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

NATIONWIDE

VARIABLE

ACCOUNT-11

Annual Report

to

Contract Owners

December 31, 2009

LOGO

NATIONWIDE LIFE INSURANCE COMPANY

HOME OFFICE: COLUMBUS, OHIO

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS’ EQUITY

December 31, 2009

 

Assets:

   

Investments at fair value:

   

Capital Appreciation Fund II - Primary Shares (FVCA2P)

   

369,261 shares (cost $2,083,969)

    $ 2,112,173

Capital Income Fund II (FVU2)

   

49,478 shares (cost $438,137)

      428,973

Clover Value Fund II - Primary Shares (FALF)

   

255,761 shares (cost $3,886,667)

      2,317,195

Equity Income Fund II (FVEI2)

   

188,736 shares (cost $2,507,020)

      2,251,622

Fund for US Government Securities II (FVUS2)

   

54,563 shares (cost $613,121)

      624,746

High Income Bond Fund II - Primary Shares (FHIB)

   

182,389 shares (cost $1,227,823)

      1,216,536

International Equity Fund II (FVIE2)

   

30,276 shares (cost $481,919)

      416,599

Kaufmann Fund II - Primary Shares (FVK2)

   

183,791 shares (cost $2,434,005)

      2,332,304

Mid Cap Growth Strategies Fund II (FVGS2)

   

10,437 shares (cost $250,239)

      173,667

Prime Money Fund II (FVMM2)

   

997,778 shares (cost $997,778)

      997,778

(Continued)

 

2

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS’ EQUITY, continued

 

Quality Bond Fund II - Primary Shares (FQB)

   

93,475 shares (cost $997,164)

      1,046,916
      

Total Investments

      13,918,509

Total Assets

      13,918,509

Accounts Payable

      35
      
   $ 13,918,474
      

Contract Owners’ Equity:

   

Accumulation units

      13,918,474
      

Total Contract Owners’ Equity (note 5)

    $ 13,918,474
      

See accompanying notes to financial statements.

 

3

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF OPERATIONS

Year Ended December 31, 2009

 

Investment Activity:    Total     FVCA2P     FVU2     FALF     FVEI2     FVUS2     FHIB     FVIE2  
                                                  

Reinvested dividends

    $ 448,811      22,798      22,977      59,301      100,322      31,093      123,625      9,517   

Mortality and expense risk charges (note 2)

      (151,719 )    (22,545 )    (4,129 )    (24,297 )    (23,965 )    (7,294 )    (13,139 )    (3,705 ) 
                                                  

Net investment income (loss)

      297,092      253      18,848      35,004      76,357      23,799      110,486      5,812   
                                                  

Realized gain (loss) on investments

      (954,902 )    (10,915 )    (18,504 )    (612,832 )    (51,440 )    (1,020 )    (78,082 )    (58,673 ) 

Change in unrealized gain (loss) on investments

      2,764,453      227,019      85,779      821,169      240,690      1,823      411,176      154,188   
                                                  

Net gain (loss) on investments

      1,809,551      216,104      67,275      208,337      189,250      803      333,094      95,515   
                                                  

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

    $ 2,106,643      216,357      86,123      243,341      265,607      24,602      443,580      101,327   
                                                  
Investment Activity:    FVK2     FVGS2     FVMM2     FQB                          
                                  

Reinvested dividends

    $ -          -          6,231      72,947           

Mortality and expense risk charges (note 2)

      (23,406 )    (2,093 )    (14,442 )    (12,704 )         
                                  

Net investment income (loss)

      (23,406 )    (2,093 )    (8,211 )    60,243           
                                  

Realized gain (loss) on investments

      (55,086 )    (34,452 )    -          (33,898 )         

Change in unrealized gain (loss) on investments

      586,078      78,066      -          158,465           
                                  

Net gain (loss) on investments

      530,992      43,614      -          124,567           
                                  

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

    $ 507,586      41,521      (8,211 )    184,810           
                                  

See accompanying notes to financial statements.

 

4

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY

Years Ended December 31, 2009 and 2008

 

     Total     FVCA2P     FVU2     FALF  
                          
     2009     2008     2009     2008     2009     2008     2009     2008  
                          

Investment activity:

                 

Net investment income (loss)

    $ 297,092      303,779      253      (23,469 )    18,848      18,662      35,004      29,236   

Realized gain (loss) on investments

      (954,902 )    (175,255 )    (10,915 )    191,280      (18,504 )    3,017      (612,832 )    (481,384 ) 

Change in unrealized gain (loss) on investments

      2,764,453      (8,089,463 )    227,019      (1,315,497 )    85,779      (118,773 )    821,169      (2,063,315 ) 

Reinvested capital gains

      -          1,581,826      -          72,727      -          -          -          1,062,760   
                                                  

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

      2,106,643      (6,379,113 )    216,357      (1,074,959 )    86,123      (97,094 )    243,341      (1,452,703 ) 
                                                  

Equity transactions:

                 

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

      39,325      199,364      6,533      29,445      2,759      5,633      7,135      47,450   

Transfers between funds

      -          -          (23,276 )    (145,258 )    74,550      (2,373 )    (53,321 )    (200,503 ) 

Redemptions (note 3)

      (2,145,598 )    (3,687,699 )    (366,811 )    (573,321 )    (72,617 )    (138,166 )    (327,441 )    (554,419 ) 

Contract maintenance charges (note 2)

      (3,389 )    (3,650 )    (546 )    (641 )    (113 )    (105 )    (608 )    (709 ) 

Contingent deferred sales charges (note 2)

      (8,245 )    (24,927 )    (1,451 )    (2,963 )    -          (221 )    (1,971 )    (3,099 ) 

Adjustments to maintain reserves

      (187 )    (5,467 )    (29 )    5      (32 )    (38 )    209      (106 ) 
                                                  

Net equity transactions

      (2,118,094 )    (3,522,379 )    (385,580 )    (692,733 )    4,547      (135,270 )    (375,997 )    (711,386 ) 
                                                  

Net change in contract owners’ equity

      (11,451 )    (9,901,492 )    (169,223 )    (1,767,692 )    90,670      (232,364 )    (132,656 )    (2,164,089 ) 

Contract owners’ equity beginning of period

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

Contract owners’ equity end of period

    $ 13,918,474      13,929,925      2,112,155      2,281,378      428,949      338,279      2,317,421      2,450,077   
                                                  

CHANGES IN UNITS:

                 

Beginning units

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

Units purchased

      103,720      143,603      7,760      10,588      7,911      2,547      3,581      11,515   

Units redeemed

      (321,122 )    (423,465 )    (49,105 )    (67,079 )    (7,879 )    (12,943 )    (54,509 )    (82,632 ) 
                                                  

Ending units

      1,185,238      1,402,640      195,299      236,644      31,839      31,807      256,217      307,145   
                                                  

(Continued)

 

5

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY, Continued

Years Ended December 31, 2009 and 2008

 

     FVEI2     FVUS2     FHIB     FVIE2  
                          
     2009     2008     2009     2008     2009     2008     2009     2008  
                                                  

Investment activity:

                 

Net investment income (loss)

    $ 76,357      95,104      23,799      20,385      110,486      133,731      5,812      (2,389 ) 

Realized gain (loss) on investments

      (51,440 )    105,590      (1,020 )    (7,385 )    (78,082 )    (145,041 )    (58,673 )    11,861   

Change in unrealized gain (loss) on investments

      240,690      (1,386,256 )    1,823      2,468      411,176      (382,620 )    154,188      (313,172 ) 

Reinvested capital gains

      -          -          -          -          -          -          -          -       
                                                  

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

      265,607      (1,185,562 )    24,602      15,468      443,580      (393,930 )    101,327      (303,700 ) 
                                                  

Equity transactions:

                 

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

      9,040      3,050      -          4,361      4,507      35,900      1,153      322   

Transfers between funds

      (14,032 )    (86,132 )    84,011      101,708      33,338      (225,881 )    72,163      (28,001 ) 

Redemptions (note 3)

      (347,465 )    (457,551 )    (37,022 )    (143,834 )    (172,376 )    (354,107 )    (73,818 )    (179,065 ) 

Contract maintenance charges (note 2)

      (503 )    (590 )    (222 )    (115 )    (356 )    (366 )    (64 )    (74 ) 

Contingent deferred sales charges (note 2)

      (1,158 )    (2,898 )    (390 )    (161 )    (593 )    (3,074 )    (276 )    (1,848 ) 

Adjustments to maintain reserves

      (26 )    (456 )    (47 )    (19 )    (62 )    (4,583 )    (67 )    (99 ) 
                                                  

Net equity transactions

      (354,144 )    (544,577 )    46,330      (38,060 )    (135,542 )    (552,111 )    (909 )    (208,765 ) 
                                                  

Net change in contract owners’ equity

      (88,537 )    (1,730,139 )    70,932      (22,592 )    308,038      (946,041 )    100,418      (512,465 ) 

Contract owners’ equity beginning of period

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

Contract owners’ equity end of period

    $ 2,251,596      2,340,133      624,734      553,802      1,216,480      908,442      416,571      316,153   
                                                  

CHANGES IN UNITS:

                 

Beginning units

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

Units purchased

      5,900      6,180      6,842      11,546      6,854      4,462      9,849      6,390   

Units redeemed

      (40,970 )    (50,523 )    (3,204 )    (14,758 )    (16,521 )    (46,461 )    (11,878 )    (21,652 ) 
                                                  

Ending units

      191,209      226,279      49,057      45,419      76,205      85,872      35,656      37,685   
                                                  

(Continued)

 

6

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY, Continued

Years Ended December 31, 2009 and 2008

 

     FVK2     FVGS2     FVMM2     FQB  
                          
     2009     2008     2009     2008     2009     2008     2009     2008  
                                                  

Investment activity:

                 

Net investment income (loss)

    $ (23,406 )    (25,273 )    (2,093 )    (3,352 )    (8,211 )    19,099      60,243      42,045   

Realized gain (loss) on investments

      (55,086 )    164,874      (34,452 )    2,980      -          -          (33,898 )    (21,047 ) 

Change in unrealized gain (loss) on investments

      586,078      (2,180,255 )    78,066      (217,240 )    -          -          158,465      (114,803 ) 

Reinvested capital gains

      -          369,815      -          76,524      -          -          -          -       
                                                  

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

      507,586      (1,670,839 )    41,521      (141,088 )    (8,211 )    19,099      184,810      (93,805 ) 
                                                  

Equity transactions:

                 

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

      6,285      17,731      -          5,895      (2 )    46,381      1,915      3,196   

Transfers between funds

      92,924      (144,360 )    1,073      13,829      (282,638 )    593,407      15,208      123,564   

Redemptions (note 3)

      (311,478 )    (572,661 )    (37,623 )    (43,446 )    (211,563 )    (464,363 )    (187,384 )    (206,766 ) 

Contract maintenance charges (note 2)

      (452 )    (591 )    (41 )    (50 )    (283 )    (203 )    (201 )    (206 ) 

Contingent deferred sales charges (note 2)

      (1,215 )    (5,514 )    (186 )    (770 )    (450 )    (3,089 )    (555 )    (1,290 ) 

Adjustments to maintain reserves

      (52 )    (86 )    (41 )    3      (35 )    (60 )    (5 )    (28 ) 
                                                  

Net equity transactions

      (213,988 )    (705,481 )    (36,818 )    (24,539 )    (494,971 )    172,073      (171,022 )    (81,530 ) 
                                                  

Net change in contract owners’ equity

      293,598      (2,376,320 )    4,703      (165,627 )    (503,182 )    191,172      13,788      (175,335 ) 

Contract owners’ equity beginning of period

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

Contract owners’ equity end of period

    $ 2,332,259      2,038,661      173,659      168,956      997,746      1,500,928      1,046,904      1,033,116   
                                                  

CHANGES IN UNITS:

                 

Beginning units

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

Units purchased

      20,115      5,650      571      1,380      12,814      69,430      21,523      13,915   

Units redeemed

      (39,391 )    (50,627 )    (3,972 )    (3,176 )    (58,229 )    (53,137 )    (35,464 )    (20,477 ) 
                                                  

Ending units

      164,108      183,384      13,636      17,037      92,166      137,581      79,846      93,787   
                                                  

See accompanying notes to financial statements.

 

7

NATIONWIDE VARIABLE ACCOUNT-11

NOTES TO FINANCIAL STATEMENTS

December 31, 2009 and 2008

(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

Capital Appreciation Fund II - Primary Shares (FVCA2P)

Capital Income Fund II (FVU2)

Clover Value Fund II - Primary Shares (FALF)

Equity Income Fund II (FVEI2)

Fund for US Government Securities II (FVUS2)

High Income Bond Fund II - Primary Shares (FHIB)

International Equity Fund II (FVIE2)

Kaufmann Fund II - Primary Shares (FVK2)

Mid Cap Growth Strategies Fund II (FVGS2)

Prime Money Fund II (FVMM2)

Quality Bond Fund II - Primary Shares (FQB)

At December 31, 2009, contract owners were invested in all of the above funds.

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.

A purchase payment could be presented as a negative equity transaction in the Statements of Changes in Contract Owners’ Equity if a prior period purchase payment is refunded to a contract owner due to a contract cancellation during the free look period, and/or if a gain is realized by the contract owner during the free look period.

(c) Security Valuation, Transactions and Related Investment Income

Investments in underlying mutual funds are valued at the closing net asset value per share at December 31, 2009 of such funds, which represents 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.

(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 Standards

In September 2006, the FASB issued FASB ASC 820, Fair Value Measurements and Disclosures (SFAS No. 157, Fair Value Measurements). FASB ASC 820 provides enhanced guidance for using fair value to measure assets and liabilities and requires new disclosures about fair value measurements and 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. FASB ASC 820 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.

FASB ASC 820 was effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years, with early adoption permitted. The Account adopted FASB ASC 820 effective January 1, 2008. The adoption of FASB ASC 820 did not have a material impact on the Account’s financial position or results of operations.

In September 2009 the FASB issued ASU 2009-12, which amends FASB ASC 820, Fair Value Measurements and Disclosures. This guidance applies to reporting entities that hold an investment that is required or permitted to be measured or disclosed at fair value on a recurring or nonrecurring basis if the investment does not have a readily determinable fair value and the investee has attributes of an investment company. For these investments, this update allows, as a practical expedient, the use of net asset value (NAV) as the basis to estimate fair value as long as it is not probable, as of the measurement date that the investment will be sold and NAV is not the value that will be used in the sale. The NAVs must be calculated consistent with the American Institute of Certified Public Accountants Audit and Accounting Guide, Investment Companies, which generally requires these investments to be measured at fair value. Additionally, the guidance provided updated disclosures for investments within its scope and noted that if the investor can redeem the investment with the investee on the measurement date at NAV,

(Continued)

 

8

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS

the investment should likely be classified as Level 2 in the fair value hierarchy. Investments that cannot be redeemed with the investee at NAV would generally be classified as Level 3 in the fair value hierarchy. If the investment is not redeemable with the investee on the measurement date, but will be at a future date, the length of time until the investment is redeemable should be considered in determining classification as Level 2 or 3. This guidance is effective for interim and annual periods ending after December 15, 2009 with early adoption permitted. The Account adopted this guidance effective the period ending December 31, 2009. The adoption of this guidance did not have a material impact on the financial statements of the Account.

(h) Subsequent Events

The Company evaluated subsequent events through the date the financial statements were issued with the SEC.

(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.

 

  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, 2009.

 

    Total   FVCA2P   FVU2   FALF   FVEI2   FVUS2   FHIB   FVIE2
     
0.8%   $ 28,161   $ 5,916   $ 938   $ 5,334   $ 5,447   $ 927   $ 1,234   $ 497
0.95%     4,454     639     414     693     651     117     373     399
1.2%     67,210     9,260     607     10,708     8,887     4,055     6,321     1,258
1.35%     45,175     5,697     1,892     6,796     8,501     2,029     4,521     1,295
1.75%     6,719     1,033     278     766     479     166     690     256
     
Totals   $ 151,719   $ 22,545   $ 4,129   $ 24,297   $ 23,965   $ 7,294   $ 13,139   $ 3,705
     
    FVK2   FVGS2   FVMM2   FQB                
             
0.8%   $ 5,070   $ 78   $ 1,874   $ 846        
0.95%     766     101     50     251        
1.2%     9,435     559     8,037     8,083        
1.35%     6,213     1,149     3,642     3,440        
1.75%     1,922     206     839     84        
             
  $ 23,406   $ 2,093   $ 14,442   $ 12,704        
             

(Continued)

 

9

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS

(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, 2009 and 2008, total transfers to the Account from the fixed account were $0 and $140,686, respectively, and total transfers from the Account to the fixed account were $258,255 and $218,262, respectively. Transfers from the Account to the fixed account are included in redemptions, and transfers to the Account from the fixed account and subsequent gain or loss 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 $40,208 and $0 to the Account in the form of additional premium to contract owner accounts for the years ended December 31, 2009 and 2008, respectively. These amounts are included in purchase payments received from contract owners and are credited at time of annuitant death.

(4) Fair Value Measurement

FASB ASC 820 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 FASB ASC 820, 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 Account 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. These funds have no unfunded commitments or restrictions and the Account always has the ability to redeem its interest in the funds with the investee at NAV daily. The investment objectives of these mutual funds are described by the fund name in note 1(b) and in more detail in the applicable product prospectus.

 

  •  

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, 2009:

 

     Level 1    Level 2    Level 3    Total

Separate Account Investments

    0    $ 13,918,509    0    $ 13,918,509

Accounts Payable of $35 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 FASB ASC 820.

The cost of purchases and sales of Investments for the year ended December 31, 2009 are as follows:

 

     Purchases of
Investments		    Sales of
Investments

Capital Appreciation Fund II - Primary Shares (FVCA2P)

    $ 83,566    $ 479,801

Capital Income Fund II (FVU2)

      117,385      112,478

Clover Value Fund II - Primary Shares (FALF)

      74,228      1,028,293

Equity Income Fund II (FVEI2)

      143,686      472,925

Fund for US Government Securities II (FVUS2)

      116,183      47,041

High Income Bond Fund II - Primary Shares (FHIB)

      200,052      303,166

International Equity Fund II (FVIE2)

      110,467      164,233

Kaufmann Fund II - Primary Shares (FVK2)

      216,710      509,163

Mid Cap Growth Strategies Fund II (FVGS2)

      5,785      79,121

Prime Money Fund II (FVMM2)

      143,075      646,271

Quality Bond Fund II - Primary Shares (FQB)

      334,523      479,215
             

Total

    $ 1,545,660    $ 4,321,707
             

(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, 2009. 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.

(Continued)

 

10

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS

 

    

Contract
Expense
Rate*

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

Capital Appreciation Fund II - Primary Shares (FVCA2P)

  

     
2009    0.80%    to    1.75 %    195,299    $ 11.06    to    10.29    $ 2,112,155    1.11 %    12.57 %    to    11.49 % 
2008    0.80%    to    1.75 %    236,644      9.83    to    9.23      2,281,378    0.36 %    -29.93 %    to    -30.6 % 
2007    0.80%    to    1.75 %    293,135      14.03    to    13.29      4,049,070    0.82 %    9 %    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 %    1.1 %    to    0.14 % 

Capital Income Fund II (FVU2)

  

     
2009    0.80%    to    1.75 %    31,839      13.8    to    12.83      428,949    6.26 %    27.25 %    to    26.03 % 
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 %    3.2 %    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      11.6    to    11.21      660,345    4.28 %    5.44 %    to    4.43 % 

Clover Value Fund II - Primary Shares (FALF)

  

     
2009    0.80%    to    1.75 %    256,217      9.27    to    8.62      2,317,421    2.73 %    13.8 %    to    12.71 % 
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      12.4    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 % 

Equity Income Fund II (FVEI2)

  

     
2009    0.80%    to    1.75 %    191,209      12.07    to    11.22      2,251,596    4.69 %    14.34 %    to    13.24 % 
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      15.3    to    14.5      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 % 

Fund for US Government Securities II (FVUS2)

  

     
2009    0.80%    to    1.35 %    49,057      13.09    to    12.55      624,734    4.99 %    4.37 %    to    3.79 % 
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      11.5    to    11      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 % 

High Income Bond Fund II - Primary Shares (FHIB)

  

     
2009    0.80%    to    1.75 %    76,205      16.46    to    15.31      1,216,480    11.38 %    51.63 %    to    50.18 % 
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 %    2.6 %    to    1.61 % 
2006    0.80%    to    1.75 %    145,274      14.42    to    13.8      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 % 

International Equity Fund II (FVIE2)

  

     
2009    0.80%    to    1.75 %    35,656      12.02    to    11.18      416,571    2.97 %    40.12 %    to    38.78 % 
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    15.1      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 % 

(Continued)

 

11

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS

 

    

Contract
Expense
Rate*

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

Total
Return***

  

Kaufmann Fund II - Primary Shares (FVK2)

  

2009    0.80%   to    1.75 %    164,108    14.59   to    13.56   2,332,259     0.00 %    28.45%   to   27.22 % 
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   9.3 % 

Mid Cap Growth Strategies Fund II (FVGS2)

  

2009    0.80%   to    1.75 %    13,636    13.23   to    12.3   173,659     0.00 %    29.57%   to   28.33 % 
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    14.5   to    14.01   377,125     0.00 %    11.8%   to   10.74 % 

Prime Money Fund II (FVMM2)

  

2009    0.80%   to    1.75 %    92,166    11.15   to    10.36   997,746     0.51 %    -0.35%   to   -1.31 % 
2008    0.80%   to    1.75 %    137,581    11.19   to    10.5   1,500,928     2.51 %    1.72%   to   0.74 % 
2007    0.80%   to    1.75 %    121,288    11        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 % 

Quality Bond Fund II - Primary Shares (FQB)

  

2009    0.80%   to    1.35 %    79,846    13.51   to    12.95   1,046,904     6.85 %    19.47%   to   18.81 % 
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    12.3   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        1,405,939     4.08 %    0.49%   to   -0.47 % 
2009    Contract owners equity:   $ 13,918,474         
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         
* 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, 2009, 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, 2009, 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, 2009, and the results of their operations, changes in contract owners’ equity, and financial highlights for each of the periods indicated herein, in conformity with U.S. generally accepted accounting principles.

/s/    KPMG LLP

Columbus, Ohio

March 10, 2010

 

13