7		26.0	1.2		191.0		175.3	21.7
A		—		—	—		33.9		30.5	3.8
BBB		—		—	—		2.6		1.9	0.2
BB and below		—		—	—		6.3		6.3	0.8
Total		$2,279.3	$	2,230.3	100.0	$	864.4	$	809.3	100.0
	Alt-A					Sub-prime
(dollars in millions)	Amortized cost		Estimated fair value		% of estimated fair value total	Amortized cost		Estimated fair value		% of estimated fair value total
Pre-2005		$513.6	$	506.9	22.7	$	507.9	$	479.9	59.4
2005		752.6		724.4	32.5		97.7		95.7	11.8
2006		562.2		553.5	24.8		219.8		198.6	24.5
2007		450.9		445.5	20.0		39.0		35.1	4.3
Total	$	2,279.3	$	2,230.3	100.0	$	864.4	$	809.3	100.0

Private Placement Fixed Maturity Securities

The Company invests in private placement fixed maturity securities because of the generally higher nominal yield available compared to comparably rated public fixed maturity securities, more restrictive financial and business covenants available in private fixed maturity security loan agreements, and stronger prepayment protection. Although private placement fixed maturity securities are not registered with the SEC and generally are less liquid than public fixed maturity securities, restrictive financial and business covenants included in private placement fixed maturity security loan agreements generally are designed to compensate for the impact of increased liquidity risk. A significant portion of the private placement fixed maturity securities that the Company holds are participations in issues that are also owned by other investors. In addition, some of these securities are rated by nationally recognized rating agencies, and substantially all have been assigned a rating designation by the NAIC, as shown in the earlier table summarizing the credit quality of the Company’s general account fixed maturity securities portfolio.

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Mortgage Loans

As of December 31, 2008, general account mortgage loans were $7.89 billion (22%) of the carrying value of consolidated general account investments compared to $8.32 billion (21%) as of December 31, 2007. Substantially all of these loans were commercial mortgage loans. Commitments to fund mortgage loans of $24.9 million were outstanding as of December 31, 2008 compared to $85.1 million as of December 31, 2007.

The table below summarizes the carrying values of mortgage loans by regional exposure and property type as of December 31, 2008:

(in millions)	Office		Warehouse		Retail		Apartment & Other		Total
New England	$	134.9	$	26.3	$	74.6	$	115.7	$	351.5
Middle Atlantic		243.9		256.5		336.5		117.2		954.1
East North Central		106.2		214.8		563.7		520.1		1,404.8
West North Central		11.1		67.3		68.8		138.2		285.4
South Atlantic		135.7		476.6		730.9		466.7		1,809.9
East South Central		22.1		43.3		117.9		126.3		309.6
West South Central		40.0		167.7		185.2		232.3		625.2
Mountain		106.5		133.6		136.9		327.6		704.6
Pacific		331.0		411.3		417.6		343.8		1,503.7
Total principal	$	1,131.4	$	1,797.4	$	2,632.1	$	2,387.9		7,948.8
Valuation allowance										(42.4	)
Unamortized premium										2.6
Fair value adjustment on mortgage loans held for sale										(48.4	)
Cumulative change in fair value of hedged mortgage loans and commitments										27.6
Total mortgage loans on real estate, net									$	7,888.2

As of December 31, 2008 and 2007, the Company’s largest exposure to any single borrower, region and property type was 2%, 23% and 33%, respectively, of the Company’s general account mortgage loan portfolio.

As of December 31, 2008 and 2007, the Company’s mortgage loans classified as delinquent, foreclosed and restructured were immaterial as a percentage of the total mortgage loan portfolio.

Securities Lending

The Company, through an agent, lends certain portfolio holdings to approved counterparties and in turn receives cash collateral with the objective of increasing the yield on its investments. The cash collateral is invested in high-quality, short-term and long-term investments based on the Company’s approved investments policies. The Company’s policy requires the maintenance of collateral of a minimum of 102% of the fair value of the securities loaned. Net returns on the investments, after payment of a rebate to the borrower, are shared between the Company and its agent. Both the borrower and the Company can request or return the loaned securities at any time. The Company maintains ownership of the loaned securities at all times and is entitled to receive from the borrower any payments for interest or dividends received on such securities during the loan term. The Company recognizes loaned securities as part of its investments available-for-sale. The Company also recognizes the short-term and other long-term investments acquired with the cash collateral and its obligation to return such collateral to the borrower in short-term and other long-term investments and other liabilities, respectively.

As of December 31, 2008 and 2007, the Company had received $419.9 million and $604.6 million, respectively, of cash collateral on securities lending. The Company had not received any non-cash collateral on securities lending as of December 31, 2008 and 2007. As of December 31, 2008 and 2007, the Company had loaned securities with a fair value of $407.1 million and $593.0 million, respectively.

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ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Sensitive Financial Instruments

The Company is subject to potential fluctuations in earnings and the fair value of certain of its assets and liabilities, as well as variations in expected cash flows due to changes in market interest rates and equity prices. The following discussion focuses on specific interest rate, foreign currency and equity market risks to which the Company is exposed and describes strategies used to attempt to manage these risks. This discussion is limited to financial instruments subject to market risks and is not intended to be a complete discussion of all of the risks to which the Company is exposed.

Interest Rate Risk

Fluctuations in interest rates can impact the Company’s earnings, cash flows and the fair value of its assets and liabilities. In a declining interest rate environment, the Company may be required to reinvest the proceeds from maturing and prepaying investments at rates lower than the overall portfolio yield, which could reduce future interest spread income. In addition, minimum guaranteed crediting rates (ranging from 1.0% to 3.5% for a majority of the individual annuity contracts in force) on certain individual annuity contracts could prevent the Company from lowering its interest crediting rates to levels commensurate with prevailing market interest rates, resulting in a reduction to the Company’s interest spread income. The average crediting rate for fixed annuity products during 2008 was 3.58% and 3.89% for the Individual Investments and Retirement Plans segments, respectively (compared to 3.76% and 3.98%, respectively, during 2007), well in excess of guaranteed rates.

The Company attempts to mitigate this risk by managing the maturity and interest-rate sensitivities of assets to be consistent with those of liabilities. In recent years, management has taken actions to address low interest rate environments and the resulting impact on interest spread margins, including reducing commissions on fixed annuity sales, launching new products with new guaranteed rates, discontinuing the sale of its leading annual reset fixed annuities and invoking contractual provisions that limit the amount of variable annuity deposits allocated to the guaranteed fixed option. In addition, the Company adheres to a strict discipline of setting interest crediting rates on new business at levels adequate to provide returns consistent with management expectations.

Conversely, a rising interest rate environment could result in a reduction in interest spread income or an increase in policyholder surrenders. Existing general account investments supporting annuity liabilities had a weighted average maturity of approximately 5.8 years as of December 31, 2008. Therefore, a change in portfolio yield will lag changes in market interest rates. This lag increases if the rate of prepayments of securities slows. To the extent the Company sets renewal rates based on current market rates, this will result in reduced interest spreads. Alternatively, if the Company sets renewal crediting rates while attempting to maintain a desired spread from the portfolio yield, the rates offered by the Company may be less than new money rates offered by competitors. This difference could result in an increase in surrender activity by policyholders. If unable to fund surrenders with cash flow from operations, the Company might need to sell assets, which likely would have declined in value due to the increase in interest rates. The Company attempts to mitigate this risk by offering products that assess surrender charges and/or market value adjustments at the time of surrender, and by managing the maturity and interest-rate sensitivities of assets to approximate those of liabilities.

Asset/Liability Management Strategies to Manage Interest Rate Risk

The Company employs an asset/liability management approach tailored to the specific requirements of each of its products. Each line of business has an investment policy based on its specific characteristics. The policy establishes asset maturity and duration, quality and other relevant guidelines.

An underlying pool or pools of investments, including combinations of dedicated and common asset pools, support each general account line of business. Dedicated pools of assets have been created for certain liabilities or groups of liabilities within most lines and represent the majority of the pools. These pools consist of whole assets purchased specifically for the underlying line of business. In general, assets placed in any given portfolio remain there until they mature (or are called), but active management of specific securities, sectors and several top-down risks may result in portfolio turnover or transfers among the various portfolios. The common asset pools are generally maintained on the basis of the desired maturity characteristics of the assets used (e.g., 4 to 7 years weighted average life). The various lines of business are given “ownership” percentages of assets acquired by the pools depending on their contribution to the amounts purchased in the pools, in a manner analogous to investment year allocations. This methodology is sometimes referred to as synthetic segmentation.

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Investment strategies are executed by dedicated investment professionals based on the guidance established for the various pools. To assist them in this regard, they receive periodic projections of investment needs from each line’s management team. Line of business management teams, investment portfolio managers and finance professionals periodically evaluate how well assets purchased and the underlying portfolio match the underlying liabilities for each line.

Using this information, in conjunction with each line’s investment strategy, actual asset purchases or commitments are made. In addition, plans for future asset purchases are formulated when appropriate. This process is repeated frequently so that invested assets for each line match its investment needs as closely as possible. The primary objectives are to ensure that each line’s liabilities are invested in accordance with its investment strategy and that over or under investment is minimized.

As part of this process, the investment portfolio managers provide each line’s actuaries with forecasts of anticipated rates that the line’s future investments are expected to produce. This information, in combination with yields attributable to the line’s current investments and its investment “rollovers,” gives the line actuaries data to use in computing and declaring interest crediting rates for their lines of business in conjunction with management approval.

There are two approaches to developing investment policies:

• For liabilities where cash flows are not interest sensitive and the credited rate is fixed (e.g., immediate annuities), the Company attempts to manage risk with a combination cash matching/duration matching strategy. Duration is a measure of the sensitivity of price to changes in interest rates. For a rate movement of 100 basis points, the fair value of liabilities with a duration of 5 years would change by approximately 5%. For this type of liability, the Company generally targets an asset/liability duration mismatch of -0.25 to +0.50 years. In addition, the Company attempts to minimize asset and liability cash flow mismatches, especially over the first five years. However, the desired degree of cash matching is balanced against the cost of cash matching.

• For liabilities where the Company has the right to modify the credited rate and policyholders also have options, the Company’s risk management process includes modeling both the assets and liabilities over multiple stochastic scenarios. The Company considers a range of potential policyholder behavior as well as the specific liability crediting strategy. This analysis, combined with appropriate risk tolerances, drives the Company’s investment policy.

Use of Derivatives to Manage Interest Rate Risk

The Company periodically purchases fixed rate investments to back variable rate liabilities. As a result, the Company can be exposed to interest rate risk due to the mismatch between variable rate liabilities and fixed rate assets. In an effort to mitigate the risk from this mismatch, the Company enters into various types of derivative instruments, with fluctuations in the fair values of the derivatives offsetting changes in the fair values of the investments resulting from changes in interest rates. The Company principally uses pay fixed/receive variable interest rate swaps to manage this risk.

Under these interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments. The fixed interest paid on the swap offsets the fixed interest received on the investment, resulting in the Company receiving the variable interest payments on the swap, generally 3-month U.S. LIBOR, and the credit spread on the investment. The net receipt of a variable rate will then more closely match the variable rate paid on the liability.

As a result of entering into commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of such commitments due to changes in interest rates during the commitment period prior to funding of the loans. In an effort to manage this risk, the Company enters into short U.S. Treasury futures and/or pay fixed interest rate swaps during the commitment period. With short U.S. Treasury futures or pay fixed interest rate swaps, if interest rates rise/fall, the gains/losses on the futures will offset the change in fair value of the commitment attributable to the change in interest rates.

The Company periodically purchases variable rate investments such as commercial mortgage loans and corporate bonds. As a result, the Company can be exposed to variability in cash flows and investment income due to changes in interest rates. Such variability poses risks to the Company when the assets are funded with fixed rate liabilities. In an effort to manage this risk, the Company may enter into receive fixed/pay variable interest rate swaps.

In using these interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments. The variable interest paid on the swap offsets the variable interest received on the investment, resulting in the Company receiving the fixed interest payments on the swap and the credit spread on the investment. The net receipt of a fixed rate will then more closely match the fixed rate paid on the liability.

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The Company manages interest rate risk at the segment level. Different segments may simultaneously hedge interest rate risks associated with owning fixed and variable rate investments considering the risk relevant to a particular segment.

Characteristics of Interest Rate Sensitive Financial Instruments

The tables below provide information about the Company’s financial instruments as of December 31, 2008 that are sensitive to changes in interest rates. Insurance contracts that subject the Company to significant mortality risk, including life insurance contracts and life-contingent immediate annuities, do not meet the definition of a financial instrument and are not included in the table.

	Estimated year of maturities/repayments														2008 Fair Value		2007 Fair Value
(in millions)	2009		2010		2011		2012		2013		There- after		Total
Assets
Fixed maturity securities:
Corporate bonds:
Principal	$	1,306.6	$	1,664.2	$	1,640.4	$	1,632.7	$	1,707.0	$	5,981.6	$	13,932.5	$	12,569.1	$	15,309.1
Weighted average interest rate		6.52%		6.23%		6.27%		6.00%		6.00%		7.04%		6.58%
Mortgage and other asset- backed securities:
Principal	$	2,318.4	$	4,294.3	$	1,751.4	$	811.1	$	404.1	$	1,461.5	$	11,040.8	$	9,532.0	$	10,880.6
Weighted average interest rate		5.63%		5.51%		5.76%		5.35%		5.71%		6.06%		5.73%
Other fixed maturity securities:
Principal	$	50.3	$	47.1	$	46.2	$	78.3	$	73.2	$	557.3	$	852.4	$	968.6	$	999.5
Weighted average interest rate		5.70%		5.33%		5.63%		5.65%		5.54%		6.25%		6.04%
Mortgage loans on real estate:
Principal	$	417.2	$	584.2	$	1,054.1	$	700.1	$	776.4	$	4,297.7	$	7,829.7	$	6,970.1	$	8,335.7
Weighted average interest rate		5.82%		6.22%		6.23%		6.22%		6.12%		6.00%		6.07%
Liabilities
Individual deferred fixed annuities:
Principal	$	1,915.4	$	1,655.9	$	1,362.3	$	1,175.3	$	962.7	$	3,291.9	$	10,363.5	$	5,021.5	$	7,644.4
Weighted average crediting rate		3.24%		3.38%		3.37%		3.24%		3.12%		3.06%
Group pension deferred fixed annuities:
Principal	$	1,406.7	$	1,406.0	$	1,179.9	$	1,008.7	$	868.5	$	5,627.7	$	11,497.5	$	11,127.3	$	11,190.5
Weighted average crediting rate		3.76%		3.80%		3.96%		3.89%		3.77%		3.59%
Funding agreements backing MTNs:
Principal	$	1,796.4	$	1,006.3	$	333.5	$	109.9	$	—	$	—	$	3,246.1	$	3,019.5	$	4,537.5
Weighted average crediting rate		3.00%		3.87%		4.32%		3.68%		—		—
Immediate annuities:
Principal	$	285.7	$	246.6	$	213.4	$	183.0	$	156.2	$	935.8	$	2,020.7	$	453.2	$	565.2
Weighted average crediting rate		6.53%		6.57%		6.62%		6.67%		6.73%		6.79%
Short-term debt:
Principal	$	295.7	$	—	$	—	$	—	$	—	$	—	$	295.7	$	295.7	$	309.3
Weighted average interest rate		1.50%		—		—		—		—		—		1.50%
Long-term debt:
Principal	$	—	$	50.6	$	300.0	$	315.0	$	—	$	1,060.0	$	1,725.6	$	1,336.5	$	1,566.8
Weighted average interest rate		—		3.63%		6.25%		5.82%		—		5.70%		5.56%

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	Estimated year of maturities/repayments														2008 Fair Value			2007 Fair Value
(in millions, except settlement prices)	2009		2010		2011		2012		2013		There- after		Total
Derivative Financial Instruments
Interest rate swaps:
Pay fixed/receive variable:
Notional value	$	305.8	$	721.7	$	996.4	$	308.5	$	282.2	$	867.7	$	3,482.3	$	(315.3	)	$	(163.6	)
Weighted average pay rate		4.91%		3.78%		4.80%		5.17%		4.30%		4.36%		4.48%
Weighted average receive rate1		2.54%		2.55%		2.19%		2.58%		2.56%		2.47%		2.43%
Pay fixed/receive variable, forward starting:
Notional value	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	(3.7	)
Pay variable/receive fixed:
Notional value	$	—	$	261.7	$	1,092.2	$	289.8	$	692.1	$	2,721.9	$	5,057.7	$	687.5		$	246.6
Weighted average pay rate1		—		3.06%		2.03%		2.70%		3.07%		2.76%		2.66%
Weighted average receive rate		—		3.00%		4.50%		3.94%		3.66%		4.14%		4.08%
Pay variable/receive variable:
Notional value	$	200.0	$	—	$	—	$	—	$	—	$	—	$	200.0	$	(1.1	)	$	—
Weighted average pay rate1		0.39%		—		—		—		—		—		0.39%
Weighted average receive rate1		0.39%		—		—		—		—		—		0.39%
Pay fixed/receive fixed:
Notional value	$	64.1	$	46.8	$	23.5	$	11.4	$	22.2	$	92.0	$	260.0	$	(24.0	)	$	(24.4	)
Weighted average pay rate		5.73%		3.78%		6.69%		4.70%		4.54%		5.13%		5.11%
Weighted average receive rate		4.16%		4.74%		5.12%		6.10%		5.86%		6.22%		5.31%
Credit default swaps sold:
Notional value	$	14.5	$	50.0	$	6.0	$	8.0	$	150.9	$	—	$	229.4	$	(11.2	)	$	(8.5	)
Weighted average receive rate		0.66%		0.33%		3.55%		3.00%		1.00%		—		0.97%
Credit default swaps purchased:
Notional value	$	0.8	$	1.5	$	0.5	$	—	$	37.0	$	2.0	$	41.8	$	1.2		$	3.2
Weighted average pay rate		5.00%		2.15%		5.00%		—		1.03%		2.10%		1.24%
Total return swaps2:
Notional value	$	411.0	$	—	$	—	$	—	$	—	$	—	$	411.0	$	(14.6	)	$	(3.3	)
Embedded derivatives:
Notional value	$	—	$	—	$	—	$	—	$	—	$	20.0	$	20.0	$	(1,731.7	)	$	(122.0	)
Mortgage loan commitments held for sale:
Notional value	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	(0.8	)
Treasury futures:
Short positions:
Contract amount/notional value	$	3.1	$	—	$	—	$	—	$	—	$	—	$	3.1	$	(0.1	)	$	—
Weighted average settlement price		120.5		—		—		—		—		—		120.5
Long positions:
Contract amount/notional value	$	278.0	$	—	$	—	$	—	$	—	$	—	$	278.0	$	20.2		$	0.9
Weighted average settlement price		121.7		—		—		—		—		—		121.7
Equity futures:
Short positions:
Contract amount/notional value	$	1,923.5	$	—	$	—	$	—	$	—	$	—	$	1,923.5	$	(26.1	)	$	4.5
Weighted average settlement price		887.9		—		—		—		—		—		887.9
Long positions:
Contract amount/notional value	$	3.8	$	—	$	—	$	—	$	—	$	—	$	3.8	$	—		$	—
Weighted average settlement price		890.4		—		—		—		—		—		890.4
Option contracts
Long positions:
Contract amount/notional value	$	139.2	$	64.0	$	414.0	$	261.3	$	268.0	$	601.5	$	1,748.0	$	585.5		$	147.4
Weighted average settlement price		1,213.2		1,106.8		1,214.5		1,306.1		1,333.9		1,305.0		1,273.6

¹ Variable rates are generally based on 1, 3 or 6-month U.S. LIBOR and reflect the effective rate as of December 31, 2008.

² Total return swaps are based on the EAFE Index.

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Additional information about the characteristics of the financial instruments and assumptions underlying the data presented in the table on the proceeding page are as follows:

MBSs and other ABSs: The year of maturity is determined based on the terms of the securities and the current rate of prepayment of the underlying pools of mortgages or assets. The Company limits its exposure to prepayments by purchasing less volatile types of MBS and ABS investments. See Part II, Item 7 – MD&A – Investments – Securities Available-for-Sale for further information.

Corporate bonds and other fixed maturity securities and mortgage loans on real estate: The maturity year is that of the security or loan.

Individual deferred fixed annuities: The maturity year is based on the expected date of policyholder withdrawal, taking into account actual experience, current interest rates and contract terms. Individual deferred fixed annuities are certain individual annuity contracts, which are also subject to surrender charges calculated as a percentage of the deposits made and assessed at declining rates during the first seven years after a deposit is made. Also included in deferred fixed annuities were $1.16 billion of participating group annuity contracts in 2008 ($1.27 billion in 2007). As of December 31, 2008, individual annuity general account liabilities totaling $3.86 billion ($3.95 billion in 2007) were in contracts where the crediting rate is reset periodically, with portions resetting in each calendar quarter, and $886.3 million that reset annually in 2008 compared to $1.11 billion in 2007. Individual fixed annuity policy reserves of $1.42 billion in 2008 ($1.47 billion in 2007) were in contracts that adjust the crediting rate every five years. Individual fixed annuity policy reserves of $587.2 million in 2008 were in contracts that adjust the crediting rate every three years compared to $620.3 million in 2007. The average crediting rate is calculated as the difference between the projected yield of the assets backing the liabilities and a targeted interest spread. However, for certain individual annuities the crediting rate is also adjusted to partially reflect current new money rates.

Group pension deferred fixed annuities: The maturity year is based on the expected date of policyholder withdrawal, taking into account actual experience, current interest rates and contract terms. Included were group annuity contracts representing $11.50 billion and $10.97 billion of general account liabilities as of December 31, 2008 and 2007, respectively, which are generally subject to market value adjustment upon surrender and which also may be subject to surrender charges. Of the total group annuity liabilities, $7.7 million ($26.1 million in 2007) were in contracts where the crediting rate is reset monthly, $10.24 billion ($9.70 billion in 2007) were in contracts where the crediting rate is reset quarterly, $529.9 million ($518.0 million in 2007) were in contracts that adjust the crediting rate on an annual basis with portions resetting in each calendar quarter, and $723.3 million ($725.1 million in 2007) were in contracts where the crediting rate is reset annually on January 1.

Funding agreements backing MTNs: As of December 31, 2008 and 2007, fixed annuity policy reserves of $3.22 billion and $4.53 billion, respectively, relate to funding agreements issued in conjunction with the Company’s MTN program where the crediting rate either is fixed for the term of the contract or is variable based on an underlying index.

Immediate annuities: Non-life contingent contracts in payout status where the Company has guaranteed periodic payments, typically monthly, are included. The maturity year is based on the terms of the contract.

Short-term debt and long-term debt: The maturity year is the stated maturity date of the obligation. While certain obligations are callable, either at a premium or with a make-whole provision, the Company currently has no plans to call the obligations prior to the stated maturity date.

Derivative financial instruments: The maturity year is based on the terms of the related contract. Interest rate swaps include cross-currency interest rate swaps, which are used to reduce the Company’s existing asset and liability foreign currency exposure. Cross-currency interest rate swaps in place against each foreign currency obligation hedge the Company against adverse currency movements with respect to both period interest payments and principal repayment. Underlying details by currency therefore have been omitted. Variable swap rates and settlement prices reflect rates and prices in effect as of December 31, 2008.

Foreign Currency Risk Management

In conjunction with the Company’s MTN program, the Company periodically issues both fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in the fair value of liabilities due to changes in foreign currency exchange rates and related interest rates. In an effort to manage these risks, the Company enters into cross-currency interest rate swaps.

85

The Company is exposed to changes in the fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates and related interest rates. In an effort to manage this risk, the Company uses cross-currency interest rate hedges to swap these asset characteristics to variable U.S. dollar rate instruments. Cross-currency interest rate swaps on assets are structured to pay a fixed rate, in a foreign currency, and receive a variable U.S. dollar rate, generally 3-month U.S. LIBOR. These derivative instruments are designated as a fair value hedge of a fixed rate foreign denominated asset.

Cross-currency interest rate swaps on variable rate investments are structured to pay a variable rate, in a foreign currency, and receive a fixed U.S. dollar rate. The terms of the foreign currency paid on the swap will exactly match the terms of the foreign currency received on the asset, thus eliminating currency risk. These derivative instruments are designated as a cash flow hedge.

Equity Market Risk

Asset fees calculated as a percentage of separate account assets are a significant source of revenue to the Company. As of December 31, 2008, approximately 72% of separate account assets were invested in equity mutual funds (approximately 82% as of December 31, 2007). Gains and losses in the equity markets result in corresponding increases and decreases in the Company’s separate account assets and asset fee revenue. In addition, a decrease in separate account assets may decrease the Company’s expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in guaranteed contract claims, which also may require the Company to accelerate amortization of DAC.

The Company’s long-term assumption for net separate account returns is 7% annual growth. This analysis assumes no other factors change and that an unlocking of DAC assumptions would not be required. However, as it does each quarter, the Company would evaluate its DAC balance and underlying assumptions to determine the need for unlocking. The Company can provide no assurance that the experience of flat equity market returns would not result in changes to other factors affecting profitability, including the possibility of unlocking of DAC assumptions.

Many of the Company’s individual variable annuity contracts offer GMDB features. A GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract value. This could result in additional GMDB claims.

In an effort to mitigate this risk, the Company implemented a GMDB economic hedging program for certain new and existing business. Prior to implementation of the GMDB hedging program in 2000, the Company managed this risk primarily by entering into reinsurance arrangements. The GMDB economic hedging program is designed to offset changes in the economic value of the designated GMDB. Currently the program shorts S&P 500 Index futures, which provides an offset to changes in the value of the designated obligation. The futures are not designated as hedges and, therefore, hedge accounting is not applied. The Company’s economic and accounting hedges are not perfectly offset. Therefore, the hedging activity is likely to lead to earnings volatility. As of December 31, 2008 and 2007, the Company’s net amount at risk was $8,763.6 million and $528.0 million before reinsurance, respectively, and $7,347.9 million and $319.3 million net of reinsurance, respectively. As of December 31, 2008 and 2007, the Company’s reserve for GMDB claims was $247.9 million and $38.9 million, respectively.

The Company also offers certain variable annuity products with GMAB, GLWB and hybrid GMAB/GLWB riders (collectively referred to as living benefits). A GMAB provides the contractholder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the time of issuance of a variable annuity contract. In some cases, the contractholder also has the option, after a specified time, to drop the rider and continue the variable annuity contract without the GMAB. The design of the GMAB rider limits the risk to the Company in a variety of ways including asset allocation requirements, which serve to reduce the Company’s potential exposure to underlying fund performance risks. Specifically, the terms in the GMAB rider limit policyholder asset allocation by either (1) requiring partial allocation of assets to a guaranteed term option (a fixed rate investment option) and excluding certain funds that are highly volatile or difficult to hedge or (2) requiring all assets be allocated to one of the approved asset allocation funds or models defined by the Company.

86

Beginning in March 2005, the Company began offering a hybrid GMAB/GLWB through its CPPLI contract rider. This living benefit combines a GMAB feature in its first 5-10 years with a lifetime withdrawal benefit election at the end of the GMAB feature. Upon maturity of the GMAB, the contractholder can elect the lifetime withdrawal benefit, which would continue for the duration of the insured’s life; elect a new CPPLI rider; or drop the rider completely and continue the variable annuity contract without any rider. If the lifetime withdrawal benefit is elected and the insured’s contract value is exhausted through such withdrawals and market conditions, the Company will continue to fund future withdrawals at a pre-defined level until the insured’s death. In some cases, the contractholder has the right to periodically reset the guaranteed withdrawal basis to a higher level. This benefit requires a minimum allocation to guaranteed term options or adherence to limitations required by an approved asset allocation strategy as previously described above.

In March 2006, the Company added L.inc, a stand-alone GLWB, to complement CPPLI in its product offerings. This rider is very similar to the hybrid benefit discussed above in that L.inc and CPPLI both have guaranteed withdrawal rates that increase based on the age at which the contractholder begins taking income. The withdrawal rates are applied to a benefit base to determine the guaranteed lifetime income amount available to a contractholder. The benefit base is equal to the variable annuity premium at contract issuance and may increase as a result of a ratchet feature that is driven by account performance and a roll-up feature that is driven by policy duration. Generally, the longer the contractholder waits before commencing withdrawals, the greater the guaranteed lifetime income. One key difference between L.inc and CPPLI is that the charge associated with L.inc is assessed against the benefit base. This is a risk mitigation feature as it alleviates much of the uncertainty around account performance and customer withdrawal patterns, both of which can lead to lower than expected revenue streams if the charge were assessed on account value. In June 2007, the Company added a feature to L.inc to allow for a lump settlement in lieu of lifetime withdrawals in certain situations.

The Company’s living benefit riders represent an embedded derivative in a variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity contract. The embedded derivatives are carried at fair value. Subsequent changes in the fair value of the embedded derivatives are recognized in earnings as a component of net realized investment gains and losses. The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the valuation of the embedded derivative incorporate numerous assumptions including, but not limited to, expectations of contractholder persistency, contractholder withdrawal patterns, risk neutral market returns, correlations of market returns and market return volatility. As of December 31, 2008 and 2007, the net balance of the embedded derivatives for living benefits was a liability of $1.70 billion and a liability of $91.9 million, respectively. The Company does not expect any meaningful level of claims under the living benefit features for several years and believes any such claims would be mitigated by its economic hedging program.

Similar to the Company’s economic hedging for GMDBs, the living benefits features are also being economically hedged. The primary risks being hedged are the exposures associated with declining equity market returns and downward interest rate movements. The Company employs a variety of instruments to mitigate this exposure including S&P 500 Index futures, U.S. Treasury futures, interest rate swaps and long-dated over-the-counter put options. The positions used in the economic hedging program are not designated as hedges and, therefore, hedge accounting is not applied. The living benefits hedging program is designed to offset changes in the economic value of the living benefits obligation to contractholders. Changes in the fair value of the embedded derivatives are likely to create volatility in earnings. The hedging activity associated with changes in the economic value of the living benefits obligations will likely mitigate a portion of this earnings volatility.

Inflation

The rate of inflation did not have a material effect on the revenues or operating results of the Company during 2008, 2007 or 2006.

ITEM 8 CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV, Item 15 – Exhibits, Financial Statement Schedules for an index to the Company’s audited consolidated financial statements included in the F pages of this report.

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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ITEM 9A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s President and Chief Operating Officer (its Principal Executive Officer) and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on such evaluation, such officers have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Annual Report.

Management Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control system was designed to provide reasonable assurance to management and its Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements.

The Company’s management assessed the effectiveness of NFS’ internal control over financial reporting as of December 31, 2008. In making this assessment, the Company’s management used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on those criteria, the Company’s management concluded that NFS’ internal control over financial reporting was effective as of December 31, 2008.

The Company’s independent registered public accounting firm, KPMG LLP, issued an attestation report on the effectiveness of management’s internal control over financial reporting. This report appears on page F-2.

Changes in Internal Control Over Financial Reporting

There have been no changes during the Company’s fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B OTHER INFORMATION

None.

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PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors of the Registrant

Prior to January 1, 2009, the board of directors consisted of the following twelve directors divided into three classes: I, II and III. At each annual meeting, directors of one class were elected for a three-year term to succeed the directors whose terms were expiring.

Class I Directors

Name	Age	Date Service Began	Date Service Ceased
James G. Brocksmith, Jr.	68	April 1997	January 1, 2009
Keith W. Eckel	62	May 2004	January 1, 2009
James F. Patterson	67	November 1996	January 1, 2009
Gerald D. Prothro	66	February 1997	January 1, 2009
Class II Directors
Name	Age	Date Service Began	Date Service Ceased
Joseph A. Alutto	67	May 2002	January 1, 2009
Arden L. Shisler	67	November 1996	January 1, 2009
Alex Shumate	58	May 2002	January 1, 2009
Thomas F. Zenty III	54	May 2008	January 1, 2009
Class III Directors
Name	Age	Date Service Began	Date Service Ceased
W. G. Jurgensen	57	May 2000	January 1, 2009
Lydia M. Marshall	60	February 1997	January 1, 2009
Martha Miller de Lombera	60	August 2003	January 1, 2009
David O. Miller	70	November 1996	January 1, 2009

Business experience for each of the individuals listed in the tables above is set forth below:

Arden L. Shisler was a director of NFS from November 1996 to January 1, 2009, and served as Chairman of the Board from June 2003 to January 1, 2009. Mr. Shisler served as a director of NLIC and NLAIC from May 2002 to January 1, 2009, and served as Chairman of the Board of these companies from June 2003 to January 1, 2009. He was also a director from April 1984 and Chairman of the Board from April 1992 of NMIC, a director from April 1984 and Chairman of the Board from 2001 of Nationwide Mutual Fire Insurance Company (NMFIC), and a director and Chairman of the Board from April 2002 of Nationwide Corporation. Mr. Shisler retired from service as a director and Chairman of the Board of NMIC, NMFIC and Nationwide Corporation in April 2008. From June 2004 to May 2006, he was a director of NWD Management & Research Trust, formerly known as Gartmore Global Asset Management Trust, a subsidiary of Nationwide Corporation. Mr. Shisler also serves as a trustee for the following registered investment companies: Nationwide Mutual Funds, formerly known as Gartmore Mutual Funds, and Nationwide Variable Insurance Trust, formerly known as Gartmore Variable Insurance Trust. Mr. Shisler was a consultant to K & B Transport, Inc., a trucking firm, from January 2003 to December 2004.

89

W. G. Jurgensen was Chief Executive Officer of NFS from August 2000 until February 2009, and served as a director from May 2000 to January 1, 2009. He served as Chief Executive Officer of NMIC, NMFIC, NLIC and NLAIC from August 2000 until February 2009. He also served as Chief Executive Officer of several other companies within Nationwide, which is comprised of NFS, NMIC, NMFIC and all of their respective subsidiaries and affiliates. Mr. Jurgensen served as a director of NMIC, NMFIC and Nationwide Corporation from May 2000 until February 2009 and served as a director of NLIC and NLAIC from May 2000 to January 1, 2009. He also served as a director of several other companies within Nationwide, as well as a trustee of Nationwide Foundation, a not-for-profit corporation that contributes to nonprofit agencies and community projects. Mr. Jurgensen has been a director of ConAgra Foods, Inc., a producer and marketer of food products, since August 2002.

Mr. Jurgensen ceased service as the Company’s Chief Executive Officer and as a member of the board of directors effective February 19, 2009.

Joseph A. Alutto served as a director of NFS, NLIC and NLAIC from May 2002 to January 1, 2009. Dr. Alutto has been the Executive Vice President and Provost of The Ohio State University since October 2007. Dr. Alutto also served as interim President of The Ohio State University from July 2007 to October 2007. He was previously the Dean of the Fisher College of Business at The Ohio State University from March 1991 to October 2007 and Executive Dean for Professional Colleges at The Ohio State University from September 1998 to October 2007. He has been a director of M/I Homes, Inc., a builder of single family homes, since February 2005, and of Children’s Place, a retailer of children’s clothing, since 2008.

James G. Brocksmith, Jr. served as a director of NFS from April 1997 to January 1, 2009, and as a director of NLIC and NLAIC from May 2002 to January 1, 2009. He has been 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 served as a director of NFS from May 2004 to January 1, 2009. He has served as a director of NMIC and NMFIC since 1996, Nationwide Corporation since 1998, and served as a director of NLIC and NLAIC from May 2004 to January 1, 2009. He has been Chairman of the Board since April 2008 and served as Vice Chairman of the Board from April 2007 to April 2008 of NMIC, NMFIC and Nationwide Corporation. He served as the Chairman of the Board of NWD Management & Research Trust from June 2004 to May 2006, and served as a trustee of Nationwide Foundation from April 1998 to April 2006. Mr. Eckel is the owner of Fred W. Eckel Sons, a vegetable farming operation, and president of Eckel Farms, Inc.

Lydia M. Marshall served as a director of NFS from February 1997 to January 1, 2009, and as a director of NLIC and NLAIC from May 2002 to January 1, 2009. Ms. Marshall has been a director of NMIC, NMFIC and Nationwide Corporation since October 2001, and served as a director of Scottsdale Insurance Company, a subsidiary of NMIC, from April 2001 to June 2006. She also serves as a trustee of Nationwide Foundation. Ms. Marshall has been a director of Seagate Technology, a designer, manufacturer and marketer of hard disc drives, since April 2004. From October 1999 to August 2004, she was founder, chair and Chief Executive Officer of Versura Inc., an internet-based service provider to financial institutions, colleges and universities.

David O. Miller served as a director of NFS from November 1996 to January 1, 2009. From May 2002 to January 1, 2009, Mr. Miller served as a director of NLIC and NLAIC. Mr. Miller served as a director of NMIC, NMFIC and Nationwide Corporation from April 1985 to April 2006. He was a director of Scottsdale Insurance Company from April 2001 to June 2006 and Chairman of the Board from May 2001 to January 2005 and from December 2005 to June 2006. He served as a trustee of Nationwide Foundation from April 1992 to April 2006. 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, a real estate development firm, since 2000. Previously, Mr. Miller was a partner of M&M Enterprises, a real estate development firm.

Martha Miller de Lombera served as a director of NFS, NLIC and NLAIC from August 2003 to January 1, 2009. Ms. Miller de Lombera has been a director of Wal-Mart de Mexico, a retail chain including self-service stores, apparel stores and restaurants, since March 2007 and a director of Sally Beauty Holdings, Inc., an international specialty retailer and distributor of professional beauty supplies, since November 2006. She also served as a director of Ryerson, Inc., a North American distributor and processor of metals, from January 2004 to October 2007, and as a director of Grupo Aeroportuario del Sureste, S.A. de C.V., an airport operator in southeastern Mexico, from March 2001 through April 2005.

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James F. Patterson served as a director of NFS from November 1996 to January 1, 2009, and as a director of NLIC and NLAIC from May 2002 to January 1, 2009. He was a director of NMIC, NMFIC and Nationwide Corporation from April 1989 to April 2007 and Vice Chairman of the Board from April 2001 to April 2007. Mr. Patterson also served as a director of NWD Management & Research Trust from June 2004 to May 2006. He served as a trustee of Nationwide Foundation from April 1994 to April 2007. Mr. Patterson has operated the Patterson Fruit Farm since 1964 and has been President of Patterson Farms, Inc. since December 1991.

Gerald D. Prothro served as a director of NFS from February 1997 to January 1, 2009, and as a director of NLIC and NLAIC from May 2002 to January 1, 2009. Mr. Prothro has been the Managing Director of IKT Investments, Ltd., a technology consulting and private investments firm, since December 2000.

Alex Shumate served as a director of NFS, NLIC and NLAIC from May 2002 to January 1, 2009. Mr. Shumate has been a partner of the law firm of Squire, Sanders & Dempsey L.L.P. 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 and a director of Cincinnati Bell, Inc., a provider of telecommunications products and services, since July 2005.

Thomas F. Zenty III served as a director of NFS, NLIC and NLAIC from May 2008 to January 1, 2009. Mr. Zenty has been Chief Executive Officer of University Hospitals in Cleveland, Ohio since 2003.

Pursuant to the merger agreement between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., upon closing of the merger effective January 1, 2009, the twelve board members resigned from service on the board. On that same date, Timothy G. Frommeyer, Lawrence A. Hilsheimer and Mark R. Thresher were elected to the board and will serve until their successors are duly elected and qualified.

For biographical information on Messrs. Frommeyer, Hilsheimer and Thresher, please see the information provided below in “Executive Officers of the Registrant.”

Executive Officers of the Registrant

Name	Age	Position with NFS (as of February 27, 2009)
W.G. Jurgensen	57	Chief Executive Officer1
Mark R. Thresher	52	President and Chief Operating Officer
Patricia R. Hatler	54	Executive Vice President – Chief Legal and Governance Officer
Terri L. Hill	49	Executive Vice President – Chief Administrative Officer
Lawrence A. Hilsheimer	51	Executive Vice President
Michael C. Keller	49	Executive Vice President – Chief Information Officer
James R. Lyski	46	Executive Vice President – Chief Marketing Officer
Stephen S. Rasmussen	56	Executive Vice President
Anne L. Arvia	45	Senior Vice President – Nationwide Bank
Carol A. Baldwin Moody	52	Senior Vice President – Chief Compliance Officer
John L. Carter	46	Senior Vice President – Non-Affiliated Sales
Roger A. Craig	46	Senior Vice President – Division General Counsel and Assistant Secretary
Timothy G. Frommeyer	44	Senior Vice President – Chief Financial Officer
Peter A. Golato	55	Senior Vice President – Individual Protection Business Head
Harry H. Hallowell	48	Senior Vice President and Treasurer
Michael A. Hamilton	42	Senior Vice President – NFN Retail Distribution
Eric S. Henderson	46	Senior Vice President – Individual Investments Business
William S. Jackson	55	Senior Vice President – Nationwide Retirement Plans
Kai V. Monahan	41	Senior Vice President – Internal Audits
Gail G. Snyder	54	Senior Vice President – Chief Investment Officer
Michael S. Spangler	42	Senior Vice President – President, Nationwide Funds Group

¹ Mr. Jurgensen ceased service as the Company’s Chief Executive Officer effective February 19, 2009.

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Business experience for each of the individuals listed in the previous table is set forth below:

Information regarding W. G. Jurgensen is provided in “Directors of the Registrant.”

Mark R. Thresher has been President and Chief Operating Officer of NFS, NLIC and NLAIC since May 2004. He was President and Chief Operating Officer – Elect from April 2004 to May 2004; President and Chief Operating Officer – Elect and Chief Financial Officer from December 2003 to April 2004; and Senior Vice President – Chief Financial Officer from November 2002 to December 2003 of NFS, NLIC and NLAIC. He has served as a director of NFS and NLIC since January 2009.

Patricia R. Hatler has been Executive Vice President – Chief Legal and Governance Officer of NFS since December 2004. Previously, Ms. Hatler served NFS as its Executive Vice President and General Counsel from October 2004 to December 2004; Executive Vice President, General Counsel and Secretary from March 2003 to October 2004; and Senior Vice President, General Counsel and Secretary from May 2000 to March 2003.

Terri L. Hill has been Executive Vice President – Chief Administrative Officer of NFS and other Nationwide companies since September 2003. She was Senior Vice President – Human Resources/Operations for Scottsdale Insurance Company, a wholly owned subsidiary of NMIC, and its affiliates from December 2000 to September 2003.

Larry A. Hilsheimer has been Executive Vice President of NFS and several other companies within Nationwide since October 2007. Prior to joining Nationwide, Mr. Hilsheimer served as a partner of Deloitte and Touche USA LLP, from June 1988 to October 2007. He has served as a director of NFS since January 2009.

Michael C. Keller has been Executive Vice President – Chief Information Officer of NFS since August 2001. Mr. Keller has been Executive Vice President – Chief Information Officer of several other Nationwide companies since June 2001.

James R. Lyski has been Executive Vice President – Chief Marketing Officer of NFS since October 2006. Mr. Lyski previously served as Senior Vice President for Strategy, Product and Marketing at CIGNA HealthCare, Inc., an employee benefits company, from October 2002 to October 2006.

Stephen S. Rasmussen has been Executive Vice President of NFS since September 2003 and Chief Executive Officer of NMIC and NMFIC since February 2009. Previously, he was President and Chief Operating Officer of NMIC and NMFIC from September 2003 to February 2009.

Anne L. Arvia has been Senior Vice President – Nationwide Bank since September 2006. Prior to joining Nationwide Bank, Ms. Arvia served as the Chief Executive Officer of ShoreBank, a community and environmental bank, from May 2002 to August 2006 and as the President of ShoreBank from May 2001 to August 2006.

Carol A. Baldwin Moody has been Senior Vice President, Chief Compliance Officer of NFS and several other Nationwide companies since November 2005. Previously, she was Chief Compliance Officer for TIAA-CREF from 2004 to 2005. Prior to that time, she served as Managing Director and General Counsel of TCW/Latin America Partners LLC from 2000 to 2004.

John L. Carter has been Senior Vice President – Non-Affiliated Sales of NFS, NLIC and NLAIC and President of Nationwide Financial Distributors, Inc., as well as Senior Vice President of several other Nationwide companies, since November 2005. Previously, he served as Corporate Vice President of Platform Distribution at Prudential Financial, a financial services company, from August 1999 to November 2005.

Roger A. Craig has been Senior Vice President – Division General Counsel and Assistant Secretary of NFS since August 2007, and Senior Vice President – Division General Counsel of several other Nationwide companies since July 2007. Previously, Mr. Craig served several Nationwide companies as Vice President – Division General Counsel from October 2004 to August 2007; Vice President – Associate General Counsel from March 2003 to October 2004; and Associate Vice President – Associate General Counsel from February 2001 to March 2003.

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Timothy G. Frommeyer has been Senior Vice President – Chief Financial Officer of NFS and several other Nationwide companies since November 2005. He served as Vice President and Chief Actuary of NLIC and NLAIC from May 2004 to November 2005. He also served as Senior Vice President – Finance and Actuarial of NRS from November 2001 to May 2004 and Vice President – Public Sector Finance and Actuarial of NLIC and NLAIC from November 2001 to May 2004. He has served as a director of NFS and NLIC since January 2009.

Peter A. Golato has been Senior Vice President – Individual Protection Business Head of NFS and several other Nationwide companies since May 2004. Mr. Golato also serves as a Director, since May 2004, and as President, since August 2004, of NLICA and NLACA. He has served as a director of NLIC since January 2009. Previously, he was Vice President – Brokerage Life Sales of NLIC and NLAIC from May 2000 to May 2004, and NMIC and Nationwide Mutual Fire from May 2000 to October 2004.

Harry H. Hallowell has been Senior Vice President and Treasurer of NFS and several other Nationwide companies since January 2006. Previously, Mr. Hallowell served as Vice President and Head Portfolio Risk Manager for Nationwide’s Office of Investments from May 2003 to December 2005. From 1984 to 2003, he served as a Senior Vice President and Head of Corporate Funding for Bank One Corporation.

Michael A. Hamilton has been Senior Vice President – NFN Retail Distribution of NFS and several other companies within Nationwide since October 2007. Mr. Hamilton has also served as a Director of NLICA and NLACA since May 2007. Previously, he served as Vice President – NFN Retail Distribution of NLIC and NLAIC from April 2007 to October 2007. Prior to joining Nationwide, Mr. Hamilton served as the President of Pennsylvania Life Insurance Company from April 2004 to January 2007; and the Regional Director of National Planning Corporation from April 2000 to July 2003.

Eric S. Henderson has been Senior Vice President – Individual Investments Business Head of NFS and several other companies within Nationwide since August 2007. Previously, Mr. Henderson served as Vice President and Chief Financial Officer – Individual Investments from August 2004 to August 2007; as Vice President – Product Management from February 2004 to August 2004; and as Associate Vice President – Product Manager-Variable Annuities from April 2002 to February 2004.

William S. Jackson has been Senior Vice President – Nationwide Retirement Plans of NFS since October 2006. Previously, Mr. Jackson served as Sales Center Vice President from August 2001 to September 2006.

Kai V. Monahan has been Senior Vice President – Internal Audit of NFS and several other Nationwide companies since November 2008. Previously, Mr. Monahan was a Partner in Ernst & Young’s Business Risk Services practice from 2004 to 2008.

Gail G. Snyder has been Senior Vice President – Chief Investment Officer of NFS and several other Nationwide companies since January 2006. She was previously Senior Vice President – Enterprise Portfolio and Strategy Management of NMIC and several other Nationwide companies from January 2005 to January 2006. Previously, she served as Senior Vice President – Portfolio Management of Genworth Financial, Inc., an insurance and financial services company, from May 2004 to December 2004. From March 1995 to May 2005, she served in various capacities at divisions of General Electric, including Senior Vice President – Insurance-Strategic Client Solutions of GE Asset Management, a financial services firm; Chief Investment Officer of GE Mortgage Insurance, a mortgage services firm; and Vice President of First Colony Life Insurance Company, an insurance services company acquired by General Electric.

Michael S. Spangler has been Senior Vice President – President, Nationwide Funds Group since May 2008. Previously, Mr. Spangler was Managing Director at Morgan Stanley, heading Americas Retail and Intermediary Product Management from May 2004 to June 2008. Prior to joining Morgan Stanley, Mr. Spangler was President of Touchstone Advisors, and Vice President and Director of Business Operations at Touchstone Investments, July 2002 to May 2004.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934 requires that executive officers, directors and holders of more than 10% of NFS common stock file reports of their trading in NFS equity securities with the Securities and Exchange Commission. Based solely on a review of Forms 3, 4 and 5, or written representations that no Form 5 was required or furnished to the Company during and with respect to 2008, the Company believes that all such reports were timely filed.

As of January 1, 2009, Nationwide Corporation owns all of the Company’s outstanding common stock and there are no longer executive officers, directors or other holders of more than 10% of the Company’s common stock obligated to file reports pursuant to Section 16.

Code of Ethics

The Nationwide Code of Conduct is posted on the Company’s web site, http://www.nationwide.com, and is available in print, free of charge, upon written request. Requests for copies should be made to LeRoy Johnston III, Vice President – Ethics and Corporate Compliance, One Nationwide Plaza, Columbus, Ohio, 43215, or via telephone at 614-249-8613. All directors, officers and employees of the Nationwide group of companies are required to adhere to the code. 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 by posting on the web site.

Procedure for Nomination of Directors

Prior to January 1, 2009, the Company provided a process by which shareholders of the Company could recommend nominees for election to the Company’s board of directors. All of the outstanding voting securities of the Company are now held by Nationwide Corporation, and, as such, the Company no longer maintains such procedures.

Audit Committee Financial Expert

In 2008, the Company had an audit committee of the board of directors consisting of six directors—Messrs. Brocksmith, Eckel, Prothro and Zenty, Dr. Alutto and Ms. Marshall. The board determined that each member of the audit committee was independent as defined by the former Independence Standards for Directors, the rules of the Securities and Exchange Commission and the New York Stock Exchange listing standards. Mr. Brocksmith served as chairman and was designated by the board as the audit committee financial expert within the meaning of applicable Securities and Exchange Commission rules. The board of directors concluded that Mr. Brocksmith had accounting and related financial management expertise within the meaning of the New York Stock Exchange listing standards.

Effective January 1, 2009, pursuant to the merger agreement between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the members of the board of directors resigned and three members of management were elected as directors of the Company. As a result, the board no longer has an audit committee.

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ITEM 11 Executive Compensation

Compensation Discussion and Analysis

Introduction

Prior to 2009, the Company’s shareholders expected the Company’s management team to oversee operations so that their investment in NFS would grow in value over time. As of January 1, 2009, NFS is a wholly owned subsidiary of Nationwide Corporation, and no longer has other shareholders. Nationwide’s and the Company’s mission is to create value for consumers, businesses and debtholders by protecting what is important to them, helping them build a secure financial future, and providing the best personalized customer experience through competitively priced, high quality products. The Company motivates its executives to achieve these goals, in part, by delivering direct rewards, including base salary, short-term and long-term incentives and other benefits and perquisites, using compensation programs based substantially on sustained financial performance. Payments from the awards will increase or decrease according to the extent the Company meets its performance expectations. The discussion offered below is intended to show:

• how the Company’s financial planning process leads to financial objectives;

• how the Company translates financial and individual objectives into incentives;

• how the Company considers individual performance and uses other discretionary factors to create flexibility in its compensation programs; and

• why the Company thinks both the level and form of these rewards help it attract and retain the executive talent it believes is necessary to create value for its customers.

Change in Operating Structure in 2009

On January 1, 2009, NMIC purchased all of the outstanding shares of NFS common stock it did not already own. NFS is now a wholly-owned subsidiary of Nationwide Corporation. The Company believes that the completion of this transaction sets Nationwide apart from its competition by enabling it to align its entire product and service portfolio around the customer, providing an even greater value proposition for current and future customers through a more differentiated customer service experience. Compensation actions that occurred in 2008 were reviewed and approved by the compensation committee of the Company’s board of directors. All of the members of the board of directors resigned on January 1, 2009 upon completion of the merger. The board of directors now consists of three members of management, Mark R. Thresher, Timothy G. Frommeyer and Lawrence A. Hilsheimer, and the board no longer maintains a compensation committee or any other committees of the board. Compensation decisions are now determined by the human resources committee of the board of directors of NMIC, which is NFS’ ultimate parent company. The Company will refer to its compensation committee when discussing actions that occurred in 2008, and the NMIC human resources committee when referring to decisions that occurred in 2009. The NMIC human resources committee will make compensation decisions going forward.

Compensation Committee

Prior to January 1, 2009, the compensation committee consisted of four directors, all of whom were independent as defined by the New York Stock Exchange listing standards and the Independence Standards for Directors that had been adopted by the Company’s board of directors.

The compensation committee’s primary purpose was to discharge the responsibilities of the board of directors as to the compensation of the Company’s executive officers. The compensation committee had also delegated certain compensation decisions to the officer election committee, as discussed in “Role of Executives in Establishing Compensation.” Other duties of the compensation committee prior to the completion of the merger included carrying out the board of directors’ oversight responsibilities by reviewing the Company’s human resources, compensation and benefit practices, and providing the compensation committee report for inclusion in the Company’s proxy statement.

The operation of the compensation committee was outlined in a charter that had been adopted by the former board of directors. At its meeting on February 20, 2009, the board of directors of the Company revoked the charter of the compensation committee as the board no longer maintains a compensation committee. Rather, the board will rely on the NMIC human resources committee for compensation decisions.

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The former charter provided that the compensation committee’s duties included, among other things:

• establishment of an overall compensation philosophy;

• oversight and review of the Company’s human resources programs for directors, executive officers and employees; and

• responsibility for approval of salaries, incentive and equity compensation plans and plan awards under incentive and equity compensation plans for certain executive officers, including those named in the “Summary Compensation Table for 2008,” which are referred to as the “named executive officers,” and those who are “officers” within the meaning of Rule 16a-1(f) of the Securities Exchange Act of 1934, which are referred to as “Section 16 officers.”

Prior to May 2008, the members of the compensation committee consisted of Messrs. Brocksmith, McWhorter, Miller and Prothro, and Mr. Miller served as chairman. Upon Mr. McWhorter’s retirement from the board in May 2008, the board elected Ms. Miller de Lombera and Mr. Shumate to the committee. Mr. Miller remained chairman. The compensation committee met seven times during 2008. Upon request of the compensation committee, members of management attended these meetings in order to provide information or expertise. The compensation committee also met three times in executive session, in which attendance was limited to the committee members and certain members of management.

Compensation Consultant

In 2008, the compensation committee had the sole authority to retain and terminate any consultant assisting in the evaluation of compensation and had 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. The compensation committee retained Towers Perrin, Inc. to provide compensation consulting expertise and competitive market information, as needed. Towers Perrin consultants attended compensation committee meetings in order to provide information and perspective on competitive compensation practices and to raise issues to be addressed by management and/or the committee. Management, at times, directed Towers Perrin to prepare additional materials in support of committee agendas, which may have included data, analysis and any supporting background material needed for the discussions. Towers Perrin also recommended pay program and compensation changes. The NMIC human resources committee continues to utilize Towers Perrin for these purposes.

In 2008, the compensation committee periodically reviewed an activity report summarizing all work, and associated expenses, that Towers Perrin and its subsidiaries and affiliates performed for Nationwide, including NFS. Additional services provided by other Towers Perrin consultants or affiliated companies included reinsurance brokerage services, actuarial consulting services and other services related to compensation of executive officers of NMIC and NFS. These services were primarily provided to other entities within the organization. The compensation committee determined that the other work that Towers Perrin, or any of its affiliates, performed for Nationwide did not jeopardize the objectivity of Towers Perrin in its role as consultant to the compensation committee. The role of Towers Perrin and its objectivity are also reviewed by the NMIC human resources committee, which also concluded that the other work that Towers Perrin, or any of its affiliates, performs for Nationwide does not jeopardize the objectivity of Towers Perrin in its role as their consultant.

Role of Executives in Establishing Compensation

Management reviews the compensation of all of the Company’s executive officers annually. In addition, during 2008, management submitted the compensation of most executive officers who had a direct reporting relationship to the Chief Executive Officer or to the President and Chief Operating Officer, including all of the named executive officers, and all Section 16 officers, to the compensation committee for review and approval. For 2008, the manager for each of these executive officers reviewed and assessed the overall individual performance and contributions of such executive officer, and these reviews and assessments were considered by the compensation committee. The President and Chief Operating Officer submitted his assessments to the compensation committee for the Chief Financial Officer, the Senior Vice President – NFN Retail Distribution, and the Senior Vice President – Non-Affiliated Sales.

Prior to 2009, the Chief Executive Officer, as the sole member of the officer election committee, approved all other executive officer elections, base salary adjustments and long-term incentive awards and approved, for each business unit, overall incentive pools for those executive officers. The direct reports to the Chief Executive Officer approved individual annual short-term incentive payments for executive officers in their respective business units after the Chief Executive Officer approved the overall business unit incentive pools.

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Compensation Objectives and Philosophy

The compensation committee believed the compensation programs for executive officers should support the Company’s business strategies and operate within a competitive framework. In addition, the compensation committee determined compensation based on the Company’s overall financial results, as well as individual and group contributions that help build value for stakeholders. The compensation programs are designed to drive desired behaviors in the Company’s executive officers using a mix of compensation elements to satisfy the personal and financial needs of the Company’s current and future workforce given existing business conditions and cost constraints. The current board of directors is committed to this compensation philosophy. The objectives of the compensation programs continue to be the following:

• to develop a link between pay and performance;

• to ensure that a substantial percentage of executive compensation is contingent upon both the Company’s performance and each executive officer’s individual performance;

• to attract, retain and motivate top-caliber executive officers;

• to offer compensation that is competitive in level and form; and

• to motivate executive officers to focus on customer service and value.

The Company believes that its compensation programs are not designed to encourage excessive risk or provide incentive for behaviors that would undermine the Company’s value. Several factors contribute to this assessment:

• the NMIC human resources committee reviews the quality of the Company’s earnings prior to approving incentive payments;

• the Company provides a significant percentage of executive target pay opportunity using a mix of short-term incentives, which are based on annual goals, and long-term incentives, which are subject to forfeiture and require sustained value creation over several years in order to earn target incentives;

• incentive payments to the Chief Executive Officer and Chief Financial Officer are subject to recovery if the Company restates a financial statement due to material noncompliance with any financial reporting requirement under the securities laws, and such noncompliance is a result of misconduct, and;

• the Chief Executive Officer had the discretion to adjust annual incentive payments based on key performance indicators that have a longer-term financial impact, and an assessment of whether results are consistent with the Company’s values.

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The following table illustrates the Company’s primary compensation components and the intended links to its objectives:

Compensation element	Description	Links to objectives
Base Salary	Cash compensation that is a fixed component of total compensation.	•        attract and retain top-caliber executive talent •        recognize and reward executive officers’ skills, competencies, experience, job responsibilities and individual performance against pre-established objectives •        provide a competitive level of compensation for the day-to-day performance of ordinary job duties
Annual Incentive	Cash payments awarded after the completion of a one-year performance period.	•        reward executives for achieving financial performance goals •        recognize performance on individual objectives relative to the performance of other executive officers
Long-Term Incentive	Cash or equity awards based on performance over multiple years and subject to forfeiture.	•        reward executives for sustained long-term performance •        retain and motivate executives to ensure business stability and success •        provide compensation that is competitive with that of peer companies •        recognize the performance goals that drive long-term success and create value in Nationwide
•      Nationwide Value Added Awards	Cash awards based on current year economic value.	•        reward executives for financial results that increase economic value •        create a link between NFS and Nationwide to better facilitate a shared business model •        maintain a substantial portion of incentives earned in previous years at risk of forfeiture depending on sustained economic value creation
•      Stock Options	Equity awards which increase in value over time as the Company’s stock price appreciates.	•        the Company did not grant stock options in 2008 as negotiations for the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc. were ongoing •        accordingly, building stock ownership is no longer a goal of the compensation programs
Perquisites and Benefits	Includes pension plans, deferred compensation plans and personal perquisites.	•        attract and retain top-caliber executive talent •        provide income after retirement and enable saving of income for retirement

Benchmarking and Compensation Target-Setting Process

Competitive market data is an important tool used to make decisions on compensation. The Company compares its compensation practices to companies that compete with it for customers, capital and executive officers and are similar to us in size, scope, and/or business focus. The Company’s market data represents more companies than those in the peer group in its performance graph, which is included in this report, in order to provide broad data to management and the compensation committee for comparison purposes. These market data sources include:

• life and multi-line insurers and banks;

• a subset of Fortune 500 companies comprised of general industry companies ranked from 64 to 164; and

• companies that participate in commercially available financial services industry and general industry surveys.

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The life and multi-line insurers the Company used are:

•        American International Group, Inc.	•        Met Life, Inc.	•        Prudential Financial, Inc.
•        The Hartford Financial Services Group, Inc.	•        Allstate Corporation	•        Principal Financial
•        Lincoln Financial Group	•        The Travelers Companies, Inc.	•        CNA Financial Corporation
•        AFLAC, Inc.	•        Unum Group	•        The Chubb Corporation
•        CIGNA Corporation	•        Aetna, Inc.	•        UnitedHealth Group, Inc.
•        Protective Life Corporation	•        Phoenix Companies, Inc.	•        Assurant, Inc.
•        The Progressive Corporation	•        Cincinnati Financial Corporation	•        SAFECO Corporation
•        Torchmark Corporation	•        The Hanover Insurance Group, Inc.

The banks the Company used are:

•        Wachovia Corporation	•        SunTrust Banks, Inc.	•        National City Corporation
•        American Express Company	•        State Street Corporation	•        KeyCorp
•        PNC Financial Services Group, Inc.	•        Northern Trust Corporation	•        Comerica, Inc.

The surveys the Company used with respect to the financial services industry are:

• Towers Perrin Diversified Insurance Study of Executive Compensation, which is referred to as the “Towers Perrin Diversified Insurance Study”

• Towers Perrin U.S. Financial Services Industry Executive Compensation Database, which is referred to as the “Towers Perrin Financial Services Database”

The survey the Company used with respect to the general industry is:

• Towers Perrin U.S. CDB General Industry Executive Database

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The Company uses market data specific to its industry, if available, for the named executive officers because the compensation committee believed it was appropriate to compare the Company’s positions to others that require skills, knowledge and experience specific to the financial services industry. The Company used general industry data for positions that require broad skills that are not unique to its industry, such as the Chief Executive Officer. The Company also used general industry data for the Chief Financial Officer because the organizational structure reflected in the financial services industry data did not adequately reflect the scope of the role for this position. Of the sources available to the Company, including proxy statements of other companies and commercially available surveys, the Company uses the sources it believes have the best matches for its positions. The following table lists the survey sources used for the executive officers named in the Summary Compensation Table, who are referred to as the “named executive officers,” and the rationale for using the designated survey sources:

Name	Market data sources	Rationale
W. G. Jurgensen	•        Proxy statements of companies numbered 64 to 164 in the Fortune 500 •        the insurance companies and banks listed above	The use of market data representing companies broader in business focus but similar in size, in addition to companies similar to NFS in size and business focus, is needed to establish a compensation program that reflects competitive practices for a wider range of companies against which the Company competes for executives with similar duties or skills.
Timothy G. Frommeyer	•        Towers Perrin General Industry Survey •        Towers Perrin Diversified Insurance Study	The Company prefers to use market data representing companies most like it in size and business focus for this position, but companies participating in the industry survey the Company uses for operational positions have different organizational structures than the Company’s and did not provide a match for the Company’s same level of position. The data was too limited to use for pricing purposes. While the Company referred to it as a reference point, in 2008, it began using a general industry survey instead, which provided a market match that reflected the scope of responsibilities in this role.
Mark R. Thresher	•        Towers Perrin Diversified Insurance Study •        Towers Perrin Financial Services Database	These are industry-specific surveys representing companies most like NFS in size and business focus and have what the Company believes are acceptable market matches.
Michael A. Hamilton	•        Towers Perrin Diversified Insurance Study	This survey was used as a reference point only due to the limited number of companies providing data for the comparable role.
John L. Carter	•        Towers Perrin Diversified Insurance Study	This industry-specific survey represents companies most like NFS in size and business focus, and has what the Company believes is an appropriate market match.

The Company generally targets pay at the market median because it believes this is necessary to compete for talent; however, when necessary to attract or retain exceptional talent, the Company may target total compensation or an individual element of compensation above the median. Annually, the Company participates in a talent planning process to:

• anticipate talent demands and identify implications;

• identify critical roles;

• conduct talent assessments; and

• identify successors for critical roles.

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The data gathered during this process helps the Company identify what the Company refers to as “benchmark plus” executives or executive roles for which it will manage total compensation at up to the 75^th percentile of the market data through an increase in the short-term and long-term incentive targets. These positions may be those that lead a new business initiative or lead a significant business or enterprise initiative that directly impacts core strategic initiatives that are identified in the overall Nationwide business strategy.

Actual pay will vary based on actual results compared to goals. Executive officers can earn top-quartile pay for results that significantly exceed the business plan and/or expectations with respect to individual objectives, and they can earn bottom-quartile pay for results that fail to meet acceptable performance standards.

The following table identifies the target compensation levels, a comparison of the Company’s target total compensation to the respective target compensation level, and the rationale for providing total compensation at those levels.

Name	Market target total compensation level	Named executive officer target total compensation market percentiles	Rationale
W. G. Jurgensen	Market data median	48th percentile	This is a competitive level of compensation relative to the market data.
Timothy G. Frommeyer	Market data between the median and 75th percentile	66th percentile	A benchmark match in the industry survey the Company used for this position in the past did not exist as Mr. Frommeyer’s duties and responsibilities exceed the scope of the position represented in the market data. Therefore, the Company reviewed this data but based compensation recommendations on a general industry match, which reflected a more appropriate scope of the role, if not companies similar to NFS in business focus. In 2008, the Company began transitioning his compensation targets to be more consistent with this more appropriate market match. Due to the complexity of Mr. Frommeyer’s role as the chief financial officer of a public company business unit, his responsibilities to the board of directors and many internal and external stakeholders, the Company applied benchmark plus principles in determining his compensation at between the median and the 75th percentile of his market data, consistent with the Company’s talent management guidelines.
Mark R. Thresher	Market data median	54th percentile	This is a competitive level of compensation relative to the market data.
Michael Hamilton	Market data between the median and 75th percentile	56th percentile	This role was new to the Company and has been evolving; therefore, a strong benchmark match was not available. In addition to reviewing the market data referenced above, the Company also reviewed internal comparisons for jobs with larger and smaller scopes to arrive at a competitive total compensation target. Due to the significant strategic initiatives Mr. Hamilton was charged with accomplishing in 2008, the Company targeted his compensation at a level that is higher than otherwise comparable positions.
John L. Carter	Market data median	52nd percentile	This is a competitive level of compensation relative to the market data.

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Mr. Jurgensen provided services to other Nationwide companies in addition to NFS. For 2008, the recommendation of the NMIC human resources committee for the total compensation paid to Mr. Jurgensen for such services was reviewed and approved by the Company’s compensation committee. The portion of total compensation for Mr. Jurgensen that was paid by NFS pursuant to a cost-sharing agreement among several of the Nationwide companies was determined by the compensation committee. The remainder was allocated to and paid by other Nationwide companies according to the terms of the cost-sharing agreement. Amounts the Company discloses in this report reflect only compensation allocated to and paid by NFS and its subsidiaries. The methodology the Company uses for the allocation of compensation paid to Mr. Jurgensen varies by the type of compensation and is discussed in more detail in “2008 Compensation Programs Design and Implementation.” The Company pays for 100% of the compensation for the other named executive officers as they are solely or primarily dedicated to NFS.

In 2008, the compensation committee determined the allocated target for total compensation for Mr. Jurgensen and the full target for the other named executive officers. The total compensation targets are benchmarked to the competitive external market as well as the individual elements that are distributed among base salary, annual incentive and long-term incentive. The Company adjusts targets for company and individual performance in order to recognize competitive market compensation and performance in determining the final compensation it delivers to executive officers. The compensation committee had different review procedures depending on the level and role of the executive officer. For top-tier executive officers, including Messrs. Jurgensen and Thresher, Towers Perrin prepared a summary of competitive market data that the NMIC human resources committee and the Company’s compensation committee used in making compensation decisions. This provided a more impartial frame of reference for these executive officers. For all other named executive officers, the Company’s internal compensation department summarized the competitive market data and provided the information to senior management, the compensation committee and Towers Perrin, as needed, for review and use in decision making. This process will continue in 2009, with information provided to the NMIC human resources committee instead of the Company’s compensation committee. The following is an overview of these review procedures:

W. G. Jurgensen

For W. G. Jurgensen, the Company’s Chief Executive Officer until February 19, 2009, Towers Perrin’s market data summary, which was prepared for the NMIC human resources committee, included a summary of the 25^th, median and 75^th percentile market data and covered the following compensation elements: base salary, annual bonus and total annual cash, and long term incentives and total direct compensation. Towers Perrin summarized the median market data for the position and explained any adjustments that may be necessary to maintain median or competitive compensation for all of these elements. To adjust for differences in revenue and assets, Towers Perrin used a regression analysis to arrive at market competitive values. For 2008, the compensation committee’s final decision on pay targets was subject to the board’s assessment of Mr. Jurgensen’s performance. Towers Perrin also provided the summary of market data to the compensation committee, and met with the NMIC human resources committee chairman and the compensation committee chairman to arrive at a consensus as to the elements of Mr. Jurgensen’s pay for 2008. Each committee then met separately with Towers Perrin. The NMIC human resources committee determined Mr. Jurgensen’s final compensation targets. The Company’s compensation committee concurred with this recommendation, reviewed the proposed annual allocation percentages on all of Mr. Jurgensen’s elements and approved the allocated targets for 2008.

Timothy G. Frommeyer

For Timothy G. Frommeyer, the Company’s Chief Financial Officer, the compensation committee reviewed and approved an executive compensation structure that was developed and proposed by the Company’s internal compensation department and reviewed by Towers Perrin. This structure is based on aggregate market data for all executive positions in Nationwide that have salary survey matches represented in the array of surveys used for compensation management. The executive compensation structure consists of salary bands with corresponding base salary ranges, annual incentive percentage ranges, and long term incentive ranges for jobs at similar levels. For 2008 base salary and incentive targets, the compensation committee reviewed Mr. Frommeyer’s placement within these ranges, the relationship between his current compensation levels and the market data, his identification through the talent planning process as a benchmark plus role and a summary of his accomplishments in 2007. The compensation committee also considered recommendations from the President and Chief Operating Officer in considering Mr. Frommeyer’s 2008 base salary adjustment and incentive target levels.

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Mark R. Thresher

For Mark R. Thresher, the Company’s President and Chief Operating Officer, an executive officer who is primarily dedicated to NFS, but who, as a direct report of the Chief Executive Officer, also influences Nationwide, Towers Perrin prepared a market analysis of Mr. Thresher’s compensation similar to the analysis they prepared for the Chief Executive Officer. The compensation committee reviewed this analysis, along with the Chief Executive Officer’s recommendation, in arriving at a decision on Mr. Thresher’s base salary and incentive target levels for 2008.

Michael A. Hamilton

For Michael A. Hamilton, the Company’s Senior Vice President – NFN Retail Distribution, a single appropriate market match was not available due to the evolving nature of his role, but market data for similar positions were used as a point of reference. The President and Chief Operating Officer recommended that Mr. Hamilton’s target compensation levels should also be determined in relation to other senior executive positions within the organization given the lack of market data for this role. In arriving at a recommendation for 2008 compensation, the President and Chief Operating Officer also prepared Mr. Hamilton’s 2007 performance appraisal and submitted his recommendation to the compensation committee that his targets be determined in accordance with benchmark plus principles. The President and Chief Operating Officer’s recommendation was based on the executive compensation structure described above in the discussion regarding Mr. Frommeyer, and was presented to the compensation committee. The compensation committee approved base salary and incentive target levels for 2008 based on the President and Chief Operating Officer’s appraisal and recommendation.

John L. Carter

For John L. Carter, the Company’s Senior Vice President – Non-Affiliated Sales, the compensation committee reviewed market data for Mr. Carter’s position, his 2007 annual performance evaluation, a summary of his accomplishments for 2007 and the recommendation of the President and Chief Operating Officer. Based on this information, the compensation committee approved his base salary adjustment and his sales incentive plan and incentive target levels for 2008.

Distribution of Pay Elements Among Base Salary, Annual Incentives and Long-Term Incentives

The Company delivers compensation to its executive officers through a mix of base salary, annual incentive, long term incentive, benefit plans, perquisites and deferred compensation plans. Prior to January 1, 2009, the plans and the target opportunities for base salary, annual incentive and long-term incentives were reviewed annually by the compensation committee to ensure that both total compensation and the mix of pay elements are competitive. The compensation committee also reviewed whether the goals reflected an adequate level of company performance. The NMIC human resources committee will conduct this review going forward, which will help to ensure that the Company continues to retain talent in key areas and provide a framework for recruiting new talent.

In 2008, management submitted proposed total direct compensation based on its review of market competitive trends, individual performance and internal comparisons for the compensation committee’s review and approval. For 2009 and going forward, the NMIC human resources committee will conduct this review and approval. The Company determines an appropriate mix of pay elements by using the market data trends as a guideline; however, in practice, it may adjust individual components above or below the mix represented in the market data while maintaining the recommended target total compensation range. Some of the reasons the Company may deviate from the mix of elements represented in market data include:

• recruiting needs based on compensation received in previous positions;

• variation in the market data that indicates that the market data may be volatile;

• differences between the Company’s position and the positions represented in the market data; and

• a desire to change the alignment of the Company’s incentives between short-term and long-term goals.

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For 2008, the above analysis resulted in the following target compensation levels for the named executive officers:

Name	Base salary (percentage of target total compensation)		Target annual incentive percentage (percentage of target total compensation)	Target long-term incentive (percentage of target total compensation)		Total compensation target		Percentage of total target attributed to target incentives
W. G.	$	215,775	150.0%	$	1,212,450	$	1,751,888	87.7%
Jurgensen1		(12.3%)	(18.5%)		(69.2%)
Timothy G.	$	315,000	65.0%	$	391,000		910,750	65.4%
Frommeyer		(34.6%)	(22.5%)		(42.9%)
Mark R.	$	650,000	105.0%	$	1,253,300		2,565,300	74.9%
Thresher		(25.1%)	(26.4%)		(42.9%)
Michael A.	$	285,000	65.0%	$	225,000		695,250	59.0%
Hamilton		(41.0%)	(26.6%)		(32.4%)
John L.	$	330,000	100.0%	$	326,000		986,000	66.5%
Carter		(33.5%)	(33.5%)		(32.3%)

¹ Figures shown for Mr. Jurgensen represent the amounts allocated to NFS under the cost sharing agreement. Percentages are calculated based on the total compensation elements, including unallocated amounts that are not shown in the table.

The elements summarized in the table above illustrate the following points relative to the Company’s philosophy that there should be a link between pay and performance, and that a substantial percentage of executive compensation should be conditional or contingent upon both the Company’s performance and each executive officer’s individual performance:

• Consistent with market practices, a relatively small percentage of the total compensation should be distributed as base salary, because compensation should primarily be delivered consistent with performance for the Company’s most senior executives.

• A substantial percentage of the total should be distributed as incentives through a mixture of annual and long-term incentive programs.

• Consistent with market trends, the Company’s most senior executives should have a significant portion of total compensation weighted toward long-term incentives, and executives lower in the organization should have a lesser portion of total compensation weighted towards long-term incentives.

• For all of the Company’s named executive officers, with the exception of Messrs. Hamilton and Carter, the largest percentage of the total should be attributed to long-term incentives. Long-term incentives are focused on achievements over multiple years and most closely align with building sustained value.

• Mr. Hamilton’s position has evolved over time and the duties have changed significantly since he assumed his current role. His high level of performance contributed to the significant weight on his base salary for 2008, although the mix of elements was within the range represented in the market data.

• Mr. Carter’s annual and long-term incentives should be relatively equally distributed, as his role is more heavily focused on current year achievements, goals and objectives than other members of the President and Chief Operating Officer’s management team, whose incentives are more focused on the Company’s broader financial measures.

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2008 Compensation Programs Design and Implementation

In this section the following items are discussed:

• what the Company intends to accomplish with its compensation programs;

• why the Company provides each element of compensation;

• how the Company determines the amount for each element of compensation; and

• the impact of performance on compensation.

The principal components of 2008 compensation for the named executive officers are salary, annual incentive and long-term incentive. Each component of compensation serves a different purpose, as discussed in “Compensation Objectives and Philosophy.”

Base Salary

In determining adjustments to the named executive officers’ salaries for 2008, the compensation committee evaluated the following:

• salaries for comparable positions in the marketplace, taking scope of responsibility into account;

• the Company’s recent financial performance, both overall and based on key financial indicators;

• the annual performance evaluation of each executive officer compared to previously established objectives; and

• recommendations from management.

The Company allocated base salary for Mr. Jurgensen using a capital-based driver that reflects a combination of relative size, risk, profitability and amount of time spent on NFS proportionate to other companies within Nationwide. To approve adjustments in Mr. Jurgensen’s base salary allocation, the compensation committee reviewed the recommendation from management to apply the formula for the capital-based driver and concluded that the resulting salary allocation reflected a reasonable amount based on the services he provided to NFS.

Aggregate base salary rates for the named executive officers dedicated solely or primarily to the Company, and allocated base salary rates for Mr. Jurgensen increased by a weighted average of 4.5% in 2008. The compensation committee established these base salary rates for the non-shared named executive officers at levels consistent with the philosophy, objectives and factors described above. The overall salary increase percentage reflects the impact of competitive market data and individual and company performance, and enables the Company to maintain competitive salaries.

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The table below identifies the percentage increase or decrease in base salary or allocated base salary, as applicable, for the named executive officers in 2008 as compared to 2007. The table also sets forth the reasons for the change.

Name	% Change		Rationale
W.G. Jurgensen	13.6	%	There was no change in Mr. Jurgensen’s base salary rate as his salary was at a competitive level compared to the median market data; however, there was an increase in the percentage of his base salary allocated to NFS.
Timothy G. Frommeyer	3.3	%	Mr. Frommeyer achieved his performance expectations compared to pre-established objectives with respect to improving key processes on strategic planning, operational planning, forecasting, expense management, risk management and capital management.
Mark R. Thresher	1.6	%	Mr. Thresher’s base salary was slightly below the median of the market data based on Towers Perrin’s analysis. He achieved his 2007 performance expectations compared to pre-established objectives.
Michael A. Hamilton	6.3	%	Mr. Hamilton exceeded his 2007 performance objectives with respect to the evaluation and restructuring of his distribution channels, including a significant savings to the NFN business unit.
John L. Carter	4.8	%	Mr. Carter exceeded his 2007 performance expectations compared to pre-established objectives with respect to sales of variable annuities, establishing relationship management as a core capability, and installing a consistent, disciplined sales process for the Company’s wholesalers to follow.

The table below identifies, for the named executive officers dedicated solely or primarily to NFS, a comparison of base salary as a percentage of comparable market data reviewed for similar positions. The Company is unable to compare allocated salaries for the Chief Executive Officer to benchmark data as competitive market data does not recognize an allocated structure.

Name	Base salary compared to median market data
Timothy G. Frommeyer	111.4% of the median market data
Mark R. Thresher	98.5% of the median market data
Michael A. Hamilton	110.0% of the median market data
John L. Carter	100.0% of the median market data

The Company’s overall pay philosophy is to establish base salaries that are generally at the median of the companies represented in its market data. A departure from the median is typically based on factors such as incumbent experience and industry or functional expertise, scope of job responsibilities as compared to similar positions in the market, special retention needs and executive performance. Towers Perrin considers pay within plus or minus 10% of the median to be competitive, because as market data varies from year to year, market adjustments are not considered to be appropriate for data changes within this range.

Annual Incentive: Performance Incentive Plan and Sales Incentive Plan

In 2008, the Company used annual incentive plans to provide a substantial portion of its executive officers’ total compensation in the form of at-risk pay, which promoted the Company’s pay-for-performance philosophy for the named executive officers. These plans provide participants with direct financial rewards in the form of annual incentives the participants earn subject to the achievement of key financial and strategic objectives. Plan metrics vary based on each executive officer’s role and will be discussed in more detail below.

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In each year prior to 2009, the compensation committee set specific company performance measures, goals for threshold, plan and outstanding results, and weightings for each measurement area under each broad-based plan in which the named executive officers participate. The compensation committee approved a target incentive award opportunity as a percentage of base salary for each participant. For 2009, the NMIC human resources committee approved all payments made under these plans and any other plans used to compensate the named executive officers. The Company bases award opportunities on the executive officers’ responsibilities, their value to the Company and the target incentive opportunities for executive officers in similar positions at companies reported in the competitive market data. The use of this market data is discussed for each named executive officer in “Compensation Objectives and Philosophy.”

The Company allocated annual incentives for Mr. Jurgensen using a contribution methodology that reflected the Company’s relative contribution to the overall score resulting from the weighted performance metrics. The allocation methodology was as follows:

• the Company did not allocate incentives resulting from metrics based on business unit performance other than NFS business units;

• the Company allocated 100% of the incentives resulting from metrics specific to NFS;

• the Company allocated incentives resulting from Nationwide metrics, of which the Company’s performance is a component, at the rate the Company contributed to the overall performance of those metrics; and

• the Company allocated incentives resulting from non-financial or strategic objectives for the Chief Executive Officer using the capital-based driver described in “Base Salary.”

Performance Incentive Plan

Under the Performance Incentive Plan (PIP), the Company makes annual payments to certain executive officers. In 2008, all of the named executive officers participated in the PIP, with the exception of Mr. Carter, who participated in the Sales Incentive Plan for reasons discussed below. Under the PIP, the participant is assigned a target incentive amount representing a percentage of the participant’s year-end base salary, which is up to 150% depending on the individual’s position, as discussed in “Benchmarking and Compensation Target-Setting Process.” The actual amount participants receive under the PIP will be a percentage of the target incentive depending on the achievement of the business and individual performance measures.

The Company’s performance measures under the PIP are based on a broad series of key financial, business and strategic results, as well as individual performance measures. The specific measures vary by executive officer depending on individual positions and roles.

For 2008, the compensation committee authorized the use of discretion by the Chief Executive Officer to adjust incentive payments after the above adjustments are applied by up to plus or minus 25%. Proposed adjustments greater than plus or minus 25% require the NMIC board of directors’ approval, as does a final score greater than 250% of the target amount. The Chief Executive Officer may use discretion to determine if the accomplishments are not adequately reflected in the calculated performance score, and may include, but are not limited to:

• changes in industry and competitive conditions that occur after target setting;

• execution and achievement of key performance indicators that have a longer-term financial impact;

• performance on key performance indicators, such as customer experience, associate engagement and agency ratings, that may not be reflected in the financial results; and

• achievement of financial results consistent with Nationwide’s values.

The Chief Executive Officer did not exercise this discretion for 2008 incentive payments.

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The Company determines the annual incentive performance metrics and weights after an analysis of its financial and strategic goals and those of Nationwide, such as revenue growth, profitability and capital efficiency, and strategic objectives. With the exception of the strategic objectives, these are standard financial metrics the Company uses to measure its performance. External analysts also use them to measure the Company’s performance against that of its peers. Prior to 2009, when determining performance levels for the PIP payout scale, the compensation committee considered the probability of attaining performance levels, historical performance and payouts, industry and competitor outlook, run rate trend and plan, and business mix and performance volatility. The 2008 relationship between business plan performance and incentive payments under the PIP for metrics that are specific to the Company was as follows:

• attainment of 85% of the business plan would have generated an incentive payment of 50% of the target amount;

• attainment of 100% of the business plan would have generated an incentive payment of 100% of the target amount; and

• attainment of 115% of the business plan would have generated an incentive payment of 200% of the target amount.

The financial goals used in the tables below are defined as follows:

• The Company calculates “net operating (loss) earnings” by adjusting net (loss) income to exclude the following, all net of taxes:

• non-operating net realized investment gains and losses;

• discontinued operations; and

• the cumulative effect of adoption of accounting principles.

• The Company calculates “NFS net operating return on average equity excluding accumulated other comprehensive income (AOCI)” by dividing net operating earnings by average shareholders’ equity excluding accumulated other comprehensive income.

• The Company calculates “NFS operating revenues” by adjusting total revenues to include only net realized investments gains and losses that are related to operating items, such as periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, net realized gains and losses related to hedges on GMDB contracts and securitizations.

• “Sales” refers to a production volume metric that the Company regularly monitors and reports. Sales or similar measures are commonly used in the insurance industry as a measure of the volume of new and renewal business generated in a period. Sales are not derived from any specific GAAP income statement accounts or line items and should not be viewed as a substitute for any financial measure determined in accordance with GAAP, including sales as it relates to non-insurance companies. Additionally, the Company’s definition of sales may differ from that used by other companies. As used in the insurance industry, sales, or similarly titled measures, generate customer funds managed and administered, which ultimately drive revenues. As calculated and analyzed by management, statutory premiums and deposits on individual and group annuities and life insurance products calculated in accordance with accounting practices prescribed or permitted by regulatory authorities and deposits on administration-only group retirement plans and the Company’s advisory services program are adjusted as described below to arrive at sales. Life insurance premiums determined on a GAAP basis are significantly different than statutory premiums and deposits. Life insurance premiums determined on a GAAP basis are recognized as revenue when due, as calculated on an accrual basis in proportion to the service provided and performance rendered under the contract. In addition, many life insurance and annuity products involve an initial deposit or a series of deposits from customers. These deposits are accounted for as such on a GAAP basis and, therefore, are not reflected in the GAAP income statement. On a statutory basis, life insurance premiums collected on a cash basis, and deposits received on a cash basis, are aggregated and reported as statutory premiums and annuity consideration revenues. Sales, as reported by the Company, are stated net of internal replacements, which the Company believes provides a more meaningful disclosure of production in a given period. In addition, the Company’s definition of sales excludes funding issued under its MTN program; asset transfers associated with large case BOLI and large case retirement plan acquisitions; and deposits into Nationwide employee and agent benefit plans. Although these products contribute to asset and earnings growth, their production flows potentially can mask trends in the underlying business and thus do not provide meaningful comparisons and analyses. The Company believes that the presentation of sales as measured for management purposes enhances the understanding of its business and helps depict longer-term trends that may not be apparent in the results of operations due to differences between the timing of sales and revenue recognition.

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For 2008, the compensation committee approved the following objectives under the PIP, which included a method to measure the Company’s financial performance relative to the peer companies included in the performance graph. The target amounts for the PIP vary by executive officer based on the analysis discussed in “Benchmarking and Compensation Target-Setting Process.” Following are the annual incentive performance metrics and weights for Messrs. Jurgensen, Frommeyer, Thresher and Hamilton:

2008 PIP Metrics and Performance for W. G. Jurgensen, Timothy G. Frommeyer,

Mark R. Thresher and Michael A. Hamilton

	Weights (%)				2008 established business goals			2008 incentive performance results			Allocation methodology
Metric	W. G. Jurgensen	Timothy G. Frommeyer	Mark R. Thresher	Michael A. Hamilton
Enterprise consolidated net operating income1	30	10	30	10	$	681,500,000	4	$	85,600,000	4	NFS’s contribution to consolidated net operating income for Mr. Jurgensen, otherwise allocated 100% to NFS
NFS net operating earnings per diluted share2	20	36	28	36	$	4.90		$	0.62		Allocated 100% to NFS
NFS operating revenue growth		36	28	36		5.73%			(8.72)%		Allocated 100% to NFS
NFS net operating return on average equity, excluding AOCI		18	14	18		12.00%			1.70%		Allocated 100% to NFS
Strategic non-financial objectives	30					Discussed below			92% of plan		Capital-based driver
Other business unit metrics3	20					Not applicable			Not applicable		No allocation to NFS

¹ Consists of net operating income for Nationwide, including the portion attributed to NFS that is listed in the table.

² For Messrs. Frommeyer, Thresher and Hamilton, performance at the threshold level must be achieved in order for payment to be earned from NFS operating revenue growth or NFS net operating return on average equity, excluding AOCI.

³ These objectives do not relate to NFS, and the Company does not pay for incentives based upon them.

⁴ Represents NFS net operating income only. This amount is unaudited.

Sales Incentive Plan

John L. Carter participated in the Sales Incentive Plan (SIP) in 2008. The primary focus of this plan was on non-affiliated sales channel results and the Company’s overall business segment sales results. These metrics represent 85% of his total target incentive. As Mr. Carter is the leader of the sales organization, the SIP was designed with a primary emphasis on results that his management directly influences. These metrics are consistent with prevalent practices for similar roles in the industry. In addition, 15% of his 2008 scorecard had the same metrics under which the Company measures other members of the President and Chief Operating Officer’s management team, thus maintaining alignment with the Company’s overall financial goals. For 2008, the maximum award opportunity for the plan was 150% of his base salary. The Chief Executive Officer had the discretion to adjust this award to up to 250% of base salary, subject to approval by the NMIC human resources committee of the final payment under the SIP. The Chief Executive Officer did not exercise this discretion in 2008.

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When determining the performance levels for the payout under the SIP, the compensation committee considered the current plan year to new plan year rates of sales growth. The Company used a different incentive scale for each of its various business segments and distribution channels to reflect key differences among the business segments and distribution channels, such as:

• the competitive environment in which each business segment and distribution channel operates;

• the outlook for sales growth of the industry and competitors;

• the level of maturity of each business segment and distribution channel, and historical rates of sales growth the Company has achieved; and

• the Company’s expectation as to the difficulty of achieving the planned rates of sales growth in each business segment and distribution channel.

Attaining 100% of the planned sales level for 2008 would have generated an incentive payment ranging from as low as 100% of the target level in some business segments and distribution channels to as high as 130% of the target level in others.

Following are the annual incentive performance metrics and weights for the SIP:

2008 SIP Metrics and Performance for John L. Carter

Performance criteria1	Weight	2008 established goals			2008 incentive performance results1
Non-affiliated channel sales goals (weighted 57%):
Independent broker/dealers	22.78%	$	6,860,200,000		$	5,313,900,000
Wirehouse and regional firms	17.09%		3,265,800,000			2,399,400,000
Financial institutions	17.09%		2,874,400,000			2,381,400,000
Business segment goals (weighted 28%):
Individual Investments	11.22%	$	7,231,800,000		$	5,012,300,000
Retirement Plans Group (Private Sector)	7.01%		7,065,400,000			5,861,400,000
Retirement Plans Group (Public Sector)	1.40%		4,475,200,000			4,478,500,000
Individual Protection (total 1st year)	5.61%		320,200,000			273,700,000
Individual Protection (total renewal)	1.75%		932,700,000			887,900,000
Individual Protection (corporate)	1.05%		503,300,000			545,100,000
NFS metrics (weighted 15%):
Enterprise consolidated net operating income2	2.00%	$	681,500,000	3	$	85,600,000
NFS net operating earnings per diluted share4	5.00%	$	4.90		$	0.62
NFS operating revenue growth	5.00%		5.73%			(8.72)%
NFS net operating return on average equity, excluding AOCI	3.00%		12.00%			1.70%

¹ These amounts are unaudited.

² Consists of net operating income for Nationwide, including the portion attributed to NFS that is listed in the table.

³ Represents the Company’s net operating income only.

⁴ Performance at the threshold level must be achieved in order for payment to be earned from NFS operating revenue growth or NFS net operating return on average equity, excluding AOCI.

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Determination of the Final Payments

To determine the 2008 annual incentive compensation payments for the named executive officers, the NMIC board of directors assessed each executive officer’s performance under the PIP or SIP, as applicable, considering the measures in the tables above, as well as the executive officer’s overall performance, the Company’s overall financial performance and individual objectives. In assessing final performance for the PIP, the NMIC human resources committee reviewed actual performance relative to established goals and considered the following items: earnings quality, industry results, achievement of strategic performance metrics and capital stewardship. The NMIC human resources committee did not adjust the financial results following this review.

For Mr. Jurgensen, the NMIC board of directors also considered non-financial objectives that were proposed by management, including Mr. Jurgensen, reviewed and discussed by the compensation committee and the NMIC human resources committee, and approved by the full board. These non-financial objectives focused on the following five categories:

• Nationwide’s associates:

• creating an engaging work experience for associates;

• continuing a cultural transformation based on Nationwide’s core and performance values and its beliefs about diversity and inclusion;

• ensuring a diverse talent pipeline for senior leadership positions;

• creating and emphasizing a culture of innovation with respect to the products, services and processes of the companies; and

• implementing a learning and development strategy across Nationwide.

• Nationwide’s customers:

• creating a customer experience that differentiates Nationwide from its competitors; and

• growing Nationwide’s base of customers.

• Nationwide’s relative performance:

• identifying relevant strategic and peer group performance measures; and

• improving the performance of Nationwide relative to its “best in class” competitors and the industry as a whole.

• Nationwide’s strategic planning and execution:

• strengthening the annual strategy process;

• improving the clarity of presentations to the board and obtaining input from the board as part of the continuous planning process;

• focusing Nationwide’s planning on market opportunities and growth strategies;

• identifying key risks and mitigation strategies; and

• determining and communicating the impact of the proposed strategies on the projected results of the companies.

• Mr. Jurgensen’s effectiveness in building relationships and communicating effectively with key stakeholders.

Each director on the NMIC board of directors and five members of the Company’s former board of directors gave Mr. Jurgensen a rating on a three-point scale for each objective and an overall rating on the same scale. Towers Perrin summarized the results and met with the chairman of the NMIC board to review them. Towers Perrin then met with the NMIC human resources committee to discuss the ratings and arrive at an overall score that was approved by the NMIC board of directors.

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The resulting cash payouts, which are shown in column (g) of the “Summary Compensation Table for 2008,” are as follows:

Name	Comparison of annual incentive payment to target	Summary of rationale
W. G. Jurgensen	0% of target	Performance on the financially-based PIP objectives did not meet the threshold level required for payment. Performance on the strategic non-financial objectives would have produced a payment of 28% of the target amount. However, the NMIC human resources committee and the Chief Executive Officer decided that a payment based solely on these objectives was not appropriate in consideration of the financial performance of Nationwide, the lack of incentive payments to other participants in the PIP and the current economic environment. Therefore, the NMIC human resources committee used its discretion to eliminate any payment under the PIP.
Timothy G. Frommeyer	0% of target	Performance on the PIP objectives did not meet the threshold level required for payment.
Mark R. Thresher	0% of target	Performance on the PIP objectives did not meet the threshold level required for payment.
Michael Hamilton	0% of target	Performance on the PIP objectives did not meet the threshold level required for payment.
John L. Carter	8% of target	Performance compared to the SIP objectives.

Neither the NMIC human resources committee nor the Chief Executive Officer exercised discretion to adjust payments under the PIP or the SIP.

Changes in Metrics for 2009

In 2008, the NMIC human resources committee considered incentive plan alternatives for 2009 intended to drive objectives that changed due to the Company’s change in operating structure, as well as an increased emphasis on the Nationwide customer experience. Annual incentive design was intended to fulfill the following objectives:

• emphasize a one-company culture while recognizing the need to maintain some business unit focus;

• focus on the Nationwide customer experience;

• consolidate and streamline incentive plans and metrics where possible; and

• align plans between associates and management.

This analysis resulted in assessment of the following metrics for 2009:

• consolidated net operating income, which includes net operating income attributed to NFS;

• a customer enthusiasm metric, which is intended to align NFS with Nationwide’s goal of an integrated customer experience; and

• net flows, which is a business unit metric intended to maintain the Company’s alignment with its profit objectives.

These metrics will replace NFS net operating earnings per diluted share, NFS operating revenue growth and NFS net operating return on average equity excluding AOCI in 2009 for Messrs. Frommeyer and Thresher. Mr. Carter will continue to be measured based upon non-affiliated sales results, weighted 85%, and these new metrics, weighted 15%.

Mr. Hamilton will be measured on a sales incentive plan for 2009, which will consist of NFN affiliated sales goals, weighted 76.5%, business segment goals, weighted 8.5%, and the above new metrics, weighted 15%.

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Long-Term Incentive

In 2008, the compensation committee administered the Fourth Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan (LTEP) to award long-term incentives to the named executive officers. Long-term incentive compensation constitutes a significant portion of an executive officer’s total compensation package, consistent with the Company’s philosophy of emphasizing pay that is conditional or contingent on the Company’s performance. In the past, the Company accomplished its objectives by using a mix of nonqualified stock options and Nationwide Value Added (NVA) awards. However, in 2008 the methodology for linking the Company’s long-term awards to its compensation objectives changed as a result of the merger with NMIC, Nationwide Corporation and NWM Merger Sub, Inc., whereby NFS became a wholly owned subsidiary of Nationwide Corporation. The merger is explained above in “Change in Operating Structure in 2009.” In previous years, the Company’s executive officers received up to 50% of their long-term awards in stock options. In anticipation of the proposed merger, the Company replaced the long-term incentive awards it previously delivered in stock options for most participants, including Mr. Hamilton, with NVA awards, which create a link between executive officers and Nationwide. In order to avoid any potential conflict of interest in connection with the proposed merger, the Company did not replace the stock option awards of Messrs. Jurgensen, Thresher, Frommeyer and Carter with NVA awards. As a result, their long-term incentive awards for 2008 were lower by 25% for Mr. Jurgensen and 50% for Messrs. Thresher, Frommeyer and Carter. At their February 18, 2009 meeting, however, the NMIC human resources committee approved NVA awards retroactive to January 1, 2008, in the amounts that would have been otherwise granted in 2008, for each of those executive officers.

The NVA metric rewards long-term performance based on the creation of economic value. The NVA performance score consists of net income after capital charge (NIACC). In 2008, the Company eliminated an additional metric, which measured the year-over-year change in NIACC, because a continuous growth metric became unsustainable due to the ongoing growth of the Company’s capital base. The Company creates economic value and awards target incentive amounts when NIACC equals the cost of capital plus 0.5%. The incentive award will be lesser or greater to the extent actual performance is above or below this amount. The Company calculates the metric by dividing net income, adjusted from actual results for certain accounting and one-time financial transactions, by the average capital of Nationwide. The Company compares the result of this calculation to its cost of capital plus 0.5%, which was 8.5% for 2008.

If the final performance score for the year is equal to one, the Company will award the target incentive amount. If the performance score is less than one, then the incentive award will be less than target, and may be negative. If the performance score is greater than one, the incentive award will be greater than target.

At their February 19, 2008, meeting, the compensation committee also approved a new factor for the time value of money, which the Company determined using market data provided by Towers Perrin. Because of the long-term nature of the payment method the Company uses, in which it pays one-third of the bank balance each year, a factor for the time value of money allows participants to have the opportunity to receive target incentive for year-over-year target performance. For 2008, the time value of money was recommended by Towers Perrin to be 28%, which was added to the target award.

Each executive officer’s long term incentive target is multiplied by the time value of money factor and by the final performance score to determine the current year award. The award is added to or subtracted from the opening balance of a bookkeeping account for the executive officer, which is referred to as a “bank.” The executive officer receives one-third of the positive bank balance, if any, as the long term incentive payment. The remaining two-thirds of the bank may be carried over to the bank of any NVA award that may be granted the following year.

As discussed in “Benchmarking and Compensation Target-Setting Process,” the Company established long-term incentive targets based on a review of relevant market data and/or comparisons to other business segment heads. The NVA award payment is based on NVA performance, and all participants are subject to the same calculation. At their meeting on February 18, 2009, the NMIC human resources committee did not approve a final performance score for 2008. As a result, any decisions regarding payments to the Company’s named executive officers for 2008 will be made at a future date. As no cash payments resulting from the 2008 target amount were made as of this filing, there are no award amounts reported for the 2008 performance period reported in column (g) of the “Summary Compensation Table for 2008.”

Personal Benefits and Perquisites

The Company provides to executive officers certain perquisites and other personal benefits, including pension and savings plans, deferred compensation plan, and personal perquisites it believes are consistent with market competitive practices. Incremental costs, as applicable, are included in columns (h) and (i) of the “Summary Compensation Table for 2008.”

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Termination Benefits and Payments

It is Nationwide’s practice to provide severance agreements to the Chief Executive Officer and a limited number of senior executive officers, including most of the Chief Executive Officer’s direct reports. Of the named executive officers, the Company has entered into a severance agreement with Mr. Thresher and NMIC has entered into a severance agreement with Mr. Jurgensen. The Company believes these agreements are a standard industry practice for these positions and are necessary to attract and retain executive officers at this level. The agreements provide certain protections to the executive officer with regard to compensation and benefits. In exchange for those protections, the executive officer agrees to keep Company information confidential, agrees not to solicit the Company’s employees or customers and agrees not to compete with Nationwide. The Company provides additional information with respect to post-termination benefits provided under these severance agreements in “Potential Payments Upon Termination or Change of Control.”

Certain termination-of-employment events may trigger post-termination payments and benefits in the event that a severance agreement does not apply to the payments and benefits. Those events include retirement, severance, termination for cause, death, disability and voluntary termination. The details of the benefits and payments made upon termination are described in “Potential Payments Upon Termination or Change of Control.”

Stock Ownership Guidelines

The compensation committee and board of directors adopted stock ownership guidelines in 2002, which were subsequently revised in 2006, to encourage executive officers to build and maintain ownership of NFS Class A common stock. In August, 2008, the compensation committee reviewed ownership level achievement for all executive officers subject to the ownership guidelines. All of the named executive officers had either achieved their ownership requirement or were within the five-year period specified by the guidelines to achieve the requirement.

The ownership guidelines became inapplicable as of January 1, 2009, the effective date of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., and the date on which NFS Class A common stock ceased trading on the New York Stock Exchange.

Policy on Disgorgement of Compensation

If the Company restates a financial statement due to material noncompliance with any financial reporting requirement under the securities laws, and such noncompliance is a result of misconduct, the Chief Executive Officer and the Chief Financial Officer are required to reimburse the Company for any bonuses and other incentive-based or equity-based compensation they received, and any profits they may have realized from the sale of NFS securities, when such securities were available, within the twelve-month period beginning on the date on which the Company first publicly issued the financial statements that were later restated or filed the financial statements with the Securities and Exchange Commission, whichever occurs first.

Impact of Regulatory Requirements on Compensation: Policy on Deductibility of Compensation

Section 162(m) of the Internal Revenue Code provides that executive compensation in excess of $1,000,000 paid to certain executive officers of publicly held corporations 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 Internal Revenue Code.

In 2008 and previous years, the compensation committee relied on performance-based compensation programs that are intended to meet these requirements. Programs have been designed to meet, in the best possible manner, corporate business objectives. Awards under the LTEP are intended to qualify as “performance-based compensation” for the purposes of Section 162(m) of the Internal Revenue Code. As of the date of this report, all compensation the Company paid to its named executive officers in 2008 is deductible compensation under Section 162(m) of the Internal Revenue Code. However, since the NMIC human resources committee did not approve payments under the LTEP, there may be non-deductible compensation awarded at a future date.

As of January 1, 2009, NFS is no longer a publicly held corporation as defined in Section 162(m) of the Internal Revenue Code and it will not be subject to the limitation on deductibility of non-performance-based compensation.

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Conclusion

As discussed in “Compensation Objectives and Philosophy,” the Company designs its compensation programs to be competitive, to attract and retain top talent and to drive the Company’s performance, with the ultimate goal of increasing stakeholder and customer value. To attain these objectives, the Company compares itself to other companies that are similar in setting pay levels, financial objectives and individual objectives. In 2008, the financial objectives for incentive purposes were established to reward value-creating performance and the Company awarded a substantial percentage of total compensation opportunity to its named executive officers in the form of pay at risk. The Company’s annual financial results did not meet the minimum threshold for payment for most of its named executive officers, and therefore total compensation for each of the named executive officers declined significantly from 2007 to 2008, commensurate with the Company’s pay for performance philosophy.

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Compensation Committee Report

The board of directors of the Company has reviewed and discussed the compensation discussion and analysis required by Item 402(b) of Regulation S-K with management. Based on this review and discussion, the board of directors included the compensation discussion and analysis in this report.

Nationwide Financial Services, Inc. Board of Directors

Timothy G. Frommeyer

Lawrence A. Hilsheimer

Mark R. Thresher

Certain of the Company’s executive officers, including Mr. Jurgensen, provide services to other Nationwide companies in addition to NFS. The human resources committee of NMIC, the Company’s ultimate parent company, determines the compensation paid to these executive officers for service to other Nationwide companies. For 2008, the compensation committee determined the portion of total compensation for these executive officers that is allocated to the Company. The Company then paid that allocated portion in accordance with the terms of the cost-sharing agreement among NMIC and certain of its subsidiaries, including NFS. Other Nationwide entities paid the remaining portion of the compensation for the shared executives, including Mr. Jurgensen, according to this cost sharing agreement. Amounts reported reflect only the portion of compensation that NFS and its subsidiaries paid, unless otherwise noted. See “Certain Relationships and Related Transactions” for a description of the cost-sharing agreement.

Compensation Committee Interlocks and Insider Participation

Following the closing of the merger between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc. on January 1, 2009, the Company’s board of directors ceased to have a compensation committee. Prior to May 2008, the compensation committee consisted of Messrs. Brocksmith, Miller, Prothro and Shumate and Ms. Miller de Lombera. Following Mr. McWhorter’s retirement from the board in May 2008, Ms. Miller de Lombera and Mr. Shumate were elected to the compensation committee. No member of the compensation committee was an executive officer or employee of NFS or a former executive officer or former employee of NFS. No members of the Company’s former compensation committee had any relationship with NFS requiring disclosure pursuant to Item 404 of Regulation S-K of the Securities Exchange Act of 1934 during fiscal year 2008.

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Summary Compensation Table for 2008

Name and principal position	Year	Salary		Bonus			Stock awards2		Option awards3		Non-equity incentive plan compensation		Change in pension value and non qualified deferred compensation earnings7			All other compensation			Total
(a)	(b)	(c)		(d)			(e)		(f)		(g)		(h)			(i)			(j)
W.G. Jurgensen, Chief Executive Officer	2008	$	215,775	$	—		$	—	$	1,015,467	—		$	284,766		$	56,232	8	$	1,572,240
	2007		189,945		—			—		1,093,768	662,820	4		316,397			50,625			2,313,555
	2006		244,105		—			—		913,664	2,397,018	5		193,753			64,290			3,812,830
Timothy G. Frommeyer, Senior Vice President - Chief Financial Officer	2008		312,308					—		131,481	—			(32,327	)		20,453	9		431,915
	2007		300,962		20,904	1		—		132,392	371,035	4		168,345			33,088			1,026,726
	2006		290,000		31,475			—		88,823	590,181	5		105,972			17,677			1,124,128
Mark R. Thresher, President and Chief Operating Officer	2008		647,308					—		434,662	—			205,629			49,995	10		1,337,594
	2007		623,846		—			—		473,940	1,259,031	4		364,527			70,560			2,791,904
	2006		567,885		30			—		414,207	2,038,208	5		210,570			48,488			3,279,388
Michael A. Hamilton, Senior Vice President - NFN Retail Distribution	2008		280,423		—			—		24,603	—			20,415			444,547	11		769,988
John L. Carter, Senior Vice President - Non-Affiliated Sales	2008		325,962		—			63,678		107,169	25,245	6		29,807			24,855	12		576,716
	2007		310,961		—			84,903		108,444	444,668	4		15,480			59,094			1,023,550
	2006		300,000		125,000			143,788		71,914	732,000	5		15,088			122,200			1,509,990

¹ Represents the amount determined under the PIP and paid under the SEIP in 2008 for the 2007 performance year that was not attributable to the financial objectives under the PIP. This amount, when included with the SEIP amount described in footnote 4 below for Mr. Frommeyer, resulted in a total SEIP payment of $288,542.

² Represents the value the Company expensed in 2008, 2007 and 2006 for a restricted stock award granted to Mr. Carter in 2005. The Company determined the value based on the market closing price of NFS Class A common stock as of the date of the grant.

³ Represents the value the Company expensed in 2008, 2007 and 2006 for stock option awards, disregarding any forfeitures. The Company describes the assumptions used in the valuation in Note 2(s) to the audited consolidated financial statements included in the F pages of this report and Notes 2(r) and 2(o) to the NFS Annual Reports on Form 10-K for the years ended December 31, 2007 and 2006, respectively.

⁴ Represents the amount determined under the PIP for Messrs. Jurgensen, Frommeyer and Thresher, or the SIP for Mr. Carter, and paid under the SEIP in 2008 for the 2007 performance year that was attributable to financial or pre-established strategic objectives, and the amount earned in 2007 under the LTEP for the NVA award attributable to the 2007 performance year and allocated to the Company pursuant to the cost-sharing agreement, as follows: Mr. Jurgensen—$662,820 (SEIP) and $0 (NVA); Mr. Frommeyer—$267,638 (SEIP) and $103,397 (NVA); Mr. Thresher—$920,640 (SEIP) and $338,391 (NVA); and Mr. Carter—$363,668 (SEIP) and $81,000 (NVA). One-third of the NVA award was paid in cash and two-thirds were placed in a bank, which may be carried forward to subsequent years and is subject to forfeiture.

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⁵ Represents the amount determined under the PIP for Messrs. Jurgensen, Frommeyer and Thresher and under the SIP for Mr. Carter, and paid under the SEIP in 2007 for the 2006 performance year that was attributable to financial or pre-established strategic objectives, and the amount earned in 2006 under the LTEP for the NVA award attributable to the 2006 performance year and allocated to the Company pursuant to the cost-sharing agreement, as follows: Mr. Jurgensen – $354,526 (SEIP) and $2,042,492 (NVA); Mr. Frommeyer – $214,890 (SEIP) and $375,291 (NVA); Mr. Thresher – $809,970 (SEIP) and $1,228,238 (NVA); Mr. Carter – $438,000 (SEIP) and $294,000 (NVA). One-third of the NVA award was paid in cash and two-thirds were placed in a bank, which may be carried forward to subsequent years and is subject to forfeiture.

⁶ Represents the amount determined under the SIP for Mr. Carter for the 2008 performance year.

⁷ Represents the change in pension value for all named executive officers, except for Mr. Frommeyer, whose pension value decreased by $32,327. There were no above-market earnings on deferred compensation.

⁸ Represents the amounts allocated to the Company under the cost-sharing agreement for tax gross-ups totaling $619 for reimbursement of personal expenses related to Mr. Jurgensen’s and his spouse’s attendance at the 2008 NFS Awards Conference; actual cost to the Company of a security system for Mr. Jurgensen’s home; actual cost to the Company of the personal use of tickets to sporting events at the Nationwide Arena; the Company-paid portion for Mr. Jurgensen’s parking expenses in the executive parking garage; the contributions the Company made on behalf of Mr. Jurgensen under the Nationwide Savings Plan; the contribution the Company made on behalf of Mr. Jurgensen under the Nationwide Supplemental Defined Contribution Plan in the amount of $16,806; the incremental cost of Mr. Jurgensen’s personal use of the company plane in the amount of $35,276; and reimbursement for spousal travel expenses. Incremental value of the personal use of the company plane was calculated using the “Aircraft Cost Evaluator” from Conklin & deDecker as the direct operating costs, including fuel, maintenance, landing and parking fees, crew expenses and catering. There were no “deadhead flights” related to personal travel in 2008.

⁹ Represents a tax gross-up of $2,428 for reimbursement of personal expenses related to Mr. Frommeyer’s and his spouse’s attendance at the 2008 NFS Awards Conference; contributions made by the Company on behalf of Mr. Frommeyer under the Nationwide Savings Plan; and the contribution the Company made on behalf of Mr. Frommeyer under the Nationwide Supplemental Defined Contribution Plan in the amount of $11,125.

¹⁰ Represents a tax gross up of $2,904 for reimbursement of personal expenses related to Mr. Thresher’s and his spouse’s attendance at the 2008 NFS Awards Conference; a tax gross-up of $22 for Mr. Thresher’s spouse’s meal; contributions made by the Company on behalf of Mr. Thresher under the Nationwide Savings Plan; and the contribution the Company made on behalf of Mr. Thresher under the Nationwide Supplemental Defined Contribution Plan in the amount of $40,169.

¹¹ Represents a tax gross-up of $2,929 for reimbursement of personal expenses related to Mr. Hamilton’s and his spouse’s attendance at the 2008 NFS Awards Conference; the contributions the Company made on behalf of Mr. Hamilton under the Nationwide Savings Plan; the contribution the Company made on behalf of Mr. Hamilton under the Nationwide Supplemental Defined Contribution Plan; the company-paid portion of Mr. Hamilton’s parking expenses in the executive parking garage; reimbursement for relocation expenses in the amount of $80,373; and a tax gross-up for relocation expenses in the amount of $339,503. The Company’s contributions on behalf of Mr. Hamilton under the Nationwide Savings Plan are 40% vested and the remaining 60% is subject to forfeiture until December 1, 2011. The Company’s contributions on behalf of Mr. Hamilton under the Nationwide Supplemental Defined Contribution Plan are unvested and are subject to forfeiture until December 31, 2011.

¹² Represents a tax gross up of $1,908 for reimbursement of personal expenses related to Mr. Carter’s and his spouse’s attendance at the 2008 NFS Awards Conference; contributions made by the Company on behalf of Mr. Carter under the Nationwide Savings Plan; the contribution the Company made on behalf of Mr. Carter under the Nationwide Supplemental Defined Contribution Plan in the amount of $13,789; and dividends the Company paid on unvested restricted stock in 2008. The Company’s contributions on behalf of Mr. Carter under the Nationwide Savings Plan are 60% vested and the remaining 40% is subject to forfeiture until October 1, 2010. The Company’s contributions on behalf of Mr. Carter under the Nationwide Supplemental Defined Contribution Plan are unvested and are subject to forfeiture until December 31, 2011.

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Grants of Plan-Based Awards in 2008

	Grant date (b)		Estimated future payouts under non-equity incentive plan awards			Estimated future payouts under equity incentive plan awards			All other stock awards: number of shares of stock units1 (i)	All other option awards: number of securities underlying options1 (j)	Exercise or base price of option awards1 (k)	Grant date fair value of stock and option awards1 (l)
Name (a)			Threshold (c)	Target (d)	Maximum (e)	Threshold (f)	Target (g)	Maximum (h)
W.G.	2/19/2008	3	161,831	323,663	—	—	—	—	—	—	—	—
Jurgensen2	2/19/2008	4	—	1,106,250	—	—	—	—	—	—	—	—
	2/18/2009	5	—	368,750	—	—	—	—	—	—	—	—
Timothy G.	2/19/2008	3	102,375	204,750	—	—	—	—	—	—	—	—
Frommeyer	2/19/2008	4	—	195,500	—	—	—	—	—	—	—	—
	2/18/2009	5	—	195,500	—	—	—	—	—	—	—	—
Mark R.	2/19/2008	3	341,250	682,500	—	—	—	—	—	—	—	—
Thresher	2/19/2008	4	—	626,650	—	—	—	—	—	—	—	—
	2/18/2009	5	—	626,650	—	—	—	—	—	—	—	—
Michael A.	2/19/2008	3	92,625	185,250	—	—	—	—	—	—	—	—
Hamilton	2/19/2008	4	—	225,000	—	—	—	—	—	—	—	—
John L.	2/19/2008	3	165,000	330,000	495,000	—	—	—	—	—	—	—
Carter	2/19/2008	4	—	163,000	—	—	—	—	—	—	—	—
	2/18/2009	5	—	163,000	—	—	—	—	—	—	—	—

¹ Due to ongoing negotiations related to the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., no equity plan awards were granted to the named executive officers in 2008.

² Amounts are allocated pursuant to the cost-sharing agreement.

³ Amount represents a PIP award for all of the named executive officers, with the exception of Mr. Carter, whose amount represents an SIP award. There is no maximum payment under the terms of the PIP.

⁴ Amount represents an NVA award made under the LTEP.

⁵ Amount represents an NVA award made under the LTEP. This award was granted retroactively to be effective for the performance period beginning January 1, 2008.

Annual Incentive

On February 19, 2008, the Company granted annual incentive award opportunities to the named executive officers. These award opportunities are reflected in the “Grants of Plan-Based Awards in 2008” table above in column (c), (d) and (e) and as earned in the “Summary Compensation Table for 2008” in column (g) for Mr. Carter.

Prior to January 1, 2009, the compensation committee used annual incentive plans and assessed individual overall performance, company financial performance and other goals, and distributed awards from the incentive pool pursuant to the PIP, or in the case of Mr. Carter, the SIP. Following the merger with NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the NMIC human resources committee distributes the awards.

The Chief Executive Officer may adjust payments under the PIP or SIP by plus or minus 25% subject to approval of the final payment by the NMIC human resources committee.

For 2008, the objective performance criteria the Company used to measure performance under the PIP and SIP are discussed in “Compensation Discussion and Analysis.”

In 2008, goals under the PIP were not met. The goals for Mr. Carter under the SIP were met at 8% of the target amount. This is discussed in more detail in “Compensation Discussion and Analysis.”

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Long-term Incentive Compensation

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

Prior to January 1, 2009, the compensation committee administered the Fourth Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan (LTEP). Stock and stock-based awards are no longer available following the merger with NMIC, Nationwide Corporation and NWM Merger Sub, Inc. Prior to the merger, the LTEP provided for the grant of any or all of the following types of awards:

• stock options, including incentive stock options and nonqualified stock options, for shares of NFS Class A common stock;

• stock appreciation rights, either in tandem with stock options or freestanding;

• restricted stock;

• performance shares and performance units; and

• NVA awards, which may be paid in cash or in shares of NFS Class A common stock, or a combination of cash and shares.

The compensation committee was able to make awards to the same person on more than one occasion and could grant awards singly, in combination or in tandem as the compensation committee determines.

The LTEP provided the Company with flexibility in creating the terms and restrictions appropriate for particular awards. The Company intended the LTEP to constitute a nonqualified, unfunded and unsecured plan for incentive compensation. The Company also intended certain awards under the LTEP to qualify as performance-based compensation for purposes of Section 162(m) of the Internal Revenue Code.

On February 19, 2008, the Company granted long-term incentive awards in the form of NVA awards for each of the named executive officers. On February 18, 2009, the Company granted additional NVA awards to all of its named executive officers, except for Mr. Hamilton. No stock options were awarded to the named executive officers as a result of the ongoing negotiations related to the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc.

Executive Severance Agreements

It is Nationwide’s practice to provide executive severance agreements to the Chief Executive Officer and a limited number of senior executive officers, including most of the Chief Executive Officer’s direct reports. Of the named executive officers, the Company has entered into an executive severance agreement with Mr. Thresher and NMIC has entered into an executive severance agreement with Mr. Jurgensen. Additional information with respect to post-termination benefits provided under these executive severance agreements is provided in “Potential Payments Upon Termination or Change of Control.”

W. G. Jurgensen

NMIC entered into an executive severance agreement dated January 1, 2008, with Mr. Jurgensen, who became the Chief Executive Officer of NMIC, and certain other Nationwide companies, including NFS, in 2000. The agreement had an initial one-year term, with automatic one-year renewals commencing on January 1, 2009, unless either NMIC or Mr. Jurgensen gives notice of nonrenewal. This executive severance agreement replaces and supersedes any prior employment or executive severance agreement between NMIC and Mr. Jurgensen.

Under the agreement, Mr. Jurgensen’s total annual base salary is to be no less than $1,050,000, and his annual target performance bonus is to be at least 150% of base salary with the maximum bonus set at 300% of base salary.

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Mr. Jurgensen is eligible to receive cash long-term incentive awards consistent with other senior executive officers at Nationwide and competitive pay practices generally. Following the merger between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., stock and stock options became unavailable under the Company’s incentive plans.

Mr. Jurgensen and his eligible dependents, where applicable, are entitled to participate in all employee retirement and welfare benefit plans on terms no less favorable than the terms available to other senior-level executive officers. He is also entitled to receive executive fringe benefits available to all senior executive officers. The executive severance agreement with Mr. Jurgensen also provides for certain special and supplemental pension benefits after termination of employment.

On January 1, 2009, pursuant to the merger between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., Mr. Jurgensen’s outstanding stock options granted pursuant to his prior employment agreement were cancelled and he received the merger consideration of $52.25 per option less the exercise price of each option. He did not receive compensation for options with an exercise price in excess of the $52.25 per share merger consideration.

Mr. Jurgensen’s executive severance agreement also contains provisions related to certain payments and benefits that NMIC would pay upon specified termination events. The details of those provisions are set forth in “Potential Payments Upon Termination or Change of Control.”

Mr. Jurgensen ceased service as the Company’s Chief Executive Officer and a member of the board of directors effective February 19, 2009.

Mark R. Thresher

The Company entered into an executive severance agreement dated January 1, 2008, with Mr. Thresher, who became President and Chief Operating Officer as of May 5, 2004. The agreement had a one-year initial term, with automatic one-year renewals commencing on January 1, 2009, unless the Company or Mr. Thresher gives notice of nonrenewal. This executive severance agreement replaces and supersedes any prior employment agreement or executive severance agreement between the Company and Mr. Thresher.

The agreement provides that the Company will pay Mr. Thresher an annual base salary of $650,000, subject to annual review and adjustment by the board of directors or a committee thereof. The agreement also provides that Mr. Thresher is entitled to:

• participate in all short-term and long-term incentive programs for senior executive officers at appropriate levels;

• receive employee retirement and welfare benefits as available to senior executive officers; and

• receive fringe benefits, reimbursement of reasonable expenses related to his employment and other perquisites as available to senior executive officers.

Mr. Thresher’s executive severance agreement also contains provisions related to certain payments and benefits the Company would pay to him upon specified termination events. The details of those provisions are set forth below in “Potential Payments Upon Termination or Change of Control.”

The January 1, 2008 executive severance agreement between Mr. Thresher and the Company superseded and replaced his prior employment agreement.

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Outstanding Equity Awards at Fiscal Year-End 2008¹

	Options awards1							Stock Awards
Name/ grant date (a)	Number of securities underlying unexercised options exercisable2 (b)		Number of securities underlying unexercised option unexercisable (c)	Equity incentive plan awards: number of securities underlying unexercised unearned options (d)	Option exercise price (e)		Option expiration date (f)	Number of shares or units of stock that have not vested (g)	Market value of shares or units of stock that have not vested (h)		Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (i)	Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested (j)
W.G. Jurgensen
2/20/07	30,294		60,587	—	$	54.95	2/20/17	—	$	—	—	$	—
3/28/06	12,911		6,456	—		42.73	3/28/16	—		—	—		—
2/21/06	63,551		31,776	—		42.65	2/21/16	—		—	—		—
2/23/05	99,109		—	—		37.04	2/23/15	—		—	—		—
3/2/04	78,653		—	—		38.03	3/2/14	—		—	—		—
3/4/03	234,058		—	—		23.28	3/4/13	—		—	—		—
4/9/02	92,663		—	—		45.21	4/9/12	—		—	—		—
3/8/02	48,719	3	—	—		43.55	3/8/12	—		—	—		—
2/6/01	88,400		—	—		42.63	2/6/11	—		—	—		—
5/26/00	60,000	4	—	—		28.00	5/26/10	—		—	—		—
5/26/00	150,000		—	—		28.00	5/26/10	—		—	—		—
Timothy G. Frommeyer
2/20/07	3,933		7,865	—		54.95	2/20/17	—		—	—		—
2/21/06	9,942		4,970	—		42.65	2/21/16	—		—	—		—
2/23/05	6,482		—	—		37.04	2/23/15	—		—	—		—
3/2/04	5,597		—	—		38.03	3/2/14	—		—	—		—
3/4/03	5,000		—	—		23.28	3/4/13	—		—	—		—
Mark R. Thresher
2/20/07	12,871		25,740	—		54.95	2/20/17	—		—	—		—
2/21/06	32,537		16,268	—		42.65	2/21/16	—		—	—		—
2/23/05	45,158		—	—		37.04	2/23/15	—		—	—		—
3/2/04	43,210		—	—		38.03	3/2/14	—		—	—		—
4/9/02	18,676		—	—		45.21	4/9/12	—		—	—		—
2/26/02	5,785	3	—	—		40.84	2/26/12	—		—	—		—
2/6/01	6,250		—	—		42.63	2/6/11	—		—	—		—
2/9/99	11,250		—	—		48.13	2/9/09	—		—	—		—
Michael A. Hamilton
5/2/07	1,519		3,036	—		58.32	5/2/17	—		—	—		—
John L. Carter
2/20/07	3,081		6,161	—		54.95	2/20/17	—		—	—		—
2/21/06	7,788		3,894	—		42.65	2/21/16	—		—	—		—
11/28/05	3,882		—	—		42.48	11/28/15	—		—	—		—

¹ Following the January 1, 2009, effective date of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., no stock options remained outstanding.

² All options, with the exception of certain grants noted in these footnotes, vest one-third per year on each of the first three anniversaries of the grant date and expire ten years after the grant date.

³ Vested in full on the grant date.

⁴ Vested one-fifth per year on each of the first five anniversaries of the grant date.

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Option Exercises and Stock Vested During 2008

	Option awards			Stock awards
Name (a)	Number of shares acquired on exercise (b)	Value realized on exercise (c)		Number of shares acquired on vesting (d)		Value realized on vesting (e)
W. G. Jurgensen	—	$	—	—		$	—
Timothy G. Frommeyer	—		—	—			—
Mark R. Thresher	—		—	—			—
Michael A. Hamilton
John L. Carter	—		—	1,998	1		101,498

¹ One-third of the original restricted stock award of 5,996 shares vested on November 28, 2008, the third anniversary of the grant date. The fair market value on November 28, 2008 was $50.80 per share. Mr. Carter deferred the value of these vested shares pursuant to the Nationwide Officer Deferred Compensation Plan. For more information on the plan, please see “Non-qualified Deferred Compensation Plans – Nationwide Officer Deferred Compensation Plan.”

Pension Benefits for 2008

Name (a)	Plan name (b)	Number of years credited service (c)	Present value of accumulated benefit (d)		Payments during last fiscal year (e)
W. G. Jurgensen	Nationwide Retirement Plan	7	$	37,012	$	—
	Nationwide Supplemental Retirement Plan	7		736,213		—
	Other Nonqualified Pension Arrangement	8		988,464		—
Timothy G. Frommeyer	Nationwide Retirement Plan	21		227,414		—
	Nationwide Supplemental Retirement Plan	21		428,033		—
Mark R. Thresher	Nationwide Retirement Plan	11		194,617		—
	Nationwide Supplemental Retirement Plan	11		1,289,063		—
Michael A. Hamilton	Nationwide Retirement Plan	2		9,899		—
	Nationwide Supplemental Retirement Plan	2		31,822		—
John L. Carter	Nationwide Retirement Plan	3		24,209		—
	Nationwide Supplemental Retirement Plan	2		36,166		—

The “Pension Benefits for 2008” table reports the December 31, 2008 value of accrued benefits under the Nationwide Retirement Plan, the Nationwide Supplemental Retirement Plan and nonqualified defined benefit pension benefits provided under executive severance agreements, where applicable. These plans are discussed in more detail below. The reported values are the present value of accrued benefits with benefit commencement deferred to normal retirement age, which is age sixty-five, payable as a life annuity. Optional payment forms are available with reduced payments. A full single lump sum payment option is not available.

The Company bases the present value determinations on the measurement date, discount rate and postretirement mortality used for Statement of Financial Accounting Standards No. 87, Employers’ Accounting for Pensions (SFAS 87), and Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (SFAS 158). There is no mortality discount prior to age sixty-five in the values reported above. For the December 31, 2008 and December 31, 2007 valuations, the SFAS 158 discount rate was 5.25%, and the RP-2000 Mortality Table projected to 2010 was used for postretirement mortality.

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The Company’s pension plans permit commencement of reduced payments prior to normal retirement age. A participant becomes vested under the pension plans after three years of service. Benefits for vested participants who were hired before January 1, 2002, and who terminated employment after age fifty-five, are eligible for a subsidized early retirement benefit. The subsidized early retirement benefit is reduced 1% per year from age sixty-five to age sixty-two and 5% per year from age sixty-two to age fifty-five. Benefits for vested participants who were hired on or after January 1, 2002, and who terminate employment after age fifty-five, are actuarially reduced to reflect early distribution. Mr. Jurgensen is eligible for the subsidized early retirement benefits. Messrs. Frommeyer, Thresher and Carter are eligible for actuarially reduced benefits upon termination. As of December 31, 2008, Mr. Hamilton was not eligible for benefits as he had not completed three years of service. The Company provides no additional credited service under the Nationwide Retirement Plan and the Nationwide Supplemental Retirement Plan to the named executive officers.

The credited service reported in the “Pension Benefits for 2008” table represents complete years of credited service. For benefit determination purposes, the Nationwide Supplemental Retirement Plan provides one month of credited service from the date of plan participation. An individual’s date of participation is the first day of January of the calendar year following the date they meet the eligibility requirements. To be eligible, the individual must have an executive-level job grade, and be receiving compensation in excess of the limits set by Section 401(a)(11) of the Internal Revenue Code. In addition, participants are credited with up to twelve months of service for the calendar year prior to the date of plan participation. The Nationwide Retirement Plan provides one month of credited service from the hire date for plan participants who were last hired on or after January 1, 2002. The other nonqualified pension arrangement provides Mr. Jurgensen with credited service from his date of hire pursuant to his executive severance agreement.

Pension plan compensation includes base salary and certain management incentives. Benefit values are allocated based on the compensation reported in the “Summary Compensation Table for 2008,” and reflects the arrangement under the cost sharing agreement. For Messrs. Frommeyer, Thresher, Hamilton and Carter, the pension benefit values reflect 100% of the present value of accrued benefits as the Company pays 100% of their compensation. For Mr. Jurgensen, the pension benefit values reflect the cost allocated to the Company.

Qualified Pension Plans

Nationwide Retirement Plan

Nationwide maintains a qualified defined benefit plan called the Nationwide Retirement Plan (NRP), which was restated effective September 1, 2006. In general, the named executive officers and other participants in the NRP will receive an annual retirement benefit under the NRP equal to the greater of the benefit calculated under the final average pay formula, if applicable, or the account balance formula. These formulae are described below. Any participant, including a named executive officer, who was hired on or after January 1, 2002, will receive an annual retirement benefit under the NRP based solely on the account balance formula.

Participants become fully vested in the NRP after the completion of three years of service. The NRP allows a participant the option of receiving his or her benefit at any age, provided that he or she is vested when he or she leaves Nationwide. If a participant terminates their employment with Nationwide before age sixty-five, and decides to receive benefits before age sixty-five, the monthly benefit amount earned will be reduced due to the longer payout period.

A pre-retirement death benefit is payable under the NRP to a participant’s spouse or, under certain circumstances, the named beneficiary of an active participant. The NRP also provides for the funding of retiree medical benefits under Section 401(h) of the Internal Revenue Code.

The Final Average Pay (FAP) Formula

The FAP formula benefit is computed as follows:

• 1.25% of the participant’s final average compensation, as defined below, multiplied by the number of years of service, up to a maximum of thirty-five years; plus

• 0.50% of the participant’s final average compensation in excess of Social Security covered compensation, as defined below, multiplied by the number of years of service, up to a maximum of thirty-five years and subject to the limitations set forth in the Internal Revenue Code.

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For services rendered prior to January 1, 1996, final average compensation is equal to the average of the highest three consecutive covered compensation amounts of the participant in the participant’s last ten years of service. For services rendered on January 1, 1996 or later, final average compensation is equal to the average of the highest five consecutive covered compensation amounts of the participant in the participant’s last ten years of service. The NRP defines covered compensation to mean all wages reported on a Form W-2 Wage and Tax Statement from any Nationwide company, plus compensation deferred under Sections 125, 132(f)(4) and 401(k) of the Internal Revenue Code and excludes:

• severance pay and other amounts following the later of (i) the pay period that includes the participant’s date of termination, or (ii) the pay period in which the participant’s date of termination is posted to Nationwide’s payroll system;

• a lump-sum payment for vacation days made upon termination of employment or pursuant to an election by the participant;

• imputed income, executive officer perquisites and benefits paid under any long-term performance or equity plan;

• income imputed to any participant as a result of the provisions of health or other benefits to members of the participant’s household;

• any payment made to a participant to offset the tax cost of other amounts Nationwide paid that are included in the participant’s income for federal tax purposes;

• any payment of deferred compensation made prior to the participant’s severance date;

• expense reimbursement or expense allowances including reimbursement for relocation expenses;

• retention payments made on or after January 1, 2002;

• all gross-up payments, including the related compensation payment, made on or after January 1, 2002; and

• compensation earned following the date on which a participant’s employment status changes from eligible to ineligible and during the period he or she is ineligible.

Covered compensation is subject to Internal Revenue Code limits and, for purposes of determining final average compensation, is calculated on a calendar-year basis.

Social Security-covered compensation means the average of the Social Security wage bases in effect during the thirty-five-year period ending with the last day of the year that 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 sixty-five, whichever is later.

New hires and rehires on or after January 1, 2002 are not eligible for the FAP formula, and the Company will determine the retirement benefit for such individuals solely under the account balance formula described below.

Account Balance Formula

For employees hired before January 1, 2002, benefits are the greater of the final average pay formula determination or the account balance formula, described below. The Company uses the account balance formula to determine the retirement benefit under the NRP for all employees hired or rehired on or after January 1, 2002. The notional account under the account balance formula is comprised of the following components:

• Opening Balance Amount: The Company determined the accrued benefit under the FAP formula as of December 31, 2001 and converted this accrued benefit into a lump sum that reflected the current value of that benefit; plus

• Pay Credits: The Company adds amounts to the account every pay period based on the participant’s years of service and compensation. The pay credits range from 3% of pay if the participant has up to thirty-five months of service, plus 3% of pay over the Social Security wage base for the year in question, to 7% of pay for those with over twenty-two years of service, plus 4% of pay over the Social Security wage base for the year in question; plus

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• Interest Credits: The Company adds interest amounts to the account on a biweekly basis based on the applicable interest rate established by law. Historically, the Company has used as the interest rate the thirty-year United States Treasury bill rate in effect from the second month preceding the current quarter. The minimum interest rate is 3.25%.

Nationwide Savings Plan

The Nationwide Savings Plan (NSP) is a qualified profit-sharing plan including a qualified cash or deferred arrangement covering eligible employees of participating Nationwide companies. Under the NSP, the Company’s named executive officers and other eligible participants may elect to contribute between 1% and 80% of their compensation to accounts established on their behalf. Participant contributions are in the form of voluntary, pre-tax salary deductions or after-tax “Roth 401(k)” salary deductions. Participants who reach the age of fifty during the plan year may also make “catch up” contributions for that year of up to $5,000 for 2008. Participating Nationwide companies, including NFS, are obligated to make matching employer contributions for the benefit of their participating employees, at the rate of 50% of the first 6% of compensation deferred or contributed to the NSP by each employee. The Company holds all amounts that the participants contribute in a separate account for each participant and invests the amounts in the available investment options chosen by the participant. NFS Class A common stock was not available as an investment option.

For purposes of the NSP, covered compensation includes all wages reported on a Form W-2 Wage and Tax Statement from any Nationwide company, plus compensation deferred under Sections 125, 132(f)(4) and 401(k) of the Internal Revenue Code and excludes:

• severance pay and other amounts following the later of (i) the pay period that includes the participant’s date of termination, and (ii) the pay period in which the participant’s date of termination is posted to Nationwide’s payroll system;

• company car value or subsidy or reimbursement for loss of a company car;

• a lump-sum payment for vacation days made upon termination of employment or pursuant to an election by the participant;

• imputed income, executive officer perquisites and benefits paid under any long-term performance or equity plan;

• income imputed to any participant as a result of the provision of health or other benefits to members of the participant’s household;

• any payment made to a participant to offset the tax cost of other amounts Nationwide paid that are included in the participant’s income for federal tax purposes;

• any payment of deferred compensation made prior to the participant’s severance date or on account of a participant’s severance date; and,

• expense reimbursement or expense allowances including reimbursement for relocation expenses.

Covered compensation is subject to Internal Revenue Code limits and is calculated on a calendar-year basis.

A participant is eligible to receive the value of his or her vested account balance upon termination of his or her employment. However, he or she may withdraw all or a part of the amounts credited to his or her account prior to termination, such as upon attainment of age fifty-nine and one-half years old. A participant is immediately vested in all amounts 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. Vesting in employer matching contributions and earnings or losses on those contributions occurs on a pro rata basis over a period of five years.

Prior to January 1, 2009, the NSP offered an automatic enrollment and automatic increase feature for participants contributing less than 6% of their compensation. Effective January 1, 2009, the feature is available to participants contributing less than 12% of their compensation.

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Nonqualified Deferred Compensation for 2008

Name (a)	Executive contributions in last fiscal year1 (b)		Registrant contributions in last fiscal year2 (c)		Aggregate earnings in last fiscal year3 (d)			Aggregate withdrawals/ distributions (e)		Aggregate balance at last fiscal year end4 (f)
W.G. Jurgensen	$	—	$	22,298	$	(1,349,726	)	$	—	$	4,549,986
Timothy G. Frommeyer		78,885		10,209		7,130			—		175,241.02
Mark R. Thresher		124,429		38,178		(86,652	)		—		1,858,289.33
Michael A. Hamilton		—		3,763		(992	)		—		2,771.32
John L. Carter		101,498		16,528		37,421			—		337,474.29

¹ Amount represents voluntary deferrals to the Nationwide Officer Deferred Compensation Plan. For Mr. Jurgensen, the amount includes deferred annual incentive amounts paid under the Senior Executive Incentive Plan (SEIP) and NVA awards earned in prior years, which were reported in proxy statements filed for those years, as well as salary earned in 2008, which is shown in column (c) of the “Summary Compensation Table for 2008.” For Mr. Thresher, the amount includes deferred annual incentive amounts earned in 2007 and paid under the SEIP, which were reported in the 2007 proxy statement, as well as salary earned in 2008, which is shown in column (c) of the “Summary Compensation Table for 2008.” For Mr. Carter, the amount includes the value of vested restricted stock shown in column (e) of the “Option Exercises and Stock Vested During 2008” table. Mr. Carter previously elected to defer the value of the restricted stock on the vesting date.

² Amount represents Company contributions to the Nationwide Supplemental Defined Contribution Plan.

³ Amount represents investment gain from applicable nonqualified deferred compensation plans attributable to all prior year deferrals in the plans. Investment gains or losses are attributable to the investment selections the executive officer makes. Executive officers may choose from approximately eighty investment options for the Nationwide Officers Deferred Compensation Plan and from sixteen investment options for the Nationwide Economic Value Incentive Plan. The Nationwide Economic Value Incentive Plan is a terminated plan that provided for involuntarily deferred compensation the Company may still pay to an executive officer based on his or her distribution election. The executive officer may change his or her investment options once every seven days.

⁴ Represents balances in the following plans: the Nationwide Officer Deferred Compensation Plan, the Nationwide Supplemental Defined Contribution Plan and the Nationwide Economic Value Incentive Plan. The Nationwide Economic Value Incentive Plan is a terminated plan that provided for involuntarily deferred compensation the Company may still pay to an executive officer based on his or her distribution election.

Nonqualified Deferred Compensation Plans

Executive deferred compensation benefits are a key component of the Company’s total rewards philosophy. The Company provides competitive levels of deferred compensation benefits to attract and provide for long-term retention of key talent and to reward for long-term service. These benefits allow executives to prepare for retirement and make up for regulatory limits on qualified plans.

Nationwide Officer Deferred Compensation Plan

Under the Nationwide Officer Deferred Compensation Plan (ODC Plan) eligible executives of participating Nationwide companies, including NFS, may elect to defer payment of compensation otherwise payable to them. Eligible executive officers may enter into deferral agreements in which they may annually elect to defer up to 80% of their salary and annual incentive compensation they earned during the following year or performance cycle. Eligible executive officers may elect to defer up to 100% of the value of their restricted stock if their deferral election is received within thirty days of the grant of restricted stock. Deferral elections are effective prospectively. Amounts an executive officer defers under the ODC Plan are generally payable in cash in annual installments beginning in January of the calendar year immediately following the calendar year in which the executive officer terminates his or her employment, or after the expiration of the deferral period the executive officer elects, from one to ten years from the year in which the deferral of compensation applies, or upon the death of the participant. The Company credits individual accounts under the ODC Plan with deferral amounts and earnings or losses based on the net investment return on the participant’s choice of investment measures offered under the ODC Plan. No guaranteed or above-market earnings are available under this plan. The plan restricts participants’ changes in investment options to once every seven days. Each participant is always fully vested in his or her accrued amount.

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Effective January 1, 2005, the Company amended the ODC Plan to comply with the legal requirements covering deferred compensation plans under Section 409A of the Internal Revenue Code and corresponding United States Treasury regulations. The amendments included the addition of a six-month waiting period for distributions to key employees. The ODC Plan retained a provision that permits a participant or beneficiary to take an unscheduled withdrawal from his or her account; however, any such elective withdrawal applies only to amounts earned and vested, including attributable earnings, on or before December 31, 2004, and any such withdrawal is subject to a 10% early withdrawal penalty.

Effective January 1, 2006, the Company further amended the ODC Plan to make a deferral election related to certain long-term incentives a one-time, irrevocable deferral in order to comply with the requirements under Section 409A of the Internal Revenue Code for nonqualified deferred compensation plans.

Effective January 1, 2008, the Company further amended the ODC Plan to increase the “small amounts” distribution requirement to $25,000. If, on the date of any distribution, the entire account balance of a participant is less than $25,000, the entire account balance will be distributed, regardless of the distribution election the participant has on file with the Company. The requirement applies to each account where the participant has experienced a separation from service. In addition, the Company further amended the ODC Plan to permit participants, by December 31, 2008, to make a final, irrevocable deferral of certain long-term incentive payments in accordance with the transition period rules under Section 409A of the Internal Revenue Code for nonqualified deferred compensation plans.

Excess and Supplemental Defined Benefit Plans

Nationwide maintains the Nationwide Excess Benefit Plan, an unfunded, nonqualified excess defined benefit plan, and the Nationwide Supplemental Retirement Plan, an unfunded, nonqualified supplemental defined benefit plan. Participants in the NRP who are executive officers of certain companies in Nationwide, including NFS, and whose benefits are limited under the NRP by reason of restrictions imposed by Section 415 of the Internal Revenue Code on the maximum benefit that the Company may pay under the NRP, will receive, under the Nationwide Excess Benefit Plan, that portion of the benefit he or she would have been entitled to receive under the NRP in the absence of such restrictions. The NRP benefits available to the named executive officers are not currently subject to these restrictions, and the Nationwide Excess Benefit Plan currently has no participants that are active employees of Nationwide.

Executive officers who earn in excess of the limit on compensation set forth in Section 401(a)(17) of the Internal Revenue Code annually, who have at least three years of credited service and whose benefits under the NRP are limited by reason of certain other limitations under the Internal Revenue Code, may receive the following benefits under the Nationwide Supplemental Retirement Plan:

• 1.25% of the participant’s final average compensation, as defined in the “Qualified Pension Plans” section above multiplied by the number of years of service, up to a maximum of forty years; plus

• 0.75% of the participant’s final average compensation in excess of Social Security covered compensation, as defined in “Qualified Pension Plans” above, multiplied by the number of years of service, up to a maximum of forty years; less

• benefits the executive accrued under the NRP and the Nationwide Excess Benefit Plan.

Final average pay compensation for purposes of the Nationwide Supplemental Retirement Plan is equal to the average of the highest five consecutive covered compensation amounts of the participant in the participant’s last ten years of service. For services rendered prior to January 1, 1996, final average compensation is equal to the average of the highest three consecutive covered compensation amounts of the plan participant in the participant’s last ten years of service. For purposes of the Nationwide Supplemental Retirement Plan, the definition of “covered compensation” is the same as described above in “Final Average Pay (FAP) Formula,” without the Internal Revenue Code limits and including, at the time of deferral, any compensation that would be deferred pursuant to an individual compensation agreement with any Nationwide company. For individuals participating in the Nationwide Supplemental Retirement Plan or the Nationwide Excess Benefit Plan on January 1, 1999, benefits vest at the same time as benefits vest under the NRP. Prior to January 1, 2007, benefits for all other participants in the Nationwide Supplemental Retirement Plan vested over a period of five years of participation in that plan. Effective January 1, 2007, all new participants will vest over a period of four years of participation. Benefits for all other participants in the Nationwide Excess Benefit Plan vest at the same time the participants’ benefits vest in the NRP.

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The Nationwide Supplemental Retirement Plan was amended to comply with the legal requirements imposed for deferred compensation plans under Section 409A of the Internal Revenue Code and corresponding United States Treasury regulations. Most of the amendments became effective January 1, 2005, and include, but are not limited to, the addition of a six-month waiting period for distributions to key employees if such amounts are attributable to amounts accrued after December 31, 2004.

Nationwide Supplemental Defined Contribution Plan

The Nationwide Supplemental Defined Contribution Plan (NSDC Plan) is an unfunded, nonqualified defined contribution supplemental benefit plan. The NSDC Plan provides benefits equal to employer matching contributions that would have been made for the participants under the NSP, but for the Internal Revenue Code’s limitation on compensation that can be considered for deferrals to the NSP. For purposes of the NSDC Plan, “covered compensation” refers to covered compensation as defined in “Nationwide Savings Plan” above, without the Internal Revenue Code limits and including, at the time of deferral, any compensation that would be deferred pursuant to an individual compensation agreement with any Nationwide company. Only executives of certain Nationwide companies, including NFS, earning in excess of the limit set forth in the Internal Revenue Code annually are eligible to participate in the NSDC Plan. Effective January 1, 2005, all participants in the plan as of December 31, 2004, became 100% vested in their benefit accounts. For all other participants, the benefits under the plan vest after five years of participation. The Company credits individual accounts under the NSDC Plan with deferral amounts and earnings or losses based on the net investment return on the participant’s choice of investment measures offered under the plan. No guaranteed or above-market earnings are available under this plan.

The Company amended the NSDC Plan to comply with the legal requirements imposed for deferred compensation plans under Section 409A of the Internal Revenue Code and corresponding United States Treasury regulations. Most of the amendments became effective January 1, 2005. and include, but are not limited to, the addition of a six-month waiting period for distributions to key employees if attributable to amounts accrued after December 31, 2004.

Potential Payments Upon Termination or Change of Control

The Company has entered into agreements with, and maintains plans that require the Company to provide compensation to, the Company’s named executive officers upon a termination of employment or a change of control. The following narrative describes the payments and benefits the named executive officers could receive under these agreements and plans. The tables that follow reflect the Company’s estimate of the payments and benefits, to the extent allocable to the Company under the cost-sharing agreement, the Company would provide to each of the named executive officers under various termination scenarios and upon a change of control. The amounts shown in the tables assume that terminations of employment and, as applicable, the change of control, occurred on December 31, 2008. Following the January 1, 2009, effective date of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., many of the stock-based incentives shown in the following tables are no longer available.

Payments and benefits that are generally available to all salaried employees, and that do not discriminate in favor of the executive officers, such as group life insurance benefits and disability benefits, are not disclosed. The amounts shown are estimates and actual payments and benefits could be more or less than the amounts shown.

Payments Made Upon Standard Termination

General Termination Payments

Regardless of the manner in which an executive officer’s employment terminates, he or she is entitled to receive the following amounts, which are earned during employment:

• amounts the Company or the executive officer contributed, plus related earnings under the Nationwide Savings Plan, the Nationwide Officer Deferred Compensation Plan and the Nationwide Supplemental Defined Contribution Plan;

• amounts accrued and vested through the Nationwide Retirement Plan, the Nationwide Excess Benefit Plan and the Nationwide Supplemental Retirement Plan; and

• unused paid time off, up to limits specified within the Company’s paid time off plan.

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Annual Incentive Awards

The effect of a termination of employment on certain executive officers’ annual incentives is controlled by the terms of either the SEIP, the PIP or the SIP, as applicable. Under these plans, unless otherwise provided by the NMIC human resources committee in connection with specified terminations of employment, the Company only makes a payment of an annual incentive if, and to the extent, the executive officer has attained the performance goals with respect to the related performance period, and if the Company employs the executive officer through the end of the performance period. However, in the event an executive officer’s employment terminates during the performance period due to death or disability, the executive officer or the executive officer’s estate will receive a portion or all of the incentive as the NMIC human resources committee determines. In the event an executive officer’s employment terminates during the performance period due to retirement or involuntary termination of the executive officer’s employment for the Company’s convenience, the executive officer will remain eligible to receive a portion of the incentive based on the amount of time the executive officer was employed during the performance period and the executive officer’s attainment of the performance goals for the performance period.

Long-Term Incentive Awards

The effect of a termination of employment on the Company’s executive officers’ long-term incentives, such as the cash-based NVA awards and, prior to January 1, 2009, stock options granted under the LTEP, is controlled by the terms of the LTEP, the terms of the applicable award agreements and, with respect to Messrs. Jurgensen and Thresher, the terms of their executive severance agreements.

Effective February 16, 2009, the LTEP was amended to provide the authority to administer the LTEP to the human resources committee of the Nationwide Corporation board of directors. Prior to February 16, 2009, the compensation committee of the NFS board of directors had the authority to administer the plan.

Under the LTEP, the human resources committee may prorate cash incentives, such as the NVA awards that would otherwise be forfeited upon termination of employment, as long as the executive officer is not terminated for cause.

The LTEP award agreements provide that if a termination of employment occurs during an NVA award performance period, a pro rata award for that performance period will be credited, or debited, to the individual’s NVA award bank and the executive officer will receive three equal annual distributions of a vested portion of his or her NVA award bank. Each distribution will be equal to one-third of any positive bank balance in the NVA award bank after the prorated amount is credited or debited and the vesting percentages are applied.

The LTEP also provides that, prior to January 1, 2009, the compensation committee was able to vest additional portions of outstanding stock options upon termination of the executive officer’s employment and provide additional time to exercise the vested stock options following the termination of employment, depending on the reason for termination. If employment terminated during the option term for the Company’s convenience, the vested portion of the stock option would remain exercisable until the earlier of three months after the date of termination of employment, or such longer period as may have been determined in the sole discretion of the compensation committee, or the expiration of the option term. If employment terminated for any other reason, and not due to the executive officer’s death, disability or retirement, the vested portion of the stock option would terminate as of the earlier of three months after the date of termination of employment or the expiration of the option term. As a result of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., stock options and other stock-based incentives are no longer available.

For a description of the retirement, death and disability provisions in the LTEP, see “Payments Made Upon Retirement” and “Payments Made Upon Death or Disability.”

Severance Payments and Benefits

The Company has adopted the Nationwide Severance Pay Plan, which provides for certain payments if an employee, including an executive officer, involuntarily leaves the company due to job elimination. The longer an executive officer works for the Company, the more the executive officer may be eligible to receive as severance pay benefits when the executive officer’s employment ends. In order to receive payment under the Nationwide Severance Pay Plan, if eligible, the executive officer must sign a severance and release agreement. The Company generally calculates severance pay as one week for each year of service, not to exceed twenty-five years of service, with a minimum of two weeks. Years of service used to calculate the severance payment includes all types of service with the Company, including service with affiliates and subsidiaries, calculated through the last date of employment.

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Those named executive officers who do not have a severance agreement participate in the Nationwide Severance Pay Plan, which is generally available to all of the Company’s salaried employees.

The former compensation committee approved severance agreement guidelines applicable to the Company’s executive officers. The guidelines provide for severance benefits that may be available to executive officers in addition to the Nationwide Severance Pay Plan. The guidelines allow management to offer the following when negotiating severance agreements with executive officers:

• a lump-sum cash payment equal to six to twelve months, depending on the circumstances of departure, of the annual base salary in effect on the date of termination;

• paid leave of absence of twenty-one days for executive officers over the age of forty to permit the executive officer time to seek legal advice regarding the terms of the severance agreement;

• short-term incentive payments earned under the PIP, prorated to the date of termination;

• up to one year of executive placement services, or a lump-sum payment of $6,800 in lieu of such services;

• payout of the current year earned but unused paid time off; and

• transfer of ownership of certain computer equipment, less any Nationwide-licensed software or operating system, to the executive officer.

Messrs. Jurgensen and Thresher have executive severance agreements that provide certain severance payments and benefits upon termination without cause or following a substantial reorganization. The following description of the named executive officers’ agreements and the amounts presented in the tables that follow are based on the terms of the agreements as they existed on December 31, 2008, and assume a termination of employment, and such triggering events as are contemplated by the executive severance agreements, occurred on December 31, 2008.

Under Mr. Jurgensen’s and Mr. Thresher’s executive severance agreements, upon a termination without cause or a resignation for good reason after a substantial reorganization of NMIC or NFS, respectively, the following payments and benefits would be provided:

• a lump-sum cash payment equal to three times the annual base salary in effect immediately before the termination date for Mr. Jurgensen and two times the annual base salary in effect immediately before the termination for Mr. Thresher;

• a lump-sum cash payment equal to the short-term incentive compensation that would have been earned pursuant to the SEIP or PIP during the fiscal year in which the executive officer’s termination date occurs payable based on actual performance over the full year, but in all events not less than the executive officer’s target annual bonus in effect for the year;

• a lump-sum cash payment equal to the cost, including a gross-up payment to cover income and FICA taxes on the payment, to the executive officer of continuing the medical and dental coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA), or under the retiree medical provisions of the Company’s medical plan, if applicable, for the executive officer, his spouse and dependents, for a specified period of time;

• supplemental benefits equal to the benefits the executive officer would have been entitled to receive on the termination date under certain retirement and deferred compensation plans, had the executive officer been fully vested in those plans on the termination date, less any benefits the executive officer actually receives under those plans;

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• in the event that the executive officer’s termination date occurs within three years following the date on which the executive officer would have been first eligible to retire under the Nationwide Retirement Plan, a supplemental benefit equal to the benefits the executive officer would have received under the Nationwide Retirement Plan, the Nationwide Supplemental Retirement Plan and the Nationwide Excess Benefit Plan, had the executive officer earned service and age credit for the period ending on the earlier of three years after the executive officer’s termination date or the earliest date the executive officer would have been eligible to retire under the Nationwide Retirement Plan and had the executive officer been fully vested under those plans, less any benefits the executive officer actually receives under those plans;

• a lump-sum cash payment equal to the matching contributions that the Company would have made for the executive officer under the Nationwide Savings Plan and the Nationwide Supplemental Defined Contribution Plan during the severance period defined in the agreement, which is three years for Mr. Jurgensen and two years for Mr. Thresher, as if the executive officer’s contributions had continued in the same amount and at the same rate in effect immediately prior to the executive officer’s termination date;

• service and age credits for the purpose of eligibility under the Company’s retiree medical plan, as if the executive officer had continued employment through the executive severance agreement’s specified severance period;

• reimbursement for the cost of reasonable outplacement assistance services during the severance agreement’s specified severance period, not to exceed $11,000;

• the right to retain certain computer and office equipment and furniture used at the executive officer’s home;

• a lump-sum cash payment equal to the value of the financial counseling services that the Company provided annually to the executive officer immediately before the executive officer’s termination date;

• a lump-sum cash payment equal to two times the executive officer’s LTEP target opportunity in effect for the year;

• vesting of outstanding options and restricted stock to the extent they would have vested on the next vesting date;

• amounts earned, accrued or owed but not paid and benefits owed under employee benefit plans and programs; and

Mr. Jurgensen’s severance agreement also provides for a special retirement benefit that, when added to benefits payable under all defined benefit retirement plans of NMIC and its affiliates and any of Mr. Jurgensen’s former employers, will produce a single life annuity pension payable at age sixty-five in an annual amount equal to the number of years of service, up to sixteen and one quarter, multiplied by 4% of his final average pay, up to an annual maximum of 65% of final average pay. For this purpose, final average pay is based on Mr. Jurgensen’s highest five-year average compensation and cannot be less than $2,125,000. The special pension benefits will be paid in the same forms and at the same times as the other benefits described in the agreements, generally within thirty days of termination of employment or, if required by Section 409A of the Internal Revenue Code, six months after termination of employment. Mr. Jurgensen’s special early retirement benefit is reflected in the “Pension Benefits for 2008” table.

Payments Made Upon Retirement

If an executive officer retires:

• prior to the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the executive officer would have vested in all outstanding options and the options would have remained exercisable until the earlier of five years after the date of retirement or the expiration of the option term; and

• if retirement occurs during an NVA award performance period, the terms of the award provide that a pro rata award for that performance period will be credited, or debited, to his NVA award bank, and the executive officer will receive three equal annual distributions from his NVA award bank. Each distribution will be equal to one-third of any positive balance in his NVA award bank after the prorated amount is credited or debited, as the case may be.

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For purposes of the option awards and NVA awards, which are all paid under the LTEP, retirement is defined as the termination of employment on or after the date on which the executive officer has:

• attained age sixty-five;

• completed 300 months of vesting service as defined by the Nationwide Retirement Plan;

• attained age fifty-five and completed one hundred-twenty months of vesting service under the Nationwide Retirement Plan; or

• attained age sixty-two and completed sixty months of vesting service as defined by the Nationwide Retirement Plan.

Payments Made Upon Death or Disability

If an executive officer dies or becomes disabled, in addition to any applicable benefits listed in “Payments Made Upon Standard Termination,” the executive officer will receive benefits under the Company’s disability plan or payments under the Company’s life insurance plan, as appropriate. In addition, the executive officer will receive his or her short-term incentive compensation earned during the fiscal year in which the termination occurs. The short-term compensation payment is prorated to reflect services performed through the date of employment termination and is based on the greater of the target annual bonus in effect for the year or the short-term incentive compensation payment that would be earned based on actual performance for the year.

Under the LTEP, if an executive officer’s employment terminates due to death or disability:

• prior to the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the executive officer would have vested in all outstanding options and the options would have remained exercisable until the earlier of the one-year anniversary of the date of retirement or the expiration of the option term; and

• if the death or disability occurs during an NVA award performance period, a pro rata award for that performance period will be credited or debited to his NVA award bank, and the executive officer will receive three equal annual distributions from his NVA award bank. Each distribution will be equal to one-third of any positive balance in his NVA award bank after the prorated amount is credited or debited, as the case may be.

Payments Made Upon a Change of Control or Termination Upon or Following a Change of Control

If a change of control occurred under the LTEP, executive officers’ stock options would automatically vest and remain exercisable throughout their entire term unless otherwise prohibited by law. In the case of a change of control, the Company would consider all target opportunities possible under the LTEP to have been met for the performance period encompassing the change of control and all restrictions imposed upon restricted stock would lapse. With respect to the LTEP, the Company deems a change of control to have occurred:

• at any time when NMIC ceases to be the beneficial owner, directly or indirectly, of NFS securities representing 50.1% or more of the Company’s combined voting power; or

• at any time the Company’s shareholders approved a plan of complete liquidation or the sale or disposition of all or substantially all of the Company’s assets.

If a change of control occurred under the PIP or SIP, the Company would consider all target opportunities possible under the PIP or SIP to have been met for the performance period encompassing the change of control.

Other Provisions

Other than as noted with regard to Messrs. Jurgensen and Thresher, the executive severance agreements for each are substantially similar. Each agreement contains material non-competition, non-solicitation and confidentiality provisions, which condition Nationwide’s promises to pay severance on the executive officer’s compliance with such provisions. The agreements also condition receipt of severance upon the execution of a binding release of NMIC, NFS and other related parties.

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The following tables reflect the Company’s estimates of the payments and benefits the named executive officers would have received if a termination of employment or a change of control of NFS or NMIC had occurred on December 31, 2008. As the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc. was not effective until January 1, 2009, the amounts noted below include stock options and other stock-based incentive to which the executive officer in question would have still been entitled on December 31, 2008.

Mr. Jurgensen ceased service as the Company’s Chief Executive Officer effective February 19, 2009; however, his table reflects what he would have been entitled to on December 31, 2008.

Special Note Related to Annual and Long-term Incentive Awards for the 2008 Performance Period

For the 2008 performance period, the Company did not meet its performance goals under the PIP, and, as such, no annual incentive payments were earned by the named executive officers, except for Mr. Carter, who earned an incentive payment under the SIP. In addition, the LTEP performance score for 2008 has not yet been set by the NMIC human resources committee; however, the score is expected to be less than target. As a result, the tables below reflect an estimated amount based on a score of zero for the 2008 performance period.

W. G. Jurgensen¹

Benefits and payments upon termination	Voluntary termination		Without cause termination		For cause termination		Termination upon or following a change of control2		Death or disability		Change of control without termination
Short-term incentives:
Annual Incentive	$	—	$	323,663	$	—	$	323,663	$	—	$	—
Long-term incentives:
Non-equity incentives3		919,331		612,881		—		1,178,126		1,313,330		1,212,450
Stock options4		—		—		—		364,981		—		364,981
Benefits and perquisites:
Life insurance proceeds		—		—		—		—		616,500		—
Cash severance5		—		3,131,612		—		3,131,891		—		—
Miscellaneous perquisites6		—		3,525		—		3,525		—		—
Total compensation	$	919,331	$	4,071,681	$	—	$	5,002,186	$	1,929,830	$	1,577,431

¹ This table reflects estimates only and not actual amounts payable to Mr. Jurgensen upon his cessation of service as the Chief Executive Officer and director of the Company on February 19, 2009.

² Represents amounts payable upon a termination without cause or following a substantial reorganization.

³ Reflects an estimate of Mr. Jurgensen’s vested NVA award bank. Upon a termination of employment or a change in control on December 31, 2008, the compensation committee could have provided Mr. Jurgensen with a prorated debit or credit to his NVA award bank for the performance period ended December 31, 2008. The actual NVA score for 2008 has not yet been determined. Consequently, the prorated debit or credit is not yet calculable. The amounts in this field assume no application of a prorated debit or credit, except in the change in control columns where a credit equal to target under the LTEP change in control provisions is assumed. To the extent applicable, the amounts also assume a vested percentage of 70% of Mr. Jurgensen’s NVA award bank.

⁴ Represents the value of the stock options that would vest due to a change of control. The value is based on the excess of the closing price of NFS Class A common stock on December 31, 2008, over the exercise price of the stock options.

⁵ Includes the Company’s contribution to lump-sum cash amounts equal to the sum of: three times base salary; three times 2008 matching amounts in the Nationwide Savings Plan and Nationwide Supplemental Defined Contribution Plan; two times 2008 NVA target award opportunity; and three times the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Jurgensen and his family, if applicable.

⁶ Represents the amount the Company would have contributed for outplacement and financial services.

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Timothy G. Frommeyer

Benefits and payments upon termination	Voluntary termination		Without cause termination		For cause termination		Termination upon or following a change of control		Death or disability		Change of control without termination
Long-term incentives:
Non-equity Incentives1	$	131,887	$	131,887	$	—	$	229,637	$	263,774	$	195,500
Stock options2		—		—		—		47,662		—		47,662
Benefits and perquisites:
Life insurance proceeds		—		—		—		—		1,372,000		—
Cash severance3		—		321,800		—		321,800		—		—
Total compensation	$	131,887	$	453,687	$	—	$	599,099	$	1,635,774	$	243,162

¹ Upon a termination of employment, except for cause, on December 31, 2008, the compensation committee could have provided Mr. Frommeyer with a prorated debit or credit to his NVA award bank for the performance period ended December 31, 2008. The actual NVA score for 2008 has not yet been determined. Consequently, the prorated debit or credit is not yet calculable. The amounts in this field assume no application of a prorated debit or credit and a vested percentage of 50% of Mr. Frommeyer’s NVA award bank. Also, upon a change in control, targets are presumed to have been met for the performance period and target awards credited to the NVA award banks.

² Represents the value of the stock options that would vest due to a change of control. The value is based on the excess of the closing price of NFS Class A common stock on December 31, 2008, over the exercise price of the stock options.

³ Includes an estimate of the amount the Company would pay under the severance program guidelines for executives described above. For purposes of this table, the Company assumed a payment based on twelve months of base salary and $6,800 for outplacement services.

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Mark R. Thresher

Benefits and payments upon termination	Voluntary termination		Without cause termination		For cause termination		Termination upon or following a change of control1		Death or disability		Change of control without termination
Short-term incentives:
Annual Incentive	$	—	$	682,500	$	—	$	682,500	$	—	$	—
Long-term incentives:
Non-Equity Incentives2		251,099		167,383		—		751,671		1,004,397		1,253,300
Stock options3		—		—		—		155,522		—		155,522
Benefits and perquisites:
Life insurance proceeds		—		—		—		—		3,000,000		—
Cash severance4		—		4,317,197		—		4,317,197		—		—
Miscellaneous perquisites5		—		17,150		—		17,150		—		—
Total compensation	$	251,099	$	5,184,230	$	—	$	5,924,040	$	4,004,397	$	1,408,822

¹ Represents amounts payable upon a termination without cause or upon resignation following a substantial reorganization.

² Upon a termination of employment or a change in control on December 31, 2008, the compensation committee could have provided Mr. Thresher with a prorated debit or credit to his NVA award bank for the performance period ended December 31, 2008. The actual NVA score for 2008 has not yet been determined. Consequently, the prorated debit or credit is not yet calculable. The amounts in this field assume no application of a prorated debit or credit, except in the change in control columns where a credit equal to target under the LTEP change in control provisions is assumed. To the extent applicable, the amounts also assume a vested percentage of 25% of Mr. Thresher’s NVA award bank. Also, upon a change in control, targets are presumed to have been met for the performance period and target awards credited to the NVA award banks.

³ Represents the value of the stock options that would vest due to a change of control. The value is based on the excess of the closing price of NFS Class A common stock on December 31, 2008, over the exercise price of the stock options.

⁴ Includes lump-sum cash amounts equal to the sum of two times base salary; two times 2008 matching amounts in the Nationwide Savings Plan and Nationwide Supplemental Defined Contribution Plan; two times 2008 NVA target award opportunity; two times the annual COBRA rate, grossed up for FICA and income taxes, in effect at the time of termination for Mr. Thresher and his family, if applicable; and supplemental pension benefits.

⁵ Represents the amount the Company would have contributed for outplacement and financial services.

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Michael A. Hamilton

Benefits and payments upon termination	Voluntary termination		Without cause termination		For cause termination		Termination upon or following a change of control		Death or disability		Change of control without termination
Long-Term Incentives
Non-equity Incentives1	$	—	$	—	$	—		—	$	27,330	$	225,000
Benefits and perquisites:
Life insurance proceeds		—		—		—		—		1,722,000		—
Cash severance2		—		291,800		—		291,800		—		—
Total compensation	$	—	$	291,800	$	—	$	291,800	$	1,749,330	$	225,000

¹ Mr. Hamilton would have been 0% vested in his NVA award bank if his employment terminated on December 31, 2008, unless the termination was due to death or disability. The amount in the change of control column reflects the target contribution that would be made to Mr. Hamilton’s NVA award bank upon a change of control. The amount in the death or disability column is an estimate of what would have been paid from Mr. Hamilton’s NVA award bank following the termination. Since the debit or credit attributable to the 2008 performance period is not yet calculable, the Company assumed no increase or decrease in Mr. Hamilton’s NVA award bank based on the 2008 performance period.

² Includes an estimate of the amount the Company would pay under the severance program guidelines for executives described above. For purposes of this table, the Company assumed a payment based on twelve months of base salary and $6,800 for outplacement services.

John L. Carter

Benefits and payments upon termination	Voluntary termination		Without cause termination		For cause termination		Termination upon or following a change of control1		Death or disability		Change of control without termination
Short-term incentives:
Sales Incentive	$	25,245	$	25,245	$	—	$	25,245	$	25,245	$	—
Long-term incentives:
Non-equity Incentives1		—		—		—		—		184,667		163,000
Stock options2		—		—		—		38,943		—		38,943
Benefits and perquisites:
Life insurance proceeds		—		—		—		—		2,996,000		—
Cash severance3		—		336,800		—		336,800		—		—
Total compensation	$	25,245	$	362,045	$	—	$	400,988	$	3,205,912	$	201,943

¹ Mr. Carter would have been 0% vested in his NVA award bank if his employment terminated on December 31, 2008, unless the termination was due to death or disability. The amount in the change of control column reflects the target contribution that would be made to Mr. Carter’s NVA award bank upon a change of control. The amount in the death or disability column is an estimate of what would have been paid from Mr. Carter’s NVA award bank following the termination. Since the debit or credit attributable to the 2008 performance period is not yet calculable, the Company assumed no increase or decrease in Mr. Carter’s NVA award bank based on the 2008 performance period.

² Represents the value of the stock options that would vest due to a change of control. The value is based on the excess of the closing price of NFS Class A common stock on December 31, 2008, over the exercise price of the stock options.

³ Includes an estimate of the amount the Company would pay under the severance program guidelines for executives described above. For purposes of this table, the Company assumed a payment based on twelve months of base salary and $6,800 for outplacement services.

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Director Compensation for 2008

Name (a)	Fees earned or paid in cash1 (b)		Stock awards2 (c)		Option awards3 (d)		Non-equity incentive plan compensation (e)		Change in pension value and nonqualified deferred compensation earnings (f)		All other compensation4 (g)		Total (h)
Arden L. Shisler, Chairman	$	246,135	$	32,217	$	732	$	—	$	—	$	2,600	$	281,684
Joseph A. Alutto		274,583		30,550		732		—		—		—		305,865
James G. Brocksmith, Jr.		297,583		30,550		732		—		—		—		328,865
Keith W. Eckel		226,150		30,550		732		—		—		—		257,432
Lydia M. Marshall		265,254		30,550		732		—		—		—		296,536
Donald L. McWhorter		74,710		30,550		731		—		—		—		105,991
David O. Miller		268,468		30,550		732		—		—		—		299,750
Martha Miller de Lombera		172,167		30,550		732		—		—		—		203,449
James F. Patterson		251,359		30,550		732		—		—		—		282,641
Gerald D. Prothro		290,000		30,550		732		—		—		1,678		322,960
Alex Shumate		172,167		30,550		732		—		—		—		203,449
Thomas F. Zenty, III		117,690		—		—		—		—		—		117,690

¹ Includes special committee fees totaling $81,333.30 each for Dr. Alutto and Messrs. Brocksmith and Prothro. The Company paid the special committee members a monthly retainer of $8,333.33 for service on a special committee established to review the merger between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc. Also includes a deferred compensation award in the amount of $90,000 for all directors except Mr. McWhorter, who received $31,475; Mr. Zenty, who received $58,525; and Ms. Miller de Lombera, whose amount includes $90,000 in the form of an additional cash retainer in lieu of deferred compensation. The deferred cash award, for all directors with the exception of Ms. Miller de Lombera, was credited to the Nationwide Guaranteed Investment Contract (GIC) investment option of the Nationwide Deferred Compensation Plan. The deferred cash award vested upon grant and was payable in a lump sum in January of the year following the year the director separated from service on the board. As a result of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the directors, other than Ms. Miller de Lombera, were given the opportunity to change their distribution election to either one to fifteen installments beginning the January of the year following the year of separation from service on the board or one to ten installments beginning January of a specified year between 2009 and 2018.

² Represents the amount the Company expensed in 2008 with respect to all outstanding deferred stock units. The deferred stock units, valued at $52.25 per unit pursuant to the terms of the merger agreement between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., were transferred from the NFS, Inc. Stock Index investment option to the Nationwide GIC investment option effective January 2, 2009 following the effective date of the merger. The deferred stock units vested upon grant and were payable in a lump sum in January of the year following the year the director separated from service on the board. As a result of the merger, the directors, other than Ms. Miller de Lombera, were given the opportunity to change their distribution election to either one to fifteen installments beginning the January of the year following the year of separation from service on the board or one to ten installments beginning January of a specified year between 2009 and 2018. See “Payments to Directors Related to the Merger” below.

³ Represents the value the Company expensed in 2008 for stock option awards, disregarding any forfeitures. As of December 31, 2008, the following options were outstanding: Mr. Shisler—21,298; Dr. Alutto—16,479; Mr. Brocksmith—21,298; Mr. Eckel—8,870; Ms. Marshall—23,298; Mr. McWhorter—21,252; Mr. Miller—21,298; Ms. Miller de Lombera—10,205; Mr. Patterson—11,759; Mr. Prothro—15,259; Mr. Shumate—16,479; and Mr. Zenty—0. The Company describes the assumptions used in the valuation in Note 2(s) to the audited consolidated financial statements included in the F pages of this report. As of January 1, 2009, pursuant to the merger agreement between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., all options were cancelled and no options remained outstanding.

⁴ Amounts represent tax gross-ups for spousal travel expenses. No director received perquisites in excess of $10,000 per director in 2008.

Director Compensation

The Company does not separately compensate members of the board of directors who are also employees of the Company, or employees of affiliates, for their service on the board of directors or any of its committees. During 2008, directors who were not employees of the Company or employees of affiliates received the compensation described below.

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Retainer Fees and Meeting Fees

For 2008, the Company paid non-employee directors an annual cash retainer of $55,000, paid in monthly installments, for service on the board of directors and its committees. The Company also granted to each non-employee director a payment of $90,000 directly into each director’s deferred compensation account, with the exceptions of Mr. McWhorter, who received a prorated award of $31,475 as he retired from the board of directors in May 2008; Mr. Zenty, who received a prorated award of $58,525 as he was first elected to the board of directors in May 2008; and Ms. Miller de Lombera, who received an additional $90,000 cash payment in lieu of the $90,000 in deferred compensation. These awards replaced the $90,000 in deferred stock units the Company granted to non-employee directors for 2007. Each director was able to choose his or her investment selections from approximately eighty investment options, none of which included NFS common stock, and were able to change their investment options once every seven days.

The chairman of the board received an additional annual cash retainer of $40,000, paid in monthly installments in cash, except for the first installment, which was paid half in cash and half in Class A common stock of the Company. The audit committee chairman received an additional annual cash retainer of $15,000, and the chairman of each other committee received an additional cash retainer of $6,000. Non-employee directors also received a cash meeting fee of $2,250 for each audit committee meeting attended and a cash meeting fee of $2,000 for each board of directors or other committee meeting attended.

An additional cash retainer of $15,000 is payable to members of special committees, if and when the board of directors establishes such committees. Special committee members also receive $2,000 for each special committee meeting attended. For the special committee formed for purposes of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the compensation committee recommended, and the board of directors approved, a monthly retainer in the amount of $8,333.33 in lieu of the standard special committee fee arrangement; provided the retainer paid is not less than $50,000.

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

Other Compensation

The Company may pay or reimburse travel expenses for the spouses or guests of directors. This may include travel on the company plane. The Company may also reimburse directors for certain physical examinations.

In 2008, no director received perquisites in excess of $10,000.

Changes to Director Compensation for 2009

As of January 1, 2009, the former members of the Company’s board of directors resigned and three members of management were elected to serve as directors. As employees of NFS, these new directors receive no additional compensation for service on the board of directors.

Payments to Directors Related to the Merger

Pursuant to the merger between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., each director received the merger consideration of $52.25 per share for each share of NFS Class A common stock and for each deferred stock unit they owned as of the record date for the transaction. Directors also received $52.25 per option less the exercise price for any outstanding stock options with an exercise price not in excess of the merger consideration.

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ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding beneficial ownership as of February 27, 2009, of the holders of NFS common stock. The Company’s directors and executive officers do not beneficially own any NFS common stock.

Common Stock

The following table sets forth the number of shares of NFS common stock owned by each person or entity known by the Company to be the beneficial owner of more than five percent of such common stock.

Name and address of beneficial owner	Amount and nature of beneficial ownership	Percent of class
Nationwide Corporation 1 Nationwide Plaza Columbus, Ohio 43215	100 shares	100%

Securities Authorized for Issuance Under Equity Compensation Plans

NFS maintains two equity compensation plans, the Fourth Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan (LTEP) and the Amended and Restated Nationwide Financial Services, Inc. Stock Retainer Plan for Non-Employee Directors (Stock Retainer Plan). As a result of the merger between NFS, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., as of January 1, 2009, there are no longer securities available for issuance under these plans. The following table provides information about equity awards under these plans as of December 31, 2008:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted average exercise price of outstanding options warrants and rights (b)			Number of securities remaining for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by shareholders1	4,191,148	2	$	33.89	3	$	8,723,711	4
Equity compensation plans not approved by shareholders	N/A			N/A			N/A
Total	4,191,148		$	33.89		$	8,723,711

¹ Consists of the LTEP and the Stock Retainer Plan. NFS does not maintain any equity compensation plan not approved by the Company’s shareholders.

² Represents the number of securities to be issued upon exercise of outstanding options, warrants and rights as of December 31, 2008. As of January 1, 2009, there are no shares available for issuance under either the LTEP or the Stock Retainer Plan as a result of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc.

³ Represents the weighted average exercise price of outstanding options, warrants and rights as of December 31, 2008. Effective January 1, 2009, all outstanding options were cancelled as a result of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc.

⁴ Represents the number of securities available for issuance under the LTEP and the Stock Retainer Plan as of December 31, 2008, of which 575 shares were available for issuance under the Stock Retainer Plan. With respect to the LTEP, in addition to being available for issuance upon exercise of options and stock appreciation rights, 8,723,136 shares were available for issuance in connection with restricted stock, performance shares, performance units and stock-based Nationwide Value Added awards. As of January 1, 2009, there are no shares available for issuance under either the LTEP or the Stock Retainer Plan as a result of the merger between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc.

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ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Related Person Transactions

License to Use Nationwide Name and Service Marks

The Company and certain of its subsidiaries have a license to use the “Nationwide” trade name and certain other service marks solely for the purpose of identifying and advertising the Company’s long-term savings and retirement business and related activities.

Nationwide Mutual Agents

NMIC allows the Company to distribute its variable annuity, fixed annuity and individual universal, variable and traditional life insurance products through NMIC agents.

Group Annuity and Life Insurance Contracts

The Company issues group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $2.96 billion and $3.06 billion as of December 31, 2008 and 2007, respectively. Total revenues from these contracts were $137.9 million, $132.3 million and $139.3 million for the years ended December 31, 2008, 2007 and 2006, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances was $115.6 million, $110.1 million and $111.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. The terms of these contracts are materially consistent with what the Company offers to unaffiliated parties who are similarly situated.

Federal Income Taxes

Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as described in Note 14 to the audited consolidated financial statements included in the F pages of this report. Effective October 1, 2002, NFS began filing a consolidated federal tax return with its non-life insurance company subsidiaries. Total payments from NMIC were $22.5 million and $16.3 million during the years ended December 31, 2008 and 2006, respectively. These payments related to tax years prior to deconsolidation. There were no payments during 2007.

Modified Coinsurance Agreements

The Company’s subsidiary, NLIC has a reinsurance agreement with NMIC whereby all of NLIC’s accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC 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 NLIC’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 NMIC for the years ended December 31, 2008, 2007 and 2006 were $202.3 million, $317.6 million and $430.8 million, respectively, while benefits, claims and expenses ceded during these years were $218.9 million, $348.1 million and $470.4 million, respectively.

Amended and Restated Cost Sharing Agreement

The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations. These include annuity and life insurance contracts, office space leases and agreements related to reinsurance, cost sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, the number of full-time employees, commission expense and other methods agreed to by the participating companies.

In addition, Nationwide Services Company, LLC (NSC), a subsidiary of NMIC, provides data processing, systems development, hardware and software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed. For the years ended December 31, 2008, 2007 and 2006, the Company made payments to NMIC and NSC totaling $286.8 million, $288.5 million and $264.5 million, respectively.

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Marketing Allowance Agreement

Under a marketing agreement with NMIC, NLIC makes payments to cover a portion of the agent marketing allowance that NMIC pays to Nationwide agents. These costs cover product development and promotion, sales literature, rent and similar items. Payments under this agreement totaled $8.3 million, $20.1 million and $28.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Leases

The Company leases office space from NMIC. For the years ended December 31, 2008, 2007 and 2006, the Company made lease payments to NMIC of $22.9 million, $24.4 million and $19.3 million, respectively.

Repurchase Agreements

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 repurchases the securities at the original sales price plus interest. As of December 31, 2008 and 2007, the Company had no outstanding borrowings from affiliated entities under such agreements. During 2008, 2007 and 2006, the most the Company had outstanding at any given time was $151.6 million, $178.2 million and $191.5 million, respectively, and the amounts the Company incurred for interest expense on intercompany repurchase agreements during these years were immaterial.

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 $2.71 billion and $473.0 million as of December 31, 2008 and 2007, respectively, and are included in short-term investments on the consolidated balance sheets.

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 $15.1 million, $13.0 million and $9.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Note Purchase Agreement

NLIC entered into a note purchase agreement with an affiliate on November 17, 2006 to purchase $25.0 million of the affiliate’s 5.6% senior notes due November 16, 2016. The notes are secured by certain pledged mortgage servicing rights. The note is payable in seven equal principal installments of $3.8 million which begin November 6, 2010. Interest is payable semi-annually on each May 16 and November 16.

Securities Transaction

During 2008, a wholly-owned banking subsidiary of the Company sold, at fair value, securities with an estimated fair value of $144.2 million to NMIC. The sale resulted in a net realized loss of $23.5 million to the Company.

Policies and Procedures for Review and Approval of Related Person Transactions

The Company has a written conflict of interests policy that is administered by the Office of Ethics and Business Practices. All executive officers and directors are subject to the policy, which is designed to cover related persons transactions with executive officers, directors and their immediate family members. It does not identify related person transactions with security holders that own 5% or more of NFS voting securities or the nominees for directors. The policy prohibits:

• using any Nationwide affiliation for private or personal advantage;

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• any interest or association that interferes with independent exercise of judgment in the best interest of Nationwide; and

• outside business activities that might interfere with loyalty to any Nationwide company.

The Company requires its executive officers and directors to annually complete a conflict of interests certificate. This certificate requires the executive officers and directors to represent that they have read the conflict of interests policy and disclose any conflicts of interests. It also requires the completion of an outside business activities questionnaire. Each reported possible conflict of interest is reviewed by the Office of Ethics and Business Practices and addressed by appropriate action. The Office of Ethics and Business Practices submits an annual summary report covering each reported conflict of interest an executive officer or director reports and the disposition of each matter to the audit committee of the board of directors.

Independence Standards for Directors

Prior to January 1, 2009, the board of directors was subject to independence standards for directors, which were attached as Appendix A to the proxy statement filed on March 27, 2008. These standards contained objective standards that the board of directors had determined are appropriate. For 2008, the board of directors, upon a recommendation by the governance committee, determined the independence of each board member at its meeting on February 20, 2008, in accordance with the independence standards for directors then in place. The board determined that each of the directors was independent with the exception of Mr. Jurgensen, as he is an employee of the Company.

Effective January 1, 2009, pursuant to the merger agreement between the Company, NMIC, Nationwide Corporation and NWM Merger Sub, Inc., the members of the board of directors resigned and three members of management were elected to the board—Messrs. Thresher, Fommeyer and Hilsheimer. At its meeting on February 20, 2009, the board of directors of the Company adopted the New York Stock Exchange’s definition of independence and terminated the independence standards for directors to which the former members of the board had been subject. Per the New York Stock Exchange’s definition, the board determined at the same meeting that none of its members are independent.

ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents fees for services KPMG LLP rendered to the Company and its subsidiaries for the years ended December 31, 2008 and 2007.

Principal Accounting Fees and Services Table

	2008		2007
Audit fees	$	7,621,330	$	7,390,160
Audit related fees1		1,007,000		1,521,500
Tax fees2		197,200		140,000
Total fees	$	8,825,530	$	9,051,660

¹ Audit related fees were principally for reports on internal controls per Statement on Auditing Standards No. 70, Service Organizations; financial statement audits of employee benefit plans; consultations with management regarding the accounting treatment of transactions or potential impact of rulings prescribed by the Securities and Exchange Commission, the Financial Accounting Standards Board or other accounting standard-setting bodies; and other audit-related agreed-upon procedures reports.

² Tax fees were for tax consultation regarding federal tax issues resulting from Internal Revenue Service examinations, assistance with Internal Revenue Service or other taxing authority audits, and activities such as tax planning and preparing tax returns to be filed with various taxing authorities.

The audit committee has adopted the following pre-approval policies and procedures for services provided by the independent registered public accounting firm.

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Types of Services and Audit Committee Pre-approval

There are four categories of services the independent registered public accounting firm may provide to the Company and its subsidiaries:

Audit Services

Audit services include activities that directly relate to the issuance of the independent registered public accounting firm’s report on the various legal entities that are audited within the Company and its subsidiaries. For 2008, the independent registered public accounting firm submitted to the Company’s audit committee a list of audit reports that would result from the annual audit. An audit fee was estimated and presented to the audit committee that specifically related to these deliverables. The audit committee pre-approved both the services and the related fees. Where applicable, the audit committee provided such pre-approval at its meeting. Between meetings, as necessary, the chairman of the audit committee, to whom the audit committee delegated pre-approval authority, provided the pre-approval. The chairman then updated the full audit committee at the next audit committee meeting on any interim approvals he granted. All requests or applications for services the independent registered public accounting firm provides that were not contemplated by this annual pre-approval process, including requests to increase the budget for an approved service, were submitted to the Executive Vice President – Finance. In such cases, the Executive Vice President – Finance confirmed whether or not such services and/or budget was outside the scope of the annual pre-approved services and budget and submitted the appropriate requests and applications to the audit committee for pre-approval. The independent registered public accounting firm was not permitted to perform any audit services for the Company or its subsidiaries without the pre-approval of the audit committee.

Audit-Related Services

Audit-related services include those activities that the independent registered public accounting firm performs that are indirectly related to the financial statement audits, but are not required to enable the independent registered public accounting firm to form its opinion on those financial statements. For 2008, the independent registered public accounting firm submitted to the Company’s audit committee a list of audit-related reports management had requested. The independent registered public accounting firm estimated a fee related to these deliverables and presented the estimated fee to the audit committee. The audit committee pre-approved both the services and the related fees. Where applicable, the audit committee provided such specific pre-approval at its meeting. Between meetings, as necessary, the chairman of the audit committee, to whom the audit committee delegated pre-approval authority, provided the pre-approval. The chairman then updated the full audit committee at its next meeting of any interim approvals he granted. All requests or applications for services the independent registered public accounting firm provides that were not contemplated by this annual pre-approval process, including requests to increase the budget for an approved service, were submitted to the Executive Vice President – Finance. In such cases, the Executive Vice President – Finance confirmed whether or not such services and/or budget was outside the scope of the annual pre-approved services and budget and submitted the appropriate requests and applications to the audit committee for pre-approval. The independent registered public accounting firm was not permitted to perform any audit-related services for the Company or any of its subsidiaries without the pre-approval of the audit committee.

Tax Services

For 2008, the independent registered public accounting firm submitted to the audit committee a list of tax services management had requested. A fee related to these deliverables was estimated and presented to the audit committee. The audit committee pre-approved both the services and the related fees. Where applicable, the audit committee provided such specific pre-approval at its meeting. Between meetings, as necessary, the chairman of the audit committee, to whom the audit committee delegated pre-approval authority, was able to provide the pre-approval. The chairman then updated the full audit committee at its next meeting of any interim approvals he granted. All requests or applications for services the independent registered public accounting firm provided that were not contemplated by this annual pre-approval process, including requests to increase the budget for an approved service, were to be submitted to the Executive Vice President – Finance. In such cases, the Executive Vice President – Finance confirmed whether or not such services and/or budget were outside the scope of the annual pre-approved services and budget and submitted the appropriate requests and applications to the audit committee for pre-approval. The independent registered public accounting firm was not permitted to perform any tax work for the Company or any of its subsidiaries without the pre-approval of the audit committee.

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Non-Audit Services

For 2008, the independent registered public accounting firm submitted to the audit committee a list of non-audit services and reports The independent registered public accounting firm estimated the fee related to these deliverables and presented the estimate to the audit committee. The audit committee pre-approved both the services and the related fees. Where applicable, the audit committee provided such specific pre-approval at its meeting or, between meetings, as necessary, the chairman of the audit committee, to whom the audit committee delegated pre-approval authority, was able to provide such pre-approval. The chairman then updated the full audit committee at its next meeting of any interim approvals he granted. All requests or applications for services the independent registered public accounting firm provided that were not contemplated by this annual pre-approval process, including requests to increase the budget for an approved service, were submitted to the Executive Vice President – Finance. In such cases, the Executive Vice President – Finance confirmed whether or not such services and/or budget were outside the scope of the annual pre-approved services and budget and submitted the appropriate requests and applications to the audit committee for pre-approval. The independent registered public accounting firm was not permitted to perform any non-audit services for the Company or any of its subsidiaries without the pre-approval of the audit committee.

The following is a list of services the independent registered public accounting firm may not provide to the Company:

• bookkeeping or other services related to the Company’s accounting records or financial statements or that of its subsidiaries;

• financial information systems design and implementation;

• appraisal or valuation services, fairness opinions or contribution-in-kind reports;

• actuarial services;

• internal audit outsourcing services;

• management functions or human resources;

• broker or dealer, investment advisor or investment banking services;

• legal services and expert services unrelated to the audit; and

• any other service that the Public Company Accounting Oversight Board determines, by regulation, is not permissible.

The services that the independent registered public accounting firm provides as a sub-contractor to any of the Company’s vendors, for example, to any of the Company’s attorneys or consultants, or to a vendor of any of the Company’s subsidiaries, are subject to this policy and pre-approval process.

Monitoring and Reporting

For 2008, the audit committee periodically monitored the services rendered by and actual fees paid to the independent registered public accounting firm to ensure that such services were within the parameters it pre-approved. The Executive Vice President – Finance tracked all fees paid to the independent registered public accounting firm for all services.

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PART IV

ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES

	Page
Consolidated Financial Statements
Management Report on Internal Control Over Financial Reporting	F-1
Report of Independent Registered Public Accounting Firm	F-2
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Statements of (Loss) Income for the years ended December 31, 2008, 2007 and 2006	F-4
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-5
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December  31, 2008, 2007 and 2006	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006	F-7
Notes to Consolidated Financial Statements	F-8
Financial Statement Schedules
Schedule  I – Consolidated Summary of Investments – Other Than Investments in Related Parties as of December 31, 2008	F-87
Schedule II – Condensed Financial Information of Registrant	F-88
Schedule III – Supplementary Insurance Information as of December  31, 2008, 2007 and 2006 and for the years then ended	F-91
Schedule IV – Reinsurance as of December 31, 2008, 2007 and 2006 and for the years then ended	F-92
Schedule V – Valuation and Qualifying Accounts for the years ended December 31, 2008, 2007 and 2006	F-93
Exhibits	F-95

All other schedules are omitted because they are not applicable or not required, or because the required information has been included in the audited consolidated financial statements or notes thereto.

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Management Report on Internal Control Over Financial Reporting

The management of Nationwide Financial Services, Inc. and its subsidiaries (the Company) is responsible for the preparation and integrity of the consolidated financial statements and other financial information contained in this Annual Report on Form 10-K. The consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles, and where necessary, include amounts that are based on the best estimates and judgment of management. Management believes the consolidated financial statements present fairly the Company’s financial position and results of operations and that other financial data contained in the Annual Report on Form 10-K has been compiled in a manner consistent with the consolidated financial statements.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance to management and our Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on those criteria, our management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008.

Our independent registered public accounting firm, KPMG LLP, performed audits of the Company’s consolidated financial statements and internal control over financial reporting. Management has made available to KPMG LLP all of the Company’s financial records and related data.

Management also recognizes its responsibility for fostering a strong ethical business environment that ensures the Company’s affairs are conducted according to the highest standards of professional conduct, honesty and integrity. The Company’s Code of Conduct and Business Practices (Code), which is posted on the Company’s web site, reflects this responsibility. The Code addresses the necessity of ensuring open communication within the Company; potential conflicts of interest; marketing practices; compliance with all laws, including those relating to financial disclosure; and the confidentiality of proprietary information. The Company’s Office of Ethics and Business Practices is responsible for raising employee awareness of the Company’s Code and serves as a confidential resource for inquiries and reporting.

During 2008, the Audit Committee of the Board of Directors of the Company, which was composed of independent directors pursuant to the New York Stock Exchange listing standards and rules of the Securities and Exchange Commission, met periodically with the external and internal auditors, jointly and separately, to evaluate the effectiveness of work performed by them in discharging their respective responsibilities and to assure their independence and free access to the Audit Committee.

/s/ Mark R. Thresher

Name: Mark R. Thresher

Title: President and Chief Operating Officer

           (Principal Executive Officer)

March 2, 2009

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder

Nationwide Financial Services, Inc.:

We have audited the accompanying consolidated balance sheets of Nationwide Financial Services, Inc. and subsidiaries (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of (loss) income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nationwide Financial Services, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Nationwide Financial Services, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 2, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As discussed in Note 3 to the consolidated financial statements, the Company adopted the American Institute of Certified Public Accountants’ Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts, in 2007.

/s/ KPMG LLP

Columbus, Ohio

March 2, 2009

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholder

Nationwide Financial Services, Inc.:

We have audited Nationwide Financial Services, Inc. and subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting contained in Item 9A, Controls and Procedures, of the Company’s 2008 Annual Report on Form 10-K. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Nationwide Financial Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Nationwide Financial Services, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of (loss) income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2008, and our report dated March 2, 2009 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Columbus, Ohio

March 2, 2009

F-3

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of (Loss) Income

(in millions, except per share amounts)

	Years ended December 31,
	2008			2007			2006
Revenues:
Policy charges	$	1,340.5		$	1,383.9		$	1,316.0
Premiums		417.7			432.7			441.5
Net investment income		1,971.3			2,276.7			2,300.2
Net realized investment (losses) gains		(1,549.9	)		(165.2	)		9.1
Other income		528.0			600.8			495.7
Total revenues		2,707.6			4,528.9			4,562.5
Benefits and expenses:
Interest credited to policyholder accounts		1,210.5			1,342.0			1,381.5
Benefits and claims		875.4			682.9			646.8
Policyholder dividends		93.1			83.1			90.7
Amortization of deferred policy acquisition costs		691.6			382.1			462.9
Amortization of value of business acquired and other intangible assets		32.4			50.2			49.3
Interest expense		105.6			110.6			103.1
Debt extinguishment costs		—			10.2			—
Other operating expenses		1,066.9			1,067.4			1,028.9
Total benefits and expenses		4,075.5			3,728.5			3,763.2
(Loss) income from continuing operations before federal income tax (benefit) expense		(1,367.9	)		800.4			799.3
Federal income tax (benefit) expense		(532.1	)		190.7			72.2
(Loss) income from continuing operations		(835.8	)		609.7			727.1
Discontinued operations, net of taxes		(13.2	)		23.1			(3.1	)
Cumulative effect of adoption of accounting principle, net of taxes		—			(6.0	)		—
Net (loss) income	$	(849.0	)	$	626.8		$	724.0
(Loss) earnings from continuing operations per common share:
Basic	$	(6.06	)	$	4.28		$	4.85
Diluted	$	(6.06	)	$	4.25		$	4.82
(Loss) earnings per common share:
Basic	$	(6.16	)	$	4.40		$	4.83
Diluted	$	(6.16	)	$	4.37		$	4.80
Weighted average common shares outstanding:
Basic		137.9			142.5			149.9
Diluted		137.9			143.5			150.7
Cash dividends declared per common share	$	0.87		$	1.04		$	0.92

See accompanying notes to consolidated financial statements.

F-4

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in millions, except per share amounts)

	December 31,
	2008			2007
Assets
Investments:
Securities available-for-sale, at fair value:
Fixed maturity securities (amortized cost $25,825.7 and $27,263.9)	$	23,069.7		$	27,189.2
Equity securities (amortized cost $68.7 and $117.5)		60.7			124.2
Mortgage loans on real estate, net		7,888.2			8,316.1
Short-term investments, including amounts managed by a related party		3,055.0			1,173.6
Other investments		2,146.3			2,265.0
Total investments		36,219.9			39,068.1
Cash		165.5			73.6
Accrued investment income		352.1			368.4
Deferred policy acquisition costs		4,523.8			4,095.6
Value of business acquired		334.0			354.8
Goodwill		246.5			301.2
Other assets		2,944.9			2,090.4
Separate account assets		48,840.7			72,855.0
Total assets	$	93,627.4		$	119,207.1
Liabilities and Shareholders’ Equity
Liabilities:
Future policy benefits and claims	$	35,720.0		$	35,441.5
Short-term debt		295.7			309.3
Long-term debt		1,725.9			1,565.1
Other liabilities		3,986.9			3,711.6
Separate account liabilities		48,840.7			72,855.0
Total liabilities		90,569.2			113,882.5
Shareholders’ equity:
Preferred stock ($0.01 par value; authorized – 50.0 shares; issued and outstanding – none)		—			—
Class A common stock ($0.01 par value; authorized – 750.0 shares; issued – 72.1 and 71.7 shares; outstanding – 46.3 and 46.7 shares)		0.7			0.7
Class B common stock ($0.01 par value; authorized – 750.0 shares; issued and outstanding – 91.8 shares)		1.0			1.0
Additional paid-in capital		1,807.1			1,782.4
Retained earnings		3,884.0			4,853.0
Accumulated other comprehensive loss		(1,370.8	)		(81.5	)
Treasury stock, at cost (25.8 and 25.0 shares)		(1,262.5	)		(1,229.6	)
Other, net		(1.3	)		(1.4	)
Total shareholders’ equity		3,058.2			5,324.6
Total liabilities and shareholders’ equity	$	93,627.4		$	119,207.1

See accompanying notes to consolidated financial statements.

F-5

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

(in millions)

	Class A common stock		Class B common stock		Additional paid-in capital			Retained earnings			Accumulated other comprehensive income (loss)			Treasury stock			Other, net			Total shareholders’ equity
Balance as of December 31, 2005	$	0.7	$	1.0	$	1,560.0		$	4,031.1		$	100.7		$	(304.2	)	$	(1.7	)	$	5,387.6
Cash dividends declared		—		—		—			(136.6	)		—			—			—			(136.6	)
Common shares repurchased under announced program		—		—		(4.8	)		—			—			(412.0	)		—			(416.8	)
Stock options exercised		—		—		87.6			—			—			—			—			87.6
Other, net		—		—		45.7			—			—			(0.1	)		0.1			45.7
Comprehensive income:
Net income		—		—		—			724.0			—			—			—			724.0
Other comprehensive loss, net of taxes		—		—		—			—			(68.8	)		—			—			(68.8	)
Total comprehensive income																					655.2
Balance as of December 31, 2006		0.7		1.0		1,688.5			4,618.5			31.9			(716.3	)		(1.6	)		5,622.7
Cash dividends declared		—		—		—			(190.5	)		—			—			—			(190.5	)
Common shares repurchased under announced program		—		—		(1.6	)		—			—			(511.4	)		—			(513.0	)
Stock options exercised		—		—		75.0			—			—			—			—			75.0
Nationwide Funds Group acquisition, net (see Note 2)		—		—		12.1			(202.5	)		—			—			—			(190.4	)
Other, net		—		—		8.4			0.7			—			(1.9	)		0.2			7.4
Comprehensive income:
Net income		—		—		—			626.8			—			—			—			626.8
Other comprehensive loss, net of taxes		—		—		—			—			(113.4	)		—			—			(113.4	)
Total comprehensive income																					513.4
Balance as of December 31, 2007		0.7		1.0		1,782.4			4,853.0			(81.5	)		(1,229.6	)		(1.4	)		5,324.6
Cash dividends declared		—		—		—			(120.0	)		—			—			—			(120.0	)
Common shares repurchased under announced program		—		—		—			—			—			(32.9	)		—			(32.9	)
Stock options exercised		—		—		14.4			—			—			—			—			14.4
Other, net		—		—		10.3			—			—			—			0.1			10.4
Comprehensive loss:
Net loss		—		—		—			(849.0	)		—			—			—			(849.0	)
Other comprehensive loss, net of taxes		—		—		—			—			(1,289.3	)		—			—			(1,289.3	)
Total comprehensive loss																					(2,138.3	)
Balance as of December 31, 2008	$	0.7	$	1.0	$	1,807.1		$	3,884.0		$	(1,370.8	)	$	(1,262.5	)	$	(1.3	)	$	3,058.2

See accompanying notes to consolidated financial statements.

F-6

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in millions)

	Years ended December 31,
	2008			2007			2006
Cash flows from operating activities:
Net (loss) income	$	(849.0	)	$	626.8		$	724.0
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Gain on sale of subsidiary		—			(45.5	)		—
Net realized investment losses (gains)		1,549.9			165.2			(9.1	)
Interest credited to policyholder accounts		1,210.5			1,342.0			1,381.5
Capitalization of deferred policy acquisition costs		(587.6	)		(631.3	)		(588.4	)
Amortization of deferred policy acquisition costs		691.6			382.1			462.9
Amortization and depreciation, excluding debt extinguishment costs		53.2			84.2			113.7
Debt extinguishment costs (non-cash)		—			10.2			—
Decrease (increase) in other assets		78.1			578.7			(326.6	)
(Decrease) increase in policy and other liabilities		(342.3	)		(233.0	)		452.7
(Increase) decrease in derivative assets		(1,030.7	)		(146.9	)		38.2
Increase in derivative liabilities		153.9			96.4			179.8
Other, net		6.4			(2.7	)		4.8
Net cash provided by operating activities		934.0			2,226.2			2,433.5
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale		4,550.9			4,698.8			5,579.4
Proceeds from sale of securities available-for-sale		4,420.3			5,026.9			2,645.0
Proceeds from repayments or sales of mortgage loans on real estate		843.9			2,570.1			2,549.4
Cost of securities available-for-sale acquired		(8,644.3	)		(8,946.4	)		(6,489.3	)
Cost of mortgage loans on real estate originated or acquired		(470.2	)		(1,951.1	)		(2,319.2	)
Net (increase) decrease in short-term investments		(1,888.7	)		1,042.0			(142.4	)
Collateral received (paid), net		592.2			(207.3	)		(314.6	)
Subsidiary sale		41.3			115.4			—
Subsidiary mergers and acquisitions		—			(319.2	)		—
Other, net		80.7			24.9			(81.0	)
Net cash (used in) provided by investing activities		(473.9	)		2,054.1			1,427.3
Cash flows from financing activities:
Net (decrease) increase in short-term debt		(13.6	)		224.1			(167.1	)
Net proceeds from issuance of long-term debt		160.8			460.4			—
Principal payments on long-term debt		—			(300.0	)		—
Cash dividends paid		(156.2	)		(186.9	)		(132.7	)
Investment and universal life insurance product deposits and other additions		3,862.3			3,913.8			3,781.7
Investment and universal life insurance product withdrawals and other deductions		(5,305.9	)		(8,101.8	)		(7,024.6	)
Common shares repurchased under announced program		(32.9	)		(502.4	)		(416.8	)
Net increase in customer bank deposits		964.1			66.1			—
Other, net		153.2			135.9			133.3
Net cash used in financing activities		(368.2	)		(4,290.8	)		(3,826.2	)
Net increase (decrease) in cash		91.9			(10.5	)		34.6
Cash, beginning of period		73.6			84.1			49.5
Cash, end of period	$	165.5		$	73.6		$	84.1

See accompanying notes to consolidated financial statements.

F-7

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2008, 2007 and 2006

(1) Nature of Operations

Nationwide Financial Services, Inc. (NFS, or collectively with its subsidiaries, the Company) was formed in November 1996. NFS is the holding company for Nationwide Life Insurance Company (NLIC) and other companies that comprise the life insurance and retirement savings operations of the Nationwide group of companies (Nationwide). This group includes Nationwide Financial Network (NFN), which refers to Nationwide Life Insurance Company of America (NLICA) and subsidiaries, including the affiliated distribution network. NFS is incorporated in Delaware and maintains its principal executive offices in Columbus, Ohio.

The Company is a leading provider of long-term savings and retirement products in the United States of America (U.S.). The Company develops and sells a diverse range of products including individual annuities, private and public sector group retirement plans, other investment products sold to institutions, life insurance and investment advisory services. The Company also provides a wide range of banking products and services through Nationwide Bank and mutual funds through Nationwide Funds Group (NFG) (see Note 2(p) for more information).

The Company sells its products through a diverse distribution network. Unaffiliated entities that sell the Company’s products to their own customer bases include independent broker/dealers, financial institutions, wirehouse and regional firms, pension plan administrators, and life insurance specialists. Representatives of the Company that market products directly to a customer base include Nationwide Retirement Solutions, Inc. (NRS), an indirect wholly-owned subsidiary; NFN producers; and NFG. The Company also distributes retirement savings products through the agency distribution force of its ultimate majority parent company, Nationwide Mutual Insurance Company (NMIC). The Company believes its broad range of competitive products, strong distributor relationships and diverse distribution network position it to compete effectively in the rapidly growing retirement savings market under various economic conditions.

As of December 31, 2008 and 2007, the Company did not have a significant concentration of financial instruments in a single investee, industry or geographic region of the U.S. Also, the Company did not have a concentration of business transactions with a particular customer, lender, distribution source, market or geographic region of the U.S. in which business is conducted that makes it overly vulnerable to a single event which could cause a severe impact to the Company’s financial position.

As of December 31, 2008, the Company had 46.3 shares of Class A common stock outstanding, which had been publicly held and primarily were issued through NFS’ initial public offering completed in March 1997 and in conjunction with the acquisition of NFN in October 2002. The Class A shares represented 33.5% of the equity ownership in NFS and 4.8% of the combined voting power of NFS’ Class A and Class B common stock as of December 31, 2008. Nationwide Corporation owned all of the outstanding shares of Class B common stock, which represented the remaining 66.5% equity ownership and 95.2% of the combined voting power of the shareholders of NFS as of December 31, 2008.

On January 1, 2009, all of the outstanding Class A common stock of the Company not owned by Nationwide Corporation was acquired for $52.25 per share in cash by Nationwide Corporation through a merger of the Company with NWM Merger Sub., Inc., a wholly-owned subsidiary of Nationwide Corporation. Refer to Note 15 for additional information on the transactions.

(2) Summary of Significant Accounting Policies

The Company’s significant accounting policies that materially affect financial reporting are summarized below. The accompanying consolidated financial statements were prepared in accordance with United States generally accepted accounting principles (GAAP).

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ significantly from those estimates.

F-8

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company’s most significant estimates include those used to determine the following: the balance, recoverability and amortization of deferred policy acquisition costs (DAC); whether an available-for-sale security is other-than-temporarily impaired; valuation allowances for mortgage loans on real estate; valuation of derivatives; the liability for future policy benefits and claims, including the valuation of embedded derivatives resulting from living benefit contracts; and federal income tax provision. Although some variability is inherent in these estimates, recorded amounts reflect management’s best estimates based on facts and circumstances as of the balance sheet date. Management believes the amounts provided are appropriate.

The Company determined that certain cash flows related to future policy benefits and claims totaling $116.2 million for the three months ended March 31, 2008, which were included as cash flows provided by operating activities on the condensed consolidated statements of cash flows in the applicable Quarterly Report on Form 10-Q, should have been presented as financing activities. The net cash provided by operating activities for the three months ended March 31, 2008 as originally filed and revised was $325.6 million and $209.4 million, respectively. The net cash used in financing activities for the three months ended March 31, 2008 as originally filed and revised was $209.2 million and $93.0 million, respectively. They will be presented in that manner on a comparative basis in the 2009 filings. In addition, the Company determined that certain cash flows related to Nationwide Bank’s merger with Nationwide Federal Credit Union totaling $245.1 million for the six months ended June 30, 2007, which were included as cash flows provided by operating activities on the condensed consolidated statements of cash flows in the applicable Quarterly Report on Form 10-Q, should have been presented as investing and financing activities. The consolidated statements of cash flows for 2008 and 2007 included in this filing reflect the revised presentation described above.

Certain items in the 2007 and 2006 consolidated financial statements and related notes have been reclassified to conform to the current presentation.

(a) Consolidation Policy

The consolidated financial statements include the accounts of NFS and companies in which NFS directly or indirectly has a controlling financial interest. Minority interest expense is included in other operating expenses in the consolidated statements of (loss) income, and the minority interest liability is included in other liabilities on the consolidated balance sheets. All significant intercompany balances and transactions were eliminated in consolidation.

(b) Valuation of Investments, Investment Income and Related Gains and Losses

The Company is required to classify its fixed maturity securities and marketable equity securities as held-to-maturity, available-for-sale or trading. Trading assets may include any combination of fixed maturity securities and marketable equity securities. Trading assets are stated at fair value, with changes in fair value recorded as a component of net realized investment gains and losses. All other fixed maturity and marketable equity securities are classified as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses, net of adjustments to DAC, value of business acquired (VOBA), future policy benefits and claims, policyholder dividend obligation and deferred federal income taxes reported as a separate component of accumulated other comprehensive (loss) income (AOCI) in shareholders’ equity. The adjustments to DAC and VOBA represent the changes in amortization of DAC and VOBA that would have been required as a charge or credit to operations had such unrealized amounts been realized and allocated to the product lines. The adjustment to future policy benefits and claims represents the increase in policy reserves from using a discount rate that would have been required had such unrealized amounts been realized and the proceeds reinvested at then current market interest rates, which were lower than the then current effective portfolio rate.

F-9

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

For fixed maturity and marketable equity securities for which market quotations generally are available, the Company generally uses independent pricing services to assist in determining the fair value measurement. For certain fixed maturity securities not priced by independent services (generally private placement securities without quoted market prices), an internally developed pricing model or “corporate pricing matrix” is most often used. The corporate pricing matrix is developed by obtaining private spreads versus the U.S. Treasury yield for corporate securities with varying weighted average lives and bond ratings. The weighted average life and bond rating of a particular fixed maturity security to be priced using the corporate matrix are important inputs into the model and are used to determine a corresponding spread that is added to the U.S. Treasury yield to create an estimated market yield for that bond. The estimated market yield and other relevant factors are then used to estimate the fair value of the particular fixed maturity security. The Company also utilizes broker quotes to assist in pricing securities or to validate modeled prices.

For mortgage-backed securities (MBSs), the Company recognizes income using a constant effective yield method based on prepayment assumptions and the estimated economic life of the securities. When estimated prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. Any resulting adjustment is included in net investment income. All other investment income is recorded using the interest method without anticipating the impact of prepayments.

Management regularly reviews each investment in its fixed maturity and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments.

For debt securities not subject to Emerging Issues Task Force Issue (EITF) No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets, as amended by Financial Accounting Standards Board (FASB) Staff Position (FSP) EITF 99-20-1 (EITF 99-20), as well as debt securities subject to EITF 99-20, an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is probable that the Company will not recover all contractual amounts when due. Furthermore, equity securities may experience other-than-temporary impairments based on prospects of recovery in a reasonable period of time. Many criteria are considered during this process including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, management’s intent and ability to hold the security until recovery, current economic conditions that could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected security.

Other-than-temporary impairment losses result in a permanent reduction to the cost basis of the underlying investment.

In addition to the above, for certain beneficial interests in securitized financial assets with contractual cash flows, including asset-backed securities (ABSs), EITF 99-20 also requires the Company to periodically update its best estimate of cash flows over the life of the security. If the fair value of a securitized financial asset is not greater than or equal to its carrying value based on current information and events, and if there has been, or if it is probable that, an adverse change in estimated cash flows since the last revised estimate (considering both timing and amount), then the Company recognizes an other-than-temporary impairment and writes down the investment to fair value.

The Company provides valuation allowances for impairments of mortgage loans on real estate based on a review by portfolio managers. Mortgage loans on real estate are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When management determines that a loan is impaired, a provision for loss is established equal to either the difference between the carrying value and the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent. In addition to the valuation allowance on specific loans, the Company maintains an allowance not yet specifically identified by loan for probable losses inherent in the loan portfolio as of the balance sheet date. The valuation allowance account for mortgage loans on real estate reflects management’s best estimate of probable credit losses, including losses incurred at the balance sheet date but not yet identified by specific loan. Management’s periodic evaluation of the adequacy of the allowance for losses is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. Changes in the valuation allowance are recorded in net realized investment gains and losses. Loans in foreclosure are placed on non-accrual status. Interest received on non-accrual status mortgage loans on real estate is included in net investment income in the period received.

F-10

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Real estate to be held and used is carried at cost less accumulated depreciation. Real estate designated as held for disposal is not depreciated and is carried at the lower of the carrying value at the time of such designation or fair value less cost to sell. Other long-term investments are carried on the equity method of accounting.

Impairment losses are recorded on investments in long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.

Realized gains and losses on the sale of investments are determined on the basis of specific security identification. Changes in the Company’s mortgage loan valuation allowance and recognition of impairment losses for other-than-temporary declines in the fair values of applicable investments are included in net realized investment gains and losses.

(c) Derivative Instruments

Derivatives are carried at fair value. On the date a derivative contract is entered into, the Company designates the derivative as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge); a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge); a foreign currency fair value or cash flow hedge (foreign currency hedge); or a non-hedge transaction. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for entering into various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used for hedging transactions are expected to be and, for ongoing hedging relationships, have been, highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not, or is not expected to be, highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively.

The Company enters into interest rate swaps, cross-currency swaps or Euro futures to hedge the fair value of existing fixed rate assets and liabilities. In addition, the Company uses short U.S. Treasury future positions to hedge the fair value of bond and mortgage loan commitments. Typically, the Company is hedging the risk of changes in fair value attributable to changes in benchmark interest rates. Derivative instruments classified as fair value hedges are carried at fair value, with changes in fair value recorded in net realized investment gains and losses. Changes in the fair value of the hedged item that are attributable to the risk being hedged are also recorded in net realized investment gains and losses.

The Company enters into interest rate swaps to hedge the variability in cash flows and investment income due to changes in the benchmark interest rates on variable rate assets and liabilities. The Company also enters into cross-currency interest rate swaps to eliminate the currency risk on variable rate and fixed rate foreign denominated assets. Derivative instruments classified as cash flow hedges are carried at fair value, with the effective portion of changes in fair value recorded in other comprehensive income and the ineffective portion recorded in net realized investment gains and losses.

Accrued interest receivable or payable under interest rate and foreign currency swaps are recognized as an adjustment to net investment income or interest credited to policyholder accounts consistent with the nature of the hedged item, except for interest rate swaps hedging the anticipated sale of investments where amounts receivable or payable under the swaps are recorded as net realized investment gains and losses, and except for interest rate swaps hedging the anticipated purchase of investments where amounts receivable or payable under the swaps are initially recorded in AOCI to the extent the hedging relationship is effective.

F-11

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company periodically may enter into a derivative transaction that will not qualify for hedge accounting. The Company does not enter into speculative positions. Although these transactions do not qualify for hedge accounting, or have not been designated in hedging relationships by the Company, they are part of its overall risk management strategy. For example, the Company may sell credit default protection through a credit default swap. Although the credit default swap is not effective in hedging specific investments, the income stream allows the Company to manage overall investment yields while exposing the Company to acceptable credit risk. The Company may enter into a cross-currency basis swap (pay a variable U.S. rate and receive a variable foreign-denominated rate) to eliminate the foreign currency exposure of a variable rate foreign-denominated liability. Although basis swaps may qualify for hedge accounting, the Company has chosen not to designate these derivatives as hedging instruments due to the difficulty in assessing and monitoring effectiveness for both sides of the basis swap. Derivative instruments that do not qualify for hedge accounting or are not designated as hedging instruments are carried at fair value, with changes in fair value recorded in net realized investment gains and losses.

(d) Revenues and Benefits

Investment and Universal Life Insurance Products: Investment products consist primarily of individual and group variable and fixed deferred annuities. Universal life insurance products include universal life insurance, variable universal life insurance, corporate-owned life insurance (COLI), bank-owned life insurance (BOLI) and other interest-sensitive life insurance policies. Revenues for investment products and universal life insurance products consist of net investment income, asset fees, cost of insurance charges, administrative fees and surrender charges that have been earned and assessed against policy account balances during the period. The timing of revenue recognition as it relates to fees assessed on investment contracts and universal life contracts is determined based on the nature of such fees. Asset fees, cost of insurance charges and administrative fees are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract in accordance with contractual terms. Policy benefits and claims that are charged to expense include interest credited to policyholder accounts and benefits and claims incurred in the period in excess of related policyholder accounts.

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

(e) Cash and Cash Equivalents

Cash and cash equivalents consist of short-term highly liquid investments with original maturities of less than three months at the time of purchase. The Company carries cash and cash equivalents at cost, which approximates fair value.

(f) Deferred Policy Acquisition Costs

Investment and universal life insurance products. The Company has deferred certain costs of acquiring investment and universal life insurance products business, principally commissions, certain expenses of the policy issue and underwriting department, and certain variable sales expenses that relate to and vary with the production of new and renewal business. In addition, the Company defers sales inducements, such as interest credit bonuses and jumbo deposit bonuses. Investment products primarily consist of individual and group variable and fixed deferred annuities in the Individual Investments and Retirement Plans segments. Universal life insurance products include universal life insurance, variable universal life insurance, COLI, BOLI and other interest-sensitive life insurance policies in the Individual Protection segment. DAC is subject to recoverability testing in the year of policy issuance and loss recognition testing at the end of each reporting period.

F-12

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

For investment and universal life insurance products, the Company amortizes DAC with interest over the lives of the policies in relation to the present value of estimated gross profits from projected interest margins, asset fees, cost of insurance charges, administrative fees, surrender charges, and net realized investment gains and losses less policy benefits and policy maintenance expenses. The Company adjusts the DAC asset related to investment and universal life insurance products to reflect the impact of unrealized gains and losses on fixed maturity securities available-for-sale, as described in Note 2(b).

The assumptions used in the estimation of future gross profits are based on the Company’s current best estimates of future events and are reviewed as part of an annual process during the second quarter. During the annual process, the Company performs a comprehensive study of assumptions, including mortality and persistency studies, maintenance expense studies, and an evaluation of projected general and separate account investment returns. The most significant assumptions that are involved in the estimation of future gross profits include future net separate account investment performance, surrender/lapse rates, interest margins and mortality. Currently, the Company’s long-term assumption for net separate account investment performance is approximately 7% growth per year and varies by product. The Company reviews this assumption, like others, as part of its annual process. If this assumption were unlocked, the date of the unlocking could become the anchor date used in the reversion to the mean process (defined below). Variances from the long-term assumption are expected since the majority of the investments in the underlying separate accounts are in equity securities, which strongly correlate in the aggregate with the Standard & Poor’s (S&P) 500 Index. The Company bases its reversion to the mean process on actual net separate account investment performance from the anchor date to the valuation date. The Company then assumes different performance levels over the next three years such that the separate account mean return measured from the anchor date to the end of the life of the product equals the long-term assumption. The assumed net separate account investment performance used in the DAC models is intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, and as part of its pre-set parameters, the Company’s reversion to the mean process generally limits net separate account investment performance to 0-15% during the three-year reversion period. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

Changes in assumptions can have a significant impact on the amount of DAC reported for investment and universal life insurance products and their related amortization patterns. In the event actual experience differs from assumptions or future assumptions are revised, the Company is required to record an increase or decrease in DAC amortization expense, which could be significant. In general, increases in the estimated long-term general and separate account returns result in increased expected future profitability and may lower the rate of DAC amortization, while increases in long-term lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of DAC amortization.

In addition to the comprehensive annual study of assumptions, management evaluates the appropriateness of the individual variable annuity DAC balance quarterly within pre-set parameters. These parameters are designed to appropriately reflect the Company’s long-term expectations with respect to individual variable annuity contracts while also evaluating the potential impact of short-term experience on the Company’s recorded individual variable annuity DAC balance. If the recorded balance of individual variable annuity DAC falls outside of these parameters for a prescribed period, or if the recorded balance falls outside of these parameters and management determines it is not reasonably possible to get back within the parameters during a given period, assumptions are required to be unlocked, and DAC is recalculated using revised best estimate assumptions. When DAC assumptions are unlocked and revised, the Company continues to use the reversion to the mean process. See below for a discussion of 2008 and 2007 assumption changes that impacted DAC amortization and related balances.

During the second quarter of 2007, the Company conducted its annual comprehensive review of model assumptions used to project DAC and other related balances, including sales inducement assets, VOBA, unearned revenue reserves, and guaranteed minimum death and income benefit reserves. This review included all assumptions, including expected separate account investment returns during the three-year reversion period, lapse rates, mortality and expenses. The Company determined as part of this annual review that the overall separate account returns were expected to exceed previous estimates due to favorable financial market trends. Additionally, while the Company estimated that the overall profitability of its variable products had improved, it expected the long-term net growth in separate account investment performance to moderate.

F-13

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Accordingly, the second quarter 2007 unlocking process included changes in several assumptions, including assumptions affecting net separate account investment performance. This unlocking resulted in a net increase in DAC and a benefit to DAC amortization and other related balances totaling $216.5 million pre-tax, which was reported in the following segments in the pre-tax amounts indicated: Individual Investments – $196.4 million; Retirement Plans – $10.5 million; and Individual Protection – $9.6 million, net of a $5.1 million charge for the acceleration of amortization of VOBA. First, the Company reset the anchor date for its reversion to the mean calculations, which increased the annual net separate account growth rate to 7% during the first three years of the projection period from 0% (which was the rate of return for the three-year reversion period required from the previous anchor date). Second, as a result of its current analysis, including its evaluation of ongoing trends and expectations regarding financial market performance, the Company unlocked and reset its long-term assumption for net separate account growth rates to 7% from 8%. This decreased the net separate account growth rate by 1% to 7% for all years subsequent to the three-year reversion period. The combination of resetting these two factors resulted in a $161.9 million increase in DAC and benefit to DAC amortization and other related balances. The impact of changing the annual net separate account growth rate from 0% to 7% during the three-year reversion period had a much larger effect on the DAC balance when compared to the 1% incremental change in the long-term assumption for net separate account investment performance. The remainder of the increase in DAC and benefit to DAC amortization and other related balances resulting from the DAC unlocking process primarily was related to the recorded balance of individual variable annuity DAC falling outside the Company’s preset parameters for the prescribed period, which was driven by favorable market performance in excess of the assumed net separate account returns. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a $78.8 million increase in DAC and benefit to DAC amortization and other related balances. This was partially offset by a $24.2 million decrease in DAC and increase in DAC amortization and other related balances due to increasing estimated lapse rates for fixed annuity and BOLI products.

During the second quarter of 2007, the Company added a new feature to its existing guaranteed lifetime withdrawal benefit (GLWB) rider, Lifetime Income (L.inc). This new feature resulted in a substantial change in the existing contracts and, therefore, an extinguishment of the DAC associated with those contracts pursuant to the American Institute of Certified Public Accountants’ (AICPA) Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts (SOP 05-1). As a result, the Company eliminated existing DAC and other related balances resulting in a $135.0 million pre-tax charge.

At the end of the second quarter of 2008, the Company determined as part of its comprehensive annual study of assumptions that certain assumptions should be unlocked. The unlocked assumptions primarily related to lapse and spread assumptions in the Individual Investments segment, the assumed growth rate on deposits per contract in the Retirement Plans segment, and mortality and lapse assumptions in the Individual Protection segment. Therefore, in the second quarter of 2008, the Company recorded the following pre-tax adjustments: 1) a decrease in DAC and additional DAC amortization of $13.9 million; 2) a decrease in other assets and additional benefits and claims of $0.6 million; 3) an increase in VOBA and a benefit to VOBA amortization of $4.9 million; and 4) a decrease in unearned revenue liability and additional administrative fees of $3.2 million. The net impact of this activity was a $6.4 million unfavorable pre-tax adjustment to net income in the second quarter of 2008, which was reported in the following segments in the pre-tax amounts indicated: Individual Investments – $12.0 million unfavorable; Retirement Plans – $2.3 million unfavorable; and Individual Protection – $7.9 million favorable.

F-14

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

During the third quarter of 2008, the Company’s recorded balance of individual variable annuity DAC fell outside the Company’s preset parameters for the prescribed period, which primarily was driven by unfavorable market performance compared to the assumed net separate account returns. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a decrease in DAC and an increase in DAC amortization and other related balances totaling $177.2 million pre-tax in the Individual Investments segment. During the fourth quarter of 2008, the Company’s recorded balance of individual variable annuity DAC fell outside the Company’s preset parameters, which primarily was driven by continued unfavorable market performance compared to assumed net separate account returns. Management made a determination that it was not reasonably possible to get back within the preset parameters during the remaining prescribed period. Accordingly, the Company recalculated DAC using revised best estimate assumptions, which resulted in a decrease in DAC and an increase in DAC amortization and other related balances of $243.1 million pre-tax in the Individual Investments segment. The Company continues to use the reversion to the mean process with the anchor date that was reset during the second quarter 2007 unlocking as described above. The Company evaluated the assumed separate account performance level over the next three years and determined that the assumptions inherent in the reversion period were reasonable. The annual net separate account growth rate for the mean reversion period is 15%, the maximum rate under the Company’s parameters. Accordingly, future periods may incur additional amortization of DAC if the Company’s actual returns are less than assumed.

Traditional life insurance products. Generally, DAC related to traditional life insurance products is amortized with interest over the premium-paying period of the related policies in proportion to the ratio of actual annual premium revenue to the anticipated total premium revenue. Such anticipated premium revenue is estimated using the same assumptions as those used for computing liabilities for future policy benefits at issuance. Under existing accounting guidance, the concept of DAC unlocking does not apply to traditional life insurance products, although evaluations of DAC for recoverability at the time of policy issuance and loss recognition testing at each reporting period are required.

(g) Value of Business Acquired and Other Intangible Assets

As a result of the acquisition of NFN in 2002 and the application of purchase accounting, the Company reports an intangible asset representing the estimated fair value of the business in force and the portion of the purchase price that was allocated to the value of the right to receive future cash flows from the life insurance and annuity contracts existing as of the closing date of the NFN acquisition. The value assigned to VOBA was supported by an independent valuation study commissioned by the Company and executed by a team of qualified valuation experts, including actuarial consultants. The expected future cash flows used in determining such value were based on actuarially determined projections by major lines of business of future policy and contract charges, premiums, mortality and morbidity, separate account performance, surrenders, changes in reserves, operating expenses, investment income and other factors. These projections considered all known or expected factors at the valuation date based on the judgment of management. The actual experience on purchased business, to some extent, has and may continue to vary from projections due to differences in renewal premiums, investment spreads, investment gains and losses, mortality and morbidity costs, or other factors.

Amortization of VOBA occurs with interest over the anticipated lives of the major lines of business to which it relates (initially ranging from 13 to 30 years) in relation to estimated gross profits, gross margins or premiums, as appropriate. If estimated gross profits, gross margins or premiums differ from expectations, the amortization of VOBA is adjusted on a retrospective or prospective basis, as appropriate. The VOBA asset related to investment products and universal life insurance products is adjusted annually for the impact of net unrealized gains and losses on securities available-for-sale had such gains and losses been realized and allocated to the product lines, as described in Note 2(b). The recoverability of VOBA is evaluated annually. If the evaluation indicates that the existing insurance liabilities, together with the present value of future net cash flows from the blocks of business acquired, is insufficient to recover VOBA, the difference, if any, is charged to expense as accelerated amortization of VOBA.

F-15

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

For those products amortized in relation to estimated gross profits, the most significant assumptions involved in the estimation of future gross profits include future net separate account performance, surrender/lapse rates, interest margins and mortality. The Company’s long-term assumption for net separate account performance is currently 7%. If actual net separate account performance varies from the 7% assumption, the Company assumes different performance levels over the next three years such that the mean return equals the long-term assumption. The assumed net separate account return assumptions used in the VOBA models are intended to reflect what is anticipated. However, based on historical returns of the S&P 500 Index, the Company’s reversion to the mean process generally limits returns to 0-15% during the three-year reversion period.

Changes in assumptions can have a significant impact on the amount of VOBA reported for all products and their related amortization patterns. In the event actual experience differs from assumptions or assumptions are revised, the Company is required to record an increase or decrease in VOBA amortization expense (VOBA unlocking), which could be significant. In general, increases in the estimated long-term general and separate account returns result in increased expected future profitability and may lower the rate of VOBA amortization, while increases in long-term lapse/surrender and mortality assumptions reduce the expected future profitability of the underlying business and may increase the rate of VOBA amortization.

The use of discount rates was necessary to establish fair values of VOBA and other intangible assets acquired in the NFN transaction. In selecting the appropriate discount rates, management considered its weighted average cost of capital as well as the weighted average cost of capital required by market participants. In addition, consideration was given to the perceived risk of the assets acquired, which includes the expected growth and competitive profile of the life insurance market and the nature of the assumptions used in the valuation process. An after-tax discount rate of 11.0% was used to value VOBA, while after-tax discount rates ranging from 11.0% to 12.5% were used to value the other intangible assets acquired in the NFN transaction, as well as for net realized gains and losses, net of taxes, allocated to the closed block.

Intangible assets include NFN’s career agency force, independent agency force, retirement services distribution channel, state licenses and certain other contracts and relationships. These intangible assets have been assigned values using various methodologies, including present value of projected future cash flows, analysis of similar transactions that have occurred or could be expected to occur in the market, and replacement or reproduction cost. Other factors considered in the valuation include the relative risk profile of each asset, the deterioration of the economic life, and the enhancement to other associated assets. The initial valuations of these intangible assets were also supported by an independent valuation study that was commissioned by the Company and executed by qualified valuation experts. See Note 8 for information on 2008 adjustments to the career agency force and independent agency force intangible asset balances.

The other identified intangible assets with finite lives are amortized over their estimated useful lives, which initially ranged from 5 to 22 years (weighted average 19 years), primarily based on the cash flows generated by these assets.

(h) Goodwill

In connection with acquisitions of operating entities, the Company recognizes the excess of the purchase price over the fair value of net assets acquired as goodwill. Goodwill is not amortized, but is evaluated for impairment at the reporting unit level annually in the third quarter. Goodwill of a reporting unit also is tested for impairment on an interim basis in addition to the annual evaluation if an event occurs or circumstances change which would more likely than not reduce the fair value of a reporting unit below its carrying amount.

The process of evaluating goodwill for impairment requires several judgments and assumptions to be made to determine the fair value of the reporting units, including the method used to determine fair value; discount rates; expected levels of cash flows, revenues and earnings; and the selection of comparable companies used to develop market-based assumptions.

F-16

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(i) Closed Block

In connection with the sponsored demutualization of Provident Mutual Life Insurance Company (Provident) prior to its acquisition by the Company, Provident established a closed block for the benefit of certain classes of individual participating policies that had a dividend scale payable in 2001. Assets were allocated to the closed block in an amount that produces cash flows which, together with anticipated revenues from closed block business, is reasonably expected to be sufficient to provide for (1) payment of policy benefits, specified expenses and taxes, and (2) the continuation of dividends throughout the life of the Provident policies included in the closed block based upon the dividend scales payable for 2001, if the experience underlying such dividend scales continues.

Assets allocated to the closed block benefit only the holders of the policies included in the closed block and will not revert to the benefit of the Company. No reallocation, transfer, borrowing or lending of assets can be made between the closed block and other portions of the Company’s general account, any of its separate accounts, or any affiliate of the Company without the approval of the Pennsylvania Insurance Department (PID). The closed block will remain in effect as long as any policy in the closed block is in force.

If, over time, the aggregate performance of the closed block assets and policies is better than was assumed in funding the closed block, dividends to policyholders will increase. If, over time, the aggregate performance of the closed block assets and policies is less favorable than was assumed in the funding, dividends to policyholders could be reduced. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from the Company’s assets outside of the closed block, which are general account assets.

The assets and liabilities allocated to the closed block are recorded in the Company’s consolidated financial statements on the same basis as other similar assets and liabilities. The carrying amount of closed block liabilities in excess of the carrying amount of closed block assets at the date Provident was acquired by the Company represents the maximum future earnings from the assets and liabilities designated to the closed block that can be recognized in income, for the benefit of stockholders, over the period the policies in the closed block remain in force.

If actual cumulative earnings exceed expected cumulative earnings, the expected earnings are recognized in income. This is because the excess cumulative earnings over expected cumulative earnings, which represents undistributed accumulated earnings attributable to policyholders, is recorded as a policyholder dividend obligation. Therefore, the excess will be paid to closed block policyholders as an additional policyholder dividend expense in the future unless it is otherwise offset by future performance of the closed block that is less favorable than originally expected. If actual cumulative performance is less favorable than expected, actual earnings will be recognized in income.

The principal cash flow items that affect the amount of closed block assets and liabilities are premiums, net investment income, purchases and sales of investments, policyholder benefits, policyholder dividends, premium taxes and income taxes. The principal income and expense items excluded from the closed block are management and maintenance expenses, commissions, net investment income, and realized gains and losses on investments held outside of the closed block that support the closed block business, all of which enter into the determination of total gross margins of closed block policies for the purpose of the amortization of VOBA.

(j) Separate Accounts

Separate account assets and liabilities represent contractholders’ funds that have been legally segregated into accounts with specific investment objectives. Separate account assets are recorded at fair value primarily based on market quotations of the underlying securities. Investment income and realized investment gains or losses of these accounts accrue directly to the contractholders. The activity of the separate accounts is not reflected in the consolidated statements of (loss) income except for (1) the fees the Company receives, which are assessed on a daily or monthly basis and recognized as revenue when assessed and earned, and (2) the activity related to contract guarantees, which are riders to existing variable annuity contracts.

F-17

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(k) Future Policy Benefits and Claims

The process of calculating reserve amounts for a life insurance organization involves the use of a number of assumptions, including those related to persistency (how long a contract stays with a company), mortality (the relative incidence of death in a given time), morbidity (the relative incidence of disability resulting from disease or physical impairment) and interest rates (the rates expected to be paid or received on financial instruments, including insurance or investment contracts).

The Company calculates its liability for future policy benefits and claims for investment products in the accumulation phase and universal life and variable universal life insurance policies as the policy account balance, which represents participants’ net premiums and deposits plus investment performance and interest credited less applicable contract charges.

The Company’s liability for funding agreements to an unrelated third party trust related to NLIC’s medium-term note (MTN) program equals the balance that accrues to the benefit of the contractholder, including interest credited. The funding agreements constitute insurance obligations and are considered annuity contracts under Ohio insurance laws.

The liability for future policy benefits and claims for traditional life insurance policies was determined using the net level premium method using interest rates varying from 2.0% to 10.5% and estimates of mortality, morbidity, investment yields and withdrawals that were used or being experienced at the time the policies were issued.

The liability for future policy benefits for payout annuities was calculated using the present value of future benefits and maintenance costs discounted using interest rates varying generally from 3.0% to 13.0%.

(l) Participating Business

Participating business, which refers to policies that participate in profits through policyholder dividends, represented approximately 5% of the Company’s life insurance in force in 2008 (6% in 2007 and 8% in 2006), 54% of the number of life insurance policies in force in 2008 (56% in 2007 and 60% in 2006) and 12% of life insurance statutory premiums in 2008 (12% in 2007 and 8% in 2006). The provision for policyholder dividends was based on then current dividend scales and has been included in future policy benefits and claims in the consolidated balance sheets.

(m) Federal Income Taxes

The Company provides for federal income taxes based on amounts the Company believes it ultimately will owe. Inherent in the provision for federal income taxes are estimates regarding the deductibility of certain items and the realization of certain tax credits. In the event the ultimate deductibility of certain items or the realization of certain tax credits differs from estimates, the Company may be required to significantly change the provision for federal income taxes recorded in the consolidated financial statements. Any such change could significantly affect the amounts reported in the consolidated statements of (loss) income. Management has established reserves in accordance with FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48) based on current facts and circumstances regarding tax exposure items where the ultimate deductibility is open to interpretation. Management evaluates the appropriateness of such reserves quarterly based on any new developments specific to their fact patterns. Information considered includes results of completed tax examinations, Technical Advice Memorandums and other rulings issued by the Internal Revenue Service (IRS) or the tax courts.

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax asset will not be fully realized.

F-18

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(n) Reinsurance Ceded

Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Assets and liabilities related to reinsurance ceded generally are reported in the consolidated balance sheets on a gross basis, separately from the related future policy benefits and claims of the Company. The ceding of risk does not discharge the original insurer from its primary obligation to the policyholder.

(o) Discontinued Operations

Effective March 31, 2007, the Company completed the sale of The 401(k) Company for $115.4 million in cash and recorded a $45.5 million gain, net of taxes. The 401(k) Company provides administrative and record-keeping services to employers in the private sector for use in Internal Revenue Code (IRC) Section 401(k) retirement programs. Since this sale represented the Company’s exit from the large plan 401(k) market, the results of operations of The 401(k) Company and the gain on sale are reflected as discontinued in the consolidated statements of (loss) income.

During the quarter ended December 31, 2007, the Company committed to a plan of sale of its interest in TBG Insurance Services Corporation d/b/a TBG Financial (TBG Financial). Based on management’s determination that the carrying value of this business exceeded its estimated fair value (less estimated cost to sell), the Company recorded a $23.3 million loss, net of taxes. During 2008, the Company completed the sale of its interest in TBG Financial for $41.3 million in cash and potential additional consideration in the form of an earnout provision, resulting in the Company recording and additional loss of $13.2 million, net of taxes. TBG Financial is engaged in the distribution of COLI and BOLI products primarily to large companies. With completion of the sale of its interest in TBG Financial, NFS no longer engages in the distribution of COLI and BOLI products. However, NFS is continuing its manufacturing capabilities in this market. Accordingly, the results of operations of TBG Financial are reflected as discontinued in the consolidated statements of (loss) income.

(p) Nationwide Funds Group Acquisition

On February 2, 2007, NFS entered into a stock purchase agreement with Nationwide Corporation to acquire the Philadelphia-based retail asset management operations of NWD Investment Management, Inc. (NWD). The transaction closed on April 30, 2007 with a final purchase price of $244.2 million. The acquired operations are known as Nationwide Funds Group (NFG). The purchase was accounted for during the second quarter of 2007 at historical cost in a manner similar to a pooling of interests because the involved entities are under common control. NFG is reflected in the Company’s current and prior year consolidated financial statements at the historical cost of the transferred net assets to provide comparative information as though the companies were combined for all periods presented. The excess purchase price over the historical cost of the acquired net assets was accounted for as a $202.5 million equity transaction, including a $4.0 million true-up recorded during the fourth quarter of 2007. In addition, NFG paid a $42.0 million dividend to Nationwide Corporation during the second quarter of 2007 but prior to the acquisition date.

(q) Change in Accounting Principle

Historically, the Company accrued for legal costs associated with litigation defense and regulatory investigations by estimating the ultimate costs of such activity. Beginning April 1, 2007, the Company’s accrual for such legal expenses includes only the amount for services that have been provided but not yet paid. The Company believes the newly adopted accounting principle is preferable because it more accurately reflects expenses in the periods in which they are incurred. The Company continues to estimate and accrue the ultimate amounts it expects to pay for litigation and regulatory investigation loss contingencies.

F-19

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(r) Summary of Impact of NFG Acquisition and Change in Accounting Principle

The Company has presented its consolidated financial statements and accompanying notes as applicable for all years presented to reflect the NFG acquisition and to retroactively apply the adoption of the change in accounting principle described above.

The following tables summarize the impact of the items described above for the years ended December 31:

(in millions, except per share amounts)	NFG Acquisition		Change in Accounting Principle			Total
2007
Net investment income	$	1.8	$	—		$	1.8
Other income		213.2		—			213.2
Other operating expenses		165.5		1.9			167.4
Net income		44.9		(1.2	)		43.7
Earnings per common share:
Basic	$	0.32	$	(0.01	)	$	0.31
Diluted		0.31		(0.01	)		0.30
2006
Net investment income	$	0.9	$	—		$	0.9
Other income		171.4		—			171.4
Other operating expenses		152.3		4.2			156.5
Net income		12.9		(2.7	)		10.2
Earnings per common share:
Basic	$	0.09	$	(0.02	)	$	0.07
Diluted		0.09		(0.02	)		0.07

F-20

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(s) Share-Based Payments

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS 123R), and began expensing, at fair value, the costs resulting from share-based payment transactions. The following table summarizes share-based payment expense for the years ended December 31:

(in millions, except per share amounts)	2008		2007		2006
Share-based payment expense	$	6.0	$	9.4	$	8.6
Share-based payment expense, net of taxes		3.9		6.1		5.6
Expense per common share, net of taxes:
Basic	$	0.03	$	0.04	$	0.04
Diluted		0.03		0.04		0.04

The Fourth Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan (LTEP) covers selected employees, directors and agents of the Company and certain of its affiliates. The LTEP provides for the grant of any or all of the following types of stock-based compensation awards: (1) stock options for shares of Class A common stock; (2) restricted stock; (3) stock-based Nationwide value added (NVA) awards; (4) stock appreciation rights (SARs), either in tandem with stock options or freestanding; and (5) performance shares and performance units. The LTEP provides that it will remain in effect, subject to the right of the Company’s Board of Directors to terminate it sooner, until all shares subject to the LTEP have been delivered under awards. However, in no event may any LTEP award of incentive stock options be granted on or after February 27, 2012. The number of shares of Class A common stock that may be issued under the LTEP, or as to which SARs or other awards may be granted, currently may not exceed 20.1 million. As of December 31, 2008, 12.5 million shares of Class A common stock options have been granted. Shares issued upon option exercise are new shares not issued from treasury. The Company did not grant any Class A common stock options during 2008.

Substantially all stock options (1) are non-qualified; (2) are granted with an exercise price at least equal to the fair value of shares on the grant date; (3) have a ten-year term; and (4) vest and become exercisable at the rate of one-third on each annual anniversary date of a three-year period of continued employment or upon retirement. Restricted stock awards are issued with a specific period of restriction varying by award as determined by the Compensation Committee of the Company’s Board of Directors. As of December 31, 2008, there were no outstanding NVA awards, SARs, performance shares or performance units payable in shares of Class A common stock.

The Nationwide Financial Services, Inc. Second Amended and Restated Stock Retainer Plan for Non-Employee Directors (Director Stock Retainer Plan) covers non-employee directors of the Company. The Director Stock Retainer Plan provides that payment of all or a portion of the retainer payable to a member of the board of directors may be made in shares of Class A common stock or in deferred stock units (DSUs). DSUs vest upon grant and are valued at the current fair value of the Company’s Class A common stock. They will be settled in cash or stock, pursuant to the terms of the applicable award agreement, in the January following the director’s termination from the board. As of December 31, 2008, there were approximately 41,000 DSUs outstanding. All outstanding DSUs will be settled in cash. As part of the merger transaction, the liability for the outstanding DSUs was transferred to NMIC in 2009.

F-21

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes outstanding stock options for the year ended December 31, 2008:

(options in millions)	Options on Class A common stock		Weighted average exercise price
Outstanding, beginning of period	4.7		$	39.05
Granted	—			—
Exercised	(0.4	)		36.53
Cancelled	(0.1	)		45.15
Outstanding, end of period	4.2
Vested and exercisable, end of period	3.6		$	37.25

As of December 31, 2008, vested and exercisable stock options had an aggregate intrinsic value of $55.0 million with a weighted average remaining contractual term of approximately 4 years. Stock options exercised during 2008 had an aggregate intrinsic value of approximately $5.1 million.

The following table summarizes nonvested stock options for the year ended December 31, 2008:

(options in millions)	Options on Class A common stock		Weighted average grant date fair value
Nonvested, beginning of period	1.3		$	14.12
Granted	—			—
Vested	(0.7	)		13.34
Cancelled	—			—
Nonvested, end of period	0.6			14.99

As of December 31, 2008, the total share-based payment cost related to nonvested stock options not yet recognized was approximately $3.9 million. This expense will be recognized during the first quarter of 2009 in conjunction with the closing of the merger transaction described in Note 15.

As part of the merger transaction, all outstanding stock options were cancelled on January 1, 2009 in exchange for $52.25 per option, less exercise price, for all options with an exercise price not in excess of $52.25.

The fair values of stock options were estimated on the dates of grant using a Black-Scholes option-pricing model. In accordance with FASB Staff Position (FSP) FAS 123R-2, Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123R (FSP FAS 123R-2), the total of 745,818 stock options awarded by the Compensation Committee in February and March 2006 were not considered granted for accounting purposes until April 2006 when the awards were communicated to recipients. Accordingly, the fair values of these awards were not estimated until the April 2006 effective grant date, and the related expense was recognized in the financial statements beginning in the second quarter of 2006.

F-22

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes the weighted average fair value of options granted and assumptions used to determine the fair value of options granted for the years ended December 31:

	2007		2006
Fair value of options granted	$	15.61	$	14.06
Dividend yield		1.89%		2.11%
Expected volatility		27.14%		31.88%
Risk-free interest rate		4.70%		4.92%
Expected life (years)		5.7		5.9

The dividend yield was estimated considering current dividends and stock prices. Expected volatility was estimated using a weighted average of the Company’s historical actual experience. The risk-free interest rate was estimated based on a U.S. Treasury Bond yield with a remaining term approximating that of the expected option life. The expected option life was estimated using a weighted average of the Company’s actual experience assuming that outstanding options were exercised at the midpoint of the remaining term.

(3) Recently Issued Accounting Standards

In January 2009, the FASB issued EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (FSP EITF 99-20-1). FSP EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. FSP EITF 99-20-1 is effective for interim and annual reporting periods ending after December 15, 2008, and will be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The Company will adopt FSP EITF 99-20-1 effective December 31, 2008 and will apply the standard prospectively, as is required.

In December 2008, the FASB issued FSP FAS 132R-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (FSP FAS 132R-1). FSP FAS 132R-1 amends FASB Statement No. 132 revised 2003, Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The portion of FSP FAS 132R-1 related to the disclosures about plan assets is effective for fiscal years ending after December 15, 2009. FSP FAS 132R-1 will have no impact on the Company’s disclosures.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46R-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities, (FSP FAS 140-4 and FIN 46R-8). FSP FAS 140-4 and FIN 46R-8 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide additional disclosures about their involvement with variable interest entities. This FSP will be effective for the first reporting period (interim or annual) ending after December 15, 2008. The Company adopted FSP FAS 140-4 and FIN 46R-8 effective December 31, 2008. See Note 21 for the required disclosures.

F-23

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In November 2008, the FASB Board ratified the Emerging Issues Task Force’s consensus EITF 08-7, Accounting for Defensive Intangible Assets (EITF 08-7). EITF 08-7 requires defensive intangible assets acquired in a business combination or asset acquisition to be accounted for as a separate unit of accounting. In doing so, the asset should not be included as part of the cost of an entity’s existing intangible asset(s) because the defensive intangible asset is separately identifiable. EITF 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. EITF 08-7 is not expected to have a material impact on the Company’s financial position or results of operations upon adoption. The Company will adopt EITF 08-7 effective January 1, 2009 and will apply it prospectively for intangible assets acquired on or after that date.

In November 2008, the FASB Board ratified the Emerging Issues Task Force’s consensus EITF 08-6, Equity Method Investment Accounting Considerations (EITF 08-6). EITF 08-6 clarifies how to account for certain transactions and impairment considerations involving equity method investments. Specifically, EITF 08-6 notes: 1) an entity shall measure its equity method investment initially at cost 2) an equity method investor is required to recognize other-than-temporary impairments of an equity method investment in accordance with paragraph 19(h) of Opinion 18 and an equity method investor shall not separately test an investee’s underlying indefinite-lived intangible asset(s) for impairment 3) an equity method investor shall account for a share issuance by an investee as if the investor had sold a proportionate share of its investment and any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings. This Issue shall be is effective on a prospective basis in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company will adopt EITF 08-6 effective January 1, 2009 and will apply the standard prospectively, as is required.

In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP FAS 157-3). FSP FAS 157-3 clarifies the application of SFAS No. 157, Fair Value Measurements (SFAS 157), in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 was effective upon issuance and was adopted by the Company effective September 30, 2008. The adoption of FSP FAS 157-3 did not have a material impact on the Company’s financial position or results of operations.

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (FSP FAS 133-1 and FIN 45-4). FSP FAS 133-1 and FIN 45-4 requires additional disclosure about credit derivatives including their nature, potential amount of future payments, fair value, recourse provisions and current status of the payment/performance risk. FSP FAS 133-1 and FIN 45-4 also requires the disclosure of the current status of the payment/performance risk of a guarantee subject to FIN No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others – an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34. FSP FAS 133-1 and FIN 45-4 is effective for reporting periods ending after November 15, 2008. The Company adopted FSP FAS 133-1 and FIN 45-4 effective for the December 31, 2008 reporting period. See Note 5 for the required disclosures

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with U.S. GAAP (the GAAP hierarchy). SFAS 162 will be effective 60 days following the approval by the United States Securities and Exchange Commission (SEC) of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS 162 did not result in a change in the Company’s current practices.

F-24

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FSP FAS 142-3 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The amended factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142 are to be applied prospectively to intangible assets acquired after the effective date. The Company will adopt FSP 142-3 effective January 1, 2009. The Company does not expect the new factors to materially change the Company’s current methodologies.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS 133 with the intent to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. SFAS 161 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about derivative instrument fair values and related gains and losses, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company currently is evaluating the new disclosures required under SFAS 161 and will adopt it March 31, 2009.

In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2). This FSP delays the effective date of SFAS 157 for nonfinancial assets and liabilities until fiscal years and interim periods beginning after November 15, 2008. FSP FAS 157-2 applies to nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually), and is effective upon issuance. The Company has not yet applied the provisions of SFAS 157 to the nonfinancial assets and liabilities within the scope of FSP FAS 157-2. However, the Company does not expect such application to have a material impact on its financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R), which replaces SFAS No. 141, Business Combinations (SFAS 141). The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. Accordingly, SFAS 141R establishes principles and requirements for how the acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R applies to all transactions or other events in which an entity obtains control of one or more businesses and retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R is applicable prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Earlier application is prohibited. The Company will adopt SFAS 141R effective January 1, 2009 and will apply it to any business combination on or after that date.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (SFAS 160). The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 also amends certain consolidation procedures prescribed by Accounting Research Bulletin No. 51, Consolidated Financial Statements, for consistency with the requirements of SFAS 141R. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company will adopt SFAS 160 effective January 1, 2009 and will apply it to any acquisitions or dispositions of noncontrolling interests on or after that date.

F-25

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In June 2007, the Accounting Standards Executive Committee (AcSEC) of the AICPA issued SOP 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies (SOP 07-1). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the Guide). For those entities that are investment companies under SOP 07-1, this SOP also addresses whether the specialized industry accounting principles of the Guide (i.e., fair value accounting) should be retained by a parent company in consolidation or by an investor that has the ability to exercise significant influence over the investment company and applies the equity method of accounting to its investment in the entity (referred to as an equity method investor). In addition, SOP 07-1 includes certain disclosure requirements for parent companies and equity method investors in investment companies that retain investment company accounting in the parent company’s consolidated financial statements or the financial statements of an equity method investor. The provisions of SOP 07-1 were to be effective for fiscal years beginning on or after December 15, 2007. On February 14, 2008, the FASB issued FSP SOP 07-1-1, which delays indefinitely the effective date of SOP 07-1. The Company will monitor the FASB and AICPA deliberations regarding this standard.

In April 2007, the FASB issued FSP FIN 39-1, An Amendment of FASB Interpretation No. 39 (FSP FIN 39-1). FSP FIN 39-1 addresses whether a reporting entity that is party to a master netting arrangement can offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement in accordance with paragraph 10 of Interpretation 39. FSP FIN 39-1 is effective for fiscal years beginning after November 15, 2007, with early application permitted. The Company adopted FSP FIN 39-1 effective January 1, 2008. The Company elected to present the fair value of cash collateral received separate from the obligation to return the collateral. The adoption of FSP FIN 39-1 did not impact the Company’s financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, Including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is expected to expand the use of fair value measurement, which is consistent with the FASB’s long-term measurement objectives for accounting for financial instruments. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 does not affect any existing accounting literature that requires certain assets and liabilities to be carried at fair value. In addition, SFAS 159 does not establish requirements for recognizing and measuring dividend income, interest income or interest expense, nor does it eliminate disclosure requirements included in other accounting standards, including requirements for disclosures about fair value measurements included in SFAS No. 157, Fair Value Measurements (SFAS 157), and SFAS No. 107, Disclosures about Fair Value of Financial Instruments. SFAS 159 is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. The Company adopted SFAS 159 for commercial mortgage loans held for sale effective January 1, 2008, which did not have a material impact on the Company’s financial position or results of operations. The Company will assess the fair value election for new financial assets or liabilities on a prospective basis. See Note 4 for disclosures required by SFAS 159.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability on its balance sheet and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end balance sheet, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end balance sheet is effective for fiscal years ending after December 15, 2008. The Company adopted SFAS 158 effective December 31, 2006. The adoption of SFAS 158 did not have a material impact on the Company’s financial position or results of operations.

F-26

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In September 2006, the FASB issued SFAS 157. SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities and requires new disclosures about fair value measurements. SFAS 157 also provides guidance regarding the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. For assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to initial recognition, the reporting entity shall disclose information that enables financial statement users to assess the inputs used to develop those measurements. For recurring fair value measurements using significant unobservable inputs, the reporting entity shall disclose the effect of the measurements on earnings for the period. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value but does not expand the use of fair value in any new circumstances. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Company adopted SFAS 157 effective January 1, 2008. The adoption of SFAS 157 did not have a material impact on the Company’s financial position or results of operations. See Note 4 for disclosures required by SFAS 157.

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108 (SAB 108). SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current-year financial statements. SAB 108 requires registrants to quantify misstatements using both the balance sheet and income-statement approaches and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the SEC’s previous guidance in SAB No. 99 on evaluating the materiality of misstatements. The Company adopted SAB 108 effective December 31, 2006. SAB 108 did not have a material impact on the Company’s financial position or results of operations upon adoption.

In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 effective January 1, 2007. FIN 48 did not have a material impact on the Company’s financial position or results of operations upon adoption.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets (SFAS 156). SFAS 156 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS 140). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS 156 permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative instruments at fair value. Under SFAS 156, an entity can elect subsequent fair value measurement to account for its separately recognized servicing assets and servicing liabilities. By electing that option, an entity may simplify its accounting because SFAS 156 permits income statement recognition of the potential offsetting changes in fair value of those servicing assets and servicing liabilities and derivative instruments in the same accounting period. SFAS 156 is effective for fiscal years beginning after September 15, 2006. The Company adopted SFAS 156 effective January 1, 2007. SFAS 156 did not have a material impact on the Company’s financial position or results of operations upon adoption.

F-27

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155). SFAS 155 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), and SFAS 140. SFAS 155 also resolves issues addressed in SFAS 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets. In summary, SFAS 155: (1) permits an entity to make an irrevocable election to measure any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation at fair value in its entirety, with changes in fair value recognized in earnings; (2) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133; (3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation; (4) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (5) amends SFAS 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Provisions of SFAS 155 may be applied to instruments that an entity holds at the date of adoption on an instrument-by-instrument basis. The Company adopted SFAS 155 effective January 1, 2006. On the date of adoption, there was no impact to the Company’s financial position or results of operations.

In September 2005, AcSEC issued SOP 05-1. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, issued by the FASB. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights or coverages that occurs as a result of the exchange of a contract for a new contract, or by amendment, endorsement or rider to a contract, or by the election of a new feature or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. Retrospective application of SOP 05-1 to previously issued financial statements is not permitted. Initial application of SOP 05-1 is required as of the beginning of an entity’s fiscal year. The Company adopted SOP 05-1 effective January 1, 2007, which resulted in a $6.0 million charge, net of taxes, as the cumulative effect of adoption of this accounting principle.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (SFAS 154), which replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with earlier adoption permitted. The Company adopted SFAS 154 effective January 1, 2006. SFAS 154 did not have any impact on the Company’s financial position or results of operations upon adoption.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB No 25, Accounting for Stock Issued to Employees. SFAS 123R requires companies to expense at fair value all costs resulting from share-based payment transactions, except for equity instruments held by employee share ownership plans. SFAS 123R also amended SFAS No. 95, Statement of Cash Flows, to require excess tax benefits to be reported as a financing cash inflow rather than as a reduction of taxes paid. In March 2005, the SEC issued SAB No. 107, which summarizes the views of the SEC regarding the interaction between SFAS 123R and certain SEC rules and regulations and provides the SEC’s views on the valuation of share-based payments for public companies. The Company considered this guidance in its adoption of SFAS 123R. SFAS 123R as issued by the FASB was to be effective for the Company as of the beginning of the first reporting period that began after June 15, 2005. However, in April 2005, the SEC adopted a rule that amended the effective date of SFAS 123R. The SEC’s new rule allowed companies to implement SFAS 123R at the beginning of their next fiscal year, instead of the next reporting period, beginning after June 15, 2005. The Company adopted SFAS 123R effective January 1, 2006 using the modified prospective method. The cumulative effect of adoption of SFAS 123R did not have a material impact on the Company’s financial position or results of operations. See Note 2(s) for information on the Company’s share-based payments.

In October 2006, the FASB issued FSP FAS 123R-6, Technical Corrections of FASB Statement No. 123R (FSP FAS 123R-6). This FSP addresses certain technical corrections of SFAS 123R. The Company applied the provisions in this FSP effective January 1, 2007. FSP FAS 123R-6 did not have a material impact on the Company’s financial position or results of operations upon adoption.

F-28

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In October 2006, the FASB issued FSP FAS 123R-5, An Amendment of FSP FAS 123R-1 (FSP FAS 123R-5). This FSP addresses whether a modification of an instrument in connection with an equity restructuring should be considered a modification for purposes of applying FSP FAS 123R-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123R. The Company applied the provisions in this FSP effective January 1, 2007. FSP FAS 123R-5 did not have a material impact on the Company’s financial position or results of operations upon adoption.

In November 2005, the FASB issued FSP FAS 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards (FSP FAS 123R-3). This FSP provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees. An entity can elect to follow the transition guidance for the additional paid-in capital pool in SFAS 123R or the alternative transition method described in this FSP. An entity that adopts SFAS 123R using either modified retrospective or modified prospective application may make a one-time election to adopt the transition method described in this FSP. The Company elected to use the alternative transition method effective January 1, 2006. The Company’s adoption of FSP FAS 123R-3 did not have a material impact on the Company’s financial position or results of operations.

In October 2005, the FASB issued FSP FAS 123R-2. This FSP is a practical accommodation in determining the grant date of an award subject to SFAS 123R, assuming all other criteria in the grant date definition have been met. According to this FSP, a mutual understanding of the key terms and conditions of an award to an individual employee will be presumed to exist at the date the award is approved in accordance with the relevant corporate governance requirements (that is, by the Board or management with the relevant authority) if certain conditions are met. The Company adopted FSP FAS 123R-2 effective January 1, 2006. FSP FAS 123R-2 has not had a material impact on the Company’s financial position or results of operations. See Note 2(r) for a discussion of the impact of FSP FAS 123R-2 on 2006 grants.

F-29

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(4) Fair Value Measurements

Fair Value Option

As described in Note 3, the Company adopted SFAS 159 effective January 1, 2008 and elected SFAS 159 fair value treatment for commercial mortgage loans held for sale. Accordingly, the Company now records in earnings all market fluctuations associated with this portfolio. The Company previously recorded such loans at the lower of cost or fair value. Balances for these loans will be measured at fair value prospectively with unrealized gains and losses included as a component of net realized investment gains and losses. The Company will assess the fair value option election for new financial assets or liabilities on a prospective basis.

Fair Value Hierarchy

As described in Note 3, the Company adopted SFAS 157 effective January 1, 2008. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

In accordance with SFAS 157, the Company categorized its financial instruments into a three level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety.

The Company categorizes financial assets and liabilities recorded at fair value in the consolidated balance sheets as follows:

• Level 1 – Unadjusted quoted prices accessible in active markets for identical assets or liabilities at the measurement date. The types of assets and liabilities utilizing Level 1 valuations include U.S. Treasury and agency securities, equity securities listed in active markets, investments in publicly traded mutual funds with quoted market prices, and listed derivatives.

• Level 2 – Unadjusted quoted prices for similar assets or liabilities in active markets or inputs (other than quoted prices) that are observable or that are derived principally from or corroborated by observable market data through correlation or other means. The types of assets and liabilities utilizing Level 2 valuations generally include U.S. Government agency securities, municipal bonds, structured notes and certain MBSs and ABSs, certain corporate debt, certain private placement investments, and certain derivatives, including certain cross-currency interest rate swaps and credit default swaps.

• Level 3 – Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate about the assumptions market participants would use at the measurement date in pricing the asset or liability. Consideration is given to the risk inherent in both the method of valuation and the valuation inputs. Generally, the types of assets and liabilities utilizing Level 3 valuations are certain MBSs and ABSs, certain corporate debt, certain private placement investments, certain mutual fund holdings, and certain derivatives, including embedded derivatives associated with living benefit contracts.

F-30

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of December 31, 2008:

(in millions)	Level 1			Level 2			Level 3			Total
Assets
Investments:
Securities available-for-sale:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	638.8		$	10.0		$	1.9		$	650.7
Obligations of states and political subdivisions		—			262.4			—			262.4
Debt securities issued by foreign governments		—			55.5			—			55.5
Corporate securities		—			11,256.5			1,312.6			12,569.1
Mortgage-backed securities		1,766.0			2,635.6			2,472.3			6,873.9
Asset-backed securities		—			1,388.1			1,270.0			2,658.1
Total fixed maturity securities		2,404.8			15,608.1			5,056.8			23,069.7
Equity securities		1.4			34.9			24.4			60.7
Total securities available-for-sale		2,406.2			15,643.0			5,081.2			23,130.4
Trading assets		0.2			21.7			44.2			66.1
Mortgage loans held for sale1		—			—			124.5			124.5
Short-term investments		165.4			2,889.6			—			3,055.0
Total investments		2,571.8			18,554.3			5,249.9			26,376.0
Cash		165.5			—			—			165.5
Derivative assets2		—			708.5			597.6			1,306.1
Separate account assets3,5		9,975.7			36,723.2			2,141.8			48,840.7
Total assets	$	12,713.0		$	55,986.0		$	7,989.3		$	76,688.3
Liabilities
Future policy benefits and claims4	$	—		$	—		$	(1,739.7	)	$	(1,739.7	)
Derivative liabilities2		(6.0	)		(385.9	)		(4.2	)		(396.1	)
Total liabilities	$	(6.0	)	$	(385.9	)	$	(1,743.9	)	$	(2,135.8	)

¹ Carried at fair value as elected under SFAS 159.

² Comprised of interest rate swaps, cross-currency interest rate swaps, credit default swaps, other non-hedging instruments, equity option contracts and interest rate futures contracts.

³ Comprised of public, privately registered and non-registered mutual funds and investments in securities.

⁴ Related to embedded derivatives associated with living benefit contracts. The Company’s guaranteed minimum accumulation benefits (GMABs, GLWBs and hybrid GMABs/GLWBs) are considered embedded derivatives under current accounting guidance, resulting in the related liabilities being separated from the host insurance product and recognized at fair value, with changes in fair value reported in earnings. This balance also includes embedded derivatives associated with fixed equity-indexed annuities (EIA) that provide for interest earnings that are linked to the performance of specified equity market indices.

⁵ The value of separate account liabilities is set to equal the fair value of separate account assets.

F-31

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes financial instruments for which the Company used significant unobservable inputs (Level 3) to determine fair value measurements for the year ended December 31, 2008:

				Net gains (losses)																	Change in unrealized gains (losses) in earnings due to assets still held
(in millions)	Balance as of December 31, 2007			In earnings (realized and unrealized)1			In OCI (unrealized)2			Purchases, issuances, sales and settlements			Transfers in to Level 3		Transfers out of Level 3			Balance as of December 31, 2008
Assets
Investments:
Securities available-for-sale3:
Fixed maturity securities
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	$	1.6		$	—		$	0.4		$	(0.1	)	$	—	$	—		$	1.9		$	—
Corporate securities		1,514.2			(199.3	)		(245.3	)		(382.5	)		891.4		(265.9	)		1,312.6			—
Mortgage-backed securities		181.6			(344.3	)		(594.6	)		(243.4	)		3,481.5		(8.5	)		2,472.3			—
Asset-backed securities		762.4			(395.1	)		(579.1	)		(23.0	)		1,658.0		(153.2	)		1,270.0			—
Total fixed maturity securities		2,459.8			(938.7	)		(1,418.6	)		(649.0	)		6,030.9		(427.6	)		5,056.8			—
Equity securities		1.4			(54.0	)		(9.9	)		28.8			58.1		—			24.4			—
Total securities available-for-sale		2,461.2			(992.7	)		(1,428.5	)		(620.2	)		6,089.0		(427.6	)		5,081.2			—
Trading assets		15.4			(18.6	)		—			40.7			6.7		—			44.2			(18.6	)
Mortgage loans held for sale		86.1			(49.3	)		—			87.7			—		—			124.5			(49.3	)
Short-term investments		476.7			—			—			—			—		(476.7	)		—			—
Total investments		3,039.4			(1,060.6	)		(1,428.5	)		(491.8	)		6,095.7		(904.3	)		5,249.9			(67.9	)
Derivative assets		166.6			405.4			4.4			21.2			—		—			597.6			394.0
Separate account assets4,6		2,258.6			305.9			—			511.4			23.9		(958.0	)		2,141.8			329.7
Total assets	$	5,464.6		$	(349.3	)	$	(1,424.1	)	$	40.8		$	6,119.6	$	(1,862.3	)	$	7,989.3		$	655.8
Liabilities
Future policy benefits and claims5	$	(128.9	)	$	(1,602.1	)	$	—		$	(8.7	)	$	—	$	—		$	(1,739.7	)	$	1,602.1
Derivative liabilities		(16.3	)		3.9			—			8.2			—		—			(4.2	)		(12.0	)
Total liabilities	$	(145.2	)	$	(1,598.2	)	$	—		$	(0.5	)	$	—	$	—		$	(1,743.9	)	$	1,590.1

¹ Includes gains and losses on sales of financial instruments, changes in market value of certain instruments and other-than-temporary impairments.

² Includes changes in market value of certain instruments.

³ Includes non-investment grade collateralized mortgage obligations, MBSs and ABSs, ABS trust preferred notes, certain counterparty or internally priced securities, and securities that are at or near default based on designations assigned by the National Association of Insurance Commissioners (NAIC) (see Note 6 for a discussion of NAIC Designations). Equity securities represent holdings in non-registered mutual funds with significant unobservable inputs.

⁴ Comprised of non-registered mutual funds with significant unobservable and/or liquidity restrictions. The net unrealized investment loss on these separate account assets is attributable to contractholders and, therefore, is not included in the Company’s earnings.

⁵ Relates to GMAB, GMLB and EIA embedded derivatives associated with contracts with living benefit riders. Related derivatives are internally valued. The valuation of guaranteed minimum benefit embedded derivatives is based on capital market and actuarial risk assumptions, including risk margin considerations reflecting policyholder behavior. The Company uses observable inputs, such as published swap rates, in its capital market assumptions. Actuarial assumptions, including lapse behavior and mortality rates, are based on actual experience.

⁶ The value of separate account liabilities is set to equal the fair value of separate account assets.

F-32

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Transfers

The Company will review its fair value hierarchy classifications quarterly. Changes in observability of significant valuation inputs identified during these reviews may trigger reclassification of fair value hierarchy levels of financial assets and liabilities. These reclassifications will be reported as transfers in/out of Level 3 in the beginning of the period in which the change occurs. During 2008, certain of the Company’s investments in corporate securities, MBSs and ABSs were considered to be in inactive markets, due to concerns in the securities markets and resulting lack of liquidity. As a result, there have been significant changes in certain inputs which led to transfers into Level 3. During 2008, additional observable inputs were obtained on assets previously considered Level 3, which led to transfers out of that category.

Fair Value on a Nonrecurring Basis

The Company did not have any material assets or liabilities reported at fair value on a nonrecurring basis required to be disclosed under SFAS 157.

Financial Instruments Not Carried at Fair Value

SFAS No. 107, Disclosures about Fair Value of Financial Instruments (SFAS 107) requires additional disclosures of fair value information of financial instruments. The following include disclosures for the other financial instruments not carried at fair value and not included in the above SFAS 157 disclosure.

In estimating fair value for its SFAS 107 disclosures, the Company used the following methods and assumptions:

Mortgage loans on real estate, net: The fair values of mortgage loans on real estate are estimated using discounted cash flow analyses based on interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Estimated fair value is based on the present value of expected future cash flows discounted at the loan’s effective market interest rate. In the current year, commercial mortgage loans held for sale are included in the above SFAS 157 disclosure, as the Company elected to carry these assets at fair value under SFAS 159 (effective January 1, 2008).

Policy loans: The carrying amount reported in the consolidated balance sheets approximates fair value.

Investment contracts: The fair values of the Company’s liabilities under investment type contracts are based on one of two methods. For investment contracts without defined maturities, fair value is the amount payable on demand, net of certain surrender charges. For investment contracts with known or determined maturities, fair value is estimated using discounted cash flow analysis. Interest rates used in this analysis are similar to currently offered contracts with maturities consistent with those remaining for the contracts being valued.

Short-term debt: The carrying amount reported in the consolidated balance sheets approximates fair value.

Long-term debt: The fair values for senior notes are based on quoted market prices. The fair values of the junior subordinated debentures issued to a related party are based on quoted market prices of the capital securities of Nationwide Financial Services Capital Trust I (Trust I), which approximate the fair value of this obligation.

F-33

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes the carrying values and estimated fair values of financial instruments subject to disclosure requirements as of December 31:

	2008						2007
(in millions)	Carrying value			Estimated fair value			Carrying value			Estimated fair value
Assets
Investments:
Mortgage loans on real estate, net	$	7,763.7		$	6,845.6		$	8,316.1		$	8,335.7
Policy loans		1,095.6			1,095.6			1,018.3			1,018.3
Liabilities:
Investment contracts		(25,663.6	)		(19,621.5	)		(25,546.0	)		(23,937.6	)
Short-term debt		(295.7	)		(295.7	)		(309.3	)		(309.3	)
Long-term debt		(1,725.9	)		(1,336.5	)		(1,565.1	)		(1,566.8	)

(5) Derivative Financial Instruments

Qualitative Disclosure

Interest Rate Risk Management

The Company periodically purchases fixed rate investments to back variable rate liabilities. As a result, the Company can be exposed to interest rate risk due to the mismatch between variable rate liabilities and fixed rate assets. In an effort to mitigate the risk from this mismatch, the Company enters into various types of derivative instruments, with fluctuations in the fair values of the derivatives offsetting changes in the fair values of the investments resulting from changes in interest rates. The Company principally uses pay fixed/receive variable interest rate swaps to manage this risk.

Under these interest rate swaps, the Company receives variable interest rate payments and makes fixed rate payments. The fixed interest paid on the swap offsets the fixed interest received on the investment, resulting in the Company receiving the variable interest payments on the swap, generally 3-month U.S. London Interbank Offered Rate (LIBOR), and the credit spread on the investment. The net receipt of a variable rate will then more closely match the variable rate paid on the liability.

As a result of entering into fixed rate commercial mortgage loan and private placement commitments, the Company is exposed to changes in the fair value of such commitments due to changes in interest rates during the commitment period prior to funding of the loans. In an effort to manage this risk, the Company enters into short U.S. Treasury futures and/or pay fixed interest rate swaps during the commitment period. With short U.S. Treasury futures or pay fixed interest rate swaps, if interest rates rise/fall, the gains/losses on the futures will offset the change in fair value of the commitment attributable to the change in interest rates.

F-34

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company periodically purchases variable rate investments such as commercial mortgage loans and corporate bonds. As a result, the Company can be exposed to variability in cash flows and investment income due to changes in interest rates. Such variability poses risks to the Company when the assets are funded with fixed rate liabilities. In an effort to manage this risk, the Company may enter into receive fixed/pay variable interest rate swaps. In using these interest rate swaps, the Company receives fixed interest rate payments and makes variable rate payments. The variable interest paid on the swap offsets the variable interest received on the investment, resulting in the Company receiving the fixed interest payments on the swap and the credit spread on the investment. The net receipt of a fixed rate will then more closely match the fixed rate paid on the liability.

The Company manages interest rate risk at the segment level. Different segments may simultaneously hedge interest rate risks associated with owning fixed and variable rate investments considering the risk relevant to a particular segment.

Foreign Currency Risk Management

In conjunction with the Company’s MTN program, the Company periodically issues both fixed and variable rate liabilities denominated in foreign currencies. As a result, the Company is exposed to changes in the fair value of liabilities due to changes in foreign currency exchange rates and related interest rates. In an effort to manage these risks, the Company enters into cross-currency interest rate swaps.

The Company is exposed to changes in the fair value of fixed rate investments denominated in a foreign currency due to changes in foreign currency exchange rates and related interest rates. In an effort to manage this risk, the Company uses cross-currency interest rate hedges to swap these asset characteristics to variable U.S. dollar rate instruments. Cross-currency interest rate swaps on assets are structured to pay a fixed rate, in a foreign currency, and receive a variable U.S. dollar rate, generally 3-month U.S. LIBOR. These derivative instruments are designated as a fair value hedge of a fixed rate foreign denominated asset.

Cross-currency interest rate swaps on variable rate investments are structured to pay a variable rate, in a foreign currency, and receive a fixed U.S. dollar rate. The terms of the foreign currency paid on the swap will exactly match the terms of the foreign currency received on the asset, thus eliminating currency risk. These derivative instruments are designated as a cash flow hedge.

Equity Market Risk Management

Asset fees calculated as a percentage of separate account assets are a significant source of revenue to the Company. As of December 31, 2008, approximately 72% of separate account assets were invested in equity mutual funds (approximately 82% as of December 31, 2007). Gains and losses in the equity markets result in corresponding increases and decreases in the Company’s separate account assets and asset fee revenue. In addition, a decrease in separate account assets may decrease the Company’s expectations of future profit margins due to a decrease in asset fee revenue and/or an increase in guaranteed contract claims, which also may require the Company to accelerate amortization of DAC.

The Company’s long-term assumption for net separate account returns is 7% annual growth. If equity markets were unchanged throughout a given year, the Company estimates that its net earnings per diluted share, calculated using current weighted average diluted shares outstanding, would be approximately $0.05 to $0.10 less than if the Company’s long-term assumption for net separate account returns were realized. This analysis assumes no other factors change and that an unlocking of DAC assumptions would not be required. However, as it does each quarter, the Company would evaluate its DAC balance and underlying assumptions to determine the need for unlocking. The Company can provide no assurance that the experience of flat equity market returns would not result in changes to other factors affecting profitability, including the possibility of unlocking of DAC assumptions.

F-35

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Many of the Company’s individual variable annuity contracts offer guaranteed minimum death benefit (GMDB) features. A GMDB generally provides a benefit if the annuitant dies and the contract value is less than a specified amount, which may be based on premiums paid less amounts withdrawn or contract value on a specified anniversary date. A decline in the stock market causing the contract value to fall below this specified amount, which varies from contract to contract based on the date the contract was entered into as well as the GMDB feature elected, will increase the net amount at risk, which is the GMDB in excess of the contract value. This could result in additional GMDB claims.

In an effort to mitigate this risk, the Company implemented a GMDB economic hedging program for certain new and existing business. Prior to implementation of the GMDB hedging program in 2000, the Company managed this risk primarily by entering into reinsurance arrangements. The GMDB economic hedging program is designed to offset changes in the economic value of the designated GMDB obligation. Currently the program shorts S&P 500 Index futures, which provides an offset to changes in the value of the designated obligation. The futures are not designated as hedges and, therefore, hedge accounting is not applied. The Company’s economic and accounting hedges are not perfectly offset. Therefore, the economic hedging activity is likely to lead to earnings volatility. As of December 31, 2008 and 2007, the Company’s net amount at risk was $8,763.6 million and $528.0 million before reinsurance, respectively, and $7,347.9 million and $319.3 million net of reinsurance, respectively. As of December 31, 2008 and 2007, the Company’s reserve for GMDB claims was $247.9 million and $38.9 million, respectively.

The Company also offers certain variable annuity products with GMAB, GLWB and hybrid GMAB/GLWB riders (collectively referred to as living benefits). A GMAB provides the contractholder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the time of issuance of a variable annuity contract. In some cases, the contractholder also has the option, after a specified time, to drop the rider and continue the variable annuity contract without the GMAB. The design of the GMAB rider limits the risk to the Company in a variety of ways including asset allocation requirements, which serve to reduce the Company’s potential exposure to underlying fund performance risks. Specifically, the terms in the GMAB rider limit policyholder asset allocation by either (1) requiring partial allocation of assets to a guaranteed term option (a fixed rate investment option) and excluding certain funds that are highly volatile or difficult to hedge or (2) requiring all assets be allocated to one of the approved asset allocation funds or models defined by the Company.

Beginning in March 2005, the Company began offering a hybrid GMAB/GLWB through its Capital Preservation Plus Lifetime Income (CPPLI) contract rider. This living benefit combines a GMAB feature in its first 5-10 years with a lifetime withdrawal benefit election at the end of the GMAB feature. Upon maturity of the GMAB, the contractholder can elect the lifetime withdrawal benefit, which would continue for the duration of the insured’s life; elect a new CPPLI rider; or drop the rider completely and continue the variable annuity contract without any rider. If the lifetime withdrawal benefit is elected and the insured’s contract value is exhausted through such withdrawals and market conditions, the Company will continue to fund future withdrawals at a pre-defined level until the insured’s death. In some cases, the contractholder has the right to drop the GLWB portion of this rider or periodically reset the guaranteed withdrawal basis to a higher level. This benefit requires a minimum allocation to guaranteed term options or adherence to limitations required by an approved asset allocation strategy as previously described above.

In March 2006, the Company added Lifetime Income (L.inc), a stand-alone GLWB, to complement CPPLI in its product offerings. This rider is very similar to the hybrid benefit discussed above in that L.inc and CPPLI both have guaranteed withdrawal rates that increase based on the age at which the contractholder begins taking income. The withdrawal rates are applied to a benefit base to determine the guaranteed lifetime income amount available to a contractholder. The benefit base is equal to the variable annuity premium at contract issuance and may increase as a result of a ratchet feature that is driven by account performance and a roll-up feature that is driven by policy duration. Generally, the longer the contractholder waits before commencing withdrawals, the greater the guaranteed lifetime income. One key difference between L.inc and CPPLI is that the charge associated with L.inc is assessed against the benefit base. This is a risk mitigation feature as it alleviates much of the uncertainty around account performance and customer withdrawal patterns, both of which can lead to lower than expected revenue streams if the charge were assessed on account value. In June 2007, the Company added a feature to L.inc to allow for a lump settlement in lieu of lifetime withdrawals in certain situations.

F-36

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company’s living benefit riders represent an embedded derivative in a variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity contract. The embedded derivatives are carried at fair value. Subsequent changes in the fair value of the embedded derivatives are recognized in earnings as a component of net realized investment gains and losses. The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions. Projections of cash flows inherent in the valuation of the embedded derivative incorporate numerous assumptions including, but not limited to, expectations of contractholder persistency, contractholder withdrawal patterns, risk neutral market returns, correlations of market returns and market return volatility. As of December 31, 2008 and 2007, the net balance of the embedded derivatives for living benefits was a liability of $1.70 billion and $91.9 million, respectively. The Company does not expect any meaningful level of claims under the living benefit features for several years and believes any such claims would be mitigated by its economic hedging program.

Similar to the Company’s economic hedging for GMDBs, the living benefits features are also being economically hedged. The primary risks being hedged are the exposures associated with declining equity market returns and downward interest rate movements. The Company employs a variety of instruments to mitigate this exposure including S&P 500 Index futures, U.S. Treasury futures, interest rate swaps and long-dated over-the-counter put options. The positions used in the economic hedging program are not designated as hedges and, therefore, hedge accounting is not applied. The living benefits hedging program is designed to offset changes in the economic value of the living benefits obligation to contractholders. Changes in the fair value of the embedded derivatives are likely to create volatility in earnings. The hedging activity associated with changes in the economic value of the living benefits obligations will likely mitigate a portion of this earnings volatility.

Other Non-Hedging Derivatives

The Company periodically enters into basis swaps (receive one variable rate, pay another variable rate) to better match the cash flows received from the specific variable-rate investments with the variable rate paid on a group of liabilities. While the pay-side terms of the basis swap will be consistent with the terms of the asset, the Company is not able to match the receive-side terms of the derivative to a specific liability. Therefore, basis swaps do not receive hedge accounting treatment.

The Company sells credit default protection on selected debt instruments and combines the credit default swap with selected assets the Company owns to replicate a higher yielding bond. These selected assets may have sufficient duration for the related liability, but do not earn a sufficient credit spread. The combined credit default swap and investments provide cash flows with the duration and credit spread targeted by the Company. The credit default swaps do not qualify for hedge accounting treatment.

The Company also has purchased credit default protection on selected debt instruments exposed to short-term credit concerns, or because the combination of the corporate bond and purchased default protection provides sufficient spread and duration targeted by the Company. The purchased credit default protection is not designated for hedge accounting treatment.

Quantitative Disclosure

Fair Value Hedges

During the years ended December 31, 2008, 2007 and 2006, a net gain of $8.3 million, a net loss of $2.4 million and a net gain of $2.9 million, respectively, were recognized in net realized investment gains and losses related to the ineffective portion of fair value hedging relationships. There were no gains or losses attributable to the portion of the derivative instruments’ changes in fair value excluded from the assessment of hedge effectiveness. There were also no gains or losses recognized in earnings as a result of hedged firm commitments no longer qualifying as fair value hedges.

Cash Flow Hedges

For the years ended December 31, 2008, 2007 and 2006, the ineffective portion of cash flow hedges was a net gain of $3.1 million, a net loss of $1.4 million and a net loss of $1.5 million, respectively. There were no net gains or losses attributable to the portion of the derivative instruments’ changes in fair value excluded from the assessment of hedge effectiveness.

F-37

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In general, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows associated with forecasted transactions, other than those relating to variable interest on existing financial instruments, is twelve months or less. However, in 2003 the Company entered into a hedge of a forecasted purchase of shares of a mutual fund tied to the S&P 500 Index where delivery of the shares will occur in 2033.

During 2008, the Company did not discontinue any cash flow hedges because the original forecasted transaction was no longer probable. Additionally, no amounts were reclassified from AOCI into earnings due to the probability that a forecasted transaction would not occur.

Other Derivative Instruments, Including Embedded Derivatives

Net realized investment gains and losses for the years ended December 31, 2008, 2007 and 2006 included a net gain of $58.2 million, a net loss of $12.4 million and a net loss of $0.5 million, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships. In addition, variable annuity contracts resulted in net losses of $442.5 million, $51.8 million, 11.4 million for the years ended December 31, 2008, 2007, and 2006, respectively, related to other derivative instruments, including embedded derivatives, not designated in hedging relationships.

For the years ended December 31, 2008, 2007 and 2006, net losses of $3.6 million, $0.5 million and $10.6 million, respectively, were recorded in net realized investment gains and losses reflecting the change in fair value of cross-currency interest rate swaps hedging variable rate MTNs denominated in foreign currencies. No additional net gains were recorded to reflect the change in spot rates of foreign currency denominated obligations during the year ended December 31, 2008 compared to none for the year ended December 31, 2007, and a net gain of $14.1 million for the year ended December 31, 2006.

The following table summarizes the notional amount of derivative financial instruments outstanding as of December 31:

(in millions)	2008		2007
Interest rate swaps:
Pay fixed/receive variable rate swaps hedging investments	$	1,218.4	$	1,692.9
Pay variable/receive fixed rate swaps hedging investments		924.5		21.0
Pay variable/receive variable rate swaps hedging liabilities		200.0		—
Pay fixed/receive variable rate swaps hedging liabilities		1,993.7		1,120.7
Pay variable/receive fixed rate swaps hedging liabilities		3,856.3		343.1
Cross-currency interest rate swaps:
Hedging foreign currency denominated investments		343.7		375.5
Hedging foreign currency denominated liabilities		463.4		1,144.1
Credit default swaps		271.2		300.3
Other non-hedging instruments		431.0		518.1
Equity option/futures contracts		3,675.3		2,361.8
Interest rate futures contracts		281.1		371.3
Total	$	13,658.6	$	8,248.8

The notional value is the amount upon which exchanges of interest are based. Exposure to a counterparty arises if the net expected cash flows are positive, as calculated based on forward interest rate curves and notional contract values.

F-38

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Credit Derivatives

The Company enters into two distinct types of credit derivative contracts (or credit default swaps) which allows the Company to either sell or buy credit protection on a specific creditor or credit index. When the Company sells credit protection against a specific creditor or credit index to a counterparty, it receives periodic premium payments similar to the risk premium received on an equivalent maturity bond from the same creditor. In return, the Company agrees to provide for losses if a credit event occurs during the lifetime of the contract, by buying a pre-determined cash bond from the counterparty at face value. In such a contract, a credit event will be defined in the trade settlement documentation and may include, but not be limited to, creditor bankruptcy or restructuring. There are no recourse provisions associated with these contracts.

The Company had exposure to credit protection contracts for the years ended December 31, 2008, 2007 and 2006 and experienced losses of $18.8 million in 2008 and no losses in 2007 or 2006, on such contracts. The following table presents the Company’s outstanding exposure to credit protection contracts, all of which are related to corporate debt instruments, as of December 31, 2008 by contract maturity and industry exposure:

	Less than or equal to one year				One to three years					Three to five years					Total
(in millions)	Maximum potential risk		Estimated fair value		Maximum potential risk		Estimated fair value			Maximum potential risk		Estimated fair value			Maximum potential risk		Estimated fair value
Single sector exposure:
Consumer goods	$	—	$	—	$	6.0	$	(0.8	)	$	—	$	—		$	6.0	$	(0.8	)
Financial		—		—		35.0		(5.8	)		13.0		(0.5	)		48.0		(6.3	)
Oil & gas pipelines		10.0		—		15.0		(0.8	)		—		—			25.0		(0.8	)
Services		—		—		—		—			35.0		(3.0	)		35.0		(3.0	)
Utilities		4.5		—		—		—			—		—			4.5		—
Total single sector exposure		14.5		—		56.0		(7.4	)		48.0		(3.5	)		118.5		(10.9	)
Index exposure:
Corporate bonds		—		—		—		—			110.9		(0.3	)		110.9		(0.3	)
Total index exposure		—		—		—		—			110.9		(0.3	)		110.9		(0.3	)
Total	$	14.5	$	—	$	56.0	$	(7.4	)	$	158.9	$	(3.8	)	$	229.4	$	(11.2	)

F-39

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(6) Investments

The following table summarizes the amortized cost, gross unrealized gains and losses, and estimated fair values of securities available-for-sale as of the dates indicated:

(in millions)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Estimated fair value
December 31, 2008:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations	$	135.8	$	29.3	$	—	$	165.1
U.S. Government agencies1		395.1		90.5		—		485.6
Obligations of states and political subdivisions		271.3		1.6		10.5		262.4
Debt securities issued by foreign governments		50.1		5.4		—		55.5
Corporate securities
Public		8,882.1		99.8		1,108.0		7,873.9
Private		5,050.4		50.8		406.0		4,695.2
Mortgage-backed securities		7,456.9		102.7		685.7		6,873.9
Asset-backed securities		3,584.0		21.0		946.9		2,658.1
Total fixed maturity securities		25,825.7		401.1		3,157.1		23,069.7
Equity securities		68.7		0.8		8.8		60.7
Total securities available-for-sale	$	25,894.4	$	401.9	$	3,165.9	$	23,130.4
December 31, 2007:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations	$	172.8	$	17.4	$	0.9	$	189.3
U.S. Government agencies		418.1		61.5		—		479.6
Obligations of states and political subdivisions		273.3		1.7		2.8		272.2
Debt securities issued by foreign governments		56.2		2.5		0.3		58.4
Corporate securities
Public		9,233.2		175.2		178.8		9,229.6
Private		6,010.7		135.7		66.9		6,079.5
Mortgage-backed securities		7,142.5		40.3		108.2		7,074.6
Asset-backed securities		3,957.1		33.4		184.5		3,806.0
Total fixed maturity securities		27,263.9		467.7		542.4		27,189.2
Equity securities		117.5		8.3		1.6		124.2
Total securities available-for-sale	$	27,381.4	$	476.0	$	544.0	$	27,313.4

¹ Includes $146.5 million of securities explicitly backed by the full faith and credit of the U.S. Government.

The market value of the Company’s general account investments may fluctuate significantly in response to changes in interest rates, investment quality ratings and credit spreads. While the Company has the ability and intent to hold available-for-sale debt securities in unrealized loss positions that are not other-than-temporarily impaired until recovery, it may experience realized investment losses to the extent its liquidity needs require the disposition of general account fixed maturity securities in unfavorable interest rate, liquidity or credit spread environments.

F-40

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Debt securities accounted for under EITF 99-20 may experience other-than-temporary impairment in future periods in the event an adverse change in cash flows is anticipated or probable. Furthermore, equity securities may experience other-than-temporary impairment in the future based on the prospects for recovery in value in a reasonable period. In addition, debt securities may experience other-than-temporary impairment in the future based on the probability that the Company may not be able to receive all contractual payments when due.

The Company held securities issued by institutions in the financial sector with equity-type features, classified as fixed maturity, with estimated fair values of $661.2 million and $705.8 million, and gross unrealized losses of $379.9 million and $32.8 million, as of December 31, 2008 and 2007, respectively. Of these securities in an unrealized loss position as of December 31, 2008, $106.3 million, or 18%, were in an unrealized loss position for more than one year compared to $154.7 million, or 39%, as of December 31, 2007. As of December 31, 2008, the Company evaluates such securities for other-than-temporary impairment using the criteria of either a debt or an equity security depending on the facts and circumstances of the individual issuer.

The table below summarizes the amortized cost and estimated fair values of fixed maturity securities available-for-sale, by maturity, as of December 31, 2008. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(in millions)	Amortized cost		Estimated fair value
Fixed maturity securities available-for-sale:
Due in one year or less	$	1,236.0	$	1,227.9
Due after one year through five years		7,317.0		6,766.2
Due after five years through ten years		2,941.7		2,763.9
Due after ten years		3,290.1		2,779.7
Subtotal		14,784.8		13,537.7
Mortgage-backed securities		7,456.9		6,873.9
Asset-backed securities		3,584.0		2,658.1
Total	$	25,825.7	$	23,069.7

The following table presents the components of net unrealized losses on securities available-for-sale, as of December 31:

(in millions)	2008			2007
Net unrealized losses, before adjustments and taxes	$	(2,764.0	)	$	(68.0	)
Change in fair value attributable to fixed maturity securities designated in fair value hedging relationships		(57.7	)		—
Total net unrealized losses, before adjustments and taxes		(2,821.7	)		(68.0	)
Adjustment to deferred policy acquisition costs		615.9			87.1
Adjustment to value of business acquired		9.6			1.4
Adjustment to future policy benefits and claims		46.9			(80.9	)
Adjustment to policyholder dividend obligation		74.9			(13.8	)
Deferred federal income tax benefit		726.1			26.1
Net unrealized losses	$	(1,348.3	)	$	(48.1	)

F-41

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table presents an analysis of the net increase in net unrealized (losses) gains on securities available-for-sale before adjustments and taxes for the years ended December 31:

(in millions)	2008			2007			2006
Fixed maturity securities	$	(2,681.3	)	$	(167.5	)	$	(182.4	)
Equity securities		(14.7	)		(3.7	)		(0.4	)
Net increase	$	(2,696.0	)	$	(171.2	)	$	(182.8	)

F-42

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

For securities available-for-sale as of the dates indicated, the following table summarizes the Company’s gross unrealized losses based on the amount of time each type of security has been in an unrealized loss position:

	Less than or equal to one year				More than one year				Total
(in millions)	Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses		Estimated fair value		Gross unrealized losses
December 31, 2008:
Fixed maturity securities:
Obligations of states and political subdivisions	$	127.6	$	6.1	$	33.4	$	4.4	$	161.0	$	10.5
Corporate securities
Public		4,135.8		746.5		1,332.5		361.5		5,468.3		1,108.0
Private		2,269.4		284.7		1,003.0		121.3		3,272.4		406.0
Mortgage-backed securities		933.1		172.0		1,821.7		513.7		2,754.8		685.7
Asset-backed securities		1,200.3		308.6		1,259.8		638.3		2,460.1		946.9
Total fixed maturity securities		8,666.2		1,517.9		5,450.4		1,639.2	$	14,116.6	$	3,157.1
Equity securities		19.2		8.6		3.4		0.2		22.6		8.8
Total	$	8,685.4	$	1,526.5	$	5,453.8	$	1,639.4	$	14,139.2	$	3,165.9
% of gross unrealized losses				48%				52%
December 31, 2007:
Fixed maturity securities:
U.S. Treasury securities and obligations of U.S. Government corporations	$	23.7	$	0.6	$	4.2	$	0.3	$	27.9	$	0.9
U.S. Government agencies		—		—		13.9		—		13.9		—
Obligations of states and political subdivisions		23.9		0.2		154.3		2.6		178.2		2.8
Debt securities issued by foreign governments		26.4		0.3		1.2		—		27.6		0.3
Corporate securities
Public		2,452.6		103.4		2,287.7		75.4		4,740.3		178.8
Private		740.4		18.8		2,076.6		48.1		2,817.0		66.9
Mortgage-backed securities		1,448.4		27.6		2,775.7		80.6		4,224.1		108.2
Asset-backed securities		1,515.3		132.3		1,211.6		52.2		2,726.9		184.5
Total fixed maturity securities		6,230.7		283.2		8,525.2		259.2		14,755.9		542.4
Equity securities		37.5		1.6		0.1		—		37.6		1.6
Total	$	6,268.2	$	284.8	$	8,525.3	$	259.2	$	14,793.5	$	544.0
% of gross unrealized losses				52%				48%

F-43

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company has fixed maturity securities that have been in an unrealized loss position for more than one year that are not other-than-temporarily impaired. The Company reviews assets in unrealized loss positions and evaluates whether or not the losses are other-than-temporary. Many criteria are considered during this process including, but not limited to, specific credit issues and financial prospects related to the issuer, the quality of the underlying collateral, management’s intent and ability to hold the security until recovery, current economic conditions that could affect the creditworthiness of the issuer in the future, the current fair value as compared to the amortized cost of the security, the extent and duration of the unrealized loss, and the rating of the affected security.

As of December 31, 2008, fixed maturity securities that have been in an unrealized loss position for more than one year totaled $1.64 billion, or 52% of the Company’s total unrealized losses on fixed maturity securities. Of this total, $1.39 billion, or 85%, were classified as investment grade securities, as defined by the National Association of Insurance Commissioners (NAIC).

As of December 31, 2008, 2,161, or 63%, of the Company’s investments in fixed maturity securities were in an unrealized loss position, in comparison to 1,923, or 52%, as of December 31, 2007.

The majority of the increases in the Company’s unrealized losses from December 31, 2007 to December 31, 2008 were attributable to corporate securities, MBSs and ABSs. These increased unrealized loss positions primarily were driven by the combined impact of volatility in investment quality ratings and credit spreads, illiquid markets, and interest rate movements. In particular, exposure to the financial sector, including through structured securities such as trust preferred, collateralized loan obligations and collateralized debt obligations, have been significantly affected by negative circumstances in those sectors. It is reasonably possible that further declines in estimated fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.

F-44

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

For fixed maturity securities available-for-sale, the following tables summarize as of the dates indicated the Company’s gross unrealized loss position categorized as investment grade vs. non-investment grade, as defined by the NAIC, for the period of time indicated, and based on the ratio of estimated fair value to amortized cost (in millions):

	Period of time for which unrealized loss has existed as of December 31, 2008
	Investment Grade						Non-Investment Grade						Total
Ratio of estimated fair value to amortized cost	Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total
Corporate securities - public and private
99.9% - 95.0%	$	56.1	$	20.8	$	76.9	$	2.1	$	0.1	$	2.2	$	58.2	$	20.9	$	79.1
94.9% - 90.0%		104.3		31.0		135.3		5.7		6.6		12.3		110.0		37.6		147.6
89.9% - 85.0%		87.9		34.5		122.4		7.9		8.7		16.6		95.8		43.2		139.0
84.9% - 80.0%		106.9		29.2		136.1		14.5		7.1		21.6		121.4		36.3		157.7
Below 80.0%		480.4		165.8		646.2		165.4		179.0		344.4		645.8		344.8		990.6
Total		835.6		281.3		1,116.9		195.6		201.5		397.1		1,031.2		482.8		1,514.0
Mortgage-backed securities
99.9% - 95.0%		2.8		2.9		5.7		—		—		—		2.8		2.9		5.7
94.9% - 90.0%		7.4		15.8		23.2		0.1		—		0.1		7.5		15.8		23.3
89.9% - 85.0%		20.0		25.9		45.9		—		—		—		20.0		25.9		45.9
84.9% - 80.0%		17.3		49.7		67.0		5.7		10.0		15.7		23.0		59.7		82.7
Below 80.0%		97.2		387.3		484.5		21.5		22.1		43.6		118.7		409.4		528.1
Total		144.7		481.6		626.3		27.3		32.1		59.4		172.0		513.7		685.7
Asset-backed securities
99.9% - 95.0%		5.2		2.1		7.3		0.5		—		0.5		5.7		2.1		7.8
94.9% - 90.0%		16.9		20.7		37.6		1.0		—		1.0		17.9		20.7		38.6
89.9% - 85.0%		25.1		30.1		55.2		0.3		0.8		1.1		25.4		30.9		56.3
84.9% - 80.0%		18.5		35.8		54.3		0.2		1.0		1.2		18.7		36.8		55.5
Below 80.0%		223.9		538.0		761.9		17.0		9.8		26.8		240.9		547.8		788.7
Total		289.6		626.7		916.3		19.0		11.6		30.6		308.6		638.3		946.9
Other fixed maturity securities1
99.9% - 95.0%		1.6		—		1.6		—		—		—		1.6		—		1.6
94.9% - 90.0%		3.4		0.1		3.5		—		—		—		3.4		0.1		3.5
89.9% - 85.0%		1.0		4.1		5.1		—		—		—		1.0		4.1		5.1
84.9% - 80.0%		0.1		0.2		0.3		—		—		—		0.1		0.2		0.3
Below 80.0%		—		—		—		—		—		—		—		—		—
Total		6.1		4.4		10.5		—		—		—		6.1		4.4		10.5
Total fixed maturity securities available-for-sale
99.9% - 95.0%		65.7		25.8		91.5		2.6		0.1		2.7		68.3		25.9		94.2
94.9% - 90.0%		132.0		67.6		199.6		6.8		6.6		13.4		138.8		74.2		213.0
89.9% - 85.0%		134.0		94.6		228.6		8.2		9.5		17.7		142.2		104.1		246.3
84.9% - 80.0%		142.8		114.9		257.7		20.4		18.1		38.5		163.2		133.0		296.2
Below 80.0%		801.5		1,091.1		1,892.6		203.9		210.9		414.8		1,005.4		1,302.0		2,307.4
Total	$	1,276.0	$	1,394.0	$	2,670.0	$	241.9	$	245.2	$	487.1	$	1,517.9	$	1,639.2	$	3,157.1

¹ Includes U.S. Treasury securities, obligations of U.S. Government corporations, U.S. Government agency securities, obligations of state and political subdivisions, and debt issued by foreign governments.

F-45

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

	Period of time for which unrealized loss has existed as of December 31, 2007
	Investment Grade						Non-Investment Grade						Total
Ratio of estimated fair value to amortized cost	Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total		Less than or equal to one year		More than one year		Total
Corporate securities - public and private
99.9% - 95.0%	$	23.1	$	51.0	$	74.1	$	13.0	$	5.7	$	18.7	$	36.1	$	56.7	$	92.8
94.9% - 90.0%		19.0		33.2		52.2		13.7		5.3		19.0		32.7		38.5		71.2
89.9% - 85.0%		16.5		11.5		28.0		3.8		7.6		11.4		20.3		19.1		39.4
84.9% - 80.0%		2.1		0.4		2.5		3.0		1.0		4.0		5.1		1.4		6.5
Below 80.0%		7.4		—		7.4		20.6		7.8		28.4		28.0		7.8		35.8
Total		68.1		96.1		164.2		54.1		27.4		81.5		122.2		123.5		245.7
Mortgage-backed securities
99.9% - 95.0%		22.0		39.3		61.3		—		—		—		22.0		39.3		61.3
94.9% - 90.0%		5.6		41.3		46.9		—		—		—		5.6		41.3		46.9
89.9% - 85.0%		—		—		—		—		—		—		—		—		—
84.9% - 80.0%		—		—		—		—		—		—		—		—		—
Below 80.0%		—		—		—		—		—		—		—		—		—
Total		27.6		80.6		108.2		—		—		—		27.6		80.6		108.2
Asset-backed securities
99.9% - 95.0%		15.5		15.6		31.1		0.2		—		0.2		15.7		15.6		31.3
94.9% - 90.0%		27.6		14.7		42.3		—		—		—		27.6		14.7		42.3
89.9% - 85.0%		19.8		9.2		29.0		—		—		—		19.8		9.2		29.0
84.9% - 80.0%		16.1		5.8		21.9		—		—		—		16.1		5.8		21.9
Below 80.0%		53.0		6.9		59.9		0.1		—		0.1		53.1		6.9		60.0
Total		132.0		52.2		184.2		0.3		—		0.3		132.3		52.2		184.5
Other fixed maturity securities1
99.9% - 95.0%		1.1		1.4		2.5		—		—		—		1.1		1.4		2.5
94.9% - 90.0%		—		1.5		1.5		—		—		—		—		1.5		1.5
89.9% - 85.0%		—		—		—		—		—		—		—		—		—
84.9% - 80.0%		—		—		—		—		—		—		—		—		—
Below 80.0%		—		—		—		—		—		—		—		—		—
Total		1.1		2.9		4.0		—		—		—		1.1		2.9		4.0
Total fixed maturity securities available-for-sale
99.9% - 95.0%		61.7		107.3		169.0		13.2		5.7		18.9		74.9		113.0		187.9
94.9% - 90.0%		52.2		90.7		142.9		13.7		5.3		19.0		65.9		96.0		161.9
89.9% - 85.0%		36.3		20.7		57.0		3.8		7.6		11.4		40.1		28.3		68.4
84.9% - 80.0%		18.2		6.2		24.4		3.0		1.0		4.0		21.2		7.2		28.4
Below 80.0%		60.4		6.9		67.3		20.7		7.8		28.5		81.1		14.7		95.8
Total	$	228.8	$	231.8	$	460.6	$	54.4	$	27.4	$	81.8	$	283.2	$	259.2	$	542.4

¹ Includes U.S. Treasury securities, obligations of U.S. Government corporations, U.S. Government agency securities, obligations of state and political subdivisions, and debt issued by foreign governments.

F-46

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

As of December 31, 2008, 27% of the Company’s investments in an unrealized loss position had ratios of estimated fair value to amortized cost of at least 80%. In addition, 85% of the Company’s investments in an unrealized loss position were classified as investment grade, as defined by the NAIC. Of the Company’s investments in unrealized loss positions classified as non-investment grade, 50% have been in an unrealized loss position for less than one year.

The NAIC assigns securities quality ratings and uniform valuations (called NAIC Designations), which are used by insurers when preparing their annual statements. For most securities, NAIC ratings are derived from ratings received from nationally recognized rating agencies. The NAIC also assigns ratings to securities that do not receive public ratings. The designations assigned by the NAIC range from class 1 (highest quality) to class 6 (lowest quality). Of the Company’s general account fixed maturity securities, 93% and 94% were in the two highest NAIC Designations as of December 31, 2008 and 2007, respectively.

The following table summarizes the credit quality, as determined by NAIC Designation, of the Company’s general account fixed maturity securities portfolio and shows the equivalent ratings between the NAIC and nationally recognized rating agencies as of December 31:

(in millions)		2008				2007
NAIC designation1	Rating agency equivalent designation2	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
1	Aaa/Aa/A	$	17,087.2	$	15,612.2	$	19,153.4	$	19,056.5
2	Baa		6,633.9		5,821.6		6,445.9		6,512.7
3	Ba		1,233.3		990.0		1,194.0		1,166.7
4	B		571.4		397.2		348.2		341.6
5	Caa and lower		190.5		148.2		83.8		73.1
6	In or near default		109.4		100.5		38.6		38.6
	Total	$	25,825.7	$	23,069.7	$	27,263.9	$	27,189.2

¹ NAIC Designations are assigned at least annually. Some designations for securities shown have been assigned to securities not yet assigned an NAIC Designation in a manner approximating equivalent public rating categories.

² Comparisons between NAIC and Moody’s designations are published by the NAIC. If no Moody’s rating is available, the Company assigns internal ratings corresponding to public ratings.

Recent conditions in the securities markets, including changes in investment quality ratings, liquidity, credit spreads and interest rates, have resulted in declines in the values of investment securities, including MBSs and ABSs. When evaluating whether these securities are other-than-temporarily impaired, the Company considers characteristics of the underlying collateral, such as delinquency and default rates, the quality of the underlying borrower, the type of collateral in the pool, the vintage year of the collateral, subordination levels within the structure of the collateral pool, expected future cash flows, and the Company’s ability and intent to hold the security to recovery. These and other factors also affect the estimated fair value of these securities.

F-47

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company’s investments in MBSs and ABSs include securities that are supported by Alt-A and Sub-prime collateral. The Company considers Alt-A collateral to be mortgages whose underwriting standards do not qualify the mortgage for regular conforming or jumbo loan programs. Typical underwriting characteristics that cause a mortgage to fall into the Alt-A classification may include, but are not limited to, inadequate loan documentation of a borrower’s financial information, debt-to-income ratios above normal lending limits, loan-to-value ratios above normal lending limits that do not have primary mortgage insurance, a borrower who is a temporary resident, and loans securing non-conforming types of real estate. Alt-A mortgages are generally issued to borrowers having higher Fair Isaac Credit Organization (FICO) scores, and the lender typically issues a slightly higher interest rate for such mortgages. The Company considers Sub-prime collateral to be mortgages that are first-lien mortgage loans issued to Sub-prime borrowers, as demonstrated by recent delinquent rent or housing payments or substandard FICO scores. Second-lien mortgage loans are also considered Sub-prime. The amortized cost and estimated fair value of the Company’s investments in securities containing Alt-A collateral totaled $1,871.3 million and $1,469.5 million, respectively, and the amortized cost and estimated fair value of the Company’s investments in securities containing Sub-prime collateral totaled $678.6 million and $530.5 million, respectively. As of December 31, 2008, 76% and 85% of securities containing Alt-A and Sub-prime collateral, respectively, were rated AA or better. In addition, 68% and 77% of Alt-A and Sub-prime collateral, respectively, was originated in 2005 or earlier.

In addition, recent market activity has negatively impacted the Company’s investments in commercial mortgage-backed securities (CMBS). These investments in CMBS are generally characterized by securities that are collateralized by static, heterogeneous pools of mortgages on commercial real estate properties. Deals are generally diversified across property types, geography, borrowers, tenants, loan size, coupon and vintages. As of December 31, 2008, the amortized cost and estimated fair value of the Company’s investments in CMBS totaled $1.49 billion and $1.01 billion, respectively, while the December 31, 2007 amortized cost was $1.24 billion and estimated fair value was $1.22 billion.

Proceeds from the sale of securities available-for-sale during 2008, 2007 and 2006 were $4.42 billion, $5.02 billion and $2.65 billion, respectively. During 2008, gross gains of $38.3 million ($77.9 million and $66.6 million in 2007 and 2006, respectively) and gross losses of $49.6 million ($73.8 million and $71.2 million in 2007 and 2006, respectively) were realized on those sales.

Real estate held for use was $9.8 million and $17.8 million as of December 31, 2008 and 2007, respectively. These assets are carried at cost less accumulated depreciation, which was $2.1 million and $3.6 million as of December 31, 2008 and 2007, respectively. The carrying value of real estate held for sale was $6.8 million and $4.0 million as of December 31, 2008 and 2007, respectively.

The Company grants mainly commercial mortgage loans on real estate to customers throughout the U.S. As of December 31, 2008 and 2007, the Company’s largest exposure to any single borrower, region and property type was 2%, 23% and 33%, respectively, of the Company’s general account mortgage loan portfolio.

As of December 31, 2008 and 2007, the carrying value of commercial mortgage loans on real estate considered specifically impaired was $39.9 million and $7.4 million, respectively, for which a $14.4 million and $3.0 million valuation allowance had been established, respectively. No valuation allowance exists for collateral dependent commercial mortgage loans for which the fair value of the collateral is estimated to be greater than the carrying value.

The following table summarizes activity in the valuation allowance account for mortgage loans on real estate for the years ended December 31:

(in millions)	2008		2007			2006
Allowance, beginning of period	$	24.8	$	36.0		$	35.1
Net change in allowance		17.6		(11.2	)		0.9
Allowance, end of period	$	42.4	$	24.8		$	36.0

F-48

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company has securitized commercial mortgage loans on real estate to third parties. The Company, as the transferor, has continuing involvement in these loans which consists of receiving servicing fees on loans which the Company has transferred.

The Company did not participate in any securitization arrangements during 2008. During 2008, the Company received $0.6 million in servicing fees related to financial assets where there is a continuing involvement from the securitization of commercial mortgage loans on real estate. During 2007, the Company received proceeds of $928.0 million from the securitization of commercial mortgage loans on real estate to third parties, experienced realized losses of $7.3 million on these loans, and received $0.7 million in servicing fees related to loans securitized in 2007 and before. During 2006, the Company received proceeds of $545.0 million from the securitization of commercial mortgage loans on real estate to third parties, experienced realized gains of $5.3 million on these loans, and received $0.4 million in servicing fees related to loans securitized in 2006 and before.

The Company provides a representations and warranties letter to the transferee for each securitization arrangement. If it is found that the Company has made a misrepresentation, it could be required to provide financial support to the transferee or its beneficial interest holders. For the years 2008 and 2007, the Company was not required to provide any financial or other support that it was not previously contractually required to provide to the transferee or its beneficial interest holders.

The following table summarizes net realized investment (losses) gains from continuing operations by source for the years ended December 31:

(in millions)	2008			2007			2006
Total realized gains on sales, net of hedging losses		9.6			78.9			98.7
Total realized losses on sales, net of hedging gains		(122.9	)		(85.0	)		(75.6	)
Total other-than-temporary and other investment impairments		(1,146.4	)		(116.9	)		(16.8	)
Credit default swaps		(22.0	)		(7.5	)		(1.1	)
Derivatives and embedded deriviatives associated with living benefit contracts		(500.7	)		—			—
Derivatives associated with death benefit contracts		109.4			—			—
Other derivatives		116.7			(27.7	)		1.3
Trading asset valuation losses		(32.3	)		(5.7	)		—
Total realized (losses) gains before adjustments		(1,588.6	)		(163.9	)		6.5
Amounts credited to policyholder dividend obligation		37.6			(2.5	)		0.1
Other		1.1			1.2			2.5
Net realized investment (losses) gains	$	(1,549.9	)	$	(165.2	)	$	9.1

F-49

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes other-than-temporary and other investment impairments by asset type for the years ended December 31:

(in millions)	2008			2007		2006
Fixed maturity securities:
Corporate securities
Public	$	226.8		$	10.6	$	4.3
Private		85.1			62.7		0.5
Mortgage-backed securities		358.5			—		—
Asset-backed securities		397.5			35.1		2.1
Total fixed maturity securities		1,067.9			108.4		6.9
Equity Securities		60.2			—		0.1
Other		18.3			8.5		9.8
Total other-than-temporary and other investment impairments	$	1,146.4		$	116.9	$	16.8
The following table summarizes net investment income from continuing operations by investment type for the years ended December 31:
(in millions)	2008			2007		2006
Securities available-for-sale:
Fixed maturity securities	$	1,541.8		$	1,547.4	$	1,582.4
Equity securities		5.5			5.1		3.5
Trading assets		9.7			3.4		2.1
Mortgage loans on real estate		497.2			554.1		577.8
Short-term investments		21.0			44.6		56.6
Other		(47.0	)		190.8		150.5
Gross investment income		2,028.2			2,345.4		2,372.9
Less investment expenses		56.9			68.7		72.7
Net investment income	$	1,971.3		$	2,276.7	$	2,300.2

Fixed maturity securities with an amortized cost of $866.2 million and $198.8 million as of December 31, 2008 and December 31, 2007, respectively, were on deposit with various regulatory agencies as required by law.

The Company, through an agent, lends certain portfolio holdings and in turn receives cash collateral with the objective of increasing the yield on its investments. The cash collateral is invested in high-quality, short-term and long-term investments. The Company’s policy requires the maintenance of collateral of a minimum of 102% of the fair value of the securities loaned. Net returns on the investments, after payment of a rebate to the borrower, are shared between the Company and its agent. Both the borrower and the Company can request or return the loaned securities at any time. The Company maintains ownership of the loaned securities at all times and is entitled to receive from the borrower any payments for interest or dividends received on such securities during the loan term. In 2008, the Company recognized loaned securities as part of its investments available-for-sale. The Company also recognizes the short-term and other long-term investments acquired with the cash collateral and its obligation to return such collateral to the borrower in short-term and other long-term investments and other liabilities, respectively.

F-50

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

As of December 31, 2008 and 2007, the Company had received $419.9 million and $604.6 million, respectively, of cash collateral on securities lending. The Company had not received any non-cash collateral on securities lending as of December 31, 2008 and 2007. As of December 31, 2008 and 2007, the Company had loaned securities with a fair value of $407.1 million and $593.0 million, respectively.

As of December 31, 2008 and 2007, the Company had received $1,022.5 million and $245.4 million, respectively, of cash for derivative collateral, which is in turn invested in short-term investments. The Company also held $35.4 million and $18.5 million of securities as off-balance sheet collateral on derivative transactions as of December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company had pledged fixed maturity securities with a fair value of $24.5 million as collateral to various derivative counterparties compared to $18.8 million as of December 31, 2007. The Company considers its exposure to counterparty credit risk related to uncollateralized derivative receivables and the Company’s own credit rating in relation to uncollateralized derivative payables in measuring the fair value of its derivative assets and liabilities. The impact of this risk was immaterial to the overall fair value measurement as of December 31, 2008.

(7) Deferred Policy Acquisition Costs

The following table presents a reconciliation of DAC for the years ended December 31:

(in millions)	2008			2007
Balance at beginning of period	$	4,095.6		$	3,851.0
Capitalization of DAC		587.6			631.3
Amortization of DAC		(691.6	)		(382.1	)
Adjustments to DAC related to unrealized gains and losses on securities available-for-sale and other		532.2			4.4
Cumulative effect of adoption of accounting principle		—			(9.0	)
Balance at end of period	$	4,523.8		$	4,095.6

See Note 2(f) for information on the Company’s DAC policies.

(8) Value of Business Acquired and Other Intangible Assets

The following table presents a reconciliation of VOBA for the years ended December 31:

(in millions)	2008			2007
Balance at beginning of period	$	354.8		$	392.7
Amortization of VOBA		(31.4	)		(47.0	)
Net realized losses on investments		1.9			1.1
Other		0.5			—
Subtotal		325.8			346.8
Change in unrealized gain on available-for-sale securities		8.2			8.0
Balance at end of period	$	334.0		$	354.8

Interest on the unamortized VOBA balance (at interest rates ranging from 4.50% to 7.56%) is included in amortization and was $22.4 million, $24.8 million and $27.5 million during the years ended December 31, 2008, 2007 and 2006, respectively.

F-51

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes intangible assets as of December 31:

		2008				2007
(in millions)	Initial useful life1	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
Amortizing:
VOBA	28 years	$	594.9	$	270.5	$	594.9	$	241.5
Distribution forces	20 years		7.0		1.3		30.4		3.7
Other	Various		13.4		9.8		19.7		10.1
Total amortizing intangible assets			615.3		281.6		645.0		255.3
Non-amortizing:
State insurance licenses	Indefinite		7.8		—		8.0		—
Total intangible assets		$	623.1	$	281.6	$	653.0	$	255.3

¹ The initial useful life was based on applicable assumptions. Actual periods are subject to revision based on variances from assumptions and other relevant factors. The state insurance licenses have indefinite lives and therefore are not amortized.

The 2008 adjustments primarily were due to the Company recording a $19.7 million pre-tax impairment charge on career agency force and independent agency force intangible assets associated with its plan to exit the NFN professional consulting group sales channel and selling arrangement changes for the independent agency force.

The Company’s impairment testing did not result in material impairment losses on intangible assets during 2008, 2007 and 2006.

Based on current assumptions, which are subject to change, the following table summarizes estimated amortization for the next five years ended December 31:

(in millions)	VOBA		Intangible assets with finite lives		Total intangible assets
2009	$	24.8	$	1.5	$	26.3
2010		22.7		1.5		24.2
2011		20.3		0.5		20.8
2012		17.7		0.5		18.2
2013		15.5		0.5		16.0

F-52

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(9) Goodwill

The following table summarizes changes in the carrying value of goodwill by segment for the years indicated:

(in millions)	Retirement Plans			Individual Protection			Corporate and Other		Total
Balance as of December 31, 2006	$	82.2		$	276.8		$	—	$	359.0
Adjustments		(18.7	)		(49.0	)		9.9		(57.8	)
Balance as of December 31, 2007		63.5			227.8			9.9		301.2
Adjustments		—			(54.7	)		—		(54.7	)
Balance as of December 31, 2008	$	63.5		$	173.1		$	9.9	$	246.5

The 2007 adjustment in the Retirement Plans segment relates to the sale of The 401(k) Company. The 2007 adjustments in the Individual Protection segment relate to the discontinued operations of TBG Financial (see Note 2(o) for more information). The 2007 adjustment in the Corporate and Other segment relates to the merger of Nationwide Federal Credit Union into Nationwide Bank.

The 2008 adjustment in the Individual Protection segment relates to the sale of TBG Financial (see Note 2(o) for more information).

The Company’s 2008 annual impairment testing did not result in any impairments on existing goodwill.

F-53

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(10) Closed Block

The amounts shown in the following tables for assets, liabilities, revenues and expenses of the closed block of NLICA are those that enter into the determination of amounts that are to be paid to policyholders.

The following table summarizes financial information for the closed block as of December 31:

(in millions)	2008			2007
Liabilities:
Future policyholder benefits	$	1,844.2		$	1,860.4
Policyholder funds and accumulated dividends		142.7			141.8
Policyholder dividends payable		31.7			30.9
Policyholder dividend obligation		(62.2	)		60.7
Other policy obligations and liabilities		9.2			11.0
Total liabilities		1,965.6			2,104.8
Assets:
Fixed maturity securities available-for-sale, at estimated fair value		1,082.1			1,178.0
Mortgage loans on real estate		294.8			320.1
Policy loans		197.9			200.5
Other assets		152.3			156.4
Total assets		1,727.1			1,855.0
Excess of reported liabilities over assets		238.5			249.8
Portion of above representing other comprehensive income:
Decrease in unrealized gain on fixed maturity securities available-for-sale		(88.6	)		(2.2	)
Adjustment to policyholder dividend obligation		88.6			2.2
Total		—			—
Maximum future earnings to be recognized from assets and liabilities	$	238.5		$	249.8
Other comprehensive income:
Fixed maturity securities available-for-sale:
Fair value	$	1,082.1		$	1,178.0
Amortized cost		1,157.0			1,164.3
Shadow policyholder dividend obligation		74.9			(13.7	)
Net unrealized appreciation	$	—		$	—

F-54

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes closed block operations for the years ended December 31:

(in millions)	2008			2007			2006
Revenues:
Premiums	$	92.9		$	95.7		$	98.0
Net investment income		108.9			102.5			105.0
Realized investment losses		(40.9	)		(1.5	)		(4.1	)
Realized gains (losses) credited to to policyholder benefit obligation		36.9			(2.5	)		0.1
Total revenues		197.8			194.2			199.0
Benefits and expenses:
Policy and contract benefits		131.1			136.4			137.9
Change in future policyholder benefits and interest credited to policyholder accounts		(17.4	)		(19.3	)		(22.8	)
Policyholder dividends		62.9			61.1			58.3
Change in policyholder dividend obligation		2.6			(3.6	)		5.7
Other expenses		1.2			1.2			1.2
Total benefits and expenses		180.4			175.8			180.3
Total revenues, net of benefits and expenses, before federal income tax expense		17.4			18.4			18.7
Federal income tax expense		6.1			6.4			6.5
Revenues, net of benefits and expenses and federal income tax expense	$	11.3		$	12.0		$	12.2
Maximum future earnings from assets and liabilities:
Beginning of period	$	249.8		$	261.8		$	274.0
Change during period		(11.3	)		(12.0	)		(12.2	)
End of period	$	238.5		$	249.8		$	261.8

Cumulative closed block earnings from inception through December 31, 2008 and 2007 were higher than expected as determined in the actuarial calculation. Therefore, policyholder dividend obligations (excluding the adjustment for unrealized gains on available-for-sale securities) were $12.7 million and $47.0 million as of December 31, 2008 and 2007, respectively.

(11) Variable Annuity Contracts

The Company issues traditional variable annuity contracts through its separate accounts, for which investment income and gains and losses on investments accrue directly to, and investment risk is borne by, the contractholder. The Company also issues non-traditional variable annuity contracts in which the Company provides various forms of guarantees to benefit the related contractholders. The Company provides five primary guarantee types under non-traditional variable annuity contracts: (1) GMDB; (2) GMAB; (3) guaranteed minimum income benefits (GMIB); (4) GLWB; and (5) a hybrid guarantee with GMAB and GLWB.

F-55

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The GMDB provides a specified minimum return upon death. Many of these death benefits are spousal, whereby a death benefit will be paid upon death of the first spouse. The survivor has the option to terminate the contract or continue it and have the death benefit paid into the contract and a second death benefit paid upon the survivor’s death. The Company has offered six primary GMDB types:

• Return of premium – provides the greater of account value or total deposits made to the contract less any partial withdrawals and assessments, which is referred to as “net premiums.” There are two variations of this benefit. In general, there is no lock-in age for this benefit. However, for some contracts the GMDB reverts to the account value at a specified age, typically age 75.

• Reset – provides the greater of a return of premium death benefit or the most recent five-year anniversary (prior to lock-in age) account value adjusted for withdrawals. For most contracts, this GMDB locks in at age 86 or 90, and for others the GMDB reverts to the account value at age 75, 85, 86 or 90.

• Ratchet – provides the greater of a return of premium death benefit or the highest specified “anniversary” account value (prior to age 86) adjusted for withdrawals. Currently, there are three versions of ratchet, with the difference based on the definition of anniversary: monthaversary – evaluated monthly; annual – evaluated annually; and five-year – evaluated every fifth year.

• Rollup – provides the greater of a return of premium death benefit or premiums adjusted for withdrawals accumulated at generally 5% simple interest up to the earlier of age 86 or 200% of adjusted premiums. There are two variations of this benefit. For certain contracts, this GMDB locks in at age 86, and for others the GMDB reverts to the account value at age 75.

• Combo – provides the greater of annual ratchet death benefit or rollup death benefit. This benefit locks in at either age 81 or 86.

• Earnings enhancement – provides an enhancement to the death benefit that is a specified percentage of the adjusted earnings accumulated on the contract at the date of death. There are two versions of this benefit: (1) the benefit expires at age 86, and a credit of 4% of account value is deposited into the contract; and (2) the benefit does not have an end age, but has a cap on the payout and is paid upon the first death in a spousal situation. Both benefits have age limitations. This benefit is paid in addition to any other death benefits paid under the contract.

The GMAB, offered in the Company’s Capital Preservation Plus contract rider, is a living benefit that provides the contractholder with a guaranteed return of premium, adjusted proportionately for withdrawals, after a specified time period (5, 7 or 10 years) selected by the contractholder at the issuance of the variable annuity contract. In some cases, the contractholder also has the option, after a specified time period, to drop the rider and continue the variable annuity contract without the GMAB. In general, the GMAB requires a minimum allocation to guaranteed term options or adherence to limitations required by an approved asset allocation strategy.

The GMIB is a living benefit that provides the contractholder with a guaranteed annuitization value. The GMIB types are:

• Ratchet – provides an annuitization value equal to the greater of account value, net premiums or the highest one-year anniversary account value (prior to age 86) adjusted for withdrawals.

• Rollup – provides an annuitization value equal to the greater of account value and premiums adjusted for withdrawals accumulated at 5% compound interest up to the earlier of age 86 or 200% of adjusted premiums.

• Combo – provides an annuitization value equal to the greater of account value, ratchet GMIB benefit or rollup GMIB benefit.

See Note 5 for a complete description of the Company’s hybrid GMAB/GLWB offered through its CPPLI contract rider. All GMAB contracts with the hybrid GMAB/GLWB rider are included with GMAB contracts in the following tables.

F-56

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes the account values and net amount at risk, net of reinsurance, for variable annuity contracts with guarantees invested in both general and separate accounts as of December 31:

	2008					2007
(in millions)	Account value		Net amount at risk1		Wtd. avg. attained age	Account value		Net amount at risk1		Wtd. avg. attained age
GMDB:
Return of premium	$	5,994.3	$	440.6	60	$	9,086.7	$	18.7	59
Reset		12,542.1		2,477.7	64		18,055.4		62.1	63
Ratchet		12,423.4		3,775.3	67		15,931.7		133.3	66
Rollup		290.4		25.9	72		492.2		8.4	71
Combo		1,704.1		621.2	69		2,555.5		47.0	68
Subtotal		32,954.3		7,340.7	66		46,121.5		269.5	65
Earnings enhancement		333.5		7.2	63		519.2		49.8	62
Total - GMDB	$	33,287.8	$	7,347.9	66	$	46,640.7	$	319.3	65
GMAB2:
5 Year	$	2,867.6	$	499.0	N/A	$	2,985.6	$	4.6	N/A
7 Year		2,265.9		482.9	N/A		2,644.1		6.2	N/A
10 Year		677.9		132.2	N/A		927.3		1.3	N/A
Total - GMAB	$	5,811.4	$	1,114.1	N/A	$	6,557.0	$	12.1	N/A
GMIB3:
Ratchet	$	244.7	$	5.6	N/A	$	425.2	$	—	N/A
Rollup		659.5		1.3	N/A		1,119.9		—	N/A
Combo		0.1		—	N/A		0.3		—	N/A
Total - GMIB	$	904.3	$	6.9	N/A	$	1,545.4	$	—	N/A
GLWB:
L.inc	$	3,320.8	$	571.5	N/A	$	2,865.8	$	—	N/A

¹ Net amount at risk is calculated on a seriatum basis and equals the respective guaranteed benefit less the account value (or zero if the account value exceeds the guaranteed benefit). As it relates to GMIB, net amount at risk is calculated as if all policies were eligible to annuitize immediately, although all GMIB options have a waiting period of at least 7 years from issuance.

² GMAB contracts with the hybrid GMAB/GLWB rider had account values of $4.59 billion and $4.77 billion as of December 31, 2008 and 2007, respectively.

³ The weighted average period remaining until expected annuitization is not meaningful and has not been presented because there is currently no material GMIB exposure.

Net amount at risk is highly sensitive to changes in financial market movements. The increase in net amount at risk during 2008 is primarily due to declines in the financial markets. See Note 5 – Equity Market Risk Management for a discussion of the Company’s risk management practices with respect to declining financial market exposure and related reserve balances.

F-57

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes account balances of variable annuity contracts that were invested in separate accounts as of December 31:

(in millions)	2008		2007
Mutual funds:
Bond	$	4,370.3	$	5,170.9
Domestic equity		18,676.2		31,450.4
International equity		2,421.4		4,009.4
Total mutual funds		25,467.9		40,630.7
Money market funds		2,146.4		1,742.1
Total	$	27,614.3	$	42,372.8

The Company’s GMDB claim reserves are determined by estimating the expected value of death benefits on contracts that trigger a policy benefit and recognizing the excess ratably over the accumulation period based on total expected assessments. GMIB claim reserves are determined each period by estimating the expected value of annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total assessments. The Company regularly evaluates its GMDB and GMIB claim reserve estimates and adjusts the additional liability balances as appropriate, with a related charge or credit to other benefits and claims in the period of evaluation if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in calculating GMIB claim reserves are consistent with those used for calculating GMDB claim reserves. In addition, the calculation of GMIB claim reserves assumes benefit utilization ranges from a low of 3% when the contractholder’s annuitization value is at least 10% in the money to 100% utilization when the contractholder is 90% or more in the money.

The Company’s living benefit riders represent an embedded derivative in a variable annuity contract that is required to be separated from, and valued apart from, the host variable annuity contract. The embedded derivatives are carried at fair value. Subsequent changes in the fair value of the embedded derivatives are recognized in earnings as a component of net realized investment gains and losses. The fair value of the embedded derivatives is calculated based on a combination of capital market and actuarial assumptions.

The following assumptions and methodology were used to determine the GMDB claim reserves as of December 31, 2008 and 2007:

• Data used was based on a combination of historical numbers and future projections generally involving 50 probabilistically generated economic scenarios

• Mean gross equity performance – 8.1%

• Equity volatility – 18.7%

• Mortality – 100% of Annuity 2000 table

• Asset fees – equivalent to mutual fund and product loads

• Discount rate – approximately 7.0%

Lapse rate assumptions vary by duration as shown below:

Duration (years)	1	2	3	4	5	6	7	8	9	10+
Minimum	1.00%	2.00%	2.00%	3.00%	4.50%	6.00%	7.00%	7.00%	11.50%	11.50%
Maximum	1.50%	2.50%	4.00%	4.50%	40.00%	41.50%	21.50%	35.00%	35.00%	18.50%

F-58

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(12) Short-Term Debt

The following table summarizes short-term debt as of December 31:

(in millions)	2008		2007
$800.0 million commercial paper program	$	149.9	$	199.7
$350.0 million securities lending program facility		99.8		85.6
$500.0 million line of credit		46.0		14.0
$10.0 million line of credit		—		10.0
Total short-term debt	$	295.7	$	309.3

The Company has available as a source of funds a $1.00 billion revolving variable rate credit facility entered into by NFS, NLIC and NMIC with a group of national financial institutions. The facility provides for several and not joint liability with respect to any amount drawn by any party. The facility provides covenants, including, but not limited to, requirements that the Company’s debt not exceed 40% of tangible net worth, as defined, and that NLIC maintain statutory surplus, as defined, in excess of $1.67 billion. As of December 31, 2008, the Company and NLIC were in compliance with all covenants. NLIC and NMIC had no amounts outstanding under this agreement as of December 31, 2008 and 2007. NLIC also has an $800.0 million commercial paper program and is required to maintain an available credit facility equal to 50% of any amounts outstanding under the commercial paper program. Therefore, borrowing capacity under the aggregate $1.00 billion revolving credit facility is reduced by 50% of any amounts outstanding under the commercial paper program. NLIC had $149.9 million of commercial paper outstanding at December 31, 2008 at a weighted average interest rate of 2.07% and $199.7 million at a weighted average interest rate of 4.39% at December 31, 2007.

NLIC has entered into an agreement with its custodial bank to borrow against the cash collateral that is posted in connection with its securities lending program. This is an uncommitted facility contingent on the liquidity of the securities lending program. The borrowing facility was established to fund commercial mortgage loans that were originated with the intent of sale through securitization. The maximum amount available under the agreement is $350.0 million. The borrowing rate on this program is equal to one-month U.S. LIBOR (0.44% and 4.60% as of December 31, 2008 and 2007, respectively). NLIC had $99.8 million and $85.6 million outstanding under this agreement as of December 31, 2008 and 2007, respectively. As of December 31, 2008, the Company had not provided any guarantees on such borrowings, either directly or indirectly.

The Company also has a wholly-owned banking subsidiary with the ability to borrow from a single financial institution under a $50.0 million line of credit agreement and $500.0 million repurchase-based advance agreement. The borrowings are collateralized by investments owned by the subsidiary and are included in the consolidated balance sheets. The available portion of the credit facilities is limited by the collateral value of loans or securities pledged. The subsidiary had $46.0 million and $14.0 million outstanding under the $500.0 million repurchase-based advance agreement as of December 31, 2008 and December 31, 2007, respectively, at a weighted average interest rate of 1.94% in 2008 and 4.37% in 2007. The subsidiary had no amounts outstanding under the $50.0 million line of credit agreement at December 31, 2008 and 2007. As of December 31, 2008, the total additional collateralized borrowing capacity under these agreements was $322.9 million.

The Company paid interest on short-term debt totaling $10.4 million, $15.5 million and $12.3 million in 2008, 2007 and 2006, respectively.

F-59

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(13) Long-Term Debt

The following table summarizes long-term debt as of December 31:

(in millions)	2008		2007
$300.0 million principal, 6.25% senior notes, due November 15, 2011	$	299.4	$	299.2
$300.0 million principal, 5.90% senior notes, due July 1, 2012		299.4		299.2
$200.0 million principal, 5.625% senior notes, due February 13, 2015		199.4		199.3
$200.0 million principal, 5.10% senior notes, due October 1, 2015		199.6		199.5
$400.0 million principal, 6.75% fixed-to-floating rate junior subordinated notes, due May 15, 2037		399.4		399.4
$100.0 million principal, 7.899% junior subordinated debentures issued to a related party, due March 1, 2037		103.1		103.1
Other		225.6		65.4
Total long-term debt	$	1,725.9	$	1,565.1

On May 18, 2007, NFS issued $400.0 million principal of 6.75% fixed-to-floating rate junior subordinated notes. These notes bear interest at a fixed rate of 6.75% for a 30-year period, after which the notes will bear interest at the rate of three-month U.S. LIBOR plus 2.33%. These notes are redeemable under one of three scenarios. First, these notes are redeemable, in whole or in part, at any time on or after May 15, 2037 at their principal amount plus accrued and unpaid interest to the date of redemption, provided that in the event of a redemption in part, the principal amount outstanding after such redemption is at least $50.0 million. Next, these notes are redeemable, in whole or in part, prior to May 15, 2037, in cases not involving tax or rating agency events, at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the “make-whole price,” provided that in the event of redemption in part the principal amount outstanding after such redemption is at least $50.0 million. “Make-whole price” means the sum of the present values of the outstanding principal (discounted from May 15, 2037) and remaining scheduled payments of interest that would have been payable to and including May 15, 2037 (discounted from their respective interest payment dates) on the notes to be redeemed (not including any portion of such payments of interest accrued to the redemption date) to the redemption date on a semiannual basis at a prevailing U.S. Treasury rate plus 30 basis points, plus accrued and unpaid interest on the principal amount being redeemed to the redemption date. Lastly, these notes are redeemable in whole, but not in part, prior to May 15, 2037, within 90 days after the occurrence of certain tax or rating agency events, at their principal amount plus accrued and unpaid interest to the date of redemption or, if greater, the “special event make-whole price.” “Special event make-whole price” means the sum of the present values of the outstanding principal (discounted from May 15, 2037) and remaining scheduled payments of interest that would have been payable to and including May 15, 2037 (discounted from their respective interest payment dates) on the notes to be redeemed (not including any portion of such payments of interest accrued to the redemption date) to the redemption date on a semiannual basis at a prevailing U.S. Treasury rate plus 50 basis points, plus accrued and unpaid interest on the principal amount being redeemed to the redemption date. The final maturity date for the notes is May 15, 2067 extendible to 2087.

On June 4, 2007, NFS redeemed all of its outstanding 8.00% senior notes due March 1, 2027 at a price of $317.4 million. This amount represents aggregate principal of $300.0 million, an $11.2 million premium due as a result of early redemption (3.728% of the principal amount) and $6.2 million of accrued interest through the redemption date. These senior notes were originally issued in March 1997 and, in accordance with their terms, became subject to optional redemption by NFS on or after March 1, 2007. As a result of this transaction, NFS incurred a $10.2 million charge ($6.6 million, net of taxes) during the quarter ended June 30, 2007. This charge includes the redemption premium described above and the accelerated amortization of both unamortized debt issuance costs and the unamortized discount on the original issuance, partially offset by a deferred gain on previous hedging transactions. These amounts (excluding the redemption premium) otherwise would have been recognized through 2027.

F-60

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The $300.0 million principal of 6.25% senior notes due November 15, 2011 were issued in November 2001 and are not redeemable prior to their maturity date. The $300.0 million principal of 5.90% senior notes due July 1, 2012, issued in June 2002, and the $200.0 million principal of 5.625% senior notes due February 13, 2015, issued in February 2003, are redeemable, in whole or in part, at the option of NFS at any time or from time to time at a redemption price equal to the greater of (1) 100% of the aggregate principal amount of the notes to be redeemed or (2) the sum of the present value of the remaining scheduled payments of principal and interest on the notes, discounted to the redemption date on a semi-annual basis at a prevailing U.S. Treasury rate plus 20 basis points, together in each case with accrued interest payments to the redemption date. The $200.0 million principal of 5.10% senior notes due October 1, 2015 were issued in September 2005 and are redeemable, in whole or in part, at the option of NFS at any time or from time to time at a redemption price equal to the greater of (1) 100% of the aggregate principal amount of the notes to be redeemed or (2) the sum of the present value of the remaining scheduled payments of principal and interest on the notes, discounted to the redemption date on a semi-annual basis at a prevailing U.S. Treasury rate plus 15 basis points, together in each case with accrued interest payments to the redemption date.

The terms of each series of senior notes contain various restrictive business and financial covenants, including limitations on the disposition of subsidiaries. As of December 31, 2008 and 2007, the Company was in compliance with all such covenants.

On March 11, 1997, Trust I sold, in a public offering, $100.0 million principal of 7.899% capital securities, representing preferred undivided beneficial interests in the assets of Trust I. This sale generated net proceeds of $98.3 million. Concurrent with the sale of the capital securities, NFS sold to Trust I $103.1 million principal of its 7.899% junior subordinated debentures due March 1, 2037. The junior subordinated debentures are the sole assets of Trust I and are redeemable by NFS in whole at any time or in part from time to time at par plus an applicable make-whole premium. The related capital securities will mature or be called simultaneously with the junior subordinated debentures and have a liquidation value of $1,000 per capital security. The capital securities are fully and unconditionally guaranteed by NFS, and there are no related sinking fund requirements. Distributions on the capital securities are cumulative and payable semi-annually in arrears. On February 18, 2009, Trust I delisted the capital securities from the New York Stock Exchange.

The Company made interest payments on the senior notes of $57.9 million in 2008, $76.1 million in 2007 and $82.0 million in 2006.

Distributions related to junior subordinated debentures were classified as interest expense in the consolidated statements of (loss) income. The Company made distributions of $35.1 million, $21.3 million and $8.1 million related to junior subordinated debentures in 2008, 2007 and 2006, respectively.

In addition, the Company’s wholly-owned banking subsidiary has fixed rate borrowings from various financial institutions totaling $220.0 million and $65.0 million as of December 31, 2008 and 2007 respectively, with interest rates ranging from 1.80% to 4.45%. These borrowings have maturity dates ranging from two to twenty years ($45.0 million mature within two years and the remainder thereafter), and all are secured by investments and single family residential loans pledged by the subsidiary. The subsidiary made interest payments of $4.7 million in 2008 and $0.1 million in 2007.

(14) Federal Income Taxes

In 2008, NFS will file a life/non-life federal income tax return with all of its eligible downstream subsidiaries. Effective January 1, 2009, pursuant to the merger agreement dated August 6, 2008 whereby NMIC and its affiliates purchased all of the NFS common stock they did not already own, Nationwide Corporation will own more than 80% of the value of NFS, meeting the requirements for NFS to join the NMIC consolidated federal income tax return. However, the life insurance company subsidiaries will not be eligible to join the NMIC consolidated federal income tax return until 2014. The members of the NFS consolidated federal income tax return group participate in a tax sharing arrangement, which uses a consolidated approach in allocating the amount of current and deferred expense to the separate financial statements of a subsidiary. This approach provides for a current tax benefit to the subsidiary for losses that are utilized in the consolidated tax return.

F-61

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes the tax effects of temporary differences that give rise to significant components of the net deferred tax (asset) liability as of December 31:

(in millions)	2008			2007
Deferred tax assets:
Future policy benefits and claims	$	929.5		$	733.9
Securities available-for-sale		829.5			83.9
Derivatives		229.7			—
Other		341.4			224.2
Gross deferred tax assets		2,330.1			1,042.0
Less valuation allowance		(25.9	)		(23.7	)
Deferred tax assets, net of valuation allowance		2,304.2			1,018.3
Deferred tax liabilities:
Deferred policy acquisition costs		1,277.2			1,110.9
Value of business acquired		116.2			124.2
Derivatives		—			15.6
Other		213.3			154.4
Gross deferred tax liabilities		1,606.7			1,405.1
Net deferred tax (asset) liability	$	(697.5	)	$	386.8

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion of the total gross deferred tax assets will not be realized. Future taxable amounts or recovery of federal income taxes paid within the statutory carryback period can offset nearly all future deductible amounts. Because it is more likely than not that certain deferred tax assets will not be realized, the Company established a valuation allowance of $25.9 million as of December 31, 2008 and $23.7 million as of December 31, 2007 and 2006. No additional valuation allowances are required to be recognized as the Company has prudent and feasible tax planning strategies that would, if necessary, be implemented to utilize deferred tax assets.

The Company’s current federal income tax asset was $147.7 million and $0.6 million as of December 31, 2008 and 2007, respectively.

Total federal income taxes paid were $9.1 million, $155.0 million and $0.3 million during the years ended December 31, 2008, 2007 and 2006, respectively.

As of December 31, 2008, the Company has $45.0 million of capital loss carryforwards that can carry forward for five tax years and are expected to be fully utilized. In addition, the Company has $49.0 million in low income housing credit carryforwards which can be carried forward for twenty years. The Company expects that they will be fully utilized. The Company has $56.5 million in Alternative Minimum Tax (AMT) credit carryforwards, which can be carried forward until utilized. The Company expects to fully realize the AMT credits in the future.

During the third quarter of 2008, the Company refined its separate account dividends received deduction (DRD) calculation and estimation process. As a result, the Company reduced its third quarter separate account DRD projection from a federal income tax benefit of $15.7 million to a $5.7 million benefit. This reduction in estimate primarily was driven by the assumptions used in the estimation process regarding future dividend income within the separate accounts. The assumptions used in the separate account DRD calculation are based on the Company’s best estimate of future events.

In addition, during 2008, the Company recorded $13.2 million of net federal income tax expense adjustments primarily related to differences between the 2007 estimated tax liability and the amounts expected to be reported on the Company’s 2007 tax returns when filed. These changes in estimates primarily were driven by the Company’s separate account DRD.

F-62

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

During the second quarter of 2007, the Company recorded $6.4 million of net federal income tax expense adjustments primarily related to differences between the 2006 estimated tax liability and the amounts the Company reported on its 2006 tax returns. The Company recorded an additional $1.5 million and $0.2 million of such adjustments during the third and fourth quarters of 2007, respectively.

Through June 2006, the Company’s federal income tax returns for tax years 2000-2002 were under IRS examination pursuant to a routine audit. In accordance with its regular practice, management established tax reserves based on the current facts and circumstances regarding each tax exposure item for which the ultimate deductibility is open to interpretation. These reserves are reviewed regularly and are adjusted as events occur that management believes impacts the Company’s liability for additional taxes, such as lapsing of applicable statutes of limitations; conclusion of tax audits or substantial agreement on the deductibility/non-deductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or rendering of a court decision affecting a particular tax issue. A significant component of the Company’s tax reserve as of December 31, 2005 was related to the separate account DRD. See “Tax Matters” in Note 20 for more information regarding DRD.

In July 2006, the Company reached substantial agreement with the IRS on all open issues for tax years 2000-2002, including issues related to the DRD. Accordingly, the Company revised its estimate of amounts that may be due in connection with certain tax positions, including the DRD, for all open tax years. As a result of the revised estimate, $114.2 million of tax reserves were released into earnings during the second quarter of 2006.

During the third quarter of 2006, the Company recorded $8.3 million of net federal income tax expense adjustments primarily related to differences between the 2005 estimated tax liability and the amounts reported on the Company’s 2005 tax returns.

The following table summarizes the federal income tax (benefit) expense attributable to (loss) income from continuing operations for the years ended December 31:

(in millions)	2008			2007		2006
Current	$	(110.8	)	$	155.6	$	(11.5	)
Deferred		(421.3	)		35.1		83.7
Federal income tax (benefit) expense	$	(532.1	)	$	190.7	$	72.2

Total federal income tax (benefit) expense differs from the amount computed by applying the U.S. federal income tax rate to (loss) income from continuing operations before federal income tax (benefit) expense as follows for the years ended December 31:

	2008				2007					2006
(dollars in millions)	Amount			%	Amount			%		Amount			%
Computed tax (benefit) expense	$	(478.8	)	35.0	$	280.1		35.0		$	279.8		35.0
DRD		(42.8	)	3.1		(67.6	)	(8.5	)		(73.0	)	(9.1	)
Reserve release		—		—		—		—			(114.2	)	(14.3	)
Other, net		(10.5	)	0.8		(21.8	)	(2.7	)		(20.4	)	(2.6	)
Total	$	(532.1	)	38.9	$	190.7		23.8		$	72.2		9.0

F-63

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

As noted previously, the Company adopted the provisions of FIN 48 on January 1, 2007. There was no impact to the Company’s retained earnings on adoption of FIN 48. A rollforward of the beginning and ending uncertain tax positions, including permanent and temporary differences, but excluding interest and penalties, is as follows:

(in millions)	2008			2007
Balance at beginning of period	$	8.8		$	4.6
Additions for current year tax positions		37.7			4.2
Additions for prior years tax positions		0.3			—
Reductions for prior years tax positions		(2.8	)		—
Balance at end of period	$	44.0		$	8.8

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate on December 31, 2008, is $37.7 million.

The Company has included tax on permanent uncertain tax positions and interest and penalties on all uncertain tax positions in determining the potential impact on the effective tax rate above. An uncertain tax timing position may result in the acceleration of cash payments to the IRS, but will not impact the effective tax rate.

During the years ended December 31, 2008, and 2007, the Company incurred $1.0 million and $0.9 million in interest and penalties, respectively. The Company accrued $2.3 million and $1.3 million for the payment of interest and penalties at December 31, 2008 and 2007, respectively. Interest expense and any associated penalties are shown as income tax expense.

Management is not aware of any reasonable possibility of a significant increase or decrease to the total of the uncertain tax positions within the next 12 months.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for years through 2002. The IRS commenced an examination of the Company’s U.S. income tax returns for 2003 through 2005 in the first quarter of 2007. As of December 31, 2008, the IRS has proposed adjustments which would not result in a material change to the Company’s financial position.

F-64

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(15) Shareholders’ Equity, Regulatory Risk-Based Capital, Statutory Results and Dividend Restrictions

Overview

On August 6, 2008, the Company entered into a definitive agreement for NMIC, Nationwide Corporation and NWM Merger Sub, Inc. for Nationwide Corporation to acquire by merger all of the outstanding Class A common stock of the Company it did not already own for $52.25 per share in cash. The transaction was approved by the Company’s shareholders on December 31, 2008 and closed effective January 1, 2009. As a result of the transaction, Nationwide Corporation owns all of the outstanding capital stock of the Company.

Until the closing of the merger transaction on January 1, 2009, the Board of Directors of the Company had the authority to issue 50.0 million shares of preferred stock without further action of the shareholders. Preferred stock could have been issued in one or more classes with full, special, limited or no voting powers; designations, preferences and relative, participating, optional or other special rights; and qualifications and limitations or restrictions as stated in any resolution adopted by the Board of Directors of the Company issuing any class of preferred stock. No shares of preferred stock have been issued or are outstanding. Upon the closing of the merger transaction on January 1, 2009, no preferred stock was available for issuance by the Company.

Until the closing of the merger transaction on January 1, 2009, the holders of Class A common stock were entitled to one vote per share. The holders of Class B common stock were entitled to ten votes per share. Class A common stock had no conversion rights. Class B common stock had been convertible into Class A common stock, in whole or in part, at any time and from time to time at the option of the holder, on the basis of one share of Class A common stock for each share of Class B common stock converted. If at any time after the initial issuance of shares of Class A common stock the number of outstanding shares of Class B common stock fell below 5% of the aggregate number of issued and outstanding shares of common stock, then each outstanding share of Class B common stock would have automatically converted into one share of Class A common stock. In the event of any sale or transfer of shares of Class B common stock to any person or persons other than NMIC or its affiliates, such shares of Class B common stock so transferred would have been automatically converted into an equal number of shares of Class A common stock. Cash dividends of $0.87, $1.04 and $0.92 per common share were declared during 2008, 2007 and 2006, respectively. All of the shares of the Company’s Class A and Class B common stock were cancelled upon the closing of the merger transaction on January 1, 2009. The currently outstanding shares of the Company’s common stock are held by Nationwide Corporation, are entitled to one vote per share, and have no conversion rights.

Share Repurchase Program

On August 3, 2005, the Company’s Board of Directors (the Board) approved a stock repurchase program (the Program). The Program originally authorized the Company to repurchase up to an aggregate of $300.0 million in value of shares of its common stock in the open market, in block trades or otherwise, and through privately negotiated transactions. On August 2, 2006 and February 21, 2007, the Board extended the Program and authorized additional repurchases of up to $200.0 million and $450.0 million, respectively, in value of shares of the Company’s common stock. On December 5, 2007, the Board further extended the Program through December 2009 and authorized repurchases of up to $500.0 million in value of shares of the Company’s common stock in addition to the $950.0 million total previously authorized. Repurchases under the program are to be made in compliance with all applicable laws and regulations, including SEC rules. All shares repurchased under the Program are classified as treasury stock in the consolidated balance sheets. The Program may be superseded or discontinued at any time.

During the year ended December 31, 2008, the Company repurchased 758,700 shares of its Class A common stock for an aggregate of $32.9 million at an average price per share of $43.42, all of which were repurchased prior to March 10, 2008. From the Program’s inception through December 31, 2008, the Company repurchased a total of 16,434,068 shares of its Class A common stock for an aggregate of $811.9 million at an average price per share of $49.40, including the impact of per share price adjustments related to accelerated share repurchase agreements.

F-65

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

In addition to the Class A share repurchases described above, NFS and Nationwide Corporation entered into a Share Purchase Agreement on November 27, 2006. Pursuant to this agreement, NFS purchased 3,855,050 shares of its Class B common stock held by Nationwide Corporation for $200.0 million at an average price per share of $51.88 (the five-day average closing price on the New York Stock Exchange for the period beginning November 27, 2006 and ending December 1, 2006). The transaction closed on December 4, 2006. Upon the repurchase, the Class B common stock converted automatically to Class A common stock. The Company retained these shares in treasury for future issuance.

The Program terminated on January 1, 2009 upon the closing of the merger transaction described above as a result of the purchase of all of NFS’ outstanding publicly traded common stock by Nationwide Corporation.

Regulatory Risk-Based Capital

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

Statutory Results

The Company’s life insurance subsidiaries are required to prepare statutory financial statements in conformity with the NAIC’s Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the applicable state department of insurance. Statutory accounting practices focus on insurer solvency and differ from GAAP materially. The principal differences include charging policy acquisition and certain sales inducement costs to expense as incurred, establishing future policy benefits and claims reserves using different actuarial assumptions, excluding certain assets from statutory admitted assets; and valuing investments and establishing deferred taxes on a different basis. The following tables summarize the statutory net (loss) income and statutory capital and surplus for the Company’s primary life insurance subsidiaries for the years ended December 31:

(in millions)	20081			2007		2006
Statutory net (loss) income
NLIC	$	(898.3	)	$	309.0	$	537.5
NLICA		27.8			91.6		95.3
Statutory capital and surplus
NLIC	$	2,261.5		$	2,501.1	$	2,682.3
NLICA		488.4			674.0		654.3

¹ Unaudited as of the date of this report.

NLIC received approval from the Ohio Department of Insurance (ODI) regarding the use of a permitted practice related to the statutory accounting provision for the admissibility of deferred tax assets as of December 31, 2008. The permitted practice modifies the practice prescribed by the NAIC by increasing the threshold for admissibility of deferred tax assets from 10% to 15% of statutory capital and surplus. The permitted practice resulted in an increase of NLIC’s estimated statutory surplus of $68.9 million (unaudited) as of December 31, 2008. The permitted practice had no impact on NLIC’s statutory net income. The benefits of this permitted practice may not be considered by the Company when determining capital and surplus available for dividends.

F-66

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Dividend Restrictions

As an insurance holding company, NFS’ ability to meet debt service obligations and pay operating expenses and dividends depends primarily on the receipt of sufficient funds from its primary operating subsidiary, NLIC. The inability of NLIC to pay dividends to NFS in an amount sufficient to meet debt service obligations and pay operating expenses and dividends would have a material adverse effect on the Company. The payment of dividends by NLIC is subject to restrictions set forth in the insurance laws and regulations of the State of Ohio, its domiciliary state. The State of Ohio insurance laws require Ohio-domiciled life insurance companies to seek prior regulatory approval to pay a dividend or distribution of cash or other property if the fair market value thereof, together with that of other dividends or distributions made in the preceding 12 months, exceeds the greater of (1) 10% of statutory-basis policyholders’ surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer for the prior year. During the year ended December 31, 2008, NLIC paid a dividend of $246.5 million to NFS after providing prior notice to the ODI. The dividend included $181.9 million in cash and $64.6 million in securities. As of January 1, 2009, NLIC could not pay dividends to NFS without obtaining prior approval.

The State of Ohio insurance laws also require insurers to seek prior regulatory approval for any dividend paid from other than earned surplus. Earned surplus is defined under the State of Ohio insurance laws as the amount equal to the Company’s unassigned funds as set forth in its most recent statutory financial statements, including net unrealized capital gains and losses or revaluation of assets. Additionally, following any dividend, an insurer’s policyholder surplus must be reasonable in relation to the insurer’s outstanding liabilities and adequate for its financial needs. The payment of dividends by NLIC may also be subject to restrictions set forth in the insurance laws of the State of New York that limit the amount of statutory profits on NLIC’s participating policies (measured before dividends to policyholders) available for the benefit of the Company and its shareholders.

The ability of NLICA to pay dividends to NFS is subject to regulation under Pennsylvania insurance law. Under Pennsylvania insurance laws, unless the Pennsylvania Insurance Department (PID) either approves or does not disapprove payment within 30 days after being notified, NLICA may not pay any cash dividends or other non-stock distributions to NFS during any 12-month period if the total payments exceed the greater of (1) 10% of statutory-basis policyholders’ surplus as of the prior December 31 or (2) the statutory-basis net income of the insurer for the prior year. NLICA paid a dividend of $213.7 million to NFS in 2008 after providing prior notice to the PID. The dividend included $98.9 million in cash, $86.6 million in securities and $28.2 million in mortgage loans. As of January 1, 2009, NLICA could not pay dividends to NFS without obtaining prior approval.

NFS currently does not expect such regulator requirements to impair the ability of its insurance company subsidiaries to pay sufficient dividends in order for NFS to have the necessary funds available to meet its obligations.

F-67

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Comprehensive Loss

The Company’s comprehensive loss includes net income and certain items that are reported directly within separate components of shareholders’ equity that are not recorded in net income (other comprehensive income or loss).

The following table summarizes the Company’s other comprehensive loss, before and after federal income tax benefit, for the years ended December 31:

(in millions)	2008			2007			2006
Net unrealized losses on securities available-for-sale arising during the period:
Net unrealized losses before adjustments	$	(3,893.4	)	$	(274.7	)	$	(194.3	)
Net adjustment to DAC		528.8			3.8			40.5
Net adjustment to VOBA		8.2			8.0			(13.4	)
Net adjustment to future policy benefits and claims		127.8			5.9			23.1
Net adjustment to policyholder dividend obligation		88.7			2.2			14.7
Related federal income tax benefit		1,098.8			89.4			45.2
Net unrealized losses		(2,041.1	)		(165.4	)		(84.2	)
Reclassification adjustment for net realized losses on securities available-for-sale realized during the period:
Net unrealized losses		1,139.5			103.5			11.5
Related federal income tax benefit		(398.8	)		(36.2	)		(4.0	)
Net reclassification adjustment		740.7			67.3			7.5
Other comprehensive loss on securities available-for-sale		(1,300.4	)		(98.1	)		(76.7	)
Accumulated net holding gains (losses) on cash flow hedges:
Unrealized holding gains (losses)		16.5			(17.2	)		(0.2	)
Related federal income tax (expense) benefit		(5.8	)		6.0			0.1
Other comprehensive income (loss) on cash flow hedges		10.7			(11.2	)		(0.1	)
Other unrealized gains (losses):
Net unrealized gains (losses)		12.6			(7.2	)		—
Related federal income tax (expense) benefit		(4.2	)		2.5			—
Other net unrealized gains (losses)		8.4			(4.7	)		—
Unrecognized amounts on pension plans:
Net unrecognized amounts		(12.3	)		1.0			12.3
Related federal income tax benefit (expense)		4.3			(0.4	)		(4.3	)
Other comprehensive income on unrecognized pension amounts		(8.0	)		0.6			8.0
Total other comprehensive loss	$	(1,289.3	)	$	(113.4	)	$	(68.8	)

The adjustments to DAC and VOBA represent the changes in amortization of DAC and VOBA that would have been required as a charge or credit to operations had such unrealized amounts been realized and allocated to the product lines. The adjustment to future policy benefits and claims represents the increase in policy reserves from using a discount rate that would have been required had such unrealized amounts been realized and the proceeds reinvested at then current market interest rates, which were lower than the then current effective portfolio rate.

F-68

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Adjustments for net realized gains and losses on the ineffective portion of cash flow hedges were immaterial during the years ended December 31, 2008, 2007 and 2006.

(16) (Loss) Earnings Per Share

Basic (loss) earnings per share (EPS) represent the amount of (loss) earnings for the period available to each share of common stock outstanding during the reporting period. Diluted EPS represents the amount of (loss) earnings for the period available to each share of common stock outstanding during the reporting period adjusted for the potential issuance of common shares for stock options, if dilutive.

The following table presents information relating to the Company’s calculations of basic and diluted EPS for the years ended December 31:

	2008									2007									2006
(in millions, except per share amounts)	Amount			Basic EPS			Diluted EPS			Amount			Basic EPS			Diluted EPS			Amount			Basic EPS			Diluted EPS
(Loss) income from continuing operations	$	(835.8	)	$	(6.06	)	$	(6.06	)	$	609.7		$	4.28		$	4.25		$	727.1		$	4.85		$	4.82
Discontinued operations, net of taxes		(13.2	)		(0.10	)		(0.10	)		23.1			0.16			0.16			(3.1	)		(0.02	)		(0.02	)
Cumulative effect of adoption of accounting principle, net of taxes		—			—			—			(6.0	)		(0.04	)		(0.04	)		—			—			—
Net (loss) income	$	(849.0	)	$	(6.16	)	$	(6.16	)	$	626.8		$	4.40		$	4.37		$	724.0		$	4.83		$	4.80
Weighted average common shares outstanding – basic		137.9									142.5									149.9
Dilutive effect of stock options1		—									1.0									0.8
Weighted average common shares outstanding – diluted1		137.9									143.5									150.7

¹ Potential common shares arising from share-based employee compensation plans were not included in the computation of diluted EPS for the year ended December 31, 2008 because the effect would have been antidilutive. The number of potential shares excluded was 0.7 million shares.

(17) Employee Benefit Plans

Defined Benefit Plans

The Company, excluding certain affiliated companies, participates in a qualified defined benefit pension plan sponsored by NMIC (NRP plan). Previously, NFN also had a separate qualified defined benefit pension plan (NFN plan). Effective January 30, 2008, the NFN plan was merged with the NRP plan, which resulted in no change of benefits for the participants. Plan assets of $141.3 million and Projected Benefit Obligations of $83.8 million were transferred from the NFN plan to the NRP in exchange for an intercompany prepaid asset of $57.5 million and recognized a $5.4 million gain. The NRP plan is a qualified defined benefit plan sponsored by NMIC that covers all employees of participating employers who have completed at least one year of service, including all NFN employees previously covered by the NFN plan. Plan assets are invested in a group annuity contract issued by NLIC, a group annuity contract issued by NLICA and in a trust with Bank of New York as the custodian and trustee. All participants are eligible for benefits based on an account balance feature. Participants hired before 2002 are eligible for benefits based on the highest average annual salary of a specified number of consecutive years of the last ten years of service, if such benefits are of greater value than the account balance feature. The Company funds pension costs accrued for direct employees plus an allocation of pension costs accrued for employees of affiliates whose work benefits the Company. In addition, separate non-qualified defined benefit pension plans sponsored by NMIC cover certain executives with at least one year of service.

F-69

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company’s portion of expense relating to the plans sponsored by NMIC was $7.9 million, $11.4 million and $22.3 million for the years ended December 31, 2008, 2007 and 2006, respectively.

The Company’s portion of income relating to the NFN pension plans was $2.7 and $1.7 million for the years ended December 31, 2007 and 2006, respectively.

See Note 18 for more information on group annuity contracts issued by the Company for various employee benefit plans sponsored by NMIC or its affiliates.

The following table summarizes information regarding the funded status of the NFN plans (all are U.S. plans), as of December 31 (2008 information is not applicable due to the merger of the NFN plans into the NRP plan):

(in millions)	2008	2007
Change in benefit obligation:
Benefit obligation at beginning of year	N/A	$	101.3
Service cost	N/A		2.9
Interest cost	N/A		4.9
Actuarial loss	N/A		(1.6	)
Benefits paid	N/A		(7.5	)
Benefit obligation at end of year	N/A		100.0
Change in plan assets:
Fair value of plan assets at beginning of year	N/A		146.7
Actual return on plan assets	N/A		9.9
Employer contributions	N/A		0.9
Benefits paid	N/A		(7.5	)
Fair value of plan assets at end of year	N/A		150.0
Funded status	N/A	$	50.0
Amounts not yet reflected in net periodic benefit cost and included in AOCI:
Unrecognized prior service cost1	N/A	$	(0.3	)
Unrecognized net gain	N/A		13.6
Amount included in AOCI	N/A		13.3
Cumulative employer contributions in excess of net periodic benefit cost	N/A		36.7
Net amount recognized on balance sheet	N/A	$	50.0
Accumulated benefit obligation	N/A	$	92.9

¹ Represents the increase in the projected benefit obligation related to the application of the Pension Protection Act effective December 31, 2006.

F-70

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following table summarizes the weighted average assumptions used to calculate the benefit obligation of the NFN pension plans as of the December 31 measurement date:

	2008	2007
Discount rate	N/A	5.25%
Rate of increase in future compensation levels	N/A	4.75%

The following table summarizes the asset allocation for the NFN qualified pension plan at the end of 2008 and 2007, by asset category:

	Percentage of plan assets at end of
Asset Category	2008	2007
Equity securities	N/A	64%
Debt securities	N/A	36%
Total	N/A	100%

The NFN pension plans employ a total return investment approach using a mix of equities and fixed income investments to maximize the long-term return of plan assets in exchange for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities and funded status. On a quarterly basis, the portfolio of investments within the annuity contract issued by NFN is analyzed in light of current market conditions and rebalanced to match the target allocations.

The NFN pension plans employ a prospective building block approach in determining the expected long-term rate of return on plan assets. This process is integrated with the determination of other economic assumptions such as discount rate and salary scale. Historical markets are studied, and long-term historical relationships between equities and fixed income investments are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run (called a risk premium). Historical risk premiums are used to develop expected real rates of return for each asset sub-class. The expected real rates of return, reduced for investment expenses, are applied to the target allocation of each asset sub-class to produce an expected real rate of return for the target portfolio. This expected real rate of return will vary by plan and will change when the plan’s target investment portfolio changes. Current market factors such as inflation and interest rates are incorporated into the process. For a given measurement date, the discount rate is set by reference to the yield on high-quality corporate bonds to approximate the rate at which plan benefits could effectively be settled. For December 31, 2007, the reference bond portfolio was the Moody’s Investors Service, Inc. AA long-term corporate bond index. For pension benefits, a downward adjustment to the discount rate of 0.50% to 0.75% was included for plan administration and other expenses. The historical real rate of return is subtracted from these bonds to generate an assumed inflation rate. The expected long-term rate of return on plan assets is the assumed inflation rate plus the expected real rate of return. This process effectively sets the expected return for the plan’s portfolio at the yield for the reference bond portfolio, adjusted for expected risk premiums of the target asset portfolio. Given the prospective nature of this calculation, short-term fluctuations in the market do not impact the expected risk premiums. However, as the yield for the reference bond fluctuates, the assumed inflation rate and the expected long-term rate are adjusted in tandem.

In addition to the NMIC pension plan, the Company and certain affiliated companies, including NFN participate in life and health care defined benefit plans sponsored by NMIC for qualifying retirees. Postretirement life and health care benefits are contributory. The level of contribution required by a qualified retiree depends on the retiree’s years of service and date of hire. In general, postretirement benefits are available to full-time employees who are credited with 120 months of retiree life and health service. Postretirement health care benefit contributions are adjusted annually and contain cost-sharing features such as deductibles and coinsurance. In addition, there are caps on the Company’s portion of the per-participant cost of the postretirement health care benefits. The Company’s policy is to fund the cost of health care benefits in amounts determined at the discretion of management. Plan assets are invested primarily in a group annuity contract issued by NLIC, and a trust with Bank of New York as the custodian and trustee. All participants are eligible for benefits based on an account balance feature. The Company’s portion of expense relating to these plans was immaterial for the years ended December 31, 2008, 2007 and 2006.

F-71

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Defined Contribution Plans

NMIC sponsors a defined contribution retirement savings plan covering substantially all employees of the Company. Employees may make salary deferral contributions of up to 80%. With the exception of NFN agents, salary deferrals of up to 6% are subject to a 50% Company match. The Company’s expense for contributions to these plans was $7.7 million, $8.2 million and $7.4 million for the years ended December 31, 2008, 2007 and 2006, respectively.

NFN also provides a funded noncontributory defined contribution plan that covers substantially all of its agents. The Company’s expense for contributions to this plan was $0.6 million, $0.7 million and $0.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

(18) Related Party Transactions

The Company has entered into significant, recurring transactions and agreements with NMIC, other affiliates and subsidiaries as a part of its ongoing operations. These include annuity and life insurance contracts, office space leases, and agreements related to reinsurance, cost sharing, administrative services, marketing, intercompany loans, intercompany repurchases, cash management services and software licensing. Measures used to allocate expenses among companies include individual employee estimates of time spent, special cost studies, the number of full-time employees, commission expense and other methods agreed to by the participating companies.

In addition, Nationwide Services Company, LLC (NSC), a subsidiary of NMIC, provides data processing, systems development, hardware and software support, telephone, mail and other services to the Company, based on specified rates for units of service consumed. For the years ended December 31, 2008, 2007 and 2006, the Company made payments to NMIC and NSC totaling $286.8 million, $288.5 million and $264.5 million, respectively.

The Company has issued group annuity and life insurance contracts and performs administrative services for various employee benefit plans sponsored by NMIC or its affiliates. Total account values of these contracts were $2.96 billion and $3.06 billion as of December 31, 2008 and 2007, respectively. Total revenues from these contracts were $137.9 million, $132.3 million and $139.3 million for the years ended December 31, 2008, 2007 and 2006, respectively, and include policy charges, net investment income from investments backing the contracts and administrative fees. Total interest credited to the account balances was $115.6 million, $110.1 million and $111.4 million for the years ended December 31, 2008, 2007 and 2006, respectively. The terms of these contracts are materially consistent with what the Company offers to unaffiliated parties.

The Company leases office space from NMIC. For the years ended December 31, 2008, 2007 and 2006, the Company made lease payments to NMIC of $22.9 million, $24.4 million and $19.3 million, respectively.

NLIC has a reinsurance agreement with NMIC whereby all of NLIC’s accident and health business not ceded to unaffiliated reinsurers is ceded to NMIC 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 NLIC’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 NMIC for the years ended December 31, 2008, 2007 and 2006 were $202.3 million, $317.6 million and $430.8 million, respectively, while benefits, claims and expenses ceded during these years were $218.9 million, $348.1 million and $470.4 million, respectively.

Under a marketing agreement with NMIC, NLIC 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 $8.3 million, $20.1 million and $28.3 million for the years ended December 31, 2008, 2007 and 2006, respectively. The last payment under this agreement was made in 2008.

F-72

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The Company also participates in intercompany repurchase agreements with affiliates whereby the seller transfers securities to the buyer at a stated value. Upon demand or after a stated period, the seller repurchases the securities at the original sales price plus interest. As of December 31, 2008 and 2007, the Company had no outstanding borrowings from affiliated entities under such agreements. During 2008, 2007 and 2006, the most the Company had outstanding at any given time was $151.6 million, $178.2 million and $191.5 million, respectively, and the amounts the Company incurred for interest expense on intercompany repurchase agreements during these years were immaterial.

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 $2.71 billion and $473.0 million as of December 31, 2008 and 2007, respectively, and are included in short-term investments on the consolidated balance sheets.

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 $15.1 million, $13.0 million and $9.5 million for the years ended December 31, 2008, 2007 and 2006, respectively.

NLIC entered into a note purchase agreement with an affiliate on November 17, 2006 to purchase $25.0 million of the affiliate’s 5.6% senior notes due November 16, 2016. The notes are secured by certain pledged mortgage servicing rights. The note is payable in seven equal principal installments of $3.6 million which begin November 6, 2010. Interest is payable semi-annually on each May 16 and November 16.

Through September 30, 2002, the Company filed a consolidated federal income tax return with NMIC, as described in Note 15. Effective October 1, 2002, NFS began filing a consolidated federal tax return with its non-life insurance company subsidiaries. Total payments from NMIC were $22.5 million and $16.3 million during the years ended December 31, 2008 and 2006, respectively. These payments related to tax years prior to deconsolidation. There were no payments during 2007.

During 2008, a wholly-owned banking subsidiary of the Company sold, at fair value, securities with an estimated fair value of $144.2 million to NMIC. The sale resulted in a net realized loss of $23.5 million to the Company.

F-73

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(19) Contingencies

Legal Matters

The Company is a party to litigation and arbitration proceedings in the ordinary course of its business. It is often not possible to determine the ultimate outcome of the pending investigations and legal proceedings or to provide reasonable ranges of potential losses with any degree of certainty. Some matters, including certain of those referred to below, are in very preliminary stages, and the Company does not have sufficient information to make an assessment of the plaintiffs’ claims for liability or damages. In some of the cases seeking to be certified as class actions, the court has not yet decided whether a class will be certified or (in the event of certification) the size of the class and class period. In many of the cases, the plaintiffs are seeking undefined amounts of damages or other relief, including punitive damages and equitable remedies, which are difficult to quantify and cannot be defined based on the information currently available. The Company does not believe, based on information currently known by management, that the outcomes of such pending investigations and legal proceedings are likely to have a material adverse effect on the Company’s consolidated financial position. However, given the large and/or indeterminate amounts sought in certain of these matters and inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could have a material adverse effect on the Company’s consolidated financial position or results of operations in a particular period.

In recent years, life insurance companies have been named as defendants in lawsuits, including class action lawsuits relating to life insurance and annuity pricing and sales practices. A number of these lawsuits have resulted in substantial jury awards or settlements against life insurers other than the Company.

The financial services industry, including mutual fund, variable annuity, retirement plan, life insurance and distribution companies, has also been the subject of increasing scrutiny by regulators, legislators and the media over the past few years. Numerous regulatory agencies, including the SEC, the Financial Industry Regulatory Authority and the New York State Attorney General, have commenced industry-wide investigations regarding late trading and market timing in connection with mutual funds and variable insurance contracts, and have commenced enforcement actions against some mutual fund and life insurance companies on those issues. The Company has been contacted by or received subpoenas from the SEC and the New York State Attorney General, who are investigating market timing in certain mutual funds offered in insurance products sponsored by the Company. The Company has cooperated with these investigations. Information requests from the New York State Attorney General and the SEC with respect to investigations into late trading and market timing were last responded to by the Company and its affiliates in December 2003 and June 2005, respectively, and no further information requests have been received with respect to these matters.

In addition, state and federal regulators and other governmental bodies have commenced investigations, proceedings or inquiries relating to compensation and bidding arrangements and possible anti-competitive activities between insurance producers and brokers and issuers of insurance products, and unsuitable sales and replacements by producers on behalf of the issuer. Also under investigation are compensation and revenue sharing arrangements between the issuers of variable insurance contracts and mutual funds or their affiliates, fee arrangements in retirement plans, the use of side agreements and finite reinsurance agreements, funding agreements issued to back medium-term note (MTN) programs, recordkeeping and retention compliance by broker/dealers, and supervision of former registered representatives. Related investigations, proceedings or inquiries may be commenced in the future. The Company and/or its affiliates have been contacted by or received subpoenas from state and federal regulatory agencies and other governmental bodies, state securities law regulators and state attorneys general for information relating to certain of these investigations, including those relating to compensation, revenue sharing and bidding arrangements, anti-competitive activities, unsuitable sales or replacement practices, fee arrangements in retirement plans, the use of side agreements and finite reinsurance agreements, and funding agreements backing the NLIC MTN program. The Company is cooperating with regulators in connection with these inquiries and will cooperate with NMIC in responding to these inquiries to the extent that any inquiries encompass NMIC’s operations.

A promotional and marketing arrangement associated with the Company’s offering of a retirement plan product and related services in Alabama is under investigation by the Alabama Securities Commission. The Company currently expects that any damages paid to settle this matter will not have a material adverse impact on its consolidated financial position. It is not possible to predict what effect, if any, the outcome of this investigation may have on the Company’s retirement plan operations with respect to promotional and marketing arrangements in general in the future.

F-74

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

These proceedings are expected to continue in the future and could result in legal precedents and new industry-wide legislation, rules and regulations that could significantly affect the financial services industry, including mutual fund, retirement plan, life insurance and annuity companies. These proceedings also could affect the outcome of one or more of the Company’s litigation matters. There can be no assurance that any such litigation or regulatory actions will not have a material adverse effect on the Company’s consolidated financial position or results of operations in the future.

NFS, NMIC, NMFIC, Nationwide Corporation and the directors of NFS have been named as defendants in several class actions brought by NFS shareholders. These lawsuits arose following the announcement of the joint offer by NMIC, NMFIC and Nationwide Corporation to acquire all of the outstanding shares of NFS’ Class A common stock. The defendants deny any and all allegations of wrongdoing and have defended these lawsuits vigorously. On August 6, 2008, NFS and NMIC, NMFIC and Nationwide Corporation announced that they had entered into a definitive agreement for the acquisition of all of the outstanding shares of NFS’ Class A common stock for $52.25 per share by Nationwide Corporation, subject to the satisfaction of specific closing conditions. Simultaneously, the plaintiffs and defendants entered into a memorandum of understanding for the settlement of these lawsuits. The memorandum of understanding provides, among other things, for the settlement of the lawsuits and release of the defendants and, in exchange for the release and without admitting any wrongdoing, defendant NMIC shall acknowledge that the pending lawsuits were a factor, among others, that led it to offer an increased share price in the transaction. NMIC shall agree to pay plaintiffs’ attorneys’ fees and the costs of notifying the class members of the settlement. The memorandum of understanding is conditioned upon court approval of the proposed settlement. The court has scheduled the fairness hearing for approval of the proposed settlement for June 23, 2009. The lawsuits are pending in multiple jurisdictions and allege that the offer price was inadequate, that the process for reviewing the offer was procedurally unfair and that the defendants have breached their fiduciary duties to the holders of the NFS Class A common stock. NFS continues to defend these lawsuits vigorously.

On November 20, 2007, NRS and NLIC were named in a lawsuit filed in the Circuit Court of Jefferson County, Alabama entitled Ruth A. Gwin and Sandra H. Turner, and a class of similarly situated individuals v Nationwide Life Insurance Company, Nationwide Retirement Solutions, Inc., Alabama State Employees Association, PEBCO, Inc. and Fictitious Defendants A to Z. On December 2, 2008, the plaintiffs filed an amended complaint. The plaintiffs claim to represent a class of all participants in the Alabama State Employees Association (ASEA) Plan, excluding members of the Deferred Compensation Committee, members of the Board of Control, ASEA’s directors, officers and board members, and PEBCO’s directors, officers and board members. The class period is from November 20, 2001, to the date of trial. In the amended class action complaint, the plaintiffs allege breach of fiduciary duty, wantonness and breach of contract. The amended class action complaint seeks a declaratory judgment, an injunction, an appointment of an independent fiduciary to protect Plan participants, disgorgement of amounts paid, reformation of Plan documents, compensatory damages and punitive damages, plus interest, attorneys’ fees and costs and such other equitable and legal relief to which plaintiffs and class members may be entitled. Also, on December 2, 2008, the plaintiffs filed a motion for preliminary injunction seeking an order requiring periodic payments made by NRS and/or NLIC to ASEA or PEBCO to be held in a trust account for the benefit of Plan participants. On December 4, 2008, the Alabama State Personnel Board and the State of Alabama by, and through the State Personnel Board, filed a motion to intervene and a complaint in intervention. On December 16, 2008, the Companies filed their Answer. On February 4, 2009, the court provisionally agreed to add the State of Alabama, by and through the State Personnel Board as a party. NRS and NLIC continue to defend this case vigorously.

F-75

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

On July 11, 2007, NLIC was named in a lawsuit filed in the United States District Court for the Western District of Washington at Tacoma entitled Jerre Daniels-Hall and David Hamblen, Individually and on behalf of All Others Similarly Situated v. National Education Association, NEA Member Benefits Corporation, Nationwide Life Insurance Company, Security Benefit Life Insurance Company, Security Benefit Group, Inc., Security Distributors, Inc., et. al. The plaintiffs seek to represent a class of all current or former National Education Association (NEA) members who participated in the NEA Valuebuilder 403(b) program at any time between January 1, 1991 and the present (and their heirs and/or beneficiaries). The plaintiffs allege that the defendants violated the Employee Retirement Income Security Act of 1974, as amended (ERISA) by failing to prudently and loyally manage plan assets, by failing to provide complete and accurate information, by engaging in prohibited transactions, and by breaching their fiduciary duties when they failed to prevent other fiduciaries from breaching their fiduciary duties. The complaint seeks to have the defendants restore all losses to the plan, restoration of plan assets and profits to participants, disgorgement of endorsement fees, disgorgement of service fee payments, disgorgement of excessive fees charged to plan participants, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys’ fees. On May 23, 2008, the Court granted the defendants’ motion to dismiss. On June 19, 2008, the plaintiffs filed a notice of appeal. On October 17, 2008, the plaintiffs filed their opening brief. On December 19, 2008 the defendants filed their briefs. On January 26, 2009, the plaintiffs filed Appellants’ Reply Brief. NLIC continues to defend this lawsuit vigorously.

On November 15, 2006, NFS, NLIC and NRS were named in a lawsuit filed in the United States District Court for the Southern District of Ohio entitled Kevin Beary, Sheriff of Orange County, Florida, In His Official Capacity, Individually and On Behalf of All Others Similarly Situated v. Nationwide Life Insurance Co., Nationwide Retirement Solutions, Inc. and Nationwide Financial Services, Inc. The plaintiff seeks to represent a class of all sponsors of 457(b) deferred compensation plans in the United States that had variable annuity contracts with the defendants at any time during the class period, or in the alternative, all sponsors of 457(b) deferred compensation plans in Florida that had variable annuity contracts with the defendants during the class period. The class period is from January 1, 1996 until the class notice is provided. The plaintiff alleges that the defendants breached their fiduciary duties by arranging for and retaining service payments from certain mutual funds. The complaint seeks an accounting, a declaratory judgment, a permanent injunction and disgorgement or restitution of the service fee payments allegedly received by the defendants, including interest. On January 25, 2007, NFS, NLIC and NRS filed a motion to dismiss. On September 17, 2007, the Court granted the motion to dismiss. On October 1, 2007, the plaintiff filed a motion to vacate judgment and for leave to file an amended complaint. On September 15, 2008, the Court denied the plaintiffs’ motion to vacate judgment and for leave to file an amended complaint. On October 15, 2008, the plaintiffs filed a notice of appeal. NFS, NLIC and NRS continue to defend this lawsuit vigorously.

On February 11, 2005, NLIC was named in a class action lawsuit filed in Common Pleas Court, Franklin County, Ohio entitled Michael Carr v. Nationwide Life Insurance Company. The complaint seeks recovery for breach of contract, fraud by omission, violation of the Ohio Deceptive Trade Practices Act and unjust enrichment. The complaint also seeks unspecified compensatory damages, disgorgement of all amounts in excess of the guaranteed maximum premium and attorneys’ fees. On February 2, 2006, the court granted the plaintiff’s motion for class certification on the breach of contract and unjust enrichment claims. The court certified a class consisting of all residents of the United States and the Virgin Islands who, during the class period, paid premiums on a modal basis to NLIC for term life insurance policies issued by NLIC during the class period that provide for guaranteed maximum premiums, excluding certain specified products. Excluded from the class are NLIC; any parent, subsidiary or affiliate of NLIC; all employees, officers and directors of NLIC; and any justice, judge or magistrate judge of the State of Ohio who may hear the case. The class period is from February 10, 1990 through February 2, 2006, the date the class was certified. On January 26, 2007, the plaintiff filed a motion for summary judgment. On April 30, 2007, NLIC filed a motion for summary judgment. On February 4, 2008, the Court granted the class’s motion for summary judgment on the breach of contract claims arising from the term policies in 43 of 51 jurisdictions. The Court granted NLIC’s motion for summary judgment on the breach of contract claims on all decreasing term policies. On November 7, 2008, the case was settled.

F-76

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

On April 13, 2004, NLIC was named in a class action lawsuit filed in Circuit Court, Third Judicial Circuit, Madison County, Illinois, entitled Woodbury v. Nationwide Life Insurance Company. NLIC removed this case to the United States District Court for the Southern District of Illinois on June 1, 2004. On December 27, 2004, the case was transferred to the United States District Court for the District of Maryland and included in the multi-district proceeding entitled In Re Mutual Funds Investment Litigation. In response, on May 13, 2005, the plaintiff filed the first amended complaint purporting to represent, with certain exceptions, a class of all persons who held (through their ownership of an NLIC annuity or insurance product) units of any NLIC sub-account invested in mutual funds that included foreign securities in their portfolios and that experienced market timing or stale price trading activity. The first amended complaint purports to disclaim, with respect to market timing or stale price trading in NLIC’s annuities sub-accounts, any allegation based on NLIC’s untrue statement, failure to disclose any material fact, or usage of any manipulative or deceptive device or contrivance in connection with any class member’s purchases or sales of NLIC annuities or units in annuities sub-accounts. The plaintiff claims, in the alternative, that if NLIC is found with respect to market timing or stale price trading in its annuities sub-accounts, to have made any untrue statement, to have failed to disclose any material fact or to have used or employed any manipulative or deceptive device or contrivance, then the plaintiff purports to represent a class, with certain exceptions, of all persons who, prior to NLIC’s untrue statement, omission of material fact, use or employment of any manipulative or deceptive device or contrivance, held (through their ownership of an NLIC annuity or insurance product) units of any NLIC sub-account invested in mutual funds that included foreign securities in their portfolios and that experienced market timing activity. The first amended complaint alleges common law negligence and seeks to recover damages not to exceed $75,000 per plaintiff or class member, including all compensatory damages and costs. On June 1, 2006, the District Court granted NLIC’s motion to dismiss the plaintiff’s complaint. On January 30, 2009, the United States Court of Appeals for the Fourth Circuit affirmed that dismissal. NLIC continues to defend this lawsuit vigorously.

On August 15, 2001, NFS and NLIC were named in a lawsuit filed in the United States District Court for the District of Connecticut entitled Lou Haddock, as trustee of the Flyte Tool & Die, Incorporated Deferred Compensation Plan, et al v. Nationwide Financial Services, Inc. and Nationwide Life Insurance Company. Currently, the plaintiffs’ fifth amended complaint, filed March 21, 2006, purports to represent a class of qualified retirement plans under ERISA that purchased variable annuities from NLIC. The plaintiffs allege that they invested ERISA plan assets in their variable annuity contracts and that NLIC and NFS breached ERISA fiduciary duties by allegedly accepting service payments from certain mutual funds. The complaint seeks disgorgement of some or all of the payments allegedly received by NFS and NLIC, other unspecified relief for restitution, declaratory and injunctive relief, and attorneys’ fees. To date, the District Court has rejected the plaintiffs’ request for certification of the alleged class. On September 25, 2007, NFS’ and NLIC’s motion to dismiss the plaintiffs’ fifth amended complaint was denied. On October 12, 2007, NFS and NLIC filed their answer to the plaintiffs’ fifth amended complaint and amended counterclaims. On November 1, 2007, the plaintiffs filed a motion to dismiss NFS’ and NLIC’s amended counterclaims. On November 15, 2007, the plaintiffs filed a motion for class certification. On February 8, 2008, the Court denied the plaintiffs’ motion to dismiss the amended counterclaim, with the exception that it was tentatively granting the plaintiffs’ motion to dismiss with respect to NFS’ and NLIC’s claim that it could recover any “disgorgement remedy” from plan sponsors. On April 25, 2008, NFS and NLIC filed their opposition to the plaintiffs’ motion for class certification. On September 29, 2008, the plaintiffs filed their reply to NFS’ and NLIC’s opposition to class certification. The Court has set a hearing on the class certification motion for February 27, 2009. NFS and NLIC continue to defend this lawsuit vigorously.

Tax Matters

Management has established tax reserves in accordance with current accounting guidance, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. These reserves are reviewed regularly and are adjusted as events occur that management believes impact its liability for additional taxes, such as lapsing of applicable statutes of limitations; conclusion of tax audits or substantial agreement on the deductibility/nondeductibility of uncertain items; additional exposure based on current calculations; identification of new issues; release of administrative guidance; or rendering of a court decision affecting a particular tax issue. Management believes its tax reserves reasonably provide for potential assessments that may result from IRS examinations and other tax-related matters for all open tax years.

F-77

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The separate account DRD is a significant component of the Company’s federal income tax provision. On August 16, 2007, the IRS issued Revenue Ruling 2007-54. This ruling took a position with respect to the DRD that could have significantly reduced the Company’s DRD. The Company believes that the position taken by the IRS in the ruling was contrary to existing law and the relevant legislative history.

In Revenue Ruling 2007-61, released September 25, 2007, the IRS and the U.S. Department of the Treasury suspended Revenue Ruling 2007-54 and informed taxpayers of their intention to address certain issues in connection with the DRD in future tax regulations. Final tax regulations could impact the Company’s DRD in periods subsequent to their effective date.

(20) Guarantees

Since 2002, the Company has sold $677.4 million of credit enhanced equity interests in Low-Income-Housing Tax Credit Funds (LIHTC Funds) to unrelated third parties. The Company has guaranteed cumulative after-tax yields to the third party investors ranging from 3.75% to 5.25% over periods ending between 2002 and 2022. As of December 31, 2008 and 2007, the Company held guarantee reserves totaling $5.1 million and $6.0 million, respectively, on these transactions. These guarantees are in effect for periods of approximately 15 years each. The LIHTC Funds provide a stream of tax benefits to the investors that will generate a yield and return of capital. If the tax benefits are not sufficient to provide these cumulative after-tax yields, then the Company must fund any shortfall, which is mitigated by stabilization collateral set aside by the Company at the inception of the transactions. The maximum amount of undiscounted future payments that the Company could be required to pay the investors under the terms of the guarantees is $1.10 billion. The Company does not anticipate making any material payments related to these guarantees.

As of December 31, 2008, the Company held stabilization reserves of $0.8 million as collateral for certain properties owned by the LIHTC Funds that had not met all of the criteria necessary to generate tax credits. Such criteria include completion of construction and the leasing of each unit to a qualified tenant, among others. Properties meeting the necessary criteria are considered to have “stabilized.” The properties are evaluated regularly, and the collateral is released when stabilized. In 2008, $0.8 million of the stabilization reserve was released into income. In 2007, the stabilization reserve was increased by $2.4 million and $3.1 million was released into income.

To the extent there are cash deficits in any specific property owned by the LIHTC Funds, property reserves, property operating guarantees and reserves held by the LIHTC Funds are exhausted before the Company is required to perform under its guarantees. To the extent the Company is ever required to perform under its guarantees, it may recover any such funding out of the cash flow distributed from the sale of the underlying properties of the LIHTC Funds. This cash flow distribution would be paid to the Company prior to any cash flow distributions to unrelated third party investors.

(21) Variable Interest Entities

In the normal course of business, the Company has relationships with variable interest entities (VIEs). The Company’s VIEs are conduits that assist the Company in structured products transactions involving the sale of low-income-housing tax credit funds (LIHTC Funds) to third party investors, other structured product issuances, and private equity investments.

The Company considers many factors when determining whether it is (or is not) the primary beneficiary of a VIE. There is a review of the entity’s contract and other deal related information, such as 1) the entity’s equity investment at risk, decision-making abilities, obligations to absorb economic risks and right to receive economic rewards of the entity, 2) whether the contractual or ownership interest in the entity changes with the change in fair value of the entity, and 3) through the variable interest, if the Company shares in the entity’s expected losses and residual returns.

The Company was not required to provide financial or other support outside previous contractual requirements to any VIE.

F-78

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

LIHTC Funds

The Company provides guarantees to limited partners related to the amount of tax credits that will be generated by the funds (see Note 20). The results of operations and financial position of each VIE of which the Company is the primary beneficiary are consolidated along with corresponding minority interest liabilities in the accompanying consolidated financial statements.

The Company had relationships with 19 LIHTC Funds that are considered VIEs as of December 31, 2008 and December 31, 2007, where the company was the primary beneficiary. Net assets of these consolidated VIEs were $416.1 million and $465.7 million as of December 31, 2008 and December 31, 2007, respectively. The following table summarizes the components of net assets as of December 31:

(in millions)	2008			2007
Other long-term investments	$	371.1		$	434.1
Short-term investments		20.9			31.9
Other assets		41.6			38.1
Other liabilities		(17.5	)		(38.4	)

The Company’s total loss exposure from consolidated VIEs was immaterial as of December 31, 2008 and December 31, 2007 (except for the impact of guarantees disclosed in Note 20). Creditors (or beneficial interest holders) of the consolidated VIEs have no recourse to the general credit of the Company.

These LIHTC Funds are financed through the sale of these funds into the secondary market. The proceeds from these sales are used to participate in low-income housing projects that provide tax benefits to the investors.

In addition to the consolidated VIEs described above, the Company holds variable interests, in the form of LIHTC Funds that qualify as VIEs but of which the Company is not the primary beneficiary. The carrying amount on these unconsolidated VIEs was $156.3 million and $127.2 million as of December 31, 2008 and December 31, 2007, respectively. The total exposure to loss on these unconsolidated VIEs was $179.6 million and $208.3 million as of December 31, 2008 and December 31, 2007, respectively. The total exposure to loss is determined by adding any unfunded commitments to the carrying amount of the VIEs.

Structured Products

The Company had relationships with one structured product investment that is considered a VIE as of December 31, 2008 and December 31, 2007, where the Company was the primary beneficiary. Net assets of this consolidated VIE were $8.9 million and $20.1 million as of December 31, 2008 and December 31, 2007, respectively. Creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the Company. There are no arrangements that would require the Company to provide financial support to the VIE.

As of both December 31, 2008 and December 31, 2007, the Company was invested in 12 structured product investments that are considered VIEs but that the Company is not the primary beneficiary. These structured products are in the form of synthetic collateralized debt obligations and collateralized lease obligations. The carrying amount on these unconsolidated VIEs was $17.8 million and $89.0 million as of December 31, 2008 and December 31, 2007, respectively. The total exposure to loss on these unconsolidated VIEs is determined to be the carrying amount of the VIEs.

F-79

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

Private Equity Investments

The Company had relationships with one private equity investment that is considered a VIE as of December 31, 2008 and December 31, 2007, where the Company was the primary beneficiary. Net assets of this consolidated VIE were $18.6 million and $5.0 million as of December 31, 2008 and December 31, 2007, respectively. Creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the Company. There are no arrangements that would require the Company to provide financial support to the VIE.

As of December 31, 2008 and December 31, 2007, the Company does not have any private equity investments considered to be a VIE where the Company is not the primary beneficiary.

F-80

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(22) Segment Information

Management views the Company’s business primarily based on its underlying products and uses this basis to define its four reportable segments: Individual Investments, Retirement Plans, Individual Protection, and Corporate and Other.

The primary segment profitability measure that management uses is pre-tax operating (loss) earnings, which is calculated by adjusting income from continuing operations before federal income taxes and discontinued operations to exclude: (1) net realized investment gains and losses, except for operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, realized gains and losses related to hedges on GMDB contracts, and net realized gains and losses related to securitizations); and (2) the adjustment to amortization of DAC and VOBA related to net realized investment gains and losses.

Individual Investments

The Individual Investments segment consists of individual The BEST of AMERICA^® and private label deferred variable annuity products, individual annuity products, deferred fixed annuity products, income products and investment advisory services. Individual deferred annuity contracts provide the customer with tax-deferred accumulation of savings and flexible payout options including lump sum, systematic withdrawal or a stream of payments for life. In addition, individual variable annuity contracts provide the customer with access to a wide range of investment options and asset protection features, while individual fixed annuity contracts generate a return for the customer at a specified interest rate fixed for prescribed periods.

Retirement Plans

The Retirement Plans segment is comprised of the Company’s private and public sector retirement plans business. The private sector primarily includes IRC Section 401 fixed and variable group annuity business generated through NLIC and trust and custodial services through Nationwide Trust Company, FSB, a division of Nationwide Bank. Also included in the private sector is Registered Investment Advisors Services, Inc. d/b/a RIA Services Inc., which facilitates professional money management of participant assets by registered investment advisors. The public sector primarily includes IRC Section 457 and Section 401(a) business in the form of full-service arrangements that provide plan administration and fixed and variable group annuities as well as administration-only business.

Individual Protection

The Individual Protection segment consists of investment life insurance products, including individual variable, COLI and BOLI products; traditional life insurance products; and universal life insurance products. Life insurance products provide a death benefit and generally allow the customer to build cash value on a tax-advantaged basis.

Corporate and Other

The Corporate and Other segment includes the MTN program; the retail operations of Nationwide Bank; structured products business; revenues and expenses of the Company’s retail asset management business and non-insurance subsidiaries not reported in other segments; non-operating realized gains and losses, including mark-to-market adjustments on embedded derivatives, net of economic hedges, related to products with living benefits included in the Individual Investments segment; and other revenues and expenses not allocated to other segments.

F-81

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

The following tables summarize the Company’s business segment operating results for the years ended December 31:

(in millions)	Individual Investments			Retirement Plans		Individual Protection		Corporate and Other			Total
2008
Revenues:
Policy charges	$	602.9		$	119.9	$	617.7	$	—		$	1,340.5
Premiums		120.2			—		297.5		—			417.7
Net investment income		530.4			650.8		486.8		303.3			1,971.3
Non-operating net realized investment losses1		—			—		—		(1,556.8	)		(1,556.8	)
Other income		131.9			320.6		3.2		79.2			534.9
Total revenues		1,385.4			1,091.3		1,405.2		(1,174.3	)		2,707.6
Benefits and expenses:
Interest credited to policyholder accounts		379.1			435.9		196.1		199.4			1,210.5
Benefits and claims		378.5			—		508.7		(11.8	)		875.4
Policyholder dividends		—			—		93.1		—			93.1
Amortization of DAC		647.7			40.6		129.9		(126.6	)		691.6
Amortization of VOBA and other intangible assets		7.8			1.6		22.1		0.9			32.4
Interest expense		—			—		—		105.6			105.6
Other operating expenses		192.5			411.0		198.8		264.6			1,066.9
Total benefits and expenses		1,605.6			889.1		1,148.7		432.1			4,075.5
(Loss) income from continuing operations before federal income tax (benefit) expense		(220.2	)		202.2		256.5		(1,606.4	)	$	(1,367.9	)
Less: non-operating net realized investment losses1		—			—		—		1,556.8
Less: adjustment to amortization related to net realized investment gains and losses		—			—		—		(139.2	)
Pre-tax operating (loss) earnings	$	(220.2	)	$	202.2	$	256.5	$	(188.8	)
Assets as of year end	$	42,297.3		$	22,406.8	$	20,659.2	$	8,264.1		$	93,627.4

¹ Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, net realized gains and losses related to hedges on GMDB contracts and securitizations).

F-82

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(in millions)	Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total
2007
Revenues:
Policy charges	$	662.6	$	147.3	$	574.0	$	—		$	1,383.9
Premiums		133.3		—		299.4		—			432.7
Net investment income		642.9		655.2		472.3		506.3			2,276.7
Non-operating net realized investment losses1		—		—		—		(152.8	)		(152.8	)
Other income		31.0		343.7		4.0		209.7			588.4
Total revenues		1,469.8		1,146.2		1,349.7		563.2			4,528.9
Benefits and expenses:
Interest credited to policyholder accounts		444.3		443.3		192.0		262.4			1,342.0
Benefits and claims		233.5		—		449.4		—			682.9
Policyholder dividends		—		—		83.1		—			83.1
Amortization of DAC		287.1		27.4		93.1		(25.5	)		382.1
Amortization of VOBA and other intangible assets		5.3		2.7		40.4		1.8			50.2
Interest expense		—		—		—		110.6			110.6
Debt extinguishment costs		—		—		—		10.2			10.2
Other operating expenses		198.9		420.2		191.9		256.4			1,067.4
Total benefits and expenses		1,169.1		893.6		1,049.9		615.9			3,728.5
Income (loss) from continuing operations before federal income tax expense		300.7		252.6		299.8		(52.7	)	$	800.4
Less: non-operating net realized investment losses1		—		—		—		152.8
Less: adjustment to amortization related to net realized investment gains and losses		—		—		—		(25.5	)
Pre-tax operating earnings	$	300.7	$	252.6	$	299.8	$	74.6
Assets as of year end	$	56,555.8	$	27,956.6	$	22,920.6	$	11,774.1		$	119,207.1

¹ Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, and net realized gains and losses related to securitizations).

F-83

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(in millions)	Individual Investments		Retirement Plans		Individual Protection		Corporate and Other			Total
2006
Revenues:
Policy charges	$	588.4	$	174.5	$	553.1	$	—		$	1,316.0
Premiums		142.5		—		299.0		—			441.5
Net investment income		781.1		652.2		468.1		398.8			2,300.2
Non-operating net realized investment losses1		—		—		—		(0.6	)		(0.6	)
Other income		14.6		288.9		0.8		201.1			505.4
Total revenues		1,526.6		1,115.6		1,321.0		599.3			4,562.5
Benefits and expenses:
Interest credited to policyholder accounts		528.3		451.6		191.7		209.9			1,381.5
Benefits and claims		202.4		—		444.4		—			646.8
Policyholder dividends		—		—		90.7		—			90.7
Amortization of DAC		352.7		38.3		81.6		(9.7	)		462.9
Amortization of VOBA and other intangible assets		6.5		7.4		33.8		1.6			49.3
Interest expense		—		—		—		103.1			103.1
Other operating expenses		213.6		397.1		198.0		220.2			1,028.9
Total benefits and expenses		1,303.5		894.4		1,040.2		525.1			3,763.2
Income from continuing operations before federal income tax expense		223.1		221.2		280.8		74.2		$	799.3
Less: non-operating net realized investment losses1		—		—		—		0.6
Less: adjustment to amortization related to net realized investment gains and losses		—		—		—		(9.7	)
Pre-tax operating earnings	$	223.1	$	221.2	$	280.8	$	65.1
Assets as of year end	$	56,516.6	$	30,317.9	$	22,194.6	$	10,502.0		$	119,531.1

¹ Excluding operating items (periodic net amounts paid or received on interest rate swaps that do not qualify for hedge accounting treatment, trading portfolio realized gains and losses, trading portfolio valuation changes, and net realized gains and losses related to securitizations).

F-84

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(23) Quarterly Results of Operations (Unaudited)

The following tables summarize the unaudited quarterly results of operations for the years ended December 31:

(in millions, except per share amounts)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2008
Revenues:
Policy charges	$	345.1		$	354.4		$	336.8		$	304.2
Premiums		109.1			105.2			89.8			113.6
Net investment income		519.5			511.5			480.8			459.5
Net realized investment losses		(198.9	)		(33.9	)		(555.1	)		(762.0	)
Other income		141.5			143.3			132.3			110.9
Total revenues		916.3			1,080.5			484.6			226.2
Benefits and expenses:
Interest credited to policyholder accounts		312.6			294.1			300.5			303.3
Benefits and claims		183.5			178.7			183.7			329.5
Policyholder dividends		23.9			24.4			23.7			21.1
Amortization of DAC		66.4			169.5			224.8			230.9
Amortization of VOBA and other intangible assets		9.2			4.1			9.6			9.5
Interest expense		27.7			25.9			26.1			25.9
Other operating expenses		260.2			261.3			245.1			300.3
Total benefits and expenses		883.5			958.0			1,013.5			1,220.5
Income (loss) from continuing operations before federal income tax (benefit) expense		32.8			122.5			(528.9	)		(994.3	)
Federal income tax (benefit) expense		(10.8	)		36.4			(191.7	)		(366.0	)
Income (loss) from continuing operations		43.6			86.1			(337.2	)		(628.3	)
Discontinued operations, net of taxes		0.9			(0.7	)		(9.2	)		(4.2	)
Net income (loss)	$	44.5		$	85.4		$	(346.4	)	$	(632.5	)
Earnings (loss) from continuing operations per common share:
Basic	$	0.32		$	0.62		$	(2.45	)	$	(4.55	)
Diluted	$	0.32		$	0.62		$	(2.45	)	$	(4.55	)
Earnings (loss) per common share:
Basic	$	0.32		$	0.62		$	(2.51	)	$	(4.59	)
Diluted	$	0.32		$	0.62		$	(2.51	)	$	(4.59	)

F-85

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements, Continued

December 31, 2008, 2007 and 2006

(in millions, except per share amounts)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2007
Revenues:
Policy charges	$	335.9		$	343.1		$	345.5		$	359.4
Premiums		110.4			104.9			101.7			115.7
Net investment income		589.8			577.8			547.3			561.8
Net realized investment losses		(11.4	)		(2.6	)		(20.4	)		(130.8	)
Other income		135.3			145.2			157.7			162.6
Total revenues		1,160.0			1,168.4			1,131.8			1,068.7
Benefits and expenses:
Interest credited to policyholder accounts		342.1			337.0			333.3			329.6
Benefits and claims		153.6			186.1			161.4			181.8
Policyholder dividends		21.3			20.0			23.1			18.7
Amortization of DAC		133.2			18.3			112.1			118.5
Amortization of VOBA and other intangible assets		11.1			16.2			12.7			10.2
Interest expense		24.5			27.5			28.9			29.7
Debt extinguishment costs		—			10.2			—			—
Other operating expenses		259.5			273.1			268.6			265.4
Total benefits and expenses		945.3			888.4			940.9			953.9
Income from continuing operations before federal income tax expense		214.7			280.0			190.9			114.8
Federal income tax expense		45.9			80.8			44.7			19.3
Income from continuing operations		168.8			199.2			146.2			95.5
Discontinued operations, net of taxes		45.5			(1.9	)		0.8			(21.3	)
Cumulative effect of adoption of accounting principle, net of taxes		(6.0	)		—			—			—
Net income	$	208.3		$	197.3		$	147.0		$	74.2
Earnings from continuing operations per common share:
Basic	$	1.16		$	1.39		$	1.03		$	0.69
Diluted	$	1.15		$	1.38		$	1.02		$	0.68
Earnings per common share:
Basic	$	1.43		$	1.38		$	1.04		$	0.53
Diluted	$	1.42		$	1.37		$	1.03		$	0.53

F-86

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule I Consolidated Summary of Investments – Other Than Investments in Related Parties

As of December 31, 2008 (in millions)

Column A	Column B		Column C		Column D
Type of investment	Cost		Market value		Amount at which shown in the consolidated balance sheet
Fixed maturity securities available-for-sale:
Bonds:
U.S. Treasury securities and obligations of U.S. Government corporations	$	135.8	$	165.1	$	165.1
U.S. Government agencies		395.1		485.6		485.6
Obligations of states and political subdivisions		271.3		262.4		262.4
Foreign governments		50.1		55.5		55.5
Public utilities		1,908.6		1,806.3		1,806.3
All other corporate		23,064.8		20,294.8		20,294.8
Total fixed maturity securities available-for-sale		25,825.7		23,069.7		23,069.7
Equity securities available-for-sale:
Common stocks:
Banks, trusts and insurance companies		44.5		36.1		36.1
Industrial, miscellaneous and all other		6.5		6.7		6.7
Nonredeemable preferred stocks		17.7		17.9		17.9
Total equity securities available-for-sale		68.7		60.7		60.7
Trading assets		102.4		66.1		66.1
Mortgage loans on real estate, net		7,948.8				7,888.2	1
Real estate, net:
Investment properties		11.0				8.5	2
Acquired in satisfaction of debt		9.8				8.0	2
Total real estate, net		20.8				16.5
Policy loans		1,095.6				1,095.6
Other long-term investments		968.1				968.1
Short-term investments, including amounts managed by a related party		3,055.0				3,055.0
Total investments	$	39,085.1			$	36,219.9

¹ Difference from Column B primarily is attributable to valuation allowances due to impairments on mortgage loans on real estate (see Note 6 to the audited consolidated financial statements), hedges and commitment hedges on mortgage loans on real estate.

² Difference from Column B primarily results from adjustments for accumulated depreciation.

See accompanying notes to consolidated financial statements and report of independent registered public accounting firm.

F-87

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule II Condensed Financial Information of Registrant (in millions)

Condensed Balance Sheets				December 31,
				2008			2007
Assets
Investments in subsidiaries				$	3,638.3		$	5,818.5
Securities available-for-sale, at fair value:
Fixed maturity securities (amortized cost $0 and $103.3)					—			103.5
Equity securities (amortized cost $0 and $15.1)					—			15.5
Short-term investments, including amounts managed by a related party					61.0			29.7
Trading assets					66.1			37.7
Investment in surplus notes from a subsidiary					700.0			700.0
Goodwill					—			48.4
Other assets					133.5			151.5
Total assets				$	4,598.9		$	6,904.8
Liabilities and Shareholders’ Equity
Long-term debt				$	1,500.3		$	1,499.8
Other liabilities					40.4			80.4
Total liabilities					1,540.7			1,580.2
Shareholders’ equity					3,058.2			5,324.6
Total liabilities and shareholders’ equity				$	4,598.9		$	6,904.8
Condensed Statements of Income	Years ended December 31,
	2008			2007			2006
Revenues:
Dividends received from subsidiaries	$	463.2		$	789.9		$	508.1
Net investment income		70.2			69.4			61.9
Net realized investment (losses) gains		(31.9	)		(2.1	)		3.6
Other income		0.1			0.6			0.1
Total revenues		501.6			857.8			573.7
Expenses:
Interest expense		94.3			94.2			91.3
Debt extinguishment costs		—			10.2			—
Other operating expenses		21.7			18.4			19.2
Total expenses		116.0			122.8			110.5
(Loss) income before federal income tax benefit		385.6			735.0			463.2
Federal income tax benefit		(7.6	)		(6.2	)		(10.2	)
(Loss) income from continuing operations before equity in undistributed net (loss) income of subsidiaries		393.2			741.2			473.4
Equity in undistributed net (loss) income of subsidiaries		(1,231.3	)		(87.0	)		250.3
(Loss) income from continuing operations		(838.1	)		654.2			723.7
Discontinued operations, net of taxes		(10.9	)		(27.4	)		0.3
Net (loss) income	$	(849.0	)	$	626.8		$	724.0

See accompanying notes to condensed financial statements and report of independent registered public accounting firm.

F-88

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule II Condensed Financial Information of Registrant, Continued

Condensed Statements of Cash Flows (in millions)	Years ended December 31,
	2008			2007			2006
Cash flows from operating activities:
Net (loss) income	$	(849.0	)	$	626.8		$	724.0
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net realized investment losses (gains)		31.9			2.1			(3.6	)
Equity in undistributed net loss (income) of subsidiaries		1,231.3			87.0			(250.3	)
Other, net		(219.6	)		(66.4	)		20.1
Net cash provided by operating activities		194.6			649.5			490.2
Cash flows from investing activities:
Proceeds from maturity of securities available-for-sale		2.1			30.6			—
Proceeds from sale of securities available-for-sale		111.5			—			—
Cost of securities available-for-sale acquired		—			(148.9	)		—
Net (increase) decrease in short-term investments		(32.2	)		131.7			4.7
Capital contributed to subsidiaries		(153.4	)		—			(50.0	)
Subsidiary mergers and acquisitions		—			(319.2	)		—
Subsidiary sale		41.3			115.4			—
Other, net		0.3			(0.8	)		8.7
Net cash used in investing activities		(30.4	)		(191.2	)		(36.6	)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt		—			395.4			—
Principal payments on long-term debt		—			(300.0	)		—
Cash dividends paid		(156.2	)		(186.9	)		(132.7	)
Common shares repurchased under announced program		(32.9	)		(502.4	)		(416.8	)
Other, net		24.8			135.6			96.2
Net cash used in financing activities		(164.3	)		(458.3	)		(453.3	)
Net increase (decrease) in cash		(0.1	)		—			0.3
Cash, beginning of year		0.3			0.3			—
Cash, end of year	$	0.2		$	0.3		$	0.3
Supplemental Non-cash Disclosure:
Dividends received from subsidiaries (See Note 15 of the audited consolidated financial statements )	$	179.4		$	—		$	—

See accompanying notes to condensed financial statements and report of independent registered public accounting firm.

F-89

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule II Condensed Financial Information of Registrant, Continued

Notes to Condensed Financial Statements

(1) Organization and Presentation

NFS is the holding company for NLIC and other companies that comprise the domestic life insurance and retirement savings operations of the Nationwide group of companies, including NFN.

(2) Long-term Debt and Guarantees

The following table summarizes long-term debt as of December 31:

(in millions)	2008		2007
$300.0 million principal, 6.25% senior notes, due November 15, 2011	$	299.4		299.2
$300.0 million principal, 5.90% senior notes, due July 1, 2012		299.4		299.3
$200.0 million principal, 5.625% senior notes, due February 13, 2015		199.4		199.3
$200.0 million principal, 5.10% senior notes, due October 1, 2015		199.6		199.5
$400.0 million principal, 6.75% fixed-to-floating rate junior subordinated notes, due May 15, 2037		399.4		399.4
$100.0 million principal, 7.899% junior subordinated debentures issued to a related party, due March 1, 2037		103.1		103.1
Total long-term debt	$	1,500.3	$	1,499.8

See Note 14 to the audited consolidated financial statements of the Company included earlier in this report for a complete description of the components of long-term debt and disclosure of distributions classified as interest expense.

(3) Related Party Transactions

NLIC made interest payments to NFS on surplus notes totaling $53.7 million in 2008, 2007 and 2006. Payments of interest and principal under the notes require the prior approval of the ODI.

See Note 2(p) and Note 18 to the audited consolidated financial statements of the Company included earlier in this report for a description of other related party transactions.

See accompanying notes to condensed financial statements and report of independent registered public accounting firm.

F-90

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule III Supplementary Insurance Information

As of December 31, 2008, 2007 and 2006 and for each of the years then ended (in millions)

Column A	Column B		Column C		Column D			Column E		Column F
Year: Segment	Deferred policy acquisition costs		Future policy benefits, losses, claims and loss expenses		Unearned premiums1			Other policy claims and benefits payable1		Premium revenue
2008
Individual Investments	$	1,883.0	$	12,476.8						$	120.2
Retirement Plans		290.1		11,497.5							—
Individual Protection		1,734.8		8,356.1							297.5
Corporate and Other		615.9		3,389.6							—
Total	$	4,523.8	$	35,720.0						$	417.7
2007
Individual Investments	$	2,078.0	$	11,316.4						$	133.3
Retirement Plans		292.9		10,973.1							—
Individual Protection		1,637.6		8,192.4							299.4
Corporate and Other		87.1		4,959.6							—
Total	$	4,095.6	$	35,441.5						$	432.7
2006
Individual Investments	$	1,945.0	$	13,753.4						$	142.5
Retirement Plans		292.1		11,163.2							—
Individual Protection		1,530.5		8,148.8							299.0
Corporate and Other		83.4		5,032.4							—
Total	$	3,851.0	$	38,097.8						$	441.5
Column A	Column G		Column H		Column I			Column J		Column K
Year: Segment	Net investment income2		Benefits, claims, losses and settlement expenses		Amortization of deferred policy acquisition costs			Other operating expenses2		Premiums written
2008
Individual Investments	$	530.4	$	757.6	$	647.7		$	200.3
Retirement Plans		650.8		435.9		40.6			412.6
Individual Protection		486.8		797.9		129.9			220.9
Corporate and Other		303.3		187.6		(126.6	)		371.1
Total	$	1,971.3	$	2,179.0	$	691.6		$	1,204.9
2007
Individual Investments	$	642.9	$	677.8	$	287.1		$	204.2
Retirement Plans		655.2		443.3		27.4			422.9
Individual Protection		472.3		724.5		93.1			232.3
Corporate and Other		506.3		262.4		(25.5	)		379.0
Total	$	2,276.7	$	2,108.0	$	382.1		$	1,238.4
2006
Individual Investments	$	781.1	$	730.7	$	352.7		$	220.1
Retirement Plans		652.2		451.6		38.3			404.5
Individual Protection		468.1		726.8		81.6			231.8
Corporate and Other		398.8		209.9		(9.7	)		324.9
Total	$	2,300.2	$	2,119.0	$	462.9		$	1,181.3

¹ Unearned premiums and other policy claims and benefits payable are included in Column C amounts.

² Allocations of net investment income and certain operating expenses are based on numerous assumptions and estimates, and reported segment operating results would change if different methods were applied.

See accompanying notes to condensed financial statements and report of independent registered public accounting firm.

F-91

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule IV Reinsurance

As of December 31, 2008, 2007 and 2006 and for each of the years then ended (dollars in millions)

Column A	Column B		Column C		Column D		Column E		Column F
	Gross amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount assumed to net
2008
Life insurance in force	$	220,439.5	$	75,091.7	$	12.3	$	145,360.1	0.0%
Premiums:
Life insurance1	$	500.3	$	83.7	$	1.1	$	417.7	0.3%
Accident and health insurance		182.9		209.3		26.4		—	NM
Total	$	683.2	$	293.0	$	27.5	$	417.7	6.6%
2007
Life insurance in force	$	213,683.5	$	76,178.6	$	14.0	$	137,518.9	0.0%
Premiums:
Life insurance1	$	523.3	$	92.5	$	1.9	$	432.7	0.4%
Accident and health insurance		289.2		316.8		27.6		—	NM
Total	$	812.5	$	409.3	$	29.5	$	432.7	6.8%
2006
Life insurance in force	$	209,941.7	$	76,648.6	$	19.6	$	133,312.7	0.0%
Premiums:
Life insurance1	$	490.8	$	51.1	$	1.8	$	441.5	0.4%
Accident and health insurance		388.9		417.4		28.5		—	NM
Total	$	879.7	$	468.5	$	30.3	$	441.5	6.9%

¹ Primarily represents premiums from traditional life insurance and life-contingent immediate annuities and excludes deposits on investment and universal life insurance products.

See accompanying notes to condensed financial statements and report of independent registered public accounting firm.

F-92

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Schedule V Valuation and Qualifying Accounts

Years ended December 31, 2008, 2007 and 2006 (in millions)

Column A	Column B		Column C				Column D		Column E
Description	Balance at beginning of period		Charged (credited) to costs and expenses		Charged to other accounts		Deductions1		Balance at end of period
2008
Valuation allowances - mortgage loans on real estate	$	24.8	$	20.8	$	—	$	3.2	$	42.4
2007
Valuation allowances - mortgage loans on real estate	$	36.0	$	1.1	$	—	$	12.3	$	24.8
2006
Valuation allowances - mortgage loans on real estate	$	35.1	$	5.8	$	—	$	4.9	$	36.0

¹ Amounts represent transfers to real estate owned and recoveries.

See accompanying notes to condensed financial statements and report of independent registered public accounting firm.

F-93

SIGNATURES

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

		NATIONWIDE FINANCIAL SERVICES, INC.
		(Registrant)
Date: March 2, 2009	By	/s/ Mark R. Thresher
		Mark R. Thresher, President and Chief Operating Officer (Principal Executive Officer)

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

/s/ Mark R. Thresher	March 2, 2009	/s/ Timothy G. Frommeyer	March 2, 2009
Mark R. Thresher, President and Chief Operating Officer and Director	Date	Timothy G. Frommeyer, Senior Vice President – Chief Financial Officer and Director	Date
/s/ Lawrence A. Hilsheimer	March 2, 2009
Lawrence A. Hilsheimer, Director	Date

F-94

Exhibit Index

Exhibit
3.1	Amended and Restated Certificate of Incorporation of Nationwide Financial Services, Inc. (previously filed as Exhibit 3.1 to Form 8-K, Commission File Number 1-12785, filed January 2, 2009 and incorporated herein by reference)
3.2	Amended and Restated Bylaws of Nationwide Financial Services, Inc. (previously filed as Exhibit 3.2 to Form 8-K, Commission File Number 1-12785, filed January 2, 2009 and incorporated herein by reference)
4.1	Form of Indenture relating to the 8.00% senior notes, including the form of Global Note and the form of Definitive Note (previously filed as Exhibit 4.1 to Form S-1/A, Registration Number 333-18531, filed February 25, 1997, and incorporated herein by reference)
4.2	Form of Indenture relating to the Junior Subordinated Deferrable Interest Debentures due 2037 of Nationwide Financial Services, Inc. (previously filed as Exhibit 4.1 to Form S-1, Registration Number 333-18533, filed March 5, 1997, and incorporated herein by reference)
4.3	Senior Indenture dated November 1, 2001 relating to senior notes (previously filed as Exhibit 4.1 to Form 8-K, Commission File Number 333-18527, filed November 16, 2001, and incorporated herein by reference)
4.4	Form of First Supplemental Indenture relating to the 6.25% senior notes (previously filed as Exhibit 4.2 to Form 8-K, Commission File Number 333-18527, filed November 16, 2001, and incorporated herein by reference)
4.5	Second Supplemental Indenture relating to the 5.90% senior notes (previously filed as Exhibit 4.1 to Form 8-K, Commission File Number 333-18527, filed June 24, 2002, and incorporated herein by reference)
4.6	Third Supplemental Indenture relating to the 5.625% senior notes (previously filed as Exhibit 4.1 to Form 8-K, Commission File Number 1-12785, filed February 13, 2003, and incorporated herein by reference)
4.7	Fourth Supplemental Indenture relating to the 5.10% senior notes (previously filed as Exhibit 4.1 to Form 8-K, Commission File Number 1-12785, filed September 23, 2005, and incorporated herein by reference)
4.8	Junior Subordinated Debt Indenture dated as of May 18, 2007 between Nationwide Financial Services, Inc. and Wilmington Trust Company (previously filed as Exhibit 4.1 to Form 8-K, Commission File Number 1-12785, filed March 18, 2007, and incorporated herein by reference)
4.9	First Supplemental Indenture dated as of May 18, 2007 to the Junior Subordinated Debt Indenture between Nationwide Financial Services, Inc. and Wilmington Trust Company (previously filed as Exhibit 4.2 to Form 8-K, Commission File Number 1-12785, filed March 18, 2007, and incorporated herein by reference)
10.2	Tax Sharing Agreement dated as of January 1, 2008 among Nationwide Financial Services, Inc. and any company that in the future becomes a subsidiary of Nationwide Financial Services, Inc. if eligible under the Internal Revenue Code (previously filed as Exhibit 99.1 to Form 8-K, Commission File Number 1-12785, filed January 29, 2008, and incorporated herein by reference)

F-95

10.3	Form of Tax Sharing Agreement dated as of October 1, 2002 among Nationwide Life Insurance Company and any corporation that may hereafter be a subsidiary of Nationwide Life Insurance Company (previously filed as Exhibit 10.4 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)
10.4	Form of Tax Sharing Agreement dated as of October 1, 2002 among Nationwide Life Insurance Company of America and any corporation that may hereafter be a subsidiary of Nationwide Life Insurance Company of America (previously filed as Exhibit 10.5 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)
10.5	Form of Tax Sharing Agreement dated as of October 1, 2002 among Nationwide Provident Holding Company and any corporation that may hereafter be a subsidiary of Nationwide Provident Holding Company (previously filed as Exhibit 10.2 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)
10.6	Form of Amended and Restated Cost Sharing Agreement among parties named therein (previously filed as Exhibit 10.3 to Form 10-K, Commission File Number 1-12785, filed March 14, 2003, and incorporated herein by reference)
10.7	Amended and Restated Five Year Credit Agreement, dated December 31, 2007, among Nationwide Financial Services, Inc., Nationwide Life Insurance Company, Nationwide Mutual Insurance Company, the banks party thereto and Wachovia Bank, National Association, as syndication agent and Citicorp USA, Inc., as agent (previously filed as Exhibit 10.7 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008, and incorporated herein by reference)
10.8	Form of Lease Agreement between Nationwide Mutual Insurance Company, Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company and Nationwide Financial Services, Inc. (previously filed as Exhibit 10.7 to Form S-1/A, Registration Number 333-18531, filed February 25, 1997, and incorporated herein by reference)
10.9*	Form of Fourth Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan
10.9.1	First Amendment to the Fourth Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan
10.10*	General Description of Nationwide Performance Incentive Plan (previously filed as Exhibit 10.9 to Form 10-K, Commission File Number 333-18527, filed March 29, 2001, and incorporated herein by reference)
10.11*	Form of Amended and Restated Nationwide Office of Investments Incentive Plan dated as of October 7, 2003 (previously filed as Exhibit 10.13 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)
10.12*	Nationwide Excess Benefit Plan effective as of January 1, 2000 (previously filed as Exhibit 10.14 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)
10.13*	Nationwide Supplemental Retirement Plan As Amended and Restated effective January 1, 2005 (previously filed as Exhibit 10.1 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)
10.14*	Nationwide Severance Pay Plan effective as of March 1, 2003 (previously filed as Exhibit 10.16 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)

F-96

10.15 *	Nationwide Supplemental Defined Contribution Plan effective as of January 1, 2005 (previously filed as Exhibit 10.17 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)
10.16 *	Nationwide Individual Deferred Compensation Plan, as Amended and Restated, effective as of January 1, 2005 (previously filed as Exhibit 10.18 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)
10.17 *	Nationwide Board of Directors Deferred Compensation Plan, as Amended and Restated, effective as of January 1, 2005 (previously filed as Exhibit 10.19 to Form 10-K, Commission File Number 1-12785, filed March 1, 2005, and incorporated herein by reference)
10.18 *	Nationwide Financial Services, Inc. Second Amended and Restated Stock Retainer Plan for Non-Employee Directors (previously filed as Exhibit 10.19 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.19	Investment Agency Cost Allocation Agreement dated October 30, 2002 between Nationwide Financial Services, Inc. and Nationwide Cash Management Company (previously filed as Exhibit 10.21 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)
10.20	Investment Agency Cost Allocation Agreement dated October 30, 2002 between Nationwide Life Insurance Company and Nationwide Cash Management Company (previously filed as Exhibit 10.22 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)
10.21	Investment Agency Cost Allocation Agreement dated October 30, 2002 between Nationwide Life and Annuity Insurance Company and Nationwide Cash Management Company (previously filed as Exhibit 10.23 to Form 10-K, Commission File Number 1-12785, filed March 11, 2004, and incorporated herein by reference)
10.22	Master Repurchase Agreement between Nationwide Life Insurance Company, Nationwide Life and Annuity Insurance Company, and Nationwide Mutual Insurance Company and certain of its Subsidiaries and affiliates (previously filed as Exhibit 10.20 to Form 10-K, Commission File Number 1-12785, filed March 29, 2000, and incorporated herein by reference)
10.23	Stock Purchase and Sale Agreement between Nationwide Corporation and Nationwide Financial Services, Inc. (previously filed as Exhibit 10.21 to Form 10-K, Commission File Number 1-12785, filed March 29, 2000, and incorporated herein by reference)
10.24	Stock Purchase and Sale Agreement between Nationwide Financial Services, Inc. and Nationwide Mutual Insurance Company (previously filed as Exhibit 10.22 to Form 10-K, Commission File Number 333-18527, filed March 29, 2000, and incorporated herein by reference)
10.25	Form of Employee Leasing Agreement, dated July 1, 2000, between Nationwide Mutual Insurance Company and Nationwide Financial Services, Inc. (previously filed as Exhibit 10.35 to Form 10-Q, Commission File Number 333-18527, filed May 11, 2001, and incorporated herein by reference)
10.26*	Nationwide Financial Services, Inc. Senior Executive Incentive Plan (previously filed as Exhibit 10.37 to Form 10-Q, Commission File Number 1-12785, filed August 10, 2001, and incorporated herein by reference)
10.26.1*	First Amendment to the Nationwide Financial Services, Inc. Senior Executive Incentive Plan (previously filed as Exhibit 10.6 to Form 10-Q, Commission File Number 1-12785, filed August 6, 2004, and incorporated herein by reference)

F-97

10.27	Fund Participation Agreement between Nationwide Financial Services, Inc., Gartmore Mutual Fund Capital Trust and Gartmore Distribution Services, Inc. dated as of May 2, 2005 (previously filed as Exhibit 10.38 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.28	Fund Agreement between Nationwide Financial Services, Inc., Gartmore Mutual Fund Capital Trust, Gartmore Mutual Funds, Gartmore Morley Capital Management, Inc. and Gartmore Distribution Services, Inc. dated as of October 1, 2002 (previously filed as Exhibit 10.39 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.28.1	Amendment No. 1 dated August 1, 2005 to Fund Agreement between Nationwide Financial Services, Inc., Gartmore Mutual Fund Capital Trust, Gartmore Mutual Funds, Gartmore Morley Capital Management, Inc. and Gartmore Distribution Services, Inc. dated as of October 1, 2002 (previously filed as Exhibit 10.39.1 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.29	Letter of Agreement between Nationwide Financial Services, Inc. and Gartmore Mutual Fund Capital Trust dated as of December 21, 2005 (previously filed as Exhibit 10.40 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.30*	Form of Deferred Stock Unit Agreement (Cash Settlement) for the Second Amended and Restated Nationwide Financial Services, Inc. Stock Retainer Plan for Non-Employee Directors (previously filed as Exhibit 10.44 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.30.1*	Form of Deferred Stock Unit Agreement (Share Settlement) for the Second Amended and Restated Nationwide Financial Services, Inc. Stock Retainer Plan for Non-Employee Directors (previously filed as Exhibit 10.44.1 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.31 *	Employment letter agreement between Nationwide Financial Services, Inc. and John Carter dated October 27, 2005 (previously filed as Exhibit 10.1 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2005, and incorporated herein by reference)
10.32 *	Summary of terms of employment of Timothy G. Frommeyer (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2005, and incorporated herein by reference)
10.33 *	Summary of Non-Employee Director Compensation (previously filed as Exhibit 10.33 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.34	Form of Software License Agreement (previously filed as Exhibit 10.4 to Form 10-Q, Commission File Number 1-12785, filed August 4, 2005, and incorporated herein by reference)
10.35 *	Employment Offer Letter Agreement between Nationwide Financial Services, Inc. and Gail Snyder dated November 28, 2005 (previously filed as Exhibit 10.49 to Form 10-K, Commission File Number 1-12785, filed March 1, 2006, and incorporated herein by reference)
10.37 *	Form of NVA Target Award Opportunity and Stock Option Award for Third Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed May 5, 2006, and incorporated herein by reference)
10.38 *	Form of NVA Target Award Opportunity for Third Amended and Restated Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan (previously filed as Exhibit 10.3 to Form 10-Q, Commission File Number 1-12785, filed May 5, 2006, and incorporated herein by reference)

F-98

10.39	Agreement and Plan of Merger between Nationwide Federal Credit Union, Nationwide Bank and Nationwide Financial Services, Inc., dated June 16, 2006 (previously filed as Exhibit 10.1 to Form 10-Q, Commission File Number 1-12785, filed August 3, 2006, and incorporated herein by reference)
10.40*	Offer Letter for Anne L. Arvia, dated June 30, 2006 (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed August 3, 2006, and incorporated herein by reference)
10.41	Guarantee Agreement between Nationwide Financial Services, Inc. and Wachovia Bank, National Association, dated June 29, 2006 (previously filed as Exhibit 10.3 to Form 10-Q, Commission File Number 1-12785, filed August 3, 2006, and incorporated herein by reference)
10.42*	Offer Letter for William Jackson, dated August 21, 2006 (previously filed as Exhibit 10.1 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2006, and incorporated herein by reference)
10.43*	Offer Letter for James Lyski, dated August 30, 3006 (previously filed as Exhibit 10.2 to Form 10-Q, Commission File Number 1-12785, filed November 3, 2006, and incorporated herein by reference)
10.44	Share Purchase Agreement between Nationwide Financial Services, Inc. and Nationwide Corporation, dated November 27, 2006 (previously filed as Exhibit 10.55 to Form 10-K, Commission File Number 1-12785, filed March 1, 2007, and incorporated herein by reference)
10.45	Guaranty Agreement between Nationwide Financial Services, Inc. and The Charles Schwab Corporation, dated December 22, 2006 (previously filed as Exhibit 10.56 to Form 10-K, Commission File Number 1-12785, filed March 1, 2007, and incorporated herein by reference)
10.46	Purchase Agreement between Nationwide Financial Services, Inc. and Nationwide Corporation, dated February 2, 2007 (previously filed as Exhibit 10.1 to Form 8-K, Commission File Number 1-12785, filed February 6, 2007, and incorporated herein by reference)
10.49*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Larry Hilsheimer (previously filed as Exhibit 10.49 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.50*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Terri L. Hill (previously filed as Exhibit 10.50 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.51*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and James Lyski (previously filed as Exhibit 10.51 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.52*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Michael C. Keller (previously filed as Exhibit 10.52 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.53*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Patricia R. Hatler (previously filed as Exhibit 10.53 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.54*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Financial Services, Inc. and Mark R. Thresher (previously filed as Exhibit 99.1 to Form 8-K, Commission File Number 1-12785, filed February 19, 2008, and incorporated herein by reference)

F-99

10.55*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and Stephen S. Rasmussen (previously filed as Exhibit 10.55 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.56*	Executive Severance Agreement, dated January 1, 2008, between Nationwide Mutual Insurance Company and W.G. Jurgensen (previously filed as Exhibit 99.2 to Form 8-K, Commission File Number 1-12785, filed February 19, 2008, and incorporated herein by reference)
10.57*	Nationwide Financial Services, Inc. 2008 Deferred Compensation Plan for Non-Employee Directors, effective as of February 19, 2008 (previously filed as Exhibit 10.57 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.58*	First Amendment to the Nationwide Individual Deferred Compensation Plan, as amended and restated, effective as of January 1, 2005 (previously filed as Exhibit 10.58 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.59*	Second Amendment to the Nationwide Individual Deferred Compensation Plan, as amended and restated, effective as of January 1, 2005 (previously filed as Exhibit 10.59 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.60*	Third Amendment to the Nationwide Individual Deferred Compensation Plan, as amended and restated (now known as the Nationwide Officer Deferred Compensation Plan), effective as of January 1, 2005 (previously filed as Exhibit 10.60 to Form 10-K, Commission File Number 1-12785, filed February 29, 2008)
10.61*	Agreement and Plan of Merger between Nationwide Financial Services, Inc., Nationwide Mutual Insurance Company, Nationwide Corporation and NWM Merger Sub, Inc., dated August 6, 2008 (previously filed as Exhibit 2.1 to Form 8-K, Commission File Number 1-12785, filed August 7, 2008 and incorporated herein by reference)
12	Computation of Ratio of Earnings to Fixed Charges
18.1	Letter regarding change in accounting principle from KPMG LLP related to annual goodwill impairment testing (previously filed as Exhibit 18 to Form 10-Q, Commission File Number 1-12785, filed November 12, 2003, and incorporated herein by reference)
18.2	Letter regarding change in accounting principle from KPMG LLP related to accrued legal expenses (previously filed as Exhibit 18.1 to Form 10-Q, Commission File Number 1-12785, filed August 2, 2007, and incorporated herein by reference)
21	Subsidiaries of the Registrant
23	Consent of KPMG LLP, Independent Registered Public Accounting Firm
31.1	Certification of Mark R. Thresher pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Timothy G. Frommeyer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Mark R. Thresher pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (this exhibit is intended to be furnished in accordance with Regulation S-K, Item 601(b)(32)(ii) and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing)

F-100

32.2 Certification of Timothy G. Frommeyer pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (this exhibit is intended to be furnished in accordance with Regulation S-K, Item 601(b)(32)(ii) and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing)

* Management Compensatory Plan

All other exhibits referenced by Item 601 of Regulation S-K are not required under the related instructions or are inapplicable and therefore have been omitted.

F-101

EX-10.9

Exhibit 10.9

Fourth Amended and Restated

Nationwide Financial Services, Inc.

1996 Long-Term Equity Compensation Plan

January 1, 2008

Final to Board

Contents

		Page
Article 1.	Establishment, Objectives, and Duration	2
Article 2.	Definitions	2
Article 3.	Administration	6
Article 4.	Shares Subject to the Plan and Maximum Awards	7
Article 5.	Eligibility and Participation	8
Article 6.	Options	8
Article 7.	Stock Appreciation Rights	10
Article 8.	Restricted Stock	11
Article 9.	Performance Units and Performance Shares	12
Article 10.	NVA Target Award Opportunities	14
Article 11.	Performance Measures	15
Article 12.	Beneficiary Designation	15
Article 13.	Deferrals	16
Article 14.	Rights of Participants	16
Article 15.	Change in Control	16
Article 16.	Amendment, Modification, and Termination	17
Article 17.	Withholding	18
Article 18.	Indemnification	18
Article 19.	Successors	19
Article 20.	Legal Construction	19

Final to Board

Third Amended and Restated

Nationwide Financial Services, Inc. 1996 Long-Term Equity

Compensation Plan

Article 1. Establishment, Objectives, and Duration

1.1. Establishment of the Plan. Nationwide Financial Services, Inc., a Delaware corporation (hereinafter referred to as the “Company”), hereby establishes an incentive compensation plan to be known as the “Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan” (hereinafter referred to as the “Plan”), as set forth in this document and individual award agreements setting forth certain terms and conditions applicable to awards granted under the Plan. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units and NVA Target Award Opportunities.

The Plan first became effective on December 11, 1996 (the “Effective Date”) and shall remain in effect as provided in Section 1.3 hereof.

1.2. Objectives of the Plan. The objectives of the Plan are to optimize the profitability and growth of the Company through incentives which are consistent with the Company’s goals and which link the personal interests of Participants to those of the Company’s shareholders; to provide Participants with an incentive for excellence in individual performance; and to promote teamwork among Participants.

The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Company’s success and to allow Participants to share in the success of the Company.

1.3. Duration of the Plan. The Plan commenced on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 16 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions. However, in no event may an Award of Incentive Stock Options be granted under the Plan on or after February 27, 2012.

Article 2. Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

2.1. “Affiliate” means Nationwide Mutual Insurance Company and Nationwide Corporation.

2

2.2. “Agent” means a person duly licensed in accordance with applicable state insurance laws and under contract to sell insurance for the Company or an Affiliate, as an independent contractor or an employee of a corporation licensed to sell insurance offered by such an insurance company, or as a staff member of either such an independent contractor or licensed corporation.

2.3. “Award” means, individually or collectively, a grant under the Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Performance Shares, Performance Units or NVA Target Award Opportunities.

2.4. “Award Agreement” means an agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to Awards granted under the Plan.

2.5. “Beneficial Owner” or “Beneficial Ownership” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.

2.6. “Board” or “Board of Directors” means the Board of Directors of the Company.

2.7. “Change in Control” will be deemed to have occurred as of the first day any one (1) or more of the following paragraphs shall have been satisfied:

(a) At any time when Nationwide Mutual Insurance Company and its Subsidiaries cease to be the Beneficial Owner, directly or indirectly, of securities of the Company representing fifty and one-tenth percent (50.1%) or more of the combined voting power of the Company’s then outstanding securities; or

(b) The shareholders of the Company approve: (i) a plan of complete liquidation of the Company; or (ii) an agreement for the sale or disposition of all or substantially all the Company’s assets.

2.8. “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.9. “Committee” means the Compensation Committee of the Board, as specified in Article 3 herein, or such other Committee appointed by the Board to administer the Plan with respect to grants of Awards.

2.10. “Company” means Nationwide Financial Services, Inc., a Delaware corporation, including any and all of its Subsidiaries, and any successor thereto as provided in Article 19 herein.

2.11. “Director” means any individual who is a member of the Board of Directors of the Company or an Affiliate.

3

2.12. “Disability” shall have the meaning ascribed to such term in the Your Time and Disability Income Plan maintained by Nationwide Mutual Insurance Company or any successor plan thereto, or if no such plan exists, at the discretion of the Committee.

2.13. “Effective Date” shall have the meaning ascribed to such term in Section 1.1 hereof.

2.14. “Employee” means any employee of the Company or an Affiliate.

2.15. “Enterprise” means Nationwide Mutual Insurance Company, Nationwide Mutual Fire Insurance Company, Farmland Mutual Insurance Company and their Subsidiaries.

2.16. “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

2.17. “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to an Option.

2.18. “Fair Market Value” shall be equal to the closing sale price of a Share on the principal securities exchange on which the Shares are traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported.

2.19. “Freestanding SAR” means an SAR that is granted independently of any Options, as described in Article 7 herein.

2.20. “Incentive Stock Option” or “ISO” means an Option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Code Section 422.

2.21. “Named Executive Officer” means a Participant who is one of the group of “covered employees,” as defined in the regulations promulgated under Code Section 162(m).

2.22. “NVA Target Award Opportunity” means an Award granted to a Participant, as described in Article 10 herein, that provides the Participant an opportunity to earn amounts during a Performance Period if certain pre-established performance goals (relating to economic value added and adjusted net income after capital charge of the Enterprise) are achieved.

2.23. “Non-Employee Director” shall have the meaning ascribed to such term in Rule 16b-3 of the Exchange Act.

2.24. “Nonqualified Stock Option” or “NQSO” means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Code Section 422.

4

2.25. “NVA Award Bank” means the bookkeeping account maintained for a Participant who has an NVA Target Award Opportunity, as described in Section 10.3 herein.

2.26. “Option” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.

2.27. “Participant” means a current or former Employee, Director or Agent who has outstanding an Award granted under the Plan.

2.28. “Performance-Based Exception” means the performance-based exception from the tax deductibility limitations of Code Section 162(m).

2.29. “Performance Period” means the period during which a performance measure must be met.

2.30. “Performance Share” means an Award granted to a Participant, as described in Article 9 herein.

2.31. “Performance Unit” means an Award granted to a Participant, as described in Article 9 herein.

2.32. “Period of Restriction” means the period during which the transfer of Shares of Restricted Stock is limited in some way (based on the passage of time, the achievement of performance measures, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares are subject to a substantial risk of forfeiture, as provided in Article 8 herein.

2.33. “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.

2.34. “Restricted Stock” means an Award granted to a Participant pursuant to Article 8 herein.

2.35. “Shares” means the shares of Class A Common Stock of the Company, par value $0.01 per share.

2.36. “Stock Appreciation Right” or “SAR” means an Award granted to a Participant, either alone or in connection with a related Option, as described in Article 7 herein.

2.37. “Subsidiary” means any corporation in which an organization owns directly, or indirectly through subsidiaries, at least twenty-five percent (25%) of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, partnerships and joint ventures) in which the organization owns at least twenty-five percent (25%) of the combined equity thereof.

5

2.38. “Tandem SAR” means an SAR that is granted in connection with a related Option, as described in Article 7 herein.

2.39. “Termination of Employment” means a separation of service from Nationwide and any company in the same controlled group of companies.

Article 3. Administration

3.1. The Committee. The Plan shall be administered by the Compensation Committee of the Board, or by any other Committee appointed by the Board. The members of the Committee shall be Non-Employee Directors and shall be appointed from time to time by, and shall serve at the discretion of, the Board of Directors.

3.2. Authority of the Committee. Except as limited by law or by the Restated Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Employees, Directors and Agents who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 16 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate its authority as identified herein.

3.3. Reduction or Elimination of Award. In determining the actual payment to be made to any Participant pursuant to an Award, the Committee may exercise discretion to reduce or eliminate the Award from the dollar amount that was determined based on the attainment of the Performance Goals. The Plan Administrator may base such suspension or change on any criteria the Plan Administrator may determine in its sole discretion including, but not limited to, the Participant’s Misconduct in any current or prior Performance Period. “Misconduct” includes, but is not limited to, violation of any provision of the Company’s Code of Ethics and Business Practices, the Company’s Human Resources Policy Guide, or behavior inconsistent with the Company’s Values.

3.4. Decisions Binding. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive and binding on all persons, including the Company, its shareholders, Directors, Employees, Agents, Participants, and their estates and beneficiaries.

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Article 4. Shares Subject to the Plan and Maximum Awards

4.1. Number of Shares Available for Grants. Subject to adjustment as provided in Section 4.2 herein, the maximum number of Shares that may be delivered pursuant to Awards under the Plan shall be twenty million one hundred thousand (20,100,000). In the event any Award under the Plan is not settled in Shares or is forfeited, expires or is canceled without delivery of Shares, the Shares subject to such Award shall again be available for delivery under the Plan.

With respect to Awards and any related dividends or dividend equivalents intended to qualify for the Performance-Based Exception, the following rules shall apply:

(a) Options: The maximum aggregate number of Shares with respect to which Options may be granted in any one fiscal year to any one Participant shall be five hundred thousand (500,000).

(b) SARs: The maximum aggregate number of Shares with respect to which Stock Appreciation Rights may be granted in any one fiscal year to any one Participant shall be five hundred thousand (500,000).

(c) Restricted Stock: The maximum aggregate number of Shares of Restricted Stock that may be granted in any one fiscal year to any one Participant shall be three hundred thousand (300,000).

(d) Performance Shares/Performance Units: The maximum aggregate payout with respect to Awards of Performance Shares or Performance Units that may be made in any one fiscal year to any one Participant shall be five hundred thousand (500,000) Shares or, if payout is in cash, a cash payment equal to the Fair Market Value of five hundred thousand (500,000) Shares at the end of the Performance Period.

(e) NVA Target Award Opportunities: The maximum aggregate payout with respect to an NVA Target Award Opportunity that may be made in any one fiscal year to any one Participant shall be ten million dollars ($10,000,000) or, if payment is in Shares, such number of Shares having an equivalent Fair Market Value.

(f) Dividends and Dividend Equivalents: The maximum dividend or dividend equivalent payment that may be made in any one fiscal year to any one Participant shall be two million dollars ($2,000,000).

4.2. Adjustments in Authorized Shares. In the event of any change in corporate capitalization (such as a stock split or reverse stock split), any corporate transaction, such as a merger, consolidation, separation (including a spin-off, or other

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distribution of stock or property of the Company), reorganization (whether or not such reorganization comes within the definition of such term in Code Section 368) or share exchange, any partial or complete liquidation of the Company or any other event for which the Committee determines an adjustment is appropriate, such adjustment shall be made in the kind of shares that may be delivered under the Plan, the number of Shares that may be delivered under Section 4.1, the number, kind and/or price of Shares subject to outstanding Awards granted under the Plan, the Award limits set forth in subsections 4.1(a) through 4.1(f) and the terms of Awards, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

Article 5. Eligibility and Participation

5.1. Eligibility. Persons eligible to participate in the Plan include all Employees, including Employees who are members of the Board, all Directors and all Agents.

5.2. Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Employees, Directors and Agents, those to whom Awards shall be granted and shall determine the nature and amount of each Award.

Article 6. Options

6.1. Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.

6.2. Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Exercise Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement also shall specify whether the Option is intended to be an ISO or an NQSO.

6.3. Exercise Price. The Exercise Price for each grant of an Option under the Plan shall be at least equal to one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.

6.4. Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, that no Option shall be exercisable later than the tenth (10th) anniversary date of its grant.

6.5. Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such restrictions and conditions as set forth in the Award Agreement and as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant. Options which are intended to be ISOs shall be subject to the limitation set forth in Code Section 422(d).

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6.6. Payment. Options granted under this Article 6 shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.

The Exercise Price of an Option shall be payable to the Company in full: (a) in cash or its equivalent, (b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Exercise Price (provided that the Shares, other than Shares purchased by the Participant on the open market, which are tendered must have been held by the Participant for at least six (6) months prior to their tender to satisfy the Exercise Price), (c) by broker-assisted cashless exercise or (d) by a combination of (a), (b) and/or (c).

Subject to any governing rules or regulations, as soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver Shares in an appropriate amount based upon the number of Shares purchased under the Option(s).

6.7. Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.8. Termination of Employment or Service. Each Participant’s Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following termination of the Participant’s employment or, if the Participant is a Director or Agent, service with the Company and its Affiliates. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options granted pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment or service.

6.9. Nontransferability of Options.

(a) Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.

(b) Nonqualified Stock Options. Except as otherwise provided in a Participant’s Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, all NQSOs granted to a

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Participant under this Article 6 shall be exercisable during his or her lifetime only by such Participant.

Article 7. Stock Appreciation Rights

7.1. Grant of SARs. Subject to the terms and provisions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SAR.

The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.

The grant price of a Freestanding SAR shall equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of a Tandem SAR shall equal the Exercise Price of the related Option.

7.2. Exercise of Tandem SARs. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. To the extent exercisable, Tandem SARs may be exercised for all or part of the Shares subject to the related Option. The exercise of all or part of a Tandem SAR shall result in the forfeiture of the right to purchase a number of Shares under the related Option equal to the number of Shares with respect to which the SAR is exercised. Conversely, upon exercise of all or part of an Option with respect to which a Tandem SAR has been granted, an equivalent portion of the Tandem SAR shall similarly be forfeited.

Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will expire no later than the expiration of the underlying ISO; (ii) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Exercise Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Exercise Price of the ISO.

7.3. Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them and sets forth in the Award Agreement.

7.4. SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.

7.5. Term of SARs. The term of an SAR granted under the Plan shall be determined by the Committee, in its sole discretion; provided, however, that such term shall not exceed ten (10) years.

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7.6. Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a) the difference between the Fair Market Value of a Share on the date of exercise over the grant price; by

(b) the number of Shares with respect to which the SAR is exercised.

At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

7.7. Termination of Employment or Service. Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following termination of the Participant’s employment or, if the Participant is a Director or Agent, service with the Company and its Affiliates. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all SARs granted pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment or service.

7.8. Nontransferability of SARs. Except as otherwise provided in a Participant’s Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.

Article 8. Restricted Stock

8.1. Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.

8.2. Restricted Stock Agreement. Each Restricted Stock grant shall be evidenced by a Restricted Stock Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.

8.3. Transferability. Except as otherwise provided in a Participant’s Award Agreement, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Award Agreement, and all rights with respect to the Restricted Stock granted to a Participant under the Plan shall be available during his or her lifetime only to such Participant.

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8.4. Other Restrictions. The Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable, including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance measures, time-based restrictions on vesting following the attainment of the performance measures, and/or restrictions under applicable federal or state securities laws.

The Company shall retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied.

8.5. Voting Rights. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares.

8.6. Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may be credited with regular dividends paid with respect to the underlying Shares while they are so held. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if it is intended that an Award of Restricted Stock comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Restricted Stock, such that the dividends and/or the Restricted Stock maintain eligibility for the Performance-Based Exception.

8.7. Termination of Employment or Service. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Restricted Stock following termination of the Participant’s employment or, if the Participant is a Director or Agent, service with the Company and its Affiliates. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Awards of Restricted Stock granted pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment or service.

Article 9. Performance Units and Performance Shares

9.1. Grant of Performance Units/Shares. Subject to the terms and provisions of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee and as shall be set forth in the Award Agreement.

9.2. Performance Unit/Share Agreements. Each Performance Unit/Share grant shall be evidenced by an Award Agreement that shall specify the applicable Performance Period(s), the initial value of the Performance Units, the applicable performance measures and such other provisions as the Committee shall

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determine. The initial value of a Performance Share shall equal the Fair Market Value of a Share on the date of grant.

9.3. Earning of Performance Units/Shares. Subject to the terms of the Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and value of Performance Units/Shares earned by him or her over the Performance Period, to be determined as a function of the extent to which the corresponding performance measures have been achieved.

9.4. Form and Timing of Payment of Performance Units/Shares. Payment of earned Performance Units/Shares shall be made following the close of the applicable Performance Period, either in a single lump sum or over a period of time, as determined by the Committee. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Units/Shares in cash or in Shares (or in a combination thereof), which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period. Such Shares may be subject to any restrictions deemed appropriate by the Committee and set forth in the Award Agreement.

9.5. Dividend Equivalents. At the discretion of the Committee, an Award of Performance Units/Shares may provide the Participant with the right to receive dividend equivalent payments, which payments may be either made currently or credited to an account for the Participant, and may be settled in cash and/or Shares, as determined by the Committee in its sole discretion, subject in each case to such terms and conditions as the Committee shall establish. Without limiting the generality of the preceding sentence, if it is intended that an Award of Performance Units/Shares comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividend equivalents awarded with respect to such Performance Units/Shares, such that the dividend equivalents and/or the Performance Units/Shares maintain eligibility for the Performance-Based Exception.

9.6. Termination of Employment or Service. Each Performance Unit/Share Award Agreement shall set forth the extent to which the Participant shall have the right to receive a payout respecting the Award following termination of the Participant’s employment or, if the Participant is a Director or Agent, service with the Company and its Affiliates. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Awards of Performance Units/Shares granted pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment or service.

9.7. Nontransferability. Except as otherwise provided in a Participant’s Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.

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Article 10. NVA Target Award Opportunities

10.1. Grant of NVA Target Award Opportunities. Subject to the terms and provisions of the Plan, NVA Target Award Opportunities may be granted to Participants in such amounts, at any time and from time to time, and upon such terms and conditions as shall be determined by the Committee.

10.2. NVA Target Award Opportunity Award Agreements. Each grant of an NVA Target Award Opportunity shall be evidenced by an Award Agreement that shall specify the terms of the NVA Target Award Opportunity, including, without limitation, the Performance Period, the performance goals relating to economic value added and adjusted net income after capital charge of the Enterprise that must be achieved for the Participant to become entitled to a credit/debit to his or her NVA Award Bank and/or to receive a payment (or payments), the potential payout opportunities, the methodology that will be used to determine the payment(s), if any, earned by the Participant and such other provisions as the Committee shall determine.

10.3. NVA Award Banks. Subject to the terms of the Plan and the Participant’s Award Agreement, the Company will maintain a bookkeeping account (the “NVA Award Bank”) in the name of each Participant who receives an NVA Target Award Opportunity and, based on the level of achievement of pre-established performance goals relating to economic value added and adjusted net income after capital charge of the Enterprise, will annually credit (or debit) the Participant’s NVA Award Bank accordingly.

10.4. Form and Timing of Payment of NVA Target Award Opportunities. Subject to the terms of the Plan and the Participant’s Award Agreement, a Participant will be entitled to receive a distribution of a portion of any positive balance in his or her NVA Award Bank at or as soon as practicable after the end of a Performance Period. No payment will be made if a Participant’s NVA Award Bank has a negative balance; however, in no event will a Participant be obligated to make a payment to the Company (or repay an amount previously distributed) because of a negative balance in the Participant’s NVA Award Bank. Subject to the terms of the Plan, the Committee, in its sole discretion, may make payment(s) in cash or Shares (or in a combination thereof).

10.5. Termination of Employment or Service. Each Participant’s NVA Target Award Opportunity Award Agreement shall set forth the extent to which the Participant shall have the right to receive a payout with respect to the NVA Target Award Opportunity following termination of employment or, if the Participant is a Director or Agent, termination of service. Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all NVA Target Award Opportunities granted pursuant to the Plan, and may reflect distinctions based on the reasons for termination of employment or service.

10.6. Small Amounts. To the extent that the balance in a Participant’s NVA Award Bank is less than $50,000 at the time of the Participant’s Termination of Employment, the Committee, in its sole discretion, may approve payment to the

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Participant of the entire balance of the NVA Award Bank in the form and time specified in Section 10.4 above. This provision does not apply in the event that the Participant meets the definition of Retirement or Disability at the time of Termination of Employment.

10.7. Nontransferability. Except as otherwise provided in a Participant’s Award Agreement, no interest in a Participant’s NVA Target Award Opportunity may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.

Article 11. Performance Measures

Unless and until the Company proposes for shareholder vote and shareholders approve a change in the general performance measures set forth in this Article 11, the attainment of which may determine the degree of payout and/or vesting with respect to Awards (including any related dividends or dividend equivalents) to Named Executive Officers which are designed to qualify for the Performance-Based Exception, or to other Awards under the Plan, the performance measure(s) to be used for purposes of such grants shall be chosen from among earnings per share, economic value added, market share (actual or targeted growth), net income (before or after taxes), operating income, adjusted net income after capital charge, return on assets (actual or targeted growth), return on capital (actual or targeted growth), return on equity (actual or targeted growth), return on investment (actual or targeted growth), revenue (actual or targeted growth), share price, stock price growth, or total shareholder return. Awards (including any related dividends or dividend equivalents) that are not intended to qualify for the Performance-Based Exception may be based on these or such other performance measures as the Committee may determine.

The Committee shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance measures; provided, however, that Awards which are designed to qualify for the Performance-Based Exception may not be adjusted upward (the Committee shall retain the discretion to adjust such Awards downward).

In the event that applicable tax and/or securities laws change to permit Board and/or Committee discretion to alter the governing performance measures without obtaining shareholder approval of such changes, the Board and/or Committee shall have discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Board and/or Committee determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, such grants may be made without satisfying the requirements of the Performance-Based Exception.

Article 12. Beneficiary Designation

Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all

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of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing during the Participant’s lifetime with the Committee. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

Article 13. Deferrals

If permitted by the Committee, a Participant may be eligible to elect to defer receipt of amounts that would otherwise be provided to such Participant with respect to an Award under the Plan. If permitted, such deferral (and the required deferral election) shall be made in accordance with, and shall be subject to, the terms and conditions of the applicable deferred compensation plan under which such deferral is made and such other terms and conditions as the Committee may impose.

Article 14. Rights of Participants

14.1. Continued Service. Nothing in the Plan shall:

(a) interfere with or limit in any way the right of the Company or an Affiliate to terminate any Participant’s employment or service at any time,

(b) confer upon any Participant any right to continue in the employ or service of the Company or any of its Affiliates, nor

(c) confer on any Director any right to continue to serve on the Board of Directors of the Company or any of its Affiliates.

14.2. Participation. No Employee, Director or Agent shall have the right to be selected to receive an Award under the Plan, or, having been so selected, to be selected to receive a future Award.

Article 15. Change in Control

15.1. Treatment of Outstanding Awards. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges:

(a) Any and all Options and SARs granted hereunder shall become immediately exercisable, and shall remain exercisable throughout their entire term;

(b) Any restriction periods and restrictions imposed on Restricted Stock shall lapse;

(c) The target payout opportunities attainable under all outstanding Awards of Restricted Stock (if performance-based), Performance

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Units, Performance Shares and NVA Target Award Opportunities shall be deemed to have been fully earned for the entire Performance Period(s) as of the date the Change in Control occurs. The vesting of all Awards denominated in Shares shall be accelerated as of the effective date of the Change in Control, and there shall be paid out in cash to Participants, with respect to Awards which are payable in cash, within thirty (30) days following the effective date of the Change in Control a pro rata amount based upon an assumed achievement of all relevant performance measures and upon the length of time within the Performance Period which has elapsed prior to the Change in Control.

15.2. Termination, Amendment, and Modifications of Change-in-Control Provisions. Notwithstanding any other provision of the Plan or any Award Agreement provision, the provisions of this Article 15 may not be terminated, amended, or modified on or after the date of a Change in Control to affect adversely any Award theretofore granted under the Plan without the prior written consent of the Participant with respect to said Participant’s outstanding Awards; provided, however, the Board of Directors, upon recommendation of the Committee, may terminate, amend, or modify this Article 15 at any time and from time to time prior to the date of a Change in Control. This Section 15.2 shall not operate to reduce any rights granted to a Participant under Section 16.3.

Article 16. Amendment, Modification, and Termination

16.1. Amendment, Modification, and Termination. The Board may at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part; provided, however, that no amendment which requires shareholder approval in order for the Plan to continue to comply with the New York Stock Exchange listing standards or any rule promulgated by the United States Securities and Exchange Commission or any securities exchange on which the securities of the Company are listed, shall be effective unless such amendment shall be approved by the requisite vote of shareholders of the Company entitled to vote thereon.

16.2. Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.2 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

16.3. Awards Previously Granted. No termination, amendment or modification of the Plan or of any Award shall adversely affect in any material way any Award previously granted under the Plan without the written consent of the Participant

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holding such Award, unless such termination, modification or amendment is required by applicable law and except as otherwise provided herein.

16.4. Compliance with the Performance-Based Exception. If changes are made to Code Section 162(m) or regulations promulgated thereunder to permit greater flexibility with respect to any Award or Awards available under the Plan, the Committee may, subject to this Article 16, make any adjustments to the Plan and/or Award Agreements it deems appropriate.

Article 17. Withholding

17.1. Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.

17.2. Use of Shares to Satisfy Withholding Obligation. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock, or upon any other taxable event arising as a result of Awards granted hereunder, Participants may elect that the withholding requirement be satisfied, in whole or in part, by having the Company withhold, or by tendering to the Company, Shares having a Fair Market Value equal to the minimum statutory withholding (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes) that could be imposed on the transaction. Any such elections by a Participant shall be irrevocable, made in writing and signed by the Participant. In addition, Shares having a Fair Market Value equal to the minimum statutory withholding (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes) that could be imposed on the transaction shall automatically be withheld from an Award if and to the extent a Participant fails to timely satisfy a tax withholding obligation related to the Award.

Article 18. Indemnification

Each person who is or shall have been a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company to the fullest extent permitted by Delaware law against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company’s approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification is subject to the person having been successful in the legal proceedings or having acted in good faith and what is reasonably believed to be a lawful manner in the Company’s best interests. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be

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entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

Article 19. Successors

All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or other event, or a sale or disposition of all or substantially all of the business and/or assets of the Company.

Article 20. Legal Construction

20.1. Gender, Number and References. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. Any reference in the Plan to an act or code or to any section thereof or rule or regulation thereunder shall be deemed to refer to such act, code, section, rule or regulation, as may be amended from time to time, or to any successor act, code, section, rule or regulation.

20.2. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

20.3. Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.

20.4. Governing Law. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the state of Delaware.

Amended and Restated March, 2000, to increase the number of shares under the plan from 2,600,000 to 6,100,000 and to add 162(m) provisions

Approved by the Shareholders May 3, 2000

Amended and Restated February 27, 2002, to add insurance agents, increase the number of shares available under the plan from 6,100,000 to 20,100,000, remove the plan’s ten year term (other than for ISOs), and to increase 162(m) limits

Approved by the Shareholders May 8, 2002

Amended and Restated January 1, 2004, to add NVA awards and to designate 162(m) limits for NVA awards, dividends and dividend equivalents

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Approved by the Shareholders May 5, 2004

Amended and Restated January 1, 2008, to add Committee discretion to reduce or eliminate Award payments, to add a de minimis distribution for NVA provision to add a definition of Termination of Employment, and to change the definition of Disability

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EX-10.9.1

Exhibit 10.9.1

FIRST AMENDMENT to the

Nationwide Financial Services, Inc.

1996 Long-Term Equity Compensation Plan

Fourth Amended and Restated Version of January 1, 2008

It is hereby understood and agreed that the Nationwide Financial Services, Inc. 1996 Long-Term Equity Compensation Plan Fourth Amended and Restated Version of January 1, 2008 (“Plan”), is further amended, as follows:

Effective February 16, 2009, Section 1.3 is restated as:

1.3 Duration of the Plan. The Plan commenced on the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Committee to amend or terminate the Plan at any time pursuant to Article 16 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions. However, in no event may an Award of Incentive Stock Options be granted under the Plan on or after February 27, 2012.

Effective February 16, 2009 the definition of “Committee” is restated as follows:

2.9 “Committee” means the Human Resources Committee of the Nationwide Corporation Board of Directors.

Effective February 16, 2009, Section 3.1 is restated as:

3.1 The Committee. The Plan shall be administered by the Committee. The members of the Committee shall serve at the discretion of the Board of Directors of Nationwide Corporation.

EX-12

Exhibit 12

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Statement Regarding Computation of (Loss) Earnings to Fixed Charges

(in millions)

	Years ended December 31,
	2008			2007		2006		2005		2004
(Loss) Earnings:
(Loss) earnings from continuing operations before federal income tax (benefit) expense	$	(1,367.9	)	$	800.4	$	799.3	$	780.4	$	700.5
Fixed charges		1,316.1			1,462.8		1,484.6		1,510.4		1,430.5
	$	(51.8	)	$	2,263.2	$	2,283.9	$	2,290.8	$	2,131.0
Fixed Charges:
Interest credited to policyholder accounts	$	1,210.5		$	1,342.0	$	1,381.5	$	1,380.9	$	1,328.3
Interest expense		105.6			110.6		103.1		107.6		102.4
Debt extinguishment costs		—			10.2		—		21.7		—
	$	1,316.1		$	1,462.8	$	1,484.6	$	1,510.2	$	1,430.7
Ratio of (loss) earnings to fixed charges		(0.0	)		1.5		1.5		1.5		1.5
Ratio of (loss) earnings to fixed charges, excluding interest credited to policyholder accounts		(12.0	)		7.6		8.8		7.0		7.8

EX-21

Exhibit 21

NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Subsidiaries of the Registrant

As of December 31, 2008

The following list includes subsidiaries of Nationwide Financial Services, Inc. Subsidiaries of subsidiaries are indicated by indentations. All subsidiaries are wholly-owned unless otherwise indicated.

Subsidiary	State of Incorporation or Organization
Nationwide Life Insurance Company	Ohio
Nationwide Life and Annuity Insurance Company	Ohio
Nationwide Investment Services Corporation	Oklahoma
Nationwide Financial Assignment Company	Ohio
Nationwide Investment Advisors LLC	Ohio
Nationwide Community Development Corporation, LLC (67% owned)	Ohio
Life REO Holdings LLC	Ohio
Nationwide Life Insurance Company of America	Pennsylvania
Nationwide Life and Annuity Company of America	Delaware
Nationwide Provident Holding Company	Pennsylvania
Nationwide Securities LLC	Delaware
Washington Square Administrative Services, Inc.	Pennsylvania
1717 Brokerage Services, Inc.	Pennsylvania
Nationwide Financial Services Capital Trust	Delaware
Nationwide Bank	Federal Incorporation
Nationwide Financial Structured Products, LLC	Ohio
TBG Danco Insurance Services Corporation	California
NF Reinsurance Ltd.	Bermuda
Nationwide Fund Advisors	Delaware
NFS Distributors, Inc.	Delaware
Nationwide Fund Management LLC	Delaware
Nationwide Fund Distributors LLC	Delaware
Nationwide Retirement Solutions, Inc.	Delaware
Nationwide Retirement Solutions, Inc. of Arizona	Arizona
Nationwide Retirement Solutions Insurance Agency, Inc.	Massachusetts
Nationwide Retirement Solutions, Inc. of Ohio	Ohio
Nationwide Retirement Solutions, Inc. of Texas	Texas
Nationwide Financial Institution Distributors Agency, Inc.	Delaware
Pension Associates, Inc.	Wisconsin
Registered Investment Advisors Services, Inc., d/b/a RIA Services, Inc.	Texas

All business operations of Nationwide Financial Services, Inc. and all of its subsidiaries are conducted using each company’s legally registered name, except for Registered Investment Advisors, Inc. d/b/a RIA Services, Inc.

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholder

Nationwide Financial Services, Inc:

We consent to the incorporation by reference in the registration statement (No. 333-132910) on Form S-3 and (No. 333-110628) on Form S-8 of Nationwide Financial Services, Inc. of our reports dated March 2, 2009, with respect to the consolidated balance sheets of Nationwide Financial Services, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of (loss) income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2008, and all related financial statement schedules, and the effectiveness of internal control over financial reporting as of December 31, 2008, which reports appear in the December 31, 2008 annual report on Form 10-K of Nationwide Financial Services, Inc. Our report with respect to the financial statements refers to the Company’s adoption of the American Institute of Certified Public Accountants’ Statement of Position 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts, in 2007.

/s/ KPMG LLP

Columbus, Ohio

March 2, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Mark R. Thresher, certify that:

1. I have reviewed this report on Form 10-K of Nationwide Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2009

/s/ Mark R. Thresher
Name: Mark R. Thresher
Title: President and Chief Operating Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Timothy G. Frommeyer, certify that:

1. I have reviewed this report on Form 10-K of Nationwide Financial Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 2, 2009

/s/ Timothy G. Frommeyer

Name: Timothy G. Frommeyer

Title: Senior Vice President – Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Nationwide Financial Services, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark R. Thresher, President and Chief Operating Officer (Principal Executive Officer) of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 2, 2009

/s/ Mark R. Thresher

Name: Mark R. Thresher

Title: President and Chief Operating Officer

          (Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to Nationwide Financial Services, Inc. and will be retained by Nationwide Financial Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Nationwide Financial Services, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Timothy G. Frommeyer, Senior Vice President – Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 2, 2009

/s/ Timothy G. Frommeyer

Name: Timothy G. Frommeyer

Title: Senior Vice President – Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Nationwide Financial Services, Inc. and will be retained by Nationwide Financial Services, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.