FIDELITY SCHOOL STREET TRUST/, N-30D, 1995-02-10

FIDELITY SCHOOL STREET TRUST/
N-30D, 1995-02-10

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(2_FIDELITY_LOGOS)

SPARTAN(registered trademark)
BOND STRATEGIST(trademark)
ANNUAL REPORT
DECEMBER 31, 1994
CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on bond market
strategies.

PERFORMANCE 4 How the fund has done over time.

FUND TALK 7 The manager's review of fund
performance, strategy and outlook.

INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.

INVESTMENTS 11 A complete list of the fund's
investments with their market
values.

FINANCIAL STATEMENTS 15 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.

NOTES 19 Notes to the financial statements.

REPORT OF INDEPENDENT 23 The auditors' opinion.
ACCOUNTANTS

THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMA-
TION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED FOR
DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY,
ANY DEPOSITORY INSTITUTION. SHARES ARE NOT INSURED BY THE FDIC, THE FEDERAL
RESERVE
BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO IN-
VESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND
NOR FIDELITY
DISTRIBUTORS CORPORATION IS A BANK. FOR MORE INFORMATION ON ANY FIDELITY
FUND, INCLUDING
CHARGES AND EXPENSES, CALL 1-800-544-8888 FOR A FREE PROSPECTUS. READ IT
CAREFULLY BEFORE
YOU INVEST OR SEND MONEY.
PRESIDENT'S MESSAGE

DEAR SHAREHOLDER:
The unsettling period that began for bond investors when the Federal
Reserve Board raised short-term interest rates in February continued into
the fourth quarter of 1994. The Board raised the federal funds rate - the
rate banks charge each other for overnight loans - five times from February
through August, taking it from 3.00% to 4.75%. A sixth increase in November
lifted the rate to 5.50%. The Fed rate hikes were intended to forestall
inflation that could result from an improving U.S. economy, and they led to
negative returns for many bond investments and below-average returns for
many stocks.
The volatility we have witnessed this year follows a period in which there
was a nearly perfect investing environment. Although there was a
late-summer rally in stocks and, to a lesser extent in bond markets, it is
impossible to predict where interest rates might go or what might happen in
the markets in the months ahead. That's why it probably is a good time to
again review your investment portfolio and how well it matches your goals.
Keeping in mind that the negative effects of rising rates on your bond
investments will only be "paper" losses unless you sell your shares,
staying in your bond fund may be appropriate. The longer your investing
time frame, the more likely it is that you will retain your principal
investment through both up and down markets. For example, a 10-year time
frame, such as saving for a college education, enables you to weather these
ups and downs in a long-term fund, which has higher potential returns. An
intermediate-length fund could be appropriate if your investment horizon is
two to four years, and a short-term bond fund could be the right choice if
you need your money in one or two years.
If your time horizon is less than a year, you might want to consider moving
some of your bond investment into a money market fund, which seeks income
and a stable share price by investing in high-quality, short-term
investments. As with any mutual fund, of course, there is no assurance that
a money market fund will achieve its goal, and money market funds are not
insured by any agency of the U.S. government.
No matter what your investment horizon or portfolio diversity, it makes
good sense to follow a regular investment plan - investing a certain amount
of money at the same time each month or quarter - and to review your
portfolio periodically, as we have discussed here. A periodic investment
plan will not, of course, assure a profit or protect against a loss.
If you have any questions, please call us at 1-800-544-8888. We stand ready
to provide the information you need to make the investments that are right
for you.
Best regards,
Edward C. Johnson 3d
PERFORMANCE: THE BOTTOM LINE

There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. A fund's total
return includes changes in a fund's share price, plus reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value) and the effect of the fund's
$5 account closeout fee. You can also look at the fund's income to measure
performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1994 PAST 1 YEAR LIFE OF FUND

Spartan Bond Strategist -7.67% -6.54%

Spartan Bond Strategist - After Taxes -3.48% -3.31%

Lehman Brothers Municipal Bond Index -5.17% n/a

Lehman Brothers Aggregate Bond Index -2.92% n/a

Average General Municipal Bond Fund -6.53% n/a

Consumer Price Index 2.67% 3.38%

CUMULATIVE TOTAL RETURNS reflect the fund's performance in percentage terms
over a set period - in this case, one year, or since the fund began on
September 9, 1993. For example, if you invested $1,000 in a fund that had a
5% return over the past year, you would have $1,050. After-tax returns
reflect what you would have after taxes (at the 36% federal tax rate for
income and short-term gains and 28% for long-term gains). They assume that
taxes were withdrawn in the year that any distributions were taxable, and
that you closed the account at the end of the period. If you did not close
your account, the after-tax return would have been -8.01% for the past year
and -6.98% for the life of the fund. These returns are lower because they
do not include the tax benefit of realizing a capital loss upon closing
your account. You can compare the fund's returns to those of the Lehman
Brothers Municipal Bond Index - a broad gauge of the municipal bond market
or to the Lehman Brothers Aggregate Bond Index - a broad measure of the
taxable bond market. To measure how the fund's performance stacked up
against its peers, you can look at the average general municipal bond fund,
which currently reflects the performance of 184 general municipal bond
funds tracked by Lipper Analytical Services. These benchmarks include
reinvested dividends and capital gains, if any. Comparing the fund's
performance to the consumer price index (CPI) helps show how the fund did
compared to inflation. (The CPI returns begin on the month end closest to
the fund's start date).
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1994 PAST 1 YEAR LIFE OF FUND

Spartan Bond Strategist -7.67% -5.02%

Spartan Bond Strategist - After Taxes -3.48% -2.53%

Lehman Brothers Municipal Bond Index -5.17% n/a

Lehman Brothers Aggregate Bond Index -2.92% n/a

Average General Municipal Bond Fund -6.53% n/a

Consumer Price Index 2.67% 2.53%

AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER LIFE OF FUND
Spartan Bond StrategMunicipal Bond IndexAggregate Bond Index
09/30/93 10000.00 10000.00 10000.00
10/31/93 10005.23 10019.00 10037.37
11/30/93 9900.08 9930.83 9951.98
12/31/93 10199.26 10140.37 10005.92
01/31/94 10322.83 10255.97 10141.01
02/28/94 9981.37 9990.34 9964.83
03/31/94 9479.34 9583.74 9719.16
04/30/94 9459.71 9665.20 9641.55
05/31/94 9596.27 9749.29 9640.19
06/30/94 9521.86 9692.74 9618.89
07/31/94 9720.60 9870.12 9809.95
08/31/94 9752.56 9904.66 9822.13
09/30/94 9603.81 9759.06 9677.56
10/31/94 9424.83 9585.35 9668.94
11/30/94 9233.35 9411.86 9647.46
12/30/94 9418.80 9618.92 9714.08

$10,000 OVER LIFE OF FUND: Let's say you invested $10,000 in Spartan Bond
Strategist on September 30, 1993, shortly after the fund started. As the
chart shows, by December 31, 1994, the value of your investment, with
dividends reinvested, would have fallen to $9,419 - a 5.81% decrease on
your initial investment. This assumes you still owned the fund on December
31, 1994 and therefore does not include the effect of the $5 account
closeout fee. For comparison, look at how the Lehman Brothers Municipal
Bond Index and Lehman Brothers Aggregate Bond Index did over the same
period. With dividends reinvested, the same $10,000 investment would have
fallen to $9,619 and $9,714 - a 3.81% and 2.86% decrease, respectively.
UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)

INCOME
1994 TOTAL PERCENT
TAX-FREE

January $.041 70.10%

February $.037 72.94%

March $.043 68.12%

April $.041 67.84%

May $.041 71.21%

June $.039 78.38%

July $.040 86.32%

August $.040 85.60%

September $.039 86.06%

October $.041 90.66%

November $.041 89.03%

December $.043 89.69%

The amounts shown above reflect the total income distributed for each fund
share and the percentage that was federally tax-free.

YIELD
PERIOD ENDED DECEMBER 31, 1994
30-day annualized yield 6.92%
Tax-equivalent yield 10.43%
The 30-day annualized yield is a standard formula for all bond funds based
on the yields of the bonds in the fund, averaged over the past 30 days. It
helps you compare funds from different companies on an equal basis. The
tax-equivalent yield shows what you would have to earn on a taxable
investment to equal the fund's yield, if you're in the 36% federal tax
bracket.
FUND TALK: THE MANAGER'S OVERVIEW

MARKET RECAP
Sharply rising interest rates and
ongoing inflation worries caused
a severe downturn in U.S. bond
markets in 1994. Yields rose
sharply - and prices fell - on
virtually all types of fixed-income
investments. For the 12 months
ended December 31, 1994, the
Lehman Brothers Aggregate
Bond Index - a broad measure
of taxable bonds in the U.S. bond
market - had a total return of
- -2.92%. The Federal Reserve
Board raised the federal funds
rate - the rate banks charge
each other for overnight loans -
from 3.00% to 5.50% from
February to November. The Fed
was hoping to head off future
inflation that might be triggered by
an improving U.S. economy.
However, investors heavily sold
bonds at the very threat of
inflation because inflation
diminishes the value of their
fixed-rate interest payments.
Higher interest rates in many
foreign bond markets followed
the rate hikes in the United
States. Despite disappointing
bond market results, weakness in
the U.S. dollar caused the
Salomon Brothers World
Government Bond Index - a
measure of bond market
performance in developed
nations that includes U.S. issues
- - to post a positive 2.34% return
for the year. The JP Morgan
Emerging Markets Bond Index
was down 18.68% during the
same period, on the heels of
market corrections in many
emerging markets earlier in the
year and Mexico's devaluation of
the peso in December.
An interview with George Fischer, Portfolio Manager of Spartan Bond
Strategist
Q. HOW HAS THE FUND PERFORMED, GEORGE?
A. It was a tough year for bonds, and this bond fund was no exception. The
fund returned -7.67% to investors, compared to -6.53% for the average
general municipal fund, according to Lipper Analytical Services. The fund's
strategy is to maximize after-tax returns. For the year ended December 31,
1994, the fund's after-tax return was -3.48%.
Q. WHAT FACTORS LED TO BELOW-AVERAGE RESULTS IN 1994?
A. Early in the year, when the Federal Reserve started raising interest
rates, I shifted a portion of the fund's assets overseas. My thinking was
that the world's other central banks were not so close to tightening
monetary policy. While that turned out to be right, bond markets in many of
these countries performed poorly just the same, and the fund lost ground.
Since early June, I've had the fund defensively structured, and that has
helped the relative return. Unfortunately, the market has been so weak that
the absolute return was negative for the second half of the year.
Q. WHAT ABOUT MEXICO? WAS THE FUND IMPACTED BY THE DEVALUATION OF THE PESO
IN DECEMBER OF 1994?
A. The fund didn't have peso-denominated investments, however about 3.5% of
its assets were in U.S. dollar-paying Mexican corporate bonds. These bonds
were all issued by well-managed, first-rate companies. Unfortunately, since
these companies earn their revenue in the devalued peso, and the Mexican
economy is likely to weaken, their credit quality has taken a hit. So far
we are still holding these bonds, but our analysts are continuing to visit
the companies regularly to meet with top management. If we decide that the
fund may be better served by selling the bonds, that is what we will do.
The impact on the fund in December was to reduce total return by about
0.60%.
Q. DID THE FUND HAVE ANY DIRECT EXPOSURE TO THE SITUATION IN ORANGE COUNTY,
CALIFORNIA, WHICH DECLARED BANKRUPTCY AFTER SUSTAINING LOSSES IN ITS
INVESTMENT POOL?
A. No, the fund did not own any bonds issued by Orange County, California
or any of the other issuers in that investment pool.
Q. WHY DO YOU CURRENTLY HAVE SO MUCH OF THE FUND IN MUNICIPAL BONDS?
A. Because I judge them to have exceptional value for higher tax bracket
investors today. For instance, you would have to go far down the credit
quality ladder to get the same after-tax yield in a corporate bond as you
get in a good quality municipal. However, if I see more "Orange Counties"
on the horizon, and expect a resulting loss of confidence in the municipal
market, I will consider moving a substantial portion of the fund out of
municipals. Though the fund must be 50% invested in municipal obligations
at the end of each quarter, it has more flexibility than most funds do.
Q. HAVE YOU BEEN EMPLOYING ANY SPECIAL STRATEGIES IN THE FUND RECENTLY?
A. Yes. Resource recovery bonds are now about 10% of the fund. They are
bonds backed by "trash-to-steam" plants, which burn trash to create steam
and electricity, which are then sold to consumers and businesses. Resource
recovery bonds got beaten down as a group in 1994, and so I began adding
selected names - such as Broward County, Florida, and Union County, New
Jersey - to the fund. I also took advantage of some attractive
opportunities in derivative securities during the period that benefited the
fund. Specifically, I used structured notes, which are debt securities
whose coupon rates are indexed to a financial indicator. In this case, they
were tied to specific short-term interest rates in the U.S. and the U.K.
This way, I was able to create investments that reflected my view on
interest rates but were not available directly in the market. I also
participated in futures contracts on munis and Treasuries to capture return
from movements within those markets.
Q. WHAT'S YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
A. I think that 1995 will be better than 1994. We're starting from higher
yields, so there is more of an income cushion. Also, the Fed has now raised
rates by 2.5%, and I doubt that the Fed needs to raise them by that much
again. Indeed, consumer inflation has still not risen from its 3% level.
However, the economy has continued to be strong, and until it weakens, I
doubt that we will see a big rally in the bond market. As for the municipal
market, new issue supply will probably remain low, which could mean that
municipals will be bid higher relative to Treasuries. In fact, there could
be fewer municipal bonds issued than redeemed this year. I'll just keep
looking around for the best opportunities I can find, and try to keep the
fund's risk level moderate.

FUND FACTS
GOAL: maximum total return
after federal income taxes by
investing in both taxable and
tax-free bonds
START DATE: September 9, 1993
SIZE: as of December 31,
1994, more than $17 million
MANAGER: George Fischer,
since September 1993;
manager, institutional
municipal income portfolios,
since May 1991: joined
Fidelity in 1989
(checkmark)
GEORGE FISCHER ON THE LESSONS OF
ORANGE COUNTY, CALIFORNIA:
"Though the fund was not
directly impacted, we are
using the recent events in the
municipality of Orange
County, California, to learn a
lot of useful lessons about the
municipal market. One is that
the fiscal squeeze that
municipalities have been
under in recent years has
driven some of them to very
risky strategies. We are
looking behind a lot of doors
right now to identify other
such gambling strategies.
Another lesson that people
should take away from this is
that just because a municipal
investment sounds safe, it
doesn't mean it is. Orange
County has been one of the
most vibrant, fastest growing
counties in the country
for several decades.
Nevertheless, it has filed for
bankruptcy and defaulted on
its obligations. For the
individual investor, this points
to the importance of
diversifying one's holdings
and seeking competent,
professional money
management services."
DISTRIBUTIONS
A total of 1.01% of the
dividends distributed during
the fiscal year was derived
from interest on U.S.
Government securities which
is generally exempt from state
income tax. The fund will
notify shareholders in January
1995 of the applicable
percentage for use in
preparing 1994 income tax
returns.
INVESTMENT CHANGES

TOP TEN FIXED-INCOME SECURITIES AS OF DECEMBER 31, 1994
(BY ISSUER) % OF % OF FUND'S
FUND'S INVESTMENTS
INVESTMEN 6 MONTHS AGO
TS

Maricopa, Arizona, County School Dist. 7.2 6.2

Knox County, Tennessee, Health Educational & 6.0 5.3
Housing Facilities Board

Salt River, Arizona, Agricultural Improvement 6.0 -

Piedmont, South Carolina, Municipal Power 5.6 5.0

Gainsville, Georgia, Water & Sewer 5.0 4.3

New York State Medical Care Facilities 4.7 4.3

Niagra Falls, New York, General Obligation 3.1 -

Houston, Texas, Water Conveyance System 3.0 2.6

Broward County, Florida, Resource Recovery 3.0 -

Hempstead Town, New York, Industrial 2.9 -
Development

AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1994
6 MONTHS AGO

Years 15.4 13.7

AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM
EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR AMOUNT.
DURATION AS OF DECEMBER 31, 1994
6 MONTHS AGO

Years 9.3 8.3

DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A FIVE-YEAR
DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS WILL ALSO
INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. THE ACTUAL PERFORMANCE
OF THE FUND MAY DIFFER FROM THE ABOVE EXAMPLE.
ASSET ALLOCATION
AS OF DECEMBER 31, 1994 AS OF JUNE 30, 1994
Row: 1, Col: 1, Value: 4.2
Row: 1, Col: 2, Value: 0.0
Row: 1, Col: 3, Value: 3.5
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 52.3
Row: 1, Col: 1, Value: 3.7
Row: 1, Col: 2, Value: 1.8
Row: 1, Col: 3, Value: 5.0
Row: 1, Col: 4, Value: 40.0
Row: 1, Col: 5, Value: 49.5
Municipal
Securities 92.3%
Foreign taxable
bonds - dollar
denominated 3.5%
Foreign taxable
bonds - non-dollar
denominated -
Short-term taxable
investments 4.2%
Municipal
Securities 89.5%
Foreign taxable
bonds - dollar
denominated 5.0%
Foreign taxable
bonds - non-dollar
denominated 1.8%
Short-term taxable
invesments 3.7%
INVESTMENTS DECEMBER 31, 1994

Showing Percentage of Total Value of Investment in Securities

MUNICIPAL BONDS - 92.3%
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
ARIZONA - 15.5%
Arizona Trans. Board Hwy. Rev.
Sub-Series A, 5% 7/1/09 Aa $ 500,000 $ 418,750
Maricopa County School Dist. #3 Temple
Elementary Rfdg. 0% 7/1/08,
(AMBAC Insured) Aaa 3,055,000 1,275,463
Salt River Agric. Impt. & Pwr. Dist. Elec. Sys.
Rev. Rfdg. (Salt River Proj.) Series B,
5.25% 1/1/13 Aa 1,250,000 1,056,250
2,750,463
CALIFORNIA - 2.5%
Alameda County Ctfs. of Prtn. Rfdg.
(Santa Rita Jail Proj.) 5.375% 6/1/09,
(MBIA Insured) Aaa 500,000 441,875
COLORADO - 2.7%
Aurora Ctfs. of Prtn. Rfdg. 6% 12/1/06 A 500,000 476,875
CONNECTICUT - 2.4%
Connecticut Health & Ed. Facs. Auth. Rev.
(Quinnipiac Coll.) Series D, 6% 7/1/13 BBB- 500,000 416,875
FLORIDA - 3.0%
Broward County Resources Recovery Rev.
(SES Broward Co. LP South Proj.)
7.95% 12/1/08 A 495,000 529,650
GEORGIA - 7.8%
Fulton County Wtr. & Swr. Rev.
6.375% 1/1/14, (FGIC Insured) Aaa 500,000 493,125
Gainsville Wtr. & Swr. Rev. Rfdg.
5.25% 11/15/10, (FGIC Insured) Aaa 1,000,000 888,750
1,381,875
ILLINOIS - 2.2%
Illinois Dev. Fin. Auth. Solid Wst. Disp. Rev.
(Ford Heights Waste Tire Proj.)
7.875% 4/1/11 (c) - 400,000 383,000
INDIANA - 2.9%
Indiana Health Facs. Fing. Auth. Hosp. Rev.
Rfdg. (Columbus Gen'l. Hosp.)
7% 8/15/15, (Cap. Guaranty Insured) Aaa 500,000 508,750
KENTUCKY - 2.2%
Owensboro Elec. Lt. & Pwr. Rev. Rfdg.
Series B, 0% 1/1/08, (AMBAC Insured) Aaa 925,000 394,281
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
MARYLAND - 2.5%
Maryland Health & Higher Ed. Facs. Auth. Rev.
(Frederick Mem. Hosp.) 5.20% 7/1/08,
(FGIC Insured) Aaa $ 500,000 $ 437,500
MICHIGAN - 1.4%
Michigan Strategic Fund Ltd. Gen. Oblig. Rev.
(Great Lakes Pulp & Fiber Proj.)
10.25% 12/1/16 (c) - 250,000 250,313
NEW JERSEY - 2.8%
Union County Util. Auth. Solid Waste Rev.
Series A, 7.15% 6/15/09 (c) A- 500,000 493,125
NEW YORK - 15.7%
Hempstead Town Ind. Dev. Agcy. Resources
Recovery Rev. (American Rfdg. Fuel Co.)
7.40% 12/1/10 Baa1 500,000 516,250
New York State Dorm. Auth. Rev. (Consolidated
City Univ. Sys.):
2nd Gen. Series A, 5.75% 7/1/09 Baa1 500,000 444,375
Series A, 5.75% 7/1/13 Baa1 500,000 431,875
New York State Med. Care Facs. Fin. Agcy.
Rev. Rfdg. (Mental Health Svcs.) Series E,
5.25% 8/15/08 Baa1 1,000,000 838,750
Niagra Falls 7.50% 3/1/18, (MBIA Insured) Aaa 500,000 547,500
2,778,750
OHIO - 2.5%
Cleveland Wtrwks. Rev. Rfdg. 1st Mtg.
Series G, 5.50% 1/1/13, (MBIA Insured) Aaa 500,000 451,250
PENNSYLVANIA - 2.6%
Philadelphia Muni. Auth. Rev. Rfdg. Lease
Series D, 6% 7/15/03 Ba 500,000 468,125
SOUTH CAROLINA - 5.6%
Piedmont Muni. Pwr. Agcy. Elec. Rev. Rfdg.
6.75% 1/1/19, (FGIC Insured) Aaa 1,000,000 998,750
TENNESSEE - 6.0%
Knox County Health Ed. & Hsg. Facs. Board Hosp.
Facs. Rev. Rfdg. (Ft. Sanders Alliance)
Series C, 7.25% 1/1/09, (MBIA Insured) Aaa 1,000,000 1,067,500
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
TEXAS - 6.8%
Houston Wtr. (Conveyance Sys.) 7.20%
12/15/08, (AMBAC Insured) Aaa $ 500,000 $ 535,625
Texas City Ind. Dev. Corp. Marine Term.
Rev. Rfdg. (Arco Pipeline Co. Proj.)
7.375% 10/1/20 A2 500,000 514,375
Texas Nat'l. Research Lab Commission Fing.
Corp. Lease Rev. (Superconducting
Supercollider Proj.) 6.95% 12/1/12 A 150,000 149,625
1,199,625
VIRGINIA - 2.3%
Virginia Beach Dev. Auth. Hosp. Facs. Rev.
(Virginia Beach Gen. Hosp. Proj.)
5.125% 2/15/18, (AMBAC Insured) Aaa 500,000 406,250
WASHINGTON - 2.9%
Washington Pub. Pwr. Supply Sys. Nuclear
Proj. #1 Rev. Series A, 7% 7/1/08 Aa 500,000 516,250
TOTAL MUNICIPAL BONDS
(Cost $17,744,018) 16,351,082
CORPORATE BONDS - 3.5%
NONCONVERTIBLE BONDS
BASIC INDUSTRIES - 1.3%
IRON & STEEL - 1.3%
Grupo Simec 8 7/8%, 12/15/98 (b) - 300,000 225,750
CONSTRUCTION & REAL STATE - 1.2%
BUILDING MATERIALS -1.2 %
Tolmex SA de CV 8 3/8%, 11/1/03 Ba2 300,000 217,745
NONDURABLES - 1.0%
TOBACCO - 1.0%
Empresas La Moderna SA 10 1/4%,
11/12/97 (b) - 200,000 174,000
TOTAL CORPORATE BONDS
(Cost $808,330) 617,495
REPURCHASE AGREEMENTS - 4.2%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a
joint trading account at 5.77%,
dated 12/30/94 due 1/3/95 $ 737,472 $ 737,000
TOTAL INVESTMENTS IN SECURITIES - 100%
(Cost $19,289,348) $ 17,705,577
LEGEND
(a) Standard & Poor's Corporation credit ratings are used in the absence of
a rating by Moody's Investors Service, Inc.
(b) Security exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $399,750 or 2.3% of net
assets.
(c) Private activity obligations whose interest is subject to the federal
alternative minimum tax for individuals.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 68.4% AAA,AA,A 74.1%
Baa 12.6% BBB 12.0%
Ba 3.9% BB 3.9%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 5.8%. FMR has
determined that unrated debt securities that are lower quality account for
3.6% of the total value of investment in securities.
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
Electric Revenue 16.7%
Health Care 13.7
Water & Sewer 13.4
Lease Revenue 10.5
Resources Recovery 10.1
Others (individually less than 10%) 27.9
Taxable Securities 7.7
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1994, the aggregate cost of investment securities for
income tax purposes was $19,289,348. Net unrealized depreciation aggregated
$1,583,771, of which $32,803 related to appreciated investment securities
and $1,616,574 related to depreciated investment securities.
At December 31, 1994, the fund had a capital loss carryforward of
approximately $1,296,373 of which $25,951 and $1,270,422 will expire on
December 31, 2001 and 2002 , respectively.
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, 1994

ASSETS

Investment in securities, at value (including repurchase $ 17,705,577
agreements of $737,000) (cost $19,289,348) -
See accompanying schedule

Cash 506,921

Interest receivable 324,510

Redemption fees receivable 296

TOTAL ASSETS 18,537,304

LIABILITIES

Payable for investments purchased $ 741,372

Payable for fund shares redeemed 48,060

Dividends payable 15,298

Accrued management fee 10,862

TOTAL LIABILITIES 815,592

NET ASSETS $ 17,721,712

Net Assets consist of:

Paid in capital $ 20,725,202

Distributions in excess of net investment income (33,070)

Accumulated undistributed net realized gain (loss) on (1,387,039)
investments and foreign currency transactions

Net unrealized appreciation (depreciation) on (1,583,381)
investments and assets and liabilities in foreign
currencies

NET ASSETS, for 2,028,786 shares outstanding $ 17,721,712

NET ASSET VALUE, offering price and redemption price per $8.74
share ($17,721,712 (divided by) 2,028,786 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1994

INVESTMENT INCOME $ 1,282,633
Interest

EXPENSES

Management fee $ 150,625

Non-interested trustees' compensation 124

TOTAL EXPENSES 150,749

NET INVESTMENT INCOME 1,131,884

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities (1,262,675)

Foreign currency transactions (32,735)

Futures contracts 95,724 (1,199,686)

Change in net unrealized appreciation (depreciation) on:

Investment securities (1,837,974)

Assets and liabilities in foreign currencies (22,905) (1,860,879)

NET GAIN (LOSS) (3,060,565)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (1,928,681)
FROM OPERATIONS

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 9,
DECEMBER 31, 1993
1994 (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,
1993

INCREASE (DECREASE) IN NET ASSETS

Operations $ 1,131,884 $ 213,995
Net investment income

Net realized gain (loss) (1,199,686) (205,917)

Change in net unrealized appreciation (depreciation) (1,860,879) 277,498

NET INCREASE (DECREASE) IN NET ASSETS RESULTING (1,928,681) 285,576
FROM OPERATIONS

Distributions to shareholders (1,135,626) (213,995)
From net investment income

In excess of net investment income - (19,401)

TOTAL DISTRIBUTIONS (1,135,626) (233,396)

Share transactions 11,393,624 21,406,105
Net proceeds from sales of shares

Reinvestment of distributions 999,399 213,513

Cost of shares redeemed (12,707,084) (595,185)

Redemption fees 20,540 2,927

Net increase (decrease) in net assets resulting from (293,521) 21,027,360
share transactions

TOTAL INCREASE (DECREASE) IN NET ASSETS (3,357,828) 21,079,540

NET ASSETS

Beginning of period 21,079,540 -

End of period (including distributions in excess $ 17,721,712 $ 21,079,540
of net investment income of $33,070 and
$23,787, respectively)

OTHER INFORMATION
Shares

Sold 1,183,452 2,151,983

Issued in reinvestment of distributions 109,164 21,617

Redeemed (1,376,527) (60,903)

Net increase (decrease) (83,911) 2,112,697

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C>
YEAR ENDED SEPTEMBER 9,
DECEMBER 31, 1993
(COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

1994 1993

SELECTED PER-SHARE DATA

Net asset value, beginning of period $ 9.980 $ 10.000

Income from Investment Operations .481 .130
Net investment income

Net realized and unrealized gain (loss) (1.244) (.011) C

Total from investment operations (.763) .119

Less Distributions (.486) (.130)
From net investment income

In excess of net investment income - (.011)

Total distributions (.486) (.141)

Redemption fees added to paid in capital .009 .002

Net asset value, end of period $ 8.740 $ 9.980

TOTAL RETURN B (7.65)% 1.23%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) $ 17,722 $ 21,080

Ratio of expenses to average net assets .70% .70% A

Ratio of net investment income to average net assets 5.26% 4.44% A

Portfolio turnover rate 168% 275% A

</TABLE>

A ANNUALIZED
B TOTAL RETURNS DO NOT INCLUDE THE ACCOUNT CLOSEOUT FEE AND FOR PERIODS OF
LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE AMOUNT SHOWN FOR A SHARE OUTSTANDING DOES NOT CORRESPOND WITH THE
AGGREGATE NET GAIN ON INVESTMENTS FOR THE PERIOD ENDED DUE TO THE TIMING OF
SALES AND REPURCHASES OF FUND SHARES IN RELATION TO FLUCTUATING MARKET
VALUES OF THE INVESTMENTS OF THE FUND.
NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1994

1. SIGNIFICANT ACCOUNTING
POLICIES.
Spartan Bond Strategist (the fund) is a fund of Fidelity School Street
Trust (the trust) and is authorized to issue an unlimited number of shares.
The trust is registered under the Investment Company Act of 1940, as
amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which quotations are not readily
available through the pricing service are valued at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION.
The accounting records of the fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the prevailing rates
of exchange at period end. Purchases and sales of securities, income
receipts, and expense payments are translated into U.S. dollars at the
prevailing exchange rate on the respective dates of the transactions.
Effective January 1, 1994, the fund adopted Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. In accordance with this SOP, reported net realized
gains and losses on foreign currency transactions represent net gains and
losses from sales and maturities of forward currency contracts, disposition
of foreign currencies, currency gains and losses realized between the trade
and settlement dates on securities transactions, and the difference between
the amount of net investment income accrued and the U.S. dollar amount
actually received. Further, as permitted under the SOP, the effects of
changes in foreign currency exchange rates on investments in securities are
not segregated in the Statement of Operations from the effects of changes
in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment securities.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INVESTMENT INCOME. Interest income, which includes amortization of premium
and accretion of original issue discount, is accrued as earned. Investment
income
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
is recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
DISTRIBUTIONS TO SHAREHOLDERS.
Distributions are declared daily and paid monthly from net investment
income. Distributions from realized gains, if any, are recorded on the
ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
market discount, futures and options transactions, foreign currency
transactions and losses deferred due to excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and may
affect net investment income per share. Distributions in excess of net
investment income may include temporary book and tax basis differences
which will reverse in a subsequent period. Any taxable income or gain
remaining at fiscal year end is distributed in the following year.
REDEMPTION FEES. Shares held in the fund less than 180 days are subject to
a redemption fee equal to .50% of the proceeds of the redeemed shares. The
fee, which is retained by the fund, is accounted for as an addition to paid
in capital.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
FORWARD FOREIGN CURRENCY CONTRACTS. The fund may use foreign currency
contracts to facilitate transactions in foreign securities and to manage
the fund's currency exposure. Contracts to buy generally are used to
acquire exposure to foreign currencies, while contracts to sell are used to
hedge the fund's investments against currency fluctuations. Also, a
contract to buy or sell can offset a previous contract. Losses may arise
from changes in the value of the foreign currency or if the counterparties
do not perform under the contracts' terms.
The U.S. dollar value of forward foreign currency contracts is determined
using forward currency exchange rates supplied by a quotation service.
Purchases and sales of forward foreign currency contracts having the same
settlement date and broker are offset and any realized gain (loss) is
recognized on the date of offset; otherwise, gain (loss) is recognized on
settlement date.
REPURCHASE AGREEMENTS. The fund, through its custodian, receives delivery
of the underlying securities, whose market value is required to be at least
102% of the resale price at the time of purchase. The fund's investment
adviser, Fidelity Management & Research Company (FMR),
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
is responsible for determining that
the value of these underlying securities remains at least equal to the
resale price.
JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission(the SEC), the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into one
or more joint trading accounts. These balances are invested in one or more
repurchase agreements that mature in 60 days or less from the date of
purchase, and are collateralized by U.S. Treasury or Federal Agency
obligations.
FUTURES CONTRACTS AND OPTIONS.
The fund may use futures and options contracts to manage its exposure to
the bond markets and to fluctuations in interest rates. Buying futures,
writing puts, and buying calls tend to increase the fund's exposure to the
underlying instrument. Selling futures, buying puts, and writing calls tend
to decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. Losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for the
contracts, or if the counterparties do not perform under the contracts'
terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
INDEXED SECURITIES.. The fund may invest in indexed securities whose values
are linked either directly or inversely to changes in foreign currencies,
interest rates, commodities, indices, or other underlying instruments. The
fund uses these securities to increase or decrease its exposure to
different underlying instruments and to gain exposure to markets that might
be difficult to invest in through conventional securities. Indexed
securities may be more volatile than their underlying instruments, but any
loss is limited to the amount of the original investment.
3. PURCHASES AND SALES
OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $33,130,568 and $34,687,174, respectively, of which U.S.
government and government agency obligations aggregated $249,882 and
$217,682, respectively.
The market value of futures contracts opened and closed during the period
amounted to $43,056,304 and $42,548,540, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) pays all expenses, except the compensation of the
non-interested Trustees and certain exceptions such as interest, taxes,
brokerage commissions and extraordinary expenses. FMR receives a fee that
is computed daily at an annual rate of .70% of the fund's average net
assets.
FMR also bears the cost of providing shareholder services to the fund. To
offset the cost of providing these services, FMR or its affiliates collect
certain transaction fees from the fund's shareholders which amounted to
$955 for the period.
5. BENEFICIAL INTEREST.
At the end of the period, FMR was record owner of approximately 50% of the
total outstanding shares.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity School Street Trust and the Shareholders
of Spartan Bond Strategist:
We have audited the accompanying statement of assets and liabilities of
Fidelity School Street Trust: Spartan Bond Strategist, including the
schedule of portfolio investments, as of December 31, 1994, and the related
statement of operations for the year then ended, the statement of changes
in net assets and the financial highlights for the year then ended and for
the period September 9, 1993 (commencement of operations) to December 31,
1993. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity School Street Trust: Spartan Bond Strategist, as of December
31, 1994, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for the year then
ended and for the period September 9, 1993 (commencement of operations) to
December 31, 1993, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc.
Fidelity Management & Research
(Far East) Inc.
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
George Fischer, Vice President
Arthur S. Loring, Secretary
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Co.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE
(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109

(2_FIDELITY_LOGOS)FIDELITY

LIMITED TERM MUNICIPALS
ANNUAL REPORT
DECEMBER 31, 1994
CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.

PERFORMANCE 4 How the fund has done over time.

FUND TALK 7 The manager's review of fund
performance, strategy and outlook.

INVESTMENT CHANGES 10 A summary of major shifts in the
fund's investments over the past six
months.

INVESTMENTS 11 A complete list of the fund's
investments with their market
values.

FINANCIAL STATEMENTS 23 Statements of assets and liabilities,
operations, and changes in net
assets,
as well as financial highlights.

NOTES 27 Notes to the financial statements.

REPORT OF INDEPENDENT
ACCOUNTANTS 30 The auditors' opinion.

THIS REPORT AND THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE SUBMITTED FOR
THE GENERAL
INFORMATION OF THE SHAREHOLDERS OF THE FUND. THIS REPORT IS NOT AUTHORIZED
FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS IN THE FUND UNLESS PRECEDED OR ACCOMPANIED BY AN
EFFECTIVE
PROSPECTUS. MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, ANY
DEPOSITORY INSTITUTION OR GOVERNMENTAL AGENCY. SHARES ARE NOT INSURED BY
THE FDIC, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO INVESTMENT
RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL. NEITHER THE FUND NOR FIDELITY DISTRIBUTORS
CORPORATION IS A
BANK. FOR MORE INFORMATION ON ANY FIDELITY FUND, INCLUDING CHARGES AND
EXPENSES, CALL
1-800-544-8888 FOR A FREE PROSPECTUS. READ IT CAREFULLY BEFORE YOU INVEST
OR SEND
MONEY.
PRESIDENT'S MESSAGE

There are several ways to evaluate a fund's historical performance. You can
look at the total percentage change in value, the average annual percentage
change, or the growth of a hypothetical $10,000 investment. Each figure
includes changes in a fund's share price, plus reinvestment of any
dividends (or income) and capital gains (the profits the fund earns when it
sells bonds that have grown in value). You can also look at the fund's
income to measure performance.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1994 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

Limited Term Municipals -4.76% 37.52% 119.32%

Lehman Brothers Municipal Bond Index -5.17% 39.04% 147.33%

Average Intermediate Municipal Bond Fund -3.53% 34.92% 107.40%

Consumer Price Index 2.67% 18.72% 42.17%

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage terms
over a specific period - in this case, one, five, or 10 years. For example,
if you had invested $1,000 in a fund that had a 5% return over the past
year, you would have $1,050. You can compare these figures to the
performance of the Lehman Brothers Municipal Bond Index - a broad gauge of
the municipal bond market. To measure how the fund stacked up against its
peers, you can look at the average intermediate municipal bond fund, which
currently reflects the performance of 82 intermediate muni-cipal bond funds
tracked by Lipper Analytical Services. Both benchmarks include reinvested
dividends and capital gains, if any. Comparing the fund's performance to
the consumer price index (CPI) helps show how your fund did compared to
inflation. (The periods covered by the CPI numbers are the closest
available match to those covered by the fund.)
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1994 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

Limited Term Municipals -4.76% 6.58% 8.17%

Lehman Brothers Municipal Bond Index -5.17% 6.81% 9.48%

Average Intermediate Municipal Bond -3.53% 6.17% 7.53%
Fund

Consumer Price Index 2.67% 3.49% 3.58%

AVERAGE ANNUAL TOTAL RETURNS take the fund's actual (or cumulative) return
and show you what would have happened if the fund had performed at a
constant rate each year.
$10,000 OVER 10 YEARS
Ltd. Term (036) Municipal Bond Index
12/31/84 10000.00 10000.00
01/31/85 10445.49 10577.30
02/28/85 10263.69 10313.40
03/31/85 10366.45 10402.40
04/30/85 10655.96 10783.13
05/31/85 10911.10 11157.52
06/30/85 11029.14 11274.56
07/31/85 11045.58 11296.66
08/31/85 11010.68 11217.81
09/30/85 10924.81 11105.29
10/31/85 11304.83 11485.87
11/30/85 11580.98 11897.87
12/31/85 11731.50 12002.45
01/31/86 12200.61 12709.40
02/28/86 12470.06 13213.45
03/31/86 12566.46 13217.68
04/30/86 12568.53 13227.73
05/31/86 12409.64 13012.38
06/30/86 12562.38 13136.52
07/31/86 12605.38 13216.26
08/31/86 13116.26 13807.95
09/30/86 13131.18 13842.61
10/31/86 13449.53 14081.67
11/30/86 13585.86 14360.62
12/31/86 13513.45 14320.99
01/31/87 13836.34 14752.19
02/28/87 14003.56 14824.78
03/31/87 13928.59 14667.63
04/30/87 13169.16 13931.61
05/31/87 13138.59 13862.51
06/30/87 13424.62 14269.51
07/31/87 13581.78 14415.06
08/31/87 13623.27 14447.50
09/30/87 13093.24 13914.82
10/31/87 13166.63 13964.08
11/30/87 13475.99 14328.68
12/31/87 13667.98 14536.59
01/31/88 14206.90 15054.38
02/29/88 14266.16 15213.50
03/31/88 14021.84 15036.27
04/30/88 14112.46 15150.54
05/31/88 14158.09 15106.76
06/30/88 14280.93 15327.77
07/31/88 14343.14 15427.71
08/31/88 14359.40 15441.28
09/30/88 14532.65 15720.77
10/31/88 14724.23 15998.24
11/30/88 14645.97 15851.70
12/31/88 14791.00 16013.86
01/31/89 14953.15 16345.03
02/28/89 14843.13 16158.53
03/31/89 14781.81 16119.91
04/30/89 15045.25 16502.60
05/31/89 15294.56 16845.36
06/30/89 15444.77 17074.12
07/31/89 15595.92 17306.50
08/31/89 15515.22 17137.07
09/30/89 15504.97 17085.65
10/31/89 15639.95 17294.10
11/30/89 15828.04 17596.75
12/31/89 15948.46 17741.04
01/31/90 15895.03 17657.66
02/28/90 16014.46 17814.81
03/31/90 16070.79 17820.15
04/30/90 15931.74 17691.85
05/31/90 16177.66 18077.53
06/30/90 16301.49 18236.61
07/31/90 16497.16 18504.69
08/31/90 16465.18 18236.37
09/30/90 16576.67 18247.32
10/31/90 16744.84 18577.59
11/30/90 16967.47 18951.00
12/31/90 17059.37 19034.39
01/31/91 17244.20 19289.45
02/28/91 17411.49 19457.27
03/31/91 17489.07 19465.05
04/30/91 17677.06 19723.93
05/31/91 17810.76 19899.48
06/30/91 17815.41 19879.58
07/31/91 18008.56 20122.11
08/31/91 18181.79 20387.72
09/30/91 18410.91 20652.76
10/31/91 18582.88 20838.63
11/30/91 18595.92 20896.98
12/31/91 18967.76 21346.27
01/31/92 19072.13 21395.36
02/29/92 19141.86 21401.78
03/31/92 19102.32 21410.34
04/30/92 19263.00 21600.90
05/31/92 19426.71 21855.79
06/30/92 19646.57 22222.96
07/31/92 20217.81 22889.65
08/31/92 20067.71 22665.33
09/30/92 20163.07 22812.66
10/31/92 19885.55 22589.09
11/30/92 20292.55 22993.44
12/31/92 20516.95 23227.97
01/31/93 20761.66 23497.42
02/28/93 21511.67 24348.02
03/31/93 21302.47 24089.93
04/30/93 21504.58 24333.24
05/31/93 21642.60 24469.51
06/30/93 21932.01 24878.15
07/31/93 21985.27 24910.49
08/31/93 22434.49 25428.63
09/30/93 22683.83 25718.52
10/31/93 22715.81 25767.38
11/30/93 22565.63 25540.63
12/31/93 23028.25 26079.54
01/31/94 23290.28 26376.84
02/28/94 22754.07 25693.68
03/31/94 21831.71 24647.95
04/30/94 21954.63 24857.46
05/31/94 22150.30 25073.72
06/30/94 22035.71 24928.29
07/31/94 22446.60 25384.48
08/31/94 22526.44 25473.32
09/30/94 22243.27 25098.86
10/31/94 21939.01 24652.10
11/30/94 21509.48 24205.90
12/30/94 21931.54 24733.00

$10,000 OVER 10 YEARS: Let's say you invested $10,000 in Fidelity Limited
Term Municipals on December 31, 1984. As the chart shows, by December 31,
1994, the value of your investment would have grown to $21,932 - a 119.32%
increase on your initial investment. For comparison, look at how the Lehman
Brothers Municipal Bond Index did over the same period. With dividends
reinvested, the same $10,000 would have grown to $24,733 - a 147.33%
increase.

UNDERSTANDING
PERFORMANCE
How a fund did yesterday is
no guarantee of how it will do
tomorrow. Bond prices, for
example, move in the
opposite direction of interest
rates. In turn, the share price,
return, and yield of a fund
that invests in bonds will vary.
That means if you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.
(checkmark)
TOTAL RETURN COMPONENTS
YEARS ENDED DECEMBER 31,

1994 1993 1992 1991 1990

Dividend return 5.07% 5.54% 6.21% 6.77% 6.83%

Capital appreciation return -9.83% 6.70% 1.96% 4.42% 0.14%

Total return -4.76% 12.24% 8.17% 11.19% 6.97%

DIVIDEND returns and capital appreciation returns are both part of a bond
fund's total return. A dividend return reflects the actual dividends paid
by the fund. A capital appreciation return reflects both the amount paid by
the fund to shareholders as capital gain distributions and changes in the
fund's share price. Both returns assume the dividends or gains are
reinvested.
DIVIDENDS AND YIELD

<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIODS ENDED DECEMBER 31, 1994 PAST PAST 6 PAST 1
MONTH MONTHS YEAR

Dividends per share 4.38(cents) 25.80(cents) 51.17(cents)

Annualized dividend rate 5.77% 5.58% 5.45%

30-day annualized yield 5.85% - -

30-day annualized tax-equivalent yield 9.14% - -

</TABLE>

DIVIDENDS \per share show the income paid by the fund for a set period. If
you annualize this number, based on an average share price of $8.95 over
the past month, $9.17 over the past six months and $9.38 over the past
year, you can compare the fund's income over these three per-iods. The
30-day annualized YIELD is a standard formula for all funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of
the fund's investments at the end of the period. It also helps you compare
funds from different companies on an equal basis. The tax-equivalent yield
shows what you would have to earn on a taxable investment to equal the
fund's tax-free yield, if you're in the 36% federal tax bracket.

FUND TALK: THE MANAGER'S OVERVIEW

MARKET RECAP
Sharply rising interest rates and
ongoing inflation worries caused a
severe downturn in U.S. bond
markets in 1994. Yields rose
sharply - and prices fell - on
taxable and tax-free bonds alike.
For the 12 months ended
December 31, 1994, the Lehman
Brothers Municipal Bond Index -
a broad measure of the tax-free
market - had a total return of
- -5.17%. By comparison, the
Lehman Brothers Aggregate Bond
Index - a proxy of
investment-grade taxable bonds
- - returned -2.92%. Beginning in
January 1994, the interest rate
environment started to change
dramatically. The Federal Reserve
Board raised the federal funds
rate - the rate banks charge
each other for overnight loans -
from 3.00% to 5.50% from
February through November. The
Fed was hoping to head off future
inflation that might be triggered by
an improving U.S. economy.
However, investors heavily sold
bonds at the very threat of
inflation because inflation
diminishes the value of their
fixed-rate income payments. Two
influences affected the
performance of tax-free bonds,
specifically. First, investor demand
fell due to inflation worries, which
dampened prices. Second,
although it didn't outweigh the
negative effects of lower demand,
the supply of tax-free bonds fell as
well. The ability of states, cities
and public agencies to refinance
outstanding debt at attractive
rates was limited amid a rising
rate environment.
An interview with David Murphy, Portfolio Manager of Fidelity Limited Term
Municipals
Q. DAVID, HOW HAS THE FUND PERFORMED?
A. The last 12 months have been a particularly tough time for municipal
bond funds, and this fund was no exception. For the year ended December 31,
1994, the fund's total return was -4.76%. That lagged the average
intermediate municipal bond fund, which returned -3.53% for the same
period, according to Lipper Analytical Services.
Q. WHAT FACTORS CONTRIBUTED TO THE DECLINE IN BOND PRICES?
A. There's definitely a lot to the story. Until February 1994, short-term
interest rates had remained low for several years. That enticed many
investors to use leverage, or borrowed money, to make what essentially
amounted to a bet that short-term interest rates would continue to stay low
and long-term interest rates would fall. However, when the Federal Reserve
Board started raising short-term interest rates in February, those
investors found themselves on the wrong side of the bet and were forced to
liquidate their bond holdings to pay back borrowed money. The selling, or
unwinding, of those positions put additional downward pressure on bond
prices. Other factors - like the dollar's weakness - also contributed to
the market's decline.
Q. TURNING BACK TO THE FUND, WHY DID IT LAG MANY OF ITS COMPETITORS?
A. Mostly because of its longer than average duration. Duration measures
how sensitive the fund's share price is to changes in interest rates.
Because the fund had a longer duration, it was more sensitive to rising
interest rates than other funds of its type. Entering 1994, my outlook was
that interest rates would rise slightly, and that bond prices would fall
somewhat for a short period of time. But because there weren't any signs
that inflation was spiraling out of control, I didn't believe that the Fed
would be inclined to raise interest rates more than a half percentage point
or so. So I felt that bond prices could stabilize and then rise later in
1994. In that type of environment, having a long duration could have helped
the fund. I maintained that outlook through the spring. Unfortunately, I
underestimated how high interest rates, and how low municipal bond prices,
would actually go.
Q. HAVE YOU CHANGED YOUR STRATEGY SINCE THE SUMMER?
A. Yes. The municipal bond market entered a fairly stable period through
the summer, and I continued to keep the fund's duration longer than
average. However, by September the market started falling again, and I
shortened the fund's duration by selling some longer-term bonds, with
maturities of between 10 and 15 years, and bought shorter-term bonds with
maturities in the five- to 10- year range.
Q. COMPARED TO A YEAR AGO, DID YOU CHANGE HOW YOU ALLOCATED THE FUND'S
INVESTMENTS AMONG VARIOUS SECTORS?
A. One change was that I pared back the fund's stake in electric revenue
bonds to 9.7% at the end of the period, from 17.0% a year ago. The electric
utilities are facing increasingly competitive forces, which have hurt the
prospects for some of the sector's weaker players. I continued to hold on
to electric utilities that I believe are well managed and will be insulated
from increased competition. Local and state general obligation (GO) bonds
continued to make up the fund's largest sector at 24.1% as of December 31,
1994. I've emphasized local GOs because the improving economy has helped
boost sales taxes, on which municipalities are more dependent than states.
Health care bonds, which were the fund's second largest sector
concentration at 16.0% of investments at the end of the period, are
attractive because of their relatively high yields.
Q. HOW HAVE YOU CHANGED THE FUND'S ALLOCATION AMONG STATES?
A. There are two significant changes. Over the past year I've built up the
fund's stake in Texas bonds, and they were the fund's largest state
concentration at the end of the period. The state's economy is performing
better than the national average, which helps make these bonds attractive.
I've also reduced the fund's stake in New York bonds. These bonds did
relatively well, and I found other attractive opportunities elsewhere.
Q. DOES 1995 LOOK MORE POSITIVE FOR MUNICIPAL BOND INVESTORS?
A. I think the Fed probably will hike interest rates one or two more times,
which will have more of an impact on short-term bond prices than
longer-term bond prices. It appears that the market is starting to
anticipate that we're nearing the end of the Fed's actions to raise
interest rates. What's more, fixed-income investments are beginning to look
fairly attractive compared to other investments. Real yields on long-term
taxable securities, determined by subtracting inflation from a bond's
stated yield, were about 5% at the end of the period. That is fairly high
on a historical basis. I believe that these yields could help attract
investors, which ultimately will benefit the municipal market.

FUND FACTS
GOAL: to provide a high level
of current income exempt
from federal income taxes
START DATE: April 15, 1977
SIZE: as of December 31,
1994, more than $878 million
MANAGER: David Murphy,
since December 1989;
manager, Spartan Intermediate
Municipal Fund, since April
1993; Spartan New Jersey
Municipal High Yield Portfolio,
since April 1991; Spartan
Short-Intermediate Municipal
Fund, since December 1989;
joined Fidelity in 1989
(checkmark)

DAVID MURPHY'S STRATEGY:
" The economy's rate of
growth in 1994 was about
equal to that in 1993. In my
view, there's some evidence
that the economy is slowing
down. But I believe the
Federal Reserve Board will
raise interest rates one or two
more times in 1995 in an effort
to convince the bond markets
that growth will slow, and
inflation is under control. If
that is the case, bonds with
maturities between two and
10 years could face some
additional downward price
pressure. But the prices of
longer-term bonds could rise.
As a result, I've started to
invest more of the fund in
longer-term bonds by using a
strategy known as a barbell. If
you picture a barbell, the ends
are heavy and the middle is
light. To establish that barbell,
I'll most likely buy bonds with
maturities of 15 years or longer
and balance those with
securities that mature in less
than one year."
(medium solid bullet) At the end of the period, the
fund had 2.9% of its
investments in derivatives
known as inverse floaters. The
yield on inverse floaters rises
as short-term interest rates fall,
and vice versa. By using
various derivatives, the
manager hopes to achieve
higher levels of tax-exempt
income and increased flexibility
in managing the fund's overall
sensitivity to changes in
interest rates. However, these
strategies can involve
additional risk to the fund and
don't always work as intended.
INVESTMENT CHANGES

TOP FIVE STATES AS OF DECEMBER 31, 1994
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO

Texas 14.1 13.1

New York 7.6 8.2

Massachusetts 6.7 8.1

Utah 6.5 5.7

Pennsylvania 5.7 5.4

TOP FIVE SECTORS AS OF DECEMBER 31, 1994
% OF FUND'S % OF FUND'S
INVESTMENTS INVESTMENTS
6 MONTHS AGO

General Obligation 24.1 24.0

Health Care 16.0 18.6

Escrowed/Prerefunded 13.8 10.6

Education 9.8 9.0

Electric Revenue 9.7 10.7

AVERAGE YEARS TO MATURITY AS OF DECEMBER 31, 1994
6 MONTHS AGO

Years 9.0 9.7

AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY DOLLAR
AMOUNT.
DURATION AS OF DECEMBER 31, 1994
6 MONTHS AGO

Years 6.8 8.0

DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH A
FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER FACTORS
WILL ALSO INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE. THE ACTUAL
PERFORMANCE OF THE FUND MAY DIFFER FROM THE ABOVE EXAMPLE.
QUALITY DIVERSIFICATION (MOODY'S RATINGS)
AS OF DECEMBER 31, 1994 AS OF JUNE 30, 1994
Aaa 47.9%
Aa, A 27.3%
Baa 20.9%
Non-rated 2.2%
Short-term investments 1.7%
Aaa 44.1%
Aa, A 29.1%
Baa 21.2%%
Non-rated 2.0%
Short-term investments 3.6%
Row: 1, Col: 1, Value: 47.9
Row: 1, Col: 2, Value: 27.3
Row: 1, Col: 3, Value: 20.9
Row: 1, Col: 4, Value: 2.2
Row: 1, Col: 5, Value: 2.0
Row: 1, Col: 1, Value: 44.1
Row: 1, Col: 2, Value: 29.1
Row: 1, Col: 3, Value: 21.2
Row: 1, Col: 4, Value: 2.0
Row: 1, Col: 5, Value: 3.6
SHOWN AS A PERCENTAGE OF THE FUND'S INVESTMENTS. WHERE MOODY'S RATINGS ARE
NOT AVAILABLE, WE HAVE USED S&P RATINGS.
INVESTMENTS DECEMBER 31, 1994

Showing Percentage of Total Value of Investments

MUNICIPAL BONDS - 98.3%
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
ALABAMA - 1.5%
Alabama Gen. Oblig. Rfdg. (Cap. Appreciation):
0% 3/1/01 $ 10,000 $ 7,062
0% 9/1/01 7,500 5,147
Alabama Hsg. Fin. Auth. Single Family Mtg. Rev.
Series B, 0% 10/1/14 9,010 1,205
13,414
ALASKA - 3.3%
Anchorage Hosp. Rev. Rfdg. (Sisters of Providence Proj.)
Series 1991, 6.75% 10/1/02 2,575 2,643
North Slope Borough :
(Cap. Appreciation) Series A:
0% 6/30/02 (MBIA Insured) 20,000 12,800
0% 6/30/03 (MBIA Insured) 10,000 5,975
Series B:
0% 1/1/02 (MBIA Insured) 8,500 5,599
0% 1/1/03 (MBIA Insured) 3,200 1,972
28,989
ARIZONA - 1.4%
Maricopa County School Dist. #28 Rfdg. (Kyrene Elementary)
Series C, 0% 1/1/08 (FGIC Insured) 5,000 2,169
Phoenix Arpt. Rev. Rfdg. Series A:
5.50% 7/1/00 (MBIA Insured) (f) 7,685 7,589
5.75% 7/1/02 (MBIA Insured) (f) 2,250 2,213
11,971
ARKANSAS - 0.8%
Hot Springs Ind. Dev. Rev. Rfdg. (Willamette Industries, Inc.)
6.65% 12/1/02 7,000 7,131
CALIFORNIA - 4.6%
California Hsg. Fin. Agcy. Rev. (Home Mtg.)
Series 1983 A, 0% 2/1/15 24,731 3,370
California State Pub. Wks. Board Lease Rev. 6.625% 10/1/10 1,200 1,161
California Statewide Commtys. Dev. Auth. Rev. Ctfs. of Prtn.
Rfdg. (Hosp. Triad Healthcare):
5.90% 8/1/01 3,300 3,176
6% 8/1/02 4,145 3,974
East Bay Muni. Util. Dist. Wtr. Sys. Rev. Rfdg. 5% 6/1/10,
(MBIA Insured) 2,000 1,670
Los Angeles County Ctfs. of Prtn. 5.62% 11/1/01 INFL (d) 4,600 4,450
San Bernardino County Ctfs. of Prtn. (Med. Ctr. Fing. Proj.):
5.25% 8/1/05 4,000 3,435
5.25% 8/1/06 3,000 2,527
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
CALIFORNIA - CONTINUED
Southern California Pub. Pwr. Auth. Pwr. Proj. Rev.: (c)
Series 11, 0% 7/1/15 (Pre-Refunded to
7/1/00 @ 101) $ 13,820 $ 10,210
0% 7/1/15 (Pre-Refunded to 7/1/00 @ 101) (b) 2,000 2,125
University of California Rev. Rfdg. (Multiple Purp. Projs.)
Series C, 4.80% 9/1/07 (AMBAC Insured) 1,700 1,420
West Covina Ctfs. of Prtn. (Queen of the Valley Hosp.)
6.50% 8/15/09 3,425 3,194
40,712
COLORADO - 4.5%
Colorado Health Facs. Auth. Rev. Rfdg. (Rocky Mountain
Adventist) 6.25% 2/1/04 26,100 24,665
Colorado Student Oblig. Bond Auth. Student Loan Rev.
Series A, 6.75% 9/1/99 3,800 3,871
Denver City & County Arpt. Rev.:
9.75% 12/1/95 4,885 4,958
Series A:
6.875% 11/15/00 1,950 1,874
7.25% 11/15/03 1,000 960
7.50% 11/15/06 4,000 3,865
40,193
CONNECTICUT - 0.2%
Connecticut Hsg. Fin. Auth. (Hsg. Mtg. Fin. Prog.)
Series D, 8.50% 11/15/01 2,000 2,060
DISTRICT OF COLUMBIA - 3.0%
District of Columbia Gen. Oblig. Rfdg. Series B, 0%
6/1/02 (MBIA Insured) 2,880 1,840
District of Columbia Hosp. Rev. Rfdg.
(Medlantic Healthcare Group - Washington Hosp. Ctr.):
Series A:
6.50% 8/15/96 1,100 1,110
6.75% 8/15/98 2,600 2,632
6.80% 8/15/99 2,600 2,623
7% 8/15/05 5,730 5,572
Series B:
5.80% 8/15/97 4,035 3,969
6% 8/15/98 4,265 4,180
6.25% 8/15/00 4,805 4,661
26,587
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
FLORIDA - 0.3%
Florida Division Board Fin. Dept. Gen. Svcs. Rev.
(Dept. of Environmental Preservation 2000)
Series A, 4.90% 7/1/13 (MBIA Insured) $ 2,900 $ 2,338
IDAHO - 0.7%
Idaho Falls Elec. Rev. Rfdg.:
0% 4/1/04 (FGIC Insured) 4,040 2,313
0% 4/1/05 (FGIC Insured) 7,000 3,736
6,049
ILLINOIS - 3.2%
Illinois Dev. Fin. Auth. Poll. Cont. Rev. Rfdg.
(Commonwealth Edison) 5.30% 1/15/04 8,500 7,597
Lake County Forest Preserve Dist. 0% 12/1/04 5,850 3,137
Metropolitan Pier & Exposition Auth. Dedicated State Tax Rev.
(McCormick Place Expansion Proj.) Series A:
0% 6/15/07 (FGIC Insured) (b) 5,000 4,200
0% 6/15/08 (FGIC Insured) 4,000 1,655
0% 6/15/09 (FGIC Insured) 5,000 1,912
Rolling Meadows Multi-Family Mtg. Rev. Rfdg.
(Woodfield Garden Apts. Proj.) 7.75% 2/1/04,
LOC Banque Paribas 5,000 5,137
South Beloit Ind. Dev. Rev. Rfdg. (Beloit Corp. Proj.)
7.60% 12/1/11 1,000 1,013
Illinois Univ. Rev. (Auxiliary Facs. Sys.) 0% 10/1/07,
(MBIA Insured) 7,505 3,274
27,925
INDIANA - 1.5%
Hammond Poll. Cont. Rev. (Commonwealth Edison Co.
Proj.) 9.125% 6/15/10 2,000 2,037
Indiana Employment Dev. Poll. Cont. Rev. (Chrysler Corp.)
5.70% 10/1/99 5,000 4,894
Marion County Ind. Hosp. Auth. Facs. Rev.
Rfdg. (Univ. Heights Hosp.) 8.625% 10/1/99
(AMBAC Insured) 3,420 3,860
(Commty. Hosp. Indianapolis Proj.) 9.25% 5/1/98
(Escrowed to Maturity) (c) 2,450 2,625
13,416
IOWA - 0.6%
Iowa Student Loan Liquidity Corp. Student Loan Rev.
Series A, 6.25% 3/1/00 5,080 5,131
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
KANSAS - 0.6%
Kansas City Util. Sys. Rev. 0% 3/1/04 (AMBAC Insured)
(Escrowed to Maturity) (c) $ 8,750 $ 5,091
LOUISIANA - 3.1%
De Soto Parish Poll. Cont. Rev. Rfdg. (Int'l. Paper Co. Proj.)
Series A, 5.05% 12/1/02 8,000 7,390
Louisiana Pub. Facs. Auth. Rev. (Student Loan)
Series A-1:
6.10% 3/1/00 1,500 1,509
6.10% 9/1/00 3,000 3,023
Louisiana Recovery Dist. Sales Tax Rev. 7.625% 7/1/96 7,500 7,734
New Orleans Gen. Oblig. Rfdg. (Cap. Appreciation) 0%
9/1/05 (AMBAC Insured) 15,500 8,002
27,658
MARYLAND - 0.4%
Baltimore Rev. Rfdg. Pkg. Sys. Facs. 4.7%
7/1/08 (FGIC Insured) 1,000 828
Prince George's County Hosp. Rev. (Dimensions Health Corp.):
Rfdg. 5% 7/1/05 1,130 969
7% 7/1/01 1,250 1,280
7.20% 7/1/06 305 310
3,387
MASSACHUSETTS - 6.7%
Massachusetts Ed. Loan Auth. Ed. Loan Rev. Issue C,
7.40% 6/1/98, LOC Rabobank Nederland 3,480 3,532
Massachusetts Gen. Oblig.:
Rfdg. Series A, 5.50% 2/1/11 3,000 2,651
Series C, 4.95% 8/1/05 (AMBAC Insured) 5,500 4,936
0% 12/1/00 3,500 3,071
Massachusetts Health & Edl. Facs. Auth. Rev.:
Rfdg. (Children's Hosp. Corp.) Series B, 10% 1/1/95 115 115
(Lawrence Gen. Hosp.) Series B, 7.25% 7/1/01 5,715 5,686
(Waltham/Weston Hosp. & Med. Ctr.)
Series B, 8% 7/1/02 3,600 3,740
Massachusetts Ind. Fin. Agcy. Ind. Rev. Rfdg. (Beloit Corp. Proj.):
Series A, 7.60% 12/1/11 1,000 1,039
Series B, 6.50% 12/1/96 408 413
Massachusetts Ind. Fin. Agcy. Rev. (Cap. Appreciation)
(Massachusetts Biomedical Research):
Series A-1:
0% 8/1/01 10,800 7,101
0% 8/1/02 5,700 3,491
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
MASSACHUSETTS - CONTINUED
Massachusetts Ind. Fin. Agcy. Rev. (Cap. Appreciation)
(Massachusetts Biomedical Research) - continued
Series A-2:
0% 8/1/04 $ 10,800 $ 5,468
0% 8/1/05 5,100 2,378
0% 8/1/07 5,800 2,298
Massachusetts Muni. Wholesale Elec. Co. Pwr. Supply Sys.
Rev. Rfdg. Series A, 6.75% 7/1/05 3,610 3,723
Massachusetts Wtr. Poll. Abatement Trust Rev.
(Massachusetts Wtr. Resources Auth. Loan Prog.)
Series A, 5.20% 2/1/06 2,100 1,882
New England Ed. Loan Marketing Corp. Massachusetts
Student Loan Rev. Rfdg. Series G, 5.20% 8/1/02 8,250 7,621
59,145
MICHIGAN - 2.6%
Detroit Convention Facs. Rev. Rfdg. (Cobo Hall Expansion Proj.):
5.10% 9/30/04 8,050 7,215
5.25% 9/30/06 11,380 10,000
Michigan Strategic Fund Ltd. Oblig. Rev. Rfdg.
(Eaton Township K-Mart Corp. Proj.) 5.90% 9/1/01 750 717
Michigan Strategic Fund Poll. Cont. Rev.
(Chrysler Corp. Proj.) 5.70% 10/1/99 5,000 4,831
22,763
MINNESOTA - 0.1%
Breckenridge Hosp. Facs. Rev. (Franciscan Sisters Healthcare)
Series B1, 8.25% 9/1/97 (Escrowed to Maturity) (c) 850 910
MISSOURI - 0.4%
Missouri Health & Edl. Facs. Auth. Health Facs. Rev.
Rfdg. (Barnes-Jewish Christian-A) 5.10% 5/15/09 2,330 1,992
Missouri Hsg. Dev. Commission (Cap. Appreciation) 0%
9/1/25 (FHA Insured) 55,130 1,930
3,922
NEBRASKA - 0.9%
Nebraska Investment Fin. Auth. Hosp. Rev. (Nebraska
Methodist Health Sys.) 6.85% 3/1/02 (MBIA Insured) 2,000 2,118
Nebraska Pub. Pwr. Dist. Rev. Rfdg. (Pwr. Supply Sys.):
Series B, 5.25% 1/1/13 2,000 1,692
Series C, 5% 1/1/10 3,500 2,944
Omaha Pub. Pwr. Dist. Elec. Rev.
5.25% 2/1/13 1,000 845
7,599
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NEVADA - 0.4%
Clark County School Dist. Ltd. Tax Series B, 0% 3/1/05,
(FGIC Insured) $ 6,570 $ 3,523
NEW HAMPSHIRE - 0.1%
New Hampshire Higher Ed. & Health Facs. Auth. Rev.
(Androscoggin Valley Hosp.) Series A, 7.90% 11/1/98,
(GNMA Coll.) 685 689
NEW JERSEY - 1.2%
New Jersey Econ. Dev. Auth. Transition Facs. Rev.
Sr. Lien Series A, 7% 7/1/03 (MBIA Insured) 5,000 5,400
New Jersey Health Care Facs. Fin. Auth. Rev. Rfdg.
(Atlantic City Med. Ctr.) Series C:
6.55% 7/1/03 2,200 2,186
6.80% 7/1/05 2,750 2,740
10,326
NEW YORK - 7.4%
Metropolitan Trans. Auth. Svc. Contract Rev. (Trans. Facs.)
Rfdg. Series 7, 5.20% 7/1/04 5,280 4,739
Metropolitan Trans. Auth. Service Contract Rev. Rfdg.
(Trans. Facs.) Series 7:
0% 7/1/08 6,030 2,367
0% 7/1/09 5,195 1,890
0% 7/1/11 7,590 2,324
New York City Gen. Oblig.:
Series B, 7.50% 2/1/04 5,000 5,319
Series H, 7% 2/1/06 3,000 3,045
Short Rites Series C, 4.69781%, 8/1/03 INFL (d) 21,825 21,361
Unltd. Tax. Series B, 7.50% 2/1/05 2,620 2,764
New York State Dorm. Auth. Rev.:
(City Univ. Sys. Consolidated) Series D, 8.75% 7/1/02 2,700 3,102
(Court Facs. Lease) Series A, 5.30% 5/15/06 3,000 2,666
(New York State Univ. Edl. Facs.):
Rfdg. Series B, 5.25% 5/15/09 1,670 1,401
Series A, 5.20% 5/15/06 3,000 2,588
Series C:
5.10% 5/15/03 3,980 3,582
5.20% 5/15/04 4,185 3,735
New York State Local Gov't. Assistance Corp.
Series D, 5.10% 4/1/07 1,500 1,288
New York State Urban Dev. Corp. Rev. (Correctional Cap.
Facs.) Series 4, 5.25% 1/1/07 2,000 1,707
Niagara Falls NY 7.5% 3/1/09 (MBIA Insured) 1,070 1,169
65,047
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
NORTH CAROLINA - 0.8%
Harnett County Ctfs. Partn. 6.2% 12/1/09 $ 1,250 $ 1,216
North Carolina Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev.
Rfdg. Series C, 5.25% 1/1/04 6,885 6,110
7,326
OHIO - 2.7%
Clermont County Hosp. Facs. Rev. (Mercy Health Care
System) 9.75% 9/1/13 (AMBAC Insured)
(Pre-Refunded to 9/1/95 @ 103) (c) 10,000 10,525
Franklin County Rev. (Online Computer Library Ctr.):
5.65% 4/15/01 500 481
5.75% 4/15/02 1,030 986
5.90% 4/15/04 500 473
6% 4/15/09 4,500 4,101
Series 1991:
6.50% 7/15/98 745 756
6.60% 7/15/99 895 907
6.70% 7/15/00 960 977
6.80% 7/15/01 800 817
Lake County Hosp. Impt. Facs. Rev. (Lake Hosp. Sys. Inc.)
6.875% 8/15/11 (AMBAC Insured)
(Escrowed to Maturity) (c) 3,800 3,957
23,980
OKLAHOMA - 2.9%
Grand River Dam Auth. Rev. Rfdg.:
8% 6/1/02 3,890 4,376
5.75% 6/1/06 3,935 3,768
5.875% 6/1/07 5,000 4,787
Tulsa Ind. Auth. Hosp. Rev. (Tulsa Regional Med. Ctr.):
Series A, 7.625% 6/1/06 10,750 10,898
7% 6/1/06 2,080 2,015
25,844
PENNSYLVANIA - 5.3%
Allegheny County Gen. Oblig. Series C-34, 0%
2/15/02 (b) 26,000 23,725
Allegheny County Hosp. Dev. Auth. Rev. (Southside Hosp.)
Series A, 8.50% 6/1/01 4,730 4,843
Allentown Area Hosp. Auth. Rev. (Sacred Heart Hosp.)
7.25% 7/1/96 1,680 1,697
Delaware County Unltd. Tax Rfdg. 0% 11/15/03 5,500 3,183
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
PENNSYLVANIA - CONTINUED
Northampton County Hosp. Auth. Rev. (Easton Hosp.)
Series B, 6.90% 1/1/02 $ 3,355 $ 3,246
Philadelphia Hosp. & Higher Ed. Facs. Auth. Hosp. Rev.
(Temple Univ. Hosp.) Series A:
5.10% 11/15/96 2,245 2,214
5.40% 11/15/97 2,290 2,247
5.75% 11/15/99 2,675 2,588
Philadelphia Wtr. & Wastewtr. 5.50% 6/15/03
(FGIC Insured) 3,300 3,172
46,915
PUERTO RICO - 0.3%
Puerto Rico Commonwealth Gen. Oblig. 5.70% 7/1/08 3,000 2,681
RHODE ISLAND - 0.3%
Rhode Island Student Loan Auth. Student Loan Rev. Rfdg.
Series A, 6.40% 12/1/99 2,340 2,369
SOUTH CAROLINA - 0.2%
Aiken County Hosp. Ind. Rev. Rfdg. (Beloit Corp. Proj.)
7.60% 12/1/11 1,500 1,558
TENNESSEE - 5.5%
Knox County Health, Edl. & Hsg. Facs. Auth. Rev. (Sanders
Alliance Hosp. Facs.) Series C, 7.25%
1/1/10 (MBIA Insured) 2,500 2,666
Knox County Ind. Dev. Board Ind. Rev. Rfdg.
(Station 82-4-B) 0% 2/1/16 (Escrowed to Maturity) (c) 5,625 1,245
Metropolitan Nashville & Davidson County Wtr. & Swr.
Rev. Rfdg. 0% 1/1/12 (FGIC Insured) (b) (e) 54,645 45,150
49,061
TEXAS - 13.5%
Austin Util. Sys. Rev. Rfdg. Series A, 0% 5/15/02,
(MBIA Insured) 16,130 10,464
Dallas County Rfdg. Unltd. Tax Series A:
0% 8/15/05 7,125 3,714
0% 8/15/06 6,700 3,241
0% 8/15/07 3,605 1,618
Dallas Wtrwks. & Swr. Sys. Rev. Rfdg. 5.4% 4/1/10 2,550 2,225
Harris County (Cap. Appreciation) Rev. Rfdg.
(Toll Road Subordinated Lien):
0% 8/1/05 16,275 8,443
0% 8/1/06 13,000 6,272
Series 1991:
0% 8/1/02 8,485 5,420
0% 8/1/03 12,570 7,511
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
TEXAS - CONTINUED
Harris County Gen. Oblig. 0% 10/1/01 $ 11,890 $ 8,026
Harris County Gen. Oblig. Flood Cont. Dist. Rfdg. 0%
10/1/07 7,000 3,054
Houston Wtr. & Swr. Sys. Rev. Rfdg. (Jr. Lien) 0% 12/1/15,
(FGIC Insured) (Pre-Refunded to 12/1/00 @
103) (b) (c) 36,000 34,740
Humble Independent Sch. Dist. 8% 2/15/05 1,300 1,482
Katy Independent School Dist. Rfdg. Ltd. Tax Series A, 0%
2/15/07 (PSF Guaranteed) 4,600 2,110
Lewisville Independent School Dist. Gen. Oblig. Rfdg. 0%
8/15/08 (PSF Guaranteed) 5,000 2,031
Memorial Villages Wtr. Auth. 7% 9/1/00 2,015 2,048
Northside Independent School Dist. Rfdg. 0% 2/1/05,
(PSF Guaranteed) 6,155 3,285
Round Rock Independent School Dist. Rfdg. Unltd. Tax 0%
2/15/07 (PSF Guaranteed) 7,645 3,517
San Antonio Elec. & Gas Rev. Rfdg. Series B, 0% 2/1/09,
(FGIC Insured) 10,000 3,913
Socorro Independent School Dist. Unltd. Tax Rfdg. 0%
9/1/09 (PSF Guaranteed) 3,785 1,424
Spring Independent School Dist. Rfdg. Unltd. Tax 0%
2/15/07 (PSF Guaranteed) 7,420 3,450
Texas Pub. Fin. Auth Series B 5.75% 10/1/14 1,500 1,344
119,332
UTAH - 6.5%
Intermountain Pwr. Agcy. Pwr. Supply Rev.:
Rfdg. Series G, 0% 7/1/12 (Pre-Refunded
to 1/1/03 @ 101) (b) (c) 17,000 14,386
Series 1985 B, 0% 7/1/11 (Pre-Refunded
to 7/1/00 @ 101) (b) (c) (e) 33,470 36,189
Salt Lake County Wtr. Conservancy Dist. Rev.
(Cap. Appreciation) Series A, 0% 10/1/06,
(AMBAC Insured) 3,500 1,663
Utah Board of Regents Student Loan Series A, 7.60%
11/1/00 (AMBAC Insured) 4,900 5,157
57,395
VIRGINIA - 0.2%
Virginia Hsg. Dev. Auth. Residential Mtg. (Single Family Mtg.)
Series 1983 B, 0% 9/1/14 2,705 358
Virginia Trans. Contract Board Rev. Rfdg. 5.25%
5/15/12 1,215 1,036
1,394
MUNICIPAL BONDS - CONTINUED
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
WASHINGTON - 4.6%
Washington Pub. Pwr. Supply Sys. Rev.:
Rfdg. (Nuclear Proj. #1) Series A, 7% 7/1/08 $ 3,000 $ 3,098
(Nuclear Proj. #2):
Rfdg. Series A, 0% 7/1/06 (MBIA Insured) 12,875 6,083
Series A, 14.375% 7/1/01 2,000 2,690
5% 7/1/09 (MBIA Insured) 5,000 4,231
(Nuclear Proj. #3):
Rfdg. Series B:
0% 7/1/04 (MBIA Insured) 10,000 5,088
0% 7/1/07 11,000 4,744
0% 7/1/10 16,000 5,520
0% 7/1/11 9,500 3,040
Series B, 0% 7/1/04 (MBIA Insured) 5,450 2,991
Rfdg.Series C, 7.50% 7/1/08 (MBIA Insured) 3,000 3,259
40,744
WISCONSIN - 0.2%
Beloit Ind. Dev. Rev. Rfdg. (Beloit Corp. Proj.)
7% 12/1/01 1,000 1,035
Wisconsin Hsg. & Econ. Dev. Auth. Homeownership Rev.
Series A, 7.40% 9/1/07 885 902
1,937
MULTIPLE STATES - 5.8%
District of Columbia Metro Area Trans. Auth. Gross Rev.
Rfdg. 4.70% 7/1/03 (FGIC Insured) 5,000 4,512
New England Ed. Loan Marketing Corp. Student Loan
Rev. Rfdg.:
Issue A, 6.50% 9/1/02 35,525 36,058
Issue D:
6.20% 9/1/00 3,000 3,023
6.30% 9/1/02 7,815 7,864
51,457
TOTAL MUNICIPAL BONDS
(Cost $896,874) 867,969
MUNICIPAL NOTES (A) - 1.7%
MOODY'S RATINGS (A) PRINCIPAL VALUE
(UNAUDITED) AMOUNT (NOTE 1)
ILLINOIS - 0.5%
Illinois Dev. Fin. Auth. Multi-Family Hsg. Rev. Rfdg.
(Garden Glen Apts.) Series 1993, 5.65%, VRDN $ 4,200 $ 4,200
NEW YORK - 0.2%
New York Gen. Oblig. TRAN, Series B, 4.1238%
6/30/95 2,000 2,000
PENNSYLVANIA - 0.4%
Philadelphia School Dist. Gen. Oblig. TRAN
Series 1994-95 4.75% 6/30/95 4,000 4,002
TEXAS - 0.6%
Texas Gen. Oblig. TRAN 5% 8/31/95 5,000 5,009
TOTAL MUNICIPAL NOTES
(Cost $15,238) 15,211
TOTAL INVESTMENTS - 100%
(Cost $912,112) $ 883,180
FUTURES CONTRACTS
AMOUNTS IN THOUSANDS EXPIRATION UNDERLYING FACE UNREALIZED
DATE AMOUNT AT VALUE GAIN/(LOSS)
SELL
190 U.S. Treasury Bond Futures March, 1995 $ 18,840 $ 108
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 2.1%
SECURITY TYPE ABBREVIATIONS
TRAN - Tax and Revenue Anticipation Notes
VRDN - Variable Rate Demand Notes

LEGEND
(d) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(e) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date.
(f) Security collateralized by an amount sufficient to pay interest and
principal.
(g) Coupon is inversely indexed to a floating interest rate. The price will
be more volatile than the price of a comparable fixed rate security. The
rate shown is the rate at period end.
(h) A portion of the Security was pledged to cover margin requirements for
futures contracts. At the period end, the value of securities pledged
amounted to $8,898,000.
(i) Security purchased on a delayed delivery basis (see Note 2 of Notes to
Financial Statements).
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total value
of investment in securities, is as follows (ratings are unaudited):
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 70.2% AAA, AA, A 70.3%
Baa 17.9% BBB 14.9%
Ba 0.0% BB 1.3%
B 0.0% B 0.0%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
The percentage not rated by either S&P or Moody's amounted to 2.2%.
The distribution of municipal securities by revenue source, as a percentage
of total value of investment in securities, is as follows:
General Obligation 24.1%
Health Care 16.0
Escrowed/Prerefunded 13.8
Others
(individually less than 10%) 46.1
TOTAL 100.0%
INCOME TAX INFORMATION
At December 31, 1994, the aggregate cost of investment securities for
income tax purposes was $912,112,000. Net unrealized depreciation
aggregated $28,932,000, of which $11,868,000 related to appreciated
investment securities and $40,800,000 related to depreciated investment
securities.
The fund intends to elect to defer to its fiscal year ending December 31,
1995, $3,211,000 of losses recognized during the period November 1, 1994 to
December 31, 1994.
At December 31, 1994, the fund had a capital loss carryforward of
approximately $4,136,000 which will expire on December 31, 2002.
At December 31, 1994 the fund was required to defer $3,353,000 of losses on
futures contracts.
FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS (EXCEPT FOR PER-SHARE AMOUNT) DECEMBER 31, 1994

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS

Investment in securities, at value (cost $912,112) - $ 883,180
See accompanying schedule

Receivable for investments sold 2,008
Regular delivery

Delayed delivery 8,155

Interest receivable 9,994

Receivable for daily variation on futures contracts 59

TOTAL ASSETS 903,396

LIABILITIES

Payable to custodian bank $ 27

Payable for investments purchased 7,085
Regular delivery

Delayed delivery 9,935

Payable for fund shares redeemed 6,567

Dividends payable 928

Accrued management fee 308

Other payables and accrued expenses 188

TOTAL LIABILITIES 25,038

NET ASSETS $ 878,358

Net Assets consist of:

Paid in capital $ 917,988

Accumulated undistributed net realized gain (loss) on (10,806)
investments

Net unrealized appreciation (depreciation) (28,824)
on investments

NET ASSETS, for 97,713 shares outstanding $ 878,358

NET ASSET VALUE, offering price and redemption price per $8.99
share ($878,358 (divided by) 97,713 shares)

</TABLE>

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEAR ENDED DECEMBER 31, 1994

INTEREST INCOME $ 61,194

EXPENSES

Management fee $ 4,081

Transfer agent, accounting and custodian fees 1,442
and expenses

Non-interested trustees' compensation 18

Registration fees 45

Audit 45

Legal 11

Reports to shareholders 79

Miscellaneous 9

TOTAL EXPENSES 5,730

NET INTEREST INCOME 55,464

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:

Investment securities (4,703)

Futures contracts (209) (4,912)

Change in net unrealized appreciation (depreciation) on:

Investment securities (106,158)

Futures contracts 90 (106,068)

NET GAIN (LOSS) (110,980)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM $ (55,516)
OPERATIONS

</TABLE>

STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNTS IN THOUSANDS YEARS ENDED DECEMBER 31,

1994 1993

INCREASE (DECREASE) IN NET ASSETS

Operations $ 55,464 $ 60,952
Net interest income

Net realized gain (loss) (4,912) 35,245

Change in net unrealized appreciation (depreciation) (106,068) 37,853

NET INCREASE (DECREASE) IN NET ASSETS RESULTING (55,516) 134,050
FROM OPERATIONS

Distributions to shareholders: (55,464) (60,952)
From net interest income

From net realized gain (1,449) (26,367)

In excess of net realized gain (989) (1,842)

TOTAL DISTRIBUTIONS (57,902) (89,161)

Share transactions 476,696 760,870
Net proceeds from sales of shares

Reinvestment of distributions 43,615 69,586

Cost of shares redeemed (727,907) (651,877)

Net increase (decrease) in net assets resulting from (207,596) 178,579
share transactions

TOTAL INCREASE (DECREASE) IN NET ASSETS (321,014) 223,468

NET ASSETS

Beginning of period 1,199,372 975,904

End of period $ 878,358 $ 1,199,372

OTHER INFORMATION
Shares

Sold 50,770 76,683

Issued in reinvestment of distributions 4,647 6,988

Redeemed (77,752) (65,305)

Net increase (decrease) (22,335) 18,366

</TABLE>

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
YEARS ENDED DECEMBER 31,

1994 1993 1992 1991 1990

SELECTED PER-SHARE
DATA

Net asset value, $ 9.990 $ 9.600 $ 9.520 $ 9.270 $ 9.310
beginning of period

Income from Investment .512 .516 .573 .603 .615
Operations
Net interest income

Net realized and (.980) .630 .180 .400 .010
unrealized gain (loss)

Total from investment (.468) 1.146 .753 1.003 .625
operations

Less Distributions (.512) (.516) (.573) (.603) (.615)
From net interest
income

From net realized gain (.010) (.220) (.100) (.150) (.050)
on investments

In excess of net (.010) (.020) - - -
realized gain on
investments

Total distributions (.532) (.756) (.673) (.753) (.665)

Net asset value, $ 8.990 $ 9.990 $ 9.600 $ 9.520 $ 9.270
end of period

TOTAL RETURN -4.76% 12.24 8.17 11.19 6.97
% % % %

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 878 $ 1,199 $ 976 $ 696 $ 468
(in millions)

Ratio of expenses to .56% .57 .64 .68 .67
average net assets % % % %

Ratio of net interest 5.42% 5.19 5.94 6.41 6.63
income to average % % % %
net assets

Portfolio turnover rate 30% 111 50 42 72
% % % %

</TABLE>

NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1994

1. SIGNIFICANT ACCOUNTING
POLICIES.
Fidelity Limited Term Municipals (the fund) is a fund of Fidelity School
Street Trust (the trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of 1940,
as amended (the 1940 Act), as an open-end management investment company
organized as a Massachusetts business trust. The following summarizes the
significant accounting policies of the fund:
SECURITY VALUATION. Securities are valued based upon a computerized matrix
system and/or appraisals by a pricing service, both of which consider
market transactions and dealer-supplied valuations. Short-term securities
maturing within sixty days of their purchase date are valued either at
amortized cost or original cost plus accrued interest, both of which
approximate current value. Securities for which quotations are not readily
available through the pricing service are valued at their fair value as
determined in good faith under consistently applied procedures under the
general supervision of the Board of Trustees.
INCOME TAXES. As a qualified regulated investment company under Subchapter
M of the Internal Revenue Code, the fund is not subject to income taxes to
the extent that it distributes all of its taxable income for its fiscal
year. The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."
INTEREST INCOME. Interest income, which includes amortization of premium
and accretion of original issue discount, is accrued as earned.
EXPENSES. Most expenses of the trust can be directly attributed to a fund.
Expenses which cannot be directly attributed are apportioned between the
funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and paid
monthly from net investment income. Distributions from realized gains, if
any, are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
futures and options transactions, losses deferred due to wash sales, and
excise tax regulations. The fund also utilized earnings and profits
distributed to shareholders on redemption of shares as a part of the
dividends paid deduction for income tax purposes.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital. Any
taxable gain remaining at fiscal year end is distributed in the following
year.
SECURITY TRANSACTIONS. Security transactions are accounted for as of trade
date. Gains and losses on securities sold are determined on the basis of
identified cost.
2. OPERATING POLICIES.
DELAYED DELIVERY TRANSACTIONS. The fund may purchase or sell securities on
a when-issued or forward commitment basis. Payment and delivery may take
place a month or more after the date of the transaction. The price of the
underlying securities and the date when the securities will be delivered
and paid for are fixed at the time the transaction is negotiated. The fund
identifies securities as segregated in its custodial records with a value
at least equal to the amount of the purchase commitment.
FUTURES CONTRACTS AND OPTIONS. The high yield fund may use futures and
options contracts to manage its exposure to the bond market and to
fluctuations in interest rates. Buying futures, writing puts, and buying
calls tend to increase the fund's exposure to the underlying instrument.
Selling futures, buying puts, and writing calls tend to decrease the fund's
exposure to the underlying instrument, or hedge other fund investments.
Futures contracts and written options involve, to varying degrees, risk of
loss in excess of the futures variation margin or the option value
reflected in the Statement of Assets and Liabilities. The underlying face
amount at value is shown in the schedule of investments under the caption
"Purchased Options." This amount reflects each contract's exposure to the
underlying instrument at period end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparties do not perform under the
contracts' terms.
Futures contracts are valued at the settlement price established each day
by the board of trade or exchange on which they are traded. Exchange-traded
options are valued using the last sale price or, in the absence of a sale,
the last offering price. Options traded over-the-counter are valued using
dealer-supplied valuations.
3. PURCHASES AND SALES OF
INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $299,847,000 and $535,733,000, respectively.
The market value of futures contracts opened and closed during the period
amounted to $526,924,000 and $514,029,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, Fidelity Management &
Research Company (FMR) receives a monthly fee computed daily and paid
monthly, based on the fund's gross income at the rate of 5% of the gross
income and .15% of average net assets. Gross income includes interest
accrued less amortization of premium excluding accretion of discount. For
the period, the management fee was equivalent to an annual rate of .40% of
average net assets.
The Board of Trustees approved a reduction in the management fee from .15%
to .10% of average net assets which FMR voluntarily implemented on July 1,
1993 (see Note 5).
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
DISTRIBUTION AND SERVICE PLAN. Pursuant to the Distribution and Service
Plan (the Plan), and in accordance with Rule 12b-1 of the 1940 Act, FMR or
the fund's distributor, Fidelity Distributors Corporation (FDC), an
affiliate of FMR, may use their resources to pay administrative and
promotional expenses related to the sale of the fund's shares. Subject to
the approval of the Board of Trustees, the Plan also authorizes payments to
third parties that assist in the sale of the fund's shares or render
shareholder support services. FMR or FDC has informed the fund that
payments made to third parties under the Plan amounted to $44,000 for the
period.
TRANSFER AGENT AND ACCOUNTING FEES. United Missouri Bank, N.A. (the Bank)
is the custodian and transfer and shareholder servicing agent for the fund.
The Bank has entered into a sub-contract with Fidelity Service Co. (FSC),
an affiliate of FMR, under which FSC performs the activities associated
with the fund's transfer and shareholder servicing agent and accounting
functions. The fund pays transfer agent fees based on the type, size,
number of accounts and number of transactions made by shareholders. FSC
pays for typesetting, printing and mailing of all shareholder reports,
except proxy statements. The accounting fee is based on the level of
average net assets for the month plus out-of-pocket expenses. For the
period, FSC received transfer agent and accounting fees amounting to
$1,079,000 and $338,000, respectively.
5. SHAREHOLDER MEETING.
At a special meeting of shareholders of the fund held on December 14, 1994,
shareholders approved an amended management contract and amendments to
certain fundamental investment limitations of the fund.
The new management contract, which became effective on January 1, 1995,
will reflect the reduction in the management fee which FMR voluntarily
implemented on July 1, 1993.
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity School Street Trust and the Shareholders of
Fidelity Limited Term Municipals:
We have audited the accompanying statement of assets and liabilities of
Fidelity School Street Trust: Fidelity Limited Term Municipals, including
the schedule of portfolio investments, as of December 31, 1994, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended. These financial statements and financial highlights are the
responsibility of the fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1994 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Fidelity School Street Trust: Fidelity Limited Term Municipals as of
December 31, 1994, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 3, 1995
TO WRITE FIDELITY

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(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
(LETTER_GRAPHIC)FOR NON-RETIREMENT
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BUYING SHARES
Fidelity Investments
P.O. Box 770001
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OVERNIGHT EXPRESS
Fidelity Investments
100 Crosby Parkway - KP2C
Covington, KY 41015-4399
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P.O. Box 193
Boston, MA 02210-0193
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P.O. Box 660602
Dallas, TX 75266-0602
Fidelity Investments
P.O. Box 30281
Salt Lake City, UT 84130-0281
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions
World Trade Center
164 Northern Avenue
Boston, MA 02210
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 193
Boston, MA 02210-0193
(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
J. Gary Burkhead, Senior Vice President
Arthur S. Loring, Secretary
David Murphy, Vice President
Gary L. French, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
J. Gary Burkhead
Ralph F. Cox *
Phyllis Burke Davis *
Richard J. Flynn *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Edward H. Malone *
Marvin L. Mann *
Gerald C. McDonough *
Thomas R. Williams *
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
United Missouri Bank, N.A.
Kansas City, MO
(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
and
Fidelity Service Co.
Boston, MA
CUSTODIAN
United Missouri Bank, N.A.
Kansas City, MO
(registered trademark)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
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Spartan Pennsylvania Municipal High Yield
Spartan Short-Intermediate Municipal
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Account Balances 1-800-544-7544
Exchanges/Redemptions 1-800-544-7777
Mutual Fund Quotes 1-800-544-8544
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
* INDEPENDENT TRUSTEES
AUTOMATED LINES FOR QUICKEST SERVICE