N-30D 1 dn30d.htm NATIONWIDE VA 11 Nationwide VA 11

NATIONWIDE

VARIABLE

ACCOUNT-11

Annual Report

to

Contract Owners

December 31, 2010

LOGO

NATIONWIDE LIFE INSURANCE COMPANY

HOME OFFICE: COLUMBUS, OHIO

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, 2010, and the related statements of operations for the year then ended, the statements of changes in contract owners’ equity for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. 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, 2010, 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, 2010, the results of their operations for the year then ended, the changes in contract owners’ equity for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/    KPMG LLP

Columbus, Ohio

March 9, 2011

 

2

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENT OF ASSETS, LIABILITIES AND CONTRACT OWNERS’ EQUITY

December 31, 2010

 

Assets:

   

Investments at fair value:

   

Capital Appreciation Fund II - Primary Shares (FVCA2P)

   

563,353 shares (cost $3,346,550)

    $ 3,605,457   

Capital Income Fund II (FVU2)

   

222,876 shares (cost $1,874,431)

      2,039,313   

Fund for US Government Securities II (FVUS2)

   

48,146 shares (cost $542,223)

      553,677   

High Income Bond Fund II - Primary Shares (FHIB)

   

143,546 shares (cost $895,995)

      1,009,132   

Kaufmann Fund II - Primary Shares (FVK2)

   

138,311 shares (cost $1,929,262)

      2,069,130   

Prime Money Fund II (FVMM2)

   

821,812 shares (cost $821,812)

      821,812   

Quality Bond Fund II - Primary Shares (FQB)

   

72,111 shares (cost $763,333)

      832,879   
        

Total Investments

    $ 10,931,400   

Accounts Payable

      (118 ) 
        
   $ 10,931,282   
        

Contract Owners’ Equity:

   

Accumulation units

      10,931,282   
        

Total Contract Owners’ Equity (note 5)

    $ 10,931,282   
        

See accompanying notes to financial statements.

 

3

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENT OF OPERATIONS

Year Ended December 31, 2010

 

Investment Activity:    Total     FVCA2P     FVU2     FALF     FVEI2     FVUS2     FHIB     FVIE2  

Reinvested dividends

    $ 362,173        21,400        30,560        44,939        76,454        28,388        102,976        860   

Mortality and expense risk charges (note 2)

      (138,150 )      (36,897 )      (20,984 )      (5,031 )      (4,816 )      (7,046 )      (13,485 )      (812 ) 
                                                                

Net investment income (loss)

      224,023        (15,497 )      9,576        39,908        71,638        21,342        89,491        48   
                                                                

Realized gain (loss) on investments

      (1,882,793 )      87,962        (16,563 )      (1,527,227 )      (290,173 )      2,286        (71,116 )      (94,738 ) 

Change in unrealized gain (loss) on investments

      2,757,126        230,703        174,045        1,569,472        255,398        (171 )      124,424        65,320   
                                                                

Net gain (loss) on investments

      874,333        318,665        157,482        42,245        (34,775 )      2,115        53,308        (29,418 ) 
                                                                

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

    $ 1,098,356        303,168        167,058        82,153        36,863        23,457        142,799        (29,370 ) 
                                                                
Investment Activity:    FVK2     FVGS2     FVMM2     FQB                          

Reinvested dividends

    $ 2,145        -            9        54,442           

Mortality and expense risk charges (note 2)

      (24,900 )      (425 )      (11,727 )      (12,027 )         
                                        

Net investment income (loss)

      (22,755 )      (425 )      (11,718 )      42,415           
                                        

Realized gain (loss) on investments

      85,932        (70,928 )      -            11,772           

Change in unrealized gain (loss) on investments

      241,569        76,572        -            19,794           
                                        

Net gain (loss) on investments

      327,501        5,644        -            31,566           
                                        

Reinvested capital gains

      -            -            -            -               
                                        

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

    $ 304,746        5,219        (11,718 )      73,981           
                                        

See accompanying notes to financial statements.

 

4

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY

Years Ended December 31, 2010 and 2009

 

     Total     FVCA2P     FVU2     FALF  
     2010     2009     2010     2009     2010     2009     2010     2009  

Investment activity:

                 

Net investment income (loss)

    $ 224,023        297,092        (15,497 )      253        9,576        18,848        39,908        35,004   

Realized gain (loss) on investments

      (1,882,793 )      (954,902 )      87,962        (10,915 )      (16,563 )      (18,504 )      (1,527,227 )      (612,832 ) 

Change in unrealized gain (loss) on investments

      2,757,126        2,764,453        230,703        227,019        174,045        85,779        1,569,472        821,169   
                                                                

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

      1,098,356        2,106,643        303,168        216,357        167,058        86,123        82,153        243,341   
                                                                

Equity transactions:

                 

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

      108,298        39,325        6,159        6,533        -            2,759        -            7,135   

Transfers between funds

      -            -            2,192,945        (23,276 )      2,238,385        74,550        (2,325,154 )      (53,321 ) 

Redemptions (note 3)

      (4,183,852 )      (2,145,598 )      (1,007,229 )      (366,811 )      (794,182 )      (72,617 )      (74,293 )      (327,441 ) 

Contract maintenance charges (note 2)

      (2,831 )      (3,389 )      (878 )      (546 )      (427 )      (113 )      (84 )      (608 ) 

Contingent deferred sales charges (note 2)

      (7,134 )      (8,245 )      (906 )      (1,451 )      (484 )      -            (48 )      (1,971 ) 

Adjustments to maintain reserves

      (29 )      (187 )      (35 )      (29 )      10        (32 )      5        209   
                                                                

Net equity transactions

      (4,085,548 )      (2,118,094 )      1,190,056        (385,580 )      1,443,302        4,547        (2,399,574 )      (375,997 ) 
                                                                

Net change in contract owners’ equity

      (2,987,192 )      (11,451 )      1,493,224        (169,223 )      1,610,360        90,670        (2,317,421 )      (132,656 ) 

Contract owners’ equity beginning of period

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

Contract owners’ equity end of period

    $ 10,931,282        13,918,474        3,605,379        2,112,155        2,039,309        428,949        -            2,317,421   
                                                                

CHANGES IN UNITS:

                 

Beginning units

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

Units purchased

      464,435        103,720        215,709        7,760        164,337        7,911        4,754        3,581   

Units redeemed

      (856,112 )      (321,122 )      (112,727 )      (49,105 )      (59,682 )      (7,879 )      (260,971 )      (54,509 ) 
                                                                

Ending units

      793,561        1,185,238        298,281        195,299        136,494        31,839        -            256,217   
                                                                

(Continued)

 

5

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY

Years Ended December 31, 2010 and 2009

 

     FVEI2     FVUS2     FHIB     FVIE2  
     2010     2009     2010     2009     2010     2009     2010     2009  

Investment activity:

                 

Net investment income (loss)

    $ 71,638        76,357        21,342        23,799        89,491        110,486        48        5,812   

Realized gain (loss) on investments

      (290,173 )      (51,440 )      2,286        (1,020 )      (71,116 )      (78,082 )      (94,738 )      (58,673 ) 

Change in unrealized gain (loss) on investments

      255,398        240,690        (171 )      1,823        124,424        411,176        65,320        154,188   
                                                                

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

      36,863        265,607        23,457        24,602        142,799        443,580        (29,370 )      101,327   
                                                                

Equity transactions:

                 

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

      -            9,040        -            -            2,437        4,507        -            1,153   

Transfers between funds

      (2,236,831 )      (14,032 )      125,875        84,011        96,271        33,338        (369,587 )      72,163   

Redemptions (note 3)

      (51,524 )      (347,465 )      (219,602 )      (37,022 )      (447,252 )      (172,376 )      (17,615 )      (73,818 ) 

Contract maintenance charges (note 2)

      (89 )      (503 )      (173 )      (222 )      (329 )      (356 )      (9 )      (64 ) 

Contingent deferred sales charges (note 2)

      (15 )      (1,158 )      (609 )      (390 )      (1,288 )      (593 )      -            (276 ) 

Adjustments to maintain reserves

      -            (26 )      (12 )      (47 )      8        (62 )      10        (67 ) 
                                                                

Net equity transactions

      (2,288,459 )      (354,144 )      (94,521 )      46,330        (350,153 )      (135,542 )      (387,201 )      (909 ) 
                                                                

Net change in contract owners’ equity

      (2,251,596 )      (88,537 )      (71,064 )      70,932        (207,354 )      308,038        (416,571 )      100,418   

Contract owners’ equity beginning of period

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

Contract owners’ equity end of period

    $ -            2,251,596        553,670        624,734        1,009,126        1,216,480        -            416,571   
                                                                

CHANGES IN UNITS:

                 

Beginning units

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

Units purchased

      1,581        5,900        10,999        6,842        6,582        6,854        270        9,849   

Units redeemed

      (192,790 )      (40,970 )      (18,197 )      (3,204 )      (27,157 )      (16,521 )      (35,926 )      (11,878 ) 
                                                                

Ending units

      -            191,209        41,859        49,057        55,630        76,205        -            35,656   
                                                                

(Continued)

 

6

NATIONWIDE VARIABLE ACCOUNT-11

STATEMENTS OF CHANGES IN CONTRACT OWNERS’ EQUITY

Years Ended December 31, 2010 and 2009

 

     FVK2     FVGS2     FVMM2     FQB  
     2010     2009     2010     2009     2010     2009     2010     2009  

Investment activity:

                 

Net investment income (loss)

    $ (22,755 )      (23,406 )      (425 )      (2,093 )      (11,718 )      (8,211 )      42,415        60,243   

Realized gain (loss) on investments

      85,932        (55,086 )      (70,928 )      (34,452 )      -            -            11,772        (33,898 ) 

Change in unrealized gain (loss) on investments

      241,569        586,078        76,572        78,066        -            -            19,794        158,465   
                                                                

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

      304,746        507,586        5,219        41,521        (11,718 )      (8,211 )      73,981        184,810   
                                                                

Equity transactions:

                 

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

      5,304        6,285        -            -            94,398        (2 )      -            1,915   

Transfers between funds

      81,104        92,924        (160,514 )      1,073        226,119        (282,638 )      131,387        15,208   

Redemptions (note 3)

      (652,847 )      (311,478 )      (18,332 )      (37,623 )      (483,192 )      (211,563 )      (417,784 )      (187,384 ) 

Contract maintenance charges (note 2)

      (455 )      (452 )      (4 )      (41 )      (230 )      (283 )      (153 )      (201 ) 

Contingent deferred sales charges (note 2)

      (1,020 )      (1,215 )      (15 )      (186 )      (1,300 )      (450 )      (1,449 )      (555 ) 

Adjustments to maintain reserves

      19        (52 )      (13 )      (41 )      (17 )      (35 )      (4 )      (5 ) 
                                                                

Net equity transactions

      (567,895 )      (213,988 )      (178,878 )      (36,818 )      (164,222 )      (494,971 )      (288,003 )      (171,022 ) 
                                                                

Net change in contract owners’ equity

      (263,149 )      293,598        (173,659 )      4,703        (175,940 )      (503,182 )      (214,022 )      13,788   

Contract owners’ equity beginning of period

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

Contract owners’ equity end of period

    $ 2,069,110        2,332,259        -            173,659        821,806        997,746        832,882        1,046,904   
                                                                

CHANGES IN UNITS:

                 

Beginning units

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

Units purchased

      14,016        20,115        177        571        35,964        12,814        10,046        21,523   

Units redeemed

      (53,071 )      (39,391 )      (13,813 )      (3,972 )      (51,067 )      (58,229 )      (30,711 )      (35,464 ) 
                                                                

Ending units

      125,053        164,108        -            13,636        77,063        92,166        59,181        79,846   
                                                                

See accompanying notes to financial statements.

 

7

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS December 31, 2010

(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)

Fund for US Government Securities II (FVUS2)

High Income Bond Fund II - Primary Shares (FHIB)

Kaufmann Fund II - Primary Shares (FVK2)

Prime Money Fund II (FVMM2)

Quality Bond Fund II - Primary Shares (FQB)

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.

The Company allocates purchase payments to sub-accounts and/or the fixed account as instructed by the contract owner. Shares of the sub-accounts are purchased at Net Asset Value, then converted into accumulation units. Certain transactions may be subject to conditions imposed by the underlying mutual funds, as well as those set forth in the contract.

(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, 2010 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, 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.

(Continued)

 

8

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS December 31, 2010

In January 2010, the FASB issued ASU 2010-06, which amends FASB ASC 820, Fair Value Measurement and Disclosures. This guidance requires new disclosures and provides amendments to clarify existing disclosures. The new requirements include disclosing transfers in and out of Levels 1 and 2 fair value measurements, the reasons for the transfers, and further disaggregating activity in level 3 fair value measurements. The clarification of existing disclosure guidance includes further disaggregation of fair value measurement disclosures for each class of assets and liabilities and providing disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures regarding the activity in Level 3 measurements, which shall be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2010, except for the new disclosure regarding the activity in Level 3 measurements, which the Company will adopt for the fiscal period beginning January 1, 2011.

(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   Retirement Ally  A
(formerly,
Deferred)		   Retirement Ally  B
(formerly,
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, 2010.

 

    Total     FVCA2P     FVU2     FALF     FVEI2     FVUS2     FHIB     FVIE2  
       
0.8%   $ 24,723      $ 8,744      $ 4,540      $ 1,096      $ 1,042      $ 920      $ 1,324      $ 81   
0.95%     4,161        1,476        668        155        118        135        300        72   
1.2%     62,324        15,923        8,296        2,178        1,804        3,477        7,209        372   
1.35%     40,484        9,336        7,162        1,434        1,751        2,514        4,141        238   
1.75%     6,458        1,418        318        168        101        -            511        49   
       
Totals   $ 138,150      $ 36,897      $ 20,984      $ 5,031      $ 4,816      $ 7,046      $ 13,485      $ 812   
       
    FVK2     FVGS2     FVMM2     FQB                          
               
0.8%   $ 4,406      $ 10      $ 1,699      $ 861           
0.95%     877        15        62        283           
1.2%     10,583        113        4,950        7,419           
1.35%     6,996        241        3,207        3,464           
1.75%     2,038        46        1,809        -               
               
  $ 24,900      $ 425      $ 11,727      $ 12,027           
               

(Continued)

 

9

NATIONWIDE VARIABLE ACCOUNT-11 NOTES TO FINANCIAL STATEMENTS December 31, 2010

(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, 2010 and 2009, total transfers to the Account from the fixed account were $0 and $0 respectively, and total transfers from the Account to the fixed account were $783,000 and $258,255, 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 $16,477 and $40,208 to the Account in the form of additional premium to contract owner accounts for the years ended December 31, 2010 and 2009, 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 Account recognizes significant transfers between fair value hierarchy levels at the reporting period end. There were no significant transfers between Level 1 and 2 as of December 31, 2010.

The following table summarizes assets measured at fair value on a recurring basis as of December 31, 2010:

 

     Level 1      Level 2      Level 3      Total  

Separate Account Investments

      0       $ 10,931,400         0       $ 10,931,400   

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 proceeds from sales of Investments for the year ended December 31,2010 are as follows:

 

     Purchases of
Investments		      Sales of
Investments		  

Capital Appreciation Fund II - Primary Shares (FVCA2P)

    $ 1,157,491       $ 1,245,453   

Capital Income Fund II (FVU2)

      845,478         828,915   

Clover Value Fund II - Primary Shares (FALF)

      3,972,821         2,445,594   

Equity Income Fund II (FVEI2)

      2,600,039         2,309,866   

Fund for US Government Securities II (FVUS2)

      240,842         243,128   

High Income Bond Fund II - Primary Shares (FHIB)

      538,139         467,023   

International Equity Fund II (FVIE2)

      482,779         388,041   

Kaufmann Fund II - Primary Shares (FVK2)

      698,005         783,937   

Mid Cap Growth Strategies Fund II (FVGS2)

      252,494         181,566   

Prime Money Fund II (FVMM2)

      523,408         523,408   

Quality Bond Fund II - Primary Shares (FQB)

      420,180         431,952   
                 

Total

    $ 11,731,676       $ 9,848,883   
                 

(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, 2010. 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 December 31, 2010

 

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

Capital Appreciation Fund II - Primary Shares (FVCA2P)

  

2010     0.80%        to        1.75%        298,281      $ 12.41        to      $ 11.43      $ 3,605,379        0.66%        12.17%        to        11.10%   
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        -30.60%   
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%   

Capital Income Fund II (FVU2)

  

2010     0.80%        to        1.75%        136,494        15.35        to        14.13        2,039,309        1.71%        11.19%        to        10.12%   
2009     0.80%        to        1.75%        31,839        13.80        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%        3.20%        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%   

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%        13.80%        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        12.40        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%   

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        15.30        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%   

Fund for US Government Securities II (FVUS2)

  

2010     0.80%        to        1.35%        41,859        13.65        to        13.02        553,670        4.69%        4.33%        to        3.75%   
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        11.50        to        11.00        749,146        4.40%        3.31%        to        2.32%   

High Income Bond Fund II - Primary Shares (FHIB)

  

2010     0.80%        to        1.75%        55,630        18.74        to        17.25        1,009,126        9.16%        13.81%        to        12.72%   
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%        2.60%        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%   

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        15.10        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%   

Kaufmann Fund II - Primary Shares (FVK2)

  

2010     0.80%        to        1.75%        125,053        17.07        to        15.72        2,069,110        0.10%        17.05%        to        15.93%   
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%   

Mid Cap Growth Strategies Fund II (FVGS2)

  

2009     0.80%        to        1.75%        13,636        13.23        to        12.30        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%   

Prime Money Fund II (FVMM2)

  

2010     0.80%        to        1.75%        77,063        11.06        to        10.18        821,806        0.00%        -0.80%        to        -1.75%   
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        10.50        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%   

Quality Bond Fund II - Primary Shares (FQB)

  

2010     0.80%        to        1.35%        59,181        14.54        to        13.86        832,882        5.43%        7.64%        to        7.04%   
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        12.30        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%   
2010     Contract owners equity:      $ 10,931,282           
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           
* 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 owners’ accounts through the redemption of units.
** This represents the ratio of 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, that result in direct reductions to the contractholder accounts through reductions in unit values. 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 total return for the period. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented.

 

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