N-30D 1 dn30d.txt NATIONWIDE VARIABLE ACCOUNT 11 (811-10591) [LOGO] Nationwide(R) NATIONWIDE(R) VARIABLE ACCOUNT-11 Semi-Annual Report to Contract Owners June 30, 2004 NATIONWIDE LIFE INSURANCE COMPANY HOME OFFICE: COLUMBUS, OHIO APO-5396-6/04 [LOGO] Nationwide(R) NATIONWIDE LIFE INSURANCE COMPANY ONE NATIONWIDE PLAZA, COLUMBUS, OHIO 43215-2220 [PHOTO] PRESIDENT'S MESSAGE We are pleased to bring you the 2004 semi-annual report of the Nationwide Variable Account-11. The performance of equity investments slowed during the first half of 2004 from their strong showing of the prior year. The recent volatility in energy prices and the resulting general economic uncertainty have helped keep a damper on stock prices. The Federal Reserve, on the other hand, is more optimistic in its economic outlook and has affirmed its view with two quarter-point increases in short term interest rates. We don't know the immediate resolution to these apparent conflicts, except that with the passing of time both positions will be supportable. We also know that an accurate forecast of the near-term direction of the stock market is further complicated by the unpredictability of events in this presidential election year. In the meantime, we believe you are well positioned with your variable contract, and its varied array of investment options, to diversify your holdings to meet changing economic and market conditions. We are pleased you have chosen Nationwide and our investment products to help you achieve your financial planning and retirement objectives. /s/ Mark R. Thresher --------------------------- Mark R. Thresher, President August 16, 2004 2 How to Read the Semi-Annual Report This semi-annual report is a presentation of the variable account as a whole and only describes the underlying contracts and products of the variable account in general terms. Please note the variable account may have more than one variable product available. Such products may have different underlying mutual funds available from those available in your contract. Therefore, not all funds listed in this report may be available in your contract. Please refer to your most recent account statement for specific information about your investment in the Nationwide Variable Account-11. Rules and regulations of the U.S. Securities and Exchange Commission and recognized conventions of accounting principles generally accepted in the United States of America prescribe the format and content of this report. We also invite you to call our service center at 1-866-322-2331 if you have questions about your account, or you may access your account using our voice response unit. And, please visit our web-site at www.nwannuities.com/secure/federated for additional information about your contract and to learn more about other products and services offered by Nationwide Financial. The Semi-Annual Report has four major financial sections: Statement of Assets, Liabilities and Contract Owners' Equity This statement begins on page 4 and lists all of the underlying mutual funds of the variable account, the number of shares owned, the amount paid for the shares and their fair value as of the close of business on June 30, 2004. The mutual funds are listed in alphabetical order. The fair value of the assets changes as the underlying mutual funds change in value. As contract owners make exchange transactions between the funds, the number of shares increases or decreases accordingly. When money is deposited or withdrawn by a contract owner, shares are correspondingly purchased or redeemed. The total fair value of the funds is equal to the Total investments of the variable account. Accounts receivable, if applicable, represents an asset of the variable account for fund shares purchased by contract owners and reinvested dividend shares added to contract owners' accounts, but not yet added to Total investments. Total investments plus Accounts receivable equal Total assets of the variable account. Accounts payable, if applicable, is a liability of the variable account for fund shares redeemed by contract owners but not yet deducted from Total investments. The Accounts receivable and Accounts payable balances are aggregated and presented as a net amount. Total assets minus Accounts payable equals Contract owners' equity. A summary of Contract owners' equity by fund series may be found on page 13. This summary also includes certain performance measures for each fund series for the periods indicated. Statements of Operations, Statements of Changes in Contract Owners' Equity These statements begin on page 5 and present the financial activity of each underlying mutual fund sub-account of the variable account, for the periods indicated. The Statements of Operations show income and expenses to the variable account from Investment activity for reinvested dividends and capital gain distributions paid by the underlying mutual funds; and expenses included are the mortality, expense and, if applicable, an administration charge, which are assessed through the daily unit value calculation and that represent an expense to the variable account and its contract owners. This statement also shows the realized gain or loss as mutual fund shares are sold, and the change in unrealized gain or loss, which represents the changes in fair value of the underlying fund shares. The Statements of Changes in Contract Owners' Equity includes Investment activity for income and expenses shown on the Statements of Operations. In addition, the Equity transactions section of this statement illustrates the receipt of purchase payments, as new contracts are sold or additional payments are made to existing contracts. Also presented are deductions from the variable account when the contract owners withdraw money, as well as related contract level charges. The sum of the above two sections represents the Net change in contract owners' equity which, when added to the beginning Contract owners' equity, equals Contract owners' equity at the end of the reporting period. The Changes in Units section illustrates the number of units purchased and redeemed for each mutual fund sub-account during the period reported. Notes to Financial Statements, beginning on page 10, provide further disclosures about the variable account and its underlying contract provisions. 3 -------------------------------------------------------------------------------- NATIONWIDE VARIABLE ACCOUNT-11 STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS' EQUITY June 30, 2004 (UNAUDITED) Assets: Investments at fair value: Federated IS - American Leaders Fund II - Primary Shares (FedAmLead) 317,020 shares (cost $5,164,999) ...................................... $ 6,137,515 Federated IS - Capital Appreciation Fund II - Primary Shares (FedCapAp) 777,530 shares (cost $3,737,733) ...................................... 4,291,963 Federated IS - Capital Income Fund II (FedCapInc) 45,623 shares (cost $358,288) ......................................... 369,094 Federated IS - Equity Income Fund II (FedEqInc) 316,467 shares (cost $3,393,847) ...................................... 3,870,391 Federated IS - Fund for US Government Securities II (FedGvtSec) 67,140 shares (cost $788,396) ......................................... 753,308 Federated IS - Growth Strategies Fund II (FedGrStrat) 15,876 shares (cost $276,274) ......................................... 303,550 Federated IS - High Income Bond Fund II-Primary Shares (FedHiInc) 307,900 shares (cost $2,286,124) ...................................... 2,336,963 Federated IS - International Equity Fund II (FedIntEq) 36,274 shares (cost $395,585) ......................................... 431,666 Federated IS - Kaufmann Fund II - Primary Shares (FedKaufmann) 313,083 shares (cost $3,116,874) ...................................... 3,756,991 Federated IS - Prime Money Fund II (FedPriMy) 360,224 shares (cost $360,224) ........................................ 360,224 Federated IS - Quality Bond Fund II - Primary Shares (FedQualBd) 105,059 shares (cost $1,227,164) ...................................... 1,182,962 Federated IS - Total Return Bond Fund II (FedTotRe) 245,365 shares (cost $2,470,279) ...................................... 2,419,302 ----------- Total investments .................................................. 26,213,929 Accounts receivable ......................................................... 271 ----------- Total assets ....................................................... 26,214,200 Accounts payable ............................................................... -- ----------- Contract owners' equity (note 4) ............................................... $26,214,200 ===========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 4 -------------------------------------------------------------------------------- NATIONWIDE VARIABLE ACCOUNT-11 STATEMENTS OF OPERATIONS Six Month Period Ended June 30, 2004 (UNAUDITED)
Total FedAmLead FedCapAp FedCapInc ----------- --------- -------- --------- Investment activity: Reinvested dividends .......................... $ 535,574 82,943 23,622 15,943 Mortality and expense risk charges (note 2) ... (134,037) (30,531) (21,500) (1,685) ----------- ------- ------- ------- Net investment income (loss) ............... 401,537 52,412 2,122 14,258 ----------- ------- ------- ------- Proceeds from mutual fund shares sold ......... 1,247,756 113,610 102,660 1,948 Cost of mutual fund shares sold ............... (1,007,952) (90,887) (80,152) (1,809) ----------- ------- ------- ------- Realized gain (loss) on investments ........ 239,804 22,723 22,508 139 Change in unrealized gain (loss) on investments ............................. (208,192) 54,474 20,455 (15,876) ----------- ------- ------- ------- Net gain (loss) on investments ............. 31,612 77,197 42,963 (15,737) ----------- ------- ------- ------- Reinvested capital gains ...................... 13,996 -- -- -- ----------- ------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 447,145 129,609 45,085 (1,479) =========== ======= ======= ======= FedEqInc FedGvtSec FedGrStrat FedHiInc -------- --------- ---------- -------- Investment activity: Reinvested dividends .......................... 71,711 34,881 -- 162,594 Mortality and expense risk charges (note 2) ... (19,563) (4,647) (1,771) (12,340) -------- ------- ------- -------- Net investment income (loss) ............... 52,148 30,234 (1,771) 150,254 -------- ------- ------- -------- Proceeds from mutual fund shares sold ......... 191,937 47,512 70,852 93,646 Cost of mutual fund shares sold ............... (148,192) (49,452) (51,420) (85,085) -------- ------- ------- -------- Realized gain (loss) on investments ........ 43,745 (1,940) 19,432 8,561 Change in unrealized gain (loss) on investments ............................. (12,196) (35,261) (9,760) (122,184) -------- ------- ------- -------- Net gain (loss) on investments ............. 31,549 (37,201) 9,672 (113,623) -------- ------- ------- -------- Reinvested capital gains ...................... -- 4,073 -- -- -------- ------- ------- -------- Net increase (decrease) in contract owners' equity resulting from operations ........ 83,697 (2,894) 7,901 36,631 ======== ======= ======= ========
FedIntEq FedIntSmCo FedKaufmann -------- ---------- ----------- Investment activity: Reinvested dividends .......................... $ -- -- -- Mortality and expense risk charges (note 2) ... (2,338) -- (19,678) -------- --- -------- Net investment income (loss) ............... (2,338) -- (19,678) -------- --- -------- Proceeds from mutual fund shares sold ......... 71,373 5 359,755 Cost of mutual fund shares sold ............... (55,862) (4) (250,185) -------- --- -------- Realized gain (loss) on investments ........ 15,511 1 109,570 Change in unrealized gain (loss) on investments ............................. (10,420) 3 70,206 -------- --- -------- Net gain (loss) on investments ............. 5,091 4 179,776 -------- --- -------- Reinvested capital gains ...................... -- -- 221 -------- --- -------- Net increase (decrease) in contract owners' equity resulting from operations ........ $ 2,753 4 160,319 ======== === ========
FedPriMy FedQualBd FedTotRe -------- --------- -------- Investment activity: Reinvested dividends .......................... 735 44,202 98,943 Mortality and expense risk charges (note 2) ... (1,761) (6,077) (12,146) ------- ------- ------- Net investment income (loss) ............... (1,026) 38,125 86,797 ------- ------- ------- Proceeds from mutual fund shares sold ......... 85,464 27,561 81,433 Cost of mutual fund shares sold ............... (85,464) (27,174) (82,266) ------- ------- ------- Realized gain (loss) on investments ........ -- 387 (833) Change in unrealized gain (loss) on investments ............................. -- (57,844) (89,789) ------- ------- ------- Net gain (loss) on investments ............. -- (57,457) (90,622) ------- ------- ------- Reinvested capital gains ...................... -- 9,702 -- ------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations ........ (1,026) (9,630) (3,825) ======= ======= =======
See accompanying notes to financial statements. 5 -------------------------------------------------------------------------------- NATIONWIDE VARIABLE ACCOUNT-11 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY Six Month Periods Ended June 30, 2004 and 2003 (UNAUDITED)
Total FedAmLead ------------------------ --------------------- 2004 2003 2004 2003 ----------- ---------- --------- --------- Investment activity: Net investment income (loss) ............... $ 401,537 92,595 52,412 20,287 Realized gain (loss) on investments ........ 239,804 6,922 22,723 1,328 Change in unrealized gain (loss) on investments .......................... (208,192) 828,021 54,474 238,872 Reinvested capital gains ................... 13,996 2,265 -- -- ----------- ---------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 447,145 929,803 129,609 260,487 ----------- ---------- --------- --------- Equity transactions: Purchase payments received from contract owners (note 3) ................ 2,720,682 7,292,135 535,731 1,650,389 Transfers between funds .................... -- -- 60,242 (25,455) Redemptions (note 3) ....................... (609,153) (285,689) (164,944) (39,430) Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ (2,139) -- (430) -- Contingent deferred sales charges (note 2) ................................ (14,573) -- (3,726) -- Adjustments to maintain reserves ........... (1,825) 14 (750) 23 ----------- ---------- --------- --------- Net equity transactions .............. 2,092,992 7,006,460 426,123 1,585,527 ----------- ---------- --------- --------- Net change in contract owners' equity ......... 2,540,137 7,936,263 555,732 1,846,014 Contract owners' equity beginning of period .................................. 23,674,063 4,439,051 5,581,921 1,081,811 ----------- ---------- --------- --------- Contract owners' equity end of period ......... $26,214,200 12,375,314 6,137,653 2,927,825 =========== ========== ========= ========= CHANGES IN UNITS: Beginning units ............................ 2,199,770 502,491 532,185 130,404 ----------- ---------- --------- --------- Units purchased ............................ 321,587 826,860 56,469 203,426 Units redeemed ............................. (129,760) (56,450) (16,512) (12,466) ----------- ---------- --------- --------- Ending units ............................... 2,391,597 1,272,901 572,142 321,364 =========== ========== ========= ========= FedCapAp FedCapInc --------------------- ---------------- 2004 2003 2004 2003 --------- --------- ------- ------ Investment activity: Net investment income (loss) ............... 2,122 (250) 14,258 361 Realized gain (loss) on investments ........ 22,508 (203) 139 4 Change in unrealized gain (loss) on investments .......................... 20,455 148,159 (15,876) 4,610 Reinvested capital gains ................... -- -- -- -- --------- --------- ------- ------ Net increase (decrease) in contract owners' equity resulting from operations ........................... 45,085 147,706 (1,479) 4,975 --------- --------- ------- ------ Equity transactions: Purchase payments received from contract owners (note 3) ................ 381,343 1,055,066 63,358 76,523 Transfers between funds .................... 30,474 866 1,674 -- Redemptions (note 3) ....................... (119,870) (38,335) (707) -- Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ (427) -- (27) -- Contingent deferred sales charges (note 2) ................................ (2,940) -- -- -- Adjustments to maintain reserves ........... (307) 2 (10) 6 --------- --------- ------- ------ Net equity transactions .............. 288,273 1,017,599 64,288 76,529 --------- --------- ------- ------ Net change in contract owners' equity ......... 333,358 1,165,305 62,809 81,504 Contract owners' equity beginning of period .................................. 3,958,698 735,888 306,272 3,271 --------- --------- ------- ------ Contract owners' equity end of period ......... 4,292,056 1,901,193 369,081 84,775 ========= ========= ======= ====== CHANGES IN UNITS: Beginning units ............................ 383,347 87,434 30,435 389 --------- --------- ------- ------ Units purchased ............................ 39,401 130,318 6,394 8,904 Units redeemed ............................. (11,898) (10,206) (73) -- --------- --------- ------- ------ Ending units ............................... 410,850 207,546 36,756 9,293 ========= ========= ======= ======
6 NATIONWIDE VARIABLE ACCOUNT-11 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Six Month Periods Ended June 30, 2004 and 2003 (UNAUDITED)
FedEqInc FedGvtSec ---------------------- ----------------- 2004 2003 2004 2003 ---------- --------- ------- ------- Investment activity: Net investment income (loss) ............... $ 52,148 15,274 30,234 14,524 Realized gain (loss) on investments ........ 43,745 713 (1,940) (97) Change in unrealized gain (loss) on investments .......................... (12,196) 133,764 (35,261) (8,527) Reinvested capital gains ................... -- -- 4,073 2,265 ---------- --------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 83,697 149,751 (2,894) 8,165 ---------- --------- ------- ------- Equity transactions: Purchase payments received from contract owners (note 3) ................ 413,680 954,578 23,065 456,348 Transfers between funds .................... 18,057 14,235 (24,101) (5,858) Redemptions (note 3) ....................... (106,203) (38,820) (18,762) (3,491) Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ (287) -- (72) -- Contingent deferred sales charges (note 2) ................................ (1,538) -- (940) -- Adjustments to maintain reserves ........... 35 (4) 2 (14) ---------- --------- ------- ------- Net equity transactions .............. 323,744 929,989 (20,808) 446,985 ---------- --------- ------- ------- Net change in contract owners' equity ......... 407,441 1,079,740 (23,702) 455,150 Contract owners' equity beginning of period .................................. 3,463,008 528,005 777,002 265,283 ---------- --------- ------- ------- Contract owners' equity end of period ......... $3,870,449 1,607,745 753,300 720,433 ========== ========= ======= ======= CHANGES IN UNITS: Beginning units ............................ 322,353 61,927 73,085 25,237 ---------- --------- ------- ------- Units purchased ............................ 49,633 111,616 2,282 43,129 Units redeemed ............................. (19,732) (4,403) (4,242) (886) ---------- --------- ------- ------- Ending units ............................... 352,254 169,140 71,125 67,480 ========== ========= ======= ======= FedGrStrat FedHiInc ----------------- --------------------- 2004 2003 2004 2003 ------- ------- --------- --------- Investment activity: Net investment income (loss) ............... (1,771) (323) 150,254 43,325 Realized gain (loss) on investments ........ 19,432 20 8,561 474 Change in unrealized gain (loss) on investments .......................... (9,760) 11,364 (122,184) 35,929 Reinvested capital gains ................... -- -- -- -- ------- ------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 7,901 11,061 36,631 79,728 ------- ------- --------- --------- Equity transactions: Purchase payments received from contract owners (note 3) ................ 62,545 68,315 279,596 648,167 Transfers between funds .................... 3,720 -- (37,560) 22,230 Redemptions (note 3) ....................... (1,539) -- (41,107) (2,346) Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ -- -- (297) -- Contingent deferred sales charges (note 2) ................................ -- -- (912) -- Adjustments to maintain reserves ........... (10) (13) (573) 2 ------- ------- --------- --------- Net equity transactions .............. 64,716 68,302 199,147 668,053 ------- ------- --------- --------- Net change in contract owners' equity ......... 72,617 79,363 235,778 747,781 Contract owners' equity beginning of period .................................. 230,934 23,680 2,101,220 287,249 ------- ------- --------- --------- Contract owners' equity end of period ......... 303,551 103,043 2,336,998 1,035,030 ======= ======= ========= ========= CHANGES IN UNITS: Beginning units ............................ 20,498 2,917 179,584 29,703 ------- ------- --------- --------- Units purchased ............................ 11,668 8,087 25,841 66,484 Units redeemed ............................. (6,338) -- (8,943) (1,144) ------- ------- --------- --------- Ending units ............................... 25,828 11,004 196,482 95,043 ======= ======= ========= =========
(Continued) 7 NATIONWIDE VARIABLE ACCOUNT-11 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Six Month Periods Ended June 30, 2004 and 2003 (UNAUDITED)
FedIntEq FedIntSmCo ------------------ ------------- 2004 2003 2004 2003 -------- ------- ---- ------ Investment activity: Net investment income (loss) ............... $ (2,338) (628) -- (84) Realized gain (loss) on investments ........ 15,511 1,429 1 736 Change in unrealized gain (loss) on investments .......................... (10,420) 8,818 3 2,175 Reinvested capital gains ................... -- -- -- -- -------- ------- --- ------ Net increase (decrease) in contract owners' equity resulting from operations ........................... 2,753 9,619 4 2,827 -------- ------- --- ------ Equity transactions: Purchase payments received from contract owners (note 3) ................ 108,193 46,527 -- 6,844 Transfers between funds .................... 13,149 61 -- 10 Redemptions (note 3) ....................... (3,579) (36,623) -- -- Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ -- -- -- -- Contingent deferred sales charges (note 2) ................................ -- -- -- -- Adjustments to maintain reserves ........... 20 4 (4) (7) -------- ------- --- ------ Net equity transactions .............. 117,783 9,969 (4) 6,847 -------- ------- --- ------ Net change in contract owners' equity ......... 120,536 19,588 -- 9,674 Contract owners' equity beginning of period .................................. 311,114 95,360 -- 11,407 -------- ------- --- ------ Contract owners' equity end of period ......... $431,650 114,948 -- 21,081 ======== ======= === ====== CHANGES IN UNITS: Beginning units ............................ 30,778 12,310 -- 1,421 -------- ------- --- ------ Units purchased ............................ 18,226 6,198 -- 863 Units redeemed ............................. (7,163) (4,637) -- -- -------- ------- --- ------ Ending units ............................... 41,841 13,871 -- 2,284 ======== ======= === ====== FedKaufmann FedPriMy --------------------- ----------------- 2004 2003 2004 2003 --------- --------- ------- ------- Investment activity: Net investment income (loss) ............... (19,678) (5,932) (1,026) (439) Realized gain (loss) on investments ........ 109,570 2,287 -- -- Change in unrealized gain (loss) on investments .......................... 70,206 219,644 -- -- Reinvested capital gains ................... 221 -- -- -- --------- --------- ------- ------- Net increase (decrease) in contract owners' equity resulting from operations ........................... 160,319 215,999 (1,026) (439) --------- --------- ------- ------- Equity transactions: Purchase payments received from contract owners (note 3) ................ 427,189 704,638 10,000 449,322 Transfers between funds .................... (231,738) (25,386) 17,417 (84,073) Redemptions (note 3) ....................... (84,244) (39,760) -- (75,845) Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ (280) -- (11) -- Contingent deferred sales charges (note 2) ................................ (3,011) -- -- -- Adjustments to maintain reserves ........... (141) 15 (9) (3) --------- --------- ------- ------- Net equity transactions .............. 107,775 639,507 27,397 289,401 --------- --------- ------- ------- Net change in contract owners' equity ......... 268,094 855,506 26,371 288,962 Contract owners' equity beginning of period .................................. 3,488,946 650,601 333,850 36,577 --------- --------- ------- ------- Contract owners' equity end of period ......... 3,757,040 1,506,107 360,221 325,539 ========= ========= ======= ======= CHANGES IN UNITS: Beginning units ............................ 306,045 78,899 33,546 3,655 --------- --------- ------- ------- Units purchased ............................ 43,493 87,333 11,198 38,894 Units redeemed ............................. (34,848) (9,975) (8,415) (9,947) --------- --------- ------- ------- Ending units ............................... 314,690 156,257 36,329 32,602 ========= ========= ======= =======
8 NATIONWIDE VARIABLE ACCOUNT-11 STATEMENTS OF CHANGES IN CONTRACT OWNERS' EQUITY, Continued Six Month Periods Ended June 30, 2004 and 2003 (UNAUDITED)
FedQualBd FedTotRe -------------------- --------------------- 2004 2003 2004 2003 ---------- ------- --------- --------- Investment activity: Net investment income (loss) ............... $ 38,125 11,884 86,797 (5,404) Realized gain (loss) on investments ........ 387 196 (833) 35 Change in unrealized gain (loss) on investments .......................... (57,844) 6,914 (89,789) 26,299 Reinvested capital gains ................... 9,702 -- -- -- ---------- ------- --------- --------- Net increase (decrease) in contract owners' equity resulting from operations ........................... (9,630) 18,994 (3,825) 20,930 ---------- ------- --------- --------- Equity transactions: Purchase payments received from contract owners (note 3) ................ 154,619 429,720 261,363 745,698 Transfers between funds .................... 80,705 (7,439) 67,961 110,809 Redemptions (note 3) ....................... (18,414) (3,405) (49,784) (7,634) Annuity benefits ........................... -- -- -- -- Annual contract maintenance charges (note 2) ................................ (114) -- (194) -- Contingent deferred sales charges (note 2) ................................ (657) -- (849) -- Adjustments to maintain reserves ........... (35) (8) (43) 11 ---------- ------- --------- --------- Net equity transactions .............. 216,104 418,868 278,454 848,884 ---------- ------- --------- --------- Net change in contract owners' equity ......... 206,474 437,862 274,629 869,814 Contract owners' equity beginning of period .................................. 976,472 200,816 2,144,626 519,103 ---------- ------- --------- --------- Contract owners' equity end of period ......... $1,182,946 638,678 2,419,255 1,388,917 ========== ======= ========= ========= CHANGES IN UNITS: Beginning units ............................ 89,008 18,954 198,906 49,241 ---------- ------- --------- --------- Units purchased ............................ 22,150 39,991 34,832 81,617 Units redeemed ............................. (2,661) (1,133) (8,935) (1,653) ---------- ------- --------- --------- Ending units ............................... 108,497 57,812 224,803 129,205 ========== ======= ========= =========
See accompanying notes to financial statements. -------------------------------------------------------------------------------- 9 -------------------------------------------------------------------------------- NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS June 30, 2004 and 2003 (UNAUDITED) (1) Background and Summary of Significant Accounting Policies (a) Organization and Nature of Operations Nationwide Variable Account-11 (the Account) was established pursuant to a resolution of the Board of Directors of Nationwide Life Insurance Company (the Company) on December 15, 1999 and commenced operations on August 2, 2002. The Account is registered as a unit investment trust under the Investment Company Act of 1940. The Company offers Individual Deferred Variable Annuity Contracts through the Account. The contracts are distributed by the Company and marketed exclusively through Federated Investors. (b) The Contracts Contract owners in either the accumulation or payout phase may invest in any of the following: Portfolios of the Federated Insurance Series (Federated IS); Federated IS - American Leaders Fund II - Primary Shares (FedAmLead) Federated IS - Capital Appreciation Fund II - Primary Shares (FedCapAp) Federated IS - Capital Income Fund II (FedCapInc) Federated IS - Equity Income Fund II (FedEqInc) Federated IS - Fund for US Government Securities II (FedGvtSec) Federated IS - Growth Strategies Fund II (FedGrStrat) Federated IS - High Income Bond Fund II - Primary Shares (FedHiInc) Federated IS - International Equity Fund II (FedIntEq) Federated IS - International Small Company Fund II (FedIntSmCo)* Federated IS - Kaufmann Fund II (FedKaufmann) Federated IS - Prime Money Fund II (FedPriMy) Federated IS - Quality Bond Fund II - Primary Shares (FedQualBd) Federated IS - Total Return Bond Fund II (FedFedTotRe) Federated IS - Utility Fund II (FedUtility)* *At June 30, 2004, contract owners have not invested in this fund. The contract owners' equity is affected by the investment results of each fund, equity transactions by contract owners and certain contract expenses (see note 2). The accompanying financial statements include only contract owners' purchase payments pertaining to the variable portions of their contracts and exclude any purchase payments for fixed dollar benefits, the latter being included in the accounts of the Company. A contract owner may choose from among a number of different underlying mutual fund options. The underlying mutual fund options are not available to the general public directly. The underlying mutual funds are available as investment options in variable life insurance policies or variable annuity contracts issued by life insurance companies or, in some cases, through participation in certain qualified pension or retirement plans. Some of the underlying mutual funds have been established by investment advisers which manage publicly traded mutual funds having similar names and investment objectives. While some of the underlying mutual funds may be similar to, and may in fact be modeled after, publicly traded mutual funds, the underlying mutual funds are not otherwise directly related to any publicly traded mutual fund. Consequently, the investment performance of publicly traded mutual funds and any corresponding underlying mutual funds may differ substantially. (c) Security Valuation, Transactions and Related Investment Income The fair value of the underlying mutual funds is based on the closing net asset value per share at June 30, 2004. The cost of investments sold is determined on a specific identification basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. 10 NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS) (d) Federal Income Taxes Operations of the Account form a part of, and are taxed with, operations of the Company which is taxed as a life insurance company under the Internal Revenue Code. The Company does not provide for income taxes within the Account. Taxes are the responsibility of the contract owner upon termination or withdrawal. (e) Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (2) Expenses For Premium Deferred Variable Annuity contracts, the Company does not deduct a sales charge from purchase payments received from the contract owners. However, if any part of the contract value of such contracts is surrendered, the Company will, with certain exceptions, deduct from a contract owners' contract value a contingent deferred sales charge not to exceed 7% of the lesser of purchase payments or the amount surrendered. This charge declines 1% per year to 0% after the purchase payment has been held in the contract for 84 months. No sales charges are deducted on redemptions used to purchase units in the fixed investment options of the Company. For the Deferred Variable Annuity contracts, a sales charge of up to 5.5% is deducted from the amount of the purchase payments. The sales charge declines based upon the amount of the cumulative qualifying purchase payment, which may include certain deposits made to other qualifying investments in addition to the deposits made to the contract. An additional sales charge of 0.5% is applied against any purchase payments over $1 million that are withdrawn within one year. No sales charges are deducted on redemptions used to purchase units in the fixed investment options of the Company. The Company may deduct an annual contract maintenance charge of up to $40, dependent on contract type and issue date, which is satisfied by surrendering units. The Company deducts a mortality and expense risk charge assessed through the daily unit value calculation. The Option table below illustrates the annual rate for all contract level charges by product, as well as the maximum variable account charge per product. The table also summarizes the contract level options available to contract holders. The options and related charges are described in more detail in the applicable product prospectus. Nationwide Variable Account-11 Options
-------- ---------------- Deferred Premium Deferred --------------------------------------------------------------------------------------------------------------------- Variable Account Charges - Recurring .................................................. 0.80% 1.20% --------------------------------------------------------------------------------------------------------------------- Death Benefit Option: Greater of One-Year or 5% Enhanced ................................................. 0.15% 0.15% If death before annuitization, benefit will be greatest of (i) contract value, (ii) lessor of purchase payments less surrenders or 2 times the contract value as of the date death benefit is calculated, (iii) highest contract value before 86th birthday less surrenders or (iv) the 5% interest anniversary value. --------------------------------------------------------------------------------------------------------------------- Beneficiary Protector Option .......................................................... 0.40% 0.40% Upon annuitant death, in addition to any death benefit payable, an additional amount will be credited to contract. --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- Maximum Variable Account Charges*: .................................................... 1.35% 1.75% ---------------------------------------------------------------------------------------------------------------------
*When maximum options are elected. (Continued) 11 NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued) The following table provides mortality and expense risk charges by asset fee rates for the six month period ended June 30, 2004:
Total FedAmLead FedCapAp FedCapInc FedEqInc FedGvtSec FedGrStrat FedHiInc -------- --------- -------- --------- -------- --------- ---------- -------- 0.80% .............. $ 42,467 11,104 8,067 983 7,177 572 395 2,935 0.95% .............. 6,609 1,542 1,071 22 996 24 34 1,232 1.20% .............. 51,992 11,948 7,991 192 5,154 2,370 471 4,587 1.35% .............. 27,057 5,107 3,409 296 5,459 1,393 727 2,926 1.75% .............. 5,912 830 962 192 777 288 144 660 -------- ------ ------ ----- ------ ----- ----- ------ Totals .......... $134,037 30,531 21,500 1,685 19,563 4,647 1,771 12,340 ======== ====== ====== ===== ====== ===== ===== ======
FedIntEq FedKaufmann FedPriMy FedQualBd FedTotRe -------- ----------- -------- --------- -------- 0.80% .............. $ 568 5,738 1 1,509 3,418 0.95% .............. 184 909 0 94 501 1.20% .............. 757 8,255 1,603 2,916 5,748 1.35% .............. 592 3,436 126 1,417 2,169 1.75% .............. 237 1,340 31 141 310 ------ ------ ----- ----- ------ Totals .......... $2,338 19,678 1,761 6,077 12,146 ====== ====== ===== ===== ======
(3) Related Party Transactions The Company performs various services on behalf of the Mutual Fund Companies in which the Account invests and may receive fees for the services performed. These services include, among other things, share- holder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. These fees are paid to an affiliate of the Company. Contract owners may, with certain restrictions, transfer their assets between the Account and a fixed dollar contract (fixed account) maintained in the accounts of the Company. The fixed account assets are not reflected in the accompanying financial statements. In addition, the Account portion of contract owner loans is transferred to the accounts of the Company for administration and collection. Loan repayments are transferred to the Account at the direction of the contract owner. For the six month periods ended June 30, 2004 and 2003, total transfers to the Account from the fixed account were $1,367,557 and $5,173,718, respectively, and total transfers from the Account to the fixed account were $0 and $11,419, respectively. Transfers from the Account to the fixed account are included in redemptions, and transfers to the Account from the fixed account are included in purchase payments received from contract owners, as applicable, on the accompanying Statements of Changes in Contract Owners' Equity. For guaranteed minimum death benefits, the Company contributed $0 and $22 to the Account in the form of additional premium to contract owner accounts for the six month periods ended June 30, 2004 and 2003, respectively. These amounts are included in purchase payments received from contract owners and are credited at time of annuitant death, when applicable. 12 NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS) (4) Financial Highlights The Company offers several variable annuity products through the Account that have unique combinations of features and fees that are assessed to the contract owner. Differences in fee structures result in a variety of contract expense rates, unit fair values and total returns. The following tabular presentation is a summary of units, unit fair values and contract owners' equity outstanding for variable annuity contracts as of June 30 for the year indicated, and contract expense rate, investment income ratio and total return for each six month period ended June 30 for the year indicated. Beginning in 2003 the information is presented as a range of minimum to maximum values based upon product grouping. The range is determined by identifying the lowest and the highest contract expense rate. The unit fair values and total returns related to these identified contract expense rates are also disclosed as a range below. Accordingly, some individual contract amounts may not be within the ranges presented. For periods prior to 2003 the information is presented as a range of minimum and maximum values, however, such information is exclusive and independent for each column, and there is no intentional relationship among and between the ranges of values presented for contract expense rate, unit fair value and total return.
Contract Investment Expense Unit Contract Income Total Rate* Units Fair Value Owners' Equity Ratio** Return*** ------------- ------- --------------- -------------- ---------- --------------- Federated IS - American Leaders Fund II - Primary Shares 2004 .......................... 0.80% to 1.75% 572,142 $10.78 to 10.57 $ 6,137,653 1.42% 2.41% to 1.92% 2003 .......................... 0.80% to 1.75% 321,364 9.04 to 9.14 2,927,825 1.53% 9.42% to 9.94% Federated IS - Capital Appreciation Fund II - Primary Shares 2004 .......................... 0.80% to 1.75% 410,850 10.50 to 10.29 4,292,056 0.57% 1.28% to 0.80% 2003 .......................... 0.80% to 1.75% 207,546 9.09 to 9.19 1,901,193 0.51% 8.44% to 8.96% Federated IS - Capital Income Fund II 2004 .......................... 0.80% to 1.75% 36,756 10.08 to 9.88 369,081 4.72% -0.14% to -0.62% 2003 .......................... 0.80% to 1.75% 9,293 9.05 to 9.15 84,775 1.14% 8.00% to 8.52% Federated IS - Equity Income Fund II 2004 .......................... 0.80% to 1.75% 352,254 11.04 to 10.83 3,870,449 1.96% 2.42% to 1.94% 2003 .......................... 0.80% to 1.75% 169,140 9.43 to 9.53 1,607,745 1.95% 11.08% to 11.61% Federated IS - Fund for US Government Securities II 2004 .......................... 0.80% to 1.75% 71,125 10.68 to 10.47 753,300 4.56% -0.18% to -0.66% 2003 .......................... 0.80% to 1.75% 67,480 10.60 to 10.71 720,433 3.54% 1.22% to 1.70% Federated IS - Growth Strategies Fund II 2004 .......................... 0.80% to 1.75% 25,828 11.84 to 11.61 303,551 0.00% 4.58% to 4.08% 2003 .......................... 0.80% to 1.75% 11,004 9.30 to 9.40 103,043 0.00% 14.76% to 15.31% Federated IS - High Income Bond Fund II-Primary Shares 2004 .......................... 0.80% to 1.75% 196,482 11.97 to 11.73 2,336,998 7.33% 1.84% to 1.35% 2003 .......................... 0.80% to 1.75% 95,043 10.82 to 10.93 1,035,030 7.12% 12.21% to 12.74% Federated IS - International Equity Fund II 2004 .......................... 0.80% to 1.75% 41,841 10.38 to 10.18 431,650 0.00% 2.27% to 1.78% 2003 .......................... 0.80% to 1.75% 13,871 8.23 to 8.31 114,948 0.00% 6.57% to 7.08% Federated IS - International Small Company Fund II 2003 .......................... 0.80% to 1.75% 2,284 9.17 to 9.27 21,081 0.00% 14.71% to 15.26% Federated IS - Kaufmann Fund II - Primary Shares 2004 .......................... 0.80% to 1.75% 314,690 12.01 to 11.77 3,757,040 0.00% 4.85% to 4.35% 2003 .......................... 0.80% to 1.75% 156,257 9.57 to 9.67 1,506,107 0.00% 16.50% to 17.06% Federated IS - Prime Money Fund II 2004 .......................... 1.20% to 1.75% 36,329 9.92 to 9.80 360,221 0.21% -0.35% to -0.62% 2003 .......................... 1.20% to 1.75% 32,602 9.93 to 9.99 325,539 0.45% -0.45% to -0.17% Federated IS - Quality Bond Fund II - Primary Shares 2004 .......................... 0.80% to 1.75% 108,497 10.97 to 10.76 1,182,946 4.09% -0.42% to -0.89% 2003 .......................... 0.80% to 1.75% 57,812 10.97 to 11.08 638,678 3.41% 3.91% to 4.41% Federated IS - Total Return Bond Fund II 2004 .......................... 0.80% to 1.75% 224,803 10.83 to 10.61 2,419,255 4.34% -0.01% to -0.49% 2003 .......................... 0.80% to 1.75% 129,205 10.67 to 10.79 1,388,917 0.02% 1.64% to 2.13% ----------- 2004 Contract owners' equity .................................................. $26,214,200 =========== 2003 Contract owners' equity .................................................. $12,375,314 ===========
(Continued) 13 NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued) * This represents the range of annual contract expense rates of the variable account for the period indicated and includes only those expenses that are charged through a reduction in the unit values. Excluded are expenses of the underlying fund portfolios and charges made directly to contract owner accounts through the redemption of units. ** This represents the dividends for the six month period indicated, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by average net assets. The ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions to the contractholder accounts either through reductions in unit values or redemption of units. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. *** This represents the range of minimum and maximum total returns for the underlying mutual fund option for the six month period indicated. The calculation of these returns reflects a deduction for expenses assessed through the daily unit value calculation. It does not include any expenses charged through the redemption of units, the inclusion of which would result in a reduction of the total return presented. (a)&(b) Denote the minimum and maximum of the total return ranges, respectively, for underlying mutual fund options that were added during the reporting period. These returns were not annualized. Minimum and maximum ranges are not shown for underlying mutual fund options for which a single contract expense rate (product option) is representative of all units issued and outstanding at period end. Such options that were added during the reporting period are designated by these symbols. -------------------------------------------------------------------------------- 14 NATIONWIDE LIFE INSURANCE COMPANY HOME OFFICE: ONE NATIONWIDE PLAZA . COLUMBUS, OHIO 43215-2220 ------------ PRSRT STD U.S. POSTAGE PAID NATIONWIDE ------------ Nationwide(R) is a registered federal service mark of Nationwide Mutual Insurance Company