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PROSPECTUS
SEPTEMBER 1, 1999
THE DOW(SM) TARGET VARIABLE FUND LLC
ONE FINANCIAL WAY
MONTGOMERY, OHIO 45242
(800) 366-6654
The Dow Target Variable Fund LLC is an open-end investment company. Its
"Dow Target 10" portfolios are twelve non-diversified portfolios of the common
stocks of the ten companies in the Dow Jones Industrial Average(SM) (the "Dow")
having the highest dividend yields as of the close of business on or about the
second last business day prior to the beginning of each portfolio's annual term.
This is often called "the Dow 10" strategy. These ten companies are popularly
known as the "Dogs of the Dow." Its "Dow Target 5" portfolios are twelve
non-diversified portfolios of the common stocks of the five Dow 10 companies
having the lowest per-share stock prices as of the close of business on or about
the second last business day prior to the beginning of each of those portfolios'
annual term.
The Fund's objective is to provide above-average total return through both
capital appreciation and dividend income. The Fund may or may not achieve that
objective. The stocks held in each portfolio of the Fund are not expected to
reflect the entire Dow index. The prices of Fund interests are not intended to
track movements of the Dow. The Dow consists of thirty stocks selected by Dow
Jones & Company, Inc. (publishers of The Wall Street Journal) as representing
American industry and the broader domestic stock market.
The Fund is a limited liability company created under Ohio law. Its
interests are owned entirely by variable annuity separate accounts of The Ohio
National Life Insurance Company ("ONLI"). Fund interests are not offered
directly to the public. Fund interests are purchased by ONLI's separate accounts
as an investment option for their variable annuity contracts.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Form 8520D-5
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INVESTMENT STRATEGY
The Fund has 24 non-diversified portfolios. Each one is named after a
different month (Dow Target 10 January portfolio, Dow Target 5 January
portfolio, Dow Target 10 February portfolio, Dow Target 5 February portfolio,
etc.) On or about the first business day of each month, each portfolio named for
that month invests substantially all its assets in the 10 Dogs of the Dow
stocks, or the 5 lowest priced Dogs of the Dow stocks, as the case may be, as
determined at the close of the second-last business day of the preceding month.
Fund management then sets the proportionate relationships among the 10 or 5
stocks in that portfolio for the next 12 months. For example, the stocks held in
a January portfolio are maintained in their same relative proportions until the
end of December. Those in a February portfolio are held until the end of the
next January and so on. At the end of a portfolio's twelfth month, the portfolio
is re-balanced with a new mix of 10 or 5 stocks.
All purchases of Fund interests (variable annuity separate accounts) during
any month are invested in that month's portfolios. After that month ends, you
may not make further purchases of that month's portfolio interests until the
corresponding month in later years. Any additional Fund purchases after the
first business day of a portfolio's month will duplicate, as nearly as is
practicable, the original proportionate relationships among its 10 or 5 stocks.
Since the prices of each of the stocks change nearly every day, the ratio of the
price of each stock to the total price of the entire group of 10 or 5 also
changes daily. However, the proportion of stocks represented in a portfolio will
not change materially.
The investments of portfolio securities are, to the extent practicable,
purchased in substantially equal dollar amounts for each of the 10 or 5
companies. It is generally not possible for management to purchase round lots
(usually 100 shares) of those stocks in amounts that will precisely duplicate
the prescribed mix. Also, it usually is impossible for a portfolio to be 100%
invested in the prescribed mix of those stocks at any time. To the extent a
portfolio is not fully invested, the interests of variable annuity owners may be
diluted and total return may not directly track the investment results of the 10
or 5 stocks. To minimize this effect, Fund management will try, as much as
practicable, to maintain a minimum cash position at all times. Normally, the
only cash items held by a portfolio are amounts expected to be deducted as
expenses and amounts too small to purchase additional round lots of the 10 or 5
stocks.
RISKS
Investing in the ten Dogs of the Dow stocks, or the five lowest priced of
those ten stocks, amounts to a moderately contrarian strategy. While these
stocks represent large established companies recognized as industry leaders,
they are currently out of favor relative to the other Dow stocks. While the
relatively high dividends paid by these companies may account for a substantial
portion of a portfolio's total return, there is no guarantee that the companies
will meet their expected dividend distributions throughout the 12-month term of
a portfolio, nor can there be any assurance that the stocks will appreciate in
price during the 12-month term. The loss of money is a risk of investing in the
Fund.
The Dow 10 and 5 strategies select the stocks by formula without
considering why some companies might currently be out of favor with investors.
Thus, a company experiencing financial difficulties or business reverses will
represent approximately 10% of a Dow Target 10 portfolio or approximately 20% of
a Dow Target 5 portfolio if, as of the beginning of the portfolio's 12-month
term, it is among the ten or five Dow stocks conforming to the portfolio's
selection formula. In addition to factors affecting the prices for each of the
individual stocks, all of those stocks are subject to general market and
economic trends that might negatively impact a portfolio's total return. The mix
of stocks will not be changed during a 12-month term in order to take advantage
of changing market conditions.
Being limited to ten or five stocks each, the portfolios are not
diversified. This can expose each portfolio to potentially greater market
fluctuations than might be experienced by a diversified fund. Variable annuity
owners, in light of their own financial situations and goals, should consider
other additional funding options in order to diversify the allocations of their
contract assets.
Form 8520D-5
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The Fund's interests are owned entirely by ONLI's variable annuity separate
accounts. In order for a variable annuity to be treated as an annuity, the
Internal Revenue Code requires, in effect, that each portfolio be diversified as
follows at the end of each calendar quarter:
- no more than 55% of the value of a portfolio's total assets may be
represented by any one investment,
- no more than 70% of the value of portfolio's total assets may be
represented by any two investments,
- no more than 80% of the value of a portfolio's total assets may be
represented by any three investments, and
- no more than 90% of the value of a portfolio's total assets may be
represented by any four investments.
It is possible, particularly for the Dow Target 5 portfolios, that changes
in the market prices of a portfolio's securities during the course of a year
could cause the portfolio to fail this test at the end of a quarter. We intend
to manage the Fund's portfolios so as to maintain the tax-advantaged status of
the variable annuities. If we determine that a portfolio might fail this
diversification test, we will purchase or sell securities for that portfolio in
order to prevent that failure. In so doing, we will seek to minimize any
deviations from the portfolio's standard strategy.
We have not included a chart of the portfolios' annual performance history
and a table of the portfolios' average annual returns because none of the
portfolios have existed for at least a full calendar year.
FUND ORGANIZATION
The Fund is organized as an Ohio limited liability company. Its Board of
Managers is responsible for the Fund's overall management and direction. The
Board elects the Fund's officers. The Board approves all significant agreements
including those with the investment adviser, sub-adviser, custodian and fund
accounting agent. Board members are elected by owners of Fund interests.
Under Ohio law, a limited liability company does not issue shares of stock.
Instead, ownership rights are contained in "membership interests". Each Fund
interest represents an undivided interest in the stocks held in a Fund
portfolio. The Fund is not offered directly to the public. The only direct owner
of the Fund's interests is ONLI through its separate accounts. Those of ONLI's
variable annuity owners who have contract values allocated to any of the Fund's
portfolios have indirect beneficial rights in the Fund's interests.
All Fund interests have equal voting rights. However, only interests of a
particular portfolio are entitled to vote on matters affecting only that
portfolio.
Each issued and outstanding Fund interest is entitled to one vote and to
participate equally in dividends and distributions declared by its corresponding
portfolio, and in the net assets of the portfolio remaining upon liquidation or
dissolution after outstanding liabilities are satisfied. The interests of each
portfolio, when issued, are fully paid and non-assessable. They have no
pre-emptive, conversion, cumulative dividend or similar rights. They are freely
transferable. Fund interests do not have cumulative rights. This means that
owners of more than half of the Fund's interests voting for election of Managers
can elect all the Managers if they so choose. Then, the remaining interest
owners would not be able to elect any Managers.
ONLI votes Fund interests it holds in accordance with instructions it
receives from the owners of variable annuity contracts issued in connection with
each of its separate accounts. Any other Fund interests will be voted in
proportion to the instructions received from all variable annuity owners.
FUND MANAGEMENT
The Fund's day-to-day investment management is the responsibility of its
investment adviser, Ohio National Investments, Inc. (the "Adviser"). The Adviser
is an Ohio corporation. It is a wholly-owned subsidiary of ONLI and its address
is the same as those of the Fund and ONLI. The Adviser and its predecessors have
been managing investment companies since 1970. All of the Adviser's investment
advisory personnel are also responsible for the management of ONLI's assets.
Form 8520D-5
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For managing the Fund's assets, the Adviser receives a monthly management
fee based on the Fund's total net assets. This fee is calculated daily and is at
the annual rate of 0.60% of the average daily total net assets.
In addition to the fee paid to the Adviser, the Fund incurs other
miscellaneous expenses for legal and accounting services, registration and
filing fees, custodial services and shareholder services.
The Adviser contracts with First Trust Advisors L.P. ("First Trust") to
serve as sub-adviser to the Fund. First Trust manages the Fund's assets under
the Adviser's supervision. First Trust, an investment adviser to financial
institutions, is located at 1001 Warrenville Road in Lisle, Illinois. First
Trust has been managing Dow 10 and Dow 5 strategies in unit investment trusts
and other investment companies since 1991.
First Trust has been granted a license by Dow Jones & Company, Inc. to use
certain copyright, trademark and proprietary rights and trade secrets of Dow
Jones. The Fund and ONLI have entered into agreements with First Trust giving
the Fund and ONLI permission to use and refer to the Dow Jones marks and rights
in connection with the Fund and ONLI's separate accounts.
For the services and rights provided by First Trust, the Adviser pays First
Trust a monthly sub-advisory fee based on the Fund's total net assets. This fee
is calculated daily and is at the annual rate of 0.35% of the Fund's average
daily net assets.
The Fund's transfer agent and accounting agent is American Data Services,
Inc., 150 Motor Parkway, Hauppauge, New York. The Fund's custodian is Star Bank,
425 Walnut Street, Cincinnati, Ohio.
THE DOW JONES INDUSTRIAL AVERAGE(SM)
The Dow was first published in The Wall Street Journal in 1896. Initially
consisting of just 12 stocks, it expanded to 20 stocks in 1916 and to its
present size of 30 stocks in 1928. The stocks are chosen by the editors of The
Wall Street Journal as representative of the broad stock market and of American
industry. The companies are major factors in their industries and their stocks
are widely held by individuals and institutional investors. Changes in the
components of the Dow are made entirely by the editors of The Wall Street
Journal without consultation with the companies, the stock exchange or any
official agency. For the sake of continuity, changes are made rarely. Most
substitutions have been the result of mergers, but from time to time, changes
may be made to achieve a better representation. The components of the Dow may be
changed at any time, for any reason. Any changes in the components of the Dow
made after the stock selection date will not cause a change in the identify of
the ten or five stocks included in a portfolio. The following is a list of the
companies which currently comprise the Dow.
AT&T Corporation
Allied Signal
Aluminum Company of America
American Express Company
Boeing Company
Caterpillar Inc.
Chevron Corporation
Coca-Cola Company
Walt Disney Company
E.I. duPont de Nemours & Company
Eastman Kodak Company
Exxon Corporation
General Electric Company
General Motors Corporation
Goodyear Tire & Rubber Company
Hewlett-Packard Co.
International Business Machines Corporation
International Paper Company
Johnson & Johnson
McDonald's Corporation
Merck & Company, Inc.
Minnesota Mining & Manufacturing Company
J.P. Morgan & Company, Inc.
Philip Morris Companies, Inc.
Procter & Gamble Company
Sears, Roebuck & Company
Travelers Group, Inc.
Union Carbide Corporation
United Technologies Corporation
Wal-Mart Stores, Inc.
The Fund is not sponsored, endorsed, sold or promoted by Dow Jones. Dow
Jones makes no representation or warranty, express or implied, to the Fund's
unit owners or any member of the public regarding the advisability of purchasing
the Fund. Dow Jones' only relationship to the Fund, ONLI, the Adviser or First
Trust is the
Form 8520D-5
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licensing of certain copyrights, trademarks, servicemarks and service names of
Dow Jones. Dow Jones has no obligation to take the needs of ONLI, the Adviser,
First Trust or variable annuity owners into consideration in determining,
composing or calculating the Dow. Dow Jones is not responsible for and has not
participated in the determination of the terms and conditions of the Fund,
including the pricing of Fund interests or the amount payable under variable
contracts. Dow Jones has no obligation or liability in connection with the
administration or marketing of the Fund or any variable annuity contracts.
TOTAL RETURN HISTORY OF THE DOW 10 AND DOW 5 STRATEGIES (NOT THE FUND)
The following table compares the annual total returns of the Dow 10 and Dow
5 strategies and the annual total returns of the Dow for each of the last 25
calendar years. The table does not show the Fund's performance history. The ten
and five designated stocks for each year were selected as of the beginning of
each year.
This table is presented for comparison purposes only. The total returns
shown are no indication of returns that might be expected in the future. The
table does not reflect the Fund's charges and expenses which diminish the Fund's
actual returns. (See "Charges and Expenses"). The Fund will not be 100% invested
at all times, nor is it possible for it to perfectly maintain its prescribed
relative weightings of the designated stocks at all times throughout a
portfolio's term. In addition to the Fund's charges and expenses, total return
in variable annuities is further reduced by separate account and contract
charges as described in the accompanying variable annuity prospectus.
<TABLE>
<CAPTION>
YEAR DOW 10 DOW 5 THE DOW
- ---- ------ ------- -------
<S> <C> <C> <C>
1974 -1.02% -5.40% -23.64%
1975 56.10% 64.77% 44.46%
1976 35.18% 40.96% 22.80%
1977 11.95% 5.49% -12.91%
1978 0.03% 1.23% 2.66%
1979 13.01% 9.84% 10.60%
1980 27.90% 41.69% 21.90%
1981 7.46% 3.19% -3.61%
1982 27.12% 43.37% 26.85%
1983 39.07% 36.38% 25.82%
1984 6.22% 11.12% 1.29%
1985 29.54% 38.34% 33.28%
1986 35.63% 30.89% 27.00%
1987 5.59% 10.69% 5.66%
1988 24.57% 21.47% 16.03%
1989 26.97% 10.55% 32.09%
1990 -7.82% -15.74% -0.73%
1991 34.20% 62.03% 24.19%
1992 7.69% 22.90% 7.39%
1993 27.08% 34.01% 16.87%
1994 4.21% 8.27% 5.03%
1995 36.85% 30.50% 36.67%
1996 28.35% 26.20% 28.71%
1997 21.68% 19.97% 24.82%
1998 10.59% 12.36% 18.03%
</TABLE>
Form 8520D-5
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Based on the above annual returns, the average annual total returns for the
25 year period were 18.73% for the Dow 10 strategy, 21.07% for the Dow 5
strategy, and 14.48% for the thirty Dow stocks. There can be no assurance that
future returns will continue to follow this pattern. In any event, the Fund's
actual returns will be less than those of each portfolio's selected stocks
because of the Fund's expenses.
PERFORMANCE DATA
From time to time, ONLI or its affiliates may advertise historical total
returns of variable contract subaccounts based on the returns of the Fund's
portfolios (adjusted for contract charges and expenses). These figures will be
calculated according to standardized methods prescribed by the SEC. The Fund's
total returns may be compared to returns on the Dow for comparable periods in
such advertising. Historical returns are not predictive of future performance.
ONLI or its affiliates may also advertise average annual total return or
other performance data for the Fund in non-standard formats. Any such
information will be accompanied by standardized performance data.
PRICING OF FUND INTERESTS
Fund interests are sold to ONLI's variable annuity separate accounts
without a sales charge. They may be redeemed at their net asset value next
computed after the Fund receives a purchase or redemption order. The value of
Fund interests is based on the market value of the stocks and any other cash or
securities owned by each portfolio. The net asset values of the Fund's interests
are determined on each day on which an order for purchase or redemption of the
Fund's interests are received and there is enough trading in portfolio
securities that the current net asset value of its interests might be affected.
The values are determined as of 4:00 p.m. eastern time on each day the New York
Stock Exchange is open for unrestricted trading. The net asset value of each
portfolio is computed by dividing the value of that portfolio's securities plus
any cash or other assets, less the portfolio's liabilities, by the number of
portfolio interests outstanding.
FUND DIVIDENDS AND DISTRIBUTIONS
Dividends representing net investment income are normally distributed
quarterly. Any net realized capital gains are normally distributed annually.
However, the Board may declare dividends more often. Dividends and distributions
are automatically reinvested in additional interests in the respective
portfolios at net asset value without a sales charge.
TAXES
The Fund is a limited liability company with all of its interests owned by
a single entity (ONLI). Accordingly, the Fund is taxed as part of the operations
of ONLI and is not taxed separately. Under current tax law, interest, dividend
income and capital gains of the Fund are not currently taxable when left to
accumulate within a variable annuity contract.
THE YEAR 2000 ISSUE
The Fund, the Adviser and related entities believe they have succeeded in
remedying the "Year 2000" problem for all mission critical internal computer
systems and applications. Conversion testing and implementation for those
systems were completed by December 31, 1998. During the remainder of 1999,
peripheral personal computer systems will continue to be up-graded and tested
for Year 2000 implementation. While the Fund and the Adviser have been assured
by suppliers of financial services (including the custodians, the transfer agent
and the accounting agent) that their systems either are already compliant or
will be so in sufficient time, the Fund's internal auditors intend to
independently test those systems to verify their compliance. The Fund, the
Adviser and related entities are also developing contingency plans to be
prepared for the possibility that one or more service providers might not be
compliant. The failure of the Fund, the Adviser or one of their service
suppliers to achieve timely and complete compliance could materially impair the
ability to conduct their business, including the ability to accurately and
timely value portfolio securities, and it could have an adverse effect on the
portfolios.
Form 8520D-5
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The Statement of Additional Information ("SAI") includes additional
information about the Fund. The SAI is incorporated herein by reference.
After the Fund completes its initial fiscal periods, additional information
about the Fund's investments will be available in the Fund's annual and
semi-annual reports to members. In the Fund's annual report, you will find a
discussion of the market conditions and how the Fund's investment strategy
significantly affected the Fund's performance during the year.
The SAI and (when available) the Fund's annual and semi-annual reports are
available, without charge, upon request. To receive them, call or write the Fund
at 1-800-578-8078, One Financial Way, Montgomery, Ohio 45242
Information about the Fund can also be reviewed and copied at the Public
Reference Room of the Securities and Exchange Commission in Washington, D.C.
Information about the SEC's Public Reference Room is available at
1-800-SEC-0330. Reports and other information are also available in the SEC's
Internet site at http://www.SEC. gov. Copies of this information may be
obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-6009.
Dow Target Variable Fund LLC, Investment Company Act File no. 811-9019.
Form 8520D-5
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