FIDELITY SCHOOL STREET TRUST/, N-30D, 1998-08-20

FIDELITY SCHOOL STREET TRUST/
N-30D, 1998-08-20

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(2_FIDELITY_LOGOS)FIDELITY

STRATEGIC INCOME
FUND
SEMIANNUAL REPORT
JUNE 30, 1998
CONTENTS

PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.

PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.

FUND TALK 5 THE MANAGER'S REVIEW OF FUND
PERFORMANCE, STRATEGY AND OUTLOOK.

INVESTMENT SUMMARY 9 A SUMMARY OF THE FUND'S INVESTMENTS.

INVESTMENTS 10 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.

FINANCIAL STATEMENTS 18 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.

NOTES 22 NOTES TO THE FINANCIAL STATEMENTS.

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. SHARES ARE NOT INSURED BY THE FDIC,
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY, AND ARE SUBJECT TO
INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT
INVESTED.
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.
To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.
PRESIDENT'S MESSAGE

(PHOTO_OF_EDWARD_C_JOHNSON_3D)DEAR SHAREHOLDER:
As the first half of 1998 drew to a close, benign inflation, low
interest rates and moderate economic growth provided a solid
foundation for strong stock and bond performance. Investors seemed to
put concerns about the financial and economic turmoil in Asia aside
for the most part, responding instead to stronger-than-expected
corporate earnings and a sound domestic economy. The bond markets
tended to benefit from the moderate growth in the economy and a
historically low rate of inflation, as well their traditional status
as a refuge from volatility in the equity markets.
While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.
The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.
An intermediate-length fund could make sense if your investment
horizon is two to four years, while 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. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that there is no assurance that a money market fund will
achieve its goal of maintaining a stable net asset value of $1.00 per
share, and that these types of funds are neither insured nor
guaranteed by any agency of the U.S. government.
Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases.
If you have questions, please call us at 1-800-544-8888. We are
available 24 hours a day, seven days a week to provide you 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. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's yield, to
measure performance. If Fidelity had not reimbursed certain fund
expenses, the fund's total return would have been lower.
CUMULATIVE TOTAL RETURNS
PERIOD ENDED JUNE 30, 1998 LIFE OF
FUND

FIDELITY STRATEGIC INCOME -0.94%

FIDELITY STRATEGIC INCOME COMPOSITE -0.04%

JP EMBI PLUS -6.52%

LB GOVERNMENT BOND 2.11%

ML HIGH YIELD MASTER 1.13%

SB NON-US DOLLAR WORLD GOVT. BOND -0.89%

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, since the fund started on May
1, 1998. For example, if you had invested $1,000 in a fund that had a
5% return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Fidelity Strategic Income Composite Index, a hypothetical combination
of unmanaged indices. The composite index combines the total returns
of the JP Morgan Emerging Markets Bond Index Plus, the Lehman Brothers
Government Bond Index, the Merrill Lynch High Yield Master Index and
the Salomon Brothers Non-US Dollar World Government Bond Index
weighted according to the fund's neutral mix.* The benchmarks listed
in the table above include reinvested dividends and capital gains, if
any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. These numbers will be reported once the fund
is a year old. In addition, the growth of the hypothetical $10,000
investment in the fund will appear in the fund's next report six
months from now.
* CURRENTLY 40% HIGH YIELD, 30% US GOVERNMENT AND INVESTMENT GRADE
BONDS, 15% FOREIGN DEVELOPED-MARKETS, AND 15% EMERGING MARKETS.
FUND TALK: THE MANAGERS' OVERVIEW

MARKET RECAP
Globally, investment grade
fixed-income markets generated
positive returns in the first half of
1998. However, debt in the lower
credit tiers, domestically and in
emerging markets, experienced
pronounced volatility and
widening yield spreads. The U.S.
Treasury market generated strong
performance in the first half with
long-term bond yields finishing
June at their lowest level in over 20
years. The yield curve flattened as
long rates fell more than short
rates. Long-term interest rates
declined in response to benign
inflation, an unchanged monetary
policy and Asian instability that
pushed the dollar to an eight-year
high against the Japanese yen.
Foreign developed-market debt
also posted positive results in U.S.
dollar terms. Within the Salomon
World Government Bond Index,
European currency strength
relative to the dollar resulted in
broad gains. The U.K. and Sweden
led the way with Japan and
Switzerland delivering the only
negative results. Increased volatility
in the domestic high yield market
left yield spreads wider.
Dramatically lower Asian
currencies led many to speculate
about the export competitiveness of
U.S. companies and the resulting
impact on their corporate earnings.
New issuance of high yield debt
escalated toward the end of the first
half, exacerbating the upward
pressure on yields. The escalating
banking crisis in Japan, combined
with the brewing fiscal crisis in
Russia, increased spread
volatility and weakness in
emerging market debt issues in the
second quarter.
NOTE TO SHAREHOLDERS: The following is an interview with John Carlson
(top), lead Portfolio Manager of Fidelity Strategic Income Fund, with
additional comments from co-managers Curt Hollingsworth (top left) on
U.S. government and investment-grade securities; Margaret Eagle (top
right) on high-yield securities; Ian Spreadbury (bottom left) on
foreign developed-market securities; and Brian Hogan (bottom right) on
emerging-market investments.
Q. HOW DID THE FUND PERFORM, JOHN?
J.C. From its inception on May 1, 1998, through June 30, 1998, the
fund returned -0.94%. The Fidelity Strategic Income Composite Index,
meanwhile, returned -0.04% during that time. For the most similar
period available for its peer group - from April 30, 1998 through June
30, 1998 - the multi-sector income funds average returned -0.42%,
according to Lipper Analytical Services. Future reports will show
performance data for six- and 12-month intervals.
Q. THOUGH THE FUND HAS ONLY BEEN UP AND RUNNING FOR A BRIEF TIME, WHAT
FACTORS CONTRIBUTED TO PERFORMANCE?
J.C. The fund's emerging-market positions were the main detractor. The
emerging markets went through a period of pronounced volatility,
especially in the key regions of Russia and Southeast Asia. Russia
experienced a serious liquidity problem during the period due to the
low cash-flow characteristics of its economy, and the problems we saw
in Southeast Asia in late 1997 lingered. These difficulties brought
other emerging markets - such as Brazil - down in sympathy. The fund's
high-yield sub-portfolio also detracted from performance, owing to a
large supply of new issues - especially in the telecommunications
sector - overwhelming demand. The fund's investments in U.S.
government securities contributed positively to performance, while
holdings in foreign developed market debt marginally restrained the
fund's return.
Q. WHAT TYPES OF SECURITIES DOES THE FUND INVEST IN?
J.C. There are four main baskets: high-yield securities, which tend to
be of lower credit quality; U.S. government and investment-grade
securities, including Treasuries, agencies and mortgage-backed
securities; emerging-market securities; and securities of foreign
developed markets. Of course, high-yield and international investments
carry additional risks. While there is no fixed limit on the percent
of assets to be invested in each basket, the neutral mix over time
should be approximately 40% high yield; 30% U.S. government and
investment-grade; 15% emerging markets; and 15% foreign developed
markets.
Q. TURNING TO YOU, CURT, WHAT'S YOUR STRATEGY FOR THE U.S. GOVERNMENT
AND INVESTMENT-GRADE PORTION OF THE FUND?
C.H. As John mentioned, I'll focus on three areas: Treasuries,
agencies and mortgage-backed securities. The direction of interest
rates is the chief factor behind the performance of these types of
securities. Rather than try to make interest-rate calls, however, I
try to identify those securities that I feel will offer the best total
return potential in any type of interest-rate environment. I also tend
to have a value discipline, so I typically choose securities that I
find to be cheap relative to other securities. At the end of the
period, my sub-portfolio consisted of U.S. Treasuries. As time goes on
and assets in the fund accumulate, I'll gradually build positions in
both agencies - such as Fannie Mae and the Freddie Mac - and
mortgage-backed securities, such as the Government National Mortgage
Association.
Q. HOW ABOUT THE HIGH-YIELD COMPONENT OF THE FUND, MARGARET?
M.E. At the end of the period, high-yield issues accounted for just
over 40% of the fund. Low inflation and a strong U.S. economy created
a benign environment for high-yield bonds. The fund had significant
positions in the telecommunications sector, which detracted from
performance. The fund's positions in the cable TV sector were positive
contributors. In this market, credit quality is the main performance
factor. So far, credit quality has been healthy. Recent turmoil in
Russia and Asia could have an indirect impact on the U.S. high-yield
market and overall credit quality. At the end of the period, the fund
had large positions in cable TV company Adelphia as well as grocery
store chain Pathmark.
Q. IAN, CAN YOU TALK ABOUT THE FOREIGN DEVELOPED MARKETS?
I.S. Sure. I'll expend most of my energy monitoring six markets:
Germany, Italy, Japan, the United Kingdom, France and Canada. In
Europe, one of the catalysts behind the strong bond market performance
we've seen has been the drive toward a uniform currency. As countries
have met the requirements for joining the European Monetary Union
(EMU), we've witnessed a beneficial convergence of cross-border fiscal
and economic policies. During the period, the best-performing market
was that of the U.K., followed by steady performances from both
Germany and Italy. Japan, however, continued to have problems as the
country has been slow to enact economic reforms. As the uniform
currency nears - it's scheduled to become effective in January 1999 -
we've also seen more corporate bond issuance. Corporates can often
provide attractive returns, and I may look to bump up the fund's
exposure to them going forward.
Q. TURNING TO YOU, BRIAN, WHAT ARE YOUR VIEWS ON THE EMERGING MARKETS?
B.H. The emerging markets sub-portfolio will invest in the debt of
countries in the following regions: Latin America, Asia, Eastern
Europe and Africa. Country characteristics I am emphasizing when I
invest in the current market environment include a strong economic
growth trend, positive relations with the IMF and some degree of
insulation from the ongoing Asian weakness. These aspects have been
increasingly important in the recent volatile environment for emerging
market debt. Global risk premiums have risen for a number of reasons,
including the weakened Japanese yen, a renewal in negative sentiment
toward Southeast Asian economies, heightened concerns regarding
Russian liquidity and declining commodity prices. In terms of security
selection, I am increasing the portfolio's allocation to
collateralized Brady bonds. These dollar-denominated issues are backed
by US Treasury bonds and are very liquid.
Q. JOHN, WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS?
J.C. While each portfolio manager is the expert on the key drivers in
their respective markets, the macro variables near term will most
likely be, 1) Japan's progress in strengthening its economy, 2) U.S.
interest rates, 3) corporate earnings and 4) the U.S. dollar's
strength.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.

IAN SPREADBURY TALKS ABOUT
A UNIFORM CURRENCY IN EUROPE
AND HOW IT HAS SHAPED HIS
STRATEGY:
"As countries have met the
requirements necessary for joining
the EMU, economies and fiscal
policies have become somewhat
more correlated. As a result, I began
to look at three of my sub-portfolio's
primary investment regions -
France, Germany and Italy - almost
as one.
"In particular, I made some moves
based on the yield curves for each
region. A yield curve is a graph that
shows how yields vary for bonds of
similar quality but different
maturities. Back in May, short-term
interest rates were high in Italy and
we felt they would come down as the
introduction of the euro neared.
Looking forward nine months, we
determined that the curve in Italy
would be only slightly higher than
the German curve. After doing some
analysis, we concluded that it made
sense for us to move our Italian
lira exposure to the short end of
the curve and balance that by
moving our German deutsche
mark exposure to the long end.
"Of course, these moves are
contingent upon the euro
coming to fruition in January 1999.
At this point, it seems it would take a
major development to throw it off
course."
FUND FACTS
GOAL: high current income
with the potential for capital
appreciation
FUND NUMBER: 368
TRADING SYMBOL: FSICX
START DATE: May 1, 1998
SIZE: as of June 30, 1998,
more than $15 million
MANAGER: John Carlson, lead
manager, since inception;
Curt Hollingsworth, U.S.
government and investment
grade investments, since
inception; Margaret Eagle,
high-yield investments, since
inception; Ian
Spreadbury, foreign
developed market
investments, since
inception; and Brian Hogan,
emerging-market investments
since inception
(checkmark)
INVESTMENT SUMMARY

TOP FIVE HOLDINGS AS OF JUNE 30, 1998
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS

U.S. TREASURY OBLIGATIONS 26.3

BRAZILIAN FEDERATIVE REPUBLIC 3.9

ICG HOLDINGS, INC. 3.8

ADELPHIA COMMUNICATIONS CORP. 3.5

VIATEL, INC. 3.3

TOP FIVE MARKET SECTORS AS OF JUNE 30, 1998
% OF FUND'S INVESTMENTS

UTILITIES 13.7

MEDIA & LEISURE 8.8

RETAIL & WHOLESALE 5.2

ENERGY 5.1

TECHNOLOGY 3.5

QUALITY DIVERSIFICATION AS OF JUNE 30, 1998
(MOODY'S RATINGS) % OF FUND'S INVESTMENTS

AAA, AA, A 35.1

BAA 0.3

BA 6.7

B 26.8

CAA, CA, C 7.7

NOT RATED 3.2

TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE USE S&P RATINGS.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JUNE 30, 1998 *
ROW: 1, COL: 1, VALUE: 30.9
ROW: 1, COL: 2, VALUE: 26.3
ROW: 1, COL: 3, VALUE: 21.1
ROW: 1, COL: 4, VALUE: 8.9
ROW: 1, COL: 5, VALUE: 1.5
ROW: 1, COL: 6, VALUE: 11.3
NONCONVERTIBLE BONDS 30.9%
U.S. GOVERNMENT &
GOVERNMENT AGENCY
OBLIGATIONS 26.3%
FOREIGN GOVERNMENT
OBLIGATIONS 21.1%
STOCKS 8.9%
OTHER 1.5%
SHORT-TERM INVESTMENTS 11.3%
FOREIGN INVESTMENTS 23.1%
*
INVESTMENTS JUNE 30, 1998 (UNAUDITED)

SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES

NONCONVERTIBLE BONDS - 30.9%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
AEROSPACE & DEFENSE - 0.1%
Compass Aerospace Corp.
10 1/8%, 4/15/05 (d) Caa $ 10,000 $ 10,200
BASIC INDUSTRIES - 0.3%
CHEMICALS & PLASTICS - 0.1%
Moll Industries 10 1/2%, 7/1/08 (d) B3 10,000 10,200
PACKAGING & CONTAINERS - 0.2%
Gaylord Container Corp. 9 3/8%, 6/15/07 B3 40,000 38,600
TOTAL BASIC INDUSTRIES 48,800
DURABLES - 0.9%
AUTOS, TIRES, & ACCESSORIES - 0.8%
Breed Technologies, Inc.
9 1/4%, 4/15/08 (d) B3 100,000 97,750
Federal-Mogul Corp. 7 7/8%, 7/1/10 Ba2 30,000 30,113
127,863
CONSUMER DURABLES - 0.1%
Simonds Industries 10 1/4%, 7/1/08 (d) B3 10,000 10,000
Total Durables 137,863
ENERGY - 5.1%
COAL - 1.9%
Level 3 Communications, Inc. 9 1/4%, 5/1/08 (d) B3 300,000 291,750
OIL & GAS - 3.2%
Chesapeake Energy Corp. 9 5/8%, 5/1/05 (d) B1 500,000 501,250
TOTAL ENERGY 793,000
FINANCE - 0.1%
CREDIT & OTHER FINANCE - 0.1%
Transwestern Public Co. LP/TWP Capital
9 5/8%, 11/15/07 B2 20,000 20,400
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
HEALTH - 0.3%
DRUGS & PHARMACEUTICALS - 0.1%
Global Health Sciences, Inc. 11%, 5/1/08 (d) Caa $ 20,000 $ 19,800
MEDICAL FACILITIES MANAGEMENT - 0.2%
Oxford Health Plans, Inc. 11%, 5/15/05 (d) Caa 30,000 30,750
TOTAL HEALTH 50,550
MEDIA & LEISURE - 8.7%
BROADCASTING - 7.5%
Adelphia Communications Corp.:
9 1/2%, 2/15/04 B2 500,000 507,940 9 7/8%, 3/1/07 B2 40,000
43,300
Diamond Cable Communications PLC yankee (e):
0%, 12/15/05 Caa 70,000 57,750
0%, 2/15/07 Caa 30,000 22,125
Falcon Holding Group LP/Falcon Funding (d):
8 3/8%, 4/15/10 B2 50,000 50,375
0%, 4/15/10 (e) B2 340,000 220,150
Fox/Liberty Networks LLC/FLN Finance, Inc.
0%, 8/15/07 (e) B1 40,000 27,800
Intermedia Capital Partners IV LP/Intermedia
Partners IV Capital Corp. 11 1/4%, 8/1/06 B2 20,000 22,600
Lenfest Communications, Inc.
8 1/4%, 2/15/08 (d) B2 20,000 20,900
LIN Holdings Corp. 0%, 3/1/08 (d)(e) B3 30,000 20,250
Orbital Imaging Corp. 11 5/8%, 3/1/05 (d) - 10,000 10,200
Renaissance Media Group 0%, 4/15/08 (d)(e) B3 30,000 18,675
Young Broadcasting, Inc., Series B,
8 3/4%, 6/15/07 B2 150,000 156,375
1,178,440
ENTERTAINMENT - 1.2%
Premier Parks, Inc.:
9 1/4%, 4/1/06 B3 100,000 103,125
0%, 4/1/08 (e) B3 120,000 79,650
182,775
TOTAL MEDIA & LEISURE 1,361,215
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
NONDURABLES - 0.4%
FOODS - 0.1%
Aurora Foods, Inc. 8 3/4%, 7/1/08 (d) B1 $ 20,000 $ 20,275
HOUSEHOLD PRODUCTS - 0.3%
AKI, Inc. 10 1/2%, 7/1/08 (d) B2 20,000 20,200
Revlon Consumer Products Corp.
8 5/8%, 2/1/08 B3 20,000 20,000
40,200
TOTAL NONDURABLES 60,475
RETAIL & WHOLESALE - 5.2%
GROCERY STORES - 5.2%
Fleming Companies, Inc., Series B,
10 5/8%, 7/31/07 B3 300,000 313,125
Pathmark Stores, Inc. 11 5/8%, 6/15/02 Caa 500,000 505,000
818,125
SERVICES - 0.6%
Signature Resorts, Inc. 9 3/4%, 10/1/07 B3 100,000 97,250
TECHNOLOGY - 3.5%
COMPUTER SERVICES & SOFTWARE - 3.5%
DecisionOne Corp. 9 3/4%, 8/1/07 B3 40,000 38,400
Verio, Inc. 10 3/8%, 4/1/05 (d) B- 500,000 513,750
552,150
TRANSPORTATION - 0.3%
AIR TRANSPORTATION - 0.3%
Atlas Air, Inc. 9 1/4%, 4/15/08 (d) B3 50,000 49,938
UTILITIES - 5.4%
CELLULAR - 0.3%
McCaw International Ltd. 0%, 4/15/07 (e) Caa 70,000 45,850
ELECTRIC UTILITY - 0.1%
Niagara Mohawk Power Corp.:
7 3/4%, 10/1/08 Ba3 10,000 10,238
0%, 7/1/10 (e) Ba3 10,000 6,850
17,088
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
UTILITIES - CONTINUED
TELEPHONE SERVICES - 5.0%
Covad Communications Group unit
0%, 3/15/08 (d)(e) - $ 40,000 $ 20,400
Dobson Wireline Co. 12 1/4%, 6/15/08 (d) - 100,000 97,750
Global Crossing Holding Ltd.
9 5/8%, 5/15/08 (d) - 70,000 72,888
Pathnet, Inc. unit 12 1/2%, 4/15/08 (d) - 35,000 37,100
Telegroup, Inc. 0%, 11/1/04 (e) - 20,000 15,700
Viatel, Inc. unit 11 1/4%, 4/15/08 (d) Caa 500,000 526,250
Winstar Communications, Inc. 11%, 3/15/08 (d) - 20,000 19,900
789,988
TOTAL UTILITIES 852,926
TOTAL NONCONVERTIBLE BONDS
(Cost $4,871,258) 4,852,892
U.S. GOVERNMENT AND GOVERNMENT AGENCY OBLIGATIONS - 26.3%
U.S. TREASURY OBLIGATIONS - 26.3%
5 7/8%, 8/31/99 Aaa 710,000 712,776
10 3/4%, 8/15/05 Aaa 2,210,000 2,875,409
9%, 11/15/18 Aaa 390,000 542,038
TOTAL U.S. GOVERNMENT AND GOVERNMENT
AGENCY OBLIGATIONS (Cost $4,103,719) 4,130,223
FOREIGN GOVERNMENT OBLIGATIONS (H) - 21.1%
Argentinian Republic:
Brady:
floating rate bond 6 5/8%,
3/31/05 (bearer) (g) Ba3 95,000 83,838
par euro 5 3/4%, 3/31/23 (f) Ba3 250,000 185,781
global bond 11%, 10/9/06 Ba3 150,000 159,150
Austrian Republic euro 4 1/2%, 9/28/05 Aaa JPY 20,000,000 174,188
FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
Brazilian Federative Republic:
Brady:
capitalization bond 8%, 4/15/14 B1 $ 313,257 $ 230,244
debt conversion bond euro
6.69%, 4/15/12 (g) B1 75,000 52,125
IDU euro 6.88%, 1/1/01 (g) B1 350,000 332,150
Bulgarian Republic Brady discount
6.56%, 7/28/24 (g) B2 140,000 107,100
Canadian Government 7%, 12/1/06 Aa1 CAD 300,000 227,062
Ecuador Republic Brady:
past due interest euro 6 5/8%,
2/28/15 (bearer) (g) B1 55,634 31,885
par euro 3 1/2%, 2/28/25 (f) B1 100,000 53,813
German Republic 6%, 1/4/07 Aaa DEM 700,000 419,884
Italian Government 12%, 9/1/01 Aa3 ITL 350,000,000 238,086
Mexico Value recovery rights
6/30/03 discount B BB+ 384,000 -
Panamanian Republic Brady par
3 1/2%, 7/17/26 (f) Ba1 60,000 39,304
Peruvian Republic Brady FLIRB
3 1/4%, 3/7/17 (g) B2 100,000 55,871
Polish Republic Brady par
3%, 10/27/24 (f) Baa 75,000 49,594
Russian Government 11 3/4%, 6/10/03 (d) B+ 20,000 17,675
Treuhandanstalt 6 5/8%, 7/9/03 Aaa DEM 100,000 60,608
United Kingdom, Great Britain & Northern Ireland:
9 3/4%, 8/27/02 Aaa GBP 75,000 139,579
8 3/4%, 8/25/17 Aaa GBP 50,000 113,124
United Mexican States:
Brady discount B, 6.48%, 12/31/19 (g) Ba2 250,000 224,688
global bond 11 1/2%, 5/15/26 Ba2 225,000 255,375
Venezuelan Republic 9 1/4%, 9/15/27 Ba2 80,000 61,800
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $3,425,797) 3,312,924
COMMON STOCKS - 0.0%
SHARES VALUE (NOTE 1)

MEDIA & LEISURE - 0.0%
BROADCASTING - 0.0%
Orbital Imaging Corp. warrants 3/1/05 (a)(d)
(Cost $460) 10 $ 450
PREFERRED STOCKS - 8.9%
CONVERTIBLE PREFERRED STOCKS - 1.2%
UTILITIES - 1.2%
TELEPHONE SERVICES - 1.2%
IXC Communications, Inc. $3.375 (d) 4,000 190,250
NONCONVERTIBLE PREFERRED STOCKS - 7.7%
INDUSTRIAL MACHINERY & EQUIPMENT - 0.5%
ELECTRICAL EQUIPMENT - 0.5%
Echostar Communications Corp.
12 1/8%, pay-in-kind 72 79,200
MEDIA & LEISURE - 0.1%
BROADCASTING - 0.1%
CSC Holdings, Inc. 11 1/8%, pay-in-kind 140 16,030
UTILITIES - 7.1%
CELLULAR - 3.3%
Nextel Communications, Inc. 11 1/8%, pay-in-kind (d) 500 515,000
TELEPHONE SERVICES - 3.8%
ICG Holdings, Inc. 14%, pay-in-kind 517 600,880
TOTAL UTILITIES 1,115,880
TOTAL NONCONVERTIBLE PREFERRED STOCKS 1,211,110
TOTAL PREFERRED STOCKS
(Cost $1,458,978) 1,401,360
SOVEREIGN LOAN PARTICIPATIONS - 1.5%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
Bank for Foreign Economic Affairs of Russia
(VnesheconombankBa) loan participation
restructured under 1997 agreement -
BankBoston Corp. 6.72%, 12/15/20 (g) - $ 5,000 $ 2,363
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) loan participation
restructured under 1997 agreement (g):
The Chase Manhattan Bank
6 5/8%, 12/15/20 - 440,000 207,900
Lehman Commercial Paper, Inc.
6.72%, 12/15/20 - 50,000 23,625
TOTAL SOVEREIGN LOAN PARTICIPATIONS
(Cost $279,369) 233,888
CASH EQUIVALENTS - 11.3%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.66%, dated
6/30/98 due 7/1/98 $ 1,781,280 1,781,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $15,920,581) $ 15,712,737
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest Reduction
Bonds
CURRENCY ABBREVIATIONS
CAD - Canadian dollar
DEM - German deutsche mark
GBP - British pound
JPY - Japanese yen
ITL - Italian lira
LEGEND
(a) Non-income producing
(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(c) Principal amount is stated in United States dollars unless
otherwise noted.
(d) 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
$3,414,076 or 21.7% of net assets.
(e) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(f) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(h) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 35.0% AAA, AA, A 35.0%
Baa 0.3% BBB 0.3%
Ba 6.7% BB 10.7%
B 23.3% B 22.4%
Caa 7.7% CCC 3.5%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings
of the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 3.2%. FMR has determined that
unrated debt securities that are lower quality account for 3.2% of the
total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investment in securities, is as follows:
United States 76.9%
Brazil 3.9
Germany 3.1
Mexico 3.1
Argentina 2.7
United Kingdom 2.1
Russian Republic 1.6
Italy 1.5
Canada 1.4
Austria 1.1
Others (individually less than 1%) 2.6
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1998, the aggregate cost of investment securities for
income tax purposes was $15,920,581. Net unrealized depreciation
aggregated $207,844, of which $47,688 related to appreciated
investment securities and $255,532 related to depreciated investment
securities.
FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

ASSETS

INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 15,712,737
AGREEMENTS OF $1,781,000) (COST $15,920,581) -
SEE ACCOMPANYING SCHEDULE

FOREIGN CURRENCY HELD AT VALUE (COST $716) 716

RECEIVABLE FOR INVESTMENTS SOLD 75,885

RECEIVABLE FOR FUND SHARES SOLD 133,530

DIVIDENDS RECEIVABLE 5,632

INTEREST RECEIVABLE 276,609

PREPAID EXPENSES 25,340

TOTAL ASSETS 16,230,449

LIABILITIES

PAYABLE TO CUSTODIAN BANK $ 68,016

PAYABLE FOR INVESTMENTS PURCHASED 262,380

PAYABLE FOR FUND SHARES REDEEMED 80,478

ACCRUED MANAGEMENT FEE 2,077

OTHER PAYABLES AND ACCRUED EXPENSES 53,735

TOTAL LIABILITIES 466,686

NET ASSETS $ 15,763,763

NET ASSETS CONSIST OF:

PAID IN CAPITAL $ 15,991,842

UNDISTRIBUTED NET INVESTMENT INCOME 25,185

ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (44,943)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (208,321)
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES

NET ASSETS, FOR 1,606,472 SHARES OUTSTANDING $ 15,763,763

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.81
PER SHARE ($15,763,763 (DIVIDED BY) 1,606,472 SHARES)

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO JUNE 30, 1998 (UNAUDITED)

INVESTMENT INCOME $ 25,522
DIVIDENDS

INTEREST 154,109

TOTAL INCOME 179,631

EXPENSES

MANAGEMENT FEE $ 12,459

TRANSFER AGENT FEES 2,416

ACCOUNTING FEES AND EXPENSES 9,750

NON-INTERESTED TRUSTEES' COMPENSATION 6

CUSTODIAN FEES AND EXPENSES 5,000

REGISTRATION FEES 11,147

AUDIT 7,041

MISCELLANEOUS 250

TOTAL EXPENSES BEFORE REDUCTIONS 48,069

EXPENSE REDUCTIONS (24,429) 23,640

NET INVESTMENT INCOME 155,991

REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:

INVESTMENT SECURITIES (46,386)

FOREIGN CURRENCY TRANSACTIONS 1,443 (44,943)

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:

INVESTMENT SECURITIES (207,844)

ASSETS AND LIABILITIES IN FOREIGN CURRENCIES (477) (208,321)

NET GAIN (LOSS) (253,264)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (97,273)
FROM OPERATIONS

</TABLE>

<TABLE>
<CAPTION>
<S> <C>
STATEMENT OF CHANGES IN NET ASSETS
MAY 1, 1998
(COMMENCEMENT
OF OPERATIONS) TO
JUNE 30, 1998
(UNAUDITED)

INCREASE (DECREASE) IN NET ASSETS

OPERATIONS $ 155,991
NET INVESTMENT INCOME

NET REALIZED GAIN (LOSS) (44,943)

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (208,321)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS (97,273)

DISTRIBUTIONS TO SHAREHOLDERS FROM NET INVESTMENT INCOME (130,806)

SHARE TRANSACTIONS 16,362,059
NET PROCEEDS FROM SALES OF SHARES

REINVESTMENT OF DISTRIBUTIONS 129,299

COST OF SHARES REDEEMED (499,516)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS 15,991,842

TOTAL INCREASE (DECREASE) IN NET ASSETS 15,763,763

NET ASSETS

BEGINNING OF PERIOD -

END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT INCOME OF $25,185) $ 15,763,763

OTHER INFORMATION
SHARES

SOLD 1,644,204

ISSUED IN REINVESTMENT OF DISTRIBUTIONS 13,152

REDEEMED (50,884)

NET INCREASE (DECREASE) 1,606,472

</TABLE>

FINANCIAL HIGHLIGHTS
JUNE 30, 1998 E

(UNAUDITED)

SELECTED PER-SHARE DATA

NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00

INCOME FROM INVESTMENT OPERATIONS .118
NET INVESTMENT INCOME D

NET REALIZED AND UNREALIZED GAIN (LOSS) (.212)

TOTAL FROM INVESTMENT OPERATIONS (.094)

LESS DISTRIBUTIONS

FROM NET INVESTMENT INCOME (.096)

NET ASSET VALUE, END OF PERIOD $ 9.810

TOTAL RETURN B, C (.94)%

RATIOS AND SUPPLEMENTAL DATA

NET ASSETS, END OF PERIOD (000 OMITTED) $ 15,764

RATIO OF EXPENSES TO AVERAGE NET ASSETS 1.10% A, F

RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS 7.26% A

PORTFOLIO TURNOVER RATE 58% A

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF SALE OF SHARES) TO JUNE
30, 1998.
F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1998 (Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity Strategic Income Fund (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
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices (sales prices if the
principal market is an exchange) in the principal market in which such
securities are normally traded. Securities for which market quotations
are not readily available (and in certain cases debt securities which
trade on an exchange) are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.
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.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.
INCOME TAXES. The fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. By so
qualifying, the fund will not be subject to income taxes to the extent
that it distributes substantially 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. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT INCOME - CONTINUED
is informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears
all organizational expenses except for registering and qualifying the
fund and shares of the fund for distribution under federal and state
securities law. These expenses are borne by the fund and amortized
over one year.
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 may result in distribution
reclassifications.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in
capital. Undistributed net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions 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.
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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. 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 foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
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 for U.S. Treasury or
Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account
2. OPERATING POLICIES - CONTINUED
REPURCHASE AGREEMENTS - CONTINUED
of the fund, or to the Joint Trading Account, at a bank custodian. The
securities are marked-to-market daily and maintained at a value at
least equal to the principal amount of the repurchase agreement
(including accrued interest). FMR, the fund's investment adviser, is
responsible for determining that the value of the underlying
securities remains in accordance with the market value requirements
stated above.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $233,888 or 1.5% of net assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $14,958,935 and $780,412, respectively, of which U.S.
government and government agency obligations aggregated $4,103,719 and
$0, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .58% of average net
assets.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
period, the transfer agent fees were equivalent to an annualized rate
of .11% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of 1.10% of average net assets. For the
period, the reimbursement reduced the expenses by $24,429.
6. BENEFICIAL INTEREST.
At the end of the period, FMR Capital, an affiliate of FMR was record
owner of approximately 63% of the total outstanding shares of the
fund.
7. CREDIT RISK.
The fund's relatively large investment in countries with limited or
developing capital markets may involve greater risks than investments
in more developed markets and the prices of such investments may be
volatile. The yields of emerging market debt obligations reflect,
among other things, perceived credit risk. The consequences of
political, social or economic changes in these markets may have
disruptive effects on the market prices of the fund's investments and
the income they generate, as well as the fund's ability to repatriate
such amounts.
MANAGING YOUR INVESTMENTS

Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.
BY PHONE
Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
For mutual fund and brokerage trading.

For quotes.*

For account balances and holdings.

To review orders and mutual
fund activity.

To change your PIN.

To speak to a Fidelity representative.
0
*
BY PC
Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.
(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM
If you are not currently on the Internet, call Fidelity at
1-800-544-7272 and we'll send you an America Online CD or disk with up
to 50 free hours of Web access.
(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+
TM
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND,
EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE WILL ALSO VARY. THIS MEANS
THAT YOU MAY HAVE A GAIN
OR LOSS WHEN YOU SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY
MARKET FUNDS WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY MARKET FUND
IS NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT. TOTAL RETURNS ARE HISTORICAL AND
INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.
TO WRITE FIDELITY

If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and
send you written confirmation upon completion of your request.
(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
ACCOUNTS
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003
OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048
SELLING SHARES
Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
(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
OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517
GENERAL CORRESPONDENCE
Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500
TO VISIT FIDELITY

For directions and hours,
please call 1-800-544-9797.
ARIZONA
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1735 Market Street
Philadelphia, PA
439 Fifth Avenue
Pittsburgh, PA
TENNESSEE
6150 Poplar Road
Memphis, TN
TEXAS
10000 Research Boulevard
Austin, TX
4017 Northwest Parkway
Dallas, TX
1155 Dairy Ashford Street
Houston, TX
2701 Drexel Drive
Houston, TX
400 East Las Colinas Blvd.
Irving, TX
14100 San Pedro
San Antonio, TX
19740 IH 45 North
Spring, TX
UTAH
215 South State Street
Salt Lake City, UT
VIRGINIA
8180 Greensboro Drive
McLean, VA
WASHINGTON
411 108th Avenue, N.E.
Bellevue, WA
511 Pine Street
Seattle, WA
WASHINGTON, DC
1900 K Street, N.W.
Washington, DC
WISCONSIN
595 North Barker Road
Brookfield, WI

INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
Fidelity International Investment Advisors, Pembroke, Bermuda
Fidelity International Investment Advisors (U.K.) Limited, Kent,
England
Fidelity Investments Japan Ltd.,
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
John H. Carlson, Vice President
Margaret L. Eagle, Vice President
Curtis Hollingsworth, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Securities
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(Registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target Timeline(trademark) 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
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)
(registered trademark)
TouchTone Xpress (registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
* INDEPENDENT TRUSTEES

(2_FIDELITY_LOGOS)FIDELITY

INTERNATIONAL BOND
FUND
(FORMERLY FIDELITY GLOBAL BOND FUND)
SEMIANNUAL REPORT
JUNE 30, 1998
CONTENTS

PRESIDENT'S MESSAGE 3 NED JOHNSON ON INVESTING STRATEGIES.

PERFORMANCE 4 HOW THE FUND HAS DONE OVER TIME.

FUND TALK 7 THE MANAGERS' 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 18 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.

NOTES 22 NOTES TO THE FINANCIAL STATEMENTS.

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. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the past 10 year total return would
have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS

FIDELITY INTERNATIONAL BOND A 0.83% 1.41% 1.75% 67.76%

SB NON-US DOLLAR WORLD GOVT BOND 2.09% 0.88% 36.09% 118.96%

SB WORLD GOVT BOND 2.79% 4.31% 35.89% 122.95%

INTERNATIONAL INCOME FUNDS AVERAGE 2.78% 3.67% 34.48% 97.58%

GLOBAL INCOME FUNDS AVERAGE 2.09% 4.67% 33.62% 108.51%

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or 10 years. For example, if you had invested $1,000 in a fund
that had a 5% return over the past year, the value of your investment
would be $1,050. You can compare the fund's performance to Salomon
Brothers Non-US Dollar World Government Bond Index, Unhedged - a
market-capitalization weighted index that is designed to represent the
performance of 16 world government bond markets, excluding the United
States. Issues included in the index have fixed-rate coupons and
maturities of at least one year. The fund formerly was compared to the
Salomon Brothers World Government Bond Index, Unhedged - a
market-capitalization weighted index of debt issues traded in 14 world
government bond markets. Issues included in the index have fixed-rate
coupons and maturities of at least one year. To measure how the fund's
performance stacked up against its peers, you can compare it to the
international income funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Analytical
Services, Inc. The past six month average represents a peer group of
55 mutual funds. The fund formerly was included in Lipper's global
income funds category (which included 151 funds for the past six
months). These benchmarks reflect reinvestment of dividends and
capital gains, if any, and exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

FIDELITY INTERNATIONAL BOND A 1.41% 0.35% 5.31%

SB NON-US DOLLAR WORLD GOVT BOND 0.88% 6.36% 8.15%

SB WORLD GOVT BOND 4.31% 6.33% 8.35%

INTERNATIONAL INCOME FUNDS AVERAGE 3.67% 5.96% 6.99%

GLOBAL INCOME FUNDS AVERAGE 4.67% 5.91% 7.58%

AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year.
G PRIOR TO FEBRUARY 27, 1998, INTERNATIONAL BOND OPERATED UNDER
CERTAIN DIFFERENT INVESTMENT POLICIES. ACCORDINGLY, THE FUND'S
HISTORICAL PERFORMANCE MAY NOT REPRESENT ITS CURRENT INVESTMENT
POLICIES.
$10,000 OVER 10 YEARS
International Bond SB Non-US World Govt Bond
00451 SB023
1988/06/30 10000.00 10000.00
1988/07/31 10009.03 9946.32
1988/08/31 9936.77 9728.47
1988/09/30 10054.20 10014.20
1988/10/31 10361.34 10719.64
1988/11/30 10551.04 11109.19
1988/12/31 10497.60 10882.91
1989/01/31 10468.22 10486.71
1989/02/28 10380.09 10571.90
1989/03/31 10350.71 10249.79
1989/04/30 10487.80 10337.64
1989/05/31 10311.54 9714.72
1989/06/30 10526.98 9778.16
1989/07/31 10869.71 10452.11
1989/08/31 10713.03 9945.87
1989/09/30 10840.34 10272.42
1989/10/31 10987.22 10186.79
1989/11/30 11104.73 10275.97
1989/12/31 11329.96 10511.56
1990/01/31 11299.29 10384.67
1990/02/28 11156.13 10066.99
1990/03/31 11289.06 9857.14
1990/04/30 11289.06 9883.76
1990/05/31 11442.44 10272.86
1990/06/30 11687.86 10487.16
1990/07/31 12096.88 11003.59
1990/08/31 12025.30 10992.95
1990/09/30 12178.69 11122.50
1990/10/31 12465.00 11919.78
1990/11/30 12597.94 12064.87
1990/12/31 12720.90 12118.99
1991/01/31 13000.36 12586.63
1991/02/28 13123.32 12549.36
1991/03/31 12944.46 11604.33
1991/04/30 13123.32 11823.51
1991/05/31 13279.81 11754.29
1991/06/30 13123.32 11518.70
1991/07/31 13257.63 11867.43
1991/08/31 13382.49 12064.87
1991/09/30 13689.42 12748.57
1991/10/31 13874.72 12912.73
1991/11/30 13805.23 13180.27
1991/12/31 14345.56 14084.48
1992/01/31 14200.90 13809.40
1992/02/29 14261.18 13604.86
1992/03/31 14237.23 13402.99
1992/04/30 14430.77 13497.94
1992/05/31 14696.89 14091.13
1992/06/30 14879.08 14661.70
1992/07/31 15102.06 14981.59
1992/08/31 15321.75 15644.44
1992/09/30 15108.47 15745.15
1992/10/31 15010.26 15176.80
1992/11/30 14784.91 14787.26
1992/12/31 14976.34 14756.20
1993/01/31 15149.35 14957.63
1993/02/28 15382.63 15254.89
1993/03/31 15721.51 15633.79
1993/04/30 15871.01 16103.20
1993/05/31 16162.75 16396.47
1993/06/30 16487.23 16089.44
1993/07/31 16738.13 16100.98
1993/08/31 17160.96 16674.21
1993/09/30 17258.77 16955.94
1993/10/31 17705.84 16878.30
1993/11/30 17649.48 16800.66
1993/12/31 18257.12 16987.44
1994/01/31 18456.47 17061.09
1994/02/28 17451.62 17109.01
1994/03/31 16195.18 17317.54
1994/04/30 15876.25 17430.23
1994/05/31 15964.79 17195.97
1994/06/30 15276.97 17612.14
1994/07/31 15555.10 17657.39
1994/08/31 15748.32 17555.35
1994/09/30 15749.12 17903.19
1994/10/31 15820.88 18364.61
1994/11/30 15886.34 17995.47
1994/12/31 15279.12 18005.24
1995/01/31 15145.76 18397.44
1995/02/28 15102.97 18918.76
1995/03/31 15201.49 20604.73
1995/04/30 15457.84 21045.74
1995/05/31 15924.01 21505.39
1995/06/30 16073.19 21612.32
1995/07/31 16043.36 21726.78
1995/08/31 15547.83 20484.49
1995/09/30 15816.67 21087.45
1995/10/31 16010.68 21154.89
1995/11/30 16118.95 21339.90
1995/12/31 16296.11 21525.36
1996/01/31 16094.12 21048.40
1996/02/29 16101.19 21108.74
1996/03/31 16069.50 21160.65
1996/04/30 16012.03 21117.17
1996/05/31 16022.94 21126.94
1996/06/30 16114.99 21245.40
1996/07/31 16395.08 21832.38
1996/08/31 16422.72 21978.79
1996/09/30 16499.77 21937.53
1996/10/31 16745.31 22307.56
1996/11/30 16989.19 22563.11
1996/12/31 16841.76 22403.39
1997/01/31 16344.58 21492.97
1997/02/28 16237.31 21243.18
1997/03/31 16071.88 21107.86
1997/04/30 15950.80 20679.27
1997/05/31 16380.57 21440.17
1997/06/30 16543.00 21704.16
1997/07/31 16386.51 21137.58
1997/08/31 16333.48 21232.97
1997/09/30 16725.85 21749.86
1997/10/31 16978.19 22237.46
1997/11/30 16725.97 21667.33
1997/12/31 16637.60 21448.60
1998/01/31 16783.71 21593.68
1998/02/28 16921.63 21897.16
1998/03/31 16905.18 21536.89
1998/04/30 17132.17 22010.74
1998/05/31 16936.50 21974.80
1998/06/30 16775.79 21895.83
IMATRL PRASUN SHR__CHT 19980630 19980714 140841 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity International Bond Fund on June 30, 1988. As the
chart shows, by June 30, 1998, the value of the investment would have
grown to $16,776 - a 67.76% increase on the initial investment. For
comparison, look at how the Salomon Brothers Non-US Dollar World
Government Bond Index, Unhedged did over the same period. With
dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $21,896 - a 118.96% increase.
Beginning with this report, the fund will compare its performance to
that of the Salomon Brothers Non-US Dollar World Government Bond Index
rather than the Salomon Brothers World Government Bond Index. The
Salomon Brothers Non-US Dollar World Government Bond Index is a better
representation of the fund's investment policy of investing primarily
outside of the U.S.
UNDERSTANDING
PERFORMANCE
MANY MARKETS AROUND THE GLOBE
OFFER THE POTENTIAL FOR SIGNIFICANT
GROWTH OVER TIME; HOWEVER,
INVESTING IN FOREIGN MARKETS
MEANS ASSUMING GREATER RISKS
THAN INVESTING IN THE UNITED
STATES. FACTORS LIKE CHANGES IN
A COUNTRY'S FINANCIAL MARKETS,
ITS LOCAL POLITICAL AND ECONOMIC
CLIMATE, AND THE FLUCTUATING
VALUE OF ITS CURRENCY CREATE
THESE RISKS. FOR THESE REASONS
AN INTERNATIONAL FUND'S
PERFORMANCE MAY BE MORE
VOLATILE THAN A FUND THAT INVESTS
EXCLUSIVELY IN THE UNITED
STATES.
(CHECKMARK)
DIVIDENDS AND YIELD
PERIODS ENDED JUNE 30, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR

DIVIDENDS PER SHARE 4.41(CENTS) 24.74(CENTS) 49.03(CENTS)

ANNUALIZED DIVIDEND RATE 5.96% 5.46% 5.35%

30-DAY ANNUALIZED YIELD 4.68% - -

DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on the fund's average share price
of $9.01 over the past one month, $9.14 over the past six months and
$9.17 over the past one year, you can compare the fund's income over
these three periods.
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. It does not reflect the
cost of hedging and other currency gains and losses.
FUND TALK: THE MANAGERS' OVERVIEW

MARKET RECAP
Globally, investment-grade
fixed-income markets generated
positive returns in the first half of
1998. However, debt in the lower
credit tiers, domestically and in
emerging markets, experienced
pronounced volatility and
widening yield spreads. The U.S.
Treasury market generated strong
performance over the past six
months, with long-term bond yields
finishing June at their lowest level
in over 20 years. The yield curve
flattened as long-term rates fell
more than short-term rates.
Long-term interest rates declined in
response to benign inflation, an
unchanged monetary policy and
Asian instability that pushed the
dollar to an eight-year high against
the Japanese yen. Non-U.S.
developed country debt also
posted positive results in U.S. dollar
terms. Within the Salomon Brothers
World Government Bond Index,
European currency strength
relative to the dollar resulted in
broad gains. The U.K. and Sweden
led the way with Japan and
Switzerland delivering the only
negative results. The escalating
banking crisis in Japan, combined
with the brewing fiscal crisis in
Russia, increased spread volatility
and weakness in emerging-market
debt issues in the second quarter.
The following is an interview with John Carlson, lead Portfolio
Manager of Fidelity International Bond Fund; Ian Spreadbury, manager
of the fund's investment-grade developed-market investments; and Luis
Martins, manager of the fund's emerging-market investments.
Q. HOW DID THE FUND PERFORM, JOHN?
J.C. For the six months that ended June 30, 1998, the fund returned
0.83%. Over the same period, the Salomon Brothers Non-US World
Government Bond Index, Unhedged, returned 2.09%. The international
income funds average returned 2.78% during this time, according to
Lipper Analytical Services. For the 12 months that ended June 30,
1998, the fund returned 1.41%, while the Salomon Brothers index and
Lipper group returned 0.88% and 3.67%, respectively.
Q. WHY DID THE FUND'S RETURN LAG THAT OF BOTH THE INDEX AND PEER GROUP
DURING THE PERIOD?
J.C. The fund's emerging-market component had a negative impact on
overall performance, as troubles in Asia, Russia and India translated
into uncertainty and speculation in many regions of the world. The
J.P. Morgan Emerging Markets Bond Index Plus - a common proxy of
emerging-market performance - was down 1.08% during the period. In
contrast, the backdrop for global, developed markets was a bit
brighter. In Europe, many markets continued to benefit from the strong
likelihood that a uniform currency program would be in place in
January 1999. Low inflation also contributed to the generally positive
climate for foreign developed bonds.
Q. LUIS, HOW DID THE EMERGING-MARKETS SUB-PORTFOLIO FARE DURING THE
PERIOD?
L.M. It was a disappointing period. The sub-portfolio's overweighting
in Russian bonds, strong performers six months ago, turned out to be
the biggest detractors in the first half of 1998. Despite having a low
external debt load as a percent of its gross domestic product and
exports, Russia's practice of funding budget deficits with
high-yielding, short-term government bonds sent interest rates
skyrocketing and led to a loss of investor confidence. Even with
interest rates of 150%, investors shied away from new issues. The
country was forced to deplete its capital reserves to pay for maturing
notes instead of using proceeds from new issues. The importance of a
pact with the International Monetary Fund to avoid a devaluation of
the rouble became critical. As a major exporter of oil, lower oil
prices compounded Russia's problems in the period.
Q. WHICH EMERGING-MARKET POSITIONS PERFORMED WELL DURING THE PERIOD?
L.M. The fund's investments in Turkey, Poland and Algeria contributed
positively . The fund's position in Turkish bonds performed well as
the Turkish economy improved steadily. Poland was one of the better
growth stories during this time, as low inflation and the country's
desire to be part of a uniform European currency equated to strong
asset performance. The fund's Algerian holdings contributed positively
to performance. The particular securities the fund bought were not as
closely followed as other issuers' bonds, and thorough country
research convinced us we had found a superior risk/reward opportunity.
Q. TURNING TO YOU, IAN, WHAT SORTS OF STRATEGIES DID YOU IMPLEMENT
DURING THE PERIOD WITH RESPECT TO THE DEVELOPED MARKETS?
I.S. There were a couple. In Europe, the drive toward a uniform
currency has created an environment in which companies across the
continent feel more comfortable conducting business with one another.
As a result, corporate bonds - previously scarce in Europe except in
the United Kingdom - began to be more prevalent on the landscape.
Corporate bonds typically offer higher yields than Treasuries, and I
was able to find opportunities in Deutsche marks with a Swedish
investment firm - Investor Group Finance - and with U.K.-based Lloyds
Bank. The fund's stake in Punch Taverns, an asset-backed security
backed by lease flows from various pubs, performed well.
Q. IAN AND LUIS, COULD YOU EACH PROVIDE YOUR OUTLOOK FOR THE COMING
MONTHS?
L.M. I'm cautiously optimistic, provided there is no equity market
downturn in either the U.S. or Europe. Further, it would be favorable
for emerging markets if U.S. interest rates maintain their current
levels. I'm also hoping that Japan - which isn't an emerging market
but does influence my investing universe - can right its economic
ship. Political elections in a number of emerging-market regions will
also be closely followed. When it's all said and done, strong research
and credit analysis will be the backbone of performance. I'll continue
to work hard to find good opportunities.
I.S. Knock on wood, but global bond markets appear to be in pretty
good shape. Lower commodity prices and a strong dollar could help keep
inflation in check. In terms of the portfolio, I'll be relying on our
strong research team to help identify attractive opportunities. I may
look to add more corporate bond positions as well.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
IAN SPREADBURY TALKS ABOUT A
UNIFORM CURRENCY IN EUROPE AND
HOW IT HAS INFLUENCED HIS
STRATEGY:
"AS COUNTRIES HAVE MET THE
REQUIREMENTS NECESSARY FOR JOINING
THE EUROPEAN MONETARY UNION
(EMU), WE'VE SEEN A CONVERGENCE
OF ECONOMIC AND FISCAL POLICIES. AS
A RESULT, I BEGAN TO LOOK AT THREE OF
THE FUND'S MAJOR INVESTMENT AREAS
- - FRANCE, GERMANY AND ITALY -
ALMOST AS ONE.
"IN PARTICULAR, I MADE SOME MOVES
BASED ON THE YIELD CURVES FOR EACH
REGION. A YIELD CURVE IS A GRAPH THAT
SHOWS HOW YIELDS VARY FOR BONDS OF
SIMILAR QUALITY BUT DIFFERENT
MATURITIES. BACK IN MAY,
SHORT-TERM INTEREST RATES WERE HIGH
IN ITALY AND WE FELT THEY WOULD
COME DOWN AS THE INTRODUCTION OF
THE EURO NEARED. LOOKING FORWARD
NINE MONTHS, WE DETERMINED THAT
THE YIELD CURVE IN ITALY WOULD BE
ONLY SLIGHTLY HIGHER THAN THE
GERMAN CURVE. AFTER DOING SOME
ANALYSIS, WE CONCLUDED THAT IT
MADE SENSE FOR US TO MOVE OUR
ITALIAN LIRA EXPOSURE TO THE SHORT
END OF THE CURVE AND BALANCE THAT
BY MOVING OUR GERMAN DEUTSCHE
MARK EXPOSURE TO THE LONG END.
"OF COURSE, THESE MOVES ARE
CONTINGENT UPON THE EURO COMING
TO FRUITION. AT THIS POINT, THE
CONSENSUS SEEMS TO BE THAT IT
WOULD TAKE A MAJOR DEVELOPMENT
TO THROW IT OFF COURSE."
FUND FACTS
GOAL: HIGH TOTAL INVESTMENT RETURN
FUND NUMBER: 451
TRADING SYMBOL: FGBDX
START DATE: DECEMBER 30, 1986
SIZE: AS OF JUNE 30, 1998,
MORE THAN $71 MILLION
MANAGERS: JOHN CARLSON, LEAD
MANAGER, SINCE FEBRUARY 1998;
IAN SPREADBURY, MANAGER,
INVESTMENT-GRADE
DEVELOPED-MARKET INVESTMENTS,
SINCE 1996; LUIS MARTINS,
MANAGER, EMERGING-MARKET
INVESTMENTS, SINCE FEBRUARY
1998
(CHECKMARK)
INVESTMENT CHANGES

THE CHARTS BELOW HIGHLIGHT THREE DIFFERENT ASPECTS OF THE FUND'S
INVESTMENTS: THE COUNTRY WHERE THEY WERE ISSUED, THEIR SENSITIVITY TO
INTEREST RATE CHANGES, AND THEIR CURRENCY EXPOSURE. THE TOP COUNTRIES
IN EACH TABLE DIFFER BECAUSE SOME SECURITIES HAVE MORE INTEREST RATE
RISK THAN OTHERS, AND BECAUSE SECURITIES ISSUED IN ONE COUNTRY MAY BE
DENOMINATED IN ANOTHER COUNTRY'S CURRENCY.
TOP FIVE COUNTRIES AS OF JUNE 30, 1998
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE COUNTRIES
6 MONTHS AGO

GERMANY 17 10

UNITED KINGDOM 15 8

CANADA 14 4

FRANCE 11 8

ARGENTINA 4 0

TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY,
INCLUDING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT
RISKS.
TOP INTEREST RATE EXPOSURES AS OF JUNE 30, 1998
(ESTIMATED BY COUNTRY) % OF FUND'S % OF INTEREST RATE
TOTAL INTEREST EXPOSURE
RATE EXPOSURE 6 MONTHS AGO

GERMANY 25 10

CANADA 17 3

FRANCE 14 8

UNITED KINGDOM 11 8

AUSTRIA 5 0

FIDELITY ESTIMATES INTEREST RATE EXPOSURE BASED ON THE DURATION, OR
INTEREST RATE SENSITIVITY, OF THE FUND'S HOLDINGS. AS OF JUNE 30, 1998
THE FUND WAS MOST SENSITIVE TO INTEREST RATE MOVEMENTS IN GERMANY,
WHICH ACCOUNTS FOR 25% OF THE FUND'S INTEREST RATE EXPOSURE.
TOP CURRENCY EXPOSURES AS OF JUNE 30, 1998
(ESTIMATED BY CURRENCY) % OF FUND'S % OF NET ASSETS
NET ASSETS 6 MONTHS AGO

GERMAN DEUTSCHE MARK 22 11

U.S. DOLLAR 21 32

ITALIAN LIRA 14 7

CANADIAN DOLLAR 13 3

BRITISH POUND 13 6

THE GERMAN DEUTSCHE MARK, AT APPROXIMATELY 22% OF NET ASSETS, WAS THE
FUND'S LARGEST FOREIGN CURRENCY EXPOSURE AS OF JUNE 30, 1998.
INVESTMENTS JULY 31, 1998 (UNAUDITED)

SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES

NONCONVERTIBLE BONDS - 22.9%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
BRAZIL - 0.1%
TV Bandeirantes Ltd.
12 7/8%, 5/15/06 (f) B2 $ 100,000 $ 84,000
CANADA - 2.6%
Canada Trustco Mortgage Co. 5.20%, 9/13/00 - CAD 2,000,000 1,354,318
Hurricane Hydrocarbons Ltd.
11 3/4%, 11/1/04 (f) B3 100,000 97,000
Trizec Hahn Corp. 7.45%, 6/1/04 Ba1 CAD 500,000 345,256
1,796,574
DOMINICAN REPUBLIC - 0.1%
Tricom SA 11 3/8%, 9/1/04 B2 100,000 95,250
FRANCE - 5.3%
Credit Local de France euro
8 1/8%, 12/6/06 (b) Aa1 ITL 5,500,000 3,713,826
MEXICO - 0.6%
Banco Nacional de Comercio Exterior SNC
11 1/4%, 5/30/06 (Reg.) Ba2 400,000 442,000
NETHERLANDS - 1.7%
Dresdner Finance BV
7 1/4%, 1/12/00 Aa1 DEM 2,000,000 1,155,436
SWEDEN - 1.6%
Investor Group Finance AB euro
5 1/4%, 6/30/08 A3 DEM 2,000,000 1,098,782
UNITED KINGDOM - 9.9%
Argyll Group PLC Class L 8 1/8%, 10/4/02 - GBP 250,000 427,311
Ford Credit Europe PLC 11.70%, 11/18/98 (b) A1 ITL 1,185,000 680,224
Lloyds Bank PLC:
7 3/8%, 3/11/04 Aa2 GBP 500,000 855,030
euro 5 1/4%, 7/14/08 Aa2 DEM 2,000,000 1,102,301
Punch Taverns Finance PLC euro 7.57%, 4/15/26 Baa2 GBP 1,000,000
1,736,493
Tesco PLC 8 3/4%, 2/20/03 Aa3 GBP 1,200,000 2,131,781
6,933,140
NONCONVERTIBLE BONDS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
UNITED STATES OF AMERICA - 1.0%
KFW International Finance, Inc.
10 5/8%, 9/3/01 Aaa GBP 250,000 $ 455,601
Samsung Electronics America, Inc.
9 3/4%, 5/1/03 (f) Ba1 300,000 276,000
731,601
TOTAL NONCONVERTIBLE BONDS
(Cost $15,976,220) 16,050,609
FOREIGN GOVERNMENT OBLIGATIONS (G) - 63.4%
ARGENTINA - 3.9%
Argentinian Republic:
8 3/4%, 7/10/02 (Reg. S) Ba3 ARS 100,000 87,012
11 3/4%, 2/12/07 Ba3 ARS 100,000 94,513
BOCON:
3.1875%, 9/1/02 Ba3 265,400 244,166
3.29%, 9/1/02 (e) Ba3 ARS 251,226 207,236
3.1875%, 4/1/07 Ba3 230,155 194,735
3.29%, 4/1/07 (e) Ba3 ARS 244,417 171,168
Brady:
par euro 5 3/4%, 3/31/23 (d) Ba3 850,000 631,656
discount euro 6 5/8%, 3/31/23 (e) Ba3 850,000 690,094
global bond 9 3/4%, 9/19/27 Ba3 450,000 415,688
2,736,268
AUSTRIA - 3.1%
Austrian Republic euro (b):
4 1/2 %, 9/28/05 Aaa JPY 170,000 1,480,602
3 3/4%, 2/3/09 Aaa JPY 85,000 730,114
2,210,716
BRAZIL - 3.4%
Brazialian Federative Republic:
Brady:
capitalization bond 8%, 4/15/14 B1 783,142 575,609
debt conversion bond
euro 6.6875%, 4/15/12 (e) B1 1,300,000 903,500
FLIRB 5%, 4/15/09 (bearer) (d) B1 700,000 483,000
new money bond 6.6875%, 4/15/09 (Reg.)(e) B1 300,000 228,000
global bond 10 1/8%, 5/15/27 B1 250,000 215,313
2,405,422
FOREIGN GOVERNMENT OBLIGATIONS (G) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
BULGARIA - 0.7%
Bulgarian Republic Brady (e):
FLIRB A 2 1/4%, 7/28/12 B2 $ 300,000 $ 186,000
discount 6.5625%, 7/28/24 B2 400,000 306,000
492,000
CANADA - 11.1%
Canadian Government:
4 3/4%, 9/15/99 Aa1 CAD 2,050,000 1,388,734
9%, 6/1/25 Aa1 CAD 2,350,000 2,374,897
Ontario Province 9%, 9/15/04 Aa3 CAD 5,000,000 4,026,980
7,790,611
COTE D'IVOIRE - 0.2%
Ivory Coast Brady past due interest
2%, 3/30/18 (e)(f) - 350,000 129,938
ECUADOR - 0.9%
Ecuador Republic Brady:
past due interest euro
6 5/8%, 2/28/15 (bearer) (e) B1 222,534 127,540
par euro 3 1/2%, 2/28/25 (d) B1 775,000 417,047
discount euro 6 5/8%, 2/28/25 (e) B1 100,000 69,500
614,087
FRANCE - 5.3%
French Government OAT 9 1/2%, 1/25/01 Aaa FRF 20,000,000 3,717,938
GERMANY - 16.9%
German Federal Republic:
6%, 1/4/07 Aaa DEM 5,500,000 3,299,087
6 1/4%, 1/4/24 Aaa DEM 4,500,000 2,806,278
Treuhandanstalt 6 5/8%, 7/9/03 Aaa DEM 9,500,000 5,757,794
11,863,159
ITALY - 3.2%
Italian Government 12%, 9/1/01 (b) Aa3 ITL 3,300,000 2,244,815
KOREA (SOUTH) - 0.1%
Korean Republic global bond 8 3/4%, 4/15/03 Ba1 100,000 94,313
FOREIGN GOVERNMENT OBLIGATIONS (G) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
MEXICO - 2.8%
United Mexican States:
Brady:
par A 6 1/4%, 12/31/19 unit Ba2 $ 250,000 $ 207,188
par B 6 1/4%, 12/31/19 unit Ba2 500,000 414,375
global bond:
8 5/8%, 3/12/08 Ba2 400,000 387,400
11 1/2%, 5/15/26 Ba2 820,000 930,700
1,939,663
PANAMA - 0.7%
Panamanian Republic:
Brady:
interest reduction bond euro 4%, 7/17/14 (e) Ba1 250,000 185,625
past due interest euro 6.5625%, 7/17/19 (d) Ba1 312,442 237,846
par 3 1/2%, 7/17/26 (d) Ba1 100,000 65,500
global bond 8 7/8%, 9/30/27 Baa 50,000 46,875
535,846
PERU - 0.7%
Peruvian Republic Brady (e):
past due interest 4%, 3/7/17 B2 200,000 123,500
FLIRB 3 1/4%, 3/7/17 B2 600,000 335,250
458,750
POLAND - 0.2%
Polish Government Brady past due interest
4%, 10/27/14 (e)(f) Baa 200,000 180,500
RUSSIA - 1.6%
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) interest notes
6 5/8%, 12/15/15 (e)(f) B1 60,523 33,552
Moscow City 9 1/2%, 5/31/00 (Reg.) B1 700,000 602,875
Russian Government euro 10%, 6/26/07 B1 650,000 496,438
1,132,865
SPAIN - 2.3%
Spanish Kingdom 3.10%, 9/20/06 (b) Aa2 JPY 200,000 1,605,845
FOREIGN GOVERNMENT OBLIGATIONS (G) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
TURKEY - 0.4%
Turkish Government (b)(e):
24%, 3/25/99 (coupon linked to CPI) - TRL 36,018,000 $ 159,560
23%, 5/26/99 (coupon linked to CPI) - TRL 37,500,000 149,213
308,773
UNITED KINGDOM - 4.9%
United Kingdom, Great Britain &
Northern Ireland:
10 1/4%, 11/22/99 Aaa GBP 330,000 571,408
7 1/4%, 12/7/07 Aaa GBP 630,000 1,155,222
9%, 8/6/12 Aaa GBP 780,000 1,697,653
3,424,283
VENEZUELA - 0.9%
Venezuelan Republic:
Brady:
FLIRB B 6 5/8%, 3/31/07 (e) Ba2 428,570 356,249
debt conversion bond 6 5/8%, 12/18/07 (e) Ba2 238,095 193,750
9 1/4%, 9/15/27 Ba2 100,000 77,250
627,249
VIETNAM - 0.1%
Socialist Republic of Vietnam Brady
3%, 3/12/28 (d) - 100,000 36,250
TOTAL GOVERNMENT OBLIGATIONS
(Cost $46,622,012) 44,549,291
SUPRANATIONAL OBLIGATIONS - 9.5%
Eurofima euro 11 1/8%, 2/2/00 (b) Aaa ITL 5,500,000 3,383,006
Inter-American Development Bank
6 3/4%, 2/20/01 (b) Aaa JPY 250,000 2,078,385
International Bank Reconstruction &
Development 4 3/4%, 12/20/04 (b) Aaa JPY 140,000 1,218,888
TOTAL SUPRANATIONAL OBLIGATIONS
(Cost $7,412,059) 6,680,279
SOVEREIGN LOAN PARTICIPATIONS - 2.5%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
ALGERIA - 0.7%
Algerian Republic loan participation (e):
- The Chase Manhattan Bank
7.3125%, 3/4/00 - $ 450,000 $ 418,500
- Merrill Lynch, Pierce, Fenner & Smith, Inc.
7.3125%, 3/4/00 - 100,000 93,000
511,500
RUSSIA - 1.8%
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) loan participation
restructured under 1997 agreement (e):
- Bank Boston 6.7188%, 12/15/20 - 1,000,000 472,500
- The Chase Manhattan Bank
6.7188%, 12/15/20 - 350,000 165,375
- Lehman Commercial Paper, Inc.
6.7188%, 12/15/20 - 950,000 448,874
- Merrill Lynch, Pierce, Fenner & Smith, Inc.
6.7188%, 12/15/20 - 400,000 189,000
1,275,749
TOTAL SOVEREIGN LOAN PARTICIPATIONS
(Cost $2,077,642) 1,787,249
CASH EQUIVALENTS - 1.7%
MATURITY
AMOUNT
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.66%, dated
6/30/98 due 7/1/98
(Cost $1,156,000) $ 1,156,182 1,156,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $73,243,933) $ 70,223,428
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest Reduction
Bonds
CURRENCY ABBREVIATIONS
ARS - Argentine peso
GBP - British pound
CAD - Canadian dollar
FRF - French franc
DEM - German deutsche mark
ITL - Italian lira
JPY - Japanese yen
TRL - Turkish lira
LEGEND
(i) Principal amount is stated in United States dollars unless
otherwise noted.
(j) Principal amount in thousands.
(k) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(l) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(m) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(n) 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 $800,990
or 1.1% of net assets.
(o) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 72.2% AAA, AA, A 64.8%
Baa 2.8% BBB 3.5%
Ba 9.9% BB 13.5%
B 7.7% B 1.3%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings
of the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 5.3%. FMR has determined that
unrated debt securities that are lower quality account for 5.3% of the
total value of investment in securities.
MARKET SECTOR DIVERSIFICATION
As a Percentage of Total Value of Investment in Securities
Cash Equivalents 1.7%
Construction & Real Estate 0.5
Energy 0.1
Finance 18.0
Foreign Government Obligations 63.4
Media & Leisure 0.1
Retail & Wholesale 3.7
Sovereign Loan Participations 2.5
Supranational Obligations 9.5
Technology 0.4
Utilities 0.1
100.0%
INCOME TAX INFORMATION
At June 30, 1998, the aggregate cost of investment securities for
income tax purposes was $73,243,933. Net unrealized depreciation
aggregated $3,020,505, of which $587,884 related to appreciated
investment securities and $3,608,389 related to depreciated investment
securities.
At December 31, 1997, the fund had a capital loss carryforward of
approximately $94,000,000 of which $81,000,000 and $13,000,000 will
expire on December 31, 2002 and 2003, respectively.
FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

ASSETS

INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 70,223,428
AGREEMENTS OF $1,156,000) (COST $73,243,933) -
SEE ACCOMPANYING SCHEDULE

CASH 950

FOREIGN CURRENCY HELD AT VALUE (COST $148,274) 148,274

RECEIVABLE FOR INVESTMENTS SOLD 2,179,607

RECEIVABLE FOR FUND SHARES SOLD 58,440

INTEREST RECEIVABLE 1,893,984

OTHER RECEIVABLES 12,314

TOTAL ASSETS 74,516,997

LIABILITIES

PAYABLE FOR INVESTMENTS PURCHASED $ 2,696,425

PAYABLE FOR FUND SHARES REDEEMED 101,812

ACCRUED MANAGEMENT FEE 41,872

OTHER PAYABLES AND ACCRUED EXPENSES 41,144

TOTAL LIABILITIES 2,881,253

NET ASSETS $ 71,635,744

NET ASSETS CONSIST OF:

PAID IN CAPITAL $ 171,743,771

DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME (383,431)

ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (96,655,191)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (3,069,405)
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES

NET ASSETS, FOR 8,032,796 SHARES OUTSTANDING $ 71,635,744

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER $8.92
SHARE ($71,635,744 (DIVIDED BY) 8,032,796 SHARES)

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

INVESTMENT INCOME $ 2,529,125
INTEREST

EXPENSES

MANAGEMENT FEE $ 262,048

TRANSFER AGENT FEES 116,654

ACCOUNTING FEES AND EXPENSES 30,418

NON-INTERESTED TRUSTEES' COMPENSATION 146

CUSTODIAN FEES AND EXPENSES 13,105

REGISTRATION FEES 19,951

AUDIT 32,855

LEGAL 1,284

MISCELLANEOUS 8,790

TOTAL EXPENSES BEFORE REDUCTIONS 485,251

EXPENSE REDUCTIONS (1,253) 483,998

NET INVESTMENT INCOME 2,045,127

REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:

INVESTMENT SECURITIES (2,409,761)

FOREIGN CURRENCY TRANSACTIONS (73,755) (2,483,516)

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:

INVESTMENT SECURITIES 1,071,288

ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 31,264 1,102,552

NET GAIN (LOSS) (1,380,964)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 664,163
FROM OPERATIONS

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997

INCREASE (DECREASE) IN NET ASSETS

OPERATIONS $ 2,045,127 $ 4,958,974
NET INVESTMENT INCOME

NET REALIZED GAIN (LOSS) (2,483,516) (3,055,231)

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,102,552 (3,699,648)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING 664,163 (1,795,905)
FROM OPERATIONS

DISTRIBUTIONS TO SHAREHOLDERS (2,067,127) (1,504,944)
FROM NET INVESTMENT INCOME

RETURN OF CAPITAL - (3,461,039)

TOTAL DISTRIBUTIONS (2,067,127) (4,965,983)

SHARE TRANSACTIONS 15,067,831 38,795,875
NET PROCEEDS FROM SALES OF SHARES

REINVESTMENT OF DISTRIBUTIONS 1,883,304 4,325,909

COST OF SHARES REDEEMED (22,294,766) (71,608,454)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING (5,343,631) (28,486,670)
FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS (6,746,595) (35,248,558)

NET ASSETS

BEGINNING OF PERIOD 78,382,339 113,630,897

END OF PERIOD (INCLUDING DISTRIBUTIONS IN EXCESS OF $ 71,635,744 $ 78,382,339
NET INVESTMENT INCOME OF $383,431 AND $361,431,
RESPECTIVELY)

OTHER INFORMATION
SHARES

SOLD 1,651,795 4,190,363

ISSUED IN REINVESTMENT OF DISTRIBUTIONS 207,094 469,964

REDEEMED (2,446,078) (7,737,241)

NET INCREASE (DECREASE) (587,189) (3,076,914)

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31,
JUNE 30, 1998

(UNAUDITED) 1997 1996 1995 1994 1993
SELECTED PER-SHARE DATA

NET ASSET VALUE, $ 9.090 $ 9.710 $ 9.940 $ 9.880 $ 12.610 $ 11.340
BEGINNING OF PERIOD

INCOME FROM INVESTMENT .245 C .497 C .550 .745 .569 .731
OPERATIONS
NET INVESTMENT
INCOME

NET REALIZED (.168) (.621) (.234) (.109) (2.589) 1.648
AND UNREALIZED
GAIN (LOSS)

TOTAL FROM INVESTMENT .077 (.124) .316 .636 (2.020) 2.379
OPERATIONS

LESS DISTRIBUTIONS

FROM NET INVESTMENT (.247) (.150) (.096) (.516) (.225) (.629)
INCOME

IN EXCESS OF NET - - - - (.054) -
INVESTMENT INCOME

FROM NET REALIZED GAIN - - - - - (.280)

IN EXCESS OF NET - - - - (.020) (.200)
REALIZED GAIN

RETURN OF CAPITAL - (.346) (.450) (.060) (.411) -

TOTAL DISTRIBUTIONS (.247) (.496) (.546) (.576) (.710) (1.109)

NET ASSET VALUE, $ 8.920 $ 9.090 $ 9.710 $ 9.940 $ 9.880 $ 12.610
END OF PERIOD

TOTAL RETURN B .83% (1.21)% 3.35% 6.66% (16.31)% 21.91%

RATIOS AND SUPPLEMENTAL DATA

NET ASSETS, END OF $ 71,636 $ 78,382 $ 113,631 $ 196,862 $ 382,803 $ 686,252
PERIOD (000 OMITTED)

RATIO OF EXPENSES TO 1.28% A 1.27% 1.22% 1.16% 1.14% 1.17%
AVERAGE NET ASSETS

RATIO OF NET INVESTMENT 5.39% A 5.36% 6.09% 6.19% 6.50% 6.79%
INCOME TO AVERAGE
NET ASSETS

PORTFOLIO TURNOVER RATE 331% A 74% 91% 322% 367% 198%

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1998 (Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity International Bond Fund (the fund) (formerly Fidelity Global
Bond Fund) is a fund of Fidelity School Street Trust (the trust)
(formerly a fund of Fidelity Investment 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 financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions at the date of
the financial statements. The following summarizes the significant
accounting policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price in the principal market in which such securities
are normally traded. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
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.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts , disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities 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
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
INCOME TAXES - CONTINUED
accrues such taxes as applicable. The schedule of investments includes
information regarding income taxes under the caption "Income Tax
Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned. Interest income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net interest income. Distributions to shareholders from
realized capital gains on investments, 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, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, market discount, capital loss carryforwards and
losses deferred due to wash sales.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
For the period ended December 31, 1997, the fund's distributions
exceeded the aggregate amount of taxable income and net realized gains
resulting in a return of capital. This was due to certain foreign
currency losses which decreased taxable income available for
distribution after certain distributions had been made.
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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. 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 foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
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 Fidelity Management &
2. OPERATING POLICIES -
CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
Research Company (FMR), may transfer uninvested cash balances into one
or more joint trading accounts. These balances are invested in one or
more repurchase agreements for U.S. Treasury or Federal Agency
obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
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. Gains (losses) realized upon the sale of indexed
securities are included in realized gains (losses) on investment
securities.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $1,787,249 or 2.5% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $116,063,866 and $121,593,729, respectively, of which U.S.
government and government agency obligations aggregated $95,608,370
and $96,152,158, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individualfund fee rate is .55%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .69% of average net
assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research services and may grant the
sub-advisers investment management authority to buy and sell
securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services.
FIIA pays FIIA(U.K.)L a fee based on costs incurred for either
service.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .31% of average net assets.
ACCOUNTING FEES. FSC maintains each fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$103 and $1,150, respectively, under these arrangements.
6. CREDIT RISK.
The fund's relatively large investment in countries with limited or
developing capital markets may involve greater risks than investments
in more developed markets and the prices of such investments may be
volatile. The yields of emerging market debt obligations reflect,
among other things, perceived
6. CREDIT RISK - CONTINUED
credit risk. The consequences of political, social or economic changes
in these markets may have disruptive effects on the market prices of
the fund's investments and the income they generate, as well as the
fund's ability to repatriate such amounts.
7. LITIGATION.
The fund is engaged in litigation against the obligor on the inflation
adjusted debt of Siderurgica Brasileiras SA, contesting the
calculation of the principal adjustment. The probability of success of
this litigation cannot be predicted and the amount of recovery cannot
be estimated. Any recovery from this litigation would inure to the
benefit of the fund. As of period end, the fund no longer holds
Siderurgica Brasileiras SA debt securities.
MANAGING YOUR INVESTMENTS

For quotes.*

For account balances and holdings.

To review orders and mutual
fund activity.

To change your PIN.

TO WRITE FIDELITY

INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
Fidelity International Investment
Advisors
Fidelity International Investment
Advisors (U.K.) Limited
Fidelity Investments Japan Limited
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
John H. Carlson, Vice President
Bart A. Grenier, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
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Target Timeline 1999, 2001 & 2003
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(2_FIDELITY_LOGOS)SPARTAN

INTERMEDIATE MUNICIPAL INCOME
FUND
(FORMERLY FIDELITY LIMITED TERM MUNICIPAL
INCOME FUND)
SEMIANNUAL REPORT
JUNE 30, 1998
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 28 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.

NOTES 32 NOTES TO THE FINANCIAL STATEMENTS.

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. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain fund expenses, the total returns and dividends
would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998 PAST 6 PAST 1 PAST 5 PAST 10
MONTHS YEAR YEARS YEARS

SPARTAN INTERMEDIATE MUNICIPAL INCOME 2.37% 7.59% 32.89% 104.08%

LB 1-17 YEAR MUNICIPAL BOND 2.52% 7.64% 34.29% N/A

INTERMEDIATE MUNICIPAL DEBT 2.05% 6.69% 29.83% 95.35%
FUNDS AVERAGE

SPARTAN INTERMEDIATE MUNICIPAL INCOME 7.59% 5.85% 7.39%

LB 1-17 YEAR MUNICIPAL BOND 7.64% 6.07% N/A

INTERMEDIATE MUNICIPAL DEBT 6.69% 5.35% 6.91%
FUNDS AVERAGE

AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER 10 YEARS
Spartan Int. Muni Income LB Municipal Bond
00036 LB015
1988/06/30 10000.00 10000.00
1988/07/31 10043.56 10065.20
1988/08/31 10054.94 10074.06
1988/09/30 10176.25 10256.40
1988/10/31 10310.41 10436.91
1988/11/30 10255.60 10341.31
1988/12/31 10357.17 10447.10
1989/01/31 10470.71 10663.15
1989/02/28 10393.67 10541.48
1989/03/31 10350.72 10516.29
1989/04/30 10535.19 10765.94
1989/05/31 10709.77 10989.55
1989/06/30 10814.95 11138.79
1989/07/31 10920.79 11290.39
1989/08/31 10864.28 11179.85
1989/09/30 10857.10 11146.54
1989/10/31 10951.62 11282.86
1989/11/30 11083.33 11480.31
1989/12/31 11167.65 11574.22
1990/01/31 11130.23 11519.47
1990/02/28 11213.86 11622.00
1990/03/31 11253.30 11625.48
1990/04/30 11155.94 11541.32
1990/05/31 11328.15 11793.26
1990/06/30 11414.85 11896.92
1990/07/31 11551.87 12071.81
1990/08/31 11529.47 11896.53
1990/09/30 11607.55 11903.31
1990/10/31 11725.30 12119.23
1990/11/30 11881.20 12362.95
1990/12/31 11945.55 12416.73
1991/01/31 12074.98 12583.36
1991/02/28 12192.12 12692.84
1991/03/31 12246.44 12697.41
1991/04/30 12378.08 12866.28
1991/05/31 12471.71 12980.66
1991/06/30 12474.96 12967.81
1991/07/31 12610.21 13125.76
1991/08/31 12731.51 13298.63
1991/09/30 12891.95 13471.78
1991/10/31 13012.37 13593.02
1991/11/30 13021.49 13630.95
1991/12/31 13281.87 13923.47
1992/01/31 13354.96 13955.21
1992/02/29 13403.79 13959.68
1992/03/31 13376.10 13964.84
1992/04/30 13488.61 14089.13
1992/05/31 13603.25 14254.96
1992/06/30 13757.21 14494.16
1992/07/31 14157.21 14928.69
1992/08/31 14052.10 14783.14
1992/09/30 14118.88 14879.82
1992/10/31 13924.55 14733.55
1992/11/30 14209.54 14997.43
1992/12/31 14366.67 15150.55
1993/01/31 14538.03 15326.75
1993/02/28 15063.21 15881.12
1993/03/31 14916.72 15713.26
1993/04/30 15058.25 15871.81
1993/05/31 15154.89 15961.00
1993/06/30 15357.55 16227.39
1993/07/31 15394.84 16248.65
1993/08/31 15709.40 16586.95
1993/09/30 15884.00 16775.87
1993/10/31 15906.40 16808.25
1993/11/30 15801.23 16660.17
1993/12/31 16125.18 17011.87
1994/01/31 16308.66 17206.14
1994/02/28 15933.19 16760.50
1994/03/31 15287.32 16078.02
1994/04/30 15373.40 16214.36
1994/05/31 15510.41 16354.94
1994/06/30 15430.17 16255.01
1994/07/31 15717.89 16552.96
1994/08/31 15773.80 16610.23
1994/09/30 15575.52 16366.40
1994/10/31 15362.47 16075.73
1994/11/30 15061.70 15785.08
1994/12/31 15357.23 16132.51
1995/01/31 15756.52 16593.58
1995/02/28 16132.29 17076.12
1995/03/31 16292.09 17272.32
1995/04/30 16295.51 17292.70
1995/05/31 16701.20 17844.51
1995/06/30 16615.85 17689.27
1995/07/31 16742.34 17856.96
1995/08/31 16975.16 18083.39
1995/09/30 17116.79 18197.86
1995/10/31 17313.95 18462.45
1995/11/30 17509.44 18768.74
1995/12/31 17636.72 18949.11
1996/01/31 17799.13 19092.18
1996/02/29 17742.17 18963.31
1996/03/31 17563.55 18720.95
1996/04/30 17529.08 18667.97
1996/05/31 17511.11 18660.51
1996/06/30 17657.99 18863.72
1996/07/31 17790.28 19035.38
1996/08/31 17792.83 19030.81
1996/09/30 17960.90 19297.24
1996/10/31 18169.45 19515.49
1996/11/30 18451.72 19872.63
1996/12/31 18418.89 19789.16
1997/01/31 18479.02 19826.56
1997/02/28 18627.43 20008.57
1997/03/31 18419.48 19741.86
1997/04/30 18536.66 19907.10
1997/05/31 18772.92 20206.50
1997/06/30 18967.73 20421.70
1997/07/31 19399.65 20987.38
1997/08/31 19263.87 20790.73
1997/09/30 19478.15 21037.51
1997/10/31 19597.63 21172.79
1997/11/30 19695.26 21297.28
1997/12/31 19935.17 21608.01
1998/01/31 20116.44 21831.00
1998/02/28 20123.26 21837.55
1998/03/31 20124.88 21856.77
1998/04/30 20062.34 21758.20
1998/05/31 20307.77 22102.63
1998/06/30 20408.19 22189.71
IMATRL PRASUN SHR__CHT 19980630 19980709 084541 R00000000000123
$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Spartan Intermediate Municipal Income Fund on June 30,
1988. As the chart shows, by June 30, 1998, the value of the
investment would have grown to $20,408 - a 104.08% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Municipal Bond Index - a total return performance benchmark for
investment-grade municipal bonds with maturities of at least one year
- - did over the same period. With dividends and capital gains, if any,
reinvested, the same $10,000 would have grown to $22,190 - a 121.90%
increase.

UNDERSTANDING
PERFORMANCE
HOW A FUND DID YESTERDAY IS
NO GUARANTEE OF HOW IT WILL DO
TOMORROW. BOND PRICES, FOR
EXAMPLE, GENERALLY 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
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED
JUNE 30,
1998 1997 1996 1995 1994 1993

DIVIDEND RETURN 2.40% 5.22% 5.12% 5.83% 5.07% 5.54%

CAPITAL RETURN -0.03% 3.01% -0.69% 9.01% -9.83% 6.70%

TOTAL RETURN 2.37% 8.23% 4.43% 14.84% -4.76% 12.24%

TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital 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 capital gains, if
any, paid by the fund are reinvested.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
DIVIDENDS AND YIELD
PERIODS ENDED JUNE 30, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR

DIVIDENDS PER SHARE 3.91(CENTS) 23.62(CENTS) 47.72(CENTS)

ANNUALIZED DIVIDEND RATE 4.79% 4.80% 4.83%

30-DAY ANNUALIZED YIELD 4.09% - -

30-DAY ANNUALIZED TAX-EQUIVALENT YIELD 6.39% - -

</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 $9.93
over the past one month, $9.93 over the past six months and $9.89 over
the past one year, you can compare the fund's income over these three
periods. 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. A portion of the fund's income may be subject to the
alternative minimum tax.
FUND TALK: THE MANAGER'S OVERVIEW

MARKET RECAP
Shifting supply and demand
conditions, combined with
ongoing expectations that the
turmoil in Asia will slow our
economy and keep inflation at
historical lows, played integral roles
in the municipal bond market
during the six months that ended
June 30, 1998. During this period,
the Lehman Brothers Municipal
Bond Index - a measure of the
municipal bond market -
returned 2.69%. In comparison,
the Lehman Brothers Aggregate
Bond Index - a measure of the
investment-grade taxable bond
market in the U.S. - returned
3.93%. Early in the year,
municipal bond issuers took
advantage of lower interest rates
to refinance their debt at lower
rates, which increased the supply
of municipal bonds. Increased
refinancing activity coupled with
weakened demand hampered the
performance of muni bonds in
January and February of 1998.
Extremely heavy municipal bond
issuance continued through March
and April as many issuers rushed to
the market before the largest deal
in municipal history took place in
May - a $3.5 billion issuance by
the Long Island Power Authority.
This heavy supply, combined with
lower demand, put downward
pressure on municipal bonds in
April and May. Encouraging
inflation reports and renewed
concerns over Asia attracted
investors to the bond market, but
municipals lagged taxable issues
through the end of the period.
NOTE TO SHAREHOLDERS:
Norm Lind became Portfolio Manager of Spartan Intermediate Municipal
Income Fund on January 31, 1998.
Q. HOW DID THE FUND PERFORM, NORM?
A. For the six-month period that ended June 30, 1998, the fund had a
total return of 2.37%. To get a sense of how the fund did relative to
its competitors, the intermediate municipal debt funds average
returned 2.05% for the same six-month period, according to Lipper
Analytical Services. Additionally, the Lehman Brothers 1-17 Year
Municipal Bond Index - which tracks the types of securities in which
the fund invests - returned 2.52% for the same six-month period. For
the 12-month period that ended June 30, 1998, the fund returned 7.59%.
That compared to the 6.69% return of the intermediate municipal debt
funds average and the 7.64% return of the Lehman Brothers 1-17 Year
Municipal Bond Index over the same one-year period.
Q. YOU HAVE BEEN ON THE FUND FOR ABOUT FIVE MONTHS NOW. HAVE YOU MADE
ANY STRATEGIC CHANGES SINCE TAKING OVER?
A. No, I haven't. As the previous manager did, I look for bonds that I
believe are priced below their fair value, possibly because the market
is undervaluing one or more of their features - be it maturity,
issuer, credit quality or other factors. As a result, the changes I've
made since taking over are a result of opportunities that presented
themselves.
Q. WHAT SECURITIES CONTRIBUTED MOST TO THE FUND'S PERFORMANCE?
A. Bonds rated Baa - which made up about 12% of the fund's investments
at the end of the period - were strong performers. Faced with falling
interest rates, yield-hungry investors increasingly sought out these
bonds because they offered a slight yield advantage over
higher-quality bonds. What's more, there was a very small supply of
these bonds during the period. Strong demand pushed up against low
supply and boosted the prices of most Baa-rated bonds. That said, the
fund's stake in higher-rated bonds accounted for the majority of
investments.
Q. WHY DID YOU KEEP THE FUND'S STAKE IN BAA BONDS RELATIVELY LIGHT
EVEN THOUGH THEY PERFORMED SO WELL DURING THE PERIOD?
A. I felt the yield advantage offered by Baa-rated bonds over the
top-rated Aaa bonds was too small. In my view, that slight amount of
additional income wasn't enough to cover the extra risk that Baa-rated
bonds carried. My concern was that if the spread - the difference in
yield between Aaa-rated and Baa-rated bonds - were to grow as the
result of an economic downturn or other reason, Baa-rated bonds would
suffer price losses that would more than overwhelm their income
advantage.
Q. WERE THERE ANY DISAPPOINTMENTS?
A. Yes, there were bonds sensitive to being prepaid before maturity
lagged the overall municipal market. For example, housing bonds
experienced increased prepayment activity when interest rates fell as
mortgage borrowers refinanced their debt in order to lower their
interest costs. While prepayment is good for the borrower, it can be
bad for housing bond holders because it can force them to reinvest at
lower interest rates.
Q. HOW DID YOU ALLOCATE THE FUND'S INVESTMENTS ACROSS BONDS WITH
VARIOUS MATURITIES?
A. I kept the fund focused on bonds with maturities between five and
12 years. I did that because the intermediate yield curve - which is a
graphical representation of the yield of intermediate-term bonds by
ascending maturity dates - was relatively flat beyond 12 years. Up to
about a 12-year maturity, an investor was paid an appropriate amount
of added income for each additional year of maturity. This additional
income compensates the investor for the added risk taken on by
investing in the longer-maturity part of the intermediate market. But
for bonds with maturities of 12 years or longer, the extra income for
each successive year was, in my opinion, less attractive given the
level of risk inherent in longer-term bonds.
Q. WHAT'S AHEAD FOR THE MUNICIPAL MARKET AND THE FUND?
A. The direction of interest rates will be the primary determinant of
municipal bond performance, and it's anybody's guess where they will
be six months or a year from now. Municipals may be in for a fairly
strong period as they play catch up to the U.S. Treasury market that
has so far this year outpaced the municipal market. As far as the fund
is concerned, I'll continue to emphasize bonds that I think offer good
value given their yields and their risk. For example, I'm comfortable
sticking with a fairly large weighting in higher-quality bonds for the
time being, because I feel that Baa-rated securities currently do not
offer enough additional yield given their risks.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.
NORM LIND ON MUNICIPAL BOND
INSURANCE:
"ONE OF THE MUNICIPAL MARKET'S MORE
INTERESTING DEVELOPMENTS DURING
THIS DECADE HAS BEEN THE RAPIDLY
GROWING NUMBER OF MUNICIPAL BONDS
THAT ARE INSURED. MUNICIPAL BOND
INSURANCE POLICIES ARE UNDERWRITTEN
BY PRIVATE INSURERS. THEY GUARANTEE
THAT BONDS WILL BE PURCHASED FROM
INVESTORS AT PAR - OR FACE VALUE -
SHOULD THE ISSUER DEFAULT ON THE
UNDERLYING DEBT. INSURANCE CAN BE
PURCHASED EITHER BY THE ISSUER OR
THE INVESTOR. BECAUSE INSURED BONDS
GENERALLY ENJOY THE HIGHEST CREDIT
RATING (AAA, AAA OR OTHER,
DEPENDING ON THE INSURER) THEY TEND
TO HAVE GREATER MARKETABILITY AND
LOWER COSTS TO THEIR ISSUERS.
HOWEVER, THEIR YIELD TYPICALLY IS
LOWER THAN SIMILARLY RATED
UNINSURED BONDS BECAUSE THE COST
OF THE INSURANCE IS PASSED ON BY THE
ISSUER TO THE INVESTOR. INVESTORS
SHOULD BE AWARE, HOWEVER, THAT
INSURANCE DOESN'T PROTECT A BOND
FROM SUFFERING PRICE LOSSES. LIKE ALL
BONDS, INSURED BOND PRICES WILL
FLUCTUATE IN RESPONSE TO SUPPLY,
DEMAND, INTEREST-RATE MOVEMENTS
AND OTHER FACTORS."
FUND FACTS
GOAL: TO PROVIDE HIGH CURRENT
INCOME FREE FROM FEDERAL INCOME
TAX WITH PRESERVATION OF CAPITAL
FUND NUMBER: 036
TRADING SYMBOL: FLTMX
START DATE: APRIL 15, 1977
SIZE: AS OF JUNE 30, 1998,
MORE THAN $1.1 BILLION
MANAGER: NORM LIND, SINCE
JANUARY 1998; MANAGER, VARIOUS
FIDELITY AND SPARTAN MUNICIPAL
INCOME FUNDS; JOINED FIDELITY
IN 1986
(CHECKMARK)
INVESTMENT CHANGES

TOP FIVE STATES AS OF JUNE 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE STATES
6 MONTHS AGO

TEXAS 14.3 14.9

CALIFORNIA 10.6 13.0

MASSACHUSETTS 10.4 13.1

NEW YORK 8.5 8.1

WASHINGTON 6.2 6.9

TOP FIVE SECTORS AS OF JUNE 30, 1998
% OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE SECTORS
6 MONTHS AGO

GENERAL OBLIGATION 37.1 36.8

HEALTH CARE 11.5 11.3

ELECTRIC REVENUE 10.9 13.1

EDUCATION 9.3 8.0

TRANSPORTATION 7.6 5.1

AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1998
6 MONTHS AGO

YEARS 7.8 8.0

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 JUNE 30, 1998
6 MONTHS AGO

YEARS 5.4 5.6

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 ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.
QUALITY DIVERSIFICATION (MOODY'S RATINGS)
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997
AAA 50.1%
AA, A 34.2%
BAA 12.0%
NON-RATED 2.2%
SHORT-TERM
INVESTMENTS 1.5%
AAA 47.5%
AA, A 33.3%
BAA 14.8%
NON-RATED 2.7%
SHORT-TERM
INVESTMENTS 1.7%
ROW: 1, COL: 1, VALUE: 50.0
ROW: 1, COL: 2, VALUE: 34.0
ROW: 1, COL: 3, VALUE: 12.0
ROW: 1, COL: 4, VALUE: 2.3
ROW: 1, COL: 5, VALUE: 1.7
ROW: 1, COL: 1, VALUE: 47.4
ROW: 1, COL: 2, VALUE: 33.3
ROW: 1, COL: 3, VALUE: 14.8
ROW: 1, COL: 4, VALUE: 2.9
ROW: 1, COL: 5, VALUE: 1.9
WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS.
AMOUNTS SHOWN ARE AS A PERCENTAGE OF THE FUND'S INVESTMENTS.
INVESTMENTS JUNE 30, 1998 (UNAUDITED)

SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES

MUNICIPAL BONDS - 98.5%
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
ALABAMA - 1.2%
Alabama Gen. Oblig. Rfdg. (Cap. Appreciation):
0% 3/1/01 $ 10,000 $ 9,003
0% 9/1/01 5,000 4,413
13,416
ALASKA - 4.7%
Anchorage Hosp. Rev. Rfdg. (Sisters of Providence Proj.)
Series 1991, 6.75% 10/1/02 2,575 2,801
North Slope Borough (Cap. Appreciation):
Series A:
0% 6/30/01 (MBIA Insured) 12,000 10,563
0% 6/30/02 (MBIA Insured) 23,950 20,130
0% 6/30/03 (MBIA Insured) 11,500 9,212
Series B:
0% 1/1/02 (MBIA Insured) 8,500 7,301
0% 1/1/03 (MBIA Insured) 3,200 2,620
52,627
ARIZONA - 1.3%
Arizona Trans. Board Excise Tax Rev.:
Rfdg. (Maricopa County Reg'l. Area A)
6% 7/1/03 (AMBAC Insured) 3,560 3,841
(Maricopa County Reg'l. Area-A) 6.50% 7/1/04
(AMBAC Insured) 1,100 1,228
(Maricopa County Reg'l. Area-B) 6.50% 7/1/04
(AMBAC Insured) 1,220 1,362
(Maricopa Reg'l. Road) (Cap. Appreciation)
Series A, 0% 7/1/02 (FGIC Insured) 1,700 1,440
Arizona Univ. Rev. Rfdg. (Univ. Rev. Sys.)
6.375% 6/1/05 2,100 2,290
Maricopa County Commty. College Dist.
Series A, 6% 7/1/09 2,000 2,146
Phoenix Civic Impt. Corp. Excise Tax Rev. Rfdg.
(Arpt. Impts.) Series A, 5.85% 7/1/01 (b) 2,420 2,541
14,848
ARKANSAS - 0.1%
Arkansas College Savings Prog. (Cap. Appreciation):
0% 6/1/02 705 599
0% 6/1/03 1,190 967
1,566
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
CALIFORNIA - 10.6%
California Dept. of Wtr. Resource Ctr. (Water Sys. Proj.)
Series P, 5.75% 12/1/16 $ 9,705 $ 10,318
California Edl. Facs. Auth. Rev. Rfdg. (Chapman Univ.)
5.375% 10/1/16 (Connie Lee Insured) 3,000 3,068
California Gen. Oblig. 8% 5/1/03 1,000 1,161
California Health Facs. Fin. Auth. Rev.
(Casa de Las Campanas Proj.) 5.375% 8/1/10 1,660 1,707
California Hsg. Fin. Agcy. Rev.:
(Home Mtg. Single Family) (Cap. Appreciation)
Series 1983 A, 0% 2/1/15 19,346 4,051
(Home Mtg.) Series G, 6% 2/1/10 (MBIA Insured) (b) 2,000 2,137
California Poll. Cont. Fin. Auth. Resource
Recovery Rev. (Waste Mgmt., Inc.)
Series A, 7.15% 2/1/11 (b) 2,500 2,710
California Pub. Wks. Board Lease Rev.:
Rfdg. (Dept. of Corrections State Prison, Monterey County
Soledad II) Series D, 5.375% 11/1/14 4,690 4,824
(Franchise Tax Board-PH II) Series A, 6.25% 9/1/11
(Pre-Refunded to 9/1/01 @ 102) (c) 1,200 1,300
California Rural Home Mtg. Fin. Auth. Lease Rev.
(Rural Lease Purp.) Series A, 4.45% 8/1/01
(MBIA Insured) 3,000 3,040
California Statewide Commtys. Dev. Auth. Rev. Ctfs. of Prtn.:
Rfdg. (Triad Healthcare Hosp.):
5.90% 8/1/01 (Escrowed to Maturity) (c) 4,415 4,655
6% 8/1/02 (Escrowed to Maturity) (c) 4,145 4,442
Rfdg. (St. Joseph Health Sys.) 5% 7/1/04 1,000 1,033
Carson Redev. Agcy. Rfdg. (Redev. Proj. Area 2) (Tax Allocation):
5.40% 10/1/01 1,350 1,382
5.50% 10/1/02 1,320 1,361
5.60% 10/1/03 1,500 1,560
Central Valley Fin. Auth. Cogeneration Proj. Rev.
(Carson Ice Gen. Proj.) 5.50% 7/1/01 1,875 1,932
Clovis Unified School Dist. (Cap. Appreciation)
Series B, 0% 8/1/02 (MBIA Insured) 5,700 4,796
East Bay Muni. Util. Dist. Wtr. Sys. Rev. Rfdg.
5% 6/1/13 (FGIC Insured) 1,000 1,008
Long Beach Hbr. Rev. Rfdg. Series A:
5.50% 5/15/05 (FGIC Insured) (b) 1,485 1,574
5.50% 5/15/07 (FGIC Insured) (b) 3,080 3,287
Los Angeles County Pub. Wks. Fin. Auth. Lease Rev.
(Multiple Cap. Facs. Proj. #4) 4.75% 2/1/10
(MBIA Insured) 1,195 1,205
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
CALIFORNIA - CONTINUED
Los Angeles Unified School Dist. Series A:
6% 7/1/11 (FGIC Insured) $ 1,110 $ 1,257
6% 7/1/13 (FGIC Insured) 500 564
Modesto Irrigation Dist. Elec. Rev. Series A,
9.625% 1/1/11 (Escrowed to Maturity) (c) 4,390 5,919
Modesto Wastewtr. Treatment Fac. Rev.
5.625% 11/1/17 (MBIA Insured) 8,705 9,163
Orange County Dev. Agcy. Tax Allocation
(Santa Ana Heights Proj.) 6% 9/1/05 1,335 1,430
Pleasanton Joint Pwrs. Fin. Auth. Rev. Reassessment
Series A, 6.15% 9/2/12 1,410 1,503
Riverside Elec. Rev. 6% 10/1/15 (MBIA Insured)
(Pre-Refunded to 10/1/01 @ 100) (c) 2,000 2,120
Sacramento Cogeneration Auth. Cogeneration Proj. Rev.
(Proctor & Gamble Proj.) 5.80% 7/1/01 1,400 1,456
Sacramento Pwr. Auth. Cogeneration Proj. Rev.:
6% 7/1/99 3,000 3,058
6% 7/1/00 3,100 3,202
6% 7/1/01 3,300 3,451
6.50% 7/1/05 2,000 2,216
6.50% 7/1/08 2,000 2,220
San Bernardino County Ctfs. of Prtn. Rfdg. (Med. Ctr. Fin. Proj.):
5.25% 8/1/05 4,000 4,116
5.25% 8/1/06 3,000 3,078
San Francisco City & County Arpts. Commission Int'l. Arpt.
Rev. 2nd Series Issue 9-B:
5.25% 5/1/11 (FGIC Insured) 1,700 1,758
5.25% 5/1/12 (FGIC Insured) 1,000 1,026
Southern California Pub. Pwr. Auth. Pwr. Proj. Rev.
(Cap. Appreciation) Series 11, 0% 7/1/15
(Pre-Refunded to 7/1/00 @ 101) (c) 4,120 3,846
West Covina Ctfs. of Prtn. (Queen of The Valley Hosp.)
6.50% 8/15/09 (Pre-Refunded to 8/15/04 @ 102) (c) 3,425 3,899
117,833
COLORADO - 4.9%
Arapahoe County Cap. Impt. Tr. Fed. Hwy. Rev.
(Cap. Appreciation) Series C, 0%, 8/31/26
(Pre-Refunded to 8/31/05 @ 20.863) (c) 52,100 7,906
Colorado Health Facs. Auth. Rev. Rfdg.
(Rocky Mountain Adventist) 6.25% 2/1/04 18,100 19,178
Colorado Student Oblig. Auth. Student Loan Rev.
Series A, 6.75% 9/1/99 2,450 2,509
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
COLORADO - CONTINUED
Denver City & County Arpt. Rev. (Cap. Appreciation):
Series A:
0% 11/15/04 (b) $ 2,070 $ 1,503
0% 11/15/05 (MBIA Insured) (b) 2,250 1,604
Series D:
0% 10/15/03 (MBIA Insured) (b) 5,320 4,187
0% 11/15/05 (MBIA Insured) (b) 2,055 1,465
0% 11/15/06 (b) 4,500 2,931
Denver City & County Arpt. Rev.:
Series A, 8.25% 11/15/02 (b) 730 802
Series A, 8.50% 11/15/23 (b) 2,000 2,208
Series C, 6.55% 11/15/16 (MBIA Insured) (b) 2,660 2,919
Series D, 7% 11/15/25 (b) 1,340 1,432
Jefferson County School Dist. Rev. Series A:
5.50% 12/15/09 (FGIC Insured) 1,000 1,084
5.50% 12/15/14 (FGIC Insured) 5,000 5,292
55,020
CONNECTICUT - 0.2%
Connecticut Health & Edl. Facs. Auth. Rev. Rfdg.
(Quinnipiac College):
Series D, 4.90% 7/1/98 700 700
Series D, 5.625% 7/1/03 1,100 1,143
1,843
DISTRICT OF COLUMBIA - 3.6%
District of Columbia Gen. Oblig.:
Rfdg. Series A:
5.75% 6/1/03 (AMBAC Insured) 1,140 1,210
5.875% 6/1/05 (AMBAC Insured) 4,000 4,303
Rfdg. Series A-3:
5.30% 6/1/04 (AMBAC Insured) 775 808
5.40% 6/1/05 (AMBAC Insured) 660 692
Rfdg. Series C, 5.75% 12/1/05 (AMBAC Insured) 2,155 2,308
Series A:
5.25% 6/1/10 (MBIA Insured) 3,000 3,087
5.25% 6/1/11 (MBIA Insured) 3,905 3,983
Series E:
5% 6/1/04 (FGIC Insured) 960 986
5% 6/1/04 (Pre-Refunded to 6/1/03 @ 102) (c) 40 42
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
DISTRICT OF COLUMBIA - CONTINUED
District of Columbia Hosp. Rev. Rfdg.
(Medlantic Healthcare Group - Washington Hosp. Ctr.):
Series A:
6.75% 8/15/98 $ 2,600 $ 2,607
6.80% 8/15/99 2,600 2,668
Series B:
6% 8/15/98 4,265 4,272
6.25% 8/15/00 4,805 4,972
6.125% 8/15/99 4,520 4,606
District of Columbia Rev. (Georgetown Univ.) Series A,
7.25% 4/1/11 3,500 3,595
40,139
FLORIDA - 0.9%
Alachua County Health Facs. Auth. Health Facs. Rev. Rfdg.
(Santa Fe Healthcare Sys. Proj.) 6% 11/15/09
(Escrowed to Maturity) (c) 1,750 1,893
Broward County Resource Recovery Rev.
(SES Broward Co. LP South Proj.) 7.95% 12/1/08 3,750 4,034
Hillsborough County Port. Dist. Spl. Refing Rev. Rfdg.
(Tampa Port. Auth.) 6.50% 6/1/02 (FSA Insured) 2,000 2,160
Pasco County Solid Waste Disp. & Resource Recovery Sys.
Rev. Rfdg. 6% 4/1/10 (AMBAC Insured) (b) 2,000 2,226
10,313
GEORGIA - 0.4%
Cobb County Wtr. & Swr. Rev. Rfdg.
Series A, 5.35% 7/1/07 3,720 3,966
IDAHO - 0.5%
Idaho Falls Elec. Rev. Rfdg.
0% 4/1/05 (FGIC Insured) 7,000 5,237
ILLINOIS - 2.3%
Chicago Midway Arpt. Rev. Series B:
6% 1/1/09 (MBIA Insured) (b) 2,000 2,177
6.125% 1/1/12 (MBIA Insured) (b) 2,740 2,991
Chicago O'Hare Int'l. Arpt. Rev. Rfdg. (Gen. Arpt. Proj.)
Series A, 6.25% 1/1/08 (AMBAC Insured) (b) 9,820 10,922
Lake County Forest Preserve Dist.
(Cap. Appreciation) 0% 12/1/04 5,850 4,426
Rolling Meadows Multi-Family Mtg. Rev. Rfdg.
(Woodfield Gardens Apts. Proj.) 7.75% 2/1/04,
LOC Banque Paribas 5,000 5,364
25,880
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
INDIANA - 1.8%
Indiana Employment Dev. Commission Poll. Cont. Rev.
(Chrysler Corp. Proj.) 5.70% 10/1/99 $ 5,000 $ 5,087
Indianapolis Resource Recovery Rev. Rfdg.
(Ogden Martin Sys., Inc. Proj.):
6.75% 12/1/04 (AMBAC Insured) 3,520 3,960
6.75% 12/1/05 (AMBAC Insured) 8,185 9,290
Marion County Ind. Hosp. Auth. Hosp. Facs. Rev. Rfdg.
(Univ. Heights Hosp.) 8.625% 10/1/99
(AMBAC Insured) (Escrowed to Maturity) (c) 1,540 1,625
19,962
IOWA - 0.9%
Iowa Student Loan Liquidity Corp. Student Loan Rev.:
Rfdg. Series B, 5.75% 12/1/07 (b) 4,500 4,687
Series A, 6.25% 3/1/00 5,080 5,232
9,919
KANSAS - 1.0%
Kansas City Util. Sys. Rev. (Cap. Appreciation):
0% 3/1/04 (AMBAC Insured) (Escrowed to Maturity) (c) 5,015 3,922
0% 3/1/04 (AMBAC Insured) 3,735 2,919
Kansas Dev. Fin. Auth. Rev. (Sisters of Charity Leavenworth):
5.25% 12/1/10 (MBIA Insured) 1,000 1,043
5.25% 12/1/11 (MBIA Insured) 1,805 1,868
5.125% 12/1/18 (MBIA Insured) 1,000 1,004
10,756
KENTUCKY - 0.2%
Kentucky Tpk. Auth. Econ. Dev. Road Rev. Rfdg.
(Revitalization Proj.) 5.50% 7/1/09 (AMBAC Insured) (d) 2,000 2,160
LOUISIANA - 1.2%
Louisiana Pub. Facs. Auth. Rev. Rfdg. (Student Loan):
Series A-1, 6.10% 3/1/00 1,240 1,275
Series A-1, 6.10% 9/1/00 2,490 2,582
New Orleans Gen. Oblig. Rfdg. (Cap. Appreciation)
0% 9/1/05 (AMBAC Insured) 13,500 9,762
13,619
MARYLAND - 0.3%
Maryland Gen. Oblig. 5% 3/1/04 1,000 1,038
Prince George's County Hosp. Rev. (Dimensions Health Corp.):
Rfdg. 5% 7/1/05 1,130 1,157
7% 7/1/01 1,250 1,326
7.20% 7/1/06 305 341
3,862
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
MASSACHUSETTS - 10.4%
Boston Gen. Oblig. Rev. (Boston City Hosp.)
Series A, 7.625% 2/15/21 (FHA Guaranteed)
(Pre-Refunded to 8/15/00 @ 102) (c) $ 2,000 $ 2,186
Holyoke Gen. Oblig. Rfdg.:
5.25% 8/1/07 (FSA Insured) 550 582
5.25% 8/1/08 (FSA Insured) 485 514
Lowell Univ. Bldg. Auth. (Massachusetts Guaranteed Rfdg.)
Fifth Series A, 6.75% 11/1/05 (AMBAC Insured) 1,705 1,950
Massachusetts Consolidated Loan Series C, 5.625% 8/1/13 2,500 2,637
Massachusetts Gen. Oblig.:
Rfdg. Series A, 5.50% 2/1/11 2,755 2,884
Series C, 6.50% 8/1/11 720 778
7.50% 12/1/00 (a) 3,500 3,615
Massachusetts Health & Edl. Facs. Auth. Rev.:
Rfdg.:
(Beloit Corp. Proj.) Series A, 7.60% 12/1/11 1,000 1,096
(Fairview Extended Care) Series B, 4.55% 7/15/02
(MBIA Insured) LOC BankBoston NA 1,400 1,405
(Lawrence Gen. Hosp.) Series B, 7.25% 7/1/01 5,715 6,001
(Waltham/Weston Hosp. & Med. Ctr.) Series B,
8% 7/1/02 (Pre-Refunded to 7/1/00 @ 102) (c) 2,500 2,700
Massachusetts Ind. Fin. Agcy. Rev. (Cap. Appreciation)
(Massachusetts Biomedical Research):
Series A-1:
0% 8/1/01 10,800 9,515
0% 8/1/02 5,700 4,796
Series A-2:
0% 8/1/04 10,800 8,294
0% 8/1/05 5,100 3,725
0% 8/1/07 5,800 3,812
Massachusetts Muni. Wholesale Elec. Co. Pwr. Supply Sys.
Rev. Rfdg. Series A, 6.75% 7/1/05 3,610 3,931
Massachusetts Tpk. Auth. Western Tpk. Rev. Series A,
5.55% 1/1/17 (MBIA Insured) 13,200 13,325
New England Ed. Loan Marketing Corp.
Massachusetts Student Loan Rev. Rfdg. (Sr. Issue):
Series A, 6.50% 9/1/02 27,525 29,802
Series D:
6.20% 9/1/00 3,000 3,121
6.30% 9/1/02 7,815 8,387
115,056
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
MICHIGAN - 2.8%
Detroit Convention Facs. Rev. Rfdg.
(Cobo Hall Expansion Proj.) 5.25% 9/30/12 $ 22,300 $ 22,565
Jackson County Hosp. Fin. Auth. Hosp. Rev. Rfdg.
(W.A. Foote Mem. Hosp.) Series A, 4.75% 6/1/15
(FGIC Insured) 1,500 1,439
Michigan Muni. Auth. Rev. Rfdg.
(Local Gov't. Loan Prog.) Series G, 6.30% 11/1/05
(AMBAC Insured) 1,000 1,118
Michigan Hosp. Fin. Auth. Rev.
(Mercy Health Svcs., Inc.) Series Q, 6% 8/15/09
(AMBAC Insured) 1,195 1,308
Michigan Strategic Fund Poll. Cont. Rev.
(Chrysler Corp. Proj.) 5.70% 10/1/99 5,000 5,089
31,519
MINNESOTA - 0.4%
Minneapolis Gen. Oblig. (Cap. Appreciation) Series B:
0% 12/1/03 300 239
0% 12/1/04 440 334
Minneapolis Gen. Oblig. Series B (Cap. Appreciation)
(Sports Arena Proj.) 0% 12/01/05 495 359
Rochester Health Care Facs. Rev. (Mayo Foundation Proj.)
Series A, 5.50% 11/15/27 3,000 3,097
4,029
NEBRASKA - 0.4%
Nebraska Pub. Pwr. Dist. Rev. Rfdg. (Pwr. Supply Sys.)
Series B, 5.25% 1/1/13 2,000 2,029
Nebraska Investment Fin. Auth. Hosp. Rev.
(Nebraska Methodist Health Sys.) 6.85% 3/1/02
(MBIA Insured) (Pre-Refunded to 3/1/01 @ 102) (c) 2,000 2,176
4,205
NEVADA - 0.4%
Clark County School Dist. (Cap. Appreciation) Series B,
0% 3/1/05 (FGIC Insured) 6,195 4,624
NEW HAMPSHIRE - 0.4%
New Hampshire Higher Edl. & Health Facs. Auth. Rev.
(Frisbee Mem. Hosp.) 5.70% 10/1/04 4,145 4,289
NEW JERSEY - 1.3%
New Jersey Econ. Dev. Auth. Marketing Transition Facs. Rev.
(Sr. Lien) Series A, 7% 7/1/03 (MBIA Insured) 5,000 5,622
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NEW JERSEY - CONTINUED
New Jersey Health Care Facs. Fin. Auth. Rev. Rfdg.
(Atlantic City Med. Ctr.) Series C:
6.55% 7/1/03 $ 2,200 $ 2,394
6.80% 7/1/05 3,500 3,798
Passaic County Util. Auth. Solid Waste Disp. Rev. Rfdg.
(Cap. Appreciation) 0% 3/1/02 (MBIA Insured) 3,380 2,899
14,713
NEW MEXICO - 0.9%
Albuquerque Arpt. Rev. Rfdg. 6.50% 7/1/07
(AMBAC Insured) (b) 1,400 1,586
Farmington Poll. Cont. Rev. 6.10% 1/1/08
(MBIA Insured) 1,300 1,303
New Mexico Edl. Assistance Foundation Student Loan
Rev. Series IV, 7.05% 3/1/10 (b) 4,635 5,065
Rio Rancho Wtr. & Wastewtr. Sys. Rev. Series A,
8% 5/15/04 (FSA Insured) 1,420 1,687
9,641
NEW YORK - 8.5%
Metropolitan Trans. Auth. Commuter Facs. Rev.
Series E, 5.625% 7/1/08 (AMBAC Insured) 7,305 7,952
Metropolitan Trans. Auth. Svc. Contract Trans. Facs. Rfdg.
Series 7, 5.20% 7/1/04 5,280 5,491
Nassau County Gen. Impt. Rev. Series Y, 4.90% 3/1/02
(FGIC Insured) 3,860 3,944
New York City Gen. Oblig.:
Series B:
7.50% 2/1/04 5,000 5,550
7.50% 2/1/05 2,475 2,747
7.50% 2/1/05 (Pre-Refunded to 2/1/02 @ 101.5) (c) 145 163
Series C:
6.40% 8/1/03 3,000 3,261
6.50% 8/1/07 1,660 1,800
6.50% 8/1/07 (Pre-Refunded to 8/1/02 @ 101.5) (c) 340 374
Series G, 5.40% 2/1/01 13,885 14,286
Series H, 7% 2/1/06 360 394
New York City Muni. Assistance Corp. Rfdg. Series E:
6% 7/1/04 4,000 4,353
6% 7/1/05 1,500 1,647
New York State Dorm. Auth. Rev.:
(City Univ. Sys. Consolidated):
Series A, 5.75% 7/1/13 3,000 3,285
Series B, 5.75% 7/1/06 1,080 1,168
Series C, 7.50% 7/1/10 2,500 3,007
Series D, 8.75% 7/1/02 1,700 1,974
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
NEW YORK - CONTINUED
New York State Dorm. Auth. Rev.: - continued
(Ithaca College) 5.25% 7/1/10 (AMBAC Insured) $ 1,670 $ 1,745
(New York & Presbyterian Hosp.) 4.40% 8/1/13
(AMBAC Insured) 5,000 5,089
(New York City Univ.) Series A:
5.50% 7/1/10 (MBIA Insured) 3,235 3,475
5.75% 7/1/09 (MBIA Insured) 2,000 2,199
(State Univ. Edl. Facs.):
Rfdg. Series B, 5.25% 5/15/11 2,000 2,089
Series C, 5.20% 5/15/04 4,185 4,349
Series C, 5.20% 5/15/06 2,000 2,093
New York State Local Gov't. Assistance Corp.
Series B, 6% 4/1/18 2,500 2,650
New York State Thruway Auth. Hwy. & Bridge Trust Fund
Series A, 5.80% 4/1/09 3,000 3,194
New York State Urban Dev. Corp. Rev.:
Rfdg. (Correctional Cap. Facs.) Series A, 6.40% 1/1/04 1,785 1,960
Series A, 5.50% 4/1/10 (MBIA Insured) 3,990 4,232
94,471
NORTH CAROLINA - 2.2%
North Carolina Eastern Muni. Pwr. Agcy. Pwr. Sys. Rev.:
Rfdg. Series B:
5.625% 1/1/03 1,000 1,040
6% 1/1/06 6,750 7,250
Rfdg. Series C:
5.25% 1/1/04 9,340 9,602
5.50% 1/1/07 500 522
5.50% 1/1/07 (MBIA Insured) 2,340 2,482
North Carolina Edl. Facs. Fin. Agcy. Rev. Rfdg.
(Elon College) 6.375% 1/1/07 (Connie Lee Insured) 1,000 1,080
North Carolina Municipal Pwr. Agcy. Rev. Rfdg.
(Catawba Elec. Rev.) 5.90% 1/1/03 2,000 2,117
24,093
OHIO - 2.0%
Butler County Trans. Impt. Dist. Series A, 5.50% 4/1/09
(FSA Insured) 2,000 2,159
Franklin County Rev. (Online Computer Library
Ctr., Inc. Proj.):
6.50% 7/15/98 745 746
6.60% 7/15/99 895 918
6.70% 7/15/00 960 1,005
5.65% 4/15/01 840 870
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
OHIO - CONTINUED
Franklin County Rev. (Online Computer Library
Ctr., Inc. Proj.): - continued
6.80% 7/15/01 $ 800 $ 857
5.75% 4/15/02 1,030 1,081
5.90% 4/15/04 500 530
6% 4/15/09 4,500 4,710
Lake County Hosp. Impt. Facs. Rev. (Lake Hosp. Sys., Inc.)
6.875% 8/15/11 (AMBAC Insured)
(Escrowed to Maturity) (c) 3,800 4,387
Ohio Bldg. Auth. Facs. (Admin. Bldg. Fund. Proj.)
6.30% 10/1/11 2,000 2,188
Ohio Tpk. Commission Tpk. Rev.
Series A, 5.60% 2/15/12 (MBIA Insured) 1,250 1,326
Ohio Student Loan Funding Corp. Student Loan Rev. Rfdg.
Series C, 6.20% 7/1/03 (b) 925 976
21,753
OKLAHOMA - 0.2%
Tulsa Ind. Auth. Hosp. Rev. (Tulsa Reg'l. Med. Ctr.)
7% 6/1/06 (Pre-Refunded to 6/1/03 @ 102) (c) 2,080 2,314
PENNSYLVANIA - 4.5%
Allegheny County Gen. Oblig. (Cap. Appreciation)
Series C-34, 0% 2/15/02 (a) 21,000 23,978
Allegheny County Hosp. Dev. Auth. Health Care Ctr.
(Univ. of Pittsburgh Med. Ctr.) Series B:
5.25% 7/1/06 (MBIA Insured) 3,335 3,490
5% 7/1/16 (MBIA Insured) 2,500 2,462
Delaware County Gen. Oblig. Rfdg. (Cap. Appreciation)
0% 11/15/03 5,500 4,388
Northampton County Hosp. Auth. Rev. Rfdg. (Easton Hosp.)
Series B, 6.90% 1/1/02 1,905 1,983
Philadelphia Gen. Oblig. 6.25% 5/5/12 (MBIA Insured) 3,610 4,035
Philadelphia Hosp. & Higher Ed. Auth. Hosp. Ed. Rev. Rfdg.
(Temple Univ. Hosp.) Series A, 5.75% 11/15/99 2,675 2,728
Philadelphia Wtr. & Wastewtr. Rev. Rfdg. 5.50% 6/15/03
(FGIC Insured) 3,300 3,481
Wilkens Area Ind. Dev. Auth. Rev. Rfdg.
(Fairview Extended Care) Series B, 4.55% 7/15/02
(MBIA Insured) LOC BankBoston NA 3,770 3,784
50,329
RHODE ISLAND - 0.2%
Rhode Island Student Loan Auth. Student Loan Rev. Rfdg.
Series A, 6.40% 12/1/99 2,340 2,410
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
SOUTH CAROLINA - 0.4%
Aiken County Ind. Rev. Rfdg. (Beloit Corp. Proj.)
7.60% 12/1/11 $ 1,500 $ 1,654
South Carolina Gen. Oblig. (State Hwy.) Series B,
5.625% 7/1/11 1,000 1,074
South Carolina Ed. Assistance Auth. Rev. Rfdg.
(Guaranteed Student Loan) Series B, 5.70% 9/1/05 (b) 2,000 2,140
4,868
SOUTH DAKOTA - 0.5%
South Dakota Student Loan Fin. Corp. Student Loan Rev.
Series A, 6.15% 8/1/03 (Pre-Refunded to
8/1/01 @ 102) (c) 5,000 5,358
TENNESSEE - 0.4%
Memphis-Shelby County Arpt. Auth. Auth. Rev. Rfdg.:
Series A, 5.50% 2/15/03 (MBIA Insured) (b) 1,405 1,470
Series A, 6% 2/15/06 (MBIA Insured) (b) 2,000 2,181
Shelby County Gen. Oblig. Series A, 0% 5/1/11
(Pre-Refunded to 5/1/05 @ 69.562) (c) 2,200 1,133
4,784
TEXAS - 14.3%
Alief Independent School Dist.:
7% 2/15/03 (PSF of Texas Guaranteed) 1,125 1,250
7% 2/15/04 (PSF of Texas Guaranteed) 1,125 1,269
Allen Independent School Dist. Rfdg. (Cap. Appreciation)
0% 2/15/06 (PSF of Texas Guaranteed) 1,370 972
Arlington Independent School Dist. Rfdg. & Impt.:
(Cap. Appreciation) 0% 2/15/07
(PSF of Texas Guaranteed) 1,570 1,060
6.50% 2/15/02 (PSF of Texas Guaranteed) 1,000 1,076
6.50% 2/15/03 (PSF of Texas Guaranteed) 1,500 1,639
Austin Independent School Dist. Rfdg. 5.70% 8/1/11
(PSF of Texas Guaranteed) 3,500 3,709
Austin Util. Sys. Rev. Rfdg. (Cap. Appreciation) Series A,
0% 5/15/02 (MBIA Insured) 16,130 13,704
Brazos Higher Ed. Auth. Student Loan Rev. Rfdg. Series C-1:
5.60% 6/1/03 6,515 6,801
5.70% 6/1/04 2,410 2,535
Brazosport Independent School Dist. (School House)
5.40% 2/15/13 (PSF of Texas Guaranteed) 1,290 1,322
Cedar Hill Independent School Dist. Rfdg.:
0% 8/15/05 (PSF of Texas Guaranteed) 2,830 2,061
0% 8/15/07 (PSF of Texas Guaranteed) 1,465 959
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
TEXAS - CONTINUED
Conroe Independent School Dist. Rfdg.
(Cap. Appreciation) Series B, 0% 2/15/07
(PSF of Texas Guaranteed) $ 500 $ 338
Dallas County Gen. Oblig. Rfdg. Unltd. Tax
(Cap. Appreciation) Series A:
0% 8/15/05 7,125 5,246
0% 8/15/06 6,700 4,707
0% 8/15/07 3,605 2,414
Eanes Independent School Dist. Rfdg.
(Cap. Appreciation) 0% 8/1/04
(PSF of Texas Guaranteed) 2,005 1,533
Garland Independent School Dist. Series A, 4% 2/15/17
(PSF of Texas Guaranteed) 3,505 3,022
Harris County Toll Road Sub-Lien Rev. Rfdg.
(Cap. Appreciation):
0% 8/1/05 16,275 11,977
0% 8/1/06 13,000 9,126
Series 1991:
0% 8/1/02 8,485 7,165
0% 8/1/03 12,570 10,156
Humble Independent School Dist. 8% 2/15/05
(PSF of Texas Guaranteed) 1,300 1,564
Irving Independent School Dist. (Cap. Appreciation)
0% 2/15/00 (PSF of Texas Guaranteed) 4,000 3,747
Katy Independent School Dist. Rfdg. (Cap. Appreciation)
Series A, 0% 2/15/07 (PSF of Texas Guaranteed) 2,550 1,722
Keller Independent School Dist. Rfdg. (Cap. Appreciation)
Series A, 0% 8/15/12 (PSF of Texas Guaranteed) 1,590 785
Laredo Gen. Oblig. Rfdg. 5.25% 2/15/13
(FGIC Insured) 1,335 1,356
Leander Independent School Dist.:
7.50% 8/15/04 (PSF of Texas Guaranteed) 500 583
7.50% 8/15/05 (PSF of Texas Guaranteed) 600 712
7.50% 8/15/06 (PSF of Texas Guaranteed) 800 962
7.50% 8/15/07 (PSF of Texas Guaranteed) 800 975
Lewisville Independent School Dist. Gen. Oblig. Rfdg.
(Cap. Appreciation) 0% 8/15/08
(PSF of Texas Guaranteed) 5,000 3,092
Lower Colorado River Auth. Rev. Priority Rfdg.
(Cap. Appreciation) 0% 1/1/09 (MBIA Insured)
(Escrowed to Maturity) (c) 615 378
Midlothian Independent School Dist. Unltd. Tax Rfdg.
(Cap. Appreciation) 0% 2/15/06
(PSF of Texas Guaranteed) 1,905 1,351
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
TEXAS - CONTINUED
Northside Independent School Dist. Rfdg. (Cap. Appreciation):
0% 2/15/02 (PSF of Texas Guaranteed) $ 1,000 $ 858
0% 2/15/03 (PSF of Texas Guaranteed) 1,230 1,007
0% 2/1/05 (PSF of Texas Guaranteed) 6,155 4,590
Round Rock Independent School Dist.:
Rfdg. (Cap. Appreciation) 0% 2/15/07
(PSF of Texas Guaranteed) 7,645 5,163
Series B, 7% 8/1/03 (PSF of Texas Guaranteed) 1,325 1,485
San Antonio Elec. & Gas Rev. 5.75% 2/1/11 5,655 5,930
San Antonio Gen. Impt. Rfdg.:
5.50% 8/1/04 2,745 2,925
6% 8/1/08 2,210 2,490
Socorro Independent School Dist. Rfdg. Unltd. Tax
0% 9/1/04 (PSF of Texas Guaranteed) 3,000 2,286
Spring Branch Independent School Dist. Rev. Rfdg.
6.50% 2/1/02 (PSF of Texas Guaranteed) 1,000 1,075
Spring Independent School Dist. Rev. Rfdg.
(Cap. Appreciation) 0% 2/15/07
(PSF of Texas Guaranteed) 5,900 3,985
Texas College Student Loan Gen. Oblig.
5.80% 8/1/05 (b) 2,350 2,459
Texas Pub. Fin. Auth. Series A, 5% 10/1/14 3,375 3,363
Texas State Wtr. Dev. Series E, 5% 8/1/20 6,705 6,591
Univ. of Texas Permanent Univ. Fund 5% 7/1/10 2,495 2,563
Ysleta Independent School Dist. Rfdg. Unltd. Tax
(Cap. Appreciation) 0% 8/15/11
(PSF of Texas Guaranteed) 1,100 578
158,616
UTAH - 3.0%
Intermountain Pwr. Agcy. Pwr. Supply Rev. Rfdg.:
Series A:
6.50% 7/1/08 (AMBAC Insured) 565 652
6.50% 7/1/10 (AMBAC Insured) 1,000 1,168
Series B, 5.75% 7/1/16 (MBIA Insured) 1,000 1,073
Series D, 5% 7/1/21 (MBIA Insured) 3,000 2,952
Series G, 0% 7/1/12 (Pre-Refunded
to 1/1/03 @ 101) (a)(c) 17,000 18,503
Jordan School Dist. 7.625% 6/15/04 1,000 1,174
Salt Lake County Wtr. Conservancy Dist. Rev. Rfdg.
(Cap. Appreciation) Series A, 0% 10/1/06
(AMBAC Insured) 3,500 2,406
Utah Board of Regents Student Loan Rev. Series A,
7.60% 11/1/00 (AMBAC Insured) 4,900 5,197
33,125
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
VIRGINIA - 2.9%
Chesapeake Gen. Oblig. Pub. Impt. 6% 5/1/11
(MBIA Insured) $ 2,400 $ 2,607
Pocahontas Parkway Assoc. (Toll Roads Bridges &
Mass Transit Proj.):
5% 8/15/11 4,000 3,896
5.50% 8/15/28 4,000 3,961
Virginia Hsg. Dev. Auth. Multi-Family Hsg. Series I:
5.75% 5/1/07 (b) 1,380 1,467
5.85% 5/1/08 (b) 1,370 1,461
Virginia Pub. Bldg. Auth. Pub. Facs. Rev. Series A,
5% 8/1/09 14,010 14,573
Virginia Trans. Board Trans. Contract Rev.
(Northern Virginia Trans. Dist.) Series A:
6.75% 5/15/03 1,895 2,110
6.75% 5/15/04 2,020 2,283
32,358
WASHINGTON - 6.2%
King County Gen. Oblig. Series B:
5.75% 12/1/11 6,000 6,549
5.85% 12/1/13 10,980 12,067
Washington Gen. Oblig. Unltd. Tax Rfdg.
Series R, 5.625% 9/1/05 1,450 1,560
Washington Health Care Facs. Auth. Rev.
(Swedish Health Sys.) 5.50% 11/15/12
(AMBAC Insured) 3,000 3,149
Washington Pub. Pwr. Supply Sys.:
Nuclear Proj. #2 Rev. Rfdg.:
Series A, 5% 7/1/09 (MBIA Insured) 5,000 5,092
Series C, 7.50% 7/1/03 (Pre-Refunded to
1/1/01 @ 102) (c) 1,000 1,098
Nuclear Proj. #3 Rev. Rfdg.:
(Cap. Appreciation) Series B:
0% 7/1/04 (MBIA Insured) 5,450 4,181
0% 7/1/05 (MBIA Insured) 10,000 7,290
0% 7/1/07 15,000 9,819
0% 7/1/10 16,000 8,801
0% 7/1/10 2,250 1,237
Series C, 7.50% 7/1/08 (MBIA Insured) (d) 6,940 8,516
69,359
MUNICIPAL BONDS - CONTINUED
PRINCIPAL VALUE (NOTE 1)
AMOUNT (000S) (000S)
WISCONSIN - 0.1%
Beloit Ind. Dev. Rev. Rfdg. (Beloit Corp. Proj.)
7% 12/1/01 $ 800 $ 855
TOTAL MUNICIPAL BONDS
(Cost $1,036,647) 1,095,735
CASH EQUIVALENTS - 1.5%
SHARES (000'S)
Municipal Central Cash Fund (e)(f) (Cost $16,227) 16,227 16,227
TOTAL INVESTMENTS IN SECURITIES- 100%
(Cost $1,052,874) $ 1,111,962
FUTURES CONTRACTS
AMOUNTS IN THOUSANDS EXPIRATION UNDERLYING FACE UNREALIZED DATE
AMOUNT AT VALUE GAIN/(LOSS)
PURCHASED
75 U.S. Treasury Bond Contracts Sept. 1998 $ 9,269 $ 126
THE FACE VALUE OF FUTURES PURCHASED AS A PERCENTAGE OF TOTAL
INVESTMENT IN SECURITIES - 0.8%
LEGEND
(p) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.
(q) Private activity obligations whose interest is subject to the
federal alternative minimum tax for individuals.
(r) Security collateralized by an amount sufficient to pay interest
and principal.
(s) Security or 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 $955,000.
(t) Information in this report regarding holdings by state and
security types do not reflect the holdings of the Municipal Central
Cash Fund. A listing of the Municipal Central Cash Fund's holdings as
of its most recent fiscal period end is available upon request.
(u) At the period end, the seven-day yield of the Municipal Central
Cash Fund was 3.73%. The yield refers to the income earned by
investing in the fund over the seven-day period, expressed as an
annual percentage.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 79.3% AAA, AA, A 69.6%
Baa 9.9% BBB 14.4%
Ba 0.0% BB 0.0%
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 Moody's or S&P 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 37.1%
Health Care 11.5
Electric Revenue 10.9
Education 9.3
Transportation 7.6
Escrowed/Pre-Refunded 7.3
Special Tax 5.2
Others (individually less than 5%) 11.1
TOTAL 100.0%
INCOME TAX INFORMATION
At June 30, 1998, the aggregate cost of investment securities for
income tax purposes was $1,052,874,000. Net unrealized appreciation
aggregated $59,088,000, of which $59,186,000 related to appreciated
investment securities and $98,000 related to depreciated investment
securities.
At December 31, 1997, the fund was required to defer approximately
$4,671,000 of losses on futures contracts.
FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
(EXCEPT PER-SHARE AMOUNT) JUNE 30, 1998 (UNAUDITED)

ASSETS

INVESTMENT IN SECURITIES, AT VALUE (COST $1,052,874) - $ 1,111,962
SEE ACCOMPANYING SCHEDULE

RECEIVABLE FOR FUND SHARES SOLD 667

INTEREST RECEIVABLE 14,507

RECEIVABLE FOR DAILY VARIATION ON FUTURES CONTRACTS 21

OTHER RECEIVABLES 70

TOTAL ASSETS 1,127,227

LIABILITIES

PAYABLE FOR INVESTMENTS PURCHASED $ 7,886

PAYABLE FOR FUND SHARES REDEEMED 1,629

DISTRIBUTIONS PAYABLE 973

ACCRUED MANAGEMENT FEE 348

OTHER PAYABLES AND ACCRUED EXPENSES 185

TOTAL LIABILITIES 11,021

NET ASSETS $ 1,116,206

NET ASSETS CONSIST OF:

PAID IN CAPITAL $ 1,056,513

ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) 479
ON INVESTMENTS

NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS 59,214

NET ASSETS, FOR 112,425 SHARES OUTSTANDING $ 1,116,206

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $9.93
PER SHARE ($1,116,206 (DIVIDED BY) 112,425 SHARES)

STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

INVESTMENT INCOME $ 27,312
INTEREST

EXPENSES

MANAGEMENT FEE $ 1,882

TRANSFER AGENT FEES 531

ACCOUNTING FEES AND EXPENSES 164

NON-INTERESTED TRUSTEES' COMPENSATION 2

CUSTODIAN FEES AND EXPENSES 25

REGISTRATION FEES 111

AUDIT 26

LEGAL 17

MISCELLANEOUS 1

TOTAL EXPENSES BEFORE REDUCTIONS 2,759

EXPENSE REDUCTIONS (37) 2,722

NET INVESTMENT INCOME 24,590

REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:

INVESTMENT SECURITIES 5,491

FUTURES CONTRACTS (308) 5,183

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:

INVESTMENT SECURITIES (6,056)

FUTURES CONTRACTS 129 (5,927)

NET GAIN (LOSS) (744)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ 23,846
FROM OPERATIONS

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997

INCREASE (DECREASE) IN NET ASSETS

OPERATIONS $ 24,590 $ 44,276
NET INVESTMENT INCOME

NET REALIZED GAIN (LOSS) 5,183 4,578

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (5,927) 22,145

NET INCREASE (DECREASE) IN NET ASSETS RESULTING 23,846 70,999
FROM OPERATIONS

DISTRIBUTIONS TO SHAREHOLDERS (24,590) (44,276)
FROM NET INVESTMENT INCOME

FROM NET REALIZED GAIN (655) (4,596)

TOTAL DISTRIBUTIONS (25,245) (48,872)

SHARE TRANSACTIONS 126,908 174,332
NET PROCEEDS FROM SALES OF SHARES

NET ASSET VALUE OF SHARES ISSUED IN EXCHANGE FOR THE 196,898 -
NET ASSETS OF THE FORMER SPARTAN INTERMEDIATE MUNICIPAL
INCOME FUND (NOTE 6)

REINVESTMENT OF DISTRIBUTIONS 19,934 37,663

COST OF SHARES REDEEMED (140,876) (223,107)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING 202,864 (11,112)
FROM SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) IN NET ASSETS 201,465 11,015

NET ASSETS

BEGINNING OF PERIOD 914,741 903,726

END OF PERIOD $ 1,116,206 $ 914,741

OTHER INFORMATION
SHARES

SOLD 12,778 17,854

ISSUED IN EXCHANGE FOR SHARES OF THE FORMER SPARTAN 19,829 -
INTERMEDIATE MUNICIPAL INCOME FUND (NOTE 6)

ISSUED IN REINVESTMENT OF DISTRIBUTIONS 2,009 3,855

REDEEMED (14,194) (22,918)

NET INCREASE (DECREASE) 20,422 (1,209)

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED
JUNE 30, 1998

(UNAUDITED) 1997 1996 1995 1994 1993
SELECTED PER-SHARE DATA

NET ASSET VALUE, BEGINNING $ 9.940 $ 9.700 $ 9.800 $ 8.990 $ 9.990 $ 9.600
OF PERIOD

INCOME FROM INVESTMENT .236 .485 .488 .497 .512 .516
OPERATIONS
NET INTEREST INCOME

NET REALIZED AND (.003) .290 (.069) .810 (.980) .630
UNREALIZED GAIN (LOSS)

TOTAL FROM INVESTMENT .233 .775 .419 1.307 (.468) 1.146
OPERATIONS

LESS DISTRIBUTIONS

FROM NET INTEREST INCOME (.236) (.485) (.488) (.497) (.512) (.516)

FROM NET REALIZED GAIN (.007) (.050) (.031) - (.010) (.220)

IN EXCESS OF NET - - - - (.010) (.020)
REALIZED GAIN

TOTAL DISTRIBUTIONS (.243) (.535) (.519) (.497) (.532) (.756)

NET ASSET VALUE, $ 9.930 $ 9.940 $ 9.700 $ 9.800 $ 8.990 $ 9.990
END OF PERIOD

TOTAL RETURN B, C 2.37% 8.23% 4.43% 14.84% (4.76)% 12.24%

RATIOS AND SUPPLEMENTAL DATA

NET ASSETS, END OF PERIOD $ 1,116 $ 915 $ 904 $ 943 $ 878 $ 1,199
(IN MILLIONS)

RATIO OF EXPENSES TO .53% A, D .55% .56% .57% .56% .57%
AVERAGE NET ASSETS

RATIO OF NET INTEREST 4.80% A 4.97% 5.06% 5.25% 5.42% 5.19%
INCOME TO AVERAGE
NET ASSETS

PORTFOLIO TURNOVER RATE 14% A, E 22% 27% 31% 30% 111%

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).
D FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).
E THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1998 (Unaudited)

1. SIGNIFICANT ACCOUNTING
POLICIES.
Spartan Intermediate Municipal Income Fund (formerly Fidelity Limited
Term Municipal Income Fund) (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
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. 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.
Securities for which quotations are not readily available are valued
at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.
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 substantially 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
among the funds in the trust.
DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net interest 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, which may result in
distribution reclassifications, are primarily due to differing
treatments for futures transactions, market discount and losses
deferred due to futures. 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 and
may affect the per-share allocation between interest income and
realized and unrealized gain (loss). Accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences that will reverse in
1. SIGNIFICANT ACCOUNTING
POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS -
CONTINUED
a subsequent period. 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.
MUNICIPAL CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the Securities and Exchange Commission, the fund may invest in the
Municipal Central Cash Fund (the Cash Fund) managed by Fidelity
Investments Money Management, Inc., (formerly FMR Texas, Inc.) an
affiliate of Fidelity Management & Research Company (FMR). The Cash
Fund is an open-end money market fund available only to investment
companies and other accounts managed by FMR and its affiliates. The
Cash Fund seeks preservation of capital, liquidity, and current income
by investing in high-quality, short-term municipal securities of
various states and municipalities. Income distributions from the Cash
Fund are declared daily and paid monthly from net interest income.
Income distributions earned by the fund are recorded as interest
income in the accompanying financial statements.
WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may
take place a month or more after the date of the transaction. The
price of the underlying securities is fixed at the time the
transaction is negotiated. With respect to purchase commitments, the
fund identifies securities as segregated in its custodial records with
a value at least equal to the amount of the commitment. Losses may
arise due to changes in the market value of the underlying securities,
if the counterparty does not perform under the contract, or if the
issuer does not issue the securities due to political, economic, or
other factors.
FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the bond market and to fluctuations in interest rates.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." 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 or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $71,610,000 and $77,242,000, respectively.
The market value of futures contracts opened and closed during the
period amounted to $47,744,000 and $39,476,000, respectively.
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, 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 .10% 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 annualized rate of .37% of average
net assets.
TRANSFER AGENT AND ACCOUNTING FEES. UMB Bank, n.a. (UMB) is the
custodian and transfer and shareholder servicing agent for the fund.
UMB has entered into a sub-contract with Fidelity Service Company,
Inc. (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 account fees
and asset-based fees that vary according to account size and type of
account. 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, the transfer agent fees were equivalent to an
annualized rate of .10% of average net assets.
5. EXPENSE REDUCTIONS.
Effective March 20, 1998, FMR voluntarily agreed to reimburse the
fund's operating expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) above an annual rate of .53%
of the fund's average net assets through December 31, 1999. For the
period, the reimbursement reduced the expenses by $34,000.
In addition, the fund has entered into an arrangement with its
transfer agent whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of the fund's expenses. During
the period, the fund's transfer agent fees were reduced by $3,000
under this arrangement.
6. MERGER INFORMATION.
On March 19, 1998, Fidelity Limited Term Municipal Income Fund (the
fund) (currently Spartan Intermediate Municipal Income Fund) acquired
all of the assets and assumed all of the liabilities of Spartan
Intermediate Municipal Income Fund. The acquisition, which was
approved by the shareholders of Spartan Intermediate Municipal Income
Fund on March 9, 1998, was accomplished by an exchange of 19,828,609
shares of the fund for the 18,663,326 shares then outstanding (each
valued at $10.55) of Spartan Intermediate
6. MERGER INFORMATION -
CONTINUED
Municipal Income Fund. Based on the opinion of fund counsel, the
reorganization qualified as a tax-free reorganization for federal
income tax purposes with no gain or loss recognized to the funds or
their shareholders. Spartan Intermediate Municipal Income Fund net
assets, including $9,378,552 of unrealized appreciation, were combined
with the fund for total net assets after the acquisition of
$1,132,856,426.
MANAGING YOUR INVESTMENTS

For quotes.*

For account balances and holdings.

To review orders and mutual
fund activity.

To change your PIN.

INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Norm Lind, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Stanley N. Griffith, Assistant Vice President
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
TRANSFER AND SHAREHOLDER
SERVICING AGENT
UMB Bank, n.a.
Kansas City, MO
Fidelity Service Company, Inc.
Boston, MA
* INDEPENDENT TRUSTEES
CUSTODIAN
UMB Bank, n.a.
Kansas City, MO
FIDELITY'S MUNICIPAL BOND FUNDS
Spartan(registered trademark) Aggressive Municipal
Spartan Arizona Municipal Income
Spartan California Municipal Income
Spartan Connecticut Municipal Income
Spartan Florida Municipal Income
Spartan Insured Municipal Income
Spartan Intermediate Municipal Income
Spartan Maryland Municipal Income
Spartan Massachusetts Municipal Income
Spartan Michigan Municipal Income
Spartan Minnesota Municipal Income
Spartan Municipal Income
Spartan New Jersey Municipal Income
Spartan New York Municipal Income
Spartan Ohio Municipal Income
Spartan Pennsylvania Municipal Income
Spartan Short-Intermediate
Municipal Income
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
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(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)
(registered trademark)
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AUTOMATED LINE FOR QUICKEST SERVICE

(2_FIDELITY_LOGOS)FIDELITY

NEW MARKETS INCOME
FUND
SEMIANNUAL REPORT
JUNE 30, 1998
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 11 A SUMMARY OF MAJOR SHIFTS IN THE FUND'S
INVESTMENTS OVER THE PAST SIX MONTHS.

INVESTMENTS 12 A COMPLETE LIST OF THE FUND'S INVESTMENTS
WITH THEIR MARKET VALUES.

FINANCIAL STATEMENTS 19 STATEMENTS OF ASSETS AND LIABILITIES,
OPERATIONS, AND CHANGES IN NET ASSETS,
AS WELL AS FINANCIAL HIGHLIGHTS.

NOTES 23 NOTES TO THE FINANCIAL STATEMENTS.

To reduce expenses and demonstrate respect for our environment, we
have initiated a project through which we will begin eliminating
duplicate copies of most financial reports and prospectuses to most
households, even if they have more than one account in the fund. If
additional copies of financial reports, prospectuses or historical
account information are needed, please call 1-800-544-6666.

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. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance. If Fidelity had not
reimbursed certain expenses, the past five year and life of fund total
returns would have been lower.
CUMULATIVE TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998 PAST 6 PAST 1 PAST 5 LIFE OF
MONTHS YEAR YEARS FUND

FIDELITY NEW MARKETS INCOME -1.74% 1.65% 90.68% 104.24%

JP MORGAN EMERGING MARKETS -1.08% 1.39% N/A N/A
BOND INDEX PLUS

EMERGING MARKETS DEBT FUNDS AVERAGE -2.94% -1.25% 80.85% N/A

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, six months, one year, five
years or since the fund started on May 4, 1993. For example, if you
had invested $1,000 in a fund that had a 5% return over the past year,
the value of your investment would be $1,050. You can compare the
fund's returns to those of the JP Morgan Emerging Markets Bond Index
Plus - a market capitalization weighted total return index of U.S.
dollar- and other external currency-denominated Brady bonds, loans,
Eurobonds, and local market debt instruments traded in emerging
markets. To measure how the fund's performance stacked up against its
peers, you can compare it to the emerging markets debt funds average,
which reflects the performance of mutual funds with similar objectives
tracked by Lipper Analytical Services, Inc. The past six months
average represents a peer group of 39 mutual funds. These benchmarks
reflect reinvestment of dividends and capital gains, if any, and
exclude the effect of sales charges.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED JUNE 30, 1998 PAST 1 PAST 5 LIFE OF
YEAR YEARS FUND

FIDELITY NEW MARKETS INCOME 1.65% 13.78% 14.85%

JP MORGAN EMERGING MARKETS BOND INDEX PLUS 1.39% N/A N/A

EMERGING MARKETS DEBT FUNDS AVERAGE -1.25% 12.57% N/A

AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a slightly different figure than
that obtained by averaging the cumulative total returns and
annualizing the result.)
$10,000 OVER LIFE OF FUND
New Markets Income JP Emg Mkt Bond Index
00331 JP001
1993/05/04 10000.00 10000.00
1993/05/31 10300.87 10333.23
1993/06/30 10710.66 10694.64
1993/07/31 11253.11 11140.58
1993/08/31 11586.74 11364.17
1993/09/30 11955.99 11513.02
1993/10/31 12900.58 12483.31
1993/11/30 13042.02 12358.35
1993/12/31 13883.68 13113.02
1994/01/31 14404.11 13148.55
1994/02/28 12954.23 12054.52
1994/03/31 11006.80 10675.65
1994/04/30 10542.95 10680.55
1994/05/31 11095.86 11418.07
1994/06/30 10464.54 10498.62
1994/07/31 10752.29 10756.51
1994/08/31 11938.20 11525.27
1994/09/30 12528.12 11638.59
1994/10/31 12291.04 11309.04
1994/11/30 12238.94 11424.20
1994/12/31 11585.89 10663.40
1995/01/31 10244.50 10294.64
1995/02/28 9514.84 9758.04
1995/03/31 9213.43 9482.39
1995/04/30 9862.05 10500.46
1995/05/31 10518.02 11425.42
1995/06/30 10659.69 11647.17
1995/07/31 10678.43 11655.74
1995/08/31 11026.21 11930.78
1995/09/30 11455.38 12341.81
1995/10/31 11377.65 12215.01
1995/11/30 11743.18 12642.57
1995/12/31 12509.53 13600.61
1996/01/31 13426.92 14798.16
1996/02/29 12701.78 13758.65
1996/03/31 12839.61 14111.49
1996/04/30 13515.35 14821.44
1996/05/31 13894.84 15005.82
1996/06/30 14254.79 15421.13
1996/07/31 14387.90 15538.74
1996/08/31 14906.81 16042.88
1996/09/30 16125.36 17021.13
1996/10/31 16574.14 17089.13
1996/11/30 17521.71 18045.94
1996/12/31 17687.29 18246.86
1997/01/31 18443.09 18905.97
1997/02/28 18765.22 19245.33
1997/03/31 18014.98 18494.33
1997/04/30 18635.49 19122.21
1997/05/31 19470.77 19890.35
1997/06/30 20091.13 20352.83
1997/07/31 20976.37 21334.15
1997/08/31 20850.07 21124.04
1997/09/30 21518.36 21831.42
1997/10/31 19407.58 19481.84
1997/11/30 20139.53 20516.75
1997/12/31 20786.22 21194.30
1998/01/31 20807.27 21241.78
1998/02/28 21380.86 21765.15
1998/03/31 21984.44 22305.54
1998/04/30 22010.98 22318.35
1998/05/31 21099.35 21652.31
1998/06/30 20423.58 21141.81
IMATRL PRASUN SHR__CHT 19980630 19980713 114222 R00000000000065
$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity New Markets Income Fund on May 4, 1993, when the
fund started. As the chart shows, by June 30, 1998, the value of the
investment would have grown to $20,424 - a 104.24% increase on the
initial investment. For comparison, look at how the JP Morgan Emerging
Markets Bond Index did over the same period. (The JP Morgan Emerging
Markets Bond Index Plus Index does not extend as far back as the
fund's start date, and therefore is not appropriate for this
comparison). With dividends and capital gains, if any, reinvested, the
same $10,000 would have grown to $21,142 - a 111.42% increase.
UNDERSTANDING
PERFORMANCE
MANY MARKETS AROUND THE
GLOBE OFFER THE POTENTIAL FOR
SIGNIFICANT GROWTH OVER TIME;
HOWEVER, INVESTING IN FOREIGN
MARKETS MEANS ASSUMING
GREATER RISKS THAN INVESTING IN
THE UNITED STATES. FACTORS LIKE
CHANGES IN A COUNTRY'S
FINANCIAL MARKETS, ITS LOCAL
POLITICAL AND ECONOMIC CLIMATE,
AND THE FLUCTUATING VALUE OF ITS
CURRENCY CREATE THESE RISKS. FOR
THESE REASONS AN INTERNATIONAL
FUND'S PERFORMANCE MAY BE
MORE VOLATILE THAN A FUND THAT
INVESTS EXCLUSIVELY IN THE UNITED
STATES.
(CHECKMARK)
DIVIDENDS AND YIELD
PERIODS ENDED JUNE 30, 1998 PAST 1 PAST 6 PAST 1
MONTH MONTHS YEAR

DIVIDENDS PER SHARE 11.45(CENTS) 62.76(CENTS) 150.24(CENTS)

ANNUALIZED DIVIDEND RATE 11.14% 9.76% 10.97%

30-DAY ANNUALIZED YIELD 8.67% - -

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
$12.51 over the past one month, $12.97 over the past six months and
$13.69 over the past one year, you can compare the fund's income over
these three periods.
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. 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. It does not reflect the
cost of hedging and other currency gains and losses.
FUND TALK: THE MANAGER'S OVERVIEW

MARKET RECAP
Emerging markets rallied strongly
toward the end of the first quarter.
The primary catalysts were improved
investor confidence, a strong U.S.
equity market and steadily
improving market demand. With
some exceptions, positive
developments in Asia also aided
performance as currencies
stabilized and progress with the
IMF was achieved. However, the
market was unable to maintain its
momentum and suffered a
reversal in the second quarter. An
escalating banking crisis in Japan,
combined with a brewing fiscal
crisis in Russia, increased spread
volatility and caused weakness in
emerging-market debt issues. The
Japanese banking crisis drew
renewed attention as the
government failed to propose a
credible bailout plan. The resulting
pressure on the yen called into
question the export
competitiveness of surrounding
Asian countries as well as that of
the U.S. One positive aspect
regarding the potential pressure
on U.S. corporate earnings was
the disappearance of the Federal
Reserve's motivation to pre-empt
any inflationary signals. Low
U.S. real interest rates continued
to be a favorable backdrop for the
emerging-market debt arena.
Russian debt came under
pressure as investors' attention
turned to the significant reform
challenges the country faces and
the slow progress in addressing
them to date. Lower commodity
prices, especially oil, also put
pressure on the country's
fundamentals. Developments in
Russia carried over to other
markets. Brazil's debt traded lower
as its weak fiscal position once
again raised concerns.
An interview with John Carlson, Portfolio Manager of Fidelity New
Markets Income Fund
Q. HOW DID THE FUND PERFORM, JOHN?
A. For the six months that ended June 30, 1998, the fund returned
- -1.74%. The emerging markets debt funds average, as tracked by Lipper
Analytical Services, returned -2.94% during this time. The J.P. Morgan
Emerging Markets Bond Index Plus returned -1.08%. For the 12 months
that ended June 30, 1998, the fund returned 1.65%, while the Lipper
peer group and J.P. Morgan index returned -1.25% and 1.39%,
respectively.
Q. HOW WOULD YOU DESCRIBE THE INVESTING ENVIRONMENT FOR EMERGING
MARKET DEBT OVER THE PAST SIX MONTHS?
A. The first six months of 1998 were characterized by pronounced
volatility. Yield spreads - which measure the premium an investor pays
for taking on risk - tightened versus U.S. government bonds in the
beginning of the year as sentiment toward Asia turned favorable due to
positive International Monetary Fund (IMF) negotiations. The IMF is an
organization that helps countries stabilize currencies and pay off
debt. However, as the year progressed, a liquidity crisis in Russia
drew widespread attention. Speculation surrounding a possible
devaluation of Russia's currency - the rouble - dragged other emerging
market debt down in sympathy.
Q. ONE YEAR AGO, RUSSIA WAS THE APPLE OF MANY AN EMERGING MARKET
INVESTOR'S EYE. WHAT HAPPENED?
A. Despite having a low external debt load as a percentage of gross
domestic product and exports, Russia's practice of funding budget
deficits with high-yielding, short-term government bonds sent interest
rates skyrocketing and led to a loss of investor confidence. Even with
interest rates of 150%, investors shied away from new issues. As a
major exporter of oil, lower oil prices also compounded Russia's
problems during the period.
Q. WHAT TYPES OF STRATEGIES DID YOU UTILIZE DURING THE PERIOD?
A. There were a few. First, I positioned the fund conservatively
during the period believing there would be a second downtick in the
Asian markets that would have ramifications across all emerging-market
debt. The fund was overweighted - relative to its index - in
collateralized bonds, or Brady bonds. These U.S.-dollar-denominated
issues are backed by U.S. Treasury bonds. Second, I overweighted the
fund's positions in Poland and Bulgaria relative to the index. Poland
has experienced high growth amid lower inflation, while Bulgaria
presented a higher-quality opportunity in the market. Bulgaria has
successfully completed privatizations, maintained low borrowing
requirements and has managed to keep interest rates low.
Q. WHICH POSITIONS CONTRIBUTED POSITIVELY TO THE FUND'S PERFORMANCE?
A. Overweighted positions in Poland and Bulgaria helped performance.
Spreads for Poland's debt tightened during the period as investors
recognized the country's growth prospects were mostly insulated from
the deteriorating Russian credit market. Bulgarian issues traded
higher as evidence of positive monetary and fiscal developments became
apparent. Turkey also contributed to performance on strong economic
growth in addition to IMF supervision. Additionally, declining oil
prices decreased Turkey's cost of imports. Having a lower exposure to
Venezuela - relative to the index - also helped as lower oil prices
continued to undermine the country's fiscal position.
Q. WERE THERE ANY POSITIONS THAT FAILED TO MEET YOUR EXPECTATIONS?
A. Lower relative weightings in both Mexico and Argentina hurt
performance, as both markets came on strong during the last three
months of the period. The fund was underweighted in Mexico because
return prospects - while improving - did not appear to support lofty
prices for the debt. While I was attracted to Argentina, I
underestimated its strength. Finally, an overweighting in Brazil and
Russia detracted from the fund's return.
Q. WHAT'S YOUR OUTLOOK?
A. Over the past six months, we've weathered some extreme market
conditions, including bull runs, chaotic economic downturns and
sideways moves. None of these events included scenarios I have not
seen before. Our experienced analysts and traders helped us uncover
values over the past six months, and I will continue to rely on them
for insights going forward. Specifically, I'll be watching
developments in three key markets very closely: Russia, China and
Japan. While Japan is not an emerging-market country, it is a powerful
Asian economy with significant influence on emerging market debt.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.

JOHN CARLSON TALKS ABOUT
EMERGING-MARKET EQUITIES:
"As many emerging markets
tumbled due to the faltering Asian
and Russian economies,
emerging-market equities -
which had long played second
fiddle to emerging-market debt -
displayed attractive valuation
profiles. As a result, the fund's
equity stake increased from 0% at
the beginning of the period to
around 3% of investments at the
end of June.
"Three equity positions accounted
for that total: Telebras, Huaneng
Power and YPF. Telebras is a large
Brazilian telecommunications
company that plans to go through a
privatization process this summer.
China-based Huaneng Power is
one of the world's largest
independent power producers and
YPF is a major international oil
producer based in Argentina.
"Buoyed by strong research, I felt
both of these positions were
attractively valued and would be a
nice fit for the portfolio."
FUND FACTS
GOAL: a high level of current
income by investing primarily
in debt securities and other
instruments of issuers in
emerging markets; as a
secondary objective, the fund
may seek capital appreciation
FUND NUMBER: 331
TRADING SYMBOL: FNMIX
START DATE: May 4, 1993
SIZE: as of June 30, 1998,
more than $292 million
MANAGER: John Carlson, since
1995; also lead manager,
Fidelity International Bond
Fund, since February 1998,
Fidelity Strategic Income Fund,
since May 1998; joined
Fidelity in 1995
(checkmark)
INVESTMENT CHANGES

TOP FIVE COUNTRIES AS OF JUNE 30, 1998
(EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE COUNTRIES
6 MONTHS AGO

ARGENTINA 22.8 15.8

BRAZIL 15.5 19.1

MEXICO 12.8 9.9

RUSSIA 10.0 7.1

TURKEY 5.3 3.9

TOP COUNTRIES ARE BASED UPON LOCATION OF ISSUER OF EACH SECURITY,
INCLUDING WHERE THE FUND IS EXPOSED TO POTENTIAL POLITICAL AND CREDIT
RISKS.
TOP FIVE HOLDINGS AS OF JUNE 30, 1998

<TABLE>
<CAPTION>
<S> <C> <C>
(BY ISSUER, EXCLUDING CASH EQUIVALENTS) % OF FUND'S % OF FUND'S INVESTMENTS
INVESTMENTS IN THESE HOLDINGS
6 MONTHS AGO

ARGENTINIAN REPUBLIC 18.6 12.5

BRAZILIAN FEDERATIVE REPUBLIC 11.6 18.6

BANCO NACIONAL DE COMERCIO EXTERIOR SNC 6.8 3.1

UNITED MEXICAN STATES 6.0 5.8

TURKISH REPUBLIC 5.3 3.9

</TABLE>

AVERAGE YEARS TO MATURITY AS OF JUNE 30, 1998
6 MONTHS AGO

YEARS 15.7 15.9

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.
ASSET ALLOCATION (% OF FUND'S INVESTMENTS)
AS OF JUNE 30, 1998 AS OF DECEMBER 31, 1997

CORPORATE BONDS 11.8%
FOREIGN GOVERNMENT
OBLIGATIONS 77.1%
OTHER 9.6%
SHORT-TERM
INVESTMENTS 1.5%
CORPORATE BONDS 8.4%
FOREIGN GOVERNMENT
OBLIGATIONS 71.4%
OTHER 9.9%
SHORT-TERM
INVESTMENTS 10.3%
ROW: 1, COL: 1, VALUE: 11.8
ROW: 1, COL: 2, VALUE: 77.09999999999999
ROW: 1, COL: 3, VALUE: 9.6
ROW: 1, COL: 4, VALUE: 1.5
ROW: 1, COL: 1, VALUE: 8.4
ROW: 1, COL: 2, VALUE: 71.40000000000001
ROW: 1, COL: 3, VALUE: 9.9
ROW: 1, COL: 4, VALUE: 10.3

INVESTMENTS JUNE 30, 1998 (UNAUDITED)

SHOWING PERCENTAGE OF TOTAL VALUE OF INVESTMENT IN SECURITIES

NONCONVERTIBLE BONDS - 11.8%
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
ARGENTINA - 2.9%
Compania Internacional Telecomunicaciones
10 3/8%, 8/1/04 (Reg. S) BB ARS 2,800,000 $ 2,275,319
Compania Latinoamericana de Infraestructura
& Servicios SA:
11 5/8%, 6/1/04 (g) BB- 2,515,000 2,489,850
11 5/8%, 6/1/04 BB- 640,000 633,600
Mastellone Hermanos SA
11 3/4%, 4/1/08 (g) B1 3,060,000 3,044,700
8,443,469
BRAZIL - 1.2%
Banco Nac de Desen Econo
10.30%, 6/16/08 (f)(g) B1 3,310,000 3,303,380
DOMINICAN REPUBLIC - 0.9%
Tricom SA 11 3/8%, 9/1/04 B2 2,697,000 2,568,893
MEXICO - 6.8%
Banco Nacional de Comercio Exterior SNC
11 1/4%, 5/30/06 (Reg.) Ba2 17,500,000 19,337,500
TOTAL NONCONVERTIBLE BONDS
(Cost $34,928,593) 33,653,242
FOREIGN GOVERNMENT OBLIGATIONS (H) - 77.1%
ARGENTINA - 19.8%
Argentinian Republic:
Brady par euro 5 3/4%, 3/31/23 (e) Ba3 32,045,000 23,815,378
BOCON:
3.29%, 4/1/01 (f) Ba3 ARS 3,043,116 2,711,382
3.29%, 4/1/07 (f) Ba3 ARS 11,548,655 8,087,674
global bond:
8.7260%, 4/10/05 (f) Ba3 1,860,000 1,860,000
11 3/8%, 1/30/17 Ba3 9,725,000 10,332,813
9 3/4%, 9/19/27 Ba3 1,750,000 1,616,563
11 3/4%, 2/12/07 Ba3 ARS 4,070,000 3,846,689
11 3/4%, 2/12/07 (g) Ba3 ARS 1,000,000 945,132
City of Buenos Aires euro 10 1/2%, 5/28/04 B1 ARS 3,890,000
3,268,058
56,483,689
FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
BRAZIL - 11.6%
Brazilian Federative Republic Brady:
new money bond 6.6875%, 4/15/09 (Reg.) (f) B1 $ 4,280,000 $
3,252,800
capitalization bond 8%, 4/15/14 B1 27,798,635 20,431,997
discount euro 6 5/8%, 4/15/24 (f) B1 12,340,000 9,501,800
33,186,597
BULGARIA - 5.3%
Bulgarian Republic Brady (f):
FLIRB A 2 1/4%, 7/28/12 B2 5,645,000 3,499,900
discount 6.5625%, 7/28/24 B2 15,330,000 11,727,450
15,227,350
COTE D'IVOIRE - 2.7%
Ivory Coast Brady (f)(g):
past due interest 2%, 3/30/18 - 15,456,000 5,738,040
FLIRB 2%, 3/30/18 - 5,646,000 1,849,065
7,587,105
DOMINICAN REPUBLIC - 1.0%
Dominican Republic Brady
6 5/8%, 8/30/09 (f) B1 3,606,400 2,871,596
ECUADOR - 3.5%
Ecuador Republic Brady:
par euro 3 1/2%, 2/28/25 (e) B1 8,410,000 4,525,631
discount euro 6 5/8%, 2/28/25 (f) B1 7,880,000 5,476,600
10,002,231
GREECE - 0.8%
Greek Government Treasury Bill 0%, 4/29/99 (i) - GRD 756,000
2,274,600
JORDAN - 0.9%
Kingdom of Jordan 5%, 12/23/23 (f) Ba3 3,920,000 2,724,400
LEBANON - 0.3%
Lebanese Treasury Bill 0%, 10/29/98 (i) - LBP 1,304,000 827,238
FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
MEXICO - 6.0%
Mexico Value recovery rights:
6/30/03 discount A - $ 2,000 $ -
6/30/03 discount C - 1,000 -
United Mexican States Brady:
par A 6 1/4%, 12/31/19 unit Ba2 8,850,000 7,334,438
par B 6 1/4%, 12/31/19 unit Ba2 11,825,000 9,799,969
17,134,407
PANAMA - 2.6%
Panamanian Republic:
Brady par 3 1/4%, 7/17/26 (e) Ba1 9,137,000 5,984,735
6.5625%, 7/17/26 (f) Ba1 1,770,000 1,539,900
7,524,635
PERU - 1.9%
Peruvian Republic Brady FLIRB (f):
3 1/4%, 3/7/17 (g) B2 825,000 460,969
3 1/4%, 3/7/17 B2 8,895,000 4,970,081
5,431,050
POLAND - 4.6%
Polish Government:
23.18%, 5/6/01 (f) A- PLN 10,040,000 2,882,145
Brady par 3%, 10/27/24 (e) Baa3 15,410,000 10,189,863
13,072,008
RUSSIA - 4.9%
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) interest notes
6 5/8%, 12/15/15 (f)(g) B1 871 483
Moscow City 9 1/2%, 5/31/00 (Reg.) B1 4,990,000 4,297,638
Russian Government 11 3/4%, 6/10/03 (g) B+ 10,950,000 9,677,063
13,975,184
TURKEY - 5.3%
Turkish Republic Treasury Bill (d):
0%, 8/12/98 - TRL 1,170,130 4,050,698
0%, 9/16/98 - TRL 1,661,030 5,178,526
0%, 1/27/99 - TRL 2,306,290 6,018,565
15,247,789
FOREIGN GOVERNMENT OBLIGATIONS (H) - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
VENEZUELA - 5.3%
Venezuelan Republic:
Brady:
debt conversion bond 6 5/8%, 12/18/07 (f) Ba2 $ 8,571,436 $
6,975,006
discount A 6.5625%, 3/31/20 (f) Ba2 3,500,000 2,861,250
par A euro 6 3/4%, 3/31/20 Ba2 6,560,000 5,264,400
Oil recovery rights 3/31/20 (a) - 32,825 -
15,100,656
VIETNAM - 0.6%
Socialist Republic of Vietnam Brady
3%, 3/12/28 (e) - 4,970,000 1,801,625
TOTAL FOREIGN GOVERNMENT OBLIGATIONS
(Cost $226,166,962) 220,472,160
SOVEREIGN LOAN PARTICIPATIONS - 6.4%
ANGOLA - 0.6%
Banco Nacional de Angola
0%, 9/10/27 (London) - 4,922,048 1,722,717
CAMEROON - 0.4%
Cameroon Republic loan participation:
- Societe Generale - FRF 6,240,000 298,491
- Societe Generale - DEM 4,510,000 723,396
1,021,887
CONGO - 0.3%
Congo Republic loan participation:
- Societe Generale - 2,334,878 677,115
- Societe Generale - FRF 2,765,958 132,310
- Societe Generale - DEM 849,310 136,228
945,653
RUSSIA - 5.1%
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) loan participation
restructured under 1997 Agreement (f):
- Bank Boston 6.7188%, 12/15/20 - 5,840,000 2,759,400
- The Chase Manhattan Bank
6 5/8%, 12/15/20 - 2,520,000 1,190,700
SOVEREIGN LOAN PARTICIPATIONS - CONTINUED
MOODY'S PRINCIPAL VALUE
RATINGS (B) AMOUNT (C) (NOTE 1)
RUSSIA - CONTINUED
Bank for Foreign Economic Affairs of Russia
(Vnesheconombank) loan participation
restructured under 1997 Agreement (f): - continued
- Deutsche Bank 6.7188%, 12/15/20 - $ 12,230,000 $ 5,778,675
- ING Bank NV 6 5/8%, 12/15/20 - 3,850,000 1,819,125
- Lehman Commercial Paper, Inc.
6.7188%, 12/15/20 - 950,000 448,875
- Merrill Lynch, Pierce, Fenner & Smith, Inc.
6.7188%, 12/15/20 - 590,000 278,775
- Morgan (J.P.) Securities, Inc.
6 5/8%, 12/15/20 - 1,790,000 845,775
- Paribus Capital Markets
6.7188%, 12/15/20 - 3,270,000 1,545,075
14,666,400
TOTAL SOVEREIGN LOAN PARTICIPATIONS
(Cost $20,944,674) 18,356,657
COMMON STOCKS - 3.2%
SHARES

ARGENTINA - 0.1%
YPF Sociedad Anonima sponsored ADR
representing Class D shares 11,100 331,751
BRAZIL - 2.7%
Telecomunicacoes Brasileiras SA sponsored ADR 70,900 7,741,394
CHINA - 0.4%
Huaneng Power International, Inc.
Class N sponsored ADR (a) 78,300 1,052,156
TOTAL COMMON STOCKS
(Cost $9,567,643) 9,125,301
CASH EQUIVALENTS - 1.5%
MATURITY VALUE
AMOUNT (NOTE 1)
Investments in repurchase agreements
(U.S. Treasury obligations), in a joint
trading account at 5.66%, dated
6/30/98 due 7/1/98
(Cost $4,224,000) $ 4,224,664 $4,224,000
TOTAL INVESTMENT IN SECURITIES - 100%
(Cost $295,831,872) $ 285,831,360
SECURITY TYPE ABBREVIATIONS
FLIRB - Front Loaded Interest Reduction
Bonds
CURRENCY ABBREVIATIONS
ARS - Argentine peso
FRF - French franc
DEM - German deutsche mark
GRD - Greek drachma
LBP - Lebanese pound
PLN - Polish zloty
TRL - Turkish lira
LEGEND
(a) Non-income producing
(b) Principal amount is stated in United States dollars unless
otherwise noted.
(c) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.
(d) Principal amount in millions.
(e) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.
(f) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.
(g) 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
$27,508,682 or 9.4% of net assets.
(h) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed are assigned to securities by FMR, the
fund's investment adviser, based principally on S&P and Moody's
ratings of the sovereign credit of the issuing government.
(i) Principal amount in thousands.
OTHER INFORMATION
The composition of long-term debt holdings as a percentage of total
value of investment in securities, is as follows:
MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 0.0% AAA, AA, A 1.0%
Baa 3.6% BBB 9.0%
Ba 40.3% BB 47.6%
B 29.1% B 11.6%
Caa 0.0% CCC 0.0%
Ca, C 0.0% CC, C 0.0%
D 0.0%
For some foreign government obligations, FMR has assigned the ratings
of the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 9.7%. FMR has determined that
unrated debt securities that are lower quality account for 9.7% of the
total value of investment in securities.
MARKET SECTOR DIVERSIFICATION
As a Percentage of Total Value of Investment in Securities
Cash Equivalents 1.5%
Construction & Real Estate 1.1
Energy 0.1
Finance 7.9
Foreign Government Obligations 77.1
Nondurables 1.1
Sovereign Loan Participations 6.4
Utilities 4.8
100.0%
INCOME TAX INFORMATION
At June 30, 1998, the aggregate cost of investment securities for
income tax purposes was $298,141,043. Net unrealized depreciation
aggregated $12,309,683 of which $3,310,330 related to appreciated
investment securities and $15,620,013 related to depreciated
investment securities.
FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 (UNAUDITED)

ASSETS

INVESTMENT IN SECURITIES, AT VALUE (INCLUDING REPURCHASE $ 285,831,360
AGREEMENTS OF $4,224,000) (COST $295,831,872) -
SEE ACCOMPANYING SCHEDULE

FOREIGN CURRENCY HELD AT VALUE (COST $428) 428

RECEIVABLE FOR INVESTMENTS SOLD 18,426,010

RECEIVABLE FOR FUND SHARES SOLD 347,868

INTEREST RECEIVABLE 4,374,397

REDEMPTION FEES RECEIVABLE 602

TOTAL ASSETS 308,980,665

LIABILITIES

PAYABLE TO CUSTODIAN BANK $ 804,160

PAYABLE FOR INVESTMENTS PURCHASED 11,581,532

PAYABLE FOR FUND SHARES REDEEMED 2,635,299

DISTRIBUTIONS PAYABLE 204,335

ACCRUED MANAGEMENT FEE 176,599

OTHER PAYABLES AND ACCRUED EXPENSES 1,048,226

TOTAL LIABILITIES 16,450,151

NET ASSETS $ 292,530,514

NET ASSETS CONSIST OF:

PAID IN CAPITAL $ 312,240,976

UNDISTRIBUTED NET INVESTMENT INCOME 1,663,446

ACCUMULATED UNDISTRIBUTED NET REALIZED GAIN (LOSS) ON (11,352,195)
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS

NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENTS (10,021,713)
AND ASSETS AND LIABILITIES IN FOREIGN CURRENCIES

NET ASSETS, FOR 24,095,772 SHARES OUTSTANDING $ 292,530,514

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE $12.14
PER SHARE ($292,530,514 (DIVIDED BY) 24,095,772 SHARES)

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)

INVESTMENT INCOME $ 19,455,561
INTEREST

LESS FOREIGN TAXES WITHHELD (430,092)

TOTAL INCOME 19,025,469

EXPENSES

MANAGEMENT FEE $ 1,178,646

TRANSFER AGENT FEES 386,936

ACCOUNTING FEES AND EXPENSES 129,707

NON-INTERESTED TRUSTEES' COMPENSATION 707

CUSTODIAN FEES AND EXPENSES 79,724

REGISTRATION FEES 33,439

AUDIT 35,958

LEGAL 5,909

INTEREST 392

MISCELLANEOUS 20,054

TOTAL EXPENSES BEFORE REDUCTIONS 1,871,472

EXPENSE REDUCTIONS (8,954) 1,862,518

NET INVESTMENT INCOME 17,162,951

REALIZED AND UNREALIZED GAIN (LOSS)
NET REALIZED GAIN (LOSS) ON:

INVESTMENT SECURITIES (1,837,413)

FOREIGN CURRENCY TRANSACTIONS (146,548)

WRITTEN OPTIONS 961,514 (1,022,447)

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON:

INVESTMENT SECURITIES (20,038,505)

ASSETS AND LIABILITIES IN FOREIGN CURRENCIES 63,492 (19,975,013)

NET GAIN (LOSS) (20,997,460)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING $ (3,834,509)
FROM OPERATIONS

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997

INCREASE (DECREASE) IN NET ASSETS

OPERATIONS $ 17,162,951 $ 29,226,827
NET INVESTMENT INCOME

NET REALIZED GAIN (LOSS) (1,022,447) 36,931,214

CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) (19,975,013) (13,489,997)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING (3,834,509) 52,668,044
FROM OPERATIONS

DISTRIBUTIONS TO SHAREHOLDERS (16,616,591) (36,824,907)
FROM NET INVESTMENT INCOME

FROM NET REALIZED GAIN - (23,562,318)

TOTAL DISTRIBUTIONS (16,616,591) (60,387,225)

SHARE TRANSACTIONS 60,102,575 279,802,013
NET PROCEEDS FROM SALES OF SHARES

REINVESTMENT OF DISTRIBUTIONS 15,349,670 56,096,039

COST OF SHARES REDEEMED (143,508,610) (258,266,914)

NET INCREASE (DECREASE) IN NET ASSETS RESULTING (68,056,365) 77,631,138
FROM SHARE TRANSACTIONS

REDEMPTION FEES 203,322 777,898

TOTAL INCREASE (DECREASE) IN NET ASSETS (88,304,143) 70,689,855

NET ASSETS

BEGINNING OF PERIOD 380,834,657 310,144,802

END OF PERIOD (INCLUDING UNDISTRIBUTED NET INVESTMENT $ 292,530,514 $ 380,834,657
INCOME OF $1,663,446 AND $1,117,086, RESPECTIVELY)

OTHER INFORMATION
SHARES

SOLD 4,613,701 20,050,430

ISSUED IN REINVESTMENT OF DISTRIBUTIONS 1,190,673 4,190,974

REDEEMED (11,080,945) (18,794,517)

NET INCREASE (DECREASE) (5,276,571) 5,446,887

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, MAY 4, 1993
JUNE 30, 1998 (COMMENCEMENT
OF OPERATIONS) TO
DECEMBER 31,

(UNAUDITED) 1997 1996 1995 1994 1993
SELECTED PER-SHARE DATA

NET ASSET VALUE, $ 12.970 $ 12.960 $ 9.950 $ 10.190 $ 13.070 $ 10.000
BEGINNING OF PERIOD

INCOME FROM INVESTMENT .649 D 1.065 D .866 1.222 .573 .486 D
OPERATIONS
NET INVESTMENT INCOME

NET REALIZED AND (.859) 1.105 3.035 (.583) (2.687) 3.302
UNREALIZED GAIN (LOSS)

TOTAL FROM INVESTMENT (.210) 2.170 3.901 .639 (2.114) 3.788
OPERATIONS

LESS DISTRIBUTIONS

FROM NET INVESTMENT (.628) (1.318) (.932) (.916) (.529) (.486)
INCOME

IN EXCESS OF NET - - - - (.057) (.062)
INVESTMENT INCOME

FROM NET REALIZED GAIN - (.870) - - (.180) (.170)

TOTAL DISTRIBUTIONS (.628) (2.188) (.932) (.916) (.766) (.718)

REDEMPTION FEES ADDED .008 .028 .041 .037 - -
TO PAID IN CAPITAL

NET ASSET VALUE, $ 12.140 $ 12.970 $ 12.960 $ 9.950 $ 10.190 $ 13.070
END OF PERIOD

TOTAL RETURN B, C (1.74)% 17.52% 41.39% 7.97% (16.55)% 38.84%

RATIOS AND SUPPLEMENTAL DATA

NET ASSETS, END OF $ 292,531 $ 380,835 $ 310,145 $ 176,499 $ 179,114 $ 286,593
PERIOD (000 OMITTED)

RATIO OF EXPENSES TO 1.10% A 1.08% 1.09% 1.17% 1.28% E 1.24% A, E
AVERAGE NET ASSETS

RATIO OF EXPENSES TO 1.09% A, F 1.08% 1.09% 1.17% 1.28% 1.24% A
AVERAGE NET ASSETS
AFTER EXPENSE
REDUCTIONS

RATIO OF NET INVESTMENT 10.06% A 7.56% 7.68% 9.51% 5.87% 6.29% A
INCOME TO AVERAGE
NET ASSETS

PORTFOLIO TURNOVER RATE 400% A 656% 405% 306% 409% 324% A

</TABLE>

A ANNUALIZED
B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.
C THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
E FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.
F FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).
NOTES TO FINANCIAL STATEMENTS
For the period ended June 30, 1998 (Unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES.
Fidelity New Markets Income Fund (the fund) is a fund of Fidelity
School Street Trust (the trust) (formerly a fund of Fidelity
Investment 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 financial
statements have been prepared in conformity with generally accepted
accounting principles which require management to make certain
estimates and assumptions at the date of the financial statements. The
following summarizes the significant accounting policies of the fund:
SECURITY VALUATION. Securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price in the principal market in which such securities
are normally traded. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.
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.
Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
date and settlement on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities 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
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund accrues such taxes as applicable. The schedule of investments
1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES - CONTINUED
includes information regarding income taxes under the caption "Income
Tax Information."
INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned. Interest income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain.
EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among 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, which may result in
distribution reclassifications, are primarily due to differing
treatments for foreign currency transactions, market discount and
losses deferred due to wash sales. 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.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
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.
SHORT-TERM TRADING (REDEMPTION) FEES. Shares held in the fund less
than 180 days are subject to a short-term trading fee equal to 1% 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.
FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. 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 foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.
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 Fidelity Management & Research Company
(FMR), may transfer uninvested cash balances into one or more joint
trading
2. OPERATING POLICIES - CONTINUED
JOINT TRADING ACCOUNT - CONTINUED
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.
REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.
OPTIONS. The fund may use options to manage its exposure to the bond
market and to fluctuations in interest rates and currency values.
Writing puts and buying calls tend to increase the fund's exposure to
the underlying instrument. 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. Gains and losses are realized upon the expiration or
closing of the options. Realized gains (losses) on purchased options
are included in realized gains (losses) on investment securities .
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.
RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $18,356,657 or 6.3% of net
assets.
3. PURCHASES AND SALES OF INVESTMENTS.
Purchases and sales of securities, other than short-term securities,
aggregated $590,987,090 and $631,143,449, respectively.
The following is a summary of the fund's written options activity:
NUMBER OF AGGREGATE FACE VALUE
CONTRACTS OF CONTRACTS
Call Options:
Outstanding at December 31, 1997 - $ -
Contracts opened 26,118,611 2,244,889
Contracts expired (113,557) (1,953)
Contracts closed (26,005,054) (2,242,936)
Outstanding at June 30, 1998 - $ -
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.
MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .55%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .69% of average net
assets.
SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., and Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research services and may grant the
sub-advisers investment management authority to buy and sell
securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services.
FIIA pays FIIA(U.K.)L a fee based on costs incurred for either
service.
TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED
TRANSFER AGENT FEES - CONTINUED
statements. For the period, the transfer agent fees were equivalent to
an annualized rate of .23% of average net assets.
ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.
5. BANK BORROWING.
The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balance during the period for which the loan was outstanding amounted
to $2,452,000. The weighted average interest rate was 5.75%.
6. EXPENSE REDUCTIONS.
The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$5,854 and $3,100, respectively, under these arrangements.
7. CREDIT RISK.
The fund's relatively large investment in countries with limited or
developing capital markets may involve greater risks than investments
in more developed markets and the prices of such investments may be
volatile. The yields of emerging market debt obligations reflect,
among other things, perceived credit risk. The consequences of
political, social or economic changes in these markets may have
disruptive effects on the market prices of the fund's investments and
the income they generate, as well as the fund's ability to repatriate
such amounts.
8. LITIGATION.
The fund is engaged in litigation against the obligor on the inflation
adjusted debt of Siderurgica Brasileiras SA, contesting the
calculation of the principal adjustment. The probability of success of
this litigation cannot be predicted and the amount of recovery cannot
be estimated. Any recovery from this litigation would inure to the
benefit of the fund. As of period end, the fund no longer holds
Siderurgica Brasileiras SA debt securities.
MANAGING YOUR INVESTMENTS

For quotes.*

For account balances and holdings.

To review orders and mutual
fund activity.

To change your PIN.

INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
Fidelity International Investment
Advisors
Fidelity International Investment
Advisors (U.K.) Limited
Fidelity Investments Japan Limited
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
John H. Carlson, Vice President
Bart A. Grenier, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA
* INDEPENDENT TRUSTEES
TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Chase Manhattan Bank
New York, NY
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Target Timeline 1999, 2001 & 2003
SM
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