N-30D 1 dn30d.htm NATIONWIDE VARIABLE ACCOUNT 11 Nationwide Variable Account 11

NATIONWIDE

VARIABLE

ACCOUNT-11

Annual Report

to

Contract Owners

December 31, 2008

LOGO

NATIONWIDE LIFE INSURANCE COMPANY

HOME OFFICE: COLUMBUS, OHIO

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS’ EQUITY

December 31, 2008

 

Assets:     

Investments at fair value:

   

Federated IS - American Leaders Fund II - Primary Class (FALF)

   

300,994 shares (cost $4,840,732 )

    $ 2,450,091

Federated IS - Capital Appreciation Fund II - Primary Class (FVCA2P)

   

447,331 shares (cost $2,480,203 )

      2,281,389

Federated IS - Capital Income Fund II Class (FVU2)

   

46,660 shares (cost $433,230 )

      338,288

Federated IS - Equity Income Fund II Class (FVEI2)

   

214,892 shares (cost $2,836,259 )

      2,340,171

Federated IS - Fund for US Government Securities II Class (FVUS2)

   

48,365 shares (cost $543,979 )

      553,781

Federated IS - High Income Bond Fund II - Primary Class (FHIB)

   

180,611 shares (cost $1,330,937 )

      908,474

Federated IS - International Equity Fund II Class (FVIE2)

   

31,305 shares (cost $535,685 )

      316,177

Federated IS - Kaufmann Fund II - Primary Class (FVK2)

   

208,028 shares (cost $2,726,457 )

      2,038,679

Federated IS - Mid Cap Growth Strategies Fund II Class (FVGS2)

   

13,260 shares (cost $323,575 )

      168,937

Federated IS - Prime Money Fund II Class (FVMM2)

   

1,500,974 shares (cost $1,500,974 )

      1,500,974

Federated IS - Quality Bond Fund II - Primary Class (FQB)

   

103,314 shares (cost $1,141,855 )

      1,033,142
      

Total Investments

      13,930,103

Total Assets

      13,930,103

Accounts Payable

      178
      
   $ 13,929,925
      

Contract Owners’ Equity:

   

Accumulation units

      13,929,925
      

Total Contract Owners’ Equity (note 5)

    $ 13,929,925
      

See accompanying notes to financial statements.

 

2

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF OPERATIONS

Year Ended December 31, 2008

 

Investment Activity:   Total     FALF     FVCA2P     FVU2     FVEI2     FVUS2     FHIB     FVIE2     FVK2     FVGS2     FVMM2     FQB  
                                                                           

Reinvested dividends

   $ 517,932     68,681     11,922     23,312     131,725     27,148     150,656     3,791     $ 10,514     -         34,884     55,299  

Mortality and expense risk charges (note 2)

     (214,153 )   (39,445 )   (35,391 )   (4,650 )   (36,621 )   (6,763 )   (16,925 )   (6,180 )     (35,787 )   (3,352 )   (15,785 )   (13,254 )
                                                                           

Net investment income (loss)

     303,779     29,236     (23,469 )   18,662     95,104     20,385     133,731     (2,389 )     (25,273 )   (3,352 )   19,099     42,045  
                                                                           

Proceeds from mutual fund shares sold

     5,124,863     800,058     782,409     169,955     643,108     180,324     594,068     281,641       781,719     48,278     589,363     253,940  

Cost of mutual fund shares sold

     (5,300,118 )   (1,281,442 )   (591,129 )   (166,938 )   (537,518 )   (187,709 )   (739,109 )   (269,780 )     (616,845 )   (45,298 )   (589,363 )   (274,987 )
                                                                           

Realized gain (loss) on investments

     (175,255 )   (481,384 )   191,280     3,017     105,590     (7,385 )   (145,041 )   11,861       164,874     2,980     -         (21,047 )

Change in unrealized gain (loss) on investments

     (8,089,463 )   (2,063,315 )   (1,315,497 )   (118,773 )   (1,386,256 )   2,468     (382,620 )   (313,172 )     (2,180,255 )   (217,240 )   -         (114,803 )
                                                                           

Net gain (loss) on investments

     (8,264,718 )   (2,544,699 )   (1,124,217 )   (115,756 )   (1,280,666 )   (4,917 )   (527,661 )   (301,311 )     (2,015,381 )   (214,260 )   -         (135,850 )
                                                                           

Reinvested capital gains

     1,581,826     1,062,760     72,727     -         -         -         -         -           369,815     76,524     -         -      
                                                                           

Net increase (decrease) in contract owners’ equity resulting from operations

   $ (6,379,113 )   (1,452,703 )   (1,074,959 )   (97,094 )   (1,185,562 )   15,468     (393,930 )   (303,700 )   $ (1,670,839 )   (141,088 )   19,099     (93,805 )
                                                                           

See accompanying notes to financial statements.

 

3

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY

Years Ended December 31, 2008 and 2007

 

     Total     FALF     FVCA2P     FVU2  
                          
     2008     2007     2008     2007     2008     2007     2008     2007  
                                                  

Investment activity:

                 

Net investment income (loss)

    $ 303,779     314,255     29,236     25,908     (23,469 )   (11,059 )   18,662     21,580  

Realized gain (loss) on investments

      (175,255 )   1,450,871     (481,384 )   246,069     191,280     308,476     3,017     24,440  

Change in unrealized gain (loss) on investments

      (8,089,463 )   (1,731,813 )   (2,063,315 )   (1,495,636 )   (1,315,497 )   64,210     (118,773 )   (28,273 )

Reinvested capital gains

      1,581,826     900,113     1,062,760     651,025     72,727     -     -     -  
                                                  

Net increase (decrease) in contract owners’ equity resulting from operations

      (6,379,113 )   933,426     (1,452,703 )   (572,634 )   (1,074,959 )   361,627     (97,094 )   17,747  
                                                  

Equity transactions:

                 

Purchase payments received from contract owners (notes 2 and 3)

      199,364     209,555     47,450     35,802     29,445     27,360     5,633     41,122  

Transfers between funds

      -     -     (200,503 )   (407,024 )   (145,258 )   14,478     (2,373 )   128,755  

Redemptions (note 3)

      (3,687,699 )   (3,974,373 )   (554,419 )   (815,638 )   (573,321 )   (635,665 )   (138,166 )   (183,072 )

Annuity benefits

      -     (4,032 )   -     (910 )   -     (652 )   -     (99 )

Contract maintenance charges (note 2)

      (3,650 )   -     (709 )   -     (641 )   -     (105 )   -  

Contingent deferred sales charges (note 2)

      (24,927 )   (15,674 )   (3,099 )   (1,512 )   (2,963 )   (1,748 )   (221 )   (218 )

Adjustments to maintain reserves

      (5,467 )   (228 )   (106 )   (59 )   5     (59 )   (38 )   (65 )
                                                  

Net equity transactions

      (3,522,379 )   (3,784,752 )   (711,386 )   (1,189,341 )   (692,733 )   (596,286 )   (135,270 )   (13,577 )
                                                  

Net change in contract owners’ equity

      (9,901,492 )   (2,851,326 )   (2,164,089 )   (1,761,975 )   (1,767,692 )   (234,659 )   (232,364 )   4,170  

Contract owners’ equity beginning of period

      23,831,417     26,682,743     4,614,166     6,376,141     4,049,070     4,283,729     570,643     566,473  
                                                  

Contract owners’ equity end of period

    $ 13,929,925     23,831,417     2,450,077     4,614,166     2,281,378     4,049,070     338,279     570,643  
                                                  

CHANGES IN UNITS:

                 

Beginning units

      1,682,502     1,945,518     378,262     466,473     293,135     336,718     42,203     43,084  

Units purchased

      143,603     179,583     11,515     4,912     10,588     13,667     2,547     17,782  

Units redeemed

      (423,465 )   (442,599 )   (82,632 )   (93,123 )   (67,079 )   (57,250 )   (12,943 )   (18,663 )
                                                  

Ending units

      1,402,640     1,682,502     307,145     378,262     236,644     293,135     31,807     42,203  
                                                  

 

4

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY, Continued

Years Ended December 31, 2008 and 2007

 

     FVEI2     FVUS2     FHIB     FVIE2  
                          
     2008     2007     2008     2007     2008     2007     2008     2007  
                                                  

Investment activity:

                 

Net investment income (loss)

    $ 95,104     77,858     20,385     26,177     133,731     139,805     (2,389 )   (7,669 )

Realized gain (loss) on investments

      105,590     296,382     (7,385 )   (15,884 )   (145,041 )   (5,649 )   11,861     89,338  

Change in unrealized gain (loss) on investments

      (1,386,256 )   (329,663 )   2,468     20,175     (382,620 )   (85,746 )   (313,172 )   (18,768 )

Reinvested capital gains

      -     -     -     -     -     -     -     -  
                                                  

Net increase (decrease) in contract owners’ equity resulting from operations

      (1,185,562 )   44,577     15,468     30,468     (393,930 )   48,410     (303,700 )   62,901  
                                                  

Equity transactions:

                 

Purchase payments received from contract owners (notes 2 and 3)

      3,050     27,044     4,361     1,238     35,900     6,102     322     272  

Transfers between funds

      (86,132 )   32,279     101,708     62,557     (225,881 )   (25,018 )   (28,001 )   234,559  

Redemptions (note 3)

      (457,551 )   (593,230 )   (143,834 )   (265,090 )   (354,107 )   (235,251 )   (179,065 )   (198,096 )

Annuity benefits

      -     (613 )   -     (116 )   -     (394 )   -     (83 )

Contract maintenance charges (note 2)

      (590 )   -     (115 )   -     (366 )   -     (74 )   -  

Contingent deferred sales charges (note 2)

      (2,898 )   (1,335 )   (161 )   (1,828 )   (3,074 )   (1,222 )   (1,848 )   (564 )

Adjustments to maintain reserves

      (456 )   (10 )   (19 )   19     (4,583 )   (21 )   (99 )   13  
                                                  

Net equity transactions

      (544,577 )   (535,865 )   (38,060 )   (203,220 )   (552,111 )   (255,804 )   (208,765 )   36,101  
                                                  

Net change in contract owners’ equity

      (1,730,139 )   (491,288 )   (22,592 )   (172,752 )   (946,041 )   (207,394 )   (512,465 )   99,002  

Contract owners’ equity beginning of period

      4,070,272     4,561,560     576,394     749,146     1,854,483     2,061,877     828,618     729,616  
                                                  

Contract owners’ equity end of period

    $ 2,340,133     4,070,272     553,802     576,394     908,442     1,854,483     316,153     828,618  
                                                  

CHANGES IN UNITS:

                 

Beginning units

      270,622     305,737     48,631     66,369     127,871     145,274     52,947     50,409  

Units purchased

      6,180     18,657     11,546     6,200     4,462     5,704     6,390     21,202  

Units redeemed

      (50,523 )   (53,772 )   (14,758 )   (23,938 )   (46,461 )   (23,107 )   (21,652 )   (18,664 )
                                                  

Ending units

      226,279     270,622     45,419     48,631     85,872     127,871     37,685     52,947  
                                                  

 

5

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY, Continued

Years Ended December 31, 2008 and 2007

 

     FVK2     FVGS2     FVMM2     FQB  
                          
     2008     2007     2008     2007     2008     2007     2008     2007  
                                                  

Investment activity:

                 

Net investment income (loss)

    $ (25,273 )   (48,490 )   (3,352 )   (4,305 )   19,099     51,123     42,045     43,327  

Realized gain (loss) on investments

      164,874     463,930     2,980     51,194     -     -     (21,047 )   (7,425 )

Change in unrealized gain (loss) on investments

      (2,180,255 )   127,318     (217,240 )   1,706     -     -     (114,803 )   12,864  

Reinvested capital gains

      369,815     249,088     76,524     -     -     -     -     -  
                                                  

Net increase (decrease) in contract owners’ equity resulting from operations

      (1,670,839 )   791,846     (141,088 )   48,595     19,099     51,123     (93,805 )   48,766  
                                                  

Equity transactions:

                 

Purchase payments received from contract owners (notes 2 and 3)

      17,731     13,429     5,895     10,162     46,381     28,465     3,196     18,559  

Transfers between funds

      (144,360 )   (167,263 )   13,829     (1,408 )   593,407     36,470     123,564     91,615  

Redemptions (note 3)

      (572,661 )   (673,975 )   (43,446 )   (86,689 )   (464,363 )   (162,230 )   (206,766 )   (125,437 )

Annuity benefits

      -     (676 )   -     (66 )   -     (198 )   -     (225 )

Contract maintenance charges (note 2)

      (591 )   -     (50 )   -     (203 )   -     (206 )   -  

Contingent deferred sales charges (note 2)

      (5,514 )   (5,298 )   (770 )   (318 )   (3,089 )   (894 )   (1,290 )   (737 )

Adjustments to maintain reserves

      (86 )   (7 )   3     (31 )   (60 )   24     (28 )   (32 )
                                                  

Net equity transactions

      (705,481 )   (833,790 )   (24,539 )   (78,350 )   172,073     (98,363 )   (81,530 )   (16,257 )
                                                  

Net change in contract owners’ equity

      (2,376,320 )   (41,944 )   (165,627 )   (29,755 )   191,172     (47,240 )   (175,335 )   32,509  

Contract owners’ equity beginning of period

      4,414,981     4,456,925     334,583     364,338     1,309,756     1,356,996     1,208,451     1,175,942  
                                                  

Contract owners’ equity end of period

    $ 2,038,661     4,414,981     168,956     334,583     1,500,928     1,309,756     1,033,116     1,208,451  
                                                  

CHANGES IN UNITS:

                 

Beginning units

      228,361     275,846     18,833     23,826     121,288     130,030     100,349     101,752  

Units purchased

      5,650     10,570     1,380     3,952     69,430     63,400     13,915     13,537  

Units redeemed

      (50,627 )   (58,055 )   (3,176 )   (8,945 )   (53,137 )   (72,142 )   (20,477 )   (14,940 )
                                                  

Ending units

      183,384     228,361     17,037     18,833     137,581     121,288     93,787     100,349  
                                                  

See accompanying notes to financial statements.

 

6

NATIONWIDE VARIABLE ACCOUNT-11

NOTES TO FINANCIAL STATEMENTS

December 31, 2008 and 2007

(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

With certain exceptions, 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 Class (FALF)

Federated IS - Capital Appreciation Fund II - Primary Class (FVCA2P)

Federated IS - Capital Income Fund II Class (FVU2)

Federated IS - Equity Income Fund II Class (FVEI2)

Federated IS - Fund for US Government Securities II Class (FVUS2)

Federated IS - High Income Bond Fund II - Primary Class (FHIB)

Federated IS - International Equity Fund II Class (FVIE2)

Federated IS - International Small Company Fund II Class (FVIS2)*

Federated IS - Kaufmann Fund II - Primary Class (FVK2)

Federated IS - Mid Cap Growth Strategies Fund II Class (FVGS2)

Federated IS - Prime Money Fund II Class (FVMM2)

Federated IS - Quality Bond Fund II - Primary Class (FQB)

Federated IS - Total Return Bond Fund II Class (FVTR2)*

 

  * At December 31, 2008, contract owners were 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

Investments in underlying mutual funds are valued on the closing net asset value per share at December 31, 2008 of such funds, which value their investment securities at fair value. The cost of investments sold is determined on a first in – first out basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed), and dividends and capital gain distributions are accrued as of the ex-dividend date and are reinvested in the underlying mutual funds.

(Continued)

 

7

NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued)

(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 generally 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 U.S. generally accepted accounting principles 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.

(f) Recently Issued Accounting Standard

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (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. 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 Account’s financial position or results of operations.

(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 redeemed, the Company will, with certain exceptions, deduct from a contract owners’ contract value a contingent deferred sales charge not to exceed 7% of the purchase payments redeemed. This charge declines 1% per year. After the purchase payment has been held in the contract for 7 years the charge is 0%. This charge is assessed against each contract by redeeming units. 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 each purchase payment. 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 in excess of $1 million that are withdrawn within one year of deposit to the contract. This charge is assessed against each contract by redeeming units. 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 $40, depending on the amount of assets in the contract, which is satisfied by redeeming units. The Company deducts a mortality and expense risk charge assessed through a reduction of unit value. The Option table on the following page 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.

(Continued)

 

8

NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued)

 

  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) lesser 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 Protection Option

   0.40%           0.40%        

Upon annuitant death, in addition to any death benefit payable, an additional amount will be credited to the contract.

        

    

        

  Maximum Variable Account Charges*

   1.35%           1.75%        
* When maximum options are elected.

The following table provides mortality and expense risk charges by asset fee rates for the period ended December 31, 2008.

 

    Total   FALF   FVCA2P   FVU2     FVEI2   FVUS2   FHIB   FVIE2  
       
0.80%       $ 46,251   9,454   9,871   1,021     9,044   447   2,256   1,191   
0.95%     7,010   1,160   983   611     1,008   455   420   497  
1.20%     93,972   17,784   15,034   1,240     14,124   3,275   8,000   2,240  
1.35%     56,871   9,795   7,724   1,437     11,553   2,148   5,199   1,863  
1.75%     10,049   1,252   1,779   341     892   438   1,050   389  
       
Totals       $ 214,153   39,445   35,391   4,650     36,621   6,763   16,925   6,180  
       
    FVK2   FVGS2   FVMM2   FQB                    
       
0.80%       $ 8,494   239   3,090   1,144          
0.95%     1,076   185   100   515          
1.20%     15,855   816   7,847   7,757          
1.35%     7,571   1,833   4,235   3,513          
1.75%     2,791   279   513   325          
               
Totals       $ 35,787   3,352   15,785   13,254          
               

(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, shareholder communications, 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 years ended December 31, 2008 and 2007, total transfers to the Account from the fixed account were $140,686 and $179,306, respectively, and total transfers from the Account to the fixed account were $218,262 and $187,393, 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.

(Continued)

 

9

NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued)

(4) Fair Value Measurement

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 Account generally uses the market approach as the valuation technique due to the nature of the mutual fund investments offered in the Account. This technique maximizes the use of observable inputs and minimizes the use of unobservable inputs.

In accordance with SFAS 157, the Account 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 recorded at fair value as follows:

 

  •  

Level 1 – Unadjusted quoted prices accessible in active markets for identical assets at the measurement date. The assets utilizing Level 1 valuations represent investments in publicly-traded registered mutual funds with quoted market prices.

 

  •  

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 assets utilizing Level 2 valuations represent investments in privately-traded registered mutual funds only offered through insurance products.

 

  •  

Level 3 – Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. The Account invests only in funds with fair value measurements in the first two levels of the fair value hierarchy.

The following table summarizes assets measured at fair value on a recurring basis as of December 31, 2008:

 

     Level 1    Level 2    Level 3    Total

Separate Account Investments

    0    $ 13,930,103    0    $ 13,930,103

Accounts Payable of $178 are measured at settlement value which approximates the fair value due to the short-term nature of such liabilities.

The Account did not have any assets or liabilities reported at fair value on a nonrecurring basis required to be disclosed under SFAS 157.

(Continued)

 

10

NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued)

(5) 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 the end of the periods indicated, and contract expense rate, investment income ratio and total return for each period in the five-year period ended December 31, 2008. 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 for contracts with units outstanding as of the balance sheet date. 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.

 

    

Contract
Expense
Rate*

     Units    Unit
Fair Value		    Contract
Owners’ Equity		   Investment
Income
Ratio**		    

Total
Return***

  

Federated IS - American Leaders Fund II - Primary Class (FALF)

   
2008    0.80% to    1.75 %   307,145    $ 8.14 to    7.64    $ 2,450,077   1.90 %   -34.32% to    -34.95 %
2007    0.80% to    1.75 %   378,262      12.40 to    11.75      4,614,166   1.59 %   -10.39% to    -11.25 %
2006    0.80% to    1.75 %   466,473      13.84 to    13.24      6,376,141   1.52 %   15.88% to    14.77 %
2005    0.80% to    1.75 %   554,363      11.94 to    11.54      6,562,446   1.48 %   4.18% to    3.19 %
2004    0.80% to    1.75 %   574,522      11.46 to    11.18      6,545,002   1.37 %   8.90% to    7.86 %

Federated IS - Capital Appreciation Fund II - Primary Class (FVCA2P)

   
2008    0.80% to    1.75 %   236,644      9.83 to    9.23      2,281,378   0.36 %   -29.93% to    -30.60 %
2007    0.80% to    1.75 %   293,135      14.03 to    13.29      4,049,070   0.82 %   9.00% to    7.95 %
2006    0.80% to    1.75 %   336,718      12.87 to    12.32      4,283,729   0.78 %   15.29% to    14.19 %
2005    0.80% to    1.75 %   387,188      11.16 to    10.79      4,285,184   1.02 %   1.10% to    0.14 %
2004    0.80% to    1.75 %   419,739      11.04 to    10.77      4,606,561   0.55 %   6.54% to    5.52 %

Federated IS - Capital Income Fund II Class (FVU2)

   
2008    0.80% to    1.75 %   31,807      10.85 to    10.18      338,279   5.43 %   -21.02% to    -21.77 %
2007    0.80% to    1.75 %   42,203      13.74 to    13.02      570,643   4.96 %   3.20% to    2.21 %
2006    0.80% to    1.75 %   43,084      13.31 to    12.74      566,473   5.70 %   14.72% to    13.62 %
2005    0.80% to    1.75 %   57,312      11.60 to    11.21      660,345   4.28 %   5.44% to    4.43 %
2004    0.80% to    1.75 %   43,589      11.00 to    10.73      477,355   4.07 %   9.04% to    8.00 %

Federated IS - Equity Income Fund II Class (FVEI2)

   
2008    0.80% to    1.75 %   226,279      10.56 to    9.91      2,340,133   3.95 %   -31.01% to    -31.67 %
2007    0.80% to    1.75 %   270,622      15.30 to    14.50      4,070,272   2.93 %   1.23% to    0.26 %
2006    0.80% to    1.75 %   305,737      15.11 to    14.46      4,561,560   2.19 %   22.15% to    20.99 %
2005    0.80% to    1.75 %   340,574      12.37 to    11.95      4,174,532   2.20 %   2.51% to    1.53 %
2004    0.80% to    1.75 %   367,233      12.07 to    11.77      4,403,900   1.82 %   11.94% to    10.87 %

Federated IS - Fund for US Government Securities II Class (FVUS2)

   
2008    0.80% to    1.75 %   45,419      12.54 to    11.77      553,802   4.83 %   3.44% to    2.45 %
2007    0.80% to    1.75 %   48,631      12.12 to    11.49      576,394   5.06 %   5.43% to    4.42 %
2006    0.80% to    1.75 %   66,369      11.50 to    11.00      749,146   4.40 %   3.31% to    2.32 %
2005    0.80% to    1.75 %   79,931      11.13 to    10.75      878,469   4.22 %   1.21% to    0.25 %
2004    0.80% to    1.75 %   72,957      11.00 to    10.73      794,099   4.44 %   2.78% to    1.80 %

Federated IS - High Income Bond Fund II - Primary Class (FHIB)

   
2008    0.80% to    1.75 %   85,872      10.86 to    10.19      908,442   10.53 %   -26.59% to    -27.29 %
2007    0.80% to    1.75 %   127,871      14.79 to    14.02      1,854,483   8.31 %   2.60% to    1.61 %
2006    0.80% to    1.75 %   145,274      14.42 to    13.80      2,061,877   9.82 %   9.92% to    8.87 %
2005    0.80% to    1.75 %   184,752      13.12 to    12.67      2,395,934   8.09 %   1.84% to    0.86 %
2004    0.80% to    1.75 %   205,696      12.88 to    12.56      2,628,583   6.88 %   9.58% to    8.53 %

Federated IS - International Equity Fund II Class (FVIE2)

   
2008    0.80% to    1.75 %   37,685      8.58 to    8.05      316,153   0.68 %   -46.16% to    -46.67 %
2007    0.80% to    1.75 %   52,947      15.93 to    15.10      828,618   0.18 %   8.67% to    7.62 %
2006    0.80% to    1.75 %   50,409      14.66 to    14.03      729,616   0.19 %   17.94% to    16.82 %
2005    0.80% to    1.75 %   45,130      12.43 to    12.01      554,825   0.00 %   8.21% to    7.17 %
2004    0.80% to    1.75 %   43,192      11.49 to    11.21      492,371   0.00 %   13.15% to    12.07 %

Federated IS - Kaufmann Fund II - Primary Class (FVK2)

   
2008    0.80% to    1.75 %   183,384      11.36 to    10.66      2,038,661   0.32 %   -42.26% to    -42.81 %
2007    0.80% to    1.75 %   228,361      19.67 to    18.64      4,414,981   0.00 %   20.06% to    18.91 %
2006    0.80% to    1.75 %   275,846      16.38 to    15.67      4,456,925   0.00 %   13.96% to    12.87 %
2005    0.80% to    1.75 %   306,321      14.37 to    13.89      4,358,696   0.00 %   10.36% to    9.30 %
2004    0.80% to    1.75 %   314,321      13.03 to    12.71      4,064,236   0.00 %   13.74% to    12.65 %

(Continued)

 

11

NATIONWIDE VARIABLE ACCOUNT-11 (NOTES TO FINANCIAL STATEMENTS, Continued)

 

     Contract
Expense
Rate*		    Units   

Unit

Fair Value

    Contract
Owners’ Equity		   

Investment

Income
Ratio**

    Total
Return***
                             

Federated IS - Mid Cap Growth Strategies Fund II Class (FVGS2)

   

2008

    0.80% to 1.75%    17,037    $10.21 to   9.59    $168,956    0.00%    -43.95% to -44.49%

2007

    0.80% to 1.75%    18,833    18.22 to 17.27    334,583    0.00%    17.07% to 15.94%

2006

    0.80% to 1.75%    23,826    15.56 to 14.89    364,338    0.00%    7.37% to   6.34%

2005

    0.80% to 1.75%    26,358    14.50 to 14.01    377,125    0.00%    11.80% to 10.74%

2004

    0.80% to 1.75%    27,178    12.97 to 12.65    349,101    0.00%    14.51% to 13.41%

Federated IS - Prime Money Fund II Class (FVMM2)

   

2008

    0.80% to 1.75%    137,581    11.19 to 10.50    1,500,928    2.51%    1.72% to 0.74%

2007

    0.80% to 1.75%    121,288    11.00 to 10.42    1,309,756    5.06%    3.93% to 2.93%

2006

    0.80% to 1.75%    130,030    10.58 to 10.13    1,356,996    4.71%    3.68% to 2.69%

2005

    0.80% to 1.75%    132,318    10.21 to   9.86    1,336,281    2.44%    1.88% to 0.91%

2004

    0.80% to 1.75%    191,079    10.02 to   9.77    1,900,805    0.37%    0.01% to -0.95%

Federated IS - Quality Bond Fund II - Primary Class (FQB)

   

2008

    0.80% to 1.75%    93,787    11.31 to 10.61    1,033,116    4.95%    -8.03% to -8.91%

2007

    0.80% to 1.75%    100,349    12.30 to 11.65    1,208,451    4.84%    4.54% to 3.53%

2006

    0.80% to 1.75%    101,752    11.76 to 11.25    1,175,942    4.37%    3.32% to 2.34%

2005

    0.80% to 1.75%    124,959    11.38 to 11.00    1,405,939    4.08%    0.49% to -0.47%

2004

    0.80% to 1.75%    119,715    11.33 to 11.05    1,344,911    3.81%    2.79% to 1.81%

2008

    Contract owners’ equity          $13,929,925      

2007

    Contract owners’ equity          $23,831,417      

2006

    Contract owners’ equity          $26,682,743      

2005

    Contract owners’ equity          $26,989,776      

2004

    Contract owners’ equity          $27,606,924      
* 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 mutual funds and charges made directly to contract owner accounts through the redemption of units.
** This represents the dividends for the 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, contract maintenance charges, and contingent deferred sales charges, that result in direct reductions to the contractholder accounts 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 period indicated, including changes in the value of the underlying mutual fund, which reflects the reduction of unit value for expenses assessed. It does not include any expenses assessed through the redemption of units, the inclusion of which would result in a reduction of the total return presented.

 

12

Report of Independent Registered Public Accounting Firm

The Board of Directors of Nationwide Life Insurance Company and

Contract Owners of Nationwide Variable Account-11:

We have audited the accompanying statement of assets, liabilities and contract owners’ equity of Nationwide Variable Account-11 (comprised of the sub-accounts listed in note 1(b) (collectively, “the Accounts”)) as of December 31, 2008, and the related statements of operations and changes in contract owners’ equity, and the financial highlights for each of the periods indicated herein. These financial statements and financial highlights are the responsibility of the Accounts’ management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2008, by correspondence with the transfer agents of the underlying mutual funds. 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 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Accounts as of December 31, 2008, and the results of their operations, changes in contract owners’ equity, and financial highlights for each of the periods indicated herein, in conformity with accounting principles generally accepted in the United States of America.

/s/    KPMG LLP

Columbus, Ohio

March 13, 2009