PGZ Principal Real Estate Income Fund

INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES

General

          The Fund's investment objective is to seek to provide high current income, with capital appreciation as a secondary objective, by investing in commercial real estate-related securities. There can be no assurance that the Fund will achieve its investment objective.

          Under normal market conditions, the Fund will invest at least 80% of its total assets in commercial real estate-related securities, primarily consisting of CMBS and other U.S. and non-U.S. real estate-related securities (primarily REITs or REIT-like entities). Under normal circumstances, the Fund will invest between 40% and 70% of its total assets in CMBS and will invest between 30% and 60% in other real estate-related securities (including REITs). A CMBS is a type of mortgage-backed security that is secured by a loan (or loans) on one or more interests in commercial real estate property. REITs are pooled investment vehicles that invest in income producing real estate, real estate related loans, or other types of real estate interests. The Fund will invest in CMBS and other real estate-related securities at new issuance and in the secondary market which the Fund's investment subadviser, PrinREI, believes will generate attractive risk-adjusted current yields and the potential for capital appreciation for the Fund.

          The Fund will rely on PrinREI's experience in the U.S. CMBS and global real estate-related securities markets to invest in both investment grade and below investment grade CMBS as well as other U.S. and non-U.S. real estate-related securities (including REITs). PrinREI will select CMBS and other real estate-related securities which it believes are fairly or under-priced relative to current market valuations and which PrinREI believes will provide attractive risk-adjusted current yields and total returns to the Fund. PrinREI will employ its proprietary research, fundamental analysis, modeling and real estate underwriting staff to assess credit risk, determine fair value and perform bottom-up security selection. After initially investing the proceeds of the offering, technical influences on the market will be considered before transacting to determine the appropriate time to either acquire or sell investments in the manner that PrinREI believes will be most consistent with helping the Fund achieve its investment objective. Derivative instruments, including credit default swaps, interest rate swaps, caps, floors and collars, currency futures and forwards, rate forwards, and interest rate futures (and options thereon) may be used to reduce credit risk (in the case of credit default swaps), reduce interest rate risk (in the case of interest rate swaps, caps, floors, collars, rate forwards and interest rate futures), or help manage currency risk (in the case of currency forwards and futures), if PrinREI believes doing so would be beneficial to the Fund. As market conditions warrant, PrinREI may also cause the Fund to sell (i.e., write) credit default swaps in order to gain market exposure and add incremental yield to the Fund's portfolio. The Fund may also use futures on indexes or baskets of real estate-related securities to gain market exposure, if PrinREI believes doing so would be beneficial to the Fund. See "Risks — Risks Associated with Swap Transactions," "— Risks Associated with Futures Contracts," and "— Risks Associated with Forward Currency Contracts."

          The Fund currently expects to write call options with the purpose of generating realized gains or reducing the Fund's ownership of certain securities. It is not currently expected that the Fund will engage in this activity during its first year of operation. The Fund will only write call options on equity securities that the Fund holds in its portfolio (i.e., covered calls) and no more than 50% of the Fund's assets attributable to equity securities will be subject to covered call options at any given time. See "Risks — Risks Associated with Covered Calls."

          PrinREI will employ a dynamic asset allocation strategy in a manner consistent with the Fund's investment objective — in other words, the Fund's portfolio managers will work together to shift the Fund's overall allocation between CMBS and other real estate-related securities over time to provide an allocation that they believe will be most consistent with helping the Fund achieve its investment objective at any given time. PrinREI believes such a strategy will better position the Fund to seek to achieve the investment objective throughout a variety of potential market environments. Among other things,

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PrinREI believes the Fund may benefit from the recovery in commercial real estate markets by employing this investment strategy. Allocation decisions will rely upon PrinREI's top-down economic analysis and bottom-up assessment of relative value which is informed by individual investment sector experts. Longer-term strategic allocations will be determined based primarily upon PrinREI's macro outlook on the economy, real estate cycle and real estate fundamentals. In addition, shorter-term tactical allocation shifts will be considered based upon a continual assessment of market valuations, quantitative analysis, and technical indicators.

          As part of the Fund's investments in CMBS, PrinREI will consider investments in conduit or single borrower transactions (including REMICs), re-REMICs, CMBS interest-only certificates or commercial real estate collateralized debt obligations (CMBS CDOs). The Fund may purchase CMBS issued pursuant to registered offerings or offerings made in reliance on an exemption from registration under the Securities Act. The Fund will limit its investments in CMBS to issuers organized in the United States. The Fund does not impose limits concerning maturity or duration when investing in CMBS or other debt instruments.

          As part of the Fund's investments in other real estate-related securities, PrinREI will consider investments in securities of U.S. and non-U.S. companies principally engaged in the real estate industry. For purposes of the foregoing, the Fund considers a real estate-related security to be a security issued by an issuer that has at least 50% of its assets, income or profits derived from products or services related to the real estate industry. These companies include REITs and REIT-like entities, and companies with substantial real estate holdings such as paper, lumber, hotel and entertainment companies as well as those whose products and services relate to the real estate industry such as building supply manufacturers, mortgage lenders, and mortgage servicing companies. The Fund will invest in equity securities (common and preferred) and debt securities of small, medium, and large capitalization companies.

          REITs are pooled investment vehicles that invest in income producing real estate, real estate-related loans, or other types of real estate interests. REITs in the United States are corporations or business trusts that are permitted to eliminate corporate level federal income taxes by meeting certain requirements of the Code. REITs generally can be classified among the following three types: equity REITs, which invest the majority of their assets directly in real property and derive their income primarily from rents and capital gains or real estate appreciation; mortgage REITs, which invest the majority of their assets in commercial or residential real estate mortgage loans and derive their income primarily from interest payments; and hybrid REITs, which combine the characteristics of equity REITs and mortgage REITs.

          Some foreign countries have adopted REIT structures that are very similar to those in the United States. Similarities include pass through tax treatment and portfolio diversification. Other countries may have REIT structures that are significantly different than the United States or may not have adopted a REIT-like structure at all. The Fund may invest a significant percentage of its portfolio in REITs and REIT-like entities.

          The Fund has no limitation on the percentage of assets that are invested in any one country or denominated in any one currency. The Fund will typically have investments located in a number of different countries, including the United States and countries with emerging securities markets.

          Up to 20% of the Fund's total assets may be invested in other instruments, including whole commercial mortgage loans and subordinated real estate-related loans, as well as stocks and other equity investments, debt obligations and money market instruments, other investment companies, and derivative instruments that are not real estate-related securities or related to real estate-related securities. Under normal market conditions, the Fund will invest no more than 10% of its total assets in whole commercial mortgage loans and subordinated real estate-related loans. This 10% limitation will not apply to investments in whole commercial mortgage loans and subordinated real estate-related loans that carry a CUSIP or are sold pursuant to Rule 144A of the Securities Act.

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          The Fund's net asset value will vary and its distribution rate may vary and both may be affected by numerous factors, including changes in the market spread over a specified benchmark, market interest rates and performance of the broader equity markets. Fluctuations in net asset value may be magnified as a result of the Fund's use of leverage. An investment in the Fund may not be appropriate for all investors.

          In the event of exceptional market or economic conditions, the Fund may, as a temporary defensive measure, invest all or a substantial portion of its assets in cash, cash-equivalent securities or short-term debt securities. To the extent the Fund assumes a defensive position, it will not be pursuing its investment objective.

          The investment policy of the Fund of investing at least 80% of the Fund's total assets in commercial real estate-related securities is non-fundamental and may be changed by the Board of Trustees without shareholder approval. Common Shareholders will, however, receive at least 60 days prior notice of any change in this policy.

Investment Limitations

          Investments in a Single CMBS Bond.     No investment in an individual CMBS bond may comprise 10% or more of the Fund's total assets.

          Credit Threshold.     With respect to CMBS deals issued prior to 2009, the Fund may only invest in securities originally rated no lower than "A-" by S&P or Fitch, or "A3" by Moody's. In addition and also with respect to CMBS deals prior to 2009, it is expected that the Fund will invest no more than 20% of its total assets in CMBS securities originally rated lower than "AAA" by S&P or Fitch, or "Aaa" by Moody's. The Fund may invest in debt securities rated below investment grade (i.e., "junk bonds"). Under normal market conditions, it is expected that the Fund will invest no more than 20% of its total assets in debt securities rated CCC+/Caa1 or lower (or equivalent rating). The Fund considers a security's rating to be the second-highest rating assigned by an NRSRO, or the only rating, if rated by only one such NRSRO. "Investment grade" securities are securities rated within the four highest grades based on the foregoing (e.g., rated BBB- or higher by S&P or Fitch, or Baa3 or higher by Moody's, or equivalent ratings from another NRSRO), or unrated securities that PrinREI determines to be of comparable quality.

          Lower grade securities may be particularly susceptible to economic downturns. It is likely that an economic recession could severely disrupt the market for such securities and may have an adverse effect on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities.

          These credit threshold policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security if a rating agency or PrinREI downgrades its assessment of that security. In determining whether to retain or sell a security that a rating agency has downgraded, PrinREI may consider such factors as its assessment of the credit quality of the security, the price at which the security could be sold, and the rating, if any, assigned to the security by other NRSROs.

          NRSROs, such as Moody's or S&P, are private services that provide ratings of the credit quality of debt obligations. While all issuances of CMBS carry ratings at new issuance, some CMBS issuers have become selective in which NRSROs they utilize to provide such ratings and in some cases have been avoiding certain NRSROs altogether. Ratings assigned by an NRSRO are not absolute standards of credit quality but represent the opinion of the NRSRO as to the quality of the obligation. NRSROs may fail to make timely updates in credit ratings and an issuer's current financial condition may be better or worse than a rating indicates. Some CMBS issuances have been downgraded from initial ratings due to changes in rating methodology and changes in the credit quality of the underlying loans. To the extent that the issuer of a security pays an NRSRO for the analysis of its security, an inherent conflict of interest may exist that could affect the reliability of the rating. The integrity of the credit rating system

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has been questioned by the market. Ratings are relative and subjective and, although ratings may be useful in evaluating the safety of interest and principal payments, they do not evaluate the market value risk of such obligations. PrinREI independently evaluates securities and the ability of the issuers of such securities to pay interest and principal.

          Limited Investments in whole commercial mortgage loans and subordinated real estate-related loans.     Under normal market conditions, the Fund will invest no more than 10% of its total assets in whole commercial mortgage loans and subordinated real estate-related loans. This 10% limitation will not apply to investments in whole commercial mortgage loans and subordinated real estate-related loans that carry a CUSIP or are sold pursuant to Rule 144A of the Securities Act.

          Limited Investments in Mortgage REITs.     Under normal market conditions the Fund will invest no more than 10% of its total assets in mortgage REITs.

          Limitations on Investments in Principal-Related CMBS Issuances.     The Fund may not purchase CMBS from any issuance with respect to which PrinREI or any of its affiliates (i) contributed loans to a CMBS pool, (ii) acts as the servicer for one or more mortgages backing the CMBS, (iii) was involved in the origination of any loan in the CMBS pool, or (iv) is or was in some other manner involved with an underlying CMBS loan, with the exception of previous servicing.

          Unless otherwise noted, all investment limitations and restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time the Fund purchases a security. The status, market value, credit quality or other characteristics of securities held by the Fund may change after they are purchased, and this may cause the amount of the Fund's total assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction.

PrinREI's CMBS Investment Process

          PrinREI's CMBS investment process combines fundamental analysis of the credit risks of the underlying commercial real estate loans with dynamic quantitative modeling of the CMBS transaction structure. PrinREI believes having either qualitative or quantitative capabilities, in isolation, does little to help make sound investment decisions. However, when combined, they provide what PrinREI believes to be a powerful tool for analyzing CMBS in seeking to execute a consistent process that leads to informed investment decisions. In addition, PrinREI benefits from having a fully dedicated CMBS trader and a long history of dealer relationships. These resources aid in the timely execution or implementation of investment decisions.

          PrinREI's investment methodology combines extensive commercial real estate experience with a dynamic credit model to internally rate credit risk, identify relative value from a risk-adjusted perspective, assess cash flow volatility and actively manage risk through market cycles.

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Loan-level analysis is received from PrinREI's commercial real estate underwriting staff who review the majority of loans underlying each CMBS pool (based on principal balance).



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Provides real-time feedback on property, market, competitive profile, tenant quality and overall loan underwriting, including potential stress points in loan performance.



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Estimates the timing of potential loan defaults and magnitude of losses.



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PrinREI's proprietary CMBS model incorporates qualitative and quantitative inputs to produce distribution statistics at the individual loan and bond levels based upon approximately 2,000 probability-driven economic scenarios.



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Model incorporates input from PrinREI's research group with respect to current and expected future market conditions in the overall economy and the commercial real estate markets.

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Loan level views from PrinREI's underwriting staff are input into the system.



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Additional loan portfolio performance input from rating agency and issuer feedback is embedded into the analysis.



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Default and loss assumptions are based on internal and external research of the CMBS and commercial mortgage market, factoring in the specific loan level input received from PrinREI's underwriting staff.



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Key outputs include modeled cumulative defaults and losses, internal credit ratings and expected yield-to-maturity, fair value and standard deviation of returns for each bond class.



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The Fund's portfolio manager responsible for this portion of the Fund's portfolio will draw final investment conclusions based upon the CMBS model outputs, CMBS market considerations (e.g. supply/demand fundamentals, market technicals, CMBS market outlook) and portfolio considerations (e.g. portfolio composition, investment objective, suitability).



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PrinREI has a team dedicated to the surveillance of existing CMBS portfolios. The surveillance process includes semi-annual or more frequent reviews of the model assumptions and samples of underlying loans, including analysis of rent rolls and property operating statements and consultation with PrinREI's real estate underwriters. The results of the surveillance process play a key role in identifying potential credit issues which may influence PrinREI's decision to hold or sell a bond.



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The portfolio manager utilizes the ongoing feedback from the surveillance team combined with model updates to help them define fair value of the assets at any given time. The portfolio manager uses this information to determine hold versus sell decisions on individual securities. PrinREI believes this ongoing surveillance also positions PrinREI with better information when bidding on bonds in the secondary market.

PrinREI's Real Estate-Related Securities Investment Process

          PrinREI's real estate-related securities investment process begins with the study of opportunities by its dedicated real estate analysts. Each analyst is responsible for identifying attractive investments within his or her coverage universe. This bottom-up approach is accomplished by conducting in-depth company research along with securities valuation. The team conducts extensive fundamental research through management meetings, asset inspections and the study of financial statements and regulatory filings. Common fundamental/qualitative factors studied across companies include:

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Review of the company's assets, including overall quality and competitive positioning.



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Review of the macroeconomic and real estate market conditions and outlook within the company's portfolio.



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Analysis of management's skill and expertise in determining and executing strategy for the company. This includes a review of management teams' history of capital allocation decisions.



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Review of the company's capital structure, including analysis of debt levels and risk/opportunities within the overall balance sheet structure.



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Analysis of the company's business strategy. An evaluation of each company's growth characteristics and relative risk profile.



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Opinion of income durability, and the volatility of cash flows over time.



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Corporate Governance (ESG). A review of the company's commitment to ESG-related factors is undertaken utilizing internal analysis and externally generated ratings.

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          The team also employs proprietary techniques to analyze each company's valuation. Net asset value calculations are a fundamental component in the valuation review. A standardized net asset value model is completed on each company being considered for portfolio inclusion, and updated regularly as company financial metrics are disclosed or amendments to capital market assumptions (such as capitalization rate) are required. Other valuation techniques are used both as a check on the net asset value work and for studying stocks where regional and company differences dictate alternative techniques be considered.

          Security selection and portfolio construction including the determination of country and property type active weights for the global strategy is the responsibility of the Fund's portfolio manager in charge of this portion of the Fund's portfolio. He uses a team-based approach in decision-making, relying on close consultation with senior members of PrinREI's global real estate-related securities team. Collectively, these individuals serve as the portfolio construction team. Investment analysts are responsible for providing continuous buy/sell/hold recommendations for all securities within their coverage universe. Analyst recommendations are reviewed by the portfolio construction team, typically during region-specific calls conducted weekly.

          Security selection and sell actions are facilitated through the recommendations of regional team leaders. As part of the deliberation, the portfolio construction team is provided with written company research reports and valuation summaries. In determining the shape and composition of the portfolio, the portfolio construction team will also consider the following tools to varying degrees:

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Proprietary Back Tested Model:    PrinREI employs a multi-factor quantitative ranking model in its investment analysis process. This tool utilizes both externally sourced and internally generated data to gauge the attractiveness of individual companies relative to one another. There are 13 separate component models utilized in our global portfolio analysis process, based on geographic region, individual country, and/or differing business models. The models look at various fundamental factors (including among other things demographic data, return on equity and net operating income growth), valuation metrics (including earning's yield and net asset value) and price momentum characteristics.



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Risk Review:    PrinREI employs a series of industry standard as well as proprietary reports which gauge the likelihood of a portfolio's return differing significantly from a reference index (i.e. tracking error), the Beta of the portfolio, the index coverage ratio of the portfolio, and other risk-based metrics. PrinREI also studies the risk of individual companies within the portfolio across a number of factors including tenancy exposure, geographic concentration, balance sheet stability, cash flow volatility, and dividend sustainability.



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Attribution analysis:    PrinREI studies the effect that individual stock selection and property sector allocations have on portfolio returns utilizing FactSet's P.A.2 system. It also studies the influence that other "style characteristics" have on the portfolio. For example, this analysis may indicate that a portfolio is too heavily concentrated toward large capitalization stocks (or the inverse), over-exposed to companies with above-average balance sheet debt (or the inverse), or how concentrated a portfolio is to high or low dividend yielding stocks.

          The final phase of the investment process is execution of the trade idea. Regional trade desks are utilized by the portfolio construction team to help seek to achieve a high level of trade efficiency and execution.

The investment process utilized by PrinREI in managing the Fund's assets is also employed by PrinREI for other clients, and was not designed specifically for the Fund.

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Portfolio Investments

CMBS

          CMBS are multi-class debt or pass-through or pay-through securities backed by a first-mortgage loan or pool of first-mortgage loans on commercial real estate, such as industrial and warehouse properties, office buildings, retail space and shopping malls, multifamily properties, hotels and motels, nursing homes and medical facilities. Assets underlying CMBS may relate to many properties, only a few properties, or to a single property. Each commercial mortgage loan that underlies a CMBS has certain distinct characteristics.

          Many of the CMBS in which the Fund invests are issued in a senior/subordinated structure. In these structures, the senior class investors have greater protection against potential losses on the underlying loans or assets than do the subordinated class investors. In senior/subordinated structures, CMBS are often backed by a pool of first-mortgages representing the obligations of a number of different borrowers. To lessen the effect of a failure by obligors on underlying assets to make payments, such securities may contain elements of credit support. Such credit support falls into two categories: (1) liquidity protection and (2) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection generally refers to the provision of advances, typically by the entity administering the pool of assets, to ensure that the pass-through of payments due on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default enhances the likelihood of ultimate payment of the obligations on at least a portion of the assets in the pool. The senior class investors have greater protection against potential losses on the underlying mortgage loans or assets than the subordinated class investors who take the first loss if there are defaults on the underlying commercial mortgage loans. Other protections, which may benefit all of the classes including the subordinated classes, may include issuer guarantees, additional subordinated securities, cross-collateralization, overcollateralization, and the equity in the underlying properties. The Fund does not pay any additional fees for such credit support, although the existence of credit support may increase the price the Fund pays for a security.

          Commercial mortgage loans are sometimes non-amortizing and often not fully amortizing. At their maturity date, repayment of the remaining principal balance or "balloon" is due and is repaid through the attainment of an additional loan, the sale of the property or the contribution of additional capital.

          Unlike most single family residential mortgages, commercial real estate loans often contain provisions that substantially reduce the likelihood that they will be prepaid prior to maturity. The provisions generally impose significant prepayment penalties on loans and, in some cases, there may be prohibitions on principal prepayments for several years following origination.

          Changing real estate markets may adversely affect both the value of the underlying collateral and the borrower's ability to meet contractual obligations, either of which may lead to delinquencies, defaults, modifications or foreclosure that in turn may lead to the realization of losses in CMBS.

          CMBS have been issued in public and private transactions by a variety of public and private issuers. The Fund may from time to time purchase CMBS directly from issuers in negotiated or non-negotiated transactions or from a holder of such CMBS in the secondary market.

REITs

          REITs are typically publicly traded corporations or trusts that invest in residential or commercial real estate. REITs generally can be divided into the following three types: (i) equity REITs which invest the majority of their assets directly in real property and derive their income primarily from rents and capital gains or real estate appreciation; (ii) mortgage REITs which invest the majority of their assets in real estate mortgage loans and derive their income primarily from interest payments; and (iii) hybrid REITs which combine the characteristics of equity REITs and mortgage REITs. The Fund can invest in common stock, preferred stock, debt securities and convertible securities issued by REITs.

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Commercial Mortgage Loans

          The Fund may invest in whole commercial mortgage loans structured in a variety of ways that provide different types of risk, reward, and investment experience. The Fund may lend money directly to the borrower of such loans, or may acquire loans in secondary market transactions. See "Risks — Risks Associated with Direct Ownership of Real Estate Loans" for more information regarding the risks associated with the various types of loans that may be owned by the Fund.

          Generally.     Commercial mortgage loans are secured by multifamily or commercial property and are subject to risks of delinquency and foreclosure. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower.

          B-Notes.     A b-note is a mortgage loan typically (i) secured by a first mortgage on a single large commercial property or group of related properties and (ii) subordinated to an a-note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining to repay b-note holders after payment to the a-note holders. Since each transaction is privately negotiated, b-notes can vary in their structural characteristics and risks. For example, the rights of holders of b-notes to control the process following a borrower default may be limited in certain investments. The Fund cannot predict the terms of each b-note investment. Further, b-notes typically are secured by a single property, and so reflect the increased risks associated with a single property compared to a pool of properties.

          Mezzanine Loans.     The Fund may invest in mezzanine loans that take the form of subordinated loans secured by a pledge of the ownership interests of either the entity owning the real property or an entity that owns (directly or indirectly) the interest in the entity owning the real property. These types of investments may involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, the Fund may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy the Fund's mezzanine loan. If a borrower defaults on the Fund's mezzanine loan or debt senior to the Fund's loan, or in the event of a borrower bankruptcy, the Fund's mezzanine loan will be satisfied only after the senior debt. As a result, the Fund may not recover some or all of its investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.

CMBS Interest-Only Certificates

          The Fund may invest in CMBS interest-only certificates ("IOs"). CMBS IOs receive no payments of principal from the underlying mortgage assets. IO class payments are derived by the excess interest that exists due to a higher weighted average coupon on the underlying mortgages than the weighted average coupon on the corresponding CMBS bonds. The notional amount of the IO bonds will equal the certificate balance of all or a portion of the other CMBS classes of the same issuance. The yields to maturity on IOs are very sensitive to the rate of principal payments (including prepayments) and defaults on the related underlying mortgage assets. If the underlying mortgage assets experience greater than anticipated prepayments of principal or defaults, the Fund may not fully recoup its initial investment in IOs.

Below Investment Grade Bonds

          The Fund may invest in CMBS and other fixed-income securities that are rated or determined by PrinREI to be "below investment grade" quality ("junk bonds"). The credit quality of most junk bonds reflects a greater than average possibility that adverse changes in the real estate markets, or in general economic conditions, or both, may impair the ability of the borrowers to make payments of interest and

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principal on the loans backing the CMBS. The inability (or perceived inability) of borrowers to make timely payment of interest and principal would likely make the values of junk bonds held by the Fund more volatile and could limit the Fund's ability to sell such bonds at favorable prices. In the absence of a liquid trading market for its junk bonds, the Fund may have difficulties determining the fair market value of such investments.

Fixed-Income Securities

          The Fund may also invest in other fixed-income securities, including corporate bonds and notes, U.S. and foreign government securities and affiliated and unaffiliated money market securities.

Common Stock

          Common stock generally represents an equity ownership interest in an issuer. Although common stocks have historically generated higher average total returns than fixed-income securities over the long term, common stocks also have experienced significantly more volatility in those returns and may under-perform relative to fixed-income securities during certain periods. An adverse event, such as an unfavorable earnings report, may depress the value of a particular common stock held by the Fund. Also, prices of common stocks are sensitive to general movements in the stock market and a drop in the stock market may depress the price of common stocks to which the Fund has exposure. Common stock prices fluctuate for several reasons including changes in investors' perceptions of the financial condition of an issuer or the general condition of the relevant stock market, or the occurrence of political or economic events which effect the issuers. In addition, common stock prices may be particularly sensitive to rising interest rates, which increases borrowing costs and the costs of capital.

Preferred Stock

          Preferred stock, which generally pays fixed or adjustable rate dividends or interest to investors, has preference over common stock in the payment of dividends or interest and the liquidation of a company's assets, which means that a company typically must pay dividends or interest on its preferred stock before paying any dividends on its common stock. On the other hand, preferred stock is junior to all forms of the company's debt, including both senior and subordinated debt. Because of its subordinated position in the capital structure of an issuer, the ability to defer dividend or interest payments for extended periods of time without adverse consequences to the issuer, and certain other features, preferred stock is often treated as an equity-like instrument by both issuers and investors, as its quality and value is heavily dependent on the profitability and cash flows of the issuer rather than on any legal claims to specific assets.

Convertible Securities

          Convertible securities are hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities typically consist of debt securities or preferred securities that may be converted within a specified period of time (typically for the entire life of the security) into a certain amount of common stock or other equity security of the same or a different issuer at a predetermined price. They also include debt securities with warrants or common stock attached and derivatives combining features of debt securities and equity securities. Convertible securities entitle the holder to receive interest paid or accrued on debt securities, or dividends paid or accrued on preferred to securities, until the securities mature or are redeemed, converted or exchanged.

Other Investment Companies

          The Fund may invest a portion of its assets in securities of other open- or closed-end investment companies (including ETFs) that invest primarily in securities of the types in which the Fund may invest directly. As a shareholder in an investment company, the Fund will bear its ratable share of that

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investment company's expenses, and would remain subject to payment of the Fund's management fees with respect to assets so invested. Common Shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. PrinREI will take expenses into account when evaluating the merits of an investment in an investment company relative to available security investments.

Portfolio Turnover

          The Fund may engage in short-term trading. This means that the Fund may buy a security and sell that security a short period of time after its purchase to realize gains if the portfolio manager believes that the sale is in the best interest of the Fund (for example, if the portfolio manager believes an alternative investment has greater growth potential). This activity will increase the Fund's portfolio turnover rate and generate higher transaction costs due to commissions or dealer markups and other expenses that would reduce the Fund's investment performance. In addition, a high level of short-term trading may increase the amount of taxable distributions to shareholders that would reduce the after-tax returns of the Fund, and in particular may generate short-term capital gains that when distributed to shareholders are taxed at ordinary income tax rates.

Cash Position

          The Fund may not always stay fully invested. For example, when the portfolio manager believes that market conditions are unfavorable for profitable investing, or when he is otherwise unable to locate attractive investment opportunities, the Fund's cash or similar investments may increase. In other words, cash or similar investments generally are a residual — they represent the assets that remain after the Fund has committed available assets to desirable investment opportunities. When the Fund's investments in cash or similar investments increase, it may not participate in market advance or declines to the same extent that it would if the Fund remained more fully invested.

Corporate Bonds and Other Debt Securities

          The Fund may also invest in corporate bonds, debentures and other debt securities of companies in other industries and sectors. Debt securities in which the Fund may invest may pay fixed or variable rates of interest. Bonds and other debt securities generally are issued by corporations and other issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and normally must repay the amount borrowed on or before maturity. Certain debt securities are "perpetual" in that they have no maturity date.

          The Fund may invest in corporate bonds including below investment grade quality (e.g., rated below BBB- by S&P or below Baa3 by Moody's, or unrated securities that PrinREI considers to be their equivalent), commonly known as "junk bonds" ("Non-Investment Grade Bonds"). Investments in Non-Investment Grade Bonds generally provide greater income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and principal and income risk, including the possibility of issuer default and bankruptcy. Non-Investment Grade Bonds are regarded as predominantly speculative with respect to the issuer's continuing ability to meet principal and interest payments. Debt securities in the lowest investment grade category also may be considered to possess some speculative characteristics by certain NRSROs. In addition, analysis of the creditworthiness of issuers of Non-Investment Grade Bonds may be more complex than for issuers of higher quality securities.

          Non-Investment Grade Bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline in Non-Investment Grade Bond prices because the advent of recession could lessen the ability of an issuer to make principal and interest payments on its debt obligations. If an issuer of Non-Investment Grade Bonds defaults, in

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addition to risking payment of all or a portion of interest and principal, the Fund may incur additional expenses to seek recovery. In the case of Non-Investment Grade Bonds structured as zero-coupon, step-up or payment-in-kind securities, their market prices will normally be affected to a greater extent by interest rate changes, and therefore tend to be more volatile than securities which pay interest currently and in cash. PrinREI seeks to reduce these risks through diversification, credit analysis and attention to current developments in both the economy and financial markets.

          The secondary market on which Non-Investment Grade Bonds are traded may be less liquid than the market for investment grade securities. Less liquidity in the secondary trading market could adversely affect the net asset value of the Shares. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of Non-Investment Grade Bonds, especially in a thinly traded market. When secondary markets for Non-Investment Grade Bonds are less liquid than the market for investment grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements of judgment may play a greater role in the valuation because there is no reliable, objective data available. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling these securities. The Fund will be more dependent on PrinREI's research and analysis when investing in Non-Investment Grade Bonds. PrinREI seeks to minimize the risks of investing in all securities through in-depth credit analysis and attention to current developments in interest rate and market conditions.

          A general description of the ratings of securities by S&P, Moody's and Fitch is set forth in Appendix A to the SAI. Such ratings represent these rating organizations' opinions as to the quality of the securities they rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, debt obligations with the same maturity, coupon and yield may have different ratings. For these reasons, the use of credit ratings as the sole method of evaluating Non-Investment Grade Bonds can involve certain risks. For example, credit ratings evaluate the safety or principal and interest payments, not the market value risk of Non-Investment Grade Bonds. Also, credit rating agencies may fail to change credit ratings in a timely fashion to reflect events since the security was last rated. PrinREI does not rely solely on credit ratings when selecting securities for the Fund, and develops its own independent analysis of issuer credit quality.

          In the event that a NRSRO or PrinREI downgrades its assessment of the credit characteristics of a particular issue, the Fund is not required to dispose of such security. In determining whether to retain or sell a downgraded security, PrinREI may consider such factors as its assessment of the credit quality of the issuer of such security, the price at which such security could be sold and the rating, if any, assigned to such security by other NRSROs. However, analysis of the creditworthiness of issuers of Non-Investment Grade Bonds may be more complex than for issuers of higher quality debt securities.

Asset-Backed Securities

          In addition to CMBS, the Fund may invest in other types of asset-backed securities. Asset-backed securities are securities that directly or indirectly represent interests in, or are secured by and payable from, an underlying pool of assets such as (but not limited to) first lien mortgages, motor vehicle installment sale contracts, other installment sale contracts, home equity loans, leases of various types of real and personal property, and receivables from revolving credit (i.e., credit card) agreements and trade receivables. Such assets are securitized through the use of trusts and special purpose corporations. Asset-backed securities may provide periodic payments that consist of interest and/or principal payments. Consequently, the life of an asset-backed security varies with the prepayment and loss experience of the underlying assets.

          The Fund may also invest in residual interests in asset-backed securities. In the case of asset-backed securities issued in a pass-through structure, the cash flow generated by the underlying assets is applied to make required payments on the securities and to pay related administrative expenses. The

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residual in an asset-backed security pass-through structure represents the interest in any excess cash flow remaining after making the foregoing payments. The amount of residual cash flow resulting from a particular issue of asset-backed securities will depend on, among other things, the characteristics of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of administrative expenses and the actual prepayment experience on the underlying assets. Asset-backed security residuals not registered under the Securities Act may be subject to certain restrictions on transferability. In addition, there may be no liquid market for such securities.

Temporary Investments

          During unusual market circumstances, the Fund may invest temporarily in cash, money market securities, money market mutual funds or cash equivalents, which may be inconsistent with the Fund's investment objective. Cash equivalents are highly liquid, short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term U.S. Government obligations.

Illiquid Securities

          The Fund may invest in securities for which there is no readily available trading market or are otherwise illiquid. Illiquid securities include securities legally restricted as to resale, such as commercial paper issued pursuant to Section 4(2) of the Securities Act and securities eligible for resale pursuant to Rule 144A thereunder.

          It may be difficult to sell such securities at a price representing their fair value until such time as such securities may be sold publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time of the decision to sell. The Fund may also acquire securities through private placements under which it may agree to contractual restrictions on the resale of such securities. Such restrictions might prevent their sale at a time when such sale would otherwise be desirable.

Derivatives

          Swap Transactions.     The Fund may enter into total return, interest rate and credit default swap agreements. The Fund may enter into swap transactions for any purpose consistent with its investment objectives and strategies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets, as a duration management technique, to reduce risk arising from the ownership of a particular instrument, or to gain exposure to certain sectors or markets in the most economical way possible.

          Swap agreements are two-party contracts entered into primarily by institutional investors for a specified period of time. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return or value derived from the returns) earned or realized on a particular predetermined asset, reference rate or index. The gross returns to be exchanged or swapped between the parties are generally calculated with respect to a notional amount, e.g., the return on or increase in value of a particular dollar amount invested at a particular interest rate or in a basket of securities representing a particular index. The notional amount of the swap agreement generally is only used as a basis upon which to calculate the obligations that the parties to the swap agreement have agreed to exchange. The Fund's current obligations under a net swap agreement will be accrued daily (offset against any amounts owed to the Fund) and any accrued but unpaid net amounts owed to a swap counterparty will be covered by assets determined to be liquid by PrinREI.

          Some, but not all, swaps may be cleared, in which case a central clearing counterparty stands between each buyer and seller and effectively guarantees performance of each contract, to the extent of

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its available resources for such purpose. Uncleared swaps have no such protection; each party bears the risk that its direct counterparty will default.

          Interest Rate Swaps, Caps, Collars and Floors.     Interest rate swaps are bilateral contracts in which each party agrees to make periodic payments to the other party based on different referenced interest rates (e.g., a fixed rate and a floating rate) applied to a specified notional amount. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate floor. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index rises above a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling such interest rate cap. Interest rate collars involve selling a cap and purchasing a floor or vice versa to protect the Fund against interest rate movements exceeding given minimum or maximum levels.

          In December 2012, the Commodity Futures Trading Commission ("CFTC") issued a final rule which requires certain interest rate swaps to be centrally cleared. Such clearing requirement may affect the Fund's ability to negotiate individualized terms and/or may increase the costs of entering into such derivative transactions (for example, by increasing margin or capital requirements).

          Total Return Swaps.     In a total return swap, one party agrees to pay the other the "total return" of a defined underlying asset during a specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets. A total return swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined baskets of loans and mortgages. The Fund might enter into a total return swap involving an underlying index or basket of securities to create exposure to a potentially widely-diversified range of securities in a single trade. An index total return swap can be used by PrinREI to assume risk, without the complications of buying the component securities from what may not always be the most liquid of markets.

          Credit Default Swaps.     A credit default swap is a bilateral contract that enables an investor to buy or sell protection against a defined-issuer credit event. The Fund may enter into credit default swap agreements either as a buyer or a seller. The Fund may buy protection to attempt to mitigate the risk of default or credit quality deterioration in an individual security or a segment of the fixed income securities market to which it has exposure, or to take a "short" position in individual bonds or market segments which it does not own. The Fund may sell protection in an attempt to gain exposure to the credit quality characteristics of particular bonds or market segments without investing directly in those bonds or market segments.

          As the buyer of protection in a credit default swap, the Fund would pay a premium (by means of an upfront payment or a periodic stream of payments over the term of the agreement) in return for the right to deliver a referenced bond or group of bonds to the protection seller and receive the full notional or par value (or other agreed upon value) upon a default (or similar event) by the issuer(s) of the underlying referenced obligation(s). If no default occurs, the protection seller would keep the stream of payments and would have no further obligation to the Fund. Thus, the cost to the Fund would be the premium paid with respect to the agreement. If a credit event occurs, however, the Fund may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value. The Fund bears the risk that the protection seller may fail to satisfy its payment obligations.

          If the Fund is a seller of protection in a credit default swap and no credit event occurs, the Fund would generally receive an up-front payment or a periodic stream of payments over the term of the swap. If a credit event occurs, however, generally the Fund would have to pay the buyer the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no value. As the protection seller, the Fund effectively adds leverage to its

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portfolio because, in addition to being subject to investment exposure on its assets, the Fund is subject to investment exposure on the notional amount of the swap. Thus, the Fund bears the same risk as it would by buying the reference obligations directly, plus the additional risks related to obtaining investment exposure through a derivative instrument.

          In December 2012, the CFTC issued a final rule which requires index-based credit default swaps to be centrally cleared. Such clearing requirement may affect the Fund's ability to negotiate individualized terms and/or may increase the costs of entering into such credit default swap transactions (for example, by increasing margin or capital requirements). Clearing mandates with respect to other types of credit default swaps have not yet been issued by the regulators, but could have additional impact on the Fund's ability to use credit default swap transactions as part of its investment strategy.

          Futures and Options on Futures.     The Fund may buy and sell futures contracts that relate to (1) foreign currencies, (2) interest rates, (3) stock indices and other baskets of securities, and (4) individual securities. The Fund also may buy and write options on the futures contracts in which it may invest ("futures options") and may write straddles, which consist of a call and a put option on the same futures contract. A futures contract is an agreement between two parties to buy and sell a security, index, interest rate or currency (each a "financial instrument") for a set price on a future date. Certain futures contracts, such as futures contracts relating to individual securities, call for making or taking delivery of the underlying financial instrument. However, these contracts generally are closed out before delivery by entering into an offsetting purchase or sale of a matching futures contract (same exchange, underlying financial instrument, and delivery month). Other futures contracts, such as futures contracts on interest rates and indices, do not call for making or taking delivery of the underlying financial instrument, but rather are agreements pursuant to which two parties agree to take or make delivery of an amount of cash equal to the difference between the value of the financial instrument at the close of the last trading day of the contract and the price at which the contract was originally written. These contracts also may be settled by entering into an offsetting futures contract. The Fund may only enter into futures contracts and futures options which are standardized and traded on a U.S. or foreign exchange, board of trade or similar entity, or quoted on an automated quotation system.

          Forward Currency Contracts and other Foreign Currency Transactions.     A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These contracts are traded directly between currency traders (usually large commercial banks) and their customers. Unlike futures contracts, which are standardized contracts, forward contracts can be specifically drawn to meet the needs of the parties that enter into them. The parties to a forward currency contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity and complete the contemplated exchange. Because forward contracts are not traded on an exchange, the Fund is subject to the credit and performance risk of the counterparties to such contracts.

          Certain currency derivatives are subject to regulation under the Dodd-Frank Act. Potential rule-making with respect to such derivatives could affect the cost of such derivatives or otherwise restrict the fund's ability to effectively use currency derivatives.

          Forward Rate Contracts.     The Fund may also utilize forward rate contracts. Under forward rate contracts, the buyer locks in an interest rate at a future settlement date. If the interest rate on the settlement date exceeds the lock rate, the buyer pays the seller the difference between the two rates. If the lock rate exceeds the interest rate on the settlement date, the seller pays the buyer the difference between the two rates.

          Covered Calls.     The Fund currently expects to write call options with the purpose of generating realized gains or reducing the Fund's ownership of certain securities. The Fund will only write call options on securities that the Fund holds in its portfolio (i.e., covered calls) and no more than 50% of the

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Fund's assets attributable to equity securities will be subject to covered call options at any given time. A call option on a security is a contract that gives the holder of such call option the right to buy the security underlying the call option from the writer of such call option at a specified price at any time during the term of the option. At the time the call option is sold, the writer of a call option receives a premium (or call premium) from the buyer of such call option. If the Fund writes a call option on a security, the Fund will have the obligation upon exercise of such call option to deliver the underlying security upon payment of the exercise price. When the Fund writes a call option, an amount equal to the premium the Fund receives will be recorded as a liability and will be subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund as realized gains from investments on the expiration date. If the Fund repurchases a written call option prior to its exercise, the difference between the premium received and the amount paid to repurchase the option is treated as a realized gain or realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has realized a gain or loss. As the writer of the option, the Fund bears the market risk of an unfavorable change in the price of the security underlying a written option.

Reverse Repurchase Agreements

          The Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund temporarily transfers possession of a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash. At the same time, the Fund agrees to repurchase the instrument at an agreed upon time (normally within seven days, or within thirty days if used as a primary source of leverage) and price, which reflects an interest payment. The Fund may enter into such agreements when it is able to invest the cash acquired at a rate higher than the cost of the agreement, which would increase earned income.

          When the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities transferred to another party or the securities in which the proceeds may be invested would affect the market value of the Fund's assets. As a result, such transactions may increase fluctuations in the market value of the Fund's assets. There is a risk that large fluctuations in the market value of the Fund's assets could affect net asset value. Because reverse repurchase agreements may be considered to be the practical equivalent of borrowing funds, they constitute a form of leverage. Such agreements will be treated as subject to investment restrictions regarding borrowings. If the Fund reinvests the proceeds of a reverse repurchase agreement at a rate lower than the cost of the agreement, entering into the agreement will lower the Fund's yield.

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LEVERAGE

          The Fund generally will seek to enhance the level of its cash distributions to Common Shareholders through the use of leverage, which may include, for example, Borrowings, the issuance of preferred shares, and the use of derivatives or certain investment techniques. Under normal market conditions, the Fund's policy is to utilize leverage through Borrowings and the issuance of preferred shares (if any) in an amount that represents approximately 33 ¹ / 3 % of the Fund's total assets, including proceeds from such Borrowings and issuances (or approximately 50% of the Fund's net assets) ("Limited Leverage"). However, based on market conditions at the time, the Fund may use such leverage in amounts that represent less than 33 ¹ / 3 % of the Fund's total assets. The Fund currently anticipates that leverage will initially be obtained through bank borrowings or other similar term loans (see "Description of Capital Structure — Credit Facility"), and/or through reverse repurchase obligations (see "Investment Objective and Principal Investment Strategies — Portfolio Investments — Reverse Repurchase Agreements"). The Fund expects to invest the net proceeds derived from any use of leverage according to the investment objective and policies described in this Prospectus.

          Notwithstanding the 33 ¹ / 3 % limit discussed above, the Fund may enter into derivatives or other transactions (e.g., credit default swaps and total return swaps) that may provide leverage (other than Limited Leverage), but which are not subject to the foregoing 33 ¹ / 3 % limitation, if the Fund earmarks or segregates liquid assets (or enters into offsetting positions) in accordance with applicable SEC regulations and interpretations to cover its obligations under those transactions and instruments. The Fund will not enter into any such transaction if it would result in the Fund having total leverage (i.e., Limited Leverage plus any leverage incurred through these additional transactions) in excess of 40% of the Fund's total assets. These additional transactions will not cause the Fund to pay higher advisory or administration fee rates than it would pay in the absence of such transactions, although the dollar amount of these fees payable by the Fund will increase and decrease along with increases to and decreases in the value of the Fund's total assets. In addition, these transactions will entail additional expenses (e.g., transaction costs) which will be borne by the Fund. These types of transactions have the potential to increase returns to Common Shareholders, but they also involve additional risks. This additional leverage will increase the volatility of the Fund's investment portfolio and could result in larger losses than if the transactions were not entered into. However, to the extent that the Fund enters into offsetting transactions or owns positions covering its obligations, the leveraging effect is expected to be minimized or eliminated. See "Investment Objective and Principal Investment Strategies" regarding the use of derivative instruments.

          The Board of Trustees has the ultimate authority regarding the type of leverage used by the Fund and the extent to which they are employed, and makes these decisions based upon recommendations from ALPS and PrinREI. ALPS will generally recommend that the Fund utilize leverage to a lesser extent (or not utilize leverage at all) if they anticipate that a greater use of leverage would result in a lower return to Common Shareholders over time. Successful use of leverage may depend on ALPS's and PrinREI's ability to predict correctly interest rates and market movements, and there can be no assurance you that a leveraging strategy will be successful during any period in which it is employed.

          Leverage creates risk for Common Shareholders, including the likelihood of greater volatility of net asset value and market price of the Common Shares, and the risk of fluctuations in dividend rates or interest rates on leverage which may affect the return to the holders of Common Shares or may result in fluctuations in the dividends paid by the Fund on Common Shares. To the extent the return on securities purchased with funds received from leverage exceeds their cost (including increased expenses to the Fund), the Fund's total return will be greater than if leverage had not been used. Conversely, if the return derived from such securities is less than the cost of leverage (including increased expenses to the Fund), the Fund's total return will be less than if leverage had not been used, and therefore, the amount available for distribution to Common Shareholders will be reduced. In the latter case, the Board of

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Trustees, based upon recommendations from ALPS and PrinREI, nevertheless may determine to maintain the Fund's use of leverage if they expect that the long-term benefits of so doing will outweigh the near-term impact of the reduced return to Common Shareholders.

          Leverage creates a greater risk of loss, as well as potential for more gain, for the Common Shares than if leverage is not used. Changes in the value of the Fund's portfolio (including investments bought with the proceeds of leverage) will be borne entirely by the Common Shareholders. If there is a net decrease (or increase) in the value of the Fund's investment portfolio, the leverage will decrease (or increase) the net asset value per share to a greater extent than if the Fund were not leveraged. Furthermore, the Common Shares will be junior in liquidation and distribution rights to any form of leverage. For additional information regarding the risks associated with the use of leverage, see "Risks — Risks Related to the Fund's Use of Leverage."

          The fees paid to ALPS, PrinREI and AFS will be calculated on the basis of the Fund's total assets including proceeds from Limited Leverage up to an amount representing 33 ¹ / 3 % of the Fund's total assets (any other leverage in excess of such amount will not impact the calculation of fees). During periods in which the Fund uses Limited Leverage, the investment management fee payable to ALPS for investment advisory services, to PrinREI for subadvisory services, and to AFS for administrative services will be higher than if the Fund did not use Limited Leverage. Consequently, the Fund and ALPS and PrinREI may have differing interests in determining whether to employ Limited Leverage. The Board of Trustees monitors the Fund's use of leverage and this potential conflict.

Borrowings

          The Fund's Borrowings may include obtaining loans from banks or other financial institutions, entering into reverse repurchase agreements, and issuing senior notes or similar debt securities. The Fund may secure any such Borrowings by mortgaging, pledging or otherwise subjecting as security the Fund's assets.

          In connection with any bank borrowings, the Fund may be required to maintain minimum average balances with the lender or to pay a commitment or other fee to maintain a revolving credit facility. Any such requirements will increase the cost of borrowing over the stated interest rate. For additional information about bank borrowings, including by means of a credit facility, please see "Description of Capital Structure — Credit Facility."

          The rights of the Fund's lenders to receive interest on and repayment of principal of any bank borrowings will be senior to those of the Common Shareholders. In an event of default under any bank borrowing, the lenders also may have the right to cause a liquidation of collateral (i.e., sell securities in the Fund's portfolio and other assets) and, if any such default is not cured, the lenders may be able to control the liquidation as well. If an event of default occurs or in an effort to avoid an event of default, the Fund may be forced to sell securities at inopportune times and, as a result, receive lower prices for such security sales.

          The Fund may also borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends, the settlement of securities transactions, and the repayment of leverage obligations which become due, which otherwise might require untimely dispositions of the Fund's securities.

Preferred Shares

          The terms of any preferred shares issued by the Fund, including the dividend rate, voting rights, liquidation preference and redemption provisions of such stock, will be determined by the Board of Trustees (subject to applicable law and the Fund's declaration of trust) if and when it authorizes the preferred shares. For additional information about preferred shares, please see "Description of Capital Structure — Preferred Shares." The Fund has no present intention to issue preferred shares.

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          In addition to the 1940 Act requirements regarding preferred shares, discussed below, the terms of any preferred shares may include asset coverage maintenance provisions, which could require the redemption of the preferred shares in the event of non-compliance with those requirements by the Fund, and may also prohibit dividends on the Common Shares in such circumstances.

Certain 1940 Act Restrictions

          Under the 1940 Act, the Fund, immediately after issuing any senior securities representing indebtedness, must have an "asset coverage" of at least 300%. With respect to such issuance, asset coverage means the ratio which the value of the Fund's total assets, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of senior securities representing indebtedness issued by the Fund. Under the 1940 Act, the Fund is not permitted to issue any senior securities in the form of stock, e.g., preferred shares, unless immediately after such issuance the value of its total assets less all liabilities and indebtedness not represented by senior securities is at least 200% of the sum of the liquidation value of the outstanding preferred shares plus the aggregate amount of senior securities representing indebtedness. In addition, the Fund is not permitted to declare any cash dividend or distribution on its Common Shares unless, at the time of such declaration, its preferred shares plus senior securities representing indebtedness has an asset coverage of at least 200%. The Fund intends, to the extent possible, to maintain asset coverage on any such preferred shares plus senior securities representing indebtedness of at least 200%. If necessary, the Fund will purchase or redeem any of its preferred shares or senior securities representing indebtedness to maintain an asset coverage ratio of at least 200%. If the Fund has preferred shares outstanding, two of the Fund's trustees will be elected by the holders of preferred shares as a class. The Fund's remaining trustees will be elected by Common Shareholders and holders of the Fund's preferred shares voting together as a single class. In the event that the Fund fails to pay dividends on its preferred shares for two years, holders of preferred shares would be entitled to elect a majority of the Fund's trustees.

          Under the 1940 Act, with respect to senior securities evidencing indebtedness, the Fund may not declare any dividend (except a dividend payable in the Fund's stock) or other distribution on any class of capital stock, or purchase any such capital stock, unless the Fund's aggregate indebtedness has, at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, an asset coverage of at least 300% after declaring the amount of such dividend (or 200% with respect to dividends on preferred stock), distribution or purchase price, as the case may be. With respect to senior securities in the form of stock, the Fund may not declare any dividend (except a dividend payable in Fund's Common Shares) or other distribution on the Fund's Common Shares, or purchase of any such Common Shares, unless the class of senior security has at the time of the declaration of any such dividend or distribution, or at the time of any such purchase, an asset coverage of at least 200% after declaring the amount of such dividend, distribution or purchase price, as the case may be.

          The 1940 Act defines "senior security" as any bond, debenture, note or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of a class having priority over any other class as to distribution of assets or payment of dividends. "Senior security representing indebtedness" means any senior security other than stock.

          Private bank loans and similar borrowings are not subject to the 1940 Act's restrictions on senior securities if the loan is for temporary purposes only and in an amount not exceeding 5% the Fund's total assets at the time the loan is made.

Additional Restrictions on Bank Borrowings and Preferred Shares

          Lenders, NRSROs, and/or the Fund may impose additional restrictions on bank borrowings or the issuance of preferred shares beyond those required under the 1940 Act. For example, with respect to bank borrowings or preferred shares, there may be affirmative covenants relating to asset coverage and portfolio composition, and there may be special restrictions on certain of the Fund's activities (including

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the use of various investment techniques or strategies) or on its ability to pay dividends on Common Shares in certain circumstances. In addition, the Fund may be subject to certain negative covenants relating to transactions with affiliates, mergers and consolidations among others. It is not anticipated that these covenants or restrictions will significantly impede ALPS and PrinREI from managing the Fund's portfolio in accordance with the Fund's investment objective and policies.

Other Leverage Considerations

          If the Fund is unable to pay or otherwise refinance its leverage-related obligations when they become due, the Fund may be forced to liquidate portfolio assets to repay such obligations. Such liquidations would cause the Fund to incur related transaction costs and could result in capital losses. Further, if the Fund does not repay the leverage obligations when they are due, that may trigger an event of default or similar occurrence under the terms of the relevant documents, which may have adverse consequences on the Fund. For example, with respect to bank borrowings, there could be an increase in the interest rate payable by the Fund. Other consequences could include the lender or other counterparty receiving additional rights under the relevant documents, and a higher dividend rate required to be paid on any preferred shares.

Tax Considerations

          To qualify for federal income taxation as a "regulated investment company," the Fund must distribute in each taxable year at least 90% of its net investment income (including net interest income and net short-term gain). The Fund also will be required to distribute annually substantially all of its income and capital gain, if any, to avoid imposition of a nondeductible 4% federal excise tax. If the Fund is precluded from making distributions on the Common Shares because of any applicable asset coverage requirements, the terms of the preferred shares may provide that any amounts so precluded from being distributed, but required to be distributed for the Fund to meet the distribution requirements for qualification as a regulated investment company, will be paid to the holders of the preferred shares as a special dividend. This dividend can be expected to decrease the amount that holders of preferred shares would be entitled to receive upon redemption or liquidation of their shares.

          Assuming the utilization of leverage in the form of borrowings in the amount of 33 ¹ / 3 % of the Fund's total assets (or approximately 50% of the Fund's net assets) and an annual interest rate on such borrowings of 1.05% based on market rates as of the date of this Prospectus, the additional income that the Fund must earn (net of expenses) in order to cover such interest payments is 0.35%. The Fund's actual cost of leverage will be based on market rates at the time the Fund undertakes a leveraging strategy, and such actual cost of leverage may be higher or lower than that assumed in the previous example.

Effects of Leverage

          The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common Share return, assuming investment portfolio total returns (comprised of income and changes in the value of securities held in the Fund's portfolio) of minus 10% to plus 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio total returns experienced or expected to be experienced by us. Further, the assumed investment portfolio total returns are after (net of) all of the Fund's expenses other than expenses associated with leverage); but such leverage expenses are deducted when determining the Common Share return. See "Risks." The table further reflects the use of Limited Leverage representing 33 ¹ / 3 % of the Fund's total assets and estimated leverage costs of 0.53%.

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          Corresponding Common Share return is composed of two elements: Common Share dividends paid by the Fund (the amount of which is largely determined by the Fund's net distributable income after paying interest or dividends on the Fund's Limited Leverage) and gains or losses on the value of the securities the Fund owns. As required by SEC rules, the table above assumes that the Fund is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% would assume that the distributions the Fund receives on its investments are entirely offset by losses in the value of those securities.

          Holders of preferred shares will be entitled to a pre-determined dollar amount of dividends and a fixed dollar amount upon liquidation of the Fund prior to the payment of any dividends or liquidation amounts to Common Shareholders. As a result, the effect of the additional advisory fees and administrative fees attributable to the increase in total assets resulting from any issuance of preferred shares will be borne entirely by Common Shareholders through a reduction of income available for distribution to Common Shareholders and possibly a reduction in the net asset value per Common Share.

          Until the Fund issues preferred shares or engages in Borrowing, the Common Shares will not be leveraged, and the risks and special considerations related to leverage described in this Prospectus will not apply. The benefits of the leveraging of the Common Shares cannot be achieved until the proceeds resulting from the use of leverage have been invested in accordance with the Fund's investment objective and investment strategies.

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RISKS

          Investing in the Fund involves risk, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. Therefore, you should consider carefully the following risks before investing in the Fund.

No Operating History

          The Fund is a closed-end investment company with no history of operations and is designed for long-term investors and not as a trading vehicle.