The research project deals with a form of source coding which appears to be near optimum, in a rate-distortion sense. The technique also appears to be computationally efficient and feasible to implement. The technique is closely related to Trellis Coded modulation, which has proven to be a very successful method for high bit-rate data transmission in bandwidth-limited channels. The principal investigators have already demonstrated superior performance of the trellis coded sources. This method of data compression is likely to have impact upon the theory and practice of source coding in general, and upon speech and image coding in particular.