ALLIANCE MUNICIPAL TRUST, 497, 1998-11-20

ALLIANCE MUNICIPAL TRUST
497, 1998-11-20

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<PAGE>

This is filed pursuant to Rule 497(e).
File Nos. 002-79807 and 811-03586.

<PAGE>

YIELD MESSAGES

For current recorded yield information on Alliance Municipal Trust, call on a
touch-tone telephone toll-free (800) 251-0539 and press the following sequence
of keys:
[1] [#] [1] [#] [6] [4] [#] for the General Portfolio,

[1] [#] [1] [#] [4] [9] [#] for the New York Portfolio,

[1] [#] [1] [#] [3] [0] [#] for the California Portfolio,

[1] [#] [1] [#] [2] [8] [#] for the Connecticut Portfolio,

[1] [#] [1] [#] [9] [2] [#] for the New Jersey Portfolio,

[1] [#] [1] [#] [2] [1] [#] for the Virginia Portfolio,

[1] [#] [1] [#] [6] [6] [#] for the Florida Portfolio,

[1] [#] [1] [#] [1] [5] [#] for the Massachusetts Portfolio.

For non-touch-tone telephones, call toll-free (800) 221-9513.

Alliance Municipal Trust (the "Fund"), an open-end investment company with
investment objectives of safety, liquidity and tax-free income, consists of the
General Portfolio which is diversified, and the New York, California,
Connecticut, New Jersey, Virginia, Florida and Massachusetts Portfolios, each of
which is non-diversified. Shares of the New York, California, Connecticut, New
Jersey, Virginia, Florida and Massachusetts Portfolios are offered only to
residents of each such respective state. This prospectus sets forth the
information about each Portfolio that a prospective investor should know before
investing. Please retain it for future reference.

An investment in the Fund is (i) neither insured nor guaranteed by the U.S.
Government; (ii) not a deposit or obligation of, or guaranteed or endorsed by,
any bank; and (iii) not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. There can be no
assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share of each Portfolio. The Portfolios, except for the General
Portfolio, may invest a significant portion of their assets in the securities
of a single issuer. Accordingly, an investment in each such Portfolio may be
riskier than an investment in other types of money market funds.

A "Statement of Additional Information," dated October 30, 1998, which
provides a further discussion of certain areas in this prospectus and other
matters which may be of interest to some investors, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call (800) 221-5672 or write Alliance Fund Services, Inc. at the
address shown on page 12.

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

(R) This registered service mark used under license from the owner, Alliance
Capital Management L.P.

CONTENTS
-------
<TABLE>
<S> <C>
Expense Information....................................................... 2
Financial Highlights...................................................... 3
Investment Objectives and Policies........................................ 9
Purchase and Redemption of Shares......................................... 12
Additional Information.................................................... 13
</TABLE>

ALLIANCE
MUNICIPAL
TRUST

PROSPECTUS
OCTOBER 30, 1998

<PAGE>

- --------------------------------------------------------------------------------
EXPENSE INFORMATION
- --------------------------------------------------------------------------------

SHAREHOLDER TRANSACTION EXPENSES

The Fund has no sales load on purchases or reinvested dividends, deferred
sales load, redemption fee or exchange fee.

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING
EXPENSES (as a percentage
of average net assets, GEN NY CA CT NJ VA FL MA
after expense PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
reimbursement) --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees........ .50% .50% .50% .50% .50% .50% .50% .50%
12b-1 Fees............. .25 .25 .25 .25 .25 .25 .25 .25
Other Expenses......... .25 .25 .25 .25 .25 .25 .25 .25
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating
Expenses.............. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
</TABLE>

EXAMPLE

You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return (cumulatively through the end of each time period):

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
General Portfolio... $10 $32 $55 $122
NY Portfolio........ $10 $32 $55 $122
CA Portfolio........ $10 $32 $55 $122
CT Portfolio........ $10 $32 $55 $122
NJ Portfolio........ $10 $32 $55 $122
VA Portfolio........ $10 $32 $55 $122
FL Portfolio........ $10 $32 $55 $122
MA Portfolio........ $10 $32 $55 $122
</TABLE>

The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in the Fund will
bear directly and indirectly. The expenses listed in the table for the NY, CT,
NJ, VA, FL and MA Portfolios are net of the contractual reimbursement by the
Adviser described in this prospectus. The expenses of such Portfolios before
such reimbursements and fee waivers, would be: NY Portfolio: Management Fees--
.50%, 12b-1 Fees--.25%, Other Expenses--.26% and Total Operating Expenses--
1.01%; CT Portfolio: Management Fees--.50%, 12b-1 Fees--.25%, Other Expenses--
.31% and Total Operating Expenses--1.06%; NJ Portfolio: Management Fees--.50%,
12b-1 Fees--.25%, Other Expenses--.32% and Total Operating Expenses--1.07%; VA
Portfolio: Management Fees--.50%, 12b-1 Fees--.25%, Other Expenses--.28% and
Total Operating Expenses--1.03%; FL Portfolio: Management Fees--.50%, 12b-1
Fees--.25%, Other Expenses--.31% and Total Operating Expenses--1.06%; and MA
Portfolio: Management Fees--.50%, 12b-1 Fees--.25%, Other Expenses--.62% and
Total Operating Expenses--1.37%. The example should not be considered a
representation of past or future expenses; actual expenses may be greater or
less than those shown.

2
<PAGE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS . FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD (AUDITED)
- --------------------------------------------------------------------------------

The following tables have been audited by McGladrey & Pullen LLP, the Fund's
independent auditors, whose report thereon appears in the Statement of
Additional Information. The following information should be read in conjunction
with the financial statements and related notes included in the Statement of
Additional Information.

<TABLE>
<CAPTION>
GENERAL PORTFOLIO
---------------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
------------------------------------------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... .028 .028 .029 .028(d) .018(d) .020(d) .034 .046 .055 .030
Net realized and
unrealized loss on
investments............ -0- -0- -0- (.003) -0- -0- -0- -0- -0- -0-
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net increase in net
asset value from
operations............. .028 .028 .029 .025 .018 .020 .034 .046 .055 .030
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
ADD: CAPITAL
CONTRIBUTIONS
Capital Contributed by
the Adviser............ -0- -0- -0- .003 -0- -0- -0- -0- -0- -0-
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS: DIVIDENDS
Dividends from net
investment income...... (.028) (.028) (.029) (.028) (.018) (.020) (.034) (.046) (.055) (.030)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN
Total investment return
based on net asset
value(a)............... 2.85% 2.81% 2.93% 2.83%(c) 1.81% 2.05% 3.48% 4.71% 5.65% 6.13%(b)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in millions)... $1,196 $980 $1,148 $1,189 $1,134 $1,016 $914 $883 $798 $695
Ratio to average net
assets of:
Expenses, net of waivers
and reimbursements..... .98% .94% .95% .94% .92% .92% .92% .89% .83% .84%(b)
Expenses, before waivers
and reimbursements..... .98% .94% .95% .95% .94% .94% .95% .95% .93% .94%(b)
Net investment
income(d).............. 2.81% 2.76% 2.90% 2.78%(d) 1.80%(d) 2.02%(d) 3.40% 4.57% 5.50% 5.96%(b)
<CAPTION>
YEAR ENDED
DECEMBER 31,
1988
------------
<S> <C>
Net asset value,
beginning of period..... $ 1.00
------------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income... .047
Net realized and
unrealized loss on
investments............ -0-
------------
Net increase in net
asset value from
operations............. .047
------------
ADD: CAPITAL
CONTRIBUTIONS
Capital Contributed by
the Adviser............ -0-
------------
LESS: DIVIDENDS
Dividends from net
investment income...... (.047)
------------
Net asset value, end of
period................. $ 1.00
============
TOTAL RETURN
Total investment return
based on net asset
value(a)............... 4.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in millions)... $633
Ratio to average net
assets of:
Expenses, net of waivers
and reimbursements..... .83%
Expenses, before waivers
and reimbursements..... .93%
Net investment
income(d).............. 4.69%
</TABLE>
- -------
(a) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(b) Annualized.
(c) The capital contribution by the Adviser had no effect on total return.
(d) Net of expenses reimbursed or waived by the Adviser.

3
<PAGE>

<TABLE>
<CAPTION>
NEW YORK PORTFOLIO
-------------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------------------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994 1993 1992 1991 1989
-------- -------- -------- -------- -------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- ------- -------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income(a)........ .027 .027 .028 .028 .018 .019 .034 .042 .051
-------- -------- -------- -------- -------- -------- -------- ------- -------
LESS: DIVIDENDS
Dividends from net
investment
income........... (.027) (.027) (.028) (.028) (.018) (.019) (.034) (.042) (.051)
-------- -------- -------- -------- -------- -------- -------- ------- -------
Net asset value,
end of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======= =======
TOTAL RETURN
Total investment
return based on
net asset
value(b)......... 2.74% 2.77% 2.87% 2.84% 1.77% 1.94% 3.47% 4.32% 5.26%(c)
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000's
omitted)......... $520,562 $355,461 $330,984 $177,254 $162,839 $100,529 $100,476 $71,748 $62,536
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements... .93% .85% .85% .85% .84% .80% .80% .80% .80%(c)
Expenses, before
waivers and
reimbursements... 1.01% 1.04% 1.03% 1.03% 1.08% 1.06% 1.12% 1.15% 1.18%(c)
Net investment
income(a)........ 2.69% 2.73% 2.82% 2.81% 1.77% 1.91% 3.35% 4.20% 5.13%(c)
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1990 1988
-------- --------
<S> <C> <C>
Net asset value,
beginning of
period............ $ 1.00 $ 1.00
-------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income(a)........ .027 .041
-------- --------
LESS: DIVIDENDS
Dividends from net
investment
income........... (.027) (.041)
-------- --------
Net asset value,
end of period.... $ 1.00 $ 1.00
======== ========
TOTAL RETURN
Total investment
return based on
net asset
value(b)......... 5.61% 4.14%
RATIOS/SUPPLEMENTAL
DATA
Net assets, end of
period (000's
omitted)......... $41,910 $41,335
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements... .85% 1.00%
Expenses, before
waivers and
reimbursements... 1.35% 1.33%
Net investment
income(a)........ 5.45% 4.03%
</TABLE>
- -------
(a) Net of expenses reimbursed or waived by the Adviser.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(c) Annualized.

4
<PAGE>

<TABLE>
<CAPTION>
CALIFORNIA PORTFOLIO
-------------------------------------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED JUNE 30, ENDED
---------------------------------------------------------------------------------------- JUNE 30,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income(b)...... .027 .027 .029 .027 .018 .020 .032 .043 .050 .029
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS: DIVIDENDS
Dividends from
net investment
income......... (.027) (.027) (.029) (.027) (.018) (.020) (.032) (.043) (.050) (.029)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value,
end of period.. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL RETURN
Total investment
return based on
net asset
value(c)....... 2.74% 2.76% 2.91% 2.78% 1.83% 2.05% 3.26% 4.43% 5.17% 6.02%(d)
RATIOS/SUPPLEMENTAL
DATA
Net assets, end
of period
(000's
omitted)....... $422,464 $357,148 $297,862 $236,479 $219,673 $156,200 $121,317 $111,957 $104,097 $242,124
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements.. .96% .93% .93% .93% .93% .93% .95% 1.00% .99% .92%(d)
Expenses, before
waivers and
reimbursements.. .97% .96% .94% 1.01% 1.02% 1.02% 1.05% 1.10% 1.09% 1.02%(d)
Net investment
income(b)...... 2.71% 2.73% 2.86% 2.75% 1.82% 2.01% 3.18% 4.32% 5.03% 5.90%(d)
<CAPTION>
JUNE 2,
1988(A)
THROUGH
DECEMBER 31,
1988
--------------
<S> <C>
Net asset value,
beginning of
period.......... $ 1.00
--------------
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income(b)...... .030
--------------
LESS: DIVIDENDS
Dividends from
net investment
income......... (.030)
--------------
Net asset value,
end of period.. $ 1.00
==============
TOTAL RETURN
Total investment
return based on
net asset
value(c)....... 5.20%(d)
RATIOS/SUPPLEMENTAL
DATA
Net assets, end
of period
(000's
omitted)....... $103,390
Ratio to average
net assets of:
Expenses, net of
waivers and
reimbursements.. .89%(d)
Expenses, before
waivers and
reimbursements.. 1.10%(d)
Net investment
income(b)...... 5.21%(d)
</TABLE>
- -------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(d) Annualized.

5
<PAGE>

<TABLE>
<CAPTION>
CONNECTICUT PORTFOLIO
------------------------------------------------------------------------------------
JANUARY 5,
1990(A)
YEAR ENDED JUNE 30, THROUGH
------------------------------------------------------------------------ JUNE 30,
1998 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- ------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income.. .027 .027 .028 .028 .017 .020 .033 .045 .026
-------- -------- ------- ------- ------- ------- ------- ------- -------
LESS: DIVIDENDS
Dividends from net
investment income(b).. (.027) (.027) (.028) (.028) (.017) (.020) (.033) (.045) (.026)
-------- -------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN
Total investment return
based on net asset
value(c).............. 2.75% 2.76% 2.88% 2.78% 1.71% 2.00% 3.35% 4.57% 5.53%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (000's
omitted)............... $124,107 $102,612 $95,812 $75,991 $57,314 $56,224 $54,751 $48,482 $27,945
Ratio to net assets of:
Expenses, net of
waivers and
reimbursements........ .93% .80% .80% .80% .77% .70% .58% .44% .19%(d)
Expenses, before
waivers and
reimbursements........ 1.06% 1.10% 1.15% 1.21% 1.21% 1.16% 1.22% 1.16% 1.10%(d)
Net investment
income(b)............. 2.69% 2.72% 2.84% 2.77% 1.69% 1.97% 3.28% 4.39% 5.39%(d)
</TABLE>
- -------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(d) Annualized.

<TABLE>
<CAPTION>
NEW JERSEY PORTFOLIO
---------------------------------------------------------
YEAR ENDED JUNE 30, FEBRUARY 7, 1994(A)
------------------------------------ THROUGH
1998 1997 1996 1995 JUNE 30, 1994
-------- -------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Net asset value, begin-
ning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income(b)............. .026 .027 .028 .029 .008
-------- -------- ------- ------- -------
LESS: DIVIDENDS
Dividends from net in-
vestment income....... (.026) (.027) (.028) (.029) (.008)
-------- -------- ------- ------- -------
Net asset value, end of
period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= =======
TOTAL RETURN
Total investment return
based on net asset
value(c).............. 2.67% 2.72% 2.89% 2.93% 2.08%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (000's omitted)... $151,617 $123,579 $98,098 $74,133 $36,909
Ratio to average net as-
sets of:
Expenses, net of waiv-
ers and reimburse-
ments................. .94% .85% .82% .74% .70%(d)
Expenses, before waiv-
ers and reimburse-
ments................. 1.07% 1.12% 1.19% 1.29% 1.93%(d)
Net investment
income(b)............. 2.63% 2.68% 2.84% 2.98% 2.07%(d)
</TABLE>
- -------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(d) Annualized.

6
<PAGE>

<TABLE>
<CAPTION>
VIRGINIA PORTFOLIO
----------------------------------------------
YEAR ENDED JUNE 30, OCTOBER 25 1994(A)
-------------------------- THROUGH
1998 1997 1996 JUNE 30, 1995
-------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- -------
INCOME FROM INVESTMENT OPERA-
TIONS
Net investment income(b)....... .029 .028 .029 .023
-------- ------- ------- -------
LESS: DIVIDENDS
Dividends from net investment
income........................ (.029) (.028) (.029) (.023)
-------- ------- ------- -------
Net asset value, end of peri-
od............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= =======
TOTAL RETURN
Total investment return based
on net asset value(c)......... 2.90% 2.83% 2.97% 3.48%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted)............... $123,822 $78,775 $89,557 $66,921
Ratio to average net assets of:
Expenses, net of waivers and
reimbursements............... .93% .80% .78% .44%(d)
Expenses, before waivers and
reimbursements............... 1.03% 1.15% 1.15% 1.30%(d)
Net investment income(b)...... 2.86% 2.78% 2.91% 3.48%(d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(d) Annualized.

<TABLE>
<CAPTION>
FLORIDA PORTFOLIO
-----------------------------------
YEAR ENDED
JUNE 30, JULY 28, 1995(A)
----------------- THROUGH
1998 1997 JUNE 30, 1996
-------- ------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period...... $ 1.00 $ 1.00 $ 1.00
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b).................. .028 .030 .030
-------- ------- -------
LESS: DIVIDENDS
Dividends from net investment income...... (.028) (.030) (.030)
-------- ------- -------
Net asset value, end of period............ $ 1.00 $ 1.00 $ 1.00
======== ======= =======
TOTAL RETURN
Total investment return based on net asset
value(c)................................. 2.87% 3.03% 3.32%(d)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omit-
ted)..................................... $113,095 $89,149 $91,179
Ratio to average net assets of:
Expenses, net of waivers and reimburse-
ments................................... .93% .65% .58%(d)
Expenses, before waivers and reimburse-
ments................................... 1.06% 1.10% 1.24%(d)
Net investment income(b)................. 2.82% 2.97% 3.12%(d)
</TABLE>
- --------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(d) Annualized.

7
<PAGE>

<TABLE>
<CAPTION>
MASSACHUSETTS PORTFOLIO
----------------------------
YEAR ENDED APRIL 17, 1997(A)
JUNE 30, THROUGH
1998 JUNE 30, 1997
---------- -----------------
<S> <C> <C>
Net asset value, beginning of period.............. $ 1.00 $ 1.00
------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)......................... .028 .007
------- -------
LESS: DIVIDENDS
Dividends from net investment income............. (.028) (.007)
------- -------
Net asset value, end of period................... $ 1.00 $ 1.00
======= =======
TOTAL RETURN
Total investment return based on net asset
value(c)(d)..................................... 2.83% 3.53%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)......... $27,832 $15,046
Ratio to average net assets of:
Expenses, net of waivers and reimbursements(d)... .85% .50%
Expenses, before waivers and reimbursements(d)... 1.37% 2.99%
Net investment income(b)(d)...................... 2.80% 3.47%
</TABLE>
- --------
(a) Commencement of operations.
(b) Net of expenses reimbursed or waived by the Adviser.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period.
(d) Annualized.

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

From time to time the Fund advertises its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. To calculate the "yield," the amount of dividends
paid on a share during a specified seven-day period is assumed to be paid each
week over a 52-week period and is shown as a percentage of the investment. To
calculate "effective yield," which will be higher than the "yield" because of
compounding, the dividends paid are assumed to be reinvested. Further
information about the Fund's performance is contained in the annual report to
share-holders and Statement of Additional Information which may be obtained
without charge by contacting Alliance Fund Services, Inc. at the address shown
in this prospectus.

8
<PAGE>

- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

INVESTMENT OBJECTIVES

Alliance Municipal Trust (the "Fund") consists of eight distinct Portfolios,
the General, New York, California, Connecticut, New Jersey, Virginia, Florida
and Massachusetts Portfolios (each a "Portfolio"), each of which issues a
separate class of shares. The investment objectives of each Portfolio are safety
of principal, liquidity and, to the extent consistent with these objectives,
maximum current income that is exempt from income taxation to the extent
described below. As a matter of fundamental policy, each Portfolio, except the
Florida and Massachusetts Portfolios, pursues its objectives by investing in
high quality municipal securities having remaining maturities of one year (397
days with respect to the New Jersey and Virginia Portfolios) or less, which
maturities may extend to 397 days and, except when a Portfolio assumes a
temporary defensive position, at least 80% of each such Portfolio's total assets
will be invested in such securities (as opposed to the taxable investments
described below). The Florida and Massachusetts Portfolios pursue their
objectives by investing in high quality municipal securities having remaining
matu-rities of 397 days or less, which maturities may extend to such greater
length of time as may be permitted from time to time pursuant to Rule 2a-7 under
the Investment Company Act of 1940, as amended (the "Act") and, except when such
a Portfolio assumes a temporary defensive position, as a matter of fundamental
policy, at least 80% of each Portfolio's total assets will be invested in
municipal securities (as opposed to the taxable investments described below).
While the fundamental policies described above and the other fundamental
investment policies identified below may not be changed for a Portfolio without
the approval of its shareholders, the other investment policies set forth in
this prospectus may be changed upon notice but without such approval. Normally,
substantially all of each Portfolio's income will be tax-exempt as described
below (e.g., for 1997, 100% of the income of each Portfolio was exempt from
Federal income taxes). The average weighted maturity of each Portfolio cannot
exceed 90 days. The Fund may in the future establish additional portfolios which
may have different investment objectives.

The Fund will comply with the diversification, quality and maturity limitations
imposed by Rule 2a-7. A more detailed description of Rule 2a-7 is set forth in
the Fund's Statement of Additional Information. To the extent that the Fund's
limitations are more permissive than Rule 2a-7, the Fund will comply with the
more restrictive provisions of the Rule.

The General Portfolio seeks maximum current income that is exempt from
Federal income taxes by investing principally in a diversified portfolio of high
quality municipal securities. Such income may be subject to state or local
income taxes.

The New York Portfolio seeks maximum current income that is exempt from
Federal, New York state and New York City personal income taxes by investing, as
a matter of fundamental policy, not less than 65% of its total assets in a
portfolio of high quality municipal securities issued by New York state or its
political subdivisions.

The California Portfolio seeks maximum current income that is exempt from
Federal and California state personal income taxes by investing, as a matter
of fundamental policy, not less than 65% of its total assets in a portfolio of
high quality municipal securities issued by the State of California or its
political subdivisions.

The Connecticut Portfolio seeks maximum current income that is exempt from
Federal and Connecticut state personal income taxes by investing, as a matter
of fundamental policy, not less than 65% of its total assets in a portfolio of
high quality municipal securities issued by the State of Connecticut or its
political subdivisions.

The New Jersey Portfolio seeks maximum current income that is exempt from
Federal and New Jersey state personal income taxes by investing, as a matter
of fundamental policy, not less than 65% of its total assets in a portfolio of
high quality municipal securities issued by the State of New Jersey or its
political subdivisions. The New Jersey Portfolio will invest not less than 80%
of its net assets in securities the interest on which is exempt from New
Jersey personal income taxes [i.e. New Jersey

9
<PAGE>

municipal securities and obligations of the U.S. Government, its agencies and
instrumentalities "U.S. Government Securities")]. In addition, during periods
when Alliance Capital Management L.P. (the "Adviser") believes that New Jersey
municipal securities that meet the New Jersey Portfolio's standards are not
available, it may invest a portion of its assets in securities whose interest
payments are only federally tax-exempt.

The Virginia Portfolio seeks maximum current income that is exempt from
Federal and Virginia state personal income taxes by investing, as a matter of
fundamental policy, not less than 65% of its total assets in a portfolio of
high quality municipal securities issued by the Commonwealth of Virginia or
its political subdivisions.

The Florida Portfolio seeks maximum current income that is exempt from
Federal income tax and State of Florida intangible tax by investing not less
than 65% of its total assets in a portfolio of high-quality municipal securities
issued by Florida or its political subdivisions.

The Massachusetts Portfolio seeks maximum current income that is exempt from
Federal and Massachusetts state personal income taxes by investing at least
65% of its total assets in high quality municipal securities issued by the
Commonwealth of Massachusetts or its political subdivisions. The Massachusetts
Portfolio may invest in restricted securities that are determined by the
Adviser to be liquid in accordance with procedures adopted by the Trustees,
including securities eligible for resale under Rule 144A under the Securities
Act of 1933 (the "Securities Act"). Restricted securities are securities
subject to contractual or legal restrictions on resale, such as those arising
from an issuer's reliance upon certain exemptions from registration under the
Securities Act.

Each Portfolio of the Fund may invest without limitation in tax-exempt
municipal securities subject to the alternative minimum tax (the "AMT").

Under current Federal income tax law, (1) interest on tax-exempt municipal
securities issued after August 7, 1986 which are "specified private activity
bonds," and the proportionate share of any exempt-interest dividends paid by a
regulated investment company which receives interest from such specified private
activity bonds, will be treated as an item of tax preference for purposes of the
AMT imposed on individuals and corporations, though for regular Federal income
tax purposes such interest will remain fully tax-exempt, and (2) interest on all
tax-exempt obligations will be included in "adjusted current earnings" of
corporations for AMT purposes. Such bonds have provided, and may continue to
provide, somewhat higher yields than other comparable municipal securities. See
below, "Daily Dividends, Other Distributions, Taxes."

There can be no assurance that the Portfolios will achieve their investment
objectives. Potential investors in the New York, California, Connecticut, New
Jersey, Virginia, Florida and Massachusetts Portfolios should consider the
greater risk of the concentration of such Portfolios versus the safety that
comes with less concentrated investments and should compare yields available on
portfolios of the relevant state's issues with those of more diversified
portfolios, including other states' issues, before making an investment
decision. The Adviser believes that by maintaining each Portfolio's investments
in liquid, short-term, high quality investments, each Portfolio is largely
insulated from the credit risks that exist on long-term municipal securities of
the relevant state. See the Statement of Additional Information for a more
detailed discussion of the financial condition of New York, California,
Connecticut, New Jersey, Virginia, Florida and Massachusetts.

MUNICIPAL SECURITIES

The municipal securities in which each Portfolio invests include municipal
notes and short-term municipal bonds. Municipal notes are generally used to
provide for short-term capital needs and generally have maturities of one year
or less. Examples include tax anticipation and revenue anticipation notes,
which are generally issued in anticipation of various seasonal revenues, bond
anticipation notes, and tax-exempt commercial paper. Short-term municipal
bonds may include general obligation bonds, which are secured by the issuer's
pledge of its faith, credit and taxing power for payment of principal and
interest, and revenue bonds, which are generally paid from the revenues of a
particular facility or a specific excise or other source.

10
<PAGE>

A Portfolio may invest in variable rate obligations whose interest rates are
adjusted either at predesignated periodic intervals or whenever there is a
change in the market rate to which the security's interest rate is tied. Such
adjustments minimize changes in the market value of the obligation and,
accordingly, enhance the ability of the Portfolio to maintain a stable net asset
value. Variable rate securities purchased may include participation interests
in industrial development bonds backed by letters of credit of Federal Deposit
Insurance Corporation member banks having total assets of more than $1
billion. Each Portfolio will comply with Rule 2a-7 with respect to its
investments in variable rate obligations supported by letters of credit.

All of the Fund's municipal securities at the time of purchase are rated within
the two highest quality ratings of Moody's Investors Service, Inc. (Aaa and Aa,
MIG 1 and MIG 2, or VMIG 1 and VMIG 2) or Standard & Poor's Corporation (AAA and
AA or SP-1 and SP-2), or judged by the Adviser to be of compara-ble quality.
Securities must also meet credit standards applied by the Adviser.

To further enhance the quality and liquidity of the securities in which the
Portfolios invest, such securities frequently are supported by credit and
liquidity enhancements, such as letters of credit, from third party financial
institutions. The Adviser continuously monitors the credit quality of such
third parties; however, changes in the credit quality of such a financial
institution could cause a Portfolio's investments backed by that institution to
lose value and affect a Portfolio's share price.

The Fund will comply with the diversification, quality and maturity
limitations imposed by Rule 2a-7. A more detailed description of Rule 2a-7 is
set forth in the Fund's Statement of Additional Information. To the extent that
the Fund's limitations are more permissive than Rule 2a-7, the Fund will comply
with the more restrictive provisions of the Rule.

A Portfolio also may invest in stand-by commitments, which may involve certain
expenses and risks, but such commitments are not expected to comprise more than
5% of any Portfolio's net assets. A Portfolio may commit up to 15% of its net
assets to the purchase of when-issued securities. The Fund's custodian will
maintain, in a separate account of the respective Portfolio, liquid assets
having value equal to, or greater than, such when-issued securities. The price
of when-issued securities, which is generally expressed in yield terms, is fixed
at the time the commitment to purchase is made, but delivery and payment for
such securities takes place at a later time. Normally the settlement date occurs
from within ten days to one month after the purchase of the issue. The value of
when-issued securities may fluctuate prior to their settlement, thereby creating
an unrealized gain or loss to a Portfolio.

TAXABLE INVESTMENTS

The taxable investments in which the Fund may invest include obligations of
the U.S. Government and its agencies, high quality certificates of deposit and
bankers' acceptances, prime commercial paper, and repurchase agreements.

OTHER INVESTMENT POLICIES

No Portfolio of the Fund will invest more than 10% of its net assets in
illiquid securities (including illiquid restricted securities with respect to
the Massachusetts Portfolio). As to these securities, a Portfolio is subject
to a risk that should the Portfolio desire to sell them when a ready buyer is
not available at a price the Portfolio deems representative of their value,
the value of the Portfolio's net assets could be adversely affected. Illiquid
securities may include securities that are not readily marketable and, with
respect to the Massachusetts Portfolio, securities subject to legal or
contractual restrictions on resale. With respect to the Massachusetts Portfolio,
which may invest in restricted securities, restricted securities determined by
the Adviser to be liquid will not be treated as "illiquid" for purposes of the
restriction on illiquid securities.

The following investment policies are fundamental policies with respect to
each applicable Portfolio except the Massachusetts Portfolio which has adopted
the applicable restrictions as non-fundamental policies. To reduce investment
risk, the General Portfolio may not invest more than 25% of its total assets
in municipal securities whose issuers are located in the same state, and no
Portfolio may invest more than 25% of its total assets

11
<PAGE>

in municipal securities the interest upon which is paid from revenues of
similar-type projects; a Portfolio
may not invest more than 5% of its total assets in the securities of any one
issuer except the U.S. Government, although (i) with respect to 25% of its total
assets the General Portfolio may invest up to 10% per issuer, and (ii) the New
York, California, Connecticut, New Jersey, Virginia, Florida and Massachusetts
Portfolios may invest 50% of their respective total assets in as few as four
issuers (but no more than 25% of total as-sets in any one issuer); and a
Portfolio may not purchase more than 10% of any class of the voting securities
of any one issuer except those of the U.S. Government.

As a matter of operating policy, the General Portfolio may invest no more than
5% of its assets in the securities of any one issuer (as determined pursuant to
Rule 2a-7), except that the Portfolio may invest up to 25% of its assets in the
first tier securities (as defined in Rule 2a-7 and described in the Statement of
Additional Information) of a single issuer for a period of up to three business
days. Fundamental policy number (i) would give the General Portfolio the ability
to invest, with respect to 25% of its assets, more than 5% of its assets in any
one issuer only in the event Rule 2a-7 is further amended in the future.Each
remaining Portfolio may, with respect to 75% of its assets, invest no more than
5% of its assets in the securities of any one issuer; the remaining 25% of each
such Portfolio's assets may be invested in securities of one or more issuers
provided that they are first tier securities. Fundamental policy number (i) with
respect to the General Portfolio and number (ii) with respect to all other
Portfolios would give the Portfolios the investment latitude described therein
only in the event Rule 2a-7 is further amended in the future.

- --------------------------------------------------------------------------------
PURCHASE AND REDEMPTION OF SHARES OPENING ACCOUNTS
- --------------------------------------------------------------------------------

OPENING ACCOUNTS

Instruct your Account Executive to open an account in the Fund in conjunction
with your brokerage account.

SUBSEQUENT INVESTMENTS

A. BY CHECK THROUGH YOUR BROKERAGE FIRM

Mail or deliver your check made payable to your brokerage firm to your
Account Executive who will deposit it into your brokerage account. Please
indicate your account number on the check.

B. BY SWEEP

Your brokerage firm may offer an automatic "sweep" for the Fund in the
operation of brokerage cash accounts for its customers. Contact your Account
Executive to determine if a sweep is available and what the sweep parameters
are.

REDEMPTIONS

A. BY CHECKWRITING

With this service, you may write checks made payable to any payee. Checks
cannot be written for more than the principal balance (not including any accrued
dividends) in your account. You must first fill out the Signature Card, which
you can obtain from your Account Executive. There is a charge for check
reorders. The checkwriting service enables you to receive the daily dividends
declared on the shares to be redeemed until the day that your check is presented
for payment.

B. BY SWEEP

If your brokerage firm offers an automatic sweep service, the sweep will
automatically transfer from your Fund account sufficient cash to cover any debit
balance that may occur in your cash account for any reason.

OPENING AN ACCOUNT DIRECTLY WITH THE FUND; SHAREHOLDER SERVICES

If you wish to obtain an Application Form to open an account directly with
the Fund or if you have any questions about the Form, purchasing shares or
other Fund procedures, please telephone the Fund toll-free (800) 221-5672.

For more information on the purchase and redemption of Fund shares, see the
Statement of Additional Information.

The Fund offers a variety of shareholder services. For more information about
these services, call the Fund at (800) 221-5672.

12
<PAGE>

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

SHARE PRICE. Shares of each Portfolio are sold and redeemed on a continuous
basis without sales or redemption charges at their net asset value which is
expected to be constant at $1.00 per share, although this price is not
guaranteed. The net asset value of each Portfolio's shares is determined each
busi-ness day at 12:00 Noon and 4:00 p.m. (Eastern time). The net asset value
per share of a Portfolio is calculated by taking the sum of the value of that
Portfolio's investments (amortized cost value is used for this purpose) and any
cash or other assets, subtracting liabilities, and dividing by the total number
of shares of that Portfolio outstanding. All expenses, including the fees
payable to the Adviser, are accrued daily.

TIMING OF INVESTMENTS AND REDEMPTIONS. The Fund has two transaction times
each business day, 12:00 Noon and 4:00 p.m. (Eastern time). New investments
represented by Federal funds or bank wire monies received by State Street Bank
at any time during a day prior to 4:00 p.m. are entitled to the full dividend
to be paid to shareholders for that day. Shares do not earn dividends on the
day a redemption is effected regardless of whether the redemption order is
received before or after 12:00 Noon. However, if you wish to have Federal funds
wired the same day as your telephone redemption request, make sure that your
request will be received by the Fund prior to 12:00 Noon.

During drastic economic or market developments, you might have difficulty in
reaching Alliance Fund Services, Inc. by telephone in which event you should
issue written instructions to Alliance Fund Services, Inc. at the address
shown in this prospectus. Alliance Fund Services, Inc. is not responsible for
the authenticity of telephone requests to purchase or sell shares. Alliance
Fund Services, Inc. will employ reasonable procedures to verify that telephone
requests are genuine and could be liable for losses arising from unauthorized
transactions if it failed to do so. Dealers or agents may charge a commission
for handling telephone requests. The telephone service may be suspended or
terminated at anytime without notice.

Redemption proceeds are normally wired or mailed either the same or the next
business day, but in no event later than seven days, unless redemptions have
been suspended or postponed due to the determination of an "emergency" by the
Securities and Exchange Commission or to certain other unusual conditions.

If your Fund shares are not maintained through a financial intermediary,
proceeds from any subsequent redemption by you of Fund shares that were
purchased by check or electronic funds transfer will not be forwarded to you
until the Fund is reasonably assured that your check or electronic funds
transfer has cleared, up to fifteen days following the purchase date. If the
redemption re-quest during such period is in the form of a Fund check, the check
will be marked "insufficient funds" and be returned unpaid to the presenting
bank.

MINIMUMS. The Fund has minimums of $1,000 for initial investments, $100 for
subsequent investments and a $500 minimum maintenance balance for each account.
These minimums do not apply to shareholder accounts maintained through brokerage
firms or other financial institutions, as such financial intermediaries may
maintain their own minimums.

DAILY DIVIDENDS, OTHER DISTRIBUTIONS, TAXES. All net income of each Portfolio
is determined each business day at 4:00 p.m. (Eastern time) and is paid
immediately thereafter pro rata to shareholders of that Portfolio of record via
automatic investment in additional full and fractional shares of that
Portfolio in each shareholder's account. As such additional shares are entitled
to dividends on following days, a compounding growth of income occurs.

A Portfolio's net income consists of all accrued interest income on Portfolio
assets less the Portfolio's expenses applicable to that dividend period.
Realized gains and losses of a Portfolio are reflected in its net asset value
and are not included in net income.

Distributions to you out of tax-exempt interest income earned by each
Portfolio are not subject to Federal income tax (other than the AMT), but, in
the case of the

13
<PAGE>

General Portfolio, may be subject to state or local income taxes. Any
exemptinterest dividends derived from interest on municipal securities subject
to the AMT will be a specific preference item for purposes of the Federal
individual and corporate AMT. Distributions to residents of New York out of
income earned by the New York Portfolio from New York municipal securities are
exempt from New York state and New York City personal income taxes.
Distributions to residents of California out of income earned by the California
Portfolio from California municipal securities are exempt from California
personal income taxes. Distributions to individuals who are residents of
Connecticut out of income earned by the Connecticut Portfolio from Connecticut
municipal securities are exempt from Connecticut personal income taxes.
Distributions to residents of New Jersey out of income earned by the New Jersey
Portfolio from New Jersey municipal securities or U.S. Government Securities are
exempt from New Jersey state personal income taxes. Distributions from the New
Jersey Portfolio are, however, subject to the New Jersey Corporation Business
(Franchise) Tax and the New Jersey Corporation Income Tax payable by corporate
shareholders. Distributions to residents of Virginia out of income earned by the
Virginia Portfolio from Virginia municipal securities or obligations of the
United States or any authority, commission or instrumentality of the United
States are exempt from Virginia individual, estate, trust, or corporate income
tax. Dividends paid by the Florida Portfolio to individual Florida shareholders
will not be subject to Florida income tax, which is imposed only on
corporations. However, Florida currently imposes an "intangible tax" at the rate
of $2.00 per $1,000 taxable value of certain securities, such as shares of the
Portfolio, and other intangible assets owned by Florida residents. U.S.
Government securities and Florida municipal securities are exempt from this
intangible tax. It is anticipated that the Florida Portfolio shares will qualify
for exemption from the Florida intangible tax. In order to so qualify, the
Florida Portfolio must, among other things, have its entire portfolio invested
in U.S. Government securities and Florida municipal securities on December 31 of
any year. Exempt-interest dividends paid by the Florida Portfolio to corporate
shareholders will be subject to Florida corporate income tax. Distributions to
residents of Massachusetts out of interest earned by the Massachusetts Portfolio
from Massachusetts municipal securities are exempt from Massachusetts state
personal income taxes. Distributions out of taxable interest income, other
investment income, and short-term capital gains are taxable to you as ordinary
income and distributions of long-term capital gains, if any, are taxable as
long-term capital gains irrespective of the length of time you may have held
your shares. Distributions of short-and long-term capital gains, if any, are
normally made near year-end. Each year shortly after December 31, the Fund will
send you tax information stating the amount and type of all its distributions
for the year just ended.

THE ADVISER. The Fund retains Alliance Capital Management L.P., 1345 Avenue of
the Americas, New York, NY 10105, under an Advisory Agreement to provide
investment advice and, in general, to supervise the Fund's management and
investment program, subject to the general control of the Trustees of the Fund.
For the fiscal year ended June 30, 1998, the General, New York, California,
Connecticut, New Jersey, Virginia, Florida and Massachusetts Portfolios each
paid the Adviser an Advisory fee (net of reimbursement for each Portfolio except
the General and California Portfolios) at an annual rate of .50 of 1%, .47 of
1%, .50 of 1%, .41 of 1%, .41 of 1%, .44 of 1%, .40 of 1% and .08 of 1%,
respectively, of the average daily value of the net assets of each Portfolio.

14
<PAGE>

Under a Distribution Services Agreement (the "Agreement"), the Fund pays
Alliance Fund Distributors, Inc. (the "Distributors") at a maximum annual rate
of .25 of 1% of the Fund's aggregate average daily net assets. For the fiscal
year ended June 30, 1998, the General, New York, California, Connecticut, New
Jersey, Virginia, Florida and Massachusetts Portfolios each paid the Distributor
a distribution fee at an annual rate of .25 of 1%, .21 of 1%, .24 of 1%, .21 of
1%, .21 of 1%, .21 of 1%, .22 of 1% and .14 of 1%, respectively, of the average
daily value of the net assets of each Portfolio, net of reimbursement for each
Portfolio except the General Portfolio. Substantially all such monies (together
with significant amounts from the Adviser's own resources) are paid by the
Distributor to broker-dealers and other financial intermediaries for their
distribution assistance and to banks and other depository institutions for
administrative and accounting services provided to the Fund, with any remaining
amounts being used to partially defray other expenses incurred by the
Distributor in distributing Fund shares. The Fund believes that the
administrative services provided by depository institutions are permissible
activities under present banking laws and regulations and will take appropriate
actions (which should not adversely affect the Fund or its shareholders) in the
future to maintain such legal conformity should any changes in, or
interpretations of, such laws or regulations occur.

The Adviser will reimburse the Fund to the extent that the combined net
expenses of the Fund's Portfolios (including the Adviser's fee and expenses
incurred under the Agreement) exceed 1% of its average daily net assets for any
fiscal year.

CUSTODIAN, TRANSFER AGENT AND DISTRIBUTOR. State Street Bank and Trust
Company, P.O. Box 1912, Boston, MA 02105, is the Fund's Custodian. Alliance Fund
Services, Inc., P.O. Box 1520, Secaucus NJ 07096-1520, and Alliance Fund
Distributors, Inc., 1345 Avenue of the Americas, New York, NY 10105, are the
Fund's Transfer Agent and Distributor, respectively. The transfer agent
charges a fee for its services.

YEAR 2000. Many computer systems and applications in use today process
transactions using two digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900," which
could result in processing inaccuracies and computer system failures. This is
commonly known as the Year 2000 problem. Should any of the computer systems
employed by the Fund's major service providers fail to process Year 2000
information properly, that could have a significant negative impact on the
Fund's operations and the services that are provided to the Fund's
shareholders.

With respect to the Year 2000, the Fund has been advised that the Adviser,
Distributor and Transfer Agent (collectively, "Alliance") began to address the
Year 2000 issue several years ago in connection with the replacement or
upgrading of certain computer systems and applications. During 1997, Alliance
began a formal Year 2000 initiative, which established a structured and
coordinated process to deal with the Year 2000 issue. Alliance reports that it
has completed its assessment of the Year 2000 issues on its domestic and
international computer systems and applications. Currently, management of
Alliance expects that the required modifications for the majority of its
significant systems and applications that will be in use on January 1, 2000,
will be completed and tested by the end of 1998. Full integration testing of
these systems and testing of interfaces with third-party suppliers will continue
through 1999. At this time, management of Alliance believes that the costs
associated with resolving this issue will not have a

15
<PAGE>

material adverse effect on its operations or on its ability to provide the level
of services it currently provides to the Fund.

The Fund and Alliance have been advised by the Fund's Custodian that it is
also in the process of reviewing its systems with the same goals. As of the
date of this prospectus, the Fund and Alliance have no reason to believe that
the Custodian will be unable to achieve these goals.

FUND ORGANIZATION. The Fund is an open-end management investment company
registered under the Act. The Fund was reorganized as a Massachusetts business
trust in April 1985, having previously been a Maryland corporation since
formation in January 1983. The Fund's activities are supervised by its Trustees.
Normally, shares of each Portfolio are entitled to one vote, and vote as a
single series on matters that affect the Portfolios in substantially the same
manner. Massachusetts law does not require annual meetings of shareholders and
it is anticipated that shareholder meetings will be held only when required by
Federal law. Shareholders have available certain procedures for the removal of
Trustees.

<PAGE>

This is filed pursuant to Rule 497(e).
File Nos. 002-79807 and 811-03586.

<PAGE>

(LOGO) ALLIANCE MUNICIPAL TRUST
________________________________________________________________

P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
________________________________________________________________

STATEMENT OF ADDITIONAL INFORMATION
October 30, 1998
________________________________________________________________

TABLE OF CONTENTS
Page

Investment Objectives and Policies.......................... 2

Investment Restrictions..................................... 52

Management.................................................. 56

Purchases and Redemption of Shares.......................... 67

Additional Information...................................... 70

Daily Dividends-Determination of Net Asset Value............ 73

Taxes....................................................... 75

General Information......................................... 77

Appendix A-Description of Municipal Securities..............

Appendix B-Description of Securities Ratings................

Financial Statements and Independent Auditors Report........

This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the Fund's
current Prospectus dated October 30, 1998. A copy of the
Prospectus may be obtained by contacting the Fund at the address
or telephone number shown above.
__________________________
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.

<PAGE>

_________________________________________________________________

INVESTMENT OBJECTIVES AND POLICIES
_________________________________________________________________

Alliance Municipal Trust (the "Fund") is an open-end
management investment company. The Fund consists of eight
distinct Portfolios, the General Portfolio, the New York
Portfolio, the California Portfolio, the Connecticut Portfolio,
the New Jersey Portfolio, the Virginia Portfolio, the Florida
Portfolio and the Massachusetts Portfolio (each a "Portfolio"),
each of which is, in effect, a separate fund issuing a separate
class of shares. The investment objectives of each Portfolio are
safety of principal, liquidity and, to the extent consistent with
these objectives, maximum current income that is exempt from
income taxation to the extent described below. As a matter of
fundamental policy, each Portfolio, except the Florida and
Massachusetts Portfolios, pursues its objectives by investing in
high-quality municipal securities having remaining maturities of
one year (397 days with respect to the New Jersey and Virginia
Portfolios), or less, which maturities may extend to 397 days
and, except when a Portfolio assumes a temporary defensive
position, at least 80% of each such Portfolio's total assets will
be so invested. The Florida and Massachusetts Portfolios pursue
their objectives by investing in high quality municipal
securities having remaining maturities of 397 days or less (which
maturities may extend to such greater length of time as may be
permitted from time to time pursuant to Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "Act"), and,
except when such a Portfolio assumes a temporary defensive
position, as a matter of fundamental policy, at least 80% of each
Portfolio's total assets will be invested in municipal
securities. While no Portfolio may change any "fundamental"
policy without shareholder approval, the other investment
policies set forth in this Statement of Additional Information
may be changed by a Portfolio upon notice but without such
approval. Normally, substantially all of each Portfolio's assets
will generate tax-exempt income as described below; for example,
in 1997, 100% of the income of each Portfolio(the Massachusetts
Portfolio had not yet been established) was exempt from Federal
income taxes. The Fund may in the future establish additional
portfolios which may have different investment objectives. There
can be no assurance, as is true with all investment companies,
that any Portfolio will achieve its investment objectives.

General Portfolio. To the extent consistent with its
other investment objectives, the General Portfolio seeks maximum
current income that is exempt from Federal income taxes by
investing principally in a diversified portfolio of high-quality
municipal securities. Such income may be subject to state or
local income taxes.

<PAGE>

New York Portfolio. To the extent consistent with its
other investment objectives, the New York Portfolio seeks maximum
current income that is exempt from Federal, New York State and
New York City personal income taxes by investing principally in a
non-diversified portfolio of high-quality municipal securities
issued by New York State or its political subdivisions. Except
when the New York Portfolio assumes a temporary defensive
position, at least 65% of its total assets will, as a matter of
fundamental policy, be so invested. Shares of the New York
Portfolio are offered only to New York State residents.

California Portfolio. To the extent consistent with its
other investment objectives, the California Portfolio seeks
maximum current income that is exempt from both Federal income
taxes and California personal income tax by investing principally
in a non-diversified portfolio of high-quality municipal
securities issued by the State of California or its political
subdivisions. Except when the California Portfolio assumes a
temporary defensive position, at least 65% of its total assets
will, as a matter of fundamental policy, be so invested. Shares
of the California Portfolio are available only to California
residents.

Connecticut Portfolio. To the extent consistent with
its other investment objectives, the Connecticut Portfolio seeks
maximum current income that is exempt from Federal and
Connecticut personal income taxes by investing principally in a
non-diversified portfolio of high-quality municipal securities
issued by Connecticut or its political subdivisions. Except when
the Portfolio assumes a temporary defensive position, at least
65% of its total assets will, as a matter of fundamental policy,
be so invested. Shares of the Connecticut Portfolio are offered
only to Connecticut residents.

New Jersey Portfolio. To the extent consistent with its
other investment objectives, the Portfolio seeks maximum current
income that is exempt from Federal and New Jersey State personal
income taxes by investing principally in a non-diversified
portfolio of high-quality municipal securities issued by the
State of New Jersey or its political subdivisions. Except when
the Portfolio assumes a temporary defensive position, at least
65% of its total assets will, as a matter of fundamental policy,
be so invested. The Portfolio will invest not less than 80% of
its net assets in securities the interest on which is exempt from
New Jersey personal income taxes [i.e. New Jersey municipal
securities and obligations of the U.S. Government, its agencies
and instrumentalities ("U.S. Government Securities")]. In
addition, during periods when Alliance Capital Management L.P.,
the Fund's Adviser, (the "Adviser") believes that New Jersey
municipal securities that meet the Portfolio's standards are not
available, the Portfolio may invest a portion of its assets in

<PAGE>

securities whose interest payments are only federally tax-exempt.
Shares of the New Jersey Portfolio are offered only to New Jersey
residents.

Virginia Portfolio. To the extent consistent with its
other investment objectives, the Virginia Portfolio seeks maximum
current income that is exempt from both Federal income taxes and
Virginia personal income tax by investing principally in a non-
diversified portfolio of high-quality municipal securities issued
by the State of Virginia or its political subdivisions. Except
when the Virginia Portfolio assumes a temporary defensive
position, at least 65% of its total assets will, as a matter of
fundamental policy, be so invested. Shares of the Virginia
Portfolio are available only to Virginia residents.

Florida Portfolio. To the extent consistent with its
other investment objectives, the Florida Portfolio seeks maximum
current income that is exempt from both Federal income taxes and
State of Florida intangible tax by investing principally in a
non-diversified portfolio of high-quality municipal securities
issued by the State of Florida or its political subdivisions.
Except when the Portfolio assumes a temporary defensive position,
at least 65% of its total assets will be so invested. Shares of
the Florida Portfolio are available only to Florida residents.

Massachusetts Portfolio. To the extent consistent with
its other investment objectives, the Massachusetts Portfolio
seeks maximum current income that is exempt from both Federal
income taxes and Commonwealth of Massachusetts tax by investing
principally in a non-diversified portfolio of high quality
municipal securities issued by the Commonwealth of Massachusetts
or its political subdivisions. The Massachusetts Portfolio may
invest in restricted securities that are determined by the
Adviser to be liquid in accordance with procedures adopted by the
Trustees, including securities eligible for resale under Rule
144A under the Securities Act of 1933 (the "Securities Act").
Restricted securities are securities subject to contractual or
legal restrictions on resale, such as those arising from an
issuer's reliance upon certain exemptions from registration under
the Securities Act. Shares of the Massachusetts Portfolio are
offered only to Massachusetts residents.

New York, California, Connecticut, New Jersey, Virginia,
Florida and Massachusetts Portfolios. Apart from the risks
associated with investment in any money market fund seeking tax-
exempt income, such as default by municipal issuers and
fluctuation in short-term interest rates, investors in the New
York, California, Connecticut, New Jersey, Virginia, Florida and
Massachusetts Portfolios should consider the greater risks of
each Portfolio's concentration versus the safety that comes with
a less concentrated investment portfolio and should compare

<PAGE>

yields available on portfolios of New York, California,
Connecticut, New Jersey, Virginia, Florida and Massachusetts
issues, respectively, with those of more diversified portfolios,
including other states' issues, before making an investment
decision. Each of such Portfolios is a non-diversified
investment company and, accordingly, the permitted concentration
of investments may present greater risks than in the case of a
diversified investment company. (See below "Special Risk Factors
of Concentration in a Single State.")

No Portfolio will invest 25% or more of its total assets
in the securities of non-governmental issuers conducting their
principal business activities in any one industry.

To the extent suitable New York, California,
Connecticut, New Jersey, Virginia, Florida and Massachusetts
municipal securities, as applicable, are not available for
investment by the respective Portfolio, the respective Portfolio
may purchase municipal securities issued by other states and
political subdivisions. The dividends designated as derived from
interest income on such municipal securities generally will be
exempt from Federal income taxes but, with respect to: (i) non-
New York municipal securities owned by the New York Portfolio,
will be subject to New York State and New York City personal
income taxes; (ii) non-California municipal securities owned by
the California Portfolio, will be subject to California personal
income taxes; (iii) non-Connecticut municipal securities owned by
the Connecticut Portfolio, will be subject to Connecticut
personal income taxes; (iv) non-New Jersey municipal securities
owned by the New Jersey Portfolio, will be subject to New Jersey
personal income taxes; (v) non-Virginia municipal securities
owned by the Virginia Portfolio, will be subject to Virginia
personal income taxes; (vi) non-Florida municipal securities
owned by the Florida Portfolio, will be subject to Florida income
and intangible taxes and (vii) non-Massachusetts municipal
securities owned by the Massachusetts Portfolio, will be subject
to Massachusetts personal income taxes.

Municipal Securities

The term "municipal securities," as used in the
Prospectus and this Statement of Additional Information, means
obligations issued by or on behalf of states, territories, and
possessions of the United States or their political subdivisions,
agencies and instrumentalities, the interest from which is exempt
(subject to the alternative minimum tax) from Federal income
taxes. The municipal securities in which the Fund invests are
limited to those obligations which at the time of purchase:

1. are backed by the full faith and credit of the
United States; or

<PAGE>

2. are municipal notes, municipal bonds or other types
of municipal securities rated in the two highest
rating categories by the requisite nationally
recognized statistical rating organizations
("NRSROs") such as Moody's Investors Services, Inc.
or Standard and Poor's Corporation, or judged by
the Adviser to be of comparable quality. (See
Appendix A for a description of municipal
securities and Appendix B for a description of
these ratings.)

Rule 2a-7 under the Act

Each Portfolio of the Fund will comply with Rule 2a-7
under the Act, as amended from time to time, including the
diversification, quality and maturity limitations imposed by the
Rule. To the extent that the Fund's limitations are more
permissive than Rule 2a-7, the Fund will comply with the more
restrictive provisions of the Rule.

Currently, pursuant to Rule 2a-7, each Portfolio of the
Fund may invest only in U.S. dollar-denominated "Eligible
Securities" (as that term is defined in the Rule) that have been
determined by the Adviser to present minimal credit risks
pursuant to procedures approved by the Trustees. Generally, an
Eligible Security is a security that (i) has a remaining maturity
of 397 days or less and (ii) is rated, or is issued by an issuer
with short-term debt outstanding that is rated, in one of the two
highest rating categories by two nationally recognized
statistical rating organizations ("NRSROs") or, if only one NRSRO
has issued a rating, by that NRSRO (the "requisite NRSROs").
Unrated securities may also be Eligible Securities if the Adviser
determines that they are of comparable quality to a rated
Eligible Security pursuant to guidelines approved by the
Trustees. A description of the ratings of some NRSROs appears in
Appendix B attached hereto.

Under Rule 2a-7 the General Portfolio may not invest
more than five percent of its assets in the securities of any one
issuer other than the United States Government, its agencies and
instrumentalities. The remaining Portfolios of the Fund are
subject to this restriction with respect to 75% of their assets.
Government securities are considered to be first tier securities.
In addition, the Portfolios may not invest in a conduit security
that has received, or is deemed comparable in quality to a
conduit security that has received, the second highest rating by
the requisite number of NRSROs (a "second tier security") if
immediately after the acquisition thereof the Portfolio would
have invested more than (A) the greater of one percent of its
total assets or one million dollars in securities issued by that
issuer which are second tier securities, or (B) five percent of

<PAGE>

its total assets in second tier securities (the "second tier
security restriction"). A conduit security for purposes of Rule
2a-7 is a security nominally issued by a municipality, but
dependent for principal and interest payments on non-municipal
issuer's revenues from a non-municipal project.

Alternative Minimum Tax

Each Portfolio of the Fund may invest without limitation
in tax-exempt municipal securities subject to the alternative
minimum tax (the "AMT"). Under current Federal income tax law,
(1) interest on tax-exempt municipal securities issued after
August 7, 1986 which are "specified private activity bonds," and
the proportionate share of any exempt-interest dividend paid by a
regulated investment company which receives interest from such
specified private activity bonds, will be treated as an item of
tax preference for purposes of the AMT imposed on individuals and
corporations, though for regular Federal income tax purposes such
interest will remain fully tax-exempt, and (2) interest on all
tax-exempt obligations will be included in "adjusted current
earnings" of corporations for AMT purposes. Such private
activity bonds ("AMT-Subject Bonds") have provided, and may
continue to provide, somewhat higher yields than other comparable
municipal securities.

Investors should consider that, in most instances, no
state, municipality or other governmental unit with taxing power
will be obligated with respect to AMT-Subject Bonds. AMT-Subject
Bonds are in most cases revenue bonds and do not generally have
the pledge of the credit or the taxing power, if any, of the
issuer of such bonds. AMT-Subject Bonds are generally limited
obligations of the issuer supported by payments from private
business entities and not by the full faith and credit of a state
or any governmental subdivision. Typically the obligation of the
issuer of an AMT-Subject Bond is to make payments to bond holders
only out of and to the extent of, payments made by the private
business entity for whose benefit the AMT-Subject Bonds were
issued. Payment of the principal and interest on such revenue
bonds depends solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the
pledge, if any, of real and personal property so financed as
security for such payment. It is not possible to provide
specific detail on each of these obligations in which Fund assets
may be invested.

Taxable Securities

Although each Portfolio of the Fund is, and expects to
be, largely invested in municipal securities, each Portfolio may
elect to invest up to 20% of its total assets in taxable money
market securities when such action is deemed to be in the best

<PAGE>

interests of shareholders. When, in the judgment of the Adviser,
financial, economic, and/or market conditions warrant, each
Portfolio may invest any amount of its total assets in taxable
money market securities. Such taxable money market securities
also are limited to remaining maturities of 397 days or less at
the time of a Portfolio's investment, and such Portfolio's
municipal and taxable securities are maintained at a dollar-
weighted average of 90 days or less. Taxable money market
securities purchased by a Portfolio are limited to those
described below:

1. marketable obligations of, or guaranteed by, the
United States Government, its agencies or
instrumentalities; or

2. certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having
total assets of more than $1 billion and which are
members of the Federal Deposit Insurance
Corporation; or

3. commercial paper of prime quality rated in the two
highest rating categories by the requisite NRSROs
or, if not rated, issued by companies which have an
outstanding debt issue rated in the two highest
rating categories by the requisite NRSROs. (See
Appendix B for a description of these ratings.)

Repurchase Agreements

Each Portfolio may also enter into repurchase agreements
pertaining to the types of securities in which it may invest. A
repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting an
agreed-upon market rate which is effective for the period of time
the buyer's money is invested in the security and which is not
related to the coupon rate on the purchased security. Each
Portfolio requires continuous maintenance of collateral in an
amount equal to, or in excess of, the market value of the
securities which are the subject of the agreement. In the event
that a counterparty defaulted on its repurchase obligation, a
Portfolio might suffer a loss to the extent that the proceeds
from the sale of the collateral were less than the repurchase
price. If the counterparty became bankrupt, the Portfolio might
be delayed in selling the collateral. Repurchase agreements may
be entered into with member banks of the Federal Reserve System
(including the Fund's Custodian) or "primary dealers" (as
designated by the Federal Reserve Bank of New York) in U.S.
Government securities. It is each Portfolio's current practice

<PAGE>

to enter into repurchase agreements only with such primary
dealers and its Custodian, and the Fund has adopted procedures
for monitoring the creditworthiness of such organizations.
Pursuant to Rule 2a-7, a repurchase agreement is deemed to be an
acquisition of the underlying securities provided that the
obligation of the seller to repurchase the securities from the
money market fund is collateralized fully (as defined in such
Rule). Accordingly, the counterparty of a fully collateralized
repurchase agreement is deemed to be the issuer of the underlying
securities.

Reverse Repurchase Agreements

Each Portfolio may enter into reverse repurchase
agreements, which involve the sale of securities held by such
Portfolio with an agreement to repurchase the securities at an
agreed upon price, date and interest payment, although no
Portfolio has entered into, nor has any plans to enter into, such
agreements.

Variable Rate Obligations

The interest rate payable on certain municipal
securities in which a Portfolio may invest, called "variable
rate" obligations, is not fixed and may fluctuate based upon
changes in market rates. The interest rate payable on a variable
rate municipal security is adjusted either at pre-designated
periodic intervals or whenever there is a change in the market
rate to which the security's interest rate is tied. Other
features may include the right of a Portfolio to demand
prepayment of the principal amount of the obligation prior to its
stated maturity and the right of the issuer to prepay the
principal amount prior to maturity. The main benefit of a
variable rate municipal security is that the interest rate
adjustment minimizes changes in the market value of the
obligation. As a result, the purchase of variable rate municipal
securities enhances the ability of a Portfolio to maintain a
stable net asset value per share and to sell an obligation prior
to maturity at a price approximating the full principal amount.
The payment of principal and interest by issuers of certain
municipal securities purchased by a Portfolio may be guaranteed
by letters of credit or other credit facilities offered by banks
or other financial institutions. Such guarantees will be
considered in determining whether a municipal security meets a
Portfolio's investment quality requirements.

Variable rate obligations purchased by a Portfolio may
include participation interests in variable rate industrial
development bonds that are backed by irrevocable letters of
credit or guarantees of banks that meet the criteria for banks
described above in "Taxable Securities." Purchase of a

<PAGE>

participation interest gives a Portfolio an undivided interest in
certain such bonds. A Portfolio can exercise the right, on not
more than 30 days' notice, to sell such an instrument back to the
bank from which it purchased the instrument and draw on the
letter of credit for all or any part of the principal amount of
such Portfolio's participation interest in the instrument, plus
accrued interest, but will do so only (i) as required to provide
liquidity to such Portfolio, (ii) to maintain a high quality
investment portfolio, or (iii) upon a default under the terms of
the demand instrument. Banks retain portions of the interest
paid on such variable rate industrial development bonds as their
fees for servicing such instruments and the issuance of related
letters of credit and repurchase commitments. Each Portfolio
will comply with Rule 2a-7 with respect to its investments in
variable rate obligations supported by letters of credit. A
Portfolio will not purchase participation interests in variable
rate industrial development bonds unless it receives an opinion
of counsel or a ruling of the Internal Revenue Service that
interest earned by such Portfolio from the bonds in which it
holds participation interests is exempt from Federal income
taxes. The Adviser will monitor the pricing, quality and
liquidity of variable rate demand obligations and participation
interests therein held by such Portfolio on the basis of
published financial agency reports and other research services to
which the Adviser may subscribe.

Standby Commitments

The acquisition of a standby commitment does not affect
the valuation or maturity of the underlying municipal securities
which continue to be valued in accordance with the amortized cost
method. Standby commitments acquired by a Portfolio are valued
at zero in determining net asset value. Where a Portfolio pays
directly or indirectly for a standby commitment, its cost is
reflected as unrealized depreciation for the period during which
the commitment is held. Standby commitments do not affect the
average weighted maturity of a Portfolio's portfolio of
securities.

When-Issued Securities

Municipal securities are frequently offered on a "when-
issued" basis. When so offered, the price, which is generally
expressed in yield terms, is fixed at the time the commitment to
purchase is made, but delivery and payment for the when-issued
securities take place at a later date. Normally, the settlement
date occurs within one month after the purchase of municipal
bonds and notes. During the period between purchase and
settlement, no payment is made by a Portfolio to the issuer and,
thus, no interest accrues to such Portfolio from the transaction.
When-issued securities may be sold prior to the settlement date,

<PAGE>

but a Portfolio makes when-issued commitments only with the
intention of actually acquiring the securities. To facilitate
such acquisitions, the Fund's Custodian will maintain, in a
separate account of each Portfolio, cash, U.S. Government or
other liquid high-grade debt securities, having value equal to,
or greater than, such commitments. Similarly, a separate account
will be maintained to meet obligations in respect of reverse
repurchase agreements. On delivery dates for such transactions,
a Portfolio will meet its obligations from maturities or sales of
the securities held in the separate account and/or from the
available cash flow. If a Portfolio, however, chooses to dispose
of the right to acquire a when-issued security prior to its
acquisition, it can incur a gain or loss. At the time a
Portfolio makes the commitment to purchase a municipal security
on a when-issued basis, it records the transaction and reflects
the value of the security in determining its net asset value. No
when-issued commitments will be made if, as a result, more than
15% of a Portfolio's net assets would be so committed.

Illiquid Securities

No Portfolio of the Fund will invest more than 10% of
its net assets in illiquid securities (including illiquid
restricted securities with respect to the Massachusetts
Portfolio.) As to these securities, a Portfolio is subject to a
risk that should the Portfolio desire to sell them when a ready
buyer is not available at a price the Portfolio deems
representative of their value, the value of the Portfolio's net
assets could be adversely affected. Illiquid securities may
include securities that are not readily marketable and, with
respect to the Massachusetts Portfolio, securities subject to
legal or contractual restrictions on resale. With respect to the
Massachusetts Portfolio, which may invest in restricted
securities, restricted securities determined by the Adviser to be
liquid will not be treated as "illiquid" for purposes of the
restriction on illiquid securities.

General

Yields on municipal securities are dependent on a
variety of factors, including the general condition of the money
market and of the municipal bond and municipal note market, the
size of a particular offering, the maturity of the obligation and
the rating of the issue. Municipal securities with longer
maturities tend to produce higher yields and are generally
subject to greater price movements than obligations with shorter
maturities. (An increase in interest rates will generally reduce
the market value of portfolio investments, and a decline in
interest rates will generally increase the value of portfolio
investments. There can be no assurance, as is true with all
investment companies, that a Portfolio's objectives will be

<PAGE>

achieved. The achievement of a Portfolio's investment objectives
is dependent in part on the continuing ability of the issuers of
municipal securities in which a Portfolio invests to meet their
obligations for the payment of principal and interest when due.
Municipal securities historically have not been subject to
registration with the Securities and Exchange Commission,
although there have been proposals which would require
registration in the future. Each Portfolio generally will hold
securities to maturity rather than follow a practice of trading.
However, a Portfolio may seek to improve portfolio income by
selling certain portfolio securities prior to maturity in order
to take advantage of yield disparities that occur in securities
markets.)

Obligations of issuers of municipal securities are
subject to the provisions of bankruptcy, insolvency, and other
laws affecting the rights and remedies of creditors, such as the
Bankruptcy Code. In addition, the obligations of such issuers
may become subject to laws enacted in the future by Congress,
state legislatures, or referenda extending the time for payment
of principal and/or interest, or imposing other constraints upon
enforcement of such obligations or upon the ability of
municipalities to levy taxes. There is also the possibility
that, as a result of litigation or other conditions, the ability
of any issuer to pay, when due, the principal of, and interest
on, its municipal securities may be materially affected.

Except as otherwise provided above, each Portfolio's
investment objectives and policies are not designated
"fundamental policies" within the meaning of the Act and may,
therefore, be changed without a shareholder vote. However, the
Portfolio will not change its investment policies without
contemporaneous written notice to shareholders.

Effective November 1, 1991, the Fund's former name of
Alliance Tax-Exempt Reserves was changed to Alliance Municipal
Trust.

MASSACHUSETTS PORTFOLIO. THE FOLLOWING POLICIES RELATE TO THE
MASSACHUSETTS PORTFOLIO.

Restricted Securities. The Massachusetts Portfolio may
purchase restricted securities, including restricted securities
determined by the Adviser to be liquid in accordance with
procedures adopted by the Trustees, such as securities eligible
for resale under Rule 144A of the Securities Act. Restricted
securities are securities subject to contractual or legal
restrictions on resale, such as those arising from an issuer's
reliance upon certain exemptions from registration under the
Securities Act.

<PAGE>

In recent years, a large institutional market has
developed for certain types of restricted securities including,
among others, private placements, repurchase agreements,
commercial paper, foreign securities and corporate bonds and
notes. These instruments are often restricted securities because
they are sold in transactions not requiring registration. For
example, commercial paper issues include, among others,
securities issued by major corporations without registration
under the Securities Act in reliance on the exemption from
registration afforded by Section 3(a)(3) of such Act and
commercial paper issued in reliance on the private placement
exemption from registration which is afforded by Section 4(2) of
the Securities Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in
that any resale must also be made in an exempt transaction.
Section 4(2) paper is normally resold to other institutional
investors through or with the assistance of investment dealers
who make a market in Section 4(2) paper, thus providing
liquidity. Institutional investors, rather than selling these
instruments to the general public, often depend on an efficient
institutional market in which such restricted securities can be
readily resold in transactions not involving a public offering.
In many instances, therefore, the existence of contractual or
legal restrictions on resale to the general public does not, in
practice, impair the liquidity of such investments from the
perspective of institutional holders. In recognition of this
fact, the Staff of the Securities and Exchange Commission (the
"Commission") has stated that Section 4(2) paper may be
determined to be liquid by the Trustees, so long as certain
conditions, which are described below, are met.

Rule 144A under the Securities Act establishes a safe
harbor from the Securities Act's registration requirements for
resale of certain restricted securities to qualified
institutional buyers. Pursuant to Rule 144A, the institutional
restricted securities markets may provide both readily
ascertainable values for restricted securities and the ability to
liquidate an investment in order to satisfy share redemption
orders on a timely basis. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Massachusetts Portfolio, however, could
affect adversely the marketability of such portfolio securities
and the Massachusetts Portfolio might be unable to dispose of
such securities promptly or at reasonable prices.

The Trustees have the ultimate responsibility for
determining whether specific securities are liquid or illiquid.
The Trustees have delegated the function of making day-to-day
determinations of liquidity to the Adviser, pursuant to
guidelines approved by the Trustees.

<PAGE>

The Adviser takes into account a number of factors in
determining whether a restricted security being considered for
purchase is liquid, including at least the following:

(i) the frequency of trades and quotations for the
security;

(ii) the number of dealers making quotations to
purchase or sell the security;

(iii) the number of other potential purchasers of the
security;

(iv) the number of dealers undertaking to make a market
in the security;

(v) the nature of the security (including its
unregistered nature) and the nature of the
marketplace for the security (e.g., the time
needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer);
and

(vi) any applicable Commission interpretation or
position with respect to such types of securities.

To make the determination that an issue of Section 4(2)
paper is liquid, the Adviser must conclude that the following
conditions have been met:

(i) the Section 4(2) paper must not be traded flat or
in default as to principal or interest; and

(ii) the Section 4(2) paper must be rated in one of the
two highest rating categories by at least two
NRSROs, or if only one NRSRO rates the security,
by that NRSRO; if the security is unrated, the
Adviser must determine that the security is of
equivalent quality.

The Adviser must also consider the trading market for
the specific security, taking into account all relevant factors.

Following the purchase of a restricted security by the
Massachusetts Portfolio, the Adviser monitors continuously the
liquidity of such security and reports to the Trustees regarding
purchases of liquid restricted securities.

<PAGE>

Asset-Backed Securities

The Massachusetts Portfolio may invest in asset-backed
securities that meet its existing diversification, quality and
maturity criteria. Asset-backed securities are securities issued
by special purpose entities whose primary assets consist of a
pool of loans or accounts receivable. The securities may be in
the form of a beneficial inerest in a special purpose trust,
limited partnership interest, or commercial paper or other debt
securities issued by a special purpose corporation. Although the
securities may have some form of credit or liquidity enhancement,
payments on the securities depend predominately upon collection
of the loans and receivables held by the issuer.

Special Risk Factors of Concentration in a Single State

The primary purpose of investing in a portfolio of a
single state's municipal securities is the special tax treatment
accorded that state's resident individual investors. However,
payment of interest and preservation of principal is dependent
upon the continuing ability of the state's issuers and/or
obligors of its state, municipal and public authority debt
obligations to meet their obligations thereunder. Investors
should consider the greater risk of the concentration of the New
York, California, Connecticut, New Jersey, Virginia, Florida or
Massachusetts Portfolio (individually, a "State Portfolio")
versus the safety that comes with a less concentrated investment
portfolio and should compare yields available on portfolios of
the relevant state's issues with those of more diversified
portfolios, including other states' issues, before making an
investment decision. The Adviser believes that by maintaining
each State Portfolio's investment portfolio in liquid, short-
term, high-quality investments, including the participation
interests and other variable rate obligations that have credit
support such as letters of credit from major financial
institutions, the State Portfolio is largely insulated from the
credit risks that exist on long-term municipal securities of the
relevant state.

The following summaries are included for the purpose of
providing a general description of credit and financial
conditions of New York, California, Connecticut, New Jersey,
Virginia, Florida and Massachusetts and are based on information
from official statements (described more fully below) made
available in connection with the issuance of certain securities
in such states. The summaries are not intended to provide a
complete description of such states. While the Fund has not
undertaken to independently verify such information, it has no
reason to believe that such information is not correct in all
material aspects. These summaries do not provide specific

<PAGE>

information regarding all securities in which the Fund is
permitted to invest and in particular do not provide specific
information on the private business entities whose obligations
support the payments on AMT-Subject Bonds.

NEW YORK PORTFOLIO

The following is based on information obtained from an
Official Statement, dated July 15, 1998, relating to $92,695,000
General Obligation Bonds Series 1998D Tax-Exempt Bonds,
Accelerated Capacity and Transportation Improvements of the
Nineties Bonds, Environmental Quality 1986 Bonds, Rebuild New
York Through Transportation Infrastructure Renewal Bonds,
Transportation Capital Facilities Bonds, Pure Water Bonds, Energy
Conservation Through Improved Transportation Bonds, Environmental
Quality 1972 Bonds, Clean Water/Clean Air Bonds and $7,020,000
Series 1998E Taxable Bonds, Clean Water/Clean Air Bonds, and the
Update to the Annual Information Statement of the State of New
York dated August 3, 1998.

New York Local Government Assistance Corporation

In 1990, as part of a New York State (the "State")
fiscal reform program, legislation was enacted creating the New
York Local Government Assistance Corporation (the "LGAC"), a
public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal
borrowing. The legislation authorized LGAC to issue its bonds
and notes in an amount not in excess of $4.7 billion (exclusive
of certain refunding bonds) plus certain other amounts. Over a
period of years, the issuance of these long-term obligations,
which are to be amortized over no more than 30 years, was
expected to eliminate the need for continued short-term seasonal
borrowing. The legislation also dedicated revenues equal to
one-quarter of the four cent State sales and use tax to pay debt
service on these bonds. The legislation imposed a cap on the
annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for
capitalized interest, except in cases where the Governor and the
legislative leaders have certified the need for additional
borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap is thus permitted in any fiscal year, it
is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. This provision capping
the seasonal borrowing was included as a covenant with LGAC's
bondholders in the resolution authorizing such bonds.

As of June 1995, LGAC had issued bonds and notes to
provide net proceeds of $4.7 billion completing the program. The
impact of LGAC's borrowing is that the State is able to meet its

<PAGE>

cash flow needs throughout the fiscal year without relying on
short-term seasonal borrowings.

Recent Developments

The national economy has maintained a robust rate
of growth during the past six quarters as the expansion, which is
well into its seventh year, continues. Since early 1992,
approximately 16-1/2 million jobs have been added nationally.
The State economy has also continued to expand, but growth
remains somewhat slower than in the nation. Although the State
has added over 400,000 jobs since late 1992, employment growth in
the State has been hindered during recent years by significant
cutbacks in the computer and instrument manufacturing, utility,
defense, and banking industries. Government downsizing has also
moderated these job gains.

The State Division of Budget ("DOB") forecasts that
national economic growth will be quite strong in the first half
of calendar 1998, but will moderate considerably as the year
progresses. The projected overall growth rate of the national
economy for calendar year 1998 is modestly below the consensus
forecast of a widely followed survey of national economic
forecasters. Growth in real Gross Domestic Product for 1998 is
projected to be 3.3 percent, with a decline in net exports and
continued restraint in federal spending more than offset by
increases in consumption and investment. Inflation, as measured
by the Consumer Price Index, is projected to reach its lowest
annual rate since the 1960's at about 1.6 percent due to improved
productivity, foreign competition and low energy and commodity
costs. Personal income and wages are projected to increase by
5.3 percent and 6.3 percent respectively.

The forecast of the State's economy shows continued
expansion during the 1998 calendar year, with continued growth
projected in 1998 for employment, wages, and personal income,
although the growth rates of personal income and wages are
expected to be lower than those in 1997. The growth of personal
income is projected to decline to 4.8 percent in 1998, in part
because growth in bonus payments is expected to slow down, a
distinct shift from the torrid rate of the last few years.
Overall employment growth is expected to be 1.9 percent in 1998,
the strongest in a decade, but will drop to 1.0 percent in 1999,
reflecting the slowing growth in the national economy, continued
restraint in governmental spending, and restructuring in the
health care, social service, and banking sectors.

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1997-98 Fiscal Year

The State ended its 1997-98 fiscal year in balance on a
cash basis, with a General Fund cash surplus as reported by DOB
of approximately $2.04 billion. The cash surplus was derived
primarily from higher-than-anticipated receipts and lower
spending on welfare, Medicaid, and other entitlement programs.

The General Fund had a closing balance of $638 million,
an increase of $205 million from the prior fiscal year. The
balance is held in three accounts within the General Fund: the
Tax Stabilization Reserve Fund ("TSRF"), the Contingency Reserve
Fund ("CRF") and the Community Projects Fund ("CPF"). The TSRF
closing balance was $400 million, following a required deposit of
$15 million (repaying a transfer made in 1991-92) and an
extraordinary deposit of $68 million made from the 1997-98
surplus. The CRF closing balance was $68 million, following a
$27 million deposit from the surplus. The CPF, which finances
legislative initiatives, closed the fiscal year with a balance of
$170 million, an increase of $95 million. The General Fund
closing balance did not include $2.39 billion in the tax refund
reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on
deposit on March 31, 1998.

General Fund receipts and transfers from other funds for
the 1997-98 fiscal year (including net tax refund reserve account
activity) totaled $34.55 billion, an annual increase of
$1.51 billion, or 4.57 percent over 1996-97. General Fund
disbursements and transfers to other funds were $34.35 billion,
an annual increase of $1.45 or 4.41 percent.

1996-97 Fiscal Year

The State ended its 1996-97 fiscal year on March 31,
1997 in balance on a cash basis, with a 1996-97 General Fund cash
surplus as reported by DOB of approximately $1.42 billion. The
cash surplus was derived primarily from higher-than-expected
receipts and lower-than-expected spending for social services
programs.

The General Fund closing fund balance was $433 million,
an increase of $146 million from the 1995-96 fiscal year. The
balance included $317 million in the TSRF, after a required
deposit of $15 million and an additional deposit of $65 million
in 1996-97. The TSRF can be used in the event of any future
General Fund deficit, as provided under the State Constitution
and State Finance Law. In addition, $41 million remains on
deposit in the CRF. This fund assists the State in financing any
extraordinary litigation during the fiscal year. The remaining
$75 million reflects amounts then on deposit in the Community

<PAGE>

Projects Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not
include $1.86 billion in the tax refund reserve account, of which
$521 million was made available as a result of the LGAC financing
program and was required to be on deposit as of March 31, 1997.

General Fund receipts and transfers from other funds for
the 1996-97 fiscal year totaled $33.04 billion, an increase of
0.7 percent from the previous fiscal year (including net tax
refund reserve account activity). General Fund disbursements and
transfers to other funds totaled $32.90 billion for the 1996-97
fiscal year, an increase of 0.7 percent from the 1995-96 fiscal
year.

1995-96 Fiscal Year

The State ended its 1995-96 fiscal year on March 31,
1996 with a General Fund cash surplus, as reported by DOB, of
$445 million. The cash surplus was derived from higher-than-
expected receipts, savings generated through agency cost
controls, and lower-than-expected welfare spending.

The General Fund closing fund balance was $287 million,
an increase of $129 million from 1994-95 levels. The $129
million change in fund balance is attributable to a $65 million
voluntary deposit to the TSRF, a $15 million required deposit to
the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund
balance included $237 million on deposit in the TSRF. In
addition, $41 million was on deposit in the CRF. The remaining
$9 million reflected amounts then on deposit in the Revenue
Accumulation Fund. . The General Fund closing balance did not
include $678 million in the tax refund reserve account of which
$521 million was made available as a result of the LGAC financing
program and was required to be on deposit as of March 31, 1996.

General Fund receipts and transfers from other funds
(including net refund reserve account activity) totaled $32.81
billion, a decrease of 1.1 percent from 1994-95 levels. General
Fund disbursements and transfers to other funds totaled $32.68
billion for the 1995-96 fiscal year, a decrease of 2.2 percent
from 1994-95 levels.

State Financial Practices: GAAP Basis

Historically, the State has accounted for, reported and
budgeted its operations on a cash basis. The State currently
formulates a financial plan which includes all funds required by
generally accepted accounting principles ("GAAP"). The State, as
required by law, continues to prepare its financial plan and
financial reports on the cash basis of accounting as well.

<PAGE>

1998-99 Fiscal Year

On March 31, 1998, the State recorded, on a GAAP-basis,
its first-ever, accumulated positive balance in its General Fund.
This "accumulated surplus" was $567 million. The improvement in
the State's GAAP position is attributable, in part, to the cash
surplus recorded at the end of the State's 1997-98 fiscal year.
Much of that surplus is reserved for future requirements, but a
portion is being used to meet spending needs in 1998-99. Thus,
the State expects some deterioration in its GAAP position, but
expects to maintain a positive GAAP balance through the end of
the current fiscal year.

The 1998-99 GAAP-basis General Fund Financial Plan shows
expected tax revenues of $33.1 billion and miscellaneous revenues
of $2.6 billion to finance expenditures of $36.1 billion and net
financing uses of $156 million. The General Fund accumulated
surplus is projected to be $27 million at the end of 1998-99.

1997-98 Fiscal Year

The State completed its 1997-98 fiscal year with a
combined Governmental Funds operating surplus of $1.80 billion,
which included an operating surplus in the General Fund of
$1.56 billion, in Capital Projects Funds of $232 million and in
Special Revenue Funds of $49 million, offset in part by an
operating deficit of $43 million in Debt Service Funds.

The State reported a General Fund operating surplus of
$1.56 billion for the 1997-98 fiscal year, as compared to an
operating surplus of $1.93 billion for the 1996-97 fiscal year.
As a result, the State reported an accumulated surplus of
$567 million in the General Fund for the first time since it
began reporting its operations on a GAAP-basis. The 1997-98
fiscal year operating surplus reflects several major factors,
including the cash-basis operating surplus resulting from the
higher-than-anticipated personal income tax receipts, an increase
in taxes receivable of $681 million, an increase in other assets
of $195 million and a decrease in pension liabilities of
$144 million. This was partially offset by an increase in
payables to local governments of $270 million and tax refunds
payable of $147 million.

Revenues increased $617 million (1.8 percent) over the
prior fiscal year, with increases in personal income, consumption
and use, and business taxes, and decreases reported for other
taxes, federal grants and miscellaneous revenues. Personal
income taxes grew $746 million, an increase of nearly 4.2
percent. The increase in personal income taxes resulted from
strong employment and wage growth and the strong performance by
the financial markets during 1997. Consumption and use taxes

<PAGE>

increased $334 million or 5.0 percent as a result of increased
consumer confidence. Business taxes grew $28 million, an increase
of 0.5 percent. Other taxes fell primarily because revenues for
estate and gift taxes decreased. Miscellaneous revenues decreased
$380 million, or 12.7 percent, due to a decline in receipts from
the Medical Malpractice Insurance Association and medical
provider assessments.

Expenditures increased $137 million (0.4 percent) from
the prior fiscal year, with the largest increases occurring in
State aid for education and social services spending. Education
expenditures grew $391 million (3.6 percent) due mainly to an
increase in spending for support for public schools. This growth
was offset, in part, by a reduction in spending for municipal and
community colleges. Social services expenditures increased
$233 million (2.6 percent) due mainly to program growth.
Increases in other State aid spending were offset by a decline in
general purpose aid of $235 million (27.8 percent) due to
statutory changes in the payment schedule. Increases in personal
and non-personal service costs were offset by a decrease in
pension contribution of $660 million, a result of the refinancing
of the State's pension amortization that occurred in 1997.

Net other financing sources decreased $841 million (68.2
percent) due to the nonrecurring use of bond proceeds
($769 million) provided by the Dormitory Authority of the State
of New York to pay the outstanding pension amortization liability
incurred in 1997.

An operating surplus of $49 million was reported for the
Special Revenue Funds for the 1997-98 fiscal year, which
increased the accumulated fund balance to $581 million. Revenues
rose by $884 million over the prior fiscal year (3.3 percent) as
a result of increases in tax and federal grant revenues.
Expenditures increased $795 million (3.3 percent) as a result of
increased costs for local assistance grants. Net other financing
uses decreased $105 million (3.3 percent).

Debt Service Funds ended the 1997-98 fiscal year with an
operating deficit of $43 million and, as a result, the
accumulated fund balance declined to $1.86 billion. Revenues
increased $246 million (10.6 percent) as a result of increases in
dedicated taxes. Debt service expenditures increased
$341 million (14.4 percent). Net other financing sources
increased $89 million (401.3 percent) due primarily to savings
achieved through advance refundings of outstanding bonds.

An operating surplus of $232 million was reported in the
Capital Projects Funds for the State's 1997-98 fiscal year and,
as a result, the accumulated deficit in this fund type decreased
to $381 million. Revenues increased $180 million (8.6 percent)

<PAGE>

primarily as a result of a $54 million increase in dedicated tax
revenues and an increase of $101 million in federal grants for
transportation and local waste water treatment projects.
Expenditures increased $146 million (4.5 percent) primarily as a
result of increased capital construction spending for
transportation and local waste water treatment projects. Net
other financing sources increased by $100 million primarily as a
result of a decrease in transfers to certain public benefit
corporations engaged in housing programs.

1996-97 Fiscal Year

The State completed its 1996-97 fiscal year with a
combined Governmental Funds operating surplus of $2.1 billion,
which included an operating surplus in the General Fund of $1.9
billion, in Capital Projects Funds of $98 million and in the
Special Revenue Funds of $65 million, offset in part by an
operating deficit of $37 million in the Debt Service Funds.

The State reported a General Funds operating surplus of
$1.93 billion for the 1996-97 fiscal year, as compared to an
operating surplus of $380 million for the prior fiscal year. The
1996-97 fiscal year GAAP operating surplus reflects several major
factors, including the cash basis operating surplus, the benefit
of bond proceeds which reduced the State's pension liability, an
increase in taxes receivable of $493 million, and a reduction in
tax refund liabilities of $196 million. This was offset by an
increased payable to local governments of $244 million.

Revenues increased $1.91 billion (nearly 6.0 percent)
over the prior fiscal year with increases in all revenue
categories. Personal income taxes grew $620 million, an increase
of nearly 3.6 percent, despite the implementation of scheduled
tax cuts. The increase in personal income taxes was caused by
moderate employment and wage growth and the strong financial
markets during 1996. Consumption and use taxes increased $179
million or 2.7 percent as a result of increased consumer
confidence. Business taxes grew $268 million, an increase of 5.6
percent, primarily as a result of the strong financial markets
during 1996. Other taxes increased primarily because revenues
from estate and gift taxes increased. Miscellaneous revenues
increased $743 million, a 33.1 percent increase, because of an
increase in receipts from the Medical Malpractice Insurance
Association and from medical provider assessments.

Expenditures increase $830 million (2.6 percent) from
the prior fiscal year, with the largest increase occurring in
pension contributions and State aid for education spending.
Pension contribution expenditures increased $514 million (198.2
percent) primarily because the State paid off its 1984-85 and
1985-86 pension amortization liability. Education expenditures

<PAGE>

grew $351 million (3.4 percent) due mainly to an increase in
spending for support for public schools and physically
handicapped children offset by a reduction in spending for
municipal and community colleges. Modest increases in other
State aid spending was offset by a decline in social services
expenditures of $157 million (1.7 percent). Social services
spending continues to decline because of cost containment
strategies and declining caseloads.

Net other financing sources increased $475 million (62.6
percent) due mainly to bond proceeds provided by the Dormitory
Authority of the State of New York to pay the outstanding pension
amortization, offset by elimination of prior year LGAC proceeds.

An operating surplus of $65 million was reported for the
Special Revenue Funds for the 1996-97 year, increasing the
accumulated fund balance to $532 million. Revenues increased
$583 million over the prior fiscal year (2.2 percent) as a result
of increases in tax and lottery revenues. Expenditures increased
$384 million (1.6 percent) as a result of increased costs for
departmental operations. Net other financing uses decreased $275
million (8.0 percent) primarily because of declines in amounts
transferred to other funds.

Debt Service Funds ended the 1996-97 fiscal year with an
operating deficit of $37 million and, as a result, the
accumulated fund balance declined to $1.90 billion. Revenues
increased $102 million (4.6 percent) because of increases in both
dedicated taxes and mental hygiene patient fees. Debt service
expenditures increased $47 million (2.0 percent). Net other
financing sources decreased $277 million (92.6 percent) due
primarily to an increase in payments on advance refunds.

An operating surplus of $98 million was reported to the
Capital Projects Funds for the State's 1996-97 fiscal year and,
as a result, the accumulated fund balance decreased to a deficit
of $614 million. Revenues increased $100 million (5.0 percent)
primarily because a larger share of the real estate transfer tax
was shifted to the Environmental Protection Fund and federal
grant revenues increased for transportation and local waste water
treatment projects. Expenditures decreased $359 million (10.0
percent) because of declines in capital grants for education,
housing and regional development programs and capital
construction spending. Net other financing sources decreased by
$637 million as a result of a decrease in proceeds from financing
arrangements.

<PAGE>

1995-96 Fiscal Year

The State completed its 1995-96 fiscal year with a
combined Governmental Funds operating surplus of $432 million,
which included an operating surplus in the General Fund of $380
million, in the Capital Projects Funds of $276 million and in the
Debt Service Funds of $185 million, offset in part by an
operating deficit of $409 million in the Special Revenue Funds.

Economic Overview

New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's
economy is diverse, with a comparatively large share of the
nation's finance, insurance, transportation, communications and
services employment, and a very small share of the nation's
farming and mining activity. The State's location and its
excellent air transport facilities and natural harbors have made
it an important link in international commerce. Travel and
tourism constitute an important part of the economy. Like the
rest of the nation, the State has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion
engaged in service industries.

The services sector, which includes entertainment,
personal services, such as health care and auto repairs, and
business-related services, such as information processing, law
and accounting, is the State's leading economic sector. The
service sector accounts for more than three of every ten
nonagricultural jobs in New York and has a higher proportion of
total jobs than does the rest of the nation.

Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's
economy is less reliant on this sector than is the nation. The
principal manufacturing industries in recent years produced
printing and publishing materials, instruments and related
products, machinery, apparel and finished fabric products,
electronic and other electric equipment, food and related
products, chemicals and allied products, and fabricated metal
products.

Wholesale and retail trade is the second largest sector
in terms of nonagricultural jobs in New York but is considerably
smaller when measured by income share. Trade consists of
wholesale businesses and retail businesses, such as department
stores and eating and drinking establishments.

New York City is the nation's leading center of banking
and finance, and, as a result, this is a far more important
sector in the State than in the nation as a whole. Although this

<PAGE>

sector accounts for under one-tenth of all nonagricultural jobs
in the State, it contributes over one-sixth of all nonfarm labor
and proprietors' income.

Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part
of total State output. Principal agricultural products of the
State include milk and dairy products, greenhouse and nursery
products, apples and other fruits, and fresh vegetables. New
York ranks among the nation's leaders in the production of these
commodities.

Federal, State and local government together are the
third largest sector in terms of nonagricultural jobs, with the
bulk of the employment accounted for by local governments.
Public education is the source of nearly one-half of total state
and local government employment.

The State is likely to be less affected than the nation
as a whole during an economic recession that is concentrated in
manufacturing and construction, but likely to be more affected
during a recession that is concentrated more in the service-
producing section.

In the calendar years 1987 through 1997, the State's
rate of economic growth was somewhat slower than that of the
nation. In particular, during the 1990-91 recession and post-
recession period, the economy of the State, and that of the rest
of the Northeast, was more heavily damaged than that of the
nation as a whole and has been slower to recover. The total
employment growth rate in the State has been below the national
average since 1987. The unemployment rate in the State dipped
below [Bthe national rate in the second half of 1981 and remained
lower until 1991; since then, it has been higher. According to
data published by the U.S. Bureau of Economic Analysis, total
personal income in the State has risen more slowly than the
national average since 1988.

State per capita personal income has historically been
significantly higher than the national average, although the
ratio has varied substantially. Because New York City (the
"City") is a regional employment center for a multi-state region,
State personal income measured on a residence basis understates
the relative importance of the State to the national economy and
the size of the base to which State taxation applies.

State Authorities

The fiscal stability of the State is related, in part,
to the fiscal stability of its public benefit corporations (the
"Authorities"). Authorities, which have responsibility for

<PAGE>

financing, constructing and operating revenue providing public
facilities, are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself and may
issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorizations. The State's
access to the public credit markets could be impaired, and the
market price of its outstanding debt may be materially adversely
affected, if any of its Authorities were to default on their
respective obligations, particularly those using State-supported
or State-related financing techniques. As of December 31, 1997,
there were 17 Authorities that had outstanding debt of
$100 million or more, and the aggregate outstanding debt,
including refunding bonds, of all State Authorities was
$84 billion, only a portion of which constitutes State-supported
or State-related debt.

Moral obligation financing generally involves the
issuance of debt by an Authority to finance a revenue-producing
project or other activity. The debt is secured by project
revenues and includes statutory provisions requiring the State,
subject to appropriation by the Legislature, to make up any
deficiencies which may occur in the issuer's debt service reserve
fund. There has never been a default on any moral obligation
debt of any public authority. The State does not intend to
increase statutory authorizations for moral obligation bond
programs. From 1976 through 1987, the State was called upon to
appropriate and make payments totaling $162.8 million to make up
deficiencies in the debt service reserve funds of the Housing
Finance Agency pursuant to moral obligation provisions. In the
same period, the State also expended additional funds to assist
the Project Finance Agency, the New York State Urban Development
Corporation and other public authorities which had moral
obligation debt outstanding. The State has not been called upon
to make any payments pursuant to any moral obligations since the
1986-87 fiscal year and no such requirements are anticipated
during the 1998-99 fiscal year.

In addition to the moral obligation financing
arrangements described above, State law provides for the creation
of State municipal assistance corporations, which are public
authorities established to aid financially troubled localities.
The Municipal Assistance Corporation For The City of New York
("NYC MAC") was created in 1975 to provide financing assistance
to the City. To enable NYC MAC to pay debt service on its
obligations, NYC MAC receives, subject to annual appropriation by
the Legislature, receipts from the 4 percent New York State sales
tax for the benefit of the City, the State-imposed stock transfer
tax and, subject to certain prior liens, certain local assistance
payments otherwise payable to the City. The legislation creating
NYC MAC also includes a moral obligation provision. Under its
enabling legislation, NYC MAC's authority to issue moral

<PAGE>

obligation bonds and notes (other than refunding bonds and notes)
expired on December 31, 1984. In 1995, the State created the
Municipal Assistance Corporation for the City of Troy
("Troy MAC"). The bonds issued by Troy MAC do not include the
moral obligation provisions.

The State also provides for contingent
contractual-obligation financing for the Secured Hospital Program
pursuant to legislation enacted in 1985. Under this financing
method, the State entered into service contracts which obligate
the State to pay debt service, subject to annual appropriations,
on bonds issued by the New York State Medical Care Facilities
Finance Agency and now included as debt of the Dormitory
Authority of the State of New York in the event there are
shortfalls of revenues from other sources. The State has never
been required to make any payments pursuant to this financing
arrangement, nor does it anticipate being required to do so
during the 1998-99 fiscal year. The legislative authorization to
issue bonds under this program expired on March 1, 1998.

Authorities' operating expenses and debt service costs
are generally paid by revenues generated by the projects financed
or operated, such as tolls charged for the use of highways,
bridges or tunnels, charges for public power, electric and gas
utility services, rentals charged for housing units, and charges
for occupancy at medical care facilities. In addition, State
legislation authorizes several financing techniques for
Authorities. Also, there are statutory arrangements providing
for State local assistance payments, otherwise payable to
localities, to be made under certain circumstances to
Authorities. Although the State has no obligation to provide
additional assistance to localities whose local assistance
payments have been paid to Authorities under these arrangements,
if local assistance payments are so diverted, the affected
localities could seek additional State assistance. Some
Authorities also receive moneys from State appropriations to pay
for the operating costs of certain of their programs.

The Metropolitan Transportation Authority (the "MTA")
oversees the City's subway and bus lines by its affiliates, the
New York City Transit Authority and the Manhattan and Bronx
Surface Transit Operating Authority (collectively, the "TA").
The MTA operates certain commuter rail and bus lines in the New
York metropolitan area through the MTA's subsidiaries, the Long
Island Rail Road Company, the Metro-North Commuter Railroad
Company and the Metropolitan Suburban Bus Authority. In
addition, the Staten Island Rapid Transit Operating Authority, an
MTA subsidiary, operates a rapid transit line on Staten Island.
Through its affiliated-agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates certain intrastate toll
bridges and tunnels. Because fare revenues are not sufficient to

<PAGE>

finance the mass transit portion of these operations, the MTA has
depended and will continue to depend on operating support from
the State, local government and TBTA, including loans, grants and
subsidies. If current revenue projections are not realized
and/or operating expenses exceed current projections, the TA or
commuter railroads may be required to seek additional state
assistance, raise fares or take other actions.

Since 1980, the State has enacted several
taxes--including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in
the 12-county Metropolitan Transportation Region served by the
MTA and a special one-quarter of 1 percent regional sales and use
tax--that provide revenues for mass transit purposes, including
assistance to the MTA. In addition, since 1987, state law has
required that the proceeds of a one-quarter of 1 percent mortgage
recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for
operating or capital expenses. Further, in 1993, the State
dedicated a portion of the State petroleum business tax receipts
to fund operating or capital assistance to the MTA. For the
1998-99 fiscal year, total State assistance to the MTA is
estimated at approximately $1.3 billion, an increase of $133
million over the 1997-98 fiscal year.

State legislation accompanying the 1996-97 adopted State
budget authorized the MTA, TBTA and TA to issue an aggregate of
$6.5 billion in bonds to finance a portion of the $12.17 billion
MTA capital plan for the 1995 through 1999 calendar years (the
"1995-99 Capital Program"). In July 1997, the Capital Program
Review Board approved the 1995-99 Capital Program (subsequently
amended in August 1997), which supercedes the overlapping portion
of the MTA's 1992-96 Capital Program. The 1995-99 Capital
Program is the fourth capital plan since the Legislature
authorized procedures for the adoption, approval and amendment of
MTA capital programs and is designed to upgrade the performance
of the MTA's transportation systems by investing in new rolling
stock, maintaining replacement schedules for existing assets and
bringing the MTA system to a state of good repair. The 1995-99
Capital Program assumes the issuance of an estimated $5.2 billion
in bonds under this $6.5 billion aggregate bonding authority.
The remainder of the plan is projected to be financed through
assistance from the State, the federal government, and the City
of New York, and from various other revenues generated from
actions taken by the MTA.

There can be no assurance that all the necessary
governmental actions for future capital programs will be taken,
that funding sources currently identified will not be decreased
or eliminated, or that the 1995-99 Capital Program, or parts
thereof, will not be delayed or reduced. Should funding levels

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fall below current projections, the MTA would have to revise its
1995-99 Capital Program accordingly. If the 1995-99 Capital
Program is delayed or reduced, ridership and fare revenues may
decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional State
assistance.

Certificates of Participation

The State also participates in the issuance of
certificates of participation ("COPs") in a pool of leases
entered into by the State's Office of General Services on behalf
of several State departments and agencies interested in acquiring
operational equipment, or in certain cases, real property.
Legislation enacted in 1986 established restrictions upon and
centralized State control, through the Comptroller and the
Director of the Budget, over the issuance of COPs representing
the State's contractual obligation, subject to annual
appropriation by the Legislature and availability of money, to
make installment or lease-purchase payments for the State's
acquisition of such equipment or real property.

New York City

The fiscal health of the State may also be affected by
the fiscal health of the City, which continues to require
significant financial assistance from the State. State aid
contributes to the City's ability to balance its budget and meet
its cash requirements. The State may also be affected by the
ability of the City and certain entities issuing debt for the
City to market their securities successfully in the public credit
markets. The City has achieved balanced operating results from
each of its fiscal years since 1981 as reported in accordance
with the then-applicable GAAP standards.

In response to the City's fiscal crisis in 1975, the
State took action to assist the City in returning to fiscal
stability. Among those actions, the State established the
NYC MAC to provide financing assistance to the City; the New York
State Financial Control Board (the "Control Board") to oversee
the City's financial affairs; the Office of the State Deputy
Comptroller for the City of New York ("OSDC") to assist the
Control Board in exercising its powers and responsibilities. A
"Control Period" existed from 1975 to 1986, during which the City
was subject to certain statutorily-prescribed fiscal controls.
The Control Board terminated the Control Period in 1986 when
certain statutory conditions were met. State law requires the
Control Board to reimpose a Control Period upon the occurrence,
or "substantial likelihood and imminence" of the occurrence, of
certain events, including, but not limited to, a City operating

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budget deficit of more than $100 million or impaired access to
the public credit markets.

Currently, the City and its Covered Organizations (i.e.,
those which receive or may receive moneys from the City directly,
indirectly or contingently) operate under a four-year financial
plan (the "Financial Plan") which the City prepares annually and
periodically updates. The City's Financial Plan summarizes its
capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The
City's projections set forth in the Financial Plan are based on
various assumptions and contingencies, some of which are
uncertain and may not materialize. Unforeseen developments and
changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and
to meet its annual cash flow and financing requirements.

To successfully implement its Financial Plan, the City
and certain entities issuing debt for the benefit of the City
must market their securities successfully. The City issues
securities to finance, refinance and rehabilitate infrastructure
and other capital needs, as well as for seasonal financing needs.
In 1997, the State created the New York City Transitional Finance
Authority ("TFA") to finance a portion of the City's capital
program because the City was approaching its State Constitutional
general debt limit. Without the additional financial capacity of
the TFA, projected contracts for City capital projects would have
exceeded the City's debt limit during City fiscal year 1997-98.
Despite this additional financing mechanism, the City currently
projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. On June 2, 1997, an
action was commenced seeking a declaratory judgment declaring the
legislation establishing the TFA to be unconstitutional. On
November 25, 1997, the State Supreme Court found the legislation
establishing the TFA to be constitutional and granted the
defendants' motion for summary judgment. The plaintiffs have
appealed the decision. Future developments concerning the City
or entities issuing debt for the benefit of the City, and public
discussion of such developments, as well as prevailing market
conditions and securities credit ratings, may affect the ability
or cost to sell securities issued by the City or such entities
and may also affect the market for their outstanding securities.

OSDC and Control Board Reports

The staffs of the Control Board, OSDC and the City
Comptroller issue periodic reports on the City's Financial Plans.
The reports analyze the City's forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well
as evaluate compliance by the City and its Covered Organizations
with the Financial Plan. According to recent staff reports,

<PAGE>

while economic growth in New York City has been slower than in
other regions of the country, a surge in Wall Street
profitability resulted in increased tax revenues and generated a
substantial surplus for the City in the City fiscal year 1996-97.
Recent staff reports also indicate that the City projects a
substantial surplus for City fiscal year 1997-98. Although
several sectors of the City's economy have expanded recently,
especially tourism and business and professional services, City
tax revenues remain heavily dependent on the continued
profitability of the securities industries and the course of the
national economy. Staff reports have indicated that recent City
budgets have been balanced in part through the use of non-
recurring resources and that the City's Financial Plan tends to
rely in part on actions outside its direct control. These
reports have also indicated that the City has not yet brought its
long-term expenditure growth in line with recurring revenue
growth and that the City is likely to continue to face
substantial gaps between forecast revenues and expenditures in
future years that must be closed with reduced expenditures and/or
increased revenues.

Financing Requirements

The City requires significant amounts of financing for
seasonal and capital purposes. Since 1981, the City has fully
satisfied its seasonal financing needs in the public credit
markets, repaying all short-term obligations within their fiscal
year of issuance. The Financial Plan currently provides for $850
million of seasonal financing in fiscal year 1999. The City
issued $1.075 billion of short-term obligations in fiscal year
1998 to finance the City's projected cash flow needs for the 1998
fiscal year. The City issued $2.4 billion of short-term
obligations in fiscal year 1997. The delay in the adoption of
the States budget in certain past fiscal years has required the
City to issue short-term notes in amounts exceeding those
expected early in such fiscal years.

The City makes substantial capital expenditures to
reconstruct and rehabilitate the City's infrastructure and
physical assets, including City mass transit facilities, sewers,
streets, bridges and tunnels, and to make capital investments
that will improve productivity in City operations. City funded
commitments are projected to reach $4.9 billion in 1999 and City
funded expenditures are forecast at $3.4 billion in the 1999
fiscal year.

In connection with the Financial Plan, the City has
outlined a gap-closing program for the fiscal years 2000, 2001
and 2002 to eliminate the respective $1.9 billion, $2.7 billion
and $2.3 billion projected remaining budget gaps for such fiscal
years. This program, which is not specified in detail, assumes

<PAGE>

for the 2000, 2001 and 2002 fiscal years, respectively,
additional agency programs to reduce expenditures or increase
revenues by $89 million, $1.5 billion and $1.3 billion; savings
from privatization initiatives and asset sales of $300 million,
$350 million and $200 million; additional Federal and State aid
of $300 million, $500 million and $425 million; and additional
entitlement cost containment initiatives of $300 million, $300
million and $300 million; and the availability of $100 million,
$100 million and $100 million of the General Reserve.

The City's projected budget gaps for the 2001 and 2002
fiscal years do not reflect the savings expected to result from
the prior years programs to close the gaps set forth in the
Financial Plan. Thus, for example, recurring savings anticipated
from the actions which the City proposes to take to balance the
fiscal year 2000 budget are not taken into account in projecting
the budget gaps for the 2001 and 2002 fiscal years.

Although the City has maintained balanced budgets in
each of its last seventeen fiscal years and is projected to
achieve balanced operating results for the 1998 fiscal year,
there can be no assurance that the gap-closing actions proposed
in the Financial Plan can be successfully implemented or that the
City will maintain a balanced budge in future years without
additional State aid, revenue increases or expenditure
reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economy.

Other Localities

Certain localities outside the City have experienced
financial problems and have requested and received additional
State assistance during the last several State fiscal years. The
cities of Yonkers and Troy continue to operate under State-
ordered control agencies. The potential impact on the State of
any future requests by localities for additional oversight or
financial assistance is not included in the projections of the
State's receipts and disbursements for the State's 1997-98 fiscal
year.

Eighteen municipalities received extraordinary
assistance during the 1996 legislative session through $50
million in special appropriations targeted for distressed cities,
and twenty-eight municipalities received more than $32 million in
targeted unrestricted aid in the 1997-98 budget. The State also
dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.97 percent increase in General
Purpose State Aid in 1997-98 and continued this increase in 1998-
99.

<PAGE>

The 1998-99 budget includes an additional $29.4 million
in unrestricted aid targeted to 57 municipalities across the
State. Other assistance for municipalities with special needs
totals more than $25.6 million. Twelve upstate cities will
receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.

The appropriation and allocation of general purpose
local government aid among localities, including the City, is
currently the subject of investigation by a State commission.
While the distribution on general purpose local government aid
was originally based on a statutory formula, in recent years both
the total amount appropriated and the amounts appropriated to
localities have been determined by the Legislature. A State
commission was established to study the distribution and amounts
of general purpose local government aid and recommend a new
formula by June 30, 1999, which may change the way aid is
allocated.

Certain Municipal Indebtedness

Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1996, the
total indebtedness of all localities in the State other than the
City was approximately $20.0 billion. A small portion
(approximately $77.2 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant
to enabling State legislation. State law requires the
Comptroller to review and make recommendations concerning the
budgets of those local government units other than the City that
are authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit
financing at the close of their fiscal year ending in 1996.

Like the State, local governments must respond to
changing political, economic and financial influences over which
they have little or no control. Such changes may adversely
affect the financial condition of certain local governments. For
example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs which, in turn,
may require local governments to fund these expenditures from
their own resources. It is also possible that the State, the
City, or any of their respective public authorities may suffer
serious financial difficulties that could jeopardize local access
to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the
State. Localities may also face unanticipated problems resulting
from certain pending litigation, judicial decisions and long-
range economic trends. Other large scale potential problems,
such as declining urban populations, increasing expenditures, and

<PAGE>

the loss of skilled manufacturing jobs, may also adversely affect
localities and necessitate State assistance.

Litigation

The State is a defendant in legal proceedings involving
State finances, State programs and miscellaneous civil rights,
tort, real property and contract claim where the monetary damages
sought are substantial, generally in excess of $100 million.
These proceedings could affect adversely the financial condition
of the State in the 1998-99 fiscal year or thereafter.

Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the
State to maintain a balanced 1998-99 State Financial Plan. The
State believes that the proposed 1998-99 State Financial Plan
includes sufficient reserves for the payment of judgments that
may be required during the 1998-99 fiscal year. There can be no
assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of all potential 1998-99
State Financial Plan resources available for the payment of
judgments, and could therefore affect the ability of the State to
maintain a balanced 1998-99 State Financial Plan.

Although other litigation is pending against the State,
no current litigation involves the State's authority, as a matter
of law, to contract indebtedness, issue its obligations, or pay
such indebtedness when it matures, or affects the State's power
or ability, as a matter of law, to impose or collect significant
amounts of taxes and revenues.

CALIFORNIA PORTFOLIO

The following is based on information obtained from an
Official Statement, dated April 21, 1998, relating to
$600,000,000 State of California General Obligation Bonds and the
California State Budget Highlights 1998-99.

Constitutional Limits on Spending and Taxes

Certain California (the "State") constitutional
amendments, legislative measures, executive orders, civil actions
and voter initiatives could adversely affect the ability of
issuers of the State's municipal securities to pay interest and
principal on municipal securities.

Article XIII B. On November 6, 1979, the State's voters
approved Proposition 4, which added Article XIII B to the State
Constitution. Pursuant to Article XIII B, the State is subject
to an annual appropriations limit (the "Appropriations Limit").

<PAGE>

Article XIII B was modified substantially by
Propositions 98 and 111 in 1988 and 1990, respectively. (See
"Proposition 98" below.) "Appropriations subject to limitation,"
with respect to the State, are authorizations to spend "proceeds
of taxes," which consist of tax revenues, and certain other
funds, including proceeds from regulatory licenses, user charges
or other fees to the extent that such proceeds exceed "the cost
reasonably borne by the entity in providing the regulation,
product or service," but "proceeds of taxes" exclude most state
subsidies to local governments, tax refunds and some benefit
payments such as unemployment insurance. No limit is imposed on
appropriations of funds which are not "proceeds of taxes," such
as reasonable user charges or fees, and certain other non-tax
funds.

Not included in the Appropriations Limit are
appropriations for the debt service costs of bonds existing or
authorized by January 1, 1979, or subsequently authorized by the
voters, appropriations required to comply with mandates of courts
or the federal government, appropriations for qualified capital
outlay projects, appropriations of revenues derived from any
increase in gasoline taxes and motor vehicle weight fees above
January 1, 1990 levels, and appropriation of certain special
taxes imposed by initiative (e.g., cigarette and tobacco taxes).
The Appropriations Limit may also be exceeded in cases of
emergency.

The State's yearly Appropriations Limit is based on the
limit for the prior year with annual adjustments for changes in
California per capita personal income and population and any
transfers of financial responsibility of providing services to or
from another unit of government.

As originally enacted in 1979, the Appropriations Limit
was based on 1978-79 fiscal year authorizations to expend
proceeds of taxes and was adjusted annually to reflect changes in
cost of living and population (using different definitions, which
were modified by Proposition 111). Starting in the 1991-92
Fiscal Year, the Appropriations Limit was recalculated by taking
the actual 1986-87 limit and applying the annual adjustments as
if Proposition 111 had been in effect.

Proposition 98. On November 8, 1988, voters approved
Proposition 98, a combined initiative constitutional amendment
and statute called the "Classroom Instructional Improvement and
Accountability Act." Proposition 98 changed State funding of
public education below the university level, and the operation of
the State Appropriations Limit, primarily by guaranteeing local
schools and community colleges ("K-14 schools") a minimum share
of General Fund revenues. Under Proposition 98 (as modified by
"Proposition 111" which was enacted on June 5, 1990), K-14

<PAGE>

schools are guaranteed the greater of (a) in general, a fixed
percent of General Fund revenues (the "first test"), (b) the
amount appropriated to K-14 schools in the prior year, adjusted
for changes in the cost of living (measured as in Article XIII B
by reference to State per capita personal income) and enrollment
(the "second test"), or (c) a third test, which would replace the
second test in any year when the percentage growth in per capita
General Fund revenues from the prior year plus one half of one
percent is less than the percentage growth in State per capita
personal income. Under the third test, schools would receive the
amount appropriated in the prior year adjusted for changes in
enrollment and per capita General Fund revenues, plus an
additional small adjustment factor. If the third test is used in
any year, the difference between the third test and the second
test would become a "credit" to schools which would be the basis
of payments in future years when per capita General Fund revenue
growth exceeds per capita personal income growth. Legislation
adopted prior to the end of the 1988-89 Fiscal Year, implementing
Proposition 98, determined the K-14 schools' funding guarantee
under the first test to be 40.3 percent of the General Fund Tax
revenues, based on 1986-87 appropriations. However, that amount
has been adjusted to 35 percent to account for a subsequent
redirection of local property taxes, since such redirection
directly affects the share of General Fund revenues to schools.

During the recession, General Fund revenues for several
years were less than originally projected, so that the original
Proposition 98 appropriations turned out to be higher than the
minimum percentage provided in the law. The Legislature responded
to these developments by designating the "extra" Proposition 98
payments in one year as a "loan" from future years' entitlements.
By implementing these actions, per-pupil funding from Proposition
98 sources stayed almost constant at approximately $4,220 from
Fiscal Year 1991-92 to Fiscal Year 1993-94.

In 1992, a lawsuit was filed, called California
Teachers' Association v. Gould, which challenged the validity of
these off-budget loans. As part of the negotiations leading to
the 1995-96 Budget Act, an oral agreement was reached to settle
this case. The settlement required adoption of legislation
satisfactory to the parties to implement its terms, which has
occurred. The court gave final approval of the settlement in
late July, 1996.

The settlement provides, among other things, that both
the State and K-14 schools share in the repayment of prior years'
emergency loans to schools. Of the total $1.76 billion in loans,
the State will repay $935 million by forgiveness of the amount
owed, while schools will repay $825 million. The State share of
the repayment will be reflected as an appropriation above the
current Proposition 98 base calculation. The schools' share of

<PAGE>

the repayment will count as appropriations that count toward
satisfying the Proposition 98 guarantee, or from "below" the
current base. Repayments are spread over the eight-year period of
1994-95 through 2001-02 to mitigate any adverse fiscal impact.
The Director of Finance has certified that a settlement has
occurred, allowing approximately $351 million in appropriations
from the 1995-96 Fiscal Year to be disbursed to schools in August
1996.

Short-Term Borrowing of California

As part of its cash management program, the State has
regularly issued short-term obligations to meet cash flow needs.
Between spring 1992 and summer 1994, the State had depended upon
external borrowing, including borrowings extending into the
subsequent fiscal year, to meet its cash needs, including
repayment of maturing Notes and Warrants. The State issued $3.0
billion of revenue anticipation notes for the 1997-98 Fiscal
Year, which matured on June 30, 1998.

The State Treasurer is working closely with the State
Controller and the Department of Finance to manage the State's
cash flow on a regular basis, with the goal of reducing the
State's external cash flow borrowing. The three offices are also
working to develop programs to use commercial paper in whole or
in part for the State's cash flow borrowing needs, and for
construction period financing for both general obligation
bond-funded and lease-revenue bond-funded projects. As of April
1, 1998 the Finance Committees had authorized the issuance of
approximately $2,667,714,000 of commercial paper notes, but as of
that date only $1,291,720,000 aggregate principal amount of
general obligation commercial paper notes was actually issued and
outstanding.

As of April 1, 1998, the State had outstanding
$18,352,231,000 aggregate principal amount of long-term general
obligation bonds, and unused voter authorizations for the future
issuance of $6,905,994,000 of long-term general obligation bonds.
This latter figure consists of $2,667,714,000 of authorized
commercial paper notes (of which $1,291,720,000 had been issued),
which had not yet been refunded by general obligation bonds, and
$4,238,280,000 of other authorized but unissued general
obligation debt.

The State has always paid the principal of and interest
on its general obligation bonds, lease-purchase debt, and
short-term obligations, including revenue anticipation notes and
revenue anticipation warrants when due.

1998-1999 Fiscal Year Proposed Budget

<PAGE>

On January 9, 1998, the Governor released his Budget
Proposal for the 1998-99 Fiscal Year (the "Proposed Budget").
The Governor's Budget projects total General Fund revenues and
transfers of $55.4 billion, a $2.5 billion increase (4.7 percent)
over revised 1997-98 revenues. This revenue increase takes into
account reduced revenues of approximately $600 million from the
1997 tax cut package, but also assumes approximately $500 million
additional revenues primarily associated with capital gains
realizations.

Total General Fund expenditures for 1998-1999 are
recommended at $55.4 billion, an increase of $2.4 billion (4.5
percent) above the revised 1997-98 level. The Governor's Budget
projects that: (1) the State will carry out its normal intra-year
cash flow external borrowing in 1998-89, in an estimated amount
of $3.0 billion; (2) the budget reserve, the SFEU, will be $296
million at June 30, 1996, slightly lower than the projected level
at June 30, 1998 PERS liability; and (3) Special Fund revenues of
$14.7 billion and Special Fund expenditures of $15.2 billion in
the 1998-98 fiscal year. A total of $3.2 billion of bond fund
expenditures are also proposed.

The Governor's Budget includes funds to pay the interest
claim relating to the court decision on pension fund payments in
PERS v. Wilson. In May, 1997, action was taken by the California
Supreme Court in PERS v. Wilson, which made final a judgment
against the State requiring an immediate payment from the General
Fund to the Public Employees Retirement Fund ("PERF") to make up
certain deferrals in annual retirement fund contributions which
had been legislated in earlier years for budget savings, and
which the courts found to be unconstitutional. On July 30, 1997,
following a direction from the Governor, the Controller
transferred $1.228 billion from the General Fund to PERF in
satisfaction of the judgment, representing the principal amount
of the improperly deferred payments from 1995-96 and 1996-97.

In late 1997, the plaintiffs filed a claim with the
State Board of Control for payment of interest under the Court
rulings in an amount of $308 million. The Department of Finance
has recommended approval of this claim. The Board of Control
approved the claim in March, 1998, allowing it to be placed into
a claims bill to be paid in the 1998-99 Fiscal Year.

1997-98 Fiscal Year

On January 9, 1997, the Governor released his proposed
budget for the 1997-98 Fiscal Year (the"Governor's Budget"). The
Governor's Budget projects General Fund revenues and transfers of
$50.7 billion, and expenditures of $50.3 billion.

<PAGE>

The Budget Act, signed by the Governor, anticipated
General Fund revenues and transfers of $52.5 billion (a 6.8
percent increase over the final 1996-97 amount), and expenditures
of $52.8 billion (an 8.0 percent increase from the 1996-97
levels). The Budget Act also included Special Fund expenditures
of $14.4 billion (as against estimated Special Fund revenues of
$14.0 billion), and $2.1 billion of expenditures from various
Bond Funds. Following enactment of the Budget Act, the State
implemented its normal annual cash flow borrowing program,
issuing $3.0 billion of notes which matured on June 30, 1998.
Among the major features of the 1997-98 Budget Act were
the following:
1. For the second year in a row, the Budget contained a
large increase in funding for K-14 education under Proposition
98, reflecting strong revenues which exceeded initial budgeted
amounts. Part of the nearly $1.75 billion in increased spending
was allocated to prior fiscal years. Funds were provided to fully
pay for the cost-of-living component of Proposition 98, and to
extend the class size reduction and reading initiatives.

2. The Budget Act reflected the $1.228 billion pension case
judgment payment, and brought funding of the State's pension
contribution back to the quarterly basis which existed prior to
the deferral actions which were invalidated by the courts.

3. Funding from the General Fund for the University of
California and California State University was increased by about
6 percent ($121 million and $107 million, respectively), and
there was no increase in student fees.

4. Unlike prior years, the Budget Act did not depend on
uncertain federal budget actions. About $300 million in federal
funds, already included in the federal Fiscal Year 1997 and 1998
budgets, was included in the Budget Act, to offset incarceration
costs for illegal aliens.

5. The Budget Act contained no tax increases, and no tax
reductions. The Renters Tax Credit was suspended for another
year, saving approximately $500 million.

The Department of Finance released updated estimates for the
1997-98 Fiscal Year Budget Proposal. Total revenues and
transfers are projected at $52.9 billion, up approximately $360
million from the Budget Act projection. Expenditures for the
fiscal year are expected to rise approximately $200 million above
the original Budget Act, to $53.0 billion. The balance in the
budget reserve, the SFEU, is projected to be $329 million on June
30, 1998, compared to $461 million on June 30, 1997.

<PAGE>

1995-96 and 1996-97 Fiscal Years

The State's financial condition improved markedly during the
1995-96 and 1996-97 fiscal years, with a combination of better
than expected revenues, slowdown in growth of social welfare
programs, and continued spending restraint based on the actions
taken in earlier years. The State's cash position also improved,
and no external deficit borrowing has occurred over the end of
these two fiscal years.

The economy grew strongly during these fiscal years, and as a
result, the General Fund took in substantially greater tax
revenues (around $2.2 billion in 1995-96 and $1.6 billion in
1996-97) than were initially planned when the budgets were
enacted. These additional funds were largely directed to school
spending as mandated by Proposition 98, and to make up shortfalls
from reduced federal health and welfare aid. The accumulated
budget deficit from the recession years was finally eliminated.
In the Governor's 1998-99 Budget Proposal, released January 9,
1998, the Department of Finance reported that the State's budget
reserve (the SFEU) totaled $461 million as of June 30, 1997.

Fiscal Years Prior to 1995-96

Pressures on the State's budget in the late 1980's and early
1990's were caused by a combination of external economic
conditions (including a recession which began in 1990) and growth
of the largest General Fund Programs -- K-14 education, health,
welfare and corrections -- at rates faster than the revenue base.
During this period, expenditures exceeded revenues in four out of
six years up to 1992-93, and the State accumulated and sustained
a budget deficit approaching $2.8 billion at its peak on June 30,
1993. Between the 1991-92 and 1994-95 Fiscal Years, each budget
required multibillion dollar actions to bring projected revenues
and expenditures into balance, including significant cuts in
health and welfare program expenditures, transfers of program
responsibilities and funding from the State to local governments,
transfer of about $3.6 billion in annual local property tax
revenues from other local governments to local school districts,
thereby reducing State funding for schools under Proposition 98,
and revenue increases (particularly in the 1991-92 Fiscal Year
budget), most of which were for a short duration.

Despite these budget actions, the effects of the recession
led to large, unanticipated budget deficits. By the 1993-94
Fiscal Year, the accumulated deficit was so large that it was
impractical to budget to retire it in one year, so a two-year
program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the
end of the fiscal year. When the economy failed to recover
sufficiently in 1993-94, a second two-year plan was implemented

<PAGE>

in 1994-95, again using cross-fiscal year revenue anticipation
warrants to partly finance the deficit into the 1995-96 fiscal
year.

Another consequence of the accumulated budget deficits,
together with other factors such as disbursement of funds to
local school districts "borrowed" from future fiscal years and
hence not shown in the annual budget, was to significantly reduce
the State's cash resources available to pay its ongoing
obligations. When the Legislature and the Governor failed to
adopt a budget for the 1992-93 Fiscal Year by July 1, 1992, which
would have allowed the State to carry out its normal annual cash
flow borrowing to replenish its cash reserves, the State
Controller issued registered warrants to pay a variety of
obligations representing prior years' or continuing
appropriations, and mandates from court orders. Available funds
were used to make constitutionally-mandated payments, such as
debt service of bonds and warrants. Between July 1 and September
4, 1992, when the budget was adopted, the State Controller issued
a total of approximately $3.8 billion of registered warrants.

For several fiscal years during the recession, the State was
forced to rely on external debt markets to meet its cash needs,
as a succession of notes and revenue anticipation warrants were
issued the period from June 1992 to July 1994, often needed to
pay previously maturing notes or warrants. These borrowings were
used also in part to spread out the repayment of the accumulated
budget deficit over the end of a fiscal year, as noted earlier.
The last and largest of these borrowings was $4.0 billion of
revenue anticipation warrants which were issued in July, 1994 and
matured on April 25, 1996.

Economic Overview

California's economy is the largest among the 50 states and
one of the largest in the world. The State has a diverse
economy, with major employment in the agriculture, manufacturing,
high technology, services, trade, entertainment and construction
sectors.

After suffering through a severe recession, California's
economy has been on a steady recovery since the start of 1994.
More than 300,000 nonfarm jobs were added in the State in 1996,
while personal income grew by more than $55 billion.
California's economic expansion is being fueled by strong growth
in high-technology industries, including computer software,
electronics manufacturing and motion picture production, all of
which have offset the recession-related losses which were
heaviest in aerospace and defense-related industries (which
accounted for two-thirds of the job losses), finance and
insurance.

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California's economy is approaching a major milestone in 1997
as gross state domestic product is expected to pass the $1
trillion mark. As a stand-alone economy, California's economy
would rank seventh in the world, ahead of China's and behind the
United Kingdom's.

California's economy continues to grow at a strong pace,
adding nearly 400,000 jobs over the past year. Housing starts
are 32 percent higher than a year ago, non-residential
construction is growing strongly, personal income is rising, and
consumer prices remain relatively stable. In July 1998, the
State's unemployment rate dropped to an eight-year low.

The forecast is for continued growth in 1998 at levels
similar to last year's rates -- employment growth for 1998 at 3.2
percent, personal income growth at 7.2 percent, and 17.3 percent
growth in housing starts. California expects to continue to
outperform the nation in 1999 in both job creation growth (2.9
percent) and income growth (5.7 percent).

Orange County Bankruptcy

On December 6, 1994, Orange County, California (the
"County"), together with its pooled investment funds (the
"Pools") filed for protection under Chapter 9 of the federal
Bankruptcy Code, after reports that the Pools had suffered
significant market losses in their investments, causing a
liquidity crisis for the Pools and the County. More than 200
other public entities, most of which, but not all, are located in
the County, were also depositors in the Pools. The County has
reported the Pools' loss at about $1.69 billion, or about 23
percent of their initial deposits of approximately 7.5 billion.
Many of the entities which deposited moneys in the Pools,
including the County, faced interim and/or extended cash flow
difficulties because of the bankruptcy filing and may be required
to reduce programs or capital projects. The county has embarked
on a fiscal recovery plan based on sharp reductions in services
and personnel, and rescheduling of outstanding short-term debt
using certain new revenues transferred to the County from other
local governments pursuant to special legislation enacted in
October 1995.

The State has no existing obligation with respect to any
outstanding obligations or securities of the County or any of the
other participating entities.

Litigation

In the case of Board of Administration v. Wilson, plaintiffs
challenged the constitutionality of legislation which deferred
payment of the State's employer contribution to the Public

<PAGE>

Employees' Retirement System (PERS) beginning in Fiscal Year
1992-93. The Superior Court found, and the Court of Appeals
affirmed, the legislation to be unconstitutional, and directed
the State to transfer to PERS the contributions that were unpaid
to date.

On July 30, 1997, the Controller transferred $1.228 billion
from the General Fund to PERS in repayment of the principal
amount determined to have been improperly deferred. Subsequent
State payments to PERS will be made on a quarterly basis. No
prejudgment interest has been paid in accordance with the trial
court ruling that there was insufficient evidence that money for
that purpose had been appropriated and was available. No post-
judgment interest was ordered. PERS has filed a claim with the
State Board of Control in the amount of $308 million for the
accrued interest on the judgment; PERS also seeks interest on the
unpaid accrued interest amount. The State Board of Control
approved this claim in March, 1998.

The State is presently involved in certain legal proceedings
that, if decided against the State, may require the State to make
significant future expenditures or may impair future revenue
sources. Following are the more significant lawsuits pending
against the State as of April 21, 1998:

Northern California 1997 Flood Litigation: In January of
1997, California experienced major flooding with current
estimates of property damage to be approximately $1.6 to $2
billion. To date, one lawsuit has been filed by 500 homeowners,
but more lawsuits are expected. Exposure from all of the
anticipated cases arising from these floods could total
approximately $2 billion.

In California Ambulance Association v. Shalala, plaintiffs
seek to compel the Department of Health Services to pay ambulance
and physician services co-payments under the Medicare and
Medicaid Acts. Should the plaintiffs prevail, the liability for
retroactive payments is estimated to be $490 million, and the
liability for future payments can be in excess of $130 million
annually. The General Fund and the federal government will share
the liability equally.

In Ceridian Corporation v. Franchise Tax Board, the validity
of two sections of the California Tax laws is challenged. The
first relates to deduction from corporate taxes for dividends
received from insurance companies to the extent the insurance
companies have California activities. The second relates to
corporate deduction of dividends to the extent the earnings of
the dividend-paying corporation have already been included in the
measure of their California tax. If both sections of the
California Tax law are invalidated, and all dividends become

<PAGE>

deductible, then the General fund can become liable for
approximately $200-$250 million annually.

In Hayes v. Commission on State Mandates, the State is
appealing an order to reimburse local school districts for
special education programs. The potential liability to the State
has been estimated at more than $1 billion.

In State v. Stringfellow, the State is seeking recovery for
cleanup costs of a toxic waste site presently owned by the State.
Present estimates of the cleanup range from $300 million to $800
million.

The State is a defendant in a coordinated action involving
3,000 plaintiffs seeking recovery for damages caused by the Yuba
River flood of 1986. The trial court has found liability in
inverse condemnation and awarded damages of $500,000 to a sample
of plaintiffs. The State's potential liability to the remaining
plaintiffs ranges from $800 million to $1.5 billion.

In California State Employees Association v. Wilson and
Professional Engineers in California Government v. Wilson, the
petitioners have challenged transfers of funds from the State
Highway Account and the Motor Vehicle Account to the General
Fund. The loss to the State's General Fund from both suits could
be up to $608 million.

In Just Say No To Tobacco Dough Campaign v. State of
California, the petitioners challenge certain appropriations from
the Cigarette and Tobacco Products Surtax Fund. If the State
loses, the General Fund would be used to reimburse the Surtax
Fund for approximately $166 million. Similarly, in Hathaway v.
Wilson, the plaintiffs seek reimbursement to various special
funds of approximately $335 million for challenged transfers and
appropriations.

In two related cases, Beno v. Sullivan and Welch v. Anderson,
concerning reductions in Aid to Families with Dependent Children
(AFDC) grant payments, the State's potential liability for
retroactive AFDC payments is estimated at $831 million if the
plaintiffs are awarded the full amount in both cases.

CONNECTICUT PORTFOLIO

The following is based on information obtained from an
Official Statement, dated July 8, 1998, relating to $105,445,000
State of Connecticut Taxable General Obligation Bonds (1998
Series B) and $80,000,000 State of Connecticut Taxable General
Obligation Bonds (1996 Series A), the Report of the State
Comptroller for the Fiscal Year Ended June 30, 1998, the
Comptroller's Monthly Letter to the Governor dated October 1,

<PAGE>

1997 and the Comptroller's Report: Connecticut's Economic Health-
January 1998.

General Fund Budgets

1995-96 Operations The Comptroller's August 30, 1996 annual
report indicated a 1995-96 General Fund surplus of $250 million.
This surplus is primarily the result of higher than anticipated
revenue collections of $274.1 million above original budget
projections. The most significant contributor to this increase
was the personal income tax for which estimates were revised
upward by $182.4 million. The improved revenue results are
offset somewhat by Medicaid expenditures anticipated to be higher
than appropriations and costs associated with settlements in
lawsuits against the State. Up to $89.5 million of the fiscal
1995-96 surplus shall be deemed to be appropriated to the
Economic Recovery Fund to meet the fiscal 1996-97 debt service
payments on the Economic Recovery Notes. No assurances can be
given that an audit will not indicate changes in the actual 1995-
96 General Fund result as reported by the Comptroller.

1996-97 Operations The Comptroller's August 29, 1997 annual
report indicated a 1996-97 General Fund surplus of over $262
million. State spending ended the year $150.3 million over
budget; however, the higher than anticipated expenditures were
more than offset by strong revenue receipts. State income tax
receipts ended the year $261.9 million over budget despite income
tax reductions that became effective during the fiscal year and
total tax refunds were $91.5 million under original budget
projections owing to large capital gains that reduced or
eliminated anticipated refunds. $166.7 million of the fiscal
1996-97 surplus shall be deemed to be appropriated to the
Economic Recovery Fund, thereby retiring the principal and
interest debt on the Economic Recovery Notes. The remaining
$95.9 million of the surplus has been reserved for transfer to
the Budget Reserve Fund which, with these additional monies, will
total $336.9 million. No assurances can be given that an audit
will not indicate changes in the actual 1996-97 General Fund
result as reported by the Comptroller.

1997-98 Operations Per Section 3-115 of the Connecticut
General Statutes, the Comptroller must submit on an annual basis
a budgetary report for the previous fiscal year.

The Report of the State Comptroller for the Fiscal Year ended
June 30, 1998 indicated that under the state's current modified
cash basis of accounting, the General Fund posted a net Fiscal
Year 1998 surplus of $312,911,356, the highest dollar surplus
since Fiscal Year 1987. Fiscal Year 1998 General Fund
expenditures inclusive of federal and other grant accounts
increased by 5.6% over the prior fiscal year. This increase is

<PAGE>

more than three times the rate of general inflation and,
therefore, represents a historically high level of adjusted
spending growth. During Fiscal Year 1998, General Fund
appropriations rose $487,462,994 above the budget plan. The
higher than anticipated General Fund expenditures were more than
offset by revenues that were 6.4% above the prior fiscal year's
receipts. The higher revenues were led by a 15.6% rise in gross
income tax receipts and a 6.2% increase in the sales tax
receipts. The income tax finished Fiscal Year 1998 $461.1
million over budget expectations. The sales tax was $77.6
million over budget. These two tax sources contributed 63% of
all General Fund revenue. A strong economy explains the
phenomenal growth in revenues.

1998 - 1999 Operations The Midterm Budget Adjustments as
adopted by the legislature for fiscal year 1998 - 1999 anticipate
General Fund expenditures of $9,972.4 million, General Fund
revenues of $9,992.0 million and an estimated General Fund
surplus of $19.6 million. In the Monthly Letter to the Governor
dated October 1, 1998, the Comptroller estimated a Fiscal Year
1999 General Fund Surplus of $119,400,000, with revenues
projected at $143.2 million higher than budgeted. Over 80
percent of this additional revenue, or $119 million, will be
generated by the state income tax. Higher spending will
partially offset the revenue gain. Spending is now projected to
end the year $23.8 million over budget.

Economic Overview

Connecticut's economy has been slow to emerge from a
recession that began in early 1989 and ended in late 1992.
During the recovery period, Connecticut has lagged behind the
nation and the New England region in economic growth, and has yet
to regain its pre-recession strength. Overall the recession cost
Connecticut 158,000 jobs. The manufacturing sector was
particularly hard hit and the largest share of these job losses
is attributable to cuts in federal defense spending. Between
1985 and 1995, Connecticut's defense procurement receipts dropped
from $7.1 billion to $2.5 billion (in 1992 dollars) -- a 65
percent reduction. In that same period, manufacturing employment
fell 31.2 percent.

As of October, 1997, Connecticut had recovered almost 64
percent of its recessionary employment loss. During the early
part of the recovery, Connecticut job gains were running well
below the national average; however, over the past two years
Connecticut's job growth has been consistent with the national
trend. The fastest growing private industries are services, and
wholesale and retail trade. Small business is fueling much of
the growth in these industries. During 1996, Connecticut added a
net total of 33,000 nonfarm jobs. This is the strongest job

<PAGE>

growth performance since the end of the recession. During 1997,
Connecticut's economic growth improved the state's overall fiscal
position. The state experienced its strongest level of job
growth in more than a decade, adding almost 30,000 new jobs
during Fiscal year 1997. The state's current 2 percent rate of
employment growth approximates the national rate. In October
1997, (the latest data available) the unemployment rate in the
state was 4.7 percent, down a full percent from the previous
year. However, there are still areas of very high unemployment
throughout the state, especially in the larger urban centers.

The Connecticut Labor Department projects that the state will
add a total of 181,500 jobs between the years 1994 and 2005,
representing a 10.8 percent increase in total employment.
Connecticut experienced a 2.1% growth in employment during Fiscal
Year 1998, adding 33,900 jobs. The state's unemployment rate at
the close of the fiscal year was 3.8%.

It is estimated that the jobs being created in Connecticut
pay 30 to 50 percent less than the jobs that were lost during the
recession. Despite this, earnings have risen at a 3.3 percent
annual rate since the end of the recession. Connecticut's per
capita income is the highest in the nation -- 33 percent above
the national average for 1995.

Connecticut forecasts project continued moderate growth for
the State's economy through 1997.

State Indebtedness

There can be no assurance that general economic difficulties
or the financial circumstances of Connecticut or its towns and
cities will not adversely affect the market value of its
obligations or the ability of Connecticut issuers or obligors of
state, municipal and public authority debt obligations to meet
their obligations thereunder.

The State has established various statewide authorities and
two regional water authorities, one of which has since become
independent, to finance revenue-producing projects, five of which
statewide authorities have the power to incur, under certain
circumstances, indebtedness for which the State has contingent
or, in limited cases, direct liability. In addition, recent
State statutes have been enacted and implemented with respect to
certain bonds issued by the City of Bridgeport for which the
State has contingent liability and by the City of West Haven for
which the State has direct guarantee liability.

Connecticut has no constitutional limit on its power to issue
obligations or incur indebtedness other than that it may only
borrow for public purposes. In general, Connecticut has borrowed

<PAGE>

money through the issuance of general obligation bonds for the
payment of which the full faith and credit of the State are
pledged. There are no express statutory provisions establishing
any priorities in favor of general obligation bondholders over
other valid claims against Connecticut.

Connecticut is a high debt state. Net state bonded debt
increased to $9.2 billion at the end of Fiscal Year 1997. This
represented a 3 percent or $248 million increase over the
previous year. Per capita net bonded debt has now reached
$2,774. In addition to debt on bonds, the state has unfunded
pension obligations, unfunded payments to employees for
compensated absences, unfunded workers compensation payments, and
capital leases. These additional long-term obligations bring
total state debt to $16.3 billion, a $357 million increase over
the previous year.

Litigation

The State, its officers and employees, are defendants in
numerous lawsuits. The Attorney General's Office has reviewed
the status of pending lawsuits and reports that an adverse
decision in certain cases could materially affect the State's
financial position.

NEW JERSEY PORTFOLIO

The following is based on information obtained from an
Official Statement, dated February 15, 1998, relating to
$423,120,000 State of New Jersey General Obligation Bonds,
consisting of $418,120,000State of New Jersey General Obligation
Bonds (tax-exempt) (various purposes) and $5,000,000 Community
Development Bonds (1982) (Series M) (taxable for federal income
tax purposes), and the Fiscal Year 1999 Budget in Brief dated
February 10, 1998.

Economic Climate

New Jersey is the ninth largest state in population and the
fifth smallest in land area. With an average of 1,077 persons
per square mile, it is the most densely populated of all the
states. Between 1980 and 1990 the annual population growth rate
was .49 percent and between 1990 and 1996 the growth rate
accelerated to .53 percent. While this rate of growth compared
favorably with other Middle Atlantic States, it was less than the
national rate of increase. New Jersey is located at the center
of the megalopolis which extends from Boston to Washington, and
which includes over one-fifth of the count (TM) (C)
(R)population. The extensive facilities of the Port Authority of
New York and New Jersey, the Delaware River Port Authority and
the South Jersey Port Corporation across the Delaware River from

<PAGE>

Philadelphia augment the air, land and water transportation
complex which has influenced much of the State's economy. This
central location in the northeastern corridor, the transportation
and port facilities and proximity to New York City make the State
an attractive location for corporate headquarters and
international business offices. A number of Fortune Magazine's
top 500 companies maintain headquarters or major facilities in
New Jersey, and many foreign-owned firms have located facilities
in the State.

The State's economic base is diversified, consisting of a
variety of manufacturing, construction and service industries,
supplemented by rural areas with selective commercial
agriculture. In 1976, voters approved casino gambling for
Atlantic City, and that city has again become an important State
tourist attraction.

Total personal income in New Jersey stood at $248.0 billion
for 1996, an increase of 4.6 percent from 1995. Personal income
increased 5.2 percent between 1996 and 1997, and is expected to
increase by approximated 4.7 percent in both 1998 and
1999.Historically, New Jersey's average per capita income has
been well above the national average. The differential narrowed
during the 1970s but widened in the 1980s, and has narrowed
slightly in the 1990s. In 1996, the State ranked second among
all states in per capita personal income ($31,053). Income
growth is anticipated to remain strong, reflecting continued
growth in employment levels.

After experiencing a boom during the mid-1980s, New Jersey,
as well as the rest of the Northeast United States, slipped into
a slowdown well before the onset of the national recession, which
officially began in July 1990 (according to the National Bureau
of Economic Research). By the beginning of the national
recession, construction activity had already been declining in
the State for nearly two years, growth had tapered off markedly
in the service sectors and the long-term downtrend of factory
employment had accelerated, partly because of a leveling off of
industrial demand nationally. The onset of recession caused an
acceleration of New Jersey's job losses in construction and
manufacturing, as well as an employment downturn in such
previously growing sectors as wholesale trade, retail trade,
finance, utilities and trucking and warehousing.

Reflecting the downturn, the rate of unemployment in New
Jersey rose from a low of 3.6 percent during the first quarter of
1989 to a recessionary peak of 8.5 percent in 1992. Since that
time, unemployment has decreased significantly. The jobless rate
fell to an average of 6.2 percent in 1996 and 5.4 percent during
the first nine months of 1997. The State experienced strong
employment growth of 1.7 percent during 1997, bringing the

<PAGE>

employment level to 3.7 million, an increase of more than 40,000
jobs from a pre-recession high set in March of 1989. Employment
is projected to grow at a rate of 1.5 percent during 1998 and
ease to 0.9 percent in 1999.

Construction jobs started growing again in 1997 after two
weak years and manufacturing declines shrunk from 2-3 percent in
1995-96 to 0.6 percent in 1997. Aggregate growth in the service
sector remained strong at 2.6 percent but that masks growth rates
in some business service sectors that are above the comparable
national rates. Vehicle registrations grew steadily through the
first three quarters of the year and should generate the fastest
annual pace since 1994.

The rising economic trend experienced in the State has led to
higher retail sales, which showed steady growth from 1992 through
1996, including a 3.8 percent increase from 1995 to 1996. The
higher retail sales, in turn, produced steady increases in retail
trade jobs (both full and part time). Retail trade employment
has risen by nearly 49,000 since a May 1992 low point. From
December 1996 to June 1997, the number of retail jobs rose by
8,700. The strong employment and income picture, supplemented by
the three year boom in the financial markets, fueled a resurgence
in consumer spending. Consumer spending was 3.3 percent during
1997 and is expected to remain high in 1998 at 2.9 percent.
Concern over high consumer debt levels is beginning to wane.
Business investment in durable equipment is expected to remain
steady in 1998 at a real growth rate of just over 13 percent.

Financial Condition

The State Constitution provides, in part, that no money may
be drawn from the State Treasury except for appropriations made
by law and that no law appropriating money for any State purpose
shall be enacted if the amount of money appropriated therein,
together with all other prior appropriations made for the same
fiscal year, exceeds the total amount of revenue on hand and
anticipated to be available for such fiscal year, as certified by
the Governor.

Should it appear that revenues will be less than the amount
anticipated in the budget for a fiscal year, the Governor may
take steps to reduce State expenditures. The State Constitution
additionally provides that no supplemental appropriation may be
enacted after adoption of an appropriations act except where
there are sufficient revenues on hand or anticipated, as
certified by the Governor, to meet such appropriation.

For the fiscal year ended June 30, 1997, the undesignated
fund balances for all funds were projected to be $1.11 billion,
an increase of $224.2 million from fiscal year 1996. The

<PAGE>

undesignated fund balances for all funds are estimated to be
$1.02 billion for fiscal year 1998. Revenues for the General
Fund, in which the largest part of the financial operations of
the state is accounted for, were $10.97 billion for fiscal year
1997 and are estimated to be $11.15 billion in fiscal year 1998.

State Related Obligations

On March 2, 1992, the New Jersey Sports and Exposition
Authority (the "Sports Authority") issued $147,490,000 in State
guaranteed bonds and defeased all previously outstanding State
guaranteed bonds of the Sports Authority. The State believes
that the revenue of the Sports Authority will be sufficient to
provide for the payment of debt service on these obligations
without recourse to the State's guarantee.

Legislation enacted in 1992 by the State authorizes the
Sports Authority to issue bonds for various purposes payable from
State appropriations. Pursuant to this legislation, the Sports
Authority and the State Treasure have entered into an agreement
(the "State Contract") pursuant to which the Sports Authority
will undertake certain projects, including the refunding of
certain outstanding bonds of the Sports Authority, and the State
Treasurer will credit to the Sports Authority amounts from the
General Fund sufficient to pay debt service and other costs
related to the bonds. The payment of all amounts under the State
Contract is subject to and dependent upon appropriations being
made by the State Legislature. As of June 30, 1997 there were
approximately $458,890,000 aggregate principal amount of Sports
Authority bonds outstanding, the debt service on which is payable
from amounts credited to the Sports Authority Fund pursuant to
the State Contract.

In July 1984, the State created the New Jersey Transportation
Trust Fund Authority (the "TTFA"), an instrumentality of the
State organized and existing under the New Jersey Transportation
Trust Fund Authority Act of 1984, as amended (the "TTFA Act") for
the purpose of funding a portion of the State's share of the cost
of improvements to the State's transportation system. Pursuant
to the TTFA Act, the principal amount of the TTFA's bonds, notes
or other obligations which may be issued in any fiscal year
generally may not exceed $700 million plus amounts carried over
from prior fiscal years. These bonds are special obligations of
the TTFA payable from the payments made by the State pursuant to
a contract between the TTFA, the State Treasurer and the
Commissioner of Transportation. As of December 16, 1997, there
were approximately $3,593,245,000 aggregate principal amount of
TTFA issues outstanding including $347,655,000 grant anticipation
notes issued by the New Jersey Transit Corporation ("NJT"). To
the extent these notes are not paid by NJT, these notes are
payable by the TTFA pursuant to a Standby Deficiency Agreement

<PAGE>

entered into by the TTFA and the Trustee for the notes. The
Standby Deficiency Agreement was issued on a parity with all
bonds issued by the TTFA.

Legislation enacted during 1992 by the State authorizes the
Economic Development Authority ("EDA") to issue bonds for various
economic development purposes. Pursuant to that legislation, EDA
and the State Treasurer have entered into an agreement (the "ERF
Contract") through which EDA has agreed to undertake the
financing of certain projects and the State Treasurer has agreed
to credit to the Economic Recovery Fund from the General Fund
amounts equivalent to payments due to the State under an
agreement with the port Authority of New York and New Jersey.
The payment of all amounts under the ERF Contract is subject to
and dependent upon appropriations being made by the State
Legislature. As of June 30, 1997 there were approximately
$228,227,868.90 aggregate principal amount of Economic Recovery
Fund Bonds outstanding.

Legislation enacted in June 1997 authorizes the EDA to issue
bonds to pay a portion of the State's unfunded accrued pension
liability for the State's retirement systems (the "Unfunded
Accrued Pension Liability"), which, together with amounts derived
from the revaluation of pension assets pursuant to companion
legislation enacted at the same time, will be sufficient to fully
fund the Unfunded Accrued Pension Liability. The Unfunded
Accrued Pension Liability represents pension benefits earned in
prior years which, pursuant to standard actuarial practices, are
not yet fully funded. On June 30, 1997, the EDA issued
$2,803,042,498.56 aggregate principal amount of State Pension
Funding Bonds, Series 1997A-1997C. The EDA and the State
Treasurer have entered into an agreement which provides for the
payment to the EDA of monies sufficient to pay debt service on
the bonds. Such payments are subject to and dependent upon
appropriations being made by the State Legislature.

The authorizing legislation for certain State entities
provides for specific budgetary procedures with respect to
certain obligations issued by such entities. Pursuant to such
legislation, a designated official is required to certify any
deficiency in a debt service reserve fund maintained to meet
payments of principal of and interest on the obligations, and a
State appropriation in the amount of the deficiency is to be
made. However, the State legislature is not legally bound to
make such an appropriation. Bonds issued pursuant to authorizing
legislation of this type are sometimes referred to as "moral
obligation" bonds. There is no statutory limitation on the
amount of "moral obligation" bonds which may be issued by
eligible State entities. "Moral obligation" bonded indebtedness
issued by State entities as of October 6, 1997 stood at an
aggregate principal amount of $624,324,305.59. Of this total,

<PAGE>

$409,224,305.59 was issued by the New Jersey Housing and Mortgage
Finance Agency which has never had a deficiency in a debt service
reserve fund which required the State to appropriate funds to
meet its "moral obligation" and which is anticipated to earn
revenues which will continue to be sufficient to cover debt
service on its bonds. The Higher Education Assistance Authority
and the South Jersey Port Corporation were the other two entities
which issued moral obligation indebtedness in aggregate principal
amounts of $136,385,000 and $78,715,000, respectively. It is
anticipated that the Higher Education Assistance Authority's
revenues will be sufficient to cover debt service on its bonds.
However, the State has periodically provided the South Jersey
Port Corporation with funds to cover all debt service and
property tax requirements, when earned revenues are anticipated
to be insufficient to cover these obligations.

Litigation

There are a number of suits making monetary claims against
the State, its agencies and employees that together if decided in
favor of the complainants would significantly increase State
expenditures above those anticipated. There are also individual
suits that could have that effect. The State is unable at this
time to estimate its exposure for these claims and intends to
defend these suits vigorously. Among them are suits challenging
(a) the constitutionality of annual A-901 hazard and solid waste
licensure renewals fees collected by the Department of
Environmental Protection and Energy; (b) the state's failure to
provide funding to hospitals required by state law to treat all
patients, regardless of ability to pay; (c) the State's
compliance with the court order in Abbot v. Burke to close the
spending gap between poor urban school districts and wealthy
districts; (d) the State's compliance with the Clean Water Act
and Resource Conservation Recovery Act at Liberty State Park;
(e) the use of monies collected under the Fair Automobile
Insurance Reform Act of 1990 through assessments on insurers
licensed or admitted to write property and casualty insurance in
the State; (f) violations of the Americans with Disabilities Act
of 1990 and discrimination charges against the State Department
of Corrections; (g) the spousal impoverishment provisions of the
Medicare Catastrophic Coverage Act; (h) Medicaid hospital
reimbursement since February 1995; (i) efforts to revitalize
Atlantic City through the design and construction of a highway
and tunnel; (j) reimbursement for Medicare co-insurance and
deductibles not paid by the State Medicaid program from 1998 to
February 10, 1995; (k) the Pension Bond Financing Act of 1997;
and (l) the constitutionality, under the State constitution, of
the "family cap" provisions of the State Work First New Jersey
Act.

VIRGINIA PORTFOLIO

<PAGE>

The following is based on information obtained from an
Official Statement, dated September 1, 1998, relating to
$72,920,000 Commonwealth of Virginia General Obligation Bonds,
Series 1998.

Economic Climate

The Commonwealth's 1997 population of 6,734,000 was 2.5
percent of the United States' total. Among the 50 states, it
ranked twelfth in population. With 39,598 square miles of land
area, its 1997 population density was 170 person per square mile,
compared with 73 persons per square mile for the United States.

The Commonwealth is divided into five distinct regions-
- -a coastal plain cut into peninsulas by four large tidal rivers,
a piedmont plateau of rolling farms and woodlands, the Blue Ridge
Mountains, the fertile Shenandoah Valley and the Appalachian
plateau extending over the southwest corner of the Commonwealth.
Approximately one-third of all land in Virginia is used for
farming and other agricultural services. This variety of
terrain, the location of the Commonwealth on the Atlantic
Seaboard at the southern extremity of the northeast population
corridor and its close proximity to the nation's capital have had
a significant influence on the development of the present
economic structure of the Commonwealth.

The largest metropolitan area is the Northern Virginia
portion of the Washington, D.C. metropolitan area. This is the
fastest growing metropolitan area in the Commonwealth and had a
1997 population of 2,003,000. Northern Virginia has long been
characterized by the large number of people employed in both
civilian and military work with the federal government. However,
it is also one of the nation's leading high-technology centers
for computer software and telecommunications.

According to the U.S. Department of Commerce, Virginians
received over $168 billion in personal income in 1996. This
represents a 70.7 percent increase over 1987 while the nation as
a whole experienced a gain of 70.8 percent for the same period.
In 1996, Virginia had per capita income of $25,212, the highest
of the Southeast region and greater than the national average of
$24,426. Virginia's per capita income rose from 94 percent to
103 percent of the national average from 1970 to 1996. From 1987
to 1996, Virginia's 4.9 percent average rate of growth in
personal per capita income was slightly less than the national
rate of growth. Much of Virginia's per capita income gain in
these years has been due to the continued strength of the
manufacturing sectors, rapid growth of high-technology
industries, basic business services, corporate headquarters and
regional offices and the attainment of parity with the nation in
labor force participation rates.

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More than 3 million residents of the Commonwealth are in
the civilian labor force, which includes agricultural and
nonagricultural employment, the unemployed, the self-employed and
residents who commute to jobs in other states.. Services, the
largest employment sector, accounted for 29.1 percent of
nonagricultural employment in 1996, and has increased by 19.8
percent from 1992-1996, making it the fastest growing sector in
the Commonwealth. Manufacturing is also a significant employment
sector, accounting for 12.7 percent of nonagricultural employment
in 1996. The industries with the greatest manufacturing
employment are transportation equipment, textiles, food
processing, printing, electric and electronic equipment, apparel,
chemicals, lumber and wood products and machinery. Employment in
the manufacturing sector decreased 2.2 percent from 1992 to 1996.

Virginia generally has one of the lowest unemployment
rates in the nation, according to statistics published by the
U.S. Department of Labor. During 1996, an average of 4.4 percent
of Virginia's citizens were unemployed as compared with the
national average which was 5.4 percent.

Virginia is one of twenty states with a Right-to-Work
Law and has a record of good labor management relations. Its
favorable business climate is reflected in the relatively small
number of strikes and other work stoppages it experiences.

Virginia is one of the least unionized of the more
industrialized states. Three major reasons for this situation
are the Right-to-Work Law, the importance of manufacturing
industries such as textiles, apparel, electric and electronic
equipment and lumber which are not highly organized in Virginia
and the importance of federal civilian and military employment.
Typically the percentage of nonagricultural employees who belong
to unions in the Commonwealth has been approximately half the
U.S. average.

Financial Condition

The Constitution of Virginia limits the ability of the
Commonwealth to create debt. The Constitution requires the
Governor to ensure that expenses do not exceed total revenues
anticipated plus fund balances during the period of two years and
six months following the end of the General Assembly session in
which the appropriations are made. An amendment to the
Constitution, effective January 1, 1993, established the Revenue
Stabilization Fund. The Revenue Stabilization Fund is used to
offset, in part, anticipated shortfalls in revenues in years when
appropriations, based on previous forecasts, exceed expected
revenues in subsequent forecasts. As of June 30, 1997,
$156,649,000 was on deposit in the Revenue Stabilization Fund.

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In addition, $58,314,000 of the General Fund balance on June 30,
1997 was reserved for deposit in the Revenue Stabilization Fund.

Tax-supported debt of Virginia includes both general
obligation debt and debt of agencies, institutions, boards and
authorities for which debt service is expected to be made in
whole or in part from appropriations of tax revenues. Certain
bonds issued by certain authorities that are designed to be self-
supporting from their individual loan programs are secured in
part by a moral obligation pledge of Virginia. Virginia may fund
deficiencies that may occur in debt service reserves for moral
obligation debt. To date, these authorities have not requested
that the Commonwealth fund reserve deficiencies for this debt.
There are also several authorities and institutions of the
Commonwealth that issue debt for which debt service is not paid
through appropriations of state tax revenues and for which there
is no moral obligation pledge to consider funding debt service or
reserve fund deficiencies.

On December 19, 1997, the Governor presented to the
General Assembly amendments to the 1997 Appropriation Act,
affecting the 1996-98 biennium. The amendments represented an
aggregate net increase of $22.4 million in general fund
appropriations and an increase of $74.5 million in nongeneral
fund appropriations above the amounts appropriated for the 1996-
98 biennium in the 1997 Appropriation Act.

On December 19, 1997, the outgoing Governor presented to
the General Assembly the 1998-2000 Budget Bill for the 1998-2000
biennium. The 1998-2000 Budget Bill presented by the Governor
provided about $2,242.1 million in operating increases from the
general fund above fiscal year 1998 appropriation levels. Of
this amount $211.4 million was for deposit to the Revenue
Stabilization Fund. The remainder provided for increases in K-12
education ($874.2 million), higher education ($345.5 million),
public safety, economic development, health and human resources
and natural resources. The 1998-2000 Budget Bill also provided
$350 million in funding for tax reductions, including $260
million for the first installment of a proposal to eliminate the
personal property tax on the non-business automobiles valued up
to $20,000 and a proposal to eliminate the sales tax on non-
prescription drugs. In addition to increases to operating funds,
the 1998-2000 Budget Bill provided $532.8 million in pay-as-you-
go funding for capital projects.

On January 26, 1998, the incoming Governor submitted
amendments to the introduced 1998-2000 Budget Bill to fund his
commitments to provide additional teachers in K-12 classrooms
($35.1 million) and to eliminate the personal property tax on
non-business automobiles valued up to $20,000 ($233.2 million).
His amendment also made minor adjustments, many of them based on

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updated information available since the 1998-2000 Budget Bill was
introduced. Revenue adjustments included a revised estimate of
general fund revenue, correct accounting for interest earnings,
and elimination of an unneeded Lottery Special Reserve.

The 1998-2000 Budget Bill enacted by the 1998 General
Assembly in its 60-day Session, which began January 14, 1998,
included $447 million for personal property tax relief and $80.8
million for local school construction and repair. The Governor
signed the 1998-2000 Budget Bill into law on April 14, 1998. The
1998-2000 Budget Bill became the 1998-2000 Appropriation Act and
its provisions went into effect on July 1, 1998.

Litigation

The Commonwealth, its officials and employees are named
as defendants in legal proceedings which occur in the normal
course of governmental operations, some involving substantial
amounts. It is not possible at the present time to estimate the
ultimate outcome or liability, if any, of the Commonwealth with
respect to these lawsuits. However, the ultimate liability
resulting from these suits is not expected to have a material,
adverse effect on the financial condition of the Commonwealth.

In Davis v. Michigan (decided March 28, 1989), the
United States Supreme Court ruled unconstitutional states'
exempting from state income tax the retirement benefits paid by
the state or local governments without exempting retirement
benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal
retirement benefits. At a Special Session held in April 1989,
the General Assembly repealed the exemption of state and local
retirement benefits.

In Harper v. Department of Taxation, commenced in 1989,
federal retirees sought refunds of state income taxes during
1985-1988. In a Special Session in 1994, the General Assembly
passed emergency legislation to provide payments in five annual
installments to federal retirees in settlement of their claims
for overpaid taxes. In 1995 and 1996, the General Assembly
passed legislation allowing more retirees to participate in the
settlement. As of June 30, 1997, the estimated total cost to the
Commonwealth for the settlement was approximately $316.2 million.

On September 15, 1995, the Virginia Supreme Court
rendered its decision in Harper, reversed the judgment of the
trial court, entered final judgment in favor of the plaintiff
retirees who elected not to settle, and directed that the amounts
unlawfully collected be refunded with statutory interest. The
total cost of refunding all Virginia income taxes paid on federal
pensions on account of the settlement (approximately $316.2

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million) and the judgment ($78.7 million) is approximately $394.9
million, of which $329 million ($250.2 in respect of the
settlement and the entire $78.7 million in respect of the
judgment) has been paid, leaving $66 million payable in respect
of the settlement. This final payment was originally scheduled
to be paid on March 31, 1999. During the 1998 Session of the
General Assembly, legislation was approved providing for the
early payment of the remaining balance on September 20, 1998,
(subject to appropriation) and providing that the undesignated
and unreserved general fund balance is met on August 15, 1998.
If such balance is not met, special installment payment will be
made on September 30, 1998 based on a percentage of the final
payment, balance due will be paid, with payment of the balance
occurring no later than March 31, 1999.

FLORIDA PORTFOLIO

The following is based on information obtained from an
Official Statement, dated September 4, 1997, relating to
$95,690,000 State of Florida Full Faith and Credit Jacksonville
Transportation Authority Senior Lien Bonds, Series 1997A and the
Governor's Budget Recommendations Fiscal Year 1998-1999.

Economic Climate

Florida is the fourth most populous state in the nation with
an estimated population of 14.9 million with the state's
population projected to top the 15 million mark during 1998.
Exceptional growth has doubled Florida's population in the past
25 Xears. During the 1990s, the state's weekly growth has
averaged 4,840 new residents. During Fiscal Year 1998-99,
Florida is expected to add 271,000 people.

Florida's personal income growth is expected to have exceeded
that for the United States in Fiscal Year 1997-98, and is
forcasted to increase in Fiscal Year 1998-99 because of the
state's faster population and economic growth. Personal income
is expected to have increased 6.9 percent in Fiscal Year 1997-98
and to increase 5.8 percent in and Fiscal Year 1998-99.
Measured in real dollars, personal income is expected to have
grown 5.1 percent in Fiscal Year 1997-98 and to increase 3.6
percent in Fiscal Year 1998-99. Florida and U.S. per capita
personal income have been almost the same since 1980. Florida
had a per capita personal income of $24,226 in 1996 and the
United States had $24,426. Florida's real per capita income is
expected to have increased 3.1 percent for Fiscal Year 1997-98
and to increase by 1.8 percent for Fiscal Year 1998-99. After
that, real per capita income is expected to grow about 1.6
percent for the next few years. The structure of Florida's
income differs from that of the nation. Because Florida has a
proportionally greater retiree population, property income

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(dividends, interest and rent) and transfer payments (social
security and pension benefits) are a relatively more important
source of income. Florida's employment income in 1995
represented 60.6 percent of total personal income, while the U.S.
share of total personal income in the form of wages and salaries
and other labor benefits was 70.8 percent. One positive aspect
of this greater diversity is that transfer payments are typically
less sensitive to the business cycle than employment income, and,
therefore, act as stabilizing forces in weak economic periods.
Florida's non-farm jobs are expected to have grown 3.9
percent in Fiscal Year 1997-98 and to grow 2.6 percent in Fiscal
Year 1998-99. After that, job growth is expected to slow to 2
percent in Fiscal Year 2002-03 before accelerating again. While
about a third of all non-farm jobs in Florida are in the services
sector, about half of the new jobs added each year are in that
sector. Service jobs are expected to have grown 4.7 percent
(105,400 jobs) in Fiscal Year 1997-98 and to increase 4 percent
(92,500 jobs) in Fiscal Year 1998-99.

Half the jobs in services are found in the business and
health services industry groups. While all of the industries
within business services have all been growing at a rapid rate,
employment and help supply agencies have been adding the most
jobs at the fastest rate. Much of the growth in business
services reflects the conversion of employees in other industries
to leased employment rather than the creation of new jobs.

The second largest services industry group is health
services. While employment in health services has continued to
grow, its rate of growth has been slowing since 1990. The
slowdown has been attributed to employers switching to managed
care plans to help reduce the fringe benefit cost of health care.
From a high of about 8 percent in 1990, health services job
creation had slowed to about 2 percent in late 1996. Since then,
job growth in health services had accelerated to 3.5 percent in
the later part of 1997. After services, trade is expected to
have grown the fastest with 3.6 percent in Fiscal Year 1997-98
(59,700 jobs) and to grow 2.3 percent (39,100 jobs) in Fiscal
Year 1998-99.

Construction job growth is expected to have declined from 12
percent (42,000 jobs) in Fiscal Year 1997-98 to decline 1.5
percent (5,600 jobs) in Fiscal Year 1998-99 because of a slowing
economy. Government employment is expected to have increased 2.3
percent (22,200 jobs) in Fiscal Year 1997-98 and to grow 2.4
percent (23,100 jobs) in Fiscal Year 1998-99.

<PAGE>

Fiscal Matters

In December 1992 the State legislature enacted a law whereby
the projected revenue windfall will be transferred from the
General Revenue Fund to a Trust Fund to defray the costs of
matching funds and a wide array of expenditures related to
Hurricane Andrew. The amount of the transfer will change based on
revisions made by the State's Revenue Estimating Conference. The
State's Revenue Estimating Conference has estimated that
additional non-recurring general revenues of $159 million during
fiscal year 1994-95 will be generated as a result of increased
economic activity due to Hurricane Andrew.

On November 8, 1994 a constitutional amendment was ratified
by the voters which limits the growth in state revenues in a
given fiscal year to no more than the average annual growth rate
in Florida personal income over the previous five years.
Revenues collected in excess of the limitation are to be
deposited into the Budget Stabilization Fund unless 2/3 of the
members of both houses of the legislature vote to raise the
limit. For the first year which is fiscal year 1995-96, the
limit is based on actual revenues from fiscal year 1994-95.
State revenues are defined as taxes, licenses, fees, charges for
services imposed by the Legislature on individuals, business or
agencies outside of state government and revenue from the sale of
lottery tickets.

Florida prepares an annual budget which is formulated each
year and presented to the Governor and Legislature. Under current
law, the State budget as a whole, and each separate fund within
the State budget, must be kept in balance from currently
available revenues each State fiscal Year.

In fiscal year 1995-1996, Florida derived an estimated 66
percent of its total direct revenues from State taxes and fees.
Federal funds and other special revenues accounted for the
remaining revenues. Florida does not currently impose an
individual income tax. The greatest single source of tax receipts
in Florida is the sales and use tax, accounting for 69 percent of
general revenue funds available. For the fiscal year which ended
June 30, 1996, receipts from this source were $11,461 million, an
increase of 7.4 percent from fiscal year 1994-95.

In fiscal year 1996-97, the estimated General Revenue plus
Working Capital and Budget Stabilization Funds available total
$16,617.4 million, a 6.7 percent increase from fiscal year 1995-
96. The $15,568.7 million in Estimated Revenues represents a 6.3
percent increase from the analogous figures in 1995-96. With
combined General Revenue, Working Capital Fund and Budget
Stabilization Fund appropriations at $15,537.2 million

<PAGE>

unencumbered reserves at the end of 1996-97 are estimated at
$1,080.2 million.

For fiscal year 1997-98, the General Revenue plus Working
Capital and Budget Stabilization Funds available total $17,553.9
million, a 5.6 percent increase over 1996-97. The $16,321.6
million in Estimated Revenues represent a 4.8 percent increase
over the analogous figure in 1996-97.

The financial needs of the state are addressed by legislative
appropriations through the use of three fund types: the General
Revenue Fund, trust funds, and the Working Capital Fund. In
addition, Article III of the Florida Constitution establishes a
fourth fund type known as the Budget Stabilization Fund. In the
Governor's Fiscal Year 1998-99 Recommended Budget, the General
Revenue Fund totals $17.7 billion and comprises 39 percent of the
recommendations. The trust funds received by the state consist
of monies which are designated for an authorized purpose. New
trust funds may not be created without the approval of three-
fifths of the membership of each house of the Legislature; and
all trust funds, with limited exception, terminate after four
years unless reenacted. In the Governor's Recommended Budget,
the remaining $27.4 billion, or 61 percent of the budget, is in
trust funds. Revenues in the General Revenue Fund, which are in
excess of the amount needed to meet appropriations, may be
transferred to the Working Capital Fund. The Governor's
Recommended Budget provides for a Working Capital Fund balance of
$88.7 million.

The Budget Stabilization Fund was established in Fiscal Year
1994-95 with an amount equal to 1 percent of the prior fiscal
year's net revenue collections. This fund is scheduled to
receive a higher percentage from the General Revenue Fund every
fiscal year with a minimum of 5 percent by Fiscal Year 1998-99.
In the Governor's Recommended Budget, the Budget Stabilization
Fund is required to be funded at 5 percent, or $785 million.

The recommended budget totals $45.1 billion, an increase of
6.5 percent above the current year appropriations of $42.4
billion. The recommended budget funds state operations at $39.4
billion and fixed capital outlay at $5.7 billion. The General
Revenue Fund totals $17.7 billion. This represents a 5.7 percent
increase over the current year General Revenue Fund
appropriations of $16.7 billion.

The Florida Constitution places limitations on the ad valorem
taxation of real estate and tangible personal property for all
county, municipal or school purposes, and for water management
districts. Counties, school districts and municipalities are
authorized by law, and special districts may be authorized by
law, to levy ad valorem taxes. The State does not levy ad valorem

<PAGE>

taxes on real property or tangible personal property. These
limitations do not apply to taxes levied for payment of bonds and
taxes levied for periods not longer than two years when
authorized by a vote of the electors. The Florida Constitution
and the Florida Statutes provide for the exemption of homesteads
from all taxation, except for assessments for special benefits,
up to the assessed valuation of $5,000. For every person who is
entitled to the foregoing exemption, the exemption is increased
to a total of $25,000 of assessed valuation for taxes levied by
governing bodies.

MASSACHUSETTS PORTFOLIO

The following was obtained from an Official Statement, dated
April 30, 1998, relating to $250,000,000 General Obligation
Bonds, Consolidated Loan of 1998, Series B and the Governor's
Budget Recommendation for Fiscal Year 1999.

Economic Climate

The Commonwealth of Massachusetts is a densely populated
urban state with a well-educated population, comparatively high
income levels, low rates of unemployment and a relatively
diversified economy. According to the 1990 census, Massachusetts
had a population density of 768 persons per square mile, as
compared to 70.3 for the United States as a whole. It thus had
the third greatest population density following Rhode Island and
New Jersey. Massachusetts experienced a modest increase in
population between 1980 and 1990. In 1997, the population of
Massachusetts was approximately 6,118,000.

Per capita personal income for Massachusetts residents,
unadjusted for differentials in the cost of living, was $29,792
in 1996, as compared to the national average of $24,426. While
per capita personal income is, on a relative scale, higher in
Massachusetts than in the United States as a whole, this is
offset to some extent by the higher cost of living in
Massachusetts.

The Massachusetts service sector, which constituted 35.6
percent of the total non-agricultural work force in February
1998, is the largest sector in the Massachusetts economy.
Government employment represents 13.2 percent of total non-
agricultural employment in Massachusetts. While total employment
in construction, manufacturing, trade, government, services, and
finance, insurance and real estate declined between 1988 and
1992, the economic recovery that began in 1993 has been
accompanied by increased employment levels. Since 1994, total
employment levels in Massachusetts have increased at yearly rates
greater than 2.0 percent. In 1997, employment levels in every
industry increased, including manufacturing employment, which had

<PAGE>

declined in every year since 1983. The most rapid growth in 1997
came in the construction sector and the services sector, which
grew at rates of 6.7 percent and 4.1 percent, respectively.
Total non-agricultural employment in Massachusetts grew at a rate
of 2.7 percent in 1997.

Between 1982 and 1988, the economies of Massachusetts and New
England were among the strongest performers in the nation.
Between 1989 and 1992, however, both Massachusetts and New
England have experienced growth rates significantly below the
national average. An economic recession in the early 1990s
caused unemployment rates in Massachusetts to rise significantly
above the national average. In the first three quarters of 1996,
the Gross State Product for Massachusetts grew at a rate of 2.9
percent, approximately the same rate as the national average.
Massachusetts' unemployment rate averaged 8.6 percent in 1992,
6.9 percent in 1993, 6.0 percent in 1994, 5.4 percent in 1995,
4.3 percent in 1996 and 4.0 percent in 1997. During the first
nine months of 1997, the unemployment rate averaged 4.0 percent,
nearly a full percentage point lower than the national average.

The unemployment rate in Massachusetts has fallen almost
consistently since the peak of 9.6% in mid-Calendar Year 1991,
and has remained at or below that of the nation for the past
three years. Monthly unemployment in Massachusetts in Fiscal
Year 1997 averaged a low 4.0% as compared to a national rate of
5.2%. In November 1997, the rate in Massachusetts stood at 3.9%
and was unchanged from the prior year, while the national rate
was 4.6%.

Unemployment is projected at 3.7% through Fiscal Year 1998
and to remain steady at 3.7% - 3.9% annually through Calendar
Year 2000. Growth in personal income is expected to decline from
the Fiscal Year 1997 rate of about 6.0% to approximately 5.7% in
Fiscal 1998. It is expected to fall further in Fiscal Year 1999
to 4.3% - 4.5%, and to remain at that rate through the next few
years. However, the rate of inflation (as measured by consumer
prices), at least in metropolitan Boston, should continue to
outpace that of the nation by approximately 0.5%. The downside
risks for Massachusetts include the shortage of skilled labor,
low net population growth which will further constrain job
creation, and the prominence of the financial services industry
in the economy coupled with a relatively high proportion of non-
wage income, both of which are sensitive to the performance of
the financial markets.

Financial Condition

Under its constitution, the Commonwealth may borrow money
(a) for defense or in anticipation of receipts from taxes or
other sources, any such loan to be paid out of the revenue of the

<PAGE>

year in which the loan is made, or (b) by a two-thirds vote of
the members of each house of the Legislature present and voting
thereon.

Certain independent authorities and agencies within the
Commonwealth are statutorily authorized to issue bonds and notes
for which the Commonwealth is either directly, in whole or in
part, or indirectly liable. The Commonwealth's liabilities with
respect to these bonds and notes are classified as either
(a) Commonwealth-supported debt, (b) Commonwealth-guaranteed debt
or (c) indirect obligations.

Debt service expenditures of the Commonwealth in Fiscal Year
1992 totaled $898.3 million, representing a 4.7 percent decrease
from Fiscal Year 1991. Debt service expenditures for Fiscal Year
1993, Fiscal Year 1994, Fiscal Year 1995, Fiscal Year 1996 and
Fiscal Year 1997 were $1.140 billion, $1.149 billion, $1.231
billion, $1.183 billion and $1.276 billion, respectively, and are
projected to be $1.224 billion for Fiscal Year 1998. In January
1990, legislation was enacted which imposes a 10 percent limit on
the total appropriations in any fiscal year that may be expended
for payment of interest on general obligation debt (excluding
Fiscal Recovery Bonds) of Massachusetts.

The Commonwealth retired the last of its Calendar Year 1990
fiscal recovery bonds; at $1,433 billion, the September 1990 bond
sale constituted the seventh largest municipal bond issue in
history. Also, Wall Street demonstrated its confidence in the
Commonwealth's fiscal policies by again raising the bond rating
for Massachusetts. The long-term debt service obligations are
projected to decrease by 2 percent, or $26.24 million, from
Fiscal Year 1997. Short-term debt service obligations are
expected to increase to approximately $49 million in Fiscal Year
1999, as Central Artery/Tunnel Project cash flow requirements
begin to outpace the inflow of federal and other third-party
revenues. The Commonwealth will fund this interim cash shortfall
with Grant Anticipation Notes to be repaid as federal
reimbursements are received and Bond Anticipation Notes on third-
party financing.

In Fiscal Year 1998, legislation was approved to construct a
new convention center in Boston and to expand existing facilities
in Worcester and Springfield. The projects will be furnished
with increases in certain taxes on hotels and vehicle rentals,
and the dedication of state taxes on new businesses in Boston's
Convention Center Finance District. These new revenue sources
will be sufficient to pay the interest on the general obligation
notes that will be sold to finance construction. The notes will
be permanently financed with special obligation revenue bonds
when construction of the new facility is completed, probably in
2002.

<PAGE>

In Fiscal Year 1990, Massachusetts had a GAAP basis budget
deficit of nearly $1.9 billion. That deficit margin steadily
decreased and in 1995, the Commonwealth ended the year with a
GAAP basis budget surplus of $287.4 million. In 1996, the GAAP
basis budget surplus was $709.2 million and the statutory basis
surplus was $1.1 billion.

In Fiscal Year 1996, the Commonwealth Stabilization Fund was
funded to its statutory limit of $543.3 million. An additional
$232 million was available for deposit into the Fund but, because
it had reached its statutory ceiling, these funds flowed into the
Tax Reduction Fund, triggering a $150 million income tax cut for
Tax Year 1996 and an $84 million tax cut for Tax Year 1997.

Preliminary results indicate that Fiscal Year 1997 tax
collections totaled approximately $12.861 billion, an increase of
approximately $812 million, or 6.7 percent, over Fiscal Year 1996
and approximately $354 million higher than previous official
estimates. Total 1997 revenues are estimated to have been
approximately $17.918 billion. Projected total Fiscal Year 1997
expenditures are approximately $17.735 billion, including $212.8
million in supplemental spending requests filed by the Governor.
Under these spending and revenue estimates, approximately $241
million would be transferred to the Commonwealth Stabilization
Fund on account of Fiscal Year 1997, bringing its balance to
approximately $804.3 million, and $160.7 million would be
transferred to a newly established capital projects fund.

The Fiscal Year 1998 budget, approved on July 10, 1997, is
based on a consensus revenue forecast of $12.85 billion which
does not reflect the fiscal 1998 impact of a proposed reduction
of the tax rate on personal income. The Executive Office for
Administration and Finance estimates the cost of this tax cut at
$206 million in fiscal 1999, $616 million in fiscal 2000, $1.035
billion in fiscal 2001 and $1.292 billion in fiscal 2000, at
which time the rate reduction would be fully implemented. The
Fiscal Year 1998 budget provides for total appropriations of
approximately $18.4 billion, a 2.8% percent increase over Fiscal
Year 1997 expenditures. Governor Weld vetoed or reduced
appropriations totaling $3.3 million.

On January 27, 1998, the Acting Governor filed fiscal 1999
budget recommendations calling for expenditures of approximately
$19.06 billion. The proposed fiscal 1999 spending level
represents a $559 million, or 3.0%, increase over projected total
fiscal 1998 expenditures of $18.930 billion. Budgeted revenues
for fiscal 1999 are projected to be $18.961 billion, or $19.291
billion after adjusting for shifts to and from off-budget
accounts. This represents a $53.0 million, or 0.3%, increase
over the $18.908 billion forecast for 1998. The Governor's
proposal projects a fiscal 1999 ending balance in the budgeted

<PAGE>

funds of $906.3 million, including a Stabilization Fund balance
of $878.1 million.

The Governor's budget recommendation is based on a tax
revenue estimate of $13.665 billion, a $365.0 million, or 2.7%,
increase over fiscal 1998 projected tax revenues of $13.300
billion. The projection incorporates $244.8 million in income
tax cuts proposed by the Governor.

In November 1980, voters in the Commonwealth approved a
state-wide tax limitation initiative petition, commonly known as
Proposition 2 1/2, to constrain levels of property taxation and
to limit the charges and fees imposed on cities and towns by
certain government entities, including county governments. The
law is not a constitutional provision and accordingly is subject
to amendment or repeal by the Legislature. Proposition 2 1/2
limits the property taxes that a Massachusetts city or town may
assess in any fiscal year to the lesser of (i) 2.5 percent of the
full and fair cash value of real estate and personal property
therein and (ii) 2.5 percent over the previous fiscal year's levy
limit plus any growth in the base from certain new construction
and parcel subdivisions. In addition, Proposition 2 1/2 limits
any increase in the charges and fees assessed by certain
governmental entities, including county governments, on cities
and towns to the sum of (i) 2.5 percent of the total charges and
fees imposed in the preceding fiscal year, and (ii) any increase
in charges for services customarily provided locally or services
obtained by the city or town. The law contains certain override
provisions and, in addition, permits certain debt servicings and
expenditures for identified capital projects to be excluded from
the limits by a majority vote, in a general or special election.

During the 1980's, Massachusetts increased payments to its
cities, towns and regional school districts ("Local Aid") to
mitigate the impact of Proposition 2 1/2 on local programs and
services. In Fiscal Year 1998, approximately 20.6 percent of
Massachusetts' budget is estimated to have been allocated to
Local Aid. Direct Local Aid increased from $2.359 billion in
Fiscal Year 1992 to $2.547 billion in Fiscal Year 1993, to $2.727
billion in Fiscal Year 1994 and to $2.976 billion in Fiscal Year
1995. Fiscal Year 1996 expenditures for direct Local Aid were
$3.246 billion, a 9.1 percent increase over 1995. It is
estimated that Fiscal Year 1997 expenditures for Local Aid will
be $3.534 billion, which is an increase of approximately 8.9
percent above the Fiscal Year 1996 level. In addition to direct
Local Aid, Massachusetts provides substantial indirect aid to
local governments.

In November 1990 voters approved a petition which regulates
the distribution of Local Aid by requiring, subject to
appropriation, distribution to cities and towns of no less than

<PAGE>

40 percent of collection from personal income taxes, sales and
use taxes, corporate excise taxes, and Lottery Fund proceeds.
The Local Aid distribution to each city or town would equal no
less than 100 percent of the total Local Aid received for Fiscal
Year 1989. Distributions in excess of Fiscal Year 1989 levels
would be based on new formulas that would replace the current
Local Aid distribution formulas. By their terms, the new
formulas would have called for a substantial increase in direct
Local Aid in Fiscal Year 1992, and would call for such an
increase in Fiscal Year 1993 and in subsequent years. However,
Local Aid payments expressly remain subject to annual
appropriation, and appropriations for Local Aid in Fiscal Years
1992 through 1998 have not met the levels set forth in the
initiative law.

During Fiscal Years 1993, 1994, 1995, 1996 and 1997 Medicaid
expenditures of the Commonwealth were $3.151 billion, $3.313
billion, $3.898 billion, $3.416 billion and $3.456 billion
respectively. The average annual growth rate from Fiscal Year
1993 to Fiscal Year 1997 was 2.3 percent. The Executive Office
for Administration and Finance estimates that Fiscal Year 1998
Medicaid expenditures will be approximately $3.620 billion, an
increase of 4.7% from fiscal 1997.

The Division of Medical Assistance has implemented a number
of savings and cost control initiatives including managed care,
utilization review and the identification of third party
liabilities. In spite of increasing caseloads, Massachusetts has
managed a substantial reduction in the Medicaid growth rate in
expenditures over the last six years. From fiscal 1993 through
fiscal 1997, per capita costs grew on average less than 0.6%
annually. The total Medicaid caseload for fiscal 1997 was
approximately 676,323 (approximately 11.1% of the most recently
estimated population of the Commonwealth), as compared to
approximately 630,902 in fiscal 1993.

The Legislature passed health care reform bills in July, 1996
and July, 1997 which authorized the Division of Medical
Assistance to expand eligibility for health care coverage by
increasing the Medicaid benefits income cutoff to 133% of the
federal poverty level for teenagers and adults, and by increasing
the Medicaid benefits income cutoff to 200% of the federal
poverty level for children up to the age 18 and pregnant women.
These changes resulted in an additional 221,000 people becoming
eligible for Medicaid benefits. In addition, pharmacy assistance
eligibility was expanded by increasing the Medicaid benefits
income cutoff to 150% of the federal poverty level to cover an
estimated 25,000 senior citizens. These program expansions take
advantage of a federally approved waiver and resulting federal
financial participation, additional tobacco tax revenue and new
federal funding available under recently passed changes to the

<PAGE>

federal Social Security Act. The legislation also requires that
any program expansion be neutral in its impact on the state
budget.
_________________________________________________________________

INVESTMENT RESTRICTIONS
_________________________________________________________________

Unless specified to the contrary, and except with
respect to paragraph number 1 below, which does not set forth a
"fundamental" policy of the Florida Portfolio, the following
restrictions apply to each Portfolio (except the Massachusetts
Portfolio) and are fundamental policies which may not be changed
with respect to each Portfolio without the affirmative vote of
the holders of a majority of such Portfolio's outstanding voting
securities, which means with respect to any Portfolio (1) 67% or
more of the shares represented at a meeting at which more than
50% of the outstanding shares are present in person or by proxy
or (2) more than 50% of the outstanding shares, whichever is
less. If a percentage restriction is adhered to at the time of
an investment, a later increase or decrease in percentage
resulting from a change in values of portfolio securities or in
the amount of a Portfolio's assets will not constitute a
violation of that restriction.

A Portfolio (applies to all Portfolios except the
Massachusetts Portfolio):

1. May not purchase any security which has a maturity
date more than one year* (397 days in the case of
the New Jersey and Virginia Portfolios) from the
date of such Portfolio's purchase;

2. May not invest more than 25% of its total assets in
the securities of issuers conducting their
principal business activities in any one industry,
provided that for purposes of this policy (a) there
is no limitation with respect to investments in
municipal securities (including industrial
development bonds), securities issued or guaranteed
by the U.S. Government, its agencies or
instrumentalities, certificates of deposit,
bankers' acceptances and interest-bearing savings
deposits, and (b) consumer finance companies,
industrial finance companies and gas, electric,
water and telephone utility companies are each
considered to be separate industries. For purposes
____________________

* Which maturity, pursuant to the Rule 2a-7, may extend to
397 days.

<PAGE>

of this restriction and those set forth in
restrictions 4 and 5 below, a Portfolio will regard
the entity which has the primary responsibility for
the payment of interest and principal as the
issuer;

3. May not invest more than 25% of its total assets in
municipal securities (a) whose issuers are located
in the same state, or (b) the interest upon which
is paid from revenues of similar-type projects,
except that subsection (a) of this restriction 3
applies only to the General Portfolio;

4. May not invest more than 5% of its total assets in
the securities of any one issuer (other than
securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities)
except that with respect to 25% of its total assets
(50% in the case of the New York Portfolio, the
California Portfolio, the Connecticut Portfolio,
the New Jersey Portfolio, the Virginia Portfolio
and the Florida Portfolio), (i) the General
Portfolio may invest not more than 10% of such
total assets in the securities of any one issuer
and (ii) each of the New York, California,
Connecticut, New Jersey, Virginia, Florida
Portfolios may invest in the securities of as few
as four issuers (provided that no more than 25% of
the respective Portfolio's total assets are
invested in the securities of any one issuer). For
purposes of such 5% and 10% limitations, the issuer
of the letter of credit or other guarantee backing
a participation interest in a variable rate
industrial development bond is deemed to be the
issuer of such participation interest;**

5. May not purchase more than 10% of any class of the
voting securities of any one issuer except
securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities;

6. May not borrow money except from banks on a
temporary basis or via entering into reverse
repurchase agreements for extraordinary or
emergency purposes in an aggregate amount not to
____________________

** To the extent that these restrictions are more permissive
than the provisions of Rule 2a-7 as it may be amended from
time to time, the Portfolio will comply with the more
restrictive provisions of Rule 2a-7.

<PAGE>

exceed 15% of a Portfolio's total assets. Such
borrowings may be used, for example, to facilitate
the orderly maturation and sale of portfolio
securities during periods of abnormally heavy
redemption requests, if they should occur, such
borrowings may not be used to purchase investments
and such Portfolio will not purchase any investment
while any such borrowings exist;

7. May not pledge, hypothecate, mortgage or otherwise
encumber its assets except to secure borrowings,
including reverse repurchase agreements, effected
within the limitations set forth in restriction 6.
To meet the requirements of regulations in certain
states, a Portfolio, as a matter of operating
policy, will limit any such pledging, hypothecating
or mortgaging to 10% of its total assets, valued at
market, so long as shares of such Portfolio are
being sold in those states;

8. May not make loans of money or securities except by
the purchase of debt obligations in which a
Portfolio may invest consistent with its investment
objectives and policies and by investment in
repurchase agreements;

9. May not enter into repurchase agreements (i) not
terminable within seven days if, as a result
thereof, more than 10% of a Portfolio's total
assets would be committed to such repurchase
agreements (whether or not illiquid) or other
illiquid investments,*** or (ii) with a particular
vendor if immediately thereafter more than 5% of
such Portfolio's assets would be committed to
repurchase agreements entered into with such
vendor; or

10. May not (a) make investments for the purpose of
exercising control; (b) purchase securities of
other investment companies, except in connection
with a merger, consolidation, acquisition or
reorganization; (c) invest in real estate (other
than securities secured by real estate or interests
therein or securities issued by companies which
invest in real estate or interests therein),
commodities or commodity contracts; (d) purchase
____________________

*** As a matter of operating policy, each Portfolio will limit
its investment in illiquid securities to 10% of its net
assets.

<PAGE>

any restricted securities or securities on margin;
(e) make short sales of securities or maintain a
short position or write, purchase or sell puts
(except for standby commitments as described in the
Prospectus and above), calls, straddles, spreads or
combinations thereof; (f) invest in securities of
issuers (other than agencies and instrumentalities
of the United States Government) having a record,
together with predecessors, of less than three
years of continuous operation if more than 5% of a
Portfolio's assets would be invested in such
securities; (g) purchase or retain securities of
any issuer if those officers and trustees of the
Fund and officers and directors of the Adviser who
own individually more than 1/2 of 1% of the
outstanding securities of such issuer together own
more than 5% of the securities of such issuer; or
(h) act as an underwriter of securities.

MASSACHUSETTS PORTFOLIO

THE FOLLOWING RESTRICTIONS ARE FUNDAMENTAL POLICIES OF
THE MASSACHUSETTS PORTFOLIO:

The Portfolio:

1. May not invest more than 25% of its total assets in
the securities of issuers conducting their principal business
activities in any one industry, provided that for purposes of
this policy (a) there is no limitation with respect to
investments in municipal securities (including industrial
development bonds), securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of
deposit, bankers' acceptances and interest-bearing savings
deposits, and (b) consumer finance companies, industrial finance
companies and gas, electric, water and telephone utility
companies are each considered to be separate industries. For
purposes of this restriction, the Portfolio will regard the
entity which has the primary responsibility for the payment of
interest and principal as the issuer;

2. May not borrow money except from banks on a
temporary basis or via entering into reverse repurchase
agreements for extraordinary or emergency purposes in an
aggregate amount not to exceed 15% of the Portfolio's total
assets. Such borrowings may be used, for example, to facilitate
the orderly maturation and sale of portfolio securities during
periods of abnormally heavy redemption requests, if they should
occur, such borrowings may not be used to purchase investments
and the Portfolio will not purchase any investment while any such
borrowings exist;

<PAGE>

3. May not pledge, hypothecate, mortgage or otherwise
encumber its assets except to secure borrowings, including
reverse repurchase agreements, effected within the limitations
set forth in restriction 2;

4. May not make loans of money or securities except by
the purchase of debt obligations in which the Portfolio may
invest consistent with its investment objectives and policies and
by investment in repurchase agreements;

5. May not invest in real estate (other than
securities secured by real estate or interests therein or
securities issued by companies which invest in real estate or
interests therein), commodities or commodity contracts; and

6. May not act as an underwriter of securities.

NON-FUNDAMENTAL POLICIES (MASSACHUSETTS PORTFOLIO)

The following policies are not fundamental and may be
changed by the Trustees without shareholder approval. The
Portfolio:

1. May not invest more than 5% of its total assets in
the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities), except that with respect to 50% of the
Portfolio's total assets the Portfolio may invest in the
securities of as few as four issuers (provided that no more than
25% of the Portfolio's total assets are invested in the
securities of any one issuer). For purposes of this limitation,
the issuer of the letter of credit or other guarantee backing a
participation interest in a variable rate industrial development
bond is deemed to be the issuer of such participation interest;

2. May not purchase more than 10% of any class of the
voting securities of any one issuer except securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities;

3. May not invest more than 25% of its total assets in
municipal securities the interest upon which is paid from
revenues of similar-type projects;

4. May not enter into repurchase agreements not
terminable within seven days if, as a result thereof, more than
10% of the Portfolio's net assets would be committed to such
repurchase agreements;

5. May not purchase any securities on margin;

<PAGE>

6. May not make short sales of securities or maintain
a short position or write, purchase or sell puts (except for
standby commitments as described in the Prospectus and above),
calls, straddles, spreads or combinations thereof; and

7. May not invest more than 10% of its net assets in
illiquid securities.

_________________________________________________________________

MANAGEMENT
_________________________________________________________________

Trustees and Officers

The Trustees and principal officers of the Fund and
their principal occupations during the past five years are set
forth below. Unless otherwise specified, the address of each
such person is 1345 Avenue of the Americas, New York, N.Y.
10105. Those Trustees whose names are followed by a footnote are
"interested persons" of the Trust as defined under the Act. Each
Trustee and officer is also a director, trustee or officer of
other registered investment companies sponsored by the Adviser.

Trustees

DAVE H. WILLIAMS**** ,66, Chairman, is Chairman of the
Board of Directors of Alliance Capital Management Corporation
("ACMC")***** sole general partner of the Adviser with which he
has been associated since prior to 1993.

JOHN D. CARIFA,****** 53, is the President, Chief
Operating Officer, and a Director of ACMC with which he has been
associated since prior to 1993.

SAM Y. CROSS, 71, was, since prior to December 1993,
Executive Vice President of The Federal Reserve Bank of New York
and manager for foreign operations for The Federal Reserve
System. He is Executive-In-Residence at the School of
International and Public Affairs, Columbia University. He is
____________________

**** An "interested person" of the Fund as defined in the Act.

***** For purposes of this Statement of Additional Information,
ACMC refers to Alliance Capital Management Corporation,
the sole general partner of the Adviser, and to the
predecessor general partner of the Adviser of the same
name.

****** An "interested person" of the Fund as defined in the Act.

<PAGE>

also a director of Fuji Bank and Trust Co. His address is 200
East 66th Street, New York, New York 10021.

CHARLES H. P. DUELL, 60, is President of Middleton Place
Foundation with which he has been associated since prior to 1993.
He is also a Director of GRC International, Inc., a Trustee
Emeritus of the National Trust for Historic Preservation and
serves on the Board of Architectural Review, City of Charleston.
His address is Middleton Place Foundation, Ashley River Road,
Charleston, South Carolina 29414.

WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an Independent Consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
2 Greenwich Plaza, Suite 100, Greenwich, CT 06830.

DAVID K. STORRS, 54, is President and Chief Executive
Officer of Alternative Investment Group, LLC (an investment
firm). He was formerly President of The Common Fund (investment
management for educational institutions) with which he had been
associated since prior to 1993. His address is 65 South Gate
Road, Southport, Connecticut 06490.

SHELBY WHITE, 60, is an author and financial journalist.
Her address is One Sutton Place South, New York, New York 10022.

Officers

RONALD M. WHITEHILL - President, 60, is a Senior Vice
President of ACMC and President of Alliance Cash Management
Services with which he has been associated since 1993.

KATHLEEN A. CORBET - Senior Vice President, 38, is an
Executive Vice President of ACMC with which she has been
associated since prior to 1993.

DREW BIEGEL - Senior Vice President, 47, is a Vice
president of ACMC with which he has been associate since prior to
1993.

JOHN R. BONCZEK - Senior Vice President, 38, is a Vice
President of ACMC with which he has been associated since prior
to 1993.

ROBERT I. KURZWEIL - Senior Vice President, 47, has been
a Vice President of ACMC since May 1994. Previously, he was Vice
President of Sales and Business Development for Automatic Data
Processing with which he had been associated since prior to 1993.

<PAGE>

WAYNE D. LYSKI - Senior Vice President, 57, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1993.

WILLIAM E. OLIVER - Senior Vice President, 49, is a
Senior Vice President of ACMC with which he has been associated
since prior to 1993.

PATRICIA NETTER - Senior Vice President, 47, is a Vice
President of ACMC with which she has been associated since prior
to 1993.

RAYMOND J. PAPERA - Senior Vice President, 42, is a
Senior Vice President of ACMC with which he has been associated
since prior to 1993.

DORIS T. CILIBERTI - Vice President, 34, is an Assistant
Vice President of ACMC with which she has been associated since
prior to 1993.

FRANCES M. DUNN - Vice President, 28, is an
Administrative Officer of ACMC with which she has been associated
since prior to 1993.

WILLIAM J. FAGAN - Vice President, 36, is an Assistant
Vice President of ACMC with which he has been associated since
prior to 1993.

JOSEPH R. LASPINA - Vice President, 38, is an Assistant
Vice President of ACMC with which he has been associated since
prior to 1993.

LINDA D. NEIL - Vice President, 38, is an Assistant Vice
President of ACMC with which she has been associated since prior
to 1993.

EDMUND P. BERGAN, Jr. - Secretary, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") with which
he has been associated since prior to 1993.

MARK D. GERSTEN - Treasurer and Chief Financial Officer,
48, is a Senior Vice President of AFSwith which he has been
associated since prior to 1993.

VINCENT S. NOTO - Controller, 33, is an Assistant Vice
President of AFSwith which he has been associated since prior to
1993.

ANDREW L. GANGOLF - Assistant Secretary, 44, is a Vice
President and Assistant General Counsel of AFD with which he has

<PAGE>

been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc.

DOMENICK PUGLIESE - Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of AFD with which he has
been associated since May 1995. Prior thereto, he was Vice
President and Counsel of Concord Holding Corporation since 1994
and Vice President and Associate General Counsel of Prudential
Securities since 1992.

EMILIE D. WRAPP - Assistant Secretary, 42, is a Vice
President and Assistant General Counsel of AFD with which she has
been associated since prior to 1993.

As of October 9, 1998, the Trustees and officers as a
group owned less than 1% of the shares of each Portfolio.

The Fund does not pay any fees to, or reimburse expenses
of, its Trustees who are considered "interested persons" of the
Fund. The aggregate compensation paid by the Fund to each of the
Trustees during its fiscal year ended June 30, 1998, the
aggregate compensation paid to each of the Trustees during
calendar year 1997 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Trustees serves as a director or trustee, are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees.

<PAGE>

Total Number Total Number
of Funds in of Investment
the Alliance Portfolios
Total Fund Complex, Within the Funds,
Compensation Including the Including the
From the Fund, as to Fund, as to
Alliance Fund which the which the
Name of Aggregate Complex, Trustee is a Trustee is a
Trustee Compensation Including the Director or Director or
of the Fund From the Fund Fund Trustee Trustee
___________ ____________ ______________ _____________ _______________

Dave H. Williams $-0- $-0- 6 15
John D. Carifa $-0- $-0- 53 118
Sam Y. Cross $3,502 $ 12,000 3 12
Charles H.P. Duell $3,502 $ 12,000 3 12
William H. Foulk, Jr. $4,744 $144,250 48 113
David K. Storrs $3,502 $ 12,000 3 12
Shelby White $3,502 $ 12,000 3 12

The Adviser

The Adviser, a Delaware limited partnership with
principal offices at 1345 Avenue of the Americas, New York, New
York 10105, has been retained under an investment advisory
agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program
of the Fund under the supervision and control of the Fund's
Trustees.

The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998 of more than $262 billion (of which more than $107 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds. As of June 30, 1998, the
Adviser was retained as an investment manager for employee
benefit plan assets for 32 of the FORTUNE 100 companies. As of
July 31, 1998, the Adviser and its subsidiaries employed
approximately 2,000 employees who operate out of domestic offices
and the offices of subsidiaries in Bahrain, Bangalore, Chennai,
Istanbul, London, Madrid, Mumbai, Paris, Singapore, Tokyo and
Toronto and affiliate offices located Vienna, Warsaw, Hong Kong,
Sao Paulo and Moscow. The 58 registered investment companies
comprising more than 123 separate investment portfolios managed
by the Adviser currently have more than 3.5 million shareholders.

<PAGE>

Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"). ECI is a holding company
controlled by AXA-UAP ("AXA"), a French insurance holding company
which at March 31, 1998, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1998, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.

AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.

Based on information provided by AXA, as of March 31,
1998 more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 more than 74% of the voting power of FINAXA was
controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.

Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
each Portfolio of the Fund and pays all compensation of Trustees
of the Fund who are affiliated persons of the Adviser. The
Adviser or its affiliates also furnish the Fund, without charge,
with management supervision and assistance and office facilities.
Under the Advisory Agreement, each of the Portfolios pays an
advisory fee at the annual rate of .50 of 1% up to $1.25 billion
of the average daily value of its net assets, .49 of 1% of the
next $.25 billion of such assets, .48 of 1% of the next $.25
billion of such assets, .47 of 1% of the next $.25 billion of
such assets, .46 of 1% of the next $1 billion of such assets and
.45 of 1% of the average daily net assets of the respective
Portfolio in excess of $3 billion. The fee is accrued daily and

<PAGE>

paid monthly. The Adviser will reimburse a Portfolio to the
extent that its net expenses (excluding taxes, brokerage,
interest and extraordinary expenses) exceed 1% of its average
daily net assets for any fiscal year.

For the fiscal year ended June 30, 1996, the Adviser
received from the General Portfolio an advisory fee of $6,072,814
net of voluntary expense reimbursements for expenses exceeding
.95 of 1% of its average daily net assets. For the fiscal year
ended June 30, 1997, the Adviser received from the General
Portfolio an advisory fee of $5,913,456. For the fiscal year
ended June 30, 1998, the Adviser received from the General
Portfolio an advisory fee of $5,958,295 net of voluntary expense
reimbursements for the period July 1, 1997 to November 19, 1997
for expenses exceeding .95% of its average daily net assets.

For the fiscal years ended June 30, 1996 and 1997,, the
Adviser received from the New York Portfolio an advisory fee of
$1,172,532 and $1,499,300, respectively, net of voluntary expense
reimbursements for expenses exceeding .85 of 1% of the average
daily net assets. For the fiscal year ended June 30, 1998, the
Adviser received from the New York Portfolio an advisory fee of
$2,107,793 net of voluntary expense reimbursements for the period
July 1, 1997 to November 19, 1997 for expenses exceeding .85% of
its average daily net assets and from November 20, 1997 to
January 5, 1998 for expenses exceeding .93% of its average daily
net assets.

For the fiscal years ended June 30, 1996 and 1997, the
Adviser received from the California Portfolio an advisory fee of
$1,419,915 and$1,763,920, respectively,.net of voluntary expense
reimbursements for expenses exceeding .93 of 1% of the average
daily net assets. For the fiscal year ended June 30, 1998, the
Adviser received from the California Portfolio an advisory fee of
$2,016,456 net of voluntary expense reimbursements for the period
July 1, 1997 to November 19, 1997 for expenses exceeding .93% of
its average daily net assets and from May 6, 1998 to June 30,
1998 for expenses exceeding .92% of its average daily net assets.

For the fiscal years ended June 30, 1996 and, 1997, the
Adviser received from the Connecticut Portfolio an advisory fee
of $209,039 and $303,685, respectively, net of voluntary expense
reimbursements for expenses exceeding .80 of 1% of its average
daily net assets. For the fiscal year ended June 30, 1998, the
Adviser received from the Connecticut Portfolio an advisory fee
of $485,224 net of voluntary expense reimbursements for the
period July 1, 1997 to October 26, 1997 for expenses exceeding
.80% of its average daily net assets and from October 27, 1997 to
November 19, 1997 for expenses exceeding .85% of its average
daily net assets.

<PAGE>

For the fiscal year ended June 30, 1996, the Adviser
received from the New Jersey Portfolio an advisory fee of
$206,856 net of voluntary expense reimbursements for expenses
exceeding .80 of 1% of its average daily net assets for the
period July 1, 1995 to March 3,1996 and from March 4, 1996 to
June 30, 1996 for expenses exceeding .85 of 1% of its average
daily net assets. For the fiscal year ended June 30, 1997, the
Adviser received from the New Jersey Portfolio an advisory fee of
$393,810 net of voluntary expense reimbursements for expenses
exceeding .85 of 1% of its average daily net assets. For the
fiscal year ended June 30, 1998, the Adviser received from the
New Jersey Portfolio an advisory fee of $575,645 net of voluntary
expense reimbursements for expenses exceeding .85% of its average
daily net assets for the period July 1, 1997 to November 19,
1997.

For the fiscal year ended June 30, 1996, the Adviser
received from the Virginia Portfolio an advisory fee of $187,282
net of voluntary expense reimbursements for the period July 1,
1995 to July 9, 1995 for expenses exceeding .60 of 1% of the
average daily net assets, for the period July 10, 1995 to
September 17, 1995 for expenses exceeding .70 of 1% of the
average daily net assets and for the period September 18, 1995 to
June 30, 1996 for expenses exceeding .80 of 1% of the average
daily net assets. For the fiscal year ended June 30, 1997, the
Adviser received from the Virginia Portfolio an advisory fee of
$216,994 net of voluntary expense reimbursements for expenses
exceeding .80 of 1% of the average daily net assets. For the
fiscal year ended June 30, 1998, the Adviser received from the
Virginia Portfolio an advisory fee of $483,177 net of voluntary
expense reimbursements for the period July 1, 1997 to October 15,
1997 for expenses exceeding .80% of its average daily net assets,
from October 16, 1997 to October 26, 1997 for expenses exceeding
.85% of its average daily net assets, from October 27, 1997 to
November 19, 1997 for expenses exceeding .90% of its average
daily net assets and from November 20, 1997 to January 5, 1998
for expenses exceeding .95% of its average daily net assets.

For the period July 28, 1995 (commencement of
operations) to June 30, 1996, the Adviser received no advisory
fee from the Florida Portfolio because of voluntary expense
reimbursements for the period July 28, 1995 to September 10, 1995
for all expenses, for the period September 11, 1995 to
October 22, 1995 for expenses exceeding .20 of 1% of the average
daily net assets, for the period October 23, 1995 to January 2,
1996 for expenses exceeding .40 of 1% of the average daily net
assets, for the period January 3, 1996 to March 3, 1996 for
expenses exceeding .60 of 1% of the average daily net assets and
for the period March 4, 1996 to June 30, 1996 for expenses
exceeding .65 of 1% of the average daily net assets. For the
fiscal year ended June 30, 1997, the Adviser received from the

<PAGE>

Florida Portfolio an advisory fee of $158,755 net of voluntary
expense reimbursements for the period from July 1, 1996 to
May 31, 1997 for expenses exceeding .65 of 1% of the average
daily net assets and from June 1, 1997 to June 30, 1997 for
expenses exceeding .70 of 1% of the average daily net assets. For
the fiscal year ended June 30, 1998, the Adviser received from
the Florida Portfolio an advisory fee of $450,598 net of
voluntary expense reimbursements for the period from July 1, 1997
to July 31, 1997 for expenses exceeding .75% of its average daily
net assets, from August 1, 1997 to October 26, 1997 for expenses
exceeding .80% of its average daily net assets and from
October 27, 1997 to November 19, 1997 for expenses exceeding .85%
of its average daily net assets.

For the period April 17, 1997 (commencement of
operations) to June 30, 1997, the Adviser received no advisory
fee from the Massachusetts Portfolio because of voluntary expense
reimbursements for expenses exceeding .50 of 1% of the average
daily net assets. For the fiscal year ended June 30, 1998, the
Adviser received from the Massachusetts Portfolio an advisory fee
of $21,408 net of voluntary expense reimbursements for the period
from July 1, 1997 to August 31, 1997 for expenses exceeding .50%
of its average daily net assets, from September 1, 1997 to
September 30, 1997 for expenses exceeding .60% of its average
daily net assets, from October 1, 1997 to October 26, 1997 for
expenses exceeding .70% of its average daily net assets, from
October 27, 1997 to November 19, 1997 for expenses exceeding .80%
of its average daily net assets and from November 20, 1997 to
January 5, 1998 for expenses exceeding .90% of its average daily
net assets.

In accordance with the Distribution Services Agreement
described below, the Fund may pay a portion of advertising and
promotional expenses in connection with the sale of shares of the
Fund. The Fund also pays for printing of prospectuses and other
reports to shareholders and all expenses and fees related to
registration and filing with the Commission and with state
regulatory authorities. The Fund pays all other expenses
incurred in its operations, including the Adviser's management
fees; custody, transfer and dividend disbursing expenses; legal
and auditing costs; clerical, accounting, administrative and
other office costs; fees and expenses of Trustees who are not
affiliated with the Adviser; costs of maintenance of the Fund's
existence; and interest charges, taxes, brokerage fees, and
commissions. As to the obtaining of clerical and accounting
services not required to be provided to the Fund by the Adviser
under the Advisory Agreement, the Fund may employ its own
personnel. For such services, it also may utilize personnel
employed by the Adviser or its affiliates; if so done, the
services are provided to the Fund at cost and the payments
therefore must be specifically approved in advance by the Fund's

<PAGE>

Trustees. In respect of the Adviser's services to the Portfolios
for the fiscal years ended June 30, 1996, 1997 and 1998, the
Adviser received $109,000, $98,000 and $107,500 respectively,
from the General Portfolio; $95,000, $94,000 and $94,500
respectively, from the New York Portfolio; $95,500, $94,000 and
$94,500 respectively, from the California Portfolio; $92,500,
$91,000 and $91,500 respectively, from the Connecticut Portfolio;
$92,500, $91,000 and $91,500, respectively, from the New Jersey
Portfolio. For the fiscal years ended June 30, 1996, 1997 and
1998, the Adviser received $92,500, $91,000 and $91,500,
respectively from the Virginia Portfolio. For the period July
28, 1995 (commencement of operations) to June 30, 1996 and for
the fiscal years ended June 30, 1997 and 1998, the Adviser
received $46,000 $92,000 and $92,000, respectively, from the
Florida Portfolio. For the fiscal period April 17, 1997
(commencement of operations) to June 30, 1997, the Adviser agreed
to waive its fee for such services from the Massachusetts
Portfolio. For the fiscal year ended June 30, 1998, the Adviser
received $46,000 from the Massachusetts Portfolio.

The Fund has made arrangements with certain broker-
dealers, including Pershing, Division of Donaldson, Lufkin &
Jenrette Securities Corporation ("Pershing"), an affiliate of the
Adviser, whose customers are Fund shareholders pursuant to which
payments are made to such broker-dealers performing recordkeeping
and shareholder servicing functions. Such functions may include
opening new shareholder accounts, processing purchase and
redemption transactions, and responding to inquiries regarding
the Fund's current yield and the status of shareholder accounts.
The Fund pays fully disclosed and omnibus broker dealers
(including Pershing) for such services. The Fund may also pay
for the electronic communications equipment maintained at the
broker-dealers' offices that permits access to the Fund's
computer files and, in addition, reimburses fully-disclosed
broker-dealers at cost for personnel expenses involved in
providing such services. All such payments but be approved or
ratified by the Trustees. For the fiscal years ended June 30,
1996, 1997 and 1998, broker-dealers were reimbursed $462,107,
$475,088 and $1,125,764, respectively, by the General Portfolio;
$84,873, $90,961 and $298,242, respectively, by the New York
Portfolio; $94,952,$127,710 and $345,752, respectively, by the
California Portfolio; $31,442, $41,129 and $88,878, respectively,
by the Connecticut Portfolio; $10,091, $17,464 and $96,775,
respectively, by the New Jersey Portfolio; $65,803, $77,407 and
$74,646, respectively, by the Virginia Portfolio; and for the
period July 28, 1995 (commencement of operations) to June 30,
1996, and for the fiscal years ended June 30, 1997 and 1998,
$52,469, $91,365 and $95,751, respectively, by the Florida
Portfolio. For the fiscal period April 17, 1997 (commencement of
operations) to June 30, 1997, brokers were reimbursed $8,505 by
the Massachusetts Portfolio and for the fiscal year ended

<PAGE>

June 30, 1998, brokers were reimbursed $16,224 by the
Massachusetts Portfolio.

The Advisory Agreement became effective on July 22,
1992. Continuance of the Advisory Agreement until June 30, 1999
was approved by the vote, cast in person by all the Trustees of
the Trust who neither were interested persons of the Trust nor
had any direct or indirect financial interest in the Agreement or
any related agreement, at a meeting called for that purpose on
June 9, 1998.

The Advisory Agreement remains in effect from year to
year provided that such continuance is specifically approved at
least annually by a vote of a majority of the outstanding shares
of the Fund or by the Fund's Trustees, including in either case
approval by a majority of the Trustees who are not parties to the
Agreement, or interested persons as defined in the Act. The
Advisory Agreement may be terminated without penalty on 60 days'
written notice at the option of either party or by a vote of the
outstanding voting securities of the Fund; it will automatically
terminate in the event of assignment. The Adviser is not liable
for any action or inaction with regard to its obligations under
the Advisory Agreement as long as it does not exhibit willful
misfeasance, bad faith, gross negligence, or reckless disregard
of its obligations.

Distribution Services Agreement

Rule 12b-1 under the Act permits an investment company
to directly or indirectly pay expenses associated with the
distribution of its shares in accordance with a duly adopted and
approved plan. The Fund has entered into a Distribution Services
Agreement (the "Agreement") which includes a plan adopted
pursuant to Rule 12b-1 (the "Plan"), with Alliance Fund
Distributors, Inc.. (the "Distributor") which applies to all
Series of the Trust. Pursuant to the Plan, the Fund makes
payments each month to AFD in an amount that will not exceed, on
an annualized basis, .25 of 1% of the Fund's aggregate average
daily net assets. In addition, under the Agreement the
Distributor makes payments for distribution assistance and for
administrative, accounting and other services from its own
resources which may include the management fee paid by the Fund.

Payments under the Agreement are used in their entirety
for (i) payments to broker-dealers and other financial
intermediaries, including the Distributor and Donaldson, Lufkin &
Jenrette Securities Corporation and its Pershing Division,
affiliates of the Adviser, for distribution assistance and to
banks and other depository institutions for administrative and
accounting services, and (ii) otherwise promoting the sale of
shares of the Fund such as by paying for the preparation,

<PAGE>

printing and distribution of prospectuses and other promotional
materials sent to existing and prospective shareholders and by
directly or indirectly purchasing radio, television, newspaper
and other advertising. In approving the Agreement, the Trustees
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.

During the fiscal year ended June 30, 1998, the General
Portfolio made payments to the Adviser for expenditures under the
Agreement in amounts aggregating $2,979,148 which constituted .25
of 1% of such Portfolio's average daily net assets during the
year, and the Adviser made payments from its own resources as
described above aggregating $3,423,876. Of the $6,403,024 paid
by the General Portfolio and the Adviser under the Agreement,
$171,000 was spent on the printing and mailing of prospectuses
for persons other than current shareholders and $6,232,023 for
compensation to dealers.

During the fiscal year ended June 30, 1998 the New York
Portfolio made payments to the Adviser for expenditures under the
Agreement in amounts aggregating $922,467 which constituted .21
of 1% of such Portfolio's average daily net assets during the
year, and the Adviser made payments from its own resources as
described above aggregating $1,470,885. Of the $2,393,352 paid
by the New York Portfolio and the Adviser under the Agreement,
$42,000 was spent on the printing and mailing of prospectuses for
persons other than current shareholders and $2,351,352 for
compensation to dealers.

During the fiscal year ended June 30, 1998 the
California Portfolio made payments to the Adviser for
expenditures under the Agreement in amounts aggregating $983,033
which constituted .24 of 1% of such Portfolio's average daily net
assets during the year, and the Adviser made payments from its
own resources as described above aggregating $1,077,585. Of the
$2,060,618 paid by the California Portfolio and the Adviser under
the Agreement, $44,000 was spent on the printing and mailing of
prospectuses for persons other than current shareholders and
$2,016,618 for compensation to dealers.

During the fiscal year ended June 30, 1998, the
Connecticut Portfolio made payments to the Adviser for
expenditures under the Agreement in amounts aggregating $251,824
which constituted .21 of 1% of such Portfolio's average daily net
assets during the period, and the Adviser made payments from its
own resources as described above aggregating $401,057. Of the
$652,881 paid by the Connecticut Portfolio and the Adviser under
the Agreement, $22,000 was spent on printing and mailing of
prospectuses for persons other than current shareholders and
$630,881 for compensation of dealers.

<PAGE>

During the fiscal year ended June 30, 1998, the New
Jersey Portfolio made payments to the Adviser for expenditures
under the Agreement in amounts aggregating $300,124 which
constituted .21 of 1% of such Portfolio's average daily net
assets during the period, and the Adviser made payments from its
own resources as described above aggregating $486,398. Of the
$786,522 paid by the New Jersey Portfolio and the Adviser under
the Agreement, $27,000 was spent on printing and mailing of
prospectuses for persons other than current shareholders and
$759,522 for compensation of dealers.

During the fiscal year ended June 30, 1998, the Virginia
Portfolio made payments to the Adviser for expenditures under the
Agreement in amounts aggregating $229,690 which constituted .21
of 1% of such Portfolio's average daily net assets during the
period, and the Adviser made payments from its own resources as
described above aggregating $377,126. Of the $606,815 paid by
the Virginia Portfolio and the Adviser under the Agreement,
$57,000 was spent on printing and mailing of prospectuses for
persons other than current shareholders and $549,815 for
compensation of dealers.

For the fiscal year end June 30, 1998 the Florida
Portfolio made payments to the Adviser for expenditures under the
Agreement in amounts aggregating $242,437 which constituted .22
of 1% of such Portfolio's average daily net assets during the
period, and the Adviser made payments from its own resources as
described above aggregating $448,617. Of the $691,054 paid by
the Florida Portfolio and the Adviser under the Agreement,
$28,000 was spent on printing and mailing of prospectuses for
persons other than current shareholders and $663,054 for
compensation of dealers.

For the fiscal year end June 30, 1998 the Massachusetts
Portfolio made payments to the Adviser for expenditures under the
Agreement in amounts aggregating $36,213 which constituted .14 of
1% of such Portfolio's average daily net assets during the
period, and the Adviser made payments from its own resources as
described above aggregating $127,149. Of the $163,321 paid by
the Florida Portfolio and the Adviser under the Agreement,
$17,000 was spent on printing and mailing of prospectuses for
persons other than current shareholders and $146,362 for
compensation of dealers.

The administrative and accounting services provided by
broker-dealers, depository institutions and other financial
institutions may include, but are not limited to, establishing
and maintaining shareholder accounts, sub-accounting, processing
of purchase and redemption orders, sending confirmations of
transactions, forwarding financial reports and other
communications to shareholders and responding to shareholder

<PAGE>

inquiries regarding the Fund. As interpreted by courts and
administrative agencies, certain laws and regulations limit the
ability of a bank or other depository institution to become an
underwriter or distributor of securities. However, in the
opinion of the Fund's management based on the advice of counsel,
these laws and regulations do not prohibit such depository
institutions from providing other services for investment
companies such as the administrative and accounting services
described above. The Trustees will consider appropriate
modifications to the Fund's operations, including discontinuance
of payments under the Agreement to banks and other depository
institutions, in the event of any future change in such laws or
regulations which may affect the ability of such institutions to
provide the above-mentioned services.

The Treasurer of the Fund reports the amounts expended
under the Agreement and the purposes for which such expenditures
were made to the Trustees on a quarterly basis. Also, the
Agreement provides that the selection and nomination of
disinterested Trustees (as defined in the Act) are committed to
the discretion of the disinterested Trustees then in office.

The Agreement for the Fund became effective on July 22,
1992. Continuance of the Agreement until June 30, 1999 was
approved by the vote, cast in person by all the Trustees of the
Fund who neither were interested persons of the Fund nor had any
direct or indirect financial interest in the Agreement or any
related agreement, at a meeting called for that purpose on June
9, 1998. The Agreement may be continued annually thereafter if
approved by a majority vote of the Trustees who neither are
interested persons of the Fund nor have any direct or indirect
financial interest in the Agreement or in any related agreement,
cast in person at a meeting called for that purpose.

All material amendments to the Agreement must be
approved by a vote of the Trustees, including a majority of the
disinterested Trustees, cast in person at a meeting called for
that purpose, and the Agreement may not be amended in order to
increase materially the costs which the Fund may bear pursuant to
the Agreement without the approval of a majority of the
outstanding shares of the Fund. The Agreement may also be
terminated at any time by a majority vote of the disinterested
Trustees, or by a majority of the outstanding shares of the Fund
or by the Distributor. Any agreement with a qualifying broker-
dealer or other financial intermediary may be terminated without
penalty on not more than 60 days' written notice by a vote of the
majority of non-party Trustees, by a vote of a majority of the
outstanding shares of the Fund, or by the Distributor and will
terminate automatically in the event of its assignment.

<PAGE>

The Agreement is in compliance with rules of the
National Association of Securities Dealers, Inc. (the "NASD")
which became effective July 7, 1993 and which limit the annual
asset-based sales charges and service fees that a mutual fund may
impose to .75% and .25%, respectively, of average annual net
assets.

_________________________________________________________________

PURCHASES AND REDEMPTION OF SHARES
_________________________________________________________________

The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.

Accounts Not Maintained Through Financial Intermediaries

Opening Accounts New Investments

A. When Funds are Sent by Wire (the wire method permits
immediate credit)

1) Telephone the Fund toll-free at (800) 824-1916.
The Fund will ask for the name of the account as
you wish it to be registered, address of the
account, and taxpayer identification number (social
security number for an individual). The Fund will
then provide you with an account number.

2) Instruct your bank to wire Federal funds (minimum
$1,000) exactly as follows:

ABA 0110 00028
State Street Bank and Trust Company
Boston, MA 02101
Alliance Municipal Trust
DDA 9903-279-9

Your account name as registered with the Fund
Your account number as registered with the Fund

3) Mail a completed Application Form to:

Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520

<PAGE>

B. When Funds are Sent by Check

1) Fill out an Application Form.

2) Mail the completed Application Form along with your
check or negotiable bank draft (minimum $1,000),
payable to "Alliance Municipal Trust," to Alliance
Fund Services, Inc. as in A(3) above.

Subsequent Investments

A. Investments by Wire (to obtain immediate credit)

Instruct your bank to wire Federal funds (minimum $100)
to State Street Bank and Trust Company ("State Street Bank") as
in A(2) above.

B. Investments by Check

Mail your check or negotiable bank draft (minimum $100),
payable to "Alliance Municipal Trust," to Alliance Fund Services,
Inc. as in A(3) above.

Include with the check or draft the "next investment"
stub from one of your previous monthly or interim account
statements. For added identification, place your Fund account
number on the check or draft.

Investments Made by Check

Money transmitted by a check drawn on a member of the
Federal Reserve System is converted to Federal funds in one
business day following receipt and, thus, is then invested in the
Fund. Checks drawn on banks which are not members of the Federal
Reserve System may take longer to be converted and invested. All
payments must be in United States dollars.

PROCEEDS FROM ANY SUBSEQUENT REDEMPTION BY YOU OF FUND
SHARES THAT WERE PURCHASED BY CHECK OR ELECTRONIC FUNDS TRANSFER
WILL NOT BE FORWARDED TO YOU UNTIL THE FUND IS REASONABLY ASSURED
THAT YOUR CHECK OR ELECTRONIC FUNDS TRANSFER HAS CLEARED, UP TO
FIFTEEN DAYS FOLLOWING THE PURCHASE DATE. If the redemption
request during such period is in the form of a Fund check, the
check will be marked "insufficient funds" and be returned unpaid
to the presenting bank.

<PAGE>

Redemptions

A. By Telephone

You may withdraw any amount from your account on any
Fund business day (i.e., any weekday exclusive of days on which
the New York Stock Exchange or State Street Bank is closed)
between 9:00 a.m. and 5:00 p.m. (Eastern time) via orders given
to AFS by telephone toll-free (800) 824-1916. Such redemption
orders must include your account name as registered with the Fund
and the account number.

If your telephone redemption order is received by AFS
prior to 12:00 Noon (Eastern time), we will send the proceeds in
Federal funds by wire to your designated bank account that day.
The minimum amount for a wire is $1,000. If your telephone
redemption order is received by AFS after 12:00 Noon and before
4:00 p.m., we will wire the proceeds the next business day. You
also may request that proceeds be sent by check to your
designated bank. Redemptions are made without any charge to you.

During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching AFS
by telephone (although no such difficulty was apparent at any
time in connection with the 1987 market break). If a shareholder
were to experience such difficulty, the shareholder should issue
written instructions to AFS at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, or
AFS will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be
genuine. The Fund will employ reasonable procedures in order to
verify that telephone requests for redemptions are genuine,
including among others, recording such telephone instructions and
causing written confirmations of the resulting transactions to be
sent to shareholders. If the Fund did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.

B. By Checkwriting

With this service, you may write checks made payable to
any payee. Checks cannot be written for more than the principal
balance (not including any accrued dividends) in your account.
First, you must fill out the Signature Card which is with the
Application Form. If you wish to establish this checkwriting
service subsequent to the opening of your Fund account, contact

<PAGE>

the Fund by telephone or mail. There is no separate charge for
the checkwriting service, except that State Street Bank may
impose charges for checks which are returned unpaid because of
insufficient funds or for checks upon which you have placed a
stop order. There is currently a $7.50 charge for check
reorders.

The checkwriting service enables you to receive the
daily dividends declared on the shares to be redeemed until the
day that your check is presented to State Street Bank for
payment.

C. By Mail

You may withdraw any amount from your account at any
time by mail. Written orders for withdrawal, accompanied by
duly endorsed certificates, if issued, should be mailed to
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey
07096-1520. Such orders must include the account name as
registered with the Fund and the account number. All written
orders for redemption, and accompanying certificates, if any,
must be signed by all owners of the account with the signatures
guaranteed by an institution which is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.

_________________________________________________________________

ADDITIONAL INFORMATION
_________________________________________________________________

Automatic Investment Program. A shareholder may
purchase shares of the Fund through an automatic investment
program through a bank that is a member of the National
Automated Clearing House Association. Purchases can be made on a
Fund business day each month designated by the shareholder.
Shareholders wishing to establish an automatic investment program
should write or telephone the Fund or AFS at (800) 221-5672.

Shareholders maintaining Fund accounts through brokerage
firms and other institutions should be aware that such
institutions necessarily set deadlines for receipt of transaction
orders from their clients that are earlier than the transaction
times of the Fund itself so that the institutions may properly
process such orders prior to their transmittal to State Street
Bank and Trust Company ("State Street Bank"). Should an investor
place a transaction order with such an institution after its
deadline, the institution may not effect the order with the Fund
until the next business day. Accordingly, an investor should
familiarize himself or herself with the deadlines set by his or
her institution. For example, the Fund's Distributor accepts

<PAGE>

purchase orders from its customers up to 2:15 p.m. (Eastern time)
for issuance at the 4:00 p.m. (Eastern time) transaction time and
price. A brokerage firm acting on behalf of a customer in
connection with transactions in Fund shares is subject to the
same legal obligations imposed on it generally in connection with
transactions in securities for a customer, including the
obligation to act promptly and accurately.

Orders for the purchase of Fund shares become effective
at the next transaction time after Federal funds or bank wire
monies become available to State Street Bank for a shareholder's
investment. Federal funds are a bank's deposits in a Federal
Reserve Bank. These funds can be transferred by Federal Reserve
wire from the account of one member bank to that of another
member bank on the same day and are considered to be immediately
available funds; similar immediate availability is accorded
monies received at State Street Bank by bank wire. Money
transmitted by a check drawn on a member of the Federal Reserve
System is converted to Federal funds in one business day
following receipt. Checks drawn on banks which are not members
of the Federal Reserve System may take longer. All payments
(including checks from individual investors) must be in United
States dollars.

All shares purchased are confirmed to each shareholder
and are credited to his or her account at the net asset value.
To avoid unnecessary expense to the Fund and to facilitate the
immediate redemption of shares, share certificates, for which no
charge is made, are not issued except upon the written request of
a shareholder. Certificates are not issued for fractional
shares. Shares for which certificates have been issued are not
eligible for any of the optional methods of withdrawal; namely,
the telephone, telegraph, checkwriting or periodic redemption
procedures. The Fund reserves the right to reject any purchase
order.

Arrangements for Telephone Redemptions. If you wish to
use the telephone redemption procedure, indicate this on your
Application Form and designate a bank and account number to
receive the proceeds of your withdrawals. If you decide later
that you wish to use this procedure, or to change instructions
already given, send a written notice to Alliance Fund Services,
Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520, with your
signature guaranteed by an institution which is an eligible
guarantor. For joint accounts, all owners must sign and have
their signatures guaranteed.

Retirement Plans. The Fund's objectives of safety of
principal, excellent liquidity and maximum current income to the
extent consistent with the first two objectives may make it a
suitable investment vehicle for part or all of the assets held in

<PAGE>

various tax-deferred retirement plans. The Fund has available
forms of individual retirement account (IRA), simplified employee
pension plans (SEP), 403(b)(7) plans and employer-sponsored
retirement plans (Keogh or HR10 Plan). Certain services
described in this prospectus may not be available to retirement
accounts and plans. Persons desiring information concerning
these plans should write or telephone the Fund or AFS at
(800) 221-5672.

The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, is the custodian under these plans. The custodian
charges a nominal account establishment fee and a nominal annual
maintenance fee. A portion of such fees is remitted to AFS to
compensate that organization for services rendered to retirement
plan accounts maintained with the Fund.

Periodic Distribution Plans. Without affecting your
right to use any of the methods of redemption described above, by
checking the appropriate boxes on the Application Form, you may
elect to participate additionally in the following plans without
any separate charge. Under the Income Distribution Plan you
receive monthly payments of all the income earned in your Fund
account, with payments forwarded by check or electronically via
the Automated Clearing House ("ACH") network shortly after the
close of the month. Under the Systematic Withdrawal Plan, you
may request payments by check or electronically via the ACH
network in any specified amount of $50 or more each month or in
any intermittent pattern of months. If desired, you can order,
via a signature-guaranteed letter to the Fund, such periodic
payments to be sent to another person. Shareholders wishing
either of the above plans electronically through the ACH network
should write or telephone the Fund or AFS at (800) 221-5672.

The Fund has the right to close out an account if it has
a zero balance on December 31 and no account activity for the
first six months of the subsequent year. Therefore, unless this
has occurred, a shareholder with a zero balance, when
reinvesting, should continue to use his account number.
Otherwise, the account should be re-opened pursuant to procedures
described above or through instructions given to a financial
intermediary.

A "business day," during which purchases and redemptions
of Fund shares can become effective and the transmittal of
redemption proceeds can occur, is considered for Fund purposes as
any weekday exclusive of New Year's Day, Martin Luther King, Jr.
Day, President's Day (observed), Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas Day; if one of these holidays falls on a Saturday or
Sunday, purchases and redemptions will likewise not be processed

<PAGE>

on the preceding Friday or the following Monday, respectively.
On any such day that is an official bank holiday in
Massachusetts, neither purchases nor wired redemptions can become
effective because Federal funds cannot be received or sent by
State Street Bank. On such days, therefore, the Fund can only
accept redemption orders for which shareholders desire remittance
by check. The right of redemption may be suspended or the date
of a redemption payment postponed for any period during which the
New York Stock Exchange is closed (other than customary weekend
and holiday closings), when trading on the New York Stock
Exchange is restricted, or an emergency (as determined by the
Commission) exists, or the Commission has ordered such a
suspension for the protection of shareholders. The value of a
shareholder's investment at the time of redemption may be more or
less than his or her cost, depending on the market value of the
securities held by the Fund at such time and the income earned.

_________________________________________________________________

DAILY DIVIDENDS - DETERMINATION OF NET ASSET VALUE
_________________________________________________________________

All net income of each Portfolio is determined after the
close of each business day, currently 4:00 p.m. Eastern time (and
at such other times as the Trustees may determine) and is paid
immediately thereafter pro rata to shareholders of record of that
Portfolio via automatic investment in additional full and
fractional shares in each shareholder's account at the rate of
one share for each dollar distributed. As such additional shares
are entitled to dividends on following days, a compounding growth
of income occurs.

A Portfolio's net income consists of all accrued
interest income on Portfolio assets less expenses allocable to
that Portfolio (including accrued expenses and fees payable to
the Adviser) applicable to that dividend period. Realized gains
and losses are reflected in a Portfolio's net asset value and are
not included in net income. Net asset value per share of each
Portfolio is expected to remain constant at $1.00 since all net
income of each Portfolio is declared as a dividend each time net
income is determined and net realized gains and losses are
expected to be relatively small.

The valuation of the Fund's portfolio securities is
based upon their amortized cost which does not take into account
unrealized securities gains or losses as measured by market
valuations. The amortized cost method involves valuing an
instrument at its cost and thereafter applying a constant
amortization to maturity of any discount or premium, regardless
of the impact of fluctuating interest rates on the market value
of the instrument. During periods of declining interest rates,

<PAGE>

the daily yield on shares of the Fund may be higher than that of
a fund with identical investments utilizing a method of valuation
based upon market prices for its portfolio instruments; the
converse would apply in a period of rising interest rates.

The Fund utilizes the amortized cost method of valuation
of portfolio securities in accordance with the provisions of Rule
2a-7 under the Act. Pursuant to such rule, each Portfolio
maintains a dollar-weighted average portfolio maturity of 90 days
or less, purchases instruments which, at the time of investment,
have remaining maturities of no more than one year (which
maturities may extend to 397 days or such greater length of time
as may be permitted from time to time pursuant to Rule 2a-7), and
invests only in securities of high quality. The Fund follows
Rule 2a-7 with respect to the determination of maturity of its
instruments. Pursuant to Rule 2a-7 the Fund currently treats a
municipal security which has a variable or floating rate of
interest as having a maturity equal to the longer of either the
period, if any, remaining until the interest rate is next
scheduled to be readjusted or the period remaining until the
principal amount can be recovered by exercising the security's
demand feature. The Fund maintains procedures designed to
stabilize, to the extent reasonably possible, the price per share
of each Portfolio as computed for the purpose of sales and
redemptions at $1.00. Such procedures include review of the
Fund's portfolio holdings by the Trustees to the extent required
by Rule 2a-7 under the Act at such intervals as they deem
appropriate to determine whether and to what extent the net asset
value of each Portfolio calculated by using available market
quotations or market equivalents deviates from net asset value
based on amortized cost. If such deviation as to any Portfolio
exceeds 1/2 of 1%, the Trustees will promptly consider what
action, if any, should be initiated. In the event the Trustees
determine that such a deviation may result in material dilution
or other unfair results to new investors or existing
shareholders, they will consider corrective action which might
include (1) selling instruments held by the affected Portfolio
prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity; (2) withholding dividends of
net income on shares of that Portfolio; or (3) establishing a net
asset value per share of that Portfolio by using available market
quotations or equivalents.

The net asset value of the shares of each Portfolio is
determined each business day (and on such other days as the
Trustees deem necessary) at 12:00 Noon and 4:00 p.m. Eastern
time. The net asset value per share of a Portfolio is calculated
by taking the sum of the value of that Portfolio's investments
and any cash or other assets, subtracting liabilities, and
dividing by the total number of shares of that Portfolio

<PAGE>

outstanding. All expenses, including the fees payable to the
Adviser, are accrued daily.

_________________________________________________________________

TAXES
_________________________________________________________________

Federal Income Tax Considerations

Each of the Fund's Portfolios has qualified for each
fiscal year to date and intends to qualify in each future year to
be taxed as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code") and, as such, will
not be liable for Federal income and excise taxes on the net
income and capital gains distributed to its shareholders. Since
each Portfolio of the Fund distributes all of its net income and
capital gains, each Portfolio should thereby avoid all Federal
income and excise taxes.

For shareholders' Federal income tax purposes,
distributions to shareholders out of tax-exempt interest income
earned by each Portfolio of the Fund generally are not subject to
Federal income tax. See, however, "Investment Objectives and
Policies-Alternative Minimum Tax" above.

Distributions out of taxable interest income, other
investment income, and short-term capital gains are taxable to
shareholders as ordinary income. Since each Portfolio's
investment income is derived from interest rather than dividends,
no portion of such distributions is eligible for the dividends-
received deduction available to corporations. Long-term capital
gains, if any, distributed by a Portfolio to a shareholder are
taxable to the shareholder as long-term capital gain,
irrespective of the length of time he may have held his shares.
Distributions of short and long-term capital gains, if any, are
normally made once each year near calendar year-end, although
such distributions may be made more frequently if necessary in
order to maintain a Portfolio's net asset value at $1.00 per
share.

Interest on indebtedness incurred by shareholders to
purchase or carry shares of a Portfolio of the Fund is not
deductible for Federal income tax purposes. Under rules of the
Internal Revenue Service for determining when borrowed funds are
used for purchasing or carrying particular assets, shares may be
considered to have been purchased or carried with borrowed funds
even though those funds are not directly linked to the shares.
Further, persons who are "substantial users" (or related persons)
of facilities financed by private activity bonds (within the

<PAGE>

meaning of Section 147(a) of the Code) should consult their tax
advisers before purchasing shares of any Portfolio.

Substantially all of the dividends paid by each
Portfolio are anticipated to be exempt from Federal income taxes.
Shortly after the close of each calendar year, a notice is sent
to each shareholder advising him of the total dividends paid into
his account for the year and the portion of such total that is
exempt from Federal income taxes. This portion is determined by
the ratio of the tax-exempt income to total income for the entire
year and, thus, is an annual average rather than a day-by-day
determination for each shareholder.

State Income Tax Considerations

General Portfolio. Shareholders of the General Portfolio may be
subject to state and local taxes on distributions from the
General Portfolio, including distributions which are exempt from
Federal income taxes. Each investor should consult his own tax
adviser to determine the tax status of distributions from the
General Portfolio in his particular state and locality.

New York Portfolio. Shareholders of the New York Portfolio who
are individual residents of New York are not subject to the New
York State or New York City personal income taxes on
distributions from the New York Portfolio which are designated as
derived from municipal securities issued by the State of New York
or its political subdivisions. Distributions from the New York
Portfolio are, however, subject to the New York Corporate
Franchise Tax payable by corporate shareholders.

California Portfolio. Shareholders of the California Portfolio
who are individual residents of California are not subject to the
California personal income tax on distributions from the
California Portfolio which are designated as derived from
municipal securities issued by the State of California or its
political subdivisions. Distributions from the California
Portfolio are, however, subject to the California Corporate
Franchise Tax payable by corporate shareholders.

Connecticut Portfolio. Shareholders of the Connecticut Portfolio
who are individual residents of Connecticut are not subject to
Connecticut personal income taxes on distributions from the
Connecticut Portfolio which are designated as derived from
municipal securities issued by the State of Connecticut or its
political subdivisions. Distributions from the Connecticut
Portfolio are , however, subject to the Connecticut Corporation
Business Tax payable by corporate shareholders.

New Jersey Portfolio. Shareholders of the Portfolio who are
individual residents of New Jersey are not subject to the New

<PAGE>

Jersey personal income tax on distributions from the Portfolio
which are designated as derived from municipal securities issued
by the State of New Jersey or its political subdivisions.
Distributions from the Portfolio are, however, subject to the New
Jersey Corporation Business (Franchise) Tax and the New Jersey
Corporation Income Tax payable by corporate shareholders.

Virginia Portfolio. Shareholders of the Virginia Portfolio who
are individual residents of Virginia are not subject to the
Virginia personal income tax on distributions from the Portfolio
which are designated as derived from municipal securities issued
by the Commonwealth of Virginia or its political subdivisions.

Florida Portfolio. Dividends paid by the Portfolio to individual
Florida shareholders will not be subject to Florida income tax,
which is imposed only on corporations. However, Florida
currently imposed an "intangible tax" at the rate of $2.00 per
$1,000 taxable value of certain securities, such as shares of the
Portfolio, and other intangible assets owned by Florida
residents. U.S. Government Securities and Florida municipal
securities are exempt from this intangible tax. It is
anticipated that the Portfolio's shares will qualify for
exemption from the Florida intangible tax. In order to so
qualify, the Portfolio must, among other things, have its entire
portfolio invested in U.S. Government Securities and Florida
municipal securities on December 31 of any year. Exempt-interest
dividends paid by the Portfolio to corporate shareholders will be
subject to Florida corporate income tax.

Massachusetts Portfolio. Individual and other noncorporate
shareholders of the Portfolio will not be subject to
Massachusetts personal income tax on distributions by the
Portfolio to the extent such distributions are derived from
interest on Massachusetts obligations. Further, such
shareholders will not be subject to Massachusetts personal income
tax on long-term capital gains distributions made by the
Portfolio to the extent such distributions are derived from gains
on Massachusetts municipal obligations which were issued under
specific legislation exempting gain on such obligations from
Massachusetts personal income taxation. Distributions by the
Portfolio will not be excluded from the net income of
corporations and shares of the Portfolio will not be excluded
from the net worth of intangible property corporations in
determining the Massachusetts excise tax on corporations. Shares
of the Portfolio will not be subject to Massachusetts local
property taxes.

<PAGE>

_________________________________________________________________

GENERAL INFORMATION
_________________________________________________________________

Portfolio Transactions. Subject to the general
supervision of the Trustees of the Fund, the Adviser is
responsible for the investment decisions and the placing of the
orders for portfolio transactions for the Fund. Because the Fund
invests in securities with short maturities, there is a
relatively high portfolio turnover rate. However, the turnover
rate does not have an adverse effect upon the net yield and net
asset value of the Fund's shares since the Fund's portfolio
transactions occur primarily with issuers, underwriters or major
dealers in money market instruments acting as principals. Such
transactions are normally on a net basis which do not involve
payment of brokerage commissions. The cost of securities
purchased from an underwriter usually includes a commission paid
by the issuer to the underwriters; transactions with dealers
normally reflect the spread between bid and asked prices.

The Fund has no obligations to enter into transactions
in portfolio securities with any dealer, issuer, underwriter or
other entity. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Where
best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information. During the fiscal
years ended June 30, 1996, 1997 and 1998, the Fund paid no
brokerage commissions.

Capitalization. All shares of the Fund, when issued,
are fully paid and non-assessable. The Trustees are authorized
to reclassify and issue any unissued shares to any number of
additional classes or series without shareholder approval.
Accordingly, the Trustees in the future, for reasons such as the
desire to establish one or more additional portfolios with
different investment objectives, policies or restrictions, may
create additional classes or series of shares. Any issuance of
shares of another class would be governed by the Investment
Company Act of 1940 and the law of the Commonwealth of
Massachusetts. Shares of each Portfolio are normally entitled to
one vote for all purposes. Generally, shares of all Portfolios

<PAGE>

vote as a single series for the election of Trustees and on any
other matter affecting all Portfolios in substantially the same
manner. As to matters affecting each Portfolio differently, such
as approval of the Advisory Agreement and changes in investment
policy, shares of each Portfolio vote as separate classes.
Certain procedures for the removal by shareholders of trustees of
investment trusts, such as the Fund, are set forth in Section
16(c) of the Act.

At October 9, 1998, there were 2,977,128,726 shares of
beneficial interest of the Fund outstanding. Of this amount
1,324,692,231 were for the General Portfolio; 542,005,592 were
for the New York Portfolio; 487,347,457 were for the California
Portfolio; 156,213,129 were for the Connecticut Portfolio;
176,792,290 were for the New Jersey Portfolio; 131,351,346 were
for the Virginia Portfolio;124,880,984 were for the Florida
Portfolio and 33,845,697 were for the Massachusetts Portfolio.
To the knowledge of the Fund the following persons owned of
record and beneficially, 5% or more of the outstanding shares of
the Portfolio as of October 9, 1998.

No. of % of
Shares Class

General Portfolio

Ragen Mackenzie Incorporated 95,365,588 7.2%
As Agent Omnibus A/C For
Exclusive Benefit of Customers
999 3rd Ave Suite 4300
Seattle, WA 98104-4081

Pershing As Agent 892,356,782 67.4%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

New York Portfolio

U.S. Clearing Corp/Omnibus Acct 50,405,289 9.3%
FBO Customers
26 Broadway 12th Floor
New York, NY 10004-1801

<PAGE>

Pershing As Agent 307,825,178 56.79%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

California Portfolio

Stone & Youngberg 56,575,383 11.6%
As Agent Omnibus A/C for
Exclusive Benefit of Customers
50 California St 35th Floor
San Francisco, CA 94111-4624

U.S. Clearing Corp/Omnibus Acct 27,420,585 5.6%
FBO Customers
26 Broadway 12th Floor
New York, NY 10004-1801

Pershing As Agent 230,340,246 47.26%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

Connecticut Portfolio

U.S. Clearing Corp/Omnibus Acct 39,230,627 25%
FBO Customers
26 Broadway 12th Floor
New York, NY 10004-1801

Pershing As Agent 63,406,559 40.59%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

New Jersey Portfolio

U.S. Clearing Corp/Omnibus Acct 14,854,418 8%
FBO Customers
26 Broadway 12th Floor
New York, NY 10004-1801

100

<PAGE>

Pershing As Agent 143,109,410 80.95%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

Virginia Portfolio

Davenport & Co of Virginia Inc 87,385,626 66.5%
As Agent Omnibus A/C for Exclusive
Benefit of Customers
One James Center
901 E. Cary Street
Richmond, VA 23219-4057

Lee M Folger TTEEING Douglas 7,506,835 5.7%
U/A DD 10/2/90 FBO
Katherine D. Folger
725 15th St NW
Washington, DC 20005-2109

Pershing As Agent 17,651,251 13%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

Florida Portfolio

U.S. Clearing Corp/Omnibus Acct 54,803,896 43.88%
FBO Customers
26 Broadway 12th Floor
New York, NY 10004-1801

Pershing As Agent 47,600,776 38%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

Massachusetts Portfolio

U.S. Clearing Corp/Omnibus Acct 6,650,395 19.65%
FBO Customer
26 Broadway 12th Floor
New York, NY 10004-1801

101

<PAGE>

Advest Inc. 2,226,704 6.58%
Michael Stone
A/C XXXXXXX
90 State House Sq
Hartford, CT 06103-3702

Pershing As Agent 13,311,299 39%
Omnibus Account
For Exclusive Benefit of Customers
1 Pershing Plaza
Jersey City, NJ 07399-0022

Shareholder Liability. Under Massachusetts law,
shareholders could, under certain circumstances, be held
personally liable for the obligations of the Fund. However, the
Agreement and Declaration of Trust disclaims shareholder
liability for acts or obligations of the Fund and requires that
the Trustees use their best efforts to ensure that notice of such
disclaimer be given in each note, bond, contract, instrument,
certificate or undertaking made or issued by the trustees or
officers of the Fund. The Agreement and Declaration of Trust
provides for indemnification out of the property of the Fund for
all loss and expense of any shareholder of the Fund held
personally liable for the obligations of the Fund. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the
Fund would be unable to meet its obligations. In the view of the
Adviser, such risk is not material.

Legal Matters. The legality of the shares offered
hereby has been passed upon by Seward & Kissel, New York, New
York, counsel for the Fund and the Adviser. Seward & Kissel has
relied upon the opinion of Sullivan & Worcester, Boston,
Massachusetts, for matters relating to Massachusetts law.

Accountants. An opinion relating to each Portfolio's
financial statements is given herein by McGladrey & Pullen, LLP,
New York, New York, independent auditors for the Fund.

Yield Quotations. Advertisements containing yield
quotations for one or more Portfolios for the Fund may from time
to time be sent to investors or placed in newspapers, magazines
or other media on behalf of the Fund. These advertisements may
quote performance rankings, ratings or data from independent
organizations or financial publications such as Lipper Analytical
Services, Inc., Morningstar, Inc., IBC's Money Fund Report, IBC's
Money Market Insight or Bank Rate Monitor or compare the Fund's
performance to bank money market deposit accounts, certificates
of deposit or various indices. Such yield quotations are
calculated in accordance with the standardized method referred to
in Rule 482 under the Securities Act of 1933. The daily

102

<PAGE>

dividends for the seven days ended June 30, 1998 for the General,
New York, California, Connecticut, New Jersey, Virginia, Florida
and Massachusetts Portfolios amounted to an annualized yield,
after expense reimbursement, of 2.74%, 2.49%, 2.68%, 2.63%,
2.51%, 2.71%, 2.73% and 2.62%, respectively, equivalent to 2.77%,
2.52%, 2.71%, 2.67%, 2.54%, 2.74%, 2.77% and 2.66%, respectively,
when adjusted for the Fund's daily compounding. Absent expense
reimbursement, the annualized yield for this period for the New
York Portfolio would have been 2.41%, equivalent to an effective
yield of 2.44%. Absent expense reimbursement, the annualized
yield for this period for the California Portfolio would have
been 2.67%, equivalent to an effective yield of 2.70%. Absent
expense reimbursement, the annualized yield for this period for
the Connecticut Portfolio would have been 2.50%, equivalent to an
effective yield of 2.54%. Absent expense reimbursement, the
annualized yield for this period for the New Jersey Portfolio
would have been 2.38%, equivalent to an effective yield of 2.41%.
Absent expense reimbursement, the annualized yield for this
period for the Virginia Portfolio would have been 2.61%,
equivalent to an effective yield of 2.64%. Absent expense
reimbursement, the annualized yield for this period for the
Florida Portfolio would have been 2.60%, equivalent to an
effective yield of 2.64%. Absent expense reimbursement, the
annualized yield for this period for the Massachusetts Portfolio
would have been 2.10%, equivalent to an effective yield of 2.14%.

Yield quotations for a Portfolio are thus determined by
(i) computing the net change over a seven-day period, exclusive
of the capital changes, in the value of a hypothetical pre-
existing account having a balance of one share of such Portfolio
at the beginning of such period, (ii) dividing the net change in
account value by the value of the account at the beginning of the
base period to obtain the base period return, and
(iii) multiplying the base period return by (365/7) with the
resulting yield figure carried to the nearest hundredth of one
percent. A Portfolio's effective annual yield represents a
compounding of the annualized yield according to the formula:

effective yield = [(base period return + 1) 365/7] - 1.

Depending on an investor's tax bracket, an investor may
earn a substantially higher after-tax return from the Fund than
from comparable investments the income from which is taxable.
For example, the yield for the week ended June 30, 1998 (after
the expense reimbursements described above) for the General
Portfolio was 2.49%; for the New York Portfolio, 2.41%; for the
California Portfolio, 2.67%; for the Connecticut Portfolio,
2.50%; for the New Jersey Portfolio,2.38%; for the Virginia
Portfolio, 2.61%, for the Florida Portfolio, 2.60% and for the
Massachusetts Portfolio, 2.10%. The corresponding tax equivalent
yield, however, for such period for the General Portfolio was

103

<PAGE>

4.12%; for the New York Portfolio, 4.28%, computed without taking
into account the effects of New York City income taxes, and
4.45%, computed assuming the effects of New York City income
taxes; for the California Portfolio, 4.97%; for the Connecticut
Portfolio, 4.33%; for the New Jersey Portfolio,4.21%; for the
Virginia Portfolio, 4.58%; for the Florida Portfolio, 4.30% and
for the Massachusetts Portfolio, 3.70%. The corresponding tax
equivalent effective yield for such period for the General
Portfolio was 4.59%; for the New York Portfolio, 4.34%, computed
without taking into account the effects of New York City income
taxes, and 4.50%, computed assuming the effects of New York City
income taxes; for the California Portfolio, 5.02%; for the
Connecticut Portfolio, 4.40%; for the New Jersey Portfolio,
4.26%; for the Virginia Portfolio, 4.64%; 4.37% for the Florida
Portfolio and 3.77% for the Massachusetts Portfolio. These tax
equivalent yields assume that the taxpayer is an individual in
the highest federal and state (and, if applicable, New York City)
income tax brackets, who is not subject to federal or state
alternative minimum taxes and who is able to fully deduct state
(and, if applicable, New York City) taxes in computing federal
taxable income. The tax rates used in these calculations were:
Federal 39.60%, New York State 6.85%, New York City 3.40%,
California 11.00%, Connecticut 4.50%, New Jersey 6.37%, Virginia
5.75% and Massachusetts 5.95%. The tax equivalent yield is
computed by dividing that portion of the yield of a Portfolio
that is tax- exempt by one minus the applicable marginal income
tax rate (39.60% in the case of the General and Florida
Portfolios; the combined effective federal and state (and, if
applicable, New York City) marginal income tax rates in the case
of the New York, California, Connecticut, New Jersey and Virginia
Portfolios) and adding the quotient to that portion, if any, of
the yield of the Portfolio that is not tax-exempt.

Reports. You will receive semi-annual and annual
reports of the Fund as well as a monthly summary of your account.
You can arrange for a copy of each of your account statements to
be sent to other parties.

Additional Information. This Statement of Additional
Information does not contain all the information set forth in the
Registration Statement filed by the Fund with the Commission
under the Securities Act of 1933. Copies of the Registration
Statement may be obtained at a reasonable charge from the
Commission or may be examined, without charge, at the
Commission's offices in Washington, D.C.

104

<PAGE>

_________________________________________________________________

APPENDIX A
DESCRIPTION OF MUNICIPAL SECURITIES
_________________________________________________________________

Municipal Notes generally are used to provide for short-
term capital needs and usually have maturities of one year or
less. They include the following:

1. Project Notes, which carry a U.S. Government
guarantee, are issued by public bodies (called "local issuing
agencies") created under the laws of a state, territory, or U.S.
possession. They have maturities that range up to one year from
the date of issuance. Project Notes are backed by an agreement
between the local issuing agency and the Federal Department of
Housing and Urban Development. These Notes provide financing for
a wide range of financial assistance programs for housing,
redevelopment, and related needs (such as low-income housing
programs and renewal programs).

2. Tax Anticipation Notes are issued to finance
working capital needs of municipalities. Generally, they are
issued in anticipation of various seasonal tax revenues, such as
income, sales, use and business taxes, and are payable from these
specific future taxes.

3. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenues, such as
Federal revenues available under the Federal Revenue Sharing
Programs.

4. Bond Anticipation Notes are issued to provide
interim financing until long-term financing can be arranged. In
most cases, the long-term bonds then provide the money for the
repayment of the Notes.

5. Construction Loan Notes are sold to provide
construction financing. After successful completion and
acceptance, many projects receive permanent financing through the
Federal Housing Administration under the Federal National
Mortgage Association or the Government National Mortgage
Association.

6. Tax-Exempt Commercial Paper is a short-term
obligation with a stated maturity of 365 days or less. It is
issued by agencies of state and local governments to finance
seasonal working capital needs or as short-term financing in
anticipation of longer term financing.

A-1

<PAGE>

Municipal Bonds, which meet longer term capital needs
and generally have maturities of more than one year when issued,
have three principal classifications:

1. General Obligation Bonds are issued by such
entities as states, counties, cities, towns, and regional
districts. The proceeds of these obligations are used to fund a
wide range of public projects, including construction or
improvement of schools, highways and roads, and water and sewer
systems. The basic security behind General Obligation Bonds is
the issuer's pledge of its full faith and credit and taxing power
for the payment of principal and interest. The taxes that can be
levied for the payment of debt service may be limited or
unlimited as to the rate or amount of special assessments.

2. Revenue Bonds generally are secured by the net
revenues derived from a particular facility, group of facilities,
or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue Bonds are issued to finance a
wide variety of capital projects including electric, gas, water
and sewer systems; highways, bridges, and tunnels; port and
airport facilities; colleges and universities; and hospitals.
Many of these Bonds provide additional security in the form of a
debt service reserve fund to be used to make principal and
interest payments. Housing authorities have a wide range of
security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability
(without obligation) to make up deficiencies in the debt service
reserve fund.

3. Industrial Development Bonds are considered
municipal bonds if the interest paid thereon is exempt from
Federal income tax and are issued by or on behalf of public
authorities to raise money to finance various privately operated
facilities for business and manufacturing, housing, sports, and
pollution control. These Bonds are also used to finance public
facilities such as airports, mass transit systems, ports, and
parking. The payment of the principal and interest on such Bonds
is dependent solely on the ability of the facility's user to meet
its financial obligations and the pledge, if any, of real and
personal property as security for such payment.

A-2

<PAGE>

_________________________________________________________________

APPENDIX B
DESCRIPTION OF SECURITIES RATING
_________________________________________________________________

Municipal and Corporate
Bonds and Municipal Loans

The two highest ratings of Moody's Investors Service,
Inc. ("Moody's") for municipal and corporate bonds are Aaa and
Aa. Bonds rated Aaa are judged by Moody's to be of the best
quality. 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. Moody's states that Aa
bonds are rated lower than the best bonds because margins of
protection or other elements make long-term risks appear somewhat
larger than Aaa securities. The generic rating Aa may be
modified by the addition of the numerals 1, 2 or 3. The modifier
1 indicates that the security ranks in the higher end of the Aa
rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the lower
end of such rating category.

The two highest ratings of Standard & Poor's Corporation
("Standard & Poor's") for municipal and corporate bonds are AAA
and AA. Bonds rated AAA have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest
and repay principal is extremely strong. Bonds rated AA have a
very strong capacity to pay interest and repay principal and
differ from the highest rated issues only in a small degree. The
AA rating may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within that rating category.

Short-Term Municipal Loans

Moody's highest rating for short-term municipal loans is
MIG-1/VMIG-1. Moody's states that short-term municipal
securities rated MIG-1/VMIG-1 are of the best quality, enjoying
strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the
market for refinancing, or both. Loans bearing the MIG-2/VMIG-2
designation are of high quality, with margins of protection ample
although not so large as in the MIG-1/VMIG-1 group.

Standard & Poor's highest rating for short-term
municipal loans is SP-1. Standard & Poor's states that short-
term municipal securities bearing the SP-1 designation have very
strong or strong capacity to pay principal and interest. Those
issues rated SP-1 which are determined to possess overwhelming
safety characteristics will be given a plus (+) designation.

B-1

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

Other Municipal Securities and Commercial Paper

"Prime-1" is the highest rating assigned by Moody's for
other short-term municipal securities and commercial paper, and
"A-1+" and "A-1" are the two highest ratings for commercial paper
assigned by Standard & Poor's (Standard & Poor's does not rate
short-term tax-free obligations). Moody's uses the numbers 1, 2
and 3 to denote relative strength within its highest
classification of "Prime", while Standard & Poor's uses the
number 1+, 1, 2 and 3 to denote relative strength within its
highest classification of "A". Issuers rated "Prime" by Moody's
have the following characteristics: their short-term debt
obligations carry the smallest degree of investment risk, margins
of support for current indebtedness are large or stable with cash
flow and asset protection well assured, current liquidity
provides ample coverage of near-term liabilities and unused
alternative financing arrangements are generally available.
While protective elements may change over the intermediate or
longer term, such changes are most unlikely to impair the
fundamentally strong position of short-term obligations.
Commercial paper issuers rated "A" by Standard & Poor's have the
following characteristics: liquidity ratios are better than
industry average, long-term debt rating is A or better, the
issuer has access to at least two additional channels of
borrowing, and basic earnings and cash flow are in an upward
trend. Typically, the issuer is a strong company in a well-
established industry and has superior management.

B-2
00250185.AL7