1933 ACT FILE NO.:
1940 ACT FILE NO.: 811-21056
CIK NO.: 1662280

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

REGISTRATION STATEMENT ON FORM S-6

FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2

A. Exact name of trust: ADVISORS DISCIPLINED TRUST 1685

B. Name of depositor: ADVISORS ASSET MANAGEMENT, INC.

C. Complete address of depositor's principal executive offices:

18925 Base Camp Road
Monument, Colorado 80132

D. Name and complete address of agent for service:

WITH A COPY TO:

SCOTT COLYER SCOTT R. ANDERSON
Advisors Asset Management, Inc. Chapman and Cutler LLP
18925 Base Camp Road 111 West Monroe Street
Monument, Colorado 80132 Chicago, Illinois 60603-4080

E. Title of securities being registered: Units of undivided beneficial
interest in the trust

F. Approximate date of proposed public offering:

AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT

[ ] Check box if it is proposed that this filing will become effective
on ____________, 2016 at _____ pursuant to Rule 487.

-------------------------------------------------------------------------------

The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.

The information in this prospectus is not complete and may be changed. No one
may sell units of the trust until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell units and is not soliciting an offer to buy units in any state
where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS DATED APRIL 29, 2016
SUBJECT TO COMPLETION

BALANCED PORTFOLIO, SERIES 2016-2

GLOBAL CLOSED-END PORTFOLIO,
SERIES 2016-3

(ADVISORS DISCIPLINED TRUST 1685)

PROSPECTUS

JULY ___, 2016

[LOGO] As with any investment, the Securities
and Exchange Commission has not approved
AAM or disapproved of these securities or
passed upon the adequacy or accuracy of
ADVISORS this prospectus. Any contrary
ASSET MANAGEMENT representation is a criminal offense.

------------------
BALANCED PORTFOLIO
------------------

INVESTMENT OBJECTIVE

The trust seeks to provide high current income with capital appreciation as a
secondary objective. There is no assurance the trust will achieve its
objective.

PRINCIPAL INVESTMENT STRATEGY

The trust invests in a diversified portfolio consisting of two equally-
weighted components:

* High 50(R) Dividend Strategy--a specialized dividend-oriented strategy that
seeks to provide above average total return.

* Tactical Income Closed-End Strategy--common stocks of closed-end investment
companies ("closed-end funds") seeking high current income with capital
appreciation potential.

We<F1>* selected these components in an effort to provide an enhanced total
return while reducing overall portfolio volatility through diversification of
assets and investment strategies. We selected the securities within each of
these components as described below. By combining these investment strategies,
we sought to create a portfolio balanced between stocks and other income-
producing securities, such as corporate bonds, government bonds, corporate
loans, convertible securities, preferred securities and equity securities. We
currently offer separate unit investment trusts that invest according to the
same or similar investment strategies as the components described above. The
components, portfolio securities and structure of the trust offered in this
prospectus may differ in certain respects from those of other trusts we may be
offering that use similar investment strategies.

The following describes the two components of the trust's portfolio. The
initial trust portfolio seeks to invest in each component in approximately equal
weightings as of the trust's inception and the weightings will vary thereafter
in accordance with fluctuations in stock prices.

HIGH 50(R) DIVIDEND STRATEGY. This component invests in stocks selected
using a specialized dividend-oriented strategy that seeks to provide above
average total return. We selected this component using the following strategy:

* We begin with the companies included in the New York Stock Exchange
Composite Index, Nasdaq Composite Index and NYSE MKT Composite Index.

* Stocks are eliminated if at the time of selection:

* the company's stock market capitalization is $1 billion or less,

* the company's headquarters is located outside the United States,

* the stocks are securities of limited partnerships, exchange-traded
funds, investment companies or shares of beneficial interest to the
extent such securities are not otherwise excluded from the composition
of the indexes.

* Of the remaining stocks we select the five stocks in each of the ten
industry sector components with the highest dividend yields as of
____________, ____. The trust invests in these 50 stocks.

The ten industry sectors used in the strategy are the Global Industry
Classification Standard sectors published by Standard & Poor's and

--------------------
<F1>* "AAM," "we" and related terms mean Advisors Asset Management, Inc., the
trust sponsor, unless the context clearly suggests otherwise.

2 Investment Summary

MSCI Barra. Please note that we applied the strategy to select the portfolio at
a particular time. If we create additional units of the trust after the trust's
inception date, the trust will purchase the securities originally selected by
applying the strategy. This is true even if a later application of the strategy
would have resulted in the selection of different securities. In addition,
companies which, based on publicly available information as of two business days
prior to the date of this prospectus, are the target of an announced business
acquisition which we expect will happen within six months of the date of this
prospectus have been excluded from the universe of securities from which the
trust's securities are selected.

The trust's strategy begins with the New York Stock Exchange (NYSE) Composite
Index, the Nasdaq Composite Index and the NYSE MKT Composite Index. The NYSE
Composite Index is designed to measure the performance of all common stocks
listed on the NYSE, including ADRs, real estate investment trusts (REITs) and
tracking stocks. All closed-end funds, exchange-traded funds, limited
partnerships and derivatives are excluded from the index. The Nasdaq Composite
Index measures all domestic and international based common type stocks traded on
The Nasdaq Stock Market. To be eligible for inclusion in this index the
security's U.S. listing must be exclusively on The Nasdaq Stock Market (with
certain exceptions), and have a security type of ADRs, common stock, limited
partnership interests, ordinary shares, REITs, shares of beneficial interest or
tracking stocks. Security types not included in this index are closed-end
funds, convertible debentures, exchange-traded funds, preferred stocks, rights,
warrants, units and other derivative securities. The NYSE MKT Composite Index
is an index representing the aggregate value of the common shares or ADRs of all
NYSE MKT-listed companies, REITs, master limited partnerships and closed-end
investment companies. The publishers of the indexes are not affiliated with us
and have not participated in creating the trust or selecting the securities for
the trust, nor have they reviewed or approved of any of the information
contained herein.

TACTICAL INCOME CLOSED-END STRATEGY. This component seeks to provide high
current income with capital appreciation potential by investing in a portfolio
primarily consisting of common stock of closed-end funds. The underlying funds
may invest in a variety of income-producing securities issued by various types
of foreign and/or U.S. issuers. Among other securities, these securities may
include corporate bonds, government bonds, corporate loans, convertible
securities, preferred securities and equity securities. These securities may be
rated investment grade, below investment grade or unrated by major security
rating agencies.

In selecting closed-end funds, we considered factors such as historical
returns, income potential, potential future growth, portfolio diversification
and advisor experience. We use a disciplined investment methodology to select
the funds for inclusion in this component. We begin by constructing a universe
of funds that have a stated investment objective in line with this component's
investment objective and that the fund advisor appears to be adhering to. From
this universe we select the final securities by utilizing a multi-factor
approach based on the following factors:

* Premium/Discount--We favor funds that are trading at a discount relative to
their peers and relative to their historic average.

* Dividend--We favor funds that have a history of a consistent and competitive
dividend

Investment Summary 3

and that appear to possess the ability to keep the dividend level intact.

* Performance--We favor funds that have an above average history of performance
based on net asset value when compared to their peers and a relevant
benchmark.

Approximately _____% of the portfolio consists of funds classified as "non-
diversified" under the Investment Company Act of 1940. These funds have the
ability to invest more than 5% of their assets in securities of a single issuer
which could reduce diversification.

PRINCIPAL RISKS

As with all investments, you can lose money by investing in this trust. The
trust also might not perform as well as you expect. This can happen for reasons
such as these:

* SECURITY PRICES WILL FLUCTUATE. The value of your investment may fall over
time.

* AN ISSUER MAY BE UNABLE TO MAKE INCOME AND/OR PRINCIPAL PAYMENTS, OR DECLARE
DIVIDENDS, IN THE FUTURE. This may reduce the level of income the trust
receives which would reduce your income and cause the value of your units
to fall.

* THE FINANCIAL CONDITION OF AN ISSUER MAY WORSEN OR ITS CREDIT RATINGS MAY
DROP, RESULTING IN A REDUCTION IN THE VALUE OF YOUR UNITS. This may occur
at any point in time, including during the primary offering period.

* THE VALUE OF CERTAIN SECURITIES WILL GENERALLY FALL IF INTEREST RATES, IN
GENERAL, RISE. No one can predict whether interest rates will rise or fall
in the future.

* THE TRUST INVESTS IN SHARES OF CLOSED-END FUNDS. You should understand the
information about closed-end funds in the section titled "Security
Selection--Tactical Income Closed-End Strategy" before you invest. In
particular, shares of these funds tend to trade at a discount from their
net asset value and are subject to risks related to factors such as the
manager's ability to achieve a fund's objective, market conditions
affecting a fund's investments and use of leverage. The trust and the
underlying funds have management and operating expenses. You will bear not
only your share of the trust's expenses, but also the expenses of the
underlying funds. By investing in other funds, the trust incurs greater
expenses than you would incur if you invested directly in the funds.

* WE DO NOT ACTIVELY MANAGE THE PORTFOLIO. While the closed-end funds have
managed portfolios, except in limited circumstances, the trust will hold,
and continue to buy, shares of the same securities even if their market
value declines.

4 Investment Summary

WHO SHOULD INVEST

You should consider this investment if you want:

* to own a defined portfolio of securities selected based on two distinct
investment strategies.

* to diversify your overall portfolio with investments in various types of
securities.

* the potential to receive income and capital appreciation.

You should not consider this investment if you:

* are uncomfortable with the risks of an unmanaged investment in the
securities held by the trust.

* are uncomfortable with the trust's strategies.

* seek aggressive growth without current income.

* seek capital preservation or capital appreciation as a primary objective.

------------------------------------------------------------

ESSENTIAL INFORMATION
---------------------

UNIT PRICE AT INCEPTION $10.0000

INCEPTION DATE ____________, 2016
TERMINATION DATE ____________, ____

ESTIMATED NET ANNUAL
DISTRIBUTIONS*
First year $______ per unit
Second year $______ per unit

DISTRIBUTION DATES 25th day of each month
RECORD DATES 10th day of each month

CUSIP NUMBERS
Standard Accounts
Cash distributions _________
Reinvest distributions _________
Fee Based Accounts
Cash distributions _________
Reinvest distributions _________

TICKER SYMBOL ______

MINIMUM INVESTMENT $1,000/100 units

TAX STRUCTURE Regulated Investment Company

------------------------------------------------------------

<FN>
* As of ____________, 2016 and may vary thereafter.
</FN>

FEES AND EXPENSES

The amounts below are estimates of the direct and indirect expenses that you
may incur based on a $10 unit price. Actual expenses may vary.

AS A % AMOUNT
OF $1,000 PER 100
SALES FEE INVESTED UNITS
------------------------

Initial sales fee 1.00% $10.00
Deferred sales fee 2.45 24.50
Creation & development fee 0.50 5.00
------- -------
Maximum sales fee 3.95% $39.50
======= =======

ORGANIZATION COSTS 0.38% $3.80
======= =======

AS A % AMOUNT
ANNUAL OF NET PER 100
OPERATING EXPENSES ASSETS UNITS
------------------------

Trustee fee & expenses _.__% $_____
Supervisory, evaluation
and administration fees _.__ _____
Closed-end fund expenses _.__ _____
------- -------
Total _.__% $_____
======= =======

The initial sales fee is the difference between the total sales fee (maximum
of 3.95% of the unit offering price) and the sum of the remaining deferred sales
fee and the total creation and development fee. The deferred sales fee is fixed
at $0.245 per unit and is paid in three monthly installments beginning
____________, ____. The creation and development fee is fixed at $0.05 per unit
and is paid at the end of the initial offering period (anticipated to be
approximately three months). The trust will indirectly bear the management and
operating expenses of the underlying closed-end funds. While the trust will not
pay these expenses directly out of its assets, these expenses are shown in the
trust's annual operating expenses above to illustrate the impact of these
expenses.

EXAMPLE

This example helps you compare the cost of this trust with other unit trusts
and mutual funds. In the example we assume that the expenses do not change and
that the trust's annual return is 5%. Your actual returns and expenses will
vary. Based on these assumptions, you would pay these expenses for every
$10,000 you invest in the trust:

1 year $_____
2 years (life of trust) $_____

These amounts are the same regardless of whether you sell your investment at
the end of a period or continue to hold your investment.

Investment Summary 5

BALANCED PORTFOLIO, SERIES 2016-2
(ADVISORS DISCIPLINED TRUST 1685)
PORTFOLIO
AS OF THE TRUST INCEPTION DATE, ____________, 2016

PERCENTAGE OF
NUMBER AGGREGATE MARKET COST OF
OF TICKER OFFERING VALUE PER SECURITIES
SHARES SYMBOL ISSUER(1) PRICE SHARE(1) TO TRUST(2)
---------------------------------------------------------------------------------------------------------------------------------

COMMON STOCKS -- ______%

(continued)

6 Investment Summary

BALANCED PORTFOLIO, SERIES 2016-2
(ADVISORS DISCIPLINED TRUST 1685)
PORTFOLIO (CONTINUED)
AS OF THE TRUST INCEPTION DATE, ____________, 2016

CLOSED-END FUNDS -- ______%

(continued)

Investment Summary 7

BALANCED PORTFOLIO, SERIES 2016-2
(ADVISORS DISCIPLINED TRUST 1685)
PORTFOLIO (CONTINUED)
AS OF THE TRUST INCEPTION DATE, ____________, 2016

CLOSED-END FUNDS (CONTINUED)

--------- ----------
100.00% $_______
========= ==========

<FN>
Notes to Portfolio

(1) Securities are represented by contracts to purchase such securities. The
value of each security is based on the most recent closing sale price of
each security as of the close of regular trading on the New York Stock
Exchange on the business day prior to the trust's inception date. In
accordance with Accounting Standards Codification 820, "Fair Value
Measurements", the trust's investments are classified as Level 1, which
refers to security prices determined using quoted prices in active markets
for identical securities.

(2) The cost of the securities to the sponsor and the sponsor's profit or
(loss) (which is the difference between the cost of the securities to the
sponsor and the cost of the securities to the trust) are $__________ and
$__________, respectively.

(3) This is a non-income producing security.

(4) This is a security issued by a foreign company.

Common stocks comprise approximately ______% of the investments in the
trust, broken down by country of organization as set forth below:
</FN>

8 Investment Summary

---------------------------
GLOBAL CLOSED-END PORTFOLIO
---------------------------

INVESTMENT OBJECTIVE

The trust seeks to provide high current income with capital appreciation as a
secondary objective. There is no assurance the trust will achieve its
objective.

PRINCIPAL INVESTMENT STRATEGY

The trust seeks to provide high current income with capital appreciation
potential by investing in a portfolio primarily consisting of common stock of
closed-end investment companies (known as "closed-end funds") that invest in
securities of foreign and/or U.S. issuers. Among other securities, these
securities may include foreign or U.S. corporate bonds, government bonds,
corporate loans, foreign currencies, preferred securities, equity securities,
call options and other similar or related securities. The foreign issuers may
be located in developed or emerging market countries. These securities may be
rated investment grade, below investment grade or unrated by major security
rating agencies.

In selecting these closed-end funds, we* considered factors such as historical
returns, income potential, potential future growth, portfolio diversification
and advisor experience. We use a disciplined investment methodology to select
the funds for inclusion in the trust. We begin by constructing a universe of
funds that have a stated investment objective in line with the trust's
investment objective and that the fund advisor appears to be adhering to. From
this universe we select the final securities by utilizing a multi-factor
approach based on the following factors:

* Premium/Discount--We favor funds that are trading at a discount relative to
their peers and relative to their historic average.

* Dividend--We favor funds that have a history of a consistent and competitive
dividend and that appear to possess the ability to keep the dividend level
intact.

* Performance--We favor funds that have an above average history of performance
based on net asset value when compared to their peers and a relevant
benchmark.

PRINCIPAL RISKS

As with all investments, you can lose money by investing in this trust. The
trust also might not perform as well as you expect. This can happen for reasons
such as these:

* SECURITY PRICES WILL FLUCTUATE. The value of your investment may fall over
time.

* THE VALUE OF THE SECURITIES IN THE CLOSED-END FUNDS WILL GENERALLY FALL IF
INTEREST RATES, IN GENERAL, RISE. No one can predict whether interest
rates will rise or fall in the future.

* AN ISSUER MAY BE UNABLE TO MAKE INCOME AND/OR PRINCIPAL PAYMENTS IN THE
FUTURE. This may reduce the level of dividends a closed-end fund pays
which would reduce your income and cause the value of your units to fall.

* THE TRUST INVESTS IN SHARES OF CLOSED-END FUNDS. You should understand the
section titled "Closed-End Funds" before you invest. In particular, shares
of these funds tend to trade at a discount from their net asset value and
are subject to risks related to factors such as the manager's ability to
achieve a fund's objective, market conditions affecting a fund's
investments and use of leverage. The trust and the underlying funds have
management and operating expenses. You will bear not only your share of
the trust's expenses, but also the expenses of the underlying funds. By
investing in other funds, the trust incurs greater expenses than you would
incur if you invested directly in the funds.

* SECURITIES OF FOREIGN ISSUERS HELD BY THE UNDERLYING FUNDS IN THE TRUST
PRESENT RISKS BEYOND THOSE OF U.S. ISSUERS. These risks may include market
and political factors related to the issuer's foreign market, international
trade conditions, the global and country-specific political environment,
less regulation, smaller or less liquid markets, increased volatility,
differing accounting practices and changes in the value of foreign
currencies.

* THE CLOSED-END FUNDS MAY INVEST IN SECURITIES RATED BELOW INVESTMENT GRADE
AND ARE CONSIDERED TO BE "JUNK" SECURITIES. These securities are
considered to be speculative and are subject to greater market and credit
risks. Accordingly, the risk of default is higher than investment grade
securities. In addition, these securities may be more sensitive to
interest rate changes and may be more likely to make early returns of
principal.

--------------------
<F1>* "AAM," "we" and related terms mean Advisors Asset Management, Inc., the
trust sponsor, unless the context clearly suggests otherwise.

Investment Summary 9

WHO SHOULD INVEST

You should consider this investment if you want:

* to own securities representing interests in managed funds that
collectively provide a globally-diversified investment.

* to diversify your overall portfolio with investments in securities of
foreign and U.S. issuers.

* the potential to receive monthly distributions of income.

You should not consider this investment if you:

* are uncomfortable with the risks of an unmanaged investment in closed-end
funds that collectively provide a globally-diversified investment.

* are uncomfortable with a globally-diversified investment in foreign and
U.S. issuers.

* seek capital preservation or capital appreciation as a primary objective.

------------------------------------------------------------

ESSENTIAL INFORMATION
---------------------

UNIT PRICE AT INCEPTION $10.0000

INCEPTION DATE ____________, 2016
TERMINATION DATE ____________, ____

ESTIMATED NET ANNUAL
DISTRIBUTIONS*
First year $______ per unit
Second year $______ per unit

DISTRIBUTION DATES 25th day of each month
RECORD DATES 10th day of each month

CUSIP NUMBERS
Standard Accounts
Cash distributions _________
Reinvest distributions _________
Fee Based Accounts
Cash distributions _________
Reinvest distributions _________

TICKER SYMBOL ______

MINIMUM INVESTMENT $1,000/100 units

TAX STRUCTURE Regulated Investment Company

------------------------------------------------------------

<FN>
* As of ____________, 2016 and may vary thereafter.
</FN>

FEES AND EXPENSES

The amounts below are estimates of the direct and indirect expenses that you
may incur. Actual expenses may vary.

AS A % AMOUNT
OF $1,000 PER 100
SALES FEE INVESTED UNITS
------------------------

Initial sales fee 1.00% $10.00
Deferred sales fee 2.45 24.50
Creation & development fee 0.50 5.00
------- -------
Maximum sales fee 3.95% $39.50
======= =======

ORGANIZATION COSTS 0.38% $3.80
======= =======

AS A % AMOUNT
ANNUAL OF NET PER 100
OPERATING EXPENSES ASSETS UNITS
------------------------

Trustee fee & expenses _.__% $_____
Supervisory, evaluation
and administration fees _.__ _____
Closed-end fund expenses _.__ _____
------- -------
Total _.__% $_____
======= =======

The initial sales fee is the difference between the total sales fee (maximum
of 3.95% of the unit offering price) and the sum of the remaining deferred sales
fee and the total creation and development fee. The deferred sales fee is fixed
at $0.245 per unit and is paid in three monthly installments beginning
____________, 2016. The creation and development fee is fixed at $0.05 per unit
and is paid at the end of the initial offering period (anticipated to be
approximately three months). The trust will indirectly bear the management and
operating expenses of the underlying closed-end funds. While the trust will not
pay these expenses directly out of its assets, these expenses are shown in the
trust's annual operating expenses above to illustrate the impact of these
expenses.

EXAMPLE

1 year $_____
2 years (life of trust) $_____

These amounts are the same regardless of whether you sell your investment at
the end of a period or continue to hold your investment.

10 Investment Summary

GLOBAL CLOSED-END PORTFOLIO, SERIES 2016-3
(ADVISORS DISCIPLINED TRUST 1685)
PORTFOLIO
AS OF THE TRUST INCEPTION DATE, ____________, 2016

PERCENTAGE OF MARKET COST OF
NUMBER TICKER AGGREGATE OFFERING VALUE PER SECURITIES
OF SHARES SYMBOL ISSUER(1) PRICE SHARE(1) TO TRUST(2)
----------------------------------------------------------------------------------------------------------------------------------

CLOSED-END FUNDS -- 100.00%

--------- ----------
100.00% $_______
========= ==========

<FN>
Notes to Portfolio

Investment Summary 11

-----------------------------
UNDERSTANDING YOUR INVESTMENT
-----------------------------

HOW TO BUY UNITS

You can buy units of a trust on any business day the New York Stock Exchange
is open by contacting your financial professional. Unit prices are available
daily on the Internet at WWW.AAMLIVE.COM. The public offering price of units
includes:

* the net asset value per unit plus

* organization costs plus

* the sales fee.

The "net asset value per unit" is the value of the securities, cash and other
assets in your trust reduced by the liabilities of your trust divided by the
total units or your trust outstanding. We often refer to the public offering
price of units as the price" or "purchase price." The offer price will be
effective for all orders received prior to the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time). If we receive your
order prior to the close of regular trading on the New York Stock Exchange or
authorized financial professionals receive your order prior to that time and
properly transmit the order to us by the time that we designate, then you will
receive the price computed on the date of receipt. If we receive your order
after the close of regular trading on the New York Stock Exchange, if authorized
financial professionals receive your order after that time or if orders are
received by such persons and are not transmitted to us by the time that we
designate, then you will receive the price computed on the date of the next
determined offer price provided that your order is received in a timely manner
on that date. It is the responsibility of the authorized financial professional
to transmit the orders that they receive to us in a timely manner. Certain
broker-dealers may charge a transaction or other fee for processing unit
purchase orders.

VALUE OF THE SECURITIES. We determine the value of the securities as of the
close of regular trading on the New York Stock Exchange on each day that
exchange is open. We generally determine the value of securities using the last
sale price for securities traded on a national securities exchange. For this
purpose, the trustee provides us closing prices from a reporting service
approved by us. In some cases we will price a security based on its fair value
after considering appropriate factors relevant to the value of the security. We
will only do this if a security is not principally traded on a national
securities exchange or if the market quotes are unavailable or inappropriate.

We determined the initial prices of the securities shown under each
"Portfolio" section in this prospectus as described above at the close of
regular trading on the New York Stock Exchange on the business day before the
date of this prospectus. On the first day we sell units we will compute the
unit price as of the close of regular trading on the New York Stock Exchange or
the time the registration statement filed with the Securities and Exchange
Commission becomes effective, if later.

ORGANIZATION COSTS. During the initial offering period, part of the value of
the units represents an amount that will pay the costs of creating your trust.
These costs include the costs of preparing the registration statement and legal
documents, a portfolio consultant's security selection fee (if any), federal and
state registration fees, the initial fees and expenses of the trustee and the
initial audit. Your trust will sell securities to reimburse us for these costs
at the end of the initial offering period or after six months, if earlier. The
value of your units will decline when your trust pays these costs.

12 Understanding Your Investment

TRANSACTIONAL SALES FEE. You pay a fee in connection with purchasing units.
We refer to this fee as the "transactional sales fee." The transactional sales
fee has both an initial and a deferred component and equals 3.45% of the public
offering price per unit based on a $10 public offering price per unit. This
percentage amount of the transactional sales fee is based on the unit price on
your trust's inception date. The transactional sales fee equals the difference
between the total sales fee and the creation and development fee. As a result,
the percentage and dollar amount of the transactional sales fee will vary as the
public offering price per unit varies. The transactional sales fee does not
include the creation and development fee which is described under "Fees and
Expenses" for your trust.

The maximum sales fee equals 3.95% of the public offering price per unit at
the time of purchase. You pay the initial sales fee at the time you buy units.
The initial sales fee is the difference between the total sales fee percentage
(maximum of 3.95% of the public offering price per unit) and the sum of the
remaining fixed dollar deferred sales fee and the total fixed dollar creation
and development fee. The initial sales fee will be approximately 1.00% of the
public offering price per unit depending on the public offering price per unit.
The deferred sales fee is fixed at $0.245 per unit. Your trust pays the
deferred sales fee in equal monthly installments as described under "Fees and
Expenses" for your trust. If you redeem or sell your units prior to collection
of the total deferred sales fee, you will pay any remaining deferred sales fee
upon redemption or sale of your units.

If you purchase units after the last deferred sales fee payment has been
assessed, the secondary market sales fee is equal to 3.95% of the public
offering price and does not include deferred payments (i.e. unitholders who buy
in the secondary market after collection of the deferred sales fee are not
charged deferred sales fees).

MINIMUM PURCHASE. The minimum amount you can purchase appears under
"Essential Information" for your trust, but such amounts may vary depending on
your selling firm.

REDUCING YOUR SALES FEE. We offer a variety of ways for you to reduce the
fee you pay. It is your financial professional's responsibility to alert us of
any discount when you order units. Except as expressly provided herein, you may
not combine discounts. Since the deferred sales fee and the creation and
development fee are fixed dollar amounts per unit, your trust must charge these
fees per unit regardless of any discounts. However, if you are eligible to
receive a discount such that your total sales fee is less than the fixed dollar
amounts of the deferred sales fee and the creation and development fee, we will
credit you the difference between your total sales fee and these fixed dollar
fees at the time you buy units.

Large Purchases. You can reduce your sales fee by increasing the size of
your investment:

IF YOU PURCHASE: YOUR FEE WILL BE:
------------------------------------------

Less than $50,000 3.95%
$50,000 - $99,999 3.70
$100,000 - $249,999 3.45
$250,000 - $499,999 3.10
$500,000 - $999,999 2.95
$1,000,000 or more 2.45

We apply these fees as a percent of the public offering price per unit at the
time of purchase. The breakpoints will be adjusted to take into consideration
purchase orders stated in dollars which cannot be completely fulfilled due to
the requirements that only whole units be issued.

Understanding Your Investment 13

You aggregate initial offering period unit orders submitted by the same
person for units of any of the trusts we sponsor on any single day from any one
broker-dealer to qualify for a purchase level. If you purchase initial offering
period units that qualify for the fee account or rollover/exchange discount
described below and also purchase additional initial offering period units on a
single day from the same broker-dealer that do not qualify for the fee account
or rollover/exchange discount, you aggregate all initial offering period units
purchased for purposes of determining the applicable breakpoint level in the
table above on the additional units, but such additional units will not qualify
for the fee account or rollover/exchange discount described below. Secondary
market unit purchases are not aggregated with initial offering period unit
purchases for purposes of determining the applicable breakpoint level. You can
also include these orders as your own for purposes of this aggregation:

* orders submitted by your spouse or children (including step-children)
under 21 years of age living in the same household and

* orders submitted by your trust estate or fiduciary accounts.

The discounts described above apply only to initial offering period
purchases.

Fee Accounts. Investors may purchase units through registered investment
advisers, certified financial planners or registered broker-dealers who in each
case either charge investor accounts ("Fee Accounts") periodic fees for
brokerage services, financial planning, investment advisory or asset management
services, or provide such services in connection with an investment account for
which a comprehensive "wrap fee" charge ("Wrap Fee") is imposed. You should
consult your financial advisor to determine whether you can benefit from these
accounts. To purchase units in these Fee Accounts, your financial advisor must
purchase units designated with one of the Fee Account CUSIP numbers, if
available. Please contact your financial advisor for more information. If
units are purchased for a Fee Account and the units are subject to a Wrap Fee in
such Fee Account (i.e., the trust is "Wrap Fee Eligible") then investors may be
eligible to purchase units in these Fee Accounts that are not subject to the
transactional sales fee but will be subject to the creation and development fee
that is retained by the sponsor. For example, this table illustrates the sales
fee you will pay as a percentage of the initial $10 public offering price per
unit (the percentage will vary with the unit price).

Initial sales fee 0.00%
Deferred sales fee 0.00%
-------
Transactional sales fee 0.00%
=======
Creation and development fee 0.50%
-------
Total sales fee 0.50%
=======

This discount applies only during the initial offering period. Certain Fee
Account investors may be assessed transaction or other fees on the purchase
and/or redemption of units by their broker-dealer or other processing
organizations for providing certain transaction or account activities. We
reserve the right to limit or deny purchases of units in Fee Accounts by
investors or selling firms whose frequent trading activity is determined to be
detrimental to a trust.

Employees. We waive the transactional sales fee for purchases made by
officers, directors and employees (and immediate family members) of the sponsor
and its affiliates. These purchases are not subject to the transactional sales
fee but will be subject to the creation and development fee. We also waive a
portion of the sales fee for purchases

14 Understanding Your Investment

made by officers, directors and employees (and immediate family members) of
selling firms. These purchases are made at the public offering price per unit
less the applicable regular dealer concession. Immediate family members for the
purposes of this section include your spouse, children (including step-children)
under the age of 21 living in the same household, and parents (including step-
parents). These discounts apply to initial offering period and secondary market
purchases. All employee discounts are subject to the policies of the related
selling firm, including but not limited to, householding policies or
limitations. Only officers, directors and employees (and their immediate family
members) of selling firms that allow such persons to participate in this
employee discount program are eligible for the discount.

Rollover/Exchange Option. We waive a portion of the sales fee on units of
the trusts offered in this prospectus if you buy your units with redemption or
termination proceeds from any unit investment trust (regardless of sponsor).
The discounted public offering price per unit for these transactions is equal to
the regular public offering price per unit less 1.00%. However, if you invest
redemption or termination proceeds of $500,000 or more in units, the maximum
sales fee on your units will be limited to the maximum sales fee for the
applicable amount invested in the table under "Large Purchases" above. To
qualify for this discount, the termination or redemption proceeds used to
purchase units of a trust offered in this prospectus must be derived from a
transaction that occurred within 30 calendar days of your purchase of units of a
trust offered in this prospectus. In addition, the discount will only be
available for investors that utilize the same broker-dealer (or a different
broker-dealer with appropriate notification) for both the unit purchase and the
transaction resulting in the receipt of the termination or redemption proceeds
used for the unit purchase. You may be required to provide appropriate
documentation or other information to your broker-dealer to evidence your
eligibility for this sales fee discount.

Please note that if you purchase units of a trust in this manner using
redemption proceeds from trusts which assess the amount of any remaining
deferred sales fee at redemption, you should be aware that any deferred sales
fee remaining on these units will be deducted from those redemption proceeds.
These discounts apply only to initial offering period purchases.

Dividend Reinvestment Plan. We do not charge any sales fee when you reinvest
distributions from your trust into additional units of your trust. This sales
fee discount applies to initial offering period and secondary market purchases.
Since the deferred sales fee and the creation and development fee are fixed
dollar amounts per unit, your trust must charge these fees per unit regardless
of this discount. If you elect the distribution reinvestment plan, we will
credit you with additional units with a dollar value sufficient to cover the
amount of any remaining deferred sales fee or creation and development fee that
will be collected on such units at the time of reinvestment. The dollar value
of these units will fluctuate over time.

RETIREMENT ACCOUNTS. Your portfolio may be suitable for purchase in tax-
advantaged retirement accounts. You should contact your financial professional
about the accounts offered and any additional fees imposed.

HOW TO SELL YOUR UNITS

You can sell or redeem your units on any business day the New York Stock
Exchange is open by contacting your financial professional. Unit prices are
available daily on the Internet at

Understanding Your Investment 15

WWW.AAMLIVE.COM or through your financial professional. The sale and redemption
price of units is equal to the net asset value per unit, provided that you will
not pay any remaining creation and development fee or organization costs if you
sell or redeem units during the initial offering period. The sale and
redemption price is sometimes referred to as the "liquidation price." You pay
any remaining deferred sales fee when you sell or redeem your units. Certain
broker-dealers may charge a transaction or other fee for processing unit
redemption or sale requests.

SELLING UNITS. We may maintain a secondary market for units. This means
that if you want to sell your units, we may buy them at the current net asset
value, provided that you will not pay any remaining creation and development fee
or organization costs if you sell units during the initial offering period. We
may then resell the units to other investors at the public offering price or
redeem them for the redemption price. Our secondary market repurchase price is
the same as the redemption price. Certain broker-dealers might also maintain a
secondary market in units. You should contact your financial professional for
current repurchase prices to determine the best price available. We may
discontinue our secondary market at any time without notice. Even if we do not
make a market, you will be able to redeem your units with the trustee on any
business day for the current redemption price.

REDEEMING UNITS. You may also redeem your units directly with the trustee,
The Bank of New York Mellon, on any day the New York Stock Exchange is open.
The redemption price that you will receive for units is equal to the net asset
value per unit, provided that you will not pay any remaining creation and
development fee or organization costs if you redeem units during the initial
offering period. You will pay any remaining deferred sales fee at the time you
redeem units. You will receive the net asset value for a particular day if the
trustee receives your completed redemption request prior to the close of regular
trading on the New York Stock Exchange. Redemption requests received by
authorized financial professionals prior to the close of regular trading on the
New York Stock Exchange that are properly transmitted to the trustee by the time
designated by the trustee, are priced based on the date of receipt. Redemption
requests received by the trustee after the close of regular trading on the New
York Stock Exchange, redemption requests received by authorized financial
professionals after that time or redemption requests received by such persons
that are not transmitted to the trustee until after the time designated by the
trustee, are priced based on the date of the next determined redemption price
provided they are received in a timely manner by the trustee on such date. It
is the responsibility of authorized financial professionals to transmit
redemption requests received by them to the trustee so they will be received in
a timely manner. If your request is not received in a timely manner or is
incomplete in any way, you will receive the next net asset value computed after
the trustee receives your completed request.

If you redeem your units, the trustee will generally send you a payment for
your units no later than seven days after it receives all necessary
documentation (this will usually only take three business days). The only time
the trustee can delay your payment is if the New York Stock Exchange is closed
(other than weekends or holidays), the Securities and Exchange Commission
determines that trading on that exchange is restricted or an emergency exists
making sale or evaluation of the securities not reasonably practicable, and for
any other period that the Securities and Exchange Commission permits.

16 Understanding Your Investment

You can request an in-kind distribution of the securities underlying your
units if you tender at least 2,500 units for redemption (or such other amount as
required by your financial professional's firm). This option is generally
available only for securities traded and held in the United States. The trustee
will make any in-kind distribution of securities by distributing applicable
securities in book entry form to the account of your financial professional at
Depository Trust Company. You will receive whole shares of the applicable
securities and cash equal to any fractional shares. You may not request this
option in the last 30 days of your trust's life. We may discontinue this option
upon sixty days notice.

EXCHANGE OPTION. You may be able to exchange your units for units of our
unit trusts at a reduced sales fee. You can contact your financial professional
for more information about trusts currently available for exchanges. Before you
exchange units, you should read the prospectus carefully and understand the
risks and fees. You should then discuss this option with your financial
professional to determine whether your investment goals have changed, whether
current trusts suit you and to discuss tax consequences. We may discontinue
this option at any time upon sixty days notice.

ROLLOVER OPTION. Your trust's strategy may be a long-term investment
strategy designed to be followed on an annual basis. You may achieve more
consistent long-term investment results by following the strategy. As part of
the strategy, we currently intend to offer a subsequent series of your trust for
a rollover when the current trust terminates. When your trust terminates you
will have the option to (1) participate in a rollover and have your units
reinvested into a subsequent trust series through a cash rollover as described
in this section, (2) receive an in-kind distribution of securities or (3)
receive a cash distribution.

If you elect to participate in a rollover, your units will be redeemed on
your trust's termination date. As the redemption proceeds become available, the
proceeds (including dividends) will be invested in a new trust series, if
available, at the public offering price for the new trust. The trustee will
attempt to sell securities to satisfy the redemption as quickly as practicable
on the termination date. We do not anticipate that the sale period will be
longer than one day, however, certain factors could affect the ability to sell
the securities and could impact the length of the sale period. The liquidity of
any security depends on the daily trading volume of the security and the amount
available for redemption and reinvestment on any day.

We intend to make subsequent trust series available for sale at various times
during the year. Of course, we cannot guarantee that a subsequent trust or
sufficient units will be available or that any subsequent trusts will offer the
same investment strategies or objectives as current trusts. We cannot guarantee
that a rollover will avoid any negative market price consequences resulting from
trading large volumes of securities. Market price trends may make it
advantageous to sell or buy securities more quickly or more slowly than
permitted by the trust procedures. We may, in our sole discretion, modify a
rollover or stop creating units of any future trust at any time regardless of
whether all proceeds of unitholders have been reinvested in a rollover. We may
decide not to offer a rollover option upon sixty days notice. Cash which has
not been reinvested in a rollover will be distributed to unitholders shortly
after the termination date. Rollover participants may receive taxable dividends
or realize taxable capital gains which are reinvested in connection with a

Understanding Your Investment 17

rollover but may not be entitled to a deduction for capital losses due to the
"wash sale" tax rules. Due to the reinvestment in a subsequent trust, no cash
will be distributed to pay any taxes. See "Understanding Your Investment--
Taxes".

DISTRIBUTIONS

DISTRIBUTIONS. Your trust generally pays distributions of its net investment
income along with any excess capital on each distribution date to unitholders of
record on the preceding record date. If your trust is a "grantor trust" for
federal tax purposes, the trust will generally only make a distribution if the
total cash held for distribution equals at least 0.1% of the trust's net asset
value as determined under the trust agreement. The record and distribution
dates and the tax status are shown under "Essential Information" in the
"Investment Summary" section of this prospectus for your trust. In some cases,
your trust might pay a special distribution if it holds an excessive amount of
cash pending distribution. For example, this could happen as a result of a
merger or similar transaction involving a company whose stock is in your
portfolio. Your trust will also generally make required distributions or
distributions to avoid imposition of tax at the end of each year if it is
structured as a "regulated investment company" for federal tax purposes. The
amount of your distributions will vary from time to time as companies change
their dividends or trust expenses change.

When your trust receives dividends from a portfolio security, the trustee
credits the dividends to the trust's accounts. In an effort to make relatively
regular income distributions, if your trust is a "regulated investment company"
for tax purposes and makes monthly distributions, your trust's monthly income
distribution is equal to one-twelfth of the estimated net annual dividends to be
received by your trust after deduction of trust operating expenses. Because a
trust does not receive dividends from the portfolio securities at a constant
rate throughout the year, the income distributions to unitholders from such a
trust may be more or less than the amount credited to your trust accounts as of
the record date. For the purpose of minimizing fluctuation in income
distributions, the trustee is authorized to advance such amounts as may be
necessary to provide income distributions of approximately equal amounts. The
trustee will be reimbursed, without interest, for any such advances from
available income received by a trust on the ensuing record date.

ESTIMATED ANNUAL DISTRIBUTIONS. The estimated net annual distributions for
your trust is shown under "Essential Information" section of this prospectus
related to your trust. We generally base the estimate of the income your trust
may receive on annualizing the most recent ordinary dividend declared by an
issuer (or adding the most recent interim and final dividends declared for
certain foreign issuers) or on scheduled income payments. However, dividend
conventions for certain companies and/or certain countries differ from those
typically used in the United States and in certain instances, dividends paid or
declared over several years or other periods were used to estimate annual
distributions. Due to this and various other factors, actual dividends received
by your trust will most likely differ from the most recent annualized dividends
or scheduled income payments. The actual net annual distributions you will
receive will vary with changes in your trust's fees and expenses, in dividends
received and with the sale of securities.

REPORTS. The trustee or your financial professional will make available to
you a statement showing income and other receipts of your trust

18 Understanding Your Investment

for each distribution. Each year the trustee will also provide an annual report
on your trust's activity and certain tax information. You can request copies of
security evaluations to enable you to complete your tax forms and audited
financial statements for your trust, if available.

INVESTMENT RISKS

All investments involve risk. This section describes the main risks that can
impact the value of the securities in your portfolio. You should understand
these risks before you invest. If the value of the securities falls, the value
of your units will also fall. We cannot guarantee that your trust will achieve
its objective or that your investment return will be positive over any period.

MARKET RISK. Market risk is the risk that the value of the securities in
your trust will fluctuate. This could cause the value of your units to fall
below your original purchase price. Market value fluctuates in response to
various factors. These can include changes in interest rates, inflation, the
financial condition of a security's issuer, perceptions of the issuer, or
ratings on a security. Even though we supervise your portfolio, you should
remember that we do not manage your portfolio. Your trust will not sell a
security solely because the market value falls as is possible in a managed fund.

SELECTION RISK. Selection risk is the risk that the securities selected for
inclusion by your trust or by a fund's management will underperform the markets,
relevant indices or the securities selected by other funds with similar
investment objectives and investment strategies. This means you may lose money
or earn less money than other comparable investments.

EQUITY SECURITIES. Your trust and/or certain funds held by your trust may
invest in securities representing equity ownership of a company. Investments in
such securities are exposed to risks associated with the companies issuing the
securities, the sectors and geographic locations they are involved in and the
markets that such securities are traded on among other risks as described
herein.

FIXED INCOME SECURITIES. Certain funds held by your trust may invest in
fixed income securities and similar securities. Fixed income securities involve
certain unique risks such as credit risk and interest rate risk among other
things as described in greater detail below.

DIVIDEND PAYMENT RISK. Dividend payment risk is the risk that an issuer of a
security is unwilling or unable to pay income on a security. Stocks represent
ownership interests in the issuers and are not obligations of the issuers.
Common stockholders have a right to receive dividends only after the company has
provided for payment of its creditors, bondholders and preferred stockholders.
Common stocks do not assure dividend payments. Dividends are paid only when
declared by an issuer's board of directors and the amount of any dividend may
vary over time.

CREDIT RISK. Credit risk is the risk that a borrower is unable to meet its
obligation to pay principal or interest on a security held by a fund. This
could cause the value of your units to fall and may reduce the level of
dividends a fund pays which would reduce your income.

INTEREST RATE RISK. Interest rate risk is the risk that the value of fixed
income securities and similar securities held by a fund will fall if interest
rates increase. Bonds and other fixed income securities typically fall in value
when interest rates

Understanding Your Investment 19

rise and rise in value when interest rates fall. Securities with longer periods
before maturity are often more sensitive to interest rate changes. The
securities in your trust may be subject to a greater risk of rising interest
rates than would normally be the case due to the current period of historically
low rates.

CLOSED-END FUNDS. Your portfolio invests in shares of closed-end investment
companies. Closed-end funds are subject to various risks, including but not
limited to management's ability to meet the closed-end fund's investment
objective including when the underlying securities are redeemed or sold, risks
associated with the use of leverage and borrowing and risks associated with
shares of the fund trading at a discount or premium to the fund's net asset
value. You should understand the section titled "Understanding Your Investment-
-Closed-End Funds" before you invest.

NON-DIVERSIFICATION RISK. Certain funds held by your trust may be classified
as "non-diversified". Such funds may be more exposed to the risks associated
with and developments affecting an individual issuer, industry and/or asset
class than a fund that invests more widely.

BUSINESS DEVELOPMENT COMPANY RISK. Your trust and/or certain funds held by
your trust may invest in business development companies ("BDCs"). BDCs are
closed-end investment companies that have elected to be treated as business
development companies under the Investment Company Act of 1940. BDCs are
required to hold at least 70% of their investments in eligible assets which
include, among other things, (i) securities of eligible portfolio companies
(generally, domestic companies that are not investment companies and that cannot
have a class of securities listed on a national securities exchange or have
securities that are marginable that are purchased from that company in a private
transaction), (ii) securities received by the BDC in connection with its
ownership of securities of eligible portfolio companies, or (iii) cash, cash
items, government securities, or high quality debt securities maturing one year
or less from the time of investment. BDCs' ability to grow and their overall
financial condition is impacted significantly by their ability to raise capital.
In addition to raising capital through the issuance of common stock, BDCs may
engage in borrowing. This may involve using revolving credit facilities, the
securitization of loans through separate wholly-owned subsidiaries and issuing
of debt and preferred securities. BDCs are less restricted than other closed-
end funds as to the amount of debt they can have outstanding. These borrowings,
also known as leverage, magnify the potential for gain or loss on amounts
invested and, accordingly, the risks associated with investing in BDC
securities. While the value of a BDC's assets increases, leveraging would cause
the net value per share of BDC common stock to increase more sharply than it
would have had such BDC not leveraged. However, if the value of a BDC's assets
decreases, leveraging would cause net asset value to decline more sharply than
it otherwise would have had such BDC not leveraged. In addition to decreasing
the value of a BDC's common stock, it could also adversely impact a BDC's
ability to make dividend payments. A BDC's credit rating may change over time
which could adversely affect their ability to obtain additional credit and/or
increase the cost of such borrowing. Agreements governing BDC's credit
facilities and related funding and service agreements may contain various
covenants that limit the BDC's discretion in operating its business along with
other limitations. Any defaults may restrict the BDC's ability to manage assets
securing related assets which may adversely impact the

20 Understanding Your Investment

BDC's liquidity and operations. BDCs may enter into hedging transaction and
utilize derivative instruments such as forward contracts, options and swaps.
Unanticipated movements and improper correlation of hedging instruments may
prevent a BDC from hedging against exposure to risk of loss. BDCs may issue
options, warrants, and rights to convert to voting securities to its officers,
employees and board members. Any issuance of derivative securities requires the
approval of the company's board of directors and authorization by the company's
shareholders. A BDC may operate a profit-sharing plan for its employees,
subject to certain restrictions.

BDC investments are frequently not publicly traded and, as a result, there is
uncertainty as to the value and liquidity of those investments. BDCs may use
independent valuation firms to value their investments and such valuations may
be uncertain, be based on estimates and/or differ materially from that which
would have been used if a ready market for those investments existed. The value
of a BDC could be adversely affected if its determinations regarding the fair
value of investments was materially higher than the value realized upon sale of
such investments. Due to the relative illiquidity of certain BDC investments,
if a BDC is required to liquidate all or a portion of its portfolio quickly, it
may realize significantly less than the value at which such investments are
recorded. Further restrictions may exist on the ability to liquidate certain
assets to the extent that subsidiaries or related parties have material non-
public information regarding such assets. BDCs are required to make available
significant managerial assistance to their portfolio companies. Significant
managerial assistance refers to any arrangement whereby a BDC provides
significant guidance and counsel concerning the management, operations, or
business objectives and policies of a portfolio company. Examples of such
activities include arranging financing, managing relationships with financing
sources, recruiting management personnel, and evaluating acquisition and
divestiture opportunities. BDCs are frequently externally managed by an
investment adviser which may also provide this external managerial assistance to
portfolio companies. Such investment adviser's liability may be limited under
their investment advisory agreement which may lead such investment adviser to
act in a riskier manner than it would were it investing for its own account.
Such investment advisers may be entitled to incentive compensation which may
cause such adviser to make more speculative and riskier investments than it
would if investing for its own account. Such compensation may be due even in
the case of declines to the value of a BDC's investments.

BDCs frequently have high expenses which may include, but are not limited to,
the payment of management fees, administration expenses, taxes, interest payable
on debt, governmental charges, independent director fees and expenses, valuation
expenses, and fees payable to third parties relating to or associated with
making investments. If your trust invests in BDCs, then your trust will
indirectly bear these expenses. These expenses may fluctuate significantly over
time. If a BDC fails to maintain its status as a BDC it may be regulated as a
closed-end fund which would subject such BDC to additional regulatory
restrictions and significantly decrease its operating flexibility. In addition,
such failure could trigger an event of default under certain outstanding
indebtedness which could have a material adverse impact on its business.

INVESTMENT IN OTHER INVESTMENT COMPANIES. As with other investments,
investments in other investment companies are subject to market and selection
risk. In addition, if/when your trust

Understanding Your Investment 21

acquires shares of investment companies shareholders bear both their
proportionate share of fees and expenses in your trust and, indirectly, the
expenses of the underlying investment companies. Investment companies' expenses
are subject to the risk of fluctuation including in response to fluctuation in a
fund's assets. Accordingly, a fund's actual expenses may vary from what is
indicated at the time of investment by your trust. There are certain regulatory
limitations on the ability of your trust to hold other investment companies
which may impact the trust's ability to invest certain funds, may impact the
weighting of a fund in your trust's portfolio and may impact your trust's
ability to issue additional units in the future.

SECTOR CONCENTRATION RISK. Sector concentration risk is the risk that the
value of your trust is more susceptible to fluctuations based on factors that
impact a particular sector because the exposure to such sectors through the
securities held by your trust or through the securities in the funds held by
your trust are concentrated within a particular sector. Refer to the "Principle
Risks" in the "Investment Summary" section for your trust in this prospectus for
sector concentrations.

FOREIGN ISSUER RISK. Your trust and/or certain funds held by your trust may
invest in the securities of foreign issuers. An investment in securities of
foreign issuers involves certain risks that are different in some respects from
an investment in securities of domestic issuers. These include risks associated
with future political and economic developments, international trade conditions,
foreign withholding taxes, liquidity concerns, currency fluctuations,
volatility, restrictions on foreign investments and exchange of securities,
potential for expropriation of assets, confiscatory taxation, difficulty in
obtaining or enforcing a court judgment, potential inability to collect when a
company goes bankrupt and economic, political or social instability. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy for reasons including differences in growth of gross domestic product,
rates of inflation, capital reinvestment, resources, self-sufficiency and
balance of payments positions There may be less publicly available information
about a foreign issuer than is available from a domestic issuer as a result of
different accounting, auditing and financial reporting standards. Some foreign
markets are less liquid than U.S. markets which could cause securities to be
bought at a higher price or sold at a lower price than would be the case in a
highly liquid market.

Brokerage and other transaction costs on foreign exchanges are often higher
than in the U.S. and there is generally less governmental supervision of
exchanges, brokers and issuers in foreign countries. The increased expense of
investing in foreign markets may reduce the amount an investor can earn on its
investments and typically results in a higher operating expense ratio than
investments in only domestic securities. Custody of certain securities may be
maintained by a global custody and clearing institution. Settlement and
clearance procedures in certain foreign markets differ significantly from those
in the U.S. Foreign settlement and clearance procedures and trade regulations
also may involve certain risks (such as delays in payment for or delivery of
securities) not typically associated with the settlement of domestic securities.
Round lot trading requirements exist in certain foreign securities markets which
could cause the proportional composition and diversification of your trust's
and/or a fund portfolio to vary when your trust or a fund buys or sells
securities.

CURRENCY RISK. Because securities of foreign issuers not listed on a U.S.
securities exchange generally pay income and trade in foreign currencies,

22 Understanding Your Investment

the U.S. dollar value of these securities and income will vary with fluctuations
in foreign exchange rates. Most foreign currencies have fluctuated widely in
value against the U.S. dollar for various economic and political reasons.
Generally, when the U.S. dollar rises in value against a foreign currency, a
security denominated in that currency loses value because the currency is worth
fewer U.S. dollars. Conversely, when the U.S. dollar decreases in value against
a foreign currency, a security denominated in that currency gains value because
the currency is worth more U.S. dollars. This risk, generally known as
"currency risk," means that a strong U.S. dollar will reduce returns for U.S.
investors while a weak U.S. dollar will increase those returns.

DEPOSITARY RECEIPTS RISK. Certain stocks held by your trust and/or the
closed-end funds may be held in the form of depositary receipts. Depositary
receipts represent receipts for foreign common stock deposited with a custodian
(which may include the trustee of your trust). Depositary receipts generally
involve the same types of risks as foreign common stock held directly. Some
depositary receipts may experience less liquidity than the underlying common
stocks traded in their home market. Certain depositary receipts are unsponsored
(i.e. issued without the participation or involvement of the issuer of the
underlying security). The issuers of unsponsored depositary receipts are not
obligated to disclose information that may be considered material in the U.S.
Therefore, there may be less information available regarding these issuers and,
as a result, there may not be a correlation between certain information
impacting a security and the market value of the depositary receipts.

EMERGING MARKETS. Your trust and/or certain funds held by your trust may
invest in certain securities issued by entities located in emerging markets.
Emerging markets are generally defined as countries in the initial states of
their industrialization cycles with low per capita income. The markets of
emerging markets countries are generally more volatile than the markets of
developed countries with more mature economies. All of the risks of investing
in foreign securities described above are heightened by investing in emerging
markets countries.

SUPRANATIONAL ENTITIES' SECURITIES. Certain funds held by your trust may
invest in obligations issued by supranational entities such as the International
Bank for Reconstruction and Development (the World Bank). The government
members, or "stockholders," usually make initial capital contributions to
supranational entities and in many cases are committed to make additional
capital contributions if a supranational entity is unable to repay its
borrowings. There is no guarantee that one or more stockholders of a
supranational entity will continue to make any necessary additional capital
contributions. If such contributions are not made, the entity may be unable to
pay interest or repay principal on its debt securities, and a fund may lose
money on such investments.

SMALL AND MID-SIZE COMPANIES. Your trust and/or certain funds held by your
trust may invest in securities issued by small and mid-size companies. The
share prices of these companies are often more volatile than those of larger
companies as a result of several factors common to many such issuers, including
limited trading volumes, products or financial resources, management
inexperience and less publicly available information. In particular, companies
with smaller capitalizations may be less financially secure, depend on a smaller
number of key personnel and generally be subject to more unpredictable price
changes than larger, more established companies

Understanding Your Investment 23

and the markets as a whole. Smaller capitalization and emerging growth
companies may be particularly sensitive to changes in interest rates, borrowing
costs and earnings.

BOND QUALITY RISK. Bond quality risk is the risk that a bond will fall in
value if a rating agency decreases or withdraws the bond's rating.

PREPAYMENT RISK. When interest rates fall, among other factors, the issuer
of a security may prepay their obligations earlier than expected. Such
prepayments will result in early distributions to a fund holding such security
and such funds may be unable to reinvest such amounts at the yields originally
invested which could adversely impact the funds and the trust. Certain bonds
held by the funds may include call provisions which expose such funds and your
trust to call risk. Call risk is the risk that the issuer prepays or "calls" a
bond before its stated maturity. An issuer might call a bond if interest rates,
in general fall and the bond pays a higher interest rate or if it no longer
needs the money for the original purpose. If an issuer calls a bond, a fund
holding such bond will receive principal but future interest distributions will
fall. Such fund might not be able to reinvest this principal at as high a
yield. A bond's call price could be less than the price paid for the bond and
could be below the bond's par value. Certain bonds may also be subject to
extraordinary optional or mandatory redemptions if certain events occur, such as
certain changes in tax laws, the substantial damage or destruction by fire or
other casualty of the project for which the proceeds of the bonds were used, and
various other events.

EXTENSION RISK. When interest rates rise, among other factors, issues of a
security may pay off obligations more slowly than expected causing the value of
such obligations to fall.

MARKET DISCOUNT. Certain funds held by your trust may invest in bonds whose
current market values were below the principal value on the purchase date. A
primary reason for the market value of such bonds being less than the principal
value is that the interest rate of such bonds is at a lower rate than the
current market interest rates for comparable bonds. Bonds selling at market
discounts tend to increase in market value as they approach maturity.

PREMIUM BONDS. Certain funds held by the trust may invest in bonds whose
current market values were above the principal value on the purchase date. A
primary reason for the market value of such bonds being higher than the
principal value is that the interest rate of such bonds is at a higher rate than
the current market interest rates for comparable bonds. The current returns of
bonds trading at a market premium are initially higher than the current returns
of comparable bonds issued at currently prevailing interest rates because
premium bonds tend to decrease in market value as they approach maturity when
the principal value becomes payable. Because part of the purchase price is
effectively returned not at maturity but through current income payments, early
redemption of a premium bond at par or any other amount below the purchase price
will result in a reduction in yield. Redemption pursuant to call provisions
generally will, and redemption pursuant to sinking fund provisions may occur at
times when the bonds have a market value that represents a premium over par or,
for original issue discount securities, a premium over the accreted value.

MUNICIPAL BONDS. Certain funds held by your trust may invest in municipal
bonds. Municipal bonds are debt obligations issued by states or by political
subdivisions or authorities of states. Municipal bonds are typically designated

24 Understanding Your Investment

as general obligation bonds, which are general obligations of a governmental
entity that are backed by the taxing power of such entity, or revenue bonds,
which are payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. Municipal bonds are long-term
fixed rate debt obligations that generally decline in value with increases in
interest rates, when an issuer's financial condition worsens or when the rating
on a bond is decreased. Many municipal bonds may be called or redeemed prior to
their stated maturity, an event which is more likely to occur when interest
rates fall. In such an occurrence, a fund may not be able to reinvest the money
it receives in other bonds that have as high a yield or as long a maturity.
Many municipal bonds are subject to continuing requirements as to the actual use
of the bond proceeds or manner of operation of the project financed from bond
proceeds that may affect the exemption of interest on such bonds from federal
income taxation. The market for municipal bonds is generally less liquid than
for other securities and therefore the price of municipal bonds may be more
volatile and subject to greater price fluctuations than securities with greater
liquidity. In addition, an issuer's ability to make income distributions
generally depends on several factors including the financial condition of the
issuer and general economic conditions. Any of these factors may negatively
impact the price of municipal bonds held by a fund and would therefore impact
the price of both the fund shares and your trust units.

SOVEREIGN DEBT. Certain funds held by your trust may invest in sovereign
debt. Sovereign debt instruments are subject to the risk that a governmental
entity may delay or refuse to pay interest or repay principal on its sovereign
debt, due, for example, to cash flow problems, insufficient foreign currency
reserves, political considerations, the relative size of the governmental
entity's debt position in relation to the economy or the failure to put in place
required economic reforms. If a governmental entity defaults, it may ask for
more time in which to pay or for further loans. There is no legal process for
collecting sovereign debt that a government does not pay nor are there
bankruptcy proceedings through which all or part of the sovereign debt that a
governmental entity has not repaid may be collected.

U.S. GOVERNMENT OBLIGATIONS RISK. Certain funds held by your trust may
invest in obligations of the U.S. Government. Obligations of U.S. Government
agencies, authorities, instrumentalities and sponsored enterprises have
historically involved little risk of loss of principal if held to maturity.
However, not all U.S. Government securities are backed by the full faith and
credit of the United States. Obligations of certain agencies, authorities,
instrumentalities and sponsored enterprises of the U.S. Government are backed by
the full faith and credit of the United States (e.g., the Government National
Mortgage Association); other obligations are backed by the right of the issuer
to borrow from the U.S. Treasury (e.g., the Federal Home Loan Banks) and others
are supported by the discretionary authority of the U.S. Government to purchase
an agency's obligations. Still others are backed only by the credit of the
agency, authority, instrumentality or sponsored enterprise issuing the
obligation. No assurance can be given that the U.S. Government would provide
financial support to any of these entities if it is not obligated to do so by
law.

U.S. TREASURY OBLIGATIONS. Certain funds held by your trust may invest in
U.S. Treasury obligations. U.S. Treasury obligations are direct obligations of
the United States which are backed by

Understanding Your Investment 25

the full faith and credit of the United States. The value of U.S. Treasury
obligations will be adversely affected by decreases in bond prices and increases
in interest rates.

HIGH YIELD OR "JUNK" SECURITIES. Certain funds held by your trust may invest
in high yield securities or unrated securities. High yield, high risk
securities are subject to greater market fluctuations and risk of loss than
securities with higher investment ratings. The value of these securities will
decline significantly with increases in interest rates, not only because
increases in rates generally decrease values, but also because increased rates
may indicate an economic slowdown. An economic slowdown, or a reduction in an
issuer's creditworthiness, may result in the issuer being unable to maintain
earnings at a level sufficient to maintain interest and principal payments.
High yield or "junk" securities, the generic names for securities rated below
"BBB" by Standard & Poor's or "Baa" by Moody's, are frequently issued by
corporations in the growth stage of their development or by established
companies who are highly leveraged or whose operations or industries are
depressed. Securities rated below BBB or Baa are considered speculative as
these ratings indicate a quality of less than investment grade. Because high
yield securities are generally subordinated obligations and are perceived by
investors to be riskier than higher rated securities, their prices tend to
fluctuate more than higher rated securities and are affected by short-term
credit developments to a greater degree. The market for high-yield securities
is smaller and less liquid than that for investment grade securities. High
yield securities are generally not listed on a national securities exchange but
trade in the over-the-counter markets. Due to the smaller, less liquid market
for high yield securities, the bid-offer spread on such securities is generally
greater than it is for investment grade securities and the purchase or sale of
such securities may take longer to complete.

SENIOR LOANS. Certain funds held by your trust may invest in senior loans
and similar transactions. Senior loans are issued by banks, other financial
institutions and other investors to corporations, partnerships, limited
liability companies and other entities to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings
and, to a lesser extent, for general operating and other purposes. An
investment by the funds in senior loans and similar transactions involves risk
that the borrowers under such transactions may default on their obligations to
pay principal or interest when due. Although senior loans may be secured by
specific collateral, there can be no assurance that liquidation of collateral
would satisfy the borrower's obligation in the event of non-payment or that such
collateral could be readily liquidated. Senior loans are typically structured
as floating rate instruments in which the interest rate payable on the
obligation fluctuates with interest rate changes. As a result, the yield on
funds investing in senior loans will generally decline in a falling interest
rate environment and increase in a rising interest rate environment. Senior
loans are generally below investment grade quality and may be unrated at the
time of investment; are generally not registered with the SEC or state
securities commissions; and are generally not listed on any securities exchange.
In addition, the amount of public information available on senior loans is
generally less extensive than that available for other types of securities.

CONVERTIBLE SECURITIES. Certain funds held by your trust may invest in
convertible securities. Convertible securities generally offer lower interest
or dividend yields than non-convertible fixed-income securities of similar
credit quality because of the potential for capital appreciation. The

26 Understanding Your Investment

market values of convertible securities tend to decline as interest rates
increase and, conversely, to increase as interest rates decline. However, a
convertible security's market value also tends to reflect the market price of
the common stock of the issuing company, particularly when that stock price is
greater than the convertible security's "conversion price." The conversion
price is defined as the predetermined price or exchange ratio at which the
convertible security can be converted or exchanged for the underlying common
stock. As the market price of the underlying common stock declines below the
conversion price, the price of the convertible security tends to be increasingly
influenced more by the yield of the convertible security. Thus, it may not
decline in price to the same extent as the underlying common stock. In the
event of a liquidation of the issuing company, holders of convertible securities
would be paid before that company's common stockholders. Consequently, an
issuer's convertible securities generally entail less risk than its common
stock. However, convertible securities fall below debt obligations of the same
issuer in order of preference or priority in the event of a liquidation and are
typically unrated or rated lower than such debt obligations.

Mandatory convertible securities are distinguished as a subset of convertible
securities because the conversion is not optional and the conversion price at
maturity is based solely upon the market price of the underlying common stock,
which may be significantly less than par or the price (above or below par) paid.
For these reasons, the risks associated with investing in mandatory convertible
securities most closely resemble the risks inherent in common stocks. Mandatory
convertible securities customarily pay a higher coupon yield to compensate for
the potential risk of additional price volatility and loss upon conversion.
Because the market price of a mandatory convertible security increasingly
corresponds to the market price of its underlying common stock, as the
convertible security approaches its conversion date, there can be no assurance
that the higher coupon will compensate for a potential loss.

FLOATING RATE INSTRUMENTS. Certain funds held by your trust may invest in
floating rate securities. A floating rate security is an instrument in which
the interest rate payable on the obligation fluctuates on a periodic basis based
upon changes in a benchmark, often related to interest rates. As a result, the
yield on such a security will generally decline with negative changes to the
benchmark, causing the trust to experience a reduction in the income it receives
from such securities. A sudden and significant increase in the applicable
benchmark may increase the risk of payment defaults and cause a decline in the
value of the security.

ASSET-BACKED SECURITIES. Certain funds held by your trust may invest in
asset-backed securities ("ABS"). ABS are securities backed by pools of loans or
other receivables. ABS are created from many types of assets, including auto
loans, credit card receivables, home equity loans, and student loans. ABS are
issued through special purpose vehicles that are bankruptcy remote from the
issuer of the collateral. The credit quality of an ABS transaction depends on
the performance of the underlying assets. To protect ABS investors from the
possibility that some borrowers could miss payments or even default on their
loans, ABS include various forms of credit enhancement. Some ABS, particularly
home equity loan transactions, are subject to interest rate risk and prepayment
risk. A change in interest rates can affect the pace of payments on the
underlying loans, which in turn, affects total return on the securities. ABS
also carry credit or default risk. If many borrowers on the underlying loans
default,

Understanding Your Investment 27

losses could exceed the credit enhancement level and result in losses to
investors in an ABS transaction. Finally, ABS have structure risk due to a
unique characteristic known as early amortization, or early payout, risk. Built
into the structure of most ABS are triggers for early payout, designed to
protect investors from losses. These triggers are unique to each transaction
and can include: a big rise in defaults on the underlying loans, a sharp drop in
the credit enhancement level, or even the bankruptcy of the originator. Once
early amortization begins, all incoming loan payments (after expenses are paid)
are used to pay investors as quickly as possible based upon a predetermined
priority of payment.

MORTGAGE-BACKED SECURITIES. Certain funds held by your trust may invest in
mortgage-backed securities. Mortgage-backed securities are a type of ABS
representing direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property and can include single- and multi-
class pass-through securities and collateralized mortgage obligations.
Mortgage-backed securities are based on different types of mortgages, including
those on commercial real estate or residential properties. These securities
often have stated maturities of up to thirty years when they are issued,
depending upon the length of the mortgages underlying the securities. In
practice, however, unscheduled or early payments of principal and interest on
the underlying mortgages may make the securities' effective maturity shorter
than this. Rising interest rates tend to extend the duration of mortgage-backed
securities, making them more sensitive to changes in interest rates, and may
reduce the market value of the securities. In addition, mortgage-backed
securities are subject to prepayment risk, the risk that borrowers may pay off
their mortgages sooner than expected, particularly when interest rates decline.
This can reduce the funds', and therefore your trust's, returns because the
funds may have to reinvest that money at lower prevailing interest rates.

RESTRICTED SECURITIES. Certain funds held by your trust may invest in
securities that may only be resold pursuant to Rule 144A under the Securities
Act of 1933. Such securities may not be readily marketable. Restricted
securities may be sold only to purchasers meeting certain eligibility
requirements in privately negotiated transactions or in a public offering with
respect to which a registration statement is in effect under the Securities Act.
Where registration of such securities under the Securities Act is required, a
fund may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions
were to develop, the fund might obtain a less favorable price than that which
prevailed when it decided to sell.

LIQUIDITY RISK. Liquidity risk is the risk that the value of a security will
fall if trading in the security is limited or absent. No one can guarantee that
a liquid trading market will exist for any security.

COVERED CALL OPTION STRATEGIES. Certain funds held by your trust may invest
using covered call option strategies. You should understand the risks of these
strategies before you invest. In employing a covered call strategy, a closed-
end fund will generally write (sell) call options on a significant portion of
the fund's managed assets. These call options will give the option holder the
right, but not the obligation, to purchase a security from the fund at the
strike price on or prior to the option's expiration date. The ability to
successfully implement the fund's investment strategy

28 Understanding Your Investment

depends on the fund adviser's ability to predict pertinent market movements,
which cannot be assured. Thus, the use of options may require a fund to sell
portfolio securities at inopportune times or for prices other than current
market values, may limit the amount of appreciation the fund can realize on an
investment, or may cause the fund to hold a security that it might otherwise
sell. The writer (seller) of an option has no control over the time when it may
be required to fulfill its obligation as a writer (seller) of the option. Once
an option writer (seller) has received an exercise notice, it cannot effect a
closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying security at the exercise price. As the
writer (seller) of a covered call option, a fund forgoes, during the option's
life, the opportunity to profit from increases in the market value of the
security underlying the call option above the sum of the premium and the strike
price of the call option, but has retained the risk of loss should the price of
the underlying security decline. The value of the options written (sold) by a
fund, which will be marked-to-market on a daily basis, will be affected by
changes in the value and dividend rates of the underlying securities, an
increase in interest rates, changes in the actual or perceived volatility of
securities markets and the underlying securities and the remaining time to the
options' expiration. The value of the options may also be adversely affected if
the market for the options becomes less liquid or smaller.

An option is generally considered "covered" if a fund owns the security
underlying the call option or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if required, liquid
cash or other assets are segregated by the fund) upon conversion or exchange of
other securities held by the fund. In certain cases, a call option may also be
considered covered if a fund holds a call option on the same security as the
call option written (sold) provided that certain conditions are met. By writing
(selling) covered call options, a fund generally seeks to generate income, in
the form of the premiums received for writing (selling) the call options.
Investment income paid by a fund to its shareholders (such as the trust) may be
derived primarily from the premiums it receives from writing (selling) call
options and, to a lesser extent, from the dividends and interest it receives
from the equity securities or other investments held in the fund's portfolio and
short-term gains thereon. Premiums from writing (selling) call options and
dividends and interest payments made by the securities in a fund's portfolio can
vary widely over time.

PREFERRED SECURITIES. Certain funds held by your trust may invest in
preferred securities including preferred stocks, trust preferred securities or
other similar securities. Preferred stocks are unique securities that combine
some of the characteristics of both common stocks and bonds. Preferred stocks
generally pay a fixed rate of return and are sold on the basis of current yield,
like bonds. However, because they are equity securities, preferred stocks
provide equity ownership of a company and the income is paid in the form of
dividends. Preferred stocks typically have a yield advantage over common stocks
as well as comparably-rated fixed income investments. Preferred stocks are
typically subordinated to bonds and other debt instruments in a company's
capital structure, in terms of priority to corporate income, and therefore will
be subject to greater credit risk than those debt instruments.

Trust preferred securities are limited-life preferred securities typically
issued by corporations, generally in the form of interest-bearing notes or
preferred securities, or by an affiliated business

Understanding Your Investment 29

trust of a corporation, generally in the form of beneficial interests in
subordinated debentures or similarly structured securities. Distribution
payments of the trust preferred securities generally coincide with interest
payments on the underlying obligations. Trust preferred securities generally
have a yield advantage over traditional preferred stocks, but unlike preferred
stocks, in some cases distributions are treated as interest rather than
dividends for federal income tax purposes and therefore, are not eligible for
the dividends-received deduction. Trust preferred securities prices fluctuate
for several reasons including changes in investors' perception of the financial
condition of an issuer or the general condition of the market for trust
preferred securities, or when political or economic events affecting the issuers
occur. Trust preferred securities are also sensitive to interest rate
fluctuations, as the cost of capital rises and borrowing costs increase in a
rising interest rate environment and the risk that a trust preferred security
may be called for redemption in a falling interest rate environment. Trust
preferred securities are also subject to unique risks which include the fact
that dividend payments will only be paid if interest payments on the underlying
obligations are made, which interest payments are dependent on the financial
condition of the issuer and may be deferred for up to 20 consecutive quarters.
During any deferral period, investors are generally taxed as if they had
received current income. In such a case, an investor will have income taxes due
prior to receiving cash distributions to pay such taxes. In addition, the
underlying obligations, and thus the trust preferred securities, may be prepaid
after a stated call date or as a result of certain tax or regulatory events.
Preferred securities are typically subordinated to bonds and other debt
instruments in a company's capital structure, in terms of priority to corporate
income, and therefore will be subject to greater credit risk than those debt
instruments.

REAL ESTATE RELATED SECURITIES. Your trust and/or certain funds held by the
trust may invest in securities providing exposure to real estate investments.
Risks associated with the ownership of real estate include, among other factors,
changes in general U.S., global and local economic conditions, decline in real
estate values, changes in the financial health of tenants, overbuilding and
increased competition for tenants, oversupply of properties for sale, changing
demographics, changes in interest rates, tax rates and other operating expenses,
changes in government regulations, faulty construction and the ongoing need for
capital improvements, regulatory and judicial requirements, including relating
to liability for environmental hazards, changes in neighborhood values and buyer
demand, and the unavailability of construction financing or mortgage loans at
rates acceptable to developers.

REAL ESTATE INVESTMENT TRUSTS. Your trust and/or certain funds held by the
trust may invest in securities issued by real estate investment trusts
("REITs"). Many factors can have an adverse impact on the performance of a
particular REIT, including its cash available for distribution, the credit
quality of a particular REIT or the real estate industry generally. The success
of a REIT depends on various factors, including the occupancy and rent levels,
appreciation of the underlying property and the ability to raise rents on those
properties. Economic recession, overbuilding, tax law changes, higher interest
rates or excessive speculation can all negatively impact REITs, their future
earnings and share prices. Variations in rental income and space availability
and vacancy rates in terms of supply and demand are additional factors affecting
real estate generally and REITs in particular. Properties owned by a REIT may
not be adequately insured against certain losses and may be subject to
significant environmental liabilities, including remediation costs. You

30 Understanding Your Investment

should also be aware that REITs may not be diversified and are subject to the
risks of financing projects. The real estate industry may be cyclical, and, if
a fund acquires REIT securities at or near the top of the cycle, there is
increased risk of a decline in value of the REIT securities. Recent demand for
certain types of real estate may have inflated the value of real estate. This
may increase the risk of a substantial decline in the value of such real estate
and increase the risk of a decline in the value of the securities. REITs are
also subject to defaults by borrowers and the market's perception of the REIT
industry generally. Because of their structure, and a current legal requirement
that they distribute at least 90% of their taxable income to shareholders
annually, REITs require frequent amounts of new funding, through both borrowing
money and issuing stock. Thus, REITs historically have frequently issued
substantial amounts of new equity shares (or equivalents) to purchase or build
new properties. This may have adversely affected REIT equity share market
prices. Both existing and new share issuances may have an adverse effect on
these prices in the future, especially if REITs continue to issue stock when
real estate prices are relatively high and stock prices are relatively low.

MLPS. Your trust and/or certain funds held by the trust may invest
significantly in master limited partnerships ("MLPs"). MLPs are limited
partnership or limited liability companies that are generally taxed as
partnership whose interests are generally traded on securities exchanges. An
MLP consists of a general partner and limited partners. The general partner
manages the partnership, has an ownership stake in the partnership and is
eligible to receive an incentive distribution. The limited partners provide
capital to the partnership, have a limited (if any) role in the operation and
management of the partnership and receive cash distributions. Unlike
stockholders of a corporation, limited partners do not elect directors annually
and generally have the right to vote only on certain significant events, such as
mergers, a sale of substantially all of the partnership assets, removal of the
general partner or material amendments to the partnership agreement. Limited
partners generally have first right to a minimum quarterly distribution prior to
distributions to the convertible subordinated unit holders or the general
partner (including incentive distributions) and typically have arrearage rights
if the minimum quarterly distribution is not met. Most MLPs generally operate
in the energy natural resources or real estate sector and are subject to the
risks generally applicable to companies in those sectors. Those risks include,
but are not limited to, commodity pricing risk, supply and demand risk,
depletion risk and exploration risk. MLPs are also subject to the risk that
authorities could challenge the tax treatment of MLPs for federal income tax
purposes which could have a negative impact on the after-tax income available
for distribution by the MLPs and/or the value of your trust's investments.

DERIVATIVES RISK. Certain funds held by your trust may engage in
transactions in derivatives. Derivatives are subject to counterparty risk which
is the risk that the other party in a transaction may be unable or unwilling to
meet obligations when due. Use of derivatives may increase volatility of a fund
and the trust and reduce returns. Fluctuations in the value of derivatives may
not correspond with fluctuations of underlying exposures. Unanticipated market
movements could result in significant losses on derivative positions including
greater losses than amounts originally invested and potentially unlimited losses
in the case of certain derivatives. There are no assurances that there will be
a secondary market available in any derivative position which could result in
illiquidity and the inability of a fund to

Understanding Your Investment 31

liquidate or terminate positions as valued. Valuation of derivative positions
may be difficult and increase during times of market turmoil. Certain
derivatives may be used as a hedge against other securities positions however
hedging can be subject to the risk of imperfect alignment and there are no
assurances that a hedge will be achieved as intended which can pose significant
loss to a fund and your trust. Recent legislation has called for significant
increases to the regulation of the derivatives market. Regulatory changes and
rulemaking is ongoing and the full impact may not be known for some time. This
increased regulation may make derivatives more costly, limit the availability of
derivatives or otherwise adversely affect the value or performance of
derivatives. Examples of increased regulation include, but are not limited to
the imposition of clearing and reporting requirements on transactions that fall
within the definition of "swap" and "security-based swap", increased
recordkeeping and reporting requirements, changing definitional and registration
requirements, and changes to the way that funds' use of derivatives is
regulated. We cannot predict the effects of any new governmental regulation
that may be implemented on the ability of a fund to use any financial derivative
product, and there can be no assurance that any new governmental regulation will
not adversely affect a fund's ability to achieve its investment objective. The
federal income tax treatment of a derivative may not be as favorable as a direct
investment in the asset that a derivative provides exposure to which may
adversely impact the timing, character and amount of income a fund realizes from
its investment. The tax treatment of certain derivatives is unsettled and may
be subject to future legislation, regulation or administrative pronouncements.

SWAPS. Certain funds held by your trust may invest in swaps. In addition to
general risks associated with derivatives described above, swap agreements
involve the risk that the party with whom a fund has entered into the swap will
default on its obligation to pay a fund and the risk that a fund will not be
able to meet its obligations to pay the other party to the agreement. Swaps
entered into by a fund may include, but are not limited to, interest rate swaps,
total return swaps and/or credit default swaps. In an interest rate swap
transaction, two parties exchange rights to receive interest payments, such as
exchanging the right to receive floating rate payments based on a reference
interest rate for the right to receive fixed rate payments. In addition to the
general risks associated with derivatives and swaps described above, interest
rate swaps are subject to interest rate risk and credit risk. In a total return
swap transaction, one party agrees to pay another party an amount equal to the
total return on a reference asset during a specified period of time in return
for periodic payments based on a fixed or variable interest rate or on the total
return from a different reference asset. In addition to the general risks
associated with derivatives and swaps described above, total return swaps could
result in losses if the reference asset does not perform as anticipated and
these swaps can have the potential for unlimited losses. In a credit default
swap transaction, one party makes one or more payments over the term of the
contract to the counterparty, provided that no event of default with respect to
a specific obligation or issuer has occurred. In return, upon any event of
default, such party would receive from the counterparty a payment equal to the
par (or other agreed-upon) value of such specified obligation. In addition to
general risks associated with derivatives and swaps described above, credit
default swaps involve special risks because they are difficult to value, are
highly susceptible to liquidity and credit risk, and generally pay a return to
the party that has paid the premium only in the event of an actual

32 Understanding Your Investment

default by the issuer of the underlying obligation (as opposed to a credit
downgrade or other indication of financial difficulty).

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Certain funds held by your
trust may may engage in forward foreign currency exchange transactions. Forward
foreign exchange transactions are contracts to purchase or sell a specified
amount of a specified currency or multinational currency unit at a price and
future date set at the time of the contract. Forward foreign currency exchange
contracts do not eliminate fluctuations in the value of non-U.S. securities but
rather allow a fund to establish a fixed rate of exchange for a future point in
time. This strategy can have the effect of reducing returns and minimizing
opportunities for gain.

INDEXED AND INVERSE SECURITIES. Certain funds held by your trust may invest
in indexed and inverse securities. In addition to general risks associated with
derivatives described above, indexed and inverse securities are subject to risk
with respect to the value of the particular index. These securities are subject
to leverage risk and correlation risk. Certain indexed and inverse securities
have greater sensitivity to changes in interest rates or index levels than other
securities, and a fund's investment in such instruments may decline
significantly in value if interest rates or index levels move in a way a fund's
management does not anticipate.

FUTURES. Certain funds held by your trust may engage in futures
transactions. In addition to general risks associated with derivatives
described above, the primary risks associated with the use of futures contracts
and options are (a) the imperfect correlation between the change in market value
of the instruments held by a fund and the price of the futures contract or
option; (b) possible lack of a liquid secondary market for a futures contract
and the resulting inability to close a futures contract when desired; (c) losses
caused by unanticipated market movements, which are potentially unlimited; (d)
the investment adviser's inability to predict correctly the direction of
securities prices, interest rates, currency exchange rates and other economic
factors; and (e) the possibility that the counterparty will default in the
performance of its obligations. While futures contracts are generally liquid
instruments, under certain market conditions they may become illiquid. Futures
exchanges may impose daily or intra-day price change limits and/or limit the
volume of trading. Additionally, government regulation may further reduce
liquidity through similar trading restrictions.

OPTIONS. Certain funds held by your trust may engage in options
transactions. In addition to general risks associated with derivatives
described above, options are considered speculative. When a fund purchases an
option, it may lose the premium paid for it if the price of the underlying
security or other assets decreased or remained the same (in the case of a call
option) or increased or remained the same (in the case of a put option). If a
put or call option purchased by a fund were permitted to expire without being
sold or exercised, its premium would represent a loss to a fund. To the extent
that a fund writes or sells an option, if the decline or increase in the
underlying asset is significantly below or above the exercise price of the
written option, a fund could experience substantial and potentially unlimited
losses.

REPURCHASE AGREEMENT RISK. If the other party to a repurchase agreement
defaults on its obligation under such agreement, a fund may suffer delays and
incur costs or lose money in exercising its rights under the agreement. If the
seller fails to repurchase the security under a repurchase agreement and the
market value of such security declines, such fund may lose money.

Understanding Your Investment 33

SHORT SALES RISK. Certain funds held by your trust may engage in short
sales. Because making short sales in securities that it does not own exposes a
fund to the risks associated with those securities, such short sales involve
speculative exposure risk. A fund will incur a loss as a result of a short sale
if the price of the security increases between the date of the short sale and
the date on which such fund replaces the security sold short. A fund will
realize a gain if the security declines in price between those dates. As a
result, if a fund makes short sales in securities that increase in value, it
will likely underperform similar funds that do not make short sales in
securities they do not own. There can be no assurance that a fund will be able
to close out a short sale position at any particular time or at an acceptable
price. Although a fund's gain is limited to the amount at which it sold a
security short, its potential loss is limited only by the maximum attainable
price of the security, less the price at which the security was sold. Short
sale transactions involve leverage because they can provide investment exposure
in an amount exceeding the initial investment. A fund may also pay transaction
costs and borrowing fees in connection with short sales.

COMMODITIES. Certain funds held by your trust may have exposure to the
commodities market. This exposure could expose such funds and the trust to
greater volatility than investment in other securities. The value of
investments providing commodity exposure may be affected by changes in overall
market movements, commodity index volatility, changes in interest rates, or
factors affecting a particular industry or commodity, such as drought, floods,
weather, embargoes, tariffs and international economic, political and regulatory
developments.

MONEY MARKET SECURITIES. Certain funds held by your trust may invest in
money market securities. If market conditions improve while a fund has
temporarily invested some or all of its assets in high quality money market
securities, this strategy could result in reducing the potential gain from the
market upswing, thus reducing a fund's opportunity to achieve its investment
objective.

LEGISLATION/LITIGATION. From time to time, various legislative initiatives
are proposed in the United States and abroad which may have a negative impact on
certain of the securities held by your trust or underlying funds. In addition,
litigation regarding any of the issuers of the securities or of the industries
represented by these issuers may negatively impact the share prices of these
securities. No one can predict what impact any pending or threatened litigation
will have on the share prices of the securities.

NO FDIC GUARANTEE. An investment in your trust is not a deposit of any bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.

CLOSED-END FUNDS

Closed-end funds are a type of investment company that holds an actively
managed portfolio of securities. Closed-end funds issue shares in "closed-end"
offerings which generally trade on a stock exchange (although some closed-end
fund shares are not listed on a securities exchange). Since closed-end funds
maintain a relatively fixed pool of investment capital, portfolio managers may
be better able to adhere to their investment philosophies through greater
flexibility and control. In addition, closed-end funds do not have to manage
fund liquidity to meet potentially large redemptions.

Closed-end funds are subject to various risks, including management's ability
to meet the closed-end fund's investment objective, and to

34 Understanding Your Investment

manage the closed-end fund portfolio when the underlying securities are redeemed
or sold, during periods of market turmoil and as investors' perceptions
regarding closed-end funds or their underlying investments change.

Shares of closed-end funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from
the risk that the net asset value of closed-end fund shares may decrease. The
amount of such discount from net asset value is subject to change from time to
time in response to various factors.

Certain of the closed-end funds included in your trust may employ the use of
leverage in their portfolios through the issuance of preferred stock. While
leverage often serves to increase the yield of a closed-end fund, this leverage
also subjects the closed-end fund to increased risks. These risks may include
the likelihood of increased volatility and the possibility that the closed-end
fund's common share income will fall if the dividend rate on the preferred
shares or the interest rate on any borrowings rises. The use of leverage may
cause a closed-end fund to liquidate portfolio positions when it may not be
advantageous to do so to satisfy its obligations or to meet any required asset
segregation requirements.

Certain closed-end funds held by your trust may engage in borrowing.
Borrowing may exaggerate changes in the net asset value of a fund's shares and
in the return on a fund's portfolio. Borrowing will cost a fund interest
expense and other fees. The costs of borrowing may reduce a fund's return.
Borrowing may cause a fund to liquidate positions when it may not be
advantageous to do so to satisfy its obligations.

Certain closed-end funds held by your trust may engage in securities
lending. Securities lending involves the risk that the borrower may fail to
return the securities in a timely manner or at all. As a result, a fund could
lose money and there may be a delay in recovering the loaned securities. A fund
could also lose money if it does not recover the securities and/or the value of
the collateral falls, including the value of investments made with cash
collateral. These events could trigger adverse tax consequences for a fund.

Only the trustee may vote the shares of the closed-end funds held in your
trust. The trustee will vote the shares in the same general proportion as
shares held by other shareholders of each fund. Your trust may be required,
however, to reject any offer for securities or other property in exchange for
portfolio securities as described under "How the Trust Works--Changing Your
Portfolio."

HOW THE TRUST WORKS

YOUR TRUST. Your trust is a unit investment trust registered under the
Investment Company Act of 1940. We created your trust under a trust agreement
between Advisors Asset Management, Inc. (as depositor/sponsor, evaluator and
supervisor) and The Bank of New York Mellon (as trustee). To create your trust,
we deposited securities with the trustee (or contracts to purchase securities
along with an irrevocable letter of credit or other consideration to pay for the
securities). In exchange, the trustee delivered units of your trust to us.
Each unit represents an undivided interest in the assets of your trust. These
units remain outstanding until redeemed or until your trust terminates. At the
close of the New York Stock Exchange on your trust's inception date, the number
of units may be adjusted so that the public offering price per unit equals $10.
The number of units and fractional interest of each unit in your trust will
increase or decrease to the extent of any adjustment.

Understanding Your Investment 35

CHANGING YOUR PORTFOLIO. Your trust is not a managed fund. Unlike a managed
fund, we designed your portfolio to remain relatively fixed. Your trust will
generally buy and sell securities:

* to pay expenses,

* to issue additional units or redeem units,

* to take actions in response to certain corporate actions and other events
impacting portfolio securities,

* in limited circumstances to protect the trust,

* to make required distributions or avoid imposition of taxes on the trust,
or

* as permitted by the trust agreement.

When your trust sells securities, the composition and diversification of the
securities in the portfolio may be altered. If a public tender offer has been
made for a security or a merger, acquisition or similar transaction has been
announced affecting a security, the sponsor may direct the trustee to sell the
security or accept a tender offer if the supervisor determines that the action
is in the best interest of unitholders. The trustee will distribute any
available cash proceeds to unitholders.

If an offer by the issuer of any of the portfolio securities or any other
party is made to issue new securities, or to exchange securities, for trust
portfolio securities, the trustee will reject the offer unless your trust is a
"regulated investment company" for tax purposes (see "Essential Information--Tax
Structure" in the "Investment Summary" section for your trust in this
prospectus). If your trust is a "regulated investment company" for tax purposes
and an offer by the issuer of any of the portfolio securities or any other party
is made to issue new securities, or to exchange securities, for trust portfolio
securities, the trustee may either vote for or against, or accept or reject, any
offer for new or exchanged securities or property in exchange for a trust
portfolio security at the direction of the sponsor.

If any issuance, exchange or substitution of new or exchanged securities or
property in exchange for a trust portfolio security occurs (regardless of any
action or rejection by a trust), any securities and/or property received will be
deposited into the trust and will be promptly sold by the trustee pursuant to
the sponsor's direction, unless the sponsor advises the trustee to keep such
securities or property.

If any contract for the purchase of securities fails, the sponsor will refund
the cash and sales fee attributable to the failed contract to unitholders on or
before the next distribution date unless substantially all of the moneys held to
cover the purchase are reinvested in substitute securities in accordance with
the trust agreement. If your trust is a "regulated investment company" for tax
purposes, the sponsor may direct the reinvestment of security sale proceeds if
the sale is the direct result of serious adverse credit factors which, in the
opinion of the supervisor, would make retention of the securities detrimental to
the trust. In such a case, the sponsor may, but is not obligated to, direct the
reinvestment of sale proceeds in any other securities that meet the criteria for
inclusion in the trust on the trust's inception date. The sponsor may also
instruct the trustee to take action necessary to ensure that a portfolio
continues to satisfy the qualifications of a "regulated investment company" for
tax purposes. Your trust will not participate in rights offerings of closed-end
funds, if any.

We will increase the size of your trust as we sell units. When we create
additional units, we will seek to replicate the existing portfolio to the

36 Understanding Your Investment

extent practicable. When your trust buys securities, it may pay brokerage or
other acquisition fees. You could experience a dilution of your investment
because of these fees and fluctuations in security prices between the time we
create units and the time your trust buys the securities. When your trust buys
or sells securities, we may direct that it place orders with and pay brokerage
commissions to brokers that sell units or are affiliated with us, your trust or
the trustee.

Pursuant to an exemptive order, your trust may be able to purchase securities
from other trusts that we sponsor when we create additional units. Your trust
may also be able to sell securities to other trusts that we sponsor to satisfy
unit redemption, pay deferred sales charges or expenses, in connection with
periodic tax compliance or in connection with the termination of your trust.
The exemption may enable each trust to eliminate commission costs on these
transactions. The price for those securities will be the closing price on the
sale date on the exchange where the securities are principally traded as
certified by us to the trustee.

AMENDING THE TRUST AGREEMENT. The sponsor and the trustee can change the
trust agreement without your consent to correct any provision that may be
defective or to make other provisions that will not materially adversely affect
your interest (as determined by the sponsor and the trustee). We cannot change
this agreement to reduce your interest in your trust without your consent.
Investors owning two-thirds of the units in your trust may vote to change this
agreement.

TERMINATION OF YOUR TRUST. Your trust will terminate on the termination date
set forth under "Essential Information" in the "Investment Summary" section of
this prospectus for your trust. The trustee may terminate your trust early if
the value of the trust is less than 40% of the original value of the securities
in your trust at the time of deposit. At this size, the expenses of your trust
may create an undue burden on your investment. Investors owning two-thirds of
the units in your trust may also vote to terminate the trust early. The trustee
will liquidate your trust in the event that a sufficient number of units not yet
sold to the public are tendered for redemption so that the net worth of your
trust would be reduced to less than 40% of the value of the securities at the
time they were deposited in the trust. If this happens, we will refund any
sales charge that you paid.

The trustee will notify you of any termination and sell any remaining
securities. The trustee will send your final distribution to you within a
reasonable time following liquidation of all the securities after deducting
final expenses. Your termination distribution may be less than the price you
originally paid for your units.

THE SPONSOR. The sponsor of your trust is Advisors Asset Management, Inc.
We are a broker-dealer specializing in providing trading and support services to
broker-dealers, registered representatives, investment advisers and other
financial professionals. Our headquarters are located at 18925 Base Camp Road,
Monument, Colorado 80132. You can contact our unit investment trust division at
8100 East 22nd Street North, Building 800, Suite 102, Wichita, Kansas 67226 or
by using the contacts listed on the back cover of this prospectus. AAM is a
registered broker-dealer and investment adviser, a member of the Financial
Industry Regulatory Authority, Inc. (FINRA) and Securities Investor Protection
Corporation (SIPC) and a registrant of the Municipal Securities Rulemaking Board
(MSRB). If we fail to or cannot perform our duties as sponsor or become
bankrupt, the trustee may replace us, continue to operate your trust without a
sponsor, or terminate your trust.

Understanding Your Investment 37

We and your trust have adopted a code of ethics requiring our employees who
have access to information on trust transactions to report personal securities
transactions. The purpose of the code is to avoid potential conflicts of
interest and to prevent fraud, deception or misconduct with respect to your
trust.

The sponsor or an affiliate may use the list of securities in your trust in
its independent capacity (which may include acting as an investment adviser or
broker-dealer) and distribute this information to various individuals and
entities. The sponsor or an affiliate may recommend or effect transactions in
the securities. This may also have an impact on the price your trust pays for
the securities and the price received upon unit redemption or trust termination.
The sponsor may act as agent or principal in connection with the purchase and
sale of securities, including those held by your trust, and may act as a
specialist market maker in the securities. The sponsor may also issue reports
and make recommendations on the securities in your trust. The sponsor or an
affiliate may have participated in a public offering of one or more of the
securities in your trust. The sponsor, an affiliate or their employees may have
a long or short position in these securities or related securities. An officer,
director or employee of the sponsor or an affiliate may be an officer or
director for the issuers of the securities.

THE TRUSTEE. The Bank of New York Mellon is the trustee of your trust with
its principal unit investment trust division offices located at 2 Hanson Place,
12th Floor, Brooklyn, New York 11217. You can contact the trustee by calling
the telephone number on the back cover of this prospectus or by writing to its
unit investment trust office. We may remove and replace the trustee in some
cases without your consent. The trustee may also resign by notifying us and
investors.

HOW WE DISTRIBUTE UNITS. We sell units to the public through broker-dealers
and other firms. These distribution firms each pay part of the sales fee when
they sell units. During the initial offering period, the broker-dealer
concession or agency commission for broker-dealers and other firms is as
follows:

TRANSACTION CONCESSION OR
AMOUNT: AGENCY COMMISSION:
------------------------------------------

Less than $50,000 3.10%
$50,000 - $99,999 2.85
$100,000 - $249,999 2.60
$250,000 - $499,999 2.30
$500,000 - $999,999 2.20
$1,000,000 or more 1.75

We apply these concessions or agency commissions as a percent of the public
offering price per unit at the time of the transaction. The broker-dealer
concession or agency commission is 65% of the sales fee for secondary market
sales. For transactions involving unitholders of other unit investment trusts
who use their redemption or termination proceeds to purchase units of your
trust, the broker-dealer concession or agency commission is 2.15% of the public
offering price per unit. No broker-dealer concession or agency commission is
paid to broker-dealers, investment advisers or other selling firms in connection
with unit sales in Fee Accounts subject to a Wrap Fee.

Broker-dealers and other firms that sell units of certain unit investment
trusts for which AAM acts as sponsor are eligible to receive additional
compensation for volume sales. The sponsor offers two separate volume
concession structures for certain trusts that are referred to as "Volume
Concession A" and "Volume Concession B." The

38 Understanding Your Investment

trusts offered in this prospectus are Volume Concession A trusts. Broker-
dealers and other firms that sell units of any Volume Concession A trust are
eligible to receive the additional compensation described below. Such payments
will be in addition to the regular concessions paid to firms as set forth in the
applicable trust's prospectus. The additional concession is based on total
initial offering period sales of all Volume Concession A trusts during a
calendar quarter as set forth in the following table:

INITIAL OFFERING PERIOD SALES VOLUME
DURING CALENDAR QUARTER CONCESSION
---------------------------------------------------------

Less than $10,000,000 0.000%
$10,000,000 but less than $25,000,000 0.050
$25,000,000 but less than $50,000,000 0.100
$50,000,000 but less than $75,000,000 0.110
$75,000,000 but less than $100,000,000 0.120
$100,000,000 but less than $250,000,000 0.125
$250,000,000 but less than $500,000,000 0.135
$500,000,000 or more 0.150

This volume concession will be paid on units of all Volume Concession A
trusts sold in the initial offering period, except as described below. For a
trust to be eligible for this additional Volume Concession A compensation for
calendar quarter sales, the trust's prospectus must include disclosure related
to this additional Volume Concession A compensation; a trust is not eligible for
this additional Volume Concession A compensation if the prospectus for such
trust does not include disclosure related to this additional Volume Concession A
compensation. Broker-dealer firms will not receive additional compensation
unless they sell at least $10.0 million of units of Volume Concession A trusts
during a calendar quarter. For example, if a firm sells $9.5 million of units
of Volume Concession A trusts in the initial offering period during a calendar
quarter, the firm will not receive any additional compensation with respect to
such trusts. Once a firm reaches a particular breakpoint during a quarter, the
firm will receive the stated volume concession on all initial offering period
sales of Volume Concession A trusts during the applicable quarter. For example,
if a firm sells $12.5 million of units of Volume Concession A trusts in the
initial offering period during a calendar quarter, the firm will receive
additional compensation of 0.05% of $12.5 million and if a firm sells $27.0
million of units of Volume Concession A trusts in the initial offering period
during a calendar quarter, the firm will receive additional compensation of
0.100% of $27.0 million.

In addition, dealer firms will not receive volume concessions on the sale of
units which are not subject to a transactional sales charge. However, such
sales will be included in determining whether a firm has met the sales level
breakpoints for volume concessions subject to the policies of the related
selling firm. Secondary market sales of all unit trusts are excluded for
purposes of these volume concessions. We will pay these amounts out of our own
assets within a reasonable time following each calendar quarter.

Any sales fee discount is borne by the broker-dealer or selling firm out of
the broker-dealer concession or agency commission. We reserve the right to
change the amount of concessions or agency commissions from time to time.

We currently may provide, at our own expense and out of our own profits,
additional compensation and benefits to broker-dealers who sell units of your
trust and our other products. This compensation is intended to result in
additional sales of our products and/or compensate broker-dealers and financial
advisors for past sales. A number of factors are considered in determining
whether to pay these additional

Understanding Your Investment 39

amounts. Such factors may include, but are not limited to, the level or type of
services provided by the intermediary, the level or expected level of sales of
our products by the intermediary or its agents, the placing of our products on a
preferred or recommended product list and access to an intermediary's personnel.
We may make these payments for marketing, promotional or related expenses,
including, but not limited to, expenses of entertaining retail customers and
financial advisors, advertising, sponsorship of events or seminars, obtaining
information about the breakdown of unit sales among an intermediary's
representatives or offices, obtaining shelf space in broker-dealer firms and
similar activities designed to promote the sale of our products. We make such
payments to a substantial majority of intermediaries that sell our products. We
may also make certain payments to, or on behalf of, intermediaries to defray a
portion of their costs incurred for the purpose of facilitating unit sales, such
as the costs of developing or purchasing trading systems to process unit trades.
Payments of such additional compensation described in this paragraph and the
volume concessions described above, some of which may be characterized as
"revenue sharing," may create an incentive for financial intermediaries and
their agents to sell or recommend our products, including your trust, over other
products. These arrangements will not change the price you pay for your units.

We generally register units for sale in various states in the U.S. We do not
register units for sale in any foreign country. This prospectus does not
constitute an offer of units in any state or country where units cannot be
offered or sold lawfully. We may reject any order for units in whole or in
part.

We may gain or lose money when we hold units in the primary or secondary
market due to fluctuations in unit prices. The gain or loss is equal to the
difference between the price we pay for units and the price at which we sell or
redeem them. We may also gain or lose money when we deposit securities to
create units. The amount of our profit or loss on the initial deposit of
securities into your trust is shown in the "Notes to Portfolio" section for your
trust.

TAXES--REGULATED INVESTMENT COMPANIES

This section summarizes some of the main U.S. federal income tax consequences
of owning units of your trust if your trust intends to qualify as a "regulated
investment company" under federal tax laws. The tax structure of your trust is
set forth under "Essential Information--Tax Structure" in the "Investment
Summary" section for your trust in this prospectus.

This section is current as of the date of this prospectus. Tax laws and
interpretations change frequently, and these summaries do not describe all of
the tax consequences to all taxpayers. For example, these summaries generally
do not describe your situation if you are a corporation, a non-U.S. person, a
broker/dealer, or other investor with special circumstances. In addition, this
section does not describe your state, local or foreign tax consequences.

This federal income tax summary is based in part on the advice of counsel to
the sponsor. The Internal Revenue Service could disagree with any conclusions
set forth in this section. In addition, our counsel was not asked to review,
and has not reached a conclusion with respect to the federal income tax
treatment of the assets to be deposited in your trust. This may not be
sufficient for you to use for the purpose of avoiding penalties under federal
tax law.

40 Understanding Your Investment

As with any investment, you should seek advice based on your individual
circumstances from your own tax advisor.

TRUST STATUS. Your trust intends to qualify as a "regulated investment
company" under the federal tax laws. If your trust qualifies as a regulated
investment company and distributes its income as required by the tax law, your
trust generally will not pay federal income taxes. If your trust invests in a
partnership, an adverse federal income tax audit of that partnership could
result in the trust being required to pay federal income tax or pay a deficiency
dividend (without having received additional cash).

DISTRIBUTIONS. Trust distributions are generally taxable. After the end of
each year, you will receive a tax statement that separates your trust's
distributions into three categories, ordinary income distributions, capital gain
dividends and return of capital. Ordinary income distributions are generally
taxed at your ordinary tax rate, however, as further discussed below, certain
ordinary income distributions received from your trust may be taxed at the
capital gains tax rates. Generally, you will treat all capital gain dividends
as long-term capital gains regardless of how long you have owned your units. To
determine your actual tax liability for your capital gain dividends, you must
calculate your total net capital gain or loss for the tax year after considering
all of your other taxable transactions, as described below. In addition, your
trust may make distributions that represent a return of capital for tax purposes
and thus will generally not be taxable to you. A return of capital, although
not initially taxable to you, will result in a reduction in the basis in your
units and subsequently result in higher levels of taxable capital gains in the
future. In addition, if the non-dividend distribution exceeds your basis in
your units, you will have long-term or short-term gain depending upon your
holding period. The tax status of your distributions from your trust is not
affected by whether you reinvest your distributions in additional units or
receive them in cash. The income from your trust that you must take into
account for federal income tax purposes is not reduced by amounts used to pay a
deferred sales fee, if any. The tax laws may require you to treat distributions
made to you in January as if you had received them on December 31 of the
previous year. Income from your trust may also be subject to a 3.8 percent
"medicare tax." This tax generally applies to your net investment income if
your adjusted gross income exceeds certain threshold amounts, which are $250,000
in the case of married couples filing joint returns and $200,000 in the case of
single individuals.

DIVIDENDS RECEIVED DEDUCTION. A corporation that owns units generally will
not be entitled to the dividends received deduction with respect to many
dividends received from your trust because the dividends received deduction is
generally not available for distributions from regulated investment companies.
However, certain ordinary income dividends on units that are attributable to
qualifying dividends received by your trust from certain corporations may be
reported by the trust as being eligible for the dividends received deduction.

SALE OR REDEMPTION OF UNITS. If you sell or redeem your units, you will
generally recognize a taxable gain or loss. To determine the amount of this
gain or loss, you must subtract your tax basis in your units from the amount you
receive in the transaction. Your tax basis in your units is generally equal to
the cost of your units, generally including sales charges. In some cases,
however, you may have to adjust your tax basis after you purchase your units.

Understanding Your Investment 41

CAPITAL GAINS AND LOSSES AND CERTAIN ORDINARY INCOME DIVIDENDS. If you are
an individual, the maximum marginal stated federal tax rate for net capital gain
is generally 20% for taxpayers in the 39.6% tax bracket, 15% for taxpayers in
the 25%, 28%, 33% and 35% tax brackets and 0% for taxpayers in the 10% and 15%
tax brackets. Some portion of your capital gain dividends may be subject to
higher maximum marginal stated federal income tax rates. Some portion of your
capital gain dividends may be attributable to the trust's interest in a master
limited partnership which may be subject to a maximum marginal stated federal
income tax rate of 28%, rather than the rates set forth above. In addition,
capital gain received from assets held for more than one year that is considered
"unrecaptured section 1250 gain" (which may be the case, for example, with some
capital gains attributable to equity interests in real estate investment trusts
that constitute interests in entities treated as real estate investment trusts
for federal income tax purposes) is taxed at a maximum stated tax rate of 25%.
In the case of capital gain dividends, the determination of which portion of the
capital gain dividend, if any, is subject to the 28% tax rate or the 25% tax
rate, will be made based on rules prescribed by the United States Treasury.
Capital gains may also be subject to the "medicare tax" described above.

Net capital gain equals net long-term capital gain minus net short-term
capital loss for the taxable year. Capital gain or loss is long-term if the
holding period for the asset is more than one year and is short-term if the
holding period for the asset is one year or less. You must exclude the date you
purchase your units to determine your holding period. However, if you receive a
capital gain dividend from your trust and sell your unit at a loss after holding
it for six months or less, the loss will be recharacterized as long-term capital
loss to the extent of the capital gain dividend received. The tax rates for
capital gains realized from assets held for one year or less are generally the
same as for ordinary income. The Internal Revenue Code treats certain capital
gains as ordinary income in special situations.

Ordinary income dividends received by an individual unitholder from a
regulated investment company such as your trust are generally taxed at the same
rates that apply to net capital gain (as discussed above), provided certain
holding period requirements are satisfied and provided the dividends are
attributable to qualifying dividends received by your trust itself.
Distributions with respect to shares in real estate investment trusts are
qualifying dividends only in limited circumstances. Your trust will provide
notice to its unitholders of the amount of any distribution which may be taken
into account as a dividend which is eligible for the capital gains tax rates.

IN-KIND DISTRIBUTIONS. Under certain circumstances, as described in this
prospectus, you may receive an in-kind distribution of trust securities when you
redeem units or when your trust terminates. This distribution will be treated
as a sale for federal income tax purposes and you will generally recognize gain
or loss, generally based on the value at that time of the securities and the
amount of cash received. The Internal Revenue Service could however assert that
a loss could not be currently deducted.

ROLLOVERS AND EXCHANGES. If you elect to have your proceeds from your trust
rolled over into a future trust, the exchange would generally be considered a
sale for federal income tax purposes.

DEDUCTIBILITY OF TRUST EXPENSES. Expenses incurred and deducted by your
trust will generally

42 Understanding Your Investment

not be treated as income taxable to you. In some cases, however, you may be
required to treat your portion of these trust expenses as income. In these
cases you may be able to take a deduction for these expenses. However, certain
miscellaneous itemized deductions, such as investment expenses, may be deducted
by individuals only to the extent that all of these deductions exceed 2% of the
individual's adjusted gross income. Some individuals may also be subject to
further limitations on the amount of their itemized deductions, depending on
their income.

FOREIGN TAX CREDIT. If your trust invests in any foreign securities, the tax
statement that you receive may include an item showing foreign taxes your trust
paid to other countries. In this case, dividends taxed to you will include your
share of the taxes your trust paid to other countries. You may be able to
deduct or receive a tax credit for your share of these taxes.

INVESTMENTS IN CERTAIN FOREIGN CORPORATIONS. If your trust holds an equity
interest in any "passive foreign investment companies" ("PFICs"), which are
generally certain foreign corporations that receive at least 75% of their annual
gross income from passive sources (such as interest, dividends, certain rents
and royalties or capital gains) or that hold at least 50% of their assets in
investments producing such passive income, the trust could be subject to U.S.
federal income tax and additional interest charges on gains and certain
distributions with respect to those equity interests, even if all the income or
gain is timely distributed to its unitholders. Your trust will not be able to
pass through to its unitholders any credit or deduction for such taxes. Your
trust may be able to make an election that could ameliorate these adverse tax
consequences. In this case, your trust would recognize as ordinary income any
increase in the value of such PFIC shares, and as ordinary loss any decrease in
such value to the extent it did not exceed prior increases included in income.
Under this election, your trust might be required to recognize in a year income
in excess of its distributions from PFICs and its proceeds from dispositions of
PFIC stock during that year, and such income would nevertheless be subject to
the distribution requirement and would be taken into account for purposes of the
4% excise tax. Dividends paid by PFICs are not treated as qualified dividend
income.

FOREIGN INVESTORS. If you are a foreign investor (i.e., an investor other
than a U.S. citizen or resident or a U.S. corporation, partnership, estate or
trust), you should be aware that, generally, subject to applicable tax treaties,
distributions from your trust will be characterized as dividends for federal
income tax purposes (other than dividends which your trust properly reports as
capital gain dividends) and will be subject to U.S. income taxes, including
withholding taxes, subject to certain exceptions described below. However,
distributions received by a foreign investor from your trust that are properly
reported by your trust as capital gain dividends may not be subject to U.S.
federal income taxes, including withholding taxes, provided that your trust
makes certain elections and certain other conditions are met. Distributions
from your trust that are properly reported by the trust as an interest-related
dividend attributable to certain interest income received by the trust or as a
short-term capital gain dividend attributable to certain net short-term capital
gain income received by the trust may not be subject to U.S. federal income
taxes, including withholding taxes when received by certain foreign investors,
provided that the trust makes certain elections and certain other conditions are
met. In addition, distributions in respect of units may be subject to a U.S.
withholding tax of 30% in the

Understanding Your Investment 43

case of distributions to (i) certain non-U.S. financial institutions that have
not entered into an agreement with the U.S. Treasury to collect and disclose
certain information and are not resident in a jurisdiction that has entered into
such an agreement with the U.S. Treasury and (ii) certain other non-U.S.
entities that do not provide certain certifications and information about the
entity's U.S. owners. Dispositions of units by such persons may be subject to
such withholding after December 31, 2018. You should also consult your tax
advisor with respect to other U.S. tax withholding and reporting requirements.

EXPENSES

Your trust will pay various expenses to conduct its operations. The "Fees
and Expenses" section for each trust in this prospectus shows the estimated
amount of these expenses.

The sponsor will receive a fee from your trust for creating and developing
the trust, including determining the trust's objectives, policies, composition
and size, selecting service providers and information services and for providing
other similar administrative and ministerial functions. This "creation and
development fee" is a charge of $0.05 per unit. The trustee will deduct this
amount from your trust's assets as of the close of the initial offering period.
No portion of this fee is applied to the payment of distribution expenses or as
compensation for sales efforts. This fee will not be deducted from proceeds
received upon a repurchase, redemption or exchange of units before the close of
the initial public offering period.

Your trust will pay a fee to the trustee for its services. The trustee also
benefits when it holds cash for your trust in non-interest bearing accounts.
Your trust will reimburse us as supervisor, evaluator and sponsor for providing
portfolio supervisory services, for evaluating your portfolio and for providing
bookkeeping and administrative services. Our reimbursements may exceed the
costs of the services we provide to your trust but will not exceed the costs of
services provided to all of our unit investment trusts in any calendar year.
All of these fees may adjust for inflation without your approval.

Your trust will also pay its general operating expenses. Your trust may pay
expenses such as trustee expenses (including legal and auditing expenses),
various governmental charges, fees for extraordinary trustee services, costs of
taking action to protect your trust, costs of indemnifying the trustee and the
sponsor, legal fees and expenses, expenses incurred in contacting you and any
applicable license fee for the use of certain service marks, trademarks and/or
trade names. Your trust may pay the costs of updating its registration
statement each year. The trustee will generally pay trust expenses from
distributions received on the securities but in some cases may sell securities
to pay trust expenses.

EXPERTS

LEGAL MATTERS. Chapman and Cutler LLP acts as counsel for your trust and has
given an opinion that the units are validly issued. Dorsey & Whitney LLP acts
as counsel for the trustee.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. Grant Thornton LLP,
independent registered public accounting firm, audited the statements of
financial condition and the portfolios included in this prospectus.

44 Understanding Your Investment

ADDITIONAL INFORMATION

This prospectus does not contain all the information in the registration
statement that your trust filed with the Securities and Exchange Commission.
The Information Supplement, which was filed with the Securities and Exchange
Commission, includes more detailed information about the securities in your
portfolio, investment risks and general information about your trust. You can
obtain the Information Supplement by contacting us or the Securities and
Exchange Commission as indicated on the back cover of this prospectus. This
prospectus incorporates the Information Supplement by reference (it is legally
considered part of this prospectus).

Understanding Your Investment 45

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

UNITHOLDERS
ADVISORS DISCIPLINED TRUST 1685

We have audited the accompanying statement of financial condition, including the
trust portfolios on pages __, __, __, __, __ and __ of Advisors Disciplined
Trust 1685, as of ___________, 2016, the initial date of deposit. The
statements of financial condition are the responsibility of the trust's sponsor.
Our responsibility is to express an opinion on these statements of financial
condition based on our audits.

We conducted our audits in accordance with auditing 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 statements of financial condition are free of material misstatement. We
were not engaged to perform audits of the trusts' internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the trusts' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of financial condition, assessing the accounting principles used
and significant estimates made by the sponsor, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation with The
Bank of New York Mellon, trustee, of cash or an irrevocable letter of credit
deposited for the purchase of securities as shown in the statements of financial
condition as of ___________, 2016. We believe that our audits of the statements
of financial condition provides a reasonable basis for our opinion.

In our opinion, the statements of financial condition referred to above present
fairly, in all material respects, the financial position of Advisors Disciplined
Trust 1685 as of ___________, 2016, in conformity with accounting principles
generally accepted in the United States of America.

Chicago, Illinois GRANT THORNTON LLP
___________, 2016

ADVISORS DISCIPLINED TRUST 1685 GLOBAL
BALANCED CLOSED-END
STATEMENT OF FINANCIAL CONDITION AS OF JULY ___, 2016 PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------

INVESTMENT IN SECURITIES
Contracts to purchase underlying securities (1)(2) . . . . . . . . . . . $ $
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
========== ==========

LIABILITIES AND INTEREST OF INVESTORS
Liabilities:
Organization costs (3) . . . . . . . . . . . . . . . . . . . . . . . . $ $
Deferred sales fee (4) . . . . . . . . . . . . . . . . . . . . . . . .
Creation and development fee (4) . . . . . . . . . . . . . . . . . . .
---------- ----------

---------- ----------

Interest of investors:
Cost to investors (5) . . . . . . . . . . . . . . . . . . . . . . . .
Less: initial sales fee (4)(5) . . . . . . . . . . . . . . . . . . . .
Less: deferred sales fee, creation and development fee
and organization costs (3)(4)(5) . . . . . . . . . . . . . . . .
---------- ----------
Net interest of investors . . . . . . . . . . . . . . . . . . . . . .
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $
========== ==========

Number of units . . . . . . . . . . . . . . . . . . . . . . . . . . . .
========== ==========

Net asset value per unit . . . . . . . . . . . . . . . . . . . . . . . . $ $
========== ==========

<FN>
(1) Aggregate cost of the securities is based on the closing sale price
evaluations as determined by the evaluator.
(2) Cash or an irrevocable letter of credit has been deposited with the trustee
covering the funds (aggregating $________ with $________ allocated to each
trust) necessary for the purchase of securities in the trusts represented
by purchase contracts.
(3) A portion of the public offering price represents an amount sufficient to
pay for all or a portion of the costs incurred in establishing the trusts.
These costs have been estimated at $_____ per unit for each trust. A
distribution will be made as of the earlier of the close of the initial
offering period or six months following the trust's inception date to an
account maintained by the trustee from which this obligation of the
investors will be satisfied. To the extent the actual organization costs
are greater than the estimated amount, only the estimated organization
costs added to the public offering price will be reimbursed to the sponsor
and deducted from the assets of the trust.
(4) The total sales fee consists of an initial sales fee, a deferred sales fee
and a creation and development fee. The initial sales fee is equal to the
difference between the maximum sales fee and the sum of the remaining
deferred sales fee and the total creation and development fee. The maximum
sales fee is 3.95% of the public offering price per unit. The deferred
sales fee is equal to $0.245 per unit and the creation and development fee
is equal to $0.05 per unit.
(5) The aggregate cost to investors includes the applicable sales fee assuming
no reduction of sales fees.
</FN>

46 Understanding Your Investment

CONTENTS

INVESTMENT SUMMARY
-----------------------------------------------------------------------

A concise description 2 BALANCED
of essential information PORTFOLIO
about the portfolio
9 GLOBAL CLOSED-END
PORTFOLIO

UNDERSTANDING YOUR INVESTMENT
-----------------------------------------------------------------------

Detailed information to 12 How to Buy Units
help you understand 15 How to Sell Your Units
your investment 18 Distributions
19 Investment Risks
34 Closed-End Funds
35 How the Trust Works
40 Taxes-Regulated Investment
Companies
44 Expenses
44 Experts
45 Additional Information
46 Report of Independent Registered
Public Accounting Firm
46 Statement of Financial Condition

WHERE TO LEARN MORE
-----------------------------------------------------------------------

You can contact us for VISIT US ON THE INTERNET
free information about http://www.AAMlive.com
this and other investments, CALL ADVISORS ASSET
including the Information MANAGEMENT, INC.
Supplement (877) 858-1773
CALL THE BANK OF NEW YORK MELLON
(800) 848-6468

ADDITIONAL INFORMATION
-----------------------------------------------------------------------

This prospectus does not contain all information filed with the
Securities and Exchange Commission. To obtain or copy this
information including the Information Supplement (a duplication
fee may be required):

E-MAIL: publicinfo@sec.gov
WRITE: Public Reference Section
Washington, D.C. 20549
VISIT: http://www.sec.gov
(EDGAR Database)
CALL: 1-202-551-8090
(only for information on the operation of the
Public Reference Section)

REFER TO:
ADVISORS DISCIPLINED TRUST 1685
Securities Act file number: 333-__________
Investment Company Act file number: 811-21056

BALANCED PORTFOLIO,
SERIES 2016-2

GLOBAL CLOSED-END
PORTFOLIO, SERIES 2016-3

PROSPECTUS

JULY ___, 2016

[LOGO]

AAM

ADVISORS
ASSET MANAGEMENT

ADVISORS DISCIPLINED TRUST
INFORMATION SUPPLEMENT

This Information Supplement provides additional information concerning
Advisors Disciplined Trust unit investment trusts that have prospectuses dated
on and after the date set forth below. This Information Supplement should be
read in conjunction with the prospectus for a trust. It is not a prospectus.
It does not include all of the information that an investor should consider
before investing in a trust. It may not be used to offer or sell units of a
trust without the prospectus. This Information Supplement is incorporated into
the prospectus by reference and has been filed as part of the registration
statement with the Securities and Exchange Commission for each applicable trust.
Investors should obtain and read the prospectus prior to purchasing units of a
trust. You can obtain the prospectus without charge at www.aamlive.com by
contacting your financial professional Advisors Asset Management, Inc. at 18925
Base Camp Road, Suite 203, Monument, Colorado 80132 or at 8100 East 22nd Street
North, Building 800, Suite 102, Wichita, Kansas 67226 or by calling (877) 858-
1773.

CONTENTS

General Information 2
Investment Policies 2
Risk Factors 5
Administration of the Trust 54

May __, 2016

GENERAL INFORMATION

Each trust is one of a series of separate unit investment trusts created
under the name Advisors Disciplined Trust and registered under the Investment
Company Act of 1940. Each trust was created as a common law trust on the
initial date of deposit set forth in the prospectus for such trust under the
laws of the state of New York. Each trust was created under a trust agreement
among Advisors Asset Management, Inc. (as sponsor/depositor, evaluator and
supervisor) and The Bank of New York Mellon (as trustee).

When a trust was created, the sponsor delivered to the trustee securities
or contracts for the purchase thereof for deposit in the trust and the trustee
delivered to the sponsor documentation evidencing the ownership of units of the
trust. At the close of the New York Stock Exchange on a trust's initial date of
deposit or the first day units are offered to the public, the number of units
may be adjusted so that the public offering price per unit equals $10. The
number of units, fractional interest of each unit in a trust and any estimated
income distributions per unit will increase or decrease to the extent of any
adjustment. Additional units of a trust may be issued from time to time by
depositing in the trust additional securities (or contracts for the purchase
thereof together with cash or irrevocable letters of credit) or cash (including
a letter of credit or the equivalent) with instructions to purchase additional
securities. As additional units are issued by a trust, the aggregate value of
the securities in the trust will be increased and the fractional undivided
interest in the trust represented by each unit will be decreased. The sponsor
may continue to make additional deposits of securities into a trust, provided
that such additional deposits will be in amounts which will generally maintain
the existing relationship among the shares of the securities in such trust.
Thus, although additional units will be issued, each unit will generally
continue to represent the approximately same number of shares of each security.
If the sponsor deposits cash to purchase additional securities, existing and new
investors may experience a dilution of their investments and a reduction in
their anticipated income because of fluctuations in the prices of the securities
between the time of the deposit and the purchase of the securities and because a
trust will pay any associated brokerage fees.

Neither the sponsor nor the trustee shall be liable in any way for any
failure in any of the securities. However, should any contract for the purchase
of any of the securities initially deposited in a trust fail, the sponsor will,
unless substantially all of the moneys held in the trust to cover such purchase
are reinvested in substitute securities in accordance with the trust agreement,
refund the cash and sales charge attributable to such failed contract to all
unitholders on the next distribution date.

INVESTMENT POLICIES

Each trust is a unit investment trust and is not an "actively managed"
fund. Traditional methods of investment management for a managed fund typically
involve frequent changes in a portfolio of securities on the basis of economic,
financial and market analysis. The portfolio of a trust, however, will not be
actively managed and therefore the adverse financial condition of an issuer will
not necessarily require the sale of its securities from a portfolio.

-2-

The sponsor may not alter the portfolio of a trust by the purchase, sale or
substitution of securities, except in special circumstances as provided in the
applicable trust agreement. Thus, the assets of a trust will generally remain
unchanged under normal circumstances. Each trust agreement provides that the
sponsor may direct the trustee to sell, liquidate or otherwise dispose of
securities in the trust at such price and time and in such manner as shall be
determined by the sponsor, provided that the supervisor has determined, if
appropriate, that any one or more of the following conditions exist with respect
to such securities: (i) that there has been a default in the payment of
dividends, after declared and when due and payable; (ii) that any action or
proceeding has been instituted at law or equity seeking to restrain or enjoin
the payment of dividends, or that there exists any legal question or impediment
affecting such securities or the payment of dividends from the same; (iii) that
there has occurred any breach of covenant or warranty in any document relating
to the issuer of the securities which would adversely affect either immediately
or contingently the payment of dividends on the securities, or the general
credit standing of the issuer or otherwise impair the sound investment character
of such securities; (iv) that there has been a default in the payment of
dividends, principal of or income or premium, if any, on any other outstanding
obligations of the issuer of such securities; (v) that the price of the security
has declined to such an extent or other such credit factors exist so that in the
opinion of the supervisor, as evidenced in writing to the trustee, the retention
of such securities would be detrimental to the trust and to the interest of the
unitholders; (vi) that all of the securities in the trust will be sold pursuant
to termination of the trust; (vii) that such sale is required due to units
tendered for redemption; (viii) that there has been a public tender offer made
for a security or a merger or acquisition is announced affecting a security, and
that in the opinion of the supervisor the sale or tender of the security is in
the best interest of the unitholders; (ix) if the trust is designed to be a
grantor trust for tax purposes, that the sale of such securities is required in
order to prevent the trust from being deemed an association taxable as a
corporation for federal income tax purposes; (x) if the trust has elected to be
a "regulated investment company" for tax purposes, that such sale is necessary
or advisable (a) to maintain the qualification of the trust as a "regulated
investment company" or (b) to provide funds to make any distribution for a
taxable year in order to avoid imposition of any income or excise taxes on the
trust or on undistributed income in the trust; (xi) that as result of the
ownership of the security, the trust or its unitholders would be a direct or
indirect shareholder of a passive foreign investment company as defined in
section 1297(a) of the Internal Revenue Code; or (xii) that such sale is
necessary for the trust to comply with such federal and/or state securities
laws, regulations and/or regulatory actions and interpretations which may be in
effect from time to time. The trustee may also sell securities, designated by
the supervisor, from a trust for the purpose of the payment of expenses. In the
event a security is sold as a direct result of serious adverse credit factors
affecting the issuer of such security and a trust is a "regulated investment
company" for tax purposes, then the sponsor may, if permitted by applicable law,
but is not obligated, to direct the reinvestment of the proceeds of the sale of
such security in any other securities which meet the criteria necessary for
inclusion in such trust on the initial date of deposit.

If the trustee is notified at any time of any action to be taken or
proposed to be taken by holders of the portfolio securities, the trustee will
notify the sponsor and will take such action or refrain from taking any action
as the sponsor directs and, if the sponsor does not within five business days of
the giving of such notice direct the trustee to take or refrain from taking any
action, the trustee will take such reasonable action or refrain from taking any
action so that the

-3-

securities are voted as closely as possible in the same manner and the same
general proportion, with respect to all issues, as are shares of such securities
that are held by owners other than the trust. Notwithstanding the foregoing, in
the event that the trustee shall have been notified at any time of any action to
be taken or proposed to be taken by holders of shares of any registered
investment company, the trustee will thereupon take such reasonable action or
refrain from taking any action with respect to the fund shares so that the fund
shares are voted as closely as possible in the same manner and the same general
proportion, with respect to all issues, as are shares of such fund shares that
are held by owners other than the related trust.

In the event that an offer by the issuer of any of the securities or any
other party is made to issue new securities, or to exchange securities, for
trust portfolio securities, the trustee will reject such offer, provided that in
the case of a trust that is a "regulated investment company" for tax purposes,
if an offer by the issuer of any of the securities or any other party is made to
issue new securities, or to exchange securities, for trust portfolio securities,
the trustee will at the direction of the sponsor, vote for or against, or accept
or reject, any offer for new or exchanged securities or property in exchange for
a trust portfolio security. If any such issuance, exchange or substitution
occurs (regardless of any action or rejection by a trust), any securities, cash
and/or property received will be deposited into the trust and will be promptly
sold, if securities or property, by the trustee pursuant to the sponsor's
direction, unless the sponsor advises the trustee to keep such securities, cash
or property. The sponsor may rely on the supervisor in so advising the trustee.

Proceeds from the sale of securities (or any securities or other property
received by a trust in exchange for securities) are credited to the Capital
Account of the trust for distribution to unitholders or to meet redemptions.
Except for failed securities and as provided herein, in a prospectus or in a
trust agreement, the acquisition by a trust of any securities other than the
portfolio securities is prohibited.

Because certain of the securities in certain of the trusts may from time to
time under certain circumstances be sold or otherwise liquidated and because the
proceeds from such events will be distributed to unitholders and will not be
reinvested, no assurance can be given that a trust will retain for any length of
time its present size and composition. Neither the sponsor nor the trustee
shall be liable in any way for any default, failure or defect in any security.
In the event of a failure to deliver any security that has been purchased for a
trust under a contract ("Failed Securities"), the sponsor is authorized under
the trust agreement to direct the trustee to acquire other securities
("Replacement Securities") to make up the original corpus of such trust.

The Replacement Securities must be securities as originally selected for
deposit in a trust or, in the case of a trust that is a "regulated investment
company" for tax purposes, securities which the sponsor determines to be similar
in character as the securities originally selected for deposit in the trust and
the purchase of the Replacement Securities may not adversely affect the federal
income tax status of the trust. The Replacement Securities must be purchased
within thirty days after the deposit of the Failed Security. Whenever a
Replacement Security is acquired for a trust, the trustee shall notify all
unitholders of the trust of the acquisition of the Replacement Security and
shall, on the next monthly distribution date which is more than thirty days
thereafter, make a pro rata distribution of the amount, if any, by which the
cost to the trust

-4-

of the Failed Security exceeded the cost of the Replacement Security. The
trustee will not be liable or responsible in any way for depreciation or loss
incurred by reason of any purchase made pursuant to, or any failure to make any
purchase of Replacement Securities. The sponsor will not be liable for any
failure to instruct the trustee to purchase any Replacement Securities, nor
shall the trustee or sponsor be liable for errors of judgment in connection with
Failed Securities or Replacement Securities.

If the right of limited substitution described in the preceding paragraphs
is not utilized to acquire Replacement Securities in the event of a failed
contract, the sponsor will refund the sales charge attributable to such Failed
Securities to all unitholders of the related trust and the trustee will
distribute the cash attributable to such Failed Securities not more than thirty
days after the date on which the trustee would have been required to purchase a
Replacement Security. In addition, unitholders should be aware that, at the
time of receipt of such cash, they may not be able to reinvest such proceeds in
other securities at a return equal to or in excess of the return which such
proceeds would have earned for unitholders of a trust. In the event that a
Replacement Security is not acquired by a trust, the income for such trust may
be reduced.

RISK FACTORS

An investment in units of a trust, and/or shares of other registered
investment companies ("funds") held by a trust, if any, may be subject to some
or all of the risks described below. In addition, you should carefully review
the objective, strategy and risk of the trust as described in the prospectus and
consider your ability to assume the risks involved before making an investment
in a trust.

MARKET RISK. You should understand the risks of investing in securities
before purchasing units. These risks include the risk that the financial
condition of the company or the general condition of the stock market may worsen
and the value of the securities (and therefore units) will fall. Securities are
especially susceptible to general stock market movements. The value of
securities often rises or falls rapidly and unpredictably as market confidence
and perceptions of companies change. These perceptions are based on factors
including expectations regarding government economic policies, inflation,
interest rates, economic expansion or contraction, political climates and
economic or banking crises. The value of units of a trust will fluctuate with
the value of the securities in the trust and may be more or less than the price
you originally paid for your units. As with any investment, no one can guarantee
that the performance of a trust will be positive over any period of time.
Because each trust is unmanaged, the trustee will not sell securities in
response to market fluctuations as is common in managed investments. In
addition, because some trusts hold a relatively small number of securities, you
may encounter greater market risk than in a more diversified investment.

EQUITY SECURITIES. Investments in securities representing equity ownership
of a company are exposed to risks associated with the companies issuing the
securities, the sectors and geographic locations they are involved in and the
markets that such securities are traded on among other risks as described in
greater detail below.

-5-

FIXED INCOME SECURITIES. Investments in fixed income and similar
securities involve certain unique risks such as credit risk and interest rate
risk among other things as described in greater detail below.

DIVIDENDS. Stocks represent ownership interests in a company and are not
obligations of the company. Common stockholders have a right to receive
payments from the company that is subordinate to the rights of creditors,
bondholders or preferred stockholders of the company. This means that common
stockholders have a right to receive dividends only if a company's board of
directors declares a dividend and the company has provided for payment of all of
its creditors, bondholders and preferred stockholders. If a company issues
additional debt securities or preferred stock, the owners of these securities
will have a claim against the company's assets before common stockholders if the
company declares bankruptcy or liquidates its assets even though the common
stock was issued first. As a result, the company may be less willing or able to
declare or pay dividends on its common stock.

CREDIT RISK. Credit risk is the risk that a borrower is unable to meet its
obligation to pay principal or interest on a security. This could cause the
value of an investment to fall and may reduce the level of dividends an
investment pays which would reduce income.

INTEREST RATE RISK. Interest rate risk is the risk that the value of fixed
income securities and similar securities will fall if interest rates increase.
Bonds and other fixed income securities typically fall in value when interest
rates rise and rise in value when interest rates fall. Securities with longer
periods before maturity are often more sensitive to interest rate changes.

LIQUIDITY RISK. Liquidity risk is the risk that the value of a security
will fall if trading in the security is limited or absent. No one can guarantee
that a liquid trading market will exist for any security.

INVESTMENT IN OTHER INVESTMENT COMPANIES. As with other investments,
investments in other investment companies are subject to market and selection
risk. In addition, when a trust acquires shares of investment companies,
unitholders bear both their proportionate share of fees and expenses in the
trust and, indirectly, the expenses of the underlying investment companies.
Investment companies' expenses are subject to the risk of fluctuation including
in response to fluctuation in a fund's assets. Accordingly, a fund's actual
expenses may vary from what is indicated at the time of investment by a trust.
There are certain regulatory limitations on the ability of a trust to hold other
investment companies which may impact the trust's ability to invest in certain
funds, the weighting of the fund in a trust's portfolio and the trust's ability
to issue additional units in the future.

CLOSED-END FUNDS. Closed-end investment companies ("closed-end funds") are
actively managed investment companies registered under the Investment Company
Act of 1940 that invest in various types of securities. Closed-end funds issue
shares of common stock that are generally traded on a securities exchange
(although some closed-end fund shares are not listed on a securities exchange).
Closed-end funds are subject to various risks, including management's ability to
meet the closed-end fund's investment objective, and to manage the closed-end
fund portfolio when the underlying securities are redeemed or sold during
periods of market turmoil

-6-

and as investors' perceptions regarding closed-end funds or their underlying
investments change. If a trust invests in closed-end funds, you will bear not
only your share of the trust's expenses, but also the expenses of the underlying
funds. By investing in the other funds, a trust may incur greater expenses than
you would incur if you invested directly in the closed-end funds.

The net asset value of closed-end fund shares will fluctuate with changes
in the value of the underlying securities that the closed-end fund owns. In
addition, for various reasons closed-end fund shares frequently trade at a
discount from their net asset value in the secondary market. This risk is
separate and distinct from the risk that the net asset value of closed-end fund
shares may decrease. The amount of such discount from net asset value is
subject to change from time to time in response to various factors.

Certain closed-end funds employ the use of leverage in their portfolios
through the issuance of preferred stock, debt or other borrowings. While
leverage often serves to increase the yield of a closed-end fund, this leverage
also subjects the closed-end fund to increased risks. These risks may include
the likelihood of increased volatility and the possibility that the closed-end
fund's common share income will fall if the dividend rate on the preferred
shares or the interest rate on any borrowings rises.

Closed-end funds' governing documents may contain certain anti-takeover
provisions that may have the effect of inhibiting a fund's possible conversion
to open-end status and limiting the ability of other persons to acquire control
of a fund. In certain circumstances, these provisions might also inhibit the
ability of stockholders (including a trust) to sell their shares at a premium
over prevailing market prices. This characteristic is a risk separate and
distinct from the risk that a fund's net asset value will decrease. In
particular, this characteristic would increase the loss or reduce the return on
the sale of those closed-end fund shares that were purchased by a trust at a
premium. In the unlikely event that a closed-end fund converts to open-end
status at a time when its shares are trading at a premium there would be an
immediate loss in value to a trust since shares of open-end funds trade at net
asset value. Certain closed-end funds may have in place or may put in place in
the future plans pursuant to which the fund may repurchase its own shares in the
marketplace. Typically, these plans are put in place in an attempt by a fund's
board of directors to reduce a discount on its share price. To the extent that
such a plan is implemented and shares owned by a trust are repurchased by a
fund, the trust's position in that fund will be reduced and the cash will be
distributed.

A trust may be prohibited from subscribing to a rights offering for shares
of any of the closed-end funds in which it invests. In the event of a rights
offering for additional shares of a fund, unitholders should expect that a trust
holding shares of the fund will, at the completion of the offer, own a smaller
proportional interest in such fund that would otherwise be the case. It is not
possible to determine the extent of this dilution in share ownership without
knowing what proportion of the shares in a rights offering will be subscribed.
This may be particularly serious when the subscription price per share for the
offer is less than the fund's net asset value per share. Assuming that all
rights are exercised and there is no change in the net asset value per share,
the aggregate net asset value of each shareholder's shares of common stock
should decrease as a result of the offer. If a fund's subscription price per
share is below that fund's net asset value per share at the expiration of the
offer, shareholders would experience an immediate

-7-

dilution of the aggregate net asset value of their shares of common stock as a
result of the offer, which could be substantial.

BUSINESS DEVELOPMENT COMPANIES. Business development companies ("BDCs")
are closed-end investment companies that have elected to be treated as business
development companies under the Investment Company Act of 1940. BDCs are
required to at least 70% of their investments in eligible assets which include,
among other things, (i) securities of eligible portfolio companies (generally,
domestic companies that are not investment companies and that cannot have a
class of securities listed on a national securities exchange or have securities
that are marginable that are purchased from that company in a private
transaction), (ii) securities received by the BDC in connection with its
ownership of securities of eligible portfolio companies, or (iii) cash, cash
items, government securities, or high quality debt securities maturing one year
or less from the time of investment.

BDCs' ability to grow and their overall financial condition is impacted
significantly by their ability to raise capital. In addition to raising capital
through the issuance of common stock, BDCs may engage in borrowing. This may
involve using revolving credit facilities, the securitization of loans through
separate wholly-owned subsidiaries and issuing of debt and preferred securities.
BDCs are less restricted than other closed-end funds as to the amount of debt
they can have outstanding. Generally, a BDC may not issue any class of senior
security representing an indebtedness unless, immediately after such issuance or
sale, it will have asset coverage of at least 200%. (Thus, for example, if a
BDC has $5 million in assets, it can borrow up to $5 million, which would result
in assets of $10 million and debt of $5 million.) These borrowings, also known
as leverage, magnify the potential for gain or loss on amounts invested and,
accordingly, the risks associated with investing in BDC securities. While the
value of a BDC's assets increases, leveraging would cause the net value per
share of BDC common stock to increase more sharply than it would have had such
BDC not leveraged. However, if the value of a BDC's assets decreases, leveraging
would cause net asset value to decline more sharply than it otherwise would have
had such BDC not leveraged. In addition to decreasing the value of a BDC's
common stock, it could also adversely impact a BDC's ability to make dividend
payments. A BDC's credit rating may change over time which could adversely
affect their ability to obtain additional credit and/or increase the cost of
such borrowing. Agreements governing BDC's credit facilities and related funding
and service agreements may contain various covenants that limit the BDC's
discretion in operating its business along with other limitations. Any defaults
may restrict the BDC's ability to manage assets securing related assets which
may adversely impact the BDC's liquidity and operations.

BDCs compete with other BDCs along with a large number of investment funds,
investment banks and other sources of financing to make their investments.
Competitors may have lower costs or access to funding sources that cause BDCs to
lose prospective investments if they do not match competitors' pricing, terms
and structure. As a result of this competition, there is no assurance that a
BDC will be able to identify and take advantage of attractive investment
opportunities or that they will fully be able to invest available capital.

BDC investments are frequently not publicly traded and, as a result, there
is uncertainty as to the value and liquidity of those investments. BDCs may use
independent valuation firms to

-8-

value their investments and such valuations may be uncertain, be based on
estimates and/or differ materially from that which would have been used if a
ready market for those investments existed. The value of a BDC could be
adversely affected if its determinations regarding the fair value of investments
was materially higher than the value realized upon sale of such investments. Due
to the relative illiquidity of certain BDC investments, if a BDC is required to
liquidate all or a portion of its portfolio quickly, it may realize
significantly less than the value at which such investments are recorded.
Further restrictions may exist on the ability to liquidate certain assets to the
extent that subsidiaries or related parties have material non-public information
regarding such assets.

BDCs may enter into hedging transaction and utilize derivative instruments
such as forward contracts, options and swaps. Unanticipated movements and
improper correlation of hedging instruments may prevent a BDC from hedging
against exposure to risk of loss. BDCs are required to make available
significant managerial assistance to their portfolio companies. Significant
managerial assistance refers to any arrangement whereby a BDC provides
significant guidance and counsel concerning the management, operations, or
business objectives and policies of a portfolio company. Examples of such
activities include arranging financing, managing relationships with financing
sources, recruiting management personnel, and evaluating acquisition and
divestiture opportunities. BDCs are frequently externally managed by an
investment adviser which may also provide this external managerial assistance to
portfolio companies. Such investment adviser's liability may be limited under
their investment advisory agreement which may lead such investment adviser to
act in a riskier manner than it would were it investing for its own account.
Such investment advisers may be entitled to incentive compensation which may
cause such adviser to make more speculative and riskier investments than it
would if investing for its own account. Such compensation may be due even in the
case of declines to the value of a BDC's investments.

BDCs may issue options, warrants, and rights to convert to voting
securities to its officers, employees and board members. Any issuance of
derivative securities requires the approval of the company's board of directors
and authorization by the company's shareholders. A BDC may operate a profit-
sharing plan for its employees, subject to certain restrictions. BDCs frequently
have high expenses which may include, but are not limited to, the payment of
management fees, administration expenses, taxes, interest payable on debt,
governmental charges, independent director fees and expenses, valuation
expenses, and fees payable to third parties relating to or associated with
making investments. These expenses may fluctuate significantly over time.

If a BDC fails to maintain its status as a BDC it may be regulated as a
closed-end fund which would subject such BDC to additional regulatory
restrictions and significantly decrease its operating flexibility. In addition,
such failure could trigger an event of default under certain outstanding
indebtedness which could have a material adverse impact on its business.

EXCHANGE TRADED FUNDS. Exchange-traded funds ("ETFs") are typically
investment companies registered under the Investment Company Act of 1940 that
have obtained exemptive relief from the Securities and Exchange Commission
allowing fund shares to trade on a securities exchange. Shares of ETFs may
trade at a discount from their net asset value in the secondary

-9-

market. This risk is separate and distinct from the risk that the net asset
value of ETFs may decrease. The amount of such discount from net asset value is
subject to change from time to time in response to various factors. ETFs are
subject to various risks, including management's ability to meet the ETF's
investment objective, and to manage the ETF portfolio when the underlying
securities are redeemed or sold during periods of market turmoil and as
investors' perceptions regarding ETFs or their underlying investments change. A
trust and any underlying ETFs have operating expenses. If a trust invests in
ETFs, you will bear not only your share of the trust's expenses, but also the
expenses of the underlying funds. By investing in the other funds, a trust may
incur greater expenses than you would incur if you invested directly in the
funds.

Most ETFs replicate the composition or returns of a securities index.
These ETFs face index correlation risk which is the risk that the performance of
an ETF will vary from the actual performance of the fund's target index, known
as "tracking error." This can happen due to transaction costs, market impact,
corporate actions (such as mergers and spin-offs) and timing variances. Some
funds use a technique called "representative sampling," which means that the
fund invests in a representative sample of securities in its target index rather
than all of the index securities. This could increase the risk of tracking
error.

Some ETFs are open-end funds. Open-end funds of this type can be actively-
managed or passively-managed investment companies that are registered under the
Investment Company Act of 1940. These open-end funds have received orders from
the Securities and Exchange Commission exempting them from various provisions of
the Investment Company Act of 1940. Regular open-end funds generally issue
redeemable securities that are issued and redeemed at a price based on the
fund's current net asset value and are not traded on a securities exchange.
Exchange-traded open-end funds, however, issue shares of common stock that are
traded on a securities exchange based on negotiated prices rather than the
fund's current net asset value. These funds only issue new shares and redeem
outstanding shares in very large blocks, often called "creation units," in
exchange for an in-kind distribution of the fund's portfolio securities. Due to
a variety of cost and administrative factors, a trust that invests in ETFs will
generally buy and sell shares of its underlying open-end fund ETFs on securities
exchanges rather than engaging in transactions in creation units. Shares of
exchange-traded open-end funds frequently trade at a discount from their net
asset value in the secondary market. This risk is separate and distinct from
the risk that the net asset value of open-end fund shares may decrease. The
amount of such discount from net asset value is subject to change from time to
time in response to various factors.

Some ETFs are unit investment trusts ("UITs"). UITs of this type are
passively-managed investment companies that are registered under the Investment
Company Act of 1940. ETFs that are UITs differ significantly from your trust in
certain respects, even though the UITs that may be held in the trust's portfolio
and the trust itself are registered unit investment trusts. UITs that are ETFs
have received orders from the Securities and Exchange Commission exempting them
from various provisions of the Investment Company Act of 1940. Regular UITs,
such as your trust, generally issue redeemable securities that are issued and
redeemed at a price based on the UIT's current net asset value and are not
traded on a securities exchange. ETFs that are UITs, however, issue units that
are traded on a securities exchange based on negotiated prices rather than the
UIT's current net asset value. These UITs only issue new shares and redeem

-10-

outstanding shares in very large blocks, often called "creation units," in
exchange for an in-kind distribution of the UIT's portfolio securities. Due to
a variety of cost and administrative factors, a trust that invests in ETFs will
generally buy and sell shares of its underlying ETFs on securities exchanges
rather than engaging in transactions in creation units. Units of exchange-
traded UITs frequently trade at a discount from their net asset value in the
secondary market. This risk is separate and distinct from the risk that the net
asset value of UIT units may decrease. The amount of such discount from net
asset value is subject to change from time to time in response to various
factors.

INVERSE ETFS. Certain ETFs may be "inverse" ETFs. An inverse ETF,
sometimes referred to as a "bear ETF" or "short ETF," is a special type of index
ETF that is designed to provide investment results that move in the opposite
direction of the daily price movement of the index to which it is benchmarked.
Put another way, an inverse ETF is designed to go up in value when its benchmark
index goes down in value, and go down in value when its benchmark index goes up
in value. Inverse ETFs can be used to establish a hedge position within an
investment portfolio to attempt to protect its value during market declines.
Though inverse ETFs may reduce downside risk and volatility in a down market,
they are not suitable for all investors. The value of an inverse investment may
tend to increase on a daily basis by the amount of any decrease in the index,
but the converse is also true that the value of the investment will also tend to
decrease on a daily basis by the amount of any increase in the index.

Investing in inverse ETFs involves certain risks, which may include
increased volatility due to the ETFs' possible use of short sales of securities
and derivatives such as options and futures. Inverse ETFs are subject to active
trading risks that may increase volatility and impact the ETFs' ability to
achieve their investment objectives. The use of leverage by an ETF increases the
risk to the ETF. The more an ETF invests in leveraged instruments, the more the
leverage will magnify any gains or losses on those investments. Most inverse
ETFs "reset" daily, meaning that they are designed to achieve their stated
objectives on a daily basis only and not over any longer time period. Due to
the effect of compounding, the performance of these ETFs over longer periods of
time can differ significantly from the inverse of the performance of the ETF's
underlying index or benchmark during the same period of time. This effect can
be magnified in volatile markets. Inverse ETFs typically are not suitable for
retail investors who plan to hold them for more than one trading session,
particularly in volatile markets.

LEVERAGED ETFS. Certain ETFs may be "leveraged" ETFs. These ETFs seek to
match a multiple or multiples of the performance, or the inverse of the
performance, of a benchmark index on a given day and not for greater periods of
time. This means that the return of a leveraged ETF for a period longer than a
single day will be the result of each day's returns compounded over the period
and not the point-to-point return of the index over the entire time period. As a
result, the use of leverage will very likely cause the performance of such an
ETF to be either greater than, or less than, the index performance times the
stated multiple in an ETF's investment objective. Investors should recognize
that the degree of volatility of the underlying index can have a dramatic effect
on an ETF's longer-term performance. The greater the volatility, given a
particular index return, the greater the downside deviation will be of the ETF's
longer-term performance from a simple multiple of its index's longer-term
return. Leveraged ETFs use investment techniques that may be considered
aggressive, including the use of futures contracts,

-11-

options on futures contracts, securities and indexes, forward contracts, swap
agreements and similar instruments. Leveraged ETFs are typically unsuitable for
investors who plan to hold them for longer than one trading session,
particularly in volatile markets.

NON-DIVERSIFICATION RISK. Certain funds held by a trust may be classified
as "non-diversified." Such funds may be more exposed to the risks associated
with and developments affecting an individual issuer, industry and/or asset
class than a fund that invests more widely.

FOREIGN ISSUERS. An investment in securities of non-U.S. issuers involves
certain investment risks that are different in some respects from an investment
in the securities of domestic issuers. These investment risks include future
political or governmental restrictions which might adversely affect the payment
or receipt of payment of dividends on the relevant securities, the possibility
that the financial condition of the issuers of the securities may become
impaired or that the general condition of the relevant stock market may worsen
(both of which would contribute directly to a decrease in the value of foreign
securities), the limited liquidity and relatively small market capitalization of
the relevant securities market, expropriation or confiscatory taxation, economic
uncertainties and foreign currency devaluations and fluctuations. In addition,
for foreign issuers that are not subject to the reporting requirements of the
Securities Exchange Act of 1934, there may be less publicly available
information than is available from a domestic issuer. In addition, foreign
issuers are not necessarily subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to domestic issuers. The securities of many foreign issuers are less
liquid and their prices more volatile than securities of comparable domestic
issuers. In addition, fixed brokerage commissions and other transaction costs
in foreign securities markets are generally higher than in the United States and
there is generally less government supervision and regulation of exchanges,
brokers and issuers in foreign countries than there is in the United States.

Securities issued by non-U.S. issuers generally pay income in foreign
currencies and principally trade in foreign currencies. Therefore, there is a
risk that the U.S. dollar value of these securities will vary with fluctuations
in the U.S. dollar foreign exchange rates for the various securities.

There can be no assurance that exchange control regulations might not be
adopted in the future which might adversely affect payment to a trust or a fund
held by a trust. The adoption of exchange control regulations and other legal
restrictions could have an adverse impact on the marketability of foreign
securities and on the ability to liquidate securities. In addition,
restrictions on the settlement of transactions on either the purchase or sale
side, or both, could cause delays or increase the costs associated with the
purchase and sale of the foreign securities and correspondingly could affect the
price of trust units.

Investors should be aware that it may not be possible to buy all securities
at the same time because of the unavailability of any security, and restrictions
applicable to a trust relating to the purchase of a security by reason of the
federal securities laws or otherwise.

-12-

Foreign securities generally have not been registered under the Securities
Act of 1933 and may not be exempt from the registration requirements of such
Act. Sales of non-exempt securities in the United States securities markets are
subject to severe restrictions and may not be practicable. Accordingly, sales
of these securities will generally be effected only in foreign securities
markets. Investors should realize that the securities might be traded in
foreign countries where the securities markets are not as developed or efficient
and may not be as liquid as those in the United States. The value of securities
will be adversely affected if trading markets for the securities are limited or
absent.

EMERGING MARKETS. Compared to more mature markets, some emerging markets
may have a low level of regulation, enforcement of regulations and monitoring of
investors' activities. Those activities may include practices such as trading
on material non-public information. The securities markets of developing
countries are not as large as the more established securities markets and have
substantially less trading volume, resulting in a lack of liquidity and high
price volatility. There may be a high concentration of market capitalization
and trading volume in a small number of issuers representing a limited number of
industries as well as a high concentration of investors and financial
intermediaries. These factors may adversely affect the timing and pricing of
the acquisition or disposal of securities. In certain emerging markets,
registrars are not subject to effective government supervision nor are they
always independent from issuers. The possibility of fraud, negligence, undue
influence being exerted by the issuer or refusal to recognize ownership exists,
which, along with other factors, could result in the registration of a
shareholding being completely lost. Investors could suffer loss arising from
these registration problems. In addition, the legal remedies in emerging
markets are often more limited than the remedies available in the United States.

Practices pertaining to the settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in large
part because of the need to use brokers and counterparties who are less well
capitalized, and custody and registration of assets in some countries may be
unreliable. As a result, brokerage commissions and other fees are generally
higher in emerging markets and the procedures and rules governing foreign
transactions and custody may involve delays in payment, delivery or recovery of
money or investments. Delays in settlement could result in investment
opportunities being missed if a trust or a fund held by a trust is unable to
acquire or dispose of a security. Certain foreign investments may also be less
liquid and more volatile than U.S. investments, which may mean at times that
such investments are unable to be sold at desirable prices.

Political and economic structures in emerging markets often change rapidly,
which may cause instability. In adverse social and political circumstances,
governments have been involved in policies of expropriation, confiscatory
taxation, nationalization, intervention in the securities market and trade
settlement, and imposition of foreign investment restrictions and exchange
controls, and these could be repeated in the future. In addition to withholding
taxes on investment income, some governments in emerging markets may impose
different capital gains taxes on foreign investors. Foreign investments may
also be subject to the risks of seizure by a foreign government and the
imposition of restrictions on the exchange or export of foreign currency.
Additionally, some governments exercise substantial influence over the private

-13-

economic sector and the political and social uncertainties that exist for many
developing countries are considerable.

Another risk common to most developing countries is that the economy is
heavily export oriented and, accordingly, is dependent upon international trade.
The existence of overburdened infrastructures and obsolete financial systems
also presents risks in certain countries, as do environmental problems. Certain
economies also depend to a large degree upon exports of primary commodities and,
therefore, are vulnerable to changes in commodity prices which, in turn, may be
affected by a variety of factors.

DEPOSITARY RECEIPTS. Certain of the securities in a trust may be in
depositary receipt form, including American Depositary Receipts ("ADRs") or
Global Depositary Receipts ("GDRs"). Depositary receipts represent stock
deposited with a custodian in a depositary. Depositary receipts are issued by a
bank or trust company to evidence ownership of underlying securities issued by a
foreign corporation. These instruments may not necessarily be denominated in the
same currency as the securities into which they may be converted.

Depositary receipts may be sponsored or unsponsored. In an unsponsored
facility, the depositary initiates and arranges the facility at the request of
market makers and acts as agent for the depositary receipts holder, while the
company itself is not involved in the transaction. In a sponsored facility, the
issuing company initiates the facility and agrees to pay certain administrative
and shareholder-related expenses. Sponsored facilities use a single depositary
and entail a contractual relationship between the issuer, the shareholder and
the depositary; unsponsored facilities involve several depositaries with no
contractual relationship to the company. The depositary bank that issues
depositary receipts generally charges a fee, based on the price of the
depositary receipts, upon issuance and cancellation of the depositary receipts.
This fee would be in addition to the brokerage commissions paid upon the
acquisition or surrender of the security. In addition, the depositary bank
incurs expenses in connection with the conversion of dividends or other cash
distributions paid in local currency into U.S. dollars and such expenses are
deducted from the amount of the dividend or distribution paid to holders,
resulting in a lower payout per underlying shares represented by the depositary
receipts than would be the case if the underlying share were held directly.
Certain tax considerations, including tax rate differentials and withholding
requirements, arising from the application of the tax laws of one nation to
nationals of another and from certain practices in the depositary receipts
market may also exist with respect to certain depositary receipts. In varying
degrees, any or all of these factors may affect the value of the depositary
receipts compared with the value of the underlying shares in the local market.
In addition, the rights of holders of depositary receipts may be different than
those of holders of the underlying shares, and the market for depositary
receipts may be less liquid than that for the underlying shares. Depositary
receipts are registered securities pursuant to the Securities Act of 1933 and
may be subject to the reporting requirements of the Securities Exchange Act of
1934.

For the securities that are depositary receipts, currency fluctuations will
affect the United States dollar equivalent of the local currency price of the
underlying domestic share and, as a result, are likely to affect the value of
the depositary receipts and consequently the value of the securities. The
foreign issuers of securities that are depositary receipts may pay dividends in

-14-

foreign currencies which must be converted into dollars. Most foreign currencies
have fluctuated widely in value against the United States dollar for many
reasons, including supply and demand of the respective currency, the soundness
of the world economy and the strength of the respective economy as compared to
the economies of the United States and other countries. Therefore, for any
securities of issuers (whether or not they are in depositary receipt form) whose
earnings are stated in foreign currencies, or which pay dividends in foreign
currencies or which are traded in foreign currencies, there is a risk that their
United States dollar value will vary with fluctuations in the United States
dollar foreign exchange rates for the relevant currencies.

CURRENCY RISK. A trust that invests in securities of non-U.S. issuers will
be subject to currency risk, which is the risk that an increase in the U.S.
dollar relative to the non-U.S. currency will reduce returns or portfolio value.
Generally, when the U.S. dollar rises in value relative to a non-U.S. currency,
a trust's investment in securities denominated in that currency will lose value
because its currency is worth fewer U.S. dollars. On the other hand, when the
value of the U.S. dollar falls relative to a non-U.S. currency, a trust's
investments denominated in that currency will tend to increase in value because
that currency is worth more U.S. dollars. The exchange rates between the U.S.
dollar and non-U.S. currencies depend upon such factors as supply and demand in
the currency exchange markets, international balance of payments, governmental
intervention, speculation and other economic and political conditions. A trust
may incur conversion costs when it converts its holdings to another currency.
Non-U.S. exchange dealers may realize a profit on the difference between the
price at which a trust buys and sells currencies. A trust may engage in non-U.S.
currency exchange transactions in connection with its portfolio investments. A
trust may also be subject to currency risk through investments in ADRs, GDRs and
other non-U.S. securities denominated in U.S. dollars.

FOREIGN GOVERNMENT SECURITIES RISK. The ability of a government issuer,
especially in an emerging market country, to make timely and complete payments
on its debt obligations will be strongly influenced by the government issuer's
balance of payments, including export performance, its access to international
credits and investments, fluctuations of interest rates and the extent of its
foreign reserves. A country whose exports are concentrated in a few commodities
or whose economy depends on certain strategic imports could be vulnerable to
fluctuations in international prices of these commodities or imports. If a
government issuer cannot generate sufficient earnings from foreign trade to
service its external debt, it may need to depend on continuing loans and aid
from foreign governments, commercial banks, and multinational organizations.
There are no bankruptcy proceedings similar to those in the United States by
which defaulted government debt may be collected. Additional factors that may
influence a government issuer's ability or willingness to service debt include,
but are not limited to, a country's cash flow situation, the ability of
sufficient foreign exchange on the date a payment is due (where applicable), the
relative size of its debt burden to the economy as a whole, and the issuer's
policy towards the International Monetary Fund, the International Bank for
Reconstruction and Development and other international agencies to which a
government debtor may be subject.

SUPRANATIONAL ENTITIES' SECURITIES. Certain securities are obligations
issued by supranational entities such as the International Bank for
Reconstruction and Development (the World Bank). The government members, or
"stockholders," usually make initial capital

-15-

contributions to supranational entities and in many cases are committed to make
additional capital contributions if a supranational entity is unable to repay
its borrowings. There is no guarantee that one or more stockholders of a
supranational entity will continue to make any necessary additional capital
contributions. If such contributions are not made, the entity may be unable to
pay interest or repay principal on its debt securities, and an investor in such
securities may lose money on such investments.

SMALL-CAP AND MID-CAP COMPANIES. Smaller company stocks customarily
involve more investment risk than larger company stocks. Small-capitalization
and mid-capitalization companies may have limited product lines, markets or
financial resources; may lack management depth or experience; and may be more
vulnerable to adverse general market or economic developments than large
companies. Some of these companies may distribute, sell or produce products
which have recently been brought to market and may be dependent on key
personnel.

The prices of small or mid-size company securities are often more volatile
than prices associated with large company issues, and can display abrupt or
erratic movements at times, due to limited trading volumes and less publicly
available information. Also, because small-cap and mid-cap companies normally
have fewer shares outstanding and these shares trade less frequently than large
companies, it may be more difficult for a trust which contains these securities
to buy and sell significant amounts of such shares without an unfavorable impact
on prevailing market prices.

REAL ESTATE INVESTMENT TRUSTS. Many factors can have an adverse impact on
the performance of a particular real estate investment trust or other real
estate-related investments (a "REIT"), including its cash available for
distribution, the credit quality of a particular REIT or the real estate
industry generally. The success of REITs depends on various factors, including
the occupancy and rent levels, appreciation of the underlying property and the
ability to raise rents on those properties. Economic recession, overbuilding,
tax law changes, higher interest rates or excessive speculation can all
negatively impact REITs, their future earnings and share prices.

REITs are subject to risks associated with the direct ownership of real
estate which include, among other factors: general U.S. and global as well as
local economic conditions; decline in real estate values; the financial health
of tenants; overbuilding and increased competition for tenants; oversupply of
properties for sale; changing demographics; changes in interest rates, tax rates
and other operating expenses; changes in government regulations; changes in
zoning laws; the ability of the owner to provide adequate management,
maintenance and insurance; faulty construction and the ongoing need for capital
improvements; the cost of complying with the Americans with Disabilities Act;
regulatory and judicial requirements, including relating to liability for
environmental hazards; natural or man-made disasters; changes in the perception
of prospective tenants of the safety, convenience and attractiveness of the
properties changes in neighborhood values and buyer demand; and the
unavailability of construction financing or mortgage loans at rates acceptable
to developers.

Variations in rental income and space availability and vacancy rates in
terms of supply and demand are additional factors affecting real estate
generally and REITs in particular.

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Properties owned by a REIT may not be adequately insured against certain losses
and may be subject to significant environmental liabilities, including
remediation costs.

You should also be aware that REITs may not be diversified and are subject
to the risks of financing projects. The real estate industry may be cyclical,
and, if a trust or a fund held by a trust acquires REIT securities at or near
the top of the cycle, there is increased risk of a decline in value of the REIT
securities and therefore the value of the units. REITs are also subject to
defaults by borrowers and the market's perception of the REIT industry
generally.

Because of their structure, and the legal requirement that they distribute
a certain percentage of their taxable income to shareholders annually, REITs
require frequent amounts of new funding, through both borrowing money and
issuing stock. Thus, REITs historically have frequently issued substantial
amounts of new equity shares (or equivalents) to purchase or build new
properties. This may have adversely affected REIT equity share market prices.
Both existing and new share issuances may have an adverse effect on these prices
in the future, especially when REITs continue to issue stock when real estate
prices are relatively high and stock prices are relatively low.

The value of REITs and other real-estate related investments may also be
affected by downturns in the housing and mortgage lending markets. In the past,
government authorities have engaged in administrative and legislative action
intended to address both short- and long-term difficulties facing the housing
and mortgage lending markets and the broader economy. No one can predict the
action that might be taken or the effect any action or inaction will have and it
is possible that any actions taken by government authorities will not address or
help improve the state of such difficulties as intended. Downturns in the
housing market and corresponding government action may have far reaching
consequences into many geographic regions and, consequently, the value of
securities may decline in response to such developments.

MASTER LIMITED PARTNERSHIPS. Master limited partnerships ("MLPs") are
limited partnerships or limited liability companies that are generally taxed as
partnerships whose interests are traded on securities exchanges. MLP ownership
generally consists of a general partner and limited partners. The general
partner manages the partnership, has an ownership stake in the partnership and
is eligible to receive an incentive distribution. The limited partners provide
capital to the partnership, have a limited (if any) role in the operation and
management of the partnership and receive cash distributions. Most MLPs
generally operate in the energy, natural resources or real estate sectors and
are subject to the risks generally applicable to companies in those sectors.
MLPs are also subject to the risk that authorities could challenge the tax
treatment of MLPs for federal income tax purposes which could have a negative
impact on the after-tax income available for distribution by the MLPs.

BOND QUALITY RISK. Bond quality risk is the risk that a bond will fall in
value if a rating agency decreases or withdraws the bond's rating.

PREPAYMENT RISK. When interest rates fall, among other factors, the issuer
of a fixed income security may prepay its obligations earlier than expected.
Such amounts will result in early distributions to an investor who may be unable
to reinvest such amounts at the yields

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originally invested which could adversely impact the value of your investment.
Certain bonds include call provisions which expose such an investor to call
risk. Call risk is the risk that the issuer prepays or "calls" a bond before
its stated maturity. An issuer might call a bond if interest rates, in general,
fall and the bond pays a higher interest rate or if it no longer needs the money
for the original purpose. If an issuer calls a bond, the holder of such bond
will receive principal but will not receive any future interest distributions on
the bond. Such investor might not be able to reinvest this principal at as high
a yield. A bond's call price could be less than the price paid for the bond and
could be below the bond's par value. Certain bonds may also be subject to
extraordinary optional or mandatory redemptions if certain events occur, such as
certain changes in tax laws, the substantial damage or destruction by fire or
other casualty of the project for which the proceeds of the bonds were used, and
various other events.

EXTENSION RISK. When interest rates rise, among other factors, issuers of
a security may pay off obligations more slowly than expected causing the value
of such obligations to fall.

"WHEN ISSUED" AND "DELAYED DELIVERY" BONDS. Certain debt obligations may
have been purchased on a "when, as and if issued" or "delayed delivery" basis.
The delivery of any such bonds may be delayed or may not occur. Interest on
these bonds begins accruing to the benefit of investors on their respective
dates of delivery. Investors will be "at risk" with respect to all "when, as
and if issued" and "delayed delivery" bonds (i.e., may derive either gain or
loss from fluctuations in the values of such bonds) from the date they purchase
their investment.

PREMIUM SECURITIES. Certain securities may have been acquired at a market
premium from par value at maturity. The coupon interest rates on the premium
securities at the time they were purchased by the fund were higher than the
current market interest rates for newly issued securities of comparable rating
and type. If such interest rates for newly issued and otherwise comparable
securities decrease, the market premium of previously issued securities will be
increased, and if such interest rates for newly issued comparable securities
increase, the market premium of previously issued securities will be reduced,
other things being equal. The current returns of securities trading at a market
premium are initially higher than the current returns of comparable securities
of a similar type issued at currently prevailing interest rates because premium
securities tend to decrease in market value as they approach maturity when the
face amount becomes payable. Because part of the purchase price is thus
returned not at maturity but through current income payments, early redemption
of a premium security at par or early prepayments of principal will result in a
reduction in yield. Redemption pursuant to call provisions generally will, and
redemption pursuant to sinking fund provisions may, occur at times when the
redeemed securities have an offering side valuation which represents a premium
over par or for original issue discount securities a premium over the accreted
value.

MARKET DISCOUNT. Certain fixed income securities may have been acquired at
a market discount from par value at maturity. The coupon interest rates on
discount securities at the time of purchase are lower than the current market
interest rates for newly issued securities of comparable rating and type. If
such interest rates for newly issued comparable securities increase, the market
discount of previously issued securities will become greater, and if such
interest rates for newly issued comparable securities decline, the market
discount of previously issued securities will be reduced, other things being
equal. Investors should also note that the

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value of securities purchased at a market discount will increase in value faster
than securities purchased at a market premium if interest rates decrease.
Conversely, if interest rates increase, the value of securities purchased at a
market discount will decrease faster than securities purchased at a market
premium. In addition, if interest rates rise, the prepayment risk of higher
yielding, premium securities and the prepayment benefit for lower yielding,
discount securities will be reduced.

ORIGINAL ISSUE DISCOUNT BONDS. Original issue discount bonds were
initially issued at a price below their face (or par) value. These bonds
typically pay a lower interest rate than comparable bonds that were issued at or
above their par value. In a stable interest rate environment, the market value
of these bonds tends to increase more slowly in early years and in greater
increments as the bonds approach maturity. The issuers of these bonds may be
able to call or redeem a bond before its stated maturity date and at a price
less than the bond's par value. Under current law, the original issue discount,
which is the difference between the stated redemption price at maturity and the
issue price of the bonds, is deemed to accrue on a daily basis and the accrued
portion is treated as taxable interest income for U.S. federal income tax
purposes.

ZERO COUPON BONDS. Certain bonds may be "zero coupon" bonds. Zero coupon
bonds are purchased at a deep discount because the buyer receives only the right
to receive a final payment at the maturity of the bond and does not receive any
periodic interest payments. The effect of owning deep discount bonds which do
not make current interest payments (such as the zero coupon bonds) is that a
fixed yield is earned not only on the original investment but also, in effect,
on all discount earned during the life of such obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable to
reinvest the income on such obligation at a rate as high as the implicit yield
on the discount obligation, but at the same time eliminates the holder's ability
to reinvest at higher rates in the future. For this reason, zero coupon bonds
are subject to substantially greater price fluctuations during periods of
changing market interest rates than are securities of comparable quality which
pay interest.

RESTRICTED SECURITIES. Certain securities may only be resold pursuant to
Rule 144A under the Securities Act of 1933 (the "Securities Act"). Such
securities may not be readily marketable. Restricted securities may be sold only
to purchasers meeting certain eligibility requirements in privately negotiated
transactions or in a public offering with respect to which a registration
statement is in effect under the Securities Act. Where registration of such
securities under the Securities Act is required, an owner may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time an owner may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, an owner might
obtain a less favorable price than that which prevailed when it decided to sell.

PREFERRED STOCK RISKS. Preferred stocks may be susceptible to general
stock market movements and to volatile increases and decreases of value as
market confidence in and perceptions of the issuers change. These perceptions
are based on unpredictable factors, including expectations regarding government,
economic, monetary and fiscal policies, inflation and interest rates, economic
expansion or contraction, market liquidity, and global or regional

-19-

political, economic or banking crises. Preferred stocks are also vulnerable to
Congressional reductions in the dividends-received deduction which would
adversely affect the after-tax return to the investors who can take advantage of
the deduction. Such a reduction might adversely affect the value of preferred
stocks in general. Holders of preferred stocks, as owners of the entity, have
rights to receive payments from the issuers of those preferred stocks that are
generally subordinate to those of creditors of, or holders of debt obligations
or, in some cases, other senior preferred stocks of, such issuers. Preferred
stocks do not represent an obligation of the issuer and, therefore, do not offer
any assurance of income or provide the same degree of protection of capital as
do debt securities. The issuance of additional debt securities or senior
preferred stocks will create prior claims for payment of principal and interest
and senior dividends which could adversely affect the ability and inclination of
the issuer to declare or pay dividends on its preferred stock or the rights of
holders of preferred stock with respect to assets of the issuer upon liquidation
or bankruptcy. The value of preferred stocks is subject to market fluctuations
for as long as the preferred stocks remain outstanding, and thus the value of
the securities may be expected to fluctuate over the life of a trust to values
higher or lower than those prevailing on the trust's initial date of deposit.

TRUST PREFERRED SECURITIES RISKS. Holders of trust preferred securities
incur risks in addition to or slightly different than the typical risks of
holding preferred stocks. Trust preferred securities are limited-life preferred
securities that are typically issued by corporations, generally in the form of
interest-bearing notes or preferred securities issued by corporations, or by an
affiliated business trust of a corporation, generally in the form of beneficial
interests in subordinated debentures issued by the corporation, or similarly
structured securities. The maturity and dividend rate of the trust preferred
securities are structured to match the maturity and coupon interest rate of the
interest-bearing notes, preferred securities or subordinated debentures. Trust
preferred securities usually mature on the stated maturity date of the interest-
bearing notes, preferred securities or subordinated debentures and may be
redeemed or liquidated prior to the stated maturity date of such instruments for
any reason on or after their stated call date or upon the occurrence of certain
circumstances at any time. Trust preferred securities generally have a yield
advantage over traditional preferred stocks, but unlike preferred stocks,
distributions on the trust preferred securities are generally treated as
interest rather than dividends for federal income tax purposes. Unlike most
preferred stocks, distributions received from trust preferred securities are
generally not eligible for the dividends received deduction. Certain of the
risks unique to trust preferred securities include: (i) distributions on trust
preferred securities will be made only if interest payments on the interest-
bearing notes, preferred securities or subordinated debentures are made; (ii) a
corporation issuing the interest-bearing notes, preferred securities or
subordinated debentures may defer interest payments on these instruments for up
to 20 consecutive quarters and if such election is made, distributions will not
be made on the trust preferred securities during the deferral period; (iii)
certain tax or regulatory events may trigger the redemption of the interest-
bearing notes, preferred securities or subordinated debentures by the issuing
corporation and result in prepayment of the trust preferred securities prior to
their stated maturity date; (iv) future legislation may be proposed or enacted
that may prohibit the corporation from deducting its interest payments on the
interest-bearing notes, preferred securities or subordinated debentures for tax
purposes, making redemption of these instruments likely; (v) a corporation may
redeem the interest-bearing notes, preferred securities or subordinated
debentures in whole at any time or in part from time to time on or after a
stated call

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date; (vi) trust preferred securities holders have very limited voting rights;
and (vii) payment of interest on the interest-bearing notes, preferred
securities or subordinated debentures, and therefore distributions on the trust
preferred securities, is dependent on the financial condition of the issuing
corporation.

HIGH-YIELD SECURITIES. "High-yield" or "junk" securities, the generic
names for securities rated below BBB by Standard & Poor's or below Baa by
Moody's (or similar ratings of other rating agencies), are frequently issued by
corporations in the growth stage of their development, by established companies
whose operations or industries are depressed or by highly leveraged companies
purchased in leveraged buyout transactions. These obligations that are
considered below "investment grade" and should be considered speculative as such
ratings indicate a quality of less than investment grade. The market for high-
yield securities is very specialized and investors in it have been predominantly
financial institutions. High-yield securities are generally not listed on a
national securities exchange. Trading of high-yield securities, therefore,
takes place primarily in over-the-counter markets that consist of groups of
dealer firms that are typically major securities firms. Because the high-yield
security market is a dealer market, rather than an auction market, no single
obtainable price for a given security prevails at any given time. Prices are
determined by negotiation between traders. The existence of a liquid trading
market for the securities may depend on whether dealers will make a market in
the securities. There can be no assurance that a market will be made for any of
the securities, that any market for the securities will be maintained or of the
liquidity of the securities in any markets made. Not all dealers maintain
markets in all high-yield securities. Therefore, since there are fewer traders
in these securities than there are in "investment grade" securities, the bid-
offer spread is usually greater for high-yield securities than it is for
investment grade securities. The price at which the securities may be sold to
meet redemptions and the value of a trust may be adversely affected if trading
markets for the securities are limited or absent.

An investment in "high-yield, high-risk" debt obligations or "junk"
obligations may include increased credit risks and the risk that the value of
the units will decline, and may decline precipitously, with increases in
interest rates. During certain periods there have been wide fluctuations in
interest rates and thus in the value of debt obligations generally. Certain
high-yield securities may be subject to greater market fluctuations and risk of
loss of income and principal than are investments in lower-yielding, higher-
rated securities, and their value may decline precipitously because of increases
in interest rates, not only because the increases in rates generally decrease
values, but also because increased rates may indicate a slowdown in the economy
and a decrease in the value of assets generally that may adversely affect the
credit of issuers of high-yield, high-risk securities resulting in a higher
incidence of defaults among high-yield, high-risk securities. A slowdown in the
economy, or a development adversely affecting an issuer's creditworthiness, may
result in the issuer being unable to maintain earnings or sell assets at the
rate and at the prices, respectively, that are required to produce sufficient
cash flow to meet its interest and principal requirements. For an issuer that
has outstanding both senior commercial bank debt and subordinated high-yield,
high-risk securities, an increase in interest rates will increase that issuer's
interest expense insofar as the interest rate on the bank debt is fluctuating.
However, many leveraged issuers enter into interest rate protection agreements
to fix or cap the interest rate on a large portion of their bank debt. This
reduces exposure to increasing rates, but reduces the benefit to the issuer of
declining rates. The sponsor cannot predict future economic

-21-

policies or their consequences or, therefore, the course or extent of any
similar market fluctuations in the future.

Lower-rated securities tend to offer higher yields than higher-rated
securities with the same maturities because the creditworthiness of the issuers
of lower-rated securities may not be as strong as that of other issuers.
Moreover, if a security is recharacterized as equity by the Internal Revenue
Service for federal income tax purposes, the issuer's interest deduction with
respect to the security will be disallowed and this disallowance may adversely
affect the issuer's credit rating. Because investors generally perceive that
there are greater risks associated with the lower-rated securities, the yields
and prices of these securities tend to fluctuate more than higher- rated
securities with changes in the perceived quality of the credit of their issuers.
In addition, the market value of high-yield, high-risk securities may fluctuate
more than the market value of higher-rated securities since these securities
tend to reflect short-term credit development to a greater extent than higher-
rated securities. Lower-rated securities generally involve greater risks of
loss of income and principal than higher-rated securities. Issuers of lower-
rated securities may possess fewer creditworthiness characteristics than issuers
of higher-rated securities and, especially in the case of issuers whose
obligations or credit standing have recently been downgraded, may be subject to
claims by debt-holders, owners of property leased to the issuer or others which,
if sustained, would make it more difficult for the issuers to meet their payment
obligations. High-yield, high-risk securities are also affected by variables
such as interest rates, inflation rates and real growth in the economy.

Should the issuer of any security default in the payment of principal or
interest, the holders of such security may incur additional expenses seeking
payment on the defaulted security. Because the amounts (if any) recovered in
payment under the defaulted security may not be reflected in the value of a fund
held by a trust or units of a trust until actually received, and depending upon
when a unitholder purchases or sells his or her units, it is possible that a
unitholder would bear a portion of the cost of recovery without receiving any
portion of the payment recovered.

High-yield, high-risk securities are generally subordinated obligations.
The payment of principal (and premium, if any), interest and sinking fund
requirements with respect to subordinated obligations of an issuer is
subordinated in right of payment to the payment of senior obligations of the
issuer. Senior obligations generally include most, if not all, significant debt
obligations of an issuer, whether existing at the time of issuance of
subordinated debt or created thereafter. Upon any distribution of the assets of
an issuer with subordinated obligations upon dissolution, total or partial
liquidation or reorganization of or similar proceeding relating to the issuer,
the holders of senior indebtedness will be entitled to receive payment in full
before holders of subordinated indebtedness will be entitled to receive any
payment. Moreover, generally no payment with respect to subordinated
indebtedness may be made while there exists a default with respect to any senior
indebtedness. Thus, in the event of insolvency, holders of senior indebtedness
of an issuer generally will recover more, ratably, than holders of subordinated
indebtedness of that issuer.

MUNICIPAL BONDS. Certain municipals bonds are "general obligation bonds"
and are general obligations of a governmental entity that are backed by the
taxing power of such entity.

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Other municipals bonds are "revenue bonds" payable from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds, on
the other hand, are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. There are, of course,
variations in the security of the different bonds, both within a particular
classification and between classifications, depending on numerous factors.

Certain municipal bonds may be obligations which derive their payments from
mortgage loans. Certain of such housing bonds may be FHA insured or may be
single family mortgage revenue bonds issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages on residences
located within the issuer's boundaries and owned by persons of low or moderate
income. Mortgage loans are generally partially or completely prepaid prior to
their final maturities as a result of events such as sale of the mortgaged
premises, default, condemnation or casualty loss. Because these bonds are
subject to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such bonds will probably
be redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. Extraordinary mandatory redemption without premium could also result
from the failure of the originating financial institutions to make mortgage
loans in sufficient amounts within a specified time period. Additionally,
unusually high rates of default on the underlying mortgage loans may reduce
revenues available for the payment of principal of or interest on such mortgage
revenue bonds. These bonds were issued under provisions of the Internal Revenue
Code, which include certain requirements relating to the use of the proceeds of
such bonds in order for the interest on such bonds to retain its tax-exempt
status. In each case the issuer of the bonds has covenanted to comply with
applicable requirements and bond counsel to such issuer has issued an opinion
that the interest on the bonds is exempt from Federal income tax under existing
laws and regulations. Certain issuers of housing bonds have considered various
ways to redeem bonds they have issued prior to the stated first redemption dates
for such bonds.

Certain municipal bonds may be health care revenue bonds. Ratings of bonds
issued for health care facilities are often based on feasibility studies that
contain projections of occupancy levels, revenues and expenses. A facility's
gross receipts and net income available for debt service may be affected by
future events and conditions including, among other things, demand for services
and the ability of the facility to provide the services required, physicians'
confidence in the facility, management capabilities, competition with other
health care facilities, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses, the cost
and possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party pay or programs, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar third party
pay or programs.

Certain municipal bonds may be obligations of public utility issuers,
including those selling wholesale and retail electric power and gas. General
problems of such issuers would include the difficulty in financing large
construction programs in an inflationary period, the limitations on operations
and increased costs and delays attributable to environmental

-23-

considerations, the difficulty of the capital market in absorbing utility debt,
the difficulty in obtaining fuel at reasonable prices and the effect of energy
conservation. In addition, Federal, state and municipal governmental authorities
may from time to time review existing, and impose additional, regulations
governing the licensing, construction and operation of nuclear power plants,
which may adversely affect the ability of the issuers of certain bonds to make
payments of principal and/or interest on such bonds.

Certain municipal bonds may be obligations of issuers whose revenues are
derived from the sale of water and/or sewerage services. Such bonds are
generally payable from user fees. The problems of such issuers include the
ability to obtain timely and adequate rate increases, population decline
resulting in decreased user fees, the difficulty of financing large construction
programs, the limitations on operations and increased costs and delays
attributable to environmental considerations, the increasing difficulty of
obtaining or discovering new supplies of fresh water, the effect of conservation
programs and the impact of "no-growth" zoning ordinances.

Certain municipal bonds may be industrial revenue bonds ("IRBs"). IRBs have
generally been issued under bond resolutions pursuant to which the revenues and
receipts payable under the arrangements with the operator of a particular
project have been assigned and pledged to purchasers. In some cases, a mortgage
on the underlying project may have been granted as security for the IRBs.
Regardless of the structure, payment of IRBs is solely dependent upon the
creditworthiness of the corporate operator of the project or corporate
guarantor. Corporate operators or guarantors may be affected by many factors
which may have an adverse impact on the credit quality of the particular company
or industry. These include cyclicality of revenues and earnings, regulatory and
environmental restrictions, litigation resulting from accidents or
environmentally-caused illnesses, extensive competition and financial
deterioration resulting from a corporate restructuring pursuant to a leveraged
buy-out, takeover or otherwise. Such a restructuring may result in the operator
of a project becoming highly leveraged which may impact on such operator's
creditworthiness which in turn would have an adverse impact on the rating and/or
market value of such bonds. Further, the possibility of such a restructuring may
have an adverse impact on the market for and consequently the value of such
bonds, even though no actual takeover or other action is ever contemplated or
effected.

Certain municipal bonds may be obligations that are secured by lease
payments of a governmental entity ("lease obligations"). Lease obligations are
often in the form of certificates of participation. Although the lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to appropriate for and make the payments
due under the lease obligation. However, certain lease obligations contain "non-
appropriation" clauses which provide that the municipality has no obligation to
make lease payments in future years unless money is appropriated for such
purpose on a yearly basis. A governmental entity that enters into such a lease
agreement cannot obligate future governments to appropriate for and make lease
payments but covenants to take such action as is necessary to include any lease
payments due in its budgets and to make the appropriations therefor. A
governmental entity's failure to appropriate for and to make payments under its
lease obligation could result in insufficient funds available for payment of the
obligations secured thereby. Although "non-appropriation" lease

-24-

obligations are secured by the leased property, disposition of the property in
the event of foreclosure might prove difficult.

Certain municipal bonds may be obligations of issuers which are, or which
govern the operation of, schools, colleges and universities and whose revenues
are derived mainly from ad valorem taxes or for higher education systems, from
tuition, dormitory revenues, grants and endowments. General problems relating to
school bonds include litigation contesting the state constitutionality of
financing public education in part from ad valorem taxes, thereby creating a
disparity in educational funds available to schools in wealthy areas and schools
in poor areas. Litigation or legislation on this issue may affect the sources of
funds available for the payment of school bonds. General problems relating to
college and university obligations include the prospect of a declining
percentage of the population consisting of "college" age individuals, possible
inability to raise tuitions and fees sufficiently to cover increased operating
costs, the uncertainty of continued receipt of Federal grants and state funding,
and government legislation or regulations which may adversely affect the
revenues or costs of such issuers.

Certain municipal bonds may be obligations which are payable from and
secured by revenues derived from the ownership and operation of facilities such
as airports, bridges, turnpikes, port authorities, convention centers and
arenas. The major portion of an airport's gross operating income is generally
derived from fees received from signatory airlines pursuant to use agreements
which consist of annual payments for leases, occupancy of certain terminal space
and service fees. Airport operating income may therefore be affected by the
ability of the airlines to meet their obligations under the use agreements. From
time to time the air transport industry has experienced significant variations
in earnings and traffic, due to increased competition, excess capacity,
increased costs, deregulation, traffic constraints and other factors, and
several airlines have experienced severe financial difficulties. Similarly,
payment on bonds related to other facilities is dependent on revenues from the
projects, such as user fees from ports, tolls on turnpikes and bridges and rents
from buildings. Therefore, payment may be adversely affected by reduction in
revenues due to such factors as increased cost of maintenance, decreased use of
a facility, lower cost of alternative modes of transportation, scarcity of fuel
and reduction or loss of rents.

Certain municipal bonds may be obligations which are payable from and
secured by revenues derived from the operation of resource recovery facilities.
Resource recovery facilities are designed to process solid waste, generate steam
and convert steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of certain
circumstances, including but not limited to: destruction or condemnation of a
project; contracts relating to a project becoming void, unenforceable or
impossible to perform; changes in the economic availability of raw materials,
operating supplies or facilities necessary for the operation of a project or
technological or other unavoidable changes adversely affecting the operation of
a project; and administrative or judicial actions which render contracts
relating to the projects void, unenforceable or impossible to perform or impose
unreasonable burdens or excessive liabilities. No one can predict the causes or
likelihood of the redemption of resource recovery bonds prior to the stated
maturity of the bonds.

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Certain municipal bonds may have been acquired at a market discount from
par value at maturity. A "tax-exempt" municipal bond purchased at a market
discount and held to maturity will have a larger portion of its total return in
the form of taxable income and capital gain and less in the form of tax-exempt
interest income than a comparable bond newly issued at current market rates.

Certain municipal bonds may be subject to redemption prior to their stated
maturity date pursuant to sinking fund provisions, call provisions or
extraordinary optional or mandatory redemption provisions or otherwise. A
sinking fund is a reserve fund accumulated over a period of time for retirement
of debt. A callable debt obligation is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is a method
by which a debt obligation is redeemed, at or before maturity, by the proceeds
of a new debt obligation. In general, call provisions are more likely to be
exercised when the offering side valuation is at a premium over par than when it
is at a discount from par. The exercise of redemption or call provisions will
(except to the extent the proceeds of the called bonds are used to pay for unit
redemptions) result in the distribution of principal and may result in a
reduction in the amount of subsequent interest distributions. Extraordinary
optional redemptions and mandatory redemptions result from the happening of
certain events. Generally, events that may permit the extraordinary optional
redemption of bonds or may require the mandatory redemption of bonds include,
among others: a final determination that the interest on the bonds is taxable;
the substantial damage or destruction by fire or other casualty of the project
for which the proceeds of the bonds were used; an exercise by a local, state or
Federal governmental unit of its power of eminent domain to take all or
substantially all of the project for which the proceeds of the bonds were used;
changes in the economic availability of raw materials, operating supplies or
facilities or technological or other changes which render the operation of the
project for which the proceeds of the bonds were used uneconomic; changes in law
or an administrative or judicial decree which renders the performance of the
agreement under which the proceeds of the bonds were made available to finance
the project impossible or which creates unreasonable burdens or which imposes
excessive liabilities, such as taxes, not imposed on the date the bonds are
issued on the issuer of the bonds or the user of the proceeds of the bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the bonds;
an overestimate of the costs of the project to be financed with the proceeds of
the bonds resulting in excess proceeds of the bonds which may be applied to
redeem bonds; or an underestimate of a source of funds securing the bonds
resulting in excess funds which may be applied to redeem bonds. The issuer of
certain bonds may have sold or reserved the right to sell, upon the satisfaction
of certain conditions, to third parties all or any portion of its rights to call
bonds in accordance with the stated redemption provisions of such bonds. In such
a case the issuer no longer has the right to call the bonds for redemption
unless it reacquires the rights from such third party. A third party pursuant to
these rights may exercise the redemption provisions with respect to a bond at a
time when the issuer of the bond might not have called a bond for redemption had
it not sold such rights. No one can predict all of the circumstances which may
result in such redemption of an issue of bonds. See also the discussion of
single family mortgage and multi-family revenue bonds above for more information
on the call provisions of such bonds.

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CONVERTIBLE SECURITIES. Convertible securities are generally debt
obligations or preferred stock of a company that are convertible into another
security of the company, typically common stock. Convertible securities
generally offer lower interest or dividend yields than non-convertible fixed-
income securities of similar credit quality because of the potential for capital
appreciation. The market values of convertible securities tend to decline as
interest rates increase and, conversely, to increase as interest rates decline.
However, a convertible security's market value also tends to reflect the market
price of the common stock of the issuing company, particularly when the stock
price is greater than the convertible security's conversion price. The
conversion price is defined as the predetermined price or exchange ratio at
which the convertible security can be converted or exchanged for the underlying
common stock. As the market price of the underlying common stock declines below
the conversion price, the price of the convertible security tends to be
increasingly influenced more by the yield of the convertible security than by
the market price of the underlying common stock. Thus, it may not decline in
price to the same extent as the underlying common stock, and convertible
securities generally have less potential for gain or loss than common stocks.
However, mandatory convertible securities (as discussed below) generally do not
limit the potential for loss to the same extent as securities convertible at the
option of the holder. In the event of a liquidation of the issuing company,
holders of convertible securities would be paid before that company's common
stockholders. Consequently, an issuer's convertible securities generally entail
less risk than its common stock. However, convertible securities generally fall
below other debt obligations of the same issuer in order of preference or
priority in the event of a liquidation and are typically unrated or rated lower
than such debt obligations. In addition, contingent payment, convertible
securities allow the issuer to claim deductions based on its nonconvertible cost
of debt, which generally will result in deduction in excess of the actual cash
payments made on the securities (and accordingly, holders will recognize income
in amounts in excess of the cash payments received).

Mandatory convertible securities are distinguished as a subset of
convertible securities because the conversion is not optional and the conversion
price at maturity is based solely upon the market price of the underlying common
stock, which may be significantly less than par or the price (above or below
par) paid. For these reasons, the risks associated with investing in mandatory
convertible securities most closely resemble the risks inherent in common
stocks. Mandatory convertible securities customarily pay a higher coupon yield
to compensate for the potential risk of additional price volatility and loss
upon conversion. Because the market price of a mandatory convertible security
increasingly corresponds to the market price of its underlying common stock as
the convertible security approaches its conversion date, there can be no
assurance that the higher coupon will compensate for the potential loss.

SENIOR LOANS. Senior loans may be issued by banks, other financial
institutions, and other investors to corporations, partnerships, limited
liability companies and other entities to finance leveraged buyouts,
recapitalizations, mergers, acquisitions, stock repurchases, debt refinancings
and, to a lesser extent, for general operating and other purposes. Senior loans
generally are of below investment grade credit quality and may be unrated at the
time of investment. They generally are not registered with the Securities and
Exchange Commission or any state securities commission and generally are not
listed on any securities exchange.

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An investment in senior loans involves risk that the borrowers under senior
loans may default on their obligations to pay principal or interest when due.
Although senior loans may be secured by specific collateral, there can be no
assurance that liquidation of collateral would satisfy the borrower's obligation
in the event of non-payment or that such collateral could be readily liquidated.
Senior loans are typically structured as floating rate instruments in which the
interest rate payable on the obligation fluctuates with interest rate changes.
As a result, the yield on an investment in senior loans will generally decline
in a falling interest rate environment and increase in a rising interest rate
environment.

The amount of public information available on senior loans generally will
be less extensive than that available for other types of assets. No reliable,
active trading market currently exists for many senior loans, although a
secondary market for certain senior loans does exist. Senior loans are thus
relatively illiquid. If a fund held by a trust invests in senior loans,
liquidity of a senior loan refers to the ability of the fund to sell the
investment in a timely manner at a price approximately equal to its value on the
fund's books. The illiquidity of senior loans may impair a fund's ability to
realized the full value of its assets in the event of a voluntary or involuntary
liquidation of such assets. Because of the lack of an active trading market,
illiquid securities are also difficult to value and prices provided by external
pricing services may not reflect the true value of the securities. However, many
senior loans are of a large principal amount and are held by financial
institutions. To the extent that a secondary market does exist for certain
senior loans, the market may be subject to irregular trading activity, wide
bid/ask spreads and extended trade settlement periods. The market for senior
loans could be disrupted in the event of an economic downturn or a substantial
increase or decrease in interest rates. This could result in increased
volatility in the market and in a trust's net asset value.

If legislation or state or federal regulators impose additional
requirements or restrictions on the ability of financial institutions to make
loans that are considered highly leveraged transactions, the availability of
senior loans for investment may be adversely affected. In addition, such
requirements or restrictions could reduce or eliminate sources of financing for
certain borrowers. This would increase the risk of default. If legislation or
federal or state regulators require financial institutions to dispose of senior
loans that are considered highly leveraged transactions or subject such senior
loans to increased regulatory scrutiny, financial institutions may determine to
sell such senior loans. Such sales could result in depressed prices. The price
for the senior loan may be adversely affected if sold at a time when a financial
institution is engaging in such a sale.

Some senior loans are subject to the risk that a court, pursuant to
fraudulent conveyance or other similar laws, could subordinate the senior loans
to presently existing or future indebtedness of the borrower or take other
action detrimental to lenders. Such court action could under certain
circumstances include invalidation of senior loans. Any lender, which could
include a fund held by a trust, is subject to the risk that a court could find
the lender liable for damages in a claim by a borrower arising under the common
laws of tort or contracts or anti-fraud provisions of certain securities laws
for actions taken or omitted to be taken by the lenders under the relevant terms
of a loan agreement or in connection with actions with respect to the collateral
underlying the senior loan.

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FLOATING RATE INSTRUMENTS. A floating rate security is an instrument in
which the interest rate payable on the obligation fluctuates on a periodic basis
based upon changes in a benchmark, often related to interest rates. As a
result, the yield on such a security will generally decline with negative
changes to the benchmark, causing an investor to experience a reduction in the
income it receives from such securities. A sudden and significant increase in
the applicable benchmark may increase the risk of payment defaults and cause a
decline in the value of the security.

ASSET-BACKED SECURITIES. Asset-backed securities ("ABS") are securities
backed by pools of loans or other receivables. ABS are created from many types
of assets, including auto loans, credit card receivables, home equity loans, and
student loans. ABS are issued through special purpose vehicles that are
bankruptcy remote from the issuer of the collateral. The credit quality of an
ABS transaction depends on the performance of the underlying assets. To protect
ABS investors from the possibility that some borrowers could miss payments or
even default on their loans, ABS include various forms of credit enhancement.
Some ABS, particularly home equity loan transactions, are subject to interest
rate risk and prepayment risk. A change in interest rates can affect the pace
of payments on the underlying loans, which in turn, affects total return on the
securities. ABS also carry credit or default risk. If many borrowers on the
underlying loans default, losses could exceed the credit enhancement level and
result in losses to investors in an ABS transaction. Finally, ABS have
structure risk due to a unique characteristic known as early amortization, or
early payout, risk. Built into the structure of most ABS are triggers for early
payout, designed to protect investors from losses. These triggers are unique to
each transaction and can include: a big rise in defaults on the underlying
loans, a sharp drop in the credit enhancement level, or even the bankruptcy of
the originator. Once early amortization begins, all incoming loan payments
(after expenses are paid) are used to pay investors as quickly as possible based
upon a predetermined priority of payment.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are a type of ABS
representing direct or indirect participations in, or are secured by and payable
from, mortgage loans secured by real property and can include single- and
multi-class pass-through securities and collateralized mortgage obligations.
Mortgage-backed securities are based on different types of mortgages, including
those on commercial real estate or residential properties. These securities
often have stated maturities of up to thirty years when they are issued,
depending upon the length of the mortgages underlying the securities. In
practice, however, unscheduled or early payments of principal and interest on
the underlying mortgages may make the securities' effective maturity shorter
than this. Rising interest rates tend to extend the duration of mortgage-backed
securities, making them more sensitive to changes in interest rates, and may
reduce the market value of the securities. In addition, mortgage-backed
securities are subject to prepayment risk, the risk that borrowers may pay off
their mortgages sooner than expected, particularly when interest rates decline.

SOVEREIGN DEBT. Sovereign debt instruments are subject to the risk that a
governmental entity may delay or refuse to pay interest or repay principal on
its sovereign debt, due, for example, to cash flow problems, insufficient
foreign currency reserves, political considerations, the relative size of the
governmental entity's debt position in relation to the economy or the failure to
put in place required economic reforms. If a governmental entity defaults, it
may ask for more time in which to pay or for further loans. There is no legal
process for collecting

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sovereign debt that a government does not pay nor are there bankruptcy
proceedings through which all or part of the sovereign debt that a governmental
entity has not repaid may be collected.

U.S. GOVERNMENT OBLIGATIONS RISK. Obligations of U.S. government agencies,
authorities, instrumentalities and sponsored enterprises have historically
involved little risk of loss of principal if held to maturity. However, not all
U.S. government securities are backed by the full faith and credit of the United
States. Obligations of certain agencies, authorities, instrumentalities and
sponsored enterprises of the U.S. government are backed by the full faith and
credit of the United States (e.g., the Government National Mortgage
Association); other obligations are backed by the right of the issuer to borrow
from the U.S. Treasury (e.g., the Federal Home Loan Banks) and others are
supported by the discretionary authority of the U.S. government to purchase an
agency's obligations. Still others are backed only by the credit of the agency,
authority, instrumentality or sponsored enterprise issuing the obligation. No
assurance can be given that the U.S. government would provide financial support
to any of these entities if it is not obligated to do so by law.

MONEY MARKET SECURITIES. Certain funds held by a trust may invest in money
market securities. If market conditions improve while a fund has temporarily
invested some or all of its assets in high quality money market securities, this
strategy could result in reducing the potential gain from the market upswing,
thus reducing a fund's opportunity to achieve its investment objective.

DERIVATIVES RISK. Certain funds held by a trust may engage in transactions
in derivatives. Derivatives are subject to counterparty risk which is the risk
that the other party in a transaction may be unable or unwilling to meet
obligations when due. Use of derivatives may increase volatility of a fund and
reduce returns. Fluctuations in the value of derivatives may not correspond
with fluctuations of underlying exposures. Unanticipated market movements could
result in significant losses on derivative positions including greater losses
than amounts originally invested and potentially unlimited losses in the case of
certain derivatives. There are no assurances that there will be a secondary
market available in any derivative position which could result in illiquidity
and the inability of a fund to liquidate or terminate positions as valued.
Valuation of derivative positions may be difficult and increase during times of
market turmoil. Certain derivatives may be used as a hedge against other
securities positions, however, hedging can be subject to the risk of imperfect
alignment and there are no assurances that a hedge will be achieved as intended
which can pose significant loss to a fund. Recent legislation has called for
significant increases to the regulation of the derivatives market. Regulatory
changes and rulemaking is ongoing and the full impact may not be known for some
time. This increased regulation may make derivatives more costly, limit the
availability of derivatives or otherwise adversely affect the value or
performance of derivatives. Examples of increased regulation include, but are
not limited to, the imposition of clearing and reporting requirements on
transactions that fall within the definition of "swap" and "security-based
swap," increased recordkeeping and reporting requirements, changing definitional
and registration requirements, and changes to the way that funds' use of
derivatives is regulated. No one can predict the effects of any new
governmental regulation that may be implemented on the ability of a fund to use
any financial derivative product, and there can be no assurance that any new
governmental regulation will not adversely affect a fund's ability to achieve
its investment objective. The federal income

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tax treatment of a derivative may not be as favorable as a direct investment in
the asset that a derivative provides exposure to, which may adversely impact the
timing, character and amount of income a fund realizes from its investment. The
tax treatment of certain derivatives is unsettled and may be subject to future
legislation, regulation or administrative pronouncements.

OPTIONS. A trust may hold a fund or funds that write (sell) or purchase
options as part of its investment strategy. In addition to general risks
associated with derivatives described above, options are considered speculative.
When a fund purchases an option, it may lose the premium paid for it if the
price of the underlying security or other assets decreases or remains the same
(in the case of a call option) or increases or remains the same (in the case of
a put option). If a put or call option purchased by a fund were permitted to
expire without being sold or exercised, its premium would represent a loss to a
fund. To the extent that a fund writes or sells an option, if the decline or
increase in the underlying asset is significantly below or above the exercise
price of the written option, a fund could experience substantial and potentially
unlimited losses.

There can be no assurance that a liquid market for the options will exist
when a fund seeks to close out an option position. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options; (iv) unusual or unforeseen
of an exchange or The Options Clearing Corporation ("OCC") may not at all times
be adequate to handle current trading volume; or (vi) one or more exchanges
could, for economic or other reasons, decide or be compelled at some future date
to discontinue the trading of options (or a particular class or series of
options). If trading were discontinued, the secondary market on that exchange
(or in that class or series of options) would cease to exist. However,
outstanding options on that exchange that had been issued by the OCC as a result
of trades on that exchange would continue to be exercisable in accordance with
their terms. A fund's ability to terminate over-the-counter options is more
limited than with exchange-traded options and may involve the risk that broker-
dealers participating in such transactions will not fulfill their obligations.
If a fund were unable to close out a covered call option that it had written
(sold) on a security, it would not be able to sell the underlying security
unless the option expired without exercise.

The hours of trading for options may not conform to the hours during which
the underlying securities are traded. To the extent that the options markets
close before the markets for the underlying securities, significant price and
rate movements can take place in the underlying markets that cannot be reflected
in the options markets. Additionally, the exercise price of an option may be
adjusted downward before the option's expiration as a result of the occurrence
of certain corporate events affecting the underlying equity security, such as
extraordinary dividends, stock splits, merger or other extraordinary
distributions or events. In certain circumstances, a reduction in the exercise
price of an option could reduce a fund's capital appreciation potential on the
underlying security.

To the extent that a fund purchases options pursuant to a hedging strategy,
the fund will be subject to the following additional risks. If a put or call
option purchased by a fund is not sold when it has remaining value, and if the
market price of the underlying security remains equal to

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or greater than the exercise price (in the case of a put), or remains less than
or equal to the exercise price (in the case of a call), the fund will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. If restrictions on exercise were imposed, a fund
might be unable to exercise an option it had purchased. If a fund were unable to
close out an option that it had purchased on a security, it would have to
exercise the option in order to realize any profit or the option may expire
worthless.

The writing (selling) and purchase of options is a highly specialized
activity which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. The successful use
of options depends in part on the ability of a fund's adviser to predict future
price fluctuations and, for hedging transactions, the degree of correlation
between the options and securities or currency markets.

If a fund employs a covered call strategy, a fund will generally write
(sell) call options on a significant portion of the fund's managed assets. These
call options will give the option holder the right, but not the obligation, to
purchase a security from the fund at the strike price on or prior to the
option's expiration date. The ability to successfully implement the fund's
investment strategy depends on the fund adviser's ability to predict pertinent
market movements, which cannot be assured. Thus, the use of options may require
a fund to sell portfolio securities at inopportune times or for prices other
than current market values, may limit the amount of appreciation the fund can
realize on an investment, or may cause the fund to hold a security that it might
otherwise sell. The writer (seller) of an option has no control over the time
when it may be required to fulfill its obligation as a writer (seller) of the
option. Once an option writer (seller) has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security at the
exercise price. As the writer (seller) of a covered call option, a fund forgoes,
during the option's life, the opportunity to profit from increases in the market
value of the security underlying the call option above the sum of the premium
and the strike price of the call option, but has retained the risk of loss
should the price of the underlying security decline. The value of the options
written (sold) by a fund will be affected by changes in the value and dividend
rates of the underlying equity securities, an increase in interest rates,
changes in the actual or perceived volatility of securities markets and the
underlying securities and the remaining time to the options' expirations. The
value of the options may also be adversely affected if the market for the
options becomes less liquid or smaller.

An option is generally considered "covered" if a fund owns the security
underlying the call option or has an absolute and immediate right to acquire
that security without additional cash consideration (or, if required, liquid
cash or other assets are segregated by the fund) upon conversion or exchange of
other securities held by the fund. In certain cases, a call option may also be
considered covered if a fund holds a call option on the same security as the
call option written (sold) provided that certain conditions are met. By writing
(selling) covered call options, a fund generally seeks to generate income, in
the form of the premiums received for writing (selling) the call options.
Investment income paid by a fund to its shareholders (such as a trust) may be
derived primarily from the premiums it receives from writing (selling) call
options and,

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to a lesser extent, from the dividends and interest it receives from the equity
securities or other investments held in the fund's portfolio and short-term
gains thereon. Premiums from writing (selling) call options and dividends and
interest payments made by the securities in a fund's portfolio can vary widely
over time.

SWAPS. Certain funds held by a trust may invest in swaps. In addition to
general risks associated with derivatives described above, swap agreements
involve the risk that the party with whom a fund has entered into the swap will
default on its obligation to pay a fund and the risk that a fund will not be
able to meet its obligations to pay the other party to the agreement. Swaps
entered into by a fund may include, but are not limited to, interest rate swaps,
total return swaps and/or credit default swaps. In an interest rate swap
transaction, two parties exchange rights to receive interest payments, such as
exchanging the right to receive floating rate payments based on a reference
interest rate for the right to receive fixed rate payments. In addition to the
general risks associated with derivatives and swaps described above, interest
rate swaps are subject to interest rate risk and credit risk. In a total return
swap transaction, one party agrees to pay another party an amount equal to the
total return on a reference asset during a specified period of time in return
for periodic payments based on a fixed or variable interest rate or on the total
return from a different reference asset. In addition to the general risks
associated with derivatives and swaps described above, total return swaps could
result in losses if the reference asset does not perform as anticipated and
these swaps can have the potential for unlimited losses. In a credit default
swap transaction, one party makes one or more payments over the term of the
contract to the counterparty, provided that no event of default with respect to
a specific obligation or issuer has occurred. In return, upon any event of
default, such party would receive from the counterparty a payment equal to the
par (or other agreed-upon) value of such specified obligation. In addition to
general risks associated with derivatives and swaps described above, credit
default swaps involve special risks because they are difficult to value, are
highly susceptible to liquidity and credit risk, and generally pay a return to
the party that has paid the premium only in the event of an actual default by
the issuer of the underlying obligation (as opposed to a credit downgrade or
other indication of financial difficulty).

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Certain funds held by a trust
may engage in forward foreign currency exchange transactions. Forward foreign
exchange transactions are contracts to purchase or sell a specified amount of a
specified currency or multinational currency unit at a price and future date set
at the time of the contract. Forward foreign currency exchange contracts do not
eliminate fluctuations in the value of non-U.S. securities but rather allow a
fund to establish a fixed rate of exchange for a future point in time. This
strategy can have the effect of reducing returns and minimizing opportunities
for gain.

INDEXED AND INVERSE SECURITIES. Certain funds held by a trust may invest
in indexed and inverse securities. In addition to general risks associated with
derivatives described above, indexed and inverse securities are subject to risk
with respect to the value of the particular index. These securities are subject
to leverage risk and correlation risk. Certain indexed and inverse securities
have greater sensitivity to changes in interest rates or index levels than other
securities, and a fund's investment in such instruments may decline
significantly in value if interest rates or index levels move in a way a fund's
management does not anticipate.

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FUTURES. Certain funds held by a trust may engage in futures transactions.
In addition to general risks associated with derivatives described above, the
primary risks associated with the use of futures contracts and options are
(a) the imperfect correlation between the change in market value of the
instruments held by a fund and the price of the futures contract or option;
(b) possible lack of a liquid secondary market for a futures contract and the
resulting inability to close a futures contract when desired; (c) losses caused
by unanticipated market movements, which are potentially unlimited; (d) the
investment adviser's inability to predict correctly the direction of securities
prices, interest rates, currency exchange rates and other economic factors; and
(e) the possibility that the counterparty will default in the performance of its
obligations. While futures contracts are generally liquid instruments, under
certain market conditions they may become illiquid. Futures exchanges may
impose daily or intra-day price change limits and/or limit the volume of
trading. Additionally, government regulation may further reduce liquidity
through similar trading restrictions.

REPURCHASE AGREEMENT RISK. A repurchase agreement is a form of short-term
borrowing where a dealer sells securities to investors (usually on an overnight
basis) and buys them back the following day. If the other party to a repurchase
agreement defaults on its obligation under such agreement, a fund held by a
trust may suffer delays and incur costs or lose money in exercising its rights
under the agreement. If the seller fails to repurchase the security under a
repurchase agreement and the market value of such security declines, such fund
may lose money.

SHORT SALES RISK. Certain funds held by a trust may engage in short sales.
Because making short sales in securities that it does not own exposes a fund to
the risks associated with those securities, such short sales involve speculative
exposure risk. A fund will incur a loss as a result of a short sale if the
price of the security increases between the date of the short sale and the date
on which such fund replaces the security sold short. A fund will realize a gain
if the security declines in price between those dates. As a result, if a fund
makes short sales in securities that increase in value, it will likely
underperform similar funds that do not make short sales in securities they do
not own. There can be no assurance that a fund will be able to close out a
short sale position at any particular time or at an acceptable price. Although
a fund's gain is limited to the amount at which it sold a security short, its
potential loss is limited only by the maximum attainable price of the security,
less the price at which the security was sold. Short sale transactions involve
leverage because they can provide investment exposure in an amount exceeding the
initial investment. A fund may also pay transaction costs and borrowing fees in
connection with short sales.

COMMODITIES. Certain funds held by a trust may have exposure to the
commodities market. This exposure could expose such funds and to greater
volatility than investment in other securities. The value of investments
providing commodity exposure may be affected by changes in overall market
movements, commodity index volatility, changes in interest rates, or factors
affecting a particular industry or commodity, such as drought, floods, weather,
embargoes, tariffs and international economic, political and regulatory
developments.

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CONCENTRATION RISK. Concentration risk is the risk that the value of a
trust may be more susceptible to fluctuations based on factors that impact a
particular sector because the trust provides exposure to investments
concentrated within a particular sector or sectors.

CONSUMER DISCRETIONARY AND CONSUMER STAPLES SECTORS. The profitability of
companies that manufacture or sell consumer products or provide consumer
services will be affected by various factors including the general state of the
economy and consumer spending trends. In the past, there have been major changes
in the retail environment due to the declaration of bankruptcy by some of the
major corporations involved in the retail industry, particularly the department
store segment. The continued viability of the retail industry will depend on the
industry's ability to adapt and to compete in changing economic and social
conditions, to attract and retain capable management, and to finance expansion.
Weakness in the banking or real estate industry, a recessionary economic climate
with the consequent slowdown in employment growth, less favorable trends in
unemployment or a marked deceleration in real disposable personal income growth
could result in significant pressure on both consumer wealth and consumer
confidence, adversely affecting consumer spending habits. In addition,
competitiveness of the retail industry will require large capital outlays for
investment in the installation of automated checkout equipment to control
inventory, to track the sale of individual items and to gauge the success of
sales campaigns. Increasing employee and retiree benefit costs may also have an
adverse effect on the industry. In many sectors of the retail industry,
competition may be fierce due to market saturation, converging consumer tastes
and other factors. Many retailers are involved in entering global markets which
entail added risks such as sudden weakening of foreign economies, difficulty in
adapting to local conditions and constraints and added research costs.

ENERGY SECTOR. Energy companies may include but are not limited to
companies involved in: production, generation, transmission, marketing, control,
or measurement of energy; the provision of component parts or services to
companies engaged in the above activities; energy research or experimentation;
and environmental activities related to the solution of energy problems, such as
energy conservation and pollution control.

The securities of companies in the energy field are subject to changes in
value and dividend yield which depend, to a large extent, on the price and
supply of energy fuels. Swift price and supply fluctuations may be caused by
events relating to international politics, energy conservation, the success of
exploration projects, and tax and other regulatory policies of various
governments. As a result of the foregoing, the securities issued by energy
companies may be subject to rapid price volatility.

Any future scientific advances concerning new sources of energy and fuels
or legislative changes relating to the energy sector or the environment could
have a negative impact on the petroleum products sector. While legislation has
been enacted to deregulate certain aspects of the oil sector, no assurances can
be given that new or additional regulations will not be adopted. Each of the
problems referred to could adversely affect the financial stability of the
issuers of any petroleum sector securities.

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FINANCIALS SECTOR. Banks and their holding companies are especially
subject to the adverse effects of economic recession; volatile interest rates;
portfolio concentrations in geographic markets and in commercial and residential
real estate loans; and competition from new entrants in their fields of
business. In addition, banks and their holding companies are extensively
regulated at both the federal and state level and may be adversely affected by
increased regulations. Banks will face increased competition from
nontraditional lending sources as regulatory changes, such as the Gramm-Leach-
Bliley financial services overhaul legislation, permit new entrants to offer
various financial products. Technological advances such as the Internet allow
these nontraditional lending sources to cut overhead and permit the more
efficient use of customer data. Banks are already facing tremendous pressure
from mutual funds, brokerage firms and other financial service providers in the
competition to furnish services that were traditionally offered by banks.

Government authorities in the U.S. and other countries may engage in
administrative and legislative action intended to address both short- and long-
term difficulties facing the housing and mortgage lending markets, mortgage
backed securities, the financial services industry and the broader economy.
These government actions may include, but are not limited to, restrictions on
investment activities; increased oversight, regulation and involvement in
financial services company practices; adjustments to capital requirements; the
acquisition of interests in and the extension of credit to private entities; and
increased investigation efforts into the actions of companies and individuals in
the financial service industry. No one can predict any action that might be
taken or the effect any action or inaction will have. It is possible that any
actions taken by government authorities will not address or help improve the
state of these difficulties as intended. No one can predict the impact that the
difficulties will have on the economy, generally or financial services
companies. The difficulties and corresponding government action or inaction may
have far reaching consequences and your investment may be adversely affected by
such developments.

Banks and their holding companies are subject to extensive federal
regulation and, when such institutions are state-chartered, to state regulation
as well. Such regulations impose strict capital requirements and limitations on
the nature and extent of business activities that banks may pursue. Furthermore,
bank regulators have a wide range of discretion in connection with their
supervisory and enforcement authority and may substantially restrict the
permissible activities of a particular institution if deemed to pose significant
risks to the soundness of such institution or the safety of the federal deposit
insurance fund. Regulatory actions, such as increases in the minimum capital
requirements applicable to banks and increases in deposit insurance premiums
required to be paid by banks and thrifts to the Federal Deposit Insurance
Corporation ("FDIC"), can negatively impact earnings and the ability of a
company to pay dividends. Neither federal insurance of deposits nor governmental
regulations, however, insures the solvency or profitability of banks or their
holding companies, or insures against any risk of investment in the securities
issued by such institutions.

The statutory requirements applicable to, and regulatory supervision of,
banks and their holding companies have increased significantly and have
undergone substantial change in the past, including, but not limited to the
Financial Institutions Reform, Recovery and Enforcement Act, enacted in August
1989; the Federal Deposit Insurance Corporation Improvement Act of

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1991; the Gramm-Leach-Bliley Act; and the Dodd-Frank Wall Street Reform and
Consumer Protection Act and the rules and regulations promulgated under these
laws.

Companies engaged in investment management and brokerage activities are
subject to the adverse effects of economic recession, volatile interest rates,
and competition from new entrants in their fields of business. Adverse changes
in the direction of the stock market, investor confidence, the financial health
of customers, equity transaction volume, the level and direction of interest
rates and the outlook of emerging markets could adversely affect the financial
stability, as well as the stock prices, of these companies. Additionally,
competitive pressures, including increased competition from new and existing
competitors, the ongoing commoditization of traditional businesses and the need
for increased capital expenditures on new technology could adversely impact the
profit margins of companies in the investment management and brokerage
industries. Companies involved in investment management and brokerage activities
are also subject to extensive regulation by government agencies and self-
regulatory organizations, and changes in laws, regulations or rules, or in the
interpretation of such laws, regulations and rules could adversely affect the
stock prices of such companies.

Companies involved in the insurance, reinsurance and risk management
industry underwrite, sell or distribute property, casualty and business
insurance. Many factors affect insurance, reinsurance and risk management
company profits, including but not limited to interest rate movements, the
imposition of premium rate caps, a misapprehension of the risks involved in
given underwritings, competition and pressure to compete globally, weather
catastrophes or other natural or man-made disasters and the effects of client
mergers. Individual companies may be exposed to material risks including reserve
inadequacy and the inability to collect from reinsurance carriers. Insurance
companies are subject to extensive governmental regulation, including the
imposition of maximum rate levels, which may not be adequate for some lines of
business. Proposed or potential tax law changes may also adversely affect
insurance companies' policy sales, tax obligations and profitability. In
addition to the foregoing, profit margins of these companies continue to shrink
due to the commoditization of traditional businesses, new competitors, capital
expenditures on new technology and the pressure to compete globally.

In addition to the normal risks of business, companies involved in the
insurance and risk management industry are subject to significant risk factors,
including those applicable to regulated insurance companies, such as: the
inherent uncertainty in the process of establishing property-liability loss
reserves, and the fact that ultimate losses could materially exceed established
loss reserves, which could have a material adverse effect on results of
operations and financial condition; the fact that insurance companies have
experienced, and can be expected in the future to experience, catastrophic
losses, which could have a material adverse impact on their financial
conditions, results of operations and cash flow; the inherent uncertainty in the
process of establishing property-liability loss reserves due to changes in loss
payment patterns caused by new claim settlement practices; the need for
insurance companies and their subsidiaries to maintain appropriate levels of
statutory capital and surplus, particularly in light of continuing scrutiny by
rating organizations and state insurance regulatory authorities, and in order to
maintain acceptable financial strength or claims-paying ability ratings; the
extensive regulation and supervision to which insurance companies are subject,
and various regulatory and other legal

-37-

actions; the adverse impact that increases in interest rates could have on the
value of an insurance company's investment portfolio and on the attractiveness
of certain of its products; and the uncertainty involved in estimating the
availability of reinsurance and the collectability of reinsurance recoverables.

The state insurance regulatory framework has, during recent years, come
under increased federal scrutiny, and certain state legislatures have considered
or enacted laws that alter and, in many cases, increase state authority to
regulate insurance companies and insurance holding company systems. Further, the
National Association of Insurance Commissioners ("NAIC") and state insurance
regulators are re-examining existing laws and regulations, specifically focusing
on insurance companies, interpretations of existing laws and the development of
new laws. In addition, Congress and certain federal agencies have investigated
the condition of the insurance industry in the United States to determine
whether to promulgate additional federal regulation. The Sponsor is unable to
predict whether any state or federal legislation will be enacted to change the
nature or scope of regulation of the insurance industry, or what effect, if any,
such legislation would have on the industry.

All insurance companies are subject to state laws and regulations that
require diversification of their investment portfolios and limit the amount of
investments in certain investment categories. Failure to comply with these laws
and regulations would cause non-conforming investments to be treated as non-
admitted assets for purposes of measuring statutory surplus and, in some
instances, would require divestiture.

HEALTH CARE SECTOR. Healthcare companies involved in advanced medical
devices and instruments, drugs and biotech, managed care, hospital
management/health services and medical supplies have potential risks unique to
their sector of the healthcare field. These companies are subject to
governmental regulation of their products and services, a factor which could
have a significant and possibly unfavorable effect on the price and availability
of such products or services. Furthermore, such companies face the risk of
increasing competition from new products or services, generic drug sales,
termination of patent protection for drug or medical supply products and the
risk that technological advances will render their products obsolete. The
research and development costs of bringing a drug to market are substantial, and
include lengthy governmental review processes with no guarantee that the product
will ever come to market. Many of these companies may have losses and not offer
certain products for several years. Such companies may also have persistent
losses during a new product's transition from development to production, and
revenue patterns may be erratic. In addition, healthcare facility operators may
be affected by events and conditions including, among other things, demand for
services, the ability of the facility to provide the services required,
physicians' confidence in the facility, management capabilities, competition
with other hospitals, efforts by insurers and governmental agencies to limit
rates, legislation establishing state rate-setting agencies, expenses,
government regulation, the cost and possible unavailability of malpractice
insurance and the termination or restriction of governmental financial
assistance, including that associated with Medicare, Medicaid and other similar
third-party payor programs.

Legislative proposals concerning healthcare are proposed in Congress from
time to time. These proposals span a wide range of topics, including cost and
price controls (which might

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include a freeze on the prices of prescription drugs), national health insurance
incentives for competition in the provision of healthcare services, tax
incentives and penalties related to healthcare insurance premiums and promotion
of prepaid healthcare plans.

INDUSTRIALS SECTOR. General risks of industrials companies include the
general state of the economy, intense competition, consolidation, domestic and
international politics, excess capacity and consumer spending trends. In
addition, capital goods companies may also be significantly affected by overall
capital spending levels, economic cycles, technical obsolescence, delays in
modernization, limitations on supply of key materials, labor relations,
government regulations, government contracts and ecommerce initiatives.
Furthermore, certain companies involved in the industry have also faced scrutiny
for alleged accounting irregularities that may have led to the overstatement of
their financial results, and other companies in the industry may face similar
scrutiny.

Industrials companies may also be affected by factors more specific to
their individual industries. Industrial machinery manufacturers may be subject
to declines in commercial and consumer demand and the need for modernization.
Aerospace and defense companies may be influenced by decreased demand for new
equipment, aircraft order cancellations, disputes over or ability to obtain or
retain government contracts, or changes in government budget priorities, changes
in aircraft-leasing contracts and cutbacks in profitable business travel.

INFORMATION TECHNOLOGY SECTOR. Information technology companies generally
include companies involved in the development, design, manufacture and sale of
computers and peripherals, software and services, data networking and
communications equipment, internet access and information providers,
semiconductors and semiconductor equipment and other related products, systems
and services. The market for these products, especially those specifically
related to the internet, may be characterized by rapidly changing technology,
product obsolescence, cyclical markets, evolving industry standards and frequent
new product introductions. The success of companies in this sector depends, in
substantial part, on the timely and successful introduction of new products. An
unexpected change in one or more of the technologies affecting a company's
products or in the market for products based on a particular technology could
have a material adverse effect on an issuer's operating results. Furthermore,
there can be no assurance that any particular company will be able to respond in
a timely manner to compete in the rapidly developing marketplace.

Factors such as announcements of new products or development of new
technologies and general conditions of the industry have caused and are likely
to cause the market price of high-technology common stocks to fluctuate
substantially. In addition, technology company stocks have experienced extreme
price and volume fluctuations that often have been unrelated to the operating
performance of such companies. Such market volatility may adversely affect the
market price of shares of these companies. Some key components of certain
products of technology issuers are currently available only from single sources.

There can be no assurance that in the future suppliers will be able to meet
the demand for components in a timely and cost effective manner. Accordingly, an
issuer's operating results and customer relationships could be adversely
affected by either an increase in price for, or an

-39-

interruption or reduction in supply of, any key components. Additionally, many
technology issuers are characterized by a highly concentrated customer base
consisting of a limited number of large customers who may require product
vendors to comply with rigorous industry standards. Any failure to comply with
such standards may result in a significant loss or reduction of sales. Because
many products and technologies of technology companies are incorporated into
other related products, such companies are often highly dependent on the
performance of the personal computer, electronics and telecommunications
industries. There can be no assurance that these customers will place additional
orders, or that an issuer will obtain orders of similar magnitude as past orders
from other customers. Similarly, the success of certain technology companies is
tied to a relatively small concentration of products or technologies.
Accordingly, a decline in demand of such products, technologies or from such
customers could have a material adverse impact on companies in this sector.

Many technology companies rely on a combination of patents, copyrights,
trademarks and trade secret laws to establish and protect their proprietary
rights in their products and technologies. There can be no assurance that the
steps taken to protect proprietary rights will be adequate to prevent
misappropriation of technology or that competitors will not independently
develop technologies that are substantially equivalent or superior to an
issuer's technology. In addition, due to the increasing public use of the
internet, it is possible that other laws and regulations may be adopted to
address issues such as privacy, pricing, characteristics, and quality of
internet products and services. The adoption of any such laws could have a
material adverse impact on the issuers of securities in the information
technology sector.

Like many areas of technology, the semiconductor business environment is
highly competitive, notoriously cyclical and subject to rapid and often
unanticipated change. Recent industry downturns have resulted, in part, from
weak pricing, persistent overcapacity, slowdown in Asian demand and a shift in
retail personal computer sales toward the low-end segment. Industry growth is
dependent upon several factors, including: the rate of global economic
expansion; demand for products such as personal computers and networking and
communications equipment; excess productive capacity and the resultant effect on
pricing; and the rate of growth in the market for low-priced personal computers.

MATERIALS SECTOR. Companies in the basic materials sector are engaged in
the manufacture, mining, processing, or distribution of raw materials and
intermediate goods used in the industrial sector. These may include materials
and products such as chemicals, commodities, forestry products, paper products,
copper, iron ore, nickel, steel, aluminum, precious metals, textiles, cement,
and gypsum. Basic materials companies may be affected by the volatility of
commodity prices, exchange rates, import controls, worldwide competition,
depletion of resources, and mandated expenditures for safety and pollution
control devices. In addition, they may be adversely affected by technical
progress, labor relations, and governmental regulation. These companies are also
at risk for environmental damage and product liability claims. Production of
industrial materials often exceeds demand as a result of over-building or
economic downturns, which may lead to poor investment returns.

TELECOMMUNICATION SERVICES SECTOR. General risks of telecommunication
services companies include rapidly changing technology, rapid product
obsolescence, loss of patent

-40-

protection, cyclical market patterns, evolving industry standards and frequent
new product introductions. Certain communications/bandwidth companies are
subject to substantial governmental regulation, which among other things,
regulates permitted rates of return and the kinds of services that a company may
offer. Such companies can also be negatively impacted by any failure to obtain,
or delays in obtaining, financial or regulatory approval for new products or
services. Companies in this sector are subject to fierce competition for market
share from existing competitors and new market entrants. Such competitive
pressures are intense and communications stocks can experience extreme
volatility.

Companies in the telecommunications sector may encounter distressed cash
flows and heavy debt burdens due to the need to commit substantial capital to
meet increasing competition, particularly in formulating new products and
services using new technology. Technological innovations may also make the
existing products and services of telecommunications companies obsolete. In
addition, companies in this sector can be impacted by a lack of investor or
consumer acceptance of new products, changing consumer preferences and lack of
standardization or compatibility with existing technologies making
implementation of new products more difficult.

UTILITIES SECTOR. General problems of utility companies include risks of
increases in fuel and other operating costs; restrictions on operations and
increased costs and delays as a result of environmental, nuclear safety and
other regulations; regulatory restrictions on the ability to pass increasing
wholesale costs along to the retail and business customer; energy conservation;
technological innovations which may render existing plants, equipment or
products obsolete; the effects of local weather, maturing markets and difficulty
in expanding to new markets due to regulatory and other factors; natural or
manmade disasters; difficulty obtaining adequate returns on invested capital;
the high cost of obtaining financing during periods of inflation; difficulties
of the capital markets in absorbing utility debt and equity securities; and
increased competition. In addition, taxes, government regulation, international
politics, price and supply fluctuations, and volatile interest rates and energy
conservation may cause difficulties for utilities. All of such issuers
experience certain of these problems to varying degrees.

CALIFORNIA. The information provided below is only a brief summary of the
complex factors affecting the financial situation in California and is derived
from sources that are generally available to investors and are believed to be
accurate. Except where otherwise indicated, the information is based on
California's 2013-14 fiscal year running from July 1, 2013 to June 30, 2014. No
independent verification has been made of the accuracy or completeness of any of
the following information. It is based in part on information obtained from
various state and local agencies in California or contained in official
statements for various California municipal obligations.

Economic Outlook. The U.S. economy completed its fifth year of recovery as
California ended its fiscal year on June 30, 2014. National economic growth was
somewhat erratic, with a difficult winter quarter followed by a solid spring
rebound. The U.S. real gross domestic product had a moderate 2.5% increase
over the 12 months spanning the state's 2013-14 fiscal year. California's
personal income growth outperformed the nation in the 2013-14 fiscal year. The
state's total personal income increased 3.5% during the 2013-14 fiscal year
versus the 2.6% increase the nation experienced. Auto registrations increased
by 6.6% in California for a total of

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1.7 million registered vehicles for the 2013-14 fiscal year. The state's real
estate market showed signs of stabilizing at the end of the 2013-14 fiscal year
compared to the market a year earlier. As of June 2014, home prices were
significantly higher, 6.6% over the prior year, but sales were down by about 5%.
Homebuilding in California picked up substantially, as permits issued during the
fiscal year increased approximately 12%, to more than 82,000 units. Similarly,
nonresidential building rebounded during the 2013-14 fiscal year and the value
of nonresidential permits increased 44% to $23 billion. Retail stores, hotels,
amusement parks, offices, and renovations contributed to the large increase.

In June 2014, nonfarm employment surpassed its pre-recession high. With a
12-month gain of 347,500 jobs, employment was 2.3% higher than in June 2013.
Job growth was widespread, with notable increases in construction, trade,
leisure and hospitality, health care, and business and public services.
Financial services, nondurable goods manufacturing, and the federal government
were the only areas that experienced job losses. The improvement in the labor
market was demonstrated by the drop in the state's unemployment rate from 9.0%
in June 2013 to 7.4% in June 2014. California ended the 2013-14 fiscal year
with economic gains.

Net Assets. The primary government's net position as of the end of the
2013-14 fiscal year, was $7.3 billion. The total net position was reduced by
$96.1 billion for net investment in capital assets and by $29.8 billion for
restricted net position, yielding a negative unrestricted net position of $118.6
billion. Restricted net position is dedicated for specified uses and is not
available to fund current activities. More than half of the negative $118.6
billion consisted of $66.7 billion in outstanding bonded debt issued to build
capital assets for school districts and other local governmental entities. The
bonded debt reduced the unrestricted net position; however, local governments,
not the state, own the capital assets that would offset this reduction.

There has been a change in the state's net assets. The primary
government's combined net position (governmental and business-type activities)
increased by more than 409%, from a negative $2.4 billion, as restated at the
end of the 2012-13 fiscal year, to a positive $7.3 billion a year later.

California General Fund. The state's main operating fund (the "California
General Fund") ended the 2013-14 fiscal year with assets of $19.4 billion;
liabilities and deferred inflows of resources of $26.9 billion; and non-
spendable, restricted, and committed fund balances of $129 million, $394
million, and $125 million, respectively, leaving the California General Fund
with a negative unassigned fund balance of $8.1 billion. Total assets of the
California General Fund increased by $3.8 billion (24.1%) over the 2012-13
fiscal year, while the total liabilities and deferred inflows of resources of
the California General Fund decreased by $3.0 billion (10.2%). Total net fund
deficit balance decreased by $7.6 billion (50.6%).

As of the end of the 2013-14 fiscal year, the California General Fund had
an excess of revenues over expenditures of $8.9 billion ($104.2 billion in
revenues and $95.3 billion in expenditures). Approximately 95.l% of California
General Fund revenue ($99.l billion) was derived from the state's largest three
taxes-personal income taxes ($67.6 billion), sales and use taxes ($22.3
billion), and corporation taxes ($9.2 billion). As a result of fund
classifications made to comply with governmental accounting standards, a total
of $244 million in revenue,

-42-

essentially all from unemployment programs, was included in the California
General Fund. These revenues were not considered California General Fund
revenues for any budgetary purposes or for the state's "Budgetary/Legal Basis
Annual Report." During the 2013-14 fiscal year, total California General Fund
revenue increased by $4.8 billion (4.8%). The increase was a result of
increases in corporation taxes of $2.0 billion (27.3%), sales and use taxes of
$1.9 billion (9.1%), and personal income taxes of $1.4 billion (2.1 %).

California General Fund expenditures increased by $5.2 billion (5.8%)
during the 2013-14 fiscal year. The largest increases were in education and
health and human services expenditures, which were up $3.9 billion and $961
million, respectively. The California General Fund's deficit for the 2013-14
fiscal year, was $7.4 billion, a decrease of $7.6 billion from the prior year's
restated ending fund deficit of $15.1 billion.

Budget Outlook. California enacted Budget Act of 2014 (the "California
Budget Act") for the 2014-15 fiscal year on June 20, 2014. The California
Budget Act appropriated $156.3 billion: $108.0 billion from the California
General Fund, $44.3 billion from special funds and $4.0 billion from bond funds.
The California General Fund's budgeted expenditures increased $7.3 billion
(7.2%) over 2014's California General Fund budget and included a $1.6 billion
supplemental payment to pay off the remaining balance of the state's prior
deficit financing bonds, known as economic recovery bonds. The California
Budget Act projected California General Fund's available resources to be $105.5
billion, after a projected $1.6 billion transfer to the "Budget Stabilization
Account." California General Fund revenue comes predominantly from taxes,
personal income taxes were projected to provide 65.6% of total revenue for 2014-
15 fiscal year. California's major taxes (personal income, sales and use, and
corporation taxes) were projected to supply approximately 96.2% of the
California General Fund's resources in the 2014-15 fiscal year.

The 2014-15 fiscal year budget continued California Governor Jerry Brown's
multi-year financial plan for the State of California, and for the third
consecutive year, it projected a surplus in the California General Fund. The
governor's budget projected the 2014-15 fiscal year to end with $2.1 billion in
total reserves--$1.6 billion in the Budget Stabilization Account and $449
million reserved for economic uncertainties. The 2014-15 budget made targeted
augmentations in a few key areas while paying down several billion dollars of
existing liabilities, including the economic recovery bonds mentioned above.

Budget-related legislation was enacted to erase the California State
Teachers' Retirement System ("CalSTRS") $74 billion unfunded liability in 32
years by increasing contributions from the state, school and community college
districts, and teachers. The state is responsible for approximately $20 billion
of the unfunded liability. The 2014-15 budget provided for $1.5 billion in
state contributions to CalSTRS, of which $59 million was directed to be used
toward reducing the state's share of the unfunded liability.

Governor Brown released his proposed 2015-16 fiscal year budget on
January 9, 2015; he sees maintaining a balanced budget as an ongoing challenge
for the long term, requiring both fiscal restraint and prudence. The budget
assumed the continued moderate expansion of the economy and continued with the
Governor Brown's multi-year plan to build reserves and pay

-43-

down outstanding debt. Proposition 2, the Rainy Day Budget Stabilization Fund
Act ("Proposition 2") was approved by voters in November 2014 and affects the
budget for the first time in fiscal year 2015-16. Proposition 2 gives the state
an opportunity to avoid budget shortfalls that are driven by ongoing spending
commitments based on temporary spikes in revenues from capital gains. Under
Proposition 2, spikes in capital gains will be used to save money for the next
recession and to pay down the state's debts and unfunded liabilities. The
budget proposes total reserves of $3.4 billion by the end of the 2015-16 fiscal
year--$2.8 billion in the Budget Stabilization Account required under
Proposition 2 and $534 million in the California General Fund's reserve for
economic uncertainties. In addition to the required reserve, Proposition 2
requires an equivalent amount be used to pay down existing debts. During the
2015-16 fiscal year, Governor Brown proposed to pay down the California General
Fund's loans from special funds and obligations under California's Classroom
Instructional Improvement and Accountability Act by a total of $1.2 billion.
The 2015-16 governor's budget projected California General Fund revenues and
transfers to be $113.4 billion and expenditures to be $113.3 billion, with an
estimated $1.5 billion year-end balance, which included the $534 million
reserve. In the proposed budget, the California General Fund began fiscal year
2014-15 with a surplus balance of $5.1 billion; it is projected to begin fiscal
year 2015-16 with a surplus of approximately $1.4 billion. The 2015-16
governor's budget estimated California General Fund revenues and transfers to be
4.9% more than the revised 2014-15 estimate of $108.0 billion, while the fiscal
year 2014-15 expenditures were estimated to be 1.4% greater than the revised
2014-15 estimate of $111.7 billion.

Capital Assets. The state's investment in capital assets for its
governmental and business-type activities as of the end of the 2013-14 fiscal
year, amounted to $125.l billion (net of accumulated depreciation/amortization).
The state's capital assets include land, state highway infrastructure,
collections, buildings and other depreciable property, intangible assets, and
construction in progress. The buildings and other depreciable property account
includes buildings, improvements other than buildings, equipment, certain
infrastructure assets, certain books, and other capitalized and depreciable
property. Intangible assets include computer software, land use rights,
patents, copyrights, and trademarks. Infrastructure assets are items that
normally are immovable, such as roads and bridges, and can be preserved for a
greater number of years than can most capital assets.

As of the end of 2013-14 fiscal year, the state's capital assets increased
$6.5 billion over the prior fiscal year. The majority of this increase occurred
in buildings and other depreciable property, and construction in progress.
Included in the capital assets increase is a $2.2 billion beginning balance
restatement, primarily for understated state highway infrastructure construction
in progress.

Debt Administration. The state's largest long-term obligations are its
bonded debt. As of the end of 2013-14 fiscal year, the primary government had
total bonded debt outstanding of $115.9 billion. Of this amount, $84.0 billion
(72.5%) represents general obligation bonds, which are backed by the full faith
and credit of the state. Included in the $84.0 billion of general obligation
bonds is $4.6 billion of economic recovery bonds that are secured by a pledge of
revenues derived from dedicated sales and use taxes. As of the end of 2013-14
fiscal year, the portion of general obligation bonds outstanding was $4.0
billion and the long-term portion was

-44-

$80.0 billion. The remaining $31.9 billion (27.5%) of bonded debt outstanding
represented revenue bonds, which are secured solely by specified revenue
sources. As of the end of 2013-14 fiscal year, the portion of revenue bonds
outstanding was $1.6 billion and the long-term portion was $30.3 billion.
During the 2013-14 fiscal year, the state issued $5.9 billion in new general
obligation bonds for transportation projects, housing and emergency shelters,
stem cell research, children's hospitals, various water and flood control
projects, and to refund previously outstanding general obligation bonds and
commercial paper.

Budgetary Control. The California state legislature prepares an annual
budget that contains estimates of revenues and expenditures for the ensuing
fiscal year. This budget is the result of negotiations between the governor and
the California legislature. Throughout the fiscal year, adjustments in the form
of budget revisions, executive orders, and financial legislation agreed to by
the governor and the California legislature are made to the budget. The
California State Controller's Office ("State Controller's Office") is
statutorily responsible for control over revenues due the primary government and
for expenditures of each appropriation contained in the budget. Budgeted
appropriations are the expenditure authorizations that allow state agencies to
purchase or create liabilities for goods and services.

The state's accounting system provides the State Controller's Office with a
centrally-controlled record system to fully account for each budgeted
appropriation, including its unexpended balance, and for all cash receipts and
disbursements. The accounting system is decentralized, meaning the detail of
each control account is maintained by each state agency. During the fiscal year,
the control accounts and the agency accounts are maintained and reconciled on a
cash basis. At the end of the fiscal year, each agency prepares annual accrual
reports for receivables and payables. The State Controller's Office combines
its control account balances with the agency accrual reports to prepare
California's Budgetary/Legal Basis Annual Report. State laws and regulations
that, in some cases, do not fully agree with Generally Accepted Accounting
Principals, govern the methods of accounting for expenditures and revenues in
these reports.

Cash Management. In September 2014, the state issued $2.8 billion of
revenue anticipation notes to fund, in part, the state's cash management needs
of the 2014-15 fiscal year by supporting the cash flow needs of the California
General Fund.

Risk Management. The primary government has elected, with a few
exceptions, to be self-insured against loss or liability. The primary
government generally does not maintain reserves. Losses are covered by
appropriations from each fund responsible for payment in the year in which the
payment occurs. The state has been permissively self-insured and barring any
extraordinary catastrophic event, the potential amount of loss faced by the
state is not considered material in relation to the primary government's
financial position. Generally, the exceptions are when a bond resolution or a
contract requires the primary government to purchase commercial insurance for
coverage against property loss or liability. There have been no significant
reductions in insurance coverage in 2014 from the prior year. In addition, no
insurance settlement from 2011 to 2014 has exceeded insurance coverage. All
claim payments are on a "pay-as-you-go" basis, with workers' compensation
benefits for self-insured agencies initially being paid by California's "State
Compensation Insurance Fund."

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The discounted liability for unpaid self-insurance claims of the primary
government was estimated to be $3.7 billion as of the end of the 2013-14 fiscal
year. This estimate was based primarily on actuarial reviews of the state's
workers' compensation program and included indemnity payments to claimants, as
well as all other costs of providing workers' compensation benefits, such as
medical care and rehabilitation. The estimate also included the liability for
unpaid services fees, industrial disability leave benefits, and incurred-but-
not-reported amounts. The estimated total liability of approximately $5.2
billion was discounted to $3.7 billion using a 3.5% interest rate. Of the
total, $410 million was reported as a current liability, of which $273 million
was included in the California General Fund, $134 million in the special revenue
funds, and $3 million in the internal service funds. The remaining $3.3 billion
was reported as other noncurrent liabilities in the government-wide statement of
net position.

The University of California, a discretely presented component unit, is
self-insured or insured through a wholly-owned captive insurance company for
medical malpractice, workers' compensation, employee health care, and general
liability claims. These risks are subject to various claim and aggregate
limits, with excess liability coverage provided by an independent insurer.
Liabilities are recorded when it is probable that a loss has occurred and the
amount of the loss can be reasonably estimated. These losses include an
estimate for claims that have been incurred but not reported. The estimated
liabilities are based on an independent actuarial determination of the
anticipated future payments, discounted at rates ranging from 2% to 5%.

Ratings. As of March 31, 2015, all outstanding general obligation bonds of
the state of California were rated "A+" by Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., and "Aa3" by Moody's Investors
Service, Inc. Any explanation concerning the significance of such ratings must
be obtained from the rating agencies. There is no assurance that any ratings
will continue for any period of time or that they will not be revised or
withdrawn.

Local Issuances. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the state of California, and there is
no obligation on the part of the state to make payment on such local obligations
in the event of default.

The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of California bonds and does
not purport to be a complete or exhaustive description of all adverse conditions
to which the issuers of such obligations are subject. Additionally, many
factors including national economic, social and environmental policies and
conditions, which are not within the control of the issuers of such bonds, could
affect or could have an adverse impact on the financial condition of the state
and various agencies and political subdivisions thereof. The sponsor is unable
to predict whether or to what extent such factors or other factors may affect
the issuers of the bonds, the market value or marketability of such bonds or the
ability of the respective issuers of such bonds to pay interest on or principal
of such bonds.

NEW JERSEY. The information provided below is only a brief summary of the
complex factors affecting the financial situation in New Jersey and is derived
from sources that are generally available to investors and are believed to be
accurate. Except where otherwise

-46-

indicated, the information is based on New Jersey's 2013-14 fiscal year running
from July 1, 2013 to June 30, 2014. No independent verification has been made of
the accuracy or completeness of any of the following information. It is based in
part on information obtained from various state and local agencies in New Jersey
or contained in official statements for various New Jersey municipal
obligations.

Economic Outlook. In December 2014, the New Jersey unemployment rate fell
to 6.2%, down a full percentage point from the year before and marking five
straight years of annual private sector employment growth. The state's
unemployment rate had peaked in December 2009 when it stood at 9.7%.

Three New Jersey sectors improved at the end of 2014: real estate, autos,
and energy. There was annual growth in sales of multi-family homes and
commercial property. The U.S. Census reports that building permits in New
Jersey grew by 15.9% in 2014. In the whole of 2014, new car sales grew by 4.5%,
but the year finished with year-over-year December sales growing by 21.7%.
Energy prices had fallen and motor fuel prices fell rapidly in the last quarter
of 2014. Reduced expenses in this sector may lead to increased consumption in
others.

Revenues and Expenditures. During the 2013-14 fiscal year, state revenues,
including transfers, totaled $57.5 billion or an increase of $0.7 billion when
compared to the prior fiscal year. This increase in total revenues was
primarily attributable to an overall increase in general taxes, primarily the
state's gross income tax and sales and use tax resulting from a strengthening of
the economy. General taxes totaled $28.8 billion and accounted for 50.2% of
total state revenues for the 2013-14 fiscal year. The state's gross income tax
totaled $12.3 billion, the sales and use tax totaled $8.8 billion, and the
corporation business tax totaled $2.1 billion. The state's three major taxes
comprised 80.6% of the total general taxes that were collected during the 2013-
14 fiscal year. The state's economy showed a slight improvement, as indicated
by the $0.5 billion increase in general taxes when compared to the 2013-14
fiscal year.

Fiscal year 2013-14 expenses totaled $61.0 billion, for a decrease of
$118.4 million in comparison to the prior fiscal year. State spending decreased
by $1.6 billion in unemployment compensation and $358.0 million in
transportation programs, which were offset by increases of $1.2 billion in
physical and mental health and $565.9 million in community development and
environmental management.

New Jersey General Fund. The state's chief operating fund (the "New Jersey
General Fund") is the fund into which all state revenues, not otherwise
restricted by statute, are deposited. The New Jersey General Fund's ending
balance totaled $3.2 billion of which $301.4 million represented unassigned fund
balance for the 2013-14 fiscal year.

On a budgetary basis, general revenues of $30.0 billion were $5.6 billion
lower than the final budget for the 2013-14 fiscal year. The negative variance
was primarily the result of unearned federal and other grant revenues of $2.6
billion, declines of $1.5 billion in other revenues, and $1.4 billion in taxes.
Federal and other grant revenues are not earned unless there has been a grant
award and eligible grant expenses incurred. To the extent that federal and
grant

-47-

appropriations are made in anticipation of grant awards and the incurrence of
grant expenditures, grant revenues are budgeted.

Total expenditures were $3.8 billion lower than original appropriations as
set forth in the Fiscal Year 2014 Appropriations Act plus supplemental
appropriations enacted during the 2013-14 fiscal year. A major cause for under-
spending resulted from the overestimate of federal funds. This practice allows
the state to receive the maximum federal dollars that become available. During
2013-14 fiscal year, the state's appropriation of federal funds and other grants
exceeded expenditures by $2.0 billion. These excess appropriations are
available for use in future years. From a 2013-14 fiscal year program
perspective, under-spending transpired in physical and mental health ($1.2
billion); government direction, management, and control ($685.6 million);
community development and environmental management ($619.4 million); economic
planning, development, and security ($603.7 million); public safety and criminal
justice ($370.4 million); educational, cultural, and intellectual development
($139.2 million); special government services ($106.8 million); and
transportation programs ($104.2 million).

Net Assets. The primary government's assets and deferred outflows of
resources totaled $39.6 billion as of the end of the 2013-14 fiscal year, an
increase of $1.1 billion from the 2012-13 fiscal year. As of the end of the
2013-14 fiscal year, liabilities exceeded assets and deferred outflows of
resources by $49.6 billion. The state's unrestricted net position, which
represents net assets that have no statutory commitments and are available for
discretionary use, totaled a negative $62.2 billion. The negative balance is
primarily a result of underfunding the annual pension costs to the state's
retirement systems and the State's recognition of other postemployment benefits.
Financing activities that have contributed to the state's negative unrestricted
net position amount include liabilities from pension obligation bonds, the
funding of a portion of local elementary and high school construction, and the
securitization of a major portion of annual tobacco master settlement agreement
receipts with no corresponding assets.

Changes in Net Assets. The state's 2013-14 fiscal year net position
decreased by $4.3 billion. Approximately 49.8% of the state's total revenues
came from general taxes, while 28.0% was derived from operating grants. Charges
for services amounted to 19.3% of total revenues, while other items such as
capital grants, interest earnings, and miscellaneous revenues accounted for the
remainder. State expenses covered a range of services. The largest expense,
25.6%, was for educational, cultural, and intellectual development, which
includes approximately $194.7 million disbursed by the New Jersey Schools
Development Authority (a blended component unit) to help finance school
facilities construction. Physical and mental health amounted to 19.3% of total
expenses, while government direction, management and control amounted to 18.8%.
Other major expenditures focused on economic planning, development, and
security, public safety and criminal justice, and unemployment compensation.
During the 2013-14 fiscal year, governmental activity expenses exceeded program
revenues. This imbalance was mainly funded through $30.7 billion of general
revenues (mostly taxes and transfers). The remaining $5.0 billion resulted in a
decrease in net position. Offsetting the governmental net position decrease,
business-type activities reflected a net position increase of $694.1 million as
the "Unemployment Compensation Fund's" available resources exceeded the need to
pay claims.

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Debt Administration. The primary method for state financing of capital
projects is through the sale of the general obligation bonds of the state.
These bonds are backed by the full faith and credit of the state tax revenues
and certain other fees are pledged to meet the principal and interest payments
and if provided, redemption premium payments, if any, required to repay the
bonds. General obligation debt must be approved by voter referendum and is used
primarily to finance various environmental projects, transportation
infrastructure, and correctional and institutional construction. As of the end
of fiscal year 2013-14, New Jersey's outstanding long-term obligations for
governmental activities totaled $84.9 billion, a $5.2 billion increase over the
2012-13 fiscal year. Of the $5.2 billion increase, $4.8 billion was
attributable to increases in the net pension obligation and net other
postemployment benefits obligation. Long-term bonded obligations totaled $41.9
billion, while other long-term obligations totaled $43.0 billion. In addition,
as of end of the 2013-14 fiscal year the state had $7.1 billion of legislatively
authorized bonding capacity that has not yet been issued. The legislatively
authorized but unissued debt decreased by $1.2 billion from the prior fiscal
year.

Ratings. As of March 31, 2015 all outstanding general obligation bonds of
the State of New Jersey were rated "A" by Standard & Poor's Ratings Services and
"A1" by Moody's Investors Service, Inc. Any explanation concerning the
significance of such ratings must be obtained from the rating agencies. There
is no assurance that any ratings will continue for any period of time or that
they will not be revised or withdrawn.

Local Issuances. It should be noted that the creditworthiness of
obligations issued by local New Jersey issuers may be unrelated to the
creditworthiness of obligations issued by the State of New Jersey, and there is
no obligation on the part of the state to make payment on such local obligations
in the event of default.

The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of bonds and does not purport
to be a complete or exhaustive description of all adverse conditions to which
the issuers of such obligations are subject. Additionally, many factors
including national economic, social and environmental policies and conditions,
which are not within the control of the issuers of such bonds, could affect or
could have an adverse impact on the financial condition of the state and various
agencies and political subdivisions thereof. The sponsor is unable to predict
whether or to what extent such factors or other factors may affect the issuers
of the bonds, the market value or marketability of such bonds or the ability of
the respective issuers of such bonds to pay interest on or principal of such
bonds.

NEW YORK. The information provided below is only a brief summary of the
complex factors affecting the financial situation in New York and is derived
from sources that are generally available to investors and are believed to be
accurate. Except where otherwise indicated, the information is based on New
York's 2013-14 fiscal year running from April 1, 2013 to March 31, 2014. No
independent verification has been made of the accuracy or completeness of any of
the following information. It is based in part on information obtained from
various state and local agencies in New York or contained in official statements
for various New York municipal obligations.

-49-

Economic Condition and Outlook. By March 2014, unemployment rates in both
the nation (6.7%) and New York (6.9%) had fallen considerably, although the
rates remained higher than before the recession.

The securities industry is important to New York's economy. It provided
12% of all wages paid in New York and generated nearly 16% of its tax revenues
in the 2013-14 fiscal year. Although the broker/dealer profits of the member
firms of the New York Stock Exchange (the traditional measure of industry
profitability) declined by 30% to $16.7 billion in 2013 (partially due to high
litigation costs related to the financial crisis), profitability was still good
by historical standards. Despite years of profitability, the securities
industry in New York City continued to shed jobs as it adapted to new
conditions. As of March 2014, the industry was almost 14% smaller than before
the financial crisis. The Office of the New York State Comptroller estimated
that bonuses (including compensation deferred from prior years) for securities
industry employees who work in New York City increased by 15% during the 2013
bonus season.

General Government Results. An operating surplus of $172 million was
reported in the state's general fund ("New York General Fund") for the 2013-14
fiscal year. As a result, the New York General Fund had an accumulated fund
deficit of $567 million. The state completed its 2013-14 fiscal year with a
combined governmental funds operating surplus of $1.2 billion as compared to a
combined governmental funds operating surplus in the 2012-13 fiscal year of $136
million. The combined operating surplus of $1.2 billion for the 2013-14 fiscal
year included an operating surplus in the New York General Fund of $172 million,
in its "Federal Special Revenue Fund" of $6 million, in its "General Debt
Service Fund" of $377 million and $646 million in other governmental funds.

The state's financial position as of the end of 2013-14 fiscal year
included a fund balance of $7.7 billion comprised of $36.3 billion of assets
less liabilities of $25 billion and deferred inflows of resources of $3.6
billion. The governmental funds balance included a $567 million accumulated
deficit New York General Fund balance.

Overall Financial Position. In the 2013-14 fiscal year, the state reported
a net position of $27 billion, comprised of $70 billion in capital assets net of
related debt, and $5.1 billion in restricted net position, offset by an
unrestricted net position deficit of $48.1 billion.

Net position reported for governmental activities increased in the 2013-14
fiscal year by $2 billion, increasing to $27.8 billion from $25.8 billion in the
2012-13 fiscal year. Unrestricted net position for governmental activities, the
part of net position that can be used to finance day-to-day operations without
constraints established by debt covenants, enabling legislation, or other legal
requirements, had a deficit of $44.8 billion at the end of the 2013-14 fiscal
year.

The net position deficit in unrestricted governmental activities, which
increased by $387 million in the 2013-14 fiscal year , exists primarily because
New York has issued debt for purposes not resulting in a capital asset related
to New York State governmental activities and the obligation related to other
postemployment benefits ($12.6 billion). Such outstanding debt included:
securitizing the New York State's future tobacco settlement receipts ($2.1
billion); eliminating the need for seasonal borrowing by the New York Local
Government Assistance

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Corporation ($2.6 billion); and borrowing for local highway and bridge projects
($4.2 billion), local mass transit projects ($1.7 billion), and a wide variety
of grants and other expenditures not resulting in New York State capital assets
($13.3 billion). This deficit in unrestricted net position of governmental
activities can be expected to continue for as long as the State of New York
continues to have obligations outstanding for purposes other than the
acquisition of New York State governmental capital assets.

The net position for business-type activities increased by $407 million
(32.6%) to a deficit of $841 million for the 2013-14 fiscal year as compared to
a deficit of $1.2 billion in the 2012-13 fiscal year, as restated. The increase
in net position for business-type activities was caused primarily by employer
contributions and other revenue exceeding unemployment benefit payments for the
state's "Unemployment Insurance Fund" ($894 million), and City University of New
York Senior College operating revenues and state support exceeding operating
expenses ($61 million). This was partially offset by State University of New
York ("SUNY") expenses exceeding operating revenues and state support ($405
million), and lottery expenses, including education aid transfers, exceeding
revenues ($143 million).

New York General Fund Budgetary Highlights. New York General Fund receipts
exceeded disbursements by $625 million in the 2013-14 fiscal year . The New
York General Fund ended the 2013 fiscal year with a closing cash fund balance of
$2.2 billion, which consisted of $1.5 billion in the state's rainy day reserve
funds ($1.1 billion in the state's "Tax Stabilization Reserve Account" and $350
million in its "Rainy Day Reserve Account"), $87 million in its "Community
Projects Account," $21 million in its "Contingency Reserve Account," and $646
million in its "Refund Reserve Account." Total New York General Fund receipts
for the year (including transfers from other funds) were approximately $61.9
billion. Total New York General Fund disbursements for the year (including
transfers to other funds) were approximately $61.2 billion.

Net operating results for the 2013-14 fiscal year were $526 million more
favorable than anticipated in the state's original financial plan, with net
operating results in the original plan projected at $99 million. Both total
receipts and total disbursements exceeded original financial plan estimates;
however receipts exceeded original financial plan estimates by a greater amount,
with total receipts exceeding original financial plan estimates by $611 million
and total disbursements exceeding original financial plan estimates by $85
million.

Several factors contributed to higher than projected total receipts.
Actual base tax growth for the 2013-14 fiscal year finished at 6.3%, which was
higher than the original financial plan estimate of 4.6%. Higher overall tax
collections were primarily attributable to higher personal income tax
collections driven by stronger than expected growth in estimated payments,
higher estate tax collections due to both the volume and average value of
transactions, partly offset by lower than anticipated business tax receipts as a
result of weakness in 2013 liability payments associated with the insurance and
bank taxes. The variance in non-tax receipts primarily represents payments
resulting from financial and legal settlements reached between the state and
certain financial institutions, including a settlement with the Bank of Tokyo-
Mitsubishi UFJ relating to banking law violations, and a settlement with J.P.
Morgan for its violation of mortgage lending practices. These increased
receipts were partly offset by lower than projected

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abandoned property collections, and lower licensing and fee revenue. Higher
than projected total disbursements were primarily a result of higher transfers
to support debt service payments, including the early payment of certain 2014-15
fiscal year obligations. These higher transfers were partially offset by lower
disbursements for local assistance and state operations.

Net operating results for 2013-14 fiscal year were $432 million more
favorable than anticipated in the final financial plan, with net operating
results in the final financial plan projected at $193 million. Total receipts
were higher than the final financial plan estimates (by $214 million) while
total disbursements were lower than final financial plan estimates (by $218
million). Higher than projected total receipts mainly reflected higher tax
collections across all categories. Lower than projected total disbursements
mainly reflected lower spending for local assistance and state operations,
partly offset by higher transfers to support debt service and capital projects
costs.

Capital Assets. As of the end of the 2013-14 fiscal year, the State of New
York has $100.4 billion invested in a broad range of capital assets, including
equipment, buildings, construction in progress, land preparation, and
infrastructure, which primarily includes roads and bridges. This amount
represented a net increase (including additions and deductions) of $2.7 billion
over the previous year, with prior year amounts for business-type activities
being restated to reflect the implementation of accounting standards.

Debt Administration. There are a number of methods by which the New York
may incur debt. The state has obtained long-term financing in the form of
voter-approved general obligation debt (voter-approved debt) and other
obligations that are authorized by legislation but not approved by the voters
(non-voter-approved debt), including lease purchase and contractual obligations
where New York's legal obligation to make payments is subject to and paid from
annual appropriations made by the New York State legislature or from assignment
of revenue in the case of tobacco settlement revenue bonds, equipment and
building capital leases, and mortgage loan commitments, which represent $405
million as of the end of the 2012-13 fiscal year, do not require legislative or
voter approval. Other obligations include certain bonds issued through New York
public authorities, certificates of participation, and capital leases obtained
through vendors. New York administers its long-term financing needs as a single
portfolio of New York-supported debt that includes general obligation bonds and
other obligations of both its governmental activities and business-type
activities. Most of the debt reported under business-type activities, all of
which was issued for capital assets used in those activities, is supported by
payments from resources generated by New York's governmental activities-thus it
is not expected to be repaid from resources generated by business-type
activities.

At the end of the 2013-14 fiscal year, the state had $204 million in state-
supported (net) variable rate bonds outstanding and $2 billion in interest rate
exchange agreements, in which the state issues variable rate bonds and enters
into a swap agreement that effectively converts the rate to a fixed rate. At
the end of the fiscal 2013-14, variable rate bonds, net of those subject to the
fixed rate swaps, were equal to 0.4% of the state-supported debt portfolio.
Variable rate bonds that were converted to a synthetic fixed rate through swap
agreements of $2 billion were equal to 4% of the total state-supported debt
portfolio. At the end of the 2013-14 fiscal year, the state had $58.3 billion
in bonds, notes, and other financing agreements outstanding compared with $57.9

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billion in 2012, an increase of $406 million as shown below in the table, with
prior year amounts for business-type activities being restated to reflect the
implementation of accounting standards. In addition to the debt outlined above,
the state reported $440 million in governmental activities for collateralized
borrowings for which specific revenues have been pledged. During the 2013-14
fiscal year, the state issued $6.6 billion in bonds, of which $2.5 billion was
for refunding and $4.1 billion was for new borrowing.

The New York State Constitution, with exceptions for emergencies, limits
the amount of general obligation bonds that can be issued to that amount
approved by the voters for a single work or purpose in a general election. As
of the end of the 2013-14 fiscal year, New York had $908 million in authorized
but unissued bond capacity that can be used to issue bonds for specifically
approved purposes. New York may issue short-term debt without voter approval in
anticipation of the receipt of taxes and revenues or proceeds from duly
authorized but not issued general obligation bonds. The state finance law,
through the New York State Debt Reform Act of 2000 (the "New York Debt Reform
Act"), also imposes phased-in caps on the issuance of new New York-supported
debt and related debt service costs. The New York Debt Reform Act also limits
the use of debt to capital works and purposes, and establishes a maximum length
of term for repayment of 30 years. The New York Debt Reform Act applies to all
New York-supported debt. The New York Debt Reform Act does not apply to debt
issued prior to April 1, 2000 or to other obligations issued by public
authorities where New York is not the direct obligor.

Litigation. The State of New York is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance of routine
governmental operations. Such litigation includes, but is not limited to,
claims asserted against the state arising from alleged torts, alleged breaches
of contracts, condemnation proceedings, and other alleged violations of state
and federal laws.

Included in the state's outstanding litigation were a number of cases
challenging the legality or the adequacy of a variety of significant social
welfare programs, primarily involving the state's Medicaid and mental health
programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care that could
require substantial increased financing of the litigated programs in the future.
With respect to pending and threatened litigation in the 2013-14 fiscal year,
the state has reported, in the governmental activities, liabilities of $149
million, of which $37 million pertains to SUNY, for awarded and anticipated
unfavorable judgments. In addition, the state has been party to other claims
and litigation that its legal counsel has advised may result in possible adverse
court decisions with estimated potential losses of approximately $2 billion.

Ratings. As of March 31, 2015 all outstanding general obligation bonds of
the State of New York were rated "AA+" by Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc., and "Aa1" by Moody's Investors
Service, Inc. Any explanation concerning the significance of such ratings must
be obtained from the rating agencies. There is no assurance that any ratings
will continue for any period of time or that they will not be revised or
withdrawn.

Local Issuances. It should be noted that the creditworthiness of
obligations issued by local New York issuers may be unrelated to the
creditworthiness of obligations issued by the

-53-

State of New York, and there is no obligation on the part of the state to make
payment on such local obligations in the event of default.

ADDITIONAL DEPOSITS. Each trust agreement authorizes the sponsor to
increase the size of a trust and the number of units thereof by the deposit of
additional securities, or cash (including a letter of credit or the equivalent)
with instructions to purchase additional securities, in such trust and the
issuance of a corresponding number of additional units. In connection with
these deposits, existing and new investors may experience a dilution of their
investments and a reduction in their anticipated income because of fluctuations
in the prices of the securities between the time of the deposit and the purchase
of the securities and because the trust will pay the associated brokerage fees
and other acquisition costs.

ADMINISTRATION OF THE TRUST

DISTRIBUTIONS TO UNITHOLDERS BY REGULATED INVESTMENT COMPANIES MAKING
SEMIANNUAL/QUARTERLY DISTRIBUTIONS OR GRANTOR TRUSTS. The discussion in this
section applies to all trusts other than trusts that are "regulated investment
companies" for tax purposes that have monthly distribution dates. Income
received by a trust is credited by the trustee to the Income Account for the
trust. All other receipts are credited by the trustee to a separate Capital
Account for the trust. The trustee will normally distribute any income received
by a trust on each distribution date or shortly thereafter to unitholders of
record on the preceding record date. A trust will also generally make required
distributions or distributions to avoid imposition of tax at the end of each
year if it has elected to be taxed as a "regulated investment company" for
federal tax purposes. Unitholders will receive an amount substantially equal to
their pro rata share of the available balance of the Income Account of the
related trust. All distributions will be net of applicable expenses. There is
no assurance that any actual distributions will be made since all dividends
received may be used to pay expenses. In addition, excess amounts from the
Capital Account of a trust, if any, will be distributed on each distribution
date or shortly thereafter to unitholders of record on the preceding record
date, provided that the trustee is not required to make a distribution from the
Capital Account unless the amount available for distribution is at least $1.00
per 100 units. Proceeds received from the disposition of any of the securities
after a record date and prior to the following distribution date will be held in
the Capital Account and not distributed until the next distribution date
applicable to the Capital Account. Notwithstanding the foregoing, if a trust is
designed to be a grantor trust for tax purposes, the trustee is not required to
make a distribution from the Income Account or the Capital Account

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unless the total cash held for distribution equals at least 0.1% of the trust's
net asset value as determined under the trust agreement, provided that the
trustee is required to distribute the balance of the Income Account and Capital
Account on the distribution date occurring in December of each year. The
trustee is not required to pay interest on funds held in the Capital or Income
Accounts (but may itself earn interest thereon and therefore benefits from the
use of such funds).

The distribution to the unitholders of a trust as of each record date will
be made on the following distribution date or shortly thereafter and shall
consist of an amount substantially equal to the unitholders' pro rata share of
the available balance of the Income Account of the trust after deducting
estimated expenses. Because dividends are not received by a trust at a constant
rate throughout the year, such distributions to unitholders are expected to
fluctuate.

DISTRIBUTIONS TO UNITHOLDERS BY REGULATED INVESTMENT COMPANIES MAKING
MONTHLY DISTRIBUTIONS. The discussion in this section applies if your trust is
a "regulated investment company" and that has monthly distribution dates.
Income received by a trust is credited by the trustee to the Income Account for
the trust. All other receipts are credited by the trustee to a separate Capital
Account for the trust. The trustee will normally distribute income received by
a trust on each distribution date or shortly thereafter to unitholders of record
on the preceding record date. The trust generally pays distributions from its
Income Account (pro-rated on an annual basis) along with any excess balance from
the Capital Account on each monthly distribution date to unitholders of record
on the preceding record date as described in greater detail below. All
distributions will be net of applicable expenses. The amount of your
distributions will vary from time to time as companies change their dividends or
trust expenses change. The trust will also generally make required
distributions or distributions to avoid imposition of tax at the end of each
year if it has elected to be taxed as a "regulated investment company" for
federal tax purposes. Excess amounts from the Capital Account of a trust, if
any, will be distributed at least annually to the unitholders then of record.
Proceeds received from the disposition of any of the securities after a record
date and prior to the following distribution date will be held in the Capital
Account and not distributed until the next distribution date applicable to the
Capital Account. The trustee shall not be required to make a distribution from
the Capital Account unless the cash balance on deposit therein available for
distribution shall be sufficient to distribute at least $1.00 per 100 units.
The trustee is not required to pay interest on funds held in the Capital or
Income Accounts (but may itself earn interest thereon and therefore benefits
from the use of such funds).

The distribution to the unitholders as of each record date will be made on
the following distribution date or shortly thereafter. When the trust receives
dividends from a portfolio security, the trustee credits the dividends to the
trust's accounts. In an effort to make relatively regular income distributions,
the trust's distribution from the Income Account on each distribution date to
each unitholder is equal to such unitholder's pro rata share of the cash balance
in the Income Account calculated on the basis of a fraction (the numerator of
which is one and the denominator of which is the total number of distribution
dates per year) of the estimated annual income to the trust for the ensuing
twelve months computed as of the close of business on the record date
immediately preceding such distribution after deduction of (1) the fees and
expenses then deductible pursuant to the trust agreement and (2) the trustee's
estimate of

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other expenses properly chargeable to the Income Account pursuant to the trust
agreement which have accrued as of such record date or are otherwise properly
attributable to the period to which such distribution relates. Because the
trust does not receive dividends from the portfolio securities at a constant
rate throughout the year, the trust's income distributions to unitholders may be
more or less than the amount credited to the trust accounts as of the record
date. In the event that the amount on deposit in the Income Account is not
sufficient for the payment of the amount intended to be distributed to
unitholders on the basis of the computation described above, the trustee is
authorized to advance its own funds and cause to be deposited in and credited to
the Income Account such amounts as may be required to permit payment of the
related distribution to be made as described above. In such an event, the
trustee shall be entitled to be reimbursed, without interest, out of income
payments received by the trust subsequent to the date of such advance. Any such
advance shall be reflected in the Income Account until repaid. A person will
become the owner of units, and thereby a unitholder of record, on the date of
settlement provided payment has been received.

GENERAL. Persons who purchase units will commence receiving distributions
only after such person becomes a record owner. A person will become the owner
of units, and thereby a unitholder of record, on the date of settlement provided
payment has been received. Notification to the trustee of the transfer of units
is the responsibility of the purchaser, but in the normal course of business the
selling broker-dealer provides such notice.

The trustee will periodically deduct from the Income Account of a trust
and, to the extent funds are not sufficient therein, from the Capital Account of
the trust amounts necessary to pay the expenses of the trust. The trustee also
may withdraw from said accounts such amounts, if any, as it deems necessary to
establish a reserve for any governmental charges payable out of a trust.
Amounts so withdrawn shall not be considered a part of the related trust's
assets until such time as the trustee shall return all or any part of such
amounts to the appropriate accounts. In addition, the trustee may withdraw from
the Income and Capital Accounts of a trust such amounts as may be necessary to
cover redemptions of units.

STATEMENTS TO UNITHOLDERS. With each distribution, the trustee will
furnish to each unitholder a statement of the amount of income and the amount of
other receipts, if any, which are being distributed, expressed in each case as a
dollar amount per unit.

The accounts of a trust are required to be audited annually, at the related
trust's expense, by independent public accountants designated by the sponsor,
unless the sponsor determines that such an audit is not required. The
accountants' report for any audit will be furnished by the trustee to any
unitholder upon written request. Within a reasonable period of time after the
end of each calendar year, the trustee shall furnish to each person who at any
time during the calendar year was a unitholder of a trust a statement, covering
the calendar year, setting forth for the trust:

(A) As to the Income Account:

(1) the amount of income received on the securities (including income
received as a portion of the proceeds of any disposition of
securities);

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(2) the amounts paid for purchases of replacement securities or for
purchases of securities otherwise pursuant to the applicable
trust agreement, if any, and for redemptions;

(3) the deductions, if any, from the Income Account for payment into
the Reserve Account;

(4) the deductions for applicable taxes and fees and expenses of the
trustee, the sponsor, the evaluator, the supervisor, counsel,
auditors and any other expenses paid by the trust;

(5) the amounts reserved for purchases of contract securities, for
purchases made pursuant to replace failed contract securities or
for purchases of securities otherwise pursuant to the applicable
trust agreement, if any;

(6) the deductions for payment of the sponsor's expenses of
maintaining the registration of the trust units, if any;

(7) the aggregate distributions to unitholders; and

(8) the balance remaining after such deductions and distributions,
expressed both as a total dollar amount and as a dollar amount
per unit outstanding on the last business day of such calendar
year;

(B) As to the Capital Account:

(1) the net proceeds received due to sale, maturity, redemption,
liquidation or disposition of any of the securities, excluding
any portion thereof credited to the Income Account;

(2) the amount paid for purchases of replacement securities or for
purchases of securities otherwise pursuant to the applicable
trust agreement, if any, and for redemptions;

(3) the deductions, if any, from the Capital Account for payments
into the Reserve Account;

(4) the deductions for payment of applicable taxes and fees and
expenses of the trustee, the sponsor, the evaluator, the
supervisor, counsel, auditors and any other expenses paid by the
trust;

(5) the deductions for payment of the sponsor's expenses of
organizing the trust;

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(6) the amounts reserved for purchases of contract securities, for
purchases made pursuant to replace failed contract securities or
for purchases of securities otherwise pursuant to the trust
agreement, if any;

(7) the deductions for payment of deferred sales charge and creation
and development fee, if any;

(8) the deductions for payment of the sponsor's expenses of
maintaining the registration of the trust units, if any;

(9) the aggregate distributions to unitholders; and

(10) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount
per unit outstanding on the last business day of such calendar
year; and

(1) a list of the securities held as of the last business day of such
calendar year and a list which identifies all securities sold or
other securities acquired during such calendar year, if any;

(2) the number of units outstanding on the last business day of such
calendar year;

(3) the unit value based on the last trust evaluation of such trust
made during such calendar year; and

(4) the amounts actually distributed during such calendar year from
the Income and Capital Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts per unit
outstanding on the record dates for such distributions.

RIGHTS OF UNITHOLDERS. The death or incapacity of any unitholder will not
operate to terminate a trust nor entitle legal representatives or heirs to claim
an accounting or to bring any action or proceeding in any court for partition or
winding up of the trust, nor otherwise affect the rights, obligations and
liabilities of the parties to the applicable trust agreement. By purchasing
units of a trust, each unitholder expressly waives any right he may have under
any rule of law, or the provisions of any statute, or otherwise, to require the
trustee at any time to account, in any manner other than as expressly provided
in the applicable trust agreement, in respect of the portfolio securities or
moneys from time to time received, held and applied by the trustee under the
trust agreement. No unitholder shall have the right to control the operation
and management of a trust in any manner, except to vote with respect to the
amendment of the related trust agreement or termination of the trust.

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AMENDMENT. Each trust agreement may be amended from time to time by the
sponsor and trustee or their respective successors, without the consent of any
of the unitholders, (i) to cure any ambiguity or to correct or supplement any
provision which may be defective or inconsistent with any other provision
contained in the trust agreement, (ii) to change provision required by the
Security Exchange Commission or any successor governmental agency and (iii) to
make such other provision in regard to matters or questions arising under the
trust agreement as shall not materially adversely affect the interests of the
unitholders or (iv) to make such amendments as may be necessary (a) for a trust
to continue to qualify as a "regulated investment company" (a "RIC") for federal
income tax purposes if the trust has elected to be taxed as such under the
United States Internal Revenue Code of 1986, or (b) to prevent a trust from
being deemed an association taxable as a corporation for federal income tax
purposes if the trust has not elected to be taxed as a RIC under the United
States Internal Revenue Code of 1986. A trust agreement may not be amended,
however, without the consent of all unitholders of the related trust then
outstanding, so as (1) to permit, except in accordance with the terms and
conditions thereof, the acquisition hereunder of any securities other than those
specified in the schedules to the trust agreement or (2) to reduce the
percentage of units the holders of which are required to consent to certain of
such amendments. A trust agreement may not be amended so as to reduce the
interest in the trust represented by units without the consent of all affected
unitholders.

Except for the amendments, changes or modifications described above,
neither the sponsor nor the trustee may consent to any other amendment, change
or modification of a trust agreement without the giving of notice and the
obtaining of the approval or consent of unitholders representing at least 66
2/3% of the units then outstanding of the affected trust. No amendment may
reduce the aggregate percentage of units the holders of which are required to
consent to any amendment, change or modification of a trust agreement without
the consent of the unitholders of all of the units then outstanding of the
affected trust and in no event may any amendment be made which would (1) alter
the rights to the unitholders of the trust as against each other, (2) provide
the trustee with the power to engage in business or investment activities other
than as specifically provided in the trust agreement, (3) adversely affect the
tax status of the related trust for federal income tax purposes or result in the
units being deemed to be sold or exchanged for federal income tax purposes or
(4) unless a trust has elected to be taxed as a regulated investment company for
federal income tax purposes, result in a variation of the investment of
unitholders in the trust. The trustee will notify unitholders of a trust of the
substance of any such amendment to the trust agreement for such trust.

TERMINATION. Each trust agreement provides that the related trust shall
terminate upon the maturity, liquidation, redemption, sale or other disposition
of the last of the securities held in the trust but in no event is it to
continue beyond the trust's mandatory termination date. If the value of a trust
shall be less than 40% of the total value of securities deposited in the trust
during the initial offering period, the trustee may, in its discretion, and
shall, when so directed by the sponsor, terminate the trust. A trust may be
terminated at any time by the holders of units representing 66 2/3% of the units
thereof then outstanding. A trust will be liquidated by the trustee in the
event that a sufficient number of units of the trust not yet sold are tendered
for redemption by the sponsor, so that the net worth of the trust would be
reduced to less than 40% of the value of the securities at the time they were
deposited in the trust. If a trust is liquidated

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because of the redemption of unsold units by the sponsor, the sponsor will
refund to each purchaser of units of the trust the entire sales charge paid by
such purchaser.

Beginning nine business days prior to, but no later than, the scheduled
termination date described in the prospectus for a trust, the trustee may begin
to sell all of the remaining underlying securities on behalf of unitholders in
connection with the termination of the trust. The sponsor may assist the
trustee in these sales and receive compensation to the extent permitted by
applicable law. The sale proceeds will be net of any incidental expenses
involved in the sales.

The sponsor will generally instruct the trustee to sell the securities as
quickly as practicable during the termination proceedings without in its
judgment materially adversely affecting the market price of the securities, but
it is expected that all of the securities will in any event be disposed of
within a reasonable time after a trust's termination. The sponsor does not
anticipate that the period will be longer than one month, and it could be as
short as one day, depending on the liquidity of the securities being sold. The
liquidity of any security depends on the daily trading volume of the security
and the amount that the sponsor has available for sale on any particular day.
Of course, no assurances can be given that the market value of the securities
will not be adversely affected during the termination proceedings.

Not less than thirty days prior to termination of a trust, the trustee will
notify unitholders thereof of the termination and provide a form allowing
qualifying unitholders to elect an in kind distribution, if applicable. If
applicable, a unitholder who owns the minimum number of units described in the
prospectus may request an in kind distribution from the trustee instead of cash.
The trustee will make an in kind distribution through the distribution of each
of the securities of a trust in book entry form to the account of the
unitholder's bank or broker-dealer at Depository Trust Company. The unitholder
will be entitled to receive whole shares of each of the securities comprising
the portfolio of the related trust and cash from the Capital Account equal to
the fractional shares to which the unitholder is entitled. The trustee may
adjust the number of shares of any security included in a unitholder's in kind
distribution to facilitate the distribution of whole shares. The sponsor may
terminate the in kind distribution option at any time upon sixty days notice to
the unitholders. Special federal income tax consequences will result if a
unitholder requests an in kind distribution.

Within a reasonable period after termination, the trustee will sell any
securities remaining in a trust not segregated for in kind distribution. After
paying all expenses and charges incurred by a trust, the trustee will distribute
to unitholders thereof their pro rata share of the balances remaining in the
Income and Capital Accounts of the trust.

The sponsor may, but is not obligated to, offer for sale units of a
subsequent series of a trust at approximately the time of the mandatory
termination date. If the sponsor does offer such units for sale, unitholders
may be given the opportunity to purchase such units at a public offering price
that includes a reduced sales charge. There is, however, no assurance that
units of any new series of a trust will be offered for sale at that time, or if
offered, that there will be sufficient units available for sale to meet the
requests of any or all unitholders.

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THE TRUSTEE. The trustee is The Bank of New York Mellon, a trust company
organized under the laws of New York. The Bank of New York Mellon has its
principal unit investment trust division offices at 2 Hanson Place, 12th Floor,
Brooklyn, New York 11217, (800) 848-6468. The Bank of New York Mellon is subject
to supervision and examination by the Superintendent of Banks of the State of
New York and the Board of Governors of the Federal Reserve System, and its
deposits are insured by the Federal Deposit Insurance Corporation to the extent
permitted by law.

Under each trust agreement, the trustee or any successor trustee may resign
and be discharged of the trust created by the trust agreement by executing an
instrument in writing and filing the same with the sponsor. If the trustee
merges or is consolidated with another entity, the resulting entity shall be the
successor trustee without the execution or filing of any paper instrument or
further act.

The trustee or successor trustee must mail a copy of the notice of
resignation to all unitholders then of record, not less than sixty days before
the date specified in such notice when such resignation is to take effect. The
sponsor upon receiving notice of such resignation is obligated to appoint a
successor trustee promptly. If, upon such resignation, no successor trustee has
been appointed and has accepted the appointment within thirty days after
notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. In case at any time the
trustee shall not meet the requirements set forth in the trust agreement, or
shall become incapable of acting, or if a court having jurisdiction in the
premises shall enter a decree or order for relief in respect of the trustee in
an involuntary case, or the trustee shall commence a voluntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or any receiver, liquidator, assignee, custodian, trustee, sequestrator
(or similar official) for the trustee or for any substantial part of its
property shall be appointed, or the trustee shall generally fail to pay its
debts as they become due, or shall fail to meet such written standards for the
trustee's performance as shall be established from time to time by the sponsor,
or if the sponsor determines in good faith that there has occurred either (1) a
material deterioration in the creditworthiness of the trustee or (2) one or more
grossly negligent acts on the part of the trustee with respect to a trust, the
sponsor, upon sixty days' prior written notice, may remove the trustee and
appoint a successor trustee by written instrument, in duplicate, one copy of
which shall be delivered to the trustee so removed and one copy to the successor
trustee. Notice of such removal and appointment shall be mailed to each
unitholder by the sponsor. Upon execution of a written acceptance of such
appointment by such successor trustee, all the rights, powers, duties and
obligations of the original trustee shall vest in the successor. The trustee
must be a corporation organized under the laws of the United States, or any
state thereof, be authorized under such laws to exercise trust powers and have
at all times an aggregate capital, surplus and undivided profits of not less
than $5,000,000.

THE SPONSOR. The sponsor of each trust is Advisors Asset Management, Inc.
The sponsor is a broker-dealer specializing in providing services to broker-
dealers, registered representatives, investment advisers and other financial
professionals. The sponsor's headquarters are located at 18925 Base Camp Road,
Monument, Colorado 80132. You can contact the Advisors Asset Management unit
investment trust division at 8100 East 22nd Street North, Building 800, Suite
102, Wichita, Kansas 67226 or by using the contacts listed on the

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back cover of the prospectus. The sponsor is a registered broker-dealer and
investment adviser and a member of the Financial Industry Authority, Inc.
(FINRA) and the Securities Investor Protection Corporation (SIPC), and a
registrant of the Municipal Securities Rulemaking Board (MSRB).

The sponsor may resign by delivering written notice to the trustee. If at
any time the sponsor shall fail to perform any of its duties under the trust
agreement or shall become incapable of acting or shall be adjudged a bankrupt or
insolvent or shall have its affairs taken over by public authorities, then the
trustee may (a) appoint a successor sponsor at rates of compensation deemed by
the trustee to be reasonable and not exceeding such reasonable amounts as may be
prescribed by the Securities and Exchange Commission, (b) terminate the trust
agreement and liquidate any trust as provided therein, or (c) continue to act as
trustee without terminating the trust agreement. Notice of any resignation or
appointment of a successor sponsor will be delivered by the trustee to each
unitholder.

THE EVALUATOR AND SUPERVISOR. Advisors Asset Management, Inc., the
sponsor, also serves as evaluator and supervisor. The evaluator and supervisor
may resign or be removed by the sponsor and trustee in which event the sponsor
or trustee is to use its best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon acceptance of appointment by
the successor evaluator. If upon resignation of the evaluator no successor has
accepted appointment within thirty days after notice of resignation, the
evaluator may apply to a court of competent jurisdiction for the appointment of
a successor. Notice of such resignation or removal and appointment shall be
delivered by the trustee to each unitholder.

LIMITATIONS ON LIABILITY. The sponsor, evaluator, and supervisor are
liable for the performance of their obligations arising from their
responsibilities under the trust agreement but will be under no liability to any
trust or unitholders for taking any action or refraining from any action in good
faith pursuant to the trust agreement or for errors in judgment, or for
depreciation or loss incurred by reason of the purchase or sale of securities,
provided, however, that such parties will not be protected against any liability
to which they would otherwise be subjected by reason of their own willful
misfeasance, bad faith or gross negligence in the performance of their duties or
its reckless disregard for their duties under the trust agreement. Each trust
will indemnify, defend and hold harmless each of the sponsor, supervisor and
evaluator from and against any loss, liability or expense incurred in acting in
such capacity (including the cost and expenses of the defense against such loss,
liability or expense) other than by reason of willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the applicable trust agreement.
Such parties are not under any obligation to appear in, prosecute or defend any
legal action which in their opinion may involve them in any expense or
liability. The trustee will be indemnified by each trust and held harmless
against any loss or liability accruing to it without gross negligence, bad faith
or willful misconduct on its part, arising out of or in connection with the
acceptance or administration of the trust, including the costs and expenses
(including counsel fees) of defending itself against any claim of liability in
the premises.

The trust agreement provides that the trustee shall be under no liability
for any action taken in good faith in reliance upon prima facie properly
executed documents or for the

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disposition of moneys, securities or certificates except by reason of its own
gross negligence, bad faith or willful misconduct, nor shall the trustee be
liable or responsible in any way for depreciation or loss incurred by reason of
the sale by the trustee of any securities. In the event that the sponsor shall
fail to act, the trustee may act and shall not be liable for any such action
taken by it in good faith. The trustee shall not be personally liable for any
taxes or other governmental charges imposed upon or in respect of the securities
or upon the interest thereof. In addition, the trust agreement contains other
customary provisions limiting the liability of the trustee.

EXPENSES OF THE TRUST. The sponsor may receive a fee from your trust for
creating and developing the trust, including determining the trust's objectives,
policies, composition and size, selecting service providers and information
services and for providing other similar administrative and ministerial
functions. The amount of this "creation and development fee" is set forth in the
prospectus. The trustee will deduct this amount from your trust's assets as of
the close of the initial offering period. No portion of this fee is applied to
the payment of distribution expenses or as compensation for sales efforts. This
fee will not be deducted from proceeds received upon a repurchase, redemption or
exchange of units before the close of the initial public offering period.

The trustee receives for its services that fee set forth in the prospectus.
The trustee's fee which is calculated and paid monthly is based on the total
number of units of the related trust outstanding as of January 1 for any annual
period, except during the initial offering period the fee will be based on the
units outstanding at the end of each month. The trustee benefits to the extent
there are funds for future distributions, payment of expenses and redemptions in
the Capital and Income Accounts since these Accounts are non-interest bearing
and the amounts earned by the trustee are retained by the trustee. Part of the
trustee's compensation for its services to a trust is expected to result from
the use of these funds.

The supervisor will charge a trust a surveillance fee for services
performed for the trust in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation received from other unit investment trusts for which the sponsor
both acts as sponsor and provides portfolio surveillance, exceed the aggregate
cost to the sponsor of providing such services. Such fee shall be based on the
total number of units of the related trust outstanding as of January 1 for any
annual period, except during the initial offering period the fee will be based
on the units outstanding at the end of each month.

For evaluation of the securities in a trust, the evaluator shall receive an
evaluation fee in an amount not to exceed that amount set forth in the
prospectus but in no event will such compensation, when combined with all
compensation from other unit investment trusts for which the sponsor acts as
sponsor and provides evaluation services, exceed the aggregate cost of providing
such services. Such fee shall be based on the total number of units of the
related trust outstanding as of January 1 for any annual period, except during
the initial offering period the fee will be based on the units outstanding at
the end of each month.

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For providing bookkeeping and administrative services to a trust, the
sponsor shall receive an administration fee in an amount not to exceed that
amount set forth in the prospectus but in no event will such compensation, when
combined with all compensation from other unit investment trusts for which the
sponsor acts as sponsor and provides bookkeeping and administrative services,
exceed the aggregate cost of providing such services. Such fee shall be based
on the total number of units of the related trust outstanding as of January 1
for any annual period, except during the initial offering period the fee will be
based on the units outstanding at the end of each month.

The trustee's fee, sponsor's fee for providing bookkeeping and
administrative services to a trust, supervisor's fee and evaluator's fee are
deducted from the Income Account of the related trust to the extent funds are
available and then from the Capital Account. Each such fee may be increased
without approval of unitholders by amounts not exceeding a proportionate
increase in the Consumer Price Index or any equivalent index substituted
therefor.

The following additional charges are or may be incurred by a trust in
addition to any other fees, expenses or charges described in the prospectus:
(a) fees for the trustee's extraordinary services; (b) expenses of the trustee
(including legal and auditing expenses and reimbursement of the cost of advances
to the trust for payment of expenses and distributions, but not including any
fees and expenses charged by an agent for custody and safeguarding of
securities) and of counsel, if any; (c) various governmental charges;
(d) expenses and costs of any action taken by the trustee to protect the trust
or the rights and interests of the unitholders; (e) indemnification of the
trustee for any loss or liability accruing to it without gross negligence, bad
faith or willful misconduct on its part arising out of or in connection with the
acceptance or administration of the trust; (f) indemnification of the sponsor
for any loss, liability or expense incurred in acting in that capacity other
than by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or its reckless disregard of its obligations and
duties under the trust agreement; (g) indemnification of the supervisor for any
loss, liability or expense incurred in acting as supervisor of the trust other
than by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties under the trust agreement; (h) indemnification of the
evaluator for any loss, liability or expense incurred in acting as evaluator of
the trust other than by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under the trust agreement; (i)
expenditures incurred in contacting unitholders upon termination of the trust;
and (j) license fees for the right to use trademarks and trade names,
intellectual property rights or for the use of databases and research owned by
third party licensors. The sponsor is authorized to obtain from Mutual Fund
Quotation Service (or similar service operated by The Nasdaq Stock Market, Inc.
or its successor) a unit investment trust ticker symbol for each trust and to
contract for the dissemination of the unit prices through that service. A trust
will bear any cost or expense incurred in connection with the obtaining of the
ticker symbol and the dissemination of unit prices. A trust may pay the costs
of updating its registration statement each year. All fees and expenses are
payable out of a trust and, when owing to the trustee, are secured by a lien on
the trust. If the balances in the Income and Capital Accounts are insufficient
to provide for amounts payable by the trust, the trustee has the power to sell
securities to pay such amounts. These sales may result in capital gains or
losses to unitholders.

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Each trust will pay the costs of organizing the trust. These costs may
include, but are not limited to, the cost of the initial preparation and
typesetting of the registration statement, prospectuses (including preliminary
prospectuses), the trust agreement and other documents relating to the
applicable trust, Securities and Exchange Commission and state blue sky
registration fees, the costs of the initial valuation of the portfolio and audit
of a trust, the costs of a portfolio consultant, if any, one-time license fees,
if any, the initial fees and expenses of the trustee, and legal and other
out-of-pocket expenses related thereto but not including the expenses incurred
in the printing of prospectuses (including preliminary prospectuses), expenses
incurred in the preparation and printing of brochures and other advertising
materials and any other selling expenses. A trust will sell securities to
reimburse the sponsor for these costs at the end of the initial offering period
or after six months, if earlier. The value of the units will decline when a
trust pays these costs.

PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. When a trust sells
securities, the composition and diversity of the securities in the trust may be
altered. In order to obtain the best price for a trust, it may be necessary for
the sponsor to specify minimum amounts in which blocks of securities are to be
sold. In effecting purchases and sales of a trust's portfolio securities, the
sponsor may direct that orders be placed with and brokerage commissions be paid
to brokers, including the sponsor or brokers which may be affiliated with the
trust, the sponsor, the trustee or dealers participating in the offering of
units.

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CONTENTS OF REGISTRATION STATEMENT

This Registration Statement comprises the following:
The facing sheet
The prospectus and information supplement
The signatures
The consents of evaluator, independent auditors and legal counsel

The following exhibits:

1.1 Trust Agreement (to be filed by amendment).

1.1.1 Standard Terms and Conditions of Trust (to be filed by amendment).

1.2 Certificate of Amendment of Certificate of Incorporation and Certificate
of Merger of Advisors Asset Management, Inc. Reference is made to
Exhibit 1.2 to the Registration Statement on Form S-6 for Advisors
Disciplined Trust 647 (File No. 333-171079) as filed on January 6, 2011.

1.3 Bylaws of Advisors Asset Management, Inc. Reference is made to
Exhibit 1.3 to the Registration Statement on Form S-6 for Advisors
Disciplined Trust 647 (File No. 333-171079) as filed on January 6, 2011.

1.5 Form of Dealer Agreement. Reference is made to Exhibit 1.5 to the
Registration Statement on Form S-6 for Advisors Disciplined Trust 262
(File No. 333-150575) as filed of June 17, 2008.

2.2 Form of Code of Ethics. Reference is made to Exhibit 2.2 to the
Registration Statement on Form S-6 for Advisor's Disciplined Trust 73
(File No. 333-131959) as filed on March 16, 2006.

3.1 Opinion of counsel as to legality of securities being registered (to be
filed by amendment).

3.3 Opinion of counsel as to the Trustee and the Trust (to be filed by
amendment).

4.1 Consent of evaluator (to be filed by amendment).

4.2 Consent of independent auditors (to be filed by amendment).

6.1 Directors and Officers of Advisors Asset Management, Inc. Reference is
made to Exhibit 6.1 to the Registration Statement on Form S-6 for
Advisors Disciplined Trust 1539 (File No. 333-206376) as filed on
November 17, 2015.

7.1 Power of Attorney. Reference is made to Exhibit 7.1 to the Registration
Statement on Form S-6 for Advisors Disciplined Trust 1485
(File No. 333-203629) as filed on May 15, 2015.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Advisors Disciplined Trust 1685 has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Wichita and State of Kansas on April 29, 2016.

ADVISORS DISCIPLINED TRUST 1685

By ADVISORS ASSET MANAGEMENT, INC., DEPOSITOR

By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Senior Vice President

Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below on April 29, 2016 by the
following persons in the capacities indicated.

SIGNATURE TITLE

Scott I. Colyer Director of Advisors Asset )
Management, Inc. )

Lisa A. Colyer Director of Advisors Asset )
Management, Inc. )

James R. Costas Director of Advisors Asset )
Management, Inc. )

Christopher T. Genovese Director of Advisors Asset )
Management, Inc. )

Randy J. Pegg Director of Advisors Asset )
Management, Inc. )

R. Scott Roberg Director of Advisors Asset )
Management, Inc. )

S-2

Jack Simkin Director of Advisors Asset )
Management, Inc. )

Andrew Williams Director of Advisors Asset )
Management, Inc. )

Bart P. Daniel Director of Advisors Asset )
Management, Inc. )

By /s/ ALEX R MEITZNER
-----------------------------
Alex R. Meitzner
Attorney-in-Fact*

-------------------------------------------------------------------------------
*An executed copy of each of the related powers of attorney is filed
herewith or incorporated herein by reference as Exhibit 7.1.

S-3