STEIN ROE INCOME TRUST, 497, 1998-02-02

STEIN ROE INCOME TRUST
497, 1998-02-02

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Prospectus Feb. 2, 1998

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 by investing 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, and Appendix--Ratings.)

Each Fund seeks to achieve its objective by investing all of
its net investable assets in a corresponding portfolio of SR&F
Base Trust that has the identical investment objective and
substantially the same investment policies as the Fund. The investment
experience of each Fund will correspond to its respective Portfolio.
(See Master Fund/Feeder Fund: Structure and Risk Factors.)

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 Feb. 2, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. That
information, material incorporated by reference, and other
information regarding registrants that file electronically with
the SEC is available at the SEC's website, www.sec.gov.
This prospectus is also available electronically by using Stein
Roe's Internet address: 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................................. 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... 31
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 ("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 seeks total return by investing for a high level of current
income and capital growth. Each Fund invests as described below.

Intermediate Bond Fund invests all of its net investable assets in
SR&F Intermediate Bond Portfolio ("Intermediate Bond Portfolio")
which pursues a high level of current income, consistent with
capital preservation, by investing primarily in marketable debt
securities. At least 60% of its 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, it 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 invests all of its net investable assets in SR&F
Income Portfolio ("Income Portfolio") which 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 Portfolio 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") which 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 the investment objectives
and policies, please see Investment Policies and Portfolio
Investments and Strategies. There is, of course, no assurance
that any Fund or Portfolio will achieve its investment objective.

Investment Risks. The risks inherent in each Fund and 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 net asset value, but not the income
received from 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 Portfolios 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 no-load 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 no-load Stein Roe Fund. (See Distributions and Income Taxes
and Shareholder Services.)

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

If you have any additional questions about the Funds, 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.)

Each Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets and each Portfolio pays the
Adviser a management fee based on the Portfolio's average daily
net assets. The expenses of both the Funds and the Portfolios are
summarized in the Fee Table above and are described under Management.
Each Fund bears its proportionate share of the fees and expenses of
its corresponding Portfolio. The trustees of Income Trust have
considered whether the annual operating expenses of each Fund,
including its proportionate share of Portfolio expenses, would be
more or less than if the Fund invested directly in the securities
held by the Portfolio. The trustees concluded that Fund 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 following tables 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
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 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 invests in a
separate portfolio of securities and other assets, with its own
objectives and policies.

Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management, administrative, and accounting and
bookkeeping services to the Funds and the Portfolios. 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.

High Yield Fund was organized as a "feeder fund" and on Feb.
2, 1998, Intermediate Bond Fund and Income Fund became "feeder
funds"--that is, each invested all of its respective assets in a "master
fund" that has an investment objective identical to that of the
Fund. Each master fund is a series of SR&F Base Trust ("Base
Trust"; each master fund is referred to as a "Portfolio.". Prior
to converting to a feeder fund, Intermediate Bond Fund and Income
Fund had invested their assets in a diversified group of
securities. Under the "master fund/feeder fund structure," a
feeder fund and one or more other feeder funds pool their assets in a
master portfolio that has the identical investment objective and
substantially the same investment policies as the feeder funds.
The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. The assets of each
Portfolio are managed by the Adviser in the same manner as the
assets of the feeder fund were managed before conversion to the
master fund/feeder fund structure. (For more information, see
Master Fund/Feeder Fund: Structure and Risk Factors.)

INVESTMENT POLICIES

Each Fund invests as described in the section 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.

The investment objective of Intermediate Bond Fund is to provide a
high level of current income, consistent with the preservation of
capital. It invests all of its net investable assets in SR&F
Intermediate Bond Portfolio ("Intermediate Bond Portfolio"), which
has the identical objective. Intermediate Bond Portfolio invests
primarily in marketable debt securities. Under normal market
conditions, it 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, Intermediate Bond Portfolio
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.

Intermediate Bond Portfolio 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.

Intermediate Bond Portfolio 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 Intermediate Bond Portfolio.

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 invests all of its net
investable assets in SR&F Income Portfolio ("Income Portfolio"),
which has the identical objective.

Income Portfolio 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 Portfolio 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 Income Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may
invest in unrated securities that the Adviser believes are
suitable for investment.

Under normal market conditions, Income Portfolio 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 Portfolio for a sufficient time to permit orderly
disposition thereof or to establish long-term holding periods for
federal income tax purposes.

Income Portfolio 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 Portfolio.

The investment objective of High Yield Fund is to seek total
return by investing for a high level of current income and capital
growth. It seeks to achieve its objective by investing all of its
net investable assets in SR&F High Yield Portfolio ("High Yield
Portfolio"), which has the identical objective.

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

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
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio expects to invest more
than 5% of its net assets in any type of Derivative except: for
each Portfolio, options, futures contracts, and futures options;
and for Intermediate Bond Portfolio, 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 Portfolio 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 on purchase of the securities, and the proceeds of prepayment
would likely be invested at lower interest rates. Each Portfolio
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 Portfolio 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 Portfolio 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
Portfolio and High Yield Portfolio do not intend to invest more
than 5% of net assets in floating rate instruments. Intermediate
Bond Portfolio does not intend to invest more than 10% of net
assets in floating rate instruments.

Futures and Options. Each Portfolio 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 Portfolio 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 Portfolio may write a call or put option only
if the option is covered. As the writer of a covered call option,
the Portfolio 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 Portfolio 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 Portfolio 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 Portfolios may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu of,
such direct investment, a Portfolio 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 Portfolios 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 Portfolio 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 Portfolio 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 Portfolio The Portfolio 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 Portfolio 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 Portfolio 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 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 Portfolios 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 Portfolio'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 Portfolio 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 Portfolio 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
Portfolio'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 on the sales proceeds of the
dollar roll.

Each Portfolio 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.

PIK and Zero Coupon Bonds. Each Portfolio 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 Portfolio 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 Portfolio 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 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 Portfolio 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 Portfolios, 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, a
Portfolio's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that it 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. No Portfolio 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
Portfolio 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
Portfolio 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 Portfolio 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 a Portfolio 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

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

No Fund or Portfolio 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, a Fund, but not a 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
Portfolio 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 Portfolio could experience
both delays in liquidating the underlying securities and losses.
A Portfolio may not invest more than 10% of its net assets in
repurchase agreements maturing in more than seven days and other
illiquid securities.
- ----------

While no Fund or Portfolio may make loans, each 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 or Portfolio
may not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither aggregate borrowings
(including reverse repurchase agreements) nor aggregate loans at
any one time may exceed 33 1/3% of the value of 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 and each Portfolio./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 Portfolio
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
its master Portfolio, as well as on market conditions.

A decline in prevailing levels of interest rates generally
increases the value of securities in an investment portfolio,
while an increase in rates usually reduces the value of those
securities. As a result, interest rate fluctuations will affect
net asset value, but not the income received from 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 portfolio contain
call, prepayment or redemption provisions, during a period of
declining interest rates, these securities are likely to be
redeemed, and a Portfolio 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 Portfolio 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 Portfolio assure that payments of interest
and principal on portfolio securities will be made when due. If,
after purchase, the rating of a portfolio security is lost or
reduced, the Portfolio 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 investment portfolio.

The investment objective of each Fund and its master
Portfolio is not fundamental and may be changed by the Board of
Trustees without a vote of shareholders. If there were a change
in an 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
no-load 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] program. 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]
program 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. Credit card convenience checks will not be accepted for
initial or subsequent purchases into your account. Each
individual check submitted for purchase must be at least $100, and
the Funds 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]
program 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 no-load 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.

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

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. 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 will delay
payment of the redemption proceeds to you until it can verify that
payment for the purchase of those shares has been (or will be)
collected. To reduce such delays, 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. Income Trust reserves the right to redeem any account
with a value of $10 or less without prior written notice to the
shareholder. Due to the proportionately higher costs of
maintaining small accounts, the transfer agent may charge and
deduct from the account a $5 per quarter minimum balance fee if
the account is a regular account with a balance below $2,000 or an
UGMA account with a balance below $800. This minimum balance fee
does not apply to Stein Roe IRAs, other Stein Roe prototype
retirement plans, accounts with automatic investment plans (unless
regular investments have been discontinued), or omnibus or
nominee accounts. The transfer agent 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 you cause it to sustain
(such as loss from an uncollected check or electronic transfer or any
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 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 mark] Automated Telephone Service. To
access Stein Roe Funds-on-Call [registered mark], just call 800-
338-2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered mark] 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 mark] 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 mark] 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 Stein Roe
Counselor [service mark] program is a professional investment
advisory service available to shareholders. This program is
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds.

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 no-load 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--diversify your Fund investments
by having distributions from one Fund account automatically
invested in another no-load 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)--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--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)--redeem
shares at any time and have the proceeds deposited directly to
your bank account ($50 minimum; $100,000 maximum).

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

Special Investments (electronic transfer)--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--automatically redeem a fixed
dollar amount from your Fund account and invest it in another
no-load Stein Roe Fund account on a regular basis ($50 minimum;
$100,000 maximum).

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

Systematic Withdrawals--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 or 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 regular session 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. Each Portfolio
allocates net asset value, income, and expenses to its feeder funds
in proportion to their respective interests in the Portfolio.

Net asset value will not be determined on days when the NYSE
is closed unless, in the judgment of the Board of Trustees, the
net asset value 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. If a shareholder elected to
receive dividends and/or capital gains distributions in cash and the
postal or other delivery service selected by the transfer agent is
unable to deliver checks to the shareholder's address of record,
such shareholder's distribution option will automatically be converted
to having all dividend and other distributions reinvested in additional
shares. 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. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.

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.

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.

The Taxpayer Relief Act of 1997 (the "Act") reduced from 28%
to 20% the maximum tax rate on long-term capital gains. This
reduced rate generally applies to securities held for more than 18
months and sold after July 28, 1997, and securities held for more
than one year and sold between May 6, 1997 and July 29, 1997.

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 no guarantee
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 the Funds and the Portfolios.

The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for managing
the investment portfolios of the Portfolios and the business
affairs of the Funds, the Portfolios, 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 Portfolio)
might be liable for misstatements in the prospectus regarding
information concerning another Fund.

Portfolio Managers. Michael T. Kennedy has been manager of
Intermediate Bond Portfolio since its inception in Feb. 1998 and
had 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 has been manager of High Yield Portfolio
since Mar. 1997 and of Income Portfolio since its inception in
Feb. 1998. Prior thereto, he had been portfolio manager of Income
Fund since Mar. 1997 and associate portfolio manager of High Yield
Portfolio since Nov. 1996 and of Income Fund since Oct. 1995. Mr.
Lockman joined the Adviser in Jan. 1994 and was a senior research
analyst for the Adviser's fixed income department from 1994 to
1997. 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 the Portfolios under a management
agreement. The Adviser is entitled to receive a monthly
administrative fee from each Fund and a monthly portfolio
management fee from each Portfolio, based on its average net
assets and computed and accrued daily, at the following annual
rates:

Fund Management Fee Administrative Fee
- -------------------- ------------------------ ------------------------
Intermediate Bond
Fund N/A .150%
Intermediate Bond
Portfolio .350% N/A
Income Fund N/A .150% up to $100 million,
.125% thereafter
Income Fund .500% up to $100 million,
.475% thereafter N/A
High Yield Fund N/A .150% up to $500 million,
.125% thereafter
High Yield Portfolio .500% up to $500 million,
.475% thereafter N/A

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 the Portfolios 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 distributed by Liberty
Financial Investments, Inc. ("Distributor"), One Financial Center,
Boston, Massachusetts 02111. The Distributor is a subsidiary of
Colonial Management Associates, Inc., which is an indirect
subsidiary of Liberty Financial. Fund shares 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 the 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] program 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.

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.

MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS

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

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

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

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

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

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

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

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

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

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

<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 Financial Investments, Inc. Distributor
Member, SIPC

<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]

Defined Contribution Plans

Stein Roe Income Fund
Prospectus
Feb. 2, 1998

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. (See
Investment Policies.) Income Fund seeks to achieve its objective
by investing all of its net investable assets in SR&F Income
Portfolio, a series of SR&F Base Trust that has the identical
investment objective and substantially the same investment
policies as the Fund. The investment experience of Income Fund
will correspond to Income Portfolio. (See Master Fund/Feeder
Fund: Structure and Risk Factors.)

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

Income Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. Income 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 Income Fund. Please read it carefully and
retain it for future reference.

A Statement of Additional Information dated Feb. 2, 1998,
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.... 8
How to Purchase Shares................. 9
How to Redeem Shares.................. 10
Net Asset Value....................... 10
Distributions and Income Taxes.........11
Investment Return......................11
Management.............................11
Organization and Description of Shares.13
Master Fund/Feeder Fund: Structure and
Risk Factors.......................13
For More Information...................15

___________________________
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 Income Fund. The table is based on
actual expenses incurred in the last fiscal year.

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

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 Fund shares, and that, for purposes of fee breakpoints,
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 following table reflects the results of operations of Income
Fund on a per-share basis and has been audited by Ernst & Young
LLP, independent auditors. The table should be read in
conjunction with Income Fund's financial statements and notes
thereto. The annual report, which may be obtained from Income
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 ("Income Fund"). Income 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.

Income Fund is a series of Income 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.

On Feb. 2, 1998, Income Fund became a "feeder fund"--that is, it
invested all of its assets in SR&F Income Portfolio ("Income
Portfolio"), a "master fund" that has an investment objective
identical to that of Income Fund. Income Portfolio is a series of
SR&F Base Trust ("Base Trust"). Prior to converting to a feeder
fund, Income Fund had invested its assets in a diversified group
of securities. Under the "master fund/feeder fund structure," a
feeder fund and one or more other feeder funds pool their assets in a
master portfolio that has the same investment objective and
substantially the same investment policies as the feeder funds.
The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. The assets of Income
Portfolio, Income Fund's master fund, are managed by the Adviser
in the same manner as the assets of Income Fund were managed
before conversion to the master fund/feeder fund structure. (For
more information, see Master Fund/Feeder Fund: Structure and Risk
Factors.)

Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services to Income Portfolio and
administrative services to Income Fund and Income Portfolio. 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 Income 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. Income Fund invests all of its net
investable assets in Income Portfolio, which has the same
investment objective and substantially the same investment
policies as Income Fund. Income Portfolio 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 Income Portfolio 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 Income Portfolio 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." Income
Portfolio 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. Income
Portfolio 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.

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 investment objective will be more dependent on
the Adviser's credit analysis than would be the case if Income
Portfolio 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 Income Portfolio 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, Income Portfolio 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 Portfolio for a sufficient time to permit orderly
disposition thereof or to establish long-term holding periods for
federal income tax purposes.

Income Portfolio 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 Portfolio.
___________________________
Portfolio Investments and Strategies

Derivatives.
Consistent with its objective, Income Portfolio 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"). Income Portfolio
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. Income Portfolio 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. Income Portfolio 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
Portfolio does not intend to invest more than 5% of net assets in
floating rate instruments.

Futures and Options. Income Portfolio 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. Income Portfolio 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. Income Portfolio may write a call or put option
only if the option is covered. As the writer of a covered call
option, Income Portfolio 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 Income Portfolio 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 Income Portfolio 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.
Income Portfolio may invest in sponsored or unsponsored ADRs. In
addition to, or in lieu of, such direct investment, Income
Portfolio 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, Income Portfolio 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
Income Fund were invested in foreign securities as defined above,
and Income Portfolio 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.
Income Portfolio 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 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, Income Portfolio 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 it. Income
Portfolio 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. Income Portfolio
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,
Income Portfolio 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
Income Portfolio 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. Income
Portfolio 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.
Income Portfolio'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. Income Portfolio 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 Income Portfolio
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
Income Portfolio'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 Income Portfolio
on the sales proceeds of the dollar roll.

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

Rule 144A Securities.
Income Portfolio 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, Income Portfolio's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that it 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. Income Portfolio 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, Income Portfolio 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 investment 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 generally will exceed ten years, the
Adviser may adjust the average maturity of the 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 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

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

Neither Income Fund nor Income Portfolio 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, Income 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 Income
Portfolio 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, Income Portfolio could
experience both delays in liquidating the underlying securities
and losses. Income Portfolio may not invest more than 10% of its
net assets in repurchase agreements maturing in more than seven
days and other illiquid securities.
- --------

While neither Income Fund nor Income Portfolio may make loans,
each 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.
Neither may borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither aggregate borrowings
(including reverse repurchase agreements) nor aggregate loans at
any one time may exceed 33 1/3% of the value of 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 Income Fund and Income Portfolio. 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 Income
Portfolio seeks to reduce risk by investing in a diversified
portfolio, this does not eliminate all risk. The risks inherent
in Income Fund depend primarily upon the term and quality of the
obligations in the investment portfolio, as well as on market
conditions.

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

Income 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.

Income Portfolio 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 Income Fund and Income Portfolio
will achieve their objective, nor can Income Portfolio assure that
payments of interest and principal on portfolio securities will be
made when due. If, after purchase by Income Portfolio, the rating
of a portfolio security is lost or reduced, Income Portfolio 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 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 Income Fund remains an appropriate investment in light of
their then-current financial position and needs.
___________________________
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 Income 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 net
asset value (see Net Asset Value) next determined after receipt of
payment by Income Fund. Each purchase of shares through a broker-
dealer, bank or other Intermediary ("Intermediary") that is an
authorized agent of Income 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
Income 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
Income Trust in Chicago and is not binding until accepted and
entered on the books of Income Fund. Once your purchase order has
been accepted, you may not cancel or revoke it; however, you may
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 Income 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
Income 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 no-load 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 no-load 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 no-load Stein Roe Funds available
through your plan. Income 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 Income 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 or redemption price of Income Fund's shares is its
net asset value per share. The net asset value of a Fund share is
determined as of the close of regular session trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., central time) by dividing
the difference between the values of Income 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 should
be determined on any such day, in which case the determination
will be made at 3:00 p.m., central time. Income Portfolio allocates
net asset value, income, and expenses to Income Fund and any other of
its feeder funds in proportion to their respective interests in Income
Portfolio.

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 Income Portfolio
for which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
___________________________
Distributions and Income Taxes

Distributions.
Income dividends are declared each business day and are paid
monthly. Income 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. Income 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 Income Fund. Generally, dividend and capital
gains distributions will be reinvested in additional Fund shares.

Income Taxes.
Income 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. Income 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
Income 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 Income Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in
Income Fund) from such a plan. This section is not intended to be
a full discussion of income tax laws and their effect on
shareholders.
___________________________
Investment Return

The total return from an investment in Income 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 Income 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 Income 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. Income 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 no guarantee 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 and the Board of Base Trust
have overall management responsibility for Income Fund and Income
Portfolio, respectively. See the Statement of Additional
Information for the names of and additional 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 Income Fund and Income Portfolio.

The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing Income
Fund and Income Portfolio, subject to the direction of the
respective Board of Trustees. 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 manager of Income Portfolio since its
inception in Feb. 1998. Prior thereto, he had been portfolio
manager of Income Fund since Mar. 1997 and associate portfolio
manager since Oct. 1995. Mr. Lockman joined the Adviser in Jan.
1994 and was a senior research analyst for the Adviser's fixed
income department from 1994 to 1997. 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 Income Fund under
an administrative agreement and investment management services to
Income Portfolio under a management agreement. The Adviser is
entitled to receive a monthly administrative fee from Income Fund
at an annual rate of 0.150% of the first $100 million of average
net assets and 0.125% thereafter; and a monthly portfolio
management fee from Income Portfolio at an annual rate of 0.500%
of the first $100 million of average net assets and 0.475%
thereafter, each computed and accrued daily. For the fiscal year
ended June 30, 1997, the management and administrative fees
amounted to 0.61% of average net assets of Income Fund

Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Income Fund and
Income 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.
The shares of Income Fund are offered for sale through Liberty
Financial Investments, Inc. ("Distributor") without any sales
commissions or charges to Income Fund or to its shareholders. The
Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The
business address of the Distributor is One Financial Center,
Boston, Massachusetts 02111; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to
SteinRoe Services Inc., P.O. Box 8900, Boston, Massachusetts
02205. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.

Custodian.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for Income
Fund and Income Portfolio. 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 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.

__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors

Income Fund, which is 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 Income Fund. The shareholders of Income Fund approved
this policy of permitting Income Fund to act as a feeder fund by
investing in Income Portfolio. Please refer to Investment Policies,
Portfolio Investments and Strategies, and Investment Restrictions for a
description of the investment objectives, policies, and
restrictions of Income Fund and Income Portfolio. The management
fees and expenses of Income Fund and Income Portfolio are
described under Fee Table and Management. Income Fund bears its
proportionate share of Income 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.

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

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

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

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

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

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

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

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

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

<PAGE>

[STEIN ROE MUTUAL FUNDS LOGO]

Defined Contribution Plans

Stein Roe Intermediate Bond Fund
Prospectus
Feb. 2, 1998

Intermediate Bond Fund seeks high current income by investing
primarily in marketable debt securities. The dollar-weighted
average life of the portfolio is expected to be between three and
ten years. Intermediate Bond Fund seeks to achieve its objective
by investing all of its net investable assets in SR&F Intermediate
Bond Portfolio, a series of SR&F Base Trust that has the identical
investment objective and substantially the same investment
policies as the Fund. The investment experience of Intermediate Bond
Fund will correspond to Intermediate Bond Portfolio. (See Master
Fund/Feeder Fund: Structure and Risk Factors.)

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

Intermediate Bond Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. Intermediate
Bond 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 Intermediate Bond Fund. Please read it carefully and
retain it for future reference.

A Statement of Additional Information dated Feb. 2, 1998,
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.................. 9
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
Master Fund/Feeder Fund: Structure and
Risk Factors..........................14
For More Information.....................15

___________________________
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 Intermediate Bond Fund. The table is
based upon actual expenses incurred in the last fiscal year.

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

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 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 following table reflects the results of operations of
Intermediate Bond Fund on a per-share basis and has been audited
by Ernst & Young LLP, independent auditors. The table should be
read in conjunction with Intermediate Bond Fund's financial
statements and notes thereto. The annual report, which may be
obtained from Income 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 Intermediate Bond 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 ("Intermediate Bond Fund"). Intermediate
Bond 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.

Intermediate Bond Fund is a series of Income 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.

On Feb. 2, 1998, Intermediate Bond Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F Intermediate Bond
Portfolio ("Intermediate Bond Portfolio"), a "master fund" that
has an investment objective identical to that of Intermediate Bond
Fund. Intermediate Bond Portfolio is a series of SR&F Base Trust
("Base Trust"). Prior to converting to a feeder fund,
Intermediate Bond Fund had invested its assets in a diversified
group of securities. Under the "master fund/feeder fund
structure," a feeder fund and one or more other feeder funds pool their
assets in a master portfolio that has the same investment
objective and substantially the same investment policies as the
feeder funds. The purpose of such an arrangement is to achieve
greater operational efficiencies and reduce costs. The assets of
Intermediate Bond Portfolio, Intermediate Bond Fund's master fund,
are managed by the Adviser in the same manner as the assets of
Intermediate Bond Fund were managed before conversion to the
master fund/feeder fund structure. (For more information, see
Master Fund/Feeder Fund: Structure and Risk Factors.)

Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services to Intermediate Bond Portfolio and
administrative services to Intermediate Bond Fund and Intermediate
Bond Portfolio. 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 Intermediate Bond Fund is to provide a
high level of current income, consistent with the preservation of
capital, by investing primarily in marketable debt securities.
Intermediate Bond Fund invests all of its net investable assets in
Intermediate Bond Portfolio, which has the same investment
objective and substantially the same investment policies as the
Fund. Under normal market conditions, Intermediate Bond Portfolio
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:

Intermediate Bond Portfolio 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.

Intermediate Bond Portfolio 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 investment objective will be more dependent on
the Adviser's credit analysis than would be the case if
Intermediate Bond Portfolio 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 Intermediate Bond Portfolio 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, 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
Intermediate Bond Portfolio.
___________________________
Portfolio Investments and Strategies

Derivatives.
Consistent with its objective, Intermediate Bond Portfolio 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"). Intermediate Bond Portfolio does not
expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures options,
and 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 Securities. Intermediate Bond
Portfolio 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 on purchase of the securities, and the proceeds of prepayment
would likely be invested at lower interest rates. Intermediate
Bond Portfolio 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. Intermediate Bond Portfolio 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. Intermediate Bond Portfolio 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%.
Intermediate Bond Portfolio does not intend to invest more than
10% of net assets in floating rate instruments.

Futures and Options. Intermediate Bond Portfolio 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. Intermediate Bond Portfolio
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. Intermediate Bond Portfolio may write a
call or put option only if the option is covered. As the writer
of a covered call option, Intermediate Bond Portfolio 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 Intermediate
Bond Portfolio 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 Intermediate Bond Portfolio 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. Intermediate Bond Portfolio may
invest in sponsored or unsponsored ADRs. In addition to, or in
lieu of, such direct investment, Intermediate Bond Portfolio 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, Intermediate
Bond Portfolio 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
Intermediate Bond Fund were invested in foreign securities as
defined above, and Intermediate Bond Portfolio 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.
Intermediate Bond Portfolio 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 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, Intermediate Bond Portfolio 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 it.
Intermediate Bond Portfolio 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. Intermediate Bond Portfolio 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, Intermediate Bond
Portfolio 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
Intermediate Bond Portfolio 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. Intermediate Bond Portfolio 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.
Intermediate Bond Portfolio'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. Intermediate
Bond Portfolio 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 Intermediate Bond
Portfolio 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 Intermediate Bond Portfolio'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 Intermediate Bond Portfolio on the sales proceeds
of the dollar roll.

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

Rule 144A Securities.
Intermediate Bond Portfolio 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, Intermediate Bond Portfolio's holdings of
illiquid securities would be reviewed to determine what, if any,
steps are required to assure that it 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. Intermediate
Bond Portfolio 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, Intermediate Bond Portfolio
may sell portfolio securities without regard to the period of time
they have been held. The turnover rate 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

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

Neither Intermediate Bond Fund nor Intermediate Bond Portfolio 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,
Intermediate Bond 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
Intermediate Bond Portfolio 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, Intermediate
Bond Portfolio could experience both delays in liquidating the
underlying securities and losses. Intermediate Bond Portfolio may
not invest more than 10% of its net assets in repurchase
agreements maturing in more than seven days and other illiquid
securities.
- ----------

While neither Intermediate Bond Fund nor Intermediate Bond Portfolio
may make loans, each 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. Neither may borrow money, except for nonleveraging,
temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
aggregate borrowings (including reverse repurchase agreements) nor
aggregate loans at any one time may exceed 33 1/3% of the value of
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
Investments Restrictions (but not the footnote) are fundamental
policies of Intermediate Bond Fund and Intermediate Bond
Portfolio. 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 Intermediate
Bond Portfolio seeks to reduce risk by investing in a diversified
portfolio, this does not eliminate all risk. The risks inherent
in Intermediate Bond Fund depend primarily upon the term and
quality of the obligations in the portfolio, as well as on market
conditions.

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

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.

Intermediate Bond Portfolio 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 Intermediate Bond Fund or
Intermediate Bond Portfolio will achieve their objective, nor can
Intermediate Bond Portfolio assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by Intermediate Bond Portfolio, the rating of a
portfolio security is lost or reduced, it 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 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 Intermediate Bond Fund remains an appropriate investment
in light of their then-current financial position and needs.
___________________________
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 Intermediate Bond 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 net asset value (see Net Asset Value) next determined
after receipt of payment by Intermediate Bond Fund. Each purchase
of shares through a broker-dealer, bank or other Intermediary
("Intermediary") that is an authorized agent of Income 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 Intermediate Bond
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
Income Trust in Chicago and is not binding until accepted and
entered on the books of Intermediate Bond Fund. Once your
purchase order has been accepted, you may not cancel or revoke it;
however, you may 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 Intermediate Bond
Fund's shareholders.

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
Intermediate Bond 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 no-load 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 no-load 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 no-load Stein Roe Funds available
through your plan. Intermediate Bond 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.

General Redemption Policies.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Income Trust. Income 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 Intermediate Bond 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 or redemption price of Intermediate Bond Fund's
shares is its net asset value per share. The net asset value of a
Fund share is determined as of the close of regular session trading
on the New York Stock Exchange ("NYSE") (currently 3:00 p.m., central
time) by dividing the difference between the values of Intermediate
Bond 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 should be determined on any such day, in which case
the determination will be made at 3:00 p.m., central time. Intermediate
Bond Portfolio allocates net asset value, income, and expenses to
Intermediate Bond Fund and any other of its feeder funds in proportion
to their respective interests in Intermediate Bond Portfolio.

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 Intermediate Bond
Portfolio for which these valuation methods do not produce a fair
value are valued by a method that the Board believes will
determine a fair value.
___________________________
Distributions and Income Taxes

Distributions.
Income dividends are declared each business day and are paid
monthly. Intermediate Bond 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. Intermediate Bond 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 Intermediate Bond Fund. Generally, dividend
and capital gains distributions will be reinvested in additional
Fund shares.

Income Taxes.
Intermediate Bond 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. Intermediate
Bond 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 Intermediate Bond 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 Intermediate Bond Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in
Intermediate Bond Fund) from such a plan. This section is not
intended to be a full discussion of income tax laws and their
effect on shareholders.
___________________________
Investment Return

The total return from an investment in Intermediate Bond 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 Intermediate Bond 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 Intermediate Bond Fund's yield or total return with
those of alternative investments should consider differences
between Intermediate Bond 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.
Intermediate Bond 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 no
guarantee 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 and the Board of Base Trust
have overall management responsibility for Intermediate Bond Fund
and Intermediate Bond Portfolio, respectively. See the Statement
of Additional Information for the names of and additional
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 Intermediate Bond Fund and
Intermediate Bond Portfolio.

The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
Intermediate Bond Fund and Intermediate Bond Portfolio, subject to
the direction of the respective Board of Trustees. 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 Intermediate Bond
Portfolio since its inception in Feb. 1998 and had been portfolio
manger 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 (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 administrative services to Intermediate Bond
Fund under an administrative agreement and investment management
services to Intermediate Bond Portfolio under a management
agreement. The Adviser is entitled to receive a monthly
administrative fee from Intermediate Bond Fund at an annual rate
of .150% of average net assets and a monthly portfolio management
fee from Intermediate Bond Portfolio at an annual rate of .350% of
average net assets, each computed and accrued daily. For the
fiscal year ended June 30, 1997, the management and administrative
fee amounted to 0.50% of average net assets of Intermediate Bond
Fund.

Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Intermediate Bond
Fund and Intermediate Bond 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.
The shares of Intermediate Bond Fund are offered for sale through
Liberty Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to Intermediate Bond Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to SteinRoe Services Inc., P.O. Box 8900, Boston,
Massachusetts 02205. All distribution and promotional expenses
are paid by the Adviser, including payments to the Distributor for
sales of Fund shares.

Custodian.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for
Intermediate Bond Fund and Intermediate Bond Portfolio. 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 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.

__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors

Intermediate Bond Fund, which is 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 Intermediate Bond Fund. The shareholders of Intermediate
Bond Fund approved this policy of permitting Intermediate Bond Fund
to act as a feeder fund by investing in Intermediate Bond Portfolio.
Please refer to Investment Policies, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of Intermediate Bond
Fund and Intermediate Bond Portfolio. The management fees and expenses
of Intermediate Bond Fund and Intermediate Bond Portfolio are
described under Fee Table and Management. Intermediate Bond Fund
bears its proportionate share of Intermediate Bond 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.

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

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

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

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

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

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

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

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

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

<PAGE>

Statement of Additional Information Dated Feb. 2, 1998

STEIN ROE INCOME TRUST

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 Funds' Prospectuses dated Feb. 2, 1998 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
Intermediate Bond Fund................................3
Income Fund...........................................4
High Yield Fund.......................................5
Portfolio Investments and Strategies.....................6
Investment Restrictions.................................24
Additional Investment Considerations....................27
Purchases and Redemptions...............................28
Management..............................................29
Financial Statements....................................32
Principal Shareholders..................................32
Investment Advisory Services............................34
Distributor.............................................36
Transfer Agent..........................................37
Custodian...............................................37
Independent Auditors....................................37
Portfolio Transactions..................................38
Additional Income Tax Considerations....................40
Investment Performance..................................40

GENERAL INFORMATION AND HISTORY

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 invests in a
separate portfolio of securities and other assets, with its own
objectives and policies.

As used herein, "Intermediate Bond Fund," "Income Fund" and
"High Yield Fund refer to the series of Income Trust designated
Stein Roe Intermediate Bond Fund, Stein Roe Income Fund and Stein
Roe High Yield Fund, respectively. 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 the Portfolios and provides investment advisory services
to the Portfolios.

Special Considerations Regarding Master Fund/Feeder Fund Structure

Rather than invest in securities directly, each Fund seeks 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. High Yield Fund commenced operations as a feeder
fund on Nov. 1, 1996 and Intermediate Bond Fund and Income Fund
converted into feeder funds on Feb. 2, 1998. The master funds are
series of SR&F Base Trust ("Base Trust") and are referred to
collectively as the "Portfolios." For more information, please
refer to the 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.
- -----------

Intermediate Bond Fund

Intermediate Bond 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. It
seeks to achieve its objective by investing all of its net
investable assets in SR&F Intermediate Bond Portfolio
("Intermediate Bond Portfolio"), which has the identical
investment objective. Under normal market conditions,
Intermediate Bond Portfolio 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.

Intermediate Bond Portfolio 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.

Intermediate Bond Portfolio 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

Income Fund seeks to achieve its objective by investing all
of its net investable assets in SR&F Income Portfolio ("Income
Portfolio"), which has the identical investment objective. Income
Portfolio invests 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 do rating services.

Although Income Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
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.

High Yield Fund

High Yield Fund seeks total return by investing for a high
level of current income and capital growth. High Yield Fund seeks
to achieve its objective by investing all of its net investable
assets in SR&F High Yield Portfolio ("High Yield Portfolio"),
which has the identical investment objective.

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

Derivatives

Consistent with its objective, each Portfolio 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 Portfolio
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, and futures
options. Intermediate Bond Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates. The Portfolios 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 Portfolio 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 Portfolio 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 Portfolio nor High Yield
Portfolio intends to invest more than 5% of its net assets in
floating rate instruments. Intermediate Bond Portfolio does not
intend to invest more than 10% of its net assets in floating rate
instruments.

Lending of Portfolio Securities

Subject to restriction (7) under Investment Restrictions,
each Portfolio 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 Portfolio. The Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolios 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 Portfolio 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
Portfolio 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 Portfolio could experience both losses
and delays in liquidating its collateral.

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

Each Portfolio may purchase securities on a when-issued or
delayed-delivery basis, as described in its Prospectus. A
Portfolio 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
Portfolio 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
Portfolio to buy a security. A dollar roll transaction involves
the following risks: if the broker-dealer to whom a Portfolio
sells the security becomes insolvent, the Portfolio'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 Portfolio is required to repurchase may
be worth less than a security which the Portfolio originally held;
and the return earned by a Portfolio with the proceeds of a dollar
roll may not exceed transaction costs.

Each of the Portfolios may enter into reverse repurchase
agreements with banks and securities dealers. A reverse
repurchase agreement is a repurchase agreement in which the
Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio because the other party to the standby agreement
generally will not be obligated to deliver the security, but the
Portfolio will be obligated to accept it if delivered. Depending
on market conditions, the Portfolio 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
Portfolio. 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 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 Portfolio actually obtains the security.

Short Sales Against the Box

Each Portfolio 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 Portfolio may make short sales of securities only if at all
times when a short position is open the Portfolio 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 Portfolio does not deliver
from its portfolio the securities sold. Instead, the Portfolio
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 Portfolio, to the purchaser of
such securities. The Portfolio 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 Portfolio 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 Portfolio is said to have a short position in
the securities sold until it delivers to the broker-dealer the
securities sold. A Portfolio 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 Portfolio 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 Portfolio owns, either directly
or indirectly, and, in the case where the Portfolio 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 Portfolio replaces the borrowed security, the
Portfolio will incur a loss and if the price declines during this
period, it 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 Portfolio may have to pay in
connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which a Portfolio is
able to enter into short sales. There is no limitation on the
amount of each Portfolio'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 Portfolio 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 Portfolio 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 Portfolios have received permission to
lend money to, and borrow money from, other mutual funds advised
by the Adviser. A Portfolio 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 Portfolio 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 Portfolio 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
to debt securities, please refer to the Appendix. The rated debt
securities described under Investment Policies above for each
Portfolio include securities given a rating conditionally by
Moody's or provisionally by S&P. If the rating of a security held
by a Portfolio is withdrawn or reduced, the Portfolio is not
required to sell the security, but the Adviser will consider such
fact in determining whether that Portfolio 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 Portfolio
will attempt to use comparable ratings as standards for its
investments in debt securities in accordance with its investment
policies.

Foreign Securities

Each Portfolio 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.

The Portfolios 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 Portfolio 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
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 Portfolios 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 Portfolios' 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio
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 Portfolio.
No Portfolio may engage in "speculative" currency exchange
transactions.

At the maturity of a forward contract to deliver a particular
currency, a Portfolio 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
Portfolio 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 it 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 Portfolio is obligated to deliver.

If a Portfolio retains the portfolio security and engages in
an offsetting transaction, the Portfolio will incur a gain or a
loss to the extent that there has been movement in forward
contract prices. If a Portfolio 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 Portfolio'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, it 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 Portfolio 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 Portfolio of unrealized
profits or force the Portfolio 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 Portfolio to hedge against a devaluation that is so
generally anticipated that the Portfolio is not able to contract
to sell the currency at a price above the devaluation level it
anticipates. The cost to a Portfolio 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 Portfolios may invest in
debt instruments denominated in foreign currencies. In addition
to, or in lieu of, such direct investment, a Portfolio 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 Portfolios 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 Portfolio'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 Portfolio having a
value at least equal to such accrued excess will be segregated on
the books of the Portfolio and held by the Custodian for the
duration of the swap.

The Portfolios 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 Portfolio 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 Portfolios, 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 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 Portfolio'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 a Portfolio's
assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities. No Portfolio
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, 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 Portfolios 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio expires, it realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Portfolio expires, it
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 Portfolio desires.

A Portfolio 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 Portfolio 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 Portfolio will realize a capital
gain or, if it is less, it 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 Portfolio is an asset of
the Portfolio, valued initially at the premium paid for the
option. The premium received for an option written by a Portfolio
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 Portfolio seeks to close out an option position. If a
Portfolio 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 Portfolio 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 Portfolio 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
Portfolio, it would not be able to close out the option. If
restrictions on exercise were imposed, the Portfolio might be
unable to exercise an option it has purchased.

Futures Contracts and Options on Futures Contracts

Each Portfolio 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 /2/ at a specified price and time. A
public market exists in futures contracts covering a number of
indexes as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; 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.
- --------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- --------

The Portfolios 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 Portfolio 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 Portfolio's securities or
the price of the securities that the Portfolio intends to
purchase. Although other techniques could be used to reduce that
Portfolio's exposure to security price, interest rate and currency
fluctuations, the Portfolio may be able to achieve its exposure
more effectively and perhaps at a lower cost by using futures
contracts and futures options.

Each Portfolio 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 Portfolio'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
Portfolio, it 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 Portfolio upon
termination of the contract, assuming all contractual obligations
have been satisfied. Each Portfolio expects to earn interest
income on its initial margin deposits. A futures contract held by
a Portfolio is valued daily at the official settlement price of
the exchange on which it is traded. Each day the Portfolio 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
Portfolio does not represent a borrowing or loan by a Portfolio
but is instead settlement between the Portfolio 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 Portfolio will mark-to-market its open
futures positions.

A Portfolio 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 Portfolio.

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 Portfolio realizes a
capital gain, or if it is more, it realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Portfolio realizes a capital gain, or if it is
less, it 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 Portfolio seeks to close out a futures or a futures
option position. The Portfolio 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 Portfolio may also use those investment vehicles, provided
the Board of Trustees determines that their use is consistent with
the Portfolio's investment objective.

A Portfolio 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 Portfolio plus
premiums paid by it for open futures option positions, less the
amount by which any such positions are "in-the-money," /3/ would
exceed 5% of the Portfolio's total assets.
- ---------
/3/ 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 Portfolio 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 Portfolio
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 Portfolio.

A Portfolio 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 Portfolio 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 Portfolio 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 Portfolio, 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 Portfolio 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 Portfolio, 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 Portfolio 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 Portfolio, 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 Portfolio 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
Portfolio delivers securities under a futures contract, the
Portfolio also realizes a capital gain or loss on those
securities.

For federal income tax purposes, a Portfolio 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 Portfolio:
(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 Portfolio 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 Portfolio operate under the following
investment restrictions. A Fund or 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, [Funds only]
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;

(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 [Funds only] except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same
investment objective and substantially similar investment policies
as the Fund;

(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, [Funds
only] except that all or substantially all of the assets of the
Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;

(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, 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, but it may make margin deposits in
connection with transactions in options, futures, and options on
futures;

(7) make loans, although it may (a) lend portfolio
securities and 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 (c) enter into futures and options
transactions; 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, [Funds
only] except that all or substantially all of the assets of the
Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund; 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," 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 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
Intermediate Bond Fund, Income Fund or High Yield 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 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;/4/
- ---------
/4/ 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) 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) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;

(H) 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 provided that transactions in options, futures, and
options on futures are not treated as short sales;

(J) 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 /5/, including repurchase agreements maturing in more
than seven days.
- --------
/5/ 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.

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.

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 42 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

William W. Boyd 71 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(2)(3)(4) (manufacturer of plumbing products)

Thomas W. Butch (4) 41 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 40 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 57 Vice-President Senior vice president of the Adviser

Anne E. Marcel 40 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

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 48 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 36 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. Ms. Walter is also a vice president of
Liberty Financial Investments, Inc., the Funds' distributor. The address
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. 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.

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.
** Messrs. Block and Morley retired as trustees on Dec. 31, 1997.

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 Report of the Funds. The Financial
Statements and the reports of independent auditors (but no other
material from the Annual Report) are incorporated herein by
reference. The Annual Report may be obtained at no charge by
telephoning 800-338-2550.

PRINCIPAL SHAREHOLDERS

As of Dec. 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
Association* Intermediate Bond Fund 18.41%
410 N. Michigan Avenue Income Fund 16.79%
Chicago, IL 60611 High Yield Fund 44.61%

Charles Schwab & Co., Intermediate Bond Fund 37.43%
Inc.* Income Fund 18.25%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104

The Northern Trust Co.** Income Fund 21.52%
F/B/O Liberty Mutual
Daily Valuation Transitions
P.O. Box 92956
Chicago, IL 60675

Liberty Financial High Yield Fund 19.00%
Companies, Inc.
600 Atlantic Avenue
Boston, MA 02210

Smith Barney, Inc.* Intermediate Bond Fund 6.70%
333 West 34th Street
7th Floor, Mutual
Funds Division
New York, NY 10013

National Financial Income Fund 13.17%
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 Dec. 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
----------- ------- ----------- -------
Intermediate Bond Fund 7,216,653 16.28% 72,575 **
Income Fund 9,143,273 21.46% 41,892 **
High Yield Fund 394,212 13.50% 17,199 **
______________
*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 Portfolio and portfolio management
services to each 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 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
- ------------- ------------ ---------- ---------- ----------
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 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 distributed by Liberty Financial
Investments, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The Distribution
Agreement continues in effect from year to year, provided such
continuance is approved annually (1) by a majority of the trustees
or by a majority of the outstanding voting securities of 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 0.140 of 1% of average daily net assets from each Fund.
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 each 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, each 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 each 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

The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. 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 Portfolio. Transactions placed through
dealers reflect the spread between the bid and asked prices.
Occasionally, a Portfolio 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 Portfolio 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
Portfolio, 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 Portfolios, 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 Portfolios), 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
Portfolio 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 Portfolios 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
Portfolio.

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 Portfolio of municipal
securities which are not subject to NASD Rules, the Portfolios
will not attempt to recapture underwriting discounts or selling
concessions. If Income Portfolio were to purchase municipal
securities, it would attempt to recapture selling concessions
included in prices paid by Income Portfolio 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 Portfolio.

The following table shows any commissions paid 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)
- -------------- --------------------------- -------------------
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 Portfolio intends 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.

INVESTMENT PERFORMANCE

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

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>
<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.