STEIN ROE INCOME TRUST, 497, 1997-11-06

STEIN ROE INCOME TRUST
497, 1997-11-06

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Prospectus Nov. 6, 1997

Stein Roe Mutual Funds

Stein Roe Cash Reserves Fund

Cash Reserves Fund seeks to obtain maximum current income
consistent with capital preservation and maintenance of liquidity.
It invests solely in money market instruments maturing in thirteen
months or less from the time of investment.

Cash Reserves is a "no-load" money market fund and attempts
to maintain its net asset value at $1.00 per share. Shares of
Cash Reserves are neither insured nor guaranteed by the U.S.
Government and there can be no assurance that it will be able to
maintain a stable net asset value of $1.00 per share.

There are no sales or redemption charges, and Cash Reserves
has no 12b-1 plan. Cash Reserves is a series of Stein Roe Income
Trust.

This prospectus contains information you should know before
investing in Cash Reserves. Please read it carefully and retain
it for future reference.

A Statement of Additional Information dated Nov. 6, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
information is available on the SEC's website at
http://www.sec.gov. This prospectus is also available
electronically by using Stein Roe's Internet address:
http://www.steinroe.com. You can get a free paper copy of the
prospectus, the Statement of Additional Information, and the most
recent financial statements by calling 800-338-2550 or by writing
to Stein Roe Funds, Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

TABLE OF CONTENTS
Page
Summary................................. 2
Fee Table............ ...................3
Financial Highlights.....................4
The Fund.................................6
Investment Policies..................... 6
Investment Restrictions............ .....7
Risks and Investment Considerations......8
How to Purchase Shares...................9
By Check............................. 9
By Wire..............................10
By Electronic Transfer.............. 10
By Exchange......................... 10
Conditions of Purchase.............. 10
Purchases Through Third Parties......10
Purchase Price and Effective Date... 11
How to Redeem Shares................... 11
By Written Request.................. 11
By Exchange..........................12
Special Redemption Privileges....... 12
General Redemption Policies..........13
Shareholder Services....................15
Net Asset Value.........................16
Distributions and Income Taxes..........17
Management............................. 18
Organization and Description of Shares. 19
Certificate of Authorization........... 20

SUMMARY

Stein Roe Cash Reserves Fund ("Cash Reserves") is a series of
Stein Roe Income Trust, an open-end management investment company
organized as a Massachusetts business trust. Cash Reserves is a
"no-load" fund--there are no sales or redemption charges. (See
The Fund and Organization and Description of Shares.) This
prospectus is not a solicitation in any jurisdiction in which
shares of Cash Reserves are not qualified for sale.

Net Asset Value. Cash Reserves attempts to maintain its price per
share at $1.00. There is no assurance that it will always be able
to do so. (See Net Asset Value.)

Investment Objectives and Policies. Cash Reserves is a money
market fund with the objective of seeking maximum current income
consistent with safety of capital and maintenance of liquidity.
Cash Reserves pursues its objective by investing in a wide range
of high-quality U.S. dollar-denominated money market instruments
maturing in thirteen months or less from the date of purchase.
Under normal market conditions, Cash Reserves will invest at least
25% of its total assets in securities of issuers in the financial
services industry. (See Investment Policies.)

Investment Risks. Cash Reserves' policy of normally investing at
least 25% of its assets in securities of issuers in the financial
services industry may cause it to be more adversely affected by
changes in market or economic conditions and other circumstances
affecting the financial services industry. In addition, since
Cash Reserves' investment policy permits it to invest in
securities of foreign branches of U.S. banks, U.S. branches of
foreign banks, and foreign banks and their foreign branches, such
as negotiable certificates of deposit (Eurodollar CDs), and
securities of foreign governments, investment in the Fund might
involve risks that are different in some respects from an
investment in a fund that invests only in debt obligations of U.S.
domestic issuers. (For a discussion of risks, see Risks and
Investment Considerations.)

Purchases. The minimum initial investment is $2,500, and
additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another Stein Roe Fund. For more
detailed information, see How to Purchase Shares.

Redemptions. For information on redeeming shares, including the
special redemption privileges, see How to Redeem Shares.

Distributions. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional Cash
Reserves shares unless you elect to have them paid in cash,
deposited by electronic transfer into your bank account, or
invested in shares of another Stein Roe Fund. (See Distributions
and Income Taxes and Shareholder Services.)

Adviser and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management, and investment
advisory services to Cash Reserves. For a description of the
Adviser and its fees, see Management.

If you have any additional questions about Cash Reserves,
please feel free to discuss them with a Stein Roe account
representative by calling 800-338-2550.

FEE TABLE

Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees)............. 0.50%
12b-1 Fees.......................................None
Other Expenses.................................. 0.27%
-----
Total Fund Operating Expenses....................0.77%
=====
____________________
*There is a $7.00 charge for wiring redemption proceeds to your
bank.

Example. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:

1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $25 $43 $95

The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly as an investor in Cash Reserves. The table
is based upon actual expenses incurred in the last fiscal year.
(Also see Management--Fees and Expenses.)

For purposes of the Example above, the figures assume that
the percentage amounts listed under Annual Fund Operating Expenses
remain the same during each of the periods, that all income
dividends and capital gains distributions are reinvested in
additional shares, and that, for purposes of fee breakpoints, the
net assets remain at the same level as in the most recently
completed fiscal year.

The figures in the Example are not necessarily indicative of
past or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that shown in
the Fee Table and Example is useful in reviewing Cash Reserves'
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods.

FINANCIAL HIGHLIGHTS

The table below reflects the results of operations of Cash
Reserves on a per-share basis and has been audited by Ernst &
Young LLP, independent auditors. The table should be read in
conjunction with the financial statements and notes thereto, which
may be obtained from the Trust without charge upon request.

<TABLE>
<CAPTION>
Six
Year Months
Ended Ended
Dec. 31, June 30, Years Ended June 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income. 0.060 0.032 0.081 0.079 0.068 0.044 0.028 0.028 0.048 0.050 0.048
Distributions from net
investment income.... (0.060) (0.032) (0.081) (0.079) (0.068) (0.044) (0.028) (0.028) (0.048) (0.050) (0.048)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END
OF PERIOD............. $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000 $1.000
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of expenses to
average net assets... 0.72% *0.70% 0.75% 0.76% 0.78% 0.78% 0.79% 0.79% 0.76% 0.78% 0.77%
Ratio of net investment
income to average
net assets........... 6.02% *6.36% 8.13% 7.94% 6.81% 4.40% 2.81% 2.77% 4.83% 4.98% 4.80%
Total return.......... 6.15% *6.43% 8.41% 8.20% 6.98% 4.49% 2.83% 2.81% 4.96% 5.07% 4.92%
Net assets, end of
period (000 omitted).$962,901 $930,074 $948,018 $949,803 $840,525 $711,087 $627,110 $554,713 $498,163 $476,840 $452,358
<FN>
*Annualized.
</TABLE>

THE FUND

Stein Roe Cash Reserves Fund ("Cash Reserves") is a no-load
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping. Because Cash Reserves invests only in money
market instruments, it is called a "money market fund." No-load
funds do not impose commissions or charges when shares are
purchased or redeemed.

Cash Reserves is a series of Stein Roe Income Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.

Although there can be no assurance that it will always be
able to do so, Cash Reserves follows procedures designed to
stabilize its price per share at $1.00. The Statement of
Additional Information describes these procedures.

Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and recordkeeping and
accounting services to Cash Reserves. The Adviser also manages
several other mutual funds with different investment objectives,
including international funds, equity funds and taxable and tax-
exempt bond funds. To obtain prospectuses and other information
on any of those mutual funds, please call 800-338-2550.

Because Cash Reserves strives to maintain a $1.00 per share
value, its return is usually quoted either as a current seven-day
yield, calculated by totaling the dividends on a share of Cash
Reserves for the previous seven days and restating that yield as
an annual rate; or as an effective yield, calculated by adjusting
the current yield to assume daily compounding. Cash Reserves'
current and effective yields for the seven-day period ended Sept.
30, 1997, were 4.96% and 5.09% respectively. To obtain current
yield information, you may call 800-338-2550.

From time to time, Cash Reserves may also quote total return
figures. The total return from an investment in Cash Reserves is
measured by the distributions received (assuming reinvestment)
plus or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the 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 calculated by finding the
average annual compounded rate that would equate a hypothetical
$1,000 investment to the ending redeemable value.

Comparison of Cash Reserves' yield or total return with those
of alternative investments should consider differences between
Cash Reserves and the alternative investments, the periods and
methods used in calculation of the return being compared, and the
impact of taxes on alternative investments. Past performance is
not necessarily indicative of future results.

INVESTMENT POLICIES

Cash Reserves seeks to obtain maximum current income consistent
with the preservation of capital and the maintenance of liquidity
by investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency), or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:

(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO; /1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2. involving securities listed in (1)
above;
(7) Other high-quality short-term obligations.
- ----------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Fund in which the seller (a bank
or securities dealer that the Adviser believes to be financially
sound) agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase
price, within a specified time.
- ----------------

In accordance with its investment objectives and policies,
Cash Reserves may invest in variable and floating rate money
market instruments which provide for periodic or automatic
adjustment in coupon interest rates that are reset based on
changes in amount and directions of specified short-term interest
rates.

Under normal market conditions, Cash Reserves will invest at
least 25% of its total assets in securities of issuers in the
financial services industry (which includes, but is not limited
to, banks, personal credit and business credit institutions, and
other financial services institutions).

Cash Reserves maintains a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net
asset value per share, and not in excess of 90 days. It is a
fundamental policy /3/ that the maturity of any instrument that
grants the holder an optional right to redeem at par plus interest
and without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.

- -------------
/3/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding voting securities" as defined in
the Investment Company Act of 1940.
- -------------

INVESTMENT RESTRICTIONS

Cash Reserves is diversified as that term is defined in the
Investment Company Act of 1940.

Cash Reserves will not, with respect to 75% of its total
assets, invest more than 5% of its total assets in the securities
of any one issuer--this restriction does not apply to U.S.
Government Securities or repurchase agreements for such
securities./4/ Notwithstanding the limitation on investment in a
single issuer, Cash Reserves may invest all or substantially all
of its assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- -------------
/4/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), Cash
Reserves 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 it 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.
- -------------

Cash Reserves may not make loans except that it may (1)
purchase money market instruments and enter into repurchase
agreements; (2) acquire publicly distributed or privately placed
debt securities; and (3) participate in an interfund lending
program with other Stein Roe Funds and Portfolios. Cash Reserves
may not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither Cash Reserves' aggregate
borrowings (including reverse repurchase agreements) nor its
aggregate loans at any one time may exceed 33 1/3% of the value of
its total assets. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.

Cash Reserves will not invest more than 10% of its net assets
in illiquid securities, including repurchase agreements maturing
in more than seven days (however, there is otherwise no limitation
on the percentage of assets which may be invested in repurchase
agreements).

The policies described in the second and third paragraphs of
this section, which summarize certain important investment
restrictions of Cash Reserves, and the policy with respect to
concentration of investment in the financial services industry,
can be changed only with the approval of a "majority of the
outstanding voting securities," as defined in the Investment
Company Act of 1940. All of the investment restrictions are set
forth in the Statement of Additional Information.

RISKS AND INVESTMENT CONSIDERATIONS

All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that Cash Reserves will achieve its objective or be able
at all times to maintain its net asset value per share at $1.00.

In the event of a bankruptcy or other default of a seller of
a repurchase agreement, Cash Reserves could experience both delays
in liquidating the underlying securities and losses, including:
(a) possible decline in the value of the collateral during the
period in which it 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.

The investment objective of Cash Reserves is not fundamental
and may be changed by the Board of Trustees without a vote of
shareholders. If there is a change in the investment objective,
shareholders should consider whether Cash Reserves remains an
appropriate investment in light of their then-current financial
position and needs.

Cash Reserves' policy of investing at least 25% of its assets
in securities of issuers in the financial services industry may
cause it to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because Cash Reserves' investment
policy permits it to invest in: securities of foreign branches of
U.S. banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars), and foreign banks and their foreign branches, such as
negotiable certificates of deposit; securities of foreign
governments; and securities of foreign issuers, such as commercial
paper and corporate notes, bonds and debentures, investment in
Cash Reserves might involve risks that are different in some
respects from an investment in a fund that invests only in debt
obligations of U.S. domestic issuers. Such risks may include
future political and economic developments; the possible
imposition of foreign withholding taxes on interest income payable
on securities held in the portfolio; possible seizure or
nationalization of foreign deposits; the possible establishment of
exchange controls; or the adoption of other foreign governmental
restrictions that might adversely affect the payment of principal
and interest on securities in the portfolio. Additionally, there
may be less public information available about foreign banks and
their branches. Foreign banks and foreign branches of foreign
banks are not regulated by U.S. banking authorities, and generally
are not bound by accounting, auditing, and financial reporting
standards comparable to U.S. banks.

Cash Reserves may invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms of
these securities are established at the time Cash Reserves enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed and the yields then available in the market may be
greater. It will make 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.

Cash Reserves may also invest in securities purchased on a
standby commitment basis, which is a delayed-delivery agreement in
which it binds itself to accept delivery of a security at the
option of the other party to the agreement.

Master Fund/Feeder Fund Option. Rather than invest in money
market securities directly, Cash Reserves may in the future seek
to achieve its investment objective by pooling its assets with
those of other investment companies for investment in another
investment company having the same investment objective and
substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. Such investment would be made
only if the trustees determine it to be in the best interests of
the Fund and its shareholders. The Board of Trustees of Income
Trust voted on Nov. 5, 1997 to convert Cash Reserves into a feeder
fund on or about Feb. 16, 1998. The master fund will be a new
series of SR&F Base Trust named SR&F Cash Reserves Portfolio,
which has the same investment objective as Cash Reserves.

HOW TO PURCHASE SHARES

You may purchase shares by check, by wire, by electronic transfer,
or by exchange from your account with another Stein Roe Fund. The
initial purchase minimum per account is $2,500; the minimum for
Uniform Gifts/Transfers to Minors Act ("UGMA") accounts is $1,000;
the minimum for accounts established under an automatic investment
plan (i.e., Regular Investments, Dividend Purchase Option, or the
Automatic Exchange Plan) is $1,000 for regular accounts and $500
for UGMA accounts; and the minimum per account for Stein Roe IRAs
is $500. The initial purchase minimum is waived for shareholders
who participate in the Stein Roe Counselor [service mark] or
Personal Counselor [service mark] programs and for clients of the
Adviser. Subsequent purchases must be at least $100, or at least
$50 if you purchase by electronic transfer. If you wish to
purchase shares to be held by a tax-sheltered retirement plan
sponsored by the Adviser, you must obtain special forms for those
plans. (See Shareholder Services.)

By Check. To make an initial purchase of shares by check, please
complete and sign the application and mail it, together with a
check made payable to Stein Roe Mutual Funds, to SteinRoe Services
Inc. at P.O. Box 8900, Boston, Massachusetts 02205. Participants
in the Stein Roe Counselor [service mark] and Personal Counselor
[service mark] programs should send orders to SteinRoe Services
Inc. at P.O. Box 803938, Chicago, Illinois 60680.

You may make subsequent investments by submitting a check
along with either the stub from your account confirmation
statement or a note indicating the amount of the purchase, your
account number, and the name in which your account is registered.
Money orders will not be accepted for initial purchases into new
accounts. Each individual check submitted for purchase must be at
least $100, and the Trust generally will not accept cash, drafts,
third or fourth party checks, or checks drawn on banks outside of
the United States. Should an order to purchase shares of Cash
Reserves be cancelled because your check does not clear, you will
be responsible for any resulting loss incurred.

By Wire. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the First National Bank of Boston. Your bank
may charge you a fee for sending the wire. If you are opening a
new account by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your social security or
other tax identification number. Neither Cash Reserves nor the
Trust will be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
Your bank must include the full name(s) in which your account is
registered and your account number, and should address its wire as
follows:

First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 36; Stein Roe Cash Reserves Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________

Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should address their
wires as follows:

By Electronic Transfer. You may also make subsequent investments
by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request
("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments") elected on your
application. (See Shareholder Services.) Electronic transfer
purchases are subject to a $50 minimum and a $100,000 maximum.
You may not open a new account through electronic transfer.
Should an order to purchase shares be cancelled because your
electronic transfer does not clear, you will be responsible for
any resulting loss incurred.

By Exchange. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information under How to
Redeem Shares--By Exchange.

Conditions of Purchase. Each purchase order must be accepted by
an authorized officer of the Trust or its authorized agent and is
not binding until accepted and entered on the books of Cash
Reserves. Once your purchase order has been accepted, you may not
cancel or revoke it; you may, however, redeem the shares. The
Trust reserves the right not to accept any purchase order that it
determines not to be in the best interests of the Trust or Cash
Reserves' shareholders. The Trust also reserves the right to
waive or lower its investment minimums for any reason. The Trust
does not issue certificates for shares.

Purchases Through Third Parties. You may purchase (or redeem)
shares through certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust (other than those
described in this prospectus) if shares are purchased (or
redeemed) directly from the Trust.

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 agent of Cash Reserves. 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 Cash
Reserves for their clients who are shareholders charge an annual
fee of up to 0.25% of the average net assets held in such accounts
for accounting, servicing, and distribution services they provide
with respect to the underlying shares. The Adviser and the
transfer agent share in the expense of these annual fees, and the
Adviser pays all sales and promotional expenses.

Purchase Price and Effective Date. Each purchase of shares made
directly with Cash Reserves is made at its net asset value (see
Net Asset Value) next determined after receipt of an order in good
form, including receipt of payment as follows:

Check purchases--net asset value next determined after your
check is converted into federal funds (currently one business day
after receipt of your check). Your investment will begin earning
dividends on the day of purchase.

Wire purchases--net asset value next determined after receipt
of the wire. If your wire is received before 11:00 a.m., central
time, your investment will begin earning dividends on the day of
purchase. If your wire is received at or after 11:00 a.m.,
central time, your investment will begin earning dividends on the
following day.

Electronic transfer--net asset value next determined after
Cash Reserves receives the electronic transfer from your bank. A
Special Electronic Transfer Investment instruction received by
telephone on a business day before 3:00 p.m., central time, is
effective on the next business day. Your investment will begin
earning dividends on the day following the date of purchase.

Each purchase of shares through an Intermediary that is an
authorized agent of the Trust for the receipt of orders is made at
the net asset value next determined after the receipt of the order
by the Intermediary.

HOW TO REDEEM SHARES

By Written Request. You may redeem all or a portion of your
shares by submitting a written request in "good order" to SteinRoe
Services Inc. at P.O. Box 8900, Boston, Massachusetts 02205.
Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should send redemption
requests to SteinRoe Services Inc. at P.O. Box 803938, Chicago,
Illinois 60680. A redemption request will be considered to have
been received in good order if the following conditions are
satisfied:

(1) The request must be in writing and must indicate the number of
shares or the dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and Cash Reserves by
verifying your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.

By Exchange. You may redeem all or any portion of your shares and
use the proceeds to purchase shares of any other 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 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 Cash Reserves account from
which the exchange is made and the amount you exchange must meet
any applicable minimum investment of the Stein Roe Fund being
purchased. Unless you have elected to receive your dividends in
cash, on an exchange of all shares, any accrued unpaid dividends
will be invested in the Stein Roe Fund to which you exchange on
the next business day. An exchange may be made by following the
redemption procedure described under By Written Request and
indicating the Stein Roe Fund to be purchased--a signature
guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege and Automatic
Exchanges.)

Special Redemption Privileges. 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. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your application. In addition, 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.

You may not use any of the Special Redemption Privileges if
you hold certificates for any of your shares. The Telephone
Redemption by Check, Telephone Redemption by Wire and Check-
Writing Privileges, and Special Electronic Transfer Redemptions
are not available to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser. (See also General
Redemption Policies.)

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 Cash Reserves may
refuse requests for Telephone Exchanges in excess of four round-
trips (a round-trip being the exchange out of Cash Reserves into
another Stein Roe Fund, and then back to Cash Reserves). In
addition, the Trust's general redemption policies apply to
redemptions of shares by Telephone Exchange. (See General
Redemption Policies.)

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 Cash
Reserves. 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 rather than other 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 Cash Reserves, the Trust expects that it would
provide shareholders with prior written notice of any such action
unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the Telephone Exchange
Privilege would adversely affect Cash Reserves. 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. (See How
to Redeem Shares--By Exchange.) During periods of volatile
economic and market conditions, you may have difficulty placing
your exchange by telephone.

Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your account
for investment in another Stein Roe Fund account on a regular
basis.

Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
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.

Check-Writing Privilege. You may also redeem shares by
writing special checks in the amounts of $50 or more. Your checks
are drawn against a special checking account maintained with the
First National Bank of Boston, and you will be subject to the
bank's procedures and rules relating to its checking accounts and
to this Privilege.

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 or at scheduled intervals ("Automatic
Redemptions"--see Shareholder Services). Electronic transfers are
subject to a $50 minimum and a $100,000 maximum. A Special
Redemption request received by telephone after 3:00 p.m., central
time, is deemed received on the next business day.

General Redemption Policies. 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. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply. (See Shareholder Services--Tax-Sheltered
Retirement Plans.) The Trust reserves the right to require a
properly completed application before making payment for shares
redeemed.

The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares, even though Cash
Reserves attempts to maintain its net asset value at $1.00
(rounded to the nearest one cent), and may result in a realized
capital gain or loss.

The Trust normally intends to pay proceeds of a redemption
within two business days and generally no later than seven days
after proper instructions are received. If a request for
Telephone Redemption by Wire is received before 11:00 a.m.,
central time, the proceeds will be paid on the day the order is
received; proceeds of an order received at or after 11:00 a.m.,
central time, will be paid on the next business day. The Trust
will not be responsible for the consequences of delays, including
delays in the mail, banking, or Federal Reserve wire systems. If
you attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, the Trust may 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. Cash Reserves employs
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 Cash Reserves
and its 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
Cash Reserves immediately if there is a problem. If Cash Reserves
does 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.

The Trust reserves the right to redeem shares in any account
and send the proceeds to the owner of record if the shares in the
account do not have a value of at least $1,000. If the value of
the account is more than $10, a shareholder would be notified that
his account is below the minimum and would be allowed 30 days to
increase the account before the redemption is processed. In
addition, due to the proportionately higher costs of maintaining
small accounts, effective for the first quarter of 1998, the
transfer agent may deduct a $5 per quarter minimum balance fee
from your regular account if its balance is under $2,000 or from
your UGMA account if its balance is under $800. This minimum
balance fee does not apply to Stein Roe IRAs and other Stein Roe
prototype retirement plans, accounts with automatic investment
plans (unless regular investments have been discontinued), and
omnibus and nominee accounts. The Adviser may waive the fee, at
its discretion, in the event of significant market corrections.

Shares in any account you maintain with Cash Reserves or any
of the other Stein Roe Funds may be redeemed to the extent
necessary to reimburse any Stein Roe Fund for any loss it sustains
that is caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).

SHAREHOLDER SERVICES

Reporting to Shareholders. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of Cash Reserves, as well as periodic statements detailing
distributions made by Cash Reserves. Shares purchased by
reinvestment of dividends, by cross-reinvestment of dividends from
another Stein Roe Fund, or through an automatic investment plan
will be confirmed to you quarterly. In addition, the Trust will
send you semiannual and annual reports showing portfolio holdings
and will provide you annually with tax information.

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

Funds-on-Call [registered trademark] Automated Telephone Service.
To access Stein Roe Funds-on-Call [registered trademark], just
call 800-338-2550 on any touch-tone telephone and follow the
recorded instructions. Funds-on-Call [registered trademark]
provides yields, prices, latest dividends, account balances, last
transaction, and other information 24 hours a day, seven days a
week. You also may use Funds-on-Call [registered trademark] to
make Special Investments and Redemptions, Telephone Exchanges, and
Telephone Redemptions by Check. These transactions are subject to
the terms and conditions of the individual privileges. (See How
to Purchase Shares and How to Redeem Shares.) Information
regarding your account is available to you via Funds-on-Call
[registered trademark] only after you follow an activation process
the first time you call. Your account information is protected by
a personal identification number (PIN) that you establish.

Stein Roe Counselor [service mark] Program. The Adviser offers a
Stein Roe Counselor [service mark] and a Stein Roe Personal
Counselor [service mark] program. The programs are designed to
provide investment guidance in helping investors to select a
portfolio of Stein Roe Mutual Funds. The Stein Roe Personal
Counselor [service mark] program, which automatically adjusts
client portfolios, has a fee of up to 1% of assets.

Recordkeeping and Administration Services. If you oversee or
administer investments for a group of investors, we offer a
variety of services.

Tax-Sheltered Retirement Plans. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each Stein Roe Fund
in which you plan to invest before making your investment.

Individual Retirement Accounts ("IRAs") for employed persons
and their non-employed spouses.

Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.

Simplified Employee Pension Plans permitting employers to
provide retirement benefits to their employees by utilizing IRAs
while minimizing administration and reporting requirements.

Special Services. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.

Dividend Purchase Option--to diversify your investments by
having distributions from one Stein Roe Fund account automatically
invested in another Stein Roe Fund account. Before establishing
this option, you should obtain and carefully 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. The account into which distributions are
to be invested may be opened with an initial investment of only
$1,000.

Automatic Dividend Deposit (electronic transfer)--to have
income dividends and capital gains distributions deposited
directly into your bank account.

Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your application. (See How to Redeem Shares--Special
Redemption Privileges.)

Telephone Redemption by Wire Privilege--to redeem shares from
your account by phone and have the proceeds transmitted by wire to
your account ($1,000 minimum).

Check-Writing Privilege--to redeem shares by writing special
checks against your Cash Reserves account ($50 minimum per check).

Special Redemption Option (electronic transfer)--to redeem
shares at any time and have the proceeds deposited directly to
your bank account ($50 minimum; $100,000 maximum).

Regular Investments (electronic transfer)--to purchase shares
at regular intervals directly from your bank account ($50 minimum;
$100,000 maximum).

Special Investments (electronic transfer)--to purchase shares
by telephone and pay for them by electronic transfer of funds from
your bank account ($50 minimum; $100,000 maximum).

Automatic Exchange Plan--to automatically redeem a fixed
dollar amount from your account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).

Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).

Systematic Withdrawals--to 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.

NET ASSET VALUE

The purchase and redemption price of Cash Reserves' shares is its
net asset value per share. The net asset value of a share is
normally determined twice each day: at 11:00 a.m., central time,
and as of the close of trading on the New York Stock Exchange
("NYSE") (currently 3:00 p.m., central time). The net asset value
per share is computed by dividing the difference between the
values of assets and liabilities by the number of shares
outstanding and rounding to the nearest cent. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value should
be determined on any such day, in which case the determination
will be made at 3:00 p.m., central time.

Cash Reserves attempts to maintain its net asset value at
$1.00 per share. Portfolio securities are valued based on their
amortized cost, which does not take into account unrealized gains
or losses. Other assets and securities for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
net asset value based upon market quotations or equivalents and
$1.00 per share based on amortized cost will be examined by the
Board of Trustees. If such deviation were to exceed 1/2 of 1%,
the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.

DISTRIBUTIONS AND INCOME TAXES

Distributions. A dividend from net income of Cash Reserves is
declared each business day to shareholders of record immediately
before 3:00 p.m., central time. (See How to Purchase Shares.)
Dividends are paid monthly and confirmed at least quarterly. If
the net asset value per share were to decline, or were believed
likely to decline, below $1.00 (rounded to the nearest cent), the
Board might temporarily reduce or suspend dividends in an effort
to maintain net asset value at $1.00 per share.

All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. The Trust reserves the right
to reinvest the proceeds and future distributions in additional
Cash Reserves shares if checks mailed to you for distributions are
returned as undeliverable or are not presented for payment within
six months.

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

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

You will be advised annually as to the source of
distributions. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts. Because
investment income consists primarily of interest, it is expected
that none of the dividends paid by Cash Reserves will qualify
under the Internal Revenue Code for the dividends received
deduction available to corporations.

For federal income tax purposes, Cash Reserves is treated as
a separate taxable entity distinct from the other series of the
Trust.

This section is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may wish to
consult your own tax advisor.

Backup Withholding. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you--
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.

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

MANAGEMENT

Trustees and Investment Adviser. The Board of Trustees of the
Trust has overall management responsibility for the Trust and Cash
Reserves. See the Statement of Additional Information for the
names of and other information about the trustees and officers.

The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolios and business affairs of Cash Reserves
and the Trust, subject to the direction of the Board. The Adviser
is registered as an investment adviser under the Investment
Advisers Act of 1940. The Adviser and its predecessor have
advised and managed mutual funds since 1949. The Adviser is a
wholly owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.

Fees and Expenses. The Adviser provides investment advisory and
administrative services to Cash Reserves under separate management
and administrative agreements. The Adviser is entitled to receive
from Cash Reserves in return for its services, monthly management
and administrative fees, computed and accrued daily, based on
average net assets at the following annual rates:

MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- -------------- ------------------------ -------------------------
.250% 250% up to $500 million, .500% up to $500 million,
.200% next $500 million, .450% next $500 million,
.150% thereafter .400% thereafter

The annualized management and administrative fees for Cash
Reserves for the year ended June 30, 1997, amounted to 0.50% of
average net assets.

Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to Cash
Reserves, including computation of net asset value and calculation
of net income and capital gains and losses on disposition of
assets.

Portfolio Transactions. The Adviser places the orders for the
purchase and sale of portfolio securities. In doing so, the
Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.

Transfer Agent. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.

Distributor. Shares of Cash Reserves are currently distributed by
Liberty Securities Corporation, 100 Manhattanville Road, Purchase,
New York 10577. On Jan. 1, 1998, Liberty Financial Investments,
Inc. (formerly named Colonial Investment Services, Inc.), One
Financial Center, Boston, Massachusetts 02111, will become the
distributor. Liberty Securities Corporation and Liberty Financial
Investments, Inc. are subsidiaries of Liberty Financial.

Shares of Cash Reserves are offered for sale without any
sales commissions or charges to the Fund or to its shareholders.
All distribution and promotional expenses are paid by the Adviser,
including payments to a distributor for sales of shares.

All correspondence (including purchase and redemption orders)
should be mailed to SteinRoe Services Inc. at P.O. Box 8900,
Boston, Massachusetts 02205. Participants in the Stein Roe
Counselor [service mark} and Personal Counselor [service mark}
programs should send orders to SteinRoe Services Inc. at P.O. Box
803938, Chicago, Illinois 60680.

Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
Cash Reserves. Foreign securities are maintained in the custody
of foreign banks and trust companies that are members of the
Bank's Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)

ORGANIZATION AND DESCRIPTION OF SHARES

The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 3, 1986, 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.

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.
__________________

<PAGE>

Stein Roe Mutual Funds
Certificate of Authorization
for use by corporations and associations only

Corporations or associations must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.

If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call a Stein Roe account representative at 800-338-2550 .

The undersigned hereby certifies that he is the duly elected
Secretary of ____________________________ (the "Corporation")
(name of Corporation/Association)
and that the following individual(s):

AUTHORIZED PERSONS
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title
_____________________________ __________________________
Name Title

is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.

Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.

If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and By-laws provide that he is the only
person authorized to so act.

Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.

These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.

IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ________________, 19____.

________________________________
Secretary

_________________________________
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE

<PAGE>

[STEIN ROE MUTUAL FUNDS LOGO]

The Stein Roe Funds

Stein Roe Cash Reserves Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund

Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
http://www.steinroe.com

In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200

Liberty Securities Corporation, Distributor
Member SIPC

<PAGE>

Prospectus
Nov. 6, 1997

Stein Roe Mutual Funds

Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund

Intermediate Bond Fund seeks high current income by investing
primarily in marketable debt securities. The dollar-weighted
average life of the Fund's portfolio is expected to be between
three and ten years.

Income Fund seeks high current income by investing principally in
medium-quality debt securities and, to a lesser extent, in lower-
quality securities which may involve greater risk.

High Yield Fund seeks total return by investing for a high level
of current income and capital growth. The Fund seeks to achieve
its objective by investing all of its net investable assets in
SR&F High Yield Portfolio, a portfolio of SR&F Base Trust that has
the same investment objective and substantially the same
investment policies as the Fund. High Yield Portfolio invests
primarily in high-yield, high-risk medium- and lower-quality debt
securities.

Lower-quality securities, commonly known as "junk bonds," are
subject to a greater risk with regard to payment of interest and
return of principal than higher-rated bonds. Investors should
carefully consider the risks associated with junk bonds before
investing. (See Investment Policies, Risks and Investment
Considerations, Master Fund/Feeder Fund: Structure and Risk
Factors, and Appendix--Ratings.)

Each Fund is a "no-load" fund. There are no sales or
redemption charges, and the Funds have no 12b-1 plans. The Funds
are series of the Stein Roe Income Trust, an open-end management
investment company.

This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.

A Statement of Additional Information dated Nov. 6, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
information is available on the SEC's website at
http://www.sec.gov. This prospectus is also available
electronically by using Stein Roe's Internet address: http://www.
steinroe.com. You can get a free paper copy of the prospectus,
the Statement of Additional Information, and the most recent
financial statements by calling 800-338-2550 or by writing to
Stein Roe Funds, Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606.

TABLE OF CONTENTS
Page

Summary ................................2
Fee Table...............................4
Financial Highlights....................5
The Funds.............................. 8
Investment Policies.................... 9
Intermediate Bond Fund...............9
Income Fund.........................10
High Yield Fund.....................11
Portfolio Investments and Strategies...12
Investment Restrictions................17
Risks and Investment Considerations....18
How to Purchase Shares.................19
By Check............................19
By Wire.............................20
By Electronic Transfer............. 20
By Exchange........................ 20
Conditions of Purchase............. 20
Purchases Through Third Parties.....21
Purchase Price and Effective Date.. 21
How to Redeem Shares.................. 21
By Written Request................. 21
By Exchange........................ 22
Special Redemption Privileges...... 22
General Redemption Policies........ 23
Shareholder Services.................. 25
Net Asset Value....................... 26
Distributions and Income Taxes.........27
Investment Return..................... 28
Management.............................28
Organization and Description of Shares 30
Master Fund/Feeder Fund: Structure and
Risk Factors........................31
Appendix--Ratings......................33
Certificate of Authorization...........36

SUMMARY

Stein Roe Intermediate Bond Fund ("Intermediate Bond Fund"), Stein
Roe Income Fund ("Income Fund"), and Stein Roe High Yield Fund
("High Yield Fund") are series of the Stein Roe Income Trust, an
open-end management investment company organized as a
Massachusetts business trust. Each Fund is a "no-load" fund.
There are no sales or redemption charges. (See The Funds and
Organization and Description of Shares.) This prospectus is not a
solicitation in any jurisdiction in which shares of the Funds are
not qualified for sale.

Investment Objectives and Policies. Intermediate Bond Fund and
Income Fund each seek a high level of current income. High Yield
Fund and High Yield Portfolio each seek total return by investing
for a high level of current income and capital growth. Each Fund
invests as described below. The Funds seek to achieve their
objectives by investing primarily in debt obligations of various
types.

Intermediate Bond Fund pursues a high level of current income,
consistent with capital preservation, by investing primarily in
marketable debt securities. At least 60% of the Fund's assets
will be invested in debt securities rated within the three highest
grades assigned by Moody's or by S&P, or in U.S. Government
Securities, commercial paper, and certain bank obligations. Under
normal market conditions, the Fund invests at least 65% of its
assets in securities with an average life of between three and ten
years, and expects that the dollar-weighted average life of its
portfolio will be between three and ten years.

Income Fund seeks high current income by investing principally in
medium-quality debt securities (such as securities rated A or Baa
by Moody's or A or BBB by S&P), with at least 60% of its assets
invested in medium- or higher-quality debt securities. Medium-
quality debt securities may have some speculative characteristics.
Income Fund may also invest to a lesser extent in securities of
lower quality, which may entail greater risk. Lower-quality
securities are commonly referred to as "junk bonds."

High Yield Fund invests all of its net investable assets in SR&F
High Yield Portfolio ("High Yield Portfolio"). High Yield
Portfolio invests in a diversified portfolio of securities in
accordance with the identical investment objective and investment
policies substantially similar to those of High Yield Fund. High
Yield Portfolio seeks total return by investing for a high level
of current income and capital growth. High Yield Portfolio
invests primarily in high-yield, high-risk medium- and lower-
quality debt securities. Medium-quality debt securities, although
considered investment grade, may have some speculative
characteristics. Lower-quality debt 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."

For a more detailed discussion of each Fund's investment
objectives and policies, please see Investment Policies and
Portfolio Investments and Strategies. There is, of course, no
assurance that any Fund or High Yield Portfolio will achieve its
investment objective.

Investment Risks. The risks inherent in each Fund and High Yield
Portfolio depend primarily upon the term and quality of the
obligations in its portfolio, as well as on market conditions.
Interest rate fluctuations will affect its net asset value, but
not the income received by a Fund or High Yield Portfolio from its
portfolio securities. However, because yields on debt securities
available for purchase vary over time, no specific yield on shares
of a Fund can be assured. Intermediate Bond Fund is appropriate
for investors who seek high income with less net asset value
fluctuation from interest rate changes than that of a longer-term
fund and who can accept greater levels of credit and other risks
associated with securities that are rated below investment grade.
Income Fund and High Yield Fund are designed for investors who
seek a higher level of income and who can accept greater levels of
credit and other risks associated with securities of medium or
lower quality. Although both Income Fund and High Yield Fund
invest in medium- and lower-quality debt securities, High Yield
Fund is designed for investors who can accept the heightened level
of risk and principal fluctuation inherent in a portfolio that
invests at least 65% of its assets in medium- and lower-quality
debt securities, while Income Fund, which invests up to 60% of its
assets in high- and medium-quality debt securities, can invest
only up to 40% of its assets in such securities. The Funds may
invest in foreign securities, which may entail a greater degree of
risk than investing in securities of domestic issuers. Please see
Investment Restrictions and Risks and Investment Considerations
for further information.

Purchases. The minimum initial investment for each Fund is
$2,500. Additional investments must be at least $100 (only $50
for purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another Stein Roe Fund. (See How to
Purchase Shares.)

Redemptions. For information on redeeming Fund shares, including
the special redemption privileges, please see How to Redeem
Shares.

Distributions. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional Fund
shares unless you elect to have them paid in cash, deposited by
electronic transfer into your bank account, or invested in shares
of another Stein Roe Fund. (See Distributions and Income Taxes
and Shareholder Services.)

Management and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") is investment adviser to Intermediate Bond Fund, Income
Fund, and High Yield Portfolio. In addition, it provides
administrative and bookkeeping and accounting services to each
Fund and High Yield Portfolio. For a description of the Adviser
and its fees, see Management.

If you have any additional questions about the Funds or High
Yield Portfolio, please feel free to discuss them with a Stein Roe
account representative by calling 800-338-2550.

FEE TABLE
Inter-
mediate High
Bond Income Yield
Fund Fund Fund
----- ------- ----
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None
Sales Load Imposed on Reinvested
Dividends None None None
Deferred Sales Load None None None
Redemption Fees* None None None
Exchange Fees None None None

ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets; after fee waiver, if
applicable)
Management and Administrative Fees
(after fee waiver, if applicable) 0.50% 0.61% 0.00%
12b-1 Fees None None None
Other Expenses (after fee waiver,
if applicable) 0.25% 0.24% 1.00%
----- ----- -----
Total Fund Operating Expenses
(after fee waiver, if applicable) 0.75% 0.85% 1.00%
===== ===== =====
___________________
*There is a $7.00 charge for wiring redemption proceeds to your
bank.

Examples.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:

1 year 3 years 5 years 10 years
------ ------- ------- --------
Intermediate Bond Fund $8 $24 $42 $93
Income Fund 9 27 47 105
High Yield Fund 10 32 55 122

The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will bear
directly or indirectly as an investor in a Fund. The information
in the table is based upon actual expenses incurred in the last
fiscal year. The figures in the Examples assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same during each of the
periods, that all income dividends and capital gains distributions
are reinvested in additional Fund shares, and that, for purposes
of fee breakpoints, if any, the Funds' respective net assets
remain at the same levels as in the most recently completed fiscal
year.

From time to time, the Adviser may voluntarily waive a
portion of its fees payable by a Fund. The Adviser has agreed to
voluntarily waive such fees to the extent ordinary operating
expenses exceed 1% of High Yield Fund's annual average net assets.
This commitment expires on Oct. 31, 1998, subject to earlier
review and possible termination by the Adviser on 30 days' notice
to the Fund. Absent such expense undertaking, Management and
Administrative Fees, Other Expenses and Total Fund Operating
Expenses would have been 0.65%, 1.64% and 2.29%, respectively.
Any such reimbursement will lower the Fund's overall expense ratio
and increase its overall return to investors. (Also see
Management--Fees and Expenses.)

High Yield Fund pays the Adviser an administrative fee based
on the Fund's average daily net assets and High Yield Portfolio
pays the Adviser a management fee based on High Yield Portfolio's
average daily net assets. The management fee and expenses of both
High Yield Fund and High Yield Portfolio are summarized in the Fee
Table above and are described under Management. The Fund bears
its proportionate share of Portfolio fees and expenses. The
trustees of Income Trust have considered whether the annual
operating expenses of the Fund, including its proportionate share
of the expenses of High Yield Portfolio, would be more or less
than if the Fund invested directly in the securities held by High
Yield Portfolio, and concluded that the Fund's expenses would not
be materially greater in such case.

The figures in the Examples are not necessarily indicative of
past or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that shown in
the Examples and Fee Table is useful in reviewing the Funds'
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods.

FINANCIAL HIGHLIGHTS

The tables on pages six and seven reflect the results of operations
of the Funds on a per-share basis and have been audited by Ernst &
Young LLP, independent auditors. All of the auditors' reports
related to information for these periods were unqualified. These
tables should be read in conjunction with the respective Fund's
financial statements and notes thereto. The Funds' annual report,
which may be obtained from Income Trust without charge upon request,
contains additional performance information.

INTERMEDIATE BOND FUND
<TABLE>
<CAPTION>

Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58
---- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ .68 .74 .73 .69 .69 .65 .56 .58 .58 .60
Net realized and unrealized
gains (losses) on
investments............... (.12) .14 (.28) .16 .46 .27 (.59) .23 (.09) .17
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations................. .56 .88 .45 .85 1.15 .92 (.03) .81 .49 .77
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
DISTRIBUTIONS
Net investment income....... (.68) (.74) (.72) (.70) (.69) (.65) (.56) (.58) (.58) (.61)
Net realized capital gains.. (.14) -- -- -- -- -- (.08) -- -- --
In excess of realized gains. -- -- -- -- -- -- (.15) -- -- --
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions....... (.82) (.74) (.72) (.70) (.69) (.65) (.79) (.58) (.58) (.61)
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END
OF PERIOD................ $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58 $8.74
===== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.73% 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70% 0.70% 0.73%
Ratio of net investment
income to average net
assets (b). ............. 7.97% 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94% 6.79% 6.97%
Portfolio turnover rate... 273% 197% 296% 239% 202% 214% 206% 162% 202% 210%
Total return (b).......... 6.92% 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11% 5.76% 9.31%
Net assets, end of
period (000 omitted)....$162,225 $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733 $298,112 $328,784
</TABLE>

INCOME FUND
<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $9.79 $9.63
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income..... .95 .95 .92 .80 .76 .75 .69 .71 .71 .70
Net realized and
unrealized gains (losses)
on investments........... (.11) .05 (.70) -- .56 .59 (.74) .43 (.16) .25
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations............... .84 1.00 .22 .80 1.32 1.34 (.05) 1.14 .55 .95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME......... (.95) (.95) (.92) (.80) (.76) (.75) (.69) (.71) (.71) (.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END OF
PERIOD................... $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79 $9.63 $9.88
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.91% 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82% 0.82% 0.84%
Ratio of net investment
income to average net
assets (b)............... 10.08% 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55% 7.26% 7.26%
Portfolio turnover rate... 158% 94% 90% 77% 76% 39% 53% 64% 135% 138%
Total return (b).......... 9.38% 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79% 5.70% 10.34%
Net assets, end of
period (000 omitted).... $96,611 $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327 $309,564 $375,272
</TABLE>

HIGH YIELD FUND
Period Ended
June 30, 1997(c)
----------------
Net Asset Value, Beginning of Period........$10.00
------
Income from Investment Operations
Net investment income...........................52
Net realized and unrealized gains (losses)
on investments........................... .54
------
Total from investment operations.............1.06
Distributions from net investment income.... (.52)
------
Net Asset Value, End of Period..............$10.54
======
Ratio of expenses to average net assets (a).*1.00%
Ratio of net investment income to average
net assets (b)............................*8.05%
Total return (b) .........................**10.88%
Net assets, end of period (000 omitted) ...$13,482
- --------------
*Annualized.
**Not annualized.
(a) If the Funds had paid all of their expenses and there had been
no reimbursement of expenses by the Adviser, these ratios
would have been: for Intermediate Bond Fund, 0.71%, 0.75% and
0.75% for the years ended June 30, 1995 through 1997,
respectively; for Income Fund, 0.83%, 0.85%, 0.88% and 0.85%
for the years ended June 30, 1994 through 1997, respectively;
and for High Yield Fund, 2.29% for the period ended June 30, 1997.
(b) Computed giving effect to the Adviser's fee waiver.
(c) High Yield Fund commenced operations on Nov. 1, 1996.

THE FUNDS

The mutual funds offered by this prospectus are Stein Roe
Intermediate Bond Fund ("Intermediate Bond Fund"), Stein Roe
Income Fund ("Income Fund"), and Stein Roe High Yield Fund ("High
Yield Fund") (collectively, the "Funds"). Each of the Funds is a
no-load "mutual fund." No-load funds do not impose commissions or
charges when shares are purchased or redeemed. Mutual funds sell
their own shares to investors and invest the proceeds in a
portfolio of securities. A mutual fund allows you to pool your
money with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping.

The Funds are series of the Stein Roe Income Trust ("Income
Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series of Income Trust other than High Yield Fund
invests in a separate portfolio of securities and other assets,
with its own objectives and policies. High Yield Fund invests all
of its net investable assets in SR&F High Yield Portfolio ("High
Yield Portfolio"), which is a series of SR&F Base Trust ("Base
Trust").

Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management, administrative, and accounting and
bookkeeping services to the Funds and High Yield Portfolio. The
Adviser also manages several other mutual funds with different
investment objectives, including equity funds, international
funds, tax-exempt bond funds, and money market funds. To obtain
prospectuses and other information on any of those mutual funds,
please call 800-338-2550.

Rather than invest in securities directly, each Fund may seek
to achieve its investment objective by converting to a "master
fund/feeder fund" structure. Under that structure, the Fund and
other investment companies with the same investment objective
would invest their assets in another investment company having the
same investment objective and substantially the same investment
policies as the Fund. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. It is
expected that the assets of any such investment company would be
managed by the Adviser in substantially the same manner as the
Fund. The only Fund currently operating under the master
fund/feeder fund structure is High Yield Fund. The Board of
Trustees of Income Trust voted on Nov. 5, 1997 to convert
Intermediate Bond Fund and Income Fund into feeder funds as
of Feb. 2, 1998. Their master funds will be new portfolios of
Base Trust named SR&F Intermediate Bond Portfolio and SR&F Income
Portfolio, which have the same investment objectives as their
respective feeder funds. (See Master Fund/Feeder Fund:
Structure and Risk Factors.)

INVESTMENT POLICIES

Intermediate Bond Fund and Income Fund each seek a high level of
current income. High Yield Fund and High Yield Portfolio each
seek total return by investing for a high level of current income
and capital growth. Each Fund invests as described below.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.

Intermediate Bond Fund. This Fund's investment objective is to
provide a high level of current income, consistent with the
preservation of capital, by investing primarily in marketable debt
securities. Under normal market conditions, the Fund will invest
at least 65% of the value of its total assets (taken at market
value at the time of investment) in convertible and non-
convertible bonds and debentures, and at least 60% of its assets
will be invested in the following:

(1) Marketable straight-debt securities of domestic issuers, and
of foreign issuers payable in U.S. dollars, rated at time of
purchase within the three highest grades assigned by Moody's
Investors Service, Inc. ("Moody's") or by Standard & Poor's
Corporation ("S&P");
(2) U.S. Government Securities;
(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and
(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.

Under normal market conditions, the Fund invests at least 65%
of its assets in securities with an average life of between three
and ten years, and expects that the dollar-weighted average life
of its portfolio will be between three and ten years. Average
life is the weighted average period over which the Adviser expects
the principal to be paid, and differs from stated maturity in that
it estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.

The Fund also may invest in other debt securities (including
those convertible into or carrying warrants to purchase common
stocks or other equity interests, and privately placed debt
securities), preferred stocks, and marketable common stocks that
the Adviser considers likely to yield relatively high income in
relation to cost.

The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no minimum
permitted rating) and that, on balance, 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. (See
Portfolio Investments and Strategies and Risks and Investment
Considerations for more information on the risks associated with
investing in debt securities rated below investment grade.)

For the fiscal year ended June 30, 1997, Intermediate Bond
Fund's portfolio was invested, on average, as follows: high-
quality short-term instruments, 6.3%; U.S. Government Securities,
10.9%; AAA, 10.3%; AA, 8.9%; A, 24.1%; BBB, 29.3%; and BB, 10.2%.
The ratings are based on a dollar-weighted average, computed
monthly, and reflect the higher of S&P or Moody's ratings. The
ratings do not necessarily reflect the current or future
composition of the Fund.

Income Fund. The investment objective of Income Fund is to
provide a high level of current income. Consistent with that
investment objective, capital preservation and capital
appreciation are regarded as secondary objectives.

Income Fund attempts to achieve its objective by investing
principally in medium-quality debt securities, which are
obligations of issuers that the Adviser believes possess adequate,
but not outstanding, capacities to service their debt securities,
such as securities rated A or Baa by Moody's or A or BBB by S&P.
The Adviser generally attributes to medium-quality securities the
same characteristics as rating services.

Although Income Fund will invest at least 60% of its assets
in medium- or higher-quality debt securities, it may also invest
to a lesser extent in debt securities of lower quality (in the
case of rated securities, having a rating by Moody's or S&P of not
less than C). Although the Fund can invest up to 40% of its
assets in lower-quality securities, it does not intend to invest
more than 35% in lower-quality securities. Lower-quality debt
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." Income Fund may invest
in lower-quality debt securities; for example, if the Adviser
believes the financial condition of the issuers or the protection
offered to the particular obligations is stronger than is
indicated by low ratings or otherwise. (See Portfolio Investments
and Strategies and Risks and Investment Considerations for more
information on the risks associated with investing in medium- and
lower-quality debt securities.) Income Fund may invest in higher-
quality securities; for example, under extraordinary economic or
financial market conditions, or when the spreads between the
yields on medium- and high-quality securities are relatively
narrow.

Some issuers of debt securities choose not to have their
securities rated by a rating service, and Income Fund may invest
in unrated securities that the Adviser believes are suitable for
investment.

Under normal market conditions, Income Fund will invest at
least 65% of the value of its total assets (taken at market value)
in convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by Income Fund for a sufficient time to permit orderly disposition
thereof or to establish long-term holding periods for federal
income tax purposes.

Income Fund may invest up to 35% of its total assets in other
debt securities, marketable preferred and common stocks, and
foreign and municipal securities that the Adviser considers likely
to yield relatively high income in relation to costs, and rights
to acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.

For the fiscal year ended June 30, 1997, Income Fund's
portfolio was invested, on average, as follows: high-quality
short-term instruments, 3.7%; U.S. Government Securities, 1.7%;
AA, 6.3%; A, 22.8%; BBB, 35.5%; BB, 19.8%; B, 9.6%; and unrated,
0.6%. The ratings are based on a dollar-weighted average,
computed monthly, and reflect the higher of S&P or Moody's
ratings. The ratings do not necessarily reflect the current or
future composition of Income Fund.

High Yield Fund. High Yield Fund seeks to achieve its objective
by investing all of its net investable assets in High Yield
Portfolio. The investment policies of High Yield Portfolio are
substantially identical to those of the Fund. High Yield
Portfolio seeks total return by investing for a high level of
current income and capital growth.

High Yield Portfolio invests principally in high-yield, high-
risk medium- and lower-quality debt securities. The medium- and
lower-quality debt securities in which High Yield Portfolio
invests normally offer a current yield or yield to maturity that
is significantly higher than the yield from securities rated in
the three highest categories assigned by rating services such as
S&P or Moody's.

Under normal circumstances, at least 65% of High Yield
Portfolio's assets will be invested in high-yield, high-risk
medium- and lower-quality debt securities rated lower than Baa by
Moody's and lower than BBB by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that the
Adviser determines to be of comparable quality. Medium-quality
debt securities, although considered investment grade, have some
speculative characteristics. Lower-quality debt 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." Some issuers of debt securities
choose not to have their securities rated by a rating service, and
High Yield Portfolio may invest in unrated securities that the
Adviser has researched and believes are suitable for investment.
High Yield Portfolio may invest in debt obligations that are in
default, but such obligations are not expected to exceed 10% of
High Yield Portfolio's assets. (See Portfolio Investments and
Strategies and Risks and Investment Considerations for more
information on the risks associated with investing in medium- and
lower-quality debt securities.)

High Yield Portfolio may invest up to 35% of its total assets
in other securities including, but not limited to, pay-in-kind
bonds, securities issued in private placements, bank loans, zero
coupon bonds, foreign securities, convertible securities, futures,
and options. High Yield Portfolio may also invest in higher-
quality debt securities. Under normal market conditions, however,
High Yield Portfolio is unlikely to emphasize higher-quality debt
securities since generally they offer lower yields than medium-
and lower-quality debt securities with similar maturities. High
Yield Portfolio may also invest in common stocks and securities
that are convertible into common stocks, such as warrants.

For the fiscal year ended June 30, 1997, High Yield
Portfolio's investment portfolio was invested, on average, as
follows: high-quality short-term instruments, 3.2%; BBB, 1.3%;
BB, 25.0%; B, 64.1%; and unrated, 6.4%. The ratings are based on
a dollar-weighted average, computed monthly, and reflect the
higher of S&P or Moody's ratings. The ratings do not necessarily
reflect the current or future composition of High Yield Portfolio.

PORTFOLIO INVESTMENTS AND STRATEGIES

For purposes of discussion under Portfolio Investments and
Strategies, Investment Restrictions and Risks and Investment
Considerations, the term "Fund" refers to Intermediate Bond Fund,
Income Fund, High Yield Fund, and High Yield Portfolio.

U.S. Government Securities. U.S. Government Securities include:
(i) bills, notes, bonds, and other debt securities, differing as
to maturity and rates of interest, that are issued by and are
direct obligations of the U.S. Treasury; and (ii) other securities
that are issued or guaranteed as to principal and interest by the
U.S. Government or by its agencies or instrumentalities and that
include, but are not limited to, Government National Mortgage
Association ("GNMA"), Federal Farm Credit Banks, Federal Home Loan
Banks, Farmers Home Administration, Federal Home Loan Mortgage
Corporation ("FHLMC"), and Federal National Mortgage Association
("FNMA"). U.S. Government Securities are generally viewed by the
Adviser as being among the safest of debt securities with respect
to the timely payment of principal and interest (but not with
respect to any premium paid on purchase), but generally bear a
lower rate of interest than corporate debt securities. However,
they are subject to market risk like other debt securities, and
therefore the Funds' shares can be expected to fluctuate in value.

Medium- and Lower-Quality Debt Securities. Investment in medium-
or lower-quality debt securities involves greater investment risk,
including the possibility of issuer default or bankruptcy. A Fund
seeks to reduce investment risk through diversification, credit
analysis, and evaluation of developments in both the economy and
financial markets.

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 (see Risks and Investment
Considerations) 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.

Lower-quality debt 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
lowest rating assigned by Moody's is for bonds that can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.

Achievement of the investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if a Fund were investing in higher-quality debt securities. Since
the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a proprietary credit rating system based upon
comparative credit analyses of issuers within the same industry.
These analyses may take into consideration such quantitative
factors as an issuer's present and potential liquidity,
profitability, internal capability to generate funds, debt/equity
ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics,
accounting methodology, and foreign business exposure.

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 a Fund may have greater difficulty selling its
portfolio securities. (See Net Asset Value.) The market value of
these securities and their liquidity may be affected by adverse
publicity and investor perceptions.

Derivatives. Consistent with its objective, each Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, and other instruments, the value of which is
"derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). No Fund expects to invest more than 5%
of its net assets in any type of Derivative except: for each Fund,
options, futures contracts, and futures options; and for
Intermediate Bond Fund, mortgage or other asset-backed securities.

Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.

The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.

Mortgage and Other Asset-Backed Debt Securities.
Intermediate Bond Fund and High Yield Portfolio each may invest in
securities secured by mortgages or other assets such as automobile
or home improvement loans and credit card receivables. These
instruments may be issued or guaranteed by the U.S. Government or
by its agencies or instrumentalities or by private entities such
as commercial, mortgage and investment banks and financial
companies or financial subsidiaries of industrial companies.

Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.

The timely payment of principal and interest on GNMA
securities is guaranteed by GNMA and backed by the full faith and
credit of the U.S. Treasury. FNMA guarantees full and timely
payment of interest and principal on FNMA securities. FHLMC
guarantees timely payment of interest and ultimate collection of
principal on FHLMC securities. FNMA and FHLMC securities are not
backed by the full faith and credit of the U.S. Treasury.

Mortgage-backed debt securities, such as those issued by
GNMA, FNMA, and FHLMC, are of the "modified pass-through type,"
which means the interest and principal payments on mortgages in
the pool are "passed through" to investors. Mortgage-backed
securities provide either a pro rata interest in underlying
mortgages or an interest in collateralized mortgage obligations
("CMOs"), which represent a right to interest and/or principal
payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities and are usually issued in multiple classes, each
of which has different payment rights, prepayment risks, and yield
characteristics.

Mortgage-backed securities involve the risk of prepayment of
the underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling
interest rates and decrease with rising rates, but they also are
influenced by economic, social, and market factors. If mortgages
are prepaid during periods of declining interest rates, there
would be a resulting loss of the full-term benefit of any premium
paid by the Fund on purchase of the securities, and the proceeds
of prepayment would likely be invested at lower interest rates.
Each Fund tends to invest in CMOs of classes known as planned
amortization classes ("PACs") which have prepayment protection
features tending to make them less susceptible to price
volatility.

Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.

Asset-backed securities tend to experience greater price
volatility than straight debt securities.

REMICs. Each Fund may invest in real estate mortgage
investment conduits ("REMICs"). REMICs, which were authorized
under the Tax Reform Act of 1986, are private entities formed for
the purpose of holding a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue
Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial
interests in REMICs, which are known as "regular" interests, or
"residual" interests. Guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by FNMA or FHLMC represent
beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA-, FHLMC- or GNMA-guaranteed
mortgage pass-through certificates. For FHLMC REMIC Certificates,
FHLMC guarantees the timely payment of interest and also
guarantees the payment of principal as payments are required to be
made on the underlying mortgage participation certificates. FNMA
REMIC Certificates are issued and guaranteed as to timely
distribution and principal and interest by FNMA.

Floating Rate Instruments. Each Fund may also invest in
floating rate instruments which provide for periodic adjustments
in coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%. Income
Fund and High Yield Portfolio do not intend to invest more than 5%
of net assets in floating rate instruments. Intermediate Bond
Fund does not intend to invest more than 10% of net assets in
floating rate instruments.

Futures and Options. Each Fund may purchase and write both
call options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts. Each Fund may also write options on
such futures contracts and purchase other types of forward or
investment contracts linked to individual securities, indexes or
other benchmarks, consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices, interest rates, or currency fluctuations.
Each Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit from
increases in market value of the security covering the call option
above the sum of the premium and the exercise price of the call.
There can be no assurance that a liquid market will exist when a
Fund seeks to close out a position. Because of low margin
deposits required, the use of futures contracts involves a high
degree of leverage, and may result in losses in excess of the
amount of the margin deposit.

Foreign Securities. Each Fund may invest in foreign securities,
but will not invest in a foreign security if, as a result of such
investment, more than 25% of its total assets would be invested in
foreign securities. For purposes of this restriction, foreign
debt securities do not include securities represented by American
Depositary Receipts ("ADRs"), foreign debt securities denominated
in U.S. dollars, or securities guaranteed by a U.S. person such as
a corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Funds may invest in sponsored or unsponsored ADRs. In addition
to, or in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Funds may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
At June 30, 1997, no portion of any Fund's assets was invested in
foreign securities as defined above, and no Fund intends to invest
more than 5% of its net assets in foreign securities. (See Risks
and Investment Considerations.)

Lending of Portfolio Securities. Subject to certain restrictions,
each Fund may lend its portfolio securities to broker-dealers and
banks. Any such loan must be continuously secured by collateral
in cash or cash equivalents maintained on a current basis in an
amount at least equal to the market value of the securities loaned
by the Fund. The Fund would continue to receive the equivalent of
the interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return that may be in
the form of a fixed fee or a percentage of the collateral. The
Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five
business days. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses
including (a) possible decline in the value of the collateral or
in the value of the securities loaned 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. The Funds may
participate in an interfund lending program, subject to certain
restrictions described in the Statement of Additional Information.

When-Issued and Delayed-Delivery Securities; Standby Commitments.
Each Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. A Fund makes such commitments
only with the intention of actually acquiring the securities, but
may sell the securities before settlement date if the Adviser
deems it advisable for investment reasons. Securities purchased
in this manner involve a risk of loss if the value of the security
purchased declines before the settlement date.

When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that a Fund will sell
securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned by the Fund on the sales
proceeds of the dollar roll.

Each Fund may also invest in securities purchased on a
standby commitment basis, which is a delayed-delivery agreement in
which the Fund binds itself to accept delivery of a security at
the option of the other party to the agreement.

PIK and Zero Coupon Bonds. Each Fund may invest in both zero
coupon bonds and bonds the interest on which is payable in kind
("PIK bonds"). A zero coupon bond is a bond that does not pay
interest for its entire life. A PIK bond pays interest in the
form of additional securities. The market prices of both zero
coupon and PIK 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
and in cash. In addition, because a Fund accrues income with
respect to these securities prior to the receipt of such interest
in cash, 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. High Yield Portfolio may invest up to 20% of its
total assets in PIK and zero coupon bonds.

Short Sales Against the Box. Each Fund may sell short securities
the Fund owns or has the right to acquire without further
consideration, a technique called selling short "against the box."
Short sales against the box may protect the Fund against the risk
of losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be wholly
or partly offset by a corresponding gain in the short position.
However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.

Rule 144A Securities. Each Fund may purchase securities that have
been privately placed but that are eligible for purchase and sale
under Rule 144A under the Securities Act of 1933 ("1933 Act").
That Rule 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. The Adviser, 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 net
assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making
this determination, the Adviser will consider the trading markets
for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser 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. 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 the Adviser.

Portfolio Turnover. In attempting to attain its objective, each
Fund may sell portfolio securities without regard to the period of
time they have been held. Further, the Adviser may purchase and
sell securities for the portfolios of Income Fund and High Yield
Portfolio with a view to maximizing current return, even if
portfolio changes would cause the realization of capital gains.
Although the average stated maturity of the portfolio of Income
Fund generally will exceed ten years and the average stated
maturity of High Yield Portfolio will be from five to ten years,
the Adviser may adjust the average effective maturity of an
investment portfolio from time to time, depending on its
assessment of the relative yields available on securities of
different maturities and its expectations of future changes in
interest rates. As a result, the turnover rate of the Funds may
vary from year to year. The turnover rate for High Yield
Portfolio may exceed 100%, but is not expected to exceed 200%
under normal market conditions. A high rate of portfolio turnover
may result in increased transaction expenses and the realization
of capital gains (which may be taxable) or losses. (See Financial
Highlights and Distributions and Income Taxes.)

INVESTMENT RESTRICTIONS

Each Fund is diversified as that term is defined in the Investment
Company Act of 1940.

No Fund may invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/ for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, each Fund, but not High Yield Portfolio, may invest
all of its assets in another investment company having the
identical investment objective under a master fund/feeder fund
structure.
- -----------
/1/ A repurchase agreement involves a sale of securities to a Fund
with the concurrent agreement of the seller (bank or securities
dealer) to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate within a specified
time. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, a Fund could experience both delays in
liquidating the underlying securities and losses. A Fund may not
invest more than 10% of its net assets in repurchase agreements
maturing in more than seven days and other illiquid securities.
- -----------

No Fund may make loans except that each Fund may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
(3) lend portfolio securities under certain conditions; and (4)
participate in an interfund lending program with other Stein Roe
Funds and Portfolios. A Fund may not borrow money, except for
nonleveraging, temporary, or emergency purposes or in connection
with participation in the interfund lending program. Neither a
Fund's aggregate borrowings (including reverse repurchase
agreements) nor its aggregate loans at any one time may exceed 33
1/3% of the value of its total assets. Additional securities may
not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.

The policies set forth in the second and third paragraphs
under Investment Restrictions (but not the footnote) are
fundamental policies of each Fund./2/ The Statement of
Additional Information contains all of the investment
restrictions.
- ---------------
/2/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding voting securities" of a Fund as
defined in the Investment Company Act.
- ---------------

RISKS AND INVESTMENT CONSIDERATIONS

All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although each Fund
seeks to reduce risk by investing in a diversified portfolio, this
does not eliminate all risk. The risks inherent in each Fund
depend primarily upon the term and quality of the obligations in
that Fund's portfolio, as well as on market conditions.

A decline in prevailing levels of interest rates generally
increases the value of securities in a Fund's portfolio, while an
increase in rates usually reduces the value of those securities.
As a result, interest rate fluctuations will affect a Fund's net
asset value, but not the income received by the Fund from its
portfolio securities. (Because yields on debt securities
available for purchase vary over time, no specific yield on shares
of a Fund can be assured.) In addition, if the bonds in a Fund's
portfolio contain call, prepayment or redemption provisions,
during a period of declining interest rates, these securities are
likely to be redeemed, and the Fund will probably be unable to
replace them with securities having as great a yield.

Intermediate Bond Fund is appropriate for investors who seek
high income with less net asset value fluctuation from interest
rate changes than that of a longer-term fund, and who can accept
greater levels of credit and other risks associated with
securities that are rated below investment grade. Income Fund and
High Yield Fund are designed for investors who seek a higher level
of income and who can accept greater levels of credit and other
risks associated with securities of medium or lower quality.
Although both Income Fund and High Yield Fund invest in medium-
and lower-quality debt securities, High Yield Fund is designed for
investors who can accept the heightened level of risk and
principal fluctuation which might result from a portfolio that
invests at least 65% of its assets in medium- and lower-quality
debt securities, while Income Fund, which invests up to 60% of its
assets in high- and medium-quality bonds, can invest only up to
40% of its assets in such securities.

Investments in foreign securities, including ADRs, represent
both risks and opportunities not typically associated with
investments in domestic issuers. Risks of foreign investing
include currency risk, less complete financial information on
issuers, different accounting, auditing and financial reporting
standards, different settlement practices, less market liquidity,
more market volatility, less well-developed and regulated markets,
and greater political instability. In addition, various
restrictions by foreign governments on investments by nonresidents
may apply, including imposition of exchange controls and
withholding taxes on dividends, and seizure or nationalization of
investments owned by nonresidents. Foreign investments also tend
to involve higher transaction and custody costs.

Each Fund may enter into foreign currency forward contracts
and use options and futures contracts, as described elsewhere in
this prospectus, to limit or reduce foreign currency risk.

There can be no assurance that a Fund will achieve its
objective, nor can a Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by a Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether to retain the security in the portfolio.

The investment objective of each Fund is not fundamental and
may be changed by the Board of Trustees without a vote of
shareholders. If there were a change in a Fund's investment
objective, such change may result in the Fund having an investment
objective different from the objective that the shareholder
considered appropriate at the time of investment in the Fund.

HOW TO PURCHASE SHARES

You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or the Automatic Exchange Plan) is
$1,000 for regular accounts and $500 for UGMA accounts; and the
minimum per account for Stein Roe IRAs is $500. The initial
purchase minimum is waived for shareholders who participate in the
Stein Roe Counselor [service mark] or Personal Counselor [service
mark] programs. Subsequent purchases must be at least $100, or at
least $50 if you purchase by electronic transfer. If you wish to
purchase shares to be held by a tax-sheltered retirement plan
sponsored by the Adviser, you must obtain special forms for those
plans. (See Shareholder Services.)

By Check. To make an initial purchase of shares of a Fund by
check, please complete and sign the application and mail it,
together with a check made payable to Stein Roe Mutual Funds, to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should send orders to
SteinRoe Services Inc. at P.O. Box 803938, Chicago, Illinois
60680.

You may make subsequent investments by submitting a check
along with either the stub from your Fund account confirmation
statement or a note indicating the amount of the purchase, your
account number, and the name in which your account is registered.
Money orders will not be accepted for initial purchases into new
accounts. Each individual check submitted for purchase must be at
least $100, and Income Trust generally will not accept cash,
drafts, third or fourth party checks, or checks drawn on banks
outside of the United States. Should an order to purchase shares
of a Fund be cancelled because your check does not clear, you will
be responsible for any resulting loss incurred by that Fund.

By Wire. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the First National Bank of Boston. Your bank
may charge you a fee for sending the wire. If you are opening a
new account by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your social security or
other tax identification number. Neither the Funds nor Income
Trust will be responsible for the consequences of delays,
including delays in the banking or Federal Reserve wire systems.
Your bank must include the full name(s) in which your account is
registered and your Fund account number, and should address its
wire as follows:

First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________

Fund Numbers:
35--Intermediate Bond Fund
09--Income Fund
15--High Yield Fund

Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should address their
wires as follows:

By Electronic Transfer. You may also make subsequent investments
by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request
("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments") elected on your
application. (See Shareholder Services.) Electronic transfer
purchases are subject to a $50 minimum and a $100,000 maximum.
You may not open a new account through electronic transfer.
Should an order to purchase shares of a Fund be cancelled because
your electronic transfer does not clear, you will be responsible
for any resulting loss incurred by that Fund.

By Exchange. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected the Automatic Exchange
Privilege). Restrictions apply; please review the information
under How to Redeem Shares--By Exchange.

Conditions of Purchase. Each purchase order for a Fund must be
accepted by an authorized officer of Income Trust or its
authorized agent and is not binding until accepted and entered on
the books of that Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; you may, however,
redeem the shares. Income Trust reserves the right not to accept
any purchase order that it determines not to be in the best
interests of Income Trust or of a Fund's shareholders. Income
Trust also reserves the right to waive or lower its investment
minimums for any reason. Income Trust does not issue certificates
for shares.

Purchases Through Third Parties. You may purchase (or redeem)
shares through certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may
charge for their services or place limitations on the extent to
which you may use the services offered by Income Trust. There are
no charges or limitations imposed by Income Trust (other than
those described in this prospectus) if shares are purchased (or
redeemed) directly from the Trust.

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 agent 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 who are Fund shareholders charge an annual
fee of up to 0.25% of the average net assets held in such accounts
for accounting, servicing, and distribution services they provide
with respect to the underlying Fund shares. The Adviser and the
Funds' transfer agent share in the expense of these annual fees,
and the Adviser pays all sales and promotional expenses.

Purchase Price and Effective Date. Each purchase of a Fund's
shares made directly with the Fund is made at that Fund's net
asset value (see Net Asset Value) next determined after receipt of
an order in good form, including receipt of payment as follows:

A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.

A purchase by electronic transfer is made at the net asset
value next determined after the Fund receives the electronic
transfer from your bank. A Special Electronic Transfer Investment
instruction received by telephone on a business day before 3:00
p.m., central time, is effective on the next business day. Shares
begin earning dividends on the day following the day on which they
are purchased.

Each purchase of Fund shares through an Intermediary that is
an authorized agent of the Trust for the receipt of orders is made
at the net asset value next determined after the receipt of the
order by the Intermediary.

HOW TO REDEEM SHARES

By Written Request. You may redeem all or a portion of your
shares of a Fund by submitting a written request in "good order"
to SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should send redemption
requests to SteinRoe Services Inc. at P.O. Box 803938, Chicago,
Illinois 60680. A redemption request will be considered to have
been received in good order if the following conditions are
satisfied:

(1) The request must be in writing and must indicate the number of
shares or the dollar amount to be redeemed and identify the
shareholder's account number;

(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;

(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;

(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and the Funds by
verifying your signature);

(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to Income
Trust); and

(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.

By Exchange. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other 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 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 Stein Roe Fund being
purchased. Unless you have elected to receive your dividends in
cash, on an exchange of all shares, any accrued unpaid dividends
will be invested in the Stein Roe Fund to which you exchange on
the next business day. An exchange may be made by following the
redemption procedure described under By Written Request and
indicating the Stein Roe Fund to be purchased--a signature
guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege and Automatic
Exchanges.)

You may not use any of the Special Redemption Privileges if
you hold certificates for any of your Fund shares. The Telephone
Redemption by Check Privilege and Special Electronic Transfer
Redemptions are not available to redeem shares held by a tax-
sheltered retirement plan sponsored by the Adviser. (See also
General Redemption Policies.)

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 Stein Roe
Fund, and then back to that Fund). In addition, Income Trust's
general redemption policies apply to redemptions of shares by
Telephone Exchange. (See General Redemption Policies.)

Income 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. Income
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, Income 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. Income 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 rather than other investment considerations. Moreover,
Income 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, Income Trust expects that it would
provide shareholders with prior written notice of any such action
unless it appears that the resulting delay in the suspension,
limitation, modification, or termination of the Telephone Exchange
Privilege would adversely affect the Funds. If Income 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. (See How
to Redeem Shares--By Exchange.) During periods of volatile
economic and market conditions, you may have difficulty placing
your exchange by telephone.

Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your Fund
account for investment in another Stein Roe Fund account on a
regular basis.

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. The
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.

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.

General Redemption Policies. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. Income 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. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) Income Trust reserves the right
to require a properly completed application before making payment
for shares redeemed.

The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.

Income Trust will generally mail payment for shares redeemed
within seven days after proper instructions are received.
However, Income Trust normally intends to pay proceeds of a
Telephone Redemption 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, Income Trust may 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, Income 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.

Income 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 Income 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 a Fund does 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.

Income Trust reserves the right to redeem shares in any
account and send the proceeds to the owner of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, a shareholder would be
notified that his account is below the minimum and would be
allowed 30 days to increase the account before the redemption is
processed. In addition, due to the proportionately higher costs
of maintaining small accounts, effective for the first quarter of
1998, the transfer agent may deduct a $5 per quarter minimum
balance fee from your regular account if its balance is under
$2,000 or from your UGMA account if its balance is under $800.
This minimum balance fee does not apply to Stein Roe IRAs and
other Stein Roe prototype retirement plans, accounts with
automatic investment plans (unless regular investments have been
discontinued), and omnibus and nominee accounts. The Adviser may
waive the fee, at its discretion, in the event of significant
market corrections.

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 it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).

SHAREHOLDER SERVICES

Reporting to Shareholders. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of a Fund, as well as periodic statements detailing
distributions made by that Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, Income Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.

Recordkeeping and Administration Services. If you oversee or
administer investments for a group of investors, we offer a
variety of services.

Tax-Sheltered Retirement Plans. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each Fund in which
you plan to invest before making your investment.

Individual Retirement Accounts ("IRAs") for employed persons
and their non-employed spouses.

Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.

Simplified Employee Pension Plans permitting employers to
provide retirement benefits to their employees by utilizing IRAs
while minimizing administration and reporting requirements.

Special Services. The following special services are available to
shareholders. Please call 800-338-2550 or write Income Trust for
additional information and forms.

Dividend Purchase Option--to diversify your Fund investments
by having distributions from one Fund account automatically
invested in another Stein Roe Fund account. Before establishing
this option, you should obtain and carefully 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. The account into which distributions are
to be invested may be opened with an initial investment of only
$1,000.

Automatic Dividend Deposit (electronic transfer)--to have
income dividends and capital gains distributions deposited
directly into your bank account.

Telephone Redemption by Wire Privilege--to redeem shares from
your account by phone and have the proceeds transmitted by wire to
your bank account ($1,000 minimum; $100,000 maximum).

Special Redemption Option (electronic transfer)--to redeem
shares at any time and have the proceeds deposited directly to
your bank account ($50 minimum; $100,000 maximum).

Regular Investments (electronic transfer)--to purchase Fund
shares at regular intervals directly from your bank account ($50
minimum; $100,000 maximum).

Special Investments (electronic transfer)--to purchase Fund
shares by telephone and pay for them by electronic transfer of
funds from your bank account ($50 minimum; $100,000 maximum).

Automatic Exchange Plan--to automatically redeem a fixed
dollar amount from your Fund account and invest it in another
Stein Roe Fund account on a regular basis ($50 minimum; $100,000
maximum).

Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).

Systematic Withdrawals--to 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.

NET ASSET VALUE

The purchase and redemption price of each Fund's shares is its net
asset value per share. Each Fund determines the net asset value
of its shares as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., central time) by dividing
the difference between the values of its assets and liabilities by
the number of shares outstanding. High Yield Portfolio allocates
net asset value, income, and expenses to High Yield Fund and any
other of its feeder funds in proportion to their respective
interests in High Yield Portfolio.

Net asset value will not be determined on days when the NYSE
is closed unless, in the judgment of the Board of Trustees, the
net asset value of a Fund should be determined on any such day, in
which case the determination will be made at 3:00 p.m., central
time.

Securities for which market quotations are readily available
at the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by a Fund for which
these valuation methods do not produce a fair value are valued by
a method that the Board believes will determine a fair value.

DISTRIBUTIONS AND INCOME TAXES

Distributions. Income dividends are declared each business day,
paid monthly, and confirmed at least quarterly. Each Fund intends
to distribute by the end of each calendar year at least 98% of any
net capital gains realized from the sale of securities during the
12-month period ended Oct. 31 in that year. The Funds intend to
distribute any undistributed net investment income and net
realized capital gains in the following year.

All of your income dividends and capital gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment
normally occurs on the payable date. Income Trust reserves the
right to reinvest the proceeds and future distributions in
additional Fund shares if checks mailed to you for distributions
are returned as undeliverable or are not presented for payment
within six months.

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

If you realize a loss on the sale or exchange of Fund shares
held for six months or less, your short-term loss is
recharacterized as long-term to the extent of any long-term
capital gains distributions you have received with respect to
those shares.

For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of Income
Trust.

This section is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may wish to
consult your own tax advisor.

Backup Withholding. Income Trust may be required to withhold
federal income tax ("backup withholding") from certain payments to
you--generally redemption proceeds. Backup withholding may be
required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs Income Trust that your tax
identification number is incorrect.

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

INVESTMENT RETURN

The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the 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 calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.

The yield of a Fund is calculated by dividing its net
investment income per share (a hypothetical figure as defined in
the SEC rules) during a 30-day period 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.

Comparison of a Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. Yield figures are not based on
actual dividends paid. Past performance is not necessarily
indicative of future results. To obtain current yield or total
return information, you may call 800-338-2550.

MANAGEMENT

Trustees and Investment Adviser. The Board of Trustees of Income
Trust has overall management responsibility for the Trust and the
Funds. See Management in the Statement of Additional Information
for the names of and other information about the trustees and
officers. Since Income Trust and Base Trust have the same
trustees, the trustees have adopted conflict of interest
procedures to monitor and address potential conflicts between the
interests of High Yield Fund and High Yield Portfolio.

The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolios of the Funds and High Yield Portfolio
and the business affairs of the Funds, High Yield Portfolio,
Income Trust, and Base Trust, subject to the direction of the
respective Board. The Adviser is registered as an investment
adviser under the Investment Advisers Act of 1940. The Adviser
and its predecessor have advised and managed mutual funds since
1949. The Adviser is a wholly owned indirect subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.

In approving the use of a single combined prospectus, the
Board considered the possibility that one Fund (or High Yield
Portfolio) might be liable for misstatements in the prospectus
regarding information concerning another Fund.

Portfolio Managers. Michael T. Kennedy has been portfolio manager
of Intermediate Bond Fund since 1988. He is a senior vice
president of the Adviser, and has been associated with the Adviser
since 1987. From 1984 to 1987, he was employed by Homewood
Federal Savings and Loan. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University in 1984 and his M.M. from Northwestern
University in 1988. Mr. Kennedy is a member of the Adviser's
Taxable Strategy Team and managed $440 million in mutual fund
net assets for the Adviser as of June 30, 1997.

Stephen F. Lockman became portfolio manager of High Yield
Portfolio and Income Fund on Mar. 3, 1997. He had been associate
portfolio manager of High Yield Portfolio since its inception in
Nov. 1996 and of Income Fund since Oct. 1995. Mr. Lockman joined
the Adviser in Jan. 1994. As a senior research analyst for the
Adviser's fixed income department from 1994 to 1997, Mr. Lockman
has broad expertise in the fixed income markets, with specialties
in the high yield sector and the aerospace, broadcasting,
entertainment, insurance, mining/metals, paper/forest products,
printing, publishing and real estate industries. In addition, he
served as the fixed income department's sovereign debt analyst
from 1994 to 1997, evaluating securities for its more than $1
billion portfolio of dollar-denominated foreign investments. Mr.
Lockman previously served as portfolio manager for the Illinois
State Board of Investment from 1987 to 1994, and as a trust
investment officer for LaSalle National Bank from 1983 to 1987. A
chartered financial analyst, Mr. Lockman earned a bachelor's
degree in 1983 from the University of Illinois and a master's
degree in 1986 from DePaul University. As of June 30, 1997, Mr.
Lockman managed $415 million in mutual fund net assets.

Fees and Expenses. The Adviser provides administrative services
to the Funds under an administrative agreement and investment
management services to Intermediate Bond Fund, Income Fund, and
High Yield Portfolio under separate management agreements. The
Adviser is entitled to receive: (i) in return for its investment
advisory and administrative services, a monthly fee from each Fund
(other than High Yield Fund) based on its average net assets,
computed and accrued daily, (ii) a monthly portfolio management
fee, computed and accrued daily, based on High Yield Portfolio's
average net assets, and (iii) a monthly administrative service
fee, computed and accrued daily from High Yield Fund, at the
following annual rates (dollar amounts are in millions):

FUND MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- ---------- --------------- ------------------- ----------------
Interme-
diate Bond
Fund .350% .150% .500%
Income .500% up to $100, .150% up to $100, .650% up to $100,
Fund .475% thereafter .125% thereafter .600% thereafter
High Yield
Fund N/A .150% up to $500, .150% up to $500,
.125% thereafter .125% thereafter
High Yield
Portfolio.500% up to $500, N/A .500% up to $500,
.475% thereafter .475% thereafter

As noted under Fee Table, the Adviser may voluntarily waive a
portion of its fees. For the fiscal year ended June 30, 1997, the
annualized fees for Intermediate Bond Fund and Income Fund
amounted to 0.48% and 0.60% of average net assets, respectively.
For that period, High Yield Fund's administrative fee, in addition
to the pro rata portion of High Yield Portfolio's management fees,
was 0.00% of average net assets, after the fee waiver.

Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to the Funds
and High Yield Portfolio including computation of net asset value
and calculation of net income and capital gains and losses on
disposition of assets.

Portfolio Transactions. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
contracts. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.

Transfer Agent. SteinRoe Services Inc. ("SSI"), One South Wacker
Drive, Chicago, Illinois 60606, a wholly owned subsidiary of
Liberty Financial, is the agent of Income Trust for the transfer
of shares, disbursement of dividends, and maintenance of
shareholder accounting records.

Distributor. Shares of the Funds are currently distributed by
Liberty Securities Corporation, 100 Manhattanville Road, Purchase,
New York 10577. On Jan. 1, 1998, Liberty Financial Investments,
Inc. (formerly named Colonial Investment Services, Inc.), One
Financial Center, Boston, Massachusetts 02111, will become the
Funds' distributor. Liberty Securities Corporation and Liberty
Financial Investments, Inc. are subsidiaries of Liberty Financial.

The shares of each Fund are offered for sale without any
sales commissions or charges to the Funds or to their
shareholders. All distribution and promotional expenses are paid
by the Adviser, including payments to a distributor for sales of
Fund shares.

All Fund correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205. Participants in the Stein Roe
Counselor [service mark} and Personal Counselor [service mark}
programs should send orders to SteinRoe Services Inc. at P.O. Box
803938, Chicago, Illinois 60680.

Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)

ORGANIZATION AND DESCRIPTION OF SHARES

Income Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Jan. 3, 1986, 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 Income Trust's
shareholders or its trustees. Income 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.

Under Massachusetts law, shareholders of a Massachusetts
business trust such as Income 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, Income
Trust or any particular series shall look only to the assets of
Income 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 Income 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 Income
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 Income 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.

MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS

High Yield Fund, 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
High Yield Fund. The initial shareholder of High Yield Fund
approved this policy of permitting High Yield Fund to act as a
feeder fund by investing in High Yield Portfolio. Please refer to
Investment Policies--High Yield Fund, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of High Yield
Fund and High Yield Portfolio. The management and expenses of
both High Yield Fund and High Yield Portfolio are described under
Fee Table and Management. High Yield Fund bears its proportionate
share of High Yield Portfolio's expenses.

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

SR&F High Yield 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 High Yield Fund and other investors in High
Yield Portfolio will be liable for all obligations of High Yield
Portfolio that are not satisfied by High Yield Portfolio.
However, the risk of High Yield Fund incurring financial loss on
account of such liability is limited to circumstances in which
liability was not adequately insured and High Yield Portfolio was
unable to meet its obligations. Accordingly, the trustees of
Income Trust believe that neither High Yield Fund nor its
shareholders will be adversely affected by reason of High Yield
Fund's investing in High Yield Portfolio.

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

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

If High Yield Fund, as an investor in High Yield Portfolio,
is requested to vote on a proposed change in a fundamental policy
of High Yield Portfolio or any other matter pertaining to High
Yield Portfolio (other than continuation of the business of High
Yield Portfolio after withdrawal of another investor), High Yield
Fund will solicit proxies from its shareholders and vote its
interest in High Yield Portfolio for and against such matters
proportionately to the instructions to vote for and against such
matters received from Fund shareholders. High Yield 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 High Yield Portfolio investors. If
other investors hold a majority interest in High Yield Portfolio,
they could have voting control over High Yield Portfolio.

In the event that High Yield Portfolio's fundamental policies
were changed so as to be inconsistent with those of High Yield
Fund, the Board of Trustees of Income Trust would consider what
action might be taken, including changes to High Yield Fund's
fundamental policies, withdrawal of High Yield Fund's assets from
High Yield Portfolio and investment of such assets in another
pooled investment entity, or the retention of another investment
adviser. Any of these actions would require the approval of High
Yield Fund's shareholders. High Yield 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 High Yield Fund's assets could result in a
distribution in kind of portfolio securities (as opposed to a cash
distribution) to High Yield Fund. Should such a distribution
occur, High Yield 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 High Yield Fund and could
affect its liquidity.

Each investor in High Yield Portfolio, including High Yield
Fund, may add to or reduce its investment in High Yield Portfolio
on each day the NYSE is open for business. The investor's
percentage of the aggregate interests in High Yield 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 High Yield 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 High Yield Portfolio
effected on such day; and (ii) the denominator of which is the
aggregate beginning of the day net asset value of High Yield
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 High Yield Portfolio by all investors in High Yield
Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in High Yield
Portfolio as of the close of business.

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

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

APPENDIX--RATINGS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Stein Roe Mutual Funds
Certificate of Authorization
for use by corporations and associations only

The undersigned hereby certifies that he is the duly elected
Secretary of ____________________________ (the "Corporation")
(name of Corporation/Association)
and that the following individual(s):

Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.

These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.

IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of ___________________, 19___.

________________________________
Secretary

_________________________________
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE

[STEIN ROE MUTUAL FUNDS LOGO]

The Stein Roe Funds

Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
http://www.steinroe.com

In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200

Liberty Securities Corporation, Distributor
Member, SIPC

<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]

Defined Contribution Plans

Stein Roe Cash Reserves Fund
Prospectus
Nov. 6, 1997

The Fund seeks to obtain maximum current income consistent with
capital preservation and maintenance of liquidity. The Fund
invests solely in money market instruments maturing in thirteen
months or less from time of investment.

This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").

The Fund is a "no-load" money market fund and attempts to maintain
its net asset value at $1.00 per share. Shares of the Fund are
neither insured nor guaranteed by the U.S. Government and there
can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share. There are no sales or
redemption charges, and the Fund has no 12b-1 plan.

The Fund is a series of the Stein Roe Income Trust, an open-end
management investment company. This prospectus contains
information you should know before investing in the Fund. Please
read it carefully and retain it for future reference.

A Statement of Additional Information dated Nov. 6, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Income Trust that may not be available as investment
vehicles for your defined contribution plan.

Table of Contents

Page
Fee Table............................ 2
Financial Highlights..................2
The Fund..............................3
Investment Policies...................4
Investment Restrictions...............5
Risks and Investment Considerations...5
How to Purchase Shares............... 6
How to Redeem Shares................. 7
Net Asset Value...................... 7
Distributions and Income Taxes........8
Management............................8
Organization and Description of
Shares.............................9
For More Information..................9

___________________________
Fee Table

Shareholder Transaction Expenses
Sales Load Imposed on Purchases..................None
Sales Load Imposed on Reinvested Dividends.......None
Deferred Sales Load..............................None
Redemption Fees................................ None*
Exchange Fees....................................None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees)............. 0.50%
12b-1 Fees.......................................None
Other Expenses.................................. 0.27%
-----
Total Fund Operating Expenses....................0.77%
=====

Example. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:

1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $25 $43 $95

The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year. For purposes
of the Example above, the figures assume that the percentage
amounts for the Fund listed under Annual Fund Operating Expenses
remain the same during each of the periods, that all income
dividends and capital gains distributions are reinvested in
additional Fund shares, and that, for purposes of fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example are
not necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Fee Table and Example is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The Example does not reflect any charges or
expenses related to your employer's plan.

__________________________
Financial Highlights

The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the financial statements and notes thereto, which may be
obtained from the Trust without charge upon request.

___________________________
The Fund

Stein Roe Cash Reserves Fund (the "Fund") is a no-load "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. Because the Fund invests only in money market
instruments, it is called a "money market fund." No-load funds do
not impose commissions or charges when shares are purchased or
redeemed.

The Fund is a series of the Stein Roe Income Trust (the "Trust"),
an open-end management investment company, which is authorized to
issue shares of beneficial interest in separate series. Each
series represents interests in a separate portfolio of securities
and other assets, with its own investment objectives and policies.

Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other mutual funds with different
investment objectives, including other money market funds, equity
funds, international funds, and taxable and tax-exempt bond funds.
To obtain prospectuses and other information on opening a regular
account in any of these mutual funds, please call 800-338-2550.

Although there can be no assurance that it will always be able to
do so, the Fund follows procedures designed to stabilize its price
per share at $1.00. The Statement of Additional Information
describes these procedures. Because the Fund strives to maintain
a $1.00 per share value, its return is usually quoted either as a
current seven-day yield, calculated by totaling the dividends on a
Fund share for the previous seven days and restating that yield as
an annual rate, or as an effective yield, calculated by adjusting
the current yield to assume daily compounding. The Fund's current
and effective yields for the seven-day period ended Sept. 30,
1997, were 4.96% and 5.09%, respectively. To obtain current yield
information, you may call 800-338-2550.

From time to time, the Fund may also quote total return figures.
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the 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 calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.

Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Past performance is not necessarily indicative of future
results.

___________________________
Investment Policies

The Fund seeks to obtain maximum current income consistent with
the preservation of capital and the maintenance of liquidity by
investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency), or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:

(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO;/1/
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term obligations.
- ------------
/1/ For a description of certain NRSRO commercial paper, note, and
bond ratings, see the Appendix to the Statement of Additional
Information.
/2/ A sale of securities to the Fund in which the seller (a bank
or securities dealer that the Adviser believes to be financially
sound) agrees to repurchase the securities at a higher price,
which includes an amount representing interest on the purchase
price, within a specified time.
- ------------

In accordance with its investment objectives and policies, the
Fund may invest in variable and floating rate money market
instruments which provide for periodic or automatic adjustment in
coupon interest rates that are reset based on changes in amount
and directions of specified short-term interest rates.

Under normal market conditions, the Fund will invest at least 25%
of its total assets in securities of issuers in the financial
services industry (which includes, but is not limited to, banks,
personal credit and business credit institutions, and other
financial services institutions).

The Fund maintains a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset
value per share, and not in excess of 90 days. It is a
fundamental policy that the maturity of any instrument that grants
the holder an optional right to redeem at par plus interest and
without penalty will be deemed at any time to be the next date
provided for payment on exercise of such optional redemption
right.

___________________________
Investment Restrictions

The Fund is diversified as that term is defined in the Investment
Company Act of 1940.

The Fund will not, with respect to 75% of its total assets, invest
more than 5% of its total assets in the securities of any one
issuer /3/--this restriction does not apply to U.S. Government
Securities or repurchase agreements for such securities.
Notwithstanding the limitation on investments in a single issuer,
the Fund may invest all of its assets in another investment
company having the identical investment objective under a master
fund/feeder fund structure.
- --------
/3/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), the Fund
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 it
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.
- --------

The Fund may make not loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
and (3) participate in an interfund lending program with other
Stein Roe Funds and Portfolios. The Fund may not borrow money,
except for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the Fund's aggregate borrowings (including reverse
repurchase agreements) nor its aggregate loans at any one time may
exceed 33 1/3% of the value of its total assets. Additional
securities may not be purchased when borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.

The Fund may not invest more than 10% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days (however, there is otherwise no limitation on
the percentage of the Fund's assets which may be invested in
repurchase agreements).

The policies described in the second and third paragraphs of this
section, which summarize certain important investment restrictions
of the Fund, and the policy with respect to concentration of
investment in the financial services industry, can be changed only
with the approval of a "majority of the outstanding voting
securities" of the Fund, as defined in the Investment Company Act
of 1940. All of the investment restrictions are set forth in the
Statement of Additional Information.

___________________________
Risks and Investment Considerations

All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. There can be no
guarantee that the Fund will achieve its objective or be able at
all times to maintain its net asset value per share at $1.00.

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
in which 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.

The Fund's investment objective is not fundamental and may be
changed by the Board of Trustees without a vote of shareholders.
If there is a change in the Fund's investment objective,
shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial
position and needs.

The Fund's policy of investing at least 25% of its assets in
securities of issuers in the financial services industry may cause
the Fund to be more adversely affected by changes in market or
economic conditions and other circumstances affecting the
financial services industry. Because the Fund's investment policy
permits it to invest in: securities of foreign branches of U.S.
banks (Eurodollars), U.S. branches of foreign banks (Yankee
dollars), and foreign banks and their foreign branches, such as
negotiable certificates of deposit; securities of foreign
governments; and securities of foreign issuers, such as commercial
paper and corporate notes, bonds and debentures, investment in the
Fund might involve risks that are different in some respects from
an investment in a fund that invests only in debt obligations of
U.S. domestic issuers. Such risks may include future political
and economic developments; the possible imposition of foreign
withholding taxes on interest income payable on securities held in
the portfolio; possible seizure or nationalization of foreign
deposits; the possible establishment of exchange controls; or the
adoption of other foreign governmental restrictions that might
adversely affect the payment of principal and interest on
securities in the portfolio. Additionally, there may be less
public information available about foreign banks and their
branches. Foreign banks and foreign branches of foreign banks are
not regulated by U.S. banking authorities, and generally are not
bound by accounting, auditing, and financial reporting standards
comparable to U.S. banks.

The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed and the yields then available in the market may be
greater. The Fund will make 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.

The Fund may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Fund binds itself to accept delivery of a security at the
option of the other party to the agreement.

Master Fund/Feeder Fund Option.
Rather than invest in money market securities directly, the Fund
may in the future seek to achieve its investment objective by
pooling all of its assets with those of other investment companies
for investment in another registered investment company having the
same investment objective and substantially the same investment
policies as the Fund. It is expected that the assets of any such
investment company would be managed by the Adviser in
substantially the same manner as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. Such investment would be made only if the trustees
determine it to be in the best interests of the Fund and its
shareholders. The Board of Trustees voted on Nov. 5, 1997 to
convert the Fund into a feeder fund on or about Feb. 16, 1998. Its
master fund will be a new series of SR&F Base Trust named SR&F
Cash Reserves Portfolio, which has the same investment objective
as the Fund.

___________________________
How to Purchase Shares

All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund. Each purchase of shares through a
broker-dealer, bank or other Intermediary ("Intermediary") that is
an authorized agent of the Trust for the receipt of orders is made
at the net asset value next determined after receipt of the order
by the Intermediary. 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 agent 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.

Each purchase order must be accepted by an authorized officer of
the Trust in Chicago and is not binding until accepted and entered
on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; however, you may redeem
the shares. The Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests
of the Trust or of the Fund's shareholders.

Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.

___________________________
How to Redeem Shares

Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.

Exchange Privilege.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.

The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.

___________________________
Net Asset Value

The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is normally determined twice each day: at 11:00 a.m., central
time, and as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., central time). The net
asset value per share is computed by dividing the difference
between the values of the Fund's assets and liabilities by the
number of shares outstanding and rounding to the nearest cent.
Net asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Board of Trustees, the net
asset value of the Fund should be determined on any such day, in
which case the determination will be made at 3:00 p.m., central
time.

The Fund attempts to maintain its net asset value at $1.00 per
share. Portfolio securities are valued based on their amortized
cost, which does not take into account unrealized gains or losses.
Other assets and securities of the Fund for which this valuation
method does not produce a fair value are valued at a fair value
determined by the Board. The extent of any deviation between the
Fund's net asset value based upon market quotations or equivalents
and $1.00 per share based on amortized cost will be examined by
the Board of Trustees. If such deviation were to exceed 1/2 of
1%, the Board would consider what action, if any, should be taken,
including selling portfolio instruments, increasing, reducing or
suspending distributions, or redeeming shares in kind.

___________________________
Distributions and Income Taxes

Distributions.
A dividend from net income of the Fund is declared each business
day to shareholders of record immediately before 3:00 p.m.,
central time. Dividends credited to your account are distributed
monthly. If the Fund's net asset value per share were to decline,
or were believed likely to decline, below $1.00 (rounded to the
nearest cent), the Board might temporarily reduce or suspend
dividends in an effort to maintain net asset value at $1.00 per
share.

The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gain
distributions will be reinvested in additional shares of the Fund.

Income Taxes.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.

___________________________
Management

Trustees and Investment Adviser.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board. The Adviser is registered as an
investment adviser under the Investment Advisers Act. The Adviser
and its predecessor have advised and managed mutual funds since
1949. The Adviser is a wholly owned indirect subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.

Fees and Expenses.
The Adviser provides investment advisory and administrative
services to the Fund under separate management and administrative
agreements. The Adviser receives, in return for its services,
monthly fees from the Fund based on its average net assets,
computed and accrued daily, at the following annual rates:

The annualized management and administrative fees amounted to
0.50% of average net assets for the year ended June 30, 1997.

Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of net asset value and calculation of net income and
capital gains and losses on disposition of assets.

Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities. In doing so, the Adviser seeks to obtain
the best combination of price and execution, which involves a
number of judgmental factors.

Transfer Agent.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.

Distributor.
Shares of the Fund are currently distributed by Liberty Securities
Corporation, 100 Manhattanville Road, Purchase, New York 10577.
On Jan. 1, 1998, Liberty Financial Investments, Inc. (formerly
named Colonial Investment Services, Inc.), One Financial Center,
Boston, Massachusetts 02111, will become the distributor. Liberty
Securities Corporation and Liberty Financial Investments, Inc. are
subsidiaries of Liberty Financial. Fund shares are offered for
sale without any sales commissions or charges to the Fund or to
its shareholders. All distribution and promotional expenses are
paid by the Adviser, including payments to a distributor for sales
of shares. All correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205.

Custodian.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)

___________________________
Organization and Description of Shares

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.

___________________________
For More Information

Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
___________________________

<PAGE>

[STEIN ROE MUTUAL FUNDS LOGO]

Defined Contribution Plans

Stein Roe Income Fund
Prospectus
Nov. 6, 1997

The Fund seeks high current income by investing principally in
medium-quality debt securities and, to a lesser extent, in lower-
quality securities which may involve greater risk. (See
Investment Policies.)

This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").

The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Income Trust, an open-end management investment
company. This prospectus contains information you should know
before investing in the Fund. Please read it carefully and retain
it for future reference.

A Statement of Additional Information dated Nov. 6, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Income Trust that may not be available as investment
vehicles for your defined contribution plan.

Table of Contents

Page
Fee Table............................. 2
Financial Highlights...................2
The Fund...............................3
Investment Policies....................3
Portfolio Investments and Strategies...5
Investment Restrictions............. ..8
Risks and Investment Considerations... 8
How to Purchase Shares................ 9
How to Redeem Shares.................. 9
Net Asset Value...................... 10
Distributions and Income Taxes........10
Investment Return.....................11
Management............................11
Organization and Description of
Shares..............................13
For More Information..................13

___________________________
Fee Table

Shareholder Transaction Expenses
Sales Load Imposed on Purchases......................None
Sales Load Imposed on Reinvested Dividends...........None
Deferred Sales Load..................................None
Redemption Fees......................................None
Exchange Fees........................................None

Annual Fund Operating Expenses (as a percentage of
average net assets)
Management and Administrative Fees.................. 0.61%
12b-1 Fees...........................................None
Other Expenses.......................................0.24%
-----
..........Total Fund Operating Expenses..............0.85%
=====

Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:

1 year 3 years 5 years 10 years
------ ------- ------- --------
$9 $27 $47 $105

The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based on
actual expenses incurred in the last fiscal year. For purposes of
the Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same during each of the periods, that all income dividends and
capital gains distributions are reinvested in additional Fund
shares, and that, for purposes of fee breakpoints, the Fund's net
assets remain at the same level as in the most recently completed
fiscal year. The figures in the Example are not necessarily
indicative of past or future expenses, and actual expenses may be
greater or less than those shown. Although information such as
that shown in the Fee Table and Example is useful in reviewing the
Fund's expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
Example does not reflect any charges or expenses related to your
employer's plan.

__________________________
Financial Highlights

The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
Fund's annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.

<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 9.71 $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $9.79 $9.63
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income..... .95 .95 .92 .80 .76 .75 .69 .71 .71 .70
Net realized and
unrealized gains (losses)
on investments........... (.11) .05 (.70) -- .56 .59 (.74) .43 (.16) .25
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations............... .84 1.00 .22 .80 1.32 1.34 (.05) 1.14 .55 .95
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS FROM NET
INVESTMENT INCOME......... (.95) (.95) (.92) (.80) (.76) (.75) (.69) (.71) (.71) (.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END OF
PERIOD................... $ 9.60 $ 9.65 $ 8.95 $ 8.95 $ 9.51 $10.10 $ 9.36 $ 9.79 $9.63 $9.88
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.91% 0.90% 0.93% 0.95% 0.90% 0.82% 0.82% 0.82% 0.82% 0.84%
Ratio of net investment
income to average net
assets (b)............... 10.08% 9.97% 10.02% 8.98% 8.20% 7.62% 6.94% 7.55% 7.26% 7.26%
Portfolio turnover rate... 158% 94% 90% 77% 76% 39% 53% 64% 135% 138%
Total return (b).......... 9.38% 11.06% 2.48% 9.30% 15.30% 14.64% (0.69%) 12.79% 5.70% 10.34%
Net assets, end of
period (000 omitted).... $96,611 $110,376 $89,023 $93,952 $112,706 $151,594 $158,886 $174,327 $309,564 $375,272
</TABLE>
__________________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 0.83%, 0.85%, 0.88% and 0.85% for the years ended
June 30, 1994 through 1997, respectively.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.

___________________________
The Fund

The mutual fund offered by this prospectus is Stein Roe Income
Fund (the "Fund"). The Fund is a no-load "mutual fund." No-load
funds do not impose commissions or charges when shares are
purchased or redeemed. Mutual funds sell their own shares to
investors and invest the proceeds in a portfolio of securities. A
mutual fund allows you to pool your money with that of other
investors in order to obtain professional investment management.
Mutual funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping.

Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other mutual funds with different
investment objectives, including other bond funds, equity funds,
international funds, tax-exempt bond funds, and money market
funds. To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call 800-338-
2550.

___________________________
Investment Policies

The investment objective of the Fund is to provide a high level of
current income. Consistent with this investment objective,
capital preservation and capital appreciation are regarded as
secondary objectives. The Fund attempts to achieve its objective
by investing principally in medium-quality debt securities, which
are obligations of issuers that the Adviser believes possess
adequate, but not outstanding, capacities to service their debt
securities, such as securities rated A or Baa by Moody's Investors
Service ("Moody's") or A or BBB by Standard & Poor's Corporation
("S&P"). The Adviser generally attributes to medium-quality
securities the same characteristics as rating services. Further
information on portfolio investments and strategies may be found
under Portfolio Investments and Strategies in this prospectus and
in the Statement of Additional Information.

Although the Fund will invest at least 60% of its assets in
medium- or higher-quality securities, it may also invest to a
lesser extent in securities of lower quality (in the case of rated
securities, having a rating by Moody's or S&P of not less than C).
Although the Fund can invest up to 40% of its assets in lower-
quality securities, it does not intend to invest more than 35% in
lower-quality securities. Lower-quality debt securities are
obligations of issuers that are predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal, and are commonly referred to as "junk bonds." The Fund
may invest in lower-quality debt securities; for example, if the
Adviser believes the financial condition of the issuers or the
protection offered to the particular obligations is stronger than
is indicated by low ratings or otherwise. The Fund may invest in
higher-quality securities; for example, under extraordinary
economic or financial market conditions, or when the spreads
between the yields on medium- and high-quality securities are
relatively narrow.

Some issuers of debt securities choose not to have their
securities rated by a rating service, and the Fund may invest in
unrated securities that the Adviser believes are suitable for
investment.

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. In addition, lower-quality bonds are less sensitive to
interest rate changes than higher-quality instruments (see Risks
and Investment Considerations) 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.

Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing in higher-quality debt securities.
Since the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a credit rating system based upon comparative credit
analyses of issuers within the same industry. These analyses may
take into consideration such quantitative factors as an issuer's
present and potential liquidity, profitability, internal
capability to generate funds, debt/equity ratio and debt servicing
capabilities, and such qualitative factors as an assessment of
management, industry characteristics, accounting methodology, and
foreign business exposure.

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. (See Net Asset Value.) The market
value of these securities and their liquidity may be affected by
adverse publicity and investor perceptions.

Under normal market conditions, the Fund will invest at least 65%
of the value of its total assets (taken at market value) in
convertible and non-convertible bonds and debentures. Such
securities may be accompanied by the right to acquire equity
securities evidenced by warrants attached to the security or
acquired as part of a unit with the security. Equity securities
acquired by conversion or exercise of such a right may be retained
by the Fund for a sufficient time to permit orderly disposition
thereof or to establish long-term holding periods for federal
income tax purposes.

The Fund may invest up to 35% of its total assets in other debt
securities, marketable preferred and common stocks, and foreign
and municipal securities that the Adviser considers likely to
yield relatively high income in relation to costs, and rights to
acquire such securities. (Municipal securities are securities
issued by or on behalf of state and local governments, the
interest on which is generally exempt from federal income tax.)
Any assets not otherwise invested may be invested in money market
instruments.

For the fiscal year ended June 30, 1997, Income Fund's portfolio
was invested, on average, as follows: high-quality short-term
instruments, 3.7%; U.S. Government Securities, 1.7%; AA, 6.3%; A,
22.8%; BBB, 35.5%; BB, 19.8%; B, 9.6%; and unrated, 0.6%. The
ratings are based on a dollar-weighted average, computed monthly,
and reflect the higher of S&P or Moody's ratings. The ratings do
not necessarily reflect the current or future composition of
Income Fund.

___________________________
Portfolio Investments and Strategies

Derivatives.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments, the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives"). The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, or futures
options.

Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.

The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.

REMICs. The Fund may invest in real estate mortgage investment
conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of
holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple
classes of securities. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA-
, FHLMC- or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and
guaranteed as to timely distribution and principal and interest by
FNMA.

Floating Rate Instruments. The Fund may also invest in floating
rate instruments which provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in
amount and direction of specified market interest rates. In
addition, the adjusted duration of some of these instruments may
be materially shorter than their stated maturities. To the extent
such instruments are subject to lifetime or periodic interest rate
caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%. The Fund does not intend to invest more than 5%
of net assets in floating rate instruments.

Futures and Options. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts. The Fund may also write options on
such futures contracts and purchase other types of forward or
investment contracts linked to individual securities, indexes or
other benchmarks, consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices, interest rates, or currency fluctuations. The
Fund may write a call or put option only if the option is covered.
As the writer of a covered call option, the Fund foregoes, during
the option's life, the opportunity to profit from increases in
market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There can
be no assurance that a liquid market will exist when the Fund
seeks to close out a position. Because of low margin deposits
required, the use of futures contracts involves a high degree of
leverage, and may result in losses in excess of the amount of the
margin deposit.

Foreign Securities.
Although the Fund may invest in foreign securities, it will not
invest in a foreign security if, as a result of such investment,
more than 25% of its total assets would be invested in foreign
securities. For purposes of this restriction, foreign securities
do not include securities represented by American Depositary
Receipts ("ADRs"), foreign debt securities denominated in U.S.
dollars, or securities guaranteed by a U.S. person such as a
corporation domiciled in the United States that is a parent or
affiliate of the issuer of the securities being guaranteed. The
Fund may invest in sponsored or unsponsored ADRs. In addition to,
or in lieu of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Foreign securities may involve a greater degree of risk (including
risk related to exchange rate fluctuations, tax provisions, or
expropriation of assets) than securities of domestic issuers. At
June 30, 1997, no assets of the Fund were invested in foreign
securities as defined above, and the Fund does not currently
intend to invest more than 5% of its net assets in such
securities. (See Risks and Investment Considerations.)

Short Sales Against the Box.
The Fund may sell short securities it owns or has the right to
acquire without further consideration, a technique called selling
short "against the box." Short sales against the box may protect
the Fund against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.

Lending of Portfolio Securities.
Subject to certain restrictions, the Fund may lend its portfolio
securities to broker-dealers and banks. Any such loan must be
continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the
market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned, and would also
receive an additional return that may be in the form of a fixed
fee or a percentage of the collateral. The Fund would have the
right to call the loan and obtain the securities loaned at any
time on notice of not more than five business days. In the event
of bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses including (a) possible
decline in the value of the collateral or in the value of the
securities loaned 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. The Fund may participate in an
interfund lending program, subject to certain restrictions
described in the Statement of Additional Information.

When-Issued and Delayed-Delivery Securities; Standby Commitments.
The Fund's assets may include securities purchased on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund makes such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it 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.

When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that the Fund will
sell securities with a commitment to purchase similar, but not
identical, securities at a future date. Generally, the securities
are repurchased at a price lower than the sales price. Dollar
roll transactions involve the risk of restrictions on the Fund's
ability to repurchase the security if the counterparty becomes
insolvent; an adverse change in the price of the security during
the period of the roll or that the value of the security
repurchased will be less than the security sold; and transaction
costs exceeding the return earned by the Fund on the sales
proceeds of the dollar roll.

Rule 144A Securities.
The Fund may purchase securities that have been privately placed
but that are eligible for purchase and sale under Rule 144A under
the 1933 Act. That Rule permits certain qualified institutional
buyers, such as the Portfolio, to trade in privately placed
securities that have not been registered for sale under the 1933
Act. The Adviser, under the supervision of the Board of Trustees,
will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the restriction of investing no more
than 10% of net assets in illiquid securities. A determination of
whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the
Adviser 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, the
Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
Portfolio does not invest more than 10% of its assets in illiquid
securities. Investing in Rule 144A securities could have the
effect of increasing the amount of assets invested in illiquid
securities if qualified institutional buyers are unwilling to
purchase such securities. The Fund does not expect to invest as
much as 5% of its total assets in Rule 144A securities that have
not been deemed to be liquid by the Adviser.

Portfolio Turnover.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. Further, the Adviser may purchase and sell securities for
the portfolio of the Fund with a view to maximizing current
return, even if portfolio changes would cause the realization of
capital gains. Although the average stated maturity of the Fund's
portfolio generally will exceed ten years, the Adviser may adjust
the average maturity of the Fund's portfolio from time to time,
depending on its assessment of the relative yields available on
securities of different maturities and its expectations of future
changes in interest rates. As a result, the turnover rate of the
Fund may vary from year to year. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains (which may be taxable) or losses.
(See Financial Highlights and Distributions and Income Taxes.)

___________________________
Investment Restrictions

The Fund is diversified as that term is defined in the Investment
Company Act of 1940.

The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/ for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, the Fund may invest all or substantially all of its
assets in another investment company having the identical
investment objective under a master fund/feeder fund structure.
- --------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified 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. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
- --------

The Fund may not make loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
(3) lend its portfolio securities under certain conditions; and
(4) participate in an interfund lending program with other Stein
Roe Funds and Portfolios. The Fund may not borrow money, except
for nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending program.
Neither the Fund's aggregate borrowings (including reverse
repurchase agreements) nor its aggregate loans at any one time may
exceed 33 1/3% of the value of its total assets. Additional
securities may not be purchased when borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.

The policies set forth in the second and third paragraphs under
Investment Restrictions (but not the footnote) are fundamental
policies of the Fund. The Statement of Additional Information
contains all of the investment restrictions.

___________________________
Risks and Investment Considerations

All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Although the Fund seeks
to reduce risk by investing in a diversified portfolio, this does
not eliminate all risk. The risks inherent in the Fund depend
primarily upon the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions.

A decline in prevailing levels of interest rates generally
increases the value of securities in the Fund's portfolio, while
an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
the Fund's net asset value, but not the income received by the
Fund from its portfolio securities. (Because yields on debt
securities available for purchase vary over time, no specific
yield on shares of the Fund can be assured.) In addition, if the
bonds in the Fund's portfolio contain call, prepayment or
redemption provisions, during a period of declining interest
rates, these securities are likely to be redeemed, and the Fund
will probably be unable to replace them with securities having as
great a yield.

The Fund is designed for investors who seek a higher level of
income and who can accept greater levels of credit and other risks
associated with securities of medium or lower quality.

Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, different
accounting, auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less well-developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.

The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.

There can be no assurance that the Fund will achieve its
objective, nor can the Fund assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by the Fund, the rating of a portfolio security is
lost or reduced, the Fund would not be required to sell the
security, but the Adviser would consider such a change in deciding
whether to retain the security in the portfolio.

Master Fund/Feeder Fund Option.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with those of other investment companies for investment in
another investment company having the same investment objective
and substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that the assets
of any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Such investment would
be made only if the trustees determine it to be in the best interests
of the Fund and its shareholders. The Board of Trustees voted on
Nov. 5, 1997 to convert the Fund into a feeder fund as of Feb. 2,
1998. Its master fund will be a new series of SR&F Base Trust
named SR&F Income Portfolio, which has the same investment objective
as the Fund.

___________________________
How to Purchase Shares

Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.

___________________________
How to Redeem Shares

The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.

___________________________
Net Asset Value

The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value of the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.

Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.

___________________________
Distributions and Income Taxes

Distributions.
Income dividends are declared each business day and are paid
monthly. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the 12-month period ended Oct. 31 in
that year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.

The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.

___________________________
Investment Return

The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment) plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the 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 calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.

The yield of the Fund is calculated by dividing its net investment
income per share (a hypothetical figure as defined in the SEC
rules) during a 30-day period 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.

Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call
800-338-2550.

___________________________
Management

Trustees and Investment Adviser.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of the Fund and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act of
1940. The Adviser and its predecessor have advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.

Portfolio Manager.
Stephen F. Lockman has been portfolio manager of the Fund since
Mar. 1997. Associate portfolio manager of the Fund since Oct.
1995, Mr. Lockman joined the Adviser in Jan. 1994. As a senior
research analyst for the Adviser's fixed income department from
1994 to 1997, Mr. Lockman has broad expertise in the fixed income
markets, with specialties in the high yield sector and the
aerospace, broadcasting, entertainment, insurance, mining/metals,
paper/forest products, printing, publishing and real estate
industries. In addition, he served as the fixed income
department's sovereign debt analyst from 1994 to 1997, evaluating
securities for its more than $1 billion portfolio of dollar-
denominated foreign investments. Mr. Lockman previously served as
portfolio manager for the Illinois State Board of Investment from
1987 to 1994, and as a trust investment officer for LaSalle
National Bank from 1983 to 1987. A chartered financial analyst,
Mr. Lockman earned a bachelor's degree in 1983 from the University
of Illinois and a master's degree in 1986 from DePaul University.
As of June 30, 1997, he was responsible for managing $415 million
in mutual fund net assets for the Adviser.

Fees and Expenses.
The Adviser provides investment advisory and administrative
services to the Fund under separate management and administrative
agreements. The Adviser is entitled to receive, in return for its
services, monthly fees from the Fund based on its average net
assets, computed and accrued daily, at the following annual rates:

MANAGEMENT FEE ADMINISTRATIVE FEE TOTAL FEES
- --------------- ------------------- ----------------
.500% up to $100, .150% up to $100, .650% up to $100,
.475% thereafter .125% thereafter .600% thereafter

For the fiscal year ended June 30, 1997, the management and
administrative fees amounted to 0.61% of average net assets.

Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. In doing
so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.

___________________________
Organization and Description of Shares

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 Fund shall look only to the assets of the Trust or of
the respective Fund 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.

___________________________
For More Information

Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
_________________

<PAGE>

[STEIN ROE MUTUAL FUNDS LOGO]

Defined Contribution Plans

Stein Roe Intermediate Bond Fund
Prospectus
Nov. 6, 1997

The Fund seeks high current income by investing primarily in
marketable debt securities. The dollar-weighted average life of
the Fund's portfolio is expected to be between three and ten
years.

This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").

The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Income Trust, an open-end management investment
company.

This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.

A Statement of Additional Information dated Nov. 6, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Funds at Suite 3200, One South Wacker Drive, Chicago, IL 60606
or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Income Trust that may not be available as investment
vehicles for your defined contribution plan.

Table of Contents
Page
Fee Table................................. 2
Financial Highlights.......................2
The Fund...................................3
Investment Policies........................4
Portfolio Investments and Strategies.......5
Investment Restrictions................... 8
Risks and Investment Considerations....... 9
How to Purchase Shares................... 10
How to Redeem Shares..................... 10
Net Asset Value.......................... 11
Distributions and Income Taxes............11
Investment Return.........................12
Management............................... 12
Organization and Description of Shares....13
For More Information......................13

___________________________
Fee Table

Shareholder Transaction Expenses
Sales Load Imposed on Purchases........................None
Sales Load Imposed on Reinvested Dividends.............None
Deferred Sales Load....................................None
Redemption Fees........................................None
Exchange Fees..........................................None

Annual Fund Operating Expenses (as a percentage
of average net assets)
Management and Administrative Fees.....................0.50%
12b-1 Fees.............................................None
Other Expenses........................................ 0.25%
-----
............Total Fund Operating Expenses............. 0.75%
=====

Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end of
each time period:

1 year 3 years 5 years 10 years
------ ------- -------- ---------
$8 $24 $42 $93

The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year. For purposes of
the Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same during each of the periods and that all income dividends
and capital gains distributions are reinvested in additional Fund
shares. The figures in the Example are not necessarily indicative
of past or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that shown in
the Fee Table and Example is useful in reviewing the Fund's
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods. The Example does not
reflect any charges or expenses related to your employer's plan.

__________________________
Financial Highlights

The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The table should be read in conjunction
with the Fund's financial statements and notes thereto. The
Fund's annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.

<TABLE>
<CAPTION>
Years Ended June 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
----- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $8.77 $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58
---- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM INVESTMENT
OPERATIONS
Net investment income........ .68 .74 .73 .69 .69 .65 .56 .58 .58 .60
Net realized and unrealized
gains (losses) on
investments............... (.12) .14 (.28) .16 .46 .27 (.59) .23 (.09) .17
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from investment
operations................. .56 .88 .45 .85 1.15 .92 (.03) .81 .49 .77
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
DISTRIBUTIONS
Net investment income....... (.68) (.74) (.72) (.70) (.69) (.65) (.56) (.58) (.58) (.61)
Net realized capital gains.. (.14) -- -- -- -- -- (.08) -- -- --
In excess of realized gains. -- -- -- -- -- -- (.15) -- -- --
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distributions....... (.82) (.74) (.72) (.70) (.69) (.65) (.79) (.58) (.58) (.61)
----- ------ ------ ------ ------ ------ ------ ------ ------ -----
NET ASSET VALUE, END
OF PERIOD................ $8.51 $8.65 $8.38 $8.53 $8.99 $9.26 $8.44 $8.67 $8.58 $8.74
===== ====== ====== ====== ====== ====== ====== ====== ====== =====
Ratio of net expenses to
average net assets (a)... 0.73% 0.73% 0.74% 0.73% 0.70% 0.67% 0.70% 0.70% 0.70% 0.73%
Ratio of net investment
income to average net
assets (b). ............. 7.97% 8.71% 8.60% 8.17% 7.87% 7.22% 6.20% 6.94% 6.79% 6.97%
Portfolio turnover rate... 273% 197% 296% 239% 202% 214% 206% 162% 202% 210%
Total return (b).......... 6.92% 10.97% 5.33% 10.62% 14.02% 10.59% (0.47%) 10.11% 5.76% 9.31%
Net assets, end of
period (000 omitted)....$162,225 $165,056 $161,439 $184,444 $242,948 $311,728 $302,507 $301,733 $298,112 $328,784
</TABLE>
_____________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the Adviser, this ratio would
have been 0.71%, 0.75% and 0.75% for the years ended June 30,
1995 through 1997, respectively.
(b) Computed giving effect to the Adviser's fee waiver.

___________________________
The Fund

The mutual fund offered by this prospectus is Stein Roe
Intermediate Bond Fund (the "Fund"). The Fund is a no-load
"mutual fund." No-load funds do not impose commissions or charges
when shares are purchased or redeemed. Mutual funds sell their
own shares to investors and invest the proceeds in a portfolio of
securities. A mutual fund allows you to pool your money with that
of other investors in order to obtain professional investment
management. Mutual funds generally make it possible for you to
obtain greater diversification of your investments and simplify
your recordkeeping.

Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund. The
Adviser also manages several other mutual funds with different
investment objectives, including other bond funds, equity funds,
international funds, tax-exempt bond funds, and money market
funds. To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call 800-338-
2550.

___________________________
Investment Policies

The Fund's investment objective is to provide a high level of
current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:

The Fund also may invest in mortgaged-backed and other debt
securities (including those convertible into or carrying warrants
to purchase common stocks or other equity interests, and privately
placed debt securities), preferred stocks, and marketable common
stocks that the Adviser considers likely to yield relatively high
income in relation to cost. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.

Under normal market conditions, the Fund invests at least 65% of
its assets in securities with an average life of between three and
ten years, and expects that the dollar-weighted average life of
its portfolio will be between three and ten years. Average life
is the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity. During periods of rising interest rates, the
average life of mortgage-backed securities and callable
obligations may increase substantially because they are not likely
to be prepaid, which may result in greater net asset value
fluctuation.

The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no
permitted rating) and that, on balance, 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. 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. In addition, lower-
quality bonds are less sensitive to interest rate changes than
higher-quality instruments (see Risks and Investment
Considerations) 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.

Achievement of the Fund's investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing exclusively in investment-grade debt
securities. Since the ratings of rating services (which evaluate
the safety of principal and interest payments, not market risks)
are used only as preliminary indicators of investment quality, the
Adviser employs its own credit research and analysis, from which
it has developed a credit rating system based upon comparative
credit analyses of issuers within the same industry. These
analyses may take into consideration such quantitative factors as
an issuer's present and potential liquidity, profitability,
internal capability to generate funds, debt/equity ratio and debt
servicing capabilities, and such qualitative factors as an
assessment of management, industry characteristics, accounting
methodology, and foreign business exposure.

Debt securities that are rated below investment grade 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. (See Net Asset
Value.) The market value of these securities and their liquidity
may be affected by adverse publicity and investor perceptions.

For the fiscal year ended June 30, 1997, the Fund's portfolio was
invested, on average, as follows: high-quality short-term
instruments, 6.3%; U.S. Government Securities, 10.9%; AAA, 10.3%;
AA, 8.9%; A, 24.1%; BBB, 29.3%; and BB, 10.2%. The ratings are
based on a dollar-weighted average, computed monthly, and reflect
the higher of S&P or Moody's ratings. The ratings do not
necessarily reflect the current or future composition of the Fund.

___________________________
Portfolio Investments and Strategies

Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.

The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.

Mortgage and Other Asset-Backed Securities. The Fund may invest
in securities secured by mortgages or other assets such as
automobile or home improvement loans and credit card receivables.
These instruments may be issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities or by private
entities such as commercial, mortgage and investment banks and
financial companies or financial subsidiaries of industrial
companies.

The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.

Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, are of the "modified pass-through type," which
means the interest and principal payments on mortgages in the pool
are "passed through" to investors. Mortgage-backed securities
provide either a pro rata interest in underlying mortgages or an
interest in collateralized mortgage obligations ("CMOs"), which
represent a right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either the
U.S. Government or by its agencies or instrumentalities and are
usually issued in multiple classes, each of which has different
payment rights, prepayment risks, and yield characteristics.

Mortgage-backed securities involve the risk of prepayment on the
underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling
interest rates and decrease with rising rates, but they also are
influenced by economic, social, and market factors. If mortgages
are prepaid during periods of declining interest rates, there
would be a resulting loss of the full-term benefit of any premium
paid by the Fund on purchase of the securities, and the proceeds
of prepayment would likely be invested at lower interest rates.
The Fund tends to invest in CMOs of classes known as planned
amortization classes ("PACs") which have prepayment protection
features tending to make them less susceptible to price
volatility.

Non-mortgage asset-backed securities usually have less prepayment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.

Asset-backed securities tend to experience greater price
volatility than straight debt securities.

Futures and Options. The Fund may purchase and write both call
options and put options on securities, indexes and foreign
currencies, and enter into interest rate, index and foreign
currency futures contracts. The Fund may also write options on
such futures contracts and purchase other types of forward or
investment contracts linked to individual securities, indexes or
other benchmarks consistent with its investment objective, in
order to provide additional revenue, or to hedge against changes
in security prices, interest rates, or currency fluctuations. The
Fund may write a call or put option only if the option is covered.
As the writer of a covered call option, the Fund foregoes, during
the option's life, the opportunity to profit from increases in
market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There can
be no assurance that a liquid market will exist when the Fund
seeks to close out a position. Because of low margin deposits
required, the use of futures contracts involves a high degree of
leverage, and may result in losses in excess of the amount of the
margin deposit.

Portfolio Turnover.
In seeking to attain its objective, the Fund may sell portfolio
securities without regard to the period of time they have been
held. The turnover rate of the Fund may vary from year to year.
A high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains (which
may be taxable) or losses. (See Financial Highlights and
Distributions and Income Taxes.)

___________________________
Investment Restrictions

The Fund is diversified as that term is defined in the Investment
Company Act of 1940.

The Fund may not invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/; for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, the Fund may invest all of its assets in another
investment company having the identical investment objective under
a master fund/feeder fund structure.
- ----------
/1/ A repurchase agreement involves a sale of securities to the
Fund with the concurrent agreement of the seller (bank or
securities dealer) to repurchase the securities at the same price
plus an amount equal to an agreed-upon interest rate within a
specified 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. The
Fund may not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
- ----------

The policies set forth in the second and third paragraphs under
Investments Restrictions (but not the footnote) are fundamental
policies of the Fund. The Statement of Additional Information
contains all of the investment restrictions.

___________________________
Risks and Investment Considerations

The Fund is appropriate for investors who seek high income with
less net asset value fluctuation from interest rate changes than
that of a longer-term fund, and who can accept greater levels of
credit and other risks associated with securities that are rated
below investment grade.

Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, different
accounting, auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less well-developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.

The Fund may enter into foreign currency forward contracts and use
options and futures contracts as described elsewhere in this
prospectus to limit or reduce foreign currency risk.

Master Fund/Feeder Fund Option.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with those of other investment companies for investment in
another investment company having the same investment objective
and substantially the same investment policies as the Fund. The
purpose of such arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that the assets
of any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Such investment would
be made only if the trustees determine it to be in the best
interests of the Fund and its shareholders. The Board of Trustees
voted on Nov. 5, 1997 to convert the Fund into a feeder fund as of
Feb. 2, 1998. Its master fund will be a new series of SR&F Base
Trust named SR&F Intermediate Bond Portfolio, which has the same
investment objective as the Fund.

___________________________
How to Purchase Shares

Shares purchased by reinvestment of dividends will be confirmed at
least quarterly. All other purchases and redemptions will be
confirmed as transactions occur.

___________________________
How to Redeem Shares

General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. The price at
which your redemption order will be executed is the net asset
value next determined after proper redemption instructions are
received. (See Net Asset Value.) Because the redemption price
you receive depends upon the Fund's net asset value per share at
the time of redemption, it may be more or less than the price you
originally paid for the shares.

___________________________
Net Asset Value

Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Fund for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.

___________________________
Distributions and Income Taxes

The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital gains
distributions will be reinvested in additional shares of the Fund.

___________________________
Investment Return

Comparison of the Fund's yield or total return with those of
alternative investments should consider differences between the
Fund and the alternative investments, the periods and methods used
in calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Yield figures are not based on actual dividends paid. Past
performance is not necessarily indicative of future results. To
obtain current yield or total return information, you may call
800-338-2550.

___________________________
Management

Trustees and Investment Adviser.
The Board of Trustees of the Trust and has overall management
responsibility for the Trust and the Fund. See Management in the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of the Fund and the Trust,
subject to the direction of the Board. The Adviser is registered
as an investment adviser under the Investment Advisers Act of
1940. The Adviser and its predecessor have advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.

Portfolio Manager.
Michael T. Kennedy has been portfolio manager of the Fund since
1988. He is a vice-president of the Trust, a senior vice
president of the Adviser, and has been associated with the Adviser
since 1987. From 1984 to 1987, he was employed by Homewood
Federal Savings and Loan. A chartered financial analyst and a
chartered investment counselor, he received his B.S. degree from
Marquette University (1984) and his M.M. from Northwestern
University (1988). Mr. Kennedy is a member of the Adviser's
Taxable Strategy Team and managed $440 million in mutual fund
net assets for the Adviser as of June 30, 1997.

Fees and Expenses.
The Adviser provides investment advisory and administrative
services to the Fund under separate management and administrative
agreements. The Adviser is entitled to receive from the Fund a
management fee at an annual rate of .350% of average net assets
and an administrative fee of .150%, for a total fee of .500%.
Such fees are computed and accrued daily and paid monthly. For
the fiscal year ended June 30, 1997, the management and
administrative fee amounted to 0.50% of average net assets.

Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. In doing
so, the Adviser seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.

Organization and Description of Shares

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.

___________________________
For More Information

Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
____________________________

<PAGE>

Statement of Additional Information Dated Nov. 6, 1997

STEIN ROE INCOME TRUST

MONEY MARKET FUND
STEIN ROE CASH RESERVES FUND

BOND FUNDS
STEIN ROE INTERMEDIATE BOND FUND
STEIN ROE INCOME FUND
STEIN ROE HIGH YIELD FUND

Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550

This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with the Money Market Funds Prospectus and the Bond
Funds Prospectus dated Nov. 6, 1997 and any supplements thereto.
A Prospectus may be obtained at no charge by telephoning 800-338-
2550.

TABLE OF CONTENTS

Page
General Information and History.........................2
Investment Policies.....................................3
Cash Reserves........................................3
Intermediate Bond Fund...............................6
Income Fund..........................................7
High Yield Fund......................................8
Portfolio Investments and Strategies....................9
Investment Restrictions................................27
Additional Investment Considerations...................30
Purchases and Redemptions..............................31
Management.............................................32
Financial Statements...................................35
Principal Shareholders.................................35
Investment Advisory Services...........................36
Distributor............................................39
Transfer Agent.........................................39
Custodian..............................................40
Independent Auditors...................................40
Portfolio Transactions.................................40
Additional Income Tax Considerations...................43
Additional Information on the Determination of Net
Asset Value of the Money Market Funds...............43
Investment Performance.................................44
Appendix--Ratings......................................51

GENERAL INFORMATION AND HISTORY

Stein Roe Cash Reserves Fund, Stein Roe Intermediate Bond
Fund, Stein Roe Income Fund, and Stein Roe High Yield Fund are
series of the Stein Roe Income Trust ("Income Trust"). Each
series of Income Trust other than Stein Roe High Yield Fund ("High
Yield Fund") invests in a separate portfolio of securities and
other assets, with its own objectives and policies. High Yield
Fund invests all of its net investable assets in SR&F High Yield
Portfolio ("High Yield Portfolio"), which is a series of SR&F Base
Trust ("Base Trust"). High Yield Fund and High Yield Portfolio
have identical investment objectives and substantially identical
investment policies.

As used herein, "Cash Reserves" refers to the series of
Income Trust designated Stein Roe Cash Reserves Fund,
"Intermediate Bond Fund" refers to the series of the Trust
designated Stein Roe Intermediate Bond Fund, and "Income Fund"
refers to the series of the Trust designated Stein Roe Income
Fund. The term "Money Market Fund" refers to Cash Reserves, and
the term "Bond Funds" refers to Intermediate Bond Fund, Income
Fund, High Yield Fund, and High Yield Portfolio. The series of
Income Trust are referred to collectively as "the Funds." On Nov.
1, 1995, the name of Income Trust and each of its series was
changed to separate "SteinRoe" into two words.

Currently four series of Income Trust are authorized and
outstanding. 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, Income 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, Income 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 required by Section
16(c) of the Investment Company Act of 1940. All shares of Income
Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are voted
by individual series and not in the aggregate, except that shares
are voted in the aggregate when required by the Investment Company
Act of 1940 or other applicable law. When the Board of Trustees
determines that the matter affects only the interests of one or
more series, shareholders of the unaffected series are not
entitled to vote on such matters.

Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to the
Funds and High Yield Portfolio and provides investment advisory
services to Cash Reserves, Intermediate Bond Fund, Income Fund,
and High Yield Portfolio.

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 the Fund. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. The only
Fund currently operating under the Master Fund/Feeder Fund structure
is High Yield Fund, which commenced operations on Nov. 1, 1996, as a
feeder fund. The Board of Trustees of Income Trust voted on Nov. 5,
1997 to convert Cash Reserves, Intermediate Bond Fund and Income
Fund into feeder funds on or about Feb. 16, 1998 in the case of Cash
Reserves and as of Feb. 2, 1998 for Intermediate Bond Fund and Income
Fund Their master funds will be new portfolios of Base Trust named
SR&F Cash Reserves Portfolio, SR&F Intermediate Bond Portfolio and
SR&F Income Portfolio, which have the same investment objectives
as their respective feeder funds. For more information, please
refer to the Bond Funds prospectus under the caption Master
Fund/Feeder Fund: Structure and Risk Factors.

INVESTMENT POLICIES

The following information supplements the discussion of the
investment objectives and policies described in the Prospectuses.
In pursuing its objective, each Fund will invest as described
below and may employ the investment techniques described in its
Prospectus and elsewhere in this Statement of Additional
Information. Investments and strategies that are common to two or
more Funds are described under Portfolio Investments and
Strategies. The investment objective of each Fund and High Yield
Portfolio is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities" /1/ of that Fund or Portfolio.
- --------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy or (ii) more than 50% of the
outstanding shares.
- --------------

Cash Reserves

This Fund seeks to obtain maximum current income consistent
with the preservation of capital and the maintenance of liquidity
by investing all of its assets in U.S. dollar-denominated money
market instruments maturing in thirteen months or less from time
of investment. Each security must be rated (or be issued by an
issuer that is rated with respect to its short-term debt) within
the highest rating category for short-term debt by at least two
nationally recognized statistical rating organizations ("NRSRO")
(or, if rated by only one NRSRO, by that rating agency) or, if
unrated, determined by or under the direction of the Board of
Trustees to be of comparable quality. These securities may
include:

(1) Securities issued or guaranteed by the U.S. Government or by
its agencies or instrumentalities ("U.S. Government
Securities");
(2) Securities issued or guaranteed by the government of any
foreign country that are rated at time of purchase A or better
(or equivalent rating) by at least one NRSRO;
(3) Certificates of deposit, bankers' acceptances and time
deposits of any bank (U.S. or foreign) having total assets in
excess of $1 billion, or the equivalent in other currencies
(as of the date of the most recent available financial
statements) or of any branches, agencies or subsidiaries (U.S.
or foreign) of any such bank;
(4) Commercial paper of U.S. or foreign issuers;
(5) Notes, bonds, and debentures rated at time of purchase A or
better (or equivalent rating) by at least one NRSRO;
(6) Repurchase agreements /2/ involving securities listed in (1)
above;
(7) Other high-quality short-term debt obligations.
- ----------
/2/ 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. 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.
- ----------

The Fund will maintain a dollar-weighted average portfolio
maturity appropriate to its objective of maintaining a stable net
asset value per share and not in excess of 90 days. It is a
fundamental policy which may not be changed without the approval
of a majority of the outstanding voting securities, that the
maturity of any instrument that grants the holder the right to
redeem at par plus interest and without penalty will be deemed at
any time to be the next date provided for payment on exercise of
such optional redemption right.

It is the Fund's intention, as a general policy, to hold
securities to maturity. However, the Fund may attempt, from time
to time, to increase its yield by trading to take advantage of
variations in the markets for short-term money market instruments.
In addition, redemptions of the Fund's shares could necessitate
the sale of portfolio securities and these sales may occur when
such sales would not otherwise be desirable. While the Fund seeks
to invest in high-quality money market instruments, these
investments are not entirely without risk. An increase in
interest rates will generally reduce the market value of the
Fund's portfolio investments and a decline in interest rates will
generally increase the market value of the Fund's portfolio
investments. Investments in instruments other than U.S.
Government Securities are also subject to default by the issuer.

Because the Fund's investment policy permits it to invest in:
securities of foreign branches of U.S. banks (Eurodollars), U.S.
branches of foreign banks (Yankee dollars), and foreign banks and
their foreign branches, such as negotiable certificates of
deposit; securities of foreign governments; and securities of
foreign issuers, such as commercial paper and corporate notes,
bonds and debentures, investment in that Fund might involve risks
that are different in some respects from an investment in a fund
that invests only in debt obligations of U.S. domestic issuers.
Such risks may include future political and economic developments,
the possible imposition of foreign withholding taxes on interest
income payable on securities held in the portfolio, possible
seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other
foreign governmental restrictions that might adversely affect the
payment of principal and interest on securities in the Fund's
portfolio. Additionally, there may be less public information
available about foreign banks and their branches. Foreign banks
and foreign branches of foreign banks are not regulated by U.S.
banking authorities, and generally are not bound by accounting,
auditing, and financial reporting standards comparable to U.S.
banks.

The Fund may invest in notes and bonds that bear floating or
variable rates of interest, and that ordinarily have stated
maturities in excess of thirteen months, but permit the holder to
demand earlier payment of principal and accrued interest, upon not
more than 30 days' advance notice, at any time or after stated
intervals not exceeding thirteen months. Such instruments are
commonly referred to as "demand" obligations. Variable rate
demand notes include master demand notes, which are obligations
that permit the Fund to invest fluctuating amounts, which may
change daily without penalty, pursuant to direct arrangements
between the Fund, as lender, and the borrower. The interest rates
on these notes fluctuate from time to time. The issuer of such
obligations normally has a right, after a given period, to prepay
the outstanding principal amount of the obligations plus accrued
interest upon a specified number of days' notice to the holders of
such obligations. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's
prime rate, and is adjusted automatically each time the rate
changes. The interest rate on a variable rate obligation is
adjusted automatically at the end of specified intervals.
Frequently, such obligations are secured by letters of credit or
other credit support arrangements provided by banks. Because
these obligations are direct lending arrangements between the
lender and borrower, it is not contemplated that such instruments
will generally be traded, and there generally is no established
secondary market for these obligations, although they are
redeemable at face value. Accordingly, where these obligations
are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the
ability of the borrower to pay principal and interest on demand.
Such obligations frequently are not rated by credit rating
agencies and the Fund may invest in obligations that are not so
rated only if the Board of Trustees determines that the
obligations are of comparable quality to the other obligations in
which the Fund may invest.

The Fund may purchase from financial institutions
participation interests in securities. A participation interest
gives the Fund an undivided interest in the security in the
proportion that the Fund's participation interest bears to the
total principal amount of the security. The Fund may also
purchase certificates of participation, such as participations in
a pool of mortgages or credit card receivables. Participation
interests and certificates of participation both may have fixed,
floating or variable rates of interest with remaining maturities
of one year or less. If these instruments are unrated, or have
been given a rating below that which is permissible for purchase
by the Fund, they will be backed by an irrevocable letter of
credit or guarantee of a bank, or the payment obligation otherwise
will be collateralized by U.S. Government Securities, or, in the
case of unrated participation interests, the Board of Trustees
must have determined that the instrument is of comparable quality
to those instruments in which the Fund may invest.

Under normal market conditions, the Fund will invest at least
25% of its assets in securities of issuers in the financial
services industry. This policy may cause the Fund to be more
adversely affected by changes in market or economic conditions and
other circumstances affecting the financial services industry.
The financial services industry includes issuers that, according
to the Directory of Companies Required to File Annual Reports with
the Securities and Exchange Commission, are in the following
categories: State banks; national banks; savings and loan holding
companies; personal credit institutions; business credit
institutions; mortgage-backed securities; financial services;
security and commodity brokers, dealers and services; life,
accident and health insurance carriers; fire, marine, casualty and
surety insurance carriers; insurance agents, brokers and services.

Intermediate Bond Fund

This Fund's investment objective is to provide a high level
of current income, consistent with the preservation of capital, by
investing primarily in marketable debt securities. Under normal
market conditions, the Fund will invest at least 65% of the value
of its total assets (taken at market value at the time of
investment) in convertible and non-convertible bonds and
debentures, and at least 60% of its assets will be invested in the
following:

(2) U.S. Government Securities;

(3) Commercial paper rated Prime-1 by Moody's or A-1 by S&P at
time of purchase, or, if unrated, issued or guaranteed by a
corporation with any outstanding debt rated Aa or better by
Moody's or AA or better by S&P; and

(4) Bank obligations, including repurchase agreements, of banks
having total assets in excess of $1 billion.

The Fund also may invest in other debt securities (including
those convertible into, or carrying warrants to purchase, common
stocks or other equity interests, and privately placed debt
securities); preferred stocks (including those convertible into,
or carrying warrants to purchase, common stocks or other equity
interests); and marketable common stocks that the Adviser
considers likely to yield relatively high income in relation to
cost.

The Fund may invest up to 35% of its total assets in debt
securities that are rated below investment grade (with no minimum
permitted rating) and that, on balance, 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. (See
Portfolio Investments and Strategies for more information on the
risks associated with investing in debt securities rated below
investment grade.)

Income Fund

Although Income Fund will invest at least 60% of its assets
in medium- or higher-quality debt securities, it may also invest
to a lesser extent in debt securities of lower quality (in the
case of rated securities, having a rating by Moody's or S&P of not
less than C). Although the Fund can invest up to 40% of its
assets in lower-quality securities, it does not intend to invest
more than 35% in lower-quality securities. Lower-quality debt
securities are obligations of issuers that are predominantly
speculative with respect to the issuer's capacity to pay interest
and repay principal. Income Fund may invest in lower-quality debt
securities; for example, if the Adviser believes the financial
condition of the issuers or the protection offered to the
particular obligations is stronger than is indicated by low
ratings or otherwise. (See Portfolio Investments and Strategies
for more information on the risks associated with investing in
debt securities rated below investment grade.) Income Fund may
invest in higher-quality securities; for example, under
extraordinary economic or financial market conditions, or when the
spreads between the yields on medium- and high-quality securities
are relatively narrow.

Some issuers of debt securities choose not to have their
securities rated by a rating service, and Income Fund may invest
in unrated securities that the Adviser believes are suitable for
investment.

High Yield Fund

High Yield Fund seeks to achieve its objective by investing
all of its assets in High Yield Portfolio. The investment
objective of High Yield Portfolio is identical to that of the
Fund. High Yield Portfolio seeks total return by investing for a
high level of current income and capital growth.

High Yield Portfolio invests principally in high-yield, high-
risk medium- and lower-quality debt securities. The medium- and
lower-quality debt securities in which High Yield Portfolio will
invest normally offer a current yield or yield to maturity that is
significantly higher than the yield from securities rated in the
three highest categories assigned by rating services such as S&P
or Moody's.

Under normal circumstances, at least 65% of High Yield
Portfolio's assets will be invested in high-yield, high-risk
medium- and lower-quality debt securities rated lower than Baa by
Moody's and lower than BBB by S&P, or equivalent ratings as
determined by other rating agencies or unrated securities that the
Adviser determines to be of comparable quality. Medium-quality
debt securities, although considered investment grade, have some
speculative characteristics. Lower-quality debt 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." Some issuers of debt securities
choose not to have their securities rated by a rating service, and
High Yield Portfolio may invest in unrated securities that the
Adviser has researched and believes are suitable for investment.
High Yield Portfolio may invest in debt obligations that are in
default, but such obligations are not expected to exceed 10% of
High Yield Portfolio's assets. (See Portfolio Investments and
Strategies for more information on the risks associated with
investing in debt securities rated below investment grade.)

PORTFOLIO INVESTMENTS AND STRATEGIES

Unless otherwise noted, for purposes of discussion under
Portfolio Investments and Strategies, the term "Fund" refers to
Cash Reserves, Intermediate Bond Fund, Income Fund, High Yield
Fund, and High Yield Portfolio.

Derivatives

Consistent with its objective, each Bond Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, and other
instruments the value of which is "derived" from the performance
of an underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency ("Derivatives").

Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.

High Yield Portfolio does not currently intend to invest more
than 5% of its net assets in any types of Derivatives except
options, futures contracts, and futures options. Income Fund does
not currently intend to invest, nor has the Fund during its past
fiscal year invested, more than 5% of its net assets in any type
of Derivative, except options, futures contracts, and futures
options. Intermediate Bond Fund does not currently intend to
invest, nor has it during its past fiscal year invested, more than
5% of its net assets in any type of Derivative except options,
futures contracts, futures options and obligations collateralized
by either mortgages or other assets. (See Mortgage and Other
Asset-Backed Securities, Variable and Floating Rate Instruments,
and Options and Futures below.)

Medium- and Lower-Quality Debt Securities

Each Bond Fund may invest in medium- and lower-quality debt
securities. Medium-quality debt securities, although considered
investment grade, have some speculative characteristics. Lower-
quality securities, commonly referred to as "junk bonds," are
those rated below the fourth highest rating category or bond of
comparable quality.

Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. A Fund seeks to reduce investment
risk through diversification, credit analysis, and evaluation of
developments in both the economy and financial markets.

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.

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 a Fund may have greater difficulty selling its
portfolio securities. The market value of these securities and
their liquidity may be affected by adverse publicity and investor
perceptions.

Mortgage and Other Asset-Backed Securities

Each Bond Fund may invest in securities secured by mortgages
or other assets such as automobile or home improvement loans and
credit card receivables. These instruments may be issued or
guaranteed by the U.S. Government or by its agencies or
instrumentalities or by private entities such as commercial,
mortgage and investment banks and financial companies or financial
subsidiaries of industrial companies.

Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social and market factors.
If mortgages are prepaid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates. The Funds tend to invest in CMOs of classes known as
planned amortization classes ("PACs") which have prepayment
protection features tending to make them less susceptible to price
volatility.

REMICs

Each Bond Fund may invest in real estate mortgage investment
conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of
holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple
classes of securities. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA-
, FHLMC- or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued and
guaranteed as to timely distribution and principal and interest by
FNMA.

Variable and Floating Rate Instruments

Each Bond Fund may also invest in floating rate instruments
which provide for periodic adjustments in coupon interest rates
that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the
adjusted duration of some of these instruments may be materially
shorter than their stated maturities. To the extent such
instruments are subject to lifetime or periodic interest rate caps
or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted
duration is an inverse relationship between market price and
interest rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by
approximately 2%. Neither Income Fund nor High Yield Portfolio
intends to invest more than 5% of its net assets in floating rate
instruments. Intermediate Bond Fund does not intend to invest
more than 10% of its net assets in floating rate instruments.

In accordance with its investment objective and policies,
Cash Reserves may invest in variable and floating rate money
market instruments which provide for periodic or automatic
adjustments in coupon interest rates that are reset based on
changes in amount and direction of specified short-term interest
rates. Cash Reserves will not invest in a variable or floating
rate instrument unless the Adviser determines that as of any reset
date the market value of the instrument can reasonably be expected
to approximate its par value.

Lending of Portfolio Securities

Subject to restriction (7) under Investment Restrictions,
each Bond Fund may lend its portfolio securities to broker-dealers
and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current
basis in an amount at least equal to the market value of the
securities loaned by a Fund. The Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on
the securities loaned, and would also receive an additional return
that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and
obtain the securities loaned at any time on notice of not more
than five business days. In the event of bankruptcy or other
default of the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned
securities and losses including (a) possible decline in the value
of the collateral or in the value of the securities loaned 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.

None of the Bond Funds has loaned portfolio securities during
its last fiscal year, nor does it intend to loan more than 5% of
its net assets.

Repurchase Agreements

Each Fund may invest in repurchase agreements, provided that
it will not invest more than 10% 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.

When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements; Standby Commitments

Cash Reserves may purchase instruments on a when-issued or
delayed-delivery basis. Although the payment terms are
established at the time the Fund enters into the commitment, the
instruments may be delivered and paid for some time after the date
of purchase, when their value may have changed and the yields
available in the market may be greater. The Fund will make such
commitments only with the intention of actually acquiring the
instruments, but may sell them before settlement date if it is
deemed advisable for investment reasons. Securities purchased in
this manner involve risk of loss if the value of the security
purchased declines before settlement date.

Each of the Bond Funds may purchase securities on a when-
issued or delayed-delivery basis, as described in its Prospectus.
A Bond Fund makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for
investment reasons. Securities purchased on a when-issued or
delayed-delivery basis are sometimes done on a "dollar roll"
basis. Dollar roll transactions consist of the sale by a Fund of
securities with a commitment to purchase similar but not identical
securities, generally at a lower price at a future date. A dollar
roll may be renewed after cash settlement and initially may
involve only a firm commitment agreement by a Fund to buy a
security. A dollar roll transaction involves the following risks:
if the broker-dealer to whom a Fund sells the security becomes
insolvent, the Fund's right to purchase or repurchase the security
may be restricted; the value of the security may change adversely
over the term of the dollar roll; the security which a Fund is
required to repurchase may be worth less than a security which the
Fund originally held; and the return earned by a Fund with the
proceeds of a dollar roll may not exceed transaction costs.

Each of the Bond Funds may enter into reverse repurchase
agreements with banks and securities dealers. 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. Use
of a reverse repurchase agreement may be preferable to a regular
sale and later repurchase of securities because it avoids certain
market risks and transaction costs.

At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
or other "high grade" debt obligations) of the Fund having a value
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. The use of
these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value
fluctuation.

Standby commitment agreements create an additional risk for
each Fund because the other party to the standby agreement
generally will not be obligated to deliver the security, but the
Fund will be obligated to accept it if delivered. Depending on
market conditions, the Fund may receive a commitment fee for
assuming this obligation. If prevailing market interest rates
increase during the period between the date of the agreement and
the settlement date, the other party can be expected to deliver
the security and, in effect, pass any decline in value to the
Fund. If the value of the security increases after the agreement
is made, however, the other party is unlikely to deliver the
security. In other words, a decrease in the value of the
securities to be purchased under the terms of a standby commitment
agreement will likely result in the delivery of the security, and,
therefore, such decrease will be reflected in the Fund's net asset
value. However, any increase in the value of the securities to be
purchased will likely result in the non-delivery of the security
and, therefore, such increase will not affect the net asset value
unless and until the Fund actually obtains the security.

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 the Fund 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.

Line of Credit

Subject to restriction (8) 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.

Interfund Borrowing and Lending Program

Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Funds have received permission to lend
money to, and borrow money from, other mutual funds advised by the
Adviser. 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.

PIK and Zero Coupon Bonds

Each Bond Fund may invest in both zero coupon bonds and bonds
the interest on which is payable in kind ("PIK bonds"). A zero
coupon bond is a bond that does not pay interest for its entire
life. A PIK bond pays interest in the form of additional
securities. The market prices of both zero coupon and PIK 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 and in cash. In
addition, because a Fund accrues income with respect to these
securities prior to the receipt of such interest in cash, 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. High Yield Portfolio may invest up to 20% of its
total assets in PIK and zero coupon bonds.

Rated Securities

For a description of the ratings applied by Moody's and S&P
(two of the approved NRSROs) to debt securities, please refer to
the Appendix. The rated debt securities described under
Investment Policies above for each Fund include securities given a
rating conditionally by Moody's or provisionally by S&P. If the
rating of a security held by a Fund is withdrawn or reduced, the
Fund is not required to sell the security, but the Adviser will
consider such fact in determining whether that Fund should
continue to hold the security. To the extent that the ratings
accorded by a NRSRO for debt 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 debt securities in accordance with its
investment policies.

Foreign Securities

Each Bond Fund may invest up to 25% of total assets (taken at
market value at the time of investment) in securities of foreign
issuers that are not publicly traded in the United States
("foreign securities"). For purposes of these limits, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), securities denominated in U.S.
dollars, or securities guaranteed by U.S. persons. Investment in
foreign securities may involve a greater degree of risk (including
risks relating to exchange fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers.

Such Funds may invest in both "sponsored" and "unsponsored"
ADRs. In a sponsored ADR, the issuer typically pays some or all
of the expenses of the depositary and agrees to provide its
regular shareholder communications to ADR holders. An unsponsored
ADR is created independently of the issuer of the underlying
security. The ADR holders generally pay the expenses of the
depositary and do not have an undertaking from the issuer of the
underlying security to furnish shareholder communications. No
Fund expects to invest as much as 5% of its total assets in
unsponsored ADRs.

With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Funds'
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)

Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts
involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.

Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.

Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.

The Funds' foreign currency exchange transactions are limited
to transaction and portfolio hedging involving either specific
transactions or portfolio positions, except to the extent
described below under Synthetic Foreign Positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of a Fund arising in
connection with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with respect to
portfolio security positions denominated or quoted in a particular
foreign currency. Portfolio hedging allows the Fund to limit or
reduce its exposure in a foreign currency by entering into a
forward contract to sell such foreign currency (or another foreign
currency that acts as a proxy for that currency) at a future date
for a price payable in U.S. dollars so that the value of the
foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. A Fund may not engage
in portfolio hedging with respect to the currency of a particular
country to an extent greater than the aggregate market value (at
the time of making such sale) of the securities held in its
portfolio denominated or quoted in that particular currency,
except that a Fund may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective
proxy for other currencies. In such a case, a Fund may enter into
a forward contract where the amount of the foreign currency to be
sold exceeds the value of the securities denominated in such
currency. The use of this basket hedging technique may be more
efficient and economical than entering into separate forward
contracts for each currency held in a Fund. No Fund may engage in
"speculative" currency exchange transactions.

At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to
such contract and make delivery of the currency, or it may retain
the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same
amount of the currency.

It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.

If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive a Fund of unrealized profits or force the Fund to cover
its commitments for purchase or sale of currency, if any, at the
current market price.

Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund of engaging in currency exchange
transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.

Synthetic Foreign Positions. The Funds may invest in debt
instruments denominated in foreign currencies. In addition to, or
in lieu of, such direct investment, a Fund may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. The
results of a direct investment in a foreign currency and a
concurrent construction of a synthetic position in such foreign
currency, in terms of both income yield and gain or loss from
changes in currency exchange rates, in general should be similar,
but would not be identical because the components of the
alternative investments would not be identical.

The Funds may also construct a synthetic foreign position by
entering into a swap arrangement. A swap is a contractual
agreement between two parties to exchange cash flows--at the time
of the swap agreement and again at maturity, and, with some swaps,
at various intervals through the period of the agreement. The use
of swaps to construct a synthetic foreign position would generally
entail the swap of interest rates and currencies. A currency swap
is a contractual arrangement between two parties to exchange
principal amounts in different currencies at a predetermined
foreign exchange rate. An interest rate swap is a contractual
agreement between two parties to exchange interest payments on
identical principal amounts. An interest rate swap may be between
a floating and a fixed rate instrument, a domestic and a foreign
instrument, or any other type of cash flow exchange. A currency
swap generally has the same risk characteristics as a forward
currency contract, and all types of swaps have counter-party risk.
Depending on the facts and circumstances, swaps may be considered
illiquid. Illiquid securities usually have greater investment
risk and are subject to greater price volatility. The net amount
of the excess, if any, of a Fund's obligations over which it is
entitled to receive with respect to an interest rate or currency
swap will be accrued daily and liquid assets (cash, U.S.
Government securities, or other "high grade" debt obligations) of
the Fund having a value at least equal to such accrued excess will
be segregated on the books of the Fund and held by the Custodian
for the duration of the swap.

The Funds may also construct a synthetic foreign position by
purchasing an instrument whose return is tied to the return of the
desired foreign position. An investment in these "principal
exchange rate linked securities" (often called PERLS) can produce
a similar return to a direct investment in a foreign security.

Rule 144A Securities

Each Bond Fund may purchase securities that have been
privately placed but that are eligible for purchase and sale under
Rule 144A under the 1933 Act. That Rule 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. The Adviser, 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. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser 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. 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 Bond 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 the Adviser.

Portfolio Turnover

For information on the portfolio turnover rate of a Fund, see
Financial Highlights in its Prospectus. General portfolio
turnover information is also contained in the Prospectuses under
Risks and Investment Considerations.

The portfolio turnover rates of Intermediate Bond Fund and
Income Fund have been greater than 100% in recent fiscal years
because of increased volatility in the financial markets and the
Adviser's techniques for reacting to changes in the markets to
shift exposures to certain sectors and to capture gains. The
turnover rate for each of the Funds in the future may vary greatly
from year to year, and when portfolio changes are deemed
appropriate due to market or other conditions, such turnover rate
may be greater than might otherwise be anticipated. A high rate
of portfolio turnover may result in increased transaction expenses
and the realization of capital gains or losses. Distributions of
any net realized gains are subject to federal income tax. (See
Financial Highlights, Risks and Investment Considerations, and
Distributions and Income Taxes in the Prospectuses, and Additional
Income Tax Considerations in this Statement of Additional
Information.)

Options on Securities and Indexes

Each Bond Fund may purchase and may sell both put options and
call options on debt or other securities or indexes in
standardized contracts traded on national 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.

An option on a security (or index) 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 the index) at a specified exercise price at any time during the
term of the option. The writer of an option on an individual
security 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 Bond Fund will 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 Bond 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 the 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 on Securities and Indexes.
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 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 has purchased.

Futures Contracts and Options on Futures Contracts

Each Bond Fund may use 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 /3/ 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; GNMA Certificates; three-
month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; and
foreign currencies. It is expected that other futures contracts
will be developed and traded.
- ---------
/3/ 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 Funds may purchase and write call and put 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 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. A Fund might, for example, use
futures contracts to hedge against or gain exposure to
fluctuations in the general level of security prices, anticipated
changes in interest rates or currency fluctuations that 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 security price, interest rate and currency
fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts
and futures options.

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

The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of
security prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, a Fund's return
might have been better had the transaction not been attempted;
however, in the absence of the ability to use futures contracts,
the Adviser might have taken portfolio actions in anticipation of
the same market movements with similar investment results but,
presumably, at greater transaction costs.

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 a 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
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 trading and futures options 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 a 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 other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Bond Fund may also use those investment vehicles, provided
the Board of Trustees determines that their use is consistent with
the Fund's investment objective.

A Bond 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 that Fund plus
premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," /4/ would
exceed 5% of the Fund's total assets.
- ---------
/4/ A call option 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 is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- ---------

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 contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian 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 the 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 Bond 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, and 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 are 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

Each Fund and High Yield Portfolio operate under the
following investment restrictions. A Fund or High Yield Portfolio
may not:

(1) invest in a security if, as a result of such investment,
more than 25% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of
issuers in any particular industry, except that this restriction
does not apply to (i) U.S. Government Securities, (ii) [Cash
Reserves only] repurchase agreements, or (iii) [Cash Reserves
only] securities of issuers in the financial services industry,
and [all except High Yield Portfolio] 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;

(2) 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 such investment)
would be invested in the securities of any one issuer, except that
this restriction does not apply to U.S. Government Securities or
repurchase agreements for such securities and [all except High
Yield Portfolio] 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;/5/
- ----------
/5/ Notwithstanding the foregoing, and in accordance with Rule 2a-
7 of the Investment Company Act of 1940 (the "Rule"), Cash
Reserves 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 it 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.
- ----------

(3) invest in a security if, as a result of such investment,
it would hold more than 10% (taken at the time of such investment)
of the outstanding voting securities of any one issuer, [all
except High Yield Portfolio] 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;

(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate, or
interests therein);

(5) purchase or sell commodities or commodities contracts or
oil, gas or mineral programs, [Bond Funds only] except that it may
enter into (i) futures and options on futures and (ii) forward
contracts;

(6) purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of
portfolio securities, [Bond Funds only] but it may make margin
deposits in connection with transactions in options, futures, and
options on futures;

(7) make loans, although it may (a) [Bond Funds only] lend
portfolio securities and [all Funds] 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
(taken at market value at the time of such loans); (b) purchase
money market instruments and enter into repurchase agreements; and
(c) acquire publicly distributed or privately placed debt
securities;

(8) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes, (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, and [Bond Funds only] (c) enter into futures and
options transactions; [all Funds] it may borrow from banks, other
Stein Roe Funds and Portfolios, and other persons to the extent
permitted by applicable law;

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

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

The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities" of a Fund or High Yield Portfolio, as
previously defined herein. The policy on the scope of
transactions involving lending of portfolio securities to broker-
dealers and banks (as set forth herein under Portfolio Investments
and Strategies) is also a fundamental policy.

Each Fund and High Yield Portfolio are also subject to the
following restrictions and policies that may be changed by the
Board of Trustees. None of the following restrictions shall
prevent a Fund from investing all or substantially all of its
assets in another investment company having the same investment
objective and substantially similar investment policies as the
Fund. Unless otherwise indicated, a Fund or High Yield Portfolio
may not:

(A) invest for the purpose of exercising control or
management;

(B) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets; /6/
- -------------
/6/ The Funds have been informed that the staff of the Securities
and Exchange Commission takes the position that the issuers of
certain CMOs and certain other collateralized assets are
investment companies and that subsidiaries of foreign banks may be
investment companies for purposes of Section 12(d)(1) of the
Investment Company Act of 1940, which limits the ability of one
investment company to invest in another investment company.
Accordingly, the Funds intend to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
- -------------

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

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

(E) 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 which are not listed on the New York or American Stock
Exchange;

(F) [Bond Funds 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;

(G) [Bond Funds only] write an option on a security unless
the option is issued by the Options Clearing Corporation, an
exchange, or similar entity;

(H) [Bond Funds only] invest in limited partnerships in real
estate unless they are readily marketable;

(I) sell securities short unless (i) it owns or has the
right to obtain securities equivalent in kind and amount to those
sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to
receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to
obtain and [Bond Funds only] provided that transactions in
options, futures, and options on futures are not treated as short
sales;

(J) [Bond Funds only] invest more than 15% of its total
assets (taken at market value at the time of a particular
investment) in restricted securities, other than securities
eligible for resale pursuant to Rule 144A under the Securities Act
of 1933;

(K) invest more than 10% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities /7/, including repurchase agreements maturing in more
than seven days.
- ----------
/7/ In the judgment of the Adviser, Private Placement Notes, which
are issued pursuant to Section 4(2) of the Securities Act of 1933,
generally are readily marketable even though they are subject to
certain legal restrictions on resale. As such, they are not
treated as being subject to the limitation on illiquid securities.
- ----------

ADDITIONAL INVESTMENT CONSIDERATIONS

The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. In working to
build wealth for generations, 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, the Adviser 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 and redemptions are discussed in the Prospectuses
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectuses disclose that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to Income Trust of any such purchase order. The
state of Texas has asked that Income Trust disclose in its
Statement of Additional Information, as a reminder to any such
bank or institution, that it must be registered as a dealer in
Texas.

Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in Jan., the third Monday in Feb.,
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 3:00 p.m., central time.

Income Trust reserves the right to suspend or postpone
redemptions of shares of any Fund 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 of such Fund not reasonably practicable.

Although Cash Reserves does not currently charge a fee to its
shareholders for the use of the special Check-Writing Redemption
Privilege offered by that Fund, as described under How to Redeem
Shares in the Money Market Funds Prospectus, Cash Reserves 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.

Income Trust intends to pay all redemptions in cash and is
obligated to redeem shares of a Fund solely in cash up to the
lesser of $250,000 or one percent of the net assets of that Fund
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.

Due to the relatively high cost of maintaining smaller
accounts, Income Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than the minimum and allowed
at least 30 days to bring the value of the account up to at least
$1,000 before the redemption is processed. The Agreement and
Declaration of Trust also authorizes Income Trust to redeem shares
under certain other circumstances as may be specified by the Board
of Trustees.

MANAGEMENT

The following table sets forth certain information with
respect to trustees and officers of Income Trust:

<TABLE>
<CAPTION>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME AGE INCOME TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>

William D. Andrews 50 Executive Vice-President Executive vice president of Stein Roe & Farnham
(4) Incorporated (the "Adviser")

Gary A. Anetsberger 41 Senior Vice-President Chief financial officer of the Mutual Funds division of the
(4) Adviser; senior vice president of the Adviser since Apr.
1996; vice president of the Adviser prior thereto

Timothy K. Armour 49 President; Trustee President of the Mutual Funds division of the Adviser
(1)(2)(4) and director of the Adviser

Jilaine Hummel Bauer 42 Executive Vice-President; General counsel and secretary (since Nov. 1995) and
(4) Secretary senior vice president of the Adviser

Kenneth L. Block 77 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
(3)(4) management consultants)

William W. Boyd 70 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(3)(4) (manufacturer of plumbing products)

Thomas W. Butch (4) 40 Executive Vice-President Senior vice president of the Adviser since Sept. 1994;
first vice president, corporate communications, of
Mellon Bank Corporation prior thereto

Lindsay Cook (1)(4) 45 Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of the Adviser)
since Mar. 1997; senior vice president prior thereto

Philip J. Crosley 51 Vice-President Senior vice president of the Adviser since Feb. 1996;
vice president, institutional sales - advisor sales,
Invesco Funds Group prior thereto

Douglas A. Hacker 42 Trustee Senior vice president and chief financial officer of
(3)(4) United Airlines, since July 1994; senior vice president
- finance, United Airlines, Feb. 1993 to July 1994;
vice president, American Airlines prior thereto

Loren A. Hansen (4) 49 Executive Vice-President Executive vice president of the Adviser since Dec., 1995;
vice president of The Northern Trust (bank) prior thereto

Janet Langford Kelly 39 Trustee Senior vice president, secretary and general counsel of
(3)(4) Sara Lee Corporation (branded, packaged, consumer-
products manufacturer), since 1995; partner, Sidley &
Austin (law firm) prior thereto

Michael T. Kennedy 35 Vice-President Senior vice president of the Adviser since Oct. 1994;
vice president of the Adviser prior thereto

Stephen F. Lockman 36 Vice-President Senior vice president, portfolio manager, and credit
analyst of the Adviser; portfolio manager for Illinois
State Board of Investment prior thereto

Lynn C. Maddox 56 Vice-President Senior vice president of the Adviser

Anne E. Marcel 39 Vice-President Vice president of the Adviser since Apr. 1996; manager,
mutual fund sales & services of the Adviser since Oct.
1994; supervisor of the Counselor Department of the
Adviser prior thereto

Francis W. Morley 77 Trustee Chairman of Employer Plan Administrators and
(2)(3)(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)

Jane M. Naeseth 47 Vice-President Senior vice president of the Adviser

Charles R. Nelson 55 Trustee Van Voorhis Professor of Political Economy of the
(3)(4) University of Washington

Nicolette D. Parrish 47 Vice-President; Senior compliance administrator and assistant secretary
(4) Assistant Secretary of the Adviser since Nov. 1995; senior legal assistant
for the Adviser prior thereto

Sharon R. Robertson 35 Controller Accounting manager for the Adviser's Mutual Funds
(4) division

Janet B. Rysz (4) 42 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser

Thomas C. Theobald 60 Trustee Managing director, William Blair Capital Partners (
(3)(4) private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994

Scott E. Volk (4) 26 Treasurer Financial reporting manager for the Adviser's Mutual
Funds division since Oct. 1997; senior auditor with
Ernst & Young LLP from Sept. 1993 to Apr. 1996 and
from Oct. 1996 to Sept. 1997; financial analyst with
John Nuveen & Company Inc. from May 1996 to Sept. 1996;
full-time student prior to Sept. 1993

Heidi J. Walter (4) 30 Vice-President Legal counsel for the Adviser since Mar. 1995;
associate with Beeler Schad & Diamond PC (law firm)
prior thereto

Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser since Oct. 1996;
associate of Bell, Boyd & Lloyd (law firm) from June
1993 to Sept. 1996; associate of Debevoise & Plimpton
(law firm) prior thereto

Hans P. Ziegler (4) 56 Executive Vice-President Chief executive officer of the Adviser since May 1994;
president of the Investment Counsel division of the
Adviser from July 1993 to June 1994; president and
chief executive officer, Pitcairn Financial Management
Group prior thereto

Margaret O. Zwick 31 Assistant Treasurer Project manager for the Adviser's Mutual Funds division
(4) since Apr. 1997; compliance manager, Aug. 1995 to Apr.
1997; compliance accountant, Jan. 1995 to July 1995;
section manager, Jan. 1994 to Jan. 1995; supervisor
prior thereto
<FN>
______________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, 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 holds the corresponding officer or trustee
position with Base Trust.
</TABLE?

Certain of the trustees and officers of Income Trust and of
Base Trust are trustees or officers of other investment companies
managed by the Adviser. Mr. Armour, Ms. Bauer, Mr. Cook, and Ms.
Walter are also vice presidents of the Funds' current distributor,
Liberty Securities Corporation. The address of Mr. Block is 11 Woodley
Road, Winnetka, Illinois 60093; that of Mr. Boyd is 2900 Golf
Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is 600
Atlantic Avenue, Boston, MA 02210; that of Mr. Hacker is P.O. Box
66100, Chicago, IL 60666; that of Ms. Kelly is Three First
National Plaza, Chicago, Illinois 60602; that of Mr. Morley is 20
North Wacker Drive, Suite 2275, Chicago, Illinois 60606; that of
Mr. Nelson is Department of Economics, University of Washington,
Seattle, Washington 98195; that of Mr. Theobald is Suite 3300, 222
West Adams Street, Chicago, IL 60606; and that of the officers is
One South Wacker Drive, Chicago, Illinois 60606.

Associated with the Adviser since 1977, Ms. Naeseth has been
portfolio manager of Cash Reserves since 1980. From 1973 to 1977,
she was with the First Trust Company of Ohio. She received her
B.A. degree from the University of Illinois in 1972. As of June
30, 1997, she was responsible for managing $576 million in mutual
fund assets.

Officers and trustees affiliated with the Adviser serve
without any compensation from Income Trust. In compensation for
their services to Income Trust, trustees who are not "interested
persons" of Income Trust or the Adviser are paid an annual
retainer of $8,000 (divided equally among the Funds of Income
Trust) plus an attendance fee from each Fund for each meeting of
the Board or standing committee thereof attended at which business
for that Fund is conducted. The attendance fees (other than for a
Nominating Committee or Compensation Committee meeting) are based
on each Fund's net assets as of the preceding Dec. 31. For a Fund
with net assets of less than $50 million, the fee is $50 per
meeting; with $51 to $250 million, the fee is $200 per meeting;
with $251 million to $500 million, $350; with $501 million to $750
million, $500; with $751 million to $1 billion, $650; and with
over $1 billion in net assets, $800. For a Fund participating in
the master fund/feeder fund structure, the trustees' attendance
fees are paid solely by the master portfolio. Each non-interested
trustee also receives $500 from Income Trust for attending each
meeting of the Nominating Committee or Compensation Committee.
Income Trust has no retirement or pension plan. The following
table sets forth compensation paid during the fiscal year ended
June 30, 1997, to the trustees:

Aggregate
Name of Compensation Total Compensation from
Trustee from Income Trust the Stein Roe Fund Complex*
- ---------------- ----------------- ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block $15,567 $70,693
William W. Boyd 17,867 80,593
Douglas A. Hacker 16,867 76,593
Janet Langford Kelly 9,200 51,600
Francis W. Morley 16,867 76,943
Charles R. Nelson 17,867 80,593
Thomas C. Theobald 16,867 76,593
_______________
* At June 30, 1997, the Stein Roe Fund Complex consisted of six
series of Income Trust, four series of Stein Roe Municipal Trust,
ten series of Stein Roe Investment Trust, seven series of Stein
Roe Advisor Trust, one series of Stein Roe Institutional Trust,
one series of Stein Roe Trust, and nine series of Base Trust.

FINANCIAL STATEMENTS

Please refer to the Funds' June 30, 1997 Financial Statements
(balance sheets and schedules of investments as of June 30, 1997
and the statements of operations, changes in net assets, and notes
thereto) and the reports of independent auditors contained in the
June 30, 1997 Annual Reports of the Money Market Funds and the
Bond Funds. The Financial Statements and the reports of
independent auditors (but no other material from the Annual
Reports) are incorporated herein by reference. The Annual Reports
may be obtained at no charge by telephoning 800-338-2550.

PRINCIPAL SHAREHOLDERS

As of Oct. 31, 1997, the only persons known by Income Trust
to own of record or "beneficially" 5% or more of 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:

NAME AND ADDRESS FUND APPROXIMATE % OF
OUTSTANDING
SHARES HELD
- ---------------------- --------------------- -----------------
First Bank National Cash Reserves 11.7%
Association* Intermediate Bond Fund 15.7%
410 N. Michigan Avenue Income Fund 14.9%
Chicago, IL 60611 High Yield Fund 43.4%

Charles Schwab & Co., Intermediate Bond Fund 37.8%
Inc.* Income Fund 17.8%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104

The Northern Trust Co.** Income Fund 21.4%
F/B/O Liberty Mutual
Daily Valuation Transitions
P.O. Box 92956
Chicago, IL 60675

Liberty Financial High Yield Fund 19.8%
Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210

Smith Barney, Inc.* Intermediate Bond Fund 5.8%
333 West 34th Street
7th Floor, Mutual
Funds Division
New York, NY 10013

National Financial Income Fund 12.8%
Service Corp.*
P.O. Box 3908,
Church Street Station
New York, NY 10008
_______________________
*Shares held of record, but not beneficially.
**Northern Trust Company holds shares of record on behalf of the
Liberty Mutual Employees' Thrift-Incentive Plan.

The following table shows shares of the Funds held by the
categories of persons indicated as of Oct. 31, 1997, and in each
case the approximate percentage of outstanding shares represented:

Clients of the Adviser Trustees and
in their Client Accounts* Officers
------------------------ -------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Cash Reserves 63,122,464 12.5% 1,658,209 **
Intermediate Bond Fund 7,293,546 16.9 118,040 **
Income Fund 9,013,525 21.6 83,648 **
High Yield Fund 383,060 14.1 2,592 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.

INVESTMENT ADVISORY SERVICES

Stein Roe & Farnham Incorporated provides administrative
services to each Fund and High Yield Portfolio and portfolio
management services to Cash Reserves, Intermediate Bond Fund,
Income Fund, and High Yield Portfolio. The Adviser 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 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 the Adviser are Kenneth R. Leibler, Harold
W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Cogger is Executive Vice President of
Liberty Financial; Mr. Merritt is Executive Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of Messrs.
Leibler, Cogger, and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of Messrs. Armour and Ziegler is One
South Wacker Drive, Chicago, Illinois 60606.

The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1997, the Adviser managed
over $28 billion in assets: over $9 billion in equities and over
$19 billion in fixed income securities (including $1.7 billion in
municipal securities). The $28 billion in managed assets included
over $7.9 billion held by open-end mutual funds managed by the
Adviser (approximately 15% of the mutual fund assets were held by
clients of the Adviser). These mutual funds were owned by over
259,000 shareholders. The $7.9 billion in mutual fund assets
included over $766 million in over 50,000 IRA accounts. In
managing those assets, the Adviser utilizes a proprietary
computer-based information system that maintains and regularly
updates information for approximately 7,000 companies. The
Adviser also monitors over 1,400 issues via a proprietary credit
analysis system. At June 30, 1997, the Adviser employed 16
research analysts and 55 account managers. The average
investment-related experience of these individuals was 24 years.

Stein Roe Counselor [service mark] and Stein Roe Personal
Counselor [service mark] are professional investment advisory
services offered by the Adviser to Fund shareholders. Each 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, the Adviser's investment professionals create
customized portfolio recommendations. Shareholders participating
in Stein Roe Counselor [service mark] are free to self direct
their investments while considering the Adviser's recommendations;
shareholders participating in Stein Roe Personal Counselor
[service mark] enjoy the added benefit of having the Adviser
implement portfolio recommendations automatically for a fee of 1%
or less, depending on the size of their portfolios. In addition
to reviewing shareholders' goals and objectives periodically and
updating portfolio recommendations to reflect any changes, the
Adviser provides shareholders participating in these programs with
a dedicated Counselor [service mark] representative. Other
distinctive services include specially designed account statements
with portfolio performance and transaction data, newsletters, and
regular investment, economic, and market updates. A $50,000
minimum investment is required to participate in either program.

Please refer to the descriptions of the Adviser, the
management and administrative agreements, fees, expense
limitations, and transfer agency services under Management and Fee
Table in the Prospectuses, which are incorporated herein by
reference. The advisory agreement relating to each Fund (other
than High Yield Fund) was replaced on July 1, 1996 with separate
management and administrative agreements. The table below shows
gross fees paid and any expense reimbursements by the Adviser
during the past three fiscal years:

YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 6/30/97 6/30/96 6/30/95
- ------------- ------------ ---------- ---------- ----------
Cash Reserves Advisory fee -- $2,432,015 $2,648,885
Management fee $1,207,715 -- --
Administrative fee 1,207,715 -- --
Intermediate
Bond Fund Advisory fee -- 1,533,498 1,491,075
Management fee 1,090,523 -- --
Administrative fee 465,614 -- --
Reimbursement 54,108 157,406 25,687
Income Fund Advisory fee -- 1,482,696 1,011,101
Management fee 1,630,122 -- --
Administrative fee 446,018 -- --
Reimbursement 40,778 149,999 48,232
High Yield
Fund Administrative fee 9,385 -- --
Reimbursement 81,211 -- --
High Yield
Portfolio Management fee 52,997 -- --

The Adviser 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
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.

Each Fund's administrative agreement provides that the
Adviser shall reimburse the Fund to the extent that total annual
expenses of the Fund (including fees paid to the Adviser, but
excluding taxes, interest, brokers' commissions and other normal
charges incident to the purchase and sale of portfolio securities,
and expenses of litigation to the extent permitted under
applicable state law) exceed the applicable limits prescribed by
any state in which shares of 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 such Fund under
that agreement for such year. In addition, in the interest of
further limiting the Funds' expenses, the Adviser may voluntarily
waive its management fee and/or absorb certain expenses for a
Fund, as described in the Prospectuses under Fee Table. Any such
reimbursements will enhance the yields of such Fund.

Each management agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to Income Trust or Base Trust or any shareholder of the
Fund or High Yield 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 the Adviser of its duties
under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Adviser's part
in the performance of its duties or from reckless disregard by the
Adviser of the Adviser's obligations and duties under that
agreement.

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

Bookkeeping and Accounting Agreement

Pursuant to a separate agreement with Income Trust, the
Adviser receives a fee for performing certain bookkeeping and
accounting services for each Fund. For these services, the
Adviser 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, 1995, 1996 and 1997, the Adviser received
aggregate fees of $114,541, $173,384 and $116,135, respectively,
from Income Trust for services performed under this agreement.

DISTRIBUTOR

Shares of the Funds are currently distributed by Liberty
Securities Corporation, 100 Manhattanville Road, Purchase, NY
10577. On Jan. 1, 1998, Liberty Financial Investments (formerly
named Colonial Investment Services, Inc.), One Financial Center,
Boston, MA 02111, will become the Funds' distributor under a new
Distribution Agreement. Liberty Securities Corporation and
Liberty Financial Investments, Inc. are subsidiaries 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 Income Trust, and (2) by a majority of the
trustees who are not parties to the Agreement or interested
persons of any such party. Income 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

SSI performs certain transfer agency services for Income
Trust, as described under Management in each Prospectus. For
performing these services, SSI receives a fee based on an annual
rate of 0.150 of 1% of average daily net assets from Cash Reserves
and 0.140 of 1% of average daily net assets from each Bond Fund
(but not High Yield Portfolio). The Board of Trustees believes
the charges by SSI to the Funds are comparable to those of other
companies performing similar services. (See Investment Advisory
Services.) Under a separate agreement, SSI also provides certain
investor accounting services to High Yield Portfolio.

CUSTODIAN

State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
Income Trust and 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 Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.

Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network, and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.

Each Board of Trustees reviews, at least annually, whether it
is in the best interests of each Fund, High Yield Portfolio, and
their shareholders to maintain assets in each custodial
institution. However, with respect to foreign sub-custodians,
there can be no assurance that a Fund, and the value of its
shares, will not be adversely affected by acts of foreign
governments, financial or operational difficulties of the foreign
sub-custodians, difficulties and costs of obtaining jurisdiction
over, or enforcing judgments against, the foreign sub-custodians,
or application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.

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

INDEPENDENT AUDITORS

The independent auditors for Income Trust and High Yield
Portfolio are Ernst & Young LLP, 233 South Wacker Drive, Chicago,
Illinois 60606. 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 Trust.

PORTFOLIO TRANSACTIONS

For purposes of discussion under Portfolio Transactions, the
term "Fund" refers to Cash Reserves, Intermediate Bond Fund,
Income Fund, High Yield Fund, and High Yield Portfolio.

The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for the
Bond Funds. Purchases and sales of portfolio securities are
ordinarily transacted with the issuer or with a primary market
maker acting as principal or agent for the securities on a net
basis, with no brokerage commission being paid by a Fund.
Transactions placed through dealers reflect the spread between the
bid and asked prices. Occasionally, a Fund may make purchases of
underwritten issues at prices that include underwriting discounts
or selling concessions.

The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges, if any, and other costs, normally is an important factor
in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's
knowledge of current transaction costs; the nature of the security
being traded; the size of the transaction; the desired timing of
the trade; 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 that are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or
apparent operational problems of any broker or dealer.
Recognizing the value of these factors, a Fund may incur a
transaction charge in excess of that which another broker or
dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of the costs of portfolio
transactions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff and reports are made annually
to the Board of Trustees.

With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for a Fund, the
Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends and similar
data, and computer databases, quotation equipment and services,
research-oriented computer software and services, and services of
economic and other consultants. Selection of brokers or dealers
is not made pursuant to an agreement or understanding with any of
the brokers or dealers; however, the Adviser uses an internal
allocation procedure to identify those brokers or dealers who
provide it with research products or services and the amount of
research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Funds, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services which are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions of clients
(including the Funds), while the portion of the costs attributable
to non-research usage of such products or services is paid by the
Adviser in cash. No person acting on behalf of a Fund is
authorized, in recognition of the value of research products or
services, to pay a price in excess of that which another broker or
dealer might have charged for effecting the same transaction. The
Adviser may also receive research in connection with selling
concessions and designations in fixed price offerings in which the
Funds participate. Research products or services furnished by
brokers and dealers through whom transactions are effected may be
used in servicing any or all of the clients of the Adviser and not
all such research products or services are used in connection with
the management of such Fund.

The Board has reviewed the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted under the Rules of the Association of the National
Association of Securities Dealers ("NASD"). Therefore, except
with respect to purchases by Income Fund of municipal securities
which are not subject to NASD Rules, the Funds will not attempt to
recapture underwriting discounts or selling concessions. If
Income Fund were to purchase municipal securities, it would
attempt to recapture selling concessions included in prices paid
by Income Fund in underwritten offerings; however, the Adviser
would not be able to negotiate discounts from the fixed offering
price for those issuers 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 for Income Fund.

The following table shows any commissions paid by the Bond
Funds on futures transactions during the past three fiscal years.
The Funds did not pay commissions on any other transactions.

Intermediate High Yield
Bond Fund Income Fund Portfolio
----------- ----------- ----------
Total brokerage commissions
paid during year ended
6/30/97 -0- -0- -0-
Number of futures contracts -0- -0- -0-
Total brokerage commissions
paid during year ended
6/30/96 -0- -0- --
Total brokerage commissions
paid during year ended
6/30/95 $25,000 -0- --

The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees.

During the last fiscal year, certain Funds held securities
issued by one or more of their regular broker-dealers or the
parent of such broker-dealers that derive more than 15% of gross
revenue from securities-related activities. Such holdings were as
follows at June 30, 1997:

Amount of Securities
Fund Broker-Dealer Held (in thousands)
- -------------- --------------------------- -------------------
Cash Reserves Associates Corp. of N.A. $16,250
Merrill Lynch 3,996

Intermediate Bond
Fund Paine Webber Group Inc. 5,664
Prudential Property 5,983

Income Fund Goldman Sachs Group L.P. 6,033
Lehman Brothers, Inc. 3,902
Merrill Lynch 3,140
Morgan Stanley Group 3,917

ADDITIONAL INCOME TAX CONSIDERATIONS

Each Fund and High Yield Portfolio intend 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.

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

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

ADDITIONAL INFORMATION ON THE DETERMINATION OF NET
ASSET VALUE OF THE MONEY MARKET FUNDS

Please refer to Net Asset Value in the Money Market Funds
Prospectus, which is incorporated herein by reference. Cash
Reserves 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 use of amortized cost and the
maintenance of a per share net asset value of $1.00, the Trust has
agreed, with respect to Cash Reserves: (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; 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.

Cash Reserves 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 the portfolio holdings by the Board
of Trustees, at such intervals as it deems appropriate, to
determine whether the net asset values calculated by using
available market quotations or market equivalents deviate 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 the Adviser's matrix, or values
obtained from an independent pricing service. Any such service
might value investments based on methods which include
consideration of: yields or prices of 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 Cash Reserves' use of the amortized cost
method of portfolio valuation to maintain its net asset value at
$1.00 per share, it 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 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.

INVESTMENT PERFORMANCE

Money Market Funds

A Money Market 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.

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 Cash Reserves for the seven-day
period ended June 30, 1997, were:

$.000951233 365
----------- ---
Current Yield = $1.00 x 7 = 4.96%

[1+$.000951233]35/7
-------------------
Effective Yield = $1.00 - 1 = 5.08%

The average dollar-weighted portfolio maturity of Cash
Reserves for the seven days ended June 30, 1997, was 44 days.

In addition to fluctuations reflecting changes in net income
of a Money Market Fund resulting from changes in income earned on
its portfolio securities and in its expenses, yield also would be
affected if the Fund were to restrict or supplement its dividends
in order to maintain its net asset value at $1.00. (See Net Asset
Value in the Money Market Funds' Prospectus and Additional
Information on the Determination of Net Asset Value of the Money
Market Funds herein.) Portfolio changes resulting from net
purchases or net redemptions of Fund shares may affect yield.
Accordingly, the yield of Cash Reserves 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 yield of Cash Reserves
is not assured, and its principal is not insured; however, it will
attempt to maintain its net asset value per share at $1.00.

Comparison of Cash Reserves' 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.

Bond Funds

A Bond Fund may quote yield figures from time to time. The
"Yield" of a Bond 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. 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.

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 Bond Funds for the 30-day
period ended June 30, 1997, were:

Intermediate Bond Fund Yield = 6.83%
Income Fund Yield = 6.93%
High Yield Fund = 8.12%
_____________________

Each Fund may quote total return figures from time to time.
A "Total Return" on a per share basis is the amount of dividends
received per share plus or minus the change in the net asset value
per share for a period. A "Total Return Percentage" may be
calculated by dividing the value of a share at the end of a period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.

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 thereof).

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, 1997 were:

TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
Cash Reserves
1 year $1,049 4.92% 4.92%
5 years 1,223 22.33 4.11
10 years 1,709 70.94 5.51

Intermediate Bond Fund
1 year 1,093 9.31 9.31
5 years 1,401 40.11 6.98
10 years 2,209 120.87 8.25

Income Fund
1 year 1,103 10.34 10.34
5 years 1,498 49.76 8.41
10 years 2,350 134.95 8.92

High Yield Fund
Life of Fund* 1,169 16.94 16.94
_______
*Since commencement of operations on Nov. 1, 1996.

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
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
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.

A Fund's performance may be compared to the following as
indicated below:

Benchmark Fund(s)
- ----------------------------------- -----------------------
CS First Boston High Yield Index High Yield Fund
Donoghue's Money Fund Averages
[trademark]--Aggressive Cash Reserves
Donoghue's Money Fund Averages
[trademark]--All Taxable Cash Reserves
Donoghue's Money Fund Averages
[trademark]--Prime Cash Reserves
Donoghue's Money Fund Averages [
trademark]--Prime and Eurodollar Cash Reserves
Donoghue's Money Fund Averages
[trademark]--Prime, Eurodollar,
and Yankeedollar Cash Reserves
Donoghue's Money Fund Averages
[trademark]--Taxable
(Includes the previous four
categories) Cash Reserves
Lehman Aggregate Index Intermediate Bond Fund
Lehman Government/Corporate Index Intermediate Bond Fund
Lehman High Yield Bond Index High Yield Fund
Lehman High Yield Corporate Bond Index High Yield Fund
Lehman Intermediate Corporate Bond Index Income Fund
Lehman Intermediate Government/
Corporate Index Intermediate Bond Fund
Lipper All Long-Term Fixed Income Intermediate Bond Fund,
Funds Average Income Fund
Lipper Corporate Bond Funds (A Rated)
Average Intermediate Bond Fund
Lipper Corporate Bond Funds (BBB
Rated) Average Income Fund
Lipper Intermediate-Term (5-10 Year)
Investment Grade Debt Funds Average Intermediate Bond Fund
Lipper Long-Term Taxable Bond Funds Intermediate Bond Fund,
Average Income Fund
Lipper Money Market Instrument Funds
Average Cash Reserves
Lipper Short-Term Income Fund Average Cash Reserves
Merrill Lynch Corporate and Government Intermediate Bond Fund,
Master Index Income Fund
Merrill Lynch High-Yield Master Index Income Fund,
High Yield Fund
Morningstar All Long-Term Fixed Intermediate Bond Fund,
Income Funds Average Income Fund
Morningstar Corporate Bond (General) Income Fund,
Average High Yield Fund
Morningstar Corporate Bond (High
Quality) Average Intermediate Bond Fund
Morningstar Long-Term Taxable Bond Intermediate Bond Fund,
Funds Average Income Fund
Salomon Brothers Broad Investment Intermediate Bond Fund,
Grade Bond Index Income Fund
Salomon Brothers Extended High Yield
Market Index High Yield Fund
Salomon Brothers High Yield Market Index High Yield 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 these 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 against 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.

The Merrill Lynch High-Yield Master Index measures the total
return performance of corporate debt issues rated less than
investment grade but not in default. The Merrill Lynch Corporate
and Government Master Index measures total return performance of a
broad range of U.S. Treasury, federal agency, and corporate debt
securities, but excluding mortgage-backed securities. The Salomon
Brothers Broad Investment Grade Bond Index measures the market-
weighted total return of a wide range of debt securities,
including U.S. Treasury/agency securities, investment-grade
corporate bonds, and mortgage pass-through securities.

A Money Market Fund may compare its after-tax yield (computed
by multiplying the yield by one minus the highest marginal federal
individual tax rate) to the average yield for the tax-free
categories of the aforementioned services.

Investors may desire to compare the performance and features
of Cash Reserves to those of various bank products. Cash Reserves
may compare its 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 [copyright], a North Palm Beach (Florida)
financial reporting service, in its BANK RATE MONITOR [copyright]
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 a 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 a 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 a Fund
are redeemable at the next determined net asset value (normally,
$1.00 per share) after a request is received, without charge.

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 stocks
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
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on Jan. 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 3%, 5%, 7%, or 9%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)

</TABLE>
<TABLE>
<CAPTION>
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT

Interest
Rate 3% 5% 7% 9% 3% 5% 7% 9%
- --------------------------------------------------------------------------------
Com-
pound-
ing
Years Tax-Deferred Investment Taxable Investment
- ---- ------------------------------------ ------------------------------------

Average Life Calculations. From time to time, a Fund may
quote an average life figure for its portfolio. Average life is
the weighted average period over which the Adviser expects the
principal to be paid, and differs from stated maturity in that it
estimates the effect of expected principal prepayments and call
provisions. With respect to GNMA securities and other mortgage-
backed securities, average life is likely to be substantially less
than the stated maturity of the mortgages in the underlying pools.
With respect to obligations with call provisions, average life is
typically the next call date on which the obligation reasonably
may be expected to be called. Securities without prepayment or
call provisions generally have an average life equal to their
stated maturity.

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 Stein Roe Personal Counselor [service mark]
programs and asset allocation and other investment strategies.

APPENDIX--RATINGS

RATINGS IN GENERAL

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

The following is a description of the characteristics of
ratings used by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P").

CORPORATE BOND RATINGS

Ratings By Moody's

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

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

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

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

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

Ratings By S&P

AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.

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

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

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

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

COMMERCIAL PAPER RATINGS

Ratings By Moody's

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

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

Ratings By S&P

A brief description of the applicable rating symbols and
their meaning follows: