ALLIANCE MUNICIPAL TRUST, 497, 1998-11-09

ALLIANCE MUNICIPAL TRUST
497, 1998-11-09

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<PAGE>

This is filed pursuant to Rule 497(c).
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>

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, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP ("AXA"), a French
insurance holding company. Certain information concerning the ownership and
control of Equitable by AXA is set forth in the Fund's Statement of Additional
Information under "Management of the Fund."

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(c).
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............................... 59

Management............................................ 65

Purchases and Redemption of Shares.................... 80

Additional Information................................ 84

Daily Dividends-Determination of Net Asset Value...... 87

Taxes................................................. 89

General Information................................... 92

Appendix A-Description of Municipal Securities........ 101

Appendix B-Description of Securities Ratings.......... 103

Financial Statements and Independent Auditors Reports. F1-F83

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.

MASSACHUSSETS 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

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
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 March 1, 1997, relating to $214,070,000
General Obligation Bonds, the Comptroller's Report on the
Financial Condition of New York State - 1997, and the State
Comptroller's 1997-98 Budget: Fiscal Review and Analysis, dated
September 10, 1997.

<PAGE>

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
cash flow needs throughout the fiscal year without relying on
short-term seasonal borrowings. The 1996-97 State Financial Plan
included no seasonal borrowing. Recently, the State has
attempted to reduce its dependence on the LGAC. The projected
1997-98 General Fund cash flow will not depend on either short-
term spring borrowing or the issuance of LGAC bonds. The new-
money bond issuance portion of the LGAC program was completed in
1995-96, and provisions prohibiting the State from returning to a
reliance upon cash-flow manipulation to balance its budget will
remain in bond covenants until the LGAC bonds are retired.

Recent Developments

The national economy has resumed a more robust rate of
growth after a "soft landing" in 1995, with over 13 million jobs
added nationally since early 1992. The State economy has
continued to expand, but growth remains somewhat slower than in
the nation. Since 1992, New York's job growth has ranked 48th in
the nation. From April 1996 to April 1997 the State gained
97,800 jobs or 1.2 percent, while the United States gained

<PAGE>

2,685,000 jobs or 2.3 percent. Most of the job growth has
occurred in service jobs while manufacturing and government
employment declined.

While total State personal income has increased 22
percent since 1993, compared to a 24 percent increase nationwide,
the State's per capita income continues to exceed the national
average. The State ranked fourth highest in per capita personal
income in 1995. In 1997, the State's per capita personal income
is projected to grow at a slightly higher rate than the national
average.

The State's moderate economic growth is projected to
continue through 1997 for employment, wages and personal income,
followed by a slight slowing in 1998. Personal income is
estimated to have grown by 5.2 percent in 1996, fueled in part by
an unusually large increase in financial sector bonus payments,
and is projected to grow 4.5 percent in 1997 and 4.2 percent in
1998. Overall employment growth will continue at a modest rate,
reflecting the moderate growth of the national economy, continued
spending restraint in government, and restructuring in the health
care, social service and banking sectors.

1997-98 Fiscal Year

The surge in Wall Street revenues New York has enjoyed
since 1995 continues to be the most significant factor in the
ability of the State to balance its budget. New York is
projected to spend $67.4 billion on an all-funds basis in 1997-
98, 7 percent more than in 1996-97. The enacted budget contained
$1.2 billion more spending than was included in the Governor's
budget proposal. However, based on over $2 billion in
reestimated revenue increases, the financial plan enacted for
1997-98 is balanced with virtually no spending cuts and includes
a planned $350 million year-end surplus. The Comptroller
predicts that, because the financial plan's revenue and spending
projections are conservative, the actual year-end surplus should
be $530 million.

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 the Division of the Budget ("DOB") of
approximately $1.4 billion. The cash surplus was derived
primarily from higher-than-expected revenues and lower-than-
expected spending for social services programs. Of the cash
surplus amount, $1.05 billion was previously budgeted by the
Governor in his Executive Budget to finance the 1997-98 Financial
Plan, and the additional $373 million is available for use in
financing the 1997-98 State Financial Plan.

<PAGE>

The General Fund closing fund balance was $433 million.
Of that amount, $317 million was in the Tax Stabilization Reserve
Fund (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 Contingency Reserve Fund
(the "CRF"). This fund assists the State in financing any
extraordinary litigation during the fiscal year. The remaining
$75 million reflects amounts on deposit in the Community 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
less than 1 percent from 1995-96 levels (excluding deposits into
the tax refund reserve account). This was $129 million lower
than originally projected in the 1996-97 State Financial Plan as
enacted in July 1996. As compared to the State's July
projections, personal income tax receipts were $730 million less
than projected. Tax receipts in all other categories were higher
than estimated in the July projections, including user taxes and
fees ($72 million), business tax receipts ($457 million) and
other taxes and fees ($133 million). Miscellaneous receipts and
transfers were a combined $63 million less than projected in the
original 1996-97 Financial Plan. The large variance in the
personal income tax projections reflects year-end actions that
had the effect of reducing personal income tax receipts and
miscellaneous receipts by about $1.7 billion. These actions
included early implementation of withholding table changes
accompanying scheduled 1997 personal income tax reductions,
accelerated payment of an estimated $217 million in personal
income tax refunds, and a $1.26 billion deposit of otherwise
excess receipts to the tax refund reserve account. Adjusted for
these actions, personal income taxes were almost $1 billion
higher than expected, largely due to higher-than-projected
withholding and estimated tax collections as a result of
stronger-than-expected economic growth, particularly in the
financial markets and the securities industries.

General Fund disbursements and transfers to other funds
totaled $32.90 billion for the 1996-97 fiscal year, an increase
of less than 1 percent from unadjusted 1995-96 levels.
Disbursements and transfers were $226 million lower than levels
projected in the July 1996-97 Financial Plan forecast. As
compared to the July projections, grants to local governments
were $250 million lower, State operations spending was $38
million lower, general State charges and debt service were $35

<PAGE>

million lower than projected, and transfers to other funds for
debt service, capital projects and other purposes were $99
million higher than originally projected. Much of the decline in
local assistance spending was the result of lower-than-projected
public assistance caseload, while the increase in transfers
relates to reestimates in lottery proceeds.

Disbursements in Governmental Funds for the 1996-97
fiscal year totaled $62.95 billion, $3 billion lower than
projected at the beginning of the fiscal year. Much of this
variance was due to the uncertainty surrounding federal action on
entitlement spending at the beginning of the fiscal year. Total
unadjusted Government Funds spending decreased $278 million or
0.4 percent below 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. DOB reported that
revenues exceeded projections by $270 million, while spending for
social service programs was lower than forecast by $120 million
and all other spending was lower by $55 million. From the
resulting benefit of $445 million, a $65 million voluntary
deposit was made into the TSRF, and $380 million was used to
reduce 1996-97 Financial Plan liabilities by accelerating 1996-97
payments, deferring 1995-96 revenues, and making a deposit to the
tax refund reserve account.

The General Fund closing fund balance was $287 million,
an increase of $129 million from 1994-95 levels. The $120
million change in fund balance is attributable to the $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 includes $237 million on deposit in the TSRF, to 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 is on deposit in the CRF. The remaining $9 million
reflects amounts on deposit in the Revenue Accumulation Fund.
This fund was created to hold certain tax receipts temporarily
before the deposit to other accounts. In addition, $678 million
was on deposit in the tax refund reserve account, of which $521
million was necessary to complete the restructuring of the
State's cash flow under the LGAC program.

General Fund receipts totaled $32.81 billion, a decrease
of 1.1 percent from 1994-95 levels. This decrease reflects the
impact of tax reductions enacted and effective in both 1994 and
1995. General Fund disbursements totaled $32.68 billion for the
1995-96 fiscal year, a decrease of 2.2 percent from 1994-95
levels. Mid-year spending reductions, taken as part of a

<PAGE>

management review undertaken in October at the direction of the
Governor, yielded savings from Medicaid utilization controls,
office space consolidation, overtime and contractual expense
reductions, and statewide productivity improvements achieved by
State agencies. Together with decreased social services
spending, this management review accounts for the bulk of the
decline in spending.

1994-95 Fiscal Year

The State ended its 1994-95 fiscal year with the General
Fund in balance. The $241 million decline in the fund balance
reflects the planned use of $264 million from the CRF, partially
offset by the required deposit of $23 million to the TSRF. In
addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited to continue the
process of restructuring the State's cash flow as part of the
LGAC program. The closing fund balance of $158 million reflects
$157 million in the TSRF and $1 million in the CRF.

General Fund receipts totaled $33.16 billion, an
increase of 2.9 percent from 1993-94 levels. General Fund
disbursements totaled $33.40 billion for the 1994-95 fiscal year,
an increase of 4.7 percent for the previous fiscal year. The
increase in disbursements was primarily the result of one-time
litigation costs for the State, funded by the use of the CRF,
offset by $188 million in spending reductions initiated in
January 1995 to avert a potential gap in the 1994-95 State
Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the
suspension of non-essential capital projects.

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.

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.

<PAGE>

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 increased $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
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 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

<PAGE>

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 $48 million (2.0 percent). Net other
financing sources decreases $22 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.

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.

<PAGE>

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. New York's economy is somewhat
more reliant than the rest of the nation on this sector; this
sector has added more jobs (825,000) than has the State's economy
as a whole (665,000) since 1980.

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.
Manufacturing's share of total employment declined from 20.1 to
12.0 percent between 1980 and 1995. 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
sector accounts for under one-tenth of all nonagricultural jobs
in the State, it contributes one-seventh 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 nations leaders in the production of these
commodities.

Federal, State and local government account for almost
18 percent of nonagricultural State employment and 16 percent of
nonfarm labor income.

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.

<PAGE>

During the 1982-83 recession, overall economic activity
in the State declined less than that of the nation as a whole.
However, in the calendar years 1984 through 1997, the State's
rate of economic growth was somewhat slower than that of the
nation. In 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 the 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, during the past ten years,
total personal income in the State rose slightly faster than the
national average only from 1986 through 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
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. As of September 30, 1996, the date of
the latest data available, there were 17 Authorities that had
outstanding debt of $100 million or more, and the aggregate
outstanding debt, including refunding bonds, of these Authorities
was $75.4 billion. At the end of fiscal year 1996-97, aggregate
Authority debt outstanding as State-supported debt was
$32.7 billion and as State-related debt was $38.4 billion.

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

<PAGE>

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 1997-98 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
("MAC") was created in 1975 to provide financing assistance to
the City. To enable MAC to pay debt service on its obligations,
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 MAC also
includes a moral obligation provision. Under its enabling
legislation, MAC's authority to issue moral obligation bonds and
notes (other than refunding bonds and notes) expired on
December 31, 1984.

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 contracts to pay debt service, subject to
annual appropriations, on bonds issued by the New York State
Medical Care Facilities Finance Agency and now issued by 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 1997-98 fiscal year.

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, 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

<PAGE>

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 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
finance the mass transit portion of these operations, the MTA has
depended and will continue to depend for operating support upon a
system of State, local government and TBTA support and, to the
extent available, Federal operating assistance, including loans,
grants and operating 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 to fund
operating or capital assistance to the MTA. For the 1997-1998
fiscal year, total State assistance to the MTA is estimated at
approximately $1.2 billion, an increase of $76 million over the
1996-97 fiscal year.

State legislation accompanying the 1996-97 adopted State
budget authorized the MTA, TBTA and TA to issue an aggregate of

<PAGE>

$6.5 billion in bonds to finance a portion of a new $11.98
billion MTA capital plan for the 1995 through 1999 calendar years
(the "1995-99 Capital Program"), and authorized the MTA to submit
the 1995-99 Capital Program to the Capital Program Review Board
for approval. This plan will supersede the overlapping portion
of the MTA's 1992-96 Capital Program. This 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 following 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 $5.1 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 the 1995-99 Capital Program or 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 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. The City
depends on State aid both to enable the City to balance its

<PAGE>

budget and to meet its cash requirements. 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 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.
Although the Control Board terminated the Control Period in 1986
when certain statutory conditions were met, thus suspending
certain Control Board powers, the Control Board, upon the
occurrence or "substantial likelihood and imminence" of the
occurrence of certain events, including, but not limited to, a
City operating budget deficit of more than $100 million, the
Control Board is required by law to reimpose a Control Period.
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 includes 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.

Implementation of the Financial Plan is also dependent
upon the ability of the City and certain entities issuing debt
for the benefit of the City to 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 order to help the City to
avoid exceeding its State Constitutional general debt limit, the
State created the New York City Transitional Finance Authority to
finance a portion of the City's capital program. 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 Transitional Finance Authority to be

<PAGE>

unconstitutional. If such legislation were voided, projected
contracts for City capital projects would exceed the City's debt
limit during fiscal year 1997-98. 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
which analyze the City's forecasts of revenues and expenditures,
cash flow, and debt service requirements for, and Financial Plan
compliance by, the City and its Covered Organizations. According
to recent staff reports, the City's economy has experienced weak
employment and moderate wage and income growth throughout the
mid-1990s. Although this trend is expected to continue for the
rest of the decade, there is the risk of a slowdown in the City's
economy in the next few years, which would depress revenue growth
and put further strains on the City's budget. These reports have
also indicated that recent City budgets have been balanced in
part through the use of non-recurring resources; that the City's
Financial Plan tends to rely on actions outside its direct
control; that the City has not yet brought its expenditure growth
in line with recurring revenue growth; and that the City is
therefore likely to continue to face substantial future budget
gaps 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. The City issued $880 million
notes for seasonal financing purposes in fiscal year 1997. The
City's capital financing program projects long-term financing
requirements of approximately $17 billion for the City's fiscal
years 1995 through 1998. The major capital requirements include
expenditures for the City's water supply and sewage disposal
systems, roads, bridges, mass transit, schools, hospitals and
housing.

In connection with the Financial Plan, the City has
outlined a gap-closing program for the 1998 through 2000 fiscal
years to substantially reduce the remaining $1.7 billion and $3.4
billion projected budget gaps for such fiscal years. This
program, which is not specified in detail, assumes additional
agency programs to reduce expenditures or increase revenues by
$674 million, $959 million and $1.1 billion in the 1998 through

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2000 fiscal years, respectively; additional reductions in
entitlement costs of $400 million, $750 million and $1.0 billion
in the 1998 through 2000 fiscal years, respectively; additional
savings of $250 million, $300 million and $500 million in the
1998 through 2000 fiscal years, respectively, resulting from
restructuring City government by consolidating operations,
privatization and mandate management and other initiatives;
additional proposed Federal and State aid of $105 million, $200
million and $300 million in the 1998 through 2000 fiscal years,
respectively; additional revenue initiatives and asset sales of
$155 million, $350 million and $400 million in the 1998 through
2000 fiscal years, respectively; and the availability in each of
the 1998 through 2000 fiscal years of $100 million of the General
Reserve.

In 1997, record performance on Wall Street enabled the
City to recognize nearly $1.3 billion in surplus revenues. The
surplus will be used to meet half of the City's gap closing
needs. The City has also created a stabilization fund, which
includes $300 million to be used towards fiscal year 1999 and
$200 million in the General Reserve. However, the 1998 New York
City Financial Plan projects a 7.4 percent spending increase
while revenues are projected to decrease.

Other Localities

Certain localities outside the City have experienced
financial problems and have requested additional State assistance
during the last several State fiscal years. The potential impact
on the State of any future requests by localities is not included
in the projections of the State's receipts and disbursements for
the State's 1997-98 fiscal year.

Fiscal difficulties experienced by the City of Yonkers
resulted in the re-establishment of the Financial Control Board
for the City of Yonkers by the State in 1984. That Board is
charged with oversight of the fiscal affairs of Yonkers. Future
actions taken by the State to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be
determined.

Beginning in 1990, the City of Troy experienced a series
of budgetary deficits that resulted in the establishment of a
Supervisory Board for the City of Troy in 1994. The Supervisory
Board's powers were increased in 1995, when Troy MAC was created
to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from
seeking federal bankruptcy protection while Troy MAC bonds are
outstanding.

<PAGE>

Eighteen municipalities received extraordinary
assistance during the 1996 legislative session through $50
million in special appropriations targeted for distressed cities,
aid that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million
in targeted unrestricted aid allocated in the 1997-98 budget. An
additional $21 million will be dispersed among all cities, towns
and villages, a 3.97 percent increased in General Purpose State
Aid.

Certain Municipal Indebtedness

Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1995, the
total indebtedness of all localities in the State other than the
City was approximately $19.0 billion. A small portion
(approximately $102.3 million) of that indebtedness represented
borrowing to finance budgetary deficits and was issued pursuant
to State enabling legislation. State law requires the
Comptroller to review and make recommendations concerning the
budgets of those local government units other than the City
authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at
the close of their fiscal year ending in 1995.

From time to time, Federal expenditure reductions could
reduce, or in some cases eliminate, Federal funding of some local
programs and accordingly might impose substantial increased
expenditure requirements on affected localities. If the State,
the City or any of the public authorities were to suffer serious
financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds
issued by localities within the State could be adversely
affected. Localities also face anticipated and potential
problems resulting from certain pending litigation, judicial
decisions and long-range economic trends. Long-range potential
problems of declining urban population, increasing expenditures
and other economic trends could adversely affect localities and
require increasing State assistance in the future.

Litigation

The State is a defendant in legal proceedings involving
State finances, State programs and miscellaneous tort, real
property and contract claim where the monetary damages sought are
substantial. These proceedings could affect adversely the
financial condition of the State in the 1997-98 fiscal year or
thereafter.

<PAGE>

Adverse developments in these proceedings or the
initiation of new proceedings could affect the ability of the
State to maintain a balanced 1997-98 State Financial Plan. The
State believes that the 1997-98 State Financial Plan includes
sufficient reserves for the payment of judgments that may be
required during the 1997-98 fiscal year. There can be no
assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount of the 1997-98 State
Financial Plan. In its General Purpose Financial Statements, the
State reports its estimated liability in subsequent fiscal years
for awarded anticipated unfavorable judgments.

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 March 1, 1997, relating to $525,000,000
State of California Various Purpose General Obligation Bonds.

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").

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

<PAGE>

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
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

<PAGE>

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 34 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
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.

<PAGE>

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 1996-97 Fiscal
Year, which matured on June 30, 1997.

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 March
1, 1997 the Finance Committees had authorized the issuance of
approximately $3,356,094,000 of commercial paper notes, but as of
that date only $367,776,534 aggregate principal amount of general
obligation commercial paper notes was actually issued and
outstanding.

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.

1997-98 Fiscal Year Proposed Budget

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 in 1997-98 of $50.7 billion, a 4.6 percent increase
from revised 1996-97 figures. The Governor proposes expenditures
of $50.3 billion, a 3.9 percent increase from 1996-97. The
Governor's Budget projects a balance in the Special Fund for
Economic Uncertainties (the "SFEU") of $553 million on June 30,
1998. The Governor's Budget also anticipates about $3 billion of
external borrowing for cash flow purposes during the year, with
no requirement for cross-fiscal year borrowing.

Among the major initiatives and features of the
Governor's Budget are the following:

1. A proposed 10 percent cut in the Bank and
Corporation Tax rate, to be phased in over two years.

<PAGE>

2. Proposition 98 funding for K-14 schools will be
increased again, as a result of stronger revenues. Per-pupil
funding for K-12 schools will reach $5,010, compared to $4,220 as
recently as the 1993-94 Fiscal Year. Part of the new funding is
proposed to be dedicated to the completion of the current program
to reduce class size to 20 pupils in lower elementary grades, and
to expand the program by one grade, so that it will cover K-3rd
grade.

3. Funding for higher education will be increased
consistent with a four-year "compact" established in 1995-96.
There is not projected to be any increase in student fees at any
of the three levels of the State higher education system.

4. The 1997-98 proposed Governor's Budget assumes
approximately $500 million in savings contingent upon federal
action. The Budget assumes that federal law will be enacted to
remove the maintenance-of-effort requirement for Supplemental
Security Income (SSI) payments, thereby enabling the State to
reduce grant levels pursuant to previously enacted state law
($279 million). The Governor's Budget also assumes the federal
government will fund $216 million in costs of health care for
illegal immigrants.

1996-97 Fiscal Year

The 1996-97 Budget Act was signed by the Governor on
July 15, 1996, along with various implementing bills. The
Governor vetoed about $82 million of appropriations (both General
Fund and Special Fund). With signing of the Budget Act, the
State implemented its regular cash flow borrowing program with
the issuance of $3.0 billion of Revenue Anticipation Notes to
mature on June 30, 1997. The Budget Act appropriated a modest
budget reserve in the SFEU of $305 million, as of June 30, 1997.
The Department of Finance projected that, on June 30, 1997, the
State's available internal borrowable (cash) resources would be
$2.9 billion, after payment of all obligations due by that date,
so that no cross-fiscal year borrowing would be needed.

Revenues The Legislature rejected the Governor's
proposed 15 percent cut in personal income taxes (to be phased
over three years), but did approve a 5 percent cut in bank and
corporation taxes, to be effective for income years starting on
January 1, 1997. As a result, revenues for the Fiscal Year were
estimated to total $47.643 billion, a 3.3 percent increase over
the final estimated 1995-96 revenues. Special Fund revenues were
estimated to be $13.3 billion.

Expenditures The Budget Act contained General Fund
appropriations totaling $47.251 billion, a 4.0 percent increase

<PAGE>

over the final estimated 1995-96 expenditures. Special Fund
expenditures were budgeted at $12.6 billion.

Subsequent Developments Following enactment of the
1996-97 Budget Act, Congress passed and, on August 22, 1996,
President Clinton signed into law The Personal Responsibility and
Work Opportunity Act of 1996, which made significant reforms to
the current welfare system. The law provides California
approximately $3.7 billion in block grant funds for Fiscal Year
1996-97. The law required states to implement new plans not
later than July 1, 1997 and provided a prorated block grant
effective the date of application. The California State Plan was
approved November 27, 1996 to allow grant reductions to be
implemented effective January 1, 1997 and to allow the State to
capture approximately $267 million in additional federal block
grant funds over the currently budgeted level. The 1996-97
Budget Act assumed savings of approximately $660 million in
health and welfare costs as a result of anticipated changes in
federal law. None of the other federal changes needed to achieve
the balance of the $660 million cost savings were enacted. Thus,
in lieu of the $660 million savings initially assumed to be
saved, it is now projected that savings will total approximately
$320 million.

With the continued strong economic recovery in the
State, the Department of Finance has estimated, in connection
with the release of the Governor's 1997-98 Budget Proposal, that
revenues for the 1996-97 Fiscal Year will exceed initial
projections by about $760 million. This increase will be offset
by higher expenditures for K-14 school aid (pursuant to
Proposition 98) and for health and welfare costs, because federal
law changes and other federal actions did not provide as much
assistance to the State as was initially planned in the Budget
Act. The Department's updated projections show a balance in the
SFEU of $197 million, slightly lower than projected in July,
1996. The Department also projects the State's cash position
will be stronger than originally estimated, with unused internal
borrowable resources at June 30, 1997 of about $4.3 billion.

1995-96 Fiscal Year

Final data for the 1995-96 Fiscal Year showed revenues
and transfers of $46.1 billion, $2 billion over the original
fiscal year estimate, which was attributed to the strong economic
recovery. Expenditures also increased, to an estimated $45.4
billion, as a result of the requirement to expend revenues for
schools under Proposition 98, and, among other things, failure of
the federal government to enact welfare reform during the fiscal
year and to budget new aid for illegal immigrant costs, both of
which had been counted on to allow reductions in State costs.
The SFEU had a negative balance of about $87 million at June 30,

<PAGE>

1996, all but eliminating the accumulated budget deficit from the
early 1990's. Available internal borrowable resources (available
cash, after payment of all obligations due) on June 30, 1996 was
about $3.8 billion, representing a significant improvement in the
State's cash position, and ending the need for deficit borrowing
over the end of the fiscal year. The State's improved cash
position allowed it to repay the $4.0 billion Revenue
Anticipation Warrant issue on April 25, 1996, and to issue only
$2.0 billion of revenue anticipation notes during the fiscal
year, which matured on June 28, 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.

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.

The Department of Finance, as set forth in the 1997-98
Governor's Budget estimates that personal income will grow by 6.6
percent in 1997. The Department also estimates nonfarm and
salary employment to increase by 2.6 percent in 1997, while
housing permits are expected to rise 2.7 percent in 1997.

The State's Employment Development Department reports
that the State's unemployment rate dropped from 9.4 percent in
1993 to 8.6 percent in 1994, 7.8 percent in 1995 and 7.3 percent
in 1996. This rate is still running above the national
unemployment rate, which averaged 5.4 percent in 1996.

<PAGE>

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

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 March 1, 1997:

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 $200 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 State's potential liability to
all plaintiffs ranges from $1.3 billion to $1.5 billion.

In California State Employees Association v. Wilson and
Professional Engineers in California Government v. Wilson, the

<PAGE>

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.

On February 19, 1997, the State Court of Appeals
affirmed a judgment requiring the State to transfer approximately
$900 million to the Public Employees' Retirement System (PERS)
representing deferred payments of the State's employer
contribution to PERS. The State intends to seek review of the
decision by the State Supreme Court.

CONNECTICUT PORTFOLIO

The following is based on information obtained from an
Official Statement, dated January 8, 1997, relating to
$260,000,000 State of Connecticut General Obligation Bonds (1997
Series C), the Report of the State Comptroller for the Fiscal
Year Ended June 30, 1997, the Comptroller's Monthly Letter to the
Governor dated October 1, 1997 and the Comptroller's Report:
Connecticut's Economic Health - 1997.

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

<PAGE>

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 For Fiscal Year 1997-98 the adopted
budget anticipates General Fund revenues of $9,342.4 million and
expenditures of $9,342.25 million for a total budget surplus of
$0.15 million. Per Section 3-115 of the Connecticut General
Statutes, the State's fiscal position is reported monthly by the
Comptroller. This report compares revenues already received and
expenditures already made to estimated revenues to be collected
and estimated expenditures to be made during the balance of the
year.

The Comptroller's October 1, 1997 letter indicated that
General Fund expenditures for the current fiscal year are
estimated to be $75.1 million higher than budgeted. However,
total General Fund revenues are projected to end the year $100.4
million higher than budgeted. Therefore, the Comptroller has
projected a Fiscal Year 1997-98 General Fund surplus of $25.3
million. No assurances can be given that subsequent projections
will not indicate changes in the anticipated General Fund result.

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

<PAGE>

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 60
percent of its recessionary employment loss. 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 growth performance since the end
of the recession. The State's unemployment rate fell to 4.6
percent (adjusted for seasonal trends) in October of 1996;
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.

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.

<PAGE>

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 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.

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 April 15, 1996, relating to
$526,800,000 State of New Jersey General Obligation Bonds,
Refunding Bonds (Series E) and $270,000,000 State of New Jersey
General Obligation Bonds (various purpose).

Economic Climate

New Jersey is the ninth largest state in population and
the fifth smallest in land area. With an average of 1,062
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 1994 the growth rate
accelerated to .52 percent. While this rate of growth compared
favorably with other Middle Atlantic States, it was less than the
national rate of increase.

The State's economic base is diversified, consisting of
a variety of manufacturing, construction and service industries,
supplemented by 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 $237.1
billion for 1995 and $248.0 billion for 1996. Personal income
increased 4.6 percent between 1995 and 1996 but was below the
national rate of 5.3 percent. New Jersey's personal income
growth is projected to improve to 5.9 percent through 1997 and
5.6 percent in 1998. 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.

<PAGE>

In 1996, the State ranked second among all states in per capita
personal income ($31,053).

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, there had already been a decline in
construction activity and the growth 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 3.6 percent during the first quarter of 1989 to
a recessionary peak of 9.3 percent in 1992. Since that time,
unemployment has decreased significantly. The jobless rate
averaged 6.4 percent during 1995, 6.2 percent in 1996 and 5.4
percent during the first nine months of 1997. The net number of
new jobs created between January 1994 and October 1997 was
208,100. By September 1997, the State had surpassed by 11,400
jobs the previous record-high employment level of 3,706,400 set
in March of 1989 just prior to the onset of the recession.

Conditions have improved in the construction industry,
where 1997 employment has risen by more than 2,800 over the
previous year and is at its highest level since February 1991.
When it began during the late spring of 1992, this sector's
hiring rebound was driven primarily by increased homebuilding and
public works projects. Nonresidential construction activity has
increased in the last four years. Contract awards in this sector
posted a 9.7 percent gain in 1993 and 9.8 percent in 1994. More
recently, nonresidential building construction contracts
increased by 9.0 percent in the first three quarters of 1995
compared with the same period in 1994. Residential construction
contracts through September 1995, despite monthly fluctuations,
stayed almost even with 1994 ($1,671 million in the first three
quarters of 1995 versus $1,677 million in the same period of
1994). Despite a 7.2 percent decline in nonbuilding or
infrastructure construction, largely due to a slowing in public
construction projects, total construction contracts rose by 1.6
percent when comparing the first nine months of 1994 and 1995.
Vehicle registrations issued during 1993 were up 18 percent from
1992 and rose 5.5 percent from 1993 to 1994. Registrations were
down in 1995, but rose nearly 8.6 percent through 1996 and 1997.

<PAGE>

Another indicator of economic improvement is increased
consumer spending as evidenced by rising retail sales. While
overall retail sales in New Jersey grew by only 1.5 percent
during 1993, they performed much better in 1994 and continued to
increase, despite some fall off in the winter of 1995. Sales
advanced briskly with retail receipts up 8.1 percent during 1994
compared with 1993, which was somewhat higher than the 7.8
percent growth registered nationwide. Consumer spending was
sluggish during the winter months of 1995 both nationally and in
the State. Statewide sales of retail stores regained momentum in
May 1995 and were on a moderately upward trend through August
1995, resulting in sales growth of 3.1 percent when comparing the
first eight months of 1994 with those of 1995. Retail sales have
continued to rise: 3.9 percent in 1996 and a projected 5.7
percent in 1997 and 4.8 percent in 1998. The rising trend in
retail sales has translated into steady increases in retail trade
jobs (both full- and part-time) and, in September and October
1995, retail employment rose by a total of 5,600 jobs.

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 in the General Fund, in which the
largest part of the financial operations of the state is
accounted for, were projected to be $607.0 million and $569.2
million for fiscal year 1996. Such balance was $1.4 million for
the 1992 fiscal year, $760.8 million for the 1993 fiscal year,
$937.4 million for the 1994 fiscal year, and $926.0 million for
the 1995 fiscal year.

There are 567 municipalities and 21 counties in New
Jersey. During 1993, 1994 and 1995 no county exceeded its
statutory debt limitations or incurred a cash deficit in excess

<PAGE>

of 4 percent of its tax levy. The number of municipalities which
exceeded statutory debt limits was six as of December 31, 1994.
Two municipalities incurred a cash deficit greater than 4 percent
of its tax levy for 1994 and 1995. No New Jersey municipality or
county has defaulted on the payment of interest or principal on
any outstanding debt obligation since the 1930's.

The Local Authorities Fiscal Control Law provides for
State supervision of the fiscal operations and debt issuance
practices of local financing authorities. The Local Authorities
Fiscal Control law applies to all autonomous public bodies
created by counties or municipalities empowered to issue bonds,
impose facility or service charges, or levy taxes in their
districts. This encompasses most autonomous local authorities
(sewage, municipal utilities, parking, pollution control,
improvement, etc.) and special taxing districts (fire, water,
etc.).

As of June 30, 1994, there were 196 locally created
authorities with a total outstanding capital debt of
approximately $7.0 billion (figures do not include housing
authorities and redevelopment agencies). This amount reflects
outstanding bonds, notes, and loans payable by the authorities as
of their respective fiscal years ended nearest to June 30, 1994.

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. Among them are
suits challenging (a) amendments to the pension laws enacted on
June 30, 1994; (b) the method of calculating/collecting the
hospital assessment authorized by the Health Care Reform Act of
1992; (c) the constitutionality of annual A-901 hazard and solid
waste licensure renewals fees collected by the Department of
Environmental Protection and Energy; (d) the state's failure to
provide funding to hospitals required by state law to treat all
patients, regardless of ability to pay; and (e) 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.

VIRGINIA PORTFOLIO

The following is based on information obtained from an
Official Statement, dated June 1, 1997, relating to $152,075,000
Commonwealth of Virginia General Obligation Bonds, Series 1997.

<PAGE>

Economic Climate

The Commonwealth of Virginia is the twelfth most
populous state in the nation, with approximately 6,677,200
residents. In 1995, its population density was 168 persons per
square mile, compared with 72 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
1996 population of 1,970,900. 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. Per capita income
for the Northern Virginia portion of the Washington, D.C.
metropolitan area in 1994 was $28,762.

According to the U.S. Department of Commerce, Virginians
received over $166 billion in personal income in 1996,
representing an increase of 83.4 percent over 1986 and greater
than the national gain of 68.9 percent for the same period. In
1996, Virginia had per capita income of $24,925, the highest of
the Southeast region and greater than the national average of
$24,231. Virginia's per capita income rose from 94 percent to
103 percent of the national average from 1970 to 1996. From 1986
to 1995, Virginia's 5 percent average rate of growth in personal
per capita income was approximately equal to the national rate of
growth. Much of Virginia's per capita income gain in the last
decade 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.

More than 3.5 million residents of the Commonwealth are
in the civilian labor force. Services, the largest employment

<PAGE>

sector, accounts for 28.4 percent of nonagricultural employment,
and has increased 19.1 percent from 1991-1995. Manufacturing is
also a significant employment sector, accounting for 13.1 percent
of nonagricultural employment in 1995. 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 2.4
percent from 1991 to 1995.

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. During the first six
months of 1997, Virginia's unemployment rate averaged 4.25
percent and in August 1997 was down to 4.1 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, 1996, $84.9
million was on deposit in the Revenue Stabilization Fund. In
addition, $151.6 million of the General Fund balance on June 30,
1996 was reserved for deposit in the Revenue Stabilization Fund.

<PAGE>

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 April 7, 1996, the 1996-98 Appropriation Act became
effective. That Act appropriated $35.078 billion for the 1996-98
biennium -- approximately $1.411 billion in spending increases
above the level necessary to continue FY 1996 workloads and
costs. Of these increases, $107.2 million resulted from the
deposits to the Revenue Stabilization Fund ($66.6 million for
deposit on June 30, 1997 and an estimated $40.6 million scheduled
for deposit on June 30, 1998). The remainder provided the state
share of Standards of Quality for public schools, proposed
increases in higher education, increased spending for adult and
juvenile corrections, expansion of economic development, and
mandated increases in several entitlement programs in health and
human resources, primarily for Medicaid. The Act also included
more than $200 million in settlement payments to federal retirees
(see "Litigation" below). The Act projected over $35.258 billion
in revenues, providing for an unappropriated balance surplus on
June 30, 1998.

On April 30, 1997, the Governor signed the 1997
Appropriation Act amending the 1996-98 budget. The 1997 Act
included general fund spending amendments totaling about $226.1
million above the 1996-98 Appropriation Act. Of this total,
$187.7 million supported operating expenses and $17.7 million was
required for deposit into the Revenue Stabilization Fund. An
additional $9.1 million was left unappropriated, bringing the
total general fund unappropriated balance to $20.7 million on
June 30, 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

<PAGE>

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 to federal
retirees in settlement of their claims for overpaid taxes.
Approximately 91 percent of the retirees accepted the settlement
which provided for annual payments over a five-year period,
commencing March 31, 1995.

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
million) and the judgment ($78.7 million) is approximately $394.9
million, of which $203.2 million ($124.5 in respect of the
settlement and the entire $78.7 million in respect of the
judgment) has been paid, leaving $191.7 million payable in
respect of the settlement--approximately $63.2 million in fiscal
year 1997, $62.5 million on March 31, 1998, and (subject to
appropriation) $66 million on March 31, 1999.

FLORIDA PORTFOLIO

The following is based on information obtained from an
Official Statement, dated July 1, 1997, relating to $200,000,000
State of Florida Full Faith and Credit Department of
Transportation Right-of-Way Acquisition and Bridge Construction
Bonds, Series 1997A.

Economic Climate

As of April 1, 1996 Florida was the fourth most populous
state in the nation with an estimated population of 14.4 million.
The State's average annual population growth since 1987 has been

<PAGE>

approximately 2.2 percent while the nation's average annual
growth rate for the same period was approximately 1.0 percent.
During this same period, Florida maintained an average growth of
approximately 224,000 new residents per year.

From 1985 through 1995 Florida's per capita income rose
an average of 5.0 percent per year, while the national per capita
income increased an average of 4.9 percent. The structure of
Florida's income differs from that of the nation. Because
Florida has a proportionally greater retiree population, property
income (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.
From 1985 through 1995, Florida's total personal income increased
by 103 percent and per capita income expanded by approximately
62.5 percent. For the U.S., total and per capita personal income
increased by approximately 77.8 percent and 61.0 percent,
respectively. The Southeast as a whole increased its personal
income by 90.2 percent and its per capita income by approximately
68.2 percent.

Since 1987, Florida's total employment increased by
approximately 27.5 percent. Since 1987 non-agricultural job
creation has increased by over 35.6 percent compared to the
national average which increased by 20.2 percent over the same
period. Contributing to Florida's rapid rate of growth in
employment and income is international trade. Structural changes
to Florida's economy have also contributed heavily to the State's
strong performance. The State is now less dependent on
employment from construction and construction-related
manufacturing and resource based manufacturing, which have
declined as a proportion of total state employment.

Florida's service industries sector accounts for nearly
87 percent of total non-farm employment in Florida. While
structurally the southeast and the nation are endowed with a
greater proportion of manufacturing jobs, which tend to pay
higher wages than some types of service jobs, service employment,
historically, tends to be less sensitive to the business cycle.
Moreover, manufacturing jobs nationwide and in the southeast are
concentrated in areas such as heavy equipment, primary metals,
chemicals, and textile mill products. Florida's manufacturing
section has a concentration in high-tech and high value-added
sectors, such as electrical and electronic equipment, as well as
printing and publishing. These types of jobs tend to be less

<PAGE>

cyclical than other forms of manufacturing. Since the beginning
of the nineties Florida's manufacturing sector has kept pace with
the nation at about 2.6 percent of total U.S. manufacturing.
Tourism is also one of Florida's most important industries.
Approximately 42.9 million people visited the State in 1995.

Florida's dependency on the highly cyclical construction
and construction-related manufacturing sectors has declined. For
example, total contract construction employment as a share of
total non-farm employment reached a peak of over 10 percent in
1973. In 1980, the share was roughly 7.5 percent percent, and in
1996, the share had edged downward to nearly 5 percent. This
trend is expected to continue as Florida's economy continues to
diversify. Florida, nevertheless, has a dynamic construction
industry, with single and multi-family housing starts accounting
for approximately 8.1 percent of total U.S. housing starts in
1996, while the State's population is 5.5 percent of the nation's
population. Total housing starts were 118,400 in 1996.

Florida's unemployment rate through much of the 1980's
tracked above the national average. From 1988 to 1994, however,
the unemployment rate tracked above the national average. Since
1994, the average rate of unemployment for Florida has been 5.4
percent, while the national average has been 5.5 percent.
Florida's unemployment rate is projected to continue slightly
below the national average through 1998.

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

<PAGE>

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
unencumbered reserves at the end of 1996-97 are estimated at
$1,080.0 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. With combined
General Revenue, Working Capital Fund, and Budget Stabilization
Fund appropriations at $16,716.5 million, unencumbered reserves
at the end of 1997-98 are estimated at $837.4 million.

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 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

<PAGE>

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 August 6, 1997, relating to $271,280,000 General Obligation
Refunding Bonds, 1997 Series B and the Governor's Budget
Recommendation for Fiscal Year 1998.

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 1995, the population of
Massachusetts was approximately 6,074,000.

Per capita personal income for Massachusetts residents,
unadjusted for differentials in the cost of living, was $26,994
in 1995, as compared to the national average of $22,788. 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. During 1996, personal income in Massachusetts
grew 5.0 percent.

The Massachusetts service sector, which constituted 35.2
percent of the total non-agricultural work force in August 1996,
is the largest sector in the Massachusetts economy. Government
employment represents 12.2 percent of the Massachusetts work
force. While total employment in construction, manufacturing,
trade, government, services, and finance, insurance and real
estate declined between 1988 and 1992, total employment in all
those sectors, excluding manufacturing, has increased since 1993.

Between 1982 and 1988, the economies of Massachusetts
and New England were among the strongest performers in the
nation. Since 1989, however, both Massachusetts and New England
have experienced growth rates significantly below the national
average. An economic recession in 1990 and 1991 caused negative
growth rates in Massachusetts and New England. 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. Between 1988 and 1992, total employment in

<PAGE>

Massachusetts declined 10.7 percent. In 1993, 1994, 1995 and
1996, however, total employment increased by 1.6 percent and 2.2
percent and 2.4 percent and 2.3 percent, respectively.
Massachusetts' unemployment rate averaged 8.6 percent in 1992,
6.9 percent in 1993, 6.0 percent in 1994, 5.4 percent in 1995 and
4.3 percent in 1996. During the first nine months of 1997, the
unemployment rate averaged 4.0 percent, nearly a full percentage
point lower than the national average.

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 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 and Fiscal
Year 1996 were $1.140 billion, $1.149 billion and $1.231 billion
and $1.183 billion, respectively, and are projected to be $1.284
billion for Fiscal Year 1997. 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. In 1998, when the Commonwealth
retires its last Fiscal Recovery Bond, 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 $15 million
in Fiscal Year 1998, as Central Artery/Tunnel Project cash flow
requirements begin to outpace the inflow of federal revenues.
The Commonwealth will fund this interim cash shortfall with Grant
Anticipation Notes to be paid back as federal reimbursements are
received.

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

<PAGE>

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,
according to preliminary results, is equivalent to the amount of
actual tax receipts for Fiscal Year 1997. On July 30, 1997, the
Executive Office revised the Fiscal Year 1998 tax forecast to
$13.06 billion and filed legislation that would reduce the tax
rate on certain income. The Executive Office estimates the cost
of this tax cut at $196 million in 1998, $587 million in 1999,
$985 million in 2000 and $1.229 billion in 2001, 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 3.3 percent increase over Fiscal Year 1997
expenditures. Governor Weld vetoed or reduced appropriations
totaling $3.3 million.

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

<PAGE>

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 1997, approximately 19.9 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
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 1997 did not meet the levels set forth in the
initiative law.

During Fiscal Years 1993, 1994, 1995 and 1996, Medicaid
expenditures of the Commonwealth were $3.151 billion, $3.313
billion, $3.898 billion and $3.416 billion, respectively. The
average annual growth rate from Fiscal Year 1992 to Fiscal Year
1996 was 3.9 percent, compared to an average annual growth rate

<PAGE>

of approximately 17 percent between Fiscal Year 1987 and Fiscal
Year 1991. The Executive Office for administration and finance
estimates that Fiscal Year 1997 Medicaid expenditures will be
approximately $3.394 billion. Factoring out one-time payments in
Fiscal Year 1996 to settle bills from hospitals and nursing homes
dating back to the 1980's, and adjusting for a change in the
account structure of the Medicaid program, Medicaid expenditures
are projected to remain flat from Fiscal Year 1996 to Fiscal Year
1997. The decrease in the rate of growth is due to a number of
savings and cost control initiatives that the Division of Medical
Assistance continues to implement and refine, including managed
care, utilization review and the identification of third party
liabilities.

_________________________________________________________________

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* (367 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,
____________________

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

<PAGE>

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 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, and 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;**
____________________

** 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>

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
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

____________________

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

<PAGE>

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
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;

<PAGE>

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;

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
Potfolio'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;

<PAGE>

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;

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. WILLIAM**** , 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.

____________________

**** 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.

<PAGE>

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
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.

<PAGE>

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.

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.

<PAGE>

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

VINCENT S. NOTO - Controller, 33, is an Assistant Vice
President of AFS with 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
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 Investment
of Funds in Portfolios
the Alliance Within the
Fund Complex, Funds,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Trustee is a Trustee is a
Name of Trustee from Including Director or Director or
of the Fund the Fund the 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 $177,504 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 in 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.

Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership

<PAGE>

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
paid monthly. The Adviser will reimburse a Portfolio to the
extent that its net expenses (excluding taxes, brokerage,

<PAGE>

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.

For the fiscal year ended June 30, 1996, the Adviser
received from the New Jersey Portfolio an advisory fee of

<PAGE>

$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 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

<PAGE>

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
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,

<PAGE>

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

<PAGE>

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 AFD (the "Distributo"r)
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,
printing and distribution of prospectuses and other promotional
materials sent to existing and prospective shareholders and by
directly or indirectly purchasing radio, television, newspaper

<PAGE>

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.

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

<PAGE>

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 ended 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
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

<PAGE>

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.

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

<PAGE>

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

B. When Funds are Sent by Check

1) Fill out an Application Form.

<PAGE>

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.

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

<PAGE>

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
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.

<PAGE>

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
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

<PAGE>

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
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

<PAGE>

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
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

<PAGE>

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,
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.

<PAGE>

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

_________________________________________________________________

TAXES

<PAGE>

_________________________________________________________________

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
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

<PAGE>

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
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.

<PAGE>

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 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 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.

_________________________________________________________________

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

<PAGE>

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
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

<PAGE>

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

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

<PAGE>

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

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

<PAGE>

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 Customers
26 Broadway 12th Floor
New York, NY 10004-1801

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

<PAGE>

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
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

<PAGE>

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
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

<PAGE>

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.

<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.

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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.

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_________________________________________________________________

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

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safety characteristics will be given a plus (+) designation.
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.

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