LIBERTY STEIN ROE FUNDS MUNICIPAL TRUST, 497, 1999-11-01

LIBERTY STEIN ROE FUNDS MUNICIPAL TRUST
497, 1999-11-01

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File No. 2-99356
Rule 497(e)

Stein Roe Tax-Exempt Bond Funds

Municipal Money Market Fund
Intermediate Municipals Fund
Managed Municipals Fund
High-Yield Municipals Fund

Prospectus
Nov. 1, 1999

The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this prospectus
is truthful or complete. Anyone who tells you otherwise is
committing a crime.

<PAGE>

Each fund section contains the following information specific to
that fund: investment goal; principal investment strategy;
principal investment risks; fund performance; and your expenses.

Please keep this prospectus as your reference manual.

3 Municipal Money Market Fund

7 Intermediate Municipals Fund

12 Managed Municipals Fund

16 High-Yield Municipals Fund

21 Financial Highlights

25 Your Account
Purchasing Shares
Opening an Account
Determining Share Price (NAV)
Selling Shares
Exchanging Shares
Reporting to Shareholders
Dividends and Distributions

31 Other Investments and Risks
Hedging Strategies
Asset-Backed Securities
Municipal Lease Obligations
When-Issued Securities and Forward Commitments
Zero Coupon Securities
Inverse Floating Rate Obligations
Portfolio Turnover
Temporary Defensive Positions
Interfund Lending Program

33 The Funds' Management
Investment Adviser
Portfolio Managers
Master/Feeder Fund Structure
Year 2000 Readiness

<PAGE>

[Callout]
UNDERSTANDING TAX-EXEMPT SECURITIES
Tax-exempt bonds are issued by state and local governments for
various public purposes. A tax-exempt bond, like a bond issued by
a corporation or the U.S. government, obligates the issuer to pay
the bondholder a fixed or variable amount of interest
periodically, and to repay the principal value of the bond on a
specific maturity date. Unlike taxable bonds, tax-exempt bonds
pay interest that is exempt from federal income taxes and, in some
cases, also from state and local taxes. As a result, the pre-tax
yields on tax-exempt bonds are generally lower than the yields on
taxable bonds with similar maturities. Depending on your tax
bracket, however, the after-tax return (that is, the gross return
minus the effect of taxes on investment income) may be equal to or
better than those provided by taxable bonds. Generally, the
higher your tax bracket, the more likely it is that tax-exempt
bonds (and tax-exempt bond funds) may be appropriate for you.
Tax-exempt bond funds may be appropriate for investors in high tax
brackets who seek current income that is free from federal income
tax.
[/callout]

<PAGE>

THE FUNDS
MUNICIPAL MONEY MARKET FUND

INVESTMENT GOAL Stein Roe Municipal Money Market Fund seeks
maximum current income exempt from federal income tax, consistent
with capital preservation and the maintenance of liquidity.

PRINCIPAL INVESTMENT STRATEGY Municipal Money Market Fund
invests all of its assets in SR&F Municipal Money Market Portfolio
as part of a master fund/feeder fund structure. The Portfolio
invests substantially all of its assets in high-quality, tax-
exempt money market securities. Money market funds are subject to
strict rules that require them to buy individual securities that
have remaining maturities of 13 months or less, maintain a dollar-
weighted average portfolio maturity of 90 days or less, and buy
only high-quality, U.S. dollar-denominated obligations.

It is a fundamental policy that, during periods of normal market
conditions, at least 80% of the Portfolio's net assets will be
invested in securities that produce income that is exempt from
federal income tax.

At times the Portfolio may invest 25% or more of its total assets
in tax-exempt money market securities whose issuers are located in
the same state.

The Portfolio is permitted to invest all of its assets in bonds
subject to the AMT.

The Fund seeks to preserve the value of your investment at $1 per
share.

PRINCIPAL INVESTMENT RISKS The primary risks of investing in the
Fund are described below. These risks could cause you to lose
money by investing in the Fund.

An investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your
investment at $1 per share, it is possible to lose money by
investing in the Fund. Additionally, the Fund's yield will vary
as the short-term securities in its portfolio mature and the
proceeds are reinvested in securities with different interest
rates.

Market risk is the risk that the price of a security held by the
Portfolio will fall due to changing market, economic, or political
conditions. Market risk includes interest rate risk. Interest
rate risk is the risk of a change in the price of a security when
interest rates increase or decline. In general, if interest rates
rise, securities prices fall; and if interest rates fall,
securities prices rise. Changes in the values of bonds usually
will not affect the amount of income the Fund receives from them
but will affect the value of the Fund's shares. Interest rate
risk is generally greater for bonds having longer maturities.

Issuer risk is the possibility that changes in the financial
condition of the issuer of a security, changes in general economic
conditions, or changes in economic conditions that affect the
issuer may impact the issuer's ability to make timely payment of
interest or principal. This could result in decreases in the
price of the security.

Because the Portfolio can invest more than 25% of its total assets
in securities whose issuers are located in the same state,
economic, business or political developments or changes affecting
one such security could similarly affect other securities.

Tax-exempt bonds are subject to special risk. Changes in tax laws
or adverse determinations by the Internal Revenue Service may make
the income from some of these bonds taxable. Bonds that are
backed by the issuer's taxing authority, known as
general obligations, may depend partially on legislative
appropriation and/or aid from other governments. These bonds may
be vulnerable to legal limits on a government's power to raise
revenue or increase taxes. Other tax-exempt bonds, known as
special revenue obligations, are payable from revenues earned by a
particular project or other revenue source. These bonds are
subject to greater risk of default than general obligations
because investors can look only to the revenue generated by the
project or private company, rather than to the credit of the state
or local government issuer of the bonds.

Alternative Minimum Tax. Because the Fund can invest in tax-
exempt bonds subject to the AMT, the interest income distributed
by the Fund may be subject to the federal AMT for some individuals
and corporations.

For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."

Who Should Invest in the Fund?

You may want to invest in Municipal Money Market Fund if you:

* want a relatively stable and liquid investment producing income
which is largely exempt from ordinary federal income taxes

* are in a tax bracket that makes tax-exempt investing appropriate
for you
* are saving for a short-term investment or creating an emergency
fund
* want to diversify your investment portfolio with cash-equivalent
investments and minimize your federal income taxes
* want the ability to write checks on your account

Municipal Money Market Fund is not appropriate for investors who:
* want high return potential
* are not interested in generating current income

FUND PERFORMANCE The following charts show the Fund's
performance for the past 10 calendar years through Dec. 31, 1998.
The returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance is no
guarantee of future results.

Year-by-Year Total Returns

Year-by-year calendar total returns show the Fund's volatility
over a period of time. This chart illustrates performance
differences for each calendar year and provides an indication of
the risks of investing in the Fund.

[bar chart}
YEAR-BY-YEAR TOTAL RETURNS
6%
5% 5.94% 5.41%
4%
3% 3.84% 3.36% 3.00% 3.12%
2% 2.39% 2.27% 2.95%
0% 1.86%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[end of bar chart]
[ ] Municipal Money Market Fund

The Fund's year-to-date total return through Sept. 30, 1999, was
1.97%.
For the period shown in the chart above:

Best quarter: 2nd quarter 1989, +1.57%
Worst quarter: 1st quarter 1994, +0.43%

Average Annual Total Returns

Average annual total returns measure the Fund's performance over
time. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This provides an indication of the risks of
investing in the Fund.

AVERAGE ANNUAL TOTAL RETURNS
Periods ending Dec. 31, 1998
----------------------------
1 yr 5 yr 10 yr
Municipal Money Market Fund 2.95% 2.94% 3.41%

For current seven-day yield information, please call 800-338-2550.

YOUR EXPENSES This table shows fees and expenses you may pay if
you buy and hold shares of the Fund. You do not pay any sales
charge when you purchase or sell your shares.(a) However, you pay
various other indirect expenses because the Fund or the Portfolio
pays fees and other expenses that reduce your investment return.

ANNUAL FUND OPERATING EXPENSES (b)
(expenses that are deducted from Fund assets)
Management fees(c) 0.50%
Distribution (12b-1) fees None
Other expenses 0.29%
Total annual fund operating expenses (d) 0.79%
Expense reimbursement (0.09%)
Net expenses 0.70%

(a) There is a $7 charge for wiring redemption proceeds to your
bank. A fee of $5 per quarter may be charged to accounts that
fall below the required minimum balance.
(b) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio. Fund
expenses include management fees and administrative costs such
as furnishing the Fund with offices and providing tax and
compliance services.
(c) Management fees include both the management fee and the
administrative fee charged to the Fund.
(d) Stein Roe will reimburse the Fund if its annual ordinary
operating expenses exceed 0.70% of average daily net assets.
This commitment expires on Oct. 31, 2000. After
reimbursement, management fees will be 0.41%. A reimbursement
lowers the expense ratio and increases overall return to
investors.

Expense Example

This example compares the cost of investing in the Fund to the
cost of investing in other mutual funds. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:

* $10,000 initial investment
* 5% total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period

Your actual costs may be higher or lower because in reality fund
returns and other expenses change. This example reflects expenses
of both the Fund and the Portfolio. Expense reimbursements are in
effect for the first year in the periods below. Expenses based on
these assumptions are:

EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Municipal Money Market Fund $72 $243 $430 $970

<PAGE>

THE FUNDS
INTERMEDIATE MUNICIPALS FUND

INVESTMENT GOAL Stein Roe Intermediate Municipals Fund seeks a
high level of total return, consisting of current income exempt
from federal income tax, consistent with the preservation of
capital.

PRINCIPAL INVESTMENT STRATEGY Intermediate Municipals Fund
invests primarily in "intermediate-term" tax-exempt bonds.
"Intermediate term" means the bonds generally have a dollar-
weighted-average maturity of three to 10 years. At least 75% of
the Fund's total assets are invested in tax-exempt securities that
are at the time of purchase:

* rated at least BBB by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc.,
* rated at least Baa by Moody's Investors Service, Inc.,
* given a comparable rating by another nationally recognized
rating agency,
* unrated securities that Stein Roe believes to be of comparable
quality, or
* backed by the full faith and credit or guarantee of the U.S.
government.

The Fund may also invest up to 25% of its total assets in lower-
rated debt securities. These securities are sometimes referred to
as "junk bonds" and are rated at the time of purchase:

* below BBB by Standard & Poor's,
* below Baa by Moody's Investors Service, Inc., or
* with a comparable rating by another nationally recognized rating
agency.

It is a fundamental policy that, during periods of normal market
conditions, at least 80% of the Fund's net assets will be invested
in securities that produce income that is exempt from federal
income tax.

The Portfolio is permitted to invest all of its assets in bonds
subject to the AMT.

PRINCIPAL INVESTMENT RISKS The primary risks of investing in the
Fund are described below. These risks could cause you to lose
money by investing in the Fund.

The price of the Fund's shares-its net asset value per share
(NAV)-can fluctuate daily in response to changes in the market
value of the bonds it owns.

Market risk is the risk that the price of a security held by the
Fund will fall due to changing market, economic, or political
conditions. Market risk includes interest rate risk. Interest
rate risk is the risk of a change in the price of a bond when
interest rates increase or decline. In general, if interest rates
rise, bond prices fall; and if interest rates fall, bond prices
rise. Changes in the values of bonds usually will not affect the
amount of income the Fund receives from them but will affect the
value of the Fund's shares. Interest rate risk is generally
greater for bonds having longer maturities.

Lower-rated debt securities are sometimes referred to as "junk
bonds." Lower-rated debt securities involve greater risk of loss
due to issuer risk and are less liquid, especially during periods
of economic uncertainty or change, than higher-quality debt
securities. Medium-quality debt securities (securities rated BBB
or Baa by S&P or Moody's), although considered investment grade,
may have some speculative characteristics.

Call risk is the chance that during periods of falling interest
rates, a bond issuer will "call"-or repay-its high-yielding bond
before the bond's maturity date. The Fund could experience a
decline in income if it has to reinvest the unanticipated proceeds
at a lower interest rate.

Tax-exempt bonds are subject to special risk. Changes in tax laws
or adverse determinations by the Internal Revenue Service may make
the income from some of these bonds taxable. Bonds that are
backed by the issuer's taxing authority, known as general
obligations, may depend partially on legislative appropriation
and/or aid from other governments. These bonds may be vulnerable
to legal limits on a government's power to raise revenue or
increase taxes. Other tax-exempt bonds, known as special revenue
obligations, are payable from revenues earned by a particular
project or other revenue source. These bonds are subject to
greater risk of default than general obligations because investors
can look only to the revenue generated by the project or private
company, rather than to the credit of the state or local
government issuer of the bonds.

An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

For more information on the Fund's investment techniques, please
refer to "Other Investments and Risks."

Who Should Invest in the Fund?

You may want to invest in Intermediate Municipals Fund if you:

* want income that is exempt from ordinary federal income tax and
are looking for a higher level of return potential than
generally offered by municipal money market funds in exchange
for increased levels of risk

* are in a tax bracket that makes tax-exempt investing appropriate
for you
* are a long-term investor looking to diversify your investment
portfolio by investing in tax-exempt securities

Intermediate Municipals Fund is not appropriate for investors who:
* are saving for a short-term investment
* want to avoid volatility or possible losses
* are not interested in generating current income

Year-by-Year Total Returns

[bar chart]
YEAR-BY-YEAR TOTAL RETURNS
12% 12.93%
10% 10.67% 11.06%
8% 8.16%
6% 7.48% 7.63% 7.50%
4% 4.16% 5.46%
2%
0%
- -5% -3.36%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[/bar chart]
[ ] Intermediate Municipals Fund

The Fund's year-to-date total return through Sept. 30, 1999, was -
1.06%.
For the period show in the chart above:

Best quarter: 1st quarter 1995, +4.73%
Worst quarter: 1st quarter 1994, -4.24%

Average Annual Total Returns

Average annual total returns measure the Fund's performance over
time. We compare the Fund's returns with returns for the Lehman
Brothers 10-Year Municipal Bond Index. We show returns for
calendar years to be consistent with the way other mutual funds
report performance in their prospectuses. This provides an
indication of the risks of investing in the Fund.

AVERAGE ANNUAL TOTAL RETURNS
Periods ending Dec. 31, 1998
----------------------------
1 yr 5 yr 10 yr
Intermediate Municipals Fund 5.46% 5.20% 7.08%
Lehman Brothers 10-Year
Municipal Bond Index* 6.76% 6.35% 8.33%

*The Lehman Brothers 10-Year Municipal Bond Index is an unmanaged
group of securities that differs from the Fund's composition; it
is not available for direct investment.

YOUR EXPENSES This table shows fees and expenses you may pay if
you buy and hold shares of the Fund. You do not pay any sales
charge when you purchase or sell your shares.(a) However, you pay
various other indirect expenses because the Fund pays fees and
other expenses that reduce your investment return.

ANNUAL FUND OPERATING EXPENSES (b)
(expenses that are deducted from Fund assets)
Management fees(c) 0.47%
Distribution (12b-1) fees None
Other expenses 0.29%
Total annual fund operating expenses (d) 0.76%
Expense reimbursement (0.06%)
Net expenses 0.70%

(a) There is a $7 charge for wiring redemption proceeds to your
bank. A fee of $5 per quarter may be charged to accounts that
fall below the required minimum balance.
(b) Fund expenses include management fees and administrative costs
such as furnishing the Fund with offices and providing tax and
compliance services.
(c) Management fees include both the management fee and the
administrative fee charged to the Fund.
(d) Stein Roe will reimburse the Fund if its annual ordinary
operating expenses exceed 0.70% of average daily net assets.
This commitment expires on Oct. 31, 2000. After
reimbursement, management fees will be 0.41%. A reimbursement
lowers the expense ratio and increases overall return to
investors.

Expense Example

This example compares the cost of investing in the Fund to the
cost of investing in other mutual funds. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:

* $10,000 initial investment
* 5% total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period

Your actual costs may be higher or lower because in reality fund
returns and other expenses change. Expense reimbursements are in
effect for the first year in the periods below. Expenses based on
these assumptions are:

EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Intermediate Municipals Fund $72 $237 $416 $937

<PAGE>

THE FUNDS
MANAGED MUNICIPALS FUND

INVESTMENT GOAL Stein Roe Managed Municipals Fund seeks a high
level of total return consistent with prudent risk, consisting of
current income exempt from federal income tax and opportunities
for capital appreciation.

PRINCIPAL INVESTMENT STRATEGY Under normal market conditions,
the Fund invests primarily in tax-exempt bonds that are investment
grade. These securities are rated:

* at least BBB by Standard & Poor's,
* at least Baa by Moody's Investors Service, Inc., or
* with a comparable rating by another nationally recognized rating
agency.

The portfolio manager may purchase bonds of any maturity. The
Fund may invest up to 35% of its total assets in any combination
of the following bonds (not including pre-refunded bonds): (1)
bonds rated below investment grade by a national rating agency and
(2) bonds that are not rated, provided that the Fund's total
investments in unrated bonds may not exceed 25% of total assets.
Pre-refunded bonds are bonds that are typically escrowed with U.S.
treasury bonds and may or may not be rated.

It is a fundamental policy that, during periods of normal market
conditions, the Fund's assets will be invested so that at least
80% of the Fund's income will be exempt from federal income tax.

The Fund seeks to achieve capital appreciation through purchasing
bonds that increase in market value. In addition, to a limited
extent, the Fund may seek capital appreciation by using hedging
techniques such as futures and options.

The Portfolio is permitted to invest all of its assets in bonds
subject to the AMT.

PRINCIPAL INVESTMENT RISKS The primary risks of investing in the
Fund are described below. These risks could cause you to lose
money by investing in the Fund.

The price of the Fund's shares-its net asset value per share
(NAV)-can fluctuate daily in response to changes in the market
value of the bonds it owns.

Tax-exempt bonds are subject to special risk. Changes in tax laws
or adverse determinations by the Internal Revenue Service may make
the income from some of these bonds taxable. Bonds that are
backed by the issuer's taxing authority, known as general
obligations, may depend partially on legislative appropriation
and/or aid from other governments. These bonds may be vulnerable
to legal limits on a government's power to raise revenue or
increase taxes. Other tax-exempt bonds, known as special revenue
obligations, are payable from revenues earned by a particular
project or other revenue source. These bonds are subject to
greater risk of default than general obligations because investors
can look only to the revenue generated by the project or private
company, rather than to the credit of the state or local
government issuer of the bonds.

Because the Fund seeks to achieve capital appreciation, you could
receive capital gains distributions. (See "Tax Consequences.")

An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

For more information on the Fund's investment techniques, please
refer to "Other Investments and Risks."

Who Should Invest in the Fund?

You may want to invest in Managed Municipals Fund if you:
* want the higher return and income potential offered by high-
yield bonds, but want to balance their greater risk with a
substantial portion of the Fund invested in investment-grade
bonds
* are in a tax bracket that makes tax-exempt investing appropriate
for you

* want income that is exempt from ordinary federal income tax

* want a balance between return potential and capital preservation
* are a long-term investor looking to diversify your portfolio by
investing in fixed-income securities

Managed Municipals Fund is not appropriate for investors who:
* are saving for a short-term investment
* want to avoid volatility or possible losses
* are not interested in generating current income

Year-by-Year Total Returns

[bar chart]
YEAR-BY-YEAR TOTAL RETURNS
16% 16.63%
14%
12%
10% 10.62% 11.88% 11.25%
8% 8.29% 9.31%
6% 6.97%
4% 5.50%
2% 3.77%
0%
- -5% -5.37%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[/bar chart]
[ ] Managed Municipals Fund

The Fund's year-to-date total return through Sept. 30, 1999, was -
2.36%.
For the period shown in the chart above:

Best quarter: 1st quarter 1995, +6.42%
Worst quarter: 1st quarter 1994, -5.24%

Average Annual Total Returns

Average annual total returns measure the Fund's performance over
time. We compare the Fund's returns with returns for the Lehman
Brothers Municipal Bond Index. We show returns for calendar years
to be consistent with the way other mutual funds report
performance in their prospectuses. This provides an indication of
the risks of investing in the Fund.

AVERAGE ANNUAL TOTAL RETURNS
Periods ending Dec. 31, 1998
----------------------------
1 yr 5 yr 10 yr
Managed Municipals Fund 5.50% 5.72% 7.73%
Lehman Brothers Municipal
Bond Index* 6.48% 6.22% 8.22%

*The Lehman Brothers Municipal Bond Index is an unmanaged group of
securities that differs from the Fund's composition; it is not
available for direct investment.

YOUR EXPENSES This table shows fees and expenses you may pay if
you buy and hold shares of the Fund. You do not pay any sales
charge when you purchase or sell your shares.(a) However, you pay
various other indirect expenses because the Fund pays fees and
other expenses that reduce your investment return.

ANNUAL FUND OPERATING EXPENSES (b)
(expenses that are deducted from Fund assets)
Management fees(c) 0.52%
Distribution (12b-1) fees None
Other expenses 0.20%
Total annual fund operating expenses 0.72%

Expense Example

This example compares the cost of investing in the Fund to the
cost of investing in other mutual funds. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:

* $10,000 initial investment
* 5% total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period

Your actual costs may be higher or lower because in reality fund
returns and other expenses change. Expenses based on these
assumptions are:

EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Managed Municipals Fund $74 $230 $400 $894

<PAGE>

THE FUNDS
HIGH-YIELD MUNICIPALS FUND

INVESTMENT GOAL Stein Roe High-Yield Municipals Fund seeks a
high level total return consisting of current income exempt from
ordinary federal income tax and opportunities for capital
appreciation.

PRINCIPAL INVESTMENT STRATEGY High-Yield Municipals Fund invests
all of its assets in SR&F High-Yield Municipals Portfolio as part
of a master fund/feeder fund structure. It is a fundamental
policy that the Portfolio's assets will be invested so that at
least 80% of the Portfolio's gross income will be exempt from
federal income tax. The Portfolio may invest up to 20% of its
total assets in high-quality taxable money market instruments.
The portfolio manager may purchase bonds of any maturity.

In selecting municipal securities for the Portfolio, the portfolio
manager invests at least 65% of its total assets in medium- or
lower-rated tax-exempt securities. These securities are at the
time of purchase:

* rated BBB or below by Standard & Poor's,
* rated Baa or below by Moody's Investors Service, Inc.,
* given a comparable rating by another nationally recognized
rating agency, or
* unrated securities that Stein Roe believes to be of comparable
quality.

Lower-rated securities are sometimes referred to as "junk bonds."

The Portfolio may invest any or all of its assets in high-quality
tax-exempt securities under the following conditions:

* the portfolio manager believes that the difference in returns
between higher-quality and lower-quality securities is narrow,
or
* the portfolio manager expects increased volatility in interest
rates.

Investment in higher-quality securities may reduce the Fund's
current income.

The Portfolio may also invest 25% or more of its assets in
industrial development bonds or participation interests in those
bonds.

The Portfolio is permitted to invest all of its assets in bonds
subject to the AMT.

PRINCIPAL INVESTMENT RISKS The primary risks of investing in the
Fund are described below. These risks could cause you to lose
money by investing in the Fund.

The price of the Fund's shares-its net asset value per share
(NAV)-can fluctuate daily in response to changes in the market
value of the bonds it owns.

Market risk is the risk that the price of a security held by the
Portfolio will fall due to changing market, economic, or political
conditions. Market risk includes interest rate risk. Interest
rate risk is the risk of a change in the price of a bond when
interest rates increase or decline. In general, if interest rates
rise, bond prices fall; and if interest rates fall, bond prices
rise. Changes in the values of bonds usually will not affect the
amount of income the Fund receives from them but will affect the
value of the Fund's shares. Interest rate risk is generally
greater for bonds having longer maturities.

An economic downturn could severely disrupt the high-yield market
and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In
addition, lower-quality bonds are less sensitive to interest rate
changes than higher-quality instruments and generally are more
sensitive to adverse economic changes or individual corporate
developments. During a period of adverse economic changes,
including a period of rising interest rates, issuers of such bonds
may experience difficulty in servicing their principal and
interest payment obligations.

Call risk is the chance that during periods of falling interest
rates, a bond issuer will "call"-or repay-its high-yielding bond
before the bond's maturity date. The Fund could experience a
decline in income if the Portfolio has to reinvest the
unanticipated proceeds at a lower interest rate.

Tax-exempt bonds are subject to special risk. Changes in tax laws
or adverse determinations by the Internal Revenue Service may make
the income from some of these bonds taxable. Bonds that are
backed by the issuer's taxing authority, known as general
obligations, may depend partially on legislative appropriation
and/or aid from other governments. These bonds may be vulnerable
to legal limits on a government's power to raise revenue or
increase taxes. Other tax-exempt bonds, known as special revenue
obligations, are payable from revenues earned by a particular
project or other revenue source. These bonds are subject to
greater risk of default than general obligations because investors
can look only to the revenue generated by the project or private
company, rather than to the credit of the state or local
government issuer of the bonds.

Because the Portfolio may invest more than 25% of its total assets
in industrial development bonds or participation interests
therein, the Portfolio may be more adversely affected than
competing funds by an economic, business or political development
or change.

Because the Fund seeks to achieve capital appreciation, you could
receive capital gains distributions. (See "Tax Consequences.")

An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency.

For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."

Who Should Invest in the Fund?

You may want to invest in High-Yield Municipals Fund if you:

* want income that is exempt from ordinary federal income tax and
want the higher return potential associated with investing in
lower-rated debt securities and can tolerate the high level of
risk associated with such securities

* are in a tax bracket that makes tax-exempt investing appropriate
for you
* are a long-term investor and are looking to diversify your
investment portfolio with tax-exempt lower-rated debt securities

High-Yield Municipals Fund is not appropriate for investors who:
* are saving for a short-term investment
* want a relatively low-risk fixed-income investment
* want to avoid volatility or possible losses
* are not interested in generating current income

Year-by-Year Total Returns

[bar chart]
YEAR-BY-YEAR TOTAL RETURNS
18%
15% 17.72%
12%
9% 11.43% 9.84% 10.64% 9.53%
6% 7.63%
3% 5.35% 4.48% 5.28%
0%
- -5% -4.03%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
[/bar chart]
[ ] High-Yield Municipals Fund

The Fund's year-to-date total return through Sept. 30, 1999, was -
0.44%.
For the period shown in the chart above:

Best quarter:1st quarter 1995, +7.00%
Worst quarter: 1st quarter 1994, -5.11%

Average Annual Total Returns

AVERAGE ANNUAL TOTAL RETURNS
Periods ending Dec. 31, 1998
1 yr 5 yr 10 yr
-------------------------
High-Yield Municipals Fund 5.28% 6.36% 7.65%
Lehman Brothers Municipal
Bond Index* 6.48% 6.22% 8.22%

*The Lehman Brothers Municipal Bond Index is an unmanaged group of
securities that differs from the Fund's composition; it is not
available for direct investment.

Your Expenses This table shows fees and expenses you may pay if
you buy and hold shares of the Fund. You do not pay any sales
charge when you purchase or sell your shares.(a) However, you pay
various other indirect expenses because the Fund or the Portfolio
pays fees and other expenses that reduce your investment return.

ANNUAL FUND OPERATING EXPENSES (b)
(expenses that are deducted from Fund assets)
Management fees(c) 0.55%
Distribution (12b-1) fees None
Other expenses 0.22%
Total annual fund operating expenses 0.77%

Expense Example

This example compares the cost of investing in the Fund to the
cost of investing in other mutual funds. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:

* $10,000 initial investment
* 5% total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period

Your actual costs may be higher or lower because in reality fund
returns and other expenses change. This example reflects expenses
of both the Fund and the Portfolio. Expenses based on these
assumptions are:

EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
High-Yield Municipals Fund $78 $244 $425 $948

<PAGE>

FINANCIAL HIGHLIGHTS

The financial highlights tables explain the Funds' financial
performance. Consistent with other mutual funds, we show
information for the last five fiscal years. Each Fund's fiscal
year runs from July 1 to June 30. The total returns in the tables
represent the return that investors earned assuming that they
reinvested all dividends and distributions. Certain information
in the tables reflects the financial results for a single Fund
share. Ernst & Young LLP, independent auditors, audits this
information and issues a report that appears in the Funds' annual
report along with the financial statements. To request an annual
report, please call 800-338-2550.

Municipal Money Market Fund
PER SHARE DATA
<TABLE>
<CAPTION>
For years ending June 30,
1999 1998 1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Income from investment operations
Net investment income .027 .031 .030 .031 .030
Dividends (from net investment
income) (.027) (.031) (.030) (.031) (.030)
Net asset value, end of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Total return (a) 2.73% 3.10% 3.04% 3.13% 3.02%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted) $119,032 $115,279 $118,424 $120,432 $146,704
Ratio of net expenses to average
net assets(b) 0.70% 0.70% 0.70% 0.70% 0.70%
Ratio of net investment income
to average net assets(a) 2.69% 3.06% 2.98% 3.09% 2.96%
</TABLE>

<PAGE>

Intermediate Municipals Fund
PER SHARE DATA
<TABLE>
<CAPTION>
For years ending June 30,
1999 1998 1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.57 $ 11.38 $ 11.22 $ 11.16 $ 11.00
Income from investment operations
Net investment income .54 .54 .55 .55 .53
Net gains on securities (both
realized and unrealized) (.30) .22 .22 .06 .16
Total income from investment
operations .24 .76 .77 .61 .69
Less distributions
Dividends (from net investment
income) (.54) (.54) (.55) (.55) (.53)
Distributions (from capital gains) (.04) (.03) (.06) - -
Total distributions (.58) (.57) (.61) (.55) (.53)
Net asset value, end of period $ 11.23 $ 11.57 $ 11.38 $ 11.22 $ 11.16
Total return (a) 2.08% 6.84% 7.07% 5.47% 6.59%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted) $168,896 $195,651 $196,006 $204,726 $212,489
Ratio of net expenses to average
net assets(b) 0.70% 0.70% 0.70% 0.70% 0.74%
Ratio of net investment income
to average net assets(a) 4.85% 4.70% 4.84% 4.82% 4.94%
Portfolio turnover rate 48% 29% 44% 66% 67%
</TABLE>

<PAGE>

Managed Municipals Fund
PER SHARE DATA
<TABLE>
<CAPTION>
For years ending June 30,
1999 1998 1997 1996 1995
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 9.38 $ 9.11 $ 8.85 $ 8.79 $ 8.70
Income from investment operations
Net investment income .47 .48 .48 .48 .51
Net gains on securities (both
realized and unrealized) (.31) .27 .26 .06 .09
Total income from investment
operations .16 .75 .74 .54 .60
Less distributions
Dividends (from net investment
income) (.47) (.48) (.48) (.48) (.51)
Net asset value, end of period $ 9.07 $ 9.38 $ 9.11 $ 8.85 $ 8.79
Total return 1.67% 8.37% 8.56% 6.24% 7.12%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted) $538,322 $583,138 $582,366 $606,359 $629,730
Ratio of net expenses to
average net assets 0.72% 0.72% 0.73% 0.72% 0.65%
Ratio of net investment income
to average net assets 5.02% 5.14% 5.31% 5.41% 5.85%
Portfolio turnover rate 17% 12% 16% 40% 33%
</TABLE>

<PAGE>

High-Yield Municipals Fund
PER SHARE DATA
<TABLE>
<CAPTION>
For years ending June 30,
1999 1998 1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.97 $ 11.67 $ 11.40 $ 11.31 $ 11.06
Income from investment operations
Net investment income .63 .65 .72 .67 .66
Net gains on securities (both
realized and unrealized) (.24) .30 .27 .09 .25
Total income from investment
operations .38 .95 .99 .76 .91
Less distributions
Dividends (from net investment
income) (.64) (.65) (.72) (.67) (.66)
Net asset value, end of period $ 11.71 $ 11.97 $ 11.67 $ 11.40 $ 11.31
Total return 3.18% 8.32% 8.91% 6.83% 8.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000
omitted) $298,301 $341,780 $306,070 $282,956 $281,155
Ratio of net expenses to average
net assets 0.77% 0.75% 0.77% 0.85% 0.86%
Ratio of net investment income
to average net assets 5.26% 5.48% 6.20% 5.86% 5.98%

Portfolio turnover rate 19%(d) 8%(c) 11% 34% 23%

</TABLE>

(a) Computed with the effect of Stein Roe's expense reimbursement.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by Stein Roe, this ratio would have
been 0.79%, 0.86%, 0.86%, 0.84% and 0.78% for the years ended
June 30, 1999, 1998, 1997, 1996 and 1995, respectively, for
Municipal Money Market Fund; and 0.79%, 0.81%, 0.82%, 0.81%
and 0.76% for the years ended June 30, 1999, 1998, 1997, 1996
and 1995, respectively, for Intermediate Municipals Fund.

(c) Prior to commencement of operations of the Portfolio. For the
period from the commencement of operations of the Portfolio,
February 2, 1998, to June 30, 1998, the portfolio turnover of
the Portfolio was 3%.
(d) Represents the portfolio turnover of the Portfolio.

<PAGE>

YOUR ACCOUNT

PURCHASING SHARES You will not pay a sales charge when you
purchase Fund shares. Your purchases are made at the NAV next
determined after the Fund receives your check, wire transfer or
electronic transfer. If a Fund receives your check, wire transfer
or electronic transfer after the close of regular trading on the
New York Stock Exchange (NYSE)-normally 3 p.m. Central time-your
purchase is effective on the next business day.

Purchases through Third Parties

If you purchase Fund shares through certain broker-dealers, banks
or other intermediaries (intermediaries), they may charge a fee
for their services. They may also place limits on your ability to
use services the Funds offer. There are no charges or limitations
if you purchase shares directly from a Fund, except those fees
described in this prospectus.

If an intermediary is an agent or designee of the Funds, orders
are processed at the NAV next calculated after the intermediary
receives the order. The intermediary must segregate any orders it
receives after the close of regular trading on the NYSE and
transmit those orders separately for execution at the NAV next
determined.

Conditions of Purchase

An order to purchase Fund shares is not binding unless and until
an authorized officer, agent or designee of the Fund accepts it.
Once we accept your purchase order, you may not cancel or revoke
it; however, you may redeem your shares. A Fund may reject any
purchase order if it determines that the order is not in the best
interests of the Fund and its investors. A Fund may waive or
lower its investment minimums for any reason. If you participate
in the Stein Roe Counselor [service mark] program or are a client
of Stein Roe Private Capital Management, the minimum initial
investment is determined by those programs.

ACCOUNT MINIMUMS
Minimum to Minimum Minimum
Type of Account Open an Account Addition Balance
- ------------------------------------------------------------
Regular $2,500 $100 $1,000
Custodial (UGMA/UTMA) $1,000 $100 $1,000
Automatic Investment Plan $1,000 $50 -
Roth and Traditional IRA $500 $50 $500
Educational IRA $500 $50* $500

*Maximum $500 contribution per calendar year per child.

Opening an Account
OPENING OR ADDING TO AN ACCOUNT

Opening an Account BY MAIL:
Complete the application.
Make check payable to Stein Roe Mutual Funds.

Mail application and check to:
SteinRoe Services Inc.
P.O. Box 8900
Boston, MA 02205

BY WIRE:
Mail your application to the address listed on
the left, then call 800-338-2550 to obtain an
account number. Include your Social Security
Number. To wire funds, use the instructions
below.

Adding to an Account BY MAIL:
Make check payable to Stein Roe Mutual Funds.
Be sure to write your account number on the
check.

Fill out investment slip (stub from your
statement or confirmation) or include a note
indicating the amount of your purchase, your
account number, and the name in which your
account is registered.

Mail check with investment slip or note to the
address above.

BY WIRE:
Wire funds to:
First National Bank of Boston
ABA: 011000390
Attn: SSI, Account No. 560-99696
Fund No. __; Stein Roe ____ Fund
Your name (exactly as in the registration).
Fund account number.

Fund Numbers:
30-Municipal Money Market Fund
08-Intermediate Municipals Fund
37-Managed Municipals Fund
28-High-Yield Municipals Fund

OPENING OR ADDING TO AN ACCOUNT

Opening an Account BY ELECTRONIC FUNDS TRANSFER:
You cannot open a new account via electronic
transfer.

BY EXCHANGE:
By mail, phone, or automatically (be
sure to elect the Automatic Exchange Privilege
on your application).

THROUGH AN INTERMEDIARY;
Contact your financial professional.

Adding to an Account BY ELECTRONIC FUNDS TRANSFER;
Call 800-338-2550 to make your purchase. To
set up prescheduled purchases, be sure to
elect the Automatic Investment Plan (Stein Roe
Asset [SERVICE MARK] Builder) option on your
application.

BY EXCHANGE:
By mail, phone, or automatically (be
sure to elect the Automatic Exchange Privilege
on your application).

THROUGH AN INTERMEDIARY:
Contact your financial professional.

All checks must be made payable in U.S. dollars and drawn on U.S.
banks. Money orders and third-party checks will not be accepted.

DETERMINING SHARE PRICE (NAV) A Fund's share price is its NAV
next determined. NAV is the difference between the values of a
Fund's assets and liabilities divided by the number of shares
outstanding. We determine NAV at the close of regular trading on
the NYSE-normally 3 p.m. Central time. If you place an order
after that time, you receive the share price determined on the
next business day.

Securities held by Intermediate Municipals Fund, Managed
Municipals Fund, and High-Yield Municipals Portfolio are valued
based on valuations provided by a pricing service. When the price
of a security is not available, including days when we determine
that the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees. We value a security at fair value when events have
occurred after the last available market price and before the
close of the NYSE that materially affect the security's price.

Municipal Money Market Fund attempts to maintain its NAV at $1 per
share. We value portfolio securities held by Municipal Money
Market Portfolio based on their amortized cost, which does not
take into account unrealized gains or losses. The extent of any
deviation between the NAV based upon market quotations or
equivalents and $1 per share based on amortized cost will be
examined by the Board. If such deviation were to exceed 1/2 of
1%, the Board would consider what action, if any, should be taken,
including selling portfolio securities, increasing, reducing, or
suspending distributions or redeeming shares in kind. Securities
and other assets for which this valuation method does not produce
a fair value are valued at a fair value determined in good faith
by the Board.

SELLING SHARES You may sell your shares any day the Funds are
open for business. Please follow the instructions below.

SELLING SHARES
BY MAIL: Send a letter of instruction, in English, including
your account number and the dollar value or number of
shares you wish to sell. Sign the request exactly as
the account is registered. Be sure to include a
signature guarantee. All supporting legal documents
as required from executors, trustees, administrators,
or others acting on accounts not registered in their
names, must accompany the request. We will mail the
check to your registered address.

BY PHONE: This feature is automatically added to your account
unless you decline it on your application. Call 800-
338-2550 to redeem an amount of $1,000 or more. We
will mail a check to your registered address.

BY WIRE: Fill out the appropriate areas of the account
application for this feature. Proceeds of $1,000 or
more ($100,000 maximum) may be wired to your
predesignated bank account. Call 800-338-2550 to
give instructions to Stein Roe. There is a $7 charge
for wiring redemption proceeds to your bank.

BY ELECTRONIC TRANSFER: Fill out the appropriate areas of the
account application for this feature. To request an
electronic transfer (not less than $50; not more than
$100,000), call 800-338-2550. We will transfer your
sale proceeds electronically to your bank. The bank
must be a member of the Automated Clearing House.

BY EXCHANGE: Call 800-338-2550 to exchange any portion of your
Fund shares for shares in any other Stein Roe no-load
fund.

BY AUTOMATIC EXCHANGE: Fill out the appropriate areas of the
account application for this feature. Redeem a fixed
amount on a regular basis (not less than $50 per
month; not more than $100,000) from a Fund for
investment in another Stein Roe no-load fund.

BY CHECK WRITING: (Municipal Money Market Fund accounts only)
Complete the appropriate section of the account
application for this feature. You may redeem shares
of Municipal Money Market Fund by writing checks
(minimum $50) that are drawn against a special
checking account the Fund has with the First National
Bank of Boston.

What You Need to Know When Selling Shares

Once we receive and accept your order to sell shares, you may not
cancel or revoke it. We cannot accept an order to sell that
specifies a particular date or price or any other special
conditions. If you have any questions about the requirements for
selling your shares, please call 800-338-2550 before submitting
your order.

A Fund redeems shares at the NAV next determined after an order
has been accepted. We mail proceeds within seven days after the
sale. The Funds normally pay wire redemption or electronic
transfer proceeds on the next business day.

We will not pay sale proceeds until your shares are paid for. If
you attempt to sell shares purchased by check or electronic
transfer within 15 days of the purchase date, we will delay
sending the sale proceeds until we can verify that those shares
are paid for. You may avoid this delay by purchasing shares by a
federal funds wire.

We use procedures reasonably designed to confirm that telephone
instructions are genuine. These include recording the
conversation, testing the identity of the caller by asking for
account information, and sending prompt written confirmation of
the transaction to the shareholder of record. If these procedures
are followed, the Fund and its service providers will not be
liable for any losses due to unauthorized or fraudulent
instructions.

If the amount you redeem is in excess of the lesser of (1)
$250,000 or (2) 1% of the Fund's assets, the Fund may pay the
redemption "in kind." This is payment in portfolio securities
rather than cash. If this occurs, you may incur transaction costs
when you sell the securities.

Involuntary Redemption

If your account value falls below $1,000, the Fund may redeem your
shares and send the proceeds to the registered address. You will
receive notice 30 days before this happens. If your account falls
below $10, the Fund may redeem your shares without notice to you.

Low Balance Fee

Due to the expense of maintaining accounts with low balances, if
your account balance falls below $2,000 ($800 for custodial
accounts), you will be charged a low balance fee of $5 per
quarter. The low balance fee does not apply to: (1) shareholders
whose accounts in the Stein Roe Funds total $50,000 or more; (2)
Stein Roe IRAs; (3) other Stein Roe prototype retirement plans;
(4) accounts with automatic investment plans (unless regular
investments have been discontinued); or (5) omnibus or nominee
accounts. A Fund can waive the fee, at its discretion, in the
event of significant market corrections.

Exchanging Shares You may exchange Fund shares for shares of
other Stein Roe no-load funds. Call 800-338-2550 to request a
prospectus and application for the fund you wish to exchange into.
Please be sure to read the prospectus carefully before you
exchange your shares.

The account you exchange into must be registered exactly the same
as the account you exchange from. You must meet all investment
minimum requirements for the fund you wish to exchange into before
we can process your exchange transaction.

An exchange is a redemption and purchase of shares for tax
purposes, and you may realize a gain or a loss when you exchange
Fund shares for shares of another fund.

We may change, suspend or eliminate the exchange service after
notification to you.

Generally, we limit you to four telephone exchanges "roundtrips"
per year. A roundtrip is an exchange out of a Fund into another
Stein Roe no-load fund and then back to that Fund.

REPORTING TO SHAREHOLDERS To reduce the volume of mail you
receive, only one copy of certain materials, such as shareholder
reports, will be mailed to your household (same address). Please
call 800-338-2550 if you want to receive additional copies free of
charge. This policy may not apply if you purchase shares through
an intermediary.

DIVIDENDS AND DISTRIBUTIONS Income dividends are declared each
business day, paid monthly, and confirmed at least quarterly.
Each Fund distributes, at least once a year, virtually all of its
net realized capital gains.

A dividend from net investment income represents the income a Fund
earns from dividends and interest paid on its investments, after
payment of the Fund's expenses.

A capital gain is the increase in value of a security that the
Fund holds. The gain is "unrealized" until the security is sold.
Each realized capital gain is either short term or long term
depending on whether the Fund held the security for one year or
less or more than one year, regardless of how long you have held
your Fund shares.

When a Fund makes a distribution of income or capital gains, the
distribution is automatically invested in additional shares of
that Fund unless you elect on the account application to have
distributions paid by check.

[callout]
OPTIONS FOR RECEIVING DISTRIBUTION AND REDEMPTION PROCEEDS:
* by check
* by electronic transfer into your bank account
* a purchase of shares of another Stein Roe fund
* a purchase of shares in a Stein Roe fund account of another
person
[/callout]

If you elect to receive distributions by check and a distribution
check is returned to a Fund as undeliverable, or if you do not
present a distribution check for payment within six months, we
will change the distribution option on your account and reinvest
the proceeds of the check in additional shares of that Fund. You
will not receive any interest on amounts represented by uncashed
distribution or redemption checks.

Tax Consequences

For federal income tax purposes, distributions of net investment
income by a Fund, whether in cash or additional securities, will
ordinarily constitute tax-exempt income. Ordinarily,
distributions to shareholders from gains realized by a Fund on the
sale or exchange of investments will be taxable to shareholders.
In addition, an investment in a Fund may result in liability for
federal AMT both for some individuals and corporate shareholders.

You will be provided with information each year regarding the
amount of ordinary income and capital gains distributed to you for
the previous year and any portion of your distributions that is
exempt from state and local taxes. Your investment in a Fund may
have additional personal tax implications. Please consult your
tax advisor on state, local or other applicable taxes.

In addition to the dividends and capital gains distributions made
by a Fund, you may realize a capital gain or loss when selling and
exchanging Fund shares. Such transactions may be subject to
federal income tax.

<PAGE>

OTHER INVESTMENTS AND RISKS

The first portion of this prospectus describes each Fund's
principal investment strategy and principal investment risks. In
seeking to meet its investment goals, a Fund also may invest in
other securities and use other investment techniques. A Fund may
elect not to buy any of these other securities or use any of these
other investment techniques. A Fund may not always achieve its
investment goal.

This section describes other securities and techniques, and risks
associated with them. The Statement of Additional Information
(SAI) contains additional information about a Fund's securities
and investment techniques (including other securities and
techniques) and the risks associated with them. Such risks could
cause you to lose money by investing in a Fund or could cause the
Fund's total return or yield to decrease. The SAI also contains a
Fund's fundamental and non-fundamental investment policies.

The Board of Trustees can change a Fund's investment objective
without shareholder approval.

HEDGING STRATEGIES Managed Municipals Fund, Intermediate
Municipals Fund, and High-Yield Municipals Portfolio may enter
into a number of hedging strategies, including those that employ
futures and options, to gain or reduce exposure to particular
securities or markets. These strategies, which are commonly
referred to as derivatives, involve the use of financial
instruments whose values depend on, or are derived from, the value
of an underlying security or an index. The Funds and the
Portfolio may use these strategies to adjust their sensitivity to
changes in interest rates or for other hedging purposes
(attempting to offset a potential loss in one position by
establishing an interest in an opposite position). Derivative
strategies involve the risk that they may exaggerate a loss,
potentially losing more money than the actual cost of the
derivative, or limit a potential gain. Also, with some derivative
strategies there is the risk that the other party to the
transaction may fail to honor its contract terms, causing a loss
to the Funds or the Portfolio.

ASSET-BACKED SECURITIES Each Fund may invest in asset-backed
securities, which are interests in pools of debt securities.
These securities are subject to prepayment risk, which is the
possibility that the underlying debt may be refinanced or prepaid
prior to maturity during periods of declining interest rates. In
an environment of declining interest rates, asset-backed
securities may offer less potential for gain than other debt
securities. During periods of rising interest rates, asset-backed
securities have a high risk of declining in price because the
declining prepayment rates effectively increase the maturity of
the securities. In addition, the potential impact of prepayment
on the price of an asset-backed security may be difficult to
predict and result in greater volatility.

MUNICIPAL LEASE OBLIGATIONS Municipal lease obligations are
revenue bonds backed by leases or installment purchase contracts
for property or equipment. Lease obligations may not be backed by
the issuing municipality, and a Fund or Portfolio may have limited
recourse in the event of a default or termination.

WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS When-issued
securities and forward commitments are securities that are
purchased prior to the date they are actually issued or delivered.
These securities involve the risk that they may fall in value by
the time they are actually issued or that the other party may fail
to honor the contract terms.

ZERO COUPON SECURITIES Managed Municipals Fund, Intermediate
Municipals Fund, and High-Yield Municipals Portfolio may invest in
zero coupon securities. These securities do not pay interest in
cash on a current basis, but instead accrue over the life of the
bond. As a result, these securities are issued at a deep
discount. The value of these securities may fluctuate more than
similar securities that pay interest periodically. Although these
securities pay no interest to holders prior to maturity, interest
on these securities is reported as income to the Fund and
distributed to its shareholders.

INVERSE FLOATING RATE OBLIGATIONS Managed Municipals Fund,
Intermediate Municipals Fund, and High-Yield Municipals Portfolio
may invest in inverse floating rate obligations representing
interests in tax-exempt bonds. These securities carry interest
rates that vary inversely to changes in market interest rates.
Such securities have investment characteristics similar to
investment leverage. Their market values are subject to greater
risks of fluctuation than securities bearing a fixed rate of
interest, which may lead to greater fluctuation in the value of a
Fund's shares.

PORTFOLIO TURNOVER There are no limits on turnover. Turnover
may vary significantly from year to year. Stein Roe does not
expect it to exceed 100% under normal conditions. Portfolio
turnover typically produces capital gains or losses resulting in
tax consequences for Fund investors. It also increases
transaction expenses, which reduce a Fund's return.

TEMPORARY DEFENSIVE POSITIONS When Stein Roe believes that a
temporary defensive position is necessary, a Fund or Portfolio may
invest, without limit, in high-quality debt securities or hold
assets in cash and cash equivalents. Stein Roe is not required to
take a temporary defensive position, and market conditions may
prevent such an action. A Fund may not achieve its investment
objective if it or its Portfolio takes a temporary defensive
position.

INTERFUND LENDING PROGRAM The Funds and Portfolios may lend
money to and borrow money from other funds advised by Stein Roe.
They will do so when Stein Roe believes such lending or borrowing
is necessary and appropriate. Borrowing costs will be the same as
or lower than the costs of a bank loan.

<PAGE>

THE FUNDS' MANAGEMENT

INVESTMENT ADVISER Stein Roe & Farnham Incorporated (Stein Roe),
One South Wacker Drive, Chicago, IL 60606, manages the day-to-day
operations of the Funds and Portfolios. Stein Roe (and its
predecessor) has advised and managed mutual funds since 1949. For
the fiscal year ended June 30, 1999, the Funds paid to Stein Roe
the following aggregate fees (as a percent of average net assets):

Fund Fee
Municipal Money Market Fund 0.50%
Intermediate Municipals Fund 0.47%
Managed Municipals Fund 0.52%
High-Yield Municipals Fund 0.55%

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 Companies, Inc.

PORTFOLIO MANAGERS

Municipal Money Market Fund

Veronica M. Wallace has been portfolio manager of Municipal Money
Portfolio since 1995. Ms. Wallace is a vice president of Stein
Roe, which she joined in 1966. She was a trader in taxable money
market instruments for Stein Roe from 1987 to 1995. As of June
30, 1999, she was responsible for managing $120 million in mutual
fund net assets.

Intermediate Municipals Fund

Joanne T. Costopoulos has been portfolio manager of Intermediate
Municipals Fund since 1991. She is a senior vice president of
Stein Roe, which she joined in 1982, and was responsible for
managing $170 million in mutual fund net assets as of June 30,
1999. In her previous position as a head trader in the fixed-
income area, she traded tax-exempt securities for both
institutional and individual investment portfolios. She received
her B.A. in business administration from Elmhurst College.

Managed Municipals Fund

William C. Loring and Brian M. Hartford have been co-portfolio
managers of Managed Municipals since November 1998, when they
joined Stein Roe. In their respective roles, Messrs. Loring and
Hartford are jointly employed as senior vice presidents by both
Colonial and Stein Roe. They have co-managed the Colonial Tax-
Exempt Fund since May 1997. Mr. Loring has also managed the
Colonial Intermediate Bond Fund since 1993. Mr. Hartford has a
bachelor's degree in finance and investment from Babson College
and is a chartered financial analyst. Mr. Loring has a bachelor's
degree from Bowdoin College. Messrs. Loring and Hartford have
managed various other Colonial tax-exempt funds since 1986 and
1993, respectively. As of June 30, 1999, they were responsible for
managing $539 million in mutual fund net assets.

High-Yield Municipals Fund

Maureen G. Newman has been portfolio manager of High-Yield
Municipals Portfolio since November 1998, when she joined Stein
Roe. In her role as portfolio manager, she is jointly employed as
a senior vice president by both Colonial and Stein Roe. She has
managed tax-exempt funds for Colonial since May 1996. Prior to
joining Colonial, Ms. Newman was a portfolio manager and bond
analyst at Fidelity Investments from May 1985 to May 1996. Ms.
Newman has a bachelor's degree in economics from Boston College
and a master's degree from Babson College. She is a chartered
financial analyst. As of June 30, 1999, she was responsible for
managing $299 million in mutual fund net assets.

MASTER/FEEDER FUND STRUCTURE Unlike mutual funds that directly
acquire and manage their own portfolios of securities, Municipal
Money Market Fund and High-Yield Municipals Fund are "feeder"
funds in a "master/feeder" structure. This means that the Fund
invests its assets in a larger "master" portfolio of securities
(the Fund's corresponding Portfolio) that has an investment
objective and policies substantially identical to those of the
Fund. The investment performance of a Fund depends upon the
investment performance of its Portfolio. If the investment
policies of a Fund and its Portfolio became inconsistent, the
Board of Trustees of the Fund can decide what actions to take.
Actions the Board of Trustees may recommend include withdrawal of
the Fund's assets from the Portfolio. For more information on the
master/feeder fund structure, see the SAI.

YEAR 2000 READINESS Like other investment companies, financial
and business organizations and individuals around the world, the
Funds could be adversely affected if the computer systems used by
Stein Roe, other service providers and the issuers in which the
Funds invest do not properly process and calculate date-related
information and data from and after Jan. 1, 2000. This is
commonly known as the "Year 2000 problem." The Funds' 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
Funds to provide that date-related information and data can be
properly processed after Jan. 1, 2000. Many Fund service
providers and vendors, including the Funds' 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 Jan. 1, 2000. In addition, Year 2000
readiness is one of the factors considered by Stein Roe in its
ongoing assessment of issuers in which the Funds invest, to the
extent that information is readily available. However, no
assurances can be given that the Funds will not be adversely
affected by these matters.

<PAGE>

FOR MORE INFORMATION

You can obtain more information about the Funds' investments in
their semiannual and annual reports to investors. These reports
discuss the market conditions and investment strategies that
affected the Funds' performance over the past six months and year.

You may wish to read the Funds' SAI for more information. The SAI
is incorporated into this prospectus by reference, which means
that it is considered to be part of this prospectus and you are
deemed to have been told of its contents.

To obtain free copies of the Funds' semiannual and annual reports,
latest quarterly profile, or the SAI or to request other
information about the Funds, write or call:

Stein Roe Mutual Funds
One South Wacker Drive
Suite 3200
Chicago, IL 60606
800-338-2550
www.steinroe.com

Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington,
DC, by calling 800-SEC-0330, or by sending your request and the
appropriate fee to the SEC's public reference section, Washington,
DC 20549-6009.

Investment Company Act file number of Liberty-Stein Roe Funds
Municipal Trust: 811-4367

LIBERTY FUNDS DISTRIBUTOR, INC.

<PAGE>

Statement of Additional Information Dated Nov. 1, 1999

LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST

Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund

Suite 3300, One South Wacker Drive, Chicago, IL 60606

800-338-2550

This Statement of Additional Information (SAI) is not a
prospectus but provides additional information that should be read
in conjunction with the Prospectus dated Nov. 1, 1999, and any
supplements thereto. Financial statements, which are contained in
the Funds' June 30, 1999 Annual Report, are incorporated by
reference into this SAI. The Prospectus and Annual Report may be
obtained at no charge by telephoning 800-338-2550.

TABLE OF CONTENTS
Page
General Information and History...............................2
Investment Policies...........................................4
Portfolio Investments and Strategies..........................4
Investment Restrictions......................................17
Additional Investment Considerations.........................19
Purchases and Redemptions....................................22
Management...................................................26
Financial Statements.........................................29
Principal Shareholders.......................................29
Investment Advisory and Other Services.......................30
Distributor..................................................32
Transfer Agent...............................................33
Custodian....................................................33
Independent Auditors.........................................33
Portfolio Transactions.......................................34
Additional Income Tax Considerations.........................39
Investment Performance.......................................40
Additional Information on Net Asset Value-Municipal
Money Fund.................................................47
Master Fund/Feeder Fund: Structure and Risk Factors..........49
Glossary.....................................................51
Appendix-Ratings.............................................53

<PAGE>

GENERAL INFORMATION AND HISTORY

The following mutual funds are separate series of Liberty-
Stein Roe Funds Municipal Trust (the "Trust"):

Stein Roe Municipal Money Market Fund ("Municipal Money Fund")
Stein Roe Intermediate Municipals Fund ("Intermediate
Municipals Fund")
Stein Roe Managed Municipals Fund ("Managed Municipals Fund")
Stein Roe High-Yield Municipals Fund ("High-Yield Municipals
Fund")

Each series of the Trust invests in a separate portfolio of
securities and other assets, with its own objectives and policies.
The series of the Trust are referred to collectively as "the
Funds." The name of the Trust and each of its series was changed
on Nov. 1, 1995 to separate "SteinRoe" into two words. The name
of the Trust was changed on October 18, 1999 from "Stein Roe
Municipal Trust" to "Liberty-Stein Roe Funds Municipal Trust."

The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated Oct. 6, 1987, 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
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, four series are authorized and outstanding.
Each series invests in a separate portfolio of securities and
other assets, with its own objectives and policies.

Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit
to, contracting with, or having any claim against the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers 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 Trust. 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 Trust was unable to meet its
obligations. The risk of a particular series incurring financial
loss on account of unsatisfied liability of another series of the
Trust also is believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.

Each share of a series, without par value, is entitled to
participate pro rata in any dividends and other distributions
declared by the Board on shares of that series, and all shares of
a series have equal rights in the event of liquidation of that
series. Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
its outstanding shares, the Trust will call a special meeting for
the purpose of voting upon the question of removal of a trustee or
trustees and will assist in the communications with other
shareholders as if the Trust were subject to Section 16(c) of the
Investment Company Act of 1940. All shares of all series of the
Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are voted
in the aggregate and not by individual series, except that shares
are voted by individual series when required by the Investment
Company Act of 1940 or other applicable law, or when the Board of
Trustees determines that the matter affects only the interests of
one or more series, in which case shareholders of the unaffected
series are not entitled to vote on such matters.

Special Considerations Regarding Master Fund/Feeder Fund Structure

Rather than invest in securities directly, each Fund may seek
to achieve its objective by pooling its assets with those of other
investment companies for investment in another mutual fund having
the same investment objective and substantially the same
investment policies as its feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. Such investment would be subject to determination
by the trustees that it was in the best interests of the Fund and
its shareholders, and shareholders would receive advance notice of
any such change. Two Funds currently operate under the master
fund/feeder fund structure. Each invests all of its assets in a
separate master fund that is a series of SR&F Base Trust, as
follows:

Master/Feeder
Feeder Fund Master Fund Status Established
- ------------------------------------------------------------------
Municipal Money Fund SR&F Municipal Money
Market Portfolio ("Municipal
Money Portfolio") Sept. 28, 1995

High-Yield Municipals SR&F High-Yield Municipals
Fund Portfolio ("High-Yield
Municipals Portfolio") Feb. 2, 1998

The master funds are series of SR&F Base Trust and are referred to
collectively as the "Portfolios." For more information, please
refer to Master Fund/Feeder Fund: Structure and Risk Factors.

Stein Roe & Farnham Incorporated ("Stein Roe") is responsible
for the business affairs of the Trusts and serves as investment
adviser to Intermediate Municipals Fund, Managed Municipals Fund,
Municipal Money Portfolio, and High-Yield Municipals Portfolio.
It also provides administrative and bookkeeping and accounting
services to the Funds and Portfolios.

INVESTMENT POLICIES

The Trust and SR&F Base Trust are open-end management
investment companies. The Funds and the Portfolios are
diversified, as that term is defined in the Investment Company Act
of 1940.

The investment objectives and policies are described in the
Prospectus under The Funds. In pursuing its objective, a Fund or
Portfolio may also employ the investment techniques described
under Portfolio Investments and Strategies in this SAI. The
investment objective is a nonfundamental policy and may be changed
by the Board of Trustees without the approval of a "majority of
the outstanding voting securities" (see definition in the
Glossary).

PORTFOLIO INVESTMENTS AND STRATEGIES

The following investment policies and techniques have been
adopted by each Fund or Portfolio as indicated. Unless otherwise
noted, for purposes of discussion under Portfolio Investments and
Strategies, Investment Restrictions, and Additional Investment
Considerations, the term "the Fund" refers to each Fund and each
Portfolio.

Taxable Securities

Assets of each Fund that are not invested in Municipal
Securities may be held in cash or invested in short-term taxable
investments/1/ such as: (1) U.S. Government bills, notes and
bonds; (2) obligations of agencies and instrumentalities of the
U.S. Government (including obligations not backed by the full
faith and credit of the U.S. Government); (3) in the case of
Intermediate Municipals Fund and High-Yield Municipals Portfolio,
other money market instruments, and in the case of Municipal Money
Portfolio and Managed Municipals Fund, other money market
instruments such as certificates of deposit and bankers'
acceptances of domestic banks having total assets in excess of $1
billion, and corporate commercial paper rated Prime-1 by Moody's
or A-1 by S&P at the time of purchase, or, if unrated, issued or
guaranteed by an issuer with outstanding debt rated Aa or better
by Moody's or AA or better by S&P; and (4) repurchase agreements
(defined in the Glossary) with banks and, for all Funds except
Managed Municipals Fund, securities dealers. Municipal Money
Portfolio limits repurchase agreements to those that are short-
term, subject to item (g) under Investment Restrictions (although
the underlying securities may not be short-term). Managed
Municipals Fund limits repurchase agreements to those in which the
underlying collateral consists of securities that the Fund may
purchase directly.
- -----------
/1/ In the case of Municipal Money Fund, Municipal Money
Portfolio, and Managed Municipals Fund, the policies described in
this paragraph are fundamental.
- -----------

AMT Securities

Although the Funds currently limit their investments in
Municipal Securities to those the interest on which is exempt from
the regular federal income tax, each Fund may invest 100% of its
total assets in Municipal Securities the interest on which is
subject to the federal alternative minimum tax ("AMT").

Private Placements

Each Fund may invest in securities that are purchased in
private placements (including privately placed securities eligible
for purchase and sale under Rule 144A of the Securities Act of
1933 ["1933 Act"]) and, accordingly, are subject to restrictions
on resale as a matter of contract or under federal securities
laws. Because there may be relatively few potential purchasers
for such investments, especially under adverse market or economic
conditions or in the event of adverse changes in the financial
condition of the issuer, a Fund could find it more difficult to
sell such securities when Stein Roe believes it is advisable to do
so or may be able to sell such securities only at prices lower
than if such securities were more widely held. At times, it may
also be more difficult to determine the fair value of such
securities for purposes of computing a Fund's net asset value.

Rule 144A Securities

Rule 144A permits certain qualified institutional buyers,
such as the Funds, to trade in privately placed securities that
have not been registered for sale under the 1933 Act. Stein Roe,
under the supervision of the Board of Trustees, will consider
whether securities purchased under Rule 144A are illiquid and thus
subject to the Funds' restriction of investing no more than 10% of
its net assets in illiquid securities for all Funds other than
High-Yield Municipals Portfolio and no more than 15% for that
Fund. A determination of whether a Rule 144A security is liquid
or not is a question of fact. In making this determination, Stein
Roe will consider the trading markets for the specific security,
taking into account the unregistered nature of a Rule 144A
security. In addition, Stein Roe could consider the (1) frequency
of trades and quotes, (2) number of dealers and potential
purchasers, (3) dealer undertakings to make a market, and (4)
nature of the security and of marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer). The liquidity of Rule
144A securities would be monitored and if, as a result of changed
conditions, it is determined that a Rule 144A security is no
longer liquid, a Fund's holdings of illiquid securities would be
reviewed to determine what, if any, steps are required to assure
that the Fund does not invest more than 10% of its assets in
illiquid securities for all Funds other than High-Yield Municipals
Portfolio and no more than 15% for that Fund. Investing in Rule
144A securities could have the effect of increasing the amount of
a Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
No Fund expects to invest as much as 5% of its total assets in
Rule 144A securities that have not been deemed to be liquid by
Stein Roe.

Standby Commitments

Each Fund may obtain standby commitments when it purchases
Municipal Securities. A standby commitment gives the holder the
right to sell the underlying security to the seller at an agreed-
upon price on certain dates or within a specified period. A Fund
will acquire standby commitments solely to facilitate portfolio
liquidity and not with a view to exercising them at a time when
the exercise price may exceed the current value of the underlying
securities. If the exercise price of a standby commitment held by
a Fund should exceed the current value of the underlying
securities, a Fund may refrain from exercising the standby
commitment in order to avoid causing the issuer of the standby
commitment to sustain a loss and thereby jeopardizing the Fund's
business relationship with the issuer. A Fund will enter into
standby commitments only with banks and securities dealers that,
in the opinion of Stein Roe, present minimal credit risks.
However, if a securities dealer or bank is unable to meet its
obligation to repurchase the security when a Fund exercises a
standby commitment, the Fund might be unable to recover all or a
portion of any loss sustained from having to sell the security
elsewhere. Standby commitments will be valued at zero in
determining each Fund's net asset value. The Trust has received
an opinion of Bell, Boyd & Lloyd, counsel to the Trust, that
interest earned by the Funds on Municipal Securities will continue
to be exempt from the regular federal income tax regardless of the
fact that the Fund holds standby commitments with respect to such
Municipal Securities.

Participation Interests

Each Fund may purchase participation interests in all or part
of specific holdings of Municipal Securities, but does not intend
to do so unless the tax-exempt status of those participation
interests or certificates of participation is confirmed to the
satisfaction of the Board of Trustees, which may include
consideration of an opinion of counsel as to the tax-exempt
status. Each participation interest would meet the prescribed
quality standards of the Fund or be backed by an irrevocable
letter of credit or guarantee of a bank that meets the prescribed
quality standards of the Fund. (See Investment Policies.) Some
participation interests are illiquid securities.

Each Fund may also purchase participations in lease
obligations or installment purchase contract obligations
(hereinafter collectively called "lease obligations") of municipal
authorities or entities. Although lease obligations do not
constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for,
appropriate, and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to
make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. In
addition to the "non-appropriation" risk, these securities
represent a relatively new type of financing that has not yet
developed the depth of marketability associated with more
conventional bonds. Although "non-appropriation" lease
obligations are secured by leased property, disposition of the
property in the event of foreclosure might prove difficult.

The Board of Trustees has delegated to Stein Roe the
responsibility to determine the credit quality of participation
interests. The determinations concerning the liquidity and
appropriate valuation of a municipal lease obligation, as with any
other municipal security, are made based on all relevant factors.
These factors may include, among others: (1) the frequency of
trades and quotes for the obligation; (2) the number of dealers
willing to purchase or sell the security and the number of other
potential buyers; (3) the willingness of dealers to undertake to
make a market in the security; and (4) the nature of the
marketplace trades, including the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer.

When-Issued and Delayed-Delivery Securities; Forward Commitments

Each Fund may purchase securities on a when-issued or
delayed-delivery basis or purchase forward commitments, as
described in the Prospectus. A Fund makes such commitments only
with the intention of actually acquiring the securities, but may
sell the securities before settlement date if it is deemed
advisable for investment reasons. Securities purchased in this
manner involve a risk of loss if the value of the security
purchased declines before settlement date.

At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis, liquid assets (cash,
U.S. Government or other "high grade" debt obligations) of the
Fund having a value of at least as great as the purchase price of
the securities to be purchased will be segregated on the books of
the Fund and held by the custodian throughout the period of the
obligation.

Short Sales Against the Box

Each Fund may sell securities short against the box; that is,
enter into short sales of securities that it currently owns or has
the right to acquire through the conversion or exchange of other
securities that it owns at no additional cost. A Fund may make
short sales of securities only if at all times when a short
position is open it owns at least an equal amount of such
securities or securities convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short, at no additional cost.

In a short sale against the box, a Fund does not deliver from
its portfolio the securities sold. Instead, the Fund borrows the
securities sold short from a broker-dealer through which the short
sale is executed, and the broker-dealer delivers such securities,
on behalf of the Fund, to the purchaser of such securities. The
Fund is required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its
obligation to deliver to such broker-dealer the securities sold
short, the Fund must deposit and continuously maintain in a
separate account with its custodian an equivalent amount of the
securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. A Fund is
said to have a short position in the securities sold until it
delivers to the broker-dealer the securities sold. A Fund may
close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities
sold short, rather than by delivering portfolio securities.

Short sales may protect a Fund against the risk of losses in
the value of its portfolio securities because any unrealized
losses with respect to such portfolio securities should be wholly
or partially offset by a corresponding gain in the short position.
However, any potential gains in such portfolio securities should
be wholly or partially offset by a corresponding loss in the short
position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to
the amount the Fund owns, either directly or indirectly, and, in
the case where the Fund owns convertible securities, changes in
the conversion premium.

Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund
will incur a loss and if the price declines during this period,
the Fund will realize a short-term capital gain. Any realized
short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium,
dividend or interest which the Fund may have to pay in connection
with such short sale. Certain provisions of the Internal Revenue
Code may limit the degree to which a Fund is able to enter into
short sales. There is no limitation on the amount of each Fund's
assets that, in the aggregate, may be deposited as collateral for
the obligation to replace securities borrowed to effect short
sales and allocated to segregated accounts in connection with
short sales. No Fund currently expects that more than 5% of its
total assets would be involved in short sales against the box.

Repurchase Agreements

Each Fund may invest in repurchase agreements, provided that
it will not invest more than 15% (High-Yield Municipals Portfolio)
or 10% (Managed Municipals Fund, Intermediate Municipals Fund, and
Municipal Money Portfolio) of net assets in repurchase agreements
maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to a
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, a Fund could experience both losses and
delays in liquidating its collateral.

Borrowings; Reverse Repurchase Agreements

Subject to restriction (iv) under Investment Restrictions,
each Fund may establish and maintain a line of credit with a major
bank in order to permit borrowing on a temporary basis to meet
share redemption requests in circumstances in which temporary
borrowing may be preferable to liquidation of portfolio
securities.

Each Fund may also enter into reverse repurchase agreements
(defined in the Glossary) with banks and securities dealers. Use
of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of the securities because it avoids
certain market risks and transaction costs. The Funds did not
enter into reverse repurchase agreements during the last year and
have no present intention to do so.

A Fund's reverse repurchase agreements and any other
borrowings may not exceed 33 1/3% of its total assets, and the
Fund may not purchase additional securities when its borrowings,
less proceeds receivable from the sale of portfolio securities,
exceed 5% of its total assets.

Rated Securities

The rated securities described under Investment Policies
above for each Fund except for Municipal Money Portfolio include
obligations given a rating conditionally by Moody's or
provisionally by S&P.

Except with respect to Municipal Securities with a demand
feature (see the definition of "short-term" in the Glossary)
acquired by Municipal Money Portfolio, the fact that the rating of
a Municipal Security held by a Fund may be lost or reduced below
the minimum level applicable to its original purchase by a Fund
does not require that obligation to be sold, but Stein Roe will
consider such fact in determining whether that Fund should
continue to hold the obligation. In the case of Municipal
Securities with a demand feature acquired by Municipal Money
Portfolio, if the quality of such a security falls below the
minimum level applicable at the time of acquisition, the Fund must
dispose of the security within a reasonable period of time either
by exercising the demand feature or by selling the security in the
secondary market, unless the Board of Trustees determines that it
is in the best interests of the Fund and its shareholders to
retain the security.

To the extent that the ratings accorded by Moody's, S&P, or
Fitch IBCA for Municipal Securities may change as a result of
changes in such organizations, or changes in their rating systems,
each Fund will attempt to use comparable ratings as standards for
its investments in Municipal Securities in accordance with its
investment policies. The Board of Trustees is required to review
such ratings with respect to Municipal Money Portfolio.

Zero Coupon Bonds

Each of Intermediate Municipals Fund, Managed Municipals
Fund, and High-Yield Municipals Portfolio may invest in zero
coupon bonds. A zero coupon bond is a bond that does not pay
interest for its entire life. The market prices of zero coupon
bonds are affected to a greater extent by changes in prevailing
levels of interest rates and thereby tend to be more volatile in
price than securities that pay interest periodically. In
addition, because a Fund accrues income with respect to these
securities prior to the receipt of such interest, it may have to
dispose of portfolio securities under disadvantageous
circumstances in order to obtain cash needed to pay income
dividends in amounts necessary to avoid unfavorable tax
consequences.

Tender Option Bonds; Trust Receipts

Each Fund may purchase tender option bonds and trust
receipts. A tender option bond is a Municipal Security (generally
held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher
than prevailing short-term tax-exempt rates, that has been coupled
with the agreement of a third party, such as a bank, broker-dealer
or other financial institution, pursuant to which such institution
grants the security holders the option, at periodic intervals, to
tender their securities to the institution and receive the face
value thereof. As consideration for providing the option, the
financial institution receives periodic fees equal to the
difference between the Municipal Security's fixed coupon rate and
the rate, as determined by a remarketing or similar agent at or
near the commencement of such period, that would cause the
securities, coupled with the tender option, to trade at par on the
date of such determination. Thus, after payment of this fee, the
security holder effectively holds a demand obligation that bears
interest at the prevailing short-term tax-exempt rate. Stein Roe
will consider on an ongoing basis the creditworthiness of the
issuer of the underlying Municipal Securities, of any custodian,
and of the third-party provider of the tender option. In certain
instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or
interest on the underlying Municipal Securities and for other
reasons. A Fund may invest up to 10% of net assets in tender
option bonds and trust receipts.

Interfund Borrowing and Lending Program

Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Funds may lend money to and borrow money
from other mutual funds advised by Stein Roe. A Fund will borrow
through the program when borrowing is necessary and appropriate
and the costs are equal to or lower than the costs of bank loans.

Portfolio Turnover

Although the Funds do not purchase securities with a view
toward rapid turnover, there are no limitations on the length of
time that portfolio securities must be held. As a result, the
turnover rate may vary from year to year. A high rate of
portfolio turnover, if it should occur, may result in the
realization of capital gains or losses, and, to the extent net
short-term capital gains are realized, any distributions resulting
from such gains will be considered ordinary income for federal
income tax purposes.

Options

Each of Intermediate Municipals Fund, Managed Municipals
Fund, and High-Yield Municipals Portfolio is permitted to purchase
and to write both call options and put options on debt or other
securities or indexes in standardized contracts traded on U.S.
securities exchanges, boards of trade, or similar entities, or
quoted on Nasdaq, and agreements, sometimes called cash puts, that
may accompany the purchase of a new issue of bonds from a dealer.

Currently there are no publicly-traded options on individual
tax-exempt securities. However, it is anticipated that such
instruments may become available in the future.

An option is a contract that gives the purchaser (holder) of
the option, in return for a premium, the right to buy from (call)
or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of an index) at a
specified exercise price at any time during the term of the option
(normally not exceeding nine months). The writer of the option
has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay
the exercise price upon delivery of the underlying security. Upon
exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities or certain economic
indicators.)

A Fund is permitted to write call options and put options
only if they are "covered." In the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or if
additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.

If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.

Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.

A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index and
the time remaining until the expiration date.

A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.

Risks Associated with Options. There are several risks
associated with transactions in options on securities and on
indexes. For example, there are significant differences between
the securities markets and options markets that could result in an
imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected events.

There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased on a security,
it would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered
call option, a Fund foregoes, during the option's life, the
opportunity to profit from increases in the market value of the
security covering the call option above the sum of the premium and
the exercise price of the call.

If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it had purchased.

Futures Contracts and Options on Futures Contracts

Each of Intermediate Municipals Fund, Managed Municipals
Fund, and High-Yield Municipals Portfolio may enter into interest
rate futures contracts and index futures contracts. An interest
rate or index futures contract provides for the future sale by one
party and purchase by another party of a specified quantity of a
financial instrument or the cash value of an index (such as The
Bond Buyer Municipal Bond Index)/2/ at a specified price and time.
A public market exists in futures contracts covering a number of
indexes as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; Government National Mortgage
Association certificates; three-month U.S. Treasury bills; 90-day
commercial paper; bank certificates of deposit; and Eurodollar
certificates of deposit. It is expected that other futures
contracts will be developed and traded. A Fund will engage in
transactions involving new futures contracts (or options thereon)
if, in the opinion of the Board of Trustees, they are appropriate
instruments for the Fund.
- ---------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made. The Bond Buyer Municipal Bond Index is based on The Bond
Buyer index of 40 actively-traded long-term general obligation and
revenue bonds carrying at least an A rating by Moody's or S&P.
- ---------------

Each Fund may purchase and write call options and put options
on futures contracts (futures options). Futures options possess
many of the same characteristics as options on securities and
indexes (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position
(call) or a short position (put) in a futures contract at a
specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned
the opposite short position. In the case of a put option, the
opposite is true. For example, a Fund might use futures contracts
to hedge against anticipated changes in interest rates which might
adversely affect either the value of the Fund's securities or the
price of the securities that the Fund intends to purchase.
Although other techniques could be used to reduce that Fund's
exposure to interest rate fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost by
using futures contracts and futures options.

The success of any futures technique depends on accurate
predictions of changes in the level and direction of interest
rates and other factors. Should those predictions be incorrect,
the return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, Stein Roe might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.

A Fund will only enter into futures contracts and futures
options that are standardized and traded on a U.S. exchange, board
of trade or similar entity, or quoted on an automated quotation
system.

When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract that is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been
satisfied. Each Fund expects to earn interest income on its
initial margin deposits. A futures contract held by a Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by a Fund does not
represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would
owe the other if the futures contract had expired at the close of
the previous trading day. In computing daily net asset value,
each Fund will mark to market its open futures positions.

A Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option and other
futures positions held by the Fund.

Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales,
as the case may be, of matching futures contracts (same exchange,
underlying security or index, and delivery month). If an
offsetting purchase price is less than the original sale price,
the Fund realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund realizes a
capital gain, or if it is less, the Fund realizes a capital loss.
The transaction costs must also be included in these calculations.

Risks Associated with Futures. There are several risks
associated with the use of futures contracts and futures options
as hedging techniques. A purchase or sale of a futures contract
may result in losses in excess of the amount invested in the
futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and debt securities, including technical influences in
futures and futures options trading and differences between the
financial instruments and the instruments underlying the standard
contracts available for trading in such respects as interest rate
levels, maturities, and creditworthiness of issuers. A decision
as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected interest rate trends.

Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses.

There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.

Limitations on Options and Futures

If options, futures contracts, or futures options of types
other than those described herein or in the prospectus are traded
in the future, each of Intermediate Municipals Fund, Managed
Municipals Fund, and High-Yield Municipals Portfolio may also use
those investment vehicles, provided the Board of Trustees
determines that their use is consistent with the Fund's investment
objective.

A Fund will not enter into a futures contract or purchase an
option thereon if immediately thereafter the initial margin
deposits for futures contracts held by the Fund plus premiums paid
by it for open futures option positions, less the amount by which
any such options are "in-the-money" (as defined in the Glossary),
would exceed 5% of the Fund's total assets.

When purchasing a futures contract or writing a put on a
futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contracts. When
writing a call option on a futures contract, a Fund similarly will
maintain cash or cash equivalents (including any margin) equal to
the amount by which such option is in-the-money until the option
expires or is closed out by the Fund.

A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent a Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.

In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into [in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].

Taxation of Options and Futures

If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.

If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.

Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.

A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities. For federal
income tax purposes, a Fund generally is required to recognize as
income for each taxable year its net unrealized gains and losses
as of the end of the year on options, futures and futures options
positions ("year-end mark-to-market"). Generally, any gain or
loss recognized with respect to such positions (either by year-end
mark-to-market or by actual closing of the positions) is
considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the
recognition of losses on certain positions (including options,
futures and futures options positions, the related securities and
certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call
options (or futures call options) or buying put options (or
futures put options) that are intended to hedge against a change
in the value of securities held by a Fund: (1) will affect the
holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.

In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be
considered gain from the sale of securities and therefore be
qualifying income for purposes of the 90% requirement.

Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments and shareholders will be advised of the nature of the
payments.

The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if
they enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply
to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations
that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward contracts to
deliver the same or substantially similar property.

INVESTMENT RESTRICTIONS

The Funds and Portfolios operate under the following
investment restrictions. Restrictions that are fundamental
policies, as indicated below, may not be changed without the
approval of a "majority of the outstanding voting securities" (as
defined in the Glossary). A Fund or Portfolio may not:

(i) invest in a security if, with respect to 75% of its
assets, as a result of such investment, more than 5% of its total
assets (taken at market value at the time of investment) would be
invested in the securities of any one issuer (for this purpose,
the issuer(s) of a security being deemed to be only the entity or
entities whose assets or revenues are subject to the principal and
interest obligations of the security), other than obligations
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities or repurchase agreements for such securities,
and [Funds 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 [however, in
the case of a guarantor of securities (including an issuer of a
letter of credit), the value of the guarantee (or letter of
credit) may be excluded from this computation if the aggregate
value of securities owned by it and guaranteed by such guarantor
(plus any other investments in securities issued by the guarantor)
does not exceed 10% of its total assets];/3/ /4/
- ----------------
/3/ In the case of a security that is insured as to payment of
principal and interest, the related insurance policy is not deemed
a security, nor is it subject to this investment restriction.

/4/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), Municipal
Money Fund and Municipal Money Portfolio will not, immediately
after the acquisition of any security (other than a Government
Security or certain other securities as permitted under the Rule),
invest more than 5% of its total assets in the securities of any
one issuer; provided, however, that each may invest up to 25% of
its total assets in First Tier Securities (as that term is defined
in the Rule) of a single issuer for a period of up to three
business days after the purchase thereof. Municipal Money
Portfolio will not invest more than 5% of its total assets in
Second Tier Securities.

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

(ii) purchase any securities on margin, except for use of
short-term credit necessary for clearance of purchases and sales
of portfolio securities (this restriction does not apply to
securities purchased on a when-issued or delayed-delivery basis or
to reverse repurchase agreements), [Intermediate Municipals Fund,
Managed Municipals Fund, High-Yield Municipals Fund, and High-
Yield Municipals Portfolio only] but it may make margin deposits
in connection with futures and options transactions;

(iii) make loans, although it may (a) participate in an
interfund lending program with other Stein Roe Funds and
Portfolios 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; (b) purchase money market instruments and enter
into repurchase agreements; and (c) acquire publicly distributed
or privately placed debt securities;

(iv) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes and (b) engage in reverse
repurchase agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law; it may borrow from banks, other Stein Roe Funds
and Portfolios, and other persons to the extent permitted by
applicable law;

(v) mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned or held by it
except (a) as may be necessary in connection with borrowings
mentioned in (iv) above, and [Intermediate Municipals Fund,
Managed Municipals Fund, High-Yield Municipals Fund, and High-
Yield Municipals Portfolio only] (b) it may enter into futures and
options transactions;

(vi) invest more than 25% of its total assets (taken at
market value at the time of each investment) in securities of non-
governmental issuers whose principal business activities are in
the same industry, [Funds 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;

(vii) purchase portfolio securities for the Fund from, or
sell portfolio securities to, any of the officers, directors, or
trustees of the Trust or of its investment adviser;

(viii) purchase or sell commodities or commodities contracts
or oil, gas, or mineral programs, [Intermediate Municipals Fund,
Managed Municipals Fund, High-Yield Municipals Fund and High-Yield
Municipals Portfolio only] except that it may enter into futures
and options transactions;

(ix) [Municipal Money Fund only] purchase any securities
other than those described under Investment Policies-Municipal
Money Fund, and under Portfolio Investments and Strategies;
[Managed Municipals Fund only] purchase any securities other than
those described under Investment Policies-Managed Municipals Fund
and under Portfolio Investments and Strategies;

(x) issue any senior security except to the extent permitted
under the Investment Company Act of 1940;

(xi) purchase or sell real estate (other than Municipal
Securities or money market securities secured by real estate or
interests therein or such securities issued by companies which
invest in real estate or interests therein); or

(xii) act as an underwriter of securities, except that it may
participate as part of a group in bidding, or bid alone, for the
purchase of Municipal Securities directly from an issuer for its
own portfolio.

The above restrictions (other than material within brackets)
are fundamental policies of the Funds and Portfolios. The Funds
and Portfolios have also adopted the following restrictions that
may be required by various laws and administrative positions.
These restrictions are not fundamental. None of the following
restrictions shall prevent Municipal Money Fund, Intermediate
Municipals Fund, Managed Municipals Fund, or High-Yield Municipals
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. No
Fund or Portfolio may:

(a) own more than 10% of the outstanding voting securities of
an issuer;

(b) invest in companies for the purpose of exercising control
or management;

(c) make investments in the securities of other investment
companies, except in connection with a merger, consolidation, or
reorganization;

(d) sell securities short unless (1) it owns or has the right
to obtain securities equivalent in kind and amount to those sold
short at no added cost or (2) the securities sold are "when
issued" or "when distributed" securities which 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 it may purchase standby commitments and
securities subject to a demand feature entitling it to require
sellers of securities to the Fund to repurchase them upon demand
by the Fund [Intermediate Municipals Fund, Managed Municipals
Fund, High-Yield Municipals Fund, and High-Yield Municipals
Portfolio only] and that transactions in options, futures, and
options on futures are not treated as short sales;

(e) [Municipal Money Fund, Municipal Money Portfolio,
Intermediate Municipals Fund, and Managed Municipals Fund only]
invest more than 10% of its net assets (taken at market value at
the time of a particular investment) in illiquid securities,
including repurchase agreements maturing in more than seven days;
[High-Yield Municipals Fund and High-Yield Municipals Portfolio
only] invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days;

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

(g) invest more than 5% of its net assets (valued at time of
investment) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchange;

(h) [Intermediate Municipals Fund, Managed Municipals Fund,
High-Yield Municipals Fund, and High-Yield Municipals Portfolio
only] write an option on a security unless the option is issued by
the Options Clearing Corporation, an exchange, or similar entity;

(i) [Intermediate Municipals Fund, Managed Municipals Fund,
High-Yield Municipals Fund, and High-Yield Municipals Portfolio
only] purchase a put or call option if the aggregate premiums paid
for all put and call options 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.

ADDITIONAL INVESTMENT CONSIDERATIONS

Medium-quality Municipal Securities are obligations of
municipal issuers that, in the opinion of Stein Roe, possess
adequate, but not outstanding, capacities to service the
obligations. Lower-quality Municipal Securities are obligations
of issuers that are considered predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal according to the terms of the obligation and, therefore,
carry greater investment risk, including the possibility of issuer
default and bankruptcy, and are commonly referred to as "junk
bonds." The characteristics attributed to medium- and lower-
quality obligations by Stein Roe are much the same as those
attributed to medium- and lower-quality obligations by rating
services (see the Appendix to the Prospectus). Because many
issuers of medium- and lower-quality Municipal Securities choose
not to have their obligations rated by a rating agency, many of
the obligations in the Fund's portfolio may be unrated.

Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. An economic downturn could severely
disrupt this market and adversely affect the value of outstanding
bonds and the ability of the issuers to repay principal and
interest. During a period of adverse economic changes, including
a period of rising interest rates, issuers of such bonds may
experience difficulty in servicing their principal and interest
payment obligations.

Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and the Fund may have greater difficulty selling
its portfolio securities.

The federal bankruptcy statutes relating to the debts of
political subdivisions and authorities of states of the United
States provide that, in certain circumstances, such subdivisions
or authorities may be authorized to initiate bankruptcy
proceedings without prior notice to or consent of creditors, which
proceedings could result in material and adverse changes in the
rights of holders of their obligations.

Lawsuits challenging the validity under state constitutions
of present systems of financing public education have been
initiated or adjudicated in a number of states, and legislation
has been introduced to effect changes in public school financing
in some states. In other instances there have been lawsuits
challenging the issuance of pollution control revenue bonds or the
validity of their issuance under state or federal law which could
ultimately affect the validity of those Municipal Securities or
the tax-free nature of the interest thereon. In addition, from
time to time proposals have been introduced in Congress to
restrict or eliminate the federal income tax exemption for
interest on Municipal Securities, and similar proposals may be
introduced in the future. Some of the past proposals would have
applied to interest on Municipal Securities issued before the date
of enactment, which would have adversely affected their value to a
material degree. If such proposals are enacted, the availability
of Municipal Securities for investment by the Funds and the value
of the Funds' portfolios would be affected and, in such an event,
the Funds would reevaluate their investment objectives and
policies.

Because the Funds may invest in industrial development bonds,
the Funds' shares may not be an appropriate investment for
"substantial users" of facilities financed by industrial
development bonds or for "related persons of substantial users."

In addition, the Funds invest in Municipal Securities issued
after the effective date of the Tax Reform Act of 1986 (the "1986
Act"), which may be subject to retroactive taxation if they fail
to continue to comply after issuance with certain requirements
imposed by the 1986 Act.

Although the banks and securities dealers from which a Fund
may acquire repurchase agreements and standby commitments, and the
entities from which a Fund may purchase participation interests in
Municipal Securities, will be those that Stein Roe believes to be
financially sound, there can be no assurance that they will be
able to honor their obligations to the Fund.

* * * * *

Stein Roe seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. In working to
take sensible risks and make intelligent investments, it has been
guided by three primary objectives which it believes are the
foundation of a successful investment program. These objectives
are preservation of capital, limited volatility through managed
risk, and consistent above-average returns, as appropriate for the
particular client or managed account.

Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:

What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.

What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.

What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.

In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.

In addition, Stein Roe believes that investment in a high
yield fund provides an opportunity to diversify an investment
portfolio because the economic factors that affect the performance
of high-yield, high-risk debt securities differ from those that
affect the performance of high-quality debt securities or equity
securities.

PURCHASES AND REDEMPTIONS

Purchases Through Third Parties

You may purchase (or redeem) shares through certain broker-
dealers, banks, or other intermediaries ("Intermediaries"). The
state of Texas has asked that investment companies disclose in
their SAIs, as a reminder to any such bank or institution, that it
must be registered as a securities dealer in Texas.
Intermediaries may charge for their services or place limitations
on the extent to which you may use the services offered by the
Trust. It is the responsibility of any such Intermediary to
establish procedures insuring the prompt transmission to the Trust
of any such purchase order. An Intermediary, who accepts orders
that are processed at the net asset value next determined after
receipt of the order by the Intermediary, accepts such orders as
authorized agent or designee of the Fund. The Intermediary is
required to segregate any orders received on a business day after
the close of regular session trading on the New York Stock
Exchange and transmit those orders separately for execution at the
net asset value next determined after that business day.

Some Intermediaries that maintain nominee accounts with the
Funds for their clients for whom they hold Fund shares charge an
annual fee of up to 0.35% of the average net assets held in such
accounts for accounting, servicing, and distribution services they
provide with respect to the underlying Fund shares. Stein Roe and
the Funds' transfer agent share in the expense of these fees, and
Stein Roe pays all sales and promotional expenses.

Net Asset Value

The net asset value of each Fund is determined on days on
which the New York Stock Exchange (the "NYSE") is open for regular
session trading. The NYSE is regularly closed on Saturdays and
Sundays and on New Year's Day, the third Monday in January, the
third Monday in February, Good Friday, the last Monday in May,
Independence Day, Labor Day, Thanksgiving, and Christmas. If one
of these holidays falls on a Saturday or Sunday, the NYSE will be
closed on the preceding Friday or the following Monday,
respectively. Net asset value will not be determined on days when
the NYSE is closed unless, in the judgment of the Board of
Trustees, net asset value of a Fund should be determined on any
such day, in which case the determination will be made at 3 p.m.,
Central time. Please refer to Your Account-Determining Share
Price in the Prospectuses for additional information on how the
purchase and redemption price of Fund shares is determined.

General Redemption Policies

The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets during any 90-day period
for any one shareholder. However, redemptions in excess of such
limit may be paid wholly or partly by a distribution in kind of
securities. If redemptions were made in kind, the redeeming
shareholders might incur transaction costs in selling the
securities received in the redemptions.

The Trust reserves the right to suspend or postpone
redemptions of shares during any period when: (a) trading on the
NYSE is restricted, as determined by the Securities and Exchange
Commission, or the NYSE is closed for other than customary weekend
and holiday closings; (b) the Securities and Exchange Commission
has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets
not reasonably practicable.

You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please call 800-
338-2550 if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed application before making
payment for shares redeemed.

The Trust will generally mail payment for shares redeemed
within seven days after proper instructions are received.
However, the Trust normally intends to pay proceeds of a Telephone
Redemption paid by wire on the next business day. If you attempt
to redeem shares within 15 days after they have been purchased by
check or electronic transfer, the Trust will delay payment of the
redemption proceeds to you until it can verify that payment for
the purchase of those shares has been (or will be) collected. To
reduce such delays, the Trust recommends that your purchase be
made by federal funds wire through your bank.

Generally, you may not use any Special Redemption Privilege
to redeem shares purchased by check (other than certified or
cashiers' checks) or electronic transfer until 15 days after their
date of purchase. The Trust reserves the right at any time
without prior notice to suspend, limit, modify, or terminate any
Privilege or its use in any manner by any person or class.

Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If the Funds do not
follow reasonable procedures for protecting shareholders against
loss on telephone transactions, it may be liable for any losses
due to unauthorized or fraudulent instructions.

Shares in any account you maintain with a Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss you cause it to sustain
(such as loss from an uncollected check or electronic transfer for
the purchase of shares, or any liability under the Internal
Revenue Code provisions on backup withholding).

The Trust reserves the right to suspend or terminate, at any
time and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Funds.
Therefore, regardless of the number of telephone exchange round-
trips made by an investor, the Trust generally will not honor
requests for Telephone Exchanges by shareholders identified by the
Trust as "market-timers" if the officers of the Trust determine
the order not to be in the best interests of the Trust or its
shareholders. The Trust generally identifies as a "market-timer"
an investor whose investment decisions appear to be based on
actual or anticipated near-term changes in the securities markets
other than for investment considerations. Moreover, the Trust
reserves the right to suspend, limit, modify, or terminate, at any
time and without prior notice, the Telephone Exchange Privilege in
its entirety. Because such a step would be taken only if the
Board of Trustees believes it would be in the best interests of
the Funds, the Trust expects that it would provide shareholders
with prior written notice of any such action unless the resulting
delay in the suspension, limitation, modification, or termination
of the Telephone Exchange Privilege would adversely affect the
Funds. If the Trust were to suspend, limit, modify, or terminate
the Telephone Exchange Privilege, a shareholder expecting to make
a Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. During periods of volatile economic and market
conditions, you may have difficulty placing your exchange by
telephone.

The Telephone Exchange Privilege and the Telephone Redemption
by Check Privilege will be established automatically for you when
you open your account unless you decline these Privileges on your
application. Other Privileges must be specifically elected. A
signature guarantee may be required to establish a Privilege after
you open your account. If you establish both the Telephone
Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same. The Telephone Redemption by Check Privilege,
Telephone Redemption by Wire Privilege, and Special Electronic
Transfer Redemptions may not be used to redeem shares held by a
tax-sheltered retirement plan sponsored by Stein Roe.

Redemption Privileges

Exchange Privilege. You may redeem all or any portion of
your Fund shares and use the proceeds to purchase shares of any
other no-load Stein Roe Fund offered for sale in your state if
your signed, properly completed application is on file. An
exchange transaction is a sale and purchase of shares for federal
income tax purposes and may result in capital gain or loss.
Before exercising the Exchange Privilege, you should obtain the
prospectus for the no-load Stein Roe Fund in which you wish to
invest and read it carefully. The registration of the account to
which you are making an exchange must be exactly the same as that
of the Fund account from which the exchange is made and the amount
you exchange must meet any applicable minimum investment of the
no-load Stein Roe Fund being purchased.

Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from your
account by calling 800-338-2550 or by sending a telegram; new
accounts opened by exchange are subject to the $2,500 initial
purchase minimum. Generally, you will be limited to four
Telephone Exchange round-trips per year and the Funds may refuse
requests for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of a Fund into another no-load
Stein Roe Fund, and then back to that Fund). In addition, the
Trust's general redemption policies apply to redemptions of shares
by Telephone Exchange.

Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your Fund
account for investment in another no-load Stein Roe Fund account
on a regular basis ($50 minimum; $100,000 maximum).

Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem shares from your account ($1,000 minimum;
$100,000 maximum) by calling 800-338-2550. The proceeds will be
transmitted by wire to your account at a commercial bank
previously designated by you that is a member of the Federal
Reserve System. The fee for wiring proceeds (currently $7.00 per
transaction) will be deducted from the amount wired.

Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.

Electronic Transfer Privilege. You may redeem shares by
calling 800-338-2550 and requesting an electronic transfer
("Special Redemption") of the proceeds to a bank account
previously designated by you at a bank that is a member of the
Automated Clearing House. You may also request electronic
transfers at scheduled intervals ("Automatic Redemptions"). A
Special Redemption request received by telephone after 3 p.m.,
central time, is deemed received on the next business day. You
may purchase Fund shares directly from your bank account either at
regular intervals ("Regular Investments") or upon your request
("Special Investments"). Electronic transfers are subject to a
$50 minimum and a $100,000 maximum. You may also have income
dividends and capital gains distributions deposited directly into
your bank account ("Automatic Dividend Deposits").

Systematic Withdrawals. You may have a fixed dollar amount,
declining balance, or fixed percentage of your account redeemed
and sent at regular intervals by check to you or another payee.

Dividend Purchase Option. You may have distributions from
one Fund account automatically invested in another no-load Stein
Roe Fund account. Before establishing this option, you should
obtain and read the prospectus of the Stein Roe Fund into which
you wish to have your distributions invested. The account from
which distributions are made must be of sufficient size to allow
each distribution to usually be at least $25.

Check Writing Privilege. Although Municipal Money Fund does
not currently charge a fee to its shareholders for the use of the
special Check-Writing Redemption Privilege, the Fund pays for the
cost of printing and mailing checks to its shareholders and pays
charges of the bank for payment of each check. The Trust reserves
the right to establish a direct charge to shareholders for use of
the Privilege and both the Trust and the bank reserve the right to
terminate this service.

MANAGEMENT

The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Funds. The following table
sets forth certain information with respect to the trustees and
officers of the Trust:

Name, Age; Address; Position(s) held with the Trust. Principal
occupation(s) during past five years

William D. Andrews, 52; One South Wacker Drive, Chicago, IL 60606
(4); Executive Vice-President. Executive vice president of Stein
Roe & Farnham Incorporated ("Stein Roe")

John A. Bacon Jr., 72; 4N640 Honey Hill Road, Box 296, Wayne, IL
60184 (3)(4); Trustee. Private investor

Christine Balzano, 34; 245 Summer Street, Boston, MA 02210; Vice-
President. Senior vice president of Liberty Funds Services, Inc.;
formerly vice president and assistant vice president

William W. Boyd, 72; 2900 Golf Road, Rolling Meadows, IL 60008
(2)(3)(4); Trustee. Chairman and director of Sterling Plumbing
(manufacturer of plumbing products)

Kevin M. Carome, 43; One Financial Center, Boston, MA 02111 (4);
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; 245 Summer Street, Boston, MA 02210 (4);
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; 600 Atlantic Avenue, Boston, MA 02210 (1)(2)(4);
Trustee. Executive vice president of Liberty Financial Companies,
Inc. since March 1997; senior vice president prior thereto

Joanne T. Costopoulos, 52; One South Wacker Drive, Chicago, IL
60606. Vice-President; Senior portfolio manager of Stein Roe;
senior vice president of Stein Roe since Nov. 1995; vice president
of Stein Roe prior thereto

Michael G. Fisher, 30; 245 Summer Street, Boston, MA 02210 (4).
Vice-President; Tax manager with Liberty Funds Group since Oct.
1998; tax manager with PricewaterhouseCoopers LLC prior thereto

Stephen E. Gibson, 46; One Financial Center, Boston, MA 02111 (4);
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

Douglas A. Hacker, 43; P.O. Box 66100, Chicago, IL 60666 (3)(4);
Trustee. Senior vice president and chief financial officer of
UAL, Inc. (airline)

Loren A. Hansen, 51; One South Wacker Drive, Chicago, IL 60606
(4). 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

Brian M. Hartford, 40; One Financial Center, Boston, MA 02111;
Vice-President. Employee of Stein Roe since Nov. 1998; vice
president of CMA since 1993

Timothy J. Jacoby, 47; One Financial Center, Boston, MA 02111 (4);
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; One Kellogg Square, Battle Creek, MI
49016 (3)(4); Trustee. 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; 245 Summer Street, Boston, MA 02210 (4);
Vice-President; Controller. Vice president and assistant
controller of CMA

William C. Loring, Jr., 49; One Financial Center, Boston, MA
02111; Vice-President. Vice president of Stein Roe since Nov.
1998; vice president of CMA

Lynn C. Maddox, 58; One South Wacker Drive, Chicago, IL 60606;
Vice-President. Senior vice president of Stein Roe

Mary D. McKenzie, 45; One Financial Center, Boston, MA 02111 (4);
Vice-President. President of Liberty Funds Services, Inc.

Charles R. Nelson, 57; Department of Economics, University of
Washington, Seattle, WA 98195 (3)(4); Trustee. Van Voorhis
Professor of Political Economy of the University of Washington

Maureen G. Newman, 40; One Financial Center, Boston, MA 02111 (4);
Vice-President. Vice President of Stein Roe since Nov. 1998;
portfolio manager and vice president of CMA since May 1996;
portfolio manager and bond analyst at Fidelity Investments prior
thereto

Nicholas Norton, 40; 12100 East Iliff Avenue, Aurora, CO 80014
(4); Vice-President. Senior vice president of Liberty Funds
Services, Inc. since Aug. 1999; vice president of Scudder Kemper,
Inc. from May 1994 to Aug. 1999

Nicolette D. Parrish, 49; One South Wacker Drive, Chicago, IL
60606 (4); Vice-President; Assistant Secretary. Senior legal
assistant and assistant secretary of Stein Roe

Thomas C. Theobald, 62; Suite 1300, 222 West Adams Street,
Chicago, IL 60606 (3)(4); Trustee. Managing director, William
Blair Capital Partners (private equity fund)

Veronica M. Wallace, 53; One South Wacker Drive, Chicago, IL
60606 (4); Vice-President. Vice president of Stein Roe since
March 1998; portfolio manager for Stein Roe since Sept. 1995;
trader in taxable short-term instruments for Stein Roe prior
thereto

Heidi J. Walter, 32; One South Wacker Drive, Chicago, IL 60606
(4); 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

____________________________
(1) Trustee who is an "interested person" of the Trust 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.
(4) This person also holds the corresponding officer or trustee
position with SR&F Base Trust.

Certain of the trustees and officers of the Fund and the
Portfolio are trustees or officers of other investment companies
managed by Stein Roe; and some of the officers are also officers
of Liberty Funds Distributor, Inc., the Funds' distributor.

Officers and trustees affiliated with Stein Roe serve without
any compensation from the Trust. In compensation for their
services to the Trust, trustees who are not "interested persons"
of the Trust or Stein Roe are paid an annual retainer plus an
attendance fee for each meeting of the Board or standing committee
thereof attended. The Trust has no retirement or pension plan.
The following table sets forth compensation paid during the fiscal
year ended June 30, 1999, to each of the trustees:

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.** $8,300 $101,150 $2,199
William W. Boyd 8,400 102,300 2,224
Douglas A. Hacker 7,300 87,700 1,907
Janet Langford Kelly 8,000 97,200 2,113
Charles R. Nelson 8,400 102,100 2,220
Thomas C. Theobald 8,000 97,200 2,113
_______________
*At June 30, 1999, the Stein Roe Fund Complex consisted of four
series of the Trust, one series of Liberty-Stein Roe Funds
Trust, four series of Liberty-Stein Roe Funds Income Trust, 12
series of Liberty-Stein Roe Funds Investment Trust, five series
of Liberty-Stein Roe Advisor Trust, five series of SteinRoe
Variable Investment Trust, 12 portfolios of SR&F Base Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe
Institutional Floating Rate Income Fund, and Stein Roe Floating
Rate Limited Liability Company.
**Mr. Butch served as a trustee until Nov. 3, 1998; Mr. Bacon was
elected a trustee effective Nov. 3, 1998.

FINANCIAL STATEMENTS

Please refer to the June 30, 1999 Financial Statements
(statements of assets and liabilities and schedules of investments
as of June 30, 1999 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
auditors contained in the June 30, 1999 Annual Report of the
Funds. The Financial Statements and the report of independent
auditors (but no other material from the Annual Report) are
incorporated herein by reference. The Annual Report may be
obtained at no charge by telephoning 800-338-2550.

PRINCIPAL SHAREHOLDERS

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

Approximate %
of Outstanding
Name and Address Fund Shares Held
- ---------------------- ---------------------- --------------

Charles Schwab & Co., Inc.* Intermediate Municipals Fund 13.1%
Attn: Mutual Fund Dept. High-Yield Municipals Fund 11.0%
101 Montgomery Street
San Francisco, CA 94104
___________________

*Shares held for accounts of customers.

The following table shows shares of the Funds as of July 30,
1999, held by the categories of persons indicated and in each case
the approximate percentage of outstanding shares represented:

Clients of Stein Roe
in their Client Accounts* Trustees and Officers
------------------------- ------------------
Shares Held Percent Shares Held Percent
---------- ------- ----------- -------
Municipal Money
Fund 39,009,300 34.0% 134,753 **
Intermediate
Municipals Fund 5,345,643 36.9% 41,619 **
Managed Municipals
Fund 14,087,083 23.9% 70,323 **
High-Yield
Municipals Fund 6,342,710 25.2% 12,568 **

_________________
*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.
**Represents less than 1% of the outstanding shares.

INVESTMENT ADVISORY AND OTHER SERVICES

Stein Roe & Farnham Incorporated serves as investment adviser
to Intermediate Municipals Fund, Managed Municipals Fund, High-
Yield Municipals Portfolio, and Municipal Money Portfolio. Stein
Roe also provides administrative services to each Fund and
Portfolio. Stein Roe is a wholly owned subsidiary of SteinRoe
Services Inc. ("SSI"), the Funds' transfer agent, 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, 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.

Stein Roe Counselor [service mark] is a professional
investment advisory service offered by Stein Roe to Fund
shareholders. Stein Roe Counselor [service mark] is designed to
help shareholders construct Fund investment portfolios to suit
their individual needs. Based on information shareholders provide
about their financial goals and objectives in response to a
questionnaire, Stein Roe's investment professionals create
customized portfolio recommendations. Shareholders participating
in Stein Roe Counselor [service mark] are free to self direct
their investments while considering Stein Roe's recommendations.
In addition to reviewing shareholders' goals and objectives
periodically and updating portfolio recommendations to reflect any
changes, Stein Roe provides shareholders participating in these
programs with dedicated representatives. Other distinctive
services include specially designed account statements with
portfolio performance and transaction data, asset allocation
planning tools, newsletters, customized website content, and
regular investment, economic and market updates. A $50,000
minimum investment is required to participate in the program.

In return for its services, Stein Roe is entitled to receive
a monthly administrative fee from each Fund and a monthly
management fee from Intermediate Municipals Fund, Managed
Municipals Fund, and each Portfolio. The table below shows the
annual rates of such fees as a percentage of average net assets,
gross fees paid for the three most recent fiscal years, and any
expense reimbursements by Stein Roe:

<TABLE>
<CAPTION>
Fund/Portfolio

Current Rates Year Ended Year Ended Year Ended
Fund/Portfolio Type (dollars shown in millions) 6/30/99 6/30/98 6/30/97
- -------------------- ------------- --------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Municipal Money Fund Administrative
fee .250% up to $500 million,
.200% next $500 million,
.150% thereafter $ 301,461 $ 308,403 $ 300,244
Reimbursement Expenses exceeding .70% 107,768 195,244 194,629
Municipal Money
Portfolio Management fee .250% 338,618 358,516 351,742
Intermediate Munici-
pals Fund Management fee .450% up to $100 million,
.425% next $100 million,
.400% thereafter 850,165 872,480 876,108
Administrative
fee .150% up to $100 million,
.125% next $100 million,
.100% thereafter 267,488 274,116 274,088
Reimbursement Expenses exceeding .70% 179,100 226,022 240,300
Managed Municipals
Fund Management fee .450% up to $100 million,
.425% next $100 million,
.400% next $800 million,
.375% thereafter 2,371,564 2,438,272 2,482,110
Administrative
fee .150% up to $100 million,
.125% next $100 million,
.100% next $800 million,
.075% thereafter 649,141 665,818 674,444
High-Yield Munici-
pals Fund Management fee - - 803,747 1,255,595
Administrative
fee .150% up to $100 million,
.125% next $100 million,
.100% thereafter 423,919 401,552 368,923
High-Yield Munici-
pals Portfolio Management fee .450% up to $100 million,
.425% next $100 million,
.400% thereafter 1,399,418 579,690 -
</TABLE>

Stein Roe provides office space and executive and other
personnel to the Funds and bears any sales or promotional
expenses. Each 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 each 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 the
shares of such 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
expenses, from time to time, Stein Roe may waive its fees and/or
absorb certain expenses for a Fund. Any such reimbursements will
enhance the yield of such Fund.

Each 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 Trust or any shareholder of the Fund (or 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 Stein Roe's part in the performance of its duties or from
reckless disregard by Stein Roe of its obligations and duties
under that agreement.

Any expenses that are attributable solely to the
organization, operation, or business of a series of the Trust are
paid solely out of the assets of that series. Any expenses
incurred by the Trust that are not solely attributable to a
particular series are apportioned in such a manner as Stein Roe
determines is fair and appropriate, unless otherwise specified by
the Board of Trustees.

Bookkeeping and Accounting Agreement

Pursuant to a separate agreement with the Trust, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services. For these services, Stein Roe receives an annual fee of
$25,000 per Fund plus .0025 of 1% of average net assets over $50
million. During the fiscal years ended June 30, 1997, 1998 and
1999, Stein Roe received aggregate fees of $125,437, $125,832 and
$125,858, respectively, from the Trust for services performed
under this agreement.

DISTRIBUTOR

Shares of the Funds are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The Distribution
Agreement continues in effect from year to year, provided such
continuance is approved annually (1) by a majority of the trustees
or by a majority of the outstanding voting securities of the
Trust, and (2) by a majority of the trustees who are not parties
to the Agreement or interested persons of any such party. The
Trust 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 prospectuses and other
expenses.

As agent, the Distributor offers shares of the Funds to
investors in states where the shares are qualified for sale, at
net asset value, without sales commissions or other sales load to
the investor. No sales commission or "12b-1" payment is paid by
any Fund. The Distributor offers the Funds' shares only on a
best-efforts basis.

TRANSFER AGENT

SteinRoe Services Inc. ("SSI"), One South Wacker Drive,
Chicago, IL 60606, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of shareholder
accounting records. For performing these services, SSI receives
payments from Municipal Money Fund of 0.150% of average daily net
assets and payments from Intermediate Municipals Fund, Managed
Municipals Fund, and High-Yield Municipals Fund of 0.140% of
average daily net assets. The Board of Trustees believes the
charges by SSI are comparable to those of other companies
performing similar services. (See Investment Advisory and Other
Services.) Under a separate agreement, SSI also provides certain
investor accounting services to each Portfolio.

CUSTODIAN

State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02101, is the custodian for the Trust and SR&F Base
Trust. 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 custodian does not exercise any supervisory function
in such matters as purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Funds. The
Trusts have authorized the custodian to deposit certain portfolio
securities in central depository systems as permitted under
federal law. The Funds may invest in obligations of the custodian
and may purchase or sell securities from or to the custodian.

INDEPENDENT AUDITORS

The independent auditors for the Trust and each Portfolio are
Ernst & Young LLP, 200 Clarendon Street, Boston, MA 02116. The
independent auditors 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 by the
Trusts.

PORTFOLIO TRANSACTIONS

For the purposes of discussion under Portfolio Transactions,
the term "Fund" refers to Municipal Money Fund, Municipal Money
Portfolio, Intermediate Municipals Fund, Managed Municipals Fund,
High-Yield Municipals Fund, and High-Yield Municipals Portfolio.

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"). Portfolio securities are purchased both in
underwritings and in the over-the-counter market. The Funds paid
no commissions on futures transactions or any other transactions
during the past three fiscal years. Included in the price paid to
an underwriter of a portfolio security is the spread between the
price paid by the underwriter to the issuer and the price paid by
the purchaser. Purchases and sales of portfolio securities in the
over-the-counter market usually are transacted with a broker or
dealer on a net basis, without any brokerage commission being paid
by a Fund, but do reflect the spread between the bid and asked
prices. Stein Roe may also transact purchases of portfolio
securities directly with the issuers.

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
Funds. 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 Funds 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 Funds pay ATI a commission for these transactions. The Funds
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 Funds may determine,
Stein Roe may consider sales of shares of each of the Funds 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 SAI, 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.

The Board of Trustees of each Trust has reviewed the legal
aspects and the practicability of attempting to recapture
underwriting discounts or selling concessions included in prices
paid by the Funds for purchases of Municipal Securities in
underwritten offerings. Each Fund attempts to recapture selling
concessions on purchases during underwritten offerings; however,
the Adviser will not be able to negotiate discounts from the fixed
offering price for those issues for which there is a strong
demand, and will not allow the failure to obtain a discount to
prejudice its ability to purchase an issue. Each Board
periodically reviews efforts to recapture concessions and whether
it is in the best interests of the Funds to continue to attempt to
recapture underwriting discounts or selling concessions.

ADDITIONAL INCOME TAX CONSIDERATIONS

Each Fund intends to qualify under Subchapter M of the
Internal Revenue Code and to comply with the special provisions of
the Internal Revenue Code that relieve it of federal income tax to
the extent of its net investment income and capital gains
currently distributed to shareholders. Throughout this section,
the term "Fund" also refers to a Portfolio.

Each Fund intends to distribute substantially all of its
income, tax-exempt and taxable, including any net realized capital
gains, and thereby be relieved of any federal income tax liability
to the extent of such distributions. Each Fund intends to retain
for its shareholders the tax-exempt status with respect to tax-
exempt income received by the Fund. The distributions will be
designated as "exempt-interest dividends," taxable ordinary
income, and capital gains. The Funds may also invest in Municipal
Securities the interest on which is subject to the federal
alternative minimum tax. The source of exempt-interest dividends
on a state-by-state basis and the federal income tax status of all
distributions will be reported to shareholders annually. Such
report will allocate income dividends between tax-exempt, taxable
income, and alternative minimum taxable income in approximately
the same proportions as that Fund's total income during the year.
Accordingly, income derived from each of these sources by a Fund
may vary substantially in any particular distribution period from
the allocation reported to shareholders annually. The proportion
of such dividends that constitutes taxable income will depend on
the relative amounts of assets invested in taxable securities, the
yield relationships between taxable and tax-exempt securities, and
the period of time for which such securities are held. Each Fund
may, under certain circumstances, temporarily invest its assets so
that less than 80% of gross income during such temporary period
will be exempt from federal income taxes. (See Investment
Policies.)

Because capital gains 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.

Because the taxable portion of each Fund's investment income
consists primarily of interest, none of its dividends, whether or
not treated as "exempt-interest dividends," will qualify under the
Internal Revenue Code for the dividends received deduction
available to corporations.

Interest on indebtedness incurred or continued by
shareholders to purchase or carry shares of a Fund is not
deductible for federal income tax purposes. Under rules applied
by the Internal Revenue Service to determine whether borrowed
funds are used for the purpose of purchasing or carrying
particular assets, the purchase of shares may, depending upon the
circumstances, be considered to have been made with borrowed funds
even though the borrowed funds are not directly traceable to the
purchase of shares.

If you redeem at a loss shares of a Fund held for six months
or less, that loss will not be recognized for federal income tax
purposes to the extent of exempt-interest dividends you have
received with respect to those shares. If any such loss exceeds
the amount of the exempt-interest dividends you received, that
excess loss will be treated as a long-term capital loss to the
extent you receive any long-term capital gain distribution with
respect to those shares.

Persons who are "substantial users" (or persons related
thereto) of facilities financed by industrial development bonds
should consult their own tax advisors before purchasing shares.
Such persons may find investment in the Funds unsuitable for tax
reasons. Corporate investors may also wish to consult their own
tax advisors before purchasing shares. In addition, certain
property and casualty insurance companies, financial institutions,
and United States branches of foreign corporations may be
adversely affected by the tax treatment of the interest on
Municipal Securities.

INVESTMENT PERFORMANCE

Municipal Money Fund

Municipal Money Fund may quote a "Current Yield" or
"Effective Yield" or both from time to time. The Current Yield is
an annualized yield based on the actual total return for a seven-
day period. The Effective Yield is an annualized yield based on a
daily compounding of the Current Yield. These yields are each
computed by first determining the "Net Change in Account Value"
for a hypothetical account having a share balance of one share at
the beginning of a seven-day period ("Beginning Account Value"),
excluding capital changes. The Net Change in Account Value will
always equal the total dividends declared with respect to the
account, assuming a constant net asset value of $1.00. A "Tax-
Equivalent Yield" is computed by dividing the portion of the
"Yield" that is tax-exempt by one minus a stated income tax rate
and adding the product to that portion, if any, of the yield that
is not tax-exempt.

The Yields are then computed as follows:

Net Change in Account Value 365
--------------------------- ----
Current Yield = Beginning Account Value x 7

[1 + Net Change in Account Value]365/7
--------------------------------------
Effective Yield = Beginning Account Value - 1

For example, the Yields of Municipal Money Fund for the
seven-day period ended June 30, 1999, were:

$0.0005525479 365
------------- ---
Current Yield = $1.00 x 7 = 2.74%

[1+$0.000525479]365/7
---------------------
Effective Yield = $1.00 - 1 = 2.78%

Tax-Equivalent Current Yield = 4.53% (assuming 39.6% tax rate)
Tax-Equivalent Effective Yield = 4.60% (assuming 39.6% tax rate)

The average dollar-weighted portfolio maturity for the seven
days ended June 30, 1999, was 45 days.

In addition to fluctuations reflecting changes in net income
of the Fund, resulting from changes in its proportionate share of
Municipal Money Portfolio's investment income and expenses, the
Fund's yield also would be affected if the Fund or Municipal Money
Portfolio were to restrict or supplement their respective
dividends in order to maintain a net asset value at $1.00 per
share. Asset changes resulting from net purchases or net
redemptions may affect yield. Accordingly, the Fund's yield may
vary from day to day and the yield stated for a particular past
period is not a representation as to its future yield. The Fund's
yield is not assured and its principal is not insured; however,
the Fund will attempt to maintain its net asset value per share at
$1.00.

Comparison of the Fund's yield with those of alternative
investments (such as savings accounts, various types of bank
deposits, and other money market funds) should be made with
consideration of differences between the Fund and the alternative
investments, differences in the periods and methods used in the
calculation of the yields being compared, and the impact of income
taxes on alternative investments.

Intermediate Municipals Fund, Managed Municipals Fund, and High-
Yield Municipals Fund

Intermediate Municipals Fund, Managed Municipals Fund, and
High-Yield Municipals Fund may quote yield figures from time to
time. The "Yield" of a 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. A "Tax-
Equivalent Yield" is computed by dividing the portion of the Yield
that is tax-exempt by one minus a stated income tax rate and
adding the product to that portion, if any, of the Yield that is
not tax-exempt.

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.

For example, the Yields of the Funds for the 30-day period
ended June 30, 1999, were:

Intermediate Municipals Fund
Yield = 4.08%
Tax-Equivalent Yield = 6.75%
(assuming 39.6% tax rate)

Managed Municipals Fund
Yield = 4.67%
Tax-Equivalent Yield = 7.72%
(assuming 39.6% tax rate)

High-Yield Municipals Fund
Yield = 4.67%
Tax-Equivalent Yield = 7.73%
(assuming 39.6% tax rate)

All Funds

Each Fund may quote total return figures from time to time.
A "Total Return" on a per share basis is the amount of dividends
distributed 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. A Fund may also quote tax-equivalent total
return figures or other tax-equivalent measures of performance.

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 a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at June 30, 1999, were:

TOTAL RETURN AVERAGE ANNUAL
FUND TOTAL RETURN PERCENTAGE TOTAL RETURN
- --------------------- ------------ ------------ -------------
Municipal Money Fund
1 year $ 1,027 2.73% 2.73%
5 years 1,160 15.99 3.01
10 years 1,374 37.40 3.23

Intermediate Municipals Fund
1 year 1,028 2.08 2.08
5 years 1,313 31.28 5.59
10 years 1,878 87.83 6.51

Managed Municipals Fund
1 year 1,017 1.67 1.67
5 years 1,361 36.12 6.36
10 years 1,947 94.65 6.89

High-Yield Municipals Fund
1 year 1,032 3.18 3.18
5 years 1,412 41.17 7.14
10 years 1,962 96.17 6.97

Investment performance figures assume reinvestment of all
dividends and distributions, and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.

A Fund may note its mention in newspapers, magazines, or
other media from time to time. However, the Funds assume no
responsibility for the accuracy of such data. Newspapers and
magazines that might mention the Funds include, but are not
limited to, the following:

Architectural Digest
Arizona Republic
Atlanta Constitution
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Investment Advisor
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Marketing Alert
Gourmet
Individual Investor
Investment Dealers' Digest
Investment News
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Money on Line
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsday
Newsweek
New York Daily News
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
Reuters
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Street.com
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money

In advertising and sales literature, a Fund may compare its
yield and performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Funds. Comparison of a Fund to an alternative investment
should be made with consideration of differences in features and
expected performance. All of the indexes and averages noted below
will be obtained from the indicated sources or reporting services,
which the Funds believe to be generally accurate.

All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely-recognized measure of
inflation.

Municipal Money Fund

Municipal Money Fund may compare its yield to the average
yield of the following: Donoghue's Money Fund Averages(tm)-
Stockbroker and General Purpose categories; and the Lipper All
Short-Term Tax-Free Categories(tm).

Municipal Money Fund may also compare its tax-equivalent
yield to the average rate for the taxable fund category for the
aforementioned services. Should these services reclassify the
Fund into a different category or develop (and place the Fund
into) a new category, the Fund may compare its performance, rank,
or yield with those of other funds in the newly-assigned category
as published by the service.

Investors may desire to compare Municipal Money Fund's
performance and features to that of various bank products. The
Fund may compare its tax-equivalent yield to the average rates of
bank and thrift institution money market deposit accounts, Super
N.O.W. accounts, and certificates of deposit. The rates published
weekly by the BANK RATE MONITOR(c), a North Palm Beach (Florida)
financial reporting service, in its BANK RATE MONITOR(c) National
Index are averages of the personal account rates offered on the
Wednesday prior to the date of publication by one hundred leading
banks and thrift institutions in the top ten Consolidated Standard
Metropolitan Statistical Areas. Account minimums range upward
from $2,500 in each institution and compounding methods vary.
Super N.O.W. accounts generally offer unlimited checking, while
money market deposit accounts generally restrict the number of
checks that may be written. If more than one rate is offered, the
lowest rate is used. Rates are subject to change at any time
specified by the institution. Bank account deposits may be
insured. Shareholder accounts in the Fund are not insured. Bank
passbook savings accounts compete with money market mutual fund
products with respect to certain liquidity features but may not
offer all of the features available from a money market mutual
fund, such as check writing. Bank passbook savings accounts
normally offer a fixed rate of interest while the yield of the
Fund fluctuates. Bank checking accounts normally do not pay
interest but compete with money market mutual funds with respect
to certain liquidity features (e.g., the ability to write checks
against the account). Bank certificates of deposit may offer
fixed or variable rates for a set term. (Normally, a variety of
terms are available.) Withdrawal of these deposits prior to
maturity will normally be subject to a penalty. In contrast,
shares of the Fund are redeemable at the next determined net asset
value (normally, $1.00 per share) after a request is received,
without charge.

Intermediate Municipals Fund, Managed Municipals Fund, and High-
Yield Municipals Fund

Intermediate Municipals Fund, Managed Municipals Fund, and
High-Yield Municipals Fund may compare performance to the
benchmarks indicated below:

Benchmark Fund(s)
- ------------------------------------ --------------------------
Lehman Brothers Municipal Bond Index High-Yield Municipals
Fund, Managed Municipals
Fund
Lehman Brothers 10-Year Municipal Bond
Index Intermediate Municipals
Fund
Lehman Brothers 7-Year Municipal Bond
Index Intermediate Municipals
Fund
Lipper Intermediate (5-10 year)
Municipal Bond Funds Average Intermediate Municipals
Fund
Lipper General Municipal Bond Funds
Average Managed Municipals Fund
Lipper High-Yield Municipal Bond
Funds Average High-Yield Municipals Fund
Lipper Municipal Bond Fund Average Intermediate Municipals
Fund, Managed Municipals
Fund, High-Yield
Municipals Fund
Morningstar Municipal Bond (General)
Funds Average Managed Municipals Fund,
Intermediate Municipals
Fund
Morningstar Municipal Bond (High-
Yield) Funds Average High-Yield Municipals Fund
Morningstar Long-Term Tax-Exempt
Fund Average High-Yield Municipals
Fund, Intermediate
Municipals Fund, Managed
Municipals Fund

The Lipper and Morningstar averages are unweighted averages
of total return performance of mutual funds as classified,
calculated, and published by these independent services that
monitor the performance of mutual funds. The Funds may also use
comparative performance as computed in a ranking by those services
or category averages and rankings provided by another independent
service. Should these services reclassify a Fund to a different
category or develop (and place a Fund into) a new category, that
Fund may compare its performance or rank with those of other funds
in the newly-assigned category (or the average of such category)
as published by the service.

In advertising and sales literature, a Fund may also cite its
rating, recognition, or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-adjusted
total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk
score (which is a function of its monthly returns less the 3-month
T-bill return) from its load-adjusted total return score. This
numerical score is then translated into rating categories, with
the top 10% labeled five star, the next 22.5% labeled four star,
the next 35% labeled three star, the next 22.5% labeled two star,
and the bottom 10% one star. A high rating reflects either above-
average returns or below-average risk, or both.

Investors may desire to compare a Fund's performance to that
of various bank products. A Fund may compare its tax-equivalent
yield to the average rates of bank and thrift institution
certificates of deposit. The rates published weekly by the BANK
RATE MONITOR(c), a North Palm Beach (Florida) financial reporting
service, in its BANK RATE MONITOR(c) National Index are averages
of the personal account rates offered on the Wednesday prior to
the date of publication by one hundred leading banks and thrift
institutions in the top ten Consolidated Standard Metropolitan
Statistical Areas. Bank account minimums range upward from $2,500
in each institution and compounding methods vary. Rates are
subject to change at any time specified by the institution. A
Fund's net asset value and investment return will vary. Bank
account deposits may be insured; Fund accounts are not insured.
Bank certificates of deposit may offer fixed or variable rates for
a set term. Withdrawal of these deposits prior to maturity will
normally be subject to a penalty. In contrast, shares of the Fund
are redeemable at the next determined net asset value after a
request is received, without charge.

Intermediate Municipals Fund, Managed Municipals Fund, and
High-Yield Municipals Fund may also compare their respective tax-
equivalent yields to the average rate for the taxable fund
category of the aforementioned services.

Of course, past performance is not indicative of future
results.
________________

To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:

Common stocks
Small company stock
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index

A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax-
exempt investing on a hypothetical investment. Tax-exempt income,
however, may be subject to state and local taxes and the federal
alternative minimum tax. Marginal tax brackets are based on 1993
federal tax rates and are subject to change. "Joint Return" is
based on two exemptions and "Single return" is based on one
exemption. The results would differ for different numbers of
exemptions.

TAX-EQUIVALENT YIELDS
A taxable
investment must yield the following
Taxable Income (thousands) Marginal to equal a tax-exempt yield of:
- ----------------------------- Tax ----------------------------------
Joint Return Single Return Bracket 4% 5% 6% 7% 8%
- -------------- ------------- -------- ---- ---- ---- ----- -----
$0.0 - 36.9 $0.0 - 22.1 15% 4.71 5.88 7.06 8.24 9.41
$36.9 - 89.2 $22.1 - 53.5 28% 5.56 6.94 8.33 9.72 11.11
$89.2 - 140.0 $53.5 - 115.0 31% 5.80 7.25 8.70 10.14 11.59
$140.0 - 250.0 $115.0 - 250.0 36% 6.25 7.81 9.38 10.94 12.50
$250.0+ $250.0+ 39.6% 6.62 8.28 9.93 11.59 13.25

Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share. Like any investment strategy, dollar cost averaging
can't guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.

From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and asset allocation and other investment
strategies.

ADDITIONAL INFORMATION ON NET ASSET VALUE-MUNICIPAL MONEY FUND

For purposes of discussion in this section, the term "Fund"
refers to Municipal Money Fund and to Municipal Money Portfolio.

Please refer to Net Asset Value in the Prospectus, which is
incorporated herein by reference. The Fund values its portfolio
by the "amortized cost method" by which it attempts to maintain
its net asset value at $1.00 per share. This involves valuing an
instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of
the instrument. Although this method provides certainty in
valuation, it may result in periods during which value as
determined by amortized cost is higher or lower than the price the
Fund would receive if it sold the instrument. Other assets are
valued at a fair value determined in good faith by the Board of
Trustees.

In connection with the Fund's use of amortized cost and the
maintenance of per share net asset value of $1.00, the Trust has
agreed, with respect to the Fund: (i) to seek to maintain a
dollar-weighted average portfolio maturity appropriate to its
objective of maintaining relative stability of principal and not
in excess of 90 days; (ii) not to purchase a portfolio instrument
with a remaining maturity of greater than thirteen months (for
this purpose the Fund considers that an instrument has a maturity
of thirteen months or less if it is a "short-term" obligation as
defined in the Glossary); and (iii) to limit its purchase of
portfolio instruments to those instruments that are denominated in
U.S. dollars which the Board of Trustees determines present
minimal credit risks and that are of eligible quality as
determined by any major rating service as defined under SEC Rule
2a-7 or, in the case of any instrument that is not rated, of
comparable quality as determined by the Board.

The Fund has also agreed to establish procedures reasonably
designed to stabilize its price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures
include review of portfolio holdings by the Board of Trustees, at
such intervals as it deems appropriate, to determine whether the
net asset value calculated by using available market quotations or
market equivalents deviates from $1.00 per share based on
amortized cost. Calculations are made to compare the value of its
investments valued at amortized cost with market value. Market
values are obtained by using actual quotations provided by market
makers, estimates of market value, values from yield data obtained
from reputable sources for the instruments, values obtained from
Stein Roe's matrix, or values obtained from an independent pricing
service. Any such service might value the Fund's investments
based on methods which include consideration of: yields or prices
of Municipal Securities of comparable quality, coupon, maturity
and type; indications as to values from dealers; and general
market conditions. The service may also employ electronic data
processing techniques, a matrix system, or both to determine
valuations.

In connection with the use of the amortized cost method of
portfolio valuation to maintain net asset value at $1.00 per
share, the Fund might incur or anticipate an unusual expense,
loss, depreciation, gain or appreciation that would affect its net
asset value per share or income for a particular period. The
extent of any deviation between the Fund's net asset value based
upon available market quotations or market equivalents and $1.00
per share based on amortized cost will be examined by the Board of
Trustees as it deems appropriate. If such deviation exceeds 1/2
of 1%, the Board of Trustees will promptly consider what action,
if any, should be initiated. In the event the Board of Trustees
determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing
shareholders, it will take such action as it considers appropriate
to eliminate or reduce to the extent reasonably practicable such
dilution or unfair results. Actions which the Board might take
include: selling portfolio instruments prior to maturity to
realize capital gains or losses or to shorten average portfolio
maturity; increasing, reducing, or suspending dividends or
distributions from capital or capital gains; or redeeming shares
in kind. The Board might also establish a net asset value per
share by using market values, as a result of which the net asset
value might deviate from $1.00 per share.

MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS

Each of Municipal Money Fund and High-Yield Municipals Fund
(which are series of the Trust, an open-end management investment
company) seeks to achieve its objective by investing all of its
assets in another mutual fund having an investment objective
identical to that of the Fund. The shareholders of each Fund
approved this policy of permitting a Fund to act as a feeder fund
by investing in a Portfolio. Please refer to Investment Policies,
Portfolio Investments and Strategies, and Investment Restrictions
for a description of the investment objectives, policies, and
restrictions of the Funds and the Portfolios. The management fees
and expenses of the Funds and the Portfolios are described under
Investment Advisory and Other Services. Each feeder Fund bears
its proportionate share of the expenses of its master Portfolio.

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

Each Portfolio is a separate series of SR&F Base Trust ("Base
Trust"), a Massachusetts common law trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Aug. 23, 1993. The Declaration of Trust of Base Trust provides
that a Fund and other investors in a Portfolio will be liable for
all obligations of that Portfolio that are not satisfied by the
Portfolio. However, the risk of a Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and a Portfolio was unable to
meet its obligations. Accordingly, the trustees of the Trust
believe that neither the Funds nor their shareholders will be
adversely affected by reason of a Fund's investing in a Portfolio.

The Declaration of Trust of Base Trust provides that a
Portfolio will terminate 120 days after the withdrawal of a Fund
or any other investor in the Portfolio, unless the remaining
investors vote to agree to continue the business of the Portfolio.
The trustees of the Trust may vote a Fund's interests in a
Portfolio for such continuation without approval of the Fund's
shareholders.

The common investment objectives of the Funds and the
Portfolios are nonfundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to a Fund's shareholders.

The fundamental policies of each Fund and the corresponding
fundamental policies of its master Portfolio can be changed only
with shareholder approval. If a Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of a
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 Fund shareholders.
A 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 Fund shareholders
will receive a majority of votes cast by all investors in a
Portfolio. If other investors hold a majority interest in a
Portfolio, they could have voting control over that Portfolio.

In the event that a Portfolio's fundamental policies were
changed so as to be inconsistent with those of the corresponding
Fund, the Board of Trustees of the Trust 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 an investment adviser to invest those assets
directly in a portfolio of securities. A 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 a Fund's assets could result in a distribution in
kind of portfolio securities (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
securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of investments for the Fund
and could affect the liquidity of the Fund.

Each investor in a Portfolio, including a Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. The investor's percentage of the aggregate
interests in the Portfolio will be computed as the percentage
equal to the fraction (i) the numerator of which is the beginning
of the day value of such investor's investment in the Portfolio on
such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of the
Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of the close
of business.

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

Information regarding other investors in a Portfolio may be
obtained by writing to SR&F Base Trust at Suite 3200, One South
Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
Stein Roe may provide administrative or other services to one or
more of such investors.

GLOSSARY

In-the-money. A call option on a futures contract is "in-the-
money" if the value of the futures contract that is the subject of
the option exceeds the exercise price. A put option on a futures
contract is "in-the-money" if the exercise price exceeds the value
of the futures contract that is the subject of the option.

Issuer. For purposes of diversification under the Investment
Company Act of 1940, identification of the issuer (or issuers) of
a Municipal Security depends on the terms and conditions of the
obligation. If the assets and revenues of an agency, authority,
instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the
obligation is backed only by the assets and revenues of the
subdivision, such subdivision would be regarded as the sole
issuer. Similarly, if the obligation is backed only by the assets
and revenues of the non-governmental user, the non-governmental
user would be deemed to be the sole issuer. In addition, if the
bond is backed by the full faith and credit of the U.S.
Government, agencies or instrumentalities of the U.S. Government
or U.S. Government Securities, the U.S. Government or the
appropriate agency or instrumentality would be deemed to be the
sole issuer, and would not be subject to the 5% limitation
applicable to investments in a single issuer as described in
restriction number (i) under Investment Restrictions in this SAI.
If, in any case, the creating municipal government or another
entity guarantees an obligation or issues a letter of credit to
secure the obligation, the guarantee (or letter of credit) would
be considered a separate security issued by such government or
entity and would be separately valued and included in the issuer
limitation. In the case of Municipal Money Fund, Municipal Money
Portfolio and Intermediate Municipals Fund, guarantees and letters
of credit described in this paragraph from banks whose credit is
acceptable to these Funds are not restricted in amount by the
restriction against investing more than 25% of their total assets
in securities of non-governmental issuers whose principal business
activities are in the same industry.

Majority of the outstanding voting securities. As used in this
SAI, this term means the lesser of (i) 67% or more of the shares
at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present or represented by proxy or (ii)
more than 50% of the outstanding shares of the Fund.

Municipal Securities. Municipal Securities are debt obligations
issued by or on behalf of the governments of states, territories
or possessions of the United States, the District of Columbia and
their political subdivisions, agencies and instrumentalities, the
interest on which is generally exempt from the regular federal
income tax.

The two principal classifications of Municipal Securities are
"general obligation" and "revenue" bonds. "General obligation"
bonds are secured by the issuer's pledge of its faith, credit, and
taxing power for the payment of principal and interest. "Revenue"
bonds are usually payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from
the proceeds of a special excise tax or other specific revenue
source. Industrial development bonds are usually revenue bonds,
the credit quality of which is normally directly related to the
credit standing of the industrial user involved. Municipal
Securities may bear either fixed or variable rates of interest.
Variable rate securities bear rates of interest that are adjusted
periodically according to formulae intended to minimize
fluctuation in values of the instruments.

Within the principal classifications of Municipal Securities,
there are various types of instruments, including municipal bonds,
municipal notes, municipal leases, custodial receipts, and
participation certificates. Municipal notes include tax, revenue,
and bond anticipation notes of short maturity, generally less than
three years, which are issued to obtain temporary funds for
various public purposes. Municipal lease securities, and
participation certificates therein, evidence certain types of
interests in lease or installment purchases contract obligations
of a municipal authority or other entity. Custodial receipts
represent ownership in future interest or principal payments (or
both) on certain Municipal Securities and are underwritten by
securities dealers or banks. Some Municipal Securities may not be
backed by the faith, credit, and taxing power of the issuer and
may involve "non-appropriation" clauses which provide that the
municipal authority is not obligated to make lease or other
contractual payments, unless specific annual appropriations are
made by the municipality. Each Fund may invest more than 5% of
its net assets in municipal bonds and notes, but does not expect
to invest more than 5% of its net assets in the other Municipal
Securities described in this paragraph.

Some Municipal Securities are backed by (i) the full faith
and credit of the U.S. Government, (ii) agencies or
instrumentalities of the U.S. Government, or (iii) U.S. Government
Securities.

Repurchase Agreement. A repurchase agreement involves the sale of
securities to the Fund, with the concurrent agreement of the
seller to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Fund could experience both delays
in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the collateral during the
period while the Fund seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights.

Reverse Repurchase Agreement. A reverse repurchase agreement is a
repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price.

Short-term. This term, as used with respect to Municipal Money
Fund and Municipal Money Portfolio, refers to an obligation of one
of the following types, measured from the date of an investment by
the Fund in the obligation (regardless of the duration of the
obligation from the date of original issuance):

1. An obligation of the issuer to pay the entire principal and
accrued interest in no more than thirteen months;

2. An obligation (regardless of the duration before its
maturity) issued or guaranteed by the U.S. Government or by its
agencies or instrumentalities, bearing a variable rate of interest
providing for automatic establishment, no less frequently than
annually, of a new rate or successive new rates of interest by a
formula, that can reasonably be expected to have a market value
approximating its principal amount (a) whenever a new interest
rate is established, in the case of an obligation having a
variable rate of interest, or (b) at any time, in the case of an
obligation having a "floating rate of interest" that changes
concurrently with any change in an identified market interest rate
to which it is pegged;

3. Any other obligation (regardless of the duration before its
maturity) that: (a) has a demand feature entitling the holder to
receive from an issuer the entire principal [or, under the
circumstances described under Investment Policies-Municipal Money
Fund above, the issuer of a guarantee or a letter of credit with
respect to a participation interest in the obligation (acquired
from such issuer)], (i) at any time upon no more than thirty days'
notice or (ii) at specified intervals not exceeding thirteen
months and upon no more than thirty days' notice; (b)(i) has a
variable rate of interest that changes on set dates or (ii) has a
floating rate of interest (as defined in 2 above); and (c) can
reasonably be expected to have a market value approximating its
principal amount (i) whenever a new rate of interest is
established, in the case of an obligation having a variable rate
of interest, or (ii) at any time, in the case of an obligation
having a floating rate of interest; provided that, with respect to
each such obligation that is not rated eligible quality by Moody's
or S&P, the Board of Trustees has determined that the obligation
is of eligible quality; or

4. A repurchase agreement that is to be fully performed (or
that the Fund may require be performed) in not more than thirteen
months (regardless of the maturity of the obligation to which the
repurchase agreement relates).

Variable Rate Demand Security. This type of security is a
Variable Rate Security (as defined in the Prospectus under
Municipal Securities) which has a demand feature entitling the
purchaser to resell the security to the issuer of the demand
feature at an amount approximately equal to amortized cost or the
principal amount thereof, which may be more or less than the price
the Fund paid for it. The interest rate on a Variable Rate Demand
Security also varies either according to some objective standard,
such as an index of short-term tax-exempt rates, or according to
rates set by or on behalf of the issuer.

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, Stein Roe believes that the quality of
Municipal 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. Stein Roe, through
independent analysis, attempts to discern variations in credit
ratings of the published services, and to anticipate changes in
credit ratings. The following is a description of the
characteristics of certain ratings used by Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's ("S&P"), and Fitch
IBCA.

Ratings by Moody's
Municipal Bonds: Aaa. Bonds rated Aaa are judged to be of 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 by an exceptionally stable margin and
principal is secure. Although the various protective elements are
likely to change, such changes as can be visualized are most
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 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.

Conditional Ratings. Bonds for which the security depends upon
the completion of some act or the fulfillment of some condition
are rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or
elimination of basis of condition.

Note: Moody's applies numerical modifiers 1, 2, and 3 in the Aa
through B classifications of its municipal bond rating system and
in the Aa through Caa classifications of 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.

Municipal Notes: MIG 1. This designation denotes best quality.
There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to
the market for refinancing.

MIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.

MIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.

Demand Feature of Variable Rate Demand Securities: Moody's may
assign a separate rating to the demand feature of a variable rate
demand security. Such a rating may include:

VMIG 1. This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for
refinancing.

VMIG 2. This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding
group.

VMIG 3. This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable
strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is
likely to be less well established.

Commercial Paper: 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.

Corporate Bonds: The description of the applicable rating symbols
and their meanings is identical to that of its Municipal Bond
ratings as set forth above.

Ratings by S&P:
Municipal Bonds: AAA. Bonds rated AAA have the highest rating.
Capacity to pay interest and repay principal is extremely strong.

AA. Bonds rated AA have a very strong capacity to pay interest
and repay principal and differ from the higher rated issues only
in small degree.

A. Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than bonds in higher-rated categories.

BBB. Bonds rated BBB are regarded as having an adequate capacity
to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category
than for bonds 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. The rating C1 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 also is issued
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.

NOTE: 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.

Provisional Ratings. The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful
completion of the project being financed by the debt being rated
and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful and timely completion of
the project. This rating, however, although addressing credit
quality subsequent to completion of the project, makes no comment
on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgment with
respect to such likelihood and risk.

Municipal Notes: SP-1. Notes rated SP-1 have very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
designated as SP-1+.

SP-2. Notes rated SP-2 have satisfactory capacity to pay
principal and interest.

Notes due in three years or less normally receive a note rating.
Notes maturing beyond three years normally receive a bond rating,
although the following criteria are used in making that
assessment:

* Amortization schedule (the larger the final maturity relative to
other maturities, the more likely the issue will be rated as a
note).

* Source of payment (the more dependent the issue is on the market
for its refinancing, the more likely it will be rated as a note).

Demand Feature of Variable Rate Demand Securities: S&P assigns
dual ratings to all long-term debt issues that have as part of
their provisions a demand feature. The first rating addresses the
likelihood of repayment of principal and interest as due, and the
second rating addresses only the demand feature. The long-term
debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are usually used
to denote the put (demand) option (for example, AAA/A-1+).
Normally, demand notes receive note rating symbols combined with
commercial paper symbols (for example, SP-1+/A-1+).

Commercial Paper: 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 to safety.

A-1. This designation indicates that the degree of safety
regarding timely payment is either overwhelming or very strong.
Those issues determined to possess overwhelming safety
characteristics are designed A-1+.

Corporate Bonds: The description of the applicable rating symbols
and their meanings is substantially the same as its Municipal Bond
ratings set forth above.

RATINGS BY FITCH IBCA

Investment Grade Bond Ratings
Fitch IBCA investment grade bond ratings provide a guide to
investors in determining the credit risk associated with a
particular security. The ratings represent Fitch IBCA's
assessment of the issuer's ability to meet the obligations of a
specific debt or preferred issue in a timely manner. The rating
takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and
prospective financial condition and operating performance of the
issuer and any guarantor, as well as the economic and political
environment that might affect the issuer's future financial
strength and credit quality.

Fitch IBCA ratings do not reflect any credit enhancement that may
be provided by insurance policies or financial guaranties unless
otherwise indicated.

Fitch IBCA ratings are not recommendations to buy, sell, or hold
any security. Ratings do not comment on the adequacy of market
price, the suitability of any security for a particular investor,
or the tax-exempt nature or taxability of payments made in respect
of any security. Fitch IBCA ratings are based on information
obtained from issuers, other obligors, underwriters, their
experts, and other sources Fitch IBCA believes to be reliable.
Fitch IBCA does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a
result of changes in, or the unavailability of, information or for
other reasons.

AAA. Bonds and preferred stock considered to be investment grade
and of the highest credit quality. The obligor has an
exceptionally strong ability to pay interest and/or dividends and
repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA. Bonds and preferred stock considered to be investment grade
and of very high credit quality. The obligor's ability to pay
interest and/or dividends and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bond and
preferred rated in the AAA and AA categories are not significantly
vulnerable to foreseeable future developments, short-term debt of
these issuers is generally rated F-1+.

A. Bonds and preferred stock considered to be investment grade
and of high quality. The obligor's ability to pay interest and/or
dividends and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and
circumstances than debt or preferred securities with higher
ratings.

BBB. Bonds and preferred stock considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay
interest or dividends and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on
these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds or preferred will fall
below investment grade is higher than for securities with higher
ratings.

BB. Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.

B. Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.

CCC. Bonds have certain identifiable characteristics which, if
not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic
environment.

CC. Bonds are minimally protected. Default in payment of
interest and/or principal seems probable over time.

C. Bonds are in imminent default in payment of interest or
principal.

DDD, DD, and D. Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.

Plus (+) or Minus (-). Plus and minus signs are used with a
rating symbol to indicate the relative position of a credit within
the rating category. Plus and minus signs, however, are not used
in the AAA, DDD, DD or D categories.

NR. Indicates that Fitch IBCA does not rate the specific issue.

Conditional. A conditional rating is premised on the successful
completion of a project or the occurrence of a specific event.

Suspended. A rating is suspended when Fitch IBCA deems the amount
of information available from the issuer to be inadequate for
rating purposes.

Withdrawn. A rating will be withdrawn when an issue matures or is
called or refinanced, and, at Fitch IBCA's discretion, when an
issuer fails to furnish proper and timely information.

FitchAlert. Ratings are placed on FitchAlert to notify investors
of an occurrence that is likely to result in a rating change and
the likely direction of such change. These are designated as
"Positive," indicating a potential upgrade, "Negative," for
potential downgrade, or "Evolving," where ratings may be raised or
lowered. FitchAlert is relatively short-term and should be
resolved within 12 months.

Ratings Outlook. An outlook is used to describe the most likely
direction of any rating change over the intermediate term. It is
described as "Positive" or "Negative." The absence of a
designation indicates a stable outlook.

Short-Term Ratings

F-1+. Exceptionally Strong Credit Quality. Issues assigned this
rating are regarded as having the strongest degree of assurance
for timely payment.

F-1. Very Strong Credit Quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated F-1+.

F-2. Good Credit Quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F-1+ and
F-1 ratings.

F-3. Fair Credit Quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could
cause these securities to be rated below investment grade.

F-S. Weak Credit Quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.

D. Default. Issues assigned this rating are in actual or
imminent payment default.
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