LIBERTY STEIN ROE ADVISOR FLOATING RATE FUND, 486APOS, 1999-10-29

LIBERTY STEIN ROE ADVISOR FLOATING RATE FUND
486APOS, 1999-10-29

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<PAGE>

Securities Act Registration No. 333-87177
Investment Company Act File No. 811-08953

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 1 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 6 [X]

LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND
(Registrant)

One South Wacker Drive
Chicago, Illinois 60606

Telephone number: 800-338-0593

Heidi J. Walter Cameron S. Avery
Liberty-Stein Roe Advisor Bell, Boyd & Lloyd
Floating Rate Fund Three First National Plaza
One South Wacker Drive 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602-4207
(Agents for service)

Approximate Date of Proposed Public Offering: As soon as
practicable after the effective date of this registration
statement.

If any securities being registered on this form will be offered
on a delayed or continuous basis in reliance on rule 415 under
the Securities Act of 1933, other than securities offered in
connection with a dividend reinvestment plan, check the
following box. [X]
________________________

It is proposed that this filing will become effective (check
appropriate box):

[ ] when declared effective pursuant to section 8(c)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 486

[ ] This post-effective amendment designates a new effective date
for a previously filed registration statement.
[ ] This Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and
the Securities Act registration number of the earlier
effective registration statement is _______.

This registration incorporates a combined prospectus pursuant to
Rule 429 which relates to an earlier registration statement filed
by the Registrant on August 18, 1998, as amended to date (File No.
333-61751.

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Amount of Maximum Maximum
Securities Shares Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered per Unit Price(1) Fee (2)
- ---------------- ------------ -------- ---------- ------------
Common Shares
of Beneficial
Interest
Class A 10,000,000 $10.07 $100,700,000 $27,994.60
Class B 10,000,000 $10.07 $100,700,000 $27,994.60
Class C 10,000,000 $10.07 $100,700,000 $27,994.60
- ------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the
registration fee.
(2) Fee previously paid.

This Registration Statement has also been signed by Stein Roe
Floating Rate Limited Liability Company.

<PAGE>

LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND
Cross reference sheet pursuant to rule 495(a) of Regulation C

Item No. Location or caption

References are to captions within the part of the registration
statement to which the particular item relates except as
otherwise indicated

Part A (Prospectus)

1. Outside Front Cover Cover Page

2. Cover Pages; Other Cover Page; Outside Back Cover
Offering Information

3. Fee Table and Synopsis Fund Expenses; Prospectus Summary

4. Financial Highlights Financial Statements

5. Plan of Distribution Cover Page; Use of Proceeds; How
to Purchase Shares

6. Selling Shareholders Not applicable

7. Use of Proceeds Use of Proceeds; Investment
Objective and Policies; How the
Portfolio Invests; Special Risk
Considerations; Other Investment
Practices

8. General Description of
the Registrant Prospectus Summary; The Fund;
Investment Objectives and Policies;
How the Portfolio Invests; Special
Risk Considerations; Other
Investment Practice; How to
Purchase Shares; Organization and
Description of Shares; Master
Fund/Feeder Fund: Structure and
Risk Factors

9. Management Management of the Fund;
Organization and Description of
Shares; Master Fund/Feeder Fund:
Structure and Risk Factors

10. Capital Stock; Long- The Fund; Distributions and Income
Term Debt and Other Taxes; Periodic Repurchase Offers;
Securities Organization and Description of
Shares

11. Defaults and Arrears on
Senior Securities Not applicable

12. Legal Proceedings Not applicable

13. Table of Contents of Table of Contents of Statement
the Statement of of Additional Information
Additional Information

Part B (Statement of Additional Information)

14. Cover Page Cover Page

15. Table of Contents Table of Contents

16. General Information
and History Not applicable

17. Investment Objective
and Policies Investment Policies; Portfolio
Investments and Strategies;
Investment Restrictions

18. Management Management

19. Control Persons and
Principal Holders of
Securities Principal Shareholders

20. Investment Advisory and
Other Services Investment Advisory and Other
Services; Bookkeeping and Accounting;
Distributor; Transfer Agent;
Custodian

21. Brokerage Allocation
and Other Practices Portfolio Transactions

22. Tax Status Additional Income Tax Considerations

23. Financial Statements Financial Statements

Part C (Other Information)
24 Financial Statements and Exhibits
25 Marketing Arrangements
26 Other Expenses of Issuance and Distribution
27 Persons Controlled By or Under Common Control With
Registrant
28 Number of Holders of Securities
29 Indemnification
30 Business and Other Connections of Investment Adviser
31 Location of Accounts and Records
32 Management Services
33 Undertakings

<PAGE>

PROSPECTUS November 1, 1999

Stein Roe Mutual Funds

LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND

Class A, B and C Shares

Liberty-Stein Roe Advisor Floating Rate Fund is a non-diversified,
closed-end management investment company that is continuously
offered.

Investment Objective. The Fund's investment objective is to
provide a high level of current income, consistent with
preservation of capital. The Fund seeks to achieve its objective
by investing its net investable assets in Stein Roe Floating Rate
Limited Liability Company (Portfolio), a non-diversified, closed-
end management investment company, which has the same investment
objective as the Fund, rather than investing directly in and
managing its own investment portfolio.

The Portfolio invests primarily in adjustable rate senior loans
(Senior Loans), the interest rates of which float or vary
periodically based upon a benchmark indicator of prevailing
interest rates. Senior Loans are business loans that have a
senior right to payment to most other debts of the borrower.
Senior Loans are often secured by specific assets of the borrower,
although the Portfolio may also invest in Senior Loans that are
not secured by any collateral.

The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.

Price to Maximum Proceeds
Public (1) Sales Load(2) to Fund (3)
Per Class A Share $____ $____ $____
Per Class B Share $____ None $____
Per Class C Share $____ None $____

(1) The shares are offered on a best efforts basis at a price
equal to net asset value. The shares are offered
continuously. The minimum initial purchase is $1,000. No
arrangements have been made to place the funds in an escrow,
trust, or similar arrangement. As of Oct. 26, 1999, net asset
value per share of the Fund was $10.05.
(2) The maximum initial sales load on Class A shares is 3.5% of
the public offering price. Class B and C shares are not
subject to an initial sales load but are subject to an early
withdrawal charge. Class A, B and C shares are subject to a
distribution fee and a service fee. Liberty Funds
Distributor, Inc. (Distributor) will pay all sales commissions
to authorized dealers from its own assets.
(3) Assumes the sale of all shares registered hereby, and the
exclusion of approximately $____ of organizational and initial
offering expenses payable by the Fund. These expenses will be
charged as operating expenses of the Fund.
(4) Each of Class A, B, C is offering 10,000,000 shares.

Periodic Repurchase Offers. To provide liquidity to shareholders,
the Fund will make quarterly repurchase offers for 5% to 25% of
its outstanding shares. For each Repurchase Offer, it is
anticipated that each Repurchase Request Deadline will be on the
15th day in each of the months of March, June, September and
December, or if the 15th day is not a business day, the next
business day. It is anticipated that normally the Repurchase
Pricing Date will be the same date as the Repurchase Request
Deadline, and if so, the Repurchase Request Deadline will be set
for a time no later than the close of the NYSE on such date. The
Fund has determined that the Repurchase Pricing Date may occur no
later than the 14th day after the Repurchase Request Deadline, or
the next business day if the 14th day is not a business day. The
Fund will repay a Repurchase Offer no later than seven days after
the Repurchase Pricing Date. The first Repurchase Offer for
Classes A, B, and C will be Dec. 15, 1999. (See "Periodic
Repurchase Offers.")

Not Exchange Listed. The Fund does not intend to list the shares
on any national securities exchange. Shares of the Fund have no
history of public trading and there is not expected to be any
secondary trading market in the shares. An investment in the
shares should be considered illiquid. (See "Principal Risks.")

Investment in the Fund involves certain risks, including the
possible loss of some or all of the principal investment and risks
associated with securities rated below investment grade (often
referred to as "junk"). (See "Principal Risks.")

The Prospectus sets forth concisely the information that a
prospective investor should know before investing in shares of the
Fund. Please read and retain this Prospectus for future
reference. A Statement of Additional Information regarding the
Fund dated November 1, 1999, has been filed with the Securities
and Exchange Commission ("SEC") and can be obtained without charge
by calling 800-426-3750. A table of contents to the Statement of
Additional Information is located on the last page of this
Prospectus. This Prospectus incorporates by reference the entire
Statement of Additional Information (together with any supplement
to it). The Statement of Additional Information and other related
materials are available at the SEC's internet web site
(http://www.sec.gov).

The Fund's investment adviser is Stein Roe & Farnham Incorporated
(Stein Roe). The address of the Fund is One South Wacker Drive,
Chicago, IL 60606.

This prospectus applies to the offering of shares of beneficial
interest of the Fund, which may be continuously issued and sold
from time to time by the Fund through the Distributor, as
distributor and principal underwriter, and through your financial
advisor. (See "How to Buy Shares.")

The Fund's Class A shares are subject to a front-end sales charge
and to a distribution fee and other expenses. The Fund's Class B
shares will not be subject to a front-end sales charge, but will
be subject to a declining early withdrawal charge (EWC) over a
six-year period and a distribution fee, as well as other expenses.
Class B shares will convert automatically to Class A shares eight
years from the date of purchase. The Fund's Class C shares will
not be subject to a front-end sales charge, but will be subject to
an EWC of 1% during the first year a shareholder owns Class C
shares and a distribution fee, as well as other expenses. The
Fund may add additional classes of shares in the future.

The Fund has received exemptive relief from the SEC with respect
to the Fund's distribution fee arrangements, EWCs, and multi-class
structure. As a condition of such relief, the Fund will be
required to comply with certain regulations that would not
otherwise be applicable to the Fund.

Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other
government agency.

<PAGE>
TABLE OF CONTENTS
Page

Prospectus Summary...........................................4
Fund Expenses................................................7
The Fund.....................................................8
Use of Proceeds..............................................8
Investment Objectives and Policies...........................8
How the Portfolio Invests....................................9
Principal Risks.............................................16
Other Investment Practices..................................20
Distributions and Income Taxes..............................25
Management of the Fund......................................27
How to Buy Shares...........................................28
Multiple Share Classes......................................29
Periodic Repurchase Offers..................................32
Net Asset Value.............................................34
Performance Information.....................................35
Organization and Description of Shares......................36
Master Fund/Feeder Fund: Structure and Risk Factors.........38
Shareholder Reports.........................................39
Financial Statements........................................39
Statement of Additional Information Table of Contents.......40

<PAGE>

PROSPECTUS SUMMARY

This is only a summary. You should review the more detailed
information contained in this prospectus and in the Statement of
Additional Information.

The Fund. The Fund is a continuously-offered non-diversified,
closed-end management investment company, organized as a
Massachusetts business trust. The Fund invests all of its
net investable assets in Stein Roe Floating Rate Limited
Liability Company (Portfolio) under a master/feeder
structure. The Portfolio is a non-diversified closed-end
management investment company organized as a Delaware
limited liability company.

The Fund intends to offer its shares continuously through
the Distributor, as principal underwriter, and through
financial advisors at a price equal to the next determined
net asset value per share. The minimum initial investment
is $1,000 ($25 for individual retirement accounts) and the
minimum subsequent investment is $50. The Fund reserves
the right to change the investment minimums and to refuse a
purchase order for any reason.

Classes of Shares. The Fund offers three classes of shares in
this prospectus, with each class having its own sales
charge and expense structure. Each class has distinct
advantages and disadvantages for different investors. (See
"Multiple Share Classes.")

Investment Objective. The investment objective of the Fund and of
the Portfolio is to provide a high level of current income,
consistent with preservation of capital. There can be no
assurance that the Portfolio or the Fund will achieve its
investment objective.

The Portfolio seeks to achieve the objective by investing
primarily in a portfolio of Senior Loans to corporations,
partnerships and other entities (Borrowers) that operate in
a variety of industries and geographic regions (including
domestic and foreign entities).

Investment Policies. Under normal market conditions, at least 80%
of the Portfolio's total assets will be invested in Senior
Loans of domestic Borrowers or foreign Borrowers (so long
as Senior Loans to such foreign Borrowers are U.S. dollar
denominated and payments of interest and repayments of
principal pursuant to such Senior Loans are required to be
made in U.S. dollars). Although most Senior Loans are
secured, the Portfolio may invest up to 20% of its total
assets in interests in Senior Loans that are not secured by
any collateral. During normal market conditions, the
Portfolio may invest up to 20% of its total assets
(including assets maintained by the Portfolio as a reserve
against any additional loan commitments) in (i) high
quality, short-term debt securities with remaining
maturities of one year or less and (ii) warrants, equity
securities and, in limited circumstances, junior debt
securities acquired in connection with the Portfolio's
investments in Senior Loans.

A maximum of 25% of the Fund's total assets (taken at
current value) may be invested in Senior Loans to Borrowers
and securities of other issuers in any one industry.
However, the Fund may invest more than 25% of its total
assets in securities the issuer of which is deemed to be in
the financial services industry, which includes commercial
banks, thrift institutions, insurance companies and finance
companies. Accordingly, the Fund may be more at risk to
any single economic, political, or regulatory occurrence
affecting such industries.

How the Fund Invests. Senior Loans generally are arranged through
private negotiations between a Borrower and several
financial institutions (Lenders) represented in each case
by one or more such Lenders acting as agent (Agent) of the
several Lenders. On behalf of the several Lenders, the
Agent is primarily responsible for negotiating the loan
agreement (Loan Agreement) that establishes the relative
terms and conditions of the Senior Loan and rights of the
Borrower and the several Lenders. The Fund may invest all
or substantially all of its assets in Senior Loans or other
securities that are rated below investment grade, or in
comparable unrated securities. Senior Loans in which the
Portfolio will purchase interests generally pay interest at
rates that are periodically redetermined by reference to a
base lending rate plus a premium. The Portfolio may invest
in participations (Participations) in Senior Loans, may
purchase assignments (Assignments) of portions of Senior
Loans from third parties, and may act as one of the group
of Lenders originating a Senior Loan (Primary Lender).

Stein Roe expects the Portfolio's policy of acquiring
interests in floating or variable rate Senior Loans to
minimize the fluctuations in net asset value as a result of
changes in interest rates. However, the Fund is not a
money market fund and its net asset value will fluctuate.

Principal Risks. You should consider the following risk
considerations before investing in the Fund. As described
below, the risks could cause you to lose money as a result
of investing in the Fund.

Non-Payment Risk. Senior Loans, like other corporate debt
obligations, are subject to the risk of non-payment of
scheduled interest or principal. Such non-payment would
result in a reduction of income to the Fund, a reduction in
the value of the Senior Loan experiencing non-payment, and
a potential decrease in the net asset value of the Fund.

Below Investment Grade Securities. The Portfolio may
invest all or substantially all of its assets in Senior
Loans or other securities that are rated below investment
grade, or in comparable unrated securities. These
securities are commonly referred to as high-yield debt or
"junk debt." The purchase of such Senior Loans exposes the
Fund to financial, market, and interest-rate risks and
greater credit risks than would the purchase of higher-
rated Senior Loans. Such investments are also likely to
result in increased fluctuation in the Fund's net asset
value, particularly in response to economic downturns.

Restrictions on Resale of Senior Loans. Senior Loans, at
present, generally are not readily marketable and may be
subject to restrictions on resale. As a result, the
ability of the Fund to dispose of its investments in a
timely fashion and at a fair price may be restricted.

Repurchase Offer Risks. The Fund, as a fundamental policy,
will make quarterly repurchases for 5% to 25% of shares
outstanding at net asset value. (See "Periodic Repurchase
Offers" below for more information.) However, shares are
less liquid than shares of funds that trade on a stock
exchange, and Class B and Class C shareholders who offer
for repurchase shares held for less than six years and one
year, respectively, will pay an EWC. (See "How to Buy
Shares.") Under limited circumstances, the Fund may
suspend or postpone a quarterly repurchase offer-the Fund
must meet certain regulatory requirements to do so. There
is no guarantee that shareholders will be able to sell all
of their shares that they desire to sell in a quarterly
repurchase offer.

Closed-End Fund Risks. The Fund is a closed-end investment
company designed primarily for long-term investors and not
as a trading vehicle. The Fund does not intend to list its
shares for trading on any national securities exchange.
There is not expected to be any secondary trading market in
the shares and the shares should be considered illiquid.
The shares are, therefore, not readily marketable. The
shares of closed-end investment companies often trade at a
discount from their net asset values and, in the unlikely
event that a secondary market for the shares were to
develop, the shares likewise may trade at a discount from
net asset value.

Non-Diversification Risk. The Portfolio is not subject to
the general limitations under the Investment Company Act of
1940 (1940 Act) that, for 75% of its total assets, it not
invest more than 5% of its total assets in the securities
of a single issuer. The Portfolio does not intend to
invest more than 5% of the value of its assets in Senior
Loans of a single Borrower. To the extent the Portfolio
invests a relatively high percentage of its assets in
obligations of a limited number of Borrowers, it will be
more susceptible than a more widely diversified investment
company to the consequences of any single corporate,
economic, political or regulatory occurrence.

Distributions. Income dividends are normally declared each
business day, paid monthly, and confirmed at least
quarterly. Capital gains, if any, are distributed at least
annually, usually in December. Income dividends and
capital gains distributions may be received in cash or
reinvested in additional full and fractional shares of the
Fund.

Investment Adviser. Stein Roe & Farnham Incorporated.

Distributor. Liberty Funds Distributor, Inc.

Periodic Repurchase Offers. The Fund has adopted a fundamental
policy to offer each calendar quarter to repurchase a
specified percentage (between 5% and 25%) of the shares
then outstanding at its net asset value. Such repurchase
offers are referred to as a Repurchase Offer. Repurchase
Offers are scheduled to occur on the 15th day (or the next
business day if the 15th is not a business day) in the
months of March, June, September, and December. (See
"Periodic Repurchase Offers.")

FUND EXPENSES

The following tables are intended to assist investors in
understanding the various costs and expenses directly or
indirectly associated with investing in the Fund.

Shareholder Transaction Expenses (1) Class A Class B(4) Class C
- -----------------------------------------------------------------
Sales Load Imposed (as a percentage
of offering price) 3.50% None None
Sales Load Imposed on Reinvested
Dividends None None None
Early Withdrawal Charge (2) None 3.25% 1.00%
Exchange Fee None None None

Annual Expenses (as a percentage of average net assets
attributable to common shares)
Management Fees (3) 0.65% 0.65% 0.65%
Distribution and Service Fees (4) 0.35% 0.70% 0.85%
Other Expenses (5) 20.38% 20.38% 20.38%
Total Annual Expenses 21.38% 21.73% 21.88%
Expense Reimbursement (6) (20.23%) (20.23%) (20.23%)
Net Expenses 1.15% 1.50% 1.65%

(1) Financial advisors may independently charge additional fees
for shareholder transactions or for advisory services. Please
see their materials for details.
(2) The maximum EWC on Class B shares applies for repurchases
during the first year. The charge is 3.25% for shares
submitted and accepted for repurchase during the first year
after each purchase, 3.00% during the second year, 2.00%
during the third year, 1.50% during the fourth year, and 1.00%
during the fifth year. There is no EWC on Class B shares
thereafter. The EWC on Class C shares is 1% within the first
year from each purchase. There is no EWC on Class C shares
thereafter.
(3) Management fees includes both the management fee and the
administrative fee charged to the Fund. Stein Roe receives a
management fee of 0.45% from the Portfolio and an
administrative fee of 0.20% from the Fund.
(4) Class B shares will automatically covert to Class A shares
eight years after purchase.
(5) Other Expenses are based on estimated amounts for the current
fiscal year for Class A, B and C.
(6) Stein Roe has undertaken to reimburse the Fund for its
operating expenses to the extent that such expenses exceed
1.15% for the Class A shares, 1.50% for the Class B shares,
and 1.65% for the Class C shares, respectively. This
commitment expires on December 31, 2000. Absent such
reimbursement, the Management Fees would be 0.65% and Total
Annual Expenses for Classes A, B and C would be 21.38%, 21.73%
and 21.88%, respectively. Any such reimbursement will lower
the particular class's overall expense ratio and increase its
overall return to investors.

Service and distribution fees include an asset-based sales charge-
as a result, if you hold your shares for a long period of time,
then you may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of
Securities Dealers, Inc. (See "Multiple Share Classes.")

Example. This Example helps you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. The
Example assumes that (i) you invest $1,000 in the Fund, (ii) your
investment has a 5% return each year, (iii) operating expenses
remain the same, (iv) all income dividends and capital gains
distributions are reinvested in additional shares, and (v) expense
reductions are in effect for the first year in the periods below:

Class 1 year 3 years 5 years 10 years
Class A $46 $408 $660 $1,007
Class B*: did not sell your shares $15 $393 $655 $1,009
sold all your shares at
the end of the period $48 $413 $655 $1,009
Class C: did not sell your shares $17 $396 $658 $1,011
sold all your shares at
the end of the period $27 $396 $658 $1,011
_________
*Class B shares convert to Class A shares after eight years. The
10-year expense example for Class B shares reflects Class B share
expenses for eight years and Class A expenses for two years.

THE FUND

The Fund is a non-diversified, closed-end management investment
company organized as a Massachusetts business trust organized on
August 13, 1998, and managed by the Board of Trustees. The Fund
is engaged in a continuous public offering of the shares at the
next determined net asset value per share. The Fund's principal
office is located at One South Wacker Drive, Chicago, IL 60606
and its telephone number is 1-800-345-6611.

USE OF PROCEEDS

The net proceeds from the sale of the shares offered hereby will
be invested typically within 30 days after receipt, in accordance
with the Fund's investment objective and policies. Pending
investment by the Portfolio, the proceeds may be invested in high
quality, short-term securities, and the Portfolio may not achieve
its objective during this time.

INVESTMENT OBJECTIVE AND POLICIES

Investment Objective. The Fund's investment objective is to
provide a high level of current income, consistent with
preservation of capital. The Fund's investment objective is a
non-fundamental policy, which means that the Board of Trustees can
change it without shareholder approval. Rather than invest in
securities directly, the Fund seeks to achieve its investment
objective by using the "master fund/feeder fund" structure. Under
that structure, the Fund and other investment companies with the
same investment objective invest their assets in another
investment company having the same investment objective and
substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and reduce costs. The Fund's investment experience
will correspond directly to the investment experience of the
Portfolio.

The Fund invests all of its net investable assets in the
Portfolio. The Portfolio seeks to achieve its objective through
investment primarily in a professionally managed portfolio of
interests in Senior Loans to Borrowers that operate in a variety
of industries and geographic regions (including domestic and
foreign entities). Although the Portfolio's net asset value per
share will vary, the Portfolio's policy of acquiring interests in
floating or variable rate Senior Loans is expected to minimize the
fluctuations in the Fund's net asset value per share as a result
of changes in interest rates. The Fund's net asset value may be
affected by various factors, including changes in the credit
quality of Borrowers with respect to Senior Loan interests in
which the Portfolio invests.

An investment in the Fund may not be appropriate for all investors
and is not intended to be a complete investment program. No
assurance can be given that the Portfolio or the Fund will achieve
its investment objective. The Fund is appropriate for investors
seeking a high level of current income consistent with capital
preservation.

Policies. Under normal market conditions, the Portfolio will
invest at least 80% of its total assets (either as a Primary
Lender or as a purchaser of an Assignment or Participation) in
Senior Loans of domestic Borrowers or foreign Borrowers (so long
as Senior Loans to such foreign Borrowers are U.S. dollar
denominated and payments of interest and repayments of principal
pursuant to such Senior Loans are required to be made in U.S.
dollars). Although most Senior Loans are collateralized, the
Portfolio may invest up to 20% of its total assets (valued at time
of investment) in Senior Loans that are not secured by any
collateral.

During normal market conditions, the Portfolio may invest up to
20% of its total assets (including assets maintained by the
Portfolio as a reserve against any additional loan commitments) in
(i) high quality, short-term debt securities with remaining
maturities of one year or less and (ii) warrants, equity
securities and junior debt securities acquired in connection with
the Portfolio's investments in Senior Loans. Such high quality,
short-term securities may include commercial paper rated at least
Baa, P-3 or higher by Moody's Investors Service, Inc. (Moody's) or
BBB, A-3 or higher by Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. (S&P) (or if unrated, determined by Stein Roe
to be of comparable quality), interests in short-term loans and
short-term loan participations of Borrowers having short-term debt
obligations rated or a short-term credit rating at least in such
rating categories (or having no such rating, determined by Stein
Roe to be of comparable quality), certificates of deposit and
bankers' acceptances and securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities. Such high
quality, short-term securities may pay interest at rates that are
periodically redetermined or may pay interest at fixed rates.

HOW THE PORTFOLIO INVESTS

Senior Loans. Senior Loans generally are arranged through private
negotiations between a Borrower and Lenders represented in each
case by one or more Agents of the several Lenders. On behalf of
the several Lenders, the Agent, which is frequently a commercial
bank or other entity that originates the Senior Loan and the
person that invites other parties to join the lending syndicate,
will be primarily responsible for negotiating the Loan Agreement
that establishes the relative terms, conditions and rights of the
Borrower and the several Lenders. In larger transactions it is
common to have several Agents; however, generally only one such
Agent has primary responsibility for documentation and
administration of a Senior Loan.

In a typical Senior Loan, the Agent administers the terms of the
Loan Agreement and is responsible for the collection of principal
and interest and fee payments from the Borrower and the
apportionment of those payments to the credit of all Lenders that
are parties to the Loan Agreement. The Portfolio generally will
rely on the Agent to collect its portion of the payments on a
Senior Loan. Furthermore, the Portfolio will rely on the Agent to
use appropriate creditor remedies against the Borrower.
Typically, under a Loan Agreement, the Agent is given broad
discretion in monitoring the Borrower's performance under the Loan
Agreement and is obligated to use only the same care it would use
in the management of its own property. Upon an event of default,
the Agent typically will act to enforce the Loan Agreement after
instruction from Lenders holding a majority of the Senior Loan.
The Borrower compensates the Agent for the Agent's services. This
compensation may include special fees paid on structuring and
funding the Senior Loan and other fees paid on a continuing basis.
The typical practice of an Agent in relying exclusively or
primarily on reports from the Borrower may involve a risk of fraud
by the Borrower.

It is anticipated that the proceeds of the Senior Loans in which
the Portfolio will acquire interests primarily will be used to
finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, and, to a lesser extent, to
finance internal growth and for other corporate purposes of
Borrowers. Senior Loans have the most senior position in a
Borrower's capital structure, although some Senior Loans may hold
an equal ranking with other senior securities and certain other
obligations of the Borrower. The capital structure of a Borrower
may include Senior Loans, senior and junior subordinated debt
(which may include "junk bonds"), preferred stock and common stock
issued by the Borrower, typically in descending order of seniority
with respect to claims on the Borrower's assets. Senior and
junior subordinated debt is collectively referred to in this
Prospectus as "junior debt securities." Senior Loans generally
are secured by specific collateral, which may include guarantees
from certain affiliates of the Borrower.

To the extent that the Portfolio invests a portion of its assets
in Senior Loans that are not secured by specific collateral, the
Portfolio will not enjoy the benefits associated with
collateralization with respect to such Senior Loans and such
Senior Loans may pose a greater risk of nonpayment of interest or
loss of principal than do collateralized Senior Loans. As
discussed below, the Portfolio may also acquire warrants, equity
securities and junior debt securities issued by the Borrower or
its affiliates as part of a package of investments in the Borrower
or its affiliates. Warrants, equity securities, and junior debt
securities will not be treated as Senior Loans and thus assets
invested in such securities will not count toward the 80% of the
Portfolio's total assets that normally will be invested in Senior
Loans. The Portfolio may acquire interests in warrants, other
equity securities or junior debt securities through a negotiated
restructuring of a Senior Loan or in a bankruptcy proceeding of
the Borrower.

In order to borrow money pursuant to a collateralized Senior Loan,
a Borrower will typically, for the term of the Senior Loan, pledge
as collateral assets, including but not limited to, accounts
receivable, inventory, buildings, other real estate, trademarks,
franchises and common and preferred stock in its subsidiaries. In
addition, in the case of some Senior Loans, there may be
additional collateral pledged in the form of guarantees by and/or
securities of affiliates of the Borrowers. In certain instances,
a collateralized Senior Loan may be secured only by stock in the
Borrower or its subsidiaries. Collateral may consist of assets
that are not readily liquidated, and there is no assurance that
the liquidation of such assets would satisfy fully a Borrower's
obligations under a Senior Loan. Similarly, in the event of
bankruptcy proceedings involving the Borrower, the Lenders may be
delayed or prevented from liquidating collateral or may choose not
to do so as part of their participation in a plan of
reorganization of the Borrower.

Loan Agreements may also include various restrictive covenants
designed to limit the activities of the Borrower in an effort to
protect the right of the Lenders to receive timely payments of
interest on and repayment of principal of the Senior Loans.
Restrictive covenants may include mandatory prepayment provisions
related to excess cash flows and typically include restrictions on
dividend payments, specific mandatory minimum financial ratios,
limits on total debt and other financial tests. Breach of such a
covenant, if not waived by the Lenders, is generally an event of
default under the applicable Loan Agreement and may give the
Lenders the right to accelerate principal and interest payments.
Stein Roe will consider the terms of restrictive covenants in
deciding whether to invest in Senior Loans for the Portfolio's
investment portfolio. When the Portfolio holds a Participation in
a Senior Loan, it may not have the right to vote to waive
enforcement of a restrictive covenant breached by a Borrower.
Lenders voting in connection with a potential waiver of a
restrictive covenant may have interests different from those of
the Portfolio and such Lenders will not consider the interests of
the Portfolio in connection with their votes.

Senior Loans in which the Portfolio will invest generally pay
interest at rates that are periodically redetermined by reference
to a base lending rate plus a premium. These base lending rates
generally are the prime or base lending (Prime Rate) rate offered
by one or more major United States banks or other standard lending
rates used by commercial lenders, such as the London Inter-Bank
Offered Rate (LIBOR) or the certificate of deposit (CD) rate.
LIBOR, as provided for in Loan Agreements, is an average of the
interest rates quoted by several designated banks as the rates at
which such banks would offer to pay interest to major financial
institutional depositors in the London interbank market on U.S.
dollar denominated deposits for a specified period of time. The
CD rate, as generally provided for in Loan Agreements, is the
average rate paid on large certificates of deposit traded in the
secondary market. Senior Loans traditionally have been structured
so that Borrowers pay higher premiums when they elect LIBOR, in
order to permit Lenders to obtain generally consistent yields on
Senior Loans, regardless of whether Borrowers select the LIBOR
option, or the Prime Rate option. In recent years, however, the
differential between the lower LIBOR base rates and the higher
Prime Rate base rates prevailing in the commercial bank markets
has widened to the point where the higher margins paid by
Borrowers for LIBOR pricing options do not currently outweigh the
differential between the Prime Rate and the LIBOR rate.
Consequently, Borrowers have increasingly selected the LIBOR-based
pricing option, resulting in a yield on Senior Loans that is
consistently lower than the yield available from the Prime Rate-
based pricing option. This trend will significantly limit the
ability of the Fund to achieve a net return to shareholders that
consistently approximates the average published Prime Rate of
leading U.S. banks.

Primary Lender Transactions, Assignments, and Participations. The
Portfolio may invest in Participations in Senior Loans, may
purchase Assignments of portions of Senior Loans from third
parties and may act as one of the group of Primary Lenders.

The Portfolio may invest up to 100% of its assets in
Participations. The selling Lenders and other persons
interpositioned between such Lenders and the Portfolio with
respect to Participations will likely conduct their principal
business activities in the banking, finance and financial services
industries. Although, as discussed below, the Portfolio has taken
measures that it believes significantly reduce its exposure to
risks associated with Participations, the Portfolio may be more
susceptible than an investment company that does not invest in
Participations in Senior Loans to any single economic, political
or regulatory occurrence affecting these industries. Persons
engaged in these industries may be more susceptible than are
persons engaged in some other industries to, among other things,
fluctuations in interest rates, changes in the Federal Open Market
Committee's monetary policy, governmental regulations concerning
such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.

Participation by the Portfolio in a Lender's portion of a Senior
Loan typically will result in the Portfolio having a contractual
relationship only with such Lender, not with the Borrower. As a
result, the Portfolio may have the right to receive payments of
principal, interest and any fees to which it is entitled only from
the Lender selling the Participation and only upon receipt by the
Lender of payments from the Borrower. In connection with
purchasing Participations, the Portfolio generally will have no
right to enforce compliance by the Borrower with the terms of the
Loan Agreement, nor any rights with respect to any funds acquired
by other Lenders through set-off against the Borrower, and the
Portfolio may not directly benefit from the collateral supporting
the Senior Loan in which it has purchased the Participation. As a
result, the Portfolio may assume the credit risk of both the
Borrower and the Lender selling the Participation. In the event
of the insolvency of the Lender selling a Participation, the
Portfolio may be treated as a general creditor of the Lender, and
may not benefit from any set-off between the Lender and the
Borrower. In an effort to minimize such risks, the Portfolio will
only acquire Participations if the Lender selling the
Participation, and any other institution interpositioned between
the Portfolio and the Lender, (i) at the time of investment has
outstanding debt or deposit obligations rated investment grade
(BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's)
or, if unrated, determined by Stein Roe to be of comparable
quality and (ii) has entered into an agreement that provides for
the holding of payments on the Senior Loan for the benefit of, or
the prompt disbursement of payments to, the Portfolio. Long-term
debt rated BBB by S&P is regarded by S&P as having adequate
capacity to pay interest and repay principal and debt rated Baa by
Moody's is regarded by Moody's as a medium grade obligation; i.e.,
it is neither highly protected nor poorly secured. The Portfolio
ordinarily will purchase a Participation only if, at the time of
the purchase, the Portfolio believes that the party from whom it
is purchasing the Participation is retaining an interest in the
underlying Senior Loan. In the event that the Portfolio does not
so believe, it will only purchase a Participation if, in addition
to the requirements set forth above, the party from whom the
Portfolio is purchasing such Participation (i) is a bank, a member
of a national securities exchange or other entity designated in
the 1940 Act as qualified to serve as a custodian for a registered
investment company and (ii) has been approved as a custodian by
the Board of the Portfolio.

The Portfolio may also purchase Assignments from Lenders. The
purchaser of an Assignment typically succeeds to all the rights
and obligations under the Loan Agreement of the assigning Lender
and becomes a Lender under the Loan Agreement with the same rights
and obligations as the assigning Lender.

When the Portfolio is a Primary Lender, it will have a direct
contractual relationship with the Borrower, may enforce compliance
by the Borrower with the terms of the Loan Agreement and may under
contractual arrangements among the Lenders have rights with
respect to any funds acquired by other Lenders through set-off. A
Lender also has full voting and consent rights under the
applicable Loan Agreement. Action subject to Lender vote or
consent generally requires the vote or consent of the holders of a
majority or some greater specified percentage of the outstanding
principal amount of the Senior Loan. Certain decisions, such as
reducing the amount or increasing the time for payment of interest
on or repayment of principal of a Senior Loan, or releasing
collateral therefor, frequently require the unanimous vote or
consent of all Lenders affected. When the Portfolio is a Primary
Lender originating a Senior Loan it may share in a fee paid by the
Borrower to the Primary Lenders. The Portfolio will never act as
the Agent, Originator, or principal negotiator or administrator of
a Senior Loan.

The Portfolio will purchase an Assignment or act as a Lender with
respect to a syndicated Senior Loan only where the Agent with
respect to the Senior Loan at the time of investment has
outstanding debt or deposit obligations rated investment grade
(BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's)
or determined by Stein Roe to be of comparable quality.

Loan Agreements typically provide for the termination of the
Agent's agency status in the event that it fails to act as
required under the relevant Loan Agreement, becomes insolvent,
enters FDIC receivership, or if not FDIC insured, enters into
bankruptcy. Should an Agent, Lender or any other interpositioned
institution with respect to an Assignment interpositioned between
the Portfolio and the Borrower become insolvent or enter FDIC
receivership or bankruptcy, any interest in the Senior Loan of any
such interpositioned institution and any loan payment held by any
such interpositioned institution for the benefit of the Portfolio
should not be included in the estate of such interpositioned
institution. If, however, any such amount were included in such
interpositioned institution's estate, the Portfolio would incur
certain costs and delays in realizing payment or could suffer a
loss of principal or interest. In such event, the Portfolio could
experience a decrease in net asset value.

Portfolio Maturity. The Portfolio is not subject to any
restrictions with respect to the maturity of Senior Loans held in
its portfolio. It is currently anticipated that the Portfolio's
assets invested in Senior Loans will consist of Senior Loans with
stated maturities of between three and ten years, inclusive, and
with rates of interest that are redetermined either daily,
monthly, quarterly, semiannually or annually. Investment in
Senior Loans with longer interest rate redetermination periods may
increase fluctuations in the Portfolio's net asset value as a
result of changes in interest rates. The Senior Loans in the
Portfolio's investment portfolio will at all times have a dollar-
weighted average days to reset until the next interest rate
redetermination of 90 days or less. As a result, as short-term
interest rates increase, interest payable to the Portfolio from
its investments in Senior Loans should increase, and as short-term
interest rates decrease, interest payable to the Portfolio from
its investments in Senior Loans should decrease. The amount of
time required to pass before the Portfolio will realize the
effects of changing short-term market interest rates on its
portfolio will vary with the dollar-weighted average time until
the next interest rate redetermination on the Senior Loans in the
investment portfolio. The Portfolio may utilize certain
investment practices to, among other things, shorten the effective
interest rate redetermination period of Senior Loans in its
portfolio. In such event, the Portfolio will consider such
shortened period to be the interest rate redetermination period of
the Senior Loan; provided, however, that the Portfolio will not
invest in Senior Loans that permit the Borrower to select an
interest rate redetermination period in excess of one year.
Because most Senior Loans in the investment portfolio will be
subject to mandatory and/or optional prepayment and there may be
significant economic incentives for a Borrower to prepay its
loans, prepayments of Senior Loans in the Portfolio's investment
portfolio may occur. Accordingly, the actual remaining maturity
of the Portfolio's investment portfolio invested in Senior Loans
may vary substantially from the average stated maturity of the
Senior Loans held in the Portfolio's investment portfolio. As a
result of anticipated prepayments from time to time of Senior
Loans in the investment portfolio, the Portfolio estimates that
the actual average maturity of the Senior Loans held in its
portfolio will be approximately 18-24 months.

Net Asset Value Fluctuation. When prevailing interest rates
decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when prevailing
interest rates rise, the value of a portfolio invested in fixed-
rate obligations can be expected to decline. Although the Fund's
net asset value will vary, Stein Roe expects the Portfolio's
policy of acquiring interests in floating or variable rate Senior
Loans to minimize fluctuations in net asset value as a result of
changes in interest rates. Accordingly, Stein Roe expects the
value of the investment portfolio to fluctuate significantly less
than a portfolio of fixed-rate, longer term obligations as a
result of interest rate changes. However, changes in prevailing
interest rates can be expected to cause some fluctuation in the
Fund's net asset value. In addition to changes in interest rates,
various factors, including defaults by or changes in the credit
quality of Borrowers, will also affect the Fund's net asset value.
A default or serious deterioration in the credit quality of a
Borrower could cause a prolonged or permanent decrease in the
Fund's net asset value.

Debt Restructuring. The Portfolio may purchase and retain in its
portfolio an interest in a Senior Loan to a Borrower that has
filed for protection under the federal bankruptcy laws or has had
an involuntary bankruptcy petition filed against it by its
creditors. Stein Roe's decision to purchase or retain such an
interest will depend on its assessment of the suitability of such
investment for the Portfolio, the Borrower's ability to meet debt
service on Senior Loan interests, the likely duration, if any, of
a lapse in the scheduled repayment of principal, and prevailing
interest rates. At times, in connection with the restructuring of
a Senior Loan either outside of bankruptcy court or in the context
of bankruptcy court proceedings, the Portfolio may determine or be
required to accept equity securities or junior debt securities in
exchange for all or a portion of a Senior Loan interest.
Depending upon, among other things, Stein Roe's evaluation of the
potential value of such securities in relation to the price that
could be obtained by the Portfolio at any given time upon sale
thereof, the Portfolio may determine to hold such securities in
its portfolio. Any equity security or junior debt security held
by the Portfolio will not be treated as a Senior Loan and thus
will not count toward the 80% of assets that normally will be
invested in Senior Loans.

Borrower Credit Ratings. Senior Loans historically have not been
rated by nationally recognized statistical rating organizations,
such as S&P or Moody's. Because of the senior capital structure
position of Senior Loans and the collateralized or guaranteed
nature of most Senior Loans, the Portfolio and Stein Roe believe
that ratings of other securities issued by a Borrower do not
necessarily reflect adequately the relative quality of a
Borrower's Senior Loans. Therefore, although Stein Roe may
consider such ratings in determining whether to invest in a
particular Senior Loan, Stein Roe is not required to consider
ratings and ratings will not be the determinative factor in Stein
Roe's analysis. To the extent that Senior Loans are rated, the
Portfolio may invest in the lowest rated loans, but does not
intend to invest more than 5% of its assets in Senior Loans rated
below B- or B3 by S&P or Moody's. The Portfolio may invest a
substantial portion of its assets in Senior Loans to Borrowers
having outstanding debt securities rated below investment grade by
a nationally recognized statistical rating organization (or
unrated but of comparable quality to such securities). Debt
securities rated below investment grade (or unrated but of
comparable quality) commonly are referred to as "junk bonds." The
Portfolio will invest only in those Senior Loans with respect to
which the Borrower, in the judgment of Stein Roe, demonstrates one
or more of the following characteristics: sufficient cash flow to
service debt; adequate liquidity; successful operating history;
strong competitive position; experienced management; and, with
respect to collateralized Senior Loans, collateral coverage that
equals or exceeds the outstanding principal amount of the Senior
Loan. In addition, Stein Roe will consider, and may rely in part,
on the analyses performed by the Agent and other Lenders,
including such persons' determinations with respect to collateral
securing a Senior Loan.

Fees. The Portfolio may be required to pay or may receive various
fees and commissions in connection with purchasing, selling and
holding interests in Senior Loans. The fees normally paid by
Borrowers may include three types: facility fees, commitment fees
and prepayment penalties. Facility fees are paid to the Lenders
upon origination of a Senior Loan. Commitment fees are paid to
Lenders on an ongoing basis based upon the undrawn portion
committed by the Lenders of the underlying Senior Loan. Lenders
may receive prepayment penalties when a Borrower prepays all or
part of a Senior Loan. The Portfolio will receive these fees
directly from the Borrower if the Portfolio is a Primary Lender,
or, in the case of commitment fees and prepayment penalties, if
the Portfolio acquires an interest in a Senior Loan by way of
Assignment. Whether or not the Portfolio receives a facility fee
from the Lender in the case of an Assignment, or any fees in the
case of a Participation, depends upon negotiations between the
Portfolio and the Lender selling such interests. When the
Portfolio is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the
Lender selling the Assignment. Occasionally, the assignor will
pay a fee to the Portfolio based on the portion of the principal
amount of the Senior Loan that is being assigned. A Lender
selling a Participation to the Portfolio may deduct a portion of
the interest and any fees payable to the Portfolio as an
administrative fee prior to payment thereof to the Portfolio. The
Portfolio may be required to pay over or pass along to a purchaser
of an interest in a Senior Loan from the Portfolio a portion of
any fees that the Portfolio would otherwise be entitled to.

Prepayments. Pursuant to the relevant Loan Agreement, a Borrower
may be required in certain circumstances, and may have the option
at any time, to prepay the principal amount of a Senior Loan,
often without incurring a prepayment penalty. In the event that
like-yielding loans are not available in the marketplace, Stein
Roe believes that the prepayment of and subsequent reinvestment by
the Portfolio in Senior Loans could have a materially adverse
impact on the yield on the Portfolio's investment portfolio.
Prepayments may have a beneficial impact on income due to receipt
of prepayment penalties, if any, and any facility fees earned in
connection with reinvestment.

Commitments to Make Additional Payments. A Lender may have
certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain
circumstances. Such circumstances may include, without
limitation, obligations under revolving credit facilities and
facilities that provide for further loans to Borrowers based upon
compliance with specified financial requirements. The Portfolio
currently intends to reserve against any such contingent
obligation by segregating a sufficient amount of cash, liquid
securities and liquid Senior Loans. The Portfolio will not
purchase interests in Senior Loans that would require the
Portfolio to make any such additional loans if the aggregate of
such additional loan commitments would exceed 20% of the
Portfolio's total assets or would cause the Portfolio to fail to
meet the diversification requirements set forth under the heading
"Investment Restrictions" in the Statement of Additional
Information.

Bridge Financing. The Portfolio may acquire interests in Senior
Loans that are designed to provide temporary or "bridge" financing
to a Borrower pending the sale of identified assets or the
arrangement of longer-term loans or the issuance and sale of debt
obligations. A Borrower's use of a bridge loan involves a risk
that the Borrower may be unable to locate permanent financing to
replace the bridge loan, which may impair the Borrower's perceived
creditworthiness.

Other Securities. The Portfolio will acquire warrants, equity
securities and junior debt securities only as are incident to the
purchase or intended purchase of interests in collateralized
Senior Loans. The Portfolio generally will acquire interests in
warrants, equity securities and junior debt securities only when
Stein Roe believes that the relative value being given by the
Portfolio in exchange for such interests is substantially
outweighed by the potential value of such instruments. Investment
in warrants, equity securities and junior debt securities entail
certain risks in addition to those associated with investments in
Senior Loans. Warrants and equity securities have a subordinate
claim on a Borrower's assets as compared with debt securities, and
junior debt securities have a subordinate claim on such assets as
compared with Senior Loans. As such, the values of warrants and
equity securities generally are more dependent on the financial
condition of the Borrower and less dependent on fluctuations in
interest rates than are the values of many debt securities. The
values of warrants, equity securities and junior debt securities
may be more volatile than those of Senior Loans and thus may have
an adverse impact on the ability of the Portfolio to minimize
fluctuations in its net asset value. (See "Principal Risks.")

Fundamental Restrictions and Policies. Each of the Portfolio and
the Fund has adopted certain fundamental investment restrictions
and policies which may not be changed unless authorized by a
shareholder vote. These are set forth in the Statement of
Additional Information. Among these fundamental restrictions, the
Portfolio and the Fund may not purchase any security if, as a
result of the purchase, more than 25% of the Fund's or the
Portfolio's total assets (taken at current value) would be
invested in the securities of Borrowers and other issuers having
their principal business activities in the same industry (the
electric, gas, water and telephone utility industries being
treated as separate industries for the purpose of this
restriction). However, the Fund may invest more than 25% of its
total assets in securities the issuer of which is deemed to be in
the financial institutions industry, which includes commercial
banks, thrift institutions, insurance companies and finance
companies. There is no limitation with respect to obligations
issued or guaranteed by the U.S. government or any of its agencies
or instrumentalities. Except for the fundamental restrictions and
policies set forth as such in the Statement of Additional
Information, the Portfolio's and the Fund's investment objective
and policies are not fundamental policies and accordingly may be
changed by the Board without obtaining the approval of
shareholders.

PRINCIPAL RISKS

You should consider the following Principal Risks before investing
in the Fund. As described below, these risks could cause you to
lose money as a result of investing in the Fund. The Fund and the
Portfolio are both closed-end investment companies. The Fund is
designed primarily for long-term investors and not as a trading
vehicle.

Non-Payment. Senior Loans, like other corporate debt obligations,
are subject to the risk of non-payment of scheduled interest or
principal. Non-payment would result in a reduction of income to
the Portfolio, a reduction in the value of the Senior Loan
experiencing non-payment and a potential decrease in the net asset
value of the Portfolio. The Portfolio generally will invest in
collateralized Senior Loans only if Stein Roe believes the value
of the collateral, which may include guarantees, exceeds the
principal amount of the Senior Loan at the time of initial
investment. However, there can be no assurance that the
liquidation of any collateral would satisfy the Borrower's
obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily
liquidated. Moreover, as a practical matter, most Borrowers
cannot satisfy their debts by selling their assets. Borrowers pay
their debts from the cash flow they generate. This is
particularly the case for Borrowers that are highly leveraged.
Many of the Senior Loans purchased by the Portfolio will be to
highly leveraged Borrowers. If the Borrower's cash flow is
insufficient to pay its debts as they come due, the Borrower is
far more likely to seek to restructure its debts than it is to
sell off assets to pay its Senior Loans. Borrowers may try to
restructure their debts either by seeking protection from
creditors under Chapter 11 of the federal Bankruptcy Code or
negotiating a work out. In the event of bankruptcy of a Borrower,
the Portfolio could experience delays or limitations with respect
to its ability to realize the benefits of the collateral securing
a Senior Loan. To the extent that a Senior Loan is collateralized
by stock in the Borrower or its subsidiaries, such stock may lose
all or substantially all of its value in the event of bankruptcy
of the Borrower. The Agent generally is responsible for
determining that the Lenders have obtained a perfected security
interest in the collateral securing the Senior Loan. If a
Borrower files for protection from creditors under Chapter 11 of
the Bankruptcy Code, the Code will impose an automatic stay that
prohibits the Agent from liquidating collateral. The Agent may
ask the bankruptcy court to lift the stay. As a practical matter,
the court is unlikely to lift the stay if it concludes that the
Borrower has a chance to emerge from the reorganization
proceedings and the collateral is likely to hold most of its
value. If the Lenders have a good security interest, the Senior
Loan will be treated as a separate class in the reorganization
proceedings and will retain a priority interest in the collateral.
Chapter 11 reorganization plans typically are the product of
negotiation among the Borrower and the various creditor classes.
Successful negotiations may require the Lenders to extend the time
for repayment, change the interest rate or accept some
consideration in the form of junior debt or equity securities. A
work out outside of bankruptcy may produce similar concessions by
senior lenders.

Some Senior Loans in which the Portfolio may invest are subject to
the risk that a court, pursuant to fraudulent conveyance or other
similar laws, could subordinate such Senior Loans to current or
future indebtedness of the Borrower or take other action
detrimental to the holders of Senior Loans, such as the Portfolio,
including, under certain circumstances, invalidating such Senior
Loans. Lenders commonly have certain obligations pursuant to the
Loan Agreement, which may include the obligation to make
additional loans or release collateral in certain circumstances.

Restrictions on Resale. Senior Loans, at present, generally are
not readily marketable and may be subject to restrictions on
resale. Interests in Senior Loans generally are not listed on any
national securities exchange or automated quotation system and no
active market may exist for many of the Senior Loans in which the
Portfolio may invest. To the extent that a secondary market may
exist for certain of the Senior Loans in which the Portfolio
invests, such market may be subject to irregular trading activity,
wide bid/ask spreads and extended trade settlement periods. The
Portfolio has no limitation on the amount of its assets that may
be invested in Senior Loans that are not readily marketable or are
subject to restrictions on resale. Because a substantial portion
of the Portfolio's assets may be invested in Senior Loan
interests, the ability of the Portfolio to dispose of its
investments in a timely fashion and at a fair price may be
restricted, and the Portfolio and shareholders may suffer capital
losses as a result. However, many of the Senior Loans in which
the Portfolio expects to purchase interests are of a relatively
large principal amount and are held by a relatively large number
of owners which should, in Stein Roe's opinion, enhance the
relative liquidity of such interests. The risks associated with
illiquidity are particularly acute in situations where the
Portfolio's operations require cash, such as when the Fund makes a
Repurchase Offer for its shares, and may result in borrowing to
meet short-term cash requirements.

Ongoing Monitoring. On behalf of the several Lenders, the Agent
generally will be required to administer and manage the Senior
Loans and, with respect to collateralized Senior Loans, to service
or monitor the collateral. In this connection, the valuation of
assets pledged as collateral will reflect market value and the
Agent may rely on independent appraisals as to the value of
specific collateral. The Agent, however, may not obtain an
independent appraisal as to the value of assets pledged as
collateral in all cases. The Portfolio normally will rely
primarily on the Agent (where the Portfolio is a Primary Lender or
owns an Assignment) or the selling Lender (where the Portfolio
owns a Participation) to collect principal of and interest on a
Senior Loan. Furthermore, the Portfolio usually will rely on the
Agent (where the Portfolio is a Primary Lender or owns an
Assignment) or the selling Lender (where the Portfolio owns a
Participation) to monitor compliance by the Borrower with the
restrictive covenants in the Loan Agreement and notify the
Portfolio of any adverse change in the Borrower's financial
condition or any declaration of insolvency. Collateralized Senior
Loans will frequently be secured by all assets of the Borrower
that qualify as collateral, which may include common stock of the
Borrower or its subsidiaries. Additionally, the terms of the Loan
Agreement may require the Borrower to pledge additional collateral
to secure the Senior Loan, and enable the Agent, upon proper
authorization of the Lenders, to take possession of and liquidate
the collateral and to distribute the liquidation proceeds pro rata
among the Lenders. If the terms of a Senior Loan do not require
the Borrower to pledge additional collateral in the event of a
decline in the value of the original collateral, the Portfolio
will be exposed to the risk that the value of the collateral will
not at all times equal or exceed the amount of the Borrower's
obligations under the Senior Loan. Lenders that have sold
Participation interests in such Senior Loan will distribute
liquidation proceeds received by the Lenders pro rata among the
holders of such Participations. Stein Roe will also monitor these
aspects of the Portfolio's investments and, where the Portfolio is
a Primary Lender or owns an Assignment, will be directly involved
with the Agent and the other Lenders regarding the exercise of
credit remedies.

Limited Information. The types of Senior Loans in which the
Portfolio will invest historically have not been rated by a
nationally recognized statistical rating organization, have not
been registered with the SEC or any state securities commission,
and have not been listed on any national securities exchange.
Although the Portfolio will generally have access to financial and
other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with
respect to Senior Loans will generally be less extensive than that
available for rated, registered or exchange listed securities. As
a result, the performance of the Portfolio and its ability to meet
its investment objective is more dependent on the analytical
ability of Stein Roe than would be the case for an investment
company that invests primarily in rated, registered or exchange
listed securities.

To the extent that Senior Loans are rated, the Portfolio may
invest in the lowest rated loans, but does not intend to invest
more than 5% of its assets in Senior Loans rated below B- or B3 by
S&P or Moody's.

Below Investment Grade Securities. Securities rated below
investment grade are commonly referred to as high-yield debt or
"junk debt." They are regarded as predominantly speculative with
respect to the issuing company's continuing ability to meet
principal and interest payments. The prices of high-yield
securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments.
A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in the prices
of high-yield securities.

The secondary market in which high-yield securities are traded is
generally less liquid than the market for higher-grade debt. Less
liquidity in the secondary trading market could adversely affect
the price at which the Portfolio could sell a high-yield Senior
Loan, and could adversely affect the net asset value of the Fund's
shares. At times of less liquidity, it may be more difficult to
value high-yield Senior Loans because this valuation may require
more research, and elements of judgment may play a greater role in
the valuation since there is less reliable, objective data
available.

Investments in high-yield Senior Loans may result in greater net
asset value fluctuation than if the Portfolio did not make such
investments.

There is no limit on the percentage of assets that may be invested
in Senior Loans and other securities that are rated below
investment grade or that are unrated but of comparable quality.

Investments in Non-U.S. Issuers. Investment in non-U.S. issuers
involves special risks, including that non-U.S. issuers may be
subject to less rigorous accounting and reporting requirements
than are U.S. issuers, less rigorous regulatory requirements,
differing legal systems and laws relating to creditors' rights,
the potential inability to enforce legal judgments, and the
potential for political, social and economic adversities.

Investments in Equity Securities. To the extent the Portfolio
invests in equity securities, the value of its portfolio will be
affected by changes in the stock markets, which may be the result
of domestic or international political or economic news, changes
in interest rates, or changing investor sentiment. The stock
market can be volatile and stock prices can change substantially.
The equity securities of smaller companies are more sensitive to
these changes than those of larger companies. This market risk
will affect the Fund's net asset value, which will fluctuate as
the value of the securities held by the Portfolio changes. Not
all stock prices change uniformly or at the same time and not all
stock markets move in the same direction at the same time. Other
factors affect a particular stock's prices, such as poor earnings
reports by an issuer, loss of major customers, major litigation
against an issuer, or changes in governmental regulations
affecting an industry. Adverse news affecting one company can
sometimes depress the stock prices of all companies in the same
industry. Not all factors can be predicted.

Financial Services Industry Concentration. The financial services
industries are subject to extensive government regulation which
can limit both the amounts and types of loans and other financial
commitments they can make, and the interest rates and fees they
can charge. Profitability is largely dependent on the
availability and cost of capital funds, and can fluctuate
significantly when interest rates change. Credit losses resulting
from financial difficulties of borrowers can negatively affect the
financial services industries. Insurance companies can be subject
to severe price competition. The financial services industries
are currently undergoing relatively rapid change as existing
distinctions between financial service segments become less clear.
For instance, recent business combinations have included
insurance, finance, and securities brokerage under single
ownership. Some primarily retail corporations have expanded into
securities and insurance industries. Moreover, the federal laws
generally separating commercial and investment banking are
currently being studied by Congress.

Prepayment Risk. Borrowers may pay back principal before the
scheduled due date. Borrowers may find it advantageous to prepay
principal due to a decline in interest rates or an excess in cash
flow. Such prepayments may require the Portfolio to replace a
Senior Loan with a lower-yielding security. This may adversely
affect the net asset value of the Fund's shares.

Legislation; Restrictions. To the extent that legislation or
state or federal regulators impose additional requirements or
restrictions with respect to the ability of financial institutions
to make loans in connection with highly leveraged transactions,
the availability of Senior Loan interests for investment by the
Portfolio may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of
financing for certain Borrowers. Further, to the extent that
legislation or federal or state regulators require such
institutions to dispose of Senior Loan interests relating to
highly leveraged transactions or subject such Senior Loan
interests to increased regulatory scrutiny, such financial
institutions may determine to sell Senior Loan interests in a
manner that results in a price that, in the opinion of Stein Roe,
is not indicative of fair value. Were the Portfolio to attempt to
sell a Senior Loan interest at a time when a financial institution
was engaging in such a sale with respect to the Senior Loan
interest, the price at which the Portfolio could consummate such a
sale might be adversely affected.

Non-Diversification. The Portfolio has registered as a "non-
diversified" investment company so that, subject to its investment
restrictions, it will be able to invest more than 5% of the value
of its assets in the obligations of any single issuer, including
Senior Loans of a single Borrower or Participations purchased from
a single Lender. (See "Investment Restrictions" in the Statement
of Additional Information.) The Portfolio does not intend,
however, to invest more than 5% of the value of its assets in
interests in Senior Loans of a single Borrower, and the Portfolio
intends to limit its investments so as to comply with the
diversification requirements imposed by the Internal Revenue Code
for qualification as a "regulated investment company." To the
extent the Portfolio invests a relatively high percentage of its
assets in obligations of a limited number of issuers, the
Portfolio will be more susceptible than a more widely diversified
investment company to the consequences of any single corporate,
economic, political or regulatory occurrence.

Other Practices. The Portfolio may use various investment
practices that involve special considerations, including engaging
in interest rate and other hedging transactions, lending its
portfolio securities, entering into when-issued and delayed-
delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices
and associated special considerations, see "Other Investment
Practices."

OTHER INVESTMENT PRACTICES

Stein Roe may use some or all of the following investment
practices when, in its opinion, their use is appropriate. These
investment practices involve certain special risk considerations.
Although Stein Roe believes that these investment practices may
further the investment objective, no assurance can be given that
the utilization of these investment practices will achieve that
result.

Structured Notes. The Portfolio may invest up to 5% of its total
assets in structured notes, including "total rate of return swaps"
with rates of return determined by reference to the total rate of
return on one or more loans referenced in such notes. The rate of
return on the structured note may be determined by applying a
multiplier to the rate of total return on the referenced loan or
loans. Application of a multiplier is comparable to the use of
financial leverage, a speculative technique. Leverage magnifies
the potential for gain and the risk of loss, because a relatively
small decline in the value of a referenced loan could result in a
relatively large loss in the value of a structured note.
Structured notes are treated as Senior Loans for purposes of the
Portfolio's policy of normally investing at least 80% of its
assets in Senior Loans.

Borrowing. The Portfolio is authorized to borrow money for the
purpose of obtaining short-term liquidity in connection with
Repurchase Offers for Fund shares and for temporary, extraordinary
or emergency purposes. The Portfolio may enter into an agreement
with a financial institution providing for an unsecured
discretionary credit facility, the proceeds of which may be used
to finance, in part, repurchases. (See "Periodic Repurchase
Offers.") Under the requirements of the 1940 Act, the Portfolio,
immediately after any such borrowings, must have an asset coverage
of at least 300%. Asset coverage is the ratio which the value of
the total assets of the Portfolio, less all liabilities and
indebtedness not represented by senior securities (as that term is
defined in the 1940 Act), bears to the aggregate amount of any
such borrowings by the Portfolio. The rights of any lenders to
the Portfolio to receive payments of interest on and repayments of
principal of borrowings will be senior to those of shareholders,
and the terms of any borrowings may contain provisions which limit
certain activities of the Portfolio, including the payment of
dividends to shareholders in certain circumstances. Further, the
terms of any such borrowings may, and the provisions of the 1940
Act do (in certain circumstances), grant lenders certain voting
rights in the event of default in the payment of interest or
repayment of principal. In the event that such provisions would
impair the Portfolio's status as a regulated investment company,
the Portfolio, subject to its ability to liquidate its relatively
illiquid investments, intends to repay the borrowings. Interest
payments and fees incurred in connection with any borrowings will
reduce the amount of net income available for payment to
shareholders.

Interest Rate Swaps and Other Hedging Transactions. The Portfolio
may enter into various interest rate hedging and risk management
transactions. Certain of these interest rate hedging and risk
management transactions may be considered to involve derivative
instruments. A derivative is a financial instrument whose
performance is derived at least in part from the performance of an
underlying index, security or asset. The values of certain
derivatives can be affected dramatically by even small market
movements, sometimes in ways that are difficult to predict. There
are many different types of derivatives with many different uses.
The Portfolio expects to enter into these transactions primarily
to seek to preserve a return on a particular investment or portion
of its portfolio, and may also enter into such transactions to
seek to protect against decreases in the anticipated rate of
return on floating or variable rate Senior Loans the Portfolio
owns or anticipates purchasing at a later date, or for other risk
management strategies such as managing the effective dollar-
weighted average duration of the investment portfolio. In
addition, the Portfolio may also engage in hedging transactions,
including entering into put and call options, to seek to protect
the value of its portfolio against declines in net asset value
resulting from changes in interest rates or other market changes.
Market conditions will determine whether and in what circumstances
the Portfolio would employ any hedging and risk management
techniques. The Portfolio will not engage in any of these
transactions for speculative purposes and will use them only as a
means to hedge or manage the risks associated with assets held in,
or anticipated to be purchased for, the investment portfolio or
obligations incurred by the Portfolio. The successful utilization
of hedging and risk management transactions requires skills
different from those needed in the selection of Senior Loans. The
Portfolio will incur brokerage and other costs in connection with
its hedging transactions.

The Portfolio may enter into interest rate swaps or purchase or
sell interest rate caps or floors. The Portfolio will not sell
interest rate caps or floors that it does not own. Interest rate
swaps involve the exchange by the Portfolio with another party of
their respective obligations to pay or receive interest; e.g., an
exchange of an obligation to make floating rate payments for an
obligation to make fixed rate payments. For example, the
Portfolio may seek to shorten the effective interest rate
redetermination period of a Senior Loan to a Borrower that has
selected an interest rate redetermination period of one year. The
Portfolio could exchange the Borrower's obligation to make fixed
rate payments for one year for an obligation to make payments that
readjust monthly. In such event, the Portfolio would consider the
interest rate redetermination period of such Senior Loan to be the
shorter period.

The purchase of an interest rate cap entitles the purchaser, to
the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest at the difference between
the index and the predetermined rate on a notional principal
amount (the reference amount with respect to which interest
obligations are determined although no actual exchange of
principal occurs) from the party selling such interest rate cap.
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 at the difference
between the index and the predetermined rate on a notional
principal amount from the party selling such interest rate floor.
The Portfolio will not enter into swaps, caps or floors if, on a
net basis, the aggregate notional principal amount with respect to
such agreements exceeds the net assets of the Portfolio.

In circumstances in which Stein Roe anticipates that interest
rates will decline, the Portfolio might, for example, enter into
an interest rate swap as the floating rate payor or,
alternatively, purchase an interest rate floor. In the case of
purchasing an interest rate floor, if interest rates declined
below the floor rate, the Portfolio would receive payments from
its counterparty which would wholly or partially offset the
decrease in the payments it would receive with respect to the
portfolio assets being hedged. In the case where the Portfolio
purchases such an interest rate swap, if the floating rate
payments fell below the level of the fixed rate payment set in the
swap agreement, the Portfolio's counterparty would pay the
Portfolio amounts equal to interest computed at the difference
between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the
decrease in the payments the Portfolio would receive with respect
to floating rate portfolio assets being hedged.

The successful use of swaps, caps and floors to preserve the rate
of return on a portfolio of Senior Loans depends on Stein Roe's
ability to predict correctly the direction and extent of movements
in interest rates. Although Stein Roe believes that use of the
hedging and risk management techniques described above will
benefit the Portfolio, if Stein Roe's judgment about the direction
or extent of the movement in interest rates is incorrect, the
Portfolio's overall performance would be worse than if it had not
entered into any such transaction. For example, if the Portfolio
had purchased an interest rate swap or an interest rate floor to
hedge against its expectation that interest rates would decline
but instead interest rates rose, the Portfolio would lose part or
all of the benefit of the increased payments it would receive as a
result of the rising interest rates because it would have to pay
amounts to its counterparty under the swap agreement or would have
paid the purchase price of the interest rate floor.

Inasmuch as these hedging transactions are entered into for good-
faith risk management purposes, Stein Roe and the Portfolio
believe such obligations do not constitute senior securities. The
Portfolio will usually enter into interest rate swaps on a net
basis; i.e., where the two parties make net payments with the
Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any,
of the Portfolio's obligations over its entitlements with respect
to each interest rate swap will be accrued and an amount of cash
or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained. If the Portfolio
enters into a swap on other than a net basis, the Portfolio will
maintain the full amount of its obligations under each such swap.
Accordingly, the Portfolio does not treat swaps as senior
securities. The Portfolio may enter into swaps, caps and floors
with member banks of the Federal Reserve System, members of the
New York Stock Exchange (NYSE) or other entities determined to be
creditworthy by Stein Roe, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board. If a default occurs by
the other party to such transactions, the Portfolio will have
contractual remedies pursuant to the agreements related to the
transaction, but such remedies may be subject to bankruptcy and
insolvency laws that could affect the Portfolio's rights as a
creditor. The swap market has grown substantially in recent years
with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations and they are
less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms Stein
Roe believes are advantageous to the Portfolio. In addition,
although the terms of interest rate swaps, caps and floors may
provide for termination, there can be no assurance that the
Portfolio will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.

New financial products continue to be developed and the Portfolio
may invest in any such products as may be developed to the extent
consistent with its investment objective and the regulatory and
federal tax requirements applicable to investment companies.

"When-issued" and "Delayed-delivery" Transactions. The Portfolio
may also purchase and sell interests in Senior Loans and other
portfolio securities on a "when-issued" and "delayed-delivery"
basis. No income accrues to the Portfolio on such Senior Loans in
connection with such purchase transactions prior to the date the
Portfolio actually takes delivery of such Senior Loans. These
transactions are subject to market fluctuation; the value of the
interests in Senior Loans and other portfolio debt securities at
delivery may be more or less than their purchase price, and yields
generally available on such Senior Loans when delivery occurs may
be higher or lower than yields on the Senior Loans obtained
pursuant to such transactions. Because the Portfolio relies on
the buyer or seller, as the case may be, to consummate the
transaction, failure by the other party to complete the
transaction may result in the Portfolio missing the opportunity of
obtaining a price or yield considered to be advantageous. When
the Portfolio is the buyer in such a transaction, however, it will
maintain cash or liquid securities having an aggregate value equal
to the amount of such purchase commitments until payment is made.
The Portfolio will make commitments to purchase such Senior Loans
on such basis only with the intention of actually acquiring these
Senior Loans, but the Portfolio may sell such Senior Loans prior
to the settlement date if such sale is considered to be advisable.
To the extent the Portfolio engages in "when-issued" and "delayed-
delivery" transactions, it will do so for the purpose of acquiring
Senior Loans for its investment portfolio consistent with its
investment objective and policies and not for the purpose of
investment leverage. No specific limitation exists as to the
percentage of the Portfolio's assets that may be used to acquire
securities on a "when-issued" or "delayed-delivery" basis.

Repurchase Agreements. The Portfolio may enter into repurchase
agreements (a purchase of, and a simultaneous commitment to
resell, a financial instrument at an agreed-upon price on an
agreed-upon date) only with member banks of the Federal Reserve
System and member firms of the NYSE. When participating in
repurchase agreements, the Portfolio buys securities from a seller
(e.g., a bank or brokerage firm) with the agreement that the
seller will repurchase the securities at a higher price at a later
date. Such transactions afford an opportunity for the Portfolio
to earn a return on available liquid assets at minimal market
risk, although the Portfolio may be subject to various delays and
risks of loss if the counterparty is unable to meet its obligation
to repurchase. Under the 1940 Act, repurchase agreements are
deemed to be collateralized loans of money by the Portfolio to the
counterparty. In evaluating whether to enter into a repurchase
agreement, Stein Roe will consider carefully the creditworthiness
of the counterparty. If the member bank or member firm that is
the party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to the Bankruptcy Code, the law
regarding the rights of the Portfolio is unsettled. The
securities underlying a repurchase agreement will be marked to
market every business day so that the value of the collateral is
at least equal to the value of the loan, including the accrued
interest thereon, and Stein Roe will monitor the value of the
collateral. No specific limitation exists as to the percentage of
the Portfolio's assets that may be used to participate in
repurchase agreements.

Reverse Repurchase Agreements. The Portfolio may enter into
reverse repurchase agreements with respect to debt obligations
that could otherwise be sold by the Portfolio. A reverse
repurchase agreement is an instrument under which the Portfolio
may sell an underlying debt security and simultaneously obtain the
commitment of the purchaser (a commercial bank or a broker or
dealer) to sell the security back to the Portfolio at an agreed-
upon price on an agreed-upon date. The Portfolio will maintain
cash or liquid securities in an amount sufficient to cover its
obligations with respect to reverse repurchase agreements. The
Portfolio receives payment for such securities only upon physical
delivery or evidence of book entry transfer by its custodian. SEC
regulations require either that securities sold by the Portfolio
under a reverse repurchase agreement be segregated pending
repurchase or that the proceeds be segregated on the Portfolio's
books and records pending repurchase. Reverse repurchase
agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or
restrictions upon the Portfolio's ability to dispose of the
underlying securities. An additional risk is that the market
value of securities sold by the Portfolio under a reverse
repurchase agreement could decline below the price at which the
Portfolio is obligated to repurchase them. Reverse repurchase
agreements will be considered borrowings by the Portfolio and as
such would be subject to the restrictions on borrowing described
in the Statement of Additional Information under "Investment
Restrictions." The Portfolio will not hold more than 5% of the
value of its total assets in reverse repurchase agreements as of
the time the agreement is entered into.

Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by
Stein Roe, other service providers and the issuers in which the
Portfolio invests do not properly process and calculate date-
related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 problem." The Fund's service
providers are taking steps that they believe are reasonably
designed to address the Year 2000 problem, including communicating
with vendors who furnish services, software and systems to the
Fund, to provide that date-related information and data can be
properly processed after January 1, 2000. Many Fund service
providers and vendors, including the Fund's service providers, are
in the process of making Year 2000 modifications to their software
and systems and believe that such modifications will be completed
on a timely basis prior to January 1, 2000. In addition, Year
2000 readiness is one of the factors considered by Stein Roe in
its ongoing selection of issuers in which the Portfolio invests,
to the extent that information is readily available. However, no
assurances can be given that the Fund will not be adversely
affected by these matters.

Although the loan documentation typically contains assurances that
Borrowers will be in compliance with Year 2000 issues, those
issues could affect the ability of Borrowers to meet their payment
obligations.

DISTRIBUTIONS AND INCOME TAXES

Distributions. Income dividends are declared each business day,
paid monthly, and confirmed at least quarterly. Capital gains, if
any, are distributed at least annually, usually in December.
Shares accrue dividends as long as they are issued and outstanding
(i.e., from the date net asset value is determined for the
purchase order to the Redemption Pricing Date of the Repurchase
Offer in which the shares are accepted for repurchase by the
Fund).

Dividend payments are not guaranteed and may vary with each
payment. The Fund does not pay "interest" or guarantee any fixed
rate of return.

If you do not indicate on your application your preferences for
handling distributions, the Fund will automatically reinvest all
distributions in additional shares of the Fund. You can choose
one of the following options for distributions when you open your
account: (1) reinvest all distributions in additional shares of
the Fund; (2) reinvest all distributions in shares of another
fund; (3) receive dividends in cash and reinvest capital gains; or
(4) receive all distributions in cash. Distributions of $10 or
less will automatically be reinvested in additional shares. If
you elect to receive distributions by check and the check is
returned as undeliverable, or if you do not cash a distribution
check within six months of the check date, the distribution will
be reinvested in additional shares.

The Fund is authorized to borrow money subject to certain
restrictions. (See "Other Investment Practices.") Under the 1940
Act, the Fund may not declare any dividend or other distribution
on its shares unless the Fund has, at the time of declaration,
asset coverage of at least 300% of its aggregate indebtedness,
after deducting the amount of the distribution. This limitation
may impair the Fund's ability to maintain its qualification for
taxation as a regulated investment company.

Income Taxes. The Fund intends to satisfy those requirements
relating to the sources of its income, the distribution of its
income, and the diversification of its assets necessary to qualify
for the special tax treatment afforded to regulated investment
companies under the Internal Revenue Code (the "Code") and thereby
be relieved of federal income or excise taxes to the extent that
it distributes its net investment income and net realized capital
gains to shareholders in accordance with the timing requirements
imposed by the Code. For a detailed discussion of tax issues
pertaining to the Fund, see "Additional Income Tax Considerations"
in the Statement of Additional Information.

Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.

You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gains regardless of the length
of time you have held your shares.

You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.

A shareholder who, pursuant to a Repurchase Offer, offers all of
his or her shares for repurchase (and is not considered to own any
other shares pursuant to attribution rules contained in the Code)
may realize a taxable gain or loss depending upon the
shareholder's basis in the shares. Such gain or loss realized on
the disposition of shares (whether pursuant to a Repurchase Offer
or in connection with a sale or other taxable disposition of
shares in a secondary market) generally will be treated as long-
term capital gain or loss if the shares have been held as a
capital asset for more than one year and as short-term capital
gain or loss if held as a capital asset for one year or less.
Starting in 2001, net long-term capital gains realized upon the
disposition of shares held longer than five years will be subject
to a lower maximum capital gains tax rate than is currently
available. If shares are sold at a loss after being held for six
months or less, the loss will be treated as long-term-instead of
short-term-capital loss to the extent of any capital gain
distributions received on those shares. All or a portion of any
loss realized on a sale or exchange of shares of the Fund will be
disallowed if the shareholder acquires other shares within 30 days
before or after the disposition. In such a case, the basis of the
shares acquired will be adjusted to reflect the disallowed loss.

Different tax consequences may apply to shareholders whose shares
are repurchased (other than shareholders who do not offer all of
their shares for repurchase described in the previous paragraph)
and to shareholders who do not offer their shares for repurchase
in connection with the Repurchase Offer. For example, if a
shareholder offers for repurchase fewer than all his shares, the
proceeds received could be treated as a taxable dividend, a return
of capital, or capital gain depending on the portion of shares
repurchased, the Fund's earnings and profits, and the
shareholder's basis in the repurchased shares. Moreover, when
fewer than all shares owned by a shareholder are repurchased
pursuant to a Repurchase Offer, there is a remote possibility that
shareholders whose shares are not repurchased may be considered to
have received a deemed distribution that is taxable to them in
whole or in part. You may wish to consult your tax advisor prior
to offering your shares for repurchase.

Backup Withholding. The Fund may be required to withhold federal
income tax ("backup withholding") from certain payments to a
shareholder-generally distribution payments and redemption
proceeds. Backup withholding may be required if:

* the shareholder fails to furnish its properly certified Social
Security or other tax identification number;
* the shareholder fails to certify that its tax identification
number is correct or that it is not subject to backup withholding
due to the underreporting of certain income;
* the Internal Revenue Service (IRS) informs the Fund that the
shareholder's tax identification number is incorrect.

These certifications are contained in the application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.

The federal income tax discussion set forth above is for general
information only. Prospective investors should consult their
advisors regarding the specific federal and state tax consequences
of purchasing, holding and disposing of shares, as well as the
effects of other state, local and foreign tax laws and any
proposed tax law changes.

MANAGEMENT OF THE FUND

Board of Trustees and Investment Adviser. The Board of Trustees
of the Fund has overall management responsibility for the Fund;
the Board of Managers of the Portfolio has overall management
responsibility for the Portfolio. See "Management" in the
Statement of Additional Information for the names of and other
information about the trustees, managers and officers. Since the
Fund and the Portfolio have the same Board members, they have
adopted conflict of interest procedures to monitor and address
potential conflicts between the interests of the Fund and the
Portfolio.

The investment adviser, Stein Roe & Farnham Incorporated, One
South Wacker Drive, Chicago, IL 60606, is responsible for managing
the investment portfolio of the Portfolio and the business affairs
of the Fund, subject to the direction of their respective Boards.
Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940. Stein Roe is a wholly owned
indirect subsidiary of Liberty Financial Companies, Inc. (Liberty
Financial), which is a majority owned indirect subsidiary of
Liberty Mutual Insurance Company. Stein Roe and its predecessor
have advised and managed mutual funds since 1949 and have been
providing investment advisory services since 1932.

Stein Roe's mutual funds and institutional investment advisory
businesses are part of a larger business unit known as Liberty
Funds Group (LFG) that includes several separate legal entities.
LFG includes certain affiliates of Stein Roe, including Colonial
Management Associates, Inc. (Colonial). The LFG business unit is
managed by a single management team. Colonial and other LFG
entities also share personnel, facilities, and systems with Stein
Roe that may be used in providing administrative or operational
services to the Funds. Colonial is a registered investment
adviser. Stein Roe also has a wealth management business that is
not part of LFG and is managed by a different team. Stein Roe and
the other entities that make up LFG are subsidiaries of Liberty
Financial.

Fees and Expenses. Stein Roe provides administrative services to
the Fund and the Portfolio and portfolio management services to
the Portfolio. Stein Roe is entitled to receive a monthly
administrative fee from the Fund, computed and accrued daily,
based on an annual rate of 0.20% of average net assets and a
monthly management fee from the Portfolio, computed and accrued
daily, based on an annual rate of 0.45% of average net assets of
the Portfolio. However, Stein Roe may waive a portion of its
fees.

Stein Roe provides office space and executive and other personnel
to the Fund and bears any sales or promotional expenses. The Fund
pays all expenses other than those paid by Stein Roe, including
but not limited to printing and postage charges, securities
registration and custodian fees, and expenses incidental to its
organization.

Portfolio Managers. Brian W. Good and James R. Fellows, vice
presidents of Stein Roe, have been primarily responsible for the
day-to-day management of the Portfolio since the Fund and the
Portfolio commenced operations. Mr. Fellows and Mr. Good have
been employed by Stein Roe since April 1998. Prior thereto, Mr.
Good was vice president and portfolio manager at Van Kampen
American Capital since 1989 and Mr. Fellows was vice president and
senior credit analyst at Van Kampen American Capital since 1988.

Transfer Agent. Liberty Funds Services, Inc. (Transfer Agent),
P.O. Box 1722, Boston, MA 02105, a wholly owned subsidiary of
Liberty Financial, is the agent of the Fund for the transfer of
shares, disbursement of dividends, and maintenance of shareholder
accounting records. Under a separate agreement, the Transfer Agent
also provides certain investor accounting services to the
Portfolio.

Distributor. Fund shares are offered for sale through Liberty
Funds Distributor, Inc. (Distributor). The Distributor is a
wholly owned indirect subsidiary of Liberty Financial. The
business address of the Distributor is One Financial Center,
Boston, MA 02111.

Custodian. State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02101, is the custodian of the Fund and the
Portfolio and has custody of the securities and cash. The
custodian, among other things, attends to the collection of
principal and income and payment for and collection of proceeds of
securities bought and sold.

HOW TO BUY SHARES

Your financial advisor can help you establish an appropriate
investment portfolio, buy shares, and monitor your investments.
When the Fund receives your purchase request in "good form," your
shares will be bought at the next calculated net asset value. In
"good form" means that you placed your order with your brokerage
firm or your payment has been received and your application is
complete, including all necessary signatures.

Outlined below are various ways you can purchase shares:

Method Instructions

Through your
financial advisor Your financial advisor can help you establish
your account and buy Fund shares on your behalf.

By check
(new account) For new accounts, send a completed application and
check made payable to the Fund to the transfer
agent, Liberty Funds Services, Inc., P.O. Box
1722, Boston, MA 02105-1722.

By check
(existing account) For existing accounts, fill out and return the
additional investment stub included in your
quarterly statement, or send a letter of
instruction, including your Fund name and account
number with a check made payable to the Fund to
Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.

By exchange You or your financial advisor may acquire shares
by exchanging shares you own in one Fund for
shares of the same class of the Fund at no
additional cost. To exchange by telephone, call
1-800-422-3737. There may be an additional charge
when exchanging from a money market fund.

By wire You may purchase shares by wiring money from your
bank account to your Fund account. To wire funds
to your Fund account, call 1-800-422-3737 to
obtain a control number and the wiring
instructions.

By electronic
funds transfer You may purchase shares by electronically
transferring money from your bank account to your
Fund account by calling 1-800-422-3737. Your
money may take up to two business days to be
invested. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the application.

Automatic
investment plan You can make monthly or quarterly investments
automatically from your bank account to your Fund
account. You can select a pre-authorized amount
to be sent via electronic funds transfer. Be sure
to complete the appropriate section of the
application for this feature.

By dividend
diversification You may automatically invest dividends
distributed by the Fund into the same class of
shares of another fund at no additional sales
charge. To invest your dividends in another fund,
call 1-800-422-3737.

Investment Minimums
Initial Investment $1,000
Subsequent Investments $50
Automatic Investment Plan $50
Retirement Plans $25

The Fund reserves the right to change the investment minimums.
The Fund also reserves the right to refuse a purchase order for
any reason, including if it believes that doing so would be in the
best interest of the Fund and its shareholders.

MULTIPLE SHARE CLASSES

Choosing a Share Class. The Fund offers three classes of shares
in this prospectus-Class A, B and C. Each share class has its own
sales charge and expense structure. Determining which share class
is best for you depends on the dollar amount you are investing and
the number of years for which you are willing to invest.
Purchases of $1 million or more are automatically invested in
Class A shares. Based on your personal situation, your financial
advisor can help you decide which class of shares makes the most
sense for you. The Fund also offers Class Z shares, which are
available only to institutional and other investors through a
separate prospectus.

Sales Charges. You may be subject to an initial sales charge when
you purchase or an early withdrawal charge (EWC) when you offer
your shares for repurchase. These sales charges are described
below. In certain circumstances, these sales charges are waived,
as described below and in the Statement of Additional Information.

Class A Shares. Your purchases of Class A shares generally are at
the public offering price. This price includes a sales charge
that is based on the amount of your investment. The sales charge
you pay on additional investments is based on the amount of your
additional purchase, plus the current value of your account. The
amount of the sales charge differs depending on the amount you
invest as shown in the table below. The table below also shows
the commission paid to the financial advisor firm on sales of
Class A shares.

As a % of % of offering
the public As a % of price paid to
offering your financial
Amount of Purchase price investment advisor firm
- ------------------------------------------------------------------
Less than $100,000 3.50 3.63 3.25
$100,000 to less than $500,000 2.25 2.30 2.00
$500,000 to less than $1,000,000 1.25 1.27 1.00
$1,000,000 or more* 0.00 0.00 0.50

*Class A shares bought without an initial sales charge in accounts
aggregating between $1 million to $5 million at the time of
purchase may be subject to a 0.50% EWC if the shares are sold
within 18 months of the time of each purchase. Class A share
purchases that bring your account value above $1 million but less
than $5 million are subject to a 0.50% EWC if redeemed within 18
months of each purchase date. The 18-month period begins on the
first day of the month following each purchase.

Class A Shares. For Class A share purchases of $1 million or
more, financial advisors receive a commission from the Distributor
as follows:

Amount Purchased Commission %
-------------------------------------
First $5 million 0.50
Over $5 million 0.25*

*Paid over 12 months but only to the extent the shares
remain outstanding.

Reduced Sales Charges for Larger Investments. There are two ways
for you to pay a lower sales charge when purchasing Class A
shares. The first is through Rights of Accumulation. If the
combined value of the Fund accounts maintained by you, your spouse
or your minor children reaches a discount level (according to the
above chart), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90
days of your purchase. By doing so, you would be able to pay the
lower sales charge on all purchases by agreeing to invest a total
of at least $100,000 within 13 months. If your Statement of
Intent purchases are not completed within 13 months, you will be
charged the applicable sales charge. In addition, certain
investors may purchase Class A shares at a reduced sales charge or
net asset value, which is the value of a Fund share excluding any
sales charges. See the Statement of Additional Information for a
description of these situations.

Class B Shares. Your purchases of Class B shares are at the
Fund's net asset value. Class B shares have no front-end sales
charge, but carry an EWC that is imposed only on shares sold prior
to the completion of the periods shown in the chart below. The
EWC generally declines each year and eventually disappears over
time. Class B shares automatically convert to Class A shares
after eight years. The Distributor pays the financial advisor
firm an up-front commission of 3.25% on sales of Class B shares.

Holding period after purchase % deducted when shares are sold
Through first year 3.25
Through second year 3.00
Through third year 2.00
Through fourth year 1.50
Through fifth year 1.00
Longer than five years 0.00

Class C Shares. Like Class B shares, your purchases of Class C
shares are at the Fund's net asset value. Although Class C shares
have no front-end sales charge, they carry an EWC of 1% that is
applied to shares sold within the first year after they are
purchased. After holding shares for one year, you may sell them
at any time without paying an EWC. Class C shares do not convert
into Class A shares. The Distributor pays the financial advisor
firm an up-front commission of 1.00% on sales of Class C shares.

Distribution and Service Fees. In addition to an EWC, each class
of shares is authorized under a distribution plan (Plan) to use
the assets attributable to a class to finance certain activities
relating to the distribution of shares to investors. These
include marketing and other activities to support the distribution
of the Class A, B, and C shares and the services provided to you
by your financial advisor. The Plan was approved and reviewed in
a manner consistent with Rule 12b-1 under the 1940 Act, which
regulates the manner in which an open-end investment company may
directly or indirectly bear the expenses of distributing its
shares. Although the Fund is not an open-end investment company,
it has undertaken to comply with the terms of Rule 12b-1 as a
condition of a pending exemptive order under the 1940 Act to
permit it to have a multi-class structure, EWCs, and distribution
fees.

Under the Plan, distribution and service fees paid by the Fund to
the Distributor may equal up to an annual rate of 0.35% of average
daily net assets attributable to Class A shares, 0.70% of average
daily net assets attributable to Class B shares, and 0.85% of
average daily net assets attributable to Class C shares,
respectively. Since the distribution and service fees are payable
regardless of the Distributor's expenses, the Distributor may
realize a profit from the fees. The Plan authorizes any other
payments by the Fund to the Distributor and its affiliates to the
extent that such payments might be construed to be indirect
financing of the distribution of Fund shares.

The trustees believe that the Plan could be a significant factor
in the growth and retention of Fund assets resulting in a more
advantageous expense ratio and increased investment flexibility
which could benefit each class of Fund shareholders. The Plan
will continue in effect from year to year so long as continuance
is specifically approved at least annually by a vote of the
trustees, including the trustees who are not interested persons of
the Fund and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan
(Independent Trustees), cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may not be amended to
increase the fee materially without approval by a vote of a
majority of the outstanding voting securities of the relevant
class of shares and all material amendments of the Plan must be
approved by the trustees in the manner provided in the foregoing
sentence. The Plan may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of a majority of
the outstanding voting securities of the relevant class of shares.
The continuance of the Plan will only be effective if the
selection and nomination of the Independent Trustees is effected
by such Independent Trustees.

Early Withdrawal Charges (EWCs). Certain investments in Class A,
B and C shares are subject to an EWC. You will pay the EWC only
on shares you offer for repurchase within a certain amount of time
after purchase. The EWC generally declines each year until there
is no charge for shares repurchased. The EWC is applied to the
net asset value at the time of purchase or repurchase, whichever
is lower. For purposes of calculating the EWC, the start of the
holding period is the first day of the month following each
purchase. Shares you purchase with reinvested dividends or
capital gains are not subject to an EWC. When shares are
repurchased, the Fund will automatically repurchase those shares
not subject to an EWC and then those you have held the longest.
This policy helps reduce and possibly eliminate the potential
impact of the EWC. In certain circumstances, EWCs may be waived,
as described in the Statement of Additional Information.

Conversion Feature. Class B shares will automatically convert to
Class A shares after eight years and after that date, Class B
shares will no longer be subject to the distribution fees
applicable to Class B shares. Conversion will be on the basis of
the relative net asset values per share, without the imposition of
any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of Class B shares
from asset-based distribution expenses applicable to such shares
at such time as the Class B shares have been outstanding for a
duration sufficient for the Distributor to have been substantially
compensated for distribution-related expenses incurred in
connection with those shares. Class C shares do not convert to
Class A shares. Therefore, holders of Class C shares will
continue to bear the asset-based distribution fees on the Class C
shares for as long as they hold such shares.

How to Exchange Shares. Shareholders of the Fund whose shares are
repurchased during a Repurchase Offer may exchange those shares
for shares of the same class of a fund distributed by Liberty
Funds Distributor, Inc. at net asset value. Fund shareholders
will not be able to participate in this exchange privilege at any
time other than in connection with a Repurchase Offer. If your
shares are subject to an EWC, you will not be charged an EWC upon
the exchange. However, when you sell the shares acquired through
the exchange, the shares sold may be subject to a CDSC (a CDSC is
the deferred sales charge applicable to the open-end Liberty
Funds) or EWC, depending upon when you originally purchased the
shares you exchanged. For purposes of computing the CDSC or EWC,
the length of time you have owned your shares will be computed
from the date of your original purchase and the applicable CDSC or
EWC will be the EWC of the original Fund.

Unless your account is part of a tax-deferred retirement plan, an
exchange is a taxable event. Therefore, you may realize a gain or
a loss for tax purposes. The Fund may terminate your exchange
privilege if Stein Roe determines that your exchange activity is
likely to adversely impact its ability to manage the Portfolio.

PERIODIC REPURCHASE OFFERS

The Board has adopted share repurchase policies as fundamental
policies. Those policies, which may not be changed without the
vote of the holders of a majority of the Fund's outstanding voting
securities, provide that each calendar quarter, the Fund intends
to make a Repurchase Offer to repurchase a portion of the
outstanding shares from shareholders who request repurchases. The
price of the repurchases of shares normally will be the net asset
value per share determined as of the close of business (4 p.m.,
Eastern time) on the date the Repurchase Offer ends or within a
maximum of 14 days after the Repurchase Offer ends as described
below.

Repurchase Procedure. At the beginning of each Repurchase Offer,
shareholders will be notified in writing about the Repurchase
Offer, how they may request that the Fund repurchase their shares
and the deadline for shareholders to provide their repurchase
requests to the Distributor (the "Repurchase Request Deadline"),
which is the date the Repurchase Offer ends. The time between the
notification of the shareholders and the Repurchase Request
Deadline may vary from no more than six weeks to no less than
three weeks. For each Repurchase Offer, it is anticipated that
each Repurchase Request Deadline will be on the 15th day in each
of the months of March, June, September and December, or, if the
15th day is not a business day, the next business day. The
repurchase price of the shares will be the net asset value as of
the close of the NYSE on the date on which the repurchase price of
shares will be determined (the "Repurchase Pricing Date"). It is
anticipated that normally the Repurchase Pricing Date will be the
same date as the Repurchase Request Deadline, and if so, the
Repurchase Request Deadline will be set for a time no later than
the close of the NYSE on such date. The Fund has determined that
the Repurchase Pricing Date may occur no later than the 14th day
after the Repurchase Request Deadline or the next business day if
the 14th day is not a business day.

The Board may establish other policies for repurchases of shares
that are consistent with the 1940 Act and other pertinent laws.
Shares offered for repurchase by shareholders by any Repurchase
Request Deadline will be repurchased subject to the aggregate
repurchase amounts established for that Repurchase Request
Deadline. Repurchase proceeds will be paid to shareholders in
cash within seven days after each Repurchase Pricing Date. The
end of the seven days is referred to as the "Repurchase Payment
Deadline."

Repurchase offers and the need to fund repurchase obligations may
affect the ability of the Fund to be fully invested, which may
reduce returns. Moreover, diminution in the size of the Fund
through repurchases without offsetting new sales may result in
untimely sales of Senior Loans and a higher expense ratio and may
limit the ability of the Fund to participate in new investment
opportunities. The Fund may borrow to meet repurchase
obligations, which entails certain risks and costs (see
"Borrowing"). The Fund may also sell Senior Loans to meet
repurchase obligations which, in certain circumstances, may
adversely affect the market for Senior Loans and reduce the Fund's
value.

Repurchase Amounts. The Board, in its sole discretion, will
determine the number of shares that the Fund will offer to
repurchase (the "Repurchase Offer Amount") for a given Repurchase
Request Deadline. However, the Repurchase Offer Amount will be at
least 5% and no more than 25% of the total number of shares
outstanding on the Repurchase Request Deadline.

If shareholders offer for repurchase more than the Repurchase
Offer Amount for a given Repurchase Offer, the Fund may repurchase
an additional amount of shares of up to 2% of the shares
outstanding on the Repurchase Request Deadline. If the Fund
determines not to repurchase more than the Repurchase Offer
Amount, or if the Fund determines to repurchase the additional 2%
of the shares outstanding, but Fund shareholders offer shares for
repurchase in excess of that amount, the Fund will repurchase the
shares on a pro rata basis. The Fund may, however, accept all
shares offered for repurchase by shareholders who own less than
100 shares and who offer all their shares, before accepting on a
pro rata basis shares offered by other shareholders. In the event
there is an oversubscription of a Repurchase Offer, shareholders
may be unable to liquidate all or a given percentage of their
investment in the Fund at net asset value during the Repurchase
Offer.

Notices to Shareholders. Notice of each quarterly Repurchase
Offer (and any additional discretionary repurchase offers) will be
given to each beneficial owner of shares between 21 and 42 days
before each Repurchase Request Deadline. The notice will contain
information shareholders should consider in deciding whether or
not to offer their shares for repurchase. The notice will also
include detailed instructions on how to offer shares for
repurchase. The notice will state the Repurchase Offer Amount.
The notice will also identify the dates of the Repurchase Request
Deadline, scheduled Repurchase Pricing Date, and scheduled
Repurchase Payment Deadline. The notice will describe the risk of
fluctuation in the net asset value between the Repurchase Request
Deadline and the Repurchase Pricing Date, if such dates do not
coincide, and the possibility that the Fund may use an earlier
Repurchase Pricing Date than the scheduled Repurchase Pricing Date
under certain circumstances (if the scheduled Repurchase Pricing
Date is not the Repurchase Request Deadline). The notice will
describe (i) the procedures for shareholders to offer their shares
for repurchase, (ii) the procedures for the Fund to repurchase
shares on a pro rata basis, (iii) the circumstances in which the
Fund may suspend or postpone a Repurchase Offer, and (iv) the
procedures that will enable shareholders to withdraw or modify
their offers of shares for repurchase until the Repurchase Request
Deadline. The notice will set forth the net asset value of the
shares to be repurchased no more than seven days before the date
of notification, and how shareholders may ascertain the net asset
value after the notification date.

Repurchase Price. The current net asset value of the shares is
computed daily. The Board has determined that the time at which
the net asset value will be computed will be as of the close of
regular session trading on the NYSE. You may call 1-800-345-6611
to learn the net asset value per share. The notice of the
Repurchase Offer will also provide information concerning the net
asset value per share, such as the net asset value as of a recent
date or a sampling of recent net asset values, and a toll-free
number for information regarding the Repurchase Offer.

Suspension or Postponement of Repurchase Offer. The Fund may
suspend or postpone a repurchase offer only: (a) if making or
effecting the repurchase offer would cause the Fund to lose its
status as a regulated investment company under the Internal
Revenue Code; (b) for any period during which the NYSE or any
market on which the securities owned by the Fund are principally
traded is closed, other than customary weekend and holiday
closings, or during which trading in such market is restricted;
(c) for any period during which an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable, or during which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets; or (d) for such other periods as the SEC may by order
permit for the protection of shareholders of the Fund.

Liquidity Requirements. The Fund and the Portfolio must maintain
liquid assets equal to their Repurchase Offer Amount from the time
that the notice is sent to shareholders until the Repurchase
Pricing Date. The Fund and the Portfolio will ensure that a
percentage of their respective net assets equal to at least 100%
of the Repurchase Offer Amount consists of assets (a) that can be
sold or disposed of in the ordinary course of business at
approximately the price at which the Fund or the Portfolio, as
applicable, has valued the investment within the time period
between the Repurchase Request Deadline and the Repurchase Payment
Deadline; or (b) that mature by the Repurchase Payment Deadline.

The Board of the Portfolio has adopted procedures that are
reasonably designed to ensure that the assets are sufficiently
liquid so that the Fund and the Portfolio can comply with the
Repurchase Offer and the liquidity requirements described in the
previous paragraph. If, at any time, the Fund or the Portfolio
falls out of compliance with these liquidity requirements, their
respective Boards will take whatever action they deem appropriate
to ensure compliance.

NET ASSET VALUE

The purchase or redemption price of shares is the net asset value
per share. The Fund determines the net asset value of its shares
as of the close of regular session trading on the NYSE (currently
4 p.m., Eastern time) by dividing the difference between the
values of its assets and liabilities by the number of shares
outstanding. The Portfolio allocates net asset value, income, and
expenses to its feeder funds in proportion to their respective
interests in the Portfolio. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, the net asset value should be determined
on any such day, in which case the determination will be made at 4
p.m., Eastern time. The value of the Portfolio will be determined
by Stein Roe, following guidelines established and periodically
reviewed by the Board. Interests in Senior Loans will be valued
at fair value, which approximates market value. In determining
fair value, Stein Roe will consider on an ongoing basis, among
other factors, (i) the creditworthiness of the Borrower; (ii) the
current interest rate, period until next interest rate reset, and
maturity of such Senior Loan interests; and (iii) recent prices in
the market for instruments of similar quality, rate, and period
until next interest rate reset and maturity. It is expected that
the Fund's net asset value will fluctuate as a function of
interest rate and credit factors. Although the Fund's net asset
value will vary, Stein Roe expects the Portfolio's policy of
acquiring interests in floating or variable rate Senior Loans to
minimize fluctuations in net asset value as a result of changes in
interest rates. Accordingly, Stein Roe expects the value of the
investment portfolio to fluctuate significantly less than a
portfolio of fixed-rate, longer term obligations as a result of
interest rate changes. Stein Roe believes that Lenders selling
Senior Loan interests or otherwise involved in a Senior Loan
transaction may tend, in valuing Senior Loan interests for their
own account, to be less sensitive to interest rate and credit
quality changes and, accordingly, Stein Roe does not intend to
rely solely on such valuations in valuing the Senior Loan
interests for the Portfolio's account. In addition, because a
secondary trading market in Senior Loans has not yet fully
developed, in valuing Senior Loans, Stein Roe may not rely solely
on, but may consider, to the extent Stein Roe believes such
information to be reliable, prices or quotations provided by
banks, dealers or pricing services with respect to secondary
market transactions in Senior Loans. To the extent that an active
secondary market in Senior Loan interests develops to a reliable
degree, Stein Roe may rely to an increasing extent on such market
prices and quotations in valuing the Senior Loan interests in the
Portfolio. Other long-term debt securities for which market
quotations are not readily available are valued at fair value
based on valuations provided by pricing services approved by the
Board, which may employ electronic data processing techniques,
including a matrix system, to determine valuations. In certain
circumstances, portfolio securities will be valued at the last
sale price on the exchange that is the primary market for such
securities, or the last quoted bid price for those securities for
which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day.
The value of interest rate swaps, caps, and floors will be
determined in accordance with a formula and then confirmed
periodically by obtaining a quotation. Short-term debt securities
with remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by Stein Roe based on quotations for comparable
securities. Other assets and securities held by the Portfolio for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.

PERFORMANCE INFORMATION

The Fund seeks to provide an effective yield that is higher than
other short-term instrument alternatives. From time to time, the
Fund may include its current and/or effective yield based on
various specific time periods. Yields will fluctuate from time to
time and are not necessarily representative of future results.

The current yield is calculated by annualizing the most recent
monthly distribution (i.e., multiplying the distribution amount by
365/31 for a 31 day month) and dividing the product by the current
maximum offering price. The effective yield is calculated by
dividing the current yield by 365/31 and adding 1. The resulting
quotient is then taken to the 365/31st power and reduced by 1.
The result is the effective yield.

On occasion, the Fund may compare its yield to: (a) LIBOR, quoted
daily in the Wall Street Journal; (b) the CD Rate as quoted daily
in the Wall Street Journal as the average of top rates paid by
major New York banks on primary new issues of negotiable CDs,
usually on amounts of $1 million or more; (c) the Prime Rate,
quoted daily in The Wall Street Journal as the base rate on
corporate loans at large U.S. money center commercial banks; (d)
one or more averages compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the
performance of money market mutual funds; (e) the average yield
reported by the Bank Rate Monitor National IndexTM for money
market deposit accounts offered by the 100 leading banks and
thrift institutions in the ten largest standard metropolitan
statistical areas; (f) yield data published by Lipper, Inc.; (g)
the yield on an investment in 90-day Treasury bills on a rolling
basis, assuming quarterly compounding; or (h) the yield on an
index of loan funds comprised of all continually offered closed-
end bank loan funds, as categorized by Lipper (the "loan fund
index"). In addition, the Fund may compare the Prime Rate, the
Donoghue's averages and the other yield data described above to
each other. Yield comparisons should not be considered indicative
of the Fund's yield or relative performance for any future period.

Advertisements and communications to present or prospective
shareholders also may cite a total return for any period. Total
return is calculated by subtracting the net asset value of a
single purchase of shares at a given date from the net asset value
of those shares (assuming reinvestment of distributions) or a
later date. The difference divided by the original net asset
value is the total return. The Fund may include information about
the total return on the Loan Fund Index, and compare that to the
total return of the Fund and other indices.

In calculating the Fund's total return, all dividends and
distributions are assumed to be reinvested in additional shares of
the Fund at net asset value. Therefore, the calculation of the
Fund's total return and effective yield reflects the effect of
compounding. The calculations of total return, current yield and
effective yield do not reflect the amount of any shareholder
income tax liability, which would reduce the performance quoted.
If the Fund's fees or expenses are waived or reimbursed, the
Fund's performance will be higher.

Finally, the Fund may include information on the history of its
net asset value per share and the net asset value per share of the
Loan Fund Index, including comparisons between them, in
advertisements and other material furnished to present and
prospective shareholders. Information about the performance of
the Fund or other investments is not necessarily indicative of
future performance and should not be considered a representative
of what an investor's yield or total return may be in the future.

ORGANIZATION AND DESCRIPTION OF SHARES

The Fund is a Massachusetts business trust organized under an
Agreement and Declaration of Trust (Declaration of Trust) dated
August 13, 1998, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the Fund's
shareholders or its trustees. The Fund offers four classes of
shares-Class A, Class B, Class C, and Class Z.

Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Fund could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust.
However, the Declaration of Trust provides that persons extending
credit to, contracting with, or having any claim against the Fund
shall look only to its assets for payment under such credit,
contract or claim, and that the shareholders, trustees and
officers of the Fund shall have no personal liability therefor.
The Declaration of Trust requires that notice of such disclaimer
of liability be given in each contract, instrument or undertaking
executed or made on behalf of the Fund. Further, the Declaration
of Trust provides for indemnification of any shareholder against
any loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the Fund
was unable to meet its obligations.

The shares are not, and are not expected to be, listed for trading
on any national securities exchange nor, to the Fund's knowledge,
is there, or is there expected to be, any secondary trading market
in the shares.

Anti-Takeover Provisions in the Declaration of Trust. The
Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to
acquire control of the Fund. In addition, in the event a
secondary market were to develop in the shares, such provisions
could have the effect of depriving holders of shares of an
opportunity to sell their shares at a premium over prevailing
market prices.

The Declaration of Trust requires the favorable vote of the
holders of not less than three-fourths of the outstanding shares
then entitled to vote to authorize certain transactions, unless at
least three-fourths of the members of the Board then in office and
at least three-fourths of the non-interested trustees who have
acted in such capacities for at least 12 months (or since
commencement of operation if that period is less than 12 months)
authorize such transaction and then only a vote of the majority of
the holders of the outstanding shares then entitled to vote is
required.

The Board has determined that the voting requirements described
above, which are greater than the minimum requirements under
Massachusetts law or the 1940 Act, are in the best interests of
shareholders generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of
these provisions.

Status of Shares. The Board of Trustees may classify or
reclassify any issued or unissued shares of the Fund into shares
of any class by redesignating such shares or by setting or
changing in any one or more respects, from time to time, prior to
the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of repurchase of such
shares. Any such classification or reclassification will comply
with the provisions of the 1940 Act.

As of October 28, 1999, the following shares of the Fund were
outstanding:

(1) (2) (3) (4)
Amount Amount held by Fund Amount Outstanding
Title of Class Authorized or for its Account Exclusive of
Amount Shown
Under (3)
- -------------- ---------- ------------------ -----------------
Class A 10,000,000 0 0
Class B 10,000,000 0 0
Class C 10,000,000 0 0
Class Z 10,000,000 0 89,703

MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS

The Fund seeks to achieve its objective by investing all of its
assets in another closed-end fund having an investment objective
identical to that of the Fund. The initial shareholder of the
Fund approved this policy of permitting the Fund to act as a
feeder fund by investing in the Portfolio. Please refer to
"Investment Objective and Policies" for a description of the
investment objectives, policies, and restrictions of the
Portfolio. The management and expenses of both the Fund and the
Portfolio are described under "Fund Expenses" and "Management of
the Fund-Fees and Expenses." The Fund bears its proportionate
share of Portfolio expenses.

Stein Roe has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.

The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders. The fundamental policies of the Fund,
and the corresponding fundamental policies of the Portfolio, can
be changed only with shareholder approval.

If the Fund, as a Portfolio investor, is requested to vote on a
proposed change in a fundamental policy of the Portfolio or any
other matter pertaining to the Portfolio (other than continuation
of the business of the Portfolio after withdrawal of another
investor), the Fund will solicit proxies from its shareholders and
vote its interest in the Portfolio for and against such matters
proportionately to the instructions to vote for and against such
matters received from the Fund's shareholders. The Fund will vote
shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter receiving
a majority of votes cast by the Fund's shareholders will receive a
majority of votes cast by all Portfolio investors. If other
investors hold a majority interest in the Portfolio, they could
have voting control over the Portfolio.

In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of the Fund would consider what action might be taken, including
changes to the Fund's fundamental policies, withdrawal of the
Fund's assets from the Portfolio and investment of such assets in
another pooled investment entity, or the retention of another
investment adviser. Any of these actions would require the
approval of the Fund's shareholders. The Fund's inability to find
a substitute master fund or comparable investment management could
have a significant impact upon its shareholders' investments. Any
withdrawal of the Fund's assets could result in a distribution in
kind of Senior Loans (as opposed to a cash distribution) to the
Fund. Should such a distribution occur, the Fund would incur
brokerage fees or other transaction costs in converting such
Senior Loans to cash. In addition, a distribution in kind could
result in a less diversified portfolio of the Fund and could
affect the liquidity of the Fund.

The Portfolio may permit other investment companies and/or other
institutional investors to invest, but members of the general
public may not invest directly in the Portfolio. Other investors
in the Portfolio are not required to sell their shares at the same
public offering price as the Fund and could incur different
administrative fees, expenses, and sales commissions than the
Fund. Therefore, Fund shareholders might have different
investment returns than shareholders in another investment company
that invests exclusively in the Portfolio. Investment by such
other investors in the Portfolio would provide funds for the
purchase of additional Senior Loans and would tend to reduce the
Portfolio's operating expenses as a percentage of its net assets.
Conversely, large-scale redemptions by any such other investors in
the Portfolio could result in untimely liquidations of the
Portfolio's Senior Loans, loss of investment flexibility, and
increases in the operating expenses of the Portfolio as a
percentage of its net assets. As a result, the Portfolio's
security holdings may become less diverse, resulting in increased
risk.

Information regarding any other investors in the Portfolio may be
obtained by writing to Stein Roe Floating Rate Limited Liability
Company, Suite 3300, One South Wacker Drive, Chicago, IL 60606 or
by calling 800-426-3750. Stein Roe may provide administrative or
other services to one or more such investors.

SHAREHOLDER REPORTS

The Fund issues reports to its shareholders semi-annually that
include financial information.

FINANCIAL STATEMENTS

The Fund will furnish without charge, when available, copies of
its Annual Report and any subsequent Semi-Annual Report to
shareholders upon request to the Fund, One South Wacker Drive,
Chicago, Illinois 60606, toll-free 1-800-422-3737.

TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION

Page

The Fund....................................................2
Investment Policies.........................................2
Portfolio Investments and Strategies........................3
Investment Restrictions....................................11
Repurchase Offer Fundamental Policy........................13
Management.................................................14
Financial Statements.......................................17
Principal Shareholders.....................................17
Investment Advisory and Other Services.....................18
Distributor................................................20
Transfer Agent.............................................22
Custodian..................................................22
Independent Accountants....................................22
Portfolio Transactions.....................................22
Additional Income Tax Considerations.......................27
Investment Performance.....................................28
Appendix-Ratings...........................................29

[LOGO] LIBERTY
COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc.
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com

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

<PAGE>

Statement of Additional Information Dated November 1, 1999

LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND

Suite 3300, One South Wacker Drive, Chicago, IL 60606
800-322-0593

This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with the Fund's Prospectus dated November 1, 1999 and
any supplements thereto. A Prospectus may be obtained at no
charge by telephoning 800-322-0593.

TABLE OF CONTENTS
Page

<PAGE>

THE FUND

Liberty-Stein Roe Advisor Floating Rate Fund ("Fund") is a
non-diversified, closed-end management investment company. The
Fund is engaged in a continuous public offering of its shares.
The Fund makes Repurchase Offers on a quarterly basis to
repurchase between 5% and 25% of its outstanding shares at the
then current net asset value of the shares. Capitalized terms
used in this Statement of Additional Information and not otherwise
defined have the meanings given them in the Fund's Prospectus.
The Fund's name was changed on November 4, 1998, from Stein Roe
Floating Rate Income Trust to Stein Roe Floating Rate Income Fund.
The Fund's name was changed on October 18, 1999, from Stein Roe
Floating Rate Income Fund to Liberty-Stein Roe Advisor Floating
Rate Fund. The Fund offers four classes of shares-Classes A, B,
C, and Z.

Stein Roe & Farnham Incorporated ("Stein Roe") provides
administrative and accounting and recordkeeping services to the
Fund and the Portfolio (described below) and provides investment
advisory services to the Portfolio.

Special Considerations Regarding Master Fund/Feeder Fund
Structure. Rather than invest in securities directly, the Fund
seeks to achieve its objective by pooling its assets with those of
other investment companies for investment in Stein Roe Floating
Rate Limited Liability Company (the "Portfolio"), which has the
same investment objective and substantially the same investment
policies as the Fund. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. For
more information, please refer to the Prospectus under the caption
"Master Fund/Feeder Fund: Structure and Risk Factors." The Fund's
investment experience will correspond directly to the investment
experience of the Portfolio.

INVESTMENT POLICIES

The following information supplements the discussion of the
investment objectives and policies of the Fund and of the
Portfolio described in the Prospectus. In pursuing its objective,
the Fund and the Portfolio will invest as described below and may
employ the investment techniques described in the Prospectus and
elsewhere in this Statement of Additional Information. The
investment objective is a non-fundamental policy and may be
changed by the Board without the approval of a "majority of the
outstanding voting securities"/1/ of the Fund or Portfolio, as
applicable.

- -----------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy or (ii) more than 50% of the
outstanding shares.
- ------------------

The investment objective of the Fund and of the Portfolio is
to provide a high level of current income, consistent with
preservation of capital. To achieve this objective the Portfolio
invests primarily in a portfolio of Senior Loans to Borrowers that
operate in a variety of industries and geographic regions
(including domestic and foreign entities).

Under normal market conditions, at least 80% of the
Portfolio's total assets will be invested in Senior Loans of
domestic Borrowers or foreign Borrowers (so long as Senior Loans
to such foreign Borrowers are U.S. dollar denominated and payments
of interest and repayments of principal pursuant to such Senior
Loans are required to be made in U.S. dollars). Although most
Senior Loans are secured, the Portfolio may invest up to 20% of
its total assets in interests in Senior Loans that are not secured
by any collateral and in other permitted investments (as described
below).

In addition, during normal market conditions, the Portfolio
may invest up to 20% of its total assets (including assets
maintained by the Portfolio as a reserve against any additional
loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants,
equity securities and, in limited circumstances, junior debt
securities acquired in connection with the Portfolio's investments
in Senior Loans. Such high quality, short-term securities may
include commercial paper rated at least Baa, P-3 or higher by
Moody's or BBB, A-3 or higher by S&P (or if unrated, determined by
Stein Roe to be of comparable quality), interests in short-term
loans and short-term loan participations of Borrowers having
short-term debt obligations rated or a short-term credit rating at
least in such rating categories (or having no such rating,
determined by Stein Roe to be of comparable quality), certificates
of deposit and bankers' acceptances and securities issued or
guaranteed by the U.S. government, its agencies or
instrumentalities. Such high quality, short-term securities may
pay interest at rates that are periodically redetermined or may
pay interest at fixed rates. For more information, please refer
to the Prospectus under the caption "Investment Objectives and
Policies."

PORTFOLIO INVESTMENTS AND STRATEGIES

The following sets forth information about the investment
policies of the Fund and the Portfolio and the types of securities
the Portfolio may buy. Please read this information together with
information in the Prospectus under the caption "How the Fund
Invests."

Senior Loans. Senior Loans generally are arranged through
private negotiations between a Borrower and the Lenders
represented in each case by one or more Agents of the several
Lenders. Senior Loans in which the Portfolio will purchase
interests generally pay interest at rates that are periodically
redetermined by reference to a base lending rate plus a premium.
These base lending rates are generally Prime Rate, LIBOR, the CD
rate or other base lending rates used by commercial lenders. The
Senior Loans in the Portfolio's investment portfolio will at all
times have a dollar-weighted average time until next interest rate
redetermination of 90 days or less. Because of prepayment
provisions, the actual remaining maturity of Senior Loans may vary
substantially from the stated maturity of such loans. Stein Roe
estimates actual average maturity of Senior Loans in the portfolio
will be approximately 18-24 months.

Participations and Assignments. The Portfolio may invest in
Participations in Senior Loans, may purchase Assignments of
portions of Senior Loans from third parties and may act as one of
the group of Primary Lenders.

When the Portfolio purchases a Participation, the Portfolio
will typically enter into a contractual relationship with the
Lender selling the Participation, but not with the Borrower. As a
result, the Portfolio will assume the credit risk of both the
Borrower and the Lender selling the Participation, and the
Portfolio may not directly benefit from the collateral supporting
the Senior Loan in which it has purchased the Participation. The
Portfolio will purchase a Participation only when the Lender
selling the Participation, and any other institution
interpositioned between such Lender and the Portfolio at the time
of investment have outstanding debt obligations rated investment
grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or, if unrated, determined by Stein Roe to be of
comparable quality. The rights of the Portfolio when it acquires
a Participation may be different from, and more limited than, the
rights of Primary Lenders or of persons who acquire an Assignment.
The Portfolio may pay a fee or forgo a portion of interest
payments to the Lender selling a Participation or Assignment
pursuant to the terms of such Participation or Assignment.

Debt Restucturing. The Portfolio may purchase and retain in
its portfolio an interest in a Senior Loan to a Borrower that has
filed for protection under the federal bankruptcy laws or has had
an involuntary bankruptcy petition filed against it by its
creditors. Stein Roe's decision to purchase or retain such an
interest will depend on its assessment of the likelihood that the
Portfolio ultimately will receive full repayment of the principal
amount of the Senior Loan interests, the likely duration, if any,
of a lapse in the scheduled repayment of principal, and prevailing
interest rates. At times, in connection with the restructuring of
a Senior Loan either outside of bankruptcy court or in the context
of bankruptcy court proceedings, the Portfolio may determine or be
required to accept equity securities or junior debt securities in
exchange for all or a portion of a Senior Loan interest.
Depending upon, among other things, Stein Roe's evaluation of the
potential value of such securities in relation to the price that
could be obtained by the Portfolio at any given time upon sale
thereof, the Portfolio may determine to hold such securities in
its portfolio. Any equity security or junior debt security held
by the Portfolio will not be treated as a Senior Loan and thus
will not count toward the 80% of total assets that normally will
be invested in Senior Loans.

Bridge Financing. The Portfolio may acquire interests in
Senior Loans that are designed to provide temporary or "bridge"
financing to a Borrower pending the sale of identified assets or
the arrangement of longer-term loans or the issuance and sale of
debt obligations. A Borrower's use of a bridge loan involves a
risk that the Borrower may be unable to locate permanent financing
to replace the bridge loan, which may impair the Borrower's
perceived creditworthiness.

Investment in warrants, equity securities and junior debt
securities entails certain risks in addition to those associated
with investments in Senior Loans. Warrants and equity securities
have a subordinate claim on a Borrower's assets as compared with
debt securities, and junior debt securities have a subordinate
claim on such assets as compared with Senior Loans. As such, the
values of warrants and equity securities generally are more
dependent on the financial condition of the Borrower and less
dependent on fluctuations in interest rates than are the values of
many debt securities. The values of warrants, equity securities
and junior debt securities may be more volatile than those of
Senior Loans and thus may have an adverse impact on the ability of
the Portfolio to minimize fluctuations in its net asset value.

Defensive Investment Policy. If Stein Roe determines that
market conditions temporarily warrant a defensive investment
policy, the Portfolio may (but is not required to) invest, subject
to its ability to liquidate its relatively illiquid portfolio of
Senior Loans, up to 100% of its assets in cash and high quality,
short-term debt securities. The Portfolio may also engage in
interest rate and other hedging transactions, lend portfolio
holdings, purchase and sell interests in Senior Loans and other
portfolio debt securities on a "when-issued" or "delayed-delivery"
basis, and enter into repurchase and reverse repurchase
agreements. These investment practices involve certain special
risk considerations. Stein Roe may use some or all of the
following investment practices when, in the opinion of Stein Roe,
their use is appropriate. Although Stein Roe believes that these
investment practices may further the Portfolio's investment
objective, no assurance can be given that the utilization of these
investment practices will achieve that result.

Structured Notes. The Portfolio may invest up to 5% of its
total assets in structured notes, including "total rate of return
swaps" with rates of return determined by reference to the total
rate of return on one or more loans referenced in such notes. The
rate of return on the structured note may be determined by
applying a multiplier to the rate of total return on the
referenced loan or loans. Application of a multiplier is
comparable to the use of financial leverage, which is a
speculative technique. Leverage magnifies the potential for gain
and the risk of loss, because a relatively small decline in the
value of a referenced note could result in a relatively large loss
in the value of a structured note. Structured notes are treated
as Senior Loans for purposes of the Portfolio's policy of normally
investing at least 80% of its assets in Senior Loans.

Borrowing. The Portfolio may borrow money for the purpose of
obtaining short-term liquidity in connection with Repurchase
Offers for Fund shares and for temporary, extraordinary or
emergency purposes. Under the requirements of the 1940 Act, the
Portfolio, immediately after any such borrowings, must have an
asset coverage of at least 300%. Asset coverage is the ratio that
the value of the total assets of the Portfolio, less all
liabilities and indebtedness not represented by senior securities
(as that term is defined in the 1940 Act), bears to the aggregate
amount of any such borrowings by the Portfolio.

The rights of any lenders to the Portfolio to receive
payments of interest on and repayments of principal of such
borrowings will be senior to those of the holders of Portfolio
shares, and the terms of any such borrowings may contain
provisions that limit certain activities of the Portfolio,
including the payment of dividends to holders of Portfolio shares
in certain circumstances. Further, the terms of any such
borrowings may, and the provisions of the 1940 Act do (in certain
circumstances), grant lenders certain voting rights in the event
of default in the payment of interest or repayment of principal.
In the event that such provisions would impair the Portfolio's
status as a regulated investment company, the Portfolio, subject
to the ability of the Portfolio to liquidate its relatively
illiquid portfolio, intends to repay the borrowings. Interest
payments and fees incurred in connection with any such borrowings
will reduce the amount of net income available for payment to
shareholders. The Portfolio may enter into an agreement with a
financial institution providing for a facility, the proceeds of
which may be used to finance, in part, repurchases.

Derivatives. The Portfolio may enter into various interest
rate hedging and risk management transactions. Certain of these
interest rate hedging and risk management transactions may be
considered to involve derivative instruments. A derivative is a
financial instrument whose performance is derived at least in part
from the performance of an underlying index, security or asset.
The values of certain derivatives can be affected dramatically by
even small market movements, sometimes in ways that are difficult
to predict. There are many different types of derivatives with
many different uses. The Portfolio expects to enter into these
transactions primarily to seek to preserve a return on a
particular investment or portion of its portfolio, and may also
enter into such transactions to seek to protect against decreases
in the anticipated rate of return on floating or variable rate
financial instruments the Portfolio owns or anticipates purchasing
at a later date, or for other risk management strategies such as
managing the effective dollar-weighted average duration of the
Portfolio's investment portfolio.

Hedging Transactions. In addition, the Portfolio may also
engage in hedging transactions, including entering into put and
call options, to seek to protect the value of its portfolio
against declines in net asset value resulting from changes in
interest rates or other market changes. Market conditions will
determine whether and in what circumstances the Portfolio would
employ any hedging and risk management techniques. The Portfolio
will not engage in any of the transactions for speculative
purposes and will use them only as a means to hedge or manage the
risks associated with assets held in, or anticipated to be
purchased for, the investment portfolio or obligations incurred by
the Portfolio. The successful utilization of hedging and risk
management transactions requires skills different from those
needed in the selection of portfolio securities. The Portfolio
will incur brokerage and other costs in connection with its
hedging transactions.

Interest Rate Swaps, Caps and Floors. The Portfolio may
enter into interest rate swaps or purchase or sell interest rate
caps or floors. The Portfolio will not sell interest rate caps or
floors that it does not own. Interest rate swaps involve the
exchange by the Portfolio with another party of their respective
obligations to pay or receive interest; e.g., an exchange of an
obligation to make floating rate payments for an obligation to
make fixed rate payments. For example, the Portfolio may seek to
shorten the effective interest rate redetermination period of a
Senior Loan to a Borrower that has selected an interest rate
redetermination period of one year. The Portfolio could exchange
the Borrower's obligation to make fixed rate payments for one year
for an obligation to make payments that readjust monthly. In such
event, the Portfolio would consider the interest rate
redetermination period of such Senior Loan to be the shorter
period.

The purchase of an interest rate cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest at the difference
between the index and the predetermined rate on a notional
principal amount (the reference amount with respect to which
interest obligations are determined although no actual exchange of
principal occurs) from the party selling such interest rate cap.
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 at the difference
between the index and the predetermined rate on a notional
principal amount from the party selling such interest rate floor.
The Portfolio will not enter into swaps, caps or floors, if, on a
net basis, the aggregate notional principal amount with respect to
such agreements exceeds the net assets of the Portfolio.

In circumstances in which Stein Roe anticipates that interest
rates will decline, the Portfolio might, for example, enter into
an interest rate swap as the floating rate payor or,
alternatively, purchase an interest rate floor. In the case of
purchasing an interest rate floor, if interest rates declined
below the floor rate, the Portfolio would receive payments from
its counterparty that would wholly or partially offset the
decrease in the payments it would receive with respect to the
portfolio assets being hedged. In the case where the Portfolio
purchases such an interest rate swap, if the floating rate
payments fell below the level of the fixed rate payment set in the
swap agreement, the Portfolio's counterparty would pay the
Portfolio amounts equal to interest computed at the difference
between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the
decrease in the payments the Portfolio would receive with respect
to floating rate portfolio assets being hedged.

The successful use of swaps, caps and floors to preserve the
rate of return on a portfolio of Senior Loans depends on Stein
Roe's ability to predict correctly the direction and extent of
movements in interest rates. Although Stein Roe believes that use
of the hedging and risk management techniques described above will
benefit the Portfolio, if Stein Roe's judgment about the direction
or extent of the movement in interest rates is incorrect, the
Portfolio's overall performance could be worse than if it had not
entered into any such transaction. For example, if the Portfolio
had purchased an interest rate swap or an interest rate floor to
hedge against its expectation that interest rates would decline
but instead interest rates rose, the Portfolio would lose part or
all of the benefit of the increased payments it would receive as a
result of the rising interest rates because it would have to pay
amounts to its counterparty under the swap agreement or would have
paid the purchase price of the interest rate floor.

Inasmuch as these hedging transactions are entered into for
good-faith risk management purposes, Stein Roe and the Portfolio
believe such obligations do not constitute senior securities. The
Portfolio will usually enter into interest rate swaps on a net
basis; i.e., where the two parties make net payments with the
Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any,
of the Portfolio's obligations over its entitlements with respect
to each interest rate swap will be accrued and an amount of cash
or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained. If the Portfolio
enters into a swap on other than a net basis, the Portfolio will
maintain the full amount of its obligations under each such swap.
Accordingly, the Portfolio does not treat swaps as senior
securities. The Portfolio may enter into swaps, caps and floors
with member banks of the Federal Reserve System, members of the
New York Stock Exchange (NYSE) or other entities determined to be
creditworthy by Stein Roe, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board. If a default occurs by
the other party to such transactions, the Portfolio will have
contractual remedies pursuant to the agreements related to the
transaction, but such remedies may be subject to bankruptcy and
insolvency laws that could affect the Portfolio's rights as a
creditor. The swap market has grown substantially in recent years
with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations and they are
less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms Stein
Roe believes are advantageous to the Portfolio. In addition,
although the terms of interest rate swaps, caps and floors may
provide for termination, there can be no assurance that the
Portfolio will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.

New Financial Products. New financial products continue to
be developed and the Portfolio may invest in any such products as
may be developed to the extent consistent with its investment
objective and the regulatory and federal tax requirements
applicable to investment companies.

Lending of Portfolio Holdings. The Portfolio may seek to
increase its income by lending financial instruments in its
portfolio in accordance with present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC. Such loans may be made, without limit, to
brokers, dealers, banks or other recognized institutional
Borrowers of financial instruments and would be required to be
secured continuously by collateral, including cash, cash
equivalents or U.S. Treasury bills maintained on a current basis
at an amount at least equal to the market value of the financial
instruments loaned. The Portfolio would have the right to call a
loan and obtain the financial instruments loaned at any time on
five days' notice. For the duration of a loan, the Portfolio
would continue to receive the equivalent of the interest paid by
the issuer on the financial instruments loaned and also would
receive compensation from the investment of the collateral. The
Portfolio would not have the right to vote any financial
instruments having voting rights during the existence of the loan,
but the Portfolio could call the loan in anticipation of an
important vote to be taken among holders of the financial
instruments or in anticipation of the giving or withholding of
their consent on a material matter affecting the financial
instruments. As with other extensions of credit, such loans
entail risks of delay in recovery or even loss of rights in the
collateral should the Borrower of the financial instruments fail
financially. However, the loans would be made only to borrowers
deemed by Stein Roe to be of good standing and when, in the
judgment of Stein Roe, the consideration that can be earned
currently from loans of this type justifies the attendant risk.
The creditworthiness of firms to which the Portfolio lends its
portfolio holdings will be monitored on an ongoing basis by Stein
Roe pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board. No specific limitation exists as to the
percentage of the Portfolio's assets that the Portfolio may lend.

"When-Issued" and "Delayed-Delivery" Transactions. The
Portfolio may also purchase and sell interests in Senior Loans and
other portfolio securities on a "when-issued" and "delayed-
delivery" basis. No income accrues to the Portfolio on such
Senior Loans in connection with such purchase transactions prior
to the date the Portfolio actually takes delivery of such Senior
Loans. These transactions are subject to market fluctuation, the
value of the interests in Senior Loans and other portfolio debt
securities at delivery may be more or less than their purchase
price, and yields generally available on such Senior Loans when
delivery occurs may be higher or lower than yields on the Senior
Loans obtained pursuant to such transactions. Because the
Portfolio relies on the buyer or seller, as the case may be, to
consummate the transaction, failure by the other party to complete
the transaction may result in the Portfolio missing the
opportunity of obtaining a price or yield considered to be
advantageous. When the Portfolio is the buyer in such a
transaction, however, it will maintain cash or liquid securities
having an aggregate value at least equal to the amount of such
purchase commitments until payment is made. The Portfolio will
make commitments to purchase such Senior Loans on such basis only
with the intention of actually acquiring these Senior Loans, but
the Portfolio may sell such Senior Loans prior to the settlement
date if such sale is considered to be advisable. To the extent
the Portfolio engages in "when-issued" and "delayed-delivery"
transactions, it will do so for the purpose of acquiring Senior
Loans for its investment portfolio consistent with its investment
objective and policies and not for the purpose of investment
leverage. No specific limitations exist as to the percentage of
the Portfolio's assets that may be used to acquire securities on a
"when-issued" or "delayed-delivery" basis.

Repurchase Agreements. The Portfolio may enter into
repurchase agreements (a purchase of, and simultaneous commitment
to resell, a financial instrument at an agreed upon price on an
agreed upon date) only with member banks of the Federal Reserve
System and member firms of the NYSE. In entering into a
repurchase agreement, the Portfolio buys securities from the bank
or broker-dealer, with the agreement that the seller will
repurchase the securities at a higher price at a later date. Such
transactions afford an opportunity for the Portfolio to earn a
return on available liquid assets at minimal market risk, although
the Portfolio may be subject to various delays and risks of loss
if the counterparty is unable to meet its obligation to
repurchase. Under the 1940 Act, repurchase agreements are deemed
to be collateralized loans of money by the Portfolio to the
counterparty. In evaluating whether to enter into a repurchase
agreement, Stein Roe will consider carefully the creditworthiness
of the counterparty. If the bank or broker-dealer that is the
seller petitions for bankruptcy or otherwise becomes subject to
the U.S. Bankruptcy Code, the law regarding the rights of the
Portfolio is unsettled. The securities underlying a repurchase
agreement will be marked to market every business day and adjusted
in amount so that the value of the collateral is at least equal to
the value of the loan, including the accrued interest thereon, and
Stein Roe will monitor the value of the collateral. No specific
limitation exists as to the percentage of the Portfolio's assets
that may be invested in repurchase agreements.

Reverse Repurchase Agreements. The Portfolio may enter into
reverse repurchase agreements with respect to debt obligations
that could otherwise be sold by the Portfolio. Under a reverse
repurchase agreement, the Portfolio sells a debt security and
simultaneously obtain the commitment of the purchaser (a
commercial bank or a broker-dealer) to sell the security back to
the Portfolio at an agreed upon price on an agreed upon date. The
Portfolio will maintain cash or liquid securities in an amount
sufficient to cover its obligations with respect to reverse
repurchase agreements. The Portfolio receives payment for such
securities only upon physical delivery or evidence of book entry
transfer by its custodian. SEC regulations require either that
securities sold by the Portfolio under a reverse repurchase
agreement be segregated pending repurchase or that the proceeds be
segregated on the Portfolio's books and records pending
repurchase. Reverse repurchase agreements could involve certain
risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the Portfolio's
ability to dispose of the underlying securities. An additional
risk is that the market value of securities sold by the Portfolio
under a reverse repurchase agreement could decline below the price
at which the Portfolio is obligated to repurchase them. Reverse
repurchase agreements are considered borrowings by the Portfolio
and as such are subject to the restrictions on borrowing described
below under "Investment Restrictions." The Portfolio will not
hold more than 5% of the value of its total assets in reverse
repurchase agreements as of the time the agreement is entered
into.

Rated Securities. For a description of the ratings applied
by Moody's and S&P to short-term securities, please refer to the
Appendix. The rated short-term securities described under
Investment Policies above include securities given a rating
conditionally by Moody's or provisionally by S&P. If the rating
of a security held by the Portfolio is withdrawn or reduced, the
Portfolio is not required to sell the security, but Stein Roe will
consider such fact in determining whether the Portfolio should
continue to hold the security.

Portfolio Turnover. The frequency and amount of portfolio
purchases and sales (known as the "turnover rate") will vary from
year to year. It is anticipated that the Portfolio's turnover
rate will be between 50% and 100%. The portfolio turnover rate is
not expected to exceed 100%, but may vary greatly from year to
year and will not be a limiting factor when Stein Roe deems
portfolio changes appropriate. Although the Portfolio generally
does not intend to trade for short-term profits, the securities
held by the Portfolio will be sold whenever Stein Roe believes it
is appropriate to do so, without regard to the length of time a
particular security may have been held. Higher portfolio turnover
involves correspondingly greater brokerage commissions and other
transaction costs that the Portfolio will bear directly.

INVESTMENT RESTRICTIONS

The Fund and the Portfolio operate under the following
investment restrictions. Neither the Fund nor the Portfolio may:

(1) invest in a security if, as a result of such investment,
more than 25% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of
issuers in any particular industry (the electric, gas, water and
telephone utility industries being treated as separate industries
for the purpose of this restriction) except that this restriction
does not apply to (i) obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities; (ii)
securities the issuer of which is deemed to be in the financial
institutions industry, which includes commercial banks, thrift
institutions, insurance companies and finance companies; [the Fund
only] or (iii) investment by the Fund of all or substantially all
of its assets in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;

(2) invest in a security if, as a result of such investment,
it would hold more than 10% of the outstanding voting securities
(taken at the time of such investment) of any one issuer [the Fund
only] except that all or substantially all of the assets of the
Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;

(3) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies that invest in real estate, or
interests therein), except that it may hold for prompt sale and
sell real estate or interests in real estate to which it may gain
an ownership interest through the forfeiture of collateral
securing loans or debt securities held by it;

(4) purchase or sell commodities or commodities contracts or
oil, gas or mineral programs, except that it may enter into (i)
futures and options on futures and (ii) forward contracts;

(5) purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of
portfolio securities, but it may make margin deposits in
connection with transactions in options, futures, and options on
futures (the purchase of Senior Loans, corporate debt securities,
and other investment assets with the proceeds of a permitted
borrowing or securities offering will not be deemed to be the
purchase of securities on margin);

(6) make loans, although it may (a) lend portfolio securities
and participate in an interfund lending program with other
investment companies to which Stein Roe provides investment
advisory services provided that no such loan may be made if, as a
result, the aggregate of such loans would exceed 33-1/3% of the
value of its total assets (taken at market value at the time of
such loans); (b) purchase money market instruments and enter into
repurchase agreements; and (c) acquire publicly distributed or
privately placed debt securities (including interests in
Assignments and Participation) and other Senior Loans in which it
is authorized to invest in accordance with its respective
investment objectives and policies;

(7) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements, hedging transactions, when-issued and delayed-delivery
transactions and similar investment strategies, and make other
borrowings, provided that the combination of (a) and (b) shall not
at anytime exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than for
borrowings) or such other percentage permitted by law, and (c)
enter into futures and options transactions (it may borrow from
banks, other investment companies to which Stein Roe provides
investment advisory services, and other persons to the extent
permitted by applicable law);

(8) act as an underwriter of securities, except insofar as it
may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale, [the Fund
only] except that all or substantially all of the assets of the
Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund; or

(9) issue any senior security except to the extent permitted
under the Investment Company Act of 1940 (for this purpose Senior
Loans shall not be deemed senior securities).

The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as previously defined herein.

The Fund and the Portfolio are also subject to the following
restrictions and policies that may be changed by the Board of the
Fund or of the Portfolio, as applicable. None of the following
restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially similar
investment policies as the Fund. Unless otherwise indicated,
neither the Fund nor the Portfolio may:

(A) invest for the purpose of exercising control or
management [except to the extent that exercise by the Portfolio of
its rights under Loan Agreements would be deemed to be constitute
such control or management];

(B) purchase more than 3% of the stock of another investment
company (other than the Portfolio) or purchase stock of other
investment companies (other than the Portfolio) equal to more than
5% of its total assets (taken at market value at the time of
purchase) in the case of any one other investment company (other
than the Portfolio) and 10% of such assets (taken at market value
at the time of purchase) in the case of all other investment
companies (other than the Portfolio) in the aggregate; any such
purchases are to be made in the open market where no profit to a
sponsor or dealer results from the purchase, other than the
customary broker's commission, except for securities acquired as
part of a merger, consolidation or acquisition of assets/2/;
- --------------
/2/ The Fund has been informed that the staff of the Securities
and Exchange Commission takes the position that the issuers of
certain CMOs and certain other collateralized assets are
investment companies and that subsidiaries of foreign banks may be
investment companies for purposes of Section 12(d)(1) of the
Investment Company Act of 1940, which limits the ability of one
investment company to invest in another investment company.
Accordingly, the Fund intends to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
- --------------

(C) purchase shares of open-end investment companies, except
in connection with a merger, consolidation, acquisition, or
reorganization;

(D) purchase a put or call option if the aggregate premiums
paid for all put and call options then held exceed 20% of its net
assets (less the amount by which any such positions are in-the-
money), excluding put and call options purchased as closing
transactions;/3/
- --------------------

/3/ The Portfolio does not currently intend to purchase a put or
call option if the aggregate premiums paid for all put and call
options then held exceed 5% of its net assets (less the amount by
which any such positions are in-the-money), excluding put and call
options purchased as closing transactions.

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

(E) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;

(F) invest in limited partnerships in real estate unless they
are readily marketable;

(G) sell securities short unless (i) it owns or has the right
to obtain securities equivalent in kind and amount to those sold
short at no added cost or (ii) the securities sold are "when-
issued" or "when distributed" securities that it expects to
receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to
obtain and provided that transactions in options, futures, and
options on futures are not treated as short sales;/4/
- ---------------
/4/ The Portfolio does not currently intend to commit more than 5%
of its assets to short sales.
- ---------------

(H) invest more than 15% of its total net assets (taken at
market value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933.

REPURCHASE OFFER FUNDAMENTAL POLICY

The Board has adopted a resolution setting forth the Fund's
fundamental policy that it will conduct quarterly Repurchase
Offers (the "Repurchase Offer Fundamental Policy").

The Repurchase Offer Fundamental Policy sets the interval
between each Repurchase Offer at one quarter and provides that the
Fund shall conduct a Repurchase Offer each quarter (unless
suspended or postponed in accordance with regulatory
requirements). The Repurchase Request Deadline will be
established by the Fund and will be based on factors such as
market conditions, liquidity of the Fund's assets and shareholder
servicing conditions. The Repurchase Offer Fundamental Policy
also provides that the repurchase pricing shall occur not later
than fourteenth day after the Repurchase Request Deadline or the
next business day if the fourteenth day is not a business day.

The Repurchase Offer Fundamental Policy may be changed only
by a majority vote of the outstanding voting securities. For more
information, please refer to the Prospectus under the caption
"Periodic Repurchase Offers."

MANAGEMENT

The following table sets forth certain information with
respect to trustees of the Fund, managers of the Portfolio, and
officers of the Fund and the Portfolio:

<TABLE>
<CAPTION>
Position(s) held Principal
occupation(s)
Name, Age with the Trust during past
five years
- ------------------ ------------------------ -------------
- --------------
<S> <C> <C>

William D. Andrews, 52 Executive Vice-President Executive vice president of Stein Roe & Farnham
Incorporated ("Stein Roe")

John A. Bacon Jr., 72 (3) Trustee/Manager Private investor

Christine Balzano Vice-President ________

William W. Boyd, 72 (2)(3) Trustee/Manager Chairman and director of Sterling Plumbing
(manufacturer of plumbing products)

Kevin M. Carome, 43 Executive Vice-President;
Assistant Secretary Senior vice president, legal, Liberty Funds Group LLC
(an affiliate of Stein Roe) since Jan. 1999; general
counsel and secretary of Stein Roe since Jan. 1998;
associate general counsel and vice president of
Liberty Financial Companies, Inc. (the indirect parent
of Stein Roe) through Jan. 1999

J. Kevin Connaughton, 35 Vice-President; Treasurer Vice president of Colonial Management Associates, Inc.
("CMA"), since February 1998; senior tax manager,
Coopers & Lybrand, LLP from April 1996 to January,
1998; vice president, 440 Financial Group/First Data
Investor Services Group prior thereto

Lindsay Cook, 47 (1) Trustee/Manager Executive vice president of Liberty Financial
Companies, Inc. since March 1997; senior vice
president prior thereto

Denise Chasmer, ___ Vice-President _________

James R. Fellows, 34 Vice-President Vice president of Stein Roe since April 1998; vice
president and senior credit analyst, Van Kampen
American Capital prior thereto

Michael G. Fisher, 30 Vice-President Tax manager with Liberty Funds Group since Oct. 1998;
tax manager with PricewaterhouseCoopers LLC prior
thereto

Stephen E. Gibson, 46 President Vice chairman of Stein Roe since Aug. 1998; chairman,
CEO, president and director of Liberty Funds Group
since Dec. 1998; chairman of the Colonial Group from
July 1998 to Dec. 1998; president of the Colonial
Group from Dec. 1996 to Dec. 1998; chairman of
Colonial Management Associates, Inc. since Dec. 1998;
CEO, president and director of Colonial Management
Associates since July 1996; managing director of
Putnam Financial Services from June 1992 through June
1996

Brian W. Good, 33 Vice-President Vice president of Stein Roe since April 1998; vice
president and portfolio manager, Van Kampen American
Capital prior thereto

Douglas A. Hacker, 43 (3) Trustee/Manager Senior vice president and chief financial officer of
UAL, Inc. (airline)

Loren A. Hansen, 51 Executive Vice-President Chief investment officer/equity of Colonial Management
Associates, Inc. since 1997; executive vice president
of Stein Roe since Dec. 1995; vice president of The
Northern Trust (bank) prior thereto

Timothy J. Jacoby, 47 Senior Vice-President Fund treasurer for Liberty Funds Group LLC since Sept.
1996 and chief financial officer since Aug. 1997;
senior vice president of Fidelity Investments prior
thereto

Janet Langford Kelly,41(3) Trustee/Manager Executive vice president-corporate development,
general counsel and secretary of Kellogg Company since
Sept. 1999; senior vice president, secretary and
general counsel of Sara Lee Corporation (branded,
packaged, consumer-products manufacturer) from 1995 to
Aug. 1999; partner of Sidley & Austin (law firm) prior
thereto

Gail D. Knudsen, 37 Vice-President; Controller Vice president and assistant controller of CMA

Mary McKenzie, ___ Vice-President ______________________

Charles R. Nelson, 57 (3) Trustee/Manager Van Voorhis Professor of Political Economy of the
University of Washington

Nicholas Norton, ___ Vice-President _____________________

Nicolette D. Parrish, 49 Vice-President; Senior legal assistant and
Assistant Secretary assistant secretary of Stein Roe

Thomas C. Theobald, 62 (3) Trustee/Manager Managing director, William Blair Capital Partners
(private equity fund)

Heidi J. Walter, 32 Vice President; Secretary Vice President of Stein Roe since March 1998; senior
legal counsel for Stein Roe since Feb. 1998; legal
counsel for Stein Roe from March 1995 to Jan. 1998;
associate with Beeler Schad & Diamond PC (law firm)
prior thereto

<FN>
____________________
(1) Trustee who is an "interested person" of the Fund and of Stein
Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>

Certain of the trustees and officers of the Fund and the
Portfolio are trustees or officers of other investment companies
managed by Stein Roe. Ms. Walter is also an officer of Liberty
Funds Distributor, Inc., the Fund's distributor. The address of
Mr. Bacon is 4N640 Honey Hill Road, Box 296, Wayne, IL 60184; that
of Mr. Boyd is 2900 Golf Road, Rolling Meadows, IL 60008; that of
Mr. Cook is 600 Atlantic Avenue, Boston, MA 02210; that of Mr.
Hacker is P.O. Box 66100, Chicago, IL 60666; that of Ms. Kelly is
One Kellogg Square, Battle Creek, MI 49016; that of Mr. Nelson is
Department of Economics, University of Washington, Seattle, WA
98195; that of Mr. Theobald is Suite 1300, 222 West Adams Street,
Chicago, IL 60606; that of Ms. Balzano, Ms. Knudsen, Ms. McKenzie,
and Messrs. Connaughton, Fisher, Gibson, Jacoby is One Financial
Center, Boston, MA 02111; that of Ms. Chasmer and Mr. Norton is
12100 East Iliff Avenue, Aurora, CO 80014; and that of the other
officers is One South Wacker Drive, Chicago, IL 60606.

Officers and trustees affiliated with Stein Roe serve without
any compensation from the Fund. In compensation for their
services to the Fund, trustees who are not "interested persons" of
the Fund or Stein Roe are paid an annual retainer plus an
attendance fee for each meeting of the Board or standing committee
attended. The Fund has no retirement or pension plan. The
following table sets forth compensation paid to the trustees
during the year ended Aug. 31, 1999:

Compensation from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Thomas W. Butch* -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon, Jr. $1,350 $114,600 $2,491
William W. Boyd 1,350 116,300 2,528
Douglas A. Hacker 1,350 101,150 2,199
Janet Langford Kelly 1,350 110,150 2,395
Charles R. Nelson 1,350 115,550 2,512
Thomas C. Theobald 1,350 110,650 2,405
____________
*As of Aug. 31, 1999, the Stein Roe Fund Complex consisted of the
Fund, the Portfolio for which the trustees serve on the Board of
Managers, Liberty-Stein Roe Institutional Floating Rate Income
Fund, and the following open-end mutual funds: four series of
Liberty-Stein Roe Funds Income Trust, four series of Liberty-
Stein Roe Funds Municipal Trust, 12 series of Liberty-Stein Roe
Funds Investment Trust, five series of Liberty-Stein Roe Advisor
Trust, one series of Stein Roe Trust, 12 portfolios of SR&F Base
Trust, and five series of SteinRoe Variable Investment Trust.
**Mr. Butch was a trustee through October 29, 1999.

FINANCIAL STATEMENTS

Please refer to the Fund's Aug. 31, 1999 Financial Statements
(statements of assets and liabilities and schedules of investments
as of Aug. 31, 1999 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
accountants contained in the Aug. 31, 1999 Annual Report of the
Fund. The Financial Statements and the report of independent
accountants (but no other material from the Annual Report) are
incorporated herein by reference. The Annual Report may be
obtained at no charge by telephoning 800-322-0593.

PRINCIPAL SHAREHOLDERS

Until the Fund completes the public offering of the shares,
Stein Roe will be deemed to control the Fund under the 1940 Act.

As of Sept. 30, 1999, the only persons known by the Fund to
own of record or "beneficially" 5% or more of its outstanding
shares within the definition of that term as contained in Rule
13d-3 under the Securities Exchange Act of 1934 were as follows:

Approximate % of
Name and Address Outstanding Shares Held
- ------------------------------------------------------------------
U.S. Bank NA, Custodian, IRA
F/B/O Thomas A. Callahan
75 Davis Street
Wollaston, MA 02170 15.74%

Stein Roe & Farnham Incorporated
One Financial Center, 13th floor
Boston, MA 02110 11.84%

Knox Family Trust
81 Simpsons Point Road
Brunswick, ME 04011 5.65%

Christopher B. Mann
6601 Tennyson, NE
Santa Fe, NM 87511 5.26%

U.S. Bank NA, Custodian, Rollover IRA
Joseph F. McCann
352 E. 72nd Street, #9B
New York, NY 10021 29.01%

James Dondanville, Trustee
James Dobbie Descendants Trust
622 W. Arlington Place
Chicago, IL 60614 5.78%

James Dondanville, Trustee
Pamela Dobbie Descendants Trust
622 W. Arlington Place
Chicago, IL 60614 5.78%

As of Sept. 30, 1999, clients of Stein Roe held approximately
57.73% of the Fund's outstanding shares. Stein Roe may have
discretionary authority over such shares and, accordingly, they
could be deemed to be owned "beneficially" by Stein Roe under Rule
13d-3. However, Stein Roe disclaims actual beneficial ownership
of such shares.

INVESTMENT ADVISORY AND OTHER SERVICES

Stein Roe provides administrative services to the Fund and
the Portfolio and portfolio management services to the Portfolio.
Stein Roe is a wholly owned subsidiary of SteinRoe Services Inc.,
which is a wholly owned subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which is a majority owned subsidiary
of Liberty Corporate Holdings, Inc., which is a wholly owned
subsidiary of LFC Holdings, Inc., which is a wholly owned
subsidiary of Liberty Mutual Equity Corporation, which is a wholly
owned subsidiary of Liberty Mutual Insurance Company. Liberty
Mutual Insurance Company is a mutual insurance company,
principally in the property/casualty insurance field, organized
under the laws of Massachusetts in 1912.

The directors of Stein Roe are Kenneth R. Leibler and C.
Allen Merritt, Jr. Mr. Leibler is President and Chief Executive
Officer of Liberty Financial; and Mr. Merritt is Chief Operating
Officer of Liberty Financial. The business address of Messrs.
Leibler and Merritt is Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, MA 02210.

Stein Roe and its predecessor have been providing investment
advisory services since 1932. Stein Roe acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of June 30, 1999, Stein Roe managed over $22.2
billion in assets: over $6.3 billion in equities and over $15.9
billion in fixed income securities (including $1 billion in
municipal securities). The $22.2 billion in managed assets
included over $9.2 billion held by mutual funds managed by Stein
Roe (approximately 15% of the mutual fund assets were held by
clients of Stein Roe). These mutual funds were owned by over
282,000 shareholders. The $9.2 billion in mutual fund assets
included over $679 million in over 42,000 IRA accounts. In
managing those assets, Stein Roe utilizes a proprietary computer-
based information system that maintains and regularly updates
information for approximately 7,500 companies. Stein Roe also
monitors over 1,400 issues via a proprietary credit analysis
system. At June 30, 1999, Stein Roe employed 18 research analysts
and 54 account managers. The average investment-related
experience of these individuals was 17 years.

Please refer to the descriptions of Stein Roe, the management
and administrative agreements, fees, expense limitation, and
transfer agency services under "Management of the Fund" and "Fund
Expenses" in the Prospectus, which are incorporated herein by
reference. The table below shows gross fees paid and any expense
reimbursements by Stein Roe during the past fiscal year:

Type of Payment Year Ended 8/31/99
- ---------------------------------------------------------------
Fund Administrative fee $1,010
Reimbursement (234,453)
Portfolio Management fee 440,791

Stein Roe provides office space and executive and other
personnel to the Fund and bears any sales or promotional expenses.
The Fund pays all expenses other than those paid by Stein Roe,
including but not limited to printing and postage charges,
securities registration and custodian fees, and expenses
incidental to its organization.

The administrative agreement provides that Stein Roe shall
reimburse the Fund to the extent that total annual expenses of the
Fund (including fees paid to Stein Roe, but excluding taxes,
interest, brokers' commissions and other normal charges incident
to the purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of the Fund are being offered for sale to the public;
however, such reimbursement for any fiscal year will not exceed
the amount of the fees paid by the Fund under that agreement for
such year. In addition, in the interest of further limiting the
Fund's expenses, Stein Roe may waive its fees and/or absorb
certain expenses for the Fund, as described in the Prospectus
under "Fund Expenses." Any such reimbursements will enhance the
yield of the Fund.

The management agreement provides that neither Stein Roe nor
any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Portfolio or any shareholder of the Portfolio for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
Stein Roe of its duties under the agreement, except for liability
resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by Stein Roe of its obligations and duties under the
agreement.

Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Fund that are not solely attributable to the Fund are apportioned
in such manner as Stein Roe determines is fair and appropriate,
unless otherwise specified by the Board.

Bookkeeping and Accounting

Pursuant to a separate agreement with the Fund, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services. For these services, Stein Roe receives an annual fee of
$25,000 plus .0025 of 1% of average net assets over $50 million.
During the fiscal year ended Aug. 31, 1999, the Fund paid Stein
Roe $17,603 for services performed under this agreement.

DISTRIBUTOR

Shares of the Fund are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement (the "Agreement"). The
Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The
Agreement continues in effect from year to year, provided such
continuance is approved annually (1) by a majority of the Board or
by a majority of the outstanding voting securities of the Fund,
and (2) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Fund has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of the prospectus and other expenses.

Distribution and Service Fees

In addition to an early withdrawal charge, each of Class A,
B, and C of shares is authorized under a distribution plan (Plan)
to use the assets attributable to a class to finance certain
activities relating to the distribution of shares to investors.
These include marketing and other activities to support the
distribution of the Class A, B, and C shares and the services
provided to you by your financial advisor. The Plan was approved
and reviewed in a manner consistent with Rule 12b-1 under the 1940
Act, which regulates the manner in which an open-end investment
company may directly or indirectly bear the expenses of
distributing its shares. Although the Fund is not an open-end
investment company, it has undertaken to comply with the terms of
Rule 12b-1 as a condition of a pending exemptive order under the
1940 Act to permit it to have a multi-class structure, early
withdrawal charges, and distribution fees.

Under the Plan, distribution and service fees paid by the
Fund to the Distributor may equal up to an annual rate of 0.35% of
average daily net assets attributable to Class A shares, 0.70% of
average daily net assets attributable to Class B shares, and 0.85%
of average daily net assets attributable to Class C shares,
respectively. Since the distribution and service fees are payable
regardless of the Distributor's expenses, the Distributor may
realize a profit from the fees. The Plan authorizes any other
payments by the Fund to the Distributor and its affiliates to the
extent that such payments might be construed to be indirect
financing of the distribution of Fund shares.

The trustees believe that the Plan could be a significant
factor in the growth and retention of Fund assets resulting in a
more advantageous expense ratio and increased investment
flexibility which could benefit each class of Fund shareholders.
The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote
of the trustees, including the trustees who are not interested
persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related
to the Plan (Independent Trustees), cast in person at a meeting
called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by a vote
of a majority of the outstanding voting securities of the relevant
class of shares and all material amendments of the Plan must be
approved by the trustees in the manner provided in the foregoing
sentence. The Plan may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of a majority of
the outstanding voting securities of the relevant class of shares.
The continuance of the Plan will only be effective if the
selection and nomination of the Independent Trustees is effected
by such Independent Trustees.

Early Withdrawal Charges (EWCs). Certain investments in
Class A, B and C shares are subject to an EWC. You will pay the
EWC only on shares you submit for repurchase within a certain
amount of time after purchase. The EWC generally declines each
year until there is no charge for repurchased shares. The EWC is
applied to the net asset value at the time of purchase or
repurchase, whichever is lower. For purposes of calculating the
EWC, the start of the holding period is the first day of the month
following each purchase. shares you purchase with reinvested
dividends or capital gains are not subject to an EWC. When shares
are repurchased, the Fund will automatically repurchase those
shares not subject to an EWC and then those you have held the
longest. This policy helps reduce and possibly eliminate the
potential impact of the EWC. In certain circumstances, EWCs may
be waived, as described in the Statement of Additional
Information.

Conversion Feature. Class B shares will automatically
convert to Class A shares after eight years and after that date,
Class B shares will no longer be subject to the distribution fees
applicable to Class B shares. Conversion will be on the basis of
the relative net asset values per share, without the imposition of
any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of Class B shares
from asset-based distribution expenses applicable to such shares
at such time as the Class B shares have been outstanding for a
duration sufficient for the Distributor to have been substantially
compensated for distribution-related expenses incurred in
connection with those shares. Class C shares do not convert to
Class A shares. Therefore, holders of Class C shares will
continue to bear the asset-based distribution fees on the Class C
shares for as long as they hold such shares.

TRANSFER AGENT

Liberty Funds Services, Inc. ("LFS") performs certain
transfer agency services for the Fund, as described under
"Management of the Fund" in the Prospectus. For performing these
services, the Fund pays LFS a fee at the annual rate of 0.140 of
1% of its average daily net assets. The Board believes the
charges by LFS to the Fund are comparable to those of other
companies performing similar services. (See "Investment Advisory
Services.") Under a separate agreement, SSI also provides certain
investor accounting services to the Portfolio.

CUSTODIAN

State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, MA 02101, is the custodian for the Fund
and the Portfolio. It is responsible for holding all securities
and cash, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses, and performing other administrative duties, all as
directed by authorized persons. The Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.

The Fund may invest in obligations of the Bank and may
purchase or sell securities from or to the Bank.

INDEPENDENT ACCOUNTANTS

The independent accountants for the Fund and the Portfolio
are PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA
02110. The accountants audit and report on the annual financial
statements, review certain regulatory reports and the federal
income tax returns, and perform other professional accounting,
auditing, tax and advisory services when engaged to do so.

PORTFOLIO TRANSACTIONS

Stein Roe places the orders for the purchase and sale of
portfolio securities and options and futures contracts for its
clients, including private clients and mutual fund clients
("Clients"). Purchases and sales of portfolio securities are
ordinarily transacted with the issuer or with a primary market
maker acting as principal or agent for the securities on a net
basis, with no brokerage commission. Transactions placed through
dealers reflect the spread between the bid and asked prices.
Occasionally, the Portfolio may make purchases of underwritten
issues at prices that include underwriting discounts or selling
concessions.

Stein Roe's overriding objective in selecting brokers and
dealers to effect portfolio transactions is to seek the best
combination of net price and execution. The best net price,
giving effect to brokerage commissions, if any, is an important
factor in this decision; however, a number of other judgmental
factors may also enter into the decision. These factors include
Stein Roe's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the
desired timing of the transaction; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others
considered; Stein Roe's knowledge of the financial condition of
the broker or dealer selected and such other brokers and dealers;
and Stein Roe's knowledge of actual or apparent operation problems
of any broker or dealer.

Recognizing the value of these factors, Stein Roe may cause a
Client to pay a brokerage commission in excess of that which
another broker may have charged for effecting the same
transaction. Stein Roe has established internal policies for the
guidance of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for Clients in those cases where Stein Roe has
discretion to select the broker or dealer by which the transaction
is to be executed. Stein Roe has discretion for all trades of the
Portfolio. Transactions which vary from the guidelines are
subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by Stein Roe.
Evaluations of the reasonableness of brokerage commissions, based
on the factors described in the preceding paragraph, are made by
Stein Roe's trading personnel while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.

Stein Roe maintains and periodically updates a list of
approved brokers and dealers which, in Stein Roe's judgment, are
generally capable of providing best price and execution and are
financially stable. Stein Roe's traders are directed to use only
brokers and dealers on the approved list, except in the case of
Client designations of brokers or dealers to effect transactions
for such Clients' accounts. Stein Roe generally posts certain
Client information on the "Alert" broker database system as a
means of facilitating the trade affirmation and settlement
process.

It is Stein Roe's practice, when feasible, to aggregate for
execution as a single transaction orders for the purchase or sale
of a particular security for the accounts of several Clients, in
order to seek a lower commission or more advantageous net price.
The benefit, if any, obtained as a result of such aggregation
generally is allocated pro rata among the accounts of Clients
which participated in the aggregated transaction. In some
instances, this may involve the use of an "average price"
execution wherein a broker or dealer to which the aggregated order
has been given will execute the order in several separate
transactions during the course of a day at differing prices and,
in such case, each Client participating in the aggregated order
will pay or receive the same price and commission, which will be
an average of the prices and commissions for the several separate
transactions executed by the broker or dealer.

Stein Roe sometimes makes use of an indirect electronic
access to the New York Stock Exchange's "SuperDOT" automated
execution system, provided through a NYSE member floor broker, W&D
Securities, Inc., a subsidiary of Jeffries & Co., Inc.,
particularly for the efficient execution of smaller orders in NYSE
listed equities. Stein Roe sometimes uses similar arrangements
through Billings & Co., Inc. and Driscoll & Co., Inc., floor
broker members of the Chicago Stock Exchange, for transactions to
be executed on that exchange. In using these arrangements, Stein
Roe must instruct the floor broker to refer the executed
transaction to another brokerage firm for clearance and
settlement, as the floor brokers do not deal with the public.
Transactions of this type sometimes are referred to as "step-in"
or "step-out" transactions. The brokerage firm to which the
executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms
which provide Stein Roe investment research or related services.

Stein Roe places certain trades for the Portfolio through its
affiliate AlphaTrade, Inc. ("ATI"). ATI is a wholly owned
subsidiary of Colonial Management Associates, Inc. ATI is a fully
disclosed introducing broker that limits its activities to
electronic execution of transactions in listed equity securities.
The Portfolio pays ATI a commission for these transactions. The
Fund and the Portfolio have adopted procedures consistent with
Investment Company Act Rule 17e-1 governing such transactions.
Certain of Stein Roe's officers also serve as officers, directors
and/or employees of ATI.

Consistent with the Rules of Fair Practice of National
Securities Dealers, Inc. and subject to seeking best executing and
such other policies as the trustees of the Fund may determine,
Stein Roe may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute such mutual fund
securities transactions.

Investment Research Products and Services Furnished by Brokers and
Dealers

Stein Roe engages in the long-standing practice in the money
management industry of acquiring research and brokerage products
and services ("research products") from broker-dealer firms in
return directing trades for Client accounts to those firms. In
effect, Stein Roe is using the commission dollars generated from
these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to
this industry practice. Stein Roe may engage in soft dollar
transactions on trades for those Client accounts for which Stein
Roe has the discretion to select the brokers-dealer.

The ability to direct brokerage for a Client account belongs
to the Client and not to Stein Roe. When a Client grants Stein
Roe the discretion to select broker-dealers for Client trades,
Stein Roe has a duty to seek the best combination of net price and
execution. Stein Roe faces a potential conflict of interest with
this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able to use
the soft dollar products in managing its Client accounts without
paying cash ("hard dollars") for the product. This reduces Stein
Roe's expenses.

Moreover, under a provision of the federal securities laws
applicable to soft dollars, Stein Roe is not required to use the
soft dollar product in managing those accounts that generate the
trade. Thus, the Client accounts that generate the brokerage
commission used to acquire the soft dollar product may not benefit
directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do
benefit directly from the product. This practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934,
which creates a "safe harbor" for soft dollar transactions
conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that
over time most, if not all, Clients benefit from soft dollar
products such that cross subsidizations even out.

Stein Roe attempts to reduce or eliminate this conflict by
directing Client trades for soft dollar products only if Stein Roe
concludes that the broker-dealer supplying the product is capable
of providing a combination of the best net price and execution on
the trade. As noted above, the best net price, while significant,
is one of a number of judgmental factors Stein Roe considers in
determining whether a particular broker is capable of providing
the best net price and execution. Stein Roe may cause a Client
account to pay a brokerage commission in a soft dollar trade in
excess of that which another broker-dealer might have charged for
the same transaction.

Stein Roe acquires two types of soft dollar research
products: (i) proprietary research created by the broker-dealer
firm executing the trade and (ii) other products created by third
parties that are supplied to Stein Roe through the broker-dealer
firm executing the trade.

Proprietary research consists primarily of traditional
research reports, recommendations and similar materials produced
by the in house research staffs of broker-dealer firms. This
research includes evaluations and recommendations of specific
companies or industry groups, as well as analyses of general
economic and market conditions and trends, market data, contacts
and other related information and assistance. Stein Roe's
research analysts periodically rate the quality of proprietary
research produced by various broker-dealer firms. Based on these
evaluations, Stein Roe develops target levels of commission
dollars on a firm-by-firm basis. Stein Roe attempts to direct
trades to each firm to meet these targets.

Stein Roe also uses soft dollars to acquire products created
by third parties that are supplied to Stein Roe through broker-
dealers executing the trade (or other broker-dealers who "step in"
to a transaction and receive a portion of the brokerage commission
for the trade). These products include the following:

* Database Services-comprehensive databases containing current
and/or historical information on companies and industries.
Examples include historical securities prices, earnings
estimates, and SEC filings. These services may include software
tools that allow the user to search the database or to prepare
value-added analyses related to the investment process (such as
forecasts and models used in the portfolio management process).
* Quotation/Trading/News Systems-products that provide real time
market data information, such as pricing of individual
securities and information on current trading, as well as a
variety of news services.
* Economic Data/Forecasting Tools-various macro economic
forecasting tools, such as economic data and economic and
political forecasts for various countries or regions.
* Quantitative/Technical Analysis-software tools that assist in
quantitative and technical analysis of investment data.
* Fundamental Industry Analysis-industry-specific fundamental
investment research.
* Fixed Income Security Analysis-data and analytical tools that
pertain specifically to fixed income securities. These tools
assist in creating financial models, such as cash flow
projections and interest rate sensitivity analyses, that are
relevant to fixed income securities.
* Other Specialized Tools-other specialized products, such as
specialized economic consulting analyses and attendance at
investment oriented conferences.

Many third-party products include computer software or on-
line data feeds. Certain products also include computer hardware
necessary to use the product.

Certain of these third party services may be available
directly from the vendor on a hard dollar basis. Others are
available only through broker-dealer firms for soft dollars.
Stein Roe evaluates each product to determine a cash ("hard
dollars") value of the product to Stein Roe. Stein Roe then on a
product-by-product basis targets commission dollars in an amount
equal to a specified multiple of the hard dollar value to the
broker-dealer that supplies the product to Stein Roe. In general,
these multiples range from 1.25 to 1.85 times the hard dollar
value. Stein Roe attempts to direct trades to each firm to meet
these targets. (For example, if the multiple is 1.5:1.0, assuming
a hard dollar value of $10,000, Stein Roe will target to the
broker-dealer providing the product trades generating $15,000 in
total commissions.)

The targets that Stein Roe establishes for both proprietary
and for third party research products typically will reflect
discussions that Stein Roe has with the broker-dealer providing
the product regarding the level of commissions it expects to
receive for the product. However, these targets are not binding
commitments, and Stein Roe does not agree to direct a minimum
amount of commissions to any broker-dealer for soft dollar
products. In setting these targets, Stein Roe makes a
determination that the value of the product is reasonably
commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the
product whether or not commissions directed to the applicable
broker-dealer are less than, equal to or in excess of the target.
Stein Roe generally will carry over target shortages and excesses
to the next year's target. Stein Roe believes that this practice
reduces the conflicts of interest associated with soft dollar
transactions, since Stein Roe can meet the non-binding
expectations of broker-dealers providing soft dollar products over
flexible time periods. In the case of third party products, the
third party is paid by the broker-dealer and not by Stein Roe.
Stein Roe may enter into a contract with the third party vendor to
use the product. (For example, if the product includes software,
Stein Roe will enter into a license to use the software from the
vendor.)

In certain cases, Stein Roe uses soft dollars to obtain
products that have both research and non-research purposes.
Examples of non-research uses are administrative and marketing
functions. These are referred to as "mixed use" products. As of
the date of this Statement of Additional Information, Stein Roe
acquires two mixed use products. These are (i) a fixed income
security data service and (ii) a mutual fund performance ranking
service. In each case, Stein Roe makes a good faith evaluation of
the research and non-research uses of these services. These
evaluations are based upon the time spent by Firm personnel for
research and non-research uses. Stein Roe pays the provider in
cash ("hard dollars") for the non-research portion of its use of
these products.

Stein Roe may use research obtained from soft dollar trades
in the management of any of its discretionary accounts. Thus,
consistent with industry practice, Stein Roe does not require that
the Client account that generates the trade receive any benefit
from the soft dollar product obtained through the trade. As noted
above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice
is explicitly sanctioned by a provision of the Securities Exchange
Act of 1934, which creates a "safe harbor" for soft dollar
transactions conducted in a specified manner.

In certain cases, Stein Roe will direct a trade to one
broker-dealer with the instruction that it execute the trade and
pay over a portion of the commission from the trade to another
broker-dealer who provides Stein Roe with a soft dollar research
product. The broker-dealer executing the trade "steps out" of a
portion of the commission in favor of the other broker-dealer
providing the soft dollar product. Stein Roe may engage in step
out transactions in order to direct soft dollar commissions to a
broker-dealer which provides research but may not be able to
provide best execution. Brokers who receive step out commissions
typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not
engaged in step out transactions as a manner of compensating
broker-dealers that sell shares of investment companies managed by
Stein Roe.

ADDITIONAL INCOME TAX CONSIDERATIONS

The Fund and the Portfolio intend to comply with the special
provisions of the Internal Revenue Code that relieve the Fund and
the Portfolio, as applicable, of federal income tax to the extent
of their respective net investment income and capital gains
currently distributed to their respective shareholders.

Because capital gain distributions reduce net asset value, if
a shareholder purchases shares shortly before a record date, he
will, in effect, receive a return of a portion of his investment
in such distribution. The distribution would nonetheless be
taxable to him, even if the net asset value of shares were reduced
below his cost. However, for federal income tax purposes the
shareholder's original cost would continue as his tax basis.

The Fund expects that none of its dividends will qualify for
the deduction for dividends received by corporate shareholders.

INVESTMENT PERFORMANCE

The Fund may quote yield figures from time to time. The
"Yield" of the Fund is computed by dividing the net investment
income per share earned during a 30-day period (using the average
number of shares entitled to receive dividends) by the net asset
value per share on the last day of the period. The Yield formula
provides for semiannual compounding which assumes that net
investment income is earned and reinvested at a constant rate and
annualized at the end of a six-month period.

6
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1) -1].

Where: a = dividends and interest earned during the period
(For this purpose, the Fund will recalculate the
yield to maturity based on market value of each
portfolio security on each business day on which net
asset value is calculated.)
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the ending net asset value of the Fund for the
period.

The Fund may quote total return figures from time to time. A
"Total Return" on a per share basis is the amount of dividends
received per share plus or minus the change in the net asset value
per share for a period. A "Total Return Percentage" may be
calculated by dividing the value of a share at the end of a period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one. For a
given period, an "Average Annual Total Return" may be computed by
finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 to the ending
redeemable value.

n
Average Annual Total Return is computed as follows: ERV = P(1+T)

Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion).

For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at August 31, 1999 were:

Total Average Annual
Total Return Return Percentage Total Return
- ------------------------------------------------------------------
Life of Fund* $1,054 5.43% 5.43%
______________
*Since commencement of operations on Dec. 17, 1998.

The Fund may provide information about the Advisor and its
affiliates and other related funds in sales material or
advertisements provided to investors or prospective investors.
Sales materials or advertisements also may provide information on
the use of investment professionals by investors. For further
information, see "Performance Information" in the Prospectus.

APPENDIX-RATINGS

Ratings in General. A rating of a rating service represents the
service's opinion as to the credit quality of the security being
rated. However, the ratings are general and are not absolute
standards of quality or guarantees as to the creditworthiness of
an issuer. Consequently, the Adviser believes that the quality of
debt securities should be continuously reviewed and that
individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources that they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons. The following is a
description of the characteristics of ratings used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P").

Corporate Bond Ratings
Ratings By Moody's. Aaa. Bonds rated Aaa are judged to be
the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or an exceptionally stable
margin and principal is secure. Although the various protective
elements are likely to change, such changes as can be visualized
are more unlikely to impair the fundamentally strong position of
such bonds.

Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.

A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.

Baa. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.

Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.

Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.

C. Bonds which are rated C are the lowest rated class of
bonds and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.

NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.

Ratings by S&P. AAA. Debt rated AAA has the highest rating.
Capacity to pay interest and repay principal is extremely strong.

AA. Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues only
in small degree.

A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.

BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.

BB, B, CCC, CC and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C1. This rating is reserved for income bonds on which no
interest is being paid.

D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is also
used upon the filing of a bankruptcy petition if debt service
payments are jeopardized.

NOTES: The ratings from AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing
within the major ratings categories. Foreign debt is rated on the
same basis as domestic debt measuring the creditworthiness of the
issuer; ratings of foreign debt do not take into account currency
exchange and related uncertainties.

The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.

Commercial Paper Ratings

Ratings by Moody's. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:

Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality

If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.

Ratings By S&P. A brief description of the applicable rating
symbols and their meaning follows:

A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.

A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.

______________________

<PAGE>

PART C

Item 24. Financial Statements and Exhibits

(1) Financial Statements:

(a) Financial statements included in Part A of this
registration statement: None

(b) Financial statements included in Part B of this
registration statement: None

(2) Exhibits: [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant on Form N-2 under the Securities Act of 1933,
No. 333-61751. The term "Pre-Effective Amendment" refers
to a pre-effective amendment to the Registration
Statement and the term "PEA" refers to a post-effective
amendment to the Registration Statement.]

a. (1) Agreement and Declaration of Trust as amended and
restated on Nov. 3, 1998. (Exhibit a to Pre-Effective
Amendment No. 1.)*
(2) Amendment effective Oct. 18, 1999 to Agreement and
Declaration of Trust.

b. By-laws of Registrant dated August 13, 1998 as amended on
Sept. 25, 1998. (Exhibit b to Pre-Effective Amendment No.
1.)*

c. None.

d. None.

e. None.

f. None.

g. Portfolio Management Agreement between Stein Roe Floating
Rate Limited Liability Company and Stein Roe & Farnham
Incorporated dated 11/20/98 as amended through 8/3/99.
(Exhibit g to PEA #2.)*

h. Underwriting Agreement between Registrant and Liberty Funds
Distributor, Inc. dated 8/4/99. (Exhibit h to PEA #2.)*

i. None.

j. Form of Custodian Contract between Registrant and State
Street Bank and Trust Company. (Exhibit j to Pre-Effective
Amendment No. 1.)*

k. (1) Transfer Agency Agreement between Registrant and
Liberty Funds Services, Inc. dated 8/3/99. (Exhibit
k(1) to PEA #2.)*
(2) Accounting and Bookkeeping Agreement between
Registrant and Stein Roe & Farnham Incorporated
dated 8/3/99. (Exhibit k(2) to PEA #2.)*
(3) Administrative Agreement between Registrant and Stein
Roe & Farnham Incorporated dated 11/20/98 as amended
through 8/3/99. (Exhibit k(3) to PEA #2.)*

l. (1) Opinion and consent of Bell, Boyd & Lloyd. (Exhibit 1
to Pre-Effective Amendment No. 1.)*
(2) Opinion and consent of Bell, Boyd & Lloyd with respect
to Classes A, B, and C.

m. None.

n. None.

o. None.

p. Initial Capital Agreement. (Exhibit p to Pre-Effective
Amendment No. 2.)*

q. Stein Roe & Farnham Funds Individual Retirement Account
Plan. Stein Roe & Farnham Prototype Paired Defined
Contribution Plan. (Exhibit q to Pre-Effective Amendment
No. 1.)*

r. Miscellaneous: Rule 12b-1 distribution plan and Rule 18f-3
plan. (Exhibit r to PEA #4.)*
----------
*Incorporated by reference.

Item 25. Marketing Arrangements

None.

Item 26. Other Expenses of Issuance and Distribution

Registration Fees $83,984
National Association of Securities
Dealers, Inc. Fees 31,710
State Fees 53,000**
Printing Fees 20,000
Rating Agency Fees 0
Legal and Accounting Fees $170,000**
____________
**Estimated fees.

Item 27. Persons Controlled By or Under Common Control with Registrant

The Registrant does not consider that it is directly or
indirectly controlling, controlled by, or under common control
with other persons within the meaning of this Item. The
information in the Statement of Additional Information under the
captions "Management," "Investment Advisory and Other Services"
and "Transfer Agent" is incorporated by reference.

Item 28. Number of Holders of Securities

Number of Record Holders
Title of Class as of 8/31/99
----------------------------------- ------------------------
Liberty-Stein Roe Advisor Floating
Rate Fund 17

Item 29. Indemnification

Article Eight of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide
indemnification of its trustees and officers (including each
person who serves or has served at Registrant's request as a
director, officer, or trustee of another organization in which
Registrant has any interest as a shareholder, creditor or
otherwise) ("Covered Persons") under specified circumstances.

Section 17(h) of the Investment Company Act of 1940 ("1940
Act") provides that neither the Agreement and Declaration of
Trust nor the By-Laws of Registrant, nor any other instrument
pursuant to which Registrant is organized or administered, shall
contain any provision which protects or purports to protect any
trustee or officer of Registrant against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office. In accordance with Section 17(h) of the
1940 Act, Article Eight shall not protect any person against any
liability to Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office.

Unless otherwise permitted under the 1940 Act,

(i) Article Eight does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office;

(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Eight unless a determination that such
person was not so liable is made on behalf of Registrant by (a)
the vote of a majority of the trustees who are not "interested
persons" of Registrant, as defined in Section 2(a)(19) of the
1940 Act ("disinterested trustees"), or (b) an independent legal
counsel as expressed in a written opinion; and

(iii) Registrant will not advance attorneys' fees or other
expenses incurred by a Covered Person in connection with a civil
or criminal action, suit or proceeding unless Registrant
receives an undertaking by or on behalf of the Covered Person to
repay the advance (unless it is ultimately determined that he is
entitled to indemnification) and (a) the Covered Person provides
security for his undertaking, or (b) Registrant is insured
against losses arising by reason of any lawful advances, or (c)
a majority of the disinterested, non-party trustees of
Registrant or an independent legal counsel as expressed in a
written opinion, determine, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the Covered Person ultimately
will be found entitled to indemnification.

Any approval of indemnification pursuant to Article Eight
does not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with Article
Eight as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered
Person's action was in, or not opposed to, the best interests of
Registrant or to have been liable to Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of such Covered Person's office.

Article Eight also provides that its indemnification
provisions are not exclusive.

Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Securities Act") may be
permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee,
officer, or controlling person of the Registrant in connection
with the successful defense of any action, suit or proceeding)
is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.

Registrant, its trustees and officers, its investment
adviser, the other investment companies advised by the adviser,
and persons affiliated with them are insured against certain
expenses in connection with the defense of actions, suits, or
proceedings, and certain liabilities that might be imposed as a
result of such actions, suits, or proceedings. Registrant will
not pay any portion of the premium for coverage under such
insurance that would (1) protect any trustee or officer against
any liability to Registrant or its shareholders to which he
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office or (2) protect its
investment adviser or principal underwriter, if any, against any
liability to Registrant or its shareholders to which such person
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, in the performance of its duties, or by
reason of its reckless disregard of its duties and obligations
under its contract or agreement with the Registrant; for this
purpose the Registrant will rely on an allocation of premiums
determined by the insurance company.

Pursuant to the indemnification agreement among the
Registrant, its transfer agent and its investment adviser,
the Registrant, its trustees, officers and employees, its transfer
agent and the transfer agent's directors, officers, and employees
are indemnified by Registrant's investment adviser against any and
all losses, liabilities, damages, claims and expenses arising out
of any act or omission of the Registrant or its transfer agent
performed in conformity with a request of the investment adviser
that the transfer agent and the Registrant deviate from their
normal procedures in connection with the issue, redemption or
transfer of shares for a client of the investment adviser.

Registrant, its trustees, officers, employees and
representatives and each person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities
Act of 1933 are indemnified by the distributor of Registrant's
shares (the "distributor"), pursuant to the terms of the
distribution agreement, which governs the distribution of
Registrant's shares, against any and all losses, liabilities,
damages, claims and expenses arising out of the acquisition of
any shares of the Registrant by any person which (i) may be
based upon any wrongful act by the distributor or any of the
distributor's directors, officers, employees or representatives
or (ii) may be based upon any untrue or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, statement of additional information, shareholder
report or other information covering shares of the Registrant
filed or made public by the Registrant or any amendment thereof
or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading if such
statement or omission was made in reliance upon information
furnished to the Registrant by the distributor in writing. In
no case does the distributor's indemnity indemnify an
indemnified party against any liability to which such
indemnified party would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the performance
of its or his duties or by reason of its or his reckless
disregard of its or his obligations and duties under the
distribution agreement.

Item 30. Business and Other Connections of Investment Adviser

Stein Roe & Farnham Incorporated ("Stein Roe"), the investment
adviser, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), which in turn is a wholly owned subsidiary of Liberty
Financial Companies, Inc., which is a majority owned subsidiary
of Liberty Corporation Holdings, Inc., which is a wholly owned
subsidiary of LFC Holdings, Inc., which in turn is a subsidiary
of Liberty Mutual Equity Corporation, which in turn is a
subsidiary of Liberty Mutual Insurance Company. Stein Roe acts
as investment adviser to individuals, trustees, pension and
profit-sharing plans, charitable organizations, and other
investors. In addition to Registrant, it also acts as
investment adviser to other investment companies having
different investment policies.

For a two-year business history of officers and directors of
Stein Roe, please refer to the Form ADV of Stein Roe &
Farnham Incorporated and to the section of the statement of
additional information (Part B) entitled "Investment Advisory
and Other Services."

Certain directors and officers of Stein Roe also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI, of Colonial Management
Associates, Inc. (which is a subsidiary of Liberty Financial
Companies, Inc.), and of the Registrant and other investment
companies managed by Stein Roe. (The listed entities are located
at One South Wacker Drive, Chicago, Illinois 60606, except for
Colonial Management Associates, Inc., which is located at One
Financial Center, Boston, MA 02111, and SteinRoe Variable
Investment Trust and Liberty Variable Investment Trust, which
are located at Federal Reserve Plaza, Boston, MA 02210.) A
list of such capacities is given below.

POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Thomas W. Butch President; Director; Chmn. Vice President
Kevin M. Carome Assistant Clerk
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
Karl J. Maurer Comptroller
C. Allen Merritt, Jr. Director; Vice President
Heidi J. Walter Vice President; Secretary

COLONIAL MANAGEMENT ASSOCIATES, INC.
Ophelia L. Barsketis Senior Vice President
Kevin M. Carome Senior Vice President
William M. Garrison Vice President
Loren A. Hansen Senior Vice President
Clare M. Hounsell Vice President
James P. Haynie Senior Vice President
Timothy J. Jacoby Senior Vice President
Deborah A. Jansen Senior Vice President
North T. Jersild Vice President
Yvonne T. Shields Vice President

SR&F BASE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
David P. Brady Vice-President
Thomas W. Butch President Executive V-P;
Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Asst. Secy. VP
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Jane M. Naeseth Vice-President
Maureen G. Newman Vice-President
Michael E. Rega Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary

LIBERTY-STEIN ROE FUNDS INCOME TRUST; LIBERTY-STEIN ROE FUNDS INSTITUTIONAL
TRUST; AND LIBERTY-STEIN ROE FUNDS TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Kevin M. Carome Executive VP; Asst. Secy. VP
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Heidi J. Walter Vice-President; Secretary

LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
David P. Brady Vice-President
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Asst. Secy. VP
William M. Garrison Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
Michael E. Rega Vice-President
Heidi J. Walter Vice-President; Secretary

LIBERTY-STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
David P. Brady Vice-President
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Asst. Secy. VP
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
Maureen G. Newman Vice-President
Michael E. Rega Vice-President
Heidi J. Walter Vice-President; Secretary

LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Kevin M. Carome Executive VP; Asst. Secy. VP
Joanne T. Costopoulos Vice-President
Loren A. Hansen Executive Vice-President
Brian M. Hartford Vice-President
William C. Loring Vice-President
Lynn C. Maddox Vice-President
Maureen G. Newman Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary

STEINROE VARIABLE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President
Kevin M. Carome Executive VP; Asst. Secy. VP
William M. Garrison Vice President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
William M. Wadden IV Vice President
Heidi J. Walter Vice President

LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND; LIBERTY-STEIN ROE
INSTITUTIONAL FLOATING RATE INCOME FUND, STEIN ROE FLOATING RATE
LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President; Trustee or Manager
Kevin M. Carome Executive VP; Asst. Secy. VP
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary

LIBERTY VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
Kevin M. Carome Vice President

Item. 31. Location of Accounts and Records

Registrant maintains the records required to be maintained
by it under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the
Investment Company Act of 1940 at its principal executive
offices at One South Wacker Drive, Chicago, Illinois 60606.
Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may
be maintained pursuant to Rule 31a-3 at the main office of
Registrant's transfer agent or custodian.

Item 32. Management Services

None.

Item 33. Undertakings

1. The Registrant undertakes to suspend the offering of shares
until the prospectus is amended if: (a) subsequent to the
effective date of the Registration Statement, the net asset
value declines more than 10 percent from its net asset value
as of the effective date of the Registration Statement; or
(b) the net asset value increases to an amount greater than
its net proceeds as stated in the prospectus.

2. Not applicable.

3. Not applicable.

4. The Registrant undertakes:
a. To file, during any period in which offers or sales are
being made, a post-effective amendment to the
registration statement:
(1) To include any prospectus required by Section
10(a)(3) of the 1933 Act;
(2) To reflect in the prospectus any facts or events
after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
and
(3) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
b. That, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall
be deemed to be a new registration statement relating to
the securities offered therein, and the offering of
those securities at that time shall be deemed to be the
initial bona fide offering thereof; and
c. To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
d. To send by first class mail or other means designed to
ensure equally prompt delivery, within two business days
of receipt of a written or oral request, any Statement
of Additional Information.

5. Not applicable

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the registrant has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Chicago, Illinois
on the 29th day of October, 1999.

LIBERTY-STEIN ROE ADVISOR FLOATING
RATE FUND

By: THOMAS W. BUTCH
Thomas W. Butch, President

Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:

Signature Title Date
- ------------------------ --------------------- --------------
THOMAS W. BUTCH President and Trustee Oct. 29, 1999
Thomas W. Butch
Principal Executive Officer

GARY A. ANETSBERGER Senior Vice- Oct. 29, 1999
Gary A. Anetsberger President; Treasurer
Principal Financial Officer

J. KEVIN CONNAUGHTON Vice-President Oct. 29, 1999
J. Kevin Connaughton
Principal Accounting Officer

JOHN A. BACON JR. Trustee Oct. 29, 1999
John A. Bacon Jr.

WILLIAM W. BOYD Trustee Oct. 29, 1999
William W. Boyd

LINDSAY COOK Trustee Oct. 29, 1999
Lindsay Cook

DOUGLAS A. HACKER Trustee Oct. 29, 1999
Douglas A. Hacker

JANET LANGFORD KELLY Trustee Oct. 29, 1999
Janet Langford Kelly

CHARLES R. NELSON Trustee Oct. 29, 1999
Charles R. Nelson

THOMAS C. THEOBALD Trustee Oct. 29, 1999
Thomas C. Theobald

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the undersigned has duly
caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Chicago, Illinois
on the 29th day of October, 1999.

STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY

By: THOMAS W. BUTCH
Thomas W. Butch, President

Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:

Signature Title Date
- ------------------------ --------------------- --------------
THOMAS W. BUTCH President and Manager Oct. 29, 1999
Thomas W. Butch
Principal Executive Officer

GARY A. ANETSBERGER Senior Vice- Oct. 29, 1999
Gary A. Anetsberger President; Treasurer
Principal Financial Officer

J. KEVIN CONNAUGHTON Vice-President Oct. 29, 1999
J. Kevin Connaughton
Principal Accounting Officer

JOHN A. BACON JR. Manager Oct. 29, 1999
John A. Bacon Jr.

WILLIAM W. BOYD Manager Oct. 29, 1999
William W. Boyd

LINDSAY COOK Manager Oct. 29, 1999
Lindsay Cook

DOUGLAS A. HACKER Manager Oct. 29, 1999
Douglas A. Hacker

JANET LANGFORD KELLY Manager Oct. 29, 1999
Janet Langford Kelly

CHARLES R. NELSON Manager Oct. 29, 1999
Charles R. Nelson

THOMAS C. THEOBALD Manager Oct. 29, 1999
Thomas C. Theobald

<PAGE>

LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT

Exhibit
Number Exhibit
- -------- --------------------------------------------------

(a)(2) Amendment to Agreement and Declaration of Trust

(l)(2) Opinion of Bell, Boyd & Lloyd

<PAGE>
STEIN ROE FLOATING RATE INCOME FUND
AMENDMENT TO AGREEMENT
AND DECLARATION OF TRUST

The undersigned, being a majority of the duly elected and
qualified Trustees of Stein Roe Floating Rate Income Fund, a
voluntary association with transferable shares organized under the
laws of the Commonwealth of Massachusetts pursuant to an Agreement
and Declaration of Trust dated August 13, 1998 (the "Declaration
of Trust"), do hereby amend the Declaration of Trust as follows
and hereby consent to such amendment:

Article 1, Section 1 of the Declaration of Trust is deleted
and the following is inserted in lieu thereof:

Section 1. This Trust shall be known as Liberty-Stein Roe
Advisor Floating Rate Fund, and the Trustees shall conduct
the business of the Trust under that name or any other
name as they may from time to time determine.

This instrument may be executed in several counterparts, each
of which shall be deemed an original, but all taken together shall
be one instrument.

IN WITNESS WHEREOF, the undersigned have hereunto set their
hands and seals as of this 7th day of October, 1999.

JOHN A. BACON JR. ___________________________
John A. Bacon Jr. Janet Langford Kelly

WILLIAM W. BOYD ___________________________
William W. Boyd Charles R. Nelson

LINDSAY COOK THOMAS C. THEOBALD
Lindsay Cook Thomas C. Theobald

DOUGLAS A. HACKER THOMAS W. BUTCH
Douglas A. Hacker Thomas W. Butch

<PAGE>